HC Deb 04 May 1995 vol 259 cc534-42

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

10 pm

Mr. Matthew Taylor (Truro)

This is the fifth occasion on which Ministers have been forced to the House to respond to a Liberal Democrat-initiated debate on the water bills crisis in the south-west. Ministers have been required to respond to debates so often—despite their promises of reviews, consultations and even action—because the problem of unaffordable bills is still with us in the south-west.

In the previous Adjournment debate which I obtained on this matter more than a year ago, I said that residents in the South West Water area were being hit by a crisis, and were struggling to pay the highest water bills in England and Wales. The average bill for the region for that year was £304. The problem has not gone away, and the average bill is now £322, with many customers—often pensioners—having to meet bills of £600 or £700.

Nor has the anger in the south-west subsided. In March this year, the chair of the South West Water consumers committee, Jessica Thomas, reported that her office had been deluged with calls from dismayed South West Water customers who had expected cuts in their bills following Government statements. She said: We have had more angry and abusive calls in the last fortnight than at any time since our office opened. Ministers have developed three excuses for the problem. First, they say that they could not have predicted it, either at the time of privatisation or when they set higher standards for the clean-up. Secondly, it is not their fault, and it is down to Ofwat to take action or to Europe. Thirdly, they are reviewing matters, and we should pay now in the hope that things will be sorted out next year. I call the latter the "never-never land" excuse.

Let us take each of those excuses in turn, starting with the first. The Government were warned about this. On 8 December 1988—during the final stages of water privatisation—I told the House: I represent an area where people are on low incomes, where some villages do not yet have their own sewerage systems and where many beaches are polluted. It is they who will have to foot the bill for the improvements that are required. I also warned that both future British Government funding and much European funding would be cut off following privatisation, a statement which has been confirmed subsequently by the European Commission. I continued: I hope that the Minister can assure the people of Cornwall that they will not be expected to meet all the cost of cleaning up the beaches, which are used by citizens of the United Kingdom and Europe, purely because the Government, by their ideological approach, are cutting off the potential to obtain money in other ways."—[Official Report, 8 December 1988; Vol. 143, c. 535–536.] Yet none of the Conservative Members in the region—who are now wringing their hands as they lose votes due to rising water bills—joined me in opposing the Water Act 1989. By February 1989, the proposed increase for South West Water customers was 13.1 per cent in a single year. Such was my concern that I then sought and got an Easter Adjournment debate on water and servicing in the south-west. That was more than six years ago, yet Ministers now say that they could not see the problem coming.

with the Conservative Government refusing to help, further increases in bills inevitably followed, as night follows day. After all, just 3 per cent. of the national population—those living in the south-west—are being forced to pay for more than 30 per cent. of the national coastal clean-up.

In July 1990, I initiated a further Adjournment debate, after a new Government announcement that they were bringing forward the clean-up programme dramatically, which saw much the same response. They were bringing forward extra requirements on the water companies, but they were not increasing the so-called "green dowry" allowed to companies at the time of privatisation to meet some of the costs of the environmental obligations on them.

The 1990 proposals came not from Europe, but from the then Minister responsible for the environment, Mr. Chris Patten, who is perhaps fortunate to be Governor of Hong Kong rather than having any role in Devon and Cornwall, where he might get an even worse reception than the one that he is getting out in Hong Kong. He estimated the cost at £1.5 billion. The real cost of his initiative proved to be £6 billion.

That brings me to the second excuse—that it is someone else's fault, particularly Europe's. Not only is it a fact that European standards could be set only with the agreement of British Ministers, who had a right to veto them, but the British Government decided to increase and speed up the clean-up in 1990, and to do so without proper costings, or any financial support for those areas that would be hardest hit.

In 1989, the European Community had proposed the municipal waste water treatment directive—precursor to what is now the urban waste water directive—but it was not agreed by the EC until 1991. In 1990, the United Kingdom Government not only brought forward the beach clean-up, but jumped the gun on the municipal waste water treatment proposals by unilaterally adopting them for immediate application. I stress again that they did so without offering any financial support for the area to be hardest hit—the south-west.

That fact, which Conservative Members, especially those in the south-west, have denied—that it was their initiative that was at fault, not that of the EC—is confirmed by the fourth report of the Select Committee on the Environment, which was published in December 1990. Although I have brought it to the attention of the House before, I have never had any response.

In the introduction to its response to the Select Committee, the Department stated: the Government decided to press its own review to a conclusion and not to await the results of the committees' deliberations … In March the Government announced a major change of policy to require higher standards of treatment before sewage is discharged to sea. The Secretary of State for the Environment said that in future all significant discharges of sewage to sea should first be treated at a sewage treatment works: the additional cost associated with this change was put at around £1.5 billion". That was a wild under-estimate, as we now know.

I must re-emphasise that it was a Government decision, not a European one. Indeed, the introduction to the response to the Select Committee concluded: Government policies in this area are in advance of Community environmental policy development as contained in the draft EC Directive on Municipal Waste Water Treatment which is currently the subject of negotiation. This Directive if adopted will establish uniform minimum standards throughout the EC. The Government strongly supports this draft Directive and is working towards its early adoption. In other words, they were pushing Europe to bring the directive forward as fast as possible, and we know the results for South West Water consumers.

I do not criticise the environmental objectives, but I do criticise those who seek to escape the Government's responsibility for those decisions, and those who failed to foresee the impact on South West Water consumers.

Yet, while the Conservative Government set the standard, they insisted that the customers should meet the costs. The Minister who replied to the 1990 Adjournment debate concluded: It is much better for private companies to raise money from charges to customers. The Government apply that system generally, and Cornwall will be no exception."—[Official Report, 16 July 1990; Vol. 176, c. 842.] Well, we were not. As a result, the Director General of Water Services announced that South West Water bills would increase, not at 6.5 per cent. a year over inflation as planned after privatisation, but 11.5 per cent. plus inflation each year.

The fact that prices have doubled in the past five years is, in every way, the Government's responsibility. Not surprisingly, the result was big advances for the Liberal Democrats in the general election in the south-west The Western Morning News reported: MPs returning to Westminster after the election have spoken of widespread anger and concern on the doorstep over soaring water bills. One of the beneficiaries of that anger, my hon. Friend the newly elected Member for North Cornwall (Mr. Tyler), pressed the matter in another Adjournment debate at the beginning of June 1992. By that stage, Conservative Members were belatedly backing our concern, but the Secretary of State remained dismissive, describing South West Water's rising charges as good value to a household".—[Official Report, 2 June 1992; Vol. 208, c. 805.] That view is not prevalent among those who must pay those charges.

When I raised the issue with the Prime Minister on 4 March the following year, he wrongly argued that I would find that water prices are similar in other counties to those in the west country."—[Official Report, 4 March 1993; Vol. 220, c. 451.]. The message about the scale of the problem had not got outside the west country, but it did so as a result of the angry reaction to what the Prime Minister had said on people's television screens at Prime Minister's Questions, which many people in the west country had seen in the ensuing news programmes, which gave the figures and revealed that he was simply wrong.

Following that outcry, the Prime Minister gave a more positive response when I questioned him a week later. He said: I am examining the matter with the Secretary of State for the Environment."—[Official Report, 11 March 1993; Vol. 220, c. 1105.] That was the start of the third excuse—that something might be done, but, to adapt a phrase as we approach VE day, "don't know where, don't know when". It was not so much an excuse as a muddle.

By April, the Prime Minister was writing to Conservative Members to tell them that there were "difficulties" in bringing down bills. Meanwhile, the Environment Minister disclaimed responsibility, arguing in a letter to south-west Liberal Democrats on 27 April: Responsibility for water charges rests with the Director General of Water Services"; and denying that they were considering a review of water prices. He even refused to meet to discuss the issue.

The Director General of Ofwat, Ian Byatt, was reported at almost the same time—on 7 May 1993—as confirming that only the Government can stop South West Water bills spiralling … He said price limits were based on environmental obligations laid down by the Government, and he had little room for manoeuvre. Last April, the constant delays, excuses and confusion from Ministers led me once again to try to get a proper response from the Minister in another Adjournment debate. Since then, the Government have developed another excuse—excuse No. 4—that action has been taken, the problem has been resolved, and the rise in bills has been capped. No sooner was the excuse made than it too began to unravel. A year on, even Conservative Members admit that the crisis continues, as one west country Conservative Member said within the past couple of weeks.

First, we are told that the Secretary of State accepted advice from Conservative Members that only a substantial cash injection into the south-west coastal clean-up—a second "green dowry"—would bring bills down to the national average. That is the position that we have argued all along, yet we are told, in the words of the Western Morning News on 13 March this year: his request for £100 million from the Treasury last year was turned down flat". As a result, bills are not being cut and they continue to rise. Conservative Members in the region, and even the Secretary of State, accept that yearly bills of £600 or £700 with no relief for pensioners, or those on low incomes or living alone, are literally unaffordable. Many bills are already at that level.

Secondly, unable to offer a cut in bills, the Minister cut the clean-up programme, to slow the rate of increase. That, however, does nothing to cut bills. It does not tackle the fundamental problem, which is that they have already been allowed to get too high.

Even that policy has begun to unravel, because the NRA has overturned the Minister's ruling and said that substantial parts of the schemes must, after all, still go ahead, with the extra costs to the consumers still to be calculated. In any case, South West Water is challenging the price increase limits imposed on it, and I am advised that it may well win the case. What will Ministers do then, given that bills are already unaffordable?

Thirdly, in an extraordinary decision, sneaked out just before Easter, Ministers announced that water bills would still be calculated according to the out-of-date rates system—a system abandoned in the 1980s for local government because it was judged out of date and unfair.

Liberal Democrats and many water companies have suggested using the council tax system to calculate water bills, so that, even if bills could not be cut, they might be based on modern valuations, and help offered to those living alone or on low incomes. If rates were judged unfair and outdated for council use in the 1980s, how can that system be acceptable to Conservatives for calculating water charges in the 1990s? Finally, it emerged that, this year, Ofwat would cut bills for business and the minority of customers with meters, by increasing the bills of everyone else—the vast majority—well above the inflation rate, yet again. Worse still, the same principle could mean different charges for ordinary customers who are cheap to supply—those in cities—at the expense of rural customers.

On 22 March, Western Morning News reported:

Water consumers in remote and rural areas of the South West could soon be facing even higher bills because they are more expensive to supply. The newspaper revealed that, on the basis of Ian Byatt's comments, the water regulator—frankly, he raises economics to a fine art, but he does little to meet the needs of the consumers who are on the receiving end—Labour-controlled Plymouth city council was prepared to bring a test case, demanding lower charges in the city on the basis that it was cheaper to supply, like large businesses. That would mean higher bills for rural customers.

The Labour chairman of the city's housing committee, John Coyle, confirmed: We are investigating the legal position. The early indications look like we will be able to go forward with a case to bring down water bills for every city resident. Ofwat admits that such a challenge would be "a difficult case". If water tariffs were broken down between urban and rural groups, it would provoke outrage in areas where bills were forced up—the rural areas that have already been hit. Ofwat's south-west consumers' representative, Jessica Thomas, said that she was extremely worried at any moves that would hit rural customers.

Conservative policies have hit people in the rural south-west in many ways. Our schools are allowed £100 per child less than the average for England, and business gets less support than in any other region, despite high unemployment and low wages, but water bills are the most clear-cut example of unfairness. The Conservative party is reaping the reward it deserves: electoral defeat after electoral defeat.

At the general election, rising water bills meant Liberal Democrat gains. They delivered us victories in the county elections, and helped us to win our first European seats. Tonight, as the early local government results come in, it is clear that the Conservative party is losing over and over again in the south-west local elections.

The Minister has to answer the following questions. Why did the Treasury refuse to cut water bills, despite the Conservatives' own Secretary of State for the Environment asking for £100 million to do that? What will the Conservative Government do if the NRA requires the clean-up to go ahead, as it has, and South West Water possibly wins its appeal on the price cap and bills start to shoot up again?

What does the Minister say to customers without meters—the majority—whose bills have gone up well above inflation again this year, despite Government promises, while big businesses have had their bills cut? Will the Conservatives just stand by if Ofwat allows those living in the cities to have their bills cut at the expense of higher bills for customers in rural Cornwall and Devon?

If the Minister cannot answer those questions, he cannot expect Conservative fortunes to revive. He should expect a rout of the Conservative party, once again, come the general election.

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

I thought that the hon. Member for Truro (Mr. Taylor) was going to go on for so long that I would not get a word in.

The hon. Gentleman has attempted to prove himself the knight in shining armour, but that posture is rather misplaced. The people who have been working in the south-west are my right hon. Friend the Member for Honiton (Sir P. Emery), my hon. Friends the Members for Teignbridge (Mr. Nicholls), for Cornwall, South-East (Mr. Hicks), for Torridge and Devon, West (Miss Nicholson), for Exeter (Sir J. Hannam), for South Hams (Mr. Steen), for St. Ives (Mr. Harris), for Plymouth, Drake (Dame J. Fookes), for Plymouth, Sutton (Mr. Streeter), for Taunton (Mr. Nicholson), for Tiverton (Mrs. Browning), for Falmouth and Camborne (Mr. Coe) and for Torbay (Mr. Allason), just to mention the key players.

They have striven—[Interruption.]—perhaps the hon. Member for Truro (Mr. Taylor) would listen, bearing in mind that I have sat quietly and listened to his version of the story—for a balance of better standards, which we definitely need in the region, and for the keeping down of costs in the long term.

Even the hon. Gentleman will accept that, after years of neglect under the previous Labour Administration, a massive programme of capital investment was required to modernise and upgrade the water and sewerage infrastructure in the region. That need would have arisen regardless of whether the industry had remained in the private sector or was privatised, and it would have been reflected to some degree in the water charges.

However, what water privatisation has done—the hon. Gentleman will be unable to reflect on that because he will not even see it—is to allow the companies access to the financial markets, which has helped South West Water to fund its investment programme. South West Water has made enormous strides in improving the infrastructure in the first four years.

About 400 individual schemes, totalling £760 million, have been completed. In 1992–93 and 1993–94, investment was running at £200 million a year. In the six months to 30 December 1994, a further £78 million was invested; 50 major schemes were completed, 377 were on-going. They were all the type of schemes that had been demanded by the Conservatives and by the Liberal Democrats in the region.

The company has borrowed extensively to finance that programme and, at 31 March 1994, loans and financial obligations amounted to an enormous £507 million. That means that financing was predominantly through loans, which spread the costs over time to the customers.

Even the hon. Member for Truro must accept that that huge capital programme, by enabling better water quality and higher environmental standards, has removed 100 restrictions on commercial and residential development. That has meant a dramatic increase in the customer base, and by that I mean an increase in industry and households in the region. It has helped the economy in the region and it has spread the tax base and the cost base. For instance, in 1993–94, there was an increase of 5,000 customers for South West Water. The overall economic benefit to the region has also meant, as I have said, an increase in the spread of the financial load.

The Government and my hon. Friends have been acutely aware of the rate of increase in charges, and we have carefully considered means by which we can keep those down. The first and most logical approach of the Government has been to try to clarify the new water quality and environment obligations, which all the water companies must meet in the next 10 years.

The Government, backed by my hon. Friends, have been emphatic that, in meeting the requirements of existing European Community and domestic legislation, the water companies, including South West Water, must achieve that as efficiently and possible. There needs to be a major effort by the companies to manage their investment programme at the lowest costs appropriate to circumstances. To put it simply, the company must avoid any "goldplating" of schemes, and must ensure that opportunities for cost reduction of technical innovation are not overlooked.

In addition, an important policy statement—"Water Charges: The Quality Framework"—which the Secretary of State for the Environment published in 1993, drew attention to the crucial role of the drinking water regulators. By that I mean the National Rivers Authority and the drinking water inspectorate. They are required to avoid excessive regulatory caution and not to demand too heavily that discretionary improvements are proceeded with at an excessive rate.

In addition, the Government remain committed to continuing to pursue, with their partners in the European Community, the case for deferring some of the urban waste water treatment directive's deadlines, so as to be able to implement the directive at a pace that consumers throughout the Community, especially South West Water customers, can more easily afford.

South West Water customers will be aware that the company has an extensive bathing water programme—also the sort of thing campaigned for and supported by Conservatives, and pushed by that double-horsed, two-faced reaction of the Liberals. That is well under way. It includes 24 schemes, covering 55 bathing waters. Nine of those schemes, involving 21 bathing waters, have already been completed. In other words, the bulk of them are on the way, if not completed. The effect is that we estimate that almost all those schemes will be completed by the end of the year.

The hon. Member for Truro should be interested to note that the recently completed Mount's bay section, which is a substantial scheme, linking St. Ives on Cornwall's north coast with Penzance on the south coast, is already having a dramatic effect on the quality of bathing waters, which formerly had nearly the worst compliance record in the United Kingdom. As an example, a local newspaper drew attention to the fact that windsurfers competing in Mount's bay during the Easter weekend said that the water was so much cleaner that they could see the sea bed even at 20 ft depth. As I have said, the other side of the coin has been substantial increases in water and sewerage bills for South West Water's customers; but the Government and my hon. Friends have looked very carefully at the obligations—particularly the environmental obligations—that South West Water must meet.

The success of this action has meant that the clarifications that we were able to provide for Ofwat greatly helped its task of reviewing the company's price limits and setting new and tight limits last summer. For example, this year's average increase in charges has been limited to 4.1 per cent. The original limit for price increases for the five-year period 1995–2000 was 5.5 per cent. per year over and above inflation. Following the Government's clarification, Ofwat was able to reduce that to an average of 1.1 per cent. per year in real terms. For the second five-year period, Ofwat has set a zero price limit—by which I mean no increase in prices in real terms.

In addition, the Director General of Ofwat has impressed on the water companies that they must adjust the tariffs, so that meter customers now pay a fairer charge. That means, in the case of South West Water, that its unmeasured charges have risen by 5.3 per cent., but the measured water charges have been cut by 8.1 per cent., and measured sewerage charges by 9.3 per cent.

Furthermore, to assist customers, the company cut its charge for meter installation by 33 per cent. last year. That price reduction will obviously be beneficial to many customers, particularly single householders, those paying a high rateable value basic charge and those whose water consumption is relatively low, making meters a sensible option.

The Liberals—including the hon. Member for Truro this evening—have strongly advocated the use of council tax bands as a basis for charging for water. Of course, what the Liberal Party either fails to understand or chooses conveniently to ignore—the latter, I suspect—is that to move to the council tax banding system would merely produce a different set of gainers and losers.

A change along these lines for a charging system for water would not be any more equitable than any other unmeasured basis. In particular, the introduction would give rise to widespread and arbitrary changes in bills, including the possibility of substantial increases in charges for many of those least able to pay.

Mr. Matthew Taylor

It would help with their incomes.

Sir Paul Beresford

The hon. Gentleman plainly does not understand. Perhaps he should read Hansard tomorrow and see whether he can wrap his mind around the facts. What he suggests would not produce the benefits he seeks.

It is plain that South West Water is successfully implementing a huge capital investment programme that is raising bringing water quality to the necessary level. It is improving environmental standards, underpinning the area's efforts to revive the tourist industry, and attracting new industries.

After a number of years of rapid price increases, much tighter price limits have been set. I congratulate my hon. Friends whom I mentioned earlier on joining the Government in maintaining pressure on South West Water to ensure that it provides its customers with an efficient, high-quality service, but now in particular with the emphasis on keeping costs down.

It would pay the Liberal party to take a leaf out of my hon. Friends' book, and cease its continual attempts to ride every convenient horse at the politically opportune time. At one moment they clamour for improved standards; at the next, they whinge about costs as a result of the improvement of those standards. Action is happening on charges, but not at the expense of improved standards.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes past Ten o'clock.