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Westminster Hall

Tuesday 18 March 2008

[Mrs. Joan Humble in the Chair]

Water Strategy

Motion made, and Question proposed, That the sitting be now adjourned.—[Siobhain McDonagh.]

9.30 am

Matthew Taylor (Truro and St. Austell) (LD): I am very pleased to have the opportunity to initiate this debate, although I would probably be more pleased if I had not initiated rather a lot of similar debates over the past 20-odd years. In a sense, this feels like a return to old ground, but as I speak I think that it will become clear that I am not looking simply to repeat what has been said before. There are some immediate issues to address, particularly given that Ofwat is in the middle of a consultation on its review of water charges and pricing—PR09—and that the Government have just released their strategy, “Future Water”. Over the next year, we will set the agenda for the future of the water industry, and that will not be just for the five years that Ofwat has traditionally considered in its reviews—we could be talking about a 20-year horizon. The debate is therefore extremely timely, and I hope that things will move on in a way that they have not always done in the past.

I am not sure whether I should declare an interest, but my wife has been very involved in the issue. She formerly ran Surfers Against Sewage and wrote a response for it on these matters, and she has done some work for South West Water. If that is an interest, then I have it—my wife is certainly interested in this debate, if I can put it like that.

I have returned to the subject more often than any other during my career in the House of Commons. I warned the Conservative Government that their privatisation of the water industry would cut off the potential to secure the public and European moneys necessary to clean up our beaches and that people in the south-west, who are on some of the lowest incomes in the country, would be left to foot the bill. They proceeded regardless, and left only £1.5 billion for a clean-up programme that actually cost £6 billion—four times the amount that they had assumed. That is why South West Water customers continue to pick up the tab to this day.

Much of what I have to say will be relevant in the national context, but I must first focus on the situation in the south-west. Households with water meters account for two thirds of users—there is a very high penetration of water meters in the south-west because of the high bills—and can expect to pay an average of £397 in 2008-09, which is up 5.6 per cent. on last year. Many of the remaining, unmetered users are unable to switch to meters because their properties do not allow it. They do not necessarily use large amounts of water or choose to avoid installing a meter in the hope of saving money. Many of them are poor, and the problem has been of concern to the Minister, who has spoken
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about it publicly in the past few days. Such users face an even bigger rise of 8.7 per cent. and will pay £686 on average. That figure will go up all the time because the more people switch to meters, the higher the charge for those who are still unmetered.

Mr. Colin Breed (South-East Cornwall) (LD): The recently announced rises have meant that some people in my constituency—and, I suspect, in my hon. Friend’s constituency and in others in Cornwall—now use almost 10 per cent. of their disposable income to meet their water bills. Given that those are combined with energy, council tax, food and other bills, it is becoming a massive problem for a lot of households on unmetered supplies.

Matthew Taylor: My hon. Friend is spot on. To give an example, the average bill of a south-west pensioner on a meter suggests that they will spend almost 10 per cent. of their pension on water bills. For those who are unmetered, the average bill implies that they will spend 15 per cent. People in my area have the lowest incomes in the country, so the impact is felt much more broadly. In London, where wages are much higher, bills are much lower—the average bill is £304.

Julia Goldsworthy (Falmouth and Camborne) (LD): Of course, none of this should come as news to the Government. In 2004, their cross-governmental review of water affordability found that a single pensioner living on the minimum pension credit and paying an average South West Water water and sewerage bill would be required to use 7 per cent. of their disposable income. The question is why the Government have done nothing before now.

Matthew Taylor: There is a real concern that there has been precious little progress on this subject over 10 years of Labour government. As I say, there is an opportunity for substantial change, and that is what I am looking for. There has been some effort at mitigation, as my hon. Friend knows, and I shall talk about that in a moment. Nevertheless, more fundamental change is needed.

David Taylor (North-West Leicestershire) (Lab/Co-op): It is interesting that the penetration of water meters in the south-west is the mirror image of that in the rest of the country, where 70 per cent. of water is unmetered. The privatisation of water, as the hon. Gentleman prophetically indicated all those years ago, has been something of a disaster in many senses. Since that era, UK-wide household demand for water has gone up by about 55 per cent. Does he have any statistics showing whether that figure is lower in the south-west because of the higher penetration of water meters?

Matthew Taylor: I do not have the figure, but I suspect that it is lower, and there is evidence that people with meters use somewhat less water, for obvious reasons. Irrespective of the introduction of water meters, however, there has been a universal increase in water usage because of the move to dishwashers, washing machines and all those other things that make quite intensive use of water. In the long term, part of
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the solution to the problem of keeping bills down is to make more sensible use of water, and I shall come to some of the big issues that that raises.

Having debated this issue in the House in April 2007, I and other hon. Members from across the parties had a meeting with the Minister before Christmas. It was a positive meeting, and he made some very positive comments, but we now need to move forward and to take action.

The results of Ofwat’s consultation on its approach to the current price review—PR09—are due out next week. New price limits for 2010-15 will be calculated over the coming months and will be published next year. Ofwat is also consulting on its future strategy for customer charges for water and sewerage services. As I said, the Government have also published their strategy, “Future Water”. Over the coming year, therefore, many of the issues will be fundamentally settled for the short term. As I said, Ofwat is looking much longer term and it is asking companies to do the same, which is welcome. We are talking not just about the next five years, so this is a decisive moment.

I want to address two core issues. One is fairer ways of dividing the costs, and the other is better ways of dealing with the costs—particularly diffuse pollution and climate change—in the first place so that we can bring down water bills in the long run, rather than simply redividing them. In that sense, I want to talk about solutions, not the history of the problem.

The best way to shift the burden from customers in the south-west—I have always argued this and I will say it again because I could not possibly take part in such a debate without saying it—would be to redistribute the costs more fairly across the country. The principle on which the Conservatives undertook privatisation, which landed 3 per cent. of the population with a third of the beach clean-up costs, was wrong. In the 1970s, the Labour party introduced legislation to allow costs to be shared across the country, but it was never used; indeed, it was also the Labour party that ultimately removed that legislation. The millions of people across the country who visit the south-west and who regard the country’s beaches as a national asset are paying nothing or very little towards the clean-up costs. The burden falls on a relatively small number of people; hence the very large bills.

I should like a mechanism for redistributing more evenly across the country the environmental costs of maintaining a landscape that is part of the national heritage. It could be done through the benefits system—I know that South West Water has advocated that—or through national funds. I know that as the Conservative Government started to lose seats across the south-west they began to consider whether more funds could be put in, but that the suggestion was turned down at Cabinet level, despite a recommendation from the Secretary of State. The issue destroyed the Conservative party in the west country and it could still cause great difficulties for Labour Members there.

The principle in question is already accepted: Northern Ireland water bills are capped with UK taxpayer funds. It is accepted in relation to Scotland’s electricity bills, with prices capped by UK funds. I do not understand
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why Ministers always argue that there is a problem in principle. Indeed, in the last debate, the then Minister suggested that a national fund to meet the extra costs in the south-west could weaken the link between South West Water and its customers. To be honest, that is a link that South West Water customers would be only too happy to have weakened. It could be argued that it would create a new link between them and the Government, which they might feel was more appropriate.

The argument that all areas at one time or another must pay more for necessary costs will not wash either. It is true that different areas must pay for different investment at different times, but the south-west always pays the most, for the most investment. The suggestion that the situation is a case of swings and roundabouts rings particularly hollow. We are always on the swing and everyone else is always on the roundabout, which is substantially cheaper.

I do not want to suggest that I have given up, but I know that the position I have set out is not accepted by the Government or the previous Conservative Government, so I have some suggestions for things that could be done even if the Minister does not follow the route I have outlined.

Miss Anne McIntosh (Vale of York) (Con): I ask the hon. Gentleman to imagine waking up tomorrow as Environment Minister in a Liberal Democrat Government. What would his party do? Would he do what he invites the Minister to do, and ask those of us in landlocked constituencies to pay for the clean-up in other parts of the country? Is that what he says a Liberal Democrat Government would do? With local elections coming up, it would be interesting to know the implications of a Liberal Democrat Government for water bills throughout the country.

Matthew Taylor: If the cost were spread across the country the implication for water bills would be extremely small and the benefit for people in the south-west would be extremely large. When the Conservatives privatised water they promised that what I have been talking about would not happen. They said that they had put enough money in the pot from privatisation receipts to pay for the clean-up. That was a national receipt, which, it was implied, was a contribution from around the country. The Conservatives got it wrong: they calculated the money wrongly. They landed South West Water customers with higher charges and lost most of their seats in the south-west as a result. I think that the hon. Lady should apologise for the Conservatives’ record, rather than complaining that someone is trying to get something done about it. Had they done something, they would have more seats now.

There are various routes by which what I suggest could be done. One would be to make the benefits system responsive to the cost of water bills, as it is to other charges, such as council tax in particular, which people pay differentially in different parts of the country, so that people in high council tax areas get more benefit. No one complains about that principle and I do not think that the hon. Lady wants to change it. I see no reason why the same principle should not apply in the case that I am talking about. However, I also want to talk about ways of mitigating the cost, which would reduce the impact on everyone.

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Miss McIntosh: Will the hon. Gentleman give way?

Matthew Taylor: The hon. Lady can explain what the Conservative party has to offer in her speech later.

Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): Does the hon. Gentleman agree that one of the difficulties is that there is no help in the benefits system for anyone who experiences the problem that he describes? Does he also agree that many of the constituents of the hon. Member for Vale of York (Miss McIntosh) have no doubt visited Cornwall and enjoyed the wonderful beaches there and in Devon?

Matthew Taylor: Indeed. It is possible that the hon. Member for Vale of York has done the same.

Bob Spink (Castle Point) (Con): With a seaside constituency myself, I have great sympathy with the hon. Gentleman, and I greatly admire his consistent fight on the issue; he is right. However, the real failure is not privatisation, and it is not to do with looking back—although the detail could have been better. Nor is it the fact that the water companies and Ofwat, the regulator, allowed prices to increase. Prices had to increase to pay for pipes to be mended, for reinvestment, and for conserving and helping the environment. The real failure was not finding a viable alternative for unmetered users. I hope that he will get to grips with the specifics of what can be done, so that we can work together, across the House of Commons, with the Minister, who has this weekend been pushing on the matter, to find a solution.

Matthew Taylor: I thank the hon. Gentleman for that comment, although I am not sure that I would use the word “detail” to describe the errors made in privatisation. In my part of the world, that detail is regarded as pretty fundamental. Apart from that, I agree with much of what he said.

I do indeed want to turn to the discussion of practical measures, which I think the Minister is open to considering. Indeed, in last year’s debate the Government confirmed that they were working with Ofwat, water companies and the Consumer Council for Water, to consider charging options and alternative tariffs, and that a working group including the Treasury, Ofwat, the water companies and Consumer Council for Water representatives had been set up to advise on fairer charging for lower-income groups. The latest water strategy document makes a commitment to commissioning an independent review of metering and charging. The problem is that water customers everywhere will be wondering quite how many Government reviews it takes to change a water bill. It would be nice to move from reviewing to doing, and I shall make some suggestions along those lines.

We have a charging system that needs a complete overhaul. That can be easily demonstrated with the examples that I have given from the south-west. Changes have taken place in the past few years in an attempt at mitigation. The vulnerable groups tariff, for example, means that people can apply to pay on a tariff that reflects average charges, or lower, if they are particularly vulnerable. However, it is too narrow in its reach. It excludes the many low-income households
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that have fewer than three children, or that live just above the income benefit threshold. Not only that: for those who qualify, bills are capped only to the average for the area, which in the south-west is still above what is affordable, when we consider that the families are by definition in very low-income groups and highly vulnerable. Some steps could be taken in that regard, if the Government were to work with Ofwat and the Consumer Council for Water to change views on cross-subsidy, to allow innovative tariffs to assist with affordability. For example, South West Water has argued that there would be a benefit from a national scheme funded through a levy on all bills, as happens in the energy sector, with the Warm Front scheme. Again, I do not understand why those national levies are regarded as acceptable in one sector but not in the water sector, where bills are similarly high and where the environmental issues and reduction of water use are of similar importance.

Under Ofwat rules, it is very difficult to target specific groups, and the result is that the help that is available can help the multimillionaire in a penthouse as much as the single pensioner in a council house. That is to do with how the water regulation system was worked out, and also with the way Ofwat interprets it. I think that change is needed.

David Taylor: Will the hon. Gentleman briefly consider the strengths or weaknesses of the increasing block tariff, which allows for cheap basic water for essential purposes, and rather higher rates beyond that, which may be seasonally adjusted as well? That seems to have considerable attractions, does not it?

Matthew Taylor: As it happens, that was exactly where I was about to turn in my remarks, but I wanted to outline the context to some of the targeted measures, because even for a rising block tariff it would probably be necessary for measures to address the needs of the most vulnerable, whether through the benefits system or specific changes in tariffs to affect individuals. Indeed, we know that that would be true for those with disabilities or large families, who may need to use relatively large amounts of water. We need a system sensitive to that. One option is a system that shares data so that water companies can adjust bills according to data from the benefits system, for example. If the Government believe that that is not possible, the regulator has suggested that such households should be able to apply for help. My concern with applying for help is that, as we know, means-tested and application-based systems such as help with council tax are not taken up by many of the most vulnerable. Frankly, though, anything would be better than the current circumstances.

As the hon. Gentleman suggests, the possibilities of a rising block tariff are strong. There is a strong consensus about that among most south-west MPs and a lot of interest among MPs throughout the country. I know that the Government are considering it. It would mean that metered households paid an affordable amount for their first block of water. People would pay a set charge and get in return enough water for a normal household for the year, and if they used large amounts of water—if they had a swimming pool or left their sprinklers on in the garden all through the
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summer—they would pay much higher charges. It is those later blocks, which would incur higher charges, that add so much to the cost for the water companies. They require a greater draw on reservoirs, higher system capacity and more purification and treatment and waste water.

The rising block tariff makes sense from an environmental point of view, it makes sense for charging and, most of all, it makes sense for ordinary hard-pressed families in water bill areas, particularly in the highest-priced area, the south-west. Specific affordability tariffs will be needed for certain groups, and we must consider how best to put those in place. On a particularly bright note, from my point of view, it also means that we would get rid of the situation in which tens of thousands of second home owners in the south-west, realising that they are not at home very much to use water, have fitted water meters and pay next to nothing for their water bills, even though the reason why they are there is to use the beaches that have been so expensively cleaned up. Under rising block tariffs, people would have to pay for the year’s water, and therefore for the clean-up of beaches, whether or not they resided there enough to use it. Although opinions may differ on that, it would be given a big thumbs up in our part of the world if the Minister did it.

Rising block tariffs would also be extremely good for the environment. The World Wildlife Fund predicts that they could reduce demand by at least 10 per cent. and by up to 30 per cent. in summer. That would cut the cost of treatment, which would lower bills. WWF says:

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