HC Deb 06 February 1985 vol 72 cc931-3
14. Mr. Sims

asked the Secretary of State for the Environment when he last met the chairman of the Thames water authority; and what subjects were discussed.

Mr. Gow

I met the chairman on 14 January. We discussed several subjects, mainly financial.

Mr. Sims

Can my hon. Friend tell me why he has chosen to ignore the view put forward by the chairman of Thames water authority that the figure that my hon. Friend uses as a reasonable return on assets is hypothetical and unrealistic? Is my hon. Friend seriously asking me to vote this evening in support of orders to limit the extent to which local authorities can increase their rates, and is he asking me tomorrow evening to vote for orders that will place on the Thames water authority the duty to impose a far higher rate than it wishes or needs to impose?

Mr. Gow

The net tangible assets of Thames, as at 31 March 1984 and as certified in the accounts that were signed by the chairman and the director of finance and audited by Arthur Andersen, are £4,425 million. I understand the views expressed by my hon. Friend. He is correct in that, to my regret, there is no agreement between the chairman of Thames and myself about the basis on which a proper return on investment is required. Nevertheless, it is true that for the current financial year the rate of return required by Thames is 0.5 per cent., which is the lowest target for any water authority, and for the coming year the target set for Thames is 1.37 per cent., which is still the lowest target for any of the 10 water authorities.

Mr. Pavitt

Will the Minister convey to the chairman of Thames water authority the admiration of many hon. Members on both sides of the House for the way in which he has resisted the Government's attempt for the first time, to make water a taxable commodity? Will the Minister convey our thanks to the chairman for standing up to the Government in the vigorous way that he has already done?

Mr. Gow

We are setting higher targets for the water industry as a whole, including Thames. I should like to join the hon. Gentleman in paying a tribute to Mr. Roy Watts — [Interruption.] Oh yes. The chairman of Thames water authority is fully aware of the fact that he was chosen by my right hon. Friend the Secretary of State to be chairman of Thames because he had the qualities that were required of the chairman. I pay tribute to what he has achieved. The dispute is about the rate of return that should be required on a current cost accounting basis.

Mr. Jessel

Will my hon. Friend please explain why any financial return on capital is needed at all for this public utility operating in a monopoly beyond what is required for current outgoings, for provision for future construction and repair and for repayment of debt over a reasonable period, such as eight or 10 years?

Mr. Gow

Because it is the Government's policy that assets in the public sector should earn a proper rate of return. In that respect we are following precisely the principles that were laid down by the Labour Government in their White Paper in 1978.

Mr. Eggar

When my hon. Friend met the chairman of the Thames water authority, did he discuss the denationalisation of that body? Is he aware that the board is in favour of such a course of action? Could he not agree with the chairman of the board on that objective at least?

Mr. Gow

I did not discuss that possibility with the chairman of Thames Water Authority on the occasion to which the question relates. My hon. Friend will be aware of a reply that was given last week by my right hon. Friend the Prime Minister to a question on this subject.

Dr. Cunningham

Is the Minister aware that we welcome his confirmation that Mr. Roy Watts has not only acted with courage but within his terms of reference, unlike the hon. Gentleman, who seems to be doing everything possible to exceed his in leaning on the chairman, second-guessing him, overruling him and imposing a tax on water consumers in the Thames area? Will the hon. Gentleman confirm that, by normal accounting methods, Thames Water is the seventh most profitable business in Britain? Will he also confirm that the current cost accounting methods he is seeking to impose are not widely employed in business in Britain and amount to an imposition by the Government of a naked tax on water consumers?

Mr. Gow

It is strange that there should be this conversion of the hon. Gentleman. The orders that will be debated tomorrow evening are the fourth and fifth orders that have been laid before the House. The first three orders, which were made under section 29 of the Water Act 1973 and which were calculated on exactly the same basis of current cost accounting, were not opposed by the Labour party. I remind the House of the conclusions reached by Price Waterhouse and Co. in its report in 1981 on the principle of current cost accounting. It said: The approach to current cost accounting, which has been adopted by the water authorities, is both soundly based and sensible.