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Baroness Byford: My noble friend Lady O'Cathain is absent at the moment, so I shall speak to Amendment No. 55 on her behalf. It asks the Government to take into account the costs that my noble friend mentioned when speaking to a previous amendment.
We have received correspondence and telephone calls from and held interviews with people who are involved in the industry who are worried about future investment if there is no relevant life-expectancy. That will put them off investing. I know that the Minister is well aware that, unfortunately, many of the water companies' existing pipes, and so on, are from the Victorian era. Although they were well built, it is a
long time since then and much of the infrastructure will have to be replaced. Thereby attaches a huge problem.My noble friend Lord Dixon-Smith touched on new build and the associated costs. In passing, I ask the Minister what costs included in the recent announcement by John Prescott about the anticipated new house build in the South East were directed towards providing water and sewerage. I understand that those costs were not included in that estimate. If so, why not? Was it because the costs were too high; or was that just an oversight? We all know that those costs are significant, and it is unfair to expect those who will carry the burden, whether as an individual business—my noble friend Lord Dixon-Smith acknowledged his interest in that respect—or as companies, to undertake work when they cannot cover their costs.
If the Minister does not like the amendment—he may well say that he has reservations about it—perhaps he will explain to the Committee what time frame he would consider practical. Other, later, amendments, consider specific businesses, but I do not want to go into the specifics at this stage. This is an overriding, wide-ranging amendment, and it would enormously help the Committee if the Minister were to respond to the questions posed by my noble friend Lord Dixon-Smith and the noble Baroness, Lady Miller. We do not want to put people off investing but to ensure that our future structure is strong and sound.
We all know that we waste so much water, especially through leakage. If licensees will not get a proper term of life-expectancy, is it really fair to expect them to invest as they have during recent years? I support Amendment No. 55, as well as Amendment No. 5.
Lord Sutherland of Houndwood: I support the amendment, because it encapsulates an important principle that applies to other amendments that we shall consider. That is that to judge the effectiveness and fairness of legislation such as this, one should take into account its impact on users of water, the industries that must use water and the many other constraints under which they work—such as, in the end, setting adequate investment and planning horizons. The amendments would help the setting of investment and planning horizons that would lead to the efficient use of water, and therefore increase the worthiness of the Bill.
Earl Peel: It is worth adding that any such business is likely to have bank borrowings. The bank will of course seek security when negotiating such borrowings, so I support the amendment from that perspective, which is integral to businesses that rely on abstraction licences.
Baroness Young of Old Scone: I am afraid that the noble Lord, Lord Dixon-Smith, rather took the wind from my sails by citing my example on Second Reading of sewage treatment works, which are regularly reviewed on a four to six-year basis and may have their licences altered with no compensation, although they have a right of appeal. So a 12-year
licence is more secure. Since the noble Lord stole that example, I was trying to think of others from other regulatory fields, but I could not think of one that was not parallel to the Bill's provisions, as opposed to those of the amendment.For example, under the integrated pollution prevention and control regime, factories, including some of our major chemical complexes, are regularly regulated. In many cases, they involve extremely high-cost, long-term investment, but their licences are renewed every six years. Nuclear power stations and reprocessing plants have an asset life-span of not just tens or fifties but of thousands of years, bearing in mind the waste legacy issues, but they also have licences that are reviewed over a few years.
Investment occurs right across the industrial and commercial world where it is not possible for businesses to say with absolute certainty that they will hold a single licence of an entirely predictable nature for the entire length of their business. If we look elsewhere in the regulatory regime, we will understand that that is not a deterrent to investment.
Indeed, water company investment is in a blessed state, in that it is one area of life where we have a long-term, strategic forward view. The sustainability of an abstraction proposition is assessed at the point of licensing to ensure that it is environmentally sustainable over a number of years. That decision is made against the background of the company's long-term water resource plan and the nation's water resources strategy, which stretches 25 years in advance.
When it comes to renew such licences, it would be strange if there had been such substantial change from the forward look over that 25-year period that the water resources strategy implies that there needed to be huge dislocation in the licence. It is more likely that there would be fine-tuning, such as the other industries that I mentioned—our major industrial complexes and nuclear power stations—take in their stride as part of their normal business process.
5.45 p.m.
Lord Whitty: Investment in water facilities of all sorts is very important for the Government and the regulators. Part of the reasoning behind the amendments is probably misplaced, in that the Bill does not fix the duration of any new abstraction licence, it simply requires a time limit to be placed on every licence. When considering the length of licences or their renewal, the Environment Agency, as the noble Baroness, Lady Young of Old Scone, said, must take account of the abstracter's reasonable needs, which includes the need for investment. Indeed, if the agency were not to take such needs into account, it would be open to challenge. If that led to a decision that a long-term licence was needed, the agency would have to act accordingly. But it is up to the agency to decide the licence duration on a case-by-case basis and in a way which fulfils its primary duty to consider local water resources.
It would therefore be inappropriate to incorporate a criterion such as fixed duration or to include a single unilateral criterion on asset lifetime which would be seen to override other criteria, not least the basic environmental criteria that are the objectives of the Bill.
The agency must consider costs and benefits in the exercise of its powers by virtue of its obligations under Section 39 of the Environment Act 1995. That will clearly include some of the issues referred to in this debate.
The agency has recently published guidance on how it will address the duration and renewal of licences. Licences longer than what it regards as the normal 12-year period will be considered if the tests set out in Taking Water Responsibly are met and therefore justify a licence for longer than 12 years. Neither the duration nor the exemption from the duration are matters for the Bill. They require the Environment Agency to use its judgment on a case-by-case basis.
The Government accept many of the more general points made in this discussion about the need for investment, to ensure that planning takes account of that need and that the regulatory provisions are sensitive to it. However, it would be inappropriate to write a single criterion into the Bill. With all respect to the noble Lord, it is quite a crude criterion relating to the lifetime of a specific asset with no cross-reference to the environmental outcome. Although many of the considerations to which he refers are appropriate for consideration by the agency, I do not think that including them in the way he suggests would help.
Lord Dixon-Smith: I am grateful to my noble friend Lady Byford, the noble Baroness, Lady Miller of Chilthorne Domer, and the noble Lord, Lord Sutherland of Houndwood, for their support for the principle of the amendment—even if the wording is not perfect. I also thank my noble friend Lord Peel for what he said.
The noble Baroness, Lady Young of Old Scone, spoke about industries being regulated under the integrated pollution prevention and control legislation. I, too, had something to do with that passing through the House. I have lived not exactly under the shadow of a nuclear power station, but there is one not far from where I live, for a long time, so I am well aware of the problems that they can create.
It is essential that industries producing discharges which can cause immediate and direct environmental damage if they escape should be regularly reviewed. I do not doubt that those industries are only too aware of that and review their own procedures even more regularly than might the Environment Agency. That is different from this instance, where we are dealing with the abstraction and use of a natural resource.
If we are considering, as we are obliged to do in the long-term planning process, the construction of a new major reservoir costing many millions of pounds and all the infrastructure involved in processing that water and getting it to customers, that process will not start.
As I understand it, there is no presumption of renewal of a licence. We shall come to that later in the Bill, but it is absolutely fundamental.I am aware, as the Minister has acknowledged, that the Environment Agency can, if it wishes, consider a longer-term basis for abstraction licences. If major problems are to be resolved in the future, longer-term abstraction licences must be considered.
I was a little concerned when the Minister said that licences for longer periods could not be issued without a concern for the environmental criteria, which is the primary reason behind much of the Bill. In a way, that is right and proper, but that consideration must be made before we even begin to consider issuing a licence, if it is to be issued at all. Once one has a licence and infrastructure costs mount up, one is committed on behalf of communities across the country, one by one. One cannot, at some point, turn off the tap because a wetland might be becoming a little dry. That is impractical.
We shall have to return to this issue. We are considering what should be in the Bill. I have always believed that one should try to write into the Bill the primary matters which make it comprehensible for ordinary people, so that they understand the guiding parameters backing a service such as the water industry. Most thinking people would feel concern at the possible inconsistency—I put it no higher than that—between practice on the ground and the reality with which the industry has to work. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
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