Fifteenth Standing Committee on Delegated Legislation

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Mr. Breed: Does the Minister accept that if a large undertaking can get its water cheaper, it might be more profligate in its use?

Mr. Morley: We cannot ignore that risk. Everyone recognises that water is an important resource. People are becoming more aware of its importance, and in London, the south and the south-east, water is becoming quite scarce. We recently received our first request from a water company under the water shortage provisions, and DEFRA is now considering it.

Mr. Breed: Will the Minister confirm that in the event of water shortages—drought orders might be introduced—those that have secured larger contracts will not be in the advantageous position of being able to ensure their water supply water when everyone else has to use standpipes?

Mr. Morley: Companies will not receive advantageous treatment in relation to the water grid and normal water supply. The hon. Gentleman asked me for some examples. For instance, a company with the necessary abstraction licences could set up its own treatment plant on a factory site and provide the factory with its own water supply. In those circumstances, the company would contract directly with that new water supplier. It would be completely outside the provisions of the existing water utility. On the other hand, a company might want to invest in a large-scale water treatment plant and supply a number of large companies through existing pipes, just as electricity and telecoms companies use the existing network. That is another example of what companies might do. There have been some expressions of interest. It is difficult to know exactly what will happen until the provisions are available and we see which companies apply.

Bill Wiggin: Does the Minister not see that for competition truly to exist there must be a competition? By allowing the biggest companies to take themselves out of the retail payment scheme and buy their water at wholesale prices, there will be a huge drop in the money going to water companies. To continue maintaining the infrastructure and supply domestic consumers, the water companies will have to increase their prices.

Mr. Morley: No, absolutely not. The hon. Gentleman does not understand the size of the market. Only about 200 consumers in the country would fall into the category.

Bill Wiggin: The biggest.

Mr. Morley: Yes, but only 200. Although they are big, they represent a tiny fraction of total water consumption. Even if all 200 moved out of the market—we have no idea that they will—the impact on water prices would be minuscule. Furthermore, water prices are now regulated for the next five years.
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The regulations will provide for a contract that large companies could enter into with competitive suppliers, but they are deliberately limited so that there are no possible negative impacts on the consumer and so we have some experience of what they will mean in practice.

Mrs. Dunwoody: Perhaps I am missing something. Is it true that, under the regulations, an existing water supplier could block a second supplier entering the market as long as it could provide sufficient evidence that their commercial interests would be damaged?

Mr. Morley: I apologise if I did make myself clear. The provision does not apply to existing undertakers. It will apply only to new licensees. If the market develops and there are a number of licensees, the regulator may want to make a variation—for example in the geographical area in which they operate. He can do that with one order that covers them all, unless a number object under the 20 per cent. threshold. However, the provision applies only to the licensees, not the water undertakers, so they will not be able to object in an anti-competitive way. I hope that that reassures my hon. Friend.

Mark Pritchard: I congratulate the Minister, as I wonder whether his colleagues in the Office of the Deputy Prime Minister have been as candid as he has been today about the looming water shortage in the south-east and how that relates to the Deputy Prime Minister’s plans for building all over the south-east.

Mr. Morley: I am being encouraged to deviate from the nature of this debate, but I say quickly to the hon. Gentleman that that is a complete nonsense. Water companies are obliged to have a 25-year plan that takes into account housing growth and demand. Water requirements are built into planning for the projected housing demand in every part of the country.

Mark Pritchard rose—

The Chairman: Order. I should say that we will not stay on housing matters but deal with the order.

Mr. Morley: Thank you, Mr. Benton; I will certainly follow your guidance.

My last point is to answer my hon. Friend the Member for Crewe and Nantwich, who asked about the changes to the schedule on consumer protection. If my memory serves, they generally relate to the setting up of the new Consumer Council for Water. At the moment, we have Water Voice, which is technically part of the regulator—the two share the same office and are closely bound together. Under the provisions of the Water Act 2003, the Consumer Council for Water will be completely separate from the regulator, which will strengthen its role. The Act also makes provision for the chairmanship, executive and associated issues. That will give it a stronger and more effective voice to speak up for the consumer and to call the Government, the regulator and the water companies to account.

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The debate seems to have been a rerun of the Committee stage of the Water Bill. I am happy to answer questions from members of the Committee. I hope that I have demonstrated that the provisions are technical and implement the Water Act 2003, and provide advantages for competition. The way in which the Government have dealt with the subject takes into account the fact that we can get advantages from competition, but we do not want to do so in such a way that consumers suffer. I hope that hon. Members would support that.

3.10 pm

Bill Wiggin: I am grateful to the Minister for going through the points that I made in my speech.

In order to have competition, people must be able to compete. It is my firm belief that the 200 super-customers will swiftly set up and supply themselves with water, because they will be able to buy water at wholesale prices where they previously paid retail prices. The Minister assures us that that will not have an impact on the domestic customer. I do not agree, but as he rightly said we thrashed out the subject when the Water Bill went through Parliament. I did not agree with him then and I do not agree with him now. This is not competition. When it comes to being schizophrenic—I think that was the word that he used—it is he rather than I who is suffering.

Mr. Morley: I do not wish to make another speech, but I want to be open with the hon. Gentleman. The figure is dredged from my memory and it is not impossible that it could be entirely inaccurate. If I am wrong, I will write to the hon. Gentleman.

Bill Wiggin: The Minister is characteristically charitable. I share the scepticism about the number of customers. However, I do not think that that matters. This process is not competition. The Government’s whole drive is to introduce competition where there can be none. A huge factory using millions of gallons of water will see the advantage of setting itself up as its own supplier. It will have the right to take the water from exactly the same place as it gets it at the moment and to bill itself for it.

Mr. Morley: My memory has come back. The figure is 2,000, not 200. I knew that there was a two in it.

Bill Wiggin: As I said, the Minister is characteristically charitable and once again he has stepped in to correct the record. He will see that the problem is getting worse, not better. If those people and companies decide to take themselves out of the current arrangement, they will do so because it will be in their interests and will be a profitable move for them. That will lead to a shortfall in the current water companies’ income, which can be made up from their other customers. There is nowhere else that they can get the money from.

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Mr. Morley: Actually, there is. Part of the idea is to give an incentive for efficiency. There is no reason why the undertakers’ prices should go up and why they cannot make up the shortfall through increased efficiency. These measures might be a driver.

Bill Wiggin: Nobody minds if they make up that shortfall through increased efficiency. However, the water industry does not have a lot of flexibility. It is not like an ordinary business. As the Minister told us before, the prices are set for five years in a 25-year structure. Suddenly, the 2,000 best customers will be taken away. How does that fix the 25-year plan? It is not necessarily the best thing for any business plan to top-slice the best customers, and it is definitely not competition.

I cannot see any way in which I can allow the Minister to hoodwink the Committee into thinking that that is competition. It is not. It will not be of any benefit whatsoever to the domestic consumer. No business that has a fixed price can afford to lose up to 2,000—or even 200—of the biggest and most profitable customers. I cannot support the provisions.

3.14 pm

Mr. Breed: I, too, am concerned. Water is a finite resource and we are using it more and more. There are more people, and it is a resource that will inevitably cost more. I do not see the value in that for the vast majority of water charge payers.

The market has always been an imperfect one ever since privatisation. There was no competition before that, and it was not a suitable subject for privatisation in my view. It never has been, and I think that the situation ought to be reconsidered. Even the water companies are losing some interest in their statutory water obligations; they are more interested in using their expertise elsewhere. I do not see how the measures will significantly improve people’s lives.

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There are real environmental consequences if large users of water acquire it cheaper and use even more of it, to the detriment of everyone else. Those matters should have been considered before the new pricing structures were agreed recently and I mentioned that earlier in relation to the effect on domestic water charge payers in the south-west. The proposals will not reduce water use—they will potentially increase it—and I cannot support them.

Question put and agreed to.


    That the Committee has considered the draft Water Supply Licence (Modification of Standard Conditions) Order 2005.


Motion made, and Question put:—

    That the Committee has considered the draft Water Act 2003 (Consequential and Supplementary Provisions) Regulations 2005.—[Mr. Morley.]

The Committee divided: Ayes 9, Noes 4.

[Division No. 1]


Chaytor, Mr. David
Cunningham, Tony
Dunwoody, Mrs. Gwyneth
Gwynne, Andrew
Hendrick, Mr. Mark
Howarth, Mr. George
MacDougall, Mr. John
Moon, Mrs. Madeleine
Morley, Mr. Elliot


Breed, Mr. Colin
Hurd, Mr. Nick
Pritchard, Mark
Wiggin, Bill

Question accordingly agreed to.

Committee rose at nineteen minutes past Three o’clock.

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