HC Deb 07 December 1981 vol 14 cc581-7 3.32 pm
The Minister for Local Government and Environment Services (Mr. Tom King)

With permission, Mr. Speaker, I will make a statement on the Monopolies and Mergers Commission's report on the Severn-Trent water authority and the two water companies in its area.

The commission recognised the authority's real achievements in its first seven years in absorbing the functions of 200 predecessor bodies and improving standards of service. It endorsed the authority's practices on charging and very largely rejected various general allegations of extravagance.

But the commission says that the authority still has much to do to control its costs. It concluded that the authority's present inadequate control over its divisions was against the public interest.

The authority has studied the report and prepared a full response and a "Plan for Action", of which I am placing copies in the Library of the House.

In response to the commission's public-interest finding, the authority is acting to improve headquarters' control over divisions. It is improving its management information systems and developing better ways of relating costs to output. Its manpower review is leading to savings of several hundred posts. Overall, the authority expects to save £6.5 million in 1982–83 with increasing savings in the following years. In the light of this response, I do not consider that a direction under section 12 of the Competition Act is now required. I shall continue, however, to monitor the authority's progress.

The water companies have also acted on the recommendations affecting them and we have been considering the report with the other regional water authorities. They have all reported to my Department on the action they are taking to improve efficiency. Budgeting, management information, operational practices and capital investment assessment methods are all being re-examined. Most authorities are reviewing their management structure and expect significant savings. Progress is being made in implementing the water industry productivity payments scheme. After continuous increases since 1974, the water authorities' total manpower has fallen for the first time over the last year by some 3 per cent.

Those are encouraging signs, but there is still much to be done.

I shall be discussing performance aims with regional water authorities this week in the light of their budgets for 1982–83.

Further water industry references will be made to the Monopolies and Mergers Commission. The Government are considering their timing and subject matter.

The commission critised the size and make-up of the authority's membership, comprising local authority representatives and ministerial appointees. This raises a number of questions, including consumer representation, which affect all water authorities. But, with the wide variation in size, the Government believe that it would be wrong to come to a conclusion applying to all the English water authorities on the basis of a study of only one of them. I shall therefore issue a consultation paper shortly.

The Government are grateful to the commission for this thorough study. It has produced much of value which will contribute to the continuing pursuit of efficiency in the water industry.

Mr. Ted Graham (Edmonton)

Will the Minister bear in mind that the water industry has special problems in reacting to ministerial financial diktats, due to long-term environmental considerations, and that the chairman of the National Water Council has already drawn attention to the deterioration of services to customers and of environmental standards? Will he acknowledge that the image of the water industry could be improved but that its unpopularity is due more to its basic structural weaknesses arising from the 1972 Act than to the range of issues that form the subject of this report?

The price of the report to the public is £10.80. How much did it cost to commission it? Do the Government still proclaim that they seek to interfere least in the day-to-day running of our nationalised industries? If so, will the Minister assure the House that it is the Government's intention to allow those with professional responsibility to act prudently in the best interests of water consumers by providing for the future in their water charges and that they will not be subject to the gross interference that they suffered in March this year when budgets were pruned dangerously to accord with ministerial bullying?

Does the Minister deny the authoritative criticism that this was a rigged accounting exercise? Does he accept that duly and democratically elected councillors—of all political shades—are ideally placed to represent local opinion and that they still reflect the view of water consumers better than any other method?

With reference to the penultimate paragraph, regarding the future make-up of water authorities, is the Minister aware that radical changes from the present practices of diffused democracy to a proposal for complete ministerial patronage will be resisted? Does he agree that, however well-intentioned those appointments might be, they can best be made by the bodies whose interests he professes to serve and that a change would be seen as a slap in the face by many consumer bodies?

Mr. King

The answer to the hon. Gentleman's criticism about the structure of water authorities is that the Monopolies and Mergers Commission's report specifically endorsed the concept of the river basin structure. I was not aware that the Labour Party intended to change that. The Government certainly have no such proposals. We believe that the original concept of the 1972 Act in this respect is correct.

In connection with what the hon. Gentleman described as interference, I make no apology for the fact that, as a result of the work done by accountants working in close consultation with my Department, we were able to reduce increases in water charges last year from an average of 19 per cent. to 13 per cent. The hon. Gentleman chose to criticise that act, but I understand that the authorities have found no problems with the revised budgets on which they subsequently worked. They have been able to work quite happily within those budgets, with considerable relief to the consumers concerned.

On the last point, about membership, the hon. Gentleman will clearly wish to advance his views on this when the consultation paper is issued. I understand the points that he has made, but he will no doubt have read the comments of the Monopolies and Mergers Commission on the extra costs involved in using the present structure.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Does my right hon. Friend agree that if he were to have one of his famous referendums on the Severn-Trent or any other water authority he would find that about 90 per cent. of people think that the Severn-Trent authority and the companies are entirely unresponsive to and unrepresentative of the needs of the areas that they serve? If there cannot be direct election of members, will my right hon. Friend at least consider the compulsory holding of public meetings at least once a year in the areas that these bodies serve and so rid their members of the idea that they are the people who matter rather than the service that they are supposed to give? I receive more complaints about water undertakings than about any other type of authority.

Mr. King

I think that my hon. Friend will find that a number of water authorities hold meetings in different areas. The chairman, chief executive and other members make themselves very much available in different parts of the authorities area. The purpose of the Monopolies and Mergers Commission's study of water authorities was precisely to cut through many of the suspicions and prejudices and to try to get closer to the facts about the real efficiencies of their operations. I note what my hon. Friend says about the membership of these bodies. I know that he will be interested to see the consultation paper.

Mr. Michael English (Nottingham, West)

Will the Minister accept that he has confused the issue by talking about the river basin concept? Whatever may be true elsewhere, the fact is that in this case two river basins were slammed together, basically so that the West Midlands could continue polluting the East Midlands. Is the right hon. Gentleman aware that most people in the East Midlands would be glad if this water authority were divided into two so that it did conform to the general river basin concept? Has he sacked any of his failures or his predecessor's appointees?

Mr. King

The answer to the second question is "No, Sir". The answer to the first question is that the Severn-Trent, as its name implies, involves two river basins. The basic concept of the river basin approach was specifically endorsed for Severn-Trent by the Monopolies and Mergers Commission. This was not done on the colourful basis that the hon. Gentleman described but is related to the real problem, that the basin divides in Birmingham.

Sir Albert Costain (Folkestone and Hythe)

Does my right hon. Friend accept that the unpopularity of water undertakings is mainly due to the high rates that they charge? It is difficult to explain such a situation to my constituents, who, having got over the shock of a rate demand from the Southern Water Authority, get a second one from the Folkestone water company. Can my right hon. Friend suggest any way in which these two bodies can be combined to make them more economical?

Mr. King

I am not sure whether my hon. Friend is criticising the existence of the Folkestone water company. It is interesting to note that two water companies covered in this report, the South Staffordshire water company and the East Worcestershire water company, were reckoned to be innovative in their approach and to give a better water supply service in certain respects than that given by the water authority. If that means that my hon. Friend's constituents receive separate bills, there are some merits in it.

Several Hon. Members


Mr. Speaker

Order. I propose to call those hon. Members who have been rising in their places. I gather from the Minister's statement that it goes wider than relating only to the Severn-Trent water authority.

Mr. Phillip Whitehead (Derby, North)

Does the Minister agree that many of our constituents regard the Severn-Trent water authority as an overriding subject? Given the fact that it levies a rate that does not allow representation in the way that happens in other levying bodies, will the right hon. Gentleman give an undertaking that one of the options in his consultative paper will be directly elected members of the water authority?

Mr. King

I would prefer not to anticipate the consultative paper, on which we are still working. One of my concerns about the Monopolies and Mergers Commission's report is its criticism of the lack of control over divisions. I believe that it is important for water authorities to be as decentralised as possible, and also that they should have as much local identification as possible. I have been anxious to ensure that while there must be sensible financial control through divisions, those divisions should still maintain a real degree of autonomy.

Sir Anthony Meyer (Flint, West)

Is my right hon. Friend aware that people in Wales who receive water from Severn-Trent count themselves furtunate compared with those who receive water from the Welsh water authority? Is he aware that the latter category must be wondering, if scope exists for cost-cutting in Severn-Trent, what scope exists for that within the Welsh water authority?

Mr. King

That is a matter for my right hon. Friend.

Mr. David Stoddart (Swindon)

Will the Minister, while ensuring that there is a national policy for water, examine in his consultation paper the question of returning the administration of water and drainage to district councils? Is he aware that that is the best decentralisation that could take place? Will he also consider in the paper the question of rebates for pensioners and others on low incomes who cannot afford the high charges that are levied for water and drainage?

Mr. King

The hon. Gentleman suggests that administration should be broken down to the 1,200 constituent bodies of the water supply and water treatment industry prior to reorganisation. To that, I would have to say a straight "No". All the evidence points to the need for sensible organisation on a regional basis. The local authorities play a major part under the sewerage and agency arrangements. I hope that those arrangements will continue. On the question of rebates, successive Governments have recognised that it would not be proper to include a rebate system on a charge for a service as opposed to a tax.

Mr. Ivan Lawrence (Burton)

Does my right hon. Friend observe the arrogance and contempt for the democratic process with which the Severn-Trent water authority has swept aside the almost united opposition to fluoridation of the water supplies in that area? Does he not consider that the water authority should not fluoridate the water unless it has the overwhelming support of the people within its area? Will he see that something is done about the matter?

Mr. King

I am not aware of that in relation to Severn-Trent, but I shall look into the matter that my hon. and learned Friend raises.

Mr. Frank Haynes (Ashfield)

Is the Minister aware that the statement that he has made will be viewed in the region, and in my constituency in particular, as political dogma? Is he aware that since he came to office in May 1979 he has continually made speeches at the Dispatch Box about efficiency in relation to water supplies? Is he aware that a firm in my constituency that employed 473 people when he came into office now employes 103, thanks to his efficiency? When will he wake up and get something done?

Mr. King

I am not clear how that relates to the statement that I have made—

Mr. Haynes

Efficiency in water services.

Mr. King

—and if the hon. Gentleman seriously thinks that a report of the Monopolies and Mergers Commission reeks of dogma, he must be able to find it everywhere he looks.

Mr. Haynes


Sir William Elliott (Newcastle upon Tyne, North)

In happily declaring an interest, as the president of the Water Companies Association, I thank my right hon. Friend for confirming the commission's finding that the two water companies operating in the Severn-Trent area are doing so with great efficiency. Will he be assured that any other company would happily welcome any inquiry into its activities?

Mr. King

I understand my hon. Friend's great interest in the matter. He takes me slightly further than what I said in my statement. I notice that in one respect the water companies appear to have lost the impetus for economies of manpower that the Government are anxious to press on the water authorities. I know that my hon. Friend will be anxious to play his part in encouraging the companies to examine this aspect of their operations.

Mr. George Park (Coventry, North-East)

Will the Minister consider carrying out an examination of the economic justification for Severn-Trent setting up its own machinery for handling bills to its customers, instead of directing them through the local authorities as previously?

Mr. King

That was a decision that the Government inherited. I made it clear in one of the first Question Times after we came to office that the matter had gone too far for the Government to contemplate an alternative approach. The Monopolies and Mergers Commission noticed a marked difference in productivity and efficiency between different divisions in the operation of direct billing departments. We shall watch the situation carefully. Severn-Trent is taking steps to put its direct billing on a more efficient basis.

Mr. Hal Miller (Bromsgrove and Redditch)

I thank my right hon. Friend for making available the views of consultants, and also the reference of the Severn-Trent water authority to the Monopolies and Mergers Commission. Is he, nevertheless, aware of the widespread disquiet over the fact that there still seems to be no machinery to limit the increases imposed by this water authority on our constituents and that it still does not appear to be answerable to anyone? In the context of water workers turning down an 8 per cent. pay rise, is he aware that many of my constituents feel it is unjust that they receive only zero pay rises, or at most 4 per cent?

Mr. King

I very much understand my hon. Friend's final point. As regards the costs that water authorities are able to impose, he will know the close interest that we took in charges last year, which resulted in a significant reduction in the charge that would otherwise have been made in the Severn-Trent authority area. The industry has a responsibility to break even, one year with another, and we pay great attention to the costs involved, in order to ensure that charges are kept at the lowest possible level.

Mr. Robert Maclennan (Caithness and Sutherland)

I do not ask the Minister to anticipate the conclusions of his consultative document, but will he at least assure us that he will canvass the arguments for and against directly elected representations on water authorities?

Mr. King

I replied to that question when it was asked by the hon. Member for Derby, North (Mr. Whitehead).

Mr. Kenneth Carlisle (Lincoln)

Is my right hon. Friend aware that the Anglian water authority tells me that the lessons to be learnt from the Severn-Trent investigation do not apply to the Anglian authority, because their businesses are so different? Does he agree that all monopolies need to be closely supervised if we are to get value for money? If so, will he consider holding an investigation into the Anglian authority, as it claims to be different? Does he agree that such an investigation would be good for the morale of the industry, because it would become more efficient, and good for the consumer, who needs a better service?

Mr. King

I was not aware that the Anglian water authority was making that rather sweeping statement. There are differences. For example, the Anglian authority is preoccupied with issues such as land drainage, with which my hon. Friend will be familiar, but there are clearly messages of general application, and I shall be discussing them with the chairman and chief executive of the Anglian authority the day after tomorrow.

Mr. Graham

May I draw the Minister's attention to the penultimate paragraph in his statement, which has caused considerable controversy? It concerns not so much the report or the past, but the future.

The Opposition were heartened by what I took to be an undogmatic approach to the need to look at a range of options. The penultimate paragraph refers to the inability to be specific because of variations between different areas. May we take it that the Government are thinking, not of a uniform application on the running of authorities, but of genuine options left to local people to decide? My hon. Friend the Member for Swindon (Mr. Stoddart) made that point. I think that the whole House wished to get the best mix between central direction, for which the Government are responsible, and the opportunity for local people genuinely to manage their own affairs.

Mr. King

I am not sure whether the hon. Gentleman is suggesting that there should be optional management or board structures to be decided by local people in various areas. That proposition can be advanced and we shall seek to put forward a range of alternative ways in which the system could be structured.

It is not so much a question of Government involvement as of how much the industry needs organising on the lines of a nationalised industry and whether it needs a local authority imput and a form of consumer representation. The anomalies and the problems that we have to meet are not secret, and I hope that we shall have constructive discussions about them.