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Lord Whitty moved Amendment No. 19:

The noble Lord said: My Lords, despite the fact that we have not yet obtained total clarity, it would be better to insert this amendment. Thus, the subsequent correspondence can relate to the text as at least partially moved in the direction I think we all want. I beg to move.

On Question, amendment agreed to.

[Amendment No. 20 not moved.]

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4.15 p.m.

Clause 15 [General consideration of licence applications]:

Lord Dixon-Smith moved Amendment No. 21:

    Page 19, line 26, at end insert—

"( ) In subsection (3), after paragraph (b) there is inserted—
"(c) the probable funding period required to finance the construction of engineering facilities necessary to the supply, storage or processing of the water that is the subject of the licence applied for"."

The noble Lord said: My Lords, Amendment No. 21 is an innocuous little amendment which I hope that the Government might consider favourably. I say that it is innocuous, but we tabled a fairly innocent amendment for Grand Committee to consider and we had very robust debate on the subject. The Government thought that perhaps the amendment was too forcing. This amendment certainly is not—or is less forcing anyway.

I have a problem with what I would term the psychology of this Bill. Anyone who might read this Bill in an attempt to find out what the rationale is behind the licensing process for the abstraction of water would come across the regime set out on the face of the Bill, which gives the clear impression that water abstraction licences would last for 12 years and could then cease. That is what appears in the Bill. Those of us who have had the joy of sitting through Grand Committee and are participating today know that that is not the true situation. If one delves through all the previous legislation and the explanations thereof and takes the trouble to read Hansard, we know that licences might be granted for longer periods.

Consider the position of, for example, a banker who has to consider the funding of a major water project. What will he do? He will look at this Bill—that is, the latest legislation that deals with the subject. We all know that investment in the water industry is on the whole large-scale, long-term and long-life. Investment periods will match that. One has only to consider large reservoirs, as we were this morning: many of the main reservoirs that supply this country's water were built more than one century ago. One has only to consider water mains: the London ring main was recently installed, but I am sure that it is hoped that it will have a life at least as great as that of the London sewers which were installed 150 years ago. Consider even more local mains or supply pipes to houses: the old one inch gas and water connections installed 100 years ago are still going strong. Drains and sewers, of course, are the same, although they are not directly related.

My point is that all of these things, and housing, too, are long-life projects and have long funding periods. Therefore, it would be perfectly reasonable for them to be funded over a similarly long period. But that banker, looking at the latest legislation, would say, "Hey, I have no security in the continuity of use of this particular asset. It could lose its useful life after 12 years because the licence might be withdrawn". As I have said, we know that that is not the case, and after diligent research the banker may find that out. Furthermore, the applicant for the investment funding

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would no doubt make the reality perfectly plain. However, it would be so much simpler if something giving a hint of the real position was included on the face of the Bill.

So we come back to my innocuous little amendment. It simply requires that,

    "the probable funding period required to finance the construction of engineering facilities necessary to the supply, storage or processing of the water that is the subject of the licence applied for",

be a matter that is taken into account in the granting of the licence. I would not say that the phrase is strong enough, but I propose it on the basis that we are asking the Government to accept a form of words in an area where they have proved reluctant to acknowledge, on the face of the Bill, that there is a problem. I beg to move.

Lord Borrie: My Lords, the noble Lord, Lord Dixon-Smith, has spoken to his amendment with reason and moderation. He alluded to a problem which was discussed at some length in Grand Committee. It is one of two or three amendments on a similar matter, one of which we shall come to shortly dealing with a presumption of renewal of licences. The difficulty indicated by the noble Lord was well exemplified by his reference to a banker considering the matter. Although the hidden meaning of the Bill—when he reads Hansard and takes into account ministerial assurances, guidance, what is said by the Environment Agency and so forth—may assist the banker in coming to the view that the licence will be available for a longer period, on the face of it the capital expenditure which the banker may be asked for will not be recovered for a much longer period than, say, 12 years.

However, it is not just the banker and the water company who will be concerned about getting their money back. Who is the beneficiary of the infrastructure and capital expenditure here? It is the consumer, in particular the consumer of the future, who, we all know, needs an adequate supply of water. Consumers need it not only today; they need a firm assurance for the future. At the moment I share the view of the noble Lord, Lord Dixon-Smith, that the Government have been hesitant about this. Readers of the Bill and later the Act will be concerned that there is not enough clarity as regards how long the licences will last or whether there is a presumption of renewal. Therefore water companies will hesitate to put down money and the consumer may be left uncertain about his future supplies of water. For those reasons I share the doubts that have been expressed. I agree with the thinking behind this amendment and the similar amendments to be discussed shortly.

Lord Sutherland of Houndwood: My Lords, I support this amendment, which overlaps with an amendment I shall move later. The presumption that, ultimately, the Bill must serve both suppliers and consumers and create the stability necessary for the

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relationship to last over the coming decades—not simply years—is a good presumption to put on the face of the Bill. For that reason, I support the amendment.

Baroness O'Cathain: My Lords, although I have already intervened in the debate, I have not yet declared my interest as a director of a water company. I did not think it necessary to do so when I was speaking on more general points. I strongly support my noble friend in his amendment. The reality is that the investment required in facilities for the supply and treatment of water is such that it can be approached in two ways. It can be done in the good old World War Two manner of "make do and mend", or it can be done by ensuring that the investment will last for generations to come.

When water supplies first became widespread in the United Kingdom, as we all know from the Victorian pipework still in place, it was done on the basis of a very robust investment intended to last for ages. If companies are given no guarantee that they will be able to recoup their investment, they have two ways of approaching it. As I said, one is the policy of make do and mend, which not for one moment do I think any sane water company would choose. The other approach is to load the current customer with the cost of the investment because the payback period would then be much shorter than it would have been if there was a presumption that the licence would be renewed or a reasonable time-scale for the payback could be guaranteed.

The present provisions could result in a short-sighted way of dealing with these serious issues. Given the long-term nature of this business investment, it should be noted that no other industry with long-term investment interests has a threat hanging over it that the whole operation could grind to a halt on the suspension of a licence. I support my noble friend's amendment.

Baroness Miller of Chilthorne Domer: My Lords, the noble Lord, Lord Dixon-Smith, and I have had a common interest in most of the amendments moved so far, so I am particularly sorry to have to tell him that, on this amendment, I cannot support him.

I take the point just made by the noble Baroness, Lady O'Cathain, but we can look at the reverse of that coin and point out that, in many ways, the investment for a water company is safer than that faced by many businesses, whether they be in retail or manufacturing. I say that because, with the exception of the duration of the licence, the water company operates in a virtual monopoly position.

I accept the worries expressed about the renewal of licences, but after debating these matters in Grand Committee and listening to the reasoning behind how the Environment Agency is to regard the renewal of licences, I feel that the assurances we were given are satisfactory. So I am not in favour of giving any further assurance here when half of the thrust of the

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Bill is to assure the future balance between the needs of the environment, investment and social need. In that regard, the Bill has struck the right balance already.

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