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Standing Committee D
Thursday 16 October 2003
(Afternoon)
[Mr. David Amess in the Chair]
2.30 pm
Clause 59 ordered to stand part of the Bill.
Schedule 4
Licensing of water suppliers
Mr. Bill Wiggin (Leominster): I beg to move amendment No. 123, in
schedule 4, page 143, leave out lines 27 to 30.
The Chairman: With this it will be convenient to discuss the following:
Amendment No. 248, in
schedule 4, page 143, leave out lines 27 and 28.
Amendment No. 124, in
schedule 4, page 145, leave out lines 17 to 34.
Amendment No. 125, in
schedule 4, page 145, leave out lines 39 to 42.
Amendment No. 249, in
Mr. Wiggin: I am grateful to you, Mr. Amess, for taking your time, though not as grateful as I would have been had you taken a moment or two longer. We have tried to clarify one or two points in schedule 4, rather than change it significantly. [Interruption.] I shall find my amendment paper in a moment.
Norman Baker (Lewes): If I speak for 30 seconds, I shall be doing the hon. Gentleman a considerable favour, because by that time he will have found his place in the notes. He can return the favour to me next time I come into the Committee Room and am rather out of breath.
Mr. Wiggin: I am more than grateful to the Liberal Democrat spokesman. He was absolutely right. The purpose of the amendment is to find out why home owners are, to some extent, being persecuted—perhaps that is too strong a word—by the way that the Bill is structured. We are seeking to find out who the licensed water suppliers are. At the moment, it is far from clear what sort of institution could become a licensed water supplier. For example, a hospital is not a residential home—it does not have anyone living in it—but it could run a licensed water supply as a business, perhaps even at a loss as an offset against tax. Other big companies could perhaps do that also. The amendment is designed to tease out who the Government envisage a licensed water supplier will be and who it will not be. I hope that the Minister can clarify that definition.
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Mr. Andrew Lansley (South Cambridgeshire): You will observe, Mr. Amess, that amendments Nos. 248 and 249 appear in my name. It may be helpful to the Committee if I explain why I tabled amendment No. 248 as, on the face of it, it appears merely to be a subset of amendment No. 123, moved a moment ago by my hon. Friend. As he made clear, that amendment was tabled to enable the Committee to explore some issues, but in practice it would have the effect, on the licensing of additional water suppliers, of removing both the requirement that premises are not household premises and the threshold requirement. In effect, one might say that there would no longer be a threshold requirement.
I am sure that, as I do not think that my hon. Friend intended his drafting to be complete, he recognises that if one wanted there to be no threshold requirement, new section 17D relating to the threshold requirement to be inserted into the Water Industry Act 1991, which begins on page 145 later in the schedule, would need to be removed. My two amendments therefore go a little further and are intended to permit competition of water supply to be extended to the household sector. It is not a question of definition, but of how much competition there is and where it should go.
It seems clear to us all that the idea of permitting competition in supply to individual household premises would be a step too far and, given the relatively low cost of water as opposed to the cost of providing the network, it would not attract water suppliers. However, if supplying large water consumers in industrial premises is attractive, there is no reason why a set of aggregated premises could not be part of the competitive market. The issue is about bringing together a sufficient volume of demand to justify the supplier's intervention to sell to the market, and that would require groups of premises to come together.
We have examined that idea in other contexts. In the case of gas supply, a provision enables new settlements to contract other than with the Transco network, which is almost the monopoly supplier of the network for other purposes, when a new infrastructure exists for them to enter the market place. That has happened in one or two areas, including my constituency.
The question is whether competition should be introduced if premises can be aggregated to meet the threshold requirement for water. No doubt we will debate what that threshold should be separately, and I am not trying to interfere with that now. If household premises aggregate their demand, for example in a new settlement or in an area with premises supplied with a discrete water supply, why not make it available for competition in the same way as industrial premises? The only substantive difference would be the need to install charging mechanisms, but if the premises are metered, that should not present an insuperable problem.
Amendments Nos. 248 and 249 would remove the requirement for household premises so that they were not precluded from entering the competitive market. Amendment No. 249 would clarify that the threshold
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requirement is what really matters, and that the market should exist for the supply of relatively large amounts of water rather than small amounts to individual, household premises. The amendments would also offer the industry the opportunity to create a competitive market in the household sector.
The Minister for the Environment (Mr. Elliot Morley): The amendments concern thresholds and the eligibility of those who could benefit from competition, and the hon. Member for South Cambridgeshire (Mr. Lansley) asked who could be suppliers. The answer is companies that meet the requirements laid down by the regulations, and we will consult on the detail of that. The companies must also have customers who use more than 50 megalitres a week. He is right to say that that applies not only to companies, but to large public bodies such as hospitals, prisons and large departments. In total, around 2,300 customers would fall into that category.
The threshold was set after considerable discussion and consultation. Although we accept that there may be advantages to customers from competition, we do not believe that a complete free-for-all or liberalisation of the market is necessarily in the interests of consumers. It may have detrimental effects on both prices and supply.
That was the difference between the Government and those, including the right hon. Member for Wokingham (Mr. Redwood), who argued on Second Reading for unrestrained competition. There might be negative aspects to that. We have approached this in a pragmatic, cautious way. Setting the threshold at 50 megalitres brings in a considerable number of potential customers—2,300—but it does not completely distort the market with potential negative effects such as stranding assets. That enables us to evaluate the effect of the competition.
We have already given a commitment that we will look at the effects of the competition after three years and consider extending it if it has been successful. We would consider extending it to the domestic sector if it was felt that that would be in consumers' interests. Allowing domestic consumers to come together to get over the 50-megalitre threshold is such a complex way of doing it. One might as well simply include domestic users rather than have the complication of them coming together. That would be hard to administer; effectively one would have no threshold.
Mr. Lansley: Can the Minister address his mind to the point relating to new settlements? I do not have the reference, but one of the changes introduced in legislation on the gas industry was a regulation designed to allow new settlements to choose from whom they took their gas supply. That is rather a special case. Is there not a case here for considering that in the first instance as a means of seeing how the mechanics of household domestic water supply by new suppliers might be introduced into what is otherwise a monopoly?
Mr. Morley: That is an interesting point. Gas and electricity supply are different because they have been
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set up in a way that allows open competition. It is not quite the same with water at present. However, for new developments, competitors may seek to serve any greenfield site under inset appointment arrangements. There is an element of competition in greenfield sites. It is not quite the same system as that which applies to the gas supply but the potential for competition is there.
We want to protect the interests of consumers, both large and small. Competition may have beneficial effects in the supply of water but water is an important utility, and we do not want to jeopardise the effects on consumers. We have already talked about vulnerable groups, costs, prices and things like that. Sometimes competition can have negative as well as positive effects. We should therefore take a cautious and balanced approach.
Mr. Wiggin: I accept what the Minister says about having the best interests of the consumer at heart, but he has put his finger on a danger. If one starts with the biggest consumers, there is a danger that one can take out quite a solid income stream by allowing the large consumers to buy discounted water. It makes it harder to push the benefits down the pyramid to the household consumers because one has removed a large quality income flow from the whole industry. Although I agree with what the Minister intends to do, I think that he has started this the wrong way round.
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