HC Deb 20 July 1977 vol 935 cc1771-802

Lords amendment: No. 1, in page 1, line 5, leave out "any financial year" and insert the year 1978 or any subsequent year".

The Minister of State, Department of the Environment (Mr. Denis Howell)

I beg to move, That this House doth agree with the Lords in the said amendment.

If, for the expedition of our business, I make some remarks concerning the first two groups of amendments, I hope that that will meet with your agreement, Mr. Deputy Speaker.

Mr. Deputy Speaker

If it be for the convenience of the House for them to be taken together I shall read out the numbers of the amendments in the two groups.

The first group consists of Lords Amendments Nos. 1, 7, 11, 18, 26 to 28, and 30 to 36.

The second group consists of Lords Amendments Nos. 2, 3, 4, 6, 8, 9, 10, 12 to 16, 19, 21 to 24, 29, 37 to 39 and 41.

Mr. Howell

Indeed, Mr. Deputy Speaker, it is en bloc that I shall deal with them.

The Bill, on which the House spent a considerable time when we last discussed it in this Chamber, dealt with the equalisation of charges between various regional water authorities. In Committee it was represented to us very firmly by the hon. Member for Northampton, South (Mr. Morris), speaking on behalf of the Water Companies Association, that if we were to have the Bill the private water companies wished to be included in it. I responded by saying that I thought it would be extremely difficult to achieve that, but I assured the Committee and the hon. Member that there was nothing Machiavellian about our original decision to leave them out. I authorised negotiations to begin immediately to see, as the water companies urged, whether it was possible to bring them in. I understand that in another place the official spokesman took the same view as did the hon. Member for Northampton, South.

There were two or three reasons—which I can give very shortly—why we thought that it might be difficult to include the private companies. First, all the private companies had different accountancy years, which clearly would have to be harmonised. Secondly, private water companies treat depreciation in a different manner from the way in which regional water authorities do. Thirdly, we thought that there might be some difficulties about the obligation of the companies to make a profit and pay a dividend.

However, I am glad to report to the House that, following extensive discussions, both with the companies and with the regional water authorities, it has been found possible to include private water companies in the equalisation scheme.

Therefore, these two sets of amendments—the second series consists of textual amendments—deal with the definitions of statutory water undertakers. Although it has been a complicated exercise it has proved to be a feasible one. The amendments tabled in another place respond to the wishes of the Committee and, as I understand it, the wishes of the Opposition and the private water companies, and for that reason I recommend the House to agree with the Lords in the said amendment.

Mr. Arthur Jones (Daventry)

I was interested to hear what the right hon. Gentleman said about the private water companies. He will recall that on Second Reading and in Committee he told us that it would be impossible to include them in the Bill. He told us in Committee on 17th February that the Government did not think that it would be possible but that they would look at the question again. He was kind enough to give that undertaking, and I know how sceptical he was about the outcome of the Government's further consideration of the problem of how the statutory water companies—that is a better term than "private water companies"—could be included in the Bill.

Their Lordships have achieved quite extensive amendments to the Bill, although I understand that the right hon. Gentleman does not intend to accept all their amendments. Their achievement is extraordinary because in this House he would not accept any amendment, being adamant that we should accept the Bill as it stood. It is no exaggeration to say that he was dogmatic in his refusal to consider any of the sensible proposals that we made.

I am glad to see that their Lordships achieved a number of significant and improving amendments, some of which we had advocated. One of the most important concerns the statutory water companies. I am pleased that the Government, as a result of their negotiations, have been able to find ways and means of achieving what we said was desirable. That does not mean that we think that the terms of the Bill are any the better, but it is more logical to include the statutory water companies, although that does not get away from the significant disadvantages flowing for consumers in the fact that some have to pay the amounts which others will enjoy as a reduction from their water rates.

However, this is a step in the right direction in the light of the managerial and financial considerations which apply to both the regional water authorities and the statutory water companies. The right hon. Gentleman told us originally that the White Paper proposed by the Government would bring the private water companies within the nationalisation of the industry, but it is significant that, while the Government have included the companies in this Bill, they have now excluded them from their proposed nationalisation of the water industry.

Paragraph 92 of the White Paper said that the Government had decided not to include private water companies in their proposals for nationalisation, and went on: It remains their firm intention that the companies should, like the rest of the water industry, be brought into public ownership and be integrated with the water authorities. However, they appreciate from their consultations that such a proposal at this time will not gain sufficient Parliamentary support. The right hon. Gentleman referred to consultations. I think he was referring to consultations he had had with the regional water authorities and the statutory water companies. Perhaps there have been others as well. Perhaps he would like to tell us something about them. I have my own idea that those consultations were nothing to do with the water industry at all. They were to do with political objectives. I think that what the right hon. Gentleman and his colleagues have found is that those upon whom they rely for their majority on certain occasions have said that they were not having the private water companies included in the Government's nationalisation proposals.

Mr. Stephen Ross (Isle of Wight)

The hon. Gentleman has hit the nail on the head. He would be delighted to agree, I am sure, that the private water companies should not be nationalised. This was an undertaking that we gave to them some time before the present situation arose. I hope that the hon. Gentleman will agree that it is a very good thing.

11.45 p.m.

Mr. Jones

I have hardly time to adjudicate on the question, but I am grateful to the hon. Gentleman for intervening as he has done and confirming the suspicions to which I had referred. We have now had revealed just what lies behind part of paragraph 92 of the White Paper, "The Water Industry in England and Wales: the Next Steps", Cmnd. 6876. I think that "faltering steps" may be the right indication.

The right hon. Gentleman should try to avoid putting politics into water. He has made a very murky mixture. He has clouded many of the issues upon which the reorganisation of the whole of the water cycle was carried out under the previous Conservative Administration. There is no dissent from the wisdom of our proposals and the effectiveness of them. particularly in the drought of last year. [Interruption.] The right hon. Gentleman is making sounds of disapproval, but there is no suggestion from either the right hon. Gentleman or his party that the general arrangement for the water cycle and the water industry in this country, including sewerage and sewerage disposal, will be interfered with by him and his colleagues. That is no mean tribute to my right hon. Friend the Member for Worcester (Mr. Walker), who put through these proposals in the early 1970s. I think we shall have confirmation of that from my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) in a few moments.

But it is, I think, a good move that we have got the private water companies in, and the Water Companies' Association, which speaks for all the statutory water companies, welcomes this proposal. It continues to disagree, as we do, with the terms of the Bill, but the general position of the association, as its letter to me of 12th July 1977 indicates, is that The principle of inclusion of Water Companies in the Bill remains fuly accepted by the Association. However, the Association has never liked the principle of equalisation of water charges as we stated in our Comments on the Government's Consultative Document and, even more, we disliked the partial equalisation"— which the right hon. Gentleman attempted in the earlier progress of the Bill and during the Committee stage.

The letter, from Mr. Penrhyn Owen, Director and Secretary of the Water Companies' Association, goes on to say: we would not wish the Government to make the point that we are now anxious to get out just because we find that Water Companies will be paying £3¼ million rather than receiving payments. It is a question of principle for the statutory water companies, and this is confirmed in the terms of the letter from which I have quoted. We are in support of the inclusion of the water companies, and we shall be interested to hear from the right hon. Gentleman on one or two of the points that I have made.

Mr. Eldon Griffiths (Bury St. Edmunds)

The Minister has had a rather awkward passage with this Bill. When he came into Committee he said that it was indispensable to the whole country that the Bill should pass by a certain date and that he should have it exactly as he originally proposed. He said that great horrors would befall the nation if he did not get it.

As events have turned out, none of this has happened. The other place has substantially amended the Bill. I for one believe that it has amended it in a sensible way. I am glad that, in dealing with this group of amendments, the Government have seen fit to accept from the Lords what they refused to accept from the Commons.

Mr. Denis Howell

These are our amendments.

Mr. Griffiths

Indeed they are, as a result of the demands made first in the Committee, which the Minister said could not be met, and later in the other place, when for a variety of reasons the Government changed their mind and decided that they could.

I do not want to be uncharitable by saying that one of the reasons why the Minister has seen wisdom is that he listened to the other place rather than this place. The main thing is that he has at long last seen the good sense of what was said to him during the Committee stage.

The Minister did not achieve the Bill in the time that he expected, and the financial measures that flowed from it have yet to be put into effect. As a result the people of London, for example, will not be mulcted of so much money for the benefit of Wales as they originally feared would happen. It is worth recording that because the Bill was delayed the Government's desire not to increase the cost of living, for example in London, did not come into effect.

In his opening speech the Minister defended his original refusal to include the statutory companies on three grounds: first, that they had different accounting years; secondly, because of the very real problem of depreciation; thirdly, because the statutory companies have an obligation, if possible, to make a profit and pay a dividend.

The Minister fairly pointed out that these are different from the obligations that rest upon the regional water authorities. What I find extraordinary is his conclusion, as reported to the Committee, that these facts made it impossible to include the statutory water companies had been arrived at without any consultation at all with the statutory companies.

I can remember in Committee asking him whether his officials had been in touch with the statutory companies to see whether they wished to be included and, if so, whether it could be done. But the plain fact is that there was no consultation whatsoever.

I remember saying to the Minister that this was a very poor way of treating an important segment of the water industry. For my part I do not particularly care for the statutory water companies being included in the Bill, because it is a thoroughly bad Bill. But if we are to have a Bill at all it is more equitable that they should be in than that they should be out.

The Minister will, I am sure, have read the report—at least, I hope he has—which was made on the Bill by Public Finance & Accountancy. Two experts, John Frankham and Michael G. Webb, considered the principles behind the Water Charges Equalisation Bill and produced a devastating critique of what the Minister was proposing to do.

I quote two points which are relevant to their Lordships amendments and the Government's proposals tonight. At col. 197 of their analysis they say: The equalisation scheme will result in some consumers gaining and others losing. The relevant question is thus whether the aggregate gains will exceed the aggregate losses? Their conclusion is clear: Compared with this scheme the chosen equalisation scheme might be thought to in-volve a form of taxation without representation. We consider this to be a disadvantage of the chosen scheme. Hon. Members will appreciate what they mean by that conclusion. For example, in London a large number of water consumers will be taxed under this scheme and the money will be transferred to other water consumers—for example, in Wales—and they will have no representation whatsoever in determining this transfer of their assets.

Public Finance & Accountancy, looking at the question of subsidisation, believes that it would have been possible to achieve the results of the Bill by some form of subsidy. I do not like that either, but it would have been another approach.

The two experts say: It would thus appear that at least as far as the water industry is concerned what is or is not a cost is not a matter for the market but rather is a matter for the legislature. That is a curious way of approaching the costing of the water industry. The payment of explicit subsidies financed out of public funds is viewed "— —by the Government— as being undesirable. There is this quotation from the Government's White Paper: The Government consider it essential that the water industry should … remain wholly self-sufficient financially and raise its income by charges to consumers. That is very good private enterprise philosophy. But this payment of subsidies is rejected by the Government in favour of a system of hidden taxes—which is what the Bill does—on some water consumers, and this they have preferred in a most extraordinary change of view.

It would be wrong for me to go into great detail about this analysis of the water scheme. This is a thoroughly bad Bill. The principles behind it are bad. The effects are going to be bad. If we must have it at all, it is presumably more equitable that it should cover the whole of the water industry, not simply the public part of it. That is why I go along with my hon. Friend the Member for Daventry (Mr. Jones) and, indeed, with their Lordships and the water companies in saying that if they must have it at all they are better in than out. I should have preferred no Bill and, therefore, no inclusion of either the public or the private water sectors.

Mr. Michael Spicer (Worcestershire, South)

Briefly, I should like to support what was said by my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths). It is important to record why we support the inclusion of private companies. It is not because we like the principles of the Bill. The majority of us dislike them intensely. The Bill cannot do anything to improve the incentives of different authorities to provide water more efficiently. In fact, it is a disincentive—a complete nonsense—to getting water provided more efficiently.

Nor do we propose the inclusion of the water companies because we want further to shackle the already limited independence of the water companies. I agree with my hon. Friend the Member for Bury St. Edmunds that the private companies provide not competition in the true sense but alternative standards by which to judge the investment, pricing and customer relations policies of the larger authorities.

12 midnight.

We do not want to do anything further to restrict the independence of the private companies.

We put forward the idea of including the private water companies in the scheme in Committee—with the complete obstruction of the Government—on the ground of equity and because we were suspicious that if the Government were able to argue that they could leave out the private companies, or had to leave them out, they might use that at a later stage as a good argument, seen through their eyes, for nationalising the independent companies. What we were trying to prove and have now proved, despite the objections of the Government, is that the water companies, without being nationalised, could be included within the scheme, much though we dislike the scheme, and that all the arguments that would have been raised by the Government at a later stage in favour of nationalising the companies because they could not be included in this scheme are totally false.

My belief is that the Government would not be accepting the amendments were they intending for the moment to nationalise the water companies. I am sure that if their intention were still to nationalise the independent companies they would have continued to resist the amendments.

Mr. Eldon Griffiths

I hope that my hon. Friend will accept that the Government's intention to nationalise still exists. They have stated it quite expressly in their White Paper. What is lacking is their ability.

Mr. Spicer

I was being over-generous to the Government. My hon. Friend the Member for Bury St. Edmunds is right. I meant "intention" in terms of their immediate intention. They have now dropped their plans in the White Paper to nationalise the independent companies. They have done so because they cannot get the Conservative Party to go along with them. They have done so because of the parliamentary arithmetic. The mathematics are against them. The Minister of State may have his arms in the direction of the Liberal Bench but he must accept that the arithmetic is against them.

Mr. Stephen Ross

You know the reason.

Mr. Spicer

The hon. Gentleman says that I know the reason. Yes, the reason is that the Conservative Party will not have it. That is why the Government do not nationalise the water companies. There happens to be rather a lot of Conservative Members. There it is. Let us be quite clear where the honour for this back-track by the Government lies.

Mr. Stephen Ross

Perhaps the hon. Gentleman will confirm that it was admitted in a Press statement by his hon. Friend the Member for Newbury (Mr. McNair-Wilson) that it was the Liberals who persuaded the Government not to nationalise the independent companies.

Mr. Spicer

The parliamentary situation is such that without the Conservative Party's objection there could have been nationalisation. It is Conservative Members who do not like it. That is why the Government cannot bring in nationalisation. To pretend anything else is to play with reality.

Mr. Keith Speed (Ashford)

My hon. Friend will be aware that more than 18 months ago when the original Green Paper was published the Conservative Party alone made it clear in this place and in another place that it would resist the nationalisation of the companies to the bitter end. Those are the facts.

Mr. Spicer

I am grateful for that confirmation. It is because the Conservative Party does not want the nationalisation of the independent companies that the Government have been forced to back-track, given the present parliamentary mathematics. That is the simple arithmetic. It is because the Government have been forced to back-track that they are prepared to do something now that they were not prepared to do in Committee—to accept these amendments to include the private water companies.

I wanted to ensure that it was clearly on the record that by supporting the Government we were acquiescing neither in the Bill, as my hon. Friend the Member for Ashford (Mr. Speed) has just said, nor in the further curtailment of the independence of the private water companies. However, we are fighting against the hypothetical situation now where the Government would have been able to argue that, because they were not able to include the independent companies in the Bill, they should be nationalised.

Mr. Denis Howell

With the leave of the House, I will reply briefly to the points that have been raised.

It has been alleged that I was very dogmatic in Committee and gave nothing away. The contrary is the truth. The reason we are here tonight discussing these amendments is that I gave undertakings that if it should prove possible to include the private water companies in these arangements I would do so. At that time we did not think that it would be practicable.

The other concession we made, if it was a concession—I admit that I made it very reluctantly, only after tremendous filibustering, even greater filibustering than we have heard tonight—was not to bring the Bill into operation this July.

The hon. Member for Bury St. Edmunds (Mr. Griffiths) totally misrepresented the facts when he said that the Bill was for the benefit of Wales. It is for the benefit of his constituents. The areas of the country which will benefit under the Bill are, Wales, certainly, which will benefit, as it should—because of the great expense of providing water to consumers there—the South West, East Angia, and Northumberland and Durham.

I can understand why the hon. Gentleman will not mention the benefits that his constituents will receive under the Bill, since he, embarrassingly for them, wishes to oppose it, as he made clear in Committee, but he said nothing about it tonight.

Several hon. Members opposite said that this is a bad Bill and that they want nothing to do with it. That is remarkable, since one of their Front Bench spokesmen voted for the Bill on Second Reading, as did many other hon. Members opposite. The hon. Member for Conway (Mr. Roberts), who spoke from the Tory Front Bench, recognised the great value of the Bill to his constituency, welcomed the Bill and voted for it, whereas the hon. Member for Daventry (Mr. Jones) spoke from the Front Bench and abstained: he neither voted for the Bill nor against it.

If I may correct the hon. Member for Bury St. Edmunds on the facts, the scheme is a self-financing one and the gains will exactly balance the losses. There will be no hidden subsidies.

I come to the alternative which the hon. Gentleman suggested. He amazed me. His proposition was that, to correct the imbalance in the charges to so many domestic users, there should be an Exchequer subsidy. It is beyond my comprehension how hon. Members who are constantly complaining about the high level of public expenditure and the need to reduce it can argue that there should be an Exchequer subsidy rather than a self-financing scheme.

Mr. Eldon Griffiths

The hon. Gentleman knows perfectly well, from our long debates in Committee, what is the issue here. Under his scheme many consumers in certain parts of the country will have money taken away from them and given to consumers in other parts, without the House or their representatives being able to comment or advise upon it. I am saying that it is a better principle of public finance that if money is to be taken from one group of taxpayers and given to another group, for whatever reason, the transaction should be agreed to in this House, where a Minister can be held accountable for what he has done. But in this case it will in no sense be done by a Minister who will have to answer in the House.

Mr. Howell

The hon. Member's ignorance never ceases to astonish me. He knows perfectly well that when the order resulting from this measure is made it requires an affirmative resolution in the House. I, or my successor will have to justify the order. Therefore, I do not know how the hon. Gentleman can say that no Minister will be responsible. It is that fact that causes us some difficulty with two later amendments, because of the timescale involved—

Mr. Eldon Griffiths

The Minister is wrong.

Mr. Howell

I am not wrong. Perhaps the hon. Gentleman would like to leave the Chamber and read the Bill. He would find that there must be an affirmative order.

Mr. Eldon Griffiths rose——

Mr. Howell

I shall not give way, because we had better get on.

I want to turn to the second leg of the hon. Gentleman's argument. He says that it is taxation to have any degree of equalisation. We have 10 regional water authorities, and every one is equalising its own charges. Therefore, the principle is accepted by the 10. All that we are saying is that the same principle should apply between them.

Furthermore, in spite of the long argument quoted by the hon. Gentleman from an obscure document, there is nothing in these proposals which goes against the normal custom and practice of the public sector. It costs much more to deal with a letter posted in John o' Groat's than a letter posted in Westminster, but the charge for the service is the same. That principle applies also in the electricity and gas supply industries. There is no reason why the principle, which was accepted by the Conservatives when they were in Government, should not apply to water supply.

I end with a point about the private water companies. I am sorry that my consultant, the hon. Member for Isle of Wight (Mr. Ross), has left the Chamber. I wish to acknowledge that he is the channel by which I have communicated on the subject. We do not have the numbers to put our public ownership proposals through the House at this time, but the Government firmly believe that the principle of public ownership of all water supplies is absolutely right and equitable, and as soon as we are in a position to proceed in that direction we shall do so.

(2) Subject to subsection (5A) below, in relation to each statutory water undertaker by which, in the year ending 31st March 1976, a supply of water was provided on an unmeasured basis, the Secretary of State shall determine for the purposes of this Act the amount which appears to him to represent the value at that date of that part of the undertaker's assets which was then referable to the supply of water on an unmeasured basis.
(2A) In this section the "qualifying asset value" of a statutory water undertaker for any accounting period means the amount determined under subsection (2) above in relation to the undertaker, less such amount as appears to the Secretary of State to be appropriate in respect of depreciation for any previous accounting period or periods beginning on or after 1st April 1976.
Mr. Arthur Jones

With the leave of the House, I should like to try to clear up the point about the affirmative resolution.—[HON. MEMBERS: "No."5]

Mr. Deputy Speaker

The hon. Member clearly does not have leave to speak again.

Question put and agreed to.

Lords Amendments Nos. 2, 3 and 4 agreed to.

Mr. Eldon Griffiths

On a point of order, Mr. Deputy Speaker. I cannot recall that the House agreed that the Question on Lords Amendments Nos. 2, 3 and 4 should be put formally, Mr. Deputy Speaker. I take it that when you come to the later Lords amend-ments—

Mr. Deputy Speaker

They are being discussed together. This is the normal procedure. The first two groupings were, by the agreement of the House, to be taken together, and I am not putting the Questions formally.

Mr. Griffiths

On a point of order, Mr. Deputy Speaker. I accept that you are following the normal practices of the House, but I cannot recall that it was put to the House that these matters should be taken in groups in this way. Certainly, you offered to read them out, but I do not recall that any motion was put to the House allowing us to agree to that procedure.

Mr. Deputy Speaker

No motion is required. With the agreement of the House, I put it to hon. Members that we would take the two groups together consequent upon the Minister's suggesting that this should be done. There was no disagreement with that proposition when I made it.

Lords amendment: No. 5, in page 1, line 14, leave out subsection (2) and insert—

(2B) Subject to subsection (2C) below, any reference in this Act to the relevant financing costs of a statutory water undertaker for any year is a reference to an amount which is determined by reference to the qualifying asset value of the undertaker for the corresponding accounting period and consists of the aggregate of—
(a) such percentage (in this subsection referred to as "the qualifying percentage") of the interest payable by the undertaker in the corresponding accounting period as appears to the Secretary of State to be referable to indebtedness incurred with respect to assets whose value is reflected in the qualifying asset value for that period, and
b) so much of the provision for depreciation made by the undertaker in the corresponding accounting period as appears to the Secretary of State to be referable to any such assets, and
(c) in the case of a statutory water company, the qualifying percentage of the franked payments, within the meaning of Part V of the Finance Act 1972, made by the company in the corresponding accounting period,
multiplied by the appropriate factor.
In this subsection the "appropriate factor" means the proportion which the average bill for general rates and water services in respect of premises to which a supply of water is provided by the undertaker on an unmeasured basis bears to the average bill for general rates and water services to such premises throughout England and Wales.
(2C) The amount ascertained under subsection (2B) above shall be reduced by any relief received in the corresponding accounting period through the rate support grant by premises to which a supply of water is provided by the undertaker on an unmeasured basis to the extent that such grant takes account of water supply charges.
(2D) For the purposes of this Act, in relation to the year 1978 or any subsequent year the corresponding accounting period of a statutory water undertaker is the accounting period of the undertaker which is co-terminous with or begins in that year."

12.15 a.m.

Mr. Denis Howell

I beg to move, as an amendment to the Lords amendment, in line 14, leave out 'Subject to subsection (2C) below'.

Mr. Deputy Speaker

With this, we may take the other two Government amendments to the Lords amendment.

Mr. Howell

I shall be brief because the House will appreciate the logic of our amendments to the Lords amendment. The first and third of our amendments deal with an attempt to bring the rate support grant into the question of water charges. When the last Conservative Government established regional water authorities, they took them out of local government so that water charges now have nothing to do with rate support grant—a fact that I explained 20 times in Committee and shall not repeat again. Why their Lordships decided to include the question of rate support grant when it has no relevance to water charges is beyond my comprehension.

Sir Anthony Meyer (Flint, West)

I get constant complaints that water rates are not rebatable. Would the Lords amendment make them rebatable?

Mr. Howell

That is exactly the sort of thing that gives me sleepless nights. Since the industry was reorganised, there has been no such thing as a water rate. It is a water charge, based on the rateable value of the house. When water, like gas and electricity, was taken out of local government, we lost the opportunity to use the Exchequer support system of rate support grant to subsidise it.

Our second amendment deals with an incomprehensible scheme proposed by another place involving an extraordinarily complicated calculation being made every year in each regional water authority area to decide the joint general and water rate and to produce an average for the area. This is to be done right across the country, but the Lords scheme does not suggest what should be done once the figures are known.

In the Thames Water area alone there are 97 rating authorities, of which 27 are split between various water authorities. Even if we found out the averages, it would be impossible to do anything about them. Some water companies extend into more than one regional water authority area and come under several different rating authorities. Even when the calculations had been made, it would be impossible to use the information in a sensible and practicable way.

There is one other important factor which adds to the incomprehensibility. There are three necessary elements in the making of these calculations. These are the regional water authorities, the private companies and the local authorities. They all do their estimates at different times of the year. The exercise cannot begin until the estimates have been made so that the figures can be fed into the computer. Even if the scheme were practicable, which it is not, that would all happen far too late to have any effect on charges to domestic householders.

For those reasons we seek to amend the Lords amendment in the way that I have outlined.

Mr. Arthur Jones

The right hon. Gentleman has not mentioned the full consequences of Lords Amendment No. 5. It has regard to much of the representation that was put from the Conservative Benches in this House on Second Reading and in Committee on the financial considerations, particularly concerning the value of the water undertakings' assets and the qualifying asset values.

This is dealt with extensively in subsection (2) of the amendment, and that shows the useful discussion and decisions which flowed from considerations in the other place. This is another example of advocacy from these Benches being accepted in the House of Lords.

I agree with the right hon. Gentleman about the discussions we had at length on the rate support grant. There was a great deal of confused thinking in that respect. Baroness Birk said on 16th June in column 317 that it was a misconception that water charges were in some way connected with local authority rates. But in column 318 she said something a little different. In column 322 she said that the rate support grant took account of water charges in 1974–75 and, to a limited extent, in 1975–76: so that it worked it out on some of the lines of the Daniel Committee, but it has not done so since."—[Official Report, House of Lords, 16th June 1977; Vol. 384, c. 322.] Those speaking for the Government in the other place, therefore, recognise that in the rate support grant calculations in the first two years of the operation of the regional water authorities the question of water charges was taken into account. What Baroness Birk did not say, and what the right hon. Gentleman may be right about, is the extent to which water charges were taken into account in the rate support grant calculations in the year 1976–77, and perhaps in the current year.

The Minister has been consistent in maintaining that water charges have not been taken into account, but that is conradicted by Baroness Birk. We must get this right. I think that Baroness Birk has done that. We produced significant evidence from a variety of sources which supported that view. These considerations lie behind the two paragraphs which the Government seek to delete from the Lords amendment.

In calculating the transfer of water charges from one regional authority and one statutory water company to another area regard should be had not just to the level of water rates but to the level of general rate. We discussed in Committee whether it would be fair to include in the Bill sewerage and sewerage charges. If we are dealing with equalisation, let us look at it in omnibus terms and not in isolated terms of water charges. In the last two years the two have been closely interwoven.

The Minister has not got the matter right hitherto, and I was pleased to see our view of the matter confirmed in the other place. It is a fact that only water charges are being equalised and the statutory water companies wish to widen the field of equalisation, but it is still open to all the disadvantages which we have discussed in length on previous occasions.

Sir Anthony Meyer

My hon. Friend the Member for Daventry (Mr. Jones), who knows so much about this subject, has fallen into the habit of talking about a "water rate". That is a widely held misconception, and it is hard to get into people's heads the idea that it is a water charge.

Mr. Arthur Jones

The fact is that water charges are based on rateable values. That is how the phrase began to be used.

Sir A. Meyer

That leads me to the point I wish to raise. The Lords amendment attempts, perhaps unsuccessfully, to produce some kind of comprehensible connection between the water rate—I beg the House's pardon, water charge—and the general rate that people have to pay. There are widely held misconceptions about that aspect of the matter.

Those who are self-appointed experts on these matters write to their Members of Parliament, and I have one such correspondent who writes to me at enormous length. He is concerned about what he sees as the spurious connection between the water charges which he has to pay and the level of general rates in England as opposed to Wales. He has sent me a massive amount of correspondence, with which I shall not weary the House at this stage.

Mr. Michael Spicer

Why not read it?

Sir A. Meyer

Perhaps I shall do so later, because it illustrates the point. There is no doubt that people in Wales are convinced that they are paying very much heavier water charges than are being paid in other parts of the country. Although in certain places in Wales the level of values is lower than in England, I must point out that in parts of my constituency there are some high valuations resulting in extremely high levels. Therefore, it is hard to get into people's heads the idea that to some extent the heavy water charges they have to pay are compensated by lower general rates. I should have thought that there was some virtue in leaving in the Bill the substance of the Lords amendment because the effect would be to enshrine in the Bill the idea that there is a definite connection and to make it easier to persuade people to accept unavoidably high charges.

12.30 a.m.

As an hon. Member representing a Welsh constituency I have found no other subject that he caused me more correspondence that the level of water charges in Wales. I did not interrupt my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) when he implied that we in Wales were seeking the lifeblood of London and East Anglia.

I am surprised to see no representative of the Welsh National Party here tonight, and I am sure that the Minister must share my astonishment. Hon. Members who belong to the Welsh National Party are always going on about water rates, how terrible the rates are and how vigilant they are in protecting the interests of Welsh consumers, yet when we discuss the matter there is nobody here from that party.

I should like to point out briefly the effect that high water charges are having—particularly in Caernarvon—on the prospects of new industry coming into the area. However, that is a matter that I may raise on a subsequent amendment, so I shall leave it there.

Mr. Eldon Griffiths

I should like the Minister to withdraw a little from his statement that the water charge has absolutely nothing to do with the rates. The Minister receives his rate demand, as I do, and he can see from it that the charge is calculated as a proportion of rateable value. Of course, I accept that the whole philosophy of the 1973 Act and the whole basis of the charge to the consumer has been changed. None the less, until such time as we have universal metering—if ever—there is no way in which the charge can be made on the basis of consumption. The charge must be related to something, and it is related to the rateable value of the property concerned. Many hon. Members think that that is unjust, but that is a matter for another debate. I hope that the Minister will think again before saying flatly that there is no connection. There is an intimate connection, because there is no other way of calculating the charge to the individual householder.

Of course, I understand what the Minister was driving at. The whole object of the new water charges is to make the charge relate to consumption, but we have not got there yet, and until we do there will remain this intimate connection between the rateable value and the actual charge to the individual.

Mr. Denis Howell

If this is an unsatisfactory and unfair method of charging for water, I am absolutely astonished that the hon. Member for Bury St. Edmunds (Mr. Griffiths), who pioneered the Water Act of 1973 and took it through the House, should now confess that he has apparently perpetrated something that he regards as totally unfair and unjust. I do not regard it as that, because the only other alternative method of payment is by establishing water meters and charging people on the basis of consumption. I am glad to say that the White Paper totally neglected the suggestion, because it would be socially harmful particularly to large families which should be encouraged to use water and not discouraged by consumption charges. The capital cost of installing meters and the massive revenue cost of yet another army of meter inspectors invading our houses would have to be paid for by householders, and they would not like it.

Therefore, I come back to the point that we have to have some yardstick by which to charge. Given our policy of disregarding metering and charging by consumption, the only sensible yardstick is to use the rateable value, which is determined not by the local authority but by the Inland Revenue, and to take the value of a house as the yardstick. That is where we are.

There is no connection between the rates that one pays to a local authority and the service that one gets from it. The only possible tenable connection is the rateable value of one's house. That is the basis determined by the Inland Revenue on which local authorities fix their charges for rates and on which water authorities fix their charges for water. That is the only conceivable connection.

The hon. Member for Daventry (Mr. Jones) referred to what my noble Friend Baroness Birk said in another place. I am delighted to tell him that what she said in another place is exactly, word for word, what I said in Committee. I am glad to say that she read out, word for word, under her own name, exactly what I had said in Committee. Therefore, I assure the hon. Gentleman that we have both got it right.

Mr. Arthur Jones

Will the right hon. Gentleman give us the reference in Hansard for the House of Lords for that?

Mr. Howell

I shall certainly do so shortly. I do not have it at present. However, that is what happened.

The fact is that the hon. Gentleman was right when he said that the amendment deals with some other matters apart from those on which I am seeking to move three amendments where we disagree. He rightly said that some tribute should be paid to the Opposition for pressing these points on us, which we have now accepted. I should like to be specific. They were pressed on us by his hon. Friend the Member for Worthing (Mr. Higgins). We all remember that in Committee we spent a lot of time arguing about the formalities of how depreciation was calculated and the very complicated formula. The hon. Member for Worthing relied upon his experience as a Treasury Minister. I disagreed with him, but when we looked at the matter we found that he was right and I was wrong. Therefore, the first part of the amendment, which we are not seeking to alter, acknowledges the rightness of the case put by the hon. Member for Worthing.

The House of Lords Hansard reference is column 319, 16th June.

The hon. Member for Flint, West (Sir A. Meyer) was right to draw attention to the importance of this matter for Wales. It is rather regrettable, therefore, that he did not vote for it on Second Reading.

Sir Anthony Meyer

I did.

Mr. Howell

I beg the hon. Gentleman's pardon, and acknowledge his great support and consistency in this matter. I agree with his reference to the Welsh National Party. It is an astonishing fact that the Welsh nationalists, who are making pronouncements almost every week upon water matters, are not present to support the Government tonight in this attempt to bring immediate relief to every householder in Wales and to keep the level of their water bills down.

I have seen what the Welsh nationalists have said about my White Paper, part of which they will be opposing. It is very important to consider new developments such as the proposal at Craig Goch. I think that we all agree about the importance of such schemes in Wales. It would bring to Wales an investment of £146 million. If the Welsh nationalists continue to object to the use of Welsh water by the English industrial centres, what they will effectively do is drive the regional water authorities away from investment in Wale.

Many authorities—for example, the Severn-Trent Water Authority—are now thinking of looking at alternative sources, such as sinking supply holes in Shropshire. That would be a very serious matter for Wales if it deprived the Principality of investment. The local authorities concerned have very considerable rating assistance, to which the water industry contribute. In that sense, I agree that the absence of the Welsh nationalists tonight is absolutely lamentable.

Mr. Arthur Jones

I have now had an opportunity to look at the passage in the Official Report of the debate in the other place to which the right hon. Gentleman referred. These are, I think, the words of Baroness Birk with which he said he agreed: The differential between the level of domestic relief in Wales and England was narrowed in 1975–76, and in subsequent rate support grant settlements there has been no question of relative water charges being taken into account by the Government in their decisions on levels of domestic relief."—[Official Report, House of Lords, 16th June 1977; Vol. 384, c. 319.] The noble Lady was there saying that the question of water charges was taken into account in the rate support grant arrangements for 1974, as I said, and for 197576, and it was the subsequent rate support grant settlements which did not take them into account.

It is clear, therefore, that the stance consistently maintained by the right hon. Gentleman that water rates were not taken into account in rate support grant settlements in the first two years of operation of the regional water authorities was not correct.

Amendment to the Lords amendment agreed to

Further amendments to the Lords amendment made: Leave out from beginning of line 35 to end of line 41.

Leave out from beginning of line 42 to end of line 47.—[Mr. Denis Howell.]

Lords Amendments Nos. 6 to 16 agreed to.

Lords amendment: No. 17, in page 2, line 34, at end insert: (5B) In the first financial year in respect of which an order is made under subsection (1) above, the amount of the levy calculated under subsection (4) above shall be reduced by two-thirds and in the second financial year in respect of which such an order is made the said levy shall be reduced by one-third.

The Under-Secretary of State for Wales (Mr. Alec Jones)

I beg to move, That this House doth disagree with the Lords in the said amendment.

Mr. Deputy Speaker

It is proposed to take at the same time Lords Amendments Nos. 20 and 25.

Mr. Jones

I ask the House to disagree with these three amendments. We started out with a Bill which is only a partial equalisation measure and a relatively modest measure. If one reduced the equalisation even further, as the proposals in these Lords amendments would, that would destroy the whole value of the Bill, and we should then come up against problems of the kind to which the hon. Member for Flint, West (Sir A. Meyer) referred when he warned of the danger that could arise in Wales and other areas where water authorities which were exporting authorities might be forced to move, as it were, towards the selling of those water supplies.

I remind the House also that the Bill has only a limited life. I said many times in Committee that we expect that it will cease to have any real effect within five years. If we accepted these phasing amendments, they would put off the full transfers till the third year, and in that third year even the full transfers would have a lesser effect. I therefore invite the House to reject these phasing amendments.

Mr. Arthur Jones

We have discussed this question before. The hon. Gentleman says that the Bill has a limited application. I think that the deduction to draw from that is that the equalisation proposals will disappear. I do not think that he intends to be interpreted in that way.

12.45 a.m.

What in fact will happen is that they will become less significant in terms of the total sums involved. But the transfers will surely still be taking place. As Baroness Birk said in the other place on 4th July, it is not that the equalisation transfers will get smaller year by year, but that they will constitute a smaller proportion of each authority's revenue requirement each year as the cost of financing new capital expenditure, and operating costs increasing in line with inflation, outstrip them."—[Official Report, House of Lords, 4th July 1977; Vol. 385, c. 94.] The hon. Gentleman may say that within five years circumstances will not be as they are today, but within five years there will still be a transfer of water charges from one part of the country to another. The total sums involved will decrease, but the consumers, if they are in an area from which resources are being transferred, will have to meet higher charges to take account of the concessions made to those living in areas of receipt.

On that basis a substantial case can be made for some transitional arrangement. I do not think that it is quite correct for the hon. Member to say, in so many words, that they will all disappear in five years' time. That is not the case.

That is why the proposal was pressed in the other place. It was felt that it would introduce a greater degree of fairness between the recipients and those who are having to foot the bill for the transfer of resources.

Mr. Tony Durant (Reading, North)

I rise to support the amendment, because my constituency is part of the area of the Thames Valley Water Authority. When the Bill was originally conceived the transfer of money in the case of the authority amounted to about £5 million. With this concession, bringing in the private water companies, that sum is reduced, but it still amounts to between £3 million and £4 million. It is a considerable sum for a water authority to adjust itself to in terms of its whole financial programme for the ensuing year.

If the amendment were carried it would soften the blow and enable the authority to make the necessary financial adjustments. It is quite a large sum. Most water authorities started from practically nothing. They had only the capital that was around at the time. They had now become established, and this is a sudden blow to their whole financial structure.

The Thames Valley Water Authority is by far the hardest hit by this provision.

I suppose that in terms of total sums £3 million or £4 million is not all that large an amount, but it is still substantial when an authority is doing its budgeting and arranging its financial programme for the ensuing years. The acceptance of the amendment would soften the blow and enable the Thames Valley authority to be able to deal with the matter in a much better way. It would mean probably £1½ million in the first year and possibly £3 million over three years. That would mean much better housekeeping.

Sir A. Meyer

It sounds unkind, but as someone who recently was in the Thames Water area, I think that the authority could well afford this contribution, and make it now, to the water equalisation fund. Until the taxation policies of the Government drove me out of the area, I owned a house there. I sold it last year. It was a sizeable house with a large garden and a pool. I have in my constituency a three-roomed cottage in a quarter of an acre. The water charge for my cottage in Wales is higher than the water charge that I paid in the Thames Valley, although I agree that the other rates were lower.

This is the point that I find incredibly hard to get across to my constituents and therefore, as on Second Reading, again I find myself supporting the Government in seeking to remove this Lords amendment. Once again the absence of Plaid Cymru as these issues come up one after another is all the more extraordinary. The Bill is expressly designed to serve the interests that Plaid Cymru professes to serve, but its members in this House do not take the trouble to turn up.

The Minister is 100 per cent. right about Craig Goch, and I take the opportunity of saying that we on this side of the House fully support him in his attitude. I go further and say that one of the doubts in our minds about the usefulness of an elected Welsh Assembly was the kind of attitude that such an Assembly would take in the case of a thing like Craig Goch and whether it would not adopt a totally nationalist policy.

Mr. Donald Anderson (Swansea East) indicated assent.

Sir A. Meyer

I see my good friend the Member for Swansea, East (Mr. Anderson) nodding his head. He feels as I do over this matter.

I hope that this Lords amendment will be deleted. There has been enough de-delay in dealing with this problem already. I do not want to argue the rights and wrongs of the delay, partly because hon. Friends, for understandable reasons—I would take their attitude if I were in their position—have fought this Bill tooth and nail because it will be to the disadvantage of their constituents.

Mr. Eldon Griffiths

To the advantage of mine.

Sir A. Meyer

Then my hon. Friend is all the more public-spirited.

Mr. Durant

It will be to the disadvantage of mine.

Sir A. Meyer

Having handed so many bouquets to the Government, I must say that we feel that they if they had brought the Bill in earlier in the Session, it would have brought relief much sooner. But that is water under the bridge. Let us get on with it now.

Mr. Eldon Griffiths

My hon. Friend the Member for Flint, West (Sir A. Meyer) is right in saying that the Welsh water consumer is charged more than the English water consumer. I think that it is worth giving some figures which he may be able to use as ammunition from time to time. According to the Minister, the average domestic water bill for 1970–78 is, for example, for the North-West £16.90, and for the Welsh area £25.40. So the Welsh consumer is paying substantially more. So, of course, is the consumer in the South-West, who pays £23.69 as compared with the consumer in Severn-Trent, why pays only £15.71.

Mr. Durant

Does my hon. Friend accept that the reason for that situation is the short-sighted policy of some years ago in not providing the necessary reservoirs and so on?

Mr. Griffiths

Yes. That is very important. One reason why London has had relatively cheap water is the foresightedness over the years of the water authorities in making good provision. But although Wales and other areas, like the South-West, are charged very high indeed for water, they pay very much lower rates in other respects.

According to the Minister, the average rate bill for the county council area of Inner London is £166 per head. For Clwyd it is £77 per head. The rate bill per head in Oxfordshire is £136, in Powys it is £36, in Hertfordshire £177, in Gwent £77, in Lancashire £84, and in Mid-Glamorgan £58. What Wales loses—and I accept it—on the water it gains on the rates. Taking into account all the services that the Welsh consumer gets, it cannot be alleged that he is materially worse off than his fellow citizen in England.

Sir A. Meyer

There is no doubt that in a number of cases the Welsh consumer gets an inferior service.

Mr. Griffiths

I will not pursue that, because I am sure that the House would wish to get on. With my name, the last thing I want to do is to be unfair to Wales, but there are times when our Welsh friends, in dealing with the water question, on which they have a perfectly logical and reasonable argument, omit to recognise at the same time that in regard to rates they are very much better off than many other people throughout industrial England and, indeed, throughout England as a whole. Taking the water rates and the domestic rates together, it must be seen on the evidence that the Welsh, far from being worse off, are in many respects better off in terms of the local charges made upon them.

My last point relates to cash flow, which has already been mentioned. If the regional water authorities or the private statutory companies are to be asked to find these very substantial sums of money, running into £1 million, £2 million or £3 million, it is not easy for them, in the present circumstances of inflation and the very high cost of borrowing, to obtain that cash in order to make the transfer in the first year that it will be required.

The Minister knows perfectly well that some authorities are very hard up. He also knows that they are very close to the limit of their borrowing powers. He must recognise that in cash flow terms many treasurers of regional water authorities, and in particular of private companies, will not find it easy to mobilise very quickly these large sums. This is true of industry as a whole and of most local authorities, and I believe that it is an iniquitous imposition upon these water companies and on the regional water authorities to ask them to find this kind of cash in the time scale that the Government arc requiring.

I have to make a distinction here. The regional water authorities have had plenty of notice. They knew that the Bill was coming up. They have been in consultation with the Minister and therefore they cannot claim that they were not given advance information. I accept that the problem is there, but at least they knew it was coming. The statutory private companies have only just been put in.

Mr. Michael Spicer

With regard to the availability of cash, will my hon. Friend not accept that that will be very much more difficult for them, and that even for the major authorities the position will be rather difficult?

Mr. Griffiths

It could well be. None the less, the immediate point is that they will have to find cash, and it is not easy to find substantial amounts of cash of this kind. The regional water authorities have had notice and I expect that most treasurers will already have begun to make provisions.

This House and the other place have decided, and the Government have agreed, to put the private companies into the Bill. Yet they have had no notice at all. They heard about this only when during the Committee stage we proposed that it would be more equitable if the private companies were brought in as well.

I am glad that the private companies have recognised the logic of this and that they accept what is proposed. None the less, they now have to find the money. The question is where from. They cannot put up their charges because most are under the statutory obligations of their charging policies, quite apart from what the Secretary of State may be able to do about it.

They are not in a position readily to obtain large sums of cash in order to pay for the transfers that will be required of them. I suspect that in many cases they could not easily extend their borrowing powers. Even if they could, the interest rates which they would have to pay at present are very harsh.

I hope that the Minister will deal with this specific point. Is it fair, just and equitable that we should impose upon these statutory companies at very short notice the obligation to find large sums of cash which in some cases they have not got? If it was for purposes of general revenue, that would be just too bad and they would have to provide it, but they are having to provide cash to transfer to other parts of the country some of which may well be better off than they are.

Some of the money that will come from the private statutory companies, which they will find hard to obtain, will end up going to regional water authorities infinitely better off in cash terms than they are. I could go into some detail about this, because a number of regional authorities have found that their cash position has changed extraordinarily in the last 12 months. The Anglian Water Authority is a case in point. It expected that it would have a low level of cash, but its cash has come up substantially.

I hope that the Minister will deal specifically with that point. Is it fair to say to the private companies that they must find substantial sums of cash when they were given very little notice and when their resources are very narrow for this purpose? I do not think that it is.

1 a.m.

Mr. Anderson

I make two quick points, one as a corrective to the points made by the hon. Member for Bury St. Edmunds (Mr. Griffiths). First to compare Oxfordshire with Mid-Glamorgan and to say that somehow the Welsh householder is better off by paying lower general rates and higher water charges is surely not on. We must take into account the quality of housing in Mid-Glamorgan and the very high oblescence factor in parts of Gwent compared with Oxfordshire.

The other point is that the hon. Member for Reading, North (Mr. Durant) said that London, for example, had benefited from wise investments in the past. Surely the difference between the high water rates levied in Wales and those levied in London is due in large part to the typography of Wales and the special difficulties of water transmission in Wales compared with the relative ease of transmission in the London area. The Bill is in no way based on the mythical wise and foolish virgins of the past.

Mr. Michael Spicer

When resisting these amendments the Minister made the point that he did so because they further modified what he regarded as a pretty modified measure already. In a sense, he is quite right. We have tried to press this modification because we do not like equalisation.

In that context I cannot resist commenting on something that the Minister for Drought—he has been successful today in producing torrents of rain—said in one of the earlier debates in justification of equalisation. One justification was that equalisation within particular authorities had already been started. That argument cannot pass without some sort of comment.

The two authorities are totally different. Equalising between regions and equalising within regions or authorities are totally different. The Minister should not use that argument to justify equalisation between regions.

'Within a particular authority we have the concept of the water cycle—unanimity and cohesion—where a case can be made for equalising charges. That was the basis of the original Water Act and the justification for the water cycle. We have had this argument in Committee. I should have thought that we had moved from the case that equalising within authorities justified equalising between authorities.

I hope that the Minister will deal with that. If the measure is to be passed, it should not be based on false arguments.

Mr. Alec Jones

This Bill, which was given a Second Reading by the House with a considerable majority, brings about a measure of partial equalisation.

The present average and major bills range from 66 per cent. above to 38 per cent. below the national average. We believe that to be unreasonable. The Government's proposals would reduce that range to 43 per cent. above and 23 per cent. below the national average. That is why I describe the Government's measure as being modest.

If we accepted these phasing amendments, in the first year that range would be 59 per cent. above and 33 per cent. below the average. In the second year the range would still be from plus 51 per cent. to minus 28 per cent. Acceptance of phasing would destroy the purpose of the Bill. Some hon. Members may want that, but we do not.

I am sorry if I misled the House earlier. It is true that the transfers will be about the same in real terms in five years. The Bill will bring about partial equalisation. The equalising effect will taper off in five years. There is no disagreement about that.

The hon. Member for Bury St. Edmunds (Mr. Griffiths) referred to the cash flow. All payers, whether companies or water authorities, must raise the money by increasing charges. That is the only way to raise the money. That is why it is vital that the Bill be passed before the year starts. The cash flow will come from the charges introduced next year. We are trying to work out a system to ensure that private companies pay monthly in arrears out of the charges that they will be receiving at that time.

Question put and agreed to.

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