HC Deb 08 February 1995 vol 254 cc319-27

2 pm

Mr. Graham Riddick (Colne Valley)

I am pleased to have this opportunity to raise an issue of great concern to a number of firms in my constituency and throughout Yorkshire—the reception charge that Yorkshire Water intends to introduce for receiving trade effluent and sewage. Coming as it does on top of existing high charges, it will hit the textile industry—particularly dyers and finishers. Other industry sectors will be similarly affected. Dickinsons Dairy of Holmfirth, well-known producers of yoghurts and creams, also faces a large increase in charges.

My constituency contains a significant number of textile companies, many of which have written to me. I can do no better than quote a letter from Mr. S. H. Gledhill, joint managing director of James Dyson Ltd. in Linthwaite near Huddersfield: As a small company employing 50 people, following a management buy-out in 1989, we have improved our performance through the recession with the co-operation of our work force and a vigorous sales campaign. Over this period we have received swingeing increases from Yorkshire Water, well in excess of published inflation figures. We have, of course, introduced tighter control of effluent and also made capital investments to meet the National Rivers Authority and EC legislative requirements. Maintaining business in highly competitive times is extremely difficult and only so much can be absorbed through improved efficiency … Our current annual bill is around £36,000 and after three years this will be increased to £96,000, a rise of 150 per cent. Because the proposed increases are so high, businesses are likely to be affected detrimentally when trying to pass them on to their customers. As you are no doubt aware, retailers are very resistant to paying any increases at all at the present time. Companies affected by the new charge will receive no new or additional service. It is based simply on the volume of effluent discharged into the sewer. Yorkshire Water justifies the new charge on the grounds that it is getting industry to pay a proper share of waste treatment costs and that domestic customers are currently subsidising industrial customers.

Yorkshire Water and Ofwat have failed totally to provide facts or figures to substantiate those claims. Out of the blue and without consultation, Yorkshire Water wrote to trade customers last November saying that the new reception charge would be 15p per cubic metre in 1995–96, rising to 33p the following year and 50p in 1997–98. Yorkshire Water, no doubt in response to the furore that it created, told local companies this week that the charge will be 10.1p per cubic metre the first year and phased in over five years. We have made some progress, but the cost in the first year alone will range from £5,000 for a small firm to £60,000 for a local firm, Brooke Dyeing.

Once the full charge is introduced, the additional cost will range from £18,000 to a massive £245,000 for Brooke Dyeing. That successful textiles company employs 300 people at four sites within a five-mile radius of Meltham. Finding an extra £245,000 is a tall order for Brooke Dyeing, as it is for any company.

Mrs. Elizabeth Peacock (Batley and Spen)

Does my hon. Friend agree that the new reception charge, which is being implemented without consultation, comes on top of millions of pounds of investment in effluent plants by the Yorkshire textile industry over the past two or three years, to conform with the regulations that my hon. Friend mentioned?

Mr. Riddick

My hon. Friend is absolutely right. Yorkshire Water has moved the goal posts and created difficulties for companies. My hon. Friend emphasises the action taken by local firms.

The consequence of absorbing Yorkshire Water's increased charges could be a reduction in employment at the firms affected and in the money available for investment. I find extraordinary the arrogant manner in which Yorkshire Water simply informed its customers of the new charge and that Ofwat appears to have been perfectly happy to go along with it without properly scrutinising Yorkshire Water's proposals.

One of my constituents told me, "If I treated my customers the way Yorkshire Water treated us, I would lose their business." Yorkshire Water may have felt able to behave that way because it has a monopoly—but that is why the Government introduced the existing regulation system. Ofwat exists to ensure that water companies do not abuse their monopolies.

Yorkshire Water claims that 12 per cent. of sewage comes from traders but that they contribute only 1 per cent. to the costs of the sewerage system. The Yorkshire branch of Ofwat says that only a small number of industrial customers account for 40 per cent. of Yorkshire Water's sewage but are not paying 40 per cent. of the cost of disposal. No evidence has been forthcoming from Yorkshire Water or Ofwat to justify those claims, which are not entirely consistent.

Local industrialists stress that they entirely accept the "polluter pays" principle but are not prepared to tolerate a massive hike in trade effluent charges without full and proper justification—and that has not been forthcoming. Industry believes that it pays its fair share. It appears that Ofwat almost connived with Yorkshire Water in the way that the reception charge was introduced. In a letter to me dated 20 December 1994, Yorkshire Water's director of water services stated that the proposals were discussed with the Director General of Water Services, who 'does not approve them' but satisfies himself that any undue discrimination element has been removed. However, on 22 December, the chairman of Ofwat's customer services committee wrote to me, saying that he had asked Yorkshire Water to attend the committee's next meeting to explain the reasons for its change in charging policy. He added that he awaited a clear statement from the company on the rationale for its rebalancing exercise. Does the Yorkshire branch of Ofwat not know what its head office is doing?

To be fair, I received a letter this morning from Eric Wilson, who heads the Yorkshire branch of Ofwat and is clearly concerned.

Mrs. Peacock

It is a bit late for that.

Mr. Riddick

Exactly as my hon. Friend says. I thought that the regulator's purpose was to ensure that water companies behave properly and reasonably. If that was the case with Yorkshire Water, Ofwat should have acted to ensure that the industry was properly consulted and had time to adjust to the new charges, and that all the information on which the new charge was based was made available. Will my hon. Friend the Minister confirm that Ofwat has a responsibility to ensure that water companies behave reasonably towards industrial customers? Is he in a position to tell us why Ofwat did not ensure that Yorkshire Water consulted widely on the new charge?

Mr. John Gunnell (Morley and Leeds, South)

Does the hon. Gentleman agree that his account of the difficulties faced by companies in his constituency, and of what appear to be the inadequate responses of the regulator, suggests some fundamental weaknesses in the way in which Yorkshire Water, as a monopoly provider in the area, has been set up and the powers of the regulator? Will he be demanding the evidence which I agree is necessary to prove that domestic consumers are footing the bill and that, as he suggested, many companies are getting off lightly? Does he believe that the figures should be made public by the regulator?

Mr. Riddick

I have made it clear that I think that Ofwat has fallen short in this instance. It clearly has a responsibility to ensure that Yorkshire Water does not exploit its monopoly position. To that extent, I agree with the hon. Gentleman.

Sir Donald Thompson (Calder Valley)

Yorkshire Water has a monopoly only in Yorkshire. Yorkshire textile manufacturers could move their businesses to Scotland where they would find skilled and able people and where Scottish Water does not impose an effluent charge. Scotland wants to attract the textile industry. My hon. Friend has secured this debate because Yorkshire cloth is world renowned. It is the benchmark by which all other cloth is measured—there is nothing to compare it with. In one sense, therefore, Yorkshire Water does not have a monopoly. It will simply drive careful business men to other parts of the United Kingdom.

Mr. Riddick

My hon. Friend makes a telling point although, fortunately, Yorkshire has many other assets to make it an attractive place for investment. However, I entirely accept my hon. Friend's point.

In the textile industry, orders are often booked up to 12 months in advance. The industry heard only last November of the new charge to be introduced from April this year and therefore had only six months in which to prepare itself for a wholly unexpected additional cost.

Local companies have been faced with significant increases in trade effluent charges in recent years. The charges for the current year—1994–95—went up by 11.1 per cent., well above the rate of inflation. That was because, in March 1993, Yorkshire Water informed the industry: Tariff adjustments are being made to ensure that our different customer groups contribute their fair share towards the cost of each service. This re-balancing is taking place over a three year period. The industry suddenly finds itself being subjected to another rebalancing exercise and one has to ask what went wrong with the previous one. My information is that, once Yorkshire Water's reception charge has been fully implemented, its effluent discharge charges will be either the highest or second highest in the country.

The Confederation of British Wool Textiles said that, because the reception charge is based on volume, the incentive for the industry to reduce pollutant concentration will be destroyed. In support of the claim that industrial dischargers are not paying their way, Yorkshire Water says that domestic effluent is easier to treat than industrial effluent. Yet the confederation has pointed out that Yorkshire Water's own figures disprove that. They show that the average chemical oxygen demand for domestic and industrial effluent is 965 mg per litre whereas dyehouses only effluent is in the range 400 to 700 mg per litre.

The head of Yorkshire Water's trade effluent section admitted at a meeting of the CBWT that Yorkshire Water needs trade effluent to dilute domestic effluent which tends to be more solid. I do not want to offend the sensibilities of any hon. Member by going into more detail, but it is an important point. These are the type of issues that Yorkshire Water should have discussed with its customers. Ofwat should also have ensured that they were debated properly before the new reception charge was imposed.

Most people accept that large treatment plants operate more efficiently than small plants and that individual companies do not have the financial resources or the space to install their own effluent treatment plants. The CBWT made the point that it would have been in everyone's interest if Yorkshire Water had tried to work with the industry to establish a few large treatment works rather than the present number of smaller units. This has not happened because Yorkshire Water, apparently with the green light from Ofwat, has not consulted the industry properly.

I have a suggestion to make. When we privatised British Telecom and British Gas it was felt that it would be very difficult to introduce competition in those two industries because it was not possible to duplicate the infrastructure that was already physically in place. However, since privatisation, we have achieved just that and the new Gas Bill takes that process much further. Has my hon. Friend's Department considered the possibility of introducing more competition in the sewerage industry? If not, perhaps it should do so.

I suppose that the textile industry in Yorkshire should be grateful for small mercies. As I said, companies have now been informed that the reception charge to be introduced from 1 April is to be 10.1p per cubic metre, not 15p as originally notified. Yorkshire Water has also now said that the reception charge is to be phased in over five years rather than three. That will make the new charge slightly easier for companies to cope with, but it is still a massive additional cost for them to bear. Yorkshire Water has refused to tell companies whether the final charge will remain at the originally proposed 50p per cubic metre.

I believe that Yorkshire Water and Ofwat should re-examine the trade effluent reception charge. Is it really necessary? Let us have all the facts and figures out in the open so that companies can judge for themselves. If they are indeed not making their proper contribution, local companies will not be able to argue against the proposed new charge although they would still argue, justifiably, that the charge be phased in over a longer period.

Of course, I am well aware of the need to keep charges to domestic users as low as possible. I do not believe, however, that Yorkshire Water's recent treatment of local companies which, after all, create many jobs for our constituents, can be justified. I therefore hope that, as a result of this debate and the representations made by many people and many local companies, the proposed reception charge will be reviewed and postponed and introduced only if and when it has been justified.

2.17 pm
The Parliamentary Under-Secretary of State for the Environment (Sir Paul Beresford)

I thank my hon. Friend the Member for Colne Valley (Mr. Riddick) for having raised this matter and for having done it so delicately. I thought for a moment that it was going to be diverted into other pipelines. The central issue is the effect of the impending charge, or change in the charge, by Yorkshire Water and its method of charging for the handling of trade effluent. I shall deal succinctly with a few points, trying to miss some of the more scientific ones and, shall we say, the diagnosis of the differences in density between types of sewage. We can leave those for my hon. Friend to take to the meetings, which I am sure will take place.

My hon. Friend asked directly whether I could confirm that Ofwat has a responsibility to ensure that water companies behave reasonably to industrial customers. I can confirm that but feel that it needs a little expansion. The hon. Member for Morley and Leeds, South (Mr. Gunnell) briefly mentioned Ofwat's responsibilities. Ofwat has a duty to ensure that the interests of every customer, domestic and commercial, are protected in respect of the fixing and recovery of charges and other terms on which all the services are provided.

As my hon. Friend is obviously well aware, Yorkshire Water—unlike all other water companies—currently has a system of standing charges for trade effluent. It now proposes to return to a system more related to the "polluter pays" system that it used until the mid-1980s. I am sure that my hon. Friend agrees that that will ultimately prove more equitable, and it is along the same lines as the arrangements used by all other water companies, some of which also have textile manufacturers in their areas—competitors, in other words. From the point of view of Ofwat—and ultimately, I am sure, from the House's point of view—that approach must be fairer to all other trade and domestic users in Yorkshire, and to textile industry competitors elsewhere in the country.

As ever, the impact of the changes on traders will not be uniform. I understand that approximately 30 per cent. of trade customers may well gain from them, while 40 per cent. will face increases of perhaps 50 per cent. over five years. Regrettably, 9 per cent. of traders will face an increase of more than £10,000—at 1994–95 prices—over the same period. That means that the majority of traders will either gain from the changes, or face an increase of no more than £500.

As my hon. Friend will know, the main gainers will be the domestic customers who are currently effectively supporting the textile industry. As predicted, while those who have been hit by the proposed charges—and some have been hit quite hard—are protesting loudly, the gainers are conspicuous by their silence.

Mrs. Peacock

Is my hon. Friend telling us that specific reductions will be made in the bills of Yorkshire Water's domestic customers?

Sir Paul Beresford

I do not think that my hon. Friend is as naive as that. Surely she appreciates that it is a case of relative or proportional costs. I detect by her smile that she does.

As I was saying, the gainers have been conspicuous by their silence, but I suppose that that can be put down to human nature. As my hon. Friend has pointed out, however, the biggest difficulty for the industry has been the lack of sufficient warning before the announcement. It is in that connection particularly that I side with my hon. Friend and others who have spoken, and it is in that connection that my hon. Friend seeks some action by Ofwat.

Ofwat has, in fact, already intervened in compliance with its duty to the water industry's customers. As my hon. Friend pointed out, in seeking explanations from Yorkshire Water, Ofwat has succeeded in persuading it to phase the introduction of the reception charge over five years rather than the three originally proposed. Furthermore, the prospect of today's debate stimulated Yorkshire Water to act: the company has written to my hon. Friend the Minister for the Environment and Countryside, who is responsible for water, saying that it will take account of the industry's problems and consider the possibility of phasing in the reception charge over a number of years. It would appear, therefore, that while Ofwat has prised open the door, my hon. Friend and others have now enabled traders to approach Yorkshire Water directly through that door.

My hon. Friend asked whether additional competition could be introduced. I can reassure him that we are keen to introduce more competition in the water industry where appropriate, and a number of measures in the Competition and Service (Utilities) Act 1992 will facilitate that. We are continuing to consider possible ways of increasing scope for competition. It must be sensible to take advantage of every opportunity to promote fair competition, which will benefit all customers, whether domestic or commercial. If hon. Members feel that they have a contribution to make after the dust resulting from this small issue has settled, I shall be delighted to receive suitable suggestions. I emphasise the word "suitable".

One of the advantages of the "polluter pays" approach on one hand and protests over costs on the other is that the combination sharpens attitudes to conservation and efficiency on both sides of the discussion. Today's debate has, I believe, contributed to persuading Yorkshire Water of the need for improved efficiency; and a progressively fairer allocation of costs may persuade some of the larger textile industries in particular to consider recycling, or at least to examine ways of reducing usage. I was interested by the point made by my hon. Friend the Member for Calder Valley (Sir D. Thompson)—who has now disappeared—but I fear that the idea that major industries will up sticks and move to Scotland may be pie in the sky.

My hon. Friend has used the debate to concentrate our minds constructively on resolving the issue. I believe that that will eventually lead to a fairer system, and encourage efficiency and conservation. Like the rest of the country, we are rightly moving towards a "user pays" system: as I have said, Yorkshire Water has used that system in the past, and it is currently employed by all other water companies.

We must accept that the extent and abruptness of the rise in charges has come as a commercial shock to some traders, especially in the textile industry. The attack launched by my hon. Friend has opened the door, and ensured an improved response from Yorkshire Water. I encourage him to continue his campaign of persuasion, and in particular to campaign for more competition in the present system. It is a difficult task; such competition must he reasonable and must reflect the mixed needs of domestic and trade users of sewerage and water supplies.

Ofwat has taken appropriate action, both in persuading Yorkshire Water to lengthen the phasing-in period and in persuading it that its current arrangements are unfair to the majority of users. Today's debate has inspired action from Yorkshire Water and forced it to listen further; I hope that that trend will continue.

Mr. Riddick

I find it rather surprising that Yorkshire Water's announcement came out of the blue, and that apparently there was no proper consultation between the company and Ofwat in the preceding months. If there had been, surely Ofwat would have told the company that it must talk to the industry about the charge. Can my hon. Friend shed any light on the discussions that took place before November?

Sir Paul Beresford

I cannot do so directly, but I look forward to my hon. Friend's report of discussions with the Office of Water Services and Yorkshire Water. The introduction of more competition means that, of course, new systems will have to be commercially sensitive. Today's debate and some of the cross reactions and words—made with some justification—will warn water companies to ensure that they think twice before charging too promptly into action.

It being twenty-eight minutes past Two o'clock, the motion for the Adjournment of the House lapsed, pursuant to Order [19 December].