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Lord Livsey of Talgarth: My Lords, I am interested in the fact that the noble Baroness is to withdraw Amendment No. 53 in the light of the Government's introduction of Amendment No. 52. I think I understand the reasons for that. I mention in passing that one of the problems in the situations in which we find ourselves is that the water companies obviously have to produce sufficient profit to satisfy their shareholders. The possibility of opening up the markets further is one about which one might have reservations, given that water is such a scarce resource.

We have a non-profit-making company in Wales, Glas Cymru, which could perhaps show the way in some respects in that it reduces the amount that consumers have to pay at present because it is funded in a different way. I shall refer to that in speaking to a later amendment. Therefore, I am pleased that it looks as though government Amendment No. 52 will go

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ahead and that best regulatory practice will be transparent, accountable and proportionate. This is a desirable objective and one that we support.

Lord Whitty: My Lords, in reference to Amendment No. 50 relating to a proposed period of 12 years, the Bill places a primary duty on the Secretary of State and the authority to further the consumer objective, which includes promoting effective competition where appropriate. In fulfilling that duty, the Secretary of State and the authority would need to consider the effects of competition on the interests of consumers, not just in the short term but in the medium and long term. Therefore, it seems to me that a 12-year period creates an unnecessary and artificial constraint on those decisions.

In regard to Amendment No. 51, new Section 2(2C) also requires the Secretary of State, when furthering the consumer objective, to have regard to the interests of customers who are not eligible to be supplied by licensed water suppliers—thereby increasing the protection of undertakers' retained customers' interests against any possible unwanted and detrimental effects of competition.

When noble Lords tabled a similar amendment to Amendment No. 51 in Grand Committee, I think that the main aim was to seek clarification on the restrictions under which associated licensed water suppliers can operate. The noble Baroness referred to that, as she did in relation to an earlier amendment today. The position is that undertakers can already carry out activities, apart from their regulated business, through associated companies. Under this legislation they cannot operate as licensed suppliers to themselves, and associated licensed water suppliers' activities must be at arm's length from those of their parent companies.

Another sensible regulation is that licensees owned by undertakers can operate anywhere except in their own parent undertakers' areas. If the undertaker and the licensee operated in the same area, in theory that would allow the same company to compete for a customer and possibly effectively cut off all other competition for that customer. It would be an incentive for the undertaker to remove all its eligible customers from its regulated business into its licensed business—a point that I raised in Grand Committee—because the regulated business would be price- capped, whereas its licensee would not be price-capped in that way. When we discussed this matter, I believe that all consultees were in favour of that restriction in relation to the operation of associated companies.

I turn to my Amendment No. 52, which, again, has been tabled in response to an amendment in Grand Committee. The amendment would have the effect of requiring the Secretary of State and the new regulatory authority to have regard to the principles of better regulation when carrying out their functions. There is a difference between my Amendment No. 52 and Amendment No. 53, which includes some other aspects of the Better Regulation Task Force.

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In order to clarify matters, I still have some concerns about spelling out the issue in the way that Amendment No. 53 would do—in particular, the implications of paragraph (b)—in that this industry is predominantly monopolistic. Therefore, regulation of the quality of supply or pricing is crucial, both in terms of all the sustainability objectives and public health. It is difficult to see that self-regulation in this industry would have the same appeal as it might in industries where wider competition exists. Incidentally, I would also argue that paragraph (e) of Amendment No. 53 is already covered by the Bill.

Therefore, I believe that Amendment No. 52, which is worded in slightly more general terms, is the more appropriate. When we reach it, I shall wish to move that amendment in preference to the noble Baroness's amendment.

5.30 p.m.

Baroness Byford: My Lords, I am grateful to the Minister for his response to these various amendments. We believe that the Government's Amendment No. 52 covers some of our anxieties and that is why I indicated that we would not press Amendment No. 53. In particular, there is always an argument as to whether self-regulation is or is not appropriate. Having heard what the Minister said, I am satisfied on that point.

The Minister said that paragraph (e) in Amendment No. 53 is already covered. I shall need to ensure that we are fully satisfied on that point. However, at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 51 not moved.]

Lord Whitty moved Amendment No. 52:

    Page 43, line 40, at end insert—

"(4) In exercising any of the powers or performing any of the duties mentioned in subsection (1) above in accordance with the preceding provisions of this section, the Secretary of State and the Authority shall have regard to the principles of best regulatory practice (including the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed).""

On Question, amendment agreed to.

[Amendment No. 53 not moved.]

Lord Whitty moved Amendments Nos. 54 and 55:

    Page 43, line 48, leave out "(unless the context otherwise requires)"

    Page 44, line 9, leave out ", 66G" and insert "to 66H"

On Question, amendments agreed to.

Clause 39 [Guidance to Authority on social and environmental matters]:

Baroness Farrington of Ribbleton moved Amendment No. 56:

    Page 44, line 35, at end insert—

"( ) In formulating guidance, the Secretary of State and the Assembly shall, where practicable, have regard to the costs and benefits which may be expected to result from the guidance."

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The noble Baroness said: My Lords, in moving Amendment No. 56, I shall speak also to Amendment No. 58. The issue dealt with in this amendment was raised in Grand Committee when the noble Baroness tabled an amendment which had a similar intention to Amendments Nos. 56 and 58. The intention of both amendments is to set out in statute the requirement for an analysis of the costs and benefits that could be expected as a result of issuing guidance under this clause. We agreed to take away the idea and give it further consideration, as a result of which we have tabled Amendment No. 56.

I believe that these two amendments are closer than they may seem to be on the surface. We would, of course, expect to publish our consideration of costs and benefits, as is standard practice with new regulatory proposals. The process of preparing a regulatory impact assessment also recognises that there will be cases when it may not be practicable to identify or evaluate fully all costs and benefits. That is expressly catered for in the government amendment. Therefore, I hope that the noble Baroness will feel that it is not necessary to press her amendment. I beg to move.

Baroness Byford: My Lords, I am grateful to the noble Baroness, Lady Farrington, for proposing Amendment No. 56, which comes in response to the long debate that we had in Grand Committee. I have prepared a speech, which I shall willingly repeat, on my Amendment No. 58 but, at this stage, I shall happily support the government amendment and thank the Minister for putting it before us on Report.

On Question, amendment agreed to.

Baroness Miller of Chilthorne Domer moved Amendment No. 57:

    Page 44, line 35, at end insert—

"(1A) In particular, before any alteration to the water pricing or consumer charging regimes, the Authority shall receive guidance to—
(a) define a household income to water charge ratio below which consumers will be regarded as likely to have difficulty in paying such charges; and
(b) set out such new measures to be undertaken by the Secretary of State or the Assembly as will address such difficulties."

The noble Baroness said: My Lords, in this amendment I return to the issue of water affordability. I make no apologies to the House for taking a little time on this matter because I consider it to be very important. Indeed, I believe that it is perhaps the most important issue that we still have to discuss on Report.

The first part of the amendment seeks to ensure that the Government address the issue of defining water affordability. The second part seeks to ensure that the Government do something to address the difficulties raised by the rising levels of debt. I believe this issue to be of equal interest to water companies, which are concerned about the high levels of debt, and to the groups which struggle to represent individuals with water bill debts and the individuals themselves.

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The fact is that levels of debt are rising. I remind the House that some 19 per cent of British households are now in debt in respect of their water bills. The Water Framework Directive will require changes to the way that water is charged for, and therefore it is possible that its implementation will increase levels of debt. I believe that the Government must do something to address this issue. Water UK estimates that annually at least 10 is added to every water bill for every household through people defaulting on their water bills. There is a clear need to separate the two groups. First, there is the "can't pay" group and, secondly, the "won't pay" group.

I tabled a similar amendment in Grand Committee and I have taken the Minister's reply into account. At that stage he said that the amendment should relate more to the purpose that it sought to address. He said that the approach in the amendment that I tabled on that occasion was entirely in isolation. I hope that the new amendment relates to the activity of the regulator.

This amendment further takes into account the Minister's comments in Grand Committee that the amendment would not have any effect beyond pure symbolism. The new amendment encourages the Secretary of State, when issuing guidance to the regulator on pricing, to be precise about what Clause 39 means. The regulator must have regard to individuals with low incomes, as specified in Clause 38(2C)(c). This amendment seeks to help further by ensuring that it is clear what a low income is with regard to water charges.

Paragraph (b) of the amendment encourages the Secretary of State to think beyond the unsuccessful vulnerable groups regulations scheme. It is reasonable to praise those water companies that helped to advance work on that scheme in order to make it more successful. I refer in particular to the Severn Trent Trust Fund and the Anglia Water Trust Fund. The Government must come up with something that is more country-wide because at the moment the applications of the scheme are geographically arbitrary and inequitable. The take-up of the scheme is absolutely pitiful. According to government figures, it is 0.6 per cent and according to the Chartered Institute of Environmental Health, it is 0.4 per cent. Whichever of those figures is correct, vulnerable groups are not being dealt with in a meaningful way.

I remind the Minister of the reasons why the tax and benefits system fails to tackle water affordability. There is a problem with water affordability that affects more consumers than are assisted by vulnerable groups regulations, no matter how they may be amended. The Government made clear their view that such customers are struggling with affordability and should be helped through the tax and benefits system. However, that is far from the solution of tackling the problem of the affordability of water, for various reasons. First, the notional element of income support that is intended to cover water bills has not kept pace with those bills. Between 1988 and 1997, the amount of that benefit fell from 80 per cent of the average water bill to just 55 per cent.

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Secondly, some groups of vulnerable consumers on means-tested benefits, particularly households without children, spend a far greater proportion of their income on their water bill than others. The average unmeasured household bill for 2001–02 amounts to 8 per cent of the income of the single person on jobseeker's allowance, 5 per cent for a couple on the jobseeker's allowance and 4 per cent for a pensioner on the minimum income guarantee. Those figures are similar for measured bills: 7 per cent, 4 per cent and 4 per cent respectively. Defra developed its own yardstick of 3 per cent, so it is aware that there is an issue. I am not clear why the Government will not therefore include the amendment in the Bill. Those consumers are paying unacceptable and unsustainable amounts for their water.

As noble Lords said, the size of water bills varies hugely, depending on regions, but the amount of means-tested benefits does not. In Plymouth, for example, a single person on the jobseeker's allowance paid a massive 13 per cent of their income on the average water bill in 2000–01.

It is time that the issue was addressed; I also refer to individuals who cannot afford their water and to water companies, which must struggle with the "won't pay" section of society, whom they are now unable to disconnect from the water supply. We heard at length in Committee that people who choose not to pay their water charges, even though they could, rank paying their water bill below paying for goods from catalogues, satellite dishes and so on. The Government must address the issue from everyone's point of view. I beg to move.

5.45 p.m.

Lord Whitty: My Lords, as I said in earlier debates, the Government take this subject very seriously. We estimate that vulnerable groups constitute up to 1.5 per cent of eligible customers—currently, about 5,000. The recent consultation paper addressed issues of take-up. We are involved in that consultation.

I do not believe that the amendment would deliver what the noble Baroness seeks. It would be possible to have a theoretical, mechanistic ratio between income and water charges, which could be supplied to the regulator and the companies. However, applying that ratio in particular circumstances would be extremely difficult, not least because income information is inevitably sensitive and is not normally in the public domain. Customers might be reluctant to declare their income to a private sector company. We are not currently happy to encourage a system that was based on that; in other words, on asking a company to check on its customers' income details.

The Government have taken a number of steps to alleviate water poverty and we are consulting further. We already have the proposals about disconnection and the protection for vulnerable groups, which is in the Bill but was available earlier. The noble Baroness

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may be right to say that awareness of the situation needs to be improved, but I do not believe that the additional system that she would impose on the regulator and the company is deliverable in terms of the aim that she seeks to achieve. I therefore maintain that we can better deal with the matter when we have fully assessed the consultation on water poverty; the consultation period has just finished and we are now considering the responses. It would not be appropriate for us to adopt the noble Baroness's proposal in any case before we have considered those responses. It is not operationally possible to do that without involving vast sensitivities, which we do not wish to encourage.

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