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House of Lords

Tuesday, 4 February 2014.

2.30 pm

Prayers—read by the Lord Bishop of Wakefield.

Introduction: The Lord Bishop of Peterborough

2.37 pm

Donald Spargo, Lord Bishop of Peterborough, was introduced and took the oath, supported by the Bishop of Wakefield and the Bishop of Birmingham, and signed an undertaking to abide by the Code of Conduct.

Electoral Registration: National Voter Registration Day


2.41 pm

Asked by Lord Roberts of Llandudno

To ask Her Majesty’s Government what steps they are taking to support National Voter Registration Day on Wednesday 5 February, which seeks to encourage new, especially young, people to register to vote.

Lord Wallace of Saltaire (LD): My Lords, the Government are committed to doing all they can to maximise registration, including among young people. The innovation project, which the Cabinet Office announced today that it will support, reinforces the aim of National Voter Registration Day. For example, the funding awarded to the Scottish Youth Parliament will help it to develop peer education training and outreach programmes to increase democratic engagement and registering to vote. The Government also fund UK Youth, which will help to develop online tools for engaging young people in the democratic process, including registering to vote.

Lord Roberts of Llandudno (LD): I thank the Minister for his Answer. I am sure that he will acknowledge, as I do, the dedication and the sometimes sacrificial commitment of a handful of youngsters, who are so concerned that only one in four young people votes in this country that they are having a National Voter Registration Day tomorrow, to try to encourage thousands more—hundreds of thousands, if possible—to register and become part of the democratic process here in the UK. Will the Minister consider evaluating whether what happens tomorrow, on the national registration day, could become an annual fixed event with full-scale government support?

Lord Wallace of Saltaire: My Lords, National Voter Registration Day is an independent initiative to which the Government give their full support, but it is not a

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governmental initiative. We are all aware, as we move towards individual elector registration and deal with the problems of underregistration, particularly among young people, that the Government cannot do it all on their own and do not have all the answers, so we enormously welcome the engagement of as many voluntary groups of this sort as possible.

Lord Wills (Lab): My Lords, the Minister will be aware of the success of the schools programme in Northern Ireland in increasing the numbers of young people who are registered to vote. Will the Government consider introducing that programme more widely?

Lord Wallace of Saltaire: My Lords, the noble Lord will be aware that Bite the Ballot has developed a schools programme, Rock Enrol!, which is now also on the gov.uk website. We are encouraging schools to play that with 16 and 17 year-olds. We are also encouraging schools to continue the citizenship education programme; there will be a new element of that for the national curriculum this September. We are all conscious that PSHE has never been quite as good as we all wanted it to be. However, it is there and we very much hope that schools will be taking this further.

Lord Elton (Con): My Lords, the Minister has just announced that there will be a substantial grant for this purpose through the Government of Scotland. How will he ensure that it is expended in a politically neutral way?

Lord Wallace of Saltaire: My Lords, once you support other bodies you can never be entirely sure that they will do exactly what it was that you wanted. There are five organisations for which the Government have today announced funding. In addition to those two which I have mentioned the Hansard Society, in partnership with Homeless Link, Gingerbread, which works with young people, single parents and social housing tenants, and Mencap, which works with people with learning disabilities, have also received grants.

The Lord Bishop of St Albans: My Lords, the Church of England is involved in the education of more than 1 million young people and we want to play our part in supporting this. Will Her Majesty’s Government talk with the department to see if, in future, they will write not only to schools but to the 43 statutory diocesan boards of education, many of which employ full-time schools workers, and to dioceses? My diocese has an average of 30 to 40 full-time paid youth workers and many volunteer ones. We would be delighted to use our communication resources to support this sort of initiative.

Lord Wallace of Saltaire: My Lords, the Government recognise that they alone cannot do everything in this regard. We welcome conversations with all other organisations. I wondered whether the right reverend Prelate was going to promise that the Church of England would give sermons on the subject. Once, when I was a parliamentary candidate, I was taken by a young woman called Liz Barker—the noble Baroness, Lady Barker, as she is now—to the Methodist church

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in which her father had been a minister. The sermon came as close as possible to suggesting that the congregation might like to vote for me.

Lord Howarth of Newport (Lab): My Lords, the Prince’s Trust reported recently that more than three-quarters of a million young people in this country believe they have nothing to live for. How will the Minister seek to motivate those young people to engage with the formal processes of our democracy?

Lord Wallace of Saltaire: My Lords, that is a huge question which engages—or should engage—all of us in political parties and beyond. We recognise that alienation, of the younger generation in particular, from conventional politics is a problem which has developed over the last 25 years or more and it will take 25 years or more to reverse that trend. It will take a whole host of initiatives including, I suggest, some changes in our constitutional arrangements.

Lord Phillips of Sudbury (LD): My Lords, in light of the regime coming into effect in September, what will my noble friend the Minister do vis-à-vis free schools and academies, which do not have to teach citizenship at all? What will the Government do about the decline in teacher training in citizenship and the take-up of citizenship exams, given that this flies in the face of the ambitions of all of us that young people should vote?

Lord Wallace of Saltaire: My Lords, we are very conscious of the problems of teaching citizenship in schools. According to the School Workforce Census, in January 2012 there were nearly 9,000 citizenship teachers in publicly funded schools in England and Wales. I am going to duck the question of how far the national curriculum should be extended to free schools and academies.

Lord Patel of Bradford (Lab): My Lords, I welcome what the Minister said about grants to Mencap and Gingerbread because they target specific groups. However, what are the Government doing to target young people from ethnic minorities throughout the country?

Lord Wallace of Saltaire: My Lords, the noble Lord will know of Operation Black Vote, which has targeted people in that area. The statistics suggest that members of ethnic minorities are not as underregistered as some other target groups. However, young people of all groups are a problem and we all need to do as much as we can, locally and nationally, to cope with that.

Lord Geddes (Con): Is my noble friend aware of the valuable work done by the Lord Speaker’s outreach programme in this context? I declare an interest as a member of that programme.

Lord Wallace of Saltaire: My Lords, I am well aware of that, and when I step down from this post I think that I might volunteer. I am not quite sure how people in our age group enthuse 16 year-olds to take part in the political process, but that is something that we will all have to deal with.

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Georgia: Islamophobia


2.49 pm

Asked by The Lord Bishop of Wakefield

To ask Her Majesty’s Government what representations they are making to the Government of Georgia regarding Islamophobia in that country; and what steps they are taking to ensure freedom of religion and the rights of minority groups there.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, the UK raises human rights issues on a regular basis with the Georgian Government, both bilaterally and through multilateral institutions such as the EU, the OSCE and the Council of Europe. We have not made any recent representations regarding Islamophobia, but we continue to follow minority rights closely, including through our embassy’s work in Tbilisi and its regional travel. We fund a local NGO to maintain an inter-religion working group, which involves a variety of faith groups, including Muslims.

The Lord Bishop of Wakefield: My Lords, last year, I was fortunate to spend a couple of nights with a Muslim family in Batumi, and the next morning I met the president of the semi-autonomous region there, Mr Archil Khabadze. I pressed the question to him of why there was only one mosque for something like 110,000 out of the 150,000 people, that being the number of Muslims in the city. He said that at that time they would take immediate steps to find more land made available for Muslims in that city. I said that I would be coming back in the next three months to open the mosque with other religious groups. Would Her Majesty’s Government please press the authorities to make sure that the local administration there is asked to fulfil the promise that they made; otherwise, these very open Muslims will soon become radicalised.

Baroness Warsi: The right reverend Prelate raises a really important issue. His Question prompted me to go away and do some research, and I was quite intrigued to find out that just over 10% of Georgia’s population are indeed Muslim—a much larger percentage than in our own communities. The right reverend Prelate will be aware that one of the challenges in Georgia is that the Muslim community is not particularly well engaged politically and therefore does not really put its head above the parapet. I have become aware of low-level discrimination and tensions towards the Muslim community there, but as Georgia moves towards closer EU integration part of its requirement is to fulfil its obligation to bring in anti-discrimination laws.

Baroness Berridge (Con): My Lords, I declare an interest as the chair of the All-Party Parliamentary Group on International Religious Freedom. My noble friend the Minister also holds the brief for faith communities, so I would be grateful if she would outline whether the Government have actually had

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meetings with and made representations to the Georgian Orthodox Church, which seems to have aligned itself very much with national identity there and seems to have a privileged position that is not extended to the Muslim, Jewish or Jehovah’s Witness community there.

Baroness Warsi: I know that our embassy in Tbilisi is engaged with all religious organisations on the ground, but I am not sure whether it has had specific discussions on the rising concern about nationalism and Christianity being associated as the only form of Georgian identity. My noble friend makes an important point, and I shall certainly ensure that it is now put on the agenda.

Lord Harries of Pentregarth (CB): I wonder whether the Minister would allow a slight extension of the Question on the grounds that freedom is indivisible. Not only has Georgia been disfigured recently by actual violent hostility towards Muslims in some areas, but a gay rights demonstration was violently broken up with some connivance from the authorities. Would the Government continue gently to press the Georgian Government, with whom we have such good, close relations, by saying that the Europe that they aspire to join finds both Islamophobia and homophobia totally out of place and unacceptable?

Baroness Warsi: The noble and right reverend Lord makes an important point. Indeed, we raised concerns about the violence at the IDAHO rally in May of last year, for example. LGBT rights, along with the rights of religious minorities, are a cause for concern. They stem from the concern in parts of the Georgian Orthodox Church about a conflict of values—a conflict between Georgian values, which are laid out in a very orthodox way, and what they see as European values, and the kind of anti sentiment towards them.

Baroness Hussein-Ece (LD): My Lords, does my noble friend the Minister agree that this is part of a wider problem, not just in Georgia but in Moldova, Belarus and Russia, in that there is a lack of legislation that outlaws this type of inequality, and the ostracism of people from minority groups, which keeps them out of employment, education and political participation? The problem is not just in Georgia. Can my noble friend say what can be done to address it—and indeed homophobia—across the region in a more holistic way?

Baroness Warsi: This is one of the underlying themes of the Eastern Partnership. Georgia is one of six countries that are part of it. At the Vilnius conference at the end of last year there was a process of trying to encourage these countries to look towards Europe and go forward to signing association agreements, and deep and comprehensive fair trade agreements. This was all about trying to bring these countries to a place where the values that we hold dear become part of the norm. Our concern is that even where legislation is introduced it is not properly implemented. Sometimes legislation can have an alienating effect, as it had in Georgia when specific legislation passed in 2011 meant that Georgian Muslims were regulated by the Georgian Muslim department—which felt to the Muslim community there like a sad return to the Soviet era.

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Lord Lea of Crondall (Lab): My Lords, when the right reverend Prelate asked his original Question, he referred to a conversation in Batumi and mentioned nationalism in the same breath as Orthodox Christianity versus Islam. How far does the Minister think that we are talking about an aspect of nationalism in one respect? These three Transcaucasian ex-Soviet republics have been independent only since 1989-90. Might this not be looked at as much in terms of nationalism as religion?

Baroness Warsi: Yes, my Lords. Unfortunately, Georgia is being presented by many politicians as a Christian country, and the identity and nationality that flow from that are causing some of this underlying tension.

Lord Willoughby de Broke (UKIP): This is an interesting question, but is not the brutal truth of the matter—

Noble Lords: Order.

West Lothian Question


2.57 pm

Asked by Baroness Miller of Hendon

To ask Her Majesty’s Government whether they intend to take steps to resolve the West Lothian Question in the light of the impending grant of further taxation powers to the National Assembly for Wales and the forthcoming Scottish referendum.

Lord Wallace of Saltaire (LD): My Lords, the coalition’s programme for government included a commitment to establish a commission to consider the West Lothian question. In January 2012 the Government set up the commission on the consequences of further devolution for the House of Commons. This commission reported last spring and Ministers are currently giving the report the serious consideration that it deserves.

Baroness Miller of Hendon (Con): I thank the Minister for his reply, but surely the SNP cannot be allowed to make a bet that it cannot lose if it fails to win the referendum. Why should Scottish MPs continue to have the right to vote on exclusively English affairs?

Lord Wallace of Saltaire: My Lords, this is not a new question. Some Members will remember Tam Dalyell very well. I do not think that there are many Members still in this Chamber who will remember the debates in the 1886 home rule Bill on whether Irish MPs should still have full rights once home rule had been granted for Ireland. This is a question that is not only to do with Scotland; Northern Ireland and Wales also come into it. The imbalance between the size of England and the other nations is important, but there is little support in England for the idea of a separate English Parliament.

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Lord Wigley (PC): My Lords, does the Minister accept that whatever the outcome of the referendum in Scotland, there is a pressing need for a more coherent, balanced and transparent settlement that is fair to England as well as the devolved nations? In the context of the report to which he referred, will he give a commitment that the Government will move forward rapidly, once the outcome of the Scottish referendum is known, to get changes made to resolve these difficulties?

Lord Wallace of Saltaire: My Lords, the noble Lord has not asked me about the Silk commission but he will be aware that we are still discussing the extent of devolution with the Welsh Government. He will also be aware that England is at the moment a highly centralised state. The Government are happily discussing with a number of cities devolution to major city areas within England. I remind the House that the population of the local authority area of Birmingham is slightly larger than the population of Northern Ireland, so this is an important question for England as well.

Lord Hughes of Woodside (Lab): My Lords, I declare an interest as one who took part in these debates. It is 20 or so years ago since the question arose; is it not surprising that we have no new answers?

Lord Wallace of Saltaire: My Lords, some dilemmas never go away. We have an asymmetrical system of devolution in this country and we have to make it work. As someone who has spent most of his political career in the north of England, I have doubts about the imbalance of advantage within England itself, but that is another issue which we will debate another time.

Lord Cormack (Con): My Lords, I do not have the advantage of my noble friend in remembering personally what happened in 1886, but I keep in close touch with Mr Tam Dalyell. I suggest that it would be very wise to take advice from Mr Dalyell on this issue. He still has the same vigorous intellect we all remember fondly and I am sure that he could bring some wise counsel to bear.

Lord Wallace of Saltaire: My Lords, I am sure that we all wish to send him our best wishes.

Lord Foulkes of Cumnock (Lab): My Lords, I am very happy to pass on those best wishes to my good friend Tam Dalyell. However, is not the West Lothian question a misnomer? Should it not be called the English democratic deficit? Surely the way to deal with it is not to tinker with procedures in the House of Commons but to look at ways to resolve the democratic deficit within England, have more devolution within England and move towards some kind of federal, or quasi-federal, Britain?

Lord Wallace of Saltaire: My Lords, I think that I took part in my first debate on the question of an English Parliament at a conference in Edinburgh in 1968. It is not a new question for any of us here. The problem is that while you can begin to carve up parts of northern England into recognisable regions, once

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you get down to the south-west and the south-east there is not easy agreement within England about the sort of devolution you would have.

Lord Elystan-Morgan (CB): My Lords, while it is undoubtedly the case that the West Lothian question in its many guises deserves consideration, does the Minister not agree that many other constitutional conundrums cry out for resolution? In particular, under the Barnett formula, the Welsh people are unjustly deprived of about £300 million per annum. Looking at it in the wider context, is there not an overwhelming case for setting up a royal commission to look comprehensively into the relationship of this House to the Commons and the Commons to this House, and of Westminster to the devolved Parliaments of Scotland, Wales and Northern Ireland?

Lord Wallace of Saltaire: My Lords, the noble Lord may be aware that the Political and Constitutional Reform Committee of the House of Commons has, indeed, recommended the idea of a constitutional convention in a recent report. As someone who used to study the British constitution, I have to say that, on the whole, we have preferred to patch it, make do and then put a bit more in rather than attempt a complete redesign.

Lord Purvis of Tweed (LD): My Lords, does my noble friend agree that one of the very positive aspects of devolving further taxation and fiscal power to the National Assembly for Wales and the Scottish Parliament is greater fiscal accountability for those institutions? As a former Member of the Scottish Parliament, I agree with that entirely. Does my noble friend agree that the best answer to the old question of the West Lothian question is to address the issue that it is actually a Westminster question, and that the answer to the old question is perhaps the old solution of British federalism?

Lord Wallace of Saltaire: My Lords, that was exactly the question I was debating with Russell Johnston in Edinburgh in 1968. There is more appetite for fiscal devolution in England, which means restoring to the cities and local authorities a great deal more autonomy in collecting and spending money themselves.

Police: Private Prosecutions


3.04 pm

Asked by Lord Beecham

To ask Her Majesty’s Government what is their response to the concerns expressed by the Lord Chief Justice in relation to the Metropolitan Police assisting a private prosecution in return for a share of the compensation recovered.

The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con): My Lords, Section 93 of the Police Act 1996 explicitly allows the

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local policing bodies—for example, the Mayor’s Office for Policing and Crime and PCCs elsewhere—to receive payments in a range of circumstances. However, we understand the concern that this “slice of the cake” issue has raised and we will be revising the financial management code of practice as appropriate to take account of it.

Lord Beecham (Lab): My Lords, the Met seems to have been persuaded by Virgin to embark on a novel extension of the concept of payment by results, and one that is fraught with potential conflicts of interests. Will the Home Secretary, therefore, issue guidance to the Met and other police forces on the impropriety of such arrangements? Will the Government confirm that they will meet the concerns of the Lord Chief Justice over the dangers of more private prosecutions, as funding for the police and Crown Prosecution Service is cut?

Lord Taylor of Holbeach: My Lords, perhaps I may reiterate what I said in my opening response. I understand the concerns raised about the police assisting in a private prosecution with a promise of a share of compensation. We expect high standards from the police; I think all noble Lords would accept that. In particular, in this case, the Met received only overtime costs, which is right and proper. As I said, we will be updating the guidance to PCCs and the Met to make it clear that such agreements should not be entered into.

Lord Clinton-Davis (Lab): My Lords, did not the Lord Chief Justice urge police chiefs to give urgent—I stress that word—consideration to a practice that undermined the reputation of the police for independence? He was deeply concerned about it. Those are serious observations; they come from an impeccable source, do they not?

Lord Taylor of Holbeach: Yes, indeed—I hope I have given the House an assurance that we take those remarks seriously.

Baroness Hamwee (LD): My Lords, I am sure that the Minister agrees that trust in the police is absolutely essential. To be trusted they need to be trustworthy, and to be trustworthy they need to be seen to be trustworthy.

Lord Taylor of Holbeach: My noble friend is right about this. The public expect the highest level of professionalism and integrity from the police. Next month will be the first anniversary of the Home Secretary’s Statement to Parliament on the College of Policing, which I repeated here. The College of Policing is setting out those measures to ensure that the integrity of the police force we share is of the highest standard. This year will see the publication for the first time of a code of ethics by the college.

Lord Richard (Lab): My Lords, the noble Lord has told the House that the Government are taking this issue seriously and will consider it seriously. Can he tell us how long we will have to wait to see the results of that consideration?

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Lord Taylor of Holbeach: No, I think I have given the House an assurance that the Government are seeking to act on the code of conduct of financial affairs for the police, and they will be doing so.

Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) Order 2014

Motion to Approve

3.08 pm

Moved by Lord Popat

That the draft order laid before the House on 16 December 2013 be approved.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 28 January.

Motion agreed.

Commons (Town and Village Greens) (Trigger and Terminating Events) Order 2014

Motion to Approve

3.09 pm

Moved by Baroness Stowell of Beeston

That the draft order laid before the House on 9 December 2013 be approved.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 24th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 28 January.

Motion agreed.

India: 1984 Operation in Sri Harmandir Sahib


3.09 pm

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, with the leave of the House, I should like to repeat a Statement made by my right honourable friend the Foreign Secretary in another place. The Statement is as follows:

“With permission, Mr Speaker, I wish to make a Statement on the Cabinet Secretary’s report into the Indian operation at Sri Harmandir Sahib, also called the Golden Temple, in Amritsar in June 1984.

The House will recall that on 13 January concerns were raised regarding two documents released to the public in the National Archives. The documents relate to the painful events that followed the occupation of

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the temple site by Sikh dissidents in December 1983, which led to a six-month standoff with the Indian authorities.

In June 1984, a three-day military operation by Indian forces, known as Operation Blue Star, took place. Official Indian government figures estimate that 575 people died. Other reports suggest that as many as 3,000 people were killed, including pilgrims caught in the crossfire. This loss of life was an utter tragedy. Understandably, members of the Sikh community around the world still feel the pain and suffering caused by these events.

Given this, we fully understand the concerns raised by the two documents. They indicated that in February 1984, in the early stages of the crisis, the then British Government sent a military officer to give advice to the Indian Government about their contingency planning. Many in this House and the whole country rightly wished to know what connection, if any, there had been between this giving of advice and the tragic events at Amritsar over three months later.

Within hours of the documents coming to light, the Prime Minister instructed the Cabinet Secretary to carry out an urgent investigation in four critical areas: why advice was provided to the Indian authorities, what the nature of that advice was, what impact it had on Operation Blue Star, and whether Parliament was misled. The Cabinet Secretary was not asked to investigate Operation Blue Star itself, or the actions of the Indian Government, or other events relating to the Sikh community in India. While the Cabinet Secretary has investigated these specific matters, I can make clear that during his investigation no circumstantial evidence has been offered, or has surfaced, of UK involvement in any subsequent military operations in the Punjab.

This investigation has been rigorous and thorough. The Cabinet Secretary and officials have met Sikh organisations to ensure that their concerns informed the investigation. They have spoken to individuals associated with the two documents, although some officials are now deceased, they have examined Hansard records from 1984 to the present day, and they have carried out an extensive and thorough search of the files held by all relevant departments and agencies from December 1983 to June 1984. Their search through some 200 files and some 23,000 documents found a very limited number of documents relating to Operation Blue Star.

The report notes that some military files covering various operations were destroyed in November 2009 as part of a routine process undertaken by the Ministry of Defence at the 25-year review point. This included one file on the provision of military advice to the Indian authorities on their contingency plans for Sri Harmandir Sahib. However, copies of at least some of the documents in the destroyed files were also in other departmental files and, taken together, these files provide a consistent picture of what happened.

The Cabinet Secretary’s investigation is now complete. Copies of the report have been placed in the Libraries of both Houses, and it is now being published on the government website. The report includes the publication of the relevant sections of five extra documents that

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shed light on this period, but which would not normally have been published. We have taken this step because the whole investigation has been based on a commitment to the maximum possible transparency. We want to be as open as possible with the British public, in so far as that does not undermine the principle upheld by successive British Governments of not revealing any information relating to intelligence or Special Forces.

The main findings of the Cabinet Secretary’s report are as follows. First, on why the UK provided advice to the Indian Government, the Cabinet Secretary has established that in early February 1984, the then Government received an urgent request to provide operational advice on Indian contingency plans for action to regain control of the temple complex. The British high commission in India recommended that the Government respond positively to the request for bilateral assistance from a country with which we had an important relationship. This advice was accepted by the then Government.

Secondly, the Cabinet Secretary then examined the nature of the advice that was provided to India following that decision. He has established that a single British military adviser travelled to India between 8 and 17 February 1984 to advise the Indian intelligence services and special group on contingency plans they were drawing up for operations against armed dissidents in the temple complex, including ground reconnaissance of the site. The adviser’s assessment made clear that a military operation should be put into effect only as a last resort, when all attempts at negotiation had failed. It recommended including in any operation an element of surprise and the use of helicopter-borne forces, in the interests of reducing casualties and bringing about a swift resolution.

This giving of military advice was not repeated. The documents show that the decision to provide advice was based on an explicit recommendation to Ministers that the Government should not contemplate assistance beyond the visit of the military adviser, and this was reflected in his instructions. The Cabinet Secretary found no evidence in the files or from discussion with officials involved that any other form of UK military assistance—such as equipment or training—was given to the Indian authorities. The Cabinet Secretary’s report therefore concludes that the nature of the UK’s assistance was purely advisory, limited and provided to the Indian Government at an early stage in their planning.

Thirdly, the report examines what actual impact UK advice had on the Indian operation, which took place between 5 and 7 June 1984, over three months later. The report establishes that during that period the planning by the Indian authorities had changed significantly. The number of dissident forces was considerably larger by that time, and the fortifications inside the site were more extensive. The documents also record information provided by the Indian intelligence co-ordinator that after the UK military adviser’s visit in February, the Indian army took over lead responsibility for the operation and the main concept behind the operation changed.

The Cabinet Secretary’s report includes an analysis by current military staff of the extent to which the actual operation in June 1984 differed from the approach

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recommended in February by the UK military adviser. Operation Blue Star was a ground assault, without the element of surprise, and without a helicopter-borne element. The Cabinet Secretary’s report therefore concludes that the UK military officer’s advice had limited impact on Operation Blue Star. This is consistent with the public statement on 15 January 2014 by the operation commander, Lieutenant-General Brar, who said that,

“no one helped us in our planning or in the execution of the planning”.

It is also consistent with an exchange of letters between Mrs Gandhi and Mrs Thatcher on 14 and 29 June 1984 discussing the operation, which made no reference to any UK assistance. Those parts of the letter relevant to Operation Blue Star are published with the Cabinet Secretary’s report today.

The Cabinet Secretary has also examined two other concerns raised in this House and by the Sikh community; namely, that Parliament may have been misled, or that the decision to provide advice may have been linked to UK commercial interests. The report finds no evidence to substantiate either of these allegations. The investigation did not find any evidence in the files or from officials of the provision of UK military advice being linked to potential defence or helicopter sales, or to any other policy or commercial issue. There is no evidence that the UK, at any level, attempted to use the fact that military advice had been given on request to advance any commercial objective. The only UK request of the Indian Government, made following the visit, was for prior warning of any actual operation, so that UK authorities could make appropriate security arrangements in London. In the event, the UK received no warning from the Indian authorities before the operation was launched.

The Cabinet Secretary also concludes that there is no evidence of Parliament being misled. There is no record of a specific question to Ministers about practical British support for Operation Blue Star, and he concludes that the one instance of a Written Question to Ministers related to discussions with the Indian Government on behalf of the Sikh community after the operation.

In sum, the Cabinet Secretary’s report finds the nature of the UK’s assistance was purely advisory, limited and provided to the Indian Government at an early stage; that it had limited impact on the tragic events that unfolded at the temple months later; that there was no link between the provision of this advice and defence sales; and that there is no record of the Government receiving advance notice of the operation. Nonetheless, we are keen to discuss concerns raised by the Sikh community. The Minister responsible for relations with India, my right honourable friend the Member for East Devon, will discuss this with Sikh organisations when he meets them later today. This reflects the strong, positive relationship this Government have with the British Sikh community, which plays such a positive role in so many areas of our national life.

We are also determined to look at the wider issues raised by these events about the management and release of information held by Government. Under the Constitutional Reform and Governance Act 2010, the 30-year rule has been superseded by a 20-year rule,

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so that from 2022 all annual releases will be after 20 years. However, it is not clear at the moment that this change is being approached in a uniform fashion by all departments. The Prime Minister has therefore decided to commission a review to establish the position across government on the annual release of papers and the ability and readiness of departments to meet the requirements of moving from a 30 to a 20-year rule, including the processes for withholding information. This review will be carried out by the Prime Minister’s Independent Adviser on Ministerial Standards, Sir Alex Allan.

Nothing can undo the loss of life and the suffering caused by the tragic events at Sri Harmandir Sahib. It is quite right that the concerns that were raised about UK involvement have been investigated. It is a strength of our democracy that we are always prepared to take an unflinching look at the past. But I hope this investigation and the open manner in which it has been conducted will provide reassurance to the Sikh community, to this House, and to the public, and in that spirit I present it to the House”.

3.20 pm

Lord Bach (Lab): My Lords, I thank the Minister for repeating the Statement made in another place by her right honourable friend the Foreign Secretary. It is clearly a matter of considerable interest to this House—one can see that by just looking around on all sides—and there will be noble Lords here who were involved at the time, either in opposition, in government or in some other way. It is a matter of considerable interest to this House and we are grateful to the noble Baroness.

The raid in 1984 on the Golden Temple complex, called Operation Blue Star, resulted, as the noble Baroness has already told us, in hundreds of deaths, devastating damage to the temple and rising levels of sectarian violence. It also, ultimately, saw the assassination of Indira Gandhi, the Prime Minister of India, later that same year. We welcome what light the report sheds on the British Government’s alleged involvement with these events. We also welcome the fact that some of the key documents relating to this event and the British Government’s alleged involvement have now been published.

There are still some serious questions to be asked about the involvement, conduct and contribution of the British authorities—perhaps at the highest level—in the events that surrounded the storming of the Golden Temple, which cost so many innocent lives. I therefore wish to ask the Minister a few questions around that topic.

Have the Government made public all the documents they intend to make public about this incident? We are grateful, of course, for the documentation in the annexe to the Cabinet Secretary’s report, but if there are other relevant documents, why have they not been published, and is there any intention to publish them in the future? Given that the report cites officials interviewed over the course of the investigation, will the Government commit to publishing a list of those officials, and if not, why not? We know from exchanges in another place that Ministers at the time have been interviewed and spoken to about this matter by the Cabinet Secretary

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in compiling his report. Can the Minister confirm that that is the position and whether their testimony might be made public?

I move on to the terms of the investigation led by the Cabinet Secretary. We welcome the fact that, following representations by the Sikh community, the Cabinet Secretary published a letter which detailed the scope of his inquiry. Can the Minister explain to this House why there was over a three-week delay in publishing the terms of reference? Can she further clarify whether the terms of the inquiry changed while it was taking place? The terms of reference as published in a letter from the Cabinet Office on 1 February did not include specific reference to the time period covered by the investigation, yet the final report which we have seen today sets out a timeframe of December 1983 to June 1984. Why was this timeframe not made public earlier in the process?

Many—both inside and outside Parliament—have expressed regret that the investigation seems to cover only the first part of 1984, given the enormous significance of events in the weeks and then the months after June 1984 and their direct link to the storming of the Golden Temple. Will the Government ask the Cabinet Secretary to set out whether he believes there could be some grounds for a fuller inquiry covering a longer period?

I turn briefly to the substance of the findings in the report. There is, and I quote directly from the Cabinet Secretary’s review,

“no record of any assistance to the June 1984 operation (called ‘Blue Star’ by the Indian Government) other than the limited military advice provided in mid-February”.

Can the Minister set out whether the nature of that “limited military advice” provided earlier that year ruled out conclusively the possibility that the British Government offered support for Operation Blue Star in the form that it was eventually undertaken? I refer in particular to one document of those presented today, dated 23 February 1984, from the Private Secretary to the Foreign Secretary, to the Principal Private Secretary at No. 10. It says, talking about the military adviser in question:

“With his own experience and study of this kind of problem, he was able to advise the Indians of a realistic and workable plan which Mrs Gandhi approved on her return from Moscow on 16 February”.

I wonder if the Minister can comment on that point.

The report sets out that there has been a quick analysis in recent weeks by current UK military staff, which confirms that there were differences between the June operation and the advice from the UK military officer in February. Indeed, in repeating the Statement, the Minister mentioned some of those differences. Why was this analysis as quick as it was? Is there any point in perhaps having a rather longer analysis to see what the position is?

Noble Lords are of course aware of the continuing pain felt by the Sikh community around the world—not least in this country—at those events and the deaths and destruction that they caused, but also at the anti-Sikh violence following the assassination of Prime Minister Indira Gandhi and the emergency period

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that followed which saw arbitrary arrests and accusations of torture, rape and disappearances, some still unresolved today. While of course there are differences within the Sikh community over the issue of a separate Sikh state, there is unanimity in their horror at these events. For British Sikhs particularly perhaps over recent years, there has been the added burden that their own Government may—may—have been involved in these actions. We believe that the Government have a continuing responsibility to address the widespread concerns and fears that still exist. Do they agree? If they are able to provide answers to those concerns and questions, then we as Her Majesty’s loyal Opposition will of course support them in that effort.

3.30 pm

Baroness Warsi: My Lords, I start by thanking those noble Lords who have discussed this matter with me over the past few weeks, and indeed the Opposition for making sure that they have played a part in the discussions that took place to make sure that all the concerns of the British Sikh community and the wider community were brought to bear when the report was being prepared. I urge noble Lords to read the report and the documentation attached to it because it goes into great detail. The Statement is in no way as good as the actual report and documentation, which I think sheds greater light on what happened at the time.

I hope that I have assured noble Lords on the basic questions that were asked as the report was being prepared about the UK’s involvement, the extent of the advice that was given and how material that advice was. I hope that noble Lords are assured by the amount of documentation which has been considered for the report. I can also confirm that all the documentation which we intend to make public has been made public, but of course we can never guarantee what documentation may come to light in future years as part of disclosure. I have, however, informed the House of the extent of the documentation that was considered in the preparation of this report.

During the course of the investigation the Cabinet Secretary and officials spoke to individuals who were associated with the two documents. However, as some of those officials are now deceased we have had to consider the documentation only. I am sure that noble Lords will accept that it is right to protect the anonymity of the officials at this stage, which is in line with standard government procedure. We do not intend to name the officials who were interviewed and nor do we intend to disclose the transcripts.

The noble Lord asked me about the terms of reference which applied to the investigation. The terms of reference were set out by the Prime Minister in the other place during PMQs on 15 January. He focused on establishing the facts about the UK’s involvement. They were: to look at why the Government provided advice to the Indian authorities, the nature of the UK assistance and the impact of that assistance. The terms of reference of the review were not narrowed in any way; indeed, they were widened to take account of some of the areas of concern that were raised. These included ensuring that all further concerns were addressed. There was no delay in publishing the terms of reference. We were not committed to publishing them from the

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outset, but decided to do so given the questions being asked about the point. I would say that the inquiry was thorough and quick in response to the important questions that were being asked. I am not sure whether noble Lords spend time watching the ethnic Sky media channels in the way that I do, but if anyone has seen those channels or Sangat TV they will know that this has been a topic of constant discussion within the British Sikh community for many weeks. It was why the Government felt it appropriate to deal with the matter as swiftly as possible.

On the point about a longer analysis, I think it is right to go back to what it is that the Cabinet Secretary was asked to look at—and that was in relation to the UK’s involvement. I have no doubt about the strength of feeling within the British Sikh community and indeed in the Sikh community across the wider world. These events are still raw and form part of a discussion among young Sikhs who were not even born at the time the tragedy occurred. Of course, as we approach the 30th anniversary, it is becoming even more of an issue. But it is not for the British Government to be involved in matters which I am sure noble Lords will accept were sovereign matters for the Indian state. This report was never about reopening Operation Blue Star, it was about looking at UK involvement. I hope that I have been able to assure noble Lords about our role in that.

3.33 pm

Lord Dholakia (LD): My Lords, I thank my noble friend for repeating the Statement, and I ask her to extend those thanks to the Cabinet Secretary for the open and transparent way in which he has carried out the investigation. No matter where we stood at the time of the attack on Sri Harmandir Sahib, the Golden Temple, it is clear that the revelations have been a shock to almost all the Sikh community, not only here but around the world.

The Golden Temple, the holiest temple, which many of us have visited, is a place of tranquillity and peace. It is of the deepest significance to the Sikh community, and as has rightly been pointed out, this matter is being discussed all over the world. The Prime Minister has visited the Golden Temple at Amritsar, and he then also visited the site of the Jallianwala Bagh where, as colleagues will recollect, the massacre of a large number of Indians was committed on the orders of General Dyer. The Prime Minister was good enough to offer an apology at that stage. Even at this late stage, should we not extend some regret about our involvement in this episode at that time?

My second point is that, even at this late stage and with the broad Statement before us, will the Minister undertake to discuss it in her meeting with colleagues from the Sikh community and make sure that it goes to every gurdwara in this country, so that they are aware of the depth to which this episode has been investigated and precisely what happened at that time in relation to the British Government’s involvement?

Baroness Warsi: I hear clearly what my noble friend says. I had the privilege of being the first Minister in this Government to visit Sri Harmandir Sahib and also Jallianwala Bagh, where the tragedy of 1919 is

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still of significance, certainly for someone like me with origins in those lands. Those visits were incredibly poignant and emotional moments.

However, I take us back to the subject of discussion here. The reason for what the Prime Minister said and did in relation to Jallianwala Bagh was, of course, that there was a terrible, tragic massacre in which the United Kingdom was completely involved. We are talking now about a situation which involved Indian forces. The question that I had to address at the Dispatch Box was the nature of the UK’s involvement. I hope that, through the Statement and the documentation that has been published, I have made clear the UK’s involvement. Apologies go with responsibility but in this particular case the responsibility does not lie with the British Government. I completely understand the sentiment in the British Sikh community, and indeed in the wider community, but I do not feel that, so far as the United Kingdom is concerned, this is the kind of case that could be compared to Jallianwala Bagh.

On the noble Lord’s wider point about engagement with the British Sikh community, I enjoy a good relationship with that community as a Minister both in the Foreign Office and in the Department for Communities and Local Government. We meet regularly, both through Sikh communities coming to the department and through visits. Only a few months ago I was at the Nishkam Centre in Birmingham. We place huge value on our relationship with the Sikh community. We also note the huge contribution that Sikh communities make in the economic and professional fields and also in volunteering, something that I hold very dear and is so apparent when visiting places like the Nishkam Centre and other temples.

The Minister with responsibility for India, my right honourable friend Hugo Swire, is meeting the Sikh community as we speak, I think. The noble Lord, Lord Singh, is probably not in his seat because he is at that meeting. I was hoping that this Statement would be taken at 5 pm so that I could also be present at that meeting, as I intended. However, I will certainly follow it up with a further meeting with the community.

Lord Alton of Liverpool (CB): Indeed, my Lords, my noble friend Lord Singh has asked me to express his regrets to the Minister and to the House that he cannot be in his place, given that he has followed this issue with assiduousness and determination over a very long period, but he is at the meeting to which the Minister has just alluded.

The Minister will have seen the statement made by Bhai Amrik Singh, the chairman of the Sikh Federation, that he was “hugely disappointed” with the inquiry’s “narrow terms” and that his meeting with the Cabinet Secretary, Sir Jeremy Heywood had failed to assuage his concerns. Given that the Minister has done so much to build good relationships with the Sikh community, will she assure the House that she is willing to meet Mr Singh to discuss whether there are outstanding issues that could still be examined? Will she also comment briefly on the remarks she made about Britain’s commercial interests when she repeated the Foreign Secretary’s Statement earlier and said they had played no part at all in any of these events? Would

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she be willing to publish a list of any arms deals that were made during the period prior to and immediately after these events in 1984?

Baroness Warsi: The noble Lord makes an important point. I think Amrik Singh is part of the delegation of individual organisations and individuals who are meeting with Minister Swire, but if that is not the case and he is not part of that meeting, I will certainly see whether appropriate contact could be made. As I said, I will be making contact myself with members of the Sikh community in the coming weeks and months. There is a wide range of opinion. I had the opportunity to discuss the matter at some length with the noble Lord, Lord Singh, and my honourable friend Paul Uppal, who is the only Member of Parliament of Sikh origin in the House of Commons. Quite a breadth of opinion has come back from the Sikh community about how far the British Government are expected to go to satisfy certain elements of that community. I completely take on board how raw this issue is—and how raw Operation Blue Star is—and to what extent certain elements of the community wish there to be a truth and reconciliation process. However, going back to what I said at the beginning, that is a separate issue to the one that we are dealing with, which is what the UK’s involvement was.

I assure the noble Lord that the advice that was given was not linked in any way to commercial interests or to a particular defence contract or negotiation. That is certainly what the documentation shows. I am not sure how much further it would take the matter to start publishing any discussions that were happening in relation to any sort of commercial activity with the state over whatever period of time. I know from my own dealings with countries that we are engaged with through UKTI that these matters can sometimes take months and sometimes years. How far would that net have to be cast? I would like to be assured, and to reassure the House, on whether there was, in this particular case, a commercial connection to the decision. I can assure noble Lords that there was not.

Baroness Berridge (Con): My Lords, my noble friend the Minister outlined that the processes regarding the non-disclosure of information are going to be the subject of a further inquiry. Looking at the Statement from the Government, it appears that it was fortuitous that certain documents were copied into other departmental files, as the whole file was destroyed at the Ministry of Defence’s 25-year review. We are grateful for what appears to be that fortuitous copying of documents, but is the correct inference that, without it, a comprehensive file would not have been retained for this inquiry to base its conclusions on? How is that going to be part of the ongoing inquiry when that review, presumably, will be done now by the Ministry of Defence at 15 years for a 20-year release of information? Could that be part of the ongoing process?

Baroness Warsi: I am sure that these matters will be looked at. My noble friend will be aware that this Government are hugely committed to the issue of transparency, which is why we brought in the 20-year

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rule, bringing the period down from 30 years. It is important that documentation—subject of course to national intelligence issues and national security interests— is put into the public domain. The documentation that was destroyed was part of a 25-year review. As my noble friend says, it was fortuitous that elements of that documentation were present in other departments. I am sure that lessons will be learnt from this incident.

Lord Desai (Lab): My Lords, the noble Baroness was quite correct in saying that Operation Blue Star was the responsibility of the Indian Government. However, there have been reports in the press that the advice given by the military adviser to the Government in India was to not undertake Operation Blue Star but to wait out the people who were in the temple and settle the issue much less violently than was the case. Has any evidence been unearthed to confirm that? If so, would it not be to the advantage of all concerned to make it public?

Baroness Warsi: The noble Lord may have heard in my Statement that the advice given was that entering the temple should be seen as a last resort and that a negotiated settlement was the right and the first way to proceed in these matters. In any event, it is clear what advice was given by the British officer and it is also clear that that advice was not followed. That is also an important element of the Cabinet Secretary’s report.

Lord Butler of Brockwell (CB): My Lords, I was the Prime Minister’s principal private secretary at the time of these events. One of the documents published today is the letter from the Foreign Secretary’s office seeking the Prime Minister’s assent on 3 February to the sending out of a military adviser. While it is clear from the extent of the underlinings made by the Prime Minister on that letter that she considered this proposal very carefully, will the Minister confirm that, beyond giving her assent and asking to be kept informed of subsequent developments, she took no initiative and no other action in relation to this matter between March and June, when the military action took place?

Baroness Warsi: That certainly appears to be the case and, of course, if the noble Lord’s reading and recollection is of that being the case, certainly I would take his word on that.

The Lord Bishop of Chester: My Lords, the noble Lord, Lord Desai, made the point that using force to resolve a situation is nearly always counterproductive and has results that you do not anticipate. Are there two additional lessons from this? First, the speed with which this report has been produced is commendable. I think of the Chilcot inquiry that we are still waiting for. This has been done in a few weeks and it seems to me to be a lesson for other situations in which a bit more speed can help the reconciliation process. Secondly, is one of the lessons that understanding religious sensitivities is something the modern world can find hard to do? One thinks of Ariel Sharon going to the Temple Mount and starting the second intifada, with all the consequences that have flowed from that. Is that a lesson that we should draw from these events?

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Baroness Warsi: I thank the right reverend Prelate for his warm words in relation to the way in which this inquiry was conducted quickly. It was certainly part of the clear remit set by the Prime Minister at the outset.

The right reverend Prelate makes an important point. To understand the sentiment within the British Sikh community it is important to understand the significance of Sri Harmandir Sahib; the significance of the timing of Operation Blue Star; the implications in relation to the damage that was done to Sri Harmandir Sahib; and the basis of some of the concerns that were being raised by the dissidents. It is an important point. This is the challenge that I have in a sometimes aggressively secular world; some of these sensitivities are not properly explored and understood.

Lord Avebury (LD): My Lords, does the Minister consider that the destruction of some of the principal documents in this matter, and the fortuitous recovery of the contents of some of the documents by reason of the fact that copies were made, indicates that a review should be conducted on the rules for the destruction of documents? These matters could have been lost to posterity if it had not been for the copies that were made.

Baroness Warsi: I alluded to that in my repeating of the Statement. I said that we were determined to look at the wider issues presented by these events about the management and release of information by government, and, of course, the management of how documentation is held and how it is destroyed. I will certainly make sure that the views of my noble friend are fed into that.

Lord Richard (Lab): Will the noble Baroness help me? Has the advice given by the British military to the Indian Government been unearthed? Is that one of the documents that has been discovered fortuitously? If so, has it been published? Presumably the Indian Government might still have a copy of that advice. It might have been copied inside Whitehall to heaven knows how many departments. If the document exists, does she not think that perhaps it would be a good idea to publish it?

Baroness Warsi: As the noble Lord was speaking, I was going through the documentation that had been published. There was a note of the advice that was given. I am not sure whether that is part of the documentation that is published. I will certainly check that again. I suggest the noble Lord goes back, reads the report and looks at the documentation. It may well be that the information is in there. I have seen so much documentation in relation to this matter over the past three weeks that I am starting to lose track of exactly which bits of it I have seen where.

Lord Elystan-Morgan (CB): My Lords, both the Minister and the noble Lord, Lord Dholakia, referred to the Amritsar massacre of 1919. Does the Minister accept that this House is very intimately and embarrassingly connected with that massacre, in that after it took place a resolution was passed in this House—I believe unanimously—congratulating Brigadier- General Dyer on his distinguished conduct? Of course,

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I appreciate the apology made very properly by the Prime Minister some time ago, but has the time not now come when that blot on the escutcheon of this noble and honourable House should be removed?

Baroness Warsi: My Lords, I think that particular discussion would go beyond the remit of the Statement today. I go back to what I said before; I had an opportunity to visit Jallianwala Bagh. In many ways, this is much more personal to me than it may be to other noble Lords in the House as I am deeply connected to it in terms of my own family connections back to the Punjab. What the Prime Minister did in both visiting Jallianwala Bagh and saying what he said meant a lot to people—and certainly to my grandmother, who is still alive. History always judges matters in a different way but the Prime Minister has certainly tried to put the record straight.

Water Bill

Committee (1st Day)

3.51 pm

Clause 1: Types of water supply licence and arrangements with water undertakers

Amendment 1

Moved by Lord Whitty

1: Clause 1, page 2, line 2, at end insert—

“( ) Granting of an authorisation of a retail or restricted retail authorisation for supply to non domestic sector customers must be done in such a way and on such terms that it does not disadvantage domestic customers.”

Lord Whitty (Lab): My Lords, compared with some of the amendments before us this afternoon, this one is pretty straightforward and also pretty fundamental. We on this side of the House support the principle of extending competition in the non-residential retail sector of water, partly because we have been impressed by the progress made and experience in Scotland. There, not only have businesses and public bodies benefited from competition within the sector but also there appears to be benefit for the household sector from improved efficiency driven by that competition. That is a good model but of course history does not always repeat itself. We have a very different structure here in England and Wales, and markets are funny things. You cannot predict how the knock-on effects of introducing competition will work out in either the short or medium term.

The Government have made it clear that they do not at this juncture wish to give powers to extend competition into the household sector directly. The logic of competition in the non-domestic sector may well lead to improved efficiency but could equally lead to much tighter margins in the incumbent companies. Ideally, there would be other ways of compensating for those tighter margins but there would be a temptation for companies to restore their margins effectively through higher costs or less good customer service to the

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household sector. We know that that is not the intention of the Government, nor of the Opposition in supporting the Government in the principle of the move in this respect. We also know that Ofwat will use codes and charging regimes to try to prevent such a thing happening to the disadvantage of the household sector. However, would it not be sensible for this essential principle to be embedded right up front in the Bill?

I am sure that the Government will argue that this is probably not the right place for it but, because of the way the Bill is constructed and the slightly obscure way that retail competition comes in the redraft of 20 year-old legislation, the introduction of retail competition does not exactly leap off the pages of the Bill. Therefore, it would be sensible to put the qualification in early.

Accepting Amendment 1 would ensure that there is no ambiguity and that the intention of the Bill is to introduce retail competition in the non-domestic sector, but with no disadvantage in either price or in kind to the domestic sector. In addition to Amendment 1, Amendment 121 in this group would require Ofwat to keep an eye on the relativity between non-household and household charges. Amendment 45 reflects the need not to disadvantage the household sector by either price or lower service in relation to setting charges and establishing codes, which Ofwat is required to do under the Bill.

Amendment 1 is the principal amendment and would amend Clause 1 so that there would be no ambiguity. I very much hope that the Government can accept such an amendment, or something very like it. I beg to move.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, I thank the noble Lord, Lord Whitty, for his Amendments 1, 45 and 121 on the important issue of protecting householders. It is a crucial issue and one that the Government take very seriously.

Before I go further, I ought to take the opportunity to reiterate disclosure of my interests. I have a tributary of the River Thames running through my farm; I have an abstraction licence and a borehole. I own a house that was flooded in 2007 and I own one-third of a commercially operated lake.

The noble Lord, Lord Whitty, introduced the Water Act 2003 to Parliament, which was intended to put the customer at the heart of the water sector. This Government have continued that work through the water White Paper. We have been very keen, throughout the reforms that the Bill makes to the non-household market, that the household customer remains fully protected, and I think that we have achieved that. Indeed, the Bill introduces reforms designed to help us manage future pressures as efficiently as possible, ensuring that customer bills are kept fair for the long term.

The Secretary of State, Ofwat and the Consumer Council for Water all have a shared duty to protect customers. They must have special regard to, among other people, rural customers and people who are unable to switch their suppliers when carrying out their statutory functions.

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There are already mechanisms in place to prevent business customers’ bills being subsidised by household bills. Ofwat’s policy of setting different retail price caps for household and non-household in the current price review will ensure that households do not subsidise the competitive market. Let us be clear about what that means. We can be certain that household customers will not cross-subsidise retail competition because there are separate wholesale and retail price limits. The costs of implementation for upstream reforms will be shared, as will the benefits. It is not desirable to prevent that, as this would also isolate household customers from the benefits of this reform.

We expect that household customers will benefit from the improvements and innovations that competition will foster. Water companies will be incentivised to introduce efficiencies and invest in improved customer services in order to retain and attract non-household customers. There will be positive knock-on effects. Household customers are also likely to benefit from these improvements, as our impact assessment shows.

We will come to the issue of de-averaging in later debates, so I will not detain your Lordships by talking about it now.

I stress that the Bill puts in place a framework that enables household customers to be protected against any changes to their bills resulting from the expansion of the competitive market. To be explicit, our charging guidance will say that de-averaging must occur only where it is in the best interests of customers.

I started by saying that we take the protection of customers of customers seriously. I hope that I have been able to reassure the noble Lord that we have thought about these issues very carefully indeed, and I hope that he will agree to withdraw his amendment.

4 pm

Lord Crickhowell (Con): My Lords, perhaps I might take this opportunity right at the start of the Committee to make two general observations. First, I cannot think of any complicated Bill which has been so admirably handled as this one has, so far, by my noble friend Lord De Mauley. He has had a series of briefing meetings trying to explain the complexities of the Bill and has taken infinite trouble to write to those of us who expressed anxieties at Second Reading or on other occasions and give us reassurance.

Having said that, this is an extraordinarily complex Bill, as the noble Lord, Lord Whitty, indicated in moving his amendment. I am told that there are competitors but in my 43 years in both Houses, I do not believe that I have ever had to follow a more incomprehensible Bill. That is because it takes two major pieces of legislation, and one or two other less relevant pieces of it, and amends them in a series of complex ways. It then introduces a whole string of regulations, some of which are not yet defined and made. Simply finding your way through the Bill to find the clauses is extraordinarily difficult. When I thought that I might put down probing amendments to bring out one or two points, I abandoned the task as I could not begin to see where I could do it.

That leads me to make one other observation. When we are confronted with this kind of legislation, I wonder whether it would not be better simply to start

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with a clause which says, “This Bill cancels and replaces”—or whatever the word might be—“the following Bills”, so that it presents the legislation affecting the industry in one comprehensive new Bill which everyone can follow. What worries me is that once we have completed our proceedings in this House and the Bill becomes an Act, how on earth are the general public and those who have to operate it going to discover easily what the Bill’s contents mean for them? I wonder whether the Government have yet given any thought to having a clear way in which they could present things to the public, and indeed to the water authorities and the new people who we hope will be brought into the industry. Perhaps they could build on the kind of papers that my noble friend has so helpfully presented. There is a real problem and I hope that, as we go through these proceedings, the Government will give careful thought as to how we tell the British public and those who have to implement the proceedings what is actually in the Bill.

Lord De Mauley: Perhaps I might quickly respond to that. First, what I should have done when I spoke first was to thank those noble Lords who have come to discuss their concerns with the Bill with me. That has been an extremely informative and helpful process. I am grateful to my noble friend for his point; he is not the first to say it. As he kindly says, we have been doing our best to help noble Lords with the Bill and I will continue to do that. I also take his point about informing the wider public. If I may, I will take that point away and see what we can do.

Lord Whitty: My Lords, I thank the Minister and the noble Lord, Lord Crickhowell. I have to say that if the noble Lord, Lord Crickhowell, cannot understand this Bill, with not only his experience of the whole legislative programme and procedures in both Houses but his intimate knowledge of the water sector, there is precious little hope for the rest of us. As for the general public or even those people who are to operate it within the industry and its regulation, there are some serious difficulties.

The noble Lord, Lord Crickhowell, was absolutely right to say, as I mentioned at Second Reading, that the Minister and his officials have been extremely generous with their time and effort. A lot of those documents are extremely comprehensible. It is a pity that that is not reflected in the Bill but it is a huge improvement on some departments that we have at times known, under all Governments. So I congratulate Defra and the Minister on the information given to us.

However, given the Bill’s complexity and the difficulty of reflecting it in simple terms for those who are operating it, let alone the average consumer or small business at the far end of the water chain, would it not be simpler to put something quite straightforward, like my amendment, right at the beginning of the Bill, so that everybody could understand it? The Minister has not taken this point fully.

I can understand the Bill sufficiently to see that there are checks and balances in relation to the charging system. It is difficult to see how the domestic sector would, literally, come to subsidise the non-domestic sector as a result of competition being introduced in

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the latter. However, it is not just about pricing. If the incumbent is faced with squeezed margins it is not just a question of banging the price up a bit because that is, by and large, set for five years and Ofwat would be pretty stringent in ensuring that it stays. However, you can save money by diminution of service and this is why I use the word “disadvantage” rather than referring to cross-subsidy. The sector could suffer from non-price effects of this if it went wrong and competition, instead of driving efficiency across the board, as we are told it has done in Scotland, did not have that effect on the supply to the domestic sector.

I would like to see this at the front of the Bill but I am clearly not going to get that from the Minister today. However, I suspect that, as we go on, there will be other points where greater clarity and part of the Bill being written in large letters would help people to understand. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Moved by Viscount Hanworth

2: Clause 1, page 2, line 13, at end insert—

“(8) The Secretary of State shall, following consultation, issue rules for the designation of the market operator for the retail non household market, setting out the procedures, responsibilities, status and governance of such market operator.”

Viscount Hanworth (Lab): My Lords, I also thank the noble Lord, Lord De Mauley, for his very helpful approach in informing some of us of the intricacies of the Bill. This is a probing amendment, designed to throw some light on the arrangements regarding the so-called market operator. An electronic search of the Bill fails to reveal a single instance of the words “market operator”. We have been alerted to the intention to create this entity by an organisational flowchart entitled “How Will it All Work?”. This was provided by Defra officials in the course of a seminar that preceded the introduction of the Bill to this House. The words are to be found within a centrally located box that is connected to boxes labelled “the regulator”, “the retailers” and “the wholesalers”. I tend to view such charts from the perspective of the circuit diagrams of electrical engineering, hence I have anxieties about the dangers of short-circuiting or worse. This flowchart contravenes all the rules of electrical safety.

There was nothing in the document presented at the seminar to inform us of the role of the market operator. However, one noticed that the top left-hand corners of its pages were stamped with the logo of an organisation called Open Water. We have been told that Open Water is a programme created to support the Government’s vision for the future of water management in England and that it is to be steered by a high-level group consisting of representatives of Defra, the Scottish Government, the Welsh Government, customers, Ofwat, the Water Commission for Scotland and the water companies. Only Uncle Tom Cobbleigh is missing from the list.

An immediate question is whether this organisation is real or a mere fiction. One way of substantiating the existence of an organisation is to look for its website. The website of Open Water is readily accessible but an

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examination of what is there only adds to the doubts and confusion. One prominent item on the site is a question and answer file that purports to be an interview, in real time, with the programme director, Keith Fowler. It is clearly nothing of the sort and this assertion is notwithstanding the fact that the document ends by expressing thanks to Keith Fowler for “talking to us today”. I had not previously encountered this kind of bamboozlement.

A somewhat more informative document, available at this website, is titled Market Operator Target Operating Model. This purports to tell us what the market operator will and will not do. However, in places the document is curiously self-contradictory. Thus it is stated that the market operator,

“should carry out monitoring and reporting of market code compliance”,

and have delegated authority to issue,

“warnings and … financial and non-financial penalties”.

It is also stated, in a seeming contradiction, that:

“Enforcement of significant market issues should not be performed by the”,

market operator, and it is said, in an oddly confusing manner, that, if needs be, the market operator,

“should administer, but not arbitrate on, market disputes”.

Clearly, there is need for some clarification here, which is what the amendment seeks.

A further issue that needs to be clarified concerns the steering of a market operator, and its relationship to Open Water. We learn from the aforementioned document that the market operator,

“should be a company limited by guarantee”,

that will be owned and paid for by the water companies, that its set-up costs should be paid for by the wholesalers and that its running costs should be split between wholesalers,

“incumbent retailers, new entrant retailers and self-supply customers”.

A danger that may arise and that needs to be guarded against is that of regulatory capture, a process by which regulatory agencies eventually come to be dominated by the very industries that they have been charged with regulating. The terminology originated in the United States, where it has been used to describe how the intentions of the federal Government have been widely subverted. Aspersions of regulatory capture have already been made against Ofwat; we need assurances from the Minister that the Government are aware of such dangers and will take steps to avert them. I beg to move.

The Earl of Selborne (Con): My Lords, I declare my interests, as I did at Second Reading, that, like the Minister, I am a farmer with an abstraction licence, although I have not been flooded—so to that extent, I do not claim the same interests.

The amendment would require Ministers to issue rules for the,

“designation of … procedures, responsibilities, status and governance”,

of a market operator. I cannot believe that such ministerial control would assist in the implementation of a successful market. In regulated utility industries, whether energy, communications or water and sewerage, the management and control of market operations is initially the responsibility of the regulator, working alongside the

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industry. Once the market is up and running, it becomes the responsibility of the industry, supported of course by the oversight of the regulator, which provides the framework. This approach helps to ensure that the regulator and the industry work together; the industry will need to adapt to innovation and new circumstances. We recognise that in this Bill we are promoting innovation and we have to ensure that the regulation adapts accordingly. The industry will need to adapt to innovation and these new circumstances, and it is for the regulator and industry to ensure that working practices are aligned in the regulatory framework that we are establishing in the Bill. I simply do not believe that it would be helpful to have a politician—the Minister of the day, of any party—fulfilling the role of controlling the market operator in this far-reaching way.

Baroness Parminter (LD): My Amendment 95 is grouped with the amendment moved by the noble Viscount, Lord Hanworth. I wish to probe the issue to get a bit more information from the Minister on the shadowy role of the market operator. Before I do that, however, I take the opportunity on this first day in Committee to say that the truncated nature of the parliamentary process, with less than two weeks between Second Reading and going into Committee, has presented certain challenges to those of us who are trying to do our duty and give proper scrutiny to this complex Bill, as my noble friend Lord Crickhowell said. Like others, I thank my noble friend the Minister and the Bill team for the briefings and the clarity of the briefing papers, but that still leaves certain gaps in our knowledge. Noble Lords will be aware that the comments of the Delegated Powers and Regulatory Reform Committee on the Bill were published only on Friday, and we still await the Government’s response. Clearly, we have had to table our amendments before the Government have provided us with the response to important points that the Delegated Powers and Regulatory Reform Committee has made, and that is not particularly satisfactory or helpful.

4.15 pm

It is imperative that the Minister sets out for the record the role and duties of the market operator as the Government view it. In response to my raising this matter at Second Reading the Minister said that the equivalent body in Scotland is the Central Market Agency, but Scotland does not have the upstream competition proposals that we may have, so it is not an exact parallel and the role of this market operator may change in future as the plans for upstream competition develop.

If my reading of this clause is right, the market operator will be subject to the codes that will require the affirmative procedure. But given that the role of the market operator may change as I have just described, the Minister should assure us that the role and duties of this new market operator do not require a separate scrutiny of this company that may yet get statutory powers. I invite the Minister to set out in more detail the role and duties of this market operator.

Lord Whitty: My Lords, I thank my noble friend Lord Hanworth and the noble Baroness, Lady Parminter, for drawing our attention to this aspect of the reform.

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It is passing strange that, in one of the very nice charts that the department produced and on which we have been congratulating it, it is clear that this market operator is the key to how the situation will play out in practice. We are setting up a market that does not exist, and we are trying to create and sustain it in a way that on the one hand gives the Secretary of State certain powers and on the other Ofwat certain powers, building on its existing ones.

Nowhere in this legislation are there any specifics about this market operator. As my noble friend has found out—I did not know this and I am not sure if any other noble Lord knew—there is a 61-page document on Open Water’s website telling us what it is doing. Having tried to fight my way through that document I am not sure that I am any better informed. Nevertheless, it is clearly an important body. The noble Earl, Lord Selborne, may be right that the Secretary of State should not be laying down precisely how it operates.

The Minister owes it to the House at least to put on the record what the Government expect of this organisation. It has very wide functions. It is crucial to how the market is going to operate, and has fairly substantial powers in terms of dealing with relations between existing companies and with the regulator. This is absent from the legislation, in even the mildest form. That is a bit bizarre. Its objectives include registration and switching; financial settlements; market governance; slightly ambiguously, the enforcement of codes—certainly their operation and administration—and the operation of the industry database. It is owned not as a separate, independent stand-alone company, but by the operators in the industry, which are nine regional monopolies, or eight if Wales is not involved; I am not entirely sure about that. It will allow new entrants to come in, which is jolly good of it. It is not entirely sure whether potential new entrants also have a role in this in relation to the market operating well.

The organisation’s relationship with Ofwat is not clear. It is not owned by Ofwat, which it says explicitly. It is not a subdivision of Ofwat, but is it a contract from Ofwat? Is Ofwat giving these responsibilities to that organisation that is then run by the industry, in the way that the noble Earl, Lord Selborne, describes? If so, are that responsibility and contract ever contestable? There are a lot of questions here. In some ways, the powers and responsibilities that it has, and the governance that it appears to have, would have been familiar to 18th-century economists. They would probably have called it an institutionalised cartel. I am sure that is not what the Government intend, but the way it is described in these documents tends to suggest that it is a fixed market and not as open as the Government like to claim.

Leaving aside one’s anxiety about this issue not having even the slightest mention in the legislation, before we finish our consideration of the Bill the department and the Minister need to lay out a little more precisely how this body will be set up, how it will operate, to whom it is responsible and how its performance is to be judged. Therefore, although these are basically probing amendments, I support the intention behind them.

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Baroness Northover (LD): My Lords, I have no interests to declare except as a frequent user of water and sanitary facilities and, therefore, I am extremely grateful that we do, indeed, have both.

Amendment 2, moved by the noble Viscount, Lord Hanworth, seeks further clarification about the market operator. At his request, I will do my best to be clear and not add to the bamboozlement that he referred to. I say to my noble friend Lady Parminter that we are very grateful to the Delegated Powers and Regulatory Reform Committee for its careful consideration of the Bill. We will respond in due course and make sure that noble Lords receive a copy of the Government’s response.

I am most grateful to the noble Viscount, Lord Hanworth, and to my noble friend for tabling their respective amendments and thus for giving me the opportunity to discuss the market operator, clarify its role and purpose and, I hope, set their minds at rest about any concerns they may have. The market operator will be a company limited by guarantee that will initially be set up by Ofwat. Incumbent water companies and licensees that will operate in the competitive market will own and manage the market operator. As noble Lords will know, Ofwat is accountable to Parliament and has a primary statutory duty to protect customers as well as powers to take action against anti-competitive behaviour under the Competition Act. Ofwat will oversee the overall operation of the market and ensure that it is working in the interests of customers, with powers to intervene if the market operator were acting in any way that was anti-competitive. For example, Ofwat could take action against the market operator under the Competition Act 1998 if its activities were disadvantaging customers.

I should make it very clear that the market operator is solely a facilitator with an entirely administrative role. Despite what the noble Viscount, Lord Hanworth, said, it is not a regulator. The market operator will hold a register of premises eligible to switch. It will also facilitate switching and financial settlement between incumbent water companies and licensees. Ofwat will be involved in developing the licence conditions that will set out how licensees and incumbent water companies must interact with the market operator. Market codes may also be used to set out some aspects of these arrangements. The market operator does not in itself have any formal statutory roles.

Looking somewhat wider than the Bill—I see that the noble Viscount, Lord Hanworth, looks perplexed—I hope that the following remarks may be helpful. There are other examples of such companies set up in retail markets—for example, in the gas and electricity retail markets. Perhaps the noble Viscount needs to look at some other 60-page documents in relation to other utilities. The Metering Point Administration Service company administers switching in the UK electricity market and Xoserve does the same for gas. These are not exactly household names because they do not come into contact with the public. They are private companies set up for and by participants in regulated markets to operate silently in the background. None of these companies was established under statute and none has had its respective remit set out in legislation or by the Government.

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The water industry and regulators have already set up a company limited by guarantee called Open Water Market Ltd. The noble Viscount has clearly done a lot of research on this matter. The company will initially be a vehicle to take forward the delivery of the Open Water programme, which is establishing the retail market on behalf of the Government, Ofwat and the industry. A decision will be made in the coming months on whether this company or another one will be established as the market operator for the retail market that goes live in April 2017.

The market operator will be governed by its articles of association and will be accountable to its members, which will be the incumbents and licensees that it serves. As a limited company, it will be subject to the provisions of the Companies Act 2006 and will have to prepare accounts and reports in accordance with that Act. Decisions will have to be made in the future on whether the retail market operator or another body should operate in the upstream market. If there were to be an upstream market operator it would not have roles around the inputting of water or withdrawals of sewage that would properly fall to the Drinking Water Inspectorate or the Environment Agency. The market operator’s role is likely to be limited to registering arrangements and verifying quantities of water input and consumed to facilitate financial settlement arrangements. An example of such a market operator in energy is Elexon, which facilitates settlements for the electricity generation market.

I shall comment on a point made by my noble friend Lady Parminter about market codes being subject to the affirmative procedure and explain that market codes will not be subject to any parliamentary procedure. The regulations under Clause 12 are subject to the affirmative procedure and these codes will be subject to consultation. If my noble friend needs further clarification we can provide that.

Coming back to the issue of what the market operator is, I conclude by saying that the market operator will not have any statutory roles, duties or responsibilities within the retail market of the sort that would need to be set out in regulations. I hope that I have clarified that. It will handle routine transactions and communications between incumbents and licensees to help them to meet their statutory and regulatory obligations, as prescribed by legislation, codes and their licences. The market operator will not take over any responsibilities that properly belong with the incumbents, licensees or regulators. I hope that I have provided some elucidation to noble Lords. Obviously we would be happy to provide any further elucidation that is required. In the mean time, I hope that the noble Viscount will be content to withdraw his amendment.

Viscount Hanworth: I thank the Minister for that explanation. She has told us that the market operator is intended to operate silently in the background but I am not sure that that justifies the complete silence of the documentation we have received about the market operator. This is a fundamental part of the architecture of the water industry as it is intended to evolve so the lack of any mention of it in the principal documents is extraordinary. I have made that point rather forcefully

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but I shall withdraw the amendment as it is a probing amendment. I hope that others will also voice an opinion about the extraordinary lacuna that we have in the documentation if not in the legislation. I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

Amendment 3

Moved by Lord Whitty

3: Clause 1, page 2, line 20, at end insert—

“(e) the Consumer Council for Water or other appropriate statutory consumer body”

Lord Whitty: Amendment 3 is the first of a number of amendments that we will propose from the Opposition Front Bench on engagement with the Consumer Council for Water. It is important to recognise that one of the main players in the water sector has been the Consumer Council for Water. The Minister referred to me bringing in the 2003 Bill, which was when we took the Consumer Council for Water out of Ofwat and made it an independent, self-standing, statutory consumer body. While there has been a lot of change in statutory consumer bodies over the years, the consumer council has played an important role. While it has supported the regulator’s focus on the consumer, it has also challenged it. There has been a reasonable relationship between Ofwat and the consumer council. In recent years, Ofwat has encouraged some greater sense of responsibility on the part of the water companies and set up consumer challenge groups, which have fed into the boards of those companies. The Consumer Council for Water has helped to facilitate that. It is therefore important that that relationship is fully institutionalised.

4.30 pm

In many ways, given that water is an essential part of our lives, including for individuals, families and businesses, the consumer end should be fully represented in all processes. The Consumer Council for Water is in a good position to do that and its role should be reflected in the Bill. At some points it is reflected in the Bill, but not at others—or not fully. The Minister may say that the amendment is flawed because it refers to the Consumer Council for Water, whereas the rest of the Bill refers simply to “the council”, which in the glossary of terms means the Consumer Council for Water. I have used the formulation in the amendment in case of any change in the statutory status of the consumer council because there are fairly rapid changes in that area, as I well know.

One area in which the council is not involved, and in which it is not listed as a consultee, is the granting of licences to the water undertaker in the first place, which is covered by this clause. I am not in any sense suggesting that the Consumer Council for Water should have a veto over the granting of a licence, but it should be one of the consultees before a licence is given, renewed or modified. For that reason, I tabled the amendment. I hope that the Minister will see the logic of what I am saying. It is part of the need for a much wider consumer dialogue within the water sector so

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that consumers understand the enormous and complex needs of the industry, and the management and regulation of the industry takes full account of the consumer voice. I beg to move.

Baroness Northover: My Lords, I thank the noble Lord, Lord Whitty, for tabling these amendments. The Government recognise the significant role that CCWater plays in the industry by representing water and sewerage customers in England and Wales. The noble Lord made that case cogently.

However, these amendments concern the licence authorisations that relate to inputting water to the network, and the noble Lord is clearly well aware of that point. This means that they relate solely to the relationship between water supply licensees and the incumbent water companies, rather than that between licensees and customers. Before issuing a wholesale or supplementary authorisation, Ofwat must consult the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate. This is not least because they can provide intelligence on any prospective licensees that are trying to operate in this area. The purpose of this is to ensure that these parties are fit and proper persons for the purpose of operating in the new markets.

We would like CCWater to continue carrying out its valuable work of protecting customers and handling customer complaints. It is worth noting that Ofwat already publishes a notice on its website asking for comments from interested parties before it issues a licence with either a retail or restricted retail authorisation. CCWater therefore has the opportunity to respond on any issues that might affect customers at this point. I hope that any concerns, as identified by the noble Lord, Lord Whitty, can be addressed in that way. I hope that he is reassured by this and is willing to withdraw the amendment.

Lord Whitty: I thank the noble Baroness for those comments. She is right that these clauses deal with the relationship between new bulk suppliers and the incumbents, but that has a significant effect on the nature of the market beyond that. If the purpose of this consultation is to establish whether the newcomers negotiating a relationship with the incumbent are fit and proper persons, one issue is the effect on consumers down the line. I accept that Ofwat is open to people writing in, but why is the statutory consumer organisation not one of those listed to give a view in the first place? We are changing the market, and there should be a consumer view on how that market is changing and who is entering that market. I am looking not for a veto, but for an input. I hope that the Government will think slightly more. It would not cost them that much to add a new paragraph (e) to this subsection, and it would be consistent with what is done later in the Bill—admittedly on parts closer to the consumer—and with the established legislation and regulations. I withdraw the amendment for now, but I would hope that the Government could consider this further.

Amendment 3 withdrawn.

Amendment 4 not moved.

Clause 1 agreed.

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Schedule 1: Water supply licences: authorisations

Amendment 5

Moved by The Earl of Selborne

5: Schedule 1, page 125, line 29, at end insert “for the purpose of, or in relation to, its participation in arrangements made by the undertaker for the introduction of water into its supply system”

The Earl of Selborne: My Lords, I shall speak also to, I think, 32 amendments in this group. I am conscious of the fact that my noble friend Lord Crickhowell said that this Bill started hopelessly complicated, and I suspect that I stand charged by him with trying to make it ever more complicated—and I do so. This is because I am asking the Minister to ensure that the threat of moving towards de-averaging—something neither the Government nor any of us want—is not going to be advanced by the fundamental concept incorporated in the competition aspects of the Bill. That concept is the provision of a direct link between an upstream service provider, whether water or sewerage, and a retailer to non-household customers.

The position under the Bill is that the customer can contract directly with a resource provider. This may well bring lower charges to some customers, if, for example, a new entrant is able to offer a water supply at a price lower than the average price that the incumbent water company is able to charge. In a negotiated market, there will be a range of attributes that will favour one supplier over another. That is desirable and helpful. Price is one such key factor. If, as is possible here, large, non-household customers successfully negotiate on price alone—without respect to the other services that we are expecting to be provided in terms of environmentally friendly services, water savings and much else—that will favour one supplier over another. Eventually, this will result in a situation in which we will drift inexorably towards a two-tier market with the principle of average prices for all customers abandoned. It follows that smaller non-household customers and anyone located in remoter rural areas will face increased costs.

If we think that this is a remote possibility, we should bear in mind that it has actually happened already. In Wales, the Shotton case set a precedent that local costs were required to be used in a ruling in setting prices under bilateral deals. I am told that this was a one-off and that it will not happen anywhere else. However, when I hear that it has happened, and that there is a threat, I say that this is the opportunity to make sure that it does not happen again. I am sure that we shall look at other proposals as we go through the Bill to ward off the threat of de-averaging.

This is a fundamental proposal: it requires contracts to be made with the undertaker, with the other two parties participating. The purpose of the amendment, therefore, is to remove the direct link between the provider of resource services and the retailer. It would remove any opportunity for a large corporation to act in a way that was detrimental to all other customers.

Under the Bill as drafted, we could end up with non-household customers paying different prices for the same service within the same appointed area. As

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I have said, smaller businesses and non-household customers in rural areas are most likely to be affected. One of the charging principles that I accept in the Bill—I quote from the guidance—is the following:

“No category of customer should be unfairly disadvantaged by the way reform impacts on water charges. A fair and non discriminatory approach to sharing network costs will be critical”.

However, the guidance goes on to say:

“Ofwat has a number of tools to limit the effect of de-averaging on customer charges”,

and that it will ensure that,

“any marginal charges are introduced in a measured fashion and, above all, that they are in the overall interest of customers”.

So we are being assured that Ofwat, under the terms of the Bill—we will come to the codes and the rules later —can deal with this problem.

However, I am not entirely clear that this is the case, and I hope that the Minister can give some reassurance—remembering, of course, that already in Shotton we have seen an example of two-tier pricing that has impacted on other customers in the region. Can Ofwat really be expected to manage the impact of de-averaging to prevent any unfairness between customers, especially rural customers, when contracts for non-householders are made directly between retailers and potential upstream services?

Helpful progress was made in Committee in another place and a strong assurance was given that de-averaging would be prevented through ministerial charging guidance, which would explicitly rule it out. However, that is only a limited assurance when one recognises that if these contracts between the resource provider and the retailer were to be decided under European rather than United Kingdom competition law, the United Kingdom Government’s charging guidance would be overruled. So, much as one would take comfort from the ministerial guidance, frankly, it would not overrule European competition law.

I will say again that the purpose of the amendments is to require those with wholesale authorisation to interact with the incumbent water and sewage undertaker rather than with the retailers. I beg to move.

Lord Moynihan (Con): My Lords, my name has been associated with the amendments tabled by my noble friend. He set out his eloquent and comprehensive assessment of the issue of de-averaging and said that he intends to speak further when moving his Amendment 32. There are further amendments. Your Lordships will have noticed that there is a 33rd, Amendment 61 to page 152, line 23—it is tucked away at the back—and will excuse the fact that it is not to the first part of the Bill. However, the amendment echoes the points that have been made so eloquently by my noble friend.

Of course, in many respects, these are probing amendments. However, they have at their heart the significant concern that if de-averaging were to take place some non-household customers, particularly smaller customers in rural areas, could see their charges increased markedly. This could have serious impacts on those non-householders and potential political consequences in some areas.

The prudent way through this would be to remove the direct link that exists in the Bill between the

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provider of the resource services and the retailer/customer, as my noble friend has pointed out.

What I would like to ask, however, is that the Minister clarify the extent of this issue. We have received advice from Scotland—the economics consultancy Oxera and Scottish Water undertook analysis into the impact on customers, were de-averaging to have taken place in Scotland. Under the Scottish Government’s rules, the policy is to rule it out. However, Oxera found that even on very conservative assumptions, many businesses could see their charges rising by at least 25% and, in a fully de-averaged scenario, some customers in Scotland could end up paying up to 10 times their current bill. That is evidence that we have received on one hand.

However, on the other hand, the Bill focuses on choice. Retail services account for something like 10% of the non-household bill—which accounts for something like 20% of the total bill—so approximately 2% of the amount would be in this sector. I would be grateful if the Minister could highlight the seriousness and impact of this issue in terms of its scale. Does he agree with the figures of Oxera put forward by our friends north of the border, who have done some outstanding work in generating competition in this sector? If so, and if that is to be borne out by the evidence, it underlines how important these amendments are.

4.45 pm

Lord Crickhowell: My Lords, there is something to be said for learning from experience. The fact is, we have the experience of the Water Industry Commission for Scotland, which introduced highly successful arrangements from 2008. It is very clear in its recommendations on this particular point, and in the paper sent to some of us it has taken note of the debate that took place in the other place. It says specifically:

“In our view the prudent course of action would be to remove the direct link between the provider of resource services and the retailer/customer. This would remove any ambiguity that could be exploited by a large corporation to the detriment of all other customers. It would also allow a market to develop that could help in building resilience and improving our environment”.

On the front of the paper, it simply says:

“Some of these issues were raised and debated during the Committee stage in the House of Commons but as yet the Government has not been persuaded to accept amendments on the topics of substance we discuss in this note”.

Clearly, in the light of the good experience in Scotland and the very firm advice given to us, we need to know why the Government are not accepting the advice. I shall be very interested to hear what my noble friend has to say.

Lord Whitty: My Lords, I speak only because the noble Earl, Lord Selborne, and to some extent the noble Lord, Lord Moynihan, have rather pre-empted my speeches on the next group. Clearly we are on the same page. The reason I did not put my name to these amendments was that I was not entirely clear what they would do. I thought it would be better to establish a principle position on de-averaging and see what the Government thought. Clearly the Scottish experience is important. Given that experience, it is incumbent on the Government to tell us why they are not legislating

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in that way for England and Wales, and whether the precise amendments suggested by our Scottish colleagues would work under the Ofwat regime. Clearly the principle is an important one and it is one I will come back to on the next group.

Lord De Mauley: My Lords, these amendments, tabled by my noble friends Lord Selborne and Lord Moynihan, seek to introduce a fundamental change which would narrow the approach to upstream competition in this Bill by removing the link between upstream arrangements and retail arrangements with customers. They would mean that licensees would be able to make arrangements with incumbent water companies to provide water and sewerage services without needing to have a specific customer to consume the water or use the sewerage services through the retail market. The implication is therefore that the market might be established through incumbents tendering for new resources under a so-called single buyer model. This would be a significant change from the regime that has been in place since the Water Act 2003 and which we propose to extend through this Bill.

The current approach provides common carriage rights to licensees who want to provide their customers with water resources or sewerage treatment services using incumbents’ networks. Common carriage is the term used when new entrants are given rights to use incumbents’ networks to provide services to their customers. A single buyer approach is a very different model with decisions on tendering for water supplies or sewerage services resting with the incumbent. It provides fewer rights and less flexibility for new entrants.

The Water Act 2003 brought in a specific common carriage regime for new entrants to access the public supply system by making water supply a licensable activity. Under this regime, the same licensee that puts the water into the system must supply the retail services to the customer. The Bill reforms the existing regime by allowing different licensees to input water and provide retail services to eligible customers, but still requires there to be a specific customer. There is nothing in existing legislation that prevents incumbent water companies from making arrangements with third-party water suppliers or sewerage service providers to input water into the system or deal with sewerage disposal. Indeed, we are pleased to see that Thames Water has gone to the market to see which third parties could provide it with water in order for it to meet future water resource needs. Potential suppliers to Thames Water do not need a water supply licence to be able to make an input under this tendering process. There is no need to amend the Bill to make it possible for third-party suppliers to sell water to incumbents, should we feel this is the right way to go in the future. Clause 12 is designed to enable this. The Bill also provides for licensees to withdraw waste water and sludge from the sewerage system through the disposal authorisation in the sewerage licence. This could be used by Ofwat to introduce a similar model to a single buyer arrangement in the sewerage market if it feels that this would be appropriate.

Through the Bill, we are seeking to bring in new resources and introduce more innovation into the sector. My noble friends’ amendments would allow

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incumbents to dictate the future direction of upstream markets. This would reduce pressure on those incumbents to introduce efficiencies that will benefit customers and the environment because only those licensees that are able to bid for and win contracts would be able to enter the market. Incumbents rather than customers would therefore determine future upstream markets.

My noble friends have indicated that the main objective of the amendments is to remove risks connected with the de-averaging of water charges. As the noble Lord, Lord Whitty, said, that is something which we will come to in a little more detail in the next group of amendments, but I hope that your Lordships will allow me to say a few words on it now in response to the contributions that have been made. There is a crystal clear steer from the Government in our charging principles that Ofwat must not allow de-averaging that is harmful to customers. Ofwat has all the necessary regulatory tools to enable it to limit the effect of de-averaging on customer charges. Ofwat has clearly stated that it believes that these tools are sufficient. The Government’s charging principles make it plain that Ofwat must use these tools to ensure that any de-averaging or cost reflectivity is in the overall interests of customers. Two independent experts have reviewed the issue of de-averaging: Professor George Yarrow for Ofwat and Professor Martin Cave for the Consumer Council for Water. Both experts confirmed that Ofwat can facilitate upstream competition without any de-averaging. De-averaging has not happened in other regulated utility sectors, even though greater proportions of those markets are open to competition, and it is no more likely to happen in the water sector.

I stress again that the Bill puts in place a framework that enables household customers to be protected against any changes to their bills resulting from the expansion of the competitive market. Our charging guidance will explicitly say that de-averaging must occur only where it is in the best interests of customers.

My noble friend Lord Selborne raised the case of Shotton as a legal precedent to support the case that de-averaging is a real risk. It is a complex and long-running case, but I hope I can persuade him that it is a misunderstanding to describe it as a case of de-averaging. Shotton was a very unusual case and it is not appropriate to extrapolate from it more widely. For example, it concerned a discrete system that served only two customers, one of which was served by Albion Water. This is very rare. To give some context, the case only represented 0.01% of Welsh Water’s turnover. At the time of the dispute, this agreement was not subject to regulation by Ofwat. The Bill includes measures that will bring all such transfers within the scope of the regulatory regime. Ministerial guidance and Ofwat’s charging rules will therefore set out how charges between water companies and inset appointees such as Albion Water should be determined in future.

My noble friend raised the concern that EU competition law might require that indiscriminate de-averaging takes place, affecting both business and household customers. First and foremost, there is no general prohibition under competition law against the use of average pricing. In fact, it is common practice in both regulated and unregulated sectors. The obvious examples are the gas, electricity and telecoms sectors.

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In each of these regulated, networked sectors, regionally averaged prices have remained the norm. There is no suggestion that this approach is inconsistent with competition law.

My noble friends Lord Moynihan and Lord Crickhowell referred to parallels with the Scottish system where there is no upstream competition. In England, we have a very different market structure and a different set of resource challenges. We are learning from the example of Scotland where it is appropriate to do so but they are different systems and their regulation will accordingly be different. Perhaps we might discuss the Scottish situation in more detail in subsequent groups of amendments.

My noble friends’ amendments remove the direct risk of de-averaging but may not lead to a better outcome for customers. They could still see an increase in charges if incumbents introduced overly burdensome standards in tendering contracts or made poor decisions over which bids to accept. Ultimately, incumbents would not be incentivised to make their upstream services more efficient and would continue to be incentivised to make decisions that benefit themselves rather than customers.

Given that these amendments considerably narrow the scope of competition in the sector, I ask my noble friend to withdraw his amendment.

The Earl of Selborne: My Lords, I was not expecting a resounding round of applause from the Minister for these proposals, which are fairly fundamental in tackling the whole concept. Nevertheless, the Committee should look seriously at precedents, such as Shotton, which, the Minister assures me can be ignored because it is almost irrelevant. When we have an example of a court case which has determined that the price of the local supply of water should prevail, there is, I suggest, quite a threat that this could be rolled out on a larger scale. I think we should take note of that.

We are effectively being assured that Ofwat will have the ability to regulate contracts made between the wholesaler and the retailer. We will come later in other amendments to test the extent to which Ofwat has sufficient powers and codes to ensure that these contracts do not ultimately work to the disadvantage of, for example, rural communities and others. I am not entirely clear why my noble friend is so certain that this puts the incumbent in a stronger position than he might otherwise be, because you are effectively getting back to the same position, which is that Ofwat, under the Bill, has to determine any contract.

5 pm

I note that if you allow contracts to be made directly between the wholesaler and the retailer, one of the inevitable elements which will determine that is price—that will clearly be part of the equation. How on earth does Ofwat say you must pay more, if that is the price between two willing parties, only if the undertaker can demonstrate that it will strand some of his assets, so that overheads impact unfavourably on other people served in that area? That is why you cannot allow cherry picking of this sort on a sufficient

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scale to run the threat of de-averaging and why it is probably essential to have the incumbent as part of the contract.

I recognise that we are going to talk about the threat of de-averaging on a number of other occasions, not least in the next group of amendments. Although I suspect we will return to this concern—I would be particularly concerned that Ofwat does indeed have sufficient powers—I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

Amendments 6 to 8 not moved.

Schedule 1 agreed.

Schedule 2: Water undertakers’ duties as regards water supply licensees

Amendment 9

Moved by Lord Whitty

9: Schedule 2, page 127, line 27, at end insert—

“( ) The rules must include provision for and in connection with ensuring that there are no variations between charges, or the amount of charges, imposed by a water undertaker under different section 66D agreements in consequence of the location at which the duty or duties to be performed by that undertaker under such agreements fall to be performed.”

Lord Whitty: My Lords, some of the issues covered by Amendment 9 have been discussed in the previous group. I do not entirely disagree with the Minister’s response on common carriage, in terms of how water gets delivered and having as broad a range of potential new retailers as possible. However, the outcome seems to be that if you have de-averaged prices, you have discrimination between users. Whether all the structural amendments—some in this group and some in the previous group with the amendment of the noble Earl, Lord Selborne—would be necessary to prevent that, the Bill ought to enunciate that principle. At the end of the day, we do not want a market where the easiest route leads to suppliers cherry picking and to a two- or three-tier market for the final delivery of water to businesses, public authorities and so forth—the non-domestic retail market.

In one sense, Scotland shows us what the benefit to business, and the knock-on effect to the domestic side, has been. It has been not in differentiated prices but in better service, in driving water efficiency both in the delivery and use of water, in better means of dealing with waste water, in better water treatment in specialist cases and in disposal of water and waste. If you put competition wholly on the price side, you will not get those advantages. It will be easy for a supplier, on the supply side, to have a more accessible or more cheaply accessible source of water at the upstream level to bring to its business consumers or, on the demand side, to have a group of businesses and other institutions taking advantage of its terms because they are all fairly close together and all have similar requirements, and therefore there are economies of scale in actually supplying that institution.

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I do not think that the Government envisaged—and nor did we on this side—the increasing competition in the retail sector as being primarily about wholesale price. Reassuring noises have been made about Ofwat having the ability to ensure that de-averaging does not take place. The natural drive of the market, however, is likely to make it quite attractive. Unless Ofwat has a clear line, which this amendment would give them, that the wholesale price and therefore the retail price of wholesale water would not be differentiated by location, we will get some differentiation of outcome. We will get cherry picking and we will get distortion. It will hit particularly the more remote rural areas and rural businesses in those areas; it will hit particularly businesses in rundown parts of the inner city, where not many of them are inclined to negotiate deals with the company; and it will hit businesses where it is difficult to see how a new arrangement would work.

Unless there is an overall presumption that there should be no de-averaging then it is quite easy to see how the market would end up with that. It may be that Ofwat’s powers would be exerted to prevent that, but this Bill does not require Ofwat to do so. The terminology that de-averaging would exist only if there was an “overall benefit” to consumers makes it quite difficult to assess. You have an example of de-averaging which clearly might benefit the immediate consumers who are benefiting from that de-averaged price, but how do you then assess its effect in the short and medium term on consumers as a whole? It is quite a difficult judgment for Ofwat. If the outcome the Government want is that which has been delivered in other quasi-utility markets—largely it has been—why not actually tell Ofwat to deliver that? Surely it would be easier.

I hope that the Government take this slightly more seriously. It will not necessarily unravel their whole approach to competition in this Bill. It is simply giving Ofwat an explicit duty that will deliver an outcome the Government say they want. The Government should not fundamentally object to this amendment. It may require a bit of back-up along the lines the noble Earl, Lord Selborne, has suggested already, but it requires at least the principle to be reflected in the Bill. Otherwise, we will get cherry picking and we will get discrimination, which is unlikely to drive the kind of efficiencies that we have been praising the Scottish system for delivering. I beg to move.

Lord Cameron of Dillington (CB): My Lords, as this is the first time I have intervened in Committee, I declare an interest as a farmer with abstraction licences. Even though I come from Somerset, my farmland is not yet flooded. However, if the current rains continue, it is unlikely that I will be able to say that on Report.

I want to back up the noble Baroness, Lady Parminter, who said that she could not understand why we had only a week between Second Reading and Committee. This is a very complicated Bill and I am not certain why that particular protocol has been broken on this occasion. I have never had an explanation of it. Maybe I have missed some explanation somewhere, but I think it is wrong. I hope it is not a precursor to a Commons-style approach to Bills, where arguments and the length of discussion are ridden over roughshod.

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I strongly support Amendment 9 and the whole question it addresses. It is very important that de-averaging does not take place. I would have supported the noble Earl, Lord Selborne, in his amendments to ensure there are no detriments or de-averaging if I had understood that that was their intention. The noble Lord, Lord Whitty, said that he was not entirely clear what the amendments intended; personally, I could not understand them at all. Anyway, I would have supported the noble Earl had I known.

Water, like Royal Mail, should be covered by a universal service obligation that is amendable only with the permission of Parliament. Water should be a universal right—although clearly there can be exceptions, as with Royal Mail. For instance, I believe that a postman does not have to deliver to a household where he is permanently attacked by a savage dog. The water equivalent of that might be a blatant leak in a householder’s garden where the water was going to waste; there could be exceptions.

It is very important, particularly in rural areas, that de-averaging does not happen. I have heard the view expressed that de-averaging is bound to happen with the introduction of competition, especially if that competition eventually moves on to cover domestic premises. I personally hope that it will but obviously we should go softly, softly. I do not see competition as incompatible with de-averaging. It is possible to invest efficiently in the overall infrastructure and still charge your customers competitively, based on an average cost per litre, once the overall infrastructure is in place and the supply of water adequate for the demand. That obviously means we must manage the supply, the overall abstraction and the demand—preferably through universal metering but we have yet to come to those debates.

For the time being, I strongly support the thinking behind Amendment 9. Neither remote nor very remote properties should have to pay more per litre than their urban counterparts. I sincerely hope that the Minister was right, when replying to the previous debate, to say that Ofwat has the power to prevent de-averaging. I sincerely hope that it will use those powers.

Lord Moynihan: My Lords, I have a number of amendments in this group. Briefly, I am very supportive of the way the noble Lord, Lord Whitty, set out the principles and concerns on this. He echoed many of the points made by my noble friend on the previous group of amendments. My amendments focus less on the principles and more on the mechanisms of charging. To limit the amount of your Lordships’ time taken in Committee, I intend to pick that up in the context of Amendment 43, on restricted access, and of Amendments 99, 100 and 102, which fit more neatly into Clause 16 and the charges scheme—which I know my noble friend will address when he reaches his group of amendments, led by Amendment 44. I could discuss them here but I think it would assist the Committee to refer to the charges scheme at that point.

In closing, I urge the Minister to take very seriously the concerns on this issue raised across the Committee. As has been pointed out, he mentioned at the conclusion of the debate on the previous group of amendments

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that Ofwat has powers it can take to protect customers in this context. The Bill also gives Defra the option to issue charging guidance. Given the importance of this, as Members from all sides of the Committee have highlighted, I hope that due account will be taken of those views and that Defra will give serious consideration to the issuing of charging guidance in this context.

5.15 pm

The Earl of Selborne: My Lords, I support this group of amendments and I have put my name to my noble friend Lord Moynihan’s amendments in the group. The noble Lord, Lord Whitty, is absolutely right to recognise that the more you put provisions in the Bill that help the Minister in his resolve to prevent de-averaging the better. It cannot do much harm. As you bring in competition, we see all sorts of snares and pitfalls in the way of Ofwat’s best intentions to prevent simple pricing determining the advantage. If Ofwat cannot do so—and we are still to test to what extent we find that Ofwat is capable of appropriate regulation of those individual contracts—provision such as that in Amendment 9 will clearly be helpful.

The real danger, after all, is that some retail providers could, for example, be providing excellent environmental and social services. They could be rolling out water butts, helping water harvesting and giving advice on water-saving gadgets. Those do not come free; they cost a bit. If they are competing against someone who is providing just a short, sharp service—the product in question at the cheapest price with none of those frills—we will eventually undermine those whom the Bill is intended to encourage, those with innovative practices that will lead to more sustainable use of water. Although I am all in favour of increasing the range of negotiation, we simply cannot allow the only differentiation to be on charges. That is why I think that the amendments are helpful.

Lord De Mauley: My Lords, before I address this group of amendments, perhaps I may answer the noble Lord, Lord Cameron, and my noble friend Lady Parminter, who asked about the truncated period between Committee and Report. I fear that these things are way above my pay grade and are decided through the usual channels. All I can do is apologise to noble Lords for any inconvenience that that may have caused and assure noble Lords that my door remains open. I will be there to answer questions between days in Committee and between Committee and Report; I hope that I can be helpful.

Turning to this group of amendments, I thank noble Lords for some articulate speeches about a complicated issue. It is one that we take very seriously. As noble Lords said in earlier debates, this is not an easy area to get one’s head around. Specifically on de-averaging, when we talk about averaging or de-averaging of costs, we are discussing how best to share the costs of sourcing and disposing of water between customers. Most providers of goods and services average their costs to some extent.

In my view, it makes sense to share the costs of maintaining the network on which all customers rely across all customers, regardless of their location. The

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network makes up about 90% of a water company’s assets, so when we discuss de-averaging in the context of the Bill, we are talking only about charges in the competitive part of the market, which accounts for about 10% of the companies’ activity. I think that many noble Lords agree that there could be real benefits from increasing the cost-reflectivity of charges for different sources of water to reflect the environmental costs of supply. That is especially important in water-stressed areas or for business users that use large volumes of water.

Strange as it may seem, at present, there are almost no economic incentives for businesses that use large volumes of water to seek out the least environmentally damaging source of water. Nor are there any economic incentives to encourage incumbent water companies or new entrants to the market to help businesses to identify the most environmentally efficient sources of water. The Bill is intended to change that. Our upstream reforms will encourage competition for business customers and incentivise more efficient use of resources. More efficient use of water resources must be good for customers and good for the environment.

I discussed earlier the measures in place to ensure that householders are protected. In regard to de-averaging, as I said in the debate on the previous group, we are clear in our charging principles that de-averaging must occur only where it is in the best interests of customers. In answer to my noble friend Lord Moynihan, when we issue the charging guidance we will make it clear that there must be robust boundaries on the scope of any de-averaging. In particular, Ofwat will be expected to exert control to prevent the de-averaging of network costs and any negative bill impacts that could arise from this. Any moves to enable greater cost reflectivity will be targeted squarely on water resource costs in the competitive parts of the market. This is where there may be social and environmental benefits from encouraging sharper price signals. The Government are completely committed to maintaining bill stability. Customers have made it clear repeatedly that stability is important to them. We will not permit anything that undermines that stability.

The charging rules that Ofwat makes, within the framework set by the Government’s charging guidance, will be flexible. As the situation changes over time, our guidance and the rules that Ofwat sets about charges will be able to respond to the way in which the market evolves. I mentioned earlier that it makes sense to provide a price signal that reflects important decisions about our precious water resources. Using the Bill to ban any kind of price signal would, I suggest, be disproportionate. At the same time, we want to ensure that customer bills remain stable and reasonable. The flexible framework of charging guidance and charging rules will achieve this.

The suggestion was made in the debate that customers could end up paying for stranded assets. This is a regulated sector and the important question of what costs should be borne by customers is one for the regulator. In fact, this point is less about de-averaging than about whether the investment made by incumbent water and sewerage companies is made efficiently and in the interests of customers. No one here, I suggest, would think it right that customers should have to foot

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the bill for inefficient investment. It must therefore be right that the regulator has the powers to protect customers from paying for inefficient investment.

My noble friend Lord Selborne asked how Ofwat can enforce rules on de-averaging. The charging rules produced by Ofwat will regulate the price relationship between the incumbent and the licensee. It will be able to set out how incumbents apportion the costs of the network and distribution. In making these decisions, it will need to take account of its duties, which include having regard to rural customers. It will also have to reflect the Government’s charging guidance. The Secretary of State can veto Ofwat’s charging rules if they do not reflect the guidance.

Noble Lords asked whether rural customers might lose out. Ofwat will continue to have a statutory duty to have particular regard to rural customers and the charging principles that the Government published recently reinforce the protections that will remain for rural customers. They require Ofwat to ensure that any greater cost reflectivity must provide benefits to customers. No customers should be unfairly disadvantaged by the way that reform impacts on water charges. The noble Lord, Lord Cameron, referred to water being a universal right and I strongly agree. Water companies are under a statutory duty to supply and the Bill will not change that fundamental requirement.

I mentioned earlier that both Professor George Yarrow and Professor Martin Cave confirmed that Ofwat has the tools to regulate the upstream market without any de-averaging. The Bill will impose a legally binding framework for the industry and the regulator regarding their approach to the averaging of prices. This view is supported by competition experts. For these reasons, I hope that the noble Lord will be reassured and be able to withdraw his amendment.

Lord Whitty: My Lords, I thank noble Lords who have spoken in support of this principle. On this occasion, I found the Minister’s reply slightly confusing. I thought that there were some novel parts and a few red herrings in there. He says he is in favour of robust boundaries to de-averaging then claims in aid Professor Cave and Professor Yarrow who say Ofwat have the powers. However, all the amendment asks is that we make those powers explicit and that we require Ofwat not to discriminate on the basis of location. There might be certain areas where they could discriminate but not in relation to location of either source or customer.

If the Minister is saying that that will happen because Ofwat already has all these duties to ensure everybody is treated fairly, including rural and remote consumers and so forth, why not stipulate what they are trying to do in the Bill, rather than through the interaction of several parts of different codes? The noble Lord’s argument about discouraging the use of the least environmentally efficient sources of water was a little unclear. Any individual source of water from a new provider is a very small part of the totality of the incumbent company’s activities. Discouraging environmentally inefficient or damaging sources of water will, and should, be tackled through the abstraction regime well before the Minister introduces upstream competition. The noble Baroness, Lady Parminter,

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and I have amendments to that effect later on. That is, surely, the direct way to discourage environmentally damaging and inefficient sourcing of water at the top end.

At the other end, the requirement of the noble Lord, Lord Cameron, that water should be universally delivered is not only a matter of delivering it but doing so at approximately the same cost wherever you live. That has happened, under various Acts of Parliament, with water regimes going way back to private and municipal companies, through nationalisation and every stage of privatisation. It would be a pity if this legislation, with all its benefits in improving efficiency at the far end of the water chain, were to move away from that basic principle. The Minister has not yet established that there is a good reason for moving away from that, nor that Ofwat’s existing powers, important though they are, would necessarily deliver that outcome. We shall probably return to this subject at a later point. For the moment, I withdraw the amendment.

Amendment 9 withdrawn.

Amendments 10 and 11 not moved.

Amendment 12

Moved by Lord De Mauley

12: Schedule 2, page 128, line 24, at end insert—

“(7A) For the purposes of this section and sections 66AA to 66C—

(a) premises which are outside a water undertaker’s area are to be treated as being within that area if they are supplied with water using the undertaker’s supply system, and

(b) any pipes of the water undertaker which are used for the purpose of supplying premises as mentioned in paragraph (a) are to be treated as being part of the undertaker’s supply system (if they would not otherwise be part of it).”

Lord De Mauley:My Lords, I take this opportunity to draw the attention of noble Lords to government Amendments 12, 22, 23, 36, 37, 47, 53, 60, 64 to 73, 75, 77 to 94, 125, 127 to 129 and 147, tabled to Clauses 1 to 21. We have also grouped some linked amendments which appear later in the Bill. These are minor and technical amendments which provide clarity, ensure consistency and correct some drafting errors. I draw your Lordships’ attention to two areas which may be of particular interest.

Amendments 12, 53, 125 and 127 to 129 close a possible loophole that could have prevented some non-household customers from switching. Currently, the ability of a customer to switch is linked to its premises being connected to the supply system of the incumbent water supplier in whose area it is situated. In some instances it is possible for premises to be connected to the neighbouring incumbent water company because it is located nearer to the latter’s infrastructure. Where this is the case, and we do not want to discourage this, there is a risk that it may not be able to switch to a licensee. For that reason, these amendments ensure that these premises are able to secure the benefits of switching supplier.

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The other area of interest is in relation to Ofwat’s market codes and in particular those regarding adoption of infrastructure in Clauses 10 and 11. Currently, Ofwat has a power to produce these market codes but, following concerns that water companies are not always consistent on the timing or content of the adoption agreements, we are changing this to a duty on Ofwat. This will help to ensure that development is not delayed by uncertainty around these agreements. I beg to move.

5.30 pm

Lord Whitty: My Lords, to be honest I do not intend to challenge any of the Government’s amendments, even those that I understand. However, I would ask one question of the Minister. I had expected to see in this group of amendments, although maybe it will come later on Report, a response one way or the other to paragraph 12 of the report of the Delegated Powers and Regulatory Reform Committee, where the dehybridisation procedure—or the procedure to remove the hybridisation procedure—is adopted. It drew the House’s attention to that and to how it is being dealt with by the Government. If the Minister is saying that it may come up in a general reply to the committee, I am quite satisfied with that, but I thought that I would raise the matter here as it is in this part of the Bill.

Lord De Mauley: I assure noble Lords that we will deal with all the issues raised by the Delegated Powers and Regulatory Reform Committee, and I am sure that we will accept the vast majority. There are some quite complicated issues in there, which we are working through at the moment.

Amendment 12 agreed.

Amendments 13 to 21 not moved.

Amendments 22 and 23

Moved by Lord De Mauley

22: Schedule 2, page 131, line 17, leave out “terms and conditions of the”

23: Schedule 2, page 131, line 18, leave out “provide” and insert “provides”

Amendments 22 and 23 agreed.

Amendments 24 to 35 not moved.

Amendments 36 and 37

Moved by Lord De Mauley

36: Schedule 2, page 134, line 6, leave out “terms and conditions of the”

37: Schedule 2, page 134, line 7, leave out “provide” and insert “provides”

Amendments 36 and 37 agreed.

Amendment 38 not moved.

Amendment 39

Moved by Lord Moynihan

39: Schedule 2, page 136, line 24, leave out “section 66D agreements” and insert “duties under sections 66A to 66C”