HC Deb 09 March 1990 vol 168 cc1175-82

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Patnick.]

2.34 pm
Sir John Stanley (Tonbridge and Malling)

Approximately one third of my constituents in Tonbridge and Mailing have the singular misfortune to receive their water from the West Kent Water Company. It is a singular misfortune because in the current financial year—1989–90—the West Kent Water Company increased its charges by 42 per cent. That was the largest increase in charge by any statutory water undertaker in England.

Not surprisingly, my constituents and I were outraged at the scale of that increase. Coincidentally, the increase in charge came at the same time as the West Kent Water Company was being bid for by a number of companies. Ultimately the French company SAUR acquired it. No doubt the directors of the West Kent Water Company were seeking to maximise the value of shares in the company and the value of their own shareholdings.

In the West Kent area we were outraged by the 42 per cent. increase and it transpired that my right hon. and learned Friend, the Member for Folkestone and Hythe (Mr. Howard), the Minister for water, was outraged by the scale of increase. He told me in several letters that he found the scale of the increase to be quite unjustified. On 23 Februrary last year he wrote to me: A few of the companies, West Kent included, have already announced proposals for large price increases in 1989–90—the last year before we plan to introduce the new system of price controls. The Water Companies Association has suggested that price increases of 30 per cent. or more are necessary. I have told the Water Companies Association that their proposals cannot be justified.

My right hon. and learned Friend expressed a clear view, but the message that he gave me and my constituents at around this time last year was pretty depressing, because, while he had acknowledged that 42 per cent. increase was unjustified, he made it quite clear that at that time he had no legal power to intervene. In effect, he was impotent to do anything about the situation. However, he offered us a ray of hope. He said that help was on the way and that the cavalry were coming in the shape of the proposed water legislation, which was in the House of Commons at the time. He told us that that legislation would enable the Secretary of State for the Environment, for the first time, to bring increases in charges made by monopolistic statutory water undertakers under statutory control.

My right hon. and learned Friend the Member for Folkestone and Hythe went further. He made it clear that not merely did the Water Act 1989 give powers to enable the Secretary of State to control price levels of water in future, but that when the Secretary of State for the Environment came to fix price levels for the year 1990–91 and beyond, he would take into account unjustified increases in the previous year.

Bearing the bruises of the 42 per cent. increase, west Kent awaited the announcement of the K factor in the not unreasonable expectation that it would be, at worst, zero —in other words, that the increase would not exceed the rate of inflation. In fact, we hoped that the Secretary of State, bearing in mind this year's 42 per cent. rise, would fix a negative K factor—an increase below the rate of inflation.

On 7 February, the K factor was announced. The news was greeted with dismay in west Kent: instead of announcing one of the lowest K factors in the country, as we had expected, the Secretary of State announced the third highest. The figure for 1990–91 was 20 per cent; even worse, it was the same for the following year.

Moreover, the water company is allowed to add the inflation rate to the K factor. For instance an 8 per cent. inflation rate in 1990–91 would mean a 28 per cent. increase in the charge for the forthcoming financial year, and a 6 per cent. inflation rate in the following year would mean a 26 per cent. increase in the charge for 1991–92. Given that my constituents face a 42 per cent. increase in 1989–90, a 28 per cent. increase in 1990–91 and a 26 per cent. increase in 1991–92, over a three-year period—if my compound arithmetic is correct—they will experience a 130 per cent. increase. As there is no rebate system, they must pay all that out of after-tax income.

My hon. Friend the Under-Secretary of State may say that the Secretary of State had no alternative if the water company was to make the investment necessary to meet its obligations under the European Community legislation on water standards. If that is the extent of his response, I consider it unsatisfactory. Although I recognise the need to fulfil the European Commission's requirements, I am talking about the implementation of United Kingdom legislation—and not old legislation, but legislation that received Royal Assent only months ago.

It is the Government's responsibility to get legislation right, in terms not only of national policy objectives but of its impact on individuals. If conforming to the EC's water standards means the imposition of unreasonable increases on individuals—which it certainly means in west Kent—it is, in my view, the Government's responsibility to take account of that.

My hon. Friend should consider implementing water standards over a longer transitional period. If that is impossible, he ought to offer a transitional relief scheme to individuals for these charges, just as the Government—and his Department—have introduced a transitional relief scheme for the community charge. The impact of the charges on my constituents in the west Kent area is intolerable and unacceptable.

I am also very unhappy about the handling of the decision by the Department of the Environment. The dialogue that preceded the announcement of the K factor on 7 February was, it seems, exclusively between the Department and the West Kent Water Company. That company has a statutory responsibility, but what about the charge payers and their Members of Parliament? Have their representations been taken into account?

I have pursued that question with Ministers by means of parliamentary questions. Recently I asked the Secretary of State for the Environment what representations he took into account, other than those from West Kent Water Company, before he announced his proposals for the K factor on 7 February. My hon. Friend the Member for Rossendale and Darwen (Mr. Trippier) told me: Under section 14(5) of the Water Act 1989 the requirement for the Secretary of State to consider representations before determining a company's initial K factor relates only to representations by the company."— [Official Report, 2 March 1990; Vol. 168, c. 392.]

I have studied closely section 14(5) of the Water Act. the word "only" does not appear in that subsection. It does not state that the only representations that should be taken into account by the Secretary of State are those from the West Kent Water Company. It would be extraordinary and deeply unsatisfactory if the Secretary of State took into account only the representations made by the West Kent Water Company. I hope that the Minister will clarify that important point when he replies to the debate.

The Secretary of State may be misdirecting himself. If he is, his decision-making process is liable to challenge in the courts. Therefore I ask the Minister to clarify whether the Secretary of State will listen only to the West Kent Water Company. Is he deaf to my constituents' representations and to those of my hon. Friend the Member for Sevenoaks (Mr. Wolfson)? Is he also deaf to the representations of all hon. Members? Will he take no notice of anybody's representations, other than those of the West Kent Water Company?

I am also concerned about the fact that apart from this decision having been arrived at exclusively by the Secretary of State and the West Kent Water Company, there seems to have been some secrecy, which I cannot accept. I have good reason to believe that the West Kent Water Company sought an even bigger increase than the one that my right hon. Friend the Secretary of State for the Environment has announced.

I have sought in parliamentary questions to obtain the figures from Ministers. I have asked about the size of the increase that was sought by the West Kent Water Company. I asked my right hon. Friend the Secretary of State for the Environment what percentage increase in charge for each of the financial years 1990–91 and 1991–92 was proposed to him by the West Kent Water Company before he announced his proposals for limiting increases in the charges of the statutory water companies in the reply to the hon. Member for Stroud (Mr. Knapman) of 7 February.

I received the very disappointing reply from my hon. Friend the Minister for the Environment and Countryside: We took account of all representations made by the West Kent Water Company before announcing our proposals for K on 7 February. It would not be appropriate for me to disclose the details of their representations as they were made on a commercial in confidence basis."—[Official Report, 26 February 1990; Vol. 168, c. 24.] I am familiar with "commercial in confidence" replies. I used them on many occasions as a Minister. I accept that there are perfectly legitimate occasions when that answer can be given. It is entirely legitimate to give that answer when the disclosure of commercial information about the activities of a concern that is in a competitive position would be prejudicial to the commercial activities of that concern. However, we are talking about a statutory monopoly in a totally non-competitive position. My constituents and those of my hon. Friend the Member for Sevenoaks have no alternative whatsoever to getting their water from the West Kent Water Company. There can be no conceivable way in which the commercial interests of the West Kent Water Company or its French controlling shareholders could possibly be prejudiced by revealing to the House the size of the increases for which the West Kent Water Company was asking.

I believe that Ministers are duty bound in their obligations to the House to disclose that information. Therefore, I call upon my hon. Friend the Minister to consider that point and I ask him once again to state the size of the increase that West Kent Water Company asked for prior to my right hon. Friend the Secretary of State's decision on 7 February on the K factor for 1990–91 and 1991–92. The House is entitled to that information which should be in the public domain. There is no good reason for the Minister to withhold it. I entirely understand why the West Kent Water Company does not want to disclose that information. That is very simple. It is not ready to face the music locally and in the public domain if the size of the increase it was seeking was put into the public domain. That is the only reason why it is trying to cover its dealing with the Department of the Environment under "commercial in confidence". There is no good reason for Ministers not to disclose what should be disclosed to the House, and I believe that that figure should be disclosed.

In conclusion, we are extremely dissatisfied with the position concerning the West Kent Water Company and its charges. We are dissatisfied with the non-disclosure to the House of the increase sought by the West Kent Water Company. We are extremely unhappy about the way in which, apparently, the only representations being considered are those from the West Kent Water Company to the Secretary of State and we are deeply unhappy about the scale of the increase—28 per cent. next year followed by 26 per cent. the year after, on top of 42 per cent. this year. I urge my right hon. Friend the Secretary of State, through my hon. Friend the Under-Secretary of State, to consider most carefully what I have said today. I urge him most strongly, before he makes his final determination, to consider my representations and to make sure that his final determination of the K factor is substantially smaller than the one he has proposed.

2.53 pm
Mr. Mark Wolfson (Sevenoaks)

I am grateful to my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley) for allowing me to speak and to my hon. Friend the Minister for agreeing to my speaking. I shall be extremely brief.

I, too, am outraged on behalf of my constituents, and myself as a local payer of the charges, at the astonishing increase which has been allowed to the West Kent Water Company. As my right hon. Friend has explained., last year the Minister told me also that his hands were tied. However, he held out the clear expectation that under the legislation his hands would not be tied this year.

My representations on behalf of constituents have also met with scant success. Unless the Minister is able to accede to the point made by my right hon. Friend the Member for Tonbridge and Malling, specifically on coming forward ultimately with a lower K factor than is currently suggested, this legislation—put through so recently and voted through by me and other Conservative Members—is flawed. It does not provide the kind of security and protection for the consumer, in this monopoly situation, that it was intended to provide.

Therefore, this is a test case. I look to my hon. Friend the Minister, in his reply today and also, importantly, in his decision in the next week or two on the ultimate allowance to the West Kent water company, to take into account these representations and what I have said about the legislation.

2.55 pm
he Parliamentary Under-Secretary of State for the Environment (Mr. David Heathcoat-Amory)

I congratulate my right hon. Friend the Member for Tonbridge and Malling (Sir J. Stanley) on securing this debate and making his point so clearly and forcefully. I understand his concern for his constituents and that expressed by my hon. Friend the Member for Sevenoaks (Mr. Wolfson). I trust that after I have explained a little bit about the background my right hon. Friend will appreciate that his representations were taken into account, although not perhaps by a statutory requirement. I assure him that our desire to reduce the inflation rate gives additional impetus to our concern to allow charges to rise by no more than is absolutely necessary.

I agree that there are significant increases, not just in the areas represented by my right hon. and hon. Friends but elsewhere in the country. The increases are strictly limited to those needed to pay for the improvements in quality and reliability of water supply.

It may be helpful if, in the few minutes allowed me, I give a brief summary of the general method that we have used to set the charges and then address the specific points raised by my right hon. and hon. Friends.

The K factor is the adjustment factor added to the retail price index to determine the maximum amount by which charges can rise in any year. Our approach to setting it is set down in section 7 of the Water Act 1989. The Secretary of State must ensure that water undertakers properly carrying out their duties under the Act are able to finance their functions adequately. Subject to that, there is a duty to ensure that customers' interests are protected. We want the customer to get a good service which provides sufficient supplies, meeting drinking water standards, and to get that service at the minimum cost, which also enables the water undertaker to remain financially viable. K factors must, therefore, have regard to the need to provide a reasonable return for the company, the impact of charges on customers and the need to finance improvements.

Sound investment plans were an essential starting point. West Kent and all the other water undertakers were required to prepare investment plans which assessed the present condition of their assets and the expected levels of expenditure over a 20-year period. A comparative efficiency review was then undertaken by the Department's advisers. The financial data obtained from each undertaker, together with an allowance for efficiency savings, its capital expenditure requirements and general economic assumptions were analysed. A number of economic and financial criteria were then used to model K values which enabled the company to finance its functions at lowest cost to the consumer.

Under the provisions of the Water Act 1989, consultation was required. By statute, it is required that, in setting initial K, the Secretary of State should propose K values to the companies and then allow a period of at least 28 days for representations. It may be asked—my right hon. Friend did ask—why we did not consult consumer groups formally. Our main concern had, of course, to be our duties under the Water Act, which required consultation of undertakers, but not consumers. This apart, I assume that the main point which would be made by consumer groups would be the need for the lowest charges consistent with the provisions of a satisfactory service. I think that I can safely assume that that would have been their advice and desire.

As I have already said, we are acutely aware of the need to keep prices down as part of our general drive to contain inflation. However, I can assure my right hon. and hon.

Friends that although we were not required by statute to consult consumer groups, nevertheless we listened and had regard to the representations made by people including, in the case of West Kent, my right hon. Friend.

On the more detailed issues, if we had had formally to consult consumer groups, it would have been very difficult to ensure that any consultation would be constructive. To enable them to make a useful contribution, we should have had to provide them with detailed information on individual companies. We could not then promise the companies that we would treat their data as commercial in confidence. That point has been raised by my right hon. Friend, but I must insist that if a company is making information available about its financial strength and similar matters, those matters are properly subject to the commercial in confidence provisions.

Sir John Stanley

My hon. Friend may make that point, but he is not dealing with my central point. His is a perfectly legitimate consideration in relation to a commercial undertaking in a competitive environment, but we are dealing with a statutory monopoly. My hon. Friend must address the subject of his obligations to the House. In my view, he has no legitimate ground for withholding from the House information such as the price increases sought by the West Kent Water Company, which is a statutory monopoly. If he believes that that company's commercial business as a monopoly would have been affected by the disclosure of that information, will he now say in what way the commercial position of the West Kent Water Company, as a statutory monopoly, could conceivably be prejudiced by revealing figures for the increase that it sought?

Mr. Heathcoat-Amory

They are private companies and, among other things, shares are traded. It is entirely legitimate for them to expect that information provided about, among other things, their commercial strengths, weaknesses and vulnerabilities should be regarded as commercial in confidence. I must insist on that. Not to have treated their data as commercial in confidence could have jeopardised their commercial position and would certainly have made it impossible to achieve the co-operative working relationship which underlay our scrutiny process. We believe that the process that we followed not only met the requirements of the Water Act but enabled us effectively to protect consumers' interests.

On the point about the 1989 price increase, my right hon. Friend knows that the Water Companies Association in its statement of 5 February last year stated that statutory water companies were likely to raise their charges by 30 per cent. or more. In some quarters, increases of 50 per cent. were expected. That is why the then Minister of State met almost all the chairmen to discuss their proposals and reduced the average proposed increase to about 23 per cent. Consumers were therefore saved at least £16 million in increased charges.

I agree that the previous system of regulation was inadequate to protect the consumer. Sharp increases in one year—

Sir John Stanley

rose—

Mr. Heathcoat-Amory

Perhaps my right hon. Friend will allow me to continue as I have only two minutes left and I wish to deal with points that were raised previously.

Sir John Stanley

I should like to correct what my hon. Friend has just said.

Mr. Heathcoat-Amory

Of course.

Sir John Stanley

I should simply like put on the record my hon. Friend's acknowledgement of the fact that the West Kent Water Company proposed an increase of 42 per cent. last year and was not persuaded to reduce that proposed increase by even 1 per cent.

Mr. Heathcoat-Amory

In answer to that, first, we did not have the power to force a reduction in prices.

Secondly, the company had already fixed its charges by that time. That is the point that I am seeking to make. Under that previous regime, which has been replaced, we had no power to set prices, but under the system established in the Water Act and now operating we have the ability to protect consumers by setting K factors directly—

The motion having been made after half-past Two o'clock, and the debate having continued for half an hour,MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at four minutes past Three o'clock.