HC Deb 05 February 1986 vol 91 cc287-97 3.35 pm
The Secretary of State for the Environment (Mr. Kenneth Baker)

With permission, Mr. Speaker, I will make a statement about the future of the water authorities in England and Wales.

On 7 February 1985, the then Minister for Housing and Construction, my hon. Friend the Member for Eastbourne (Mr. Gow), announced that the Government would examine the prospects for privatisation in the water industry. A discussion paper followed in April. In the light of the responses, and of professional advice on the financial issues, the Government have now decided to transfer the 10 water authorities in England and Wales to private ownership; already, 25 per cent. of water is supplied by private sector water companies.

With my right hon. Friends the Secretary of State for Wales and the Minister of Agriculture, Fisheries and Food, I have today presented to Parliament a White Paper setting out our proposals. Legislation will be necessary, and we shall put the water authorities on the market as soon as possible thereafter.

Transferring water to the private sector will offer unique opportunities and challenges. The water authorities are not merely suppliers of goods and services. They are managers of natural resources. They safeguard the quality of our rivers. They control water pollution. They have important responsibilities for fisheries, conservation, recreation and navigation. These functions are inter-dependent and inseparable.

We will maintain the principle of integrated river basin management and we will maintain existing boundaries. The water authorities will be privatised with all their existing responsibilities but for the one exception of land drainage and flood protection. Financing and co-ordination of that function will remain a public sector responsibility.

The authorities are largely natural monopolies. The public will, rightly, expect us to set up a firm regulatory framework. We will appoint a director general of water services. He will control the authorities through an operating licence. This will lay down strict conditions on pricing and on service standards. The system of promoting the interests of consumers will take into account a report which I am publishing today from Professor Littlechild of Birmingham university. Under the director general, there will also be strong machinery for representing consumer interests and investigating complaints.

Water authorities are responsible in England and Wales for the implementation of national policy for the water environment. Necessary existing safeguards—including appeals against water authority decisions on discharges and Government controls on the authorities' own discharges—will continue. And we shall strengthen the system of pollution control in two main ways: first, we shall legislate to make their river quality objectives subject to ministerial approval; secondly, we shall provide for any new requirements to be laid down through a parliamentary procedure. In this way we shall use the opportunity of privatisation to improve environmental standards on a continuing basis.

Over the last seven years considerable progress has been made in improving the management efficiency of water authorities. Their operating costs have been reduced in real terms, even while the demand for their services has been growing. Manpower has been reduced by 20 per cent. The number of board appointments has been reduced even more dramatically — from 313 to 123. In 1979 their investment was falling; in real terms it is now above its 1979 level and it is rising. In the last six years we have made the water authorities fit and ready to join the private sector; and, as reported to the Public Accounts Committee, the quality of water services has been improving in almost all regions.

Privatisation is the next logical step. It will bring benefits to customers, to the industry itself and to the nation as a whole in improved quality, more efficient service, greater commitment of the staff to the work they are doing, and greater awareness of customer preference.

With the disciplines and freedoms of the private sector, I expect the industry to move from strength to strength. I know that these proposals will be welcomed.

Dr. John Cunningham (Copeland)

How can there possibly be any justification for a Government selling off what is the nation's most fundamental natural resource on which the people's very existence depends? Is the Secretary of State aware that 99 per cent. of households in England and Wales are connected to the public water supply and that 95 per cent. are connected to the sewerage system? Is it not true that the proposals cannot do other than create private monopolies without affecting in any way choice or competition for the consumer?

Does not the increasing burden of medical evidence about water purity show the need for even more careful public scrutiny and control than exists at present? That is why the Secretary of State for the Environment has had to exempt 25 per cent. of current water supplies from the purity standards set by the EC. Is not the reality that existing problems, including the average currently of more than 4,000 significant sewer collapses for each of the past three years, show the urgent need for massive public investment now?

How can the Government plan to sell off the £27 billion of assets that they do not own and for which they have never compensated local authorities or the ratepayers? The Government do not own those assets. That is the reality. Will the right hon. Gentleman confirm that, following the Government's consultation paper, only seven respondents favoured selling off the water authorities? Is he aware that under existing law Ministers have a statutory duty to promote a national policy for water? The Government have ignored that duty and are now planning to abandon it altogether.

What are the implications for the millions of anglers, water sport enthusiasts, ramblers, ornithologists and others involved in leisure pursuits of paragraph 75 of the White Paper, which says: As a general principle, WSPLCs should aim for the maximum possible cost recovery for those services"? Is not the reality of that that there will be massively increased charges for all the millions of people, or, even worse, possibly denial of access altogether?

Will private monopolies have the right to disconnect people from their water supply? Will the right hon. Gentleman name those towns to be included in the compulsory metering trials which are envisaged? What estimate has he made of the capital cost involved in meter installation, and who will pay? Will not families with small children, large families and those with disabled or invalid people among them be financially much worse off as a result of water metering proposals?

Against the background of massive need for investment, how can privatisation guarantee the hundreds of millions of pounds of urgent and essential investment that is required? Could all the financial objectives that the Government apparently require be met more simply and more quickly by the Government releasing the water authorities from the financial straitjacket in which they have imprisoned them?

These are appalling proposals from a desperate government. They are another example of the Prime Minister's pawnshop politics. Their motivation is a crude, desperate grab for cash to buy votes. They will necessarily endanger public health, pollution control and water purity. The Government are gambling with the nation's health and well-being. In common with the British people, we believe that water resources are national assets, which should be in public ownership and control. A future Labour Government will act accordingly.

Mr. Baker

I gather from the hon. Gentleman's latter comment that, when the proposals proceed and the water authorities are privatised, they will be returned to public ownership. That adds to a long list. When I made a statement five years ago on Cable and Wireless, the Labour party promised that it would take it back into public ownership. It said the same about British Telecom. That is not going to happen.

The hon. Gentleman asked me a series of questions and I will seek to answer them. He asked why in principle we should invite private capital into the ownership of water, which is a monopoly. In other countries, private capital is already invested in water In France, 65 per cent. of the population receives water supplied by private companies. In the United States, 40 per cent. of the utilities that supply water are privately owned.

The hon. Gentleman asked about investment. He was a member of the Government that cut water investment faster and quicker than any other Government in our history. Investment is rising. In 1986–87, for the first time, capital investment in water, including the water authorities and flood protection services, is likely to exceed £1 billion. The level of investment is higher in real terms than it was in 1979.

The hon. Gentleman asked about the water authorities' assets. The assets of the predecessor bodies were vested in the water authorities by the Water Act 1973. Water authorities are public bodies whose members are appointed by the Government. There can be little doubt that the proceeds of the sale should be paid into the Exchequer.

The hon. Gentleman asked about water purity and he alleged strongly that public health was at risk. The high quality of drinking water standards and river quality objectives will be maintained, as will other important public health standards. In no way will the present regime of water standards be weakened. Indeed, in several respects it will be strengthened. For example, standards of effluent discharge will continue to be subject to Government approval. In future, the Government will set river quality objectives, which at present the water authorities set for themselves.

I remind the hon. Gentleman that under the new regime the Secretary of State will retain responsibility for public health standards, drinking water quality and the quality of rivers and bathing waters.

The hon. Gentleman asked about powers to cut off water supplies. Privatisation will not affect water undertakers' powers to cut off water supplies. An elaborate regime operates with a code of conduct in which the DHSS is involved. I assure the hon. Gentleman that that will continue.

The hon. Gentleman ended by saying that our approach was dogmatic and doctrinaire. If it is dogmatic to believe in private ownership, if it is dogmatic to believe in employee shareholding and if it is dogmatic to believe in improved customer services, I am dogmatic. The Labour party believes that the state should own everything from telecommunications to gas to water to council houses. We profoundly disagree with that proposition.

Several Hon. Members


Mr. Speaker

Order. I remind the House that there are two statements on this matter, followed by a Ten-minute Bill and two Opposition day debates. Many right hon. and hon. Members wish to speak in the first debate. I regret that I shall have to limit questions on statements today. Questions on this statement may continue until 4.15 pm, and then we shall have to move on.

Mr. Charles Morrison (Devizes)

My right hon. Friend's statement is welcome, not least because it will release the provision and organisation of water from the restrictions imposed by the public service borrowing requirement. I congratulate my right hon. Friend on deciding to maintain integrated river basin management. Taking account of the fact that each river authority has different requirements, will the pricing control be organised regionally rather than nationally?

Mr. Baker

On the latter point, I ask my hon. Friend to examine the report published today by Professor Littlechild. He recommends an interesting form of price regulation which relates to service standards. I agree with my hon. Friend completely, as do the representations that we have received, that water authorities should be privatised on a river basin authority level. The authorities have worked well on a river basin basis since 1979, and I confirm that that is our intention. It will improve customer services.

Mr. Eric S. Heffer (Liverpool, Walton)

Is the right hon. Gentleman aware that he has not made a case for water privatisation? There is no good reason for it. Is it not clear that the Government are prepared to put profits before the interests of the British people? Is it not time that they stopped privatising everything that they see? The logical conclusion of their activities is that, in the end, the British people will have to pay for the air that they breathe. I ask the right hon. Gentleman to think again. If he will not do so, I ask Conservative Members to think again about exactly where the country is going.

Mr. Baker

A major advantage of seeking private capital is that the capital requirements of the water authorities will not have to compete with all the other demands for capital on the public purse. That trade-off goes on, and Opposition Members know it. There is no reason why the capital requirements of the water authorities should not go to the private sector. The most important investment programme in the hon. Gentleman's area is the Mersey basin initiative, which will cost more than £4 billion during the next 20 years. I confirm that that programme will go ahead.

Mr. Robin Maxwell-Hyslop (Tiverton)

Bearing in mind the fact that we are not talking about nationalised resources but in many cases resources paid for by local ratepayers, what compensation will local ratepayers receive for the nationalisation and then denationalisation of the resources for which they, not the state, pay?

Mr. Baker

As I said in response to the hon. Member for Copeland (Dr. Cunningham), the assets of the predecessor bodies were vested in the water authorities by the Water Act 1973. Water authorities are public bodies whose members are appointed by the Government. For that reason, the proceeds will be paid to the Exchequer.

Mr. Robert C. Brown (Newcastle upon Tyne, North)

Is the Minister aware that after an expenditure of about £400 million, the river Tyne is almost clean and that first class water facilities are provided by the Northumbrian water authority? Incidentally, the Northumbrian water authority is now earning an annual profit of £6 million. Why should that be taken away from the people of Northumbria? Can the Minister guarantee to the people of Northumbria that water prices will not shoot up? On past evidence, privatisation pushes up prices.

Mr. Baker

The price regime which the Government envisage introducing after water privatisation is related to consumer standards and standards of water quality.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

That is meaningless.

Mr. Baker

The right hon. Gentleman should read the Littlechild report, which has been published today. If the right hon. Gentleman does so he will find that it is not meaningless.

With regard to the level of water prices after privatisation, I have made it clear to the House that there will have to be a regulatory regime. Some water authority chairmen believe that, following privatisation, there will be a reduction in prices. I heard the chairman of Thames water saying on the radio this morning that he looks forward to the privatised regime as that would lead to reduced prices for Thames water.

Mr. Richard Alexander (Newark)

I congratulate my right hon. Friend on proving that the Government still have many radical and reforming ideas. Will the private water companies be able to build on the 25 per cent. service that they give to the rest of the country? I hope that the dead hand of the Treasury will be out of taxpayers' bills when they pay water rates in future.

Mr. Baker

My hon. Friend could almost have been quoting my words when I stood at the Dispatch Box five years ago announcing the privatisation of Cable and Wireless. I was asked what the advantage was in privatising Cable and Wireless, and it is recorded that I said that that would relieve—[Interruption.]

Mr. Speaker

Order. We are under great pressure to make progress.

Mr. Baker

I am answering the points made by my hon. Friend the Member for Newark (Mr. Alexander).

I said five years ago, and I repeat it today, that pressure on public resources can be relieved by going to the private sector. My hon. Friend asked about the 25 per cent. of water supplied by the private sector at present. Opposition Members seem to have forgotten that role played by the private sector. The Government intend to build on that, and those private companies will continue to operate.

Mr. Simon Hughes (Southwark and Bermondsey)

Does not the Minister realise that, instead of putting the water industry back where it belongs under democratic control, his announcement today will be widely perceived as the latest example of the Government siphoning off national assets in order to keep themselves and their wretched economic policy afloat. Can the Minister tell us what advantages there will be in efficiency, and in competition and for the consumer, or will there be a series of dud buys, as happened in East Anglia, and damage the environment which the private sector has never adequately protected?

Mr. Baker

I have already answered the hon. Gentleman's last point; there will be no damage to the environment. Statutory protection will be built into the proposals for the first time, particularly to safeguard areas like East Anglia, by covering river quality and beach standards.

With regard to consumer protection, I can inform the hon. Gentleman that we envisage statutory consumer committees, and the relation of price regulation with standard will be much greater as reports can be made to the director general, who will have direction powers over the water authorities.

Sir Peter Tapsell (East Lindsey)

Will my right hon. Friend bear in mind that it was the great Joe Chamberlain, who was a genuinely radical Tory, who did more to raise the health standards in this country than anyone else by setting the great example of bringing water into public ownership? If it is desirable to take the water industry out of that bogus statistic the PSBR—which has done so much damage to our economic policy—that could be done by an administrative announcement tomorrow.

Mr. Baker

My hon. Friend will be aware that that would have immense implications for the operation of the national economy. There is no easy answer. The water industry is an economic activity which can be effectively financed by the private sector, and we should welcome that fact.

Mr. Jeremy Corbyn (Islington, North)

Will the Secretary of State give an undertaking that the existing health and safety machinery for water workers will be maintained? Is he aware that the dangers to water workers from disease have been significantly reduced over recent years through trade union action? Is not the proposed structure of the water industry a public subsidy of private companies, because investment in land drainage and river protection will remain in public hands? He will, in effect, be handing public money into the private hands of his friends.

Mr. Baker

The answer to the hon. Gentleman's first question is yes, and to the latter, no. Sea defences and flood prevention are a public sector responsibility which will be paid for by the public sector.

Mr. Roger Freeman (Kettering)

Is my right hon. Friend aware that Conservative Members strongly support his statement? Will he confirm that privatisation will enable and encourage water authorities to charge customers for the volume of water used rather than on the basis of rateable value?

Mr. Baker

There will be an experiment on water metering. Many customers in different areas across the country are already switching to meters. I hope to bring legislation effecting the privatisation of the water authorities to the House in the next Session of Parliament. It will include provision for widespread experiment and, possibly, each new house would be obliged to have a water meter should it be in the experimental area.

Mr. Joseph Ashton (Bassetlaw)

What guarantees will the Secretary of State give that domestic consumers will be able to choose whether to have a meter installed under privatisation, and what safeguard will there be against market forces to ensure that if there is a drought the price will not go up?

Mr. Baker

Metering and privatisation are separate issues. We published a little over a month ago the Watts report on metering in which we set out the problems and advantages of metering. We propose to have large scale trials. There is no doubt that some consumers prefer metering because consumption is tied to the price that they pay.

Mr. Michael Grylls (Surrey, North-West)

Does my right hon. Friend accept that this is yet another step forward in the privatisation programme which will be welcomed by those thinking people who realise that transferring assets to the people from the state is very much in their interests and those of the consumer? Is he satisfied that the Littlechild formula that he proposes will stop any abuse of monitoring power? Will he be able to satisfy the House on that point?

Mr. Baker

When my hon. Friend has seen the proposals contained in the Littlechild report, he will be more than satisfied that any abuses of monopoly power will be adequately dealt with. There will be a series of protections. There will be the director general and the Secretary of State will continue to have certain responsibilities. Statutory consumer committees will report to the director general who will have powers, which do not exist now, to direct water authorities and to deal with consumer complaints and standards of service.

Mr. William O'Brien (Normanton)

Does the Secretary of State accept that the people of Yorkshire in particular, and throughout the country in general, will say that this is the worst piece of legislation that the Government have introduced? He said that there would be strict control over prices. Does that mean that there will be no VAT on water charges and that standing charges will be abolished?

Mr. Baker

I accept that those detailed points are important. I also acknowledge the hon. Gentleman's knowledge of those matters. We do not envisage any changes.

Mr. Richard Holt (Langbaurgh)

Does my right hon. Friend accept that, contrary to the views expressed by Opposition Members, there will be a welcome in the north-east and Northumberland for today's statement as his proposals will lead to the operation being put on a firmer financial basis, with the introduction of private money, thus enabling the long-term debt for the Kielder dam to be eliminated and prices to the consumer to be reduced?

Mr. Baker

I accept what my hon. Friend has said. He also is an expert in these matters. I am glad to know that so many of my hon. Friends greet the proposals with enthusiasm.

Mr. John Ryman (Blyth Valley)

Does the Secretary of State appreciate that the matter is legally more complicated than he said? Has he taken advice from the Law Officers about paying compensation? He has said, wrongly, that the members of the present water boards are wholly appointed by the Government. Until recently, local authorities nominated many of the board members. Is he aware that the Northumbria water authority is the most efficient in the country? What are his proposals for the timetable for the privatisation of the water authorities. There are strong rumours that the Government intend to privatise the Northumbria water authority because it is the most efficient. Will the Minister confirm or deny that rumour?

Mr. Baker

I propose to bring in a Bill during the next Session of Parliament to allow the privatisation of the water authorities. They will not all be done at once. We envisage two or three being ready for privatisation in 1987.

Sir John Farr (Harborough)

Will my right hon. Friend deny the rumours which are now sweeping the Lobby that the water industry has been sold to a wholly owned subsidiary of General Motors.

Mr. Baker

That is an unlikely eventuality, because the ownership of American water companies is widely spread on a localised basis. I suspect that that will be the pattern of ownership in the United Kingdom as well.

Mr. Robert Litherland (Manchester, Central)

Who will provide the massive amount of finance needed for the renewal of the sewers in the inner cities of the Manchesters of this world?

Mr. Baker

That money has been provided more generously under this Government than under the Labour Government. It has been provided by the Government for the operation of the water authorities. It will continue to be provided by the water authorities which will have the advantage of going to the private sector to obtain that capital.

Mr. Derek Conway (Shrewsbury and Atcham)

Will my right hon. Friend give an assurance on the flood protection works carried out by water authorities? That is a problem with the river Severn in Shrewsbury. Will he bear in mind the fact that Conservative Members would be much more anxious about his proposals were it not for the fact that water authorities are remote, high-handed and bureacratic? Will he also bear in mind that the only thing that the Opposition know about water authorities is the manufacture of crocodile tears?

Mr. Baker

I made it clear in my statement that flood and sea defences and land drainage will continue to be financed by the public sector. I give my hon. Friend that assurance.

Mr. John Cartwright (Woolwich)

Is the Secretary of State aware that his statement appears to owe more to the need to build up the Treasury's coffers ahead of the election than to any rational system of running the water services? Does he recall Ministers constantly telling us that competition provides the best protection for the consumer? What competition is provided in those arrangements? How does he suggest that consumers shop around for the best buy in privatised water and sewerage services?

Mr. Baker

1 dealt with that in my statement when I described them as a natural monopoly. The competition that will exist in the future will exist between the various water authorities competing for capital funds in the private sector.

Mr. Anthony Steen (South Hams)

I welcome the statement, but will my right hon. Friend ensure that the water ratepayers of south-west Devon are protected from the inefficient track record of South-West water? The South-West water authority loses 30 per cent. of its water through leaks and it is unable to provide enough water for the local ratepayers even though the area has one of the highest rainfalls in the country.

Mr. Baker

I have no doubt that, when these proposals are carried through, the managerial efficiency of water authorities will improve.

Mr. Walter Harrison (Wakefield)

Is the Secretary of State aware of what happened to his predecessor when he did the dirty work on behalf of the Government? I go some way towards privatisation with the privatisation of conception.

Mr. Eric Forth (Mid-Worcestershire)


Mr. Harrison

Thank you very much; I had not noticed. However, I found out that this Government are hell bent on the privatisation of birth, the privatisation of cremation, the privatisation of communication, the privatisation of transport and the privatisation of everything else. They are now to privatise water. There is only one thing left, as suggested by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), the privatisation of fresh air. Where will the Government finish?

Mr. Baker

There are other operations in the public sector which could also be prepared for privatisation.

Mr. Charles Wardle (Bexhill and Battle)

Will my right hon. Friend ensure that the obligation to protect the beaches from sewage pollution will not be overlooked after privatisation?

Mr. Baker

I can give my hon. Friend a categorical assurance that environmental standards and pollution control will remain. I have already suggested the several ways in which these controls will be strengthened. I make that absolutely clear to the House so that that particular canard is not allowed to run.

Mr. D. N. Campbell-Savours (Workington)

Is the Secretary of State aware of the implications of his decision on the Lake District national park? Is he aware that Ennerdale, Thirlmere, Haweswater, Wet Sleddale, Hayeswater, Meadley, a number of rivers in the Lake District and 40,000 acres of beautiful land in the Lake District owned by water authorities will be sold off? Does he not understand that there are thousands of people in Britain who use the national park and who will object to this national heritage being sold off to city cowboys?

Mr. Baker

If the hon. Gentleman is concerned about rights of access, under the privatisation regime the rights of access and rights of way will be preserved.

Mr. Robert B. Jones (Hertfordshire, West)

Will my right hon. Friend remind the House that 25 per cent. of our water is already supplied perfectly adequately by private water companies? When he was looking at methods of privatisation, did he look at the acceptable method in France, where even Communist local authorities work through private sector organisations? What is wrong with franchising? Would it not lead to more competition?

Mr. Baker

We looked at franchising, but it has difficulties. It is alleged to increase competition but, in our judgment, competition of an unreal type. The critical decision that we have to take is whether water authorities will be held together on a river basin management system. That is the heart of the matter. I agree entirely with the point that my hon. Friend has made. Opposition Members should recognise, as they begin to start their tremendous campaign against this proposal, that 25 per cent. of water supplied in Britain is supplied through the private sector.

Mr. John Evans (St. Helens, North)

Is the Secretary of State seriously suggesting that once the North-West water authority is privatised a group of philanthropic businessmen will spend scores, if not hundreds of millions, of pounds of their profits clearing up the stinking, polluted river Mersey? Is it not a fact that once the organisation is privatised the river Mersey will never be cleaned up?

Mr. Baker

I have already said in reply to the hon. Member for Liverpool, Walton (Mr. Heffer) that the Mersey scheme, to which I attach a great deal of importance —£4 billion has been spent on it over 20 years—will continue.

The river will be cleaned up, not just where it passes through Liverpool, but as it passes through Salford arid into the rivers of the north-west.

Sir John Page (Harrow, West)

Will my right hon. Friend assure the country and the House that when he is preparing his legislation he will keep price, quality of water and quality of service to the customer uppermost in his mind?

Mr. Baker

I can give my hon. Friend a complete assurance. As I have already said, the regulatory regime which we envisage will relate precisely to price and will inter link with standards of quality and standards of service. Also, on a point which has been raised again and again this afternoon, we will maintain public health standards.

Mr. Allan Roberts (Bootle)

Is the Secretary of State aware that there has never been any profit in cleaning up pollution but only in creating pollution? Wherever water is provided overseas by private concerns, one has to buy bottles of water in the shops to make sure that one is not poisoned. After the Government have implemented this policy, the advice which will be given to visitors to this country will be, "There are two things which you must beware: do not drink the water and do not breathe the air."

Mr. Baker

If the hon. Gentleman thinks that whenever one goes overseas it is necessary to drink bottled water in order to drink pure waver, he cannot have travelled widely recently. The standards of water purity will be preserved. They will have statutory backing and will come under parliamentary procedure for the first time.

Mr. Paul Marland (Gloucestershire, West)

Is my right hon. Friend aware that there will be a warm welcome in my constituency for his announcement? It will be hoped that more equitable charges will be established. The Forest of Dean is serviced by the Welsh water authority and the Severn-Trent water authority. There are large unfair differences between what has to be paid to the Severn-Trent water authority and what has to be paid to the Welsh water authority. Does my right hon. Friend think that this anomaly will be cleared up?

Mr. Baker

The charging regime which will operate after privatisation will be operated through licences issued and policed by the director general of Water Services. He will have powers to vary the licences and for the first time he will be statutorily obliged to receive and deal with direct complaints, not only on prices but on standards of service.

Several Hon. Members


Mr. Speaker

I have carefully noted those hon. Members who have not been called, and I will give them precedence when this matter is next discussed.