Nick Harvey (North Devon) (LD): I am delighted to have this opportunity to return yet again to the subject of water bills in the south-west, which has been debated many times in this House, most recently by my hon. Friend the Member for Truro and St. Austell (Matthew Taylor), who introduced an Adjournment debate on 1 February. Following on from that debate, there is a meeting tomorrow between Water Voice South West and the Minister responsible for water at which the consumer body will yet again put the case for action to alleviate the high water bills in the south-west.
On a point of record, I feel that I must go over some old ground. In 1989the time of privatisation of the water companiesthere was not a huge disparity between water bills in different regions. The industry average was £120 a year, and the south-west, at £147 a year, was about 20 per cent. above the average. That was not the highest figuretwo regions paid morebut figures for all regions were relatively close together. Rolling forward to this year, the industry average is £264, but the south-west is paying £400, which is much the highest. The gap between the highest and the lowest figures has become enormous and the situation has got progressively worse over those years.
The reasons for that are fairly well known. In the first instance, the costs of cleaning up the coastline and of sewage processes at the coastline placed a huge capital burden on South West Waterthe company and its customers had to pay the costs of that clean-up. Broadly speaking, the clean-up is complete, and certain expectations have been raised that, following that completion, the south-west can anticipate water bills returning to what is the norm for the rest of the country.
South West Water is now telling Ofwat and customers that, although it has completed the clean sweep programme, it has put in place a lot of new infrastructure, which will need to be maintained and supported over the years to come and will therefore cost money. Additionally, there are all the capital burdens placed on South West Wateras on all water companiesin terms of drinking water quality, the amount lost through leaking pipes and security of supply. Therefore, the company cannot make good its promise to charge a price nearer the national average.
Indeed, in addition to South West Water customers already paying by far the highest bills in the country, the periodic review in December, which covered the next five years, has placed on top of the highest bills much the highest yearly rises. It is not scaremongering or causing alarm to predict that, unless something is done, at the end of that five-year period South West Water will produce another eminently plausible programme for the
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following five years, which will be a reason why a further fortune must be spent and why bills must get higher. Everyone is paying higher water bills.
As I went round my constituency, I found that water rates and the council tax were the two biggest issues on the doorstep. It was quite different from other elections: despite all the previous rumpus, I heard much less about hunting and Europe.
The two things on voters' minds were water rates and council tax: that is fair enough, because we hold elections at a time of year when both those bills have only just arrived on people's doorsteps, and they will be at the forefront of their thinking, but in my experience those bills both caused anger bordering on rage. The council tax is undergoing a substantive Government review, and in any event I think that voters in the south-west understand that the whole country finds the council tax burden unacceptable. What is unique about the water rates is the fact that customers in the south-west are carrying so much more of a burden than those in other parts of the country. That, I think, has given rise to such a degree of rage.
In addition to the fact that water bills in the south-west are the highest, it is essential to point out that Devon and Cornwall have the lowest incomes in England. The highest burden therefore falls on those least able to carry it. It is well known that many people in Devon and Cornwall are of retirement age and live on fixed incomes. In particular, pensioners find that an unacceptably high proportion of their disposable income is going on their water bills. Each year they receive a modest state pension increase, but their water bills and the council tax between them more than eat up the entire rise. Indeed, on occasion, either increase might do it alone.
In my view, it is a gross injustice that these enormous bills are being paid by people on small incomes, and the time has come for the Government to intervene. Various options are open, but too much time has passed and it is now incumbent on them to decide how to tackle the problemand to get on and do it.
"I hope that the Minister can assure the people of Cornwall that they will not be expected to meet all the costs of cleaning up the beaches, which are used by citizens of the UK and Europe, purely because the Government through their ideological approach are cutting off the potential to obtain money in other ways."[Official Report, 8 December 1988; Vol. 143, c. 536.]
Water Voice, which is meeting the Minister tomorrow, will, I am sure, invite him to cast his mind back to the Water Charges Equalisation Act 1977. It was enacted by a Labour Government, who recognised the problem caused by disparities in water bills across the country. Those on any benefit receive uniform support to help to pay their bills, but water bills have become hugely different from one region to another. The Act imposed a levy on each regional water company. The money went into a central pot and was then rebated out to water companies to help them with
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some of their capital costs. The net effect should have been to get water bills as near to equal as could be achieved.
The 1977 Act was repealed in 1983 by the Conservative Government, who thought that it created perverse incentives, rewarded inefficiency and levied charges on efficient companies while handing out money to the inefficient. Several years later came water privatisation. Some would say that privatisation makes it impossible, impractical or undesirable to go back to the principle of water charges equalisation. I believe that the opposite is the case and that the fact of privatisation may make equalisation a better idea than it was when everything was in public hands. If we continued with a system of periodic reviews by Ofwat, and if in addition to considering price issues Ofwat imposed a levy of the kind I am describing, the company would know where it stood for the forthcoming five-year period. Furthermore, it would still have all the incentives to improve its efficiency and to do better than the figuresin effect, the targetsthat had been set so as to make a return for its shareholders.
It is perfectly feasible to move to the equalisation principle despite privatisation. There are many sectors in which private companies compete, but where they do so on a regulated playing field. In the rail industry, for example, different operators work on the basis of completely different financial relationships with the Government: some involve rail companies paying in while others involve the opposite. The fact that the ownership of companies has transferred to the private sector does not prevent a return to the principle of water charges equalisation. I very much hope that when representatives of Water Voice come to the Department tomorrow to put those points to the Government, they are given a good hearing.
There are alternatives. The Government could, for example, grant aid some capital works, which would impose a new charge on taxpayers. Some might argue that it would be fairer in principle for the taxpayer rather than the water customer to meet such capital costs, because taxation is a fairer system of raising money than water charges. Frankly, I am not pushing one method or another. I am telling the Government that there is a huge issue here; it has been bubbling and simmering for years and it is coming to the boil. They must consider the various options and take action now to ensure that a huge injustice is put right.
At various times, my hon. Friends have argued for the water tariff to shift from the old rating system, which was abolished many years ago because it was discredited, and from using valuations that are years and years out of date. Instead, they argued, it should be based on the council tax. That would have the advantage that the council tax benefits system could be used to help those on very low incomes to meet their water charges. Although that idea had merit at the time, we very much hope that the council tax itself is about to be abolished, and it would be no solution to the water problem to attach the water tariff to another local government finance system that is on its way out. That would simply be to repeat the mistake of attaching the tariff to the old rateable values.
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Alternatively, action could be targeted specifically on those on low or fixed incomes. I do not believe that that is a complete solution, because the burdens are unfair on everybody, but it would certainly make a welcome start if the Government targeted aid on those most in need of it. As I said, benefits are calculated on a national basis, but the bills that people have to pay differ significantly from one area to another. By the end of the current period, South West Water households will be paying an average of £4442 per cent. of their disposable income, compared with a national average of 1.1 per cent. A single-pensioner household living on the minimum pension credit and paying an average South West Water bill might end up paying 7 per cent. of their disposable income on water and sewerage charges by the end of that period.
In March 2004, the Secretary of State said in her guidance that she would be reviewing how lower-income households are helped with their water and sewerage charges. We have to hope very much that something emerges to address the most desperate cases.
Overall, although average water bills have risen since 1994, they now make up a smaller percentage of household income than they did then. However, the opposite is true in the south-west, where 21.6 per cent. of households spend more than 3 per cent. of their disposable income on water and seweragethat is heading towards 30 per cent., compared with a national average of 7.9 per cent.so there is a huge disparity between the south-west and other parts of the country.
Representatives of Water Voice will put other issues to the Minister tomorrow. It is particularly keen for those who cause problems that lead to high sewerage bills to pay towards the costs that they create. I will leave that issue for Water Voice, but I think it makes a good point in some cases.
Highway drainage gets into the sewerage infrastructure, which invariably causes problems. It is particularly unpleasant for householders who get on the wrong end of the back-up of an unsavoury cocktail, as I have found when I have had to deal with issues of small, localised flooding in my constituency. Some of my constituents suffer repeatedly. They know that virtually every winter the hatches in their floors will rise and various unmentionables will appear in their houses. Highway drainage getting into sewerage infrastructure is a huge problem, although resolving it will lead to the additional capital costs that I have described.
Metering is also an issue. Hon. Members whose constituents come to their surgeries expressing horror at the size of their water bills are likely to recommend meters if they think their constituents will benefit from them. In England and Wales, 26 per cent. of customers have water meters, with the local variations from 61 per cent. in Essex to 5 per cent. in Portsmouth. Among the larger companies, only Anglian Water has a majority of customers54 per cent.using meters. Water Voice takes the view that in the long term most customers should pay on the basis of a metered supply, but that lower-income customers should receive help through the benefits and tax credit systems.
The Government need to introduce an explicit link between the tax and benefit systems and water charges if anyone is to be convinced that targeted help really is being produced through the system to provide some
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comfort. Every time somebody takes on a water meter, that increases the pressure on the price that has to be paid by the rest of the customer base, so it can become a problem.
In the south-west, there are many second homes and holiday homes. Astute owners of such homes waste little time in getting meters because they use little water and therefore pay low bills. However, in parts of my constituency many such homes are in idyllic spots miles from anywhere, with beautiful coastal views, and massive infrastructure expenses are incurred in providing water and sewerage services to them. In some instances, therefore, the houses that are the most cost-intensive to supply pay the lowest bills. That is another anomaly that needs to be addressed.
I am delighted that a number of my hon. Friends and other hon. Members from the south-west are here for the debate. That demonstrates the strength of feeling on the issue. We have returned fresh from an election in which water and sewerage services were undoubtedly a major issue. The Government need to be told, and the purpose of the debate is to draw to their attention the strength of feeling in the south-west on that issue and the sincere belief that the situation has gone on for too long.
There are options, each with differing merits, and it is for the Government to decide which solutions have the most appeal. However, they cannot just leave the situation to drift on and on. They are turning into rebels and protestors people whom they would not normally expect to take to the streets and march, but that is where we will be headed if nothing is done. There is an immense need for action soon.
The public are very aware of this unfairness. Thanks to the good offices of the regional mediathe Western Morning News and our regional television and radio companiesthere is a high awareness of the disparity between bills in the south-west and those in the rest of the country. There is a good understanding of the issues involved and of why some expenses have mounted up, but the public are absolutely determined that there should be change.
David Taylor (in the Chair): Order. I would like to announce the ruling on procedure for debates on local rather than national issues, such as today's. In such debates, the Front-Bench spokesmen for the official Opposition and the Liberal Democrats will normally be allowed five minutes each. There will then be at least 10 minutes for the Minister to reply. I ask hon. Members to bear that in mind.
Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): Thank you, Mr. Taylor. As is customary, I congratulate the hon. Member for North Devon (Nick Harvey) on securing this Adjournment debate and on picking this particular subject. As he rightly said, it preoccupied usLabour Members as well as his hon. Friendsa lot during the last Parliament.
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I welcome my hon. Friend the Minister, as this is the first occasion on which I have had the opportunity to engage in debate with him. I think I am right in saying that he recorded either the only Labour gain, or one of two Labour gains, in the 2001 election. That was quite a feat, but holding his seat with an increased majority at the last election was quite remarkable. I hope he deploys in the Department the undoubted skills that he showed in the general election, particularly on the issue that we are considering today.
In the context of the very large charges that we are talking about, that is, in some respects, a small issue, but it is an important signal that the Government are beginning to recognise the pressure that hon. Members have put on them on the matter of water charges in the south-west. I like to think that such recognition has resulted not only from lobbying by hon. Members, but, in particular, from lobbying brought to bear on Ministersin particular the Minister for Climate Change and the Environmentby me and by Candy Atherton, the former Member for Falmouth and Camborne.
I remind the House that there was a proposal to move the office of Water Voice in the south-west from Exeter, and I want to record my thanks for the Minister's intervention, which followed his meeting with me and the former Member for Falmouth and Camborne, and my request to meet the chair of the national Water Voice committee with a delegation from the local Water Voice committee, and to meet Ofwat about the matter.
I pay tribute to the work of Noel Olsen, the current chair, and to his members for the work they have been doing to represent water consumers. I refer in particular to the help that he gave me in our fight to ensure that proper attention was paid to the sewage smells from Cattedown treatment works and those at Camels Head and Keyham, which continue to have problems. I know that my new hon. Friend the Member for Plymouth, Devonport (Alison Seabeck) will fight that corner, assisted by the new code of practice and the good practice guide, which emerged from the clarification we sought of the law in that regard. I also thank Mr. Olsen for his help in seeing that the regulator ensured that the cost of rectifying the flaw in the original design of the treatment worksthe figure involved was more than £1 millionwas not passed on to water users.
I am sure that the Minister will remind the House of the Government's success during the previous Parliament in keeping water charges down. Nevertheless, as the hon. Member for North Devon pointed out, and as I pointed out in the Adjournment debates that I initiated in the previous Parliament on 10 November 2004 and in December 2001, the price hikes, added to the higher-than-average burden dating back to the 1989 privatisation, are unsustainable in terms of Government policy on tackling poverty and intolerable for individual constituents.
In my previous Adjournment debate, I said that I thought the review being carried out by the Department for Environment, Food and Rural Affairs would be
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challenged to come up with answers within the current regulatory framework. That comment has turned out to be right. A pilot scheme linked to the warm front programme was announced. It emerged from the cross-Government review of water affordability and will introduce targeted assistance for lower-income households. Also, it will take place in the south-west. I am not sure from the hon. Gentleman's remarks whether he has come across that initiative. It will help lower-income households to access all the assistance available and it will help metered customers to use water more efficiently.
The scheme will also promote the vulnerable groups regulations. I say to the Minister that I continue to be disappointed at the take-up in that regard. The regulations are limited in how they can help our constituents, because to qualify someone has to have a defined medical condition or be on a defined benefit and have three children. Even though considerable lobbying has been done on take-up, in 200102 only 4,716 people were in receipt of benefit through those regulations on the social tariff. According to the answer to a written question that I received on 7 June, that figure has gone up to 7,202, but it is still derisory, considering the number of our constituents who are in real hardship and struggling to pay these bills.
I have paid tribute to Noel Olsen and I understood his anger and that of Water Voiceindeed, I think hon. Members on both sides of the Chamber share their concernbut it was a bit cheap to deride the water pilot as merely putting hippos into cisterns, because there is a great deal more to it than that. One benefit of the scheme is that it will demonstrate clearly what we see in our surgeries all the timethe great hardship experienced by our constituents.
In the debate that I initiated last November, I mentioned a plethora of potential solutions that needed to be examined, some of which the hon. Member for North Devon referred to this morning. In particular, we need to consider how owners of second homes could pay a fairer share. I think Water Voice shares that view. The hon. Gentleman feelsmore as a vain hope than anything elsethat the council tax will be abolished. I do not think that will happen. Following the balance of funding review, I hope there will be major changes.
Mr. Colin Breed (South-East Cornwall) (LD): If the council tax is to remain, will the hon. Lady use her influence to see whether water charges can be attached in some way to council tax, rather than continue with the rateable system?
Linda Gilroy : The hon. Gentleman took the words out of my mouth: not only do I intend to do as he suggests, but I have been doing so for some time. I have made representations to the Lyons review to ask that the matter be considered. The hon. Gentleman will know that I co-chair the Public Utilities Reform Group, which deals with all utility issues but majors on the question of water. I will promote the issue at a meeting later this month, and I hope a representative from the Lyons review will attend. The matter is very important.
The council tax review must address the issues of pensioners who are asset rich but income poor. The same issues affect water charges. I have mentioned the
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vulnerable groups regulations, which, through the social tariff, help far too few people. I believe that South West Water has a trust fund of the sort that I advocated during the previous Adjournment debate, which some other companies had at that time. I do not think that anyone knows about it and certainly no one has engaged us as Members of Parliament to enable us to pass on its benefits to our constituents. The Minister could examine that and encourage the company to do more in the immediate future.
Specifically, he said he would examine the study on variable tariffs done for the Joseph Rowntree Foundation. I know he indicated that consideration of altering the prohibition on mergers should not be ruled out. I am sure that the Minister here today has been briefed to be cautious about referring to that matter.
Pushed on that issue by our friend the former Member for Falmouth and Camborne while visiting her, the Minister for Climate Change and the Environment expressed merely mild support for it to be examined. That caused a share price movement. I must tell this Minister that the matter deserves serious and urgent attention, because this is a path that could help. This is a big problem and, as with all big problems, no one solution will produce a result that addresses the matter fully.
I was fortunate to secure the Adjournment debate in the House last nightfortunate only in some ways, Mr. Taylor, because it was a rather late one and I was torn between the subject about which I spoke then, the urban renaissance of Plymouth, and water charges. I wish to return to this subject to discuss the research that I have been conducting in Plymouthin Plymouth, Sutton in particular. The Minister knows about it and I am seeking a meeting with his Department to discuss it. It will be the prime concern for PURGe, which I have already mentioned.
Hon. Members will recall that the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), when he was an environment Minister, privatised the industry with a totally inadequate green dowry. There are all sorts of rumours about why that was, linked with the fact that the pension liabilities were totally unsustainable and there had to be a trade-off between the two. These frustrating questions are haunting the search for a solution.
I urge the Minister to convey the need to come up with solutions and to underpin them with a review of the whole regulatory process of the type referred to by Dr. Dieter Helm when he addressed the Select Committee. He mentioned the difficulty of current regulation:
He advocates a longer-term review, comprising an overarching policy framework, 10-year fundamental reviews and much more reliance on an interim determination process to allow flexibility within periods. I look forward to the Minister's response.
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Richard Younger-Ross (Teignbridge) (LD): Thank you, Mr. Deputy Speaker. I congratulate the hon. Member for South Dorset (Jim Knight), who is now the Under-Secretary of State for Environment, Food and Rural Affairs. I have taken part in debates with him on radio and on television stations in the south-west, and I found that he always listened to the questions put to him and tried to answer them. I hope that his new elevated status does not deter him from sticking to that record and that he answers some of the very serious questions that Members on both sides of the House will put to him today.
I also congratulate my hon. Friend the Member for North Devon (Nick Harvey) on securing the debate. He said that the issue was raised during the election; it certainly was. He also said that the election was held as legislation was being discussed, so it was inevitable that the issue would be raised.
We in Teignbridge have conducted our campaign on water charges through a rolling petition. We have gone out every month or every six weeks, and whenever we have taken our stall to Newton Abbot, Teignmouth or Dawlish and asked people whether they wanted to sign a petition on water charges, they have said yes. Indeed, when we petitioned during the election, queues of people signedfar more than have signed petitions on any other subject.
That is unsurprising, because, as my hon. Friend pointed out, some households are spending up to 7 per cent. of their income on water charges. That is in addition to the injustice of several households in the south-west already spending up to 11 or 12 per cent. on council tax. If we add those two figures together, Mr. Deputy Speaker, almost a fifth of householder income is being taken in statutory charges for council tax and water.
Those people have worked and saved, but a fifth of their income is being taken away. They might as well go back to work and pay 20 per cent. income taxit is the same sum. They have worked hard all their lives, but we are still taking from them. We should not be doing so. This is an injustice. Today's debate is about water justice.
My hon. Friend also said that, after the current increases, water charges in the south-west will be three times as great as the lowest water charges in the country. Mr. Deputy Speaker, the water charges that we pay in the south-west
The water charges paid in the south-west after these increases will be three times what they were in 1989. That means that the rest of the country is, in effect, paying what we in the south-west were paying 16 years
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ago. What sort of justice is that? What sort of fair society is that? We know that the water companies, when privatised, were slow to implement the clean-up programmes, and it was the former Member for Bath, Chris Patten, who forced them to take the clean-up programme seriously. I must say that the water companies did a very good job in cleaning up the water, but that still left 3 per cent. of the population cleaning up 30 per cent. of the country's beaches in the south-west. That cannot be right.
A couple of years ago, the Government had an opportunity to correct this situation. They introduced the Water Act 2003. I thought then that we could propose an amendment to the Act to allow an equalisation scheme like the 1977 scheme, which was referred to earlier. Through it, there would, in effect, have been a levy on the water companies, which could have claimed back a grant against capital costs of programmes such as clean sweep. That would not have been perfect, but we were trying to work out how to use the legislation to make the system fairer.
There was no support from those on the Labour Benchesnot one Labour Member supported that amendment. It had the full support of the Liberal Democrats, but was sadly opposed by the Conservative Front-Bench team, although its spokesman the hon. Member for Leominster (Bill Wiggin) is shaking his head.
Richard Younger-Ross : The amendment was introduced on Report and moved by my hon. Friend the Member for Lewes (Norman Baker). I had proposed the amendment to my party, which supported it. A couple of Conservatives from the south-westI will give credit to themturned up and voted for the amendment, but it is a shame that the Conservative party decided to oppose it, because if we had got some cross-party support, we might have been able to persuade the Government that there was a way
Richard Younger-Ross : We had an opportunity to bring water justice to the south-west, but I am afraid that it was thrown away. We have an opportunity today
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to debate the issue further, and tomorrow the Minister has an opportunity to listen to what Water Voice has to say. It is an impartial body, and it has come to the same conclusion as many of us: there is no water justice in the south-west and something has to be done to relieve a large number of households of the heavy burden of water charges.
I ask the Minister to acknowledge, as a Minister did in the debate on the Water Act 2003, that there is a problem and that the Government will seek a way to equalise water charges to households in the south-west with those in the other parts of the country.
Alison Seabeck (Plymouth, Devonport) (Lab): We have heard a catalogue of complaint from hon. Members who have had long experience of South West Water's poor relationship with its consumers. My hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) has vociferously campaigned over many years for water bills to be reduced in the south-west, highlighting the disparity between our region and the rest of the country.
Apart from the serious concerns that my constituents have about the high level of their bills and the disproportionate impact on those on low and fixed incomes, they have also expressed deep unhappiness about South West Water's failure to communicate effectively with them. Given the charges levied, we would surely expect the company to be able to afford a decent public relations department, but noconstituents living in Ernesettle and close to the Camels Head works suffer regularly from the most unpleasant odours or stink. South West Water has been unable to give an acceptable explanation of the causes of the smell, which at times is so awful that the local residents find that it puts them off eating. It pervades the whole area.
What makes the situation worse is the historic failure of South West Water to communicate with those affected by the smell. It has taken a great deal of work by my hon. Friend and by my predecessor as Member for Plymouth, Devonport to elicit press notices for future works. Indeed, the local council was considering putting an antisocial behaviour order on South West Water, such was the desperation of local residents. I will study carefully the good practice guide for the water industry established by the Government in response to the public's concerns. I hope that that will enable practical solutions to complaints to be found in a way that is clearly not happening at the moment.
It is therefore clear that the problems our constituents face are a consequence of privatisation, and, in turn, of the fact that we have such a long coastline. It is also a consequence of something that has not so far been mentioned: the fact that we live in a large rural area where the distribution of water and sewerage services is, perhaps, more expensive than in a small urban area.
The Government knew at the time of privatisation that there would be a problem for customers when customer bases were small. That is why a green dowry was suggested and created. However, the problem with that dowry was that it was available to all the water companies, and because the larger water companies were more able to secure a larger part of the dowry than the smallest of the water companiesSouth West Waterthe dowry did not actually help the south-west. South West Water itself makes that criticism of the dowry.
Linda Gilroy : Are the hon. Gentleman's constituents puzzled, as mine sometimes are, as to why such a small water company with such a small customer base was created? That is one of the big problems with regard to resolving the charges problem.
Mr. Sanders : The hon. Lady puts her finger on the key point: the problem is the size of the customer base. I will address that shortly. The result is that there is a substantial gap between the cost of the bills in the south-west and the ability of the customer base to pay, both in relation to its size and the fact that it contains some of the lowest-income households in the country.
There are things that customers can do and have done. There is no doubt that meters help; in a low-use household, a water meter will reduce the bill, and we encourage constituents to go down that route. If a household's property is not eligible to have a meter, the household is eligible for an assessed water charge, which will save it money if there is low usage. We also encourage people to take water efficiency measures. A lot more can be done in the area to reduce water usage, but that is true not just for the south-west but nationwide.
There is also the essential user tariffmeans-tested support for a small group of people who are eligible. That is not widely known about, and more information should be made available, particularly through the benefits system, so that people are aware that certain medical conditions attract extra support towards water costs because water is essential in respect of those conditions. All those measures are available nationwide, so even if they were all applied, there would still be that gap between the south-west and the rest of the country. That gap is seen as an injustice.
I turn to the solutions. The first of them is the one that the hon. Member for Plymouth, Sutton (Linda Gilroy) put her finger on: we need to widen the customer base. As politicians, we cannot do that unless we intervene in the market. Finding a way of sharing the burden has to be the easiest route to finding a solution. Can the
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Government intervene, regulate and peg charges? I pose that as a question. I do not like Government intervention and regulation, but if that is a last resort in the interests of justice, perhaps that is something the Government need to consider.
Can we do more to target support at low-income households, perhaps even in particular areas where they face higher-than-average bills? That would provide specific support for South West Water customers. Can we legislate and introduce some form of equalisation scheme to bring us back to where we were before privatisation, when water and sewerage charges were generally the same, whether people lived in Northumberland or north Cornwall? Those are the solutions and the people of the south-west want to hear that this Government will do something about the problem; they know that the previous Government created the problem and that the Conservative position at the general election ruled out any specific support. As the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) said on BBC Radio Devon, the Conservatives had no plans to help South West Water customers. The people of the south-west are therefore looking to this Government for a solution and to find some justice.
I congratulate my hon. Friend the Member for North Devon (Nick Harvey) on securing this debate, and congratulate hon. Members from all parties on the work that they have already put in and on the campaigns that they have been running over a number of years. Although I am a new Member of the House, I have been involved in campaigning on this issue outside the House for a number of years.
It is clear that consumers and all those involved in the water industry in the south-west are subject to two pressures: ensuring that we have the cleanest beaches and environment we possibly can and ensuring that the burden does not fall unfairly on the consumer. Those pressures, however, are pushing in different directions. The money for the environmental clean-up has to come from somewhere and, unfortunately, up to now the burden has fallen solely on the consumer.
There are a number of projects in my constituency on the north coastin Bossiney, Tintagel and Boscastlewhere the water company is proposing measures to try to meet water directives, but local people have seen that the treatment offered to them, which will be put in place in those areas, does not meet the standard that they would hope to have for their area. The reason for that is that their area of coastline does not have bathing beaches. That is a rather odd distinction, because the sea does not flow just to one part of the coast and not to the bathing beaches just around the headland. It is common sense to try to achieve a decent standard of treatment all along the coastline. However, it would be and has been unfair to see the burden of any such works fall on the people of North Cornwall, or indeed the people of the wider south-west.
We must consider not just the scale of the charges, as hon. Members have said, but the disparity between charges faced by the people in the south-west and those
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elsewhere. As my hon. Friend the Member for North Devon said, this is not just a problem faced by those on lower incomes, but a matter of what people, whatever their income, should realistically be prepared to expect as an outgoing compared with those in other parts of the country.
A number of solutions have been proposed. My hon. Friend the Member for Teignbridge (Richard Younger-Ross) talked about amending legislation, which raised the possibility of reawakening the idea of equalisation across the country. I am looking with interest to see what proposals the Government have to tackle this matter, and I hope the Minister can enlighten us.
I was slightly concerned to hear the views of my Conservative opponent in the general election, who, in a debate on Radio Cornwall, decided that the best way to tackle high water charges was to build more reservoirs. He thought that the problem was a shortage of water and that if we had more water, the cost would come down. He could not say how the new reservoirs would be funded nor what bearing such proposals would have on the costs faced by the water consumer, but perhaps his colleague the hon. Member for Leominster (Bill Wiggin) can enlighten me.
It is fair to say that water charges is probably the biggest issue facing those of all political parties the south-west. Indeed, it is the biggest issue facing people in Devon, Cornwall and the south-west in their day-to-day lives, when they have a family budget to balance. It is therefore vital that the Government come forward with proposals to address this issue. The hon. Members for Plymouth, Sutton (Linda Gilroy) and for Plymouth, Devonport (Alison Seabeck) said that they hope to bring pressure to bear on the Government. I hope that they do so and that this debate keeps the subject in forefront of the Government's mind as they consider their programme for this Parliament. I hope to see action on water charges soon.
Mr. Colin Breed (South-East Cornwall) (LD): Thank you, Mr. Taylor. I congratulate my hon. Friend the Member for North Devon (Nick Harvey) on securing this debate. We have heard some good and thoughtful contributions this morning. There is significant agreement on the problem, but perhaps not quite on what the solution might be.
We are reminded that a Government of some 30 years ago, in thinking about equalisation, recognised that there were two fundamental problems even then, pre-privatisation. They revolved around affordability and fairness, which are at the heart of this debate. Of course, there is a fundamental difference between charging for water and charging for sewerage services. If we consider the comparators in terms of water provision, we do not find much difference among many of the water companies throughout the country. It is in the sewerage departmentif that is the right phrasethat we see the greatest disparity. That is because of the environmental clean-up and the significant costs of the infrastructure, which has already been mentioned.
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We are talking about vital public services that are essential to every household. Now that we have gone into privatisation, they remain, effectively, a tax, which people have to pay. They cannot even decide to use an alternative supplier, unlike in energy, where they can use different suppliers. It is impossible for us in the south-west to decide that Severn Trent looks a better option and ask it to supply our water or take away our sewage. We have no choice; we have to pay South West Water. We have gone from a public to a private monopoly. The unintended although perhaps not unknown consequence is that the problems we experience in the south-west have been exacerbated by privatisation, although the issue is of course linked to the green dowry and how it was introduced.
With the winter fuel payment, the Government acknowledge that there are energy pressures on low-income households, but nothing is provided to assist people with the vital public service of water. It was therefore unsurprising that the Select Committee, of which I was a member, looked carefully at affordability. Its excellent 19th report of the 200304 Session says:
"People on low incomes in areas with high charges can therefore face acute problems. The Government's own figure for affordability of water is that less than 3 per cent. of income should be spent on water charges. But WaterVoice argued that, based on the draft determination, by 2010 pensioners in the South West would be paying almost 11 per cent. of their disposable income on water and sewerage charges . . . Ofwat concludes that average water bills would increase by 17 per cent. over the period to 2010, which compares with WaterVoice's forecast that typical measured bills in the South West would increase by 29 per cent. and typical unmeasured bills by 35 per cent."
Those astronomical figures show the urgency with which the situation must be tackled. They are projections based on current figures that have been agreed. We have recognised the unfairness in some situations, and the most prominent example is that of second homes. People who occupy their second homes very infrequently and make certain that they are on a meter pay significantly less than their next door neighbours, who live in their homes all the time.
Various solutions have been suggested over a number of years. If it were easy, I suppose it would have been done, but it is not easy and it still must be done. Equalisation may well be a way forward and it can take place in different forms. Clearly, what was intended under the Water Charges Equalisation Act 1977 would not be appropriate now, but there are other options. As my hon. Friend the Member for North Devon pointed out, privatisation does not provide a bar to looking at equalisation.
"In addition, it is conducting a cross-Government review of the ways in which low income groups are helped to pay. However, WaterVoice told us that the review had so far taken rather a narrow view of the options available for helping those on low incomes with their water bills and that the possibility of offering further help though the benefits and tax credits system has effectively been dismissed. If this proves to be the case, WaterVoice told us that it would be necessary to consider meeting the costs of programmes for the wider public benefit, such as those
A small point about the most recent regulator agreement to the increase in water charges was missedthe corporation tax treatment of the water companies. That was different when these privatised companies were set up, because the Government recognised that the pipesthe infrastructurewere the assets and needed special treatment. That has run its course. Part of the increase is an increase in tax to the Treasury. Will the Minister take up the cudgels with his Treasury colleagues and say that part of that extra corporation tax, which was a total windfall to them and perhaps even a stealth tax, could be used in this equalisation solution?
Finally, I end where I begandiscussing the situation of 30 years ago. I shall quote a letter to the Minister for Climate Change and the Environment from Water Voice dated 11 February 2005. No doubt it will form part of the discussions tomorrow. Dr. Noel Olsen, the chairman, says in his last paragraph:
Bill Wiggin (Leominster) (Con): No wonder people are worried about the cost of their water bills when customers of at least eight water companies face increases of over 15 per cent. this year alone. Indeed, customers of Dwr CymruWelsh Waterface a £34 increase. This argument is not about privatisation. Dwr Cymru is not a for-profit company. The argument is about legislation and the cost implications of the rules with which water companies must comply. Of course, the Liberal Democrats were bound to try to blame the Conservatives for privatisation, but we all know that this argument does not follow. Privatised industries can work effectively and efficiently, given the right legislative framework.
South West Water is the smallest water company and it has had to invest vast amounts to comply with European legislation. Ofwat's international comparison of water and sewerage, published in March 2004, also found that 19 per cent. of households have revenue outstanding from their water bills, creating collection costs of about £10 to £20 per indebted customer. This extra cost exacerbates the problem. At the end of 2004, long-term customer debt totalled £527 million. It is plain that water charges are unmanageable for many bill payers.
With increases to bills, these debts are set to grow. If water companies are to face customer debts on such a scale, that could lead to even greater price increases to compensate. The Government simply cannot ignore the serious need to address the impact of water bill rises on low and fixed-income customers. The attempts to cover over the cracks through cost reductions to the most vulnerable groups can work only to a certain extent. More often than not, it simply results in other customers having to subsidise the bills.
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To avoid perpetuating and escalating the problems, more work must be done to look into alternatives for payments, action against customers who can afford to pay but will not, and the performance of water companies. It is the Government's job to intervene on the social aspects of water supplyprecisely those that have recently been allowed to get so out of hand.
The Government are clearly failing to control the impact of increased water rates on many people and businesses. How can the Government seriously claim to be helping families and first-time buyers of homes when those people face ever-increasing taxes and bills on top of the cost of their home? How can the Government expect to foster the growth of enterprise and business when, on top of all the other red tape and taxes they have thrust upon us, our businesses face some of the highest water charges in Europe? As Ofwat's international comparison also says:
Indeed, Britain was the only country in Europe, apart from Spain, where water bills for businesses increased between 1997 and 2001. This Government have overseen large and ineffective increases in water charges. This Government have aggravated the water charges situation with tax increases that rapidly multiply the running costs for our water companies. The increase in national insurance has impacted on all water companies and, of course, that is reflected in the price of water.
Linda Gilroy : I thank the hon. Gentleman for giving way. I will be brief, but we on these Benches and the Liberal Democrats are listening with incredulity to what he is saying. Will he please apologise on behalf of his party leader, who gave us the inadequate green dowry and the far-too-small company that is at the root of this problem?
This Government's periodic price review of water supply has resulted in continuing increases in water charges, although in many areas the quality of water still remains unacceptable. Despite the cost of water and sewerage services reaching unprecedented levels, Ofwat's international comparison found that 15 per cent. of water supply zones did not comply with regulatory requirements for the level of iron in the water supply in 200102, that 2.8 per cent. failed to reach regulatory requirements for pesticide levels and that more than 1 per cent. failed to comply with the requirements for nitrate and aluminium levels.
We all accept the need for investment in water infrastructure to improve water quality and protect the environment, but the Government are failing to do enough to ensure that the efficiency of those actions is maximised. As the chairman of Water Voice Wales commented:
"We are way short of twenty-first century standards with measures to prevent company sewers discharging their contents into customers' homes. The industry and government need to be realistic about current priorities and focus on the most pressing needs of customers."
There are so many opportunities to look into the costs of matters such as cleaning up pollutants in our water supply. If we are to avoid further deterioration in the water charges crisis affecting some of the most vulnerable people in Britain, the Government must accept that there is a problem. When Water Voice reports a near doubling of complaints in the north-west in the past two years and an 87 per cent. increase in the Wessex area between March 2004 and 2005just two examples of a wider problemsomething is clearly massively wrong.
The Government are not delivering and the need for more to be done to bring savings to water customers is obvious. The Government must look into all the options to help people in some of the most disadvantaged areas, who face the highest water bills in the UK, not least by ensuring that our water companies can operate in the most efficient and cost-effective environment, rather than one dominated by red tape and ever-increasing taxes.
I am sure the Minister will tell us what happened to the windfall tax of some £107 million, which was supposedly levied to create jobs under the new deal. I wonder how many of those were actually created.
Richard Younger-Ross : The Conservative leader said that he would do nothing to reduce the water charges in the south-west that we are debating today. What would your party do to reduce water charges in the south-west?
Bill Wiggin : It is a bit optimistic to have a go now, a few weeks after the general election, about what we would or would not do in government, but I understand that the Liberal Democrats in the south-west are sensitive about the Conservatives as we are obviously their main opponents.
The Government must face their responsibilities in determining the balance between a regulatory programme that seems to be unable to relax and the prices that customers pay as a result. I hope that the Minister throws some light on what he proposes to do in the next four years.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Jim Knight) : I congratulate the hon. Member for North Devon (Nick Harvey) on securing this important debate and pay tribute to the high standard of the thoughtful and constructive speeches from Back Benchers who have contributed. I particularly acknowledge the work of my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy), who has raised this subject, which is so important for the people of Devon and Cornwall, on many occasions in the House. In the past, she was ably joined as their champion by my friend Candy Atherton, the former Member for Falmouth and Camborne. I learned of her absence from the House with particular regret.
My constituency, which is in the south-west, is not, I am happy to say, in the South West Water area. I pay my bills to Wessex Water, but I and my ministerial colleaguesnot least the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Exeter (Mr. Bradshaw)are particularly concerned about the effect of water bills on those who are least able to pay. That is particularly serious in the south-west, where there are already relatively high water charges. I noticed a little flurry when I mentioned my hon. Friend the Under-Secretary. Of course, ministerial responsibility lies with my hon. Friend the Minister for Climate Change and the Environment, but I know that as a south-west Member and water charge payer the Under-Secretary is very concerned about the issue.
I hope it will be helpful if I sketch out the Government's room for manoeuvre. In considering the problem of South West Water bills we are between a rock and a hard place. The rock is the framework of water industry regulationa system put in place on privatisation by the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) in his previous incarnation as an environment Minister in 1989. The system deliberately takes much of the responsibility for the water industry out of Ministers' hands and puts it into the hands of private sector companies and their regulators. The hard place is the way that costs in the south-west have been concentrated into high bills, with a complex infrastructure in a sparsely populated area serving a limited number of bill payers.
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Providing necessary water and sewerage services as efficiently as possible is the responsibility of South West Water, and it is not for me to be that company's voice in Parliamentit must speak for itself. The economic regulation of water companies is the responsibility of the Ofwat, the independent economic regulator, and, equally, it is not for me to enter into a detailed justification of the exact price limits that it has set.
Each region, as well as each company and its customers, has its own problems and priorities. Costs such as bathing water improvements may have affected the south-west most heavily in the past, but problems such as nitrate removal, sewer flooding and the replacement of worn out infrastructure are at their worst in other parts of the country. Some aspects of the Thames Water system need to be cleaned up, and the north-west has conurbations with a large stock of Victorian infrastructure that needs expensive maintenance and renewal.
The quality regulatorsthe Environment Agency and the drinking water inspectoratehave secured benefits to customers. Revenue from customers and funding from investors have funded a programme of improvements in the south-west. The next five-year programme will enable the company to invest £760 million to carry out a bigger programme to maintain pipes, sewers and treatment works. Further improvements in water quality will be achieved, for example, by the renovation of more than 3,200 km of water mains in the region; an investment programme to improve rivers and coastal waters involving, for example, the upgrade of 40 sewage treatment works, which will, I hope, include action on the stink to which my hon. Friend the Member for Plymouth, Devonport (Alison Seabeck) referred; and resolution or alleviation of internal flooding from overloaded sewersa problem to which the hon. Member for North Devon referred.
That is the company's programme. It is for Ofwat to ensure that it is funded to deliver its services at least cost. Ofwat argues that it has done much to keep the increase down. The company's proposal in its business plan was for an increase almost 40 per cent. higher than that which Ofwat eventually allowed. An average increase of more than £120 over five years has been reduced to £89. That 25 per cent. increase is the same as I received from Wessex Water, and it almost matched the increase of 1 per cent. less that customers of Thames Water and Welsh Water received.
I have sketched out the rock and the hard place, as well as how the regulator and the company work. It is reasonable for hon. Members to ask what the Government will do to help with this serious problem. We have heard a lot about that problem, but little in the way of solutionsindeed, none at all from the hon. Member for Leominster (Bill Wiggin), who speaks alone on this issue for the Tory party. There have, however, been some suggestions.
The Government have taken action, through legislation, to alleviate water poverty where there might be a risk to household health. We have legislated to prevent the disconnection of household water due to inability to pay, and we have set up protection for vulnerable people on meters, who might otherwise cut back on water that they cannot afford. I shall return to that issue if there is time.
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The hon. Member for North Devon talked a lot about equalisation, as did many other hon. Members. That solution would involve shifting the burden on to national taxpayers or water customers in other parts of the country, depending on the mechanism introduced. I am not yet persuaded that it would be right to subsidise South West Water's investment either through a national fund drawing money from all water companies or by public subsidy from taxation. Any such solution would overturn the legislative and regulatory frameworka system that has delivered significant efficiency savings nationally, which have been passed on to customers, although I accept that those savings have not been delivered so well to many people in the south-west.
There is considerable risk that any national fund would weaken the connection between water companies and their customers, and it is questionable whether they would pay as much heed to their customers if customers throughout the country met the cost of their plans. There would be a lack of accountability and a weakening of the driver that encourages individual companies to keep their costs as low as possible.
I was interested to hear the hon. Member for North Devon say that one can impose a levy and make it work in the private sector. He cited, most extraordinarily, rail privatisation as an example of something that worked. I would hesitate to say that that is a good example, as problems remain in that system.
Nick Harvey : I agree with the Minister about the shortcomings of rail privatisation and how it came about. I was trying to make the point that the concept is not completely novel and that the principle of manipulating a market in which private sector players operate has already been established.
The use of the tax and benefit system was raised by, among others, the hon. Members for North Devon and for South-East Cornwall (Mr. Breed), and my hon. Friend the Member for Plymouth, Sutton. Indeed, the hon. Member for South-East Cornwall used the example of the winter fuel payment, which has gone a long way to address some problems that the elderly have in paying their fuel bills. However, that involves a flat rate and a universal benefit, which makes it easier to administer, and it is not geographically focused.
My concern about water is that the tax credit and benefit systems do not provide targeted support for the costs of particular goods and servicesI am not aware of any exceptions to that based on discrete problems in one region. Extending the range of goods and services the costs of which are directly supported through tax credits or benefits in a targeted way would complicate the system and increase administration costs. The Government are not minded to introduce an explicit link between the tax and benefit system and water charges.
Mr. Breed : My point was not to do with a particular problem in a particular geographical area. The problem
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could be national, because there are low-paid households in difficulty in other parts of the country. My point was about the discrepancy in the percentage of income being spent on water charges. The Government recognise that 3 per cent. should be the average and 11 per cent. is clearly way beyond that.
Jim Knight : I accept to some extent what the hon. Gentleman says, which is why we have pursued the vulnerable groups regulations to deal with people with particular problems, and they are applied nationally. However, the debate has been about the extra costs that South West Water customers pay compared with others. We cannot deal with that through the national tax and benefit system because there would be a geographical focus, which would be difficult to introduce.
The hon. Gentleman mentioned the vulnerable groups regulations, as did the hon. Member for Torbay (Mr. Sanders) and my hon. Friend the Member for Plymouth, Sutton. They asked whether we would further extend the range of those regulations, and I can tell them that DEFRA, Ofwat and Water Voice are meeting to discuss that.
The hon. Member for North Devon and my hon. Friend the Member for Plymouth, Sutton raised the issue of second homes. There is a particularly large number of second homes in the south-west, including in my constituency. The Government recognise that there are issues as to the balance between the fixed costs of a network and costs that vary according to how much water is used. I certainly agree that second-home owners should pay their fair share.
My hon. Friend also suggested that the Government should facilitate water company mergers, and she has done interesting work on the subject, but there are currently no plans to do that. In the first place, it is not for the Government to tell companies whether to merge. Ministers are rightly removed from decisions on mergers. The legal regime for water mergers leaves the decision on what would be in the interests of competition and customers to the Competition Commission, with the advice of Ofwat. In any case, it is not proven that mergers would produce economies of scale. Ofwat's view, based on a 2004 study, is that no significant economies of scale would be achieved through water industry mergers.
Nor should proponents of mergers assume that the bills of a merged company would be averaged out, which is perhaps the most telling point for me. I understand that there may be issues involving the number of customers paying for a large and complicated network, but when companies with higher and lower water bills have merged in the past, the bills of the customers of the combined company have not been averaged out.
The regulator has considered it his duty to protect the customers of the lower-charging company from losing outthus constraining increaseswhich has equally meant that the bills of customers of the higher-charging company have not been averaged down. I am sure we will want to explore that solution with hon. Members, but we would have to address some very basic problems if we went down that road.
So, what can we do? I have done what everybody else has done: talked about the problems and the problems with the solutions. That is the trap in this debate. The
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Government acknowledge that there is an issue of water affordability. The Environment, Food and Rural Affairs Committee's 2003 report on water pricing recommended that the Government review how poorer households are helped with their water and sewerage charges. That we have done.
Last year, a cross-Government steering group reviewed the matter. A wide range of stakeholders were involved in discussions and a report was published last December. It concluded that a range of measures is already in place to assist lower-income households with their water and sewerage charges but that there is scope for improving those measures in the near term.
The Government, Ofwat and the water industry are looking to progress the issues identified in the report. The principal recommendations included setting up a local pilot scheme to target water affordability assistance to lower-income households; studying how water meters affect households, with a particular emphasis, obviously, on lower-income households; extending the vulnerable groups scheme; extending the list of vulnerable group qualifying medical conditions that determine eligibility for help; encouraging water companies to deliver best practice on key affordability and debt issues; and asking Ofwat to review debt guidelines in 2006 to update and promote good practice.
Linda Gilroy : I am listening carefully to the Minister's description of the pilot scheme. I am interested to learn that it might involve some extension on the medical conditions, and I would be grateful if he confirmed that. Can he also make available to us an up-to-date report on how the pilot is progressing? The issue will, no doubt, be discussed at the meeting with Water Voice tomorrow.
Jim Knight : I can certainly ask the Department to look into giving my hon. Friend that update. The extension on vulnerable groups is one of the things identified in the report.
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The pilot study, which will be held in the south-west region as an explicit acknowledgment of the problem it faces, will offer households assistance with accessing advice on saving water, installing water-efficient appliances and devices, and checking for water leakage. It will also undertake benefits checks, allowing us to deal specifically with entitlement problems in a locality, check for eligibility under the water direct scheme and the vulnerable groups tariff, offer advice on debt management and check to see whether switching to a metered supply could be cheaper, which, in many cases, it is.
South West Water customers have to pay more for their water and sewerage services than customers in other regions as a result of privatisation, which required each customer to pay the costs incurred by their water company. Regional variations in scale were, and are, inevitable over time. Identifying the problems, however, does not mean that there are easy solutions. So far, none of the ideas that have been suggested fully solve the problem in interests of customers. We will be running the pilot study and will look carefully at how it works to see whether any solutions arise from it.
Ministers are engaged in the ongoing search for a solution, and although we are yet to find one, we certainly have not given up. The pilot study in the south-west will focus our efforts to help the most vulnerable customers where that help is most needed. I have no doubt that many lessons will be learned from that work, and we will be able to take those lessons forward when we consider long-term solutions to the problem.
I have listened carefully to the points that have been madeI know that officials have, tooand the views of hon. Members will be fed back to the Minister for Climate Change and the Environment. I hope and trust that South West Water and Ofwat have listened equally carefully to hon. Members from both sides of the House, who have voiced so well the concerns of the majority of customers in Devon and Cornwall.
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