HC Deb 19 February 1981 vol 999 cc463-71


Notwithstanding subsections (4) and (5) of section 30 of the Water Act 1973, the charge made by a water authority for the supply of water in bulk to any other water authority may include, in respect of the supply of water outside the area of the supplying authority, such percentsge increase as may be agreed between the water authorities, or as may be determined by order under section 12 of the Water Act 1945, of the charge which but for this section would be made."—[Mr. Wigley.]

Brought up, and read the First time.

Mr. Dafydd Wigley (Caernarvon)

I beg to move, That the clause be read a Second time.

The new clause contains a different form of wording from that which was debated in Standing Committee. Its stated aim will have an effect on the cost of water rate powers in Wales.

On Second Reading and in Committee I had an opportunity to stress the iniquity of the present situation and the effect that the increases in water rates will have on ratepayers in Wales. It has been confirmed subsequently that the increase for ratepayers is likely to be 20 per cent.—this at a time when the Government norm for pay settlements is 6 per cent. Clearly, it is a gross imposition. The 20 per cent. figure arises from a number of sources. It is partly the general effect of inflation and partly the effect of losing the £3 million to £4 million costs as a result of the abandonment of equalisation.

In responding to the debate in Committee, the Under-Secretary of State for Wales talked about the weaknesses of the amendments that I tabled and said that they did not meet the requirements. He said that the problems facing water ratepayers in Wales would be alleviated and reduced to the same extent by the fact that the rate of return being required of the Welsh water authority was lower than that being required of water authorities in England over the next few years. I responded by making it clear that although we have an extended period in which to reach the target rate of return, the increase that is required is none the less substantial and significant, and the increase involved in reaching that rate of return over a longer period is higher than the increases in English regions, because they start from a higher position. The Under-Secretary of State for Wales had no reply to that argument.

That is why I tabled the new clause. It meets some of the deficiences in the amendments that were proposed in Committee. It meets the argument that in the absence of equalisation and of a standard charge for water throughout England and Wales, or throughout the United Kingdom, of the kind that we have for postal services and for many of our basic supplies, and in view of the continuing discrepancy of some 30 per cent. in the payments made by water ratepayers in Wales, we should confirm the right of the Welsh water authority to make extra charges for water that is taken from Wales for use outside Wales. By means of that extra charge, it could achieve equalisation, albeit affecting only three water areas—the Welsh, the Severn-Trent and the North-Western.

4.15 pm

There has been discussion on the question whether the Welsh water authority is already empowered to do that. Whether it is or not—there has been argument between the lawyers about their interpretation of this—what is not clear, and did not come out in Committee, is the attitude that will be taken by the Welsh Office and the Department of the Environment to any proposals that may be forthcoming to relieve the burden that the loss of equalisation payment by making an additional charge for the water taken outside the area from sources inside Wales.

The new clause gives an opportunity to the appropriate Minister to tell us what his attitude is. Does he regard it as fair play that, in the absence of equalisation and in the atmosphere in which the Government advocate the use of free market forces, the Welsh water authority should take advantage of the powers that the new clause would make clear that it has to recoup the money it loses? Or will the message be that ratepayers in Wales have to pay £3 million more, and that it is their hard luck? Despite all that was said by Conservative members on the Second Reading, in Committee, on Report, and on the Third Reading of the Water Charges Equalisation Act four years ago, when they decried the unfairness to the Welsh water powers, the loss of £3 million will now make the situation far worse.

Unless there is a clearer lead from the Government on the issue there will be a wide-scale reaction in Wales to the substantial increase in water charges. That increase could have been minimised by a contribution such as the one I proposed in new clause 3. It could have minimised if equalisation had not been abandoned. I am not saying that the only way is to charge for water transferred from Wales. But in the absence of any other constructive answer to the problem this will appear to the Welsh people as the only way open to them to reduce the imposition put on Welsh water ratepayers by the current formula and by the absence of equalisation.

Mr. Denis Howell

I should like to intervene before the Minister replies. First, I want to say how impressed I am by the ingenuity of the hon. Member for Caernarvon (Mr. Wigley) in getting a re-formed amendment on the Amendment Paper and selected for debate. His new clause highlights what I believe is the real sense of grievance that is felt in Wales about the way in which the Government are tackling the problem brought about by the ending of equalisation charges, for which I had a measure of responsibility when I was the Minister concerned.

It is important that the House should understand the reason for the Equalisation Act, which, as the hon. Gentleman said, benefited Wales to the extent of £3 million. Much of our water that goes to the industrial Midlands and the North-West comes from Wales. All the Elan valleys and Claerwen valley reservoirs, dams and constructions were financed almost wholly by Birmingham ratepayers. The hon. Gentleman spoke about free market forces being used in an attempt to make people in the West Midlands, Birmingham and the North-West pay more than they should for water, but any such economic assessment would involve compensating the investors—the very people whom the hon. Gentleman wishes to charge more for their water. It cannot be right in equity or in terms of economics that those who invested huge sums in capital works and provided the means of supplying the water, of creating numerous jobs in Mid-Wales, and of creating great capital assets that produce a lot of rateable value for the local authorities in the area, should now have an additional charge imposed upon them in the name of what the hon. Gentleman calls free market forces.

I have never believed in the philosophy of free market forces. That philosophy comes better from the Conservative Benches than from the hon. Gentleman. It may be because he is not used to it and does not believe in it that he has got it all mixed up. We would very strenuously object to any proposal to sell water from Wales to the Midlands, or to anywhere else, at a profit. Indeed, the whole basis of the sale of water between one region and another is that of no loss, no profit. That basis has been accepted on each side of the House and is still accepted. It must be right in equity as between one set of people and another.

That is not to say, however, that the hon. Gentleman has not raised a substantial point, which he emphasised once or twice during his remarks. His point is that, when the system of equalisation charges is ended, it is bound to create some very substantial hardships and a substantial lack of fairness. When we applied our minds to the equalisation proposals, we considered the problems of Wales. The cost of carrying water up the valleys, and of carrying the drainage and the sewage down the valleys to appropriate treatment centres, produces water charges for the Welsh people which are totally different from those which have to be paid for the same services by large metropolitan areas such as London, Birmingham and Manchester.

I am sure that the hon. Gentleman will agree that if we accept his proposal we shall have to include also the people in the areas of the South-West water authority, the Anglian water authority, and possibly in parts of the North of the country, where the same unfortunate discrimination between the charges can be found. That discrimination gives rise, of course, to the sort of resentment that the hon. Gentleman has voiced today. When we consider that charging policy in relation to other nationalised products, the position is even more difficult to defend.

A letter posted to Westminster from the Orkneys costs exactly the same as a letter posted to Westminster from Camden Town. We do not have a grossly differential charging policy in respect of our postal services, or our gas and electricity services. It is extremely difficult for the people of Wales—as theirs is the country in which the water is gathered, and from which it is pumped, particularly to the industrial heart of our country—to understand why there should be a differential policy for water.

The equalisation proposals were meant to deal with that basic unfairness and, as the hon. Gentleman has conceded, they worked reasonably fairly, producing for Wales a sum of about £3 million a year. That has now come to an end. In Committee the Welsh Minister made it clear that the Government would try to deal with the matter by other means, and when we last debated the equalisation proposals in this Chamber the then Minister said that the order that we were debating would be the last one under the equalisation measure. We were also told by the Minister, or by one of his colleagues, that the Government would look after their Welsh friends. But what is to happen about consumers in the South-West, in East Anglia and in the North of England who suffer from the same problems?

The Government's answer is to give what I would describe, in layman's language, as extended terms of credit for the Welsh water authority's borrowing, so that it has to pay rather less in interest charges on its massive borrowings this year than it would otherwise have to pay. But, as the hon. Gentleman said, the authority will have to pay rather more in the long run. Instead of borrowing the money over 20 years, it will be borrowing it over 25 years and will pay more in total on interest charges than would otherwise be the case.

If that solution is sensible for Wales, why is it not sensible for Devon and Cornwall, for East Anglia and for the North of England? Will similar facilities be available to other regional water authorities?

I do not think that what the hon. Gentleman has proposed is a sensible answer to the problem. The right answer is to move towards a more sensible equalised pricing policy for water, so that, wherever we live in this land, when we turn on the tap or dispose of our dirty water, the charges will be equitable as between one citizen of this country and another. Although we object to what the Government are doing, we cannot, for the reasons that I gave earlier—

Mr. Wigley

Before the right hon. Gentleman moves to his conclusion—I suspect that I know the direction in which he is going—will he make clear that he accepts that with the ending of the equalisation formula the water rate payers of the Severn-Trent area will be better off to the tune of about £½ million as compared with Wales? Accepting that it is equitable that £½ million more should be paid in the name of equity in order to apply the formula of equal distribution—as with the postal services, to which he referred—will he agree that it would not be unreasonable if a charge of that order were to be made by the Welsh water authority in order to arrive at the position of equity that he has described?

Mr. Howell

I understand the hon. Gentleman's logic, but I cannot embrace it.

I was intending to deal briefly with the wording of the hon. Gentleman's new clause. He is now suggesting that because the ending of the equalisation provisions has produced a sense of inequity as between the Welsh water authority and the Severn-Trent water authority, that should be dealt with in the terms of his new clause.

It is true that the Severn-Trent consumers will be marginally better off, although only marginally better off, than was previously the case, but if these adjustments are to be made and if we are to have a pricing policy that is fair between all water consumers—not only between the Welsh water authority and the Severn-Trent water authority but between other regions—the question is how it is to be done. Our solution was for a national water authority which would be able to achieve that policy, but it has not so far found favour.

The hon. Gentleman's new clause is saying, in effect, that if two water authorities agree, they can add an additional cost to the price of water—when it is transferred, say, from Wales to the Midlands—above that of the no profit, no loss concept. It cannot possibly be right that that principle should apply between two water authorities. It would lead to tremendous political dogfights throughout the country. No doubt as the hon. Member represents the Welsh national party that is exactly what he would like to see, but I cannot believe that it would be in the interests of water consumers that we should have these dog-fights every time water is transferred as to what the additional charge ought to be which is imposed by one and accepted by another.

4.30 pm

As hon. Members will know, under the Water Act which operates at the moment, where transfers take place any dispute as to what is the correct no profit, no loss calculation is settled by the Secretary of State, which means in practice by two Secretaries of State if Wales is involved. Even more realistically, if they are not in agreement it is settled by the Cabinet as such questions should be.

I have great sympathy with the hon. Gentleman for having lost the additional resources which the Government of whom I was a member provided for him under the Act which I took through the House. He is entitled to take issue, as indeed we on these Benches take issue very emphatically, with the Government. We would point out to the Government the essential unfairness of their proposals. Nevertheless, I cannot say that the new clause provides the way to remedy the situation. It should be remedied nationally either by the National Water Council as it is constituted or by the Government making orders and laying schemes before the House which apply evenly to the whole country so that the principles can be debated and accepted or rejected by hon. Members. For those reasons, we on these Benches will not be able to support the new clause as drafted.

The Under-Secretary of State for Wales (Mr. Wyn Roberts)

We have been over this ground before in Committee, but the hon. Member for Caernarvon (Mr. Wigley) has been ingenious enough to enable us to have yet another discussion. The new clause is designed to ensure that a water authority may charge for water which is transferred in bulk to another water authority on a basis which is calculated independently of other charges of the authority fixed under section 30(4) and (5) of the Water Act 1973. Subsection (4) provides: In fixing charges for services, facilities or rights a water authority shall have regard to the cost of performing those services, providing those facilities or making available those rights". Subsection (5) requires that every water authority shall take steps to ensure that as from 1 April 1981 its charges do not show an undue preference to or discriminate unduly against any class of persons.

I am, however, advised that an agreement under section 12 of the Water Act 1945, as substituted in schedule 4 to the Water Act 1973, may be entered into upon terms and conditions which are not governed by the requirements of section 30(4) and (5). Section 12 clearly states that an agreement may be made on—I stress this—any terms and conditions. Therefore, this new clause is not necessary.

The right hon. Member for Birmingham, Small Heath (Mr. Howell) and the hon. Member for Caernarvon are concerned that, with the loss of equalisation payments, the Welsh water authority will no longer receive some £3 million per annum which it had previously enjoyed by way of contributions from other water authorities. The hon. Member for Caernarvon argues, therefore, that, if it is Conservative Party philosophy that water authorities should behave as separate commercial entities, each seeking to maximise its profit, it is right and proper for the Welsh water authority to make good the loss of equalisation payments by charging the North-West water authority and the Severn-Trent water authority for water which is supplied to them in bulk. I note that the right hon. Gentleman does not agree with that view. Let me say to the hon. Member for Caernarvon that so far no proposal has been advanced for changing fundamentally the bases on which the Welsh water authority charges the other water authorities for Welsh water. Clearly there will have to be changes.

The introduction of current cost accounting alone requires a re-examination of the methods under which charges had previously been calculated. Inflation, too, will inevitably play a part. I understand that the question of charging for Welsh water is under consideration by the Welsh water authority which has asked its management team to produce a paper on the subject. It would be totally wrong of me to pre-empt the consideration which may be given by the Welsh water authority to this matter by indicating a Government view as to the appropriate level of charging for 1981–82 onwards, as the hon. Member for Caernarvon pressed me to do.

This is a matter for consideration in the first instance by the Welsh water authority and then for negotiation between that authority and the other water authorities concerned. They may come to agreements which are entirely satisfactory to both parties about the level of charging. It is to be hoped that they will. Only if there is disagreement, as the right hon. Gentleman indicated, will the Government become involved. It would be quite wrong for me to prejudge the decision on any such reference by anything that I say in this House today.

Mr. Wigley

The hon. Gentleman mentioned a moment ago, as he did in Committee but without quantifying it, the fact that current cost accounting will have an effect on the charges that will be relevant next year for the Welsh water authority and for other water authorities. Following the talks that he had recently with the Welsh water authority, can he give any indication of what will be the implication of current cost accounting in financial terms, whether it will close the gap of the loss of £3 million which we are suffering and, if it does, to what extent?

Mr. Roberts

Again, it would be wrong of me to preempt what the authority is likely to say on this subject. Perhaps I may say that there is the change from historic costs which have been taken into account in charging for bulk transfers to current cost accounting. As I said in Committee, that change in itself will mean that the Welsh water authority should secure more for the transfers that are made.

Mr. Denis Howell

We might return to this at a later stage because it is important. Current cost accounting means an increase in charges. That is one of the things which has undoubtedly led the Government to send accountants to every regional water authority, on which point we would like a little guidance later. Would the hon. Gentleman at least confirm at this stage that however those figures come out, the basis of the Welsh water charges still has to be no profit, no loss, which is an important principle to uphold?

Mr. Roberts

I am covering again ground already covered when I try to reply to the right hon. Gentleman. The fact is that the Welsh water authority is now considering its position and the impact of current cost accounting and inflation on the charges that it makes for bulk transfers. Obviously it has to discuss with other water authorities whatever it decides upon. As I said, it is to be hoped that it will reach an agreement, in which case the matter will not be referred to the Government. Certainly there has been no change of principle on the part of the Government. While I appreciate, therefore, that—

Mr. Howell

That means that the no-loss, no-profit principle will apply even under the new accountancy procedures which have to be taken into account. It is important that the no-profit, no-loss principle is maintained in the transfer of water from one water authority to another.

Mr. Roberts

As I said, no different proposal has been put before us, and certainly the principle of no profit, no loss has been applied by successive Governments, including this Government.

Mr. Wigley

Only a moment ago the Minister referred me to schedule 4 to the Water Act 1973, which incorporates sections 12 and 13 of the Water Act 1945, and stressed that an agreement could be made for the supply of water for any period on any terms and conditions. Those are the words that he underlined and they do not refer to the no-profit, no-loss principle. Which is it? It is either one or the other.

Mr. Roberts

Again, we are covering the same ground.

Mr. Wigley

Yes, but we do not know which way it is.

Mr. Roberts

Perhaps I may reiterate the point. No proposal has been advanced for fundamentally changing the basis on which the Welsh water authority charges other water authorities for Welsh water. That is the position now. I went on to say that the water authorities still have it under consideration and there are various steps that may be given further consideration.

While I appreciate the points made by right hon. and hon. Members, and have sympathy with the efforts made by the hon. Member for Caernarvon on behalf of Welsh consumers, I have to say that this is neither the time nor the place to pursue the question further, and it would not be in the interests of Welsh consumers to do so on this occasion.

Mr. Wigley

I do not agree with the Under-Secretary of State that this is not the place and time to pursue the interests of Welsh water ratepayers in relation to the bills they will face in May. They will want the earliest possible opportunity to have relief from the tremendous increases that will come their way.

There will be wide-scale concern that even now, on Report, the Government are unable to quantify the effects of the changes which the Under-Secretary of State has underlined. We are aware that there will be changes in accounting methods which will have am impact not necessarily only in one direction. There will be an impact for the Severn-Trent and North West authorities as well as for the Welsh water authority. I suppose that the impact of current cost accounting would be marginally to the benefit of the Welsh authority, but we do not know to what extent, and we do not know that it will go towards substantially offsetting the £3 million which the Under-Secretary of State accepts that we in Wales are losing as a result of this Government's policy. The Welsh water ratepayers will have to pay £3 million more because of a deliberate decision taken by the Conservative Government. It is important that the water ratepayers in Wales realise that.

There will also be concern about the line taken by the right hon. Member for Birmingham, Small Heath (Mr. Howell). Although he understandably wants to see a system of water charges based on service and on equity rather than on charging in excess of costs, he and his party are not willing to support any formula that would allow the imposition of a charge over and above cost to make up the £3 million Wales is losing. He will not accept a charge even of £500,000 for Severn-Trent, which is the charge that is being made now under the equalisation formula, because of his no-profit, no-loss principle, not because of the equity of the bills that we are facing.

Mr. Howell

The hon. Gentleman must not misinterpret my comments. Of course I believe in an equalisation plan and, as I said, I provided for it in legislation. We would favour a national water authority or council with a national pricing policy the principles of which were clearly understood, but it would have to be on known principles that applied to the whole country not just to the people of Wales, because that would be unfair to other authorities which are losing as a result of the collapse of the equalisation plan—the South West and Anglian water authorities, and so on.

4.45 pm
Mr. Wigley

I accept what the right hon. Gentleman says. Given the choice, I, too, would rather treat the supply of water as a service. That policy would have regard to what is happening in Wales as well as to what is happening between Wales and other areas. But the formula to which the right hon. Gentleman refers is not on the agenda. What is on the agenda is a 20 per cent. increase in water rates for the people of Wales. I am putting to the House a formula whereby that could be offset. I would have hoped that, given common sense, it would be possible by making slight extra charges to offset the £3 million extra bill which will come through our letter boxes.

I am therefore disappointed that the Labour Party, although it does not accept the principle of the amendment, is not in a position to accept it as a short-term palliative to offset the effect on Wales. That no doubt is a matter which the Welsh water ratepayers will take into account at the May election.

There is one ray of hope from this debate from what the Under-Secretary of State said. Notwithstanding section 30 of the Water Act, schedule 4 stands, and parts of the Water Act 1945, which permit charging over and above the basis of no-cost no-profit but on any terms and conditions. The Under-Secretary of State rightly said that as no proposals had yet been forthcoming from the Welsh water authority along these lines there was no change in the charging system. The message to the Welsh water authority should be absolutely clear; it must put such proposals forward, relating them to schedule 4 to the 1973 Act.

Mr Wyn Roberts

The hon. Gentleman will be aware that the supply of water to North West and Severn-Trent is governed by existing agreements, and new agreements have to be renegotiated.

Mr. Wigley

Yes, that is the very point that I am addressing—the renegotiation of new agreements that bring in a little more money to make up for the £3 million that we are about to lose by the Government's decision. The message is clear that there is room to look for such charges under existing legislation, under enactments that may not have been put into force as yet but which are on the statute book. We must facilitate such procedures without any legislative amendment such as I am seeking.

That being so, I accept that there may not be any need for the new clause. The facility is already provided in schedule 4. I hope that Dr. Haydn Rees and his colleagues on the Welsh water authority will note this debate and ensure that that extra minimum charge over and above the break-even point on a no-cost, no-profit basis is made to recoup the £3 million which otherwise the water ratepayers in Wales will have to find although they are already amongst those who have to pay the highest water bills in the United Kingdom. If for no other reason, our debate has been of benefit. The way forward for the Welsh water authority is now clear and I have no doubt that it will follow that road.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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