TUESDAY 13 FEBRUARY 2001 _________ Members present: Mr Hilary Benn Mr Crispin Blunt Mr Tom Brake Christine Butler Mr John Cummings Mr Brian H Donohoe Mrs Louise Ellman In the absence of the Chairman, Mrs Dunwoody was called to the Chair. _________ EXAMINATION OF WITNESSES THE RT HON MICHAEL MEACHER, a Member of the House, Minister for the Environment, and MR ALAN DAVIS, Director of Water and Land Directorate, DETR, examined. Mrs Dunwoody 466. Good morning, Minister. It is always not only a pleasure but a frequent delight to have you before this Committee. May I ask you if you have any general remarks you wish to make? I think we can take it we know who you are. (Mr Meacher) Thank you very much indeed for that felicitous welcome. I have no general comments, particularly since I am aware that I am coming at the end of your questioning and I think it would be superfluous particularly on this occasion. 467. May I say quite seriously this Committee values your contributions. You have come here before us on a range of subjects and every one of us appreciates not only the breadth and the intelligence of your involvement and understanding of the subject for which you are responsible but the fact that you are so open and helpful to us. If we work you over, it is done with affection and love. (Mr Meacher) I do not think I have ever heard such nice words said about me before. 468. As I did say to the previous Chief Whip who is now in the House of Lords the other day, "You had better be careful; you are in danger of paying me the first compliment for 30 years." Does the government have a coherent view, dare one ask, of how it wishes the water sector to develop? (Mr Meacher) I hope so. That is your prerogative to make a judgment on. This is the second Water Bill that we have had under this administration. The purpose is to carry further the proposals that we committed ourselves to at the water summit which John Prescott initiated in the first three weeks when we came into office. Several of the items in this particular Bill reflect that ten point plan, the new statutory duty to conserve water. We have been consulting for a considerable time about the need for abstraction licensing because questionably there has been excess abstraction with damaging environmental consequences in the past. There is, as you know, considerable interest throughout the industry in restructuring which probably reflects the response to the last periodic review which was a tough periodic review but we think got the balance right; and there are the competition provisions which are not yet finalised but which we do intend to put into this Bill. We hope that, as a composite package, that is balancing the need to promote efficiency with at the same time the public interest to ensure equity and environmental protection. 469. You will not be surprised if we have some lacunae to point out to you at the end of our sessions, will you? (Mr Meacher) I will not. Mr Benn 470. Will the new Consumer Council have to meet in public? (Mr Meacher) I think it is a matter for it to decide. I would strongly be in favour of that. All of these bodies should meet publicly unless there are overriding reasons why they should not. If they were handling commercially sensitive information and they could not do so, it would have to be a private session, but I think it is unlikely that that would be the case very often, if at all. 471. In that case, should not the legislation make that absolutely clear: that they do meet in public unless they are dealing with items which are confidential like local authorities, for instance? (Mr Meacher) We could. I think it is unusual for legislation to specify that a body shall meet in public, but I am perfectly prepared to consider that. 472. You will probably be aware that the Consumers' Association and the Ofwat National Customer Council have both expressed some concern about the way in which the Bill is currently drafted in relation to the Consumer Council's ability to publish information. They have expressed to us, including this morning, a fear that the Council might feel constrained by this requirement to have regard to whether the publication of information would seriously or prejudicially affect the interests of an individual body. Can you offer us any reassurance this morning that this will not act as a fetter on the Council's ability effectively to represent the interests of consumers? (Mr Meacher) I would like to do so. I believe that that constraint that you have spelt out is a reasonable one. I think we are talking about a very unusual situation. I do not think you would recommend that it should publish information which significantly or prejudicially affects the interests of other bodies. It is certainly not intended as a fetter. Again, I am happy to look at ways of wording the draft legislation in order to ensure that that is not the result. It is not meant to prevent the Consumer Council being open, transparent and providing all the information publicly which it believes it should. 473. What if the Regulator were to say to the Consumer Council, "You have asked for this information but I am not going to give it to you"? How does that situation get dealt with? (Mr Meacher) The key point in this legislation is that for the first time the Consumer Council will be independent. There have been claims in the past that the Consumer Council was too dependent on the Regulator. We are making very clear that they are a sovereign body in their own right. They are not dependent on the Regulator and not appointed by him. They would have to take account of what he said. If they felt that he was seeking to restrict the provision of information that they properly needed, they could appeal to the Secretary of State. After all, it is the Secretary of State who appoints them, who is the guardian of their existence and the protector of their rights. I hope that situation will not arise but if it does he would be the person to consider their interests. 474. You will probably be aware that both the bodies I referred to have suggested that in the event of a disagreement about the provision of information they might appeal to a third party other than the Secretary of State. The suggestion has been made of the Information Commissioner. Do you have a view, if there is going to be a third party right of appeal, as to where that might most properly go? (Mr Meacher) That is another option. Since I think we are always generally against appeals to the Secretary of State, if there were a better, more straightforward channel, and this is specifically in regard to the provision of information, that probably is a better option. Christine Butler 475. Could not the Bill give powers to the new Council so that it may receive all information within its remit directly from the water companies and it was truly independent of the Regulator? Would you be amenable to looking at that in the legislation? (Mr Meacher) The premise behind the question is that the water companies might be unwilling to provide certain information to the Consumer Council. Mrs Dunwoody: Of course, you cannot contemplate that, can you? Christine Butler 476. The Regulator has to have an awful lot of information from them. Why do we not give the same strength of powers -- it may not be as much because they would not be covering such a wide field as the Regulator -- but in as much as their remit exists why can they not have that information direct from the water companies? If it is a problem, then and only then may they have to appeal. I do not think that would be very often, under those circumstances. (Mr Meacher) The water companies are required to provide information to the Regulator, including commercially sensitive information, in order that he can carry out his proper function with regard to the pricing structure within the industry. There would be strong objection from the water companies in providing all information of whatsoever kind, including price sensitive information, to this independent Council. I am not sure that in order to carry out their proper functions they need such information. 477. But do they not need a discretion? Surely, if you have an independent body, it needs to have its own discretionary powers and not to be told what is price sensitive, what is a commercial secret, do not do this, you can only speak about that by a Regulator from whom it is supposed to be completely independent. (Mr Meacher) I would expect water companies to provide information wherever they can to the Council. If they believed that there was a restraint on that information without due cause, just going back to the previous question from Mr Benn, they can either appeal to the Secretary of State or perhaps more appropriately to the Information Commissioner. That should ensure that they can get the information which they need properly to carry out their function. 478. Therefore, would the duty be on the water companies to say what should be precluded from the public domain? (Mr Meacher) It would be the responsibility of the water companies when asked for information to justify why they are not prepared to provide it. They would have to give good reason. They certainly could not simply prohibit or refuse the provision of information without giving an explanation and justification. If the Council was not satisfied with that, they could take the matter up with whichever body might be the most appropriate. Mrs Dunwoody 479. It is not always easy to know what people are not telling you, Minister. (Mr Meacher) That is very true and a very good point. With regard to freedom of information, we have considered long and hard in the past at meetings and committees that I have attended as to how one gets over that. The only real answer is to have somebody like the Information Commissioner to whom the information is provided and it is for him or her to take a view as to whether or not that is properly covered under the category of commercial confidentiality. Mrs Ellman 480. Why do you propose to weaken the voice of the consumer in the region in relation to regional issues? (Mr Meacher) I was not aware that we were. It was certainly not the intention. Why do you ask that? 481. Because in the draft proposals you are replacing statutory regional committees -- even though there were question marks against them, they were there -- and there is no explicit requirement to set up regional committees. In the Bill, there is a possibility it can be done but there is no requirement. (Mr Meacher) We are strengthening the Consumer Council by making it more independent, by freeing it of allegations in the past that it was too much under the influence of the Regulator. It will be again for them, as an independent sovereign body, to decide how they seek regional representation. Because there are ten major water companies, it is very important that there should in my view be some regional representation, but it is a matter for them. 482. Do you not consider there is a need for regional representation in its own right, not only as an adjunct of a national body? (Mr Meacher) My view is that there should be a regional representation. What you are asking me is whether we should lay it down in the Act that there shall be. Mrs Dunwoody 483. A little phrase here and there would not hurt, would it? (Mr Meacher) Let me consider that. I certainly believe that there should be regional representation. If there is some dubiety about this, it might well be better to write it into the legislation. Let me give further thought to that. Mrs Ellman 484. Would you also consider a role for the regional chambers and regional assemblies in relation to representation of regional water companies in the region itself? (Mr Meacher) I would expect that to be via the independent Consumer Councils. I do not think we can proliferate the number of bodies that have responsibility in respect of the water industry. I would expect that those interests be represented on the Consumer Council. 485. Would you consider the importance of regional representation within the region as well as regional representation on a national body? (Mr Meacher) I am sorry; I have not followed. 486. Would you consider the importance of having regional representation within the regions, not only regional representation on a national body? There are issues affecting consumers which are of relevance within the region in which they live. (Mr Meacher) You mean you are proposing a more localised form of representation within the region? 487. Yes. I am asking that, within this change, you do not do away with the regional structure. There is a regional structure now and I am asking that within the new arrangements you ensure that the regional structure does not disappear. (Mr Meacher) That seems to me to be much the same question as you were asking a moment ago. There is not a requirement within the draft Bill that there should be a regional representation. Mrs Dunwoody 488. But you are going to go away and think about it? (Mr Meacher) Yes. I take the view that there should be. I do not think one can lower it to the level of localised representation within the region. If we have regional representation, those localised interests as well as stakeholder interests ought to be represented on those bodies. That is sufficient to represent the consumer interest in those regions. Mr Brake 489. Could we dwell briefly on some of the lacunae as identified by Dr Helm? Perhaps you would like to comment on his assertion that in his view the issue of proper utility regulation competition, sustainable development and climate change agenda and, very importantly, the new restructuring proposals within the industry are not adequately addressed in the Bill, none of those four. (Mr Meacher) First of all with regard to sustainable development, should the Director General of Ofwat have to have regard to sustainable development? This is arguable and I personally take the view that that would be desirable. It would bring Ofwat in line with the other utility regulators. It would ensure that Ofwat takes account of sustainable development with regard to long life asset maintenance. It would ensure that Ofwat and the Environment Agency shared a common objective, joined up regulation. It would balance the duty to promote the customer interest with sustainable development but with the downside that it could complicate or confuse the clarity of the regulatory role. On balance, my judgment is that he should be required to have regard to sustainable development. Mr Brake: That is your view. Is that the government's view? Mrs Dunwoody 490. You are still the Minister, are you not? You were when you came in. (Mr Meacher) No one told me otherwise and I intend to carry on with that presumption. This is an issue which is being discussed within government at the present time. I know the Director General, Philip Fletcher, has given his views on this which are probably fairly similar. When it comes to the Bill that is going to be introduced -- and there are a number of omissions, I entirely agree-- this is a matter which does have to be clarified. In my view, as Minister responsible for water, having to take account of Ofwat and of other relevant departments, DTI and Treasury in particular, he should take account of sustainable development. Mr Brake 491. Will you be able to swing it or not? (Mr Meacher) I believe that the government's overall commitment to sustainable development from the Prime Minister downwards, even if there were some resistance which I do not think there will be, would make it extremely difficult to suggest that the Regulator should not have to take account of sustainable development. We are requiring all government departments in all of their planning to take account of sustainable development. There seems no reason whatever to make an exception here, but we do need to make it explicit, I agree. Secondly, competition. Competition has been deliberately omitted because we are consulting. We issued a consultation paper earlier this year. Since the paper was published, we have had a number of proposals for restructuring. The Committee will know that following Kelda and the rejection of that by the previous regulator earlier last year there has been a proposal in respect of Welsh Water or Hyder, which has now been taken over by WPD, for there to be restructuring proposals. We discussed this and examined it with great care. In the end, it is a matter for the director general of Ofwat. He has given his view on this, which I think is a very balanced view. There are issues about the separation of assets from operations. There are issues as to whether the debt financing model provides adequate incentive for management to promote efficiency compared to the equity model. There is also the question whether there is sufficient incentive to justify it from the point of view of the consumer, because the gains are something of the order of two or three per cent over three or five years and might benefit the consumer by something of the order of five or six pounds a year if the fund which is built up to deal with liabilities does not have to be used for major problems in the meantime. Against a reduction in the periodic review of average consumer charges of something like œ30 a year, these are the issues which were considered. What is most important is that the Regulator made clear that, whilst he was prepared to agree in this case, there were special considerations. First of all, WPD, the owners, wished to diversify out of water. Secondly, the political authorities -- in this case the National Assembly for Wales -- were extremely keen on this. That would necessarily be the case with political authorities elsewhere. Thirdly, there was the discount on the price as a regulated company of something of the order of six or seven per cent. Those conditions, he pointed out, would not necessarily apply elsewhere. We are taking account of this particular case and what proposals the industry may subsequently come forward with in finalising our competitions proposals. That is why they are not in the Bill at the present time. 492. Is it possible that when eventually the Bill comes forward it will include no competition measures at all and those will be tackled separately at a later date? (Mr Meacher) It is always risky in Whitehall, I have learned, to make absolute predictions but I strongly believe that it will contain competition provisions. Mrs Dunwoody 493. It is a bit nonsensical to say, "We are doing this in relation to one water company but of course it is not a precedent", is it not? (Mr Meacher) I do not agree. I think it is reasonable to say that there were special conditions applying here which do not necessarily apply elsewhere. We should look at every application made on a case by case basis. If a very similar proposal came forward, it would not necessarily be treated in the same way by the Regulator for the fact that the three reasons he stated would not necessarily apply in other cases. 494. My experience of government is that, when two apparently similar companies with very similar remits operating in the same industry are faced with what they regard as similar circumstances and the government divines differently between the two, that is not a recipe for happiness. (Mr Meacher) It may not be a recipe for happiness but it may be a justifiable position to take which would withstand legal challenge and I believe that the Regulator, who very carefully crafted his response, is in a position to justify that. Mr Cummings 495. Minister, section four I understand allows you to issue guidance to the director general on how to achieve social objectives but does not require you to do so. Could you give the Committee the reasons why? (Mr Meacher) We believe that part of the consideration which the Regulator should take into account at the time of the quinquennial periodic review should not only be the economic situation in the light of the previous quinquennial period and the upcoming one, but also take account of social and environmental factors. We believe that it should be in the form of advice and guidance rather than direction because it is for him ultimately to make the judgment that he has to make at the periodic review of what is the appropriate price level for the succeeding period, what is the pattern of prices over the next five years, taking account of social and environmental concerns. To dictate to him exactly how he should make that judgment would be to diminish the proper role he has to take account of all of these factors. I am doubtful about how far government should excessively prescribe how others who we set up with confidence and in whom we have faith should make their judgments. 496. Is it not the case that we are not talking about the director general setting parameters but insisting that the water companies take on board certain responsibilities. For instance, since the consultation period early last year, the water companies have come up with their own suggestions on how to tackle particular problems which were plainly rejected by the director general and it just stands there. There has been no further movement. (Mr Meacher) I think you are referring to the rejection of the Kelda proposals by Yorkshire Water but, in the light of that rejection by the then director general, there have been further discussions in the industry and the latest proposals in respect of Welsh Water or Hyder have sought to meet the strictures that he laid down. It can be argued to a degree that they do. 497. What would your reaction be if the director general, because he is not required to do this, just did not do it, towards meeting various social objectives? (Mr Meacher) This is guidance to the director general to take account of social and environmental concerns. What you are saying is if the government believe that he had recklessly disregarded proper social and environmental concerns in the case of making his judgments and had exclusively looked at economic matters and efficiency. That is a matter that we would strongly raise with him. I do not believe for one moment that this is going to happen, not least because of my knowledge of the current director general who I had some play in appointing. I believe that he would be more than willing to take account of social and environmental concerns but to dictate exactly how he should do that and how those factors should influence a judgment in a particular consideration is a degree of dirigisme, a degree of interventionism, which I think is probably uncalled for. I do not believe there will be a problem but if there were I would expect to discuss the matter with him vigorously. 498. That might be all well and good when you have a damned good director general but this Bill is going to be with us for many years and directors general are going to come and go. (Mr Meacher) I understand that. It is a matter of judgment, how far we put people into very senior, key positions, to use their expertise and judgment to make decisions, and then tell them exactly how they should do it. I think that is going too far. We should tell them what they should take account of in reaching those decisions and we should expect them to do it. If they fail to do it, we would certainly take the matter up with them. If there continued to be a major lacuna in terms of social and environmental concerns, we might have to change the legislation, but I would be unwilling at this point to be that directly intervening. Mrs Dunwoody 499. I do not think you need worry, Minister. No one is going to think of this government as being dirigiste. I want to bring you on to abstraction. How do you respond to the criticism that the abstraction proposals of the Bill could risk the long term security of public water supply? (Mr Meacher) I do not think it will because current abstraction licences are unaffected. They continue as they are at the moment, unless they have to be curtailed in the interests of protecting SSSIs or alleviating low river flows. With regard to new abstraction licences, it is proposed that they should be time limited to 12 years. We think that is a proper balance between investment ---- 500. Not 15? (Mr Meacher) 12 might be the normal period but the applicant can justify a longer period in the interests of funding a major infrastructure development. He could indicate that 15, 20 or even 25 years is appropriate and it is for us to take a judgment on that. There is the presumption that a time limited licence will be renewed. All that we are taking is the power, for reasons that of course we would have to make public, that in the interests of protecting the environment it is not justified to continue this beyond 12. That may apply in a few cases, but it will certainly not be the generality. 501. You are not saying you must strictly adhere to the time limit to the Environmental Agency; you are saying that these are general guidances. (Mr Meacher) We are saying that 12 years is the normal period for which we would expect licences to be granted by the Environment Agency. 502. It is interesting that you say there is a presumption of renewal. It is not on the face of the Bill, is it? (Mr Meacher) It is the kind of consideration which it is difficult to put into legislation. 503. Life is full of situations like that, Minister, but on the whole what is written on the Bill is what affects the development of the companies in the use of water in this country. (Mr Meacher) That is perfectly correct. Presumably you are looking for some such phraseology as, "The Environment Agency shall restrict the length of licence to 12 years unless the applicant makes a justified plea that it should be extended for a longer period." 504. I am not seeking to indicate wording to you. I am saying if it is not on the face of the Bill it does not exist and therefore a presumption by a minister that it should be under normal circumstances renewed is something which changes with the minister, if I may say so. (Mr Meacher) Can I ask Alan Davis, the director of water and land, to explain how that presumption would be exercise unless it is specifically applied on the face of the Bill? 505. Can you get the Minister out of the little hole into which he has dug himself? (Mr Davis) The 12 years itself is not on the face of the Bill. The 12 years is the policy that the Agency has announced as the normal period in its work on catchment abstraction management strategies. The government has stated very clearly that there is a presumption of renewal and if it is not on the face of the Bill ---- 506. Where did it state this? (Mr Davis) In Taking Water Responsibly, the decision document following the ---- 507. And yet you have not followed greatly the other things that are in Taking Water Responsibly, have you? (Mr Davis) I believe the government has. If the Agency were to decide not to operate the policy the government has set down, on every abstraction licence application there is a right of appeal to the Secretary of State so it is the Secretary of State who determines renewal and the time limit that will be imposed if it arises. The government has stated the policy very clearly. There is a balance to be struck between how much is spelled out in primary legislation and how much is left to secondary legislation or policy statements. 508. I am sure that is true but we are asking you, since there is a clear presumption on the part of the ministers that licences will be renewed unless there is some very clear indication why they should not be, why that is not on the face of the Bill. You are telling us it is because the Minister has made this quite plain somewhere else. Is that right? (Mr Meacher) That is right, but you are saying -- and I would like to consider further whether we should make it explicit -- both the normal length of a licence and also the possibility of it being extended for justified reasons. 509. That is why you are such a very good Minister. Are you confident that the Secretary of State is going to be able to certify this Bill as it stands as compatible with the Human Rights Act? If not, why not? (Mr Meacher) You are talking now about the compensation provisions. What we are proposing is that compensation should be ended after 15 July 2012 for a licence without a time limit, if it is curtailed for good, environmental reasons. Is that compatible with human rights legislation? We believe it is. Our judgment is that that strikes a proper balance between an individual's property interest and the public interest. 510. I want to talk to you about trickle irrigation because most people in horticulture would regard trickle irrigation as not only the way to go in the future but a much more sensible, disciplined way to use water. The NFU have given us very clear indications that, certainly in the case of those people who previously did not require licences but were using trickle irrigation, they have now been told yes, they do require licences and, in one instance, they have specifically been told, "You probably will not get it anyway because we are a lot tougher than as has been indicated in the past." When you talk about compensation and human rights, most ordinary people would regard that as being pretty brutal. (Mr Meacher) I am aware of this one case. 511. I do not want to just keep it to that one case. Decisions on something as basic as trickle irrigation which put people out of business must have an impact on justice for this country. (Mr Meacher) I think we are all agreed that trickle irrigation is a very efficient form of irrigation. I agree with you. I think it will be much more widely used in the future. It is much less wasteful; it is much less targeted. The only issue is whether a farmer automatically will get a licence when the exemption for trickle irrigation is removed. In the case that you are referring to, I think the Environment Agency indicated not necessarily. 512. Was that based on the use of water in that region? (Mr Meacher) Yes. 513. Or was it based on some other abstract set of presumptions? (Mr Meacher) One would have to ask the Environment Agency. I am sure it was the water situation in that region. My view would be rather to put it the other way round. There is absolutely no reason why the licence for abstraction should not be provided when the current exemption for trickle irrigation is removed. If it is necessary to cut abstractions in any particular given area, the Environment Agency would look at all sources of abstraction to decide what the reductions should be. I think they would not necessarily -- and almost certainly not -- fasten on a trickle irrigator as the best way to make a reduction. 514. To be quite clear, trickle irrigation is something which in principle the Ministry approves of. Secondly, you would not regard any barrier against that as being simply a matter of automatic disbarment on anyone taking extra resources without all of the resources in a particular region being taken into account? (Mr Meacher) Correct. 515. Thirdly, in general terms -- and it is very difficult to argue from the particular to the general -- you would regard this as a perfectly normal development and something which should be looked at on the basis of fairness and justice? (Mr Meacher) Absolutely. I would be stunned -- maybe I am sometimes all too easily stunned nowadays -- if a trickle irrigator were not to receive a licence for abstraction in the absence of wholly exceptional circumstances and, even in those cases, I would expect probably other forms of abstraction would be where the cuts were made, not in respect of a trickle irrigator. 516. You would not regard the remarks that you made about the Human Rights Act as being inimical to that decision? (Mr Meacher) Not in our view. It is a very difficult balance between the individual's property rights and the public interest. We have drawn them where we have. We think that is justified but of course it is arguable. Mr Brake: Could we return to the subject of dirigisme? You have already said that the economic regulator should have regard to sustainable development in your view and you are going to fight the dark forces in the Cabinet who might be opposed to it. Mrs Dunwoody: I do not think he quite said that. Mr Brake 517. Reading between the lines, I think that was clearly what he was indicating. Do you think there should be a duty on the part of water companies to promote demand management? (Mr Meacher) Yes, I do in principle and they are already doing a great deal to reduce the demand for water that they have to meet. The leakage targets have been dramatically improved in the last three years by something like nearly a third. All companies now offer a free supply pipe leakage repair service. The toilet flush for new cisterns has been reduced by 20 per cent. There are regulations in respect of labelling for dishwashers and washing machines. A great deal has been done. If one wants to have water demand management mandatory targets, which maybe is what you were meaning, I do not think they can operate in the absence of universal metering. The level of domestic metering is 18/19 per cent -- something of that order. In the case of industrial premises it is 75 or 80 per cent plus, but it is still only about a fifth in the case of domestic metering. The other problem is that you would have to exclude external influences over which companies cannot have control -- for example, the weather. Whilst I am in favour of further and tighter measures to restrict use of water and companies taking ownership of those measures, a wholesale mandatory target water demand management is not practicable at the present time. 518. What other measures do you think they could implement that are not currently being implemented to address demand management? (Mr Meacher) I suppose if everyone were to put a hippo in their tank. Again, there are ways of trying to ensure that flush levels are reduced for existing cisterns and I suppose one could give greater incentives for water companies to their customers to do that. We already have the water mark system for bench marking water efficiency in the public sector. We have Envirowise, which was formerly the energy efficiency best practice programme, giving business advice about water efficiency. We are trying to encourage consumers to be more publicly aware of excessive use through the idea of the doing your bit advertising campaign. For example, if you just need a cup of tea do not fill up the kettle to the brim. Any further ideas we will take on board but there is a lot which has already been implemented. 519. In relation to the weather, you are saying that would be excluded from demand management, but is not the summer period exactly the time when demand management is needed? (Mr Meacher) Yes, but if you are going to have mandatory targets and they are going to be nation wide, unless you are proposing that they should be regionally variable, it would be much harder for companies in hotter, drier parts of the country to meet them than those in wetter areas. That is all I am saying. 520. Do you think that the success of the Energy Savings Trust is something that could be mirrored with a Water Savings Trust? (Mr Meacher) When I first appeared before this Committee, I did make some comments that I was rather in favour of the Water Savings Trust idea, because I do think the Energy Savings Trust has been remarkably successful. I do not demur from that view. It is however the case that some regions are now facing a resource surplus for the foreseeable future. If one said to the great British public after the floods of last December that we are now instituting a Water Savings Trust to which you are going to have to contribute by a levy on your bills, it might produce a degree of incredulity. Secondly, the levy on customers would mean that those on low incomes in water plentiful areas would be subsidising activities in water stressed areas and, to a degree therefore, there is a degree of inequity, although not intended. The duty on water companies to promote the efficient use of water was only introduced in 1995 and I have already indicated the whole range of improvements which has already occurred. I am not opposed to the idea but I have to say I doubt that this is the moment to introduce it. 521. Can I ask you whether the government's assessment of the impact of climate change is that there is going to be much more water in the United Kingdom and therefore there is no need to implement a measure such as a Water Savings Trust? (Mr Meacher) On balance, I think that is probably true. There will be a division even within the United Kingdom between the drier and wetter regions. The wetter regions will become even wetter and more liable to flooding. The drier regions such as East Anglia and parts of the south east will become drier. That applies much more strongly regionally across the world but even within the United Kingdom I would expect overall, as a result of climate change, that the net balance would be an increase in precipitation, an increase in water supply. Again, for that reason, I doubt whether this is the time to introduce it. However, having said that, no one foresaw the droughts of 1994, 1995 and 1996. I continue to take the view until people have found it difficult to take it seriously that we need to prepare for future droughts. Mrs Dunwoody 522. Can I bring you on to some of the bits of the Bill that have been highlighted? We have been told that quite a lot of the major recommendations of Taking Water Responsibly, which was a very coherent approach, are not in the Bill. (Mr Meacher) There are parts which are not in the Bill which is precisely because those provisions have not yet been finalised. They will be included in the Bill on its introduction and I think the Environment Agency assured you a week ago that they would provide you with such a list. 523. They did give us a list but it is a bit worrying that the decisions have not been taken on things which include details of the means by which the abstracted water returns to the environment, power for the Agency to waive the requirement to advertise for applications. There are a lot of detailed points that we have been given. If we give you a copy of these, may we take it that, before the Committee finishes its considerations, we can have your comments on those bits which have been omitted from the Bill? (Mr Meacher) As far as we are able to provide them as a result of consultation within government, yes. 524. I accept all the subjunctive clauses but will you give us an answer? (Mr Meacher) Yes. 525. Can I ask you why there is nothing in the Bill about the health and safety aspects and work on the people working in the industry? We have taken evidence and you know what happens when there are major changes. It is the people working in the industry who suffer. Unless they get it right, no one gets clean water. Why is there not something on the face of the Bill which protects not only their employment but also the quality of their water? (Mr Meacher) With regard to the quality of water, that is covered by the Drinking Water inspectorate. 526. I will not be distracted. There is nothing on the face of this Bill that protects the health and safety involvement of the workers in this industry. (Mr Meacher) I suspect they are covered by the Health and Safety at Work Act of 1974 which is a long lasting Bill but a Bill which has stood the test of time. 527. If there are major changes in companies, they are not protected in any way, are they? (Mr Meacher) There is a distinction, I understand, between their employment prospects and I know that the restructuring proposals which have been discussed which are current within the media have caused the unions in particular to be concerned about job cuts. In addition, they are concerned that the periodic review which has tightened the screw on companies considerably after the much laxer periodic reviews of the past, requiring them to achieve an œ8 billion extra of water quality investment at the same time as reducing charges on average by 12 per cent and ---- 528. We are particularly concerned about the way the companies have been reappraising risk and discounting risk over a much longer period of time. Each time they do that, they cut jobs and delay the renewal of assets. This is the evidence we have received. The risk then must automatically be increased to the public. All right; it may be minimal, but each time you do it you increase the risk to the public. The gas and electricity industry both have clauses in the Utility Act 2000 which requires the Secretary of State to consult the Health and Safety Executive on all relevant issues. If there is not such a provision in water, why not? Why is it not in this Bill? (Mr Meacher) The government's view unequivocally is that any restructuring proposals must safeguard the public health and the environment. 529. Why can you not write in very simply, to save a lot of bother, a requirement to consult the Health and Safety Executive on relevant issues or a requirement on the Secretary of State to satisfy himself companies are renewing assets and have sufficient personnel to guarantee the use of those assets? (Mr Meacher) There are several different considerations there. It is the responsibility of Ofwat to ensure the long term maintenance of assets, both the ---- 530. Why is there the difference between the other utilities and water? It is such a simple safeguard. You are not detracting from Ofwat's responsibilities of looking after its assets; you just say, "Fine. In future, also consult the Health and Safety Executive." (Mr Meacher) These considerations which you have properly brought forward are safeguarded at the present time. 531. Why are the people working in the industry not convinced of that? (Mr Meacher) I am not aware of any cases that have come to my attention where health and safety at work are put at risk for workers in the industry. If so, clearly the Health and Safety Executive would immediately be involved. 532. You are aware that the companies are reassessing risk and extending the life of their assets? (Mr Meacher) I am aware that one of the ways in which they are responding to the periodic review is precisely in the way you suggest: that they may well be considering a reassessment of risk. The proper protection against that is for both the government and the Regulator to make absolutely clear that standards will be maintained, both in terms of public health and in terms of protection of the environment, and that they will be fully enforced. That is certainly my position. 533. I offer you a simpler way round that: you can go away and think about this one as well. (Mr Meacher) I find your request very difficult to resist. 534. The Secretary of State is going to use his powers to set standards of performance? (Mr Meacher) Yes. 535. Only in exceptional circumstances or always? (Mr Meacher) As we consider appropriate. We are not just talking about proposals from Ofwat; we are talking about the Consumer Council, the Drinking Water Inspectorate. In the light of the situation and cases that arise, we will set the stone of the performance. 536. Do you think some of the changes in the Bill are going to increase the cost of capital and customers' bills? (Mr Meacher) No, I do not. I know this again has been alleged. The purpose of the Bill is to make the regulatory regime more open, accountable and predictable. That should not raise the cost of capital. We are proposing that there should be a water advisory panel, advising the director general. That should not confuse accountability because it will still be the director general who takes the decisions in the long run. 537. You have total faith in the director general. You do not think you need any extra powers? (Mr Meacher) I think he is a very good director general, but I realise that governments are of the day and so is the director general. The way of dealing with the question of the cost of capital is to look at the structural implications of what we are proposing and I do not believe that those are likely to raise the cost of capital -- neither the power to initiate standards of performance, the guidance that we are giving on social, environmental matters, which is guidance not direction. All of those should not affect the question of the cost of capital, in my view. It can be argued that, because we are looking to a licence of normally 12 years, which could be extended, there is a shorter time span for the investment to produce its return. That could affect cost to customers, but the applicant can justify a longer time scale and there is a presumption for renewal so again I do not believe that that should have an effect. If it is necessary to invest extra funding to protect SSSIs, to deal with low river flow, of course that applies at the present time and the current periodic review had 100 such schemes in it. It cost œ230 million, but it still produced an overall average national cut in bills of 12 per cent. Mr Benn 538. It has been put to us that as better off people living in houses with high rateable values realise that they might be better off if they go to metering, this may put a greater cost on people on lower incomes, in terms of the distribution of water charging. Is this something that you are concerned about? (Mr Meacher) I do understand the argument and indeed it has been suggested that there would be greater equity within the system if one resorted to some kind of council tax based form of water charging. My response to that is let 100 flowers bloom. If companies can come forward with alternative proposals, there is nothing to stop them. We can ensure that they are provided with data on council tax bands without primary legislation. There is no reason why they should not do it. One particular water company, I do know, has thought about this very seriously. The problem is that all the models that we have looked at do lead to substantial changes, large numbers of winners and losers, and as always the government is concerned about the losers. Quite a lot of those losers may be in the lower income brackets. That is something of a deterrent, but we are looking for greater equity within the system of water charging. 539. Do I take it from that that you accept that, as time moves forward, it is going to be increasingly difficult to base water charging on a rateable value system based on assessments made nearly 30 years ago now? (Mr Meacher) Absolutely. It is more difficult to base on a rateable value system which is now very dated. The only way to deal with that is to have property revaluation, which is never very popular. The longer the time which has been left, the more drastic will be the changes; or to go over to some system of metering. We disagree with the previous government's intentions, which were implicit, I think, to move to universal domestic metering very quickly, but we would be happy if there were a steady increase in voluntary metering. There are still large numbers of consumers for whom it is almost certainly in their economic interests to move to a metered system. Mrs Dunwoody 540. And large numbers for whom it is not. (Mr Meacher) There will certainly be some for whom that is not so. Those who have high use particularly if they have several children; those who may have medical conditions, but those can be taken into account by moving -- and indeed we did in the previous Water Bill, where a shift was made to metering but one was able to show that one was a low income family with three or more children; or, if one had a medical condition like incontinence or dialysis, one could still, whilst having a meter, be charged at the average basis under the uncharged system. Mr Benn 541. To what extent do you currently monitor the impact of water charges on different income levels? (Mr Meacher) I think we do. Long ago when I first entered Parliament, which was in prehistoric times, I think there was a pamphlet called Family Expenditure Survey. I do not think whether the DSS continues to publish it but that had a breakdown of average budget household expenditure which would include expenditure on water. 542. Is this something that you would expect the Regulator to take into account? (Mr Meacher) Yes. 543. Are you aware that he is doing so currently? (Mr Meacher) As far as I know. I have no reason to doubt that. The Regulator, in determining a price structure, would take into account the impacts on those who are on lower incomes. Mrs Dunwoody 544. What concerns us is that if more people move towards metering and their costs are lower the people who are not metered pay the difference. (Mr Meacher) That is perfectly true. 545. It is terribly important that we should know that, is it not? (Mr Meacher) This is the unbalancing of the tariff basket. It is exactly the point that you are making and, yes, I agree. It is a matter of concern. 546. You can call it a ramp, if you like, Minister. All I am saying is I do not like it. (Mr Meacher) Nor do I. I do not think we are yet at the point at which this is becoming a serious problem, but if the level of metering goes to levels of 30/50 per cent it could become a serious issue. Christine Butler: Should not the government grasp the nettle now and do something about that, because I cannot see the Regulator having the ability to do it without an intervention from the government. You could be hurtling towards a situation very soon now where you would be looking at what the cost of water would be to a poor family in a drought area, where there are overheads and external costs which are beyond yours, mine or their control and comparing what they pay in water to someone who is lucky enough to have a water company which does not have such high external costs, who has a nice large house and has decided, because there are only two of them, to go to a water meter. You would start to see some big differences but we know that that situation is not only here now but it could go on increasing. It would not be many years before you had a situation where you have gross inequities in the system. Mrs Dunwoody: We think that problem is arising very quickly. What we want to know is what are you going to do about it. Christine Butler 547. Only government can grasp it and take a lead on this. (Mr Meacher) I entirely agree with your analysis. I was thinking, as you were speaking, as to what are the options of dealing with it, other than a shift to a universal system of metering. Otherwise, if the Government were to regulate a form of charging more closely in order to prevent it I suspect it could become very complicated and probably inequitable. I doubt if there are general, national rules which could be laid down which deal with this efficiently and fairly in all regions of the country. Chairman 548. Can we take it, Minister, that there is some work. Firstly we need to know whether it is happening. Yes? That will be one of the things you will look at. (Mr Meacher) We would be very happy to provide you with a quick note, I know you are at the end of this investigation, of the extent to which this is happening and the impact on other consumers who have not shifted to metering. Mr Brake 549. I am sorry to be cruel, Minister, but if you do not like the situation why did you introduce the Water Bill that has allowed it to happen. (Mr Meacher) I have never said that I, or we, are opposed to metering. What has caused it, or what will cause it is a critical mass in terms of metering, a threshold point beyond which this unbalancing effect, between those who are metered and those who are still on an uncharged system, will begin to bite. 550. This was known when the Bill was being debated a couple of years ago. (Mr Meacher) That is perfectly true. Of course it has been discussed. I do not think that that is a reason for saying that there should be no metering, which would seem to be the premiss of your question. I think there is a lot of sense in people being metered for the water they use. It is certainly a way of making people conscious of the water they use, because a lot of people continue to believe that water is somehow free and they can use it in profligate quantities and there is no problem. It would encourage people, as well as all the pressure we are putting on business, to be more circumspect in their use of water. It is more equitable. Why, you might say, should one have to pay for the amount of electricity, gas or telephone that you use but not water? Chairman 551. Can I just say, it looks as if the Regulator does not have to take the view that the basket has to unbalanced by spreading the cost. In fact, it could be borne only by the metered customers. (Mr Meacher) It could be. I do assure you, because I have had discussions with the Regulator about this, the previous Regulator was extremely conscious of this, and I am sure the present regulator, with whom I have not discussed this, is equally conscious of it. 552. You are going to give us a note on this. I just want to finish with one matter, do you think the new regulatory arrangements could increase regulatory risk and, therefore, add to these bills? We had beautifully framed evidence from Dr Dieter Helm on this point, do you think that the new powers and the new regulations could actually increase regulatory risk? (Mr Meacher) I do not believe that the powers that are in this Bill are likely to increase regulatory risk. It is about greater transparency, greater accountability. There is an independent consumer council, there are clear divisions between the regulators, the Environment Agency, the Drinking Water Inspectorate and OFWAT. 553. I do not think that was the suggestion, the suggestion was the right to fine companies, the extra powers that have been taken to set standards, all of these could increase the regulatory risk. Somebody would have to pay for it and almost inevitably it would be the customer. (Mr Meacher) The fact that there is greater regulation in terms of water supply in order to prevent excessive use - increased penalties for companies if they breach the terms of their appointment, which can be up to ten per cent of turnover, like other utilities, the increased charges for the supply of water unfit for human consumption - all of these seem to be very clear. I see no real reason why there should be greater unclarity. If I did think that I would reconsider it. I have not seen the evidence which suggests that the water companies are not very clear about their responsibility. The only issue is this question of sustainable development, social and environmental matters. If those are brought into the equation it could be said to be complicating a situation, it is no longer exclusively decided on an economic basis. We think one should integrate those other considerations. I repeat, it is guidance, it is not a direction. Ultimately it is for the Director General, even if he has his advisory panel, it is he himself who in the end then takes the decisions. We think that is clear. 554. Minister, I think, if I may say so, I hope you will not misunderstand me, your evidence to this Committee always constitutes, really, a very excellent example of how a select committee should work in conjunction with the Government. It is very helpful and I believe you when you say you are going to go away and take account of some of the points we have made. I wish I could always say that to all of your colleagues. Thank very much for coming. (Mr Meacher) You are becoming so complimentary I am beginning to get worried. Chairman: Do not worry, it will not last. Thank you very much.