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Baroness Miller of Chilthorne Domer: The noble Baroness, Lady Young, made a good point. Amendment No. 60 might be strengthened if we added a couple of the clauses to it that she mentioned. There should be a presumption of renewal, not only when it could be shown that there was no serious damage but also subject to efficiency. To that extent, I agree with the noble Baroness.

There is a difficult balance to strike, given that those who invest in a businesses need certainty, or as much as they can be given in an uncertain world, of how much it will rain. Given the fact that there will be a constant ratcheting-up of efficiency, should the Government choose to accept that that aspect of the Bill should be strengthened and the amendments to that effect are accepted, Amendment No. 60 would be on a much stronger footing. I would be interested in discussing with noble Baronesses, Lady O'Cathain and Lady Byford, how we could amend the amendment further, so that it included the issues of need and efficiency.

Baroness Byford: My name is linked with the amendment, and I accept the comments of my noble friend Lady O'Cathain. I believe that I must go through the Minister, as I am not allowed to address the noble Baroness, Lady Young, herself on this matter. She said that the present system works well, so the question must be, "Why change it?" That is a clear question, to which we need an answer from the Minister. Are we changing the system because there is something in the Water Framework Directive that means that we have to change it?

As for the presumption on renewal of licences, we had a long discussion on a previous Committee day, in which we all showed an awareness of the need or desirability that for businesses of whatever size, large or small, there should be a presumption of renewal. The noble Baroness, Lady Young, said that there would obviously be six-yearly reviews of licences. However, I understand that when regular reviews have happened in the past, it has not necessarily meant that the licence would be withdrawn. There might be a slight fault or something that needed adjusting, and the company may be told of the reasons or the concerns expressed by the operation within which they work. Reviews of consent do not consider removing consent, but usually involve additional constraints on quality, requiring more treatment processes and investment, especially as regards sewerage works. The Environment Agency does not take consent away but considers the way in which the process is working.

If the Minister will bear with us, we should perhaps spread the debate a little wider, because two things are becoming intertwined. It is no use business being unable to invest or to know where it is going in the long term. If through leakage, pollution or for whatever reasons, the Environment Agency has concerns, surely those concerns are best addressed in the review that is done on a regular basis. It will, I understand, be done

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on a six-yearly basis, but I need clarification on that point. The agency could raise concerns in the review, rather than insisting that presumption of renewal is not in the Bill, as it should be. Otherwise, we are reversing law and making somebody guilty until they prove themselves innocent. We have had that argument at great length with many other Bills. That is one thing that this House is very clear about—innocence is innocence, until the person is proved guilty. I have strong reservations about dismissing the amendment just as it stands at the moment.

My noble friend Lord Dixon-Smith rightly said that a licence granted to one person might have an effect on another person. I accept that, but would it not be possible to adjust to the terms of individual licences, rather than going for complete renewal? Again, I ask through the Minister, because I must. That may have to be done if climatic change happens radically, because renewal would not be possible—it would be an emergency. Perhaps we might consider the matter in that way.

Since our last sitting, I have been concerned about the question of renewals. I refer especially to infrastructure renewals, especially with regard to those with long-term investments, such as water companies. Conventional accounting methods for water companies,

"estimate a depreciation charge which is one of the costs of the business. Total costs are then set against the business's income to determine the profit or loss for the financial year concerned.

Depreciation charges are accumulated in the business's balance sheet where they are set against the replacement costs of the assets to show the net value to the business of its current . . . assets.

The depreciation charge is calculated by assessing the asset's remaining life and the costs of replacing it".

Indeed, in our previous debates, we talked about Victorian infrastructure.

The information note continues:

"There are various ways of making these assessments and calculations. Straight-line depreciation divides the replacement cost of an asset by the number of financial years of its expected useful life to the business. This charge is then allocated to each financial year as a measure of the loss of value to the business of the asset during that year".

I understand that a typical period is normally 15 to 20 years. If I were in a business, I might think that rather a short period, but that is the existing situation.

If we are to move from a system whereby the presumption of renewal has been in being to one where it is not, that has huge implications not only for the viability of water companies and others that are concerned in quarries, but also to the way in which accounting is done. How can value be assessed? We are referring not to the freehold value of land but to construction work underneath the soil.

Will the Minister give us a full explanation of the Government's response to the amendment, as so much of it hinges and impinges on future amendments?

Baroness O'Cathain: I appreciate the comments made by noble Baroness, Lady Miller. Perhaps we might cobble together another amendment on Report,

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which would introduce the efficiency issue. However, the point made by my noble friend Lady Byford is absolutely right. I am standing up to speak only because she did not point out that the cost of water to the consumer would have to increase significantly if the depreciation took place over a shorter number of years. Is that what we want to result from this Bill?

Lord Livsey of Talgarth: The amendment was also tabled under my name. I am interested in what has been said about accounting and write-offs. When I spoke about accounting last week, I said that there was a strong case for a schedule to be produced of write-offs and accounting for different types of investment. Clearly, when there is a water company with major investments of a very expensive type over a long period, the write-off must be over a much longer period. In the case of a bottling plant, one might adopt something different, as the technology would be likely to change more rapidly and the write-off period should be that much greater. Some guidance should be incorporated, and some formula should be drawn up.

Lord Whitty: In a sense, the two amendments move in opposite directions, which makes it interesting that the Liberal Democrats support them both. The first measure would impose a tighter schedule on time limiting, and the second would make any time limiting, whatever the time, subject to automatic renewal except in very limited circumstances. Given the recent exchange between the noble Baronesses, Lady Miller and Lady O'Cathain, about amending the amendment, we may consider a more substantial amendment at a later stage. However, as it stands, renewal would be refused in a limited set of circumstances.

On Amendment No. 57, the Government want all abstraction licences to be subject to a time limit, over time. However, that is best done on a voluntary basis, and we look to the Environment Agency to encourage existing holders of abstraction licences to move to a time-limited basis voluntarily. If we asked them all to do so at 2012, it would create a huge concentrated burden of work on the Environment Agency, which would have to consider all existing licences all at once. But the kind of compensation issues which relate to renewal are also relevant. Converting an existing abstraction licence to time-limited status could, of itself, raise compensation issues. Therefore, it would not only be an extremely time-consuming exercise; it could also be an extremely expensive one if we were to require a mandatory switch to time limits. The aim of the whole policy is to make time-limited licensing and the new system far more attractive.

Most of the discussion has been based on Amendment No. 60. In effect, the amendment would limit to a very narrow set of circumstances the area in which the Environment Agency could refuse a licence. As has already been said, the amendment would affect the agency's ability to manage water supplies sustainably. It would not allow it to take into account issues of efficiency. My noble friend Lady Young—actually she is not my noble friend any more; she will know what I mean—pointed out that there is concern

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all round on the issue of efficiency and concern that, one way or another, the Bill should deliver efficiency. Yet, on the issue of renewal, the agency would not be allowed to take efficiency into account if we followed this arrangement.

The Environment Agency needs to be able to refuse renewal under a wider range of circumstances. But there is not, as the noble Baroness, Lady O'Cathain, suggested in her first intervention, a presumption of non-renewal. That is not the case. The policy and the framework of the operation provide us with a clear presumption of renewal provided that the three main tests are met.

4.15 p.m.

Baroness O'Cathain: I thank the Minister for giving way. The reality is that if someone had to apply for an extension as if it were a new licence, that would mean that there was no presumption of renewal. That is simple.

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