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Matthew Taylor (Truro and St. Austell) (LD): I am pleased to have an opportunity to raise the subject of the rapidly increasing water bills that are hitting the south-west; indeed, bills going out to South West Water customers in the next week or two will have risen by 17 or 18 per cent. and that is on top of what are already the highest water bills in the UK.
This issue is not new. I have raised it in many Adjournment debates over the years following the privatisation of the water industry by the Conservative party, which soon got us into the issue of unaffordable water bills. Indeed, the increases, going back to the late 1980s and early 1990s, largely finished off much of the Conservative party in the south-west. It was probably the biggest single issue that contributed to the loss of Conservative seats, and rightly so.
The privatisation involved two major errors, which the Conservative Secretary of State for the Environment eventually admitted in the House of Commons and, I understand, in arguing in Cabinet that something needed to be done to create a fairer water-charging system. By the end of the Conservatives' period in office, he had lobbied on and introduced to the Cabinet proposals to invest money in cutting water bills, but was turned down by his Cabinet colleagues.
What we saw instead was a delay in the programme of environmental clean-up, which meant that the increase in bills was delayed for a short period. However, the clean-up costs could not be delayed for ever, and they are at the root of the proposed increases. The Conservatives created the problem and then, rather than offering a solution, merely delayed the costs of the necessary environmental work for a few years. In some ways, I have sympathy for the Minister, because he inherits the legacy of past mistakes as much as he faces a problem that he has to address for the future.
Andrew George (St. Ives) (LD): My hon. Friend is making a very good case. The privatisation was so botched that in his constituency, as in mine, many people are fed up with paying through the nose for high water bills, especially given that, when the clean-up comes, they get only primary or secondary treatment. They believe that they should get the best, but they are simply not getting that.
Matthew Taylor : My hon. Friend is right. I am sure that his electorate voted for him because of the many excellent qualities that he would bring to the House, but I am sure that they were also voting against his Conservative opponent partly because of this issue, of which we remain extremely aware.
As I said, the Conservatives made two fundamental errors when they privatised the water industry. First, because of the discounts, big profits were made by the water companies and the initial investors in privatisation. A small sum was set aside as the so-called green dowry to tackle environmental clean-up, but the Conservatives massively underestimated what that would cost. Incidentally, at the time the rules were set, the Conservatives boasted that they had led Europe into setting tougher environmental rules than other
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European countries had wanted. It was the era when the Conservatives suddenly caught the environmental bug; they boasted that the new rules had been set and estimated the cost of implementing them to be £1.5 billion. The actual cost was £6 billionfour times the amount. The green dowry was inadequate, and water bills shot through the roof. The south-west suffered most because only 3 per cent. of the population lives in the South West Water area, but one third of the beach clean-up took place in that area. It is no surprise that water bills in the south-west are now the highest in the country.
Mr. David Heath (Somerton and Frome) (LD): I congratulate my hon. Friend on introducing the debate and securing the attendance of a Minister, which I failed to do earlier. Does he agree that one of the perverse factors is that, although the south-west has the longest coastline to clear up, it has the highest proportion of pensioners, so those least able to pay face the highest bills in the country?
Matthew Taylor : My hon. Friend is right. Having set out the reason for the bills being so high, it is worth my noting that the south-west is the poorest part of the country Cornwall more so than the rest. People are on low incomes, so the impact of high bills as a proportion of their income is much greater. In an area where few people are employed by large companies that could establish good pension schemes for employees, many elderly people are on fixed, low incomes and basic state pensions. There are much higher levels of self-employment and small-scale employment than elsewhere in the country. The poverty issue is real. Other Ministers are dealing with that through the objective 1 programme and other work that is being undertaken, but I shall illustrate the scale of the problem that we face with water bills. South West Water bills for unmeasured supplies now average about £420 a year, double the average annual bill in London, which is roughly £204.
When I pressed Ofwat and the director general of water services on the issue, they outlined the increases that we will now face in the present round. The figures tend to be calculated in real terms without taking into account inflation. Given the estimate based on the Government's inflation targets, the cost of an unmeasured supply is due to reach £675 a year by 2009. Average salaries in Cornwall are 20 per cent. below the national average, and many people, not only pensioners, are on incomes of between £10,000 and £15,000 a year, yet they will be hit by a water bill of nearly £700. There is still significant unemployment and deprivation, yet there is no help with high water bills for people on low incomes.
People in London pay just over £200 a year, which is £4 a weeknot a significant sum relative to other costs. That reflects the situation throughout most of the country and, thus, the provision that is made in the benefit system nationally. However, my constituents will be asked to pay three times that amount. A £700 bill is a significant cost for pensioners and others on low incomes. Confirmation of the scale of the increase has caused huge concern. When increases were relatively low, such worry died away to some extent, even though we paid the highest bills. There was a feeling of unfairness, but people learned to cope with the bills.
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However, the thought of further high increases has now put the issue back up the agenda. Such concerns caused a wipe-out for the Conservatives in the past. They could have the same impact on the Labour Government if they are not seen to be taking action to help people with the problem.
For some people, water meters can provide a measure of relief because the average metered bill will be lower. However, by definition, those who choose the meter system tend to be low users. Families with several children are unlikely to opt for a meter because they may face increased charges. The problem with the shift to metering by people who will benefit from it is that, each time someone cuts their bill by shifting to a meter, the bill is increased for those who are on unmetered supply. Which group of people is most guaranteed to benefit from a metered supply? Those with second homes who do not occupy them for most of the year. They have moved over to meters in droves. That means that people who are fortunate enough to own a second home in the county now pay among the lowest bills, whereas those who live with family and are struggling to meet the costs of that now face the highest bills. That disparity will get worse. The projections of an increase to nearly £700 in the typical unmetered supply does not take account of that trend, so the increase could be higher still.
That is a significant issue, which the Minister may wish to look at. What can we do to ensure that the owners of second homes make a fair contribution to the costs of an environmental clean-up of which they are probably the greatest beneficiaries? After all, why do people buy second homes in Cornwall or Devon? To enjoy the beaches. Why are the water bills so high? To pay for cleaning up the beaches. However, second home owners are paying the lowest bills. That does not add up.
That problem will never be satisfactorily addressed so long as the water bills for 3 per cent. of the population are based on the costs of cleaning up 30 per cent. of the beaches and the natural environment around the country. WaterVoice South West has been very active on that issue, and I agree with it that we need to consider whether there should be such a variation between regions. I tried to persuade Conservative Ministers about that in the past, and I am now trying to persuade a Labour Minister. It might make more sense to have a mechanism for distributing the uneven environmental cost more fairly across the country. After all, many people from other areas enjoy the benefits of the expenditure when they visit our part of the country, but they do not contribute to it.
That has traditionally been interpreted as referring to the old and the young, or to those living in rented accommodation and those in permanent accommodation. However, there is a question about whether it is reasonable to have discrimination such that people in one part of the country pay £200 or so for water and those in another part pay £700 or so. That is undue discrimination, and it needs to be stopped, particularly as that cost is borne by the poorest part of
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the country. Ofwat has not specified whether that duty is national or local. It has been interpreted in the way that is easiest for Ofwat and the water companies.
Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): The hon. Gentleman probably shares my disappointment that the cross-Government review of water affordability does not agree with pooling, which he has mentioned. It looks forward to the possibility of regulatory review, but dismisses the possibility of mergers. However, it refers to some important measures that can be taken now, without a change in legislation. Does the hon. Gentleman agree that, as well as tackling and continuing to press the issues he has referred to, we should urge the Government to implement their recommendations as fast and as far as possible?
Matthew Taylor : I agree with the hon. Lady. Frankly, it is a matter of all hands on deck. There is a great measure of cross-party agreement on this issue in our part of the world. We will have differences about some of the detail of the solutions, but there is no doubt that this is a fundamental issue. We are talking about water bills that are going up to nearly the level of council tax. Members who represent areas where water bills are a couple of hundred quid may not understand how big the impact is in the part of the country where they are already more than double that and are set to be triple the amount.
If there is not to be a mechanism for sharing the cost more fairly around the country, the Government must at the very least look hard at how bills are forced up by second home owners and by those who run off without paying, which WaterVoice South West says has substantially increased bills.
If the Government do not want to spread the cost more evenly or cap the differential in rates, perhaps it would be possible to take one of two other measures. The first solution would be to allow some incorporation into benefit payments, possibly though housing benefit, to make at least some reparation for high water bills. There is no doubt that that would cost the Government money, but it would at least mean that those on the lowest incomes who were least able to afford the bills would get some directed relief.
Alternatively, benefit levels could be adjusted by region to take some account of this particular utility cost. The costs of other utilities do not vary by region in such a way, or certainly not to a similar extent. This is a unique issue. It significantly affects people on all income bands, but it particularly affects those on the lowest incomes who are in real hardship. Frankly, so far, Labour's solutions have not been adequate. I do not think that it has really understood the scale of the problem while in government. One suggestion made was that we should experimentally educate 1,000 pensioners on how to save water; that is not really addressing the issue. Nor is recycling the existing help given to pensioners in getting water meters. A big announcement was made about that, a scheme that is already in place. It is great to have some publicity for it, and it is important to make sure that people know about it, but that is not the same as providing a real solution to the problem.
I am fully aware that the Minister cannot possibly come up with a set of proposals now that will address the scale of the need. I am glad that he is here, that he has
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had the chance to hear the concern of Members of Parliament from across the region, and that I have been allowed the chance to set out the scale of the problem, which I have found often comes as a surprise to Ministers. We persuaded at least one former Secretary of State to take the case to Cabinet. He did not win it, and the Conservatives did not take the action needed. I hope that we can persuade this Minister at least to take the case to his colleagues, recognising that it is a serious issue. I hope that this Government may be more willing to deliver than the Conservatives were. This is an urgent issue; bills are rising now, and people will get news of their first set of big increases through the door any minute. I assure the Minister that it will be a very big issue in the election that is likely to take place in just a few months.
The Minister for Rural Affairs and Local Environmental Quality (Alun Michael) : The hon. Member for Truro and St. Austell (Matthew Taylor), who I congratulate on obtaining this debate, has been generous on two counts: first, he acknowledged that there is no instant answer to the problem, and, secondly, he said that current Ministers have to deal with a legacy of past mistakes. I must say that this is not the only issue on which we have to deal with a legacy of past mistakes, some of which have an impact over many years and cannot be dealt with even in two Parliaments. I will not go on to expand on the opportunities that further Parliaments will offer. The hon. Gentleman has acknowledged two important points that will help us to have a constructive debate on how we deal with the issues.
The hon. Gentleman does not need to persuade a Welsh politician of the potency of the issue of water and water prices. I acknowledge that the problem is currently more acute in the south-west, but over the years it has been an extremely potent political issue in Wales.
Water bills contribute significantly to the outgoings of many householders, so any rise in bills will have an impact on customers. The Government are particularly concerned about the effect on those least able to pay. The problem is particularly serious in areas where water charges are already relatively high. That description certainly fits the south-west, where there are many low-income households. I am aware that the problem of the cost of water bills as a proportion of income is a particular worry in the area. That is why we have set up a local-scale pilot study, which will take place in the south-west, to look into issues of affordability and the impact of benefits, checks, water efficiency measures and metering. I am pleased that, although there was initially some negative reaction, WaterVoice, to which the hon. Gentleman referred, has engaged positively in the development of that work.
Matthew Taylor : On that point, WaterVoice South West is very keen to meet the Minister to discuss those issues, and south-west MPs would probably like to take part in that discussion. I hope that he, or his colleagues, are willing to agree to that.
Alun Michael : It is more appropriate for my hon. Friend the Minister for the Environment and Agri-
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environment, to undertake that. I shall convey the request to him. I should not be filling his diary on his behalf, but I shall pass on the request.
Let us start by looking at the realities of the present situation. Water companies must meet their costs, including those of environmental standards, as the hon. Gentleman acknowledged. Ultimately, all those costs are met by customers. Ofwat sets an upper limit on customer prices, but there is a strong and visible link between what the company spends and the customers funding that through their bills. It has been argued that that makes water companies more sensitive to the views of their customers. Strong evidence in the recent periodic review shows that companies' business plans now pay more attention to customers' priorities, and that is no bad thing. However, it is not the whole picture, and there are particular problems in the south-west.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Exeter (Mr. Bradshaw), has taken a keen interest in the issue of the rising bills in the south-west, and has met a number of MPs from the region to consider the impact that the new price limits will have. In particular, he has discussed the issue with my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy), who, as hon. Members will be aware, has a particular expertise and background in consumer matters.
It is worth pointing out that we face rising bills in 2005 because charges were cut in 2000. We are facing a rise only compared with five years of lower pricesthat can be seen by the dip in the general graphthat were driven by a wish for customers to pay lower prices. However, the regulator Ofwat worked hard through the 2004 periodic review to keep the final price rises as low as possible, ensuring that customers pay no more than is essential to cover the variety of arrangements.
Nationally, prices will rise by an average of 8.5 per cent. this April, with South West Water customers paying an average bill increase of £29 in 200506. Average household bills for water and sewerage in the region will go up by £87 to £444 before inflation by 200910. That compares with the company's proposal in its business plan for an increase of £120 over the period. It is worth pointing out that South West Water customers benefited from the average cut of 10 per cent. to bills in 1999. Although prices will rise between now and this time next year, customers in the south-west will be paying less in real terms than they did in 1999, with the average bill in 2006 being 2 per cent. lower than it was in 1999.
The hon. Member for Truro and St. Austell raised a lot of important points on water charging and the regulatory system, and acknowledged that they are not all new ideas. The Government reviewed the water charging system in 199798. That resulted in the Water Industry Act 1999, which includes protection against disconnection and the free meter option. However, we have not shut down the subject for ever, and we remain open to ideas on charging methods and tariffs. I will
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show the hon. Gentleman's specific suggestions to those evaluating the current position. Clearly, he has here today a bevy of supporters from his party in the south-west. He put forward a number of ideas for reducing the burden on South West Water customers, but they usually involve shifting the burden on to national taxpayers or water customers in other parts of the country.
We are not convinced that it would be right effectively to subsidise South West Water's investment, either through a national fund drawing money from all water companies, or by public subsidy from taxation to South West Water, as has been suggested. Such solutions would run counter to the present legislative and regulatory framework. I wonder whether Liberal Democrats in other parts of the country would be enthusiastic about a discussion with customers in regions other than the south-west, and with those who would feel the impact of any redistribution of the south-west's costs. If the cost of water companies' plans were met by a national environmental fund that drew its money from customers throughout the country, individual companies would have less need to listen to their customers. There would be a lack of accountability and a weakening of the driver that encourages companies to keep their costs as low as possible. As the hon. Gentleman indicated, I am describing the arrangements that we inherited. In changing them and trying to correct what is clearly a major problem we have to be careful not to destroy their benefits.
All regions, companies and customers have their problems and priorities. Whereas such costs as bathing water improvements have affected the south-west most heavily, other problems, such as nitrate removal, sewer flooding and the replacement of worn-out infrastructure, are at their worst in other parts of the country, including the Anglian region and the north-west.
Another suggestion is that we should change the way in which individual charges are met. I have some sympathy in principle with the view that unmeasured charges based on rateable values are outmoded. We are considering the charging system and seeing how it develops. We have a particular interest in how metering develops and its balance with unmeasured charging. I acknowledge the hon. Gentleman's point that a meter benefits small families or individuals rather than large families.
We acknowledge that there is an issue about water affordability. The Environment, Food and Rural Affairs Committee pointed to that issue, and last year a cross-Government steering group reviewed the way that lower income households are helped with their water and sewerage charges. A wide range of stakeholders were involved in discussions with the steering group, and the Government published its report last December. It concluded that there are measures in place to assist lower income households. Suggested ways for the Government, Ofwat and the water industry to tackle the
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issues include improving existing arrangements in the short term and studying the effect of the charging system in the longer term.
The report made six recommendations to help vulnerable groups. Following the review of affordability measures, the pilot to which I referred earlier has been established in the south-west. We want to operate it alongside the Warm Front scheme, as there are clear links between our proposals for benefit health checks and efficiency measures. We will also be able to tap into the experience that the Warm Front team has built up in reducing the heating costs of vulnerable households.
The pilot study will offer targeted assistance to help 1,000 households in the south-west to access advice on saving water, to install water efficiency appliances, to check for water leakages and so on. It is also worth pointing out that assistance through the tax and benefit system has increased significantly in recent years. As a result of personal tax and benefit measures implemented since 1997, by September this year families with children will be on average £1,350 a year better off in real terms and the poorest third of pensioner households will have gained £1,750 a year.
I fully understand that that does not reduce the impact, or the perception, of the weight of water charges. The hon. Gentleman raised important issues in opening this debate because, in general, the tax credit and benefit systems do not provide targeted support for the costs of a particular service, such as water charges. There are exceptionshe referred to housing benefit and the child care tax credit. However, rents and child care costs typically represent a far larger proportion of household expenditure than do water and sewerage charges.
Like the hon. Gentleman, we are concerned about the burden of water prices, particularly on customers in the south-west. South West Water customers have to pay more for their water and sewerage services than people in other regions. That is one of the features that developed out of privatisation, which required each customer to pay for the costs incurred by their water company. The hon. Gentleman acknowledged that and he was right to do so. Identifying the problems does not mean that there are easy solutions. Again, he acknowledged that.
So far, none of the ideas put forward fully solves the problems faced by customers, but Ministers are engaged in the ongoing search for a solution. Although we have yet to find itI must acknowledge thatwe have not given up. The affordability assistance pilot study will focus our effort on help to the most vulnerable customers, which is where help is most needed. I have no doubt that many lessons will be learned from that work which we can heed when considering long-term solutions to the problem.
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