HC Deb 16 December 1997 vol 303 cc145-58 4.24 pm
The Secretary of State for Scotland (Mr. Donald Dewar)

With permission, Madam Speaker, I wish to make a statement about the outcome of the Government's review of the Scottish water and sewerage industry.

As hon. Members will know, our manifesto contained a commitment to return the Scottish water industry to local democratic control. In an answer on 5 June, Official Report, column 233, I said that I had asked my officials to conduct a review of the water industry and to report to me by November, which they have done.

The review team had extensive consultations with the three water authorities, the Convention of Scottish Local Authorities, and the Scottish Water and Sewerage Customers Council. We also issued a public consultation paper, which produced 91 responses. I am very grateful to all who responded so constructively, and I shall place their responses in the library of St Andrew's house. The review team also held discussions with a variety of other interests, and commissioned research into water industry models across the world. We have listened very carefully to what has been said before reaching our conclusions.

In conducting the review, we were guided by a number of important principles. Apart from the central theme of improving democratic accountability, we also wanted to facilitate investment, promote efficiency, ensure continuity of public water supplies, protect public health and minimise disruption to the industry. The importance of these principles, and the importance of the industry for all of us in our day-to-day lives, was demonstrated only too dramatically by events in recent days in the west of Scotland.

Those events are very serious, not least in terms of the severe dislocation caused to everyday life for some 60,000 people. I can announce today that Mr. Robert Fraser, a distinguished figure in the water industry and, until recently, director of water and drainage for Borders regional council, will lead an exhaustive inquiry into the circumstances. I have asked him to address the following points: first, to review the causes, nature and extent of the disruption to public water supplies in the area served by Burncrooks water treatment works, including the impact on the vulnerable sectors of the population, food industries and other water users; secondly, to review the West of Scotland water authority's response to the incident; thirdly, to consider the lessons to be learned for the future from such an event, in particular whether advice to the public needs to be given earlier, whether better arrangements need to be made for the provision of alternative supplies of drinking water, and whether improved arrangements are required for co-ordination within and between public authorities, and with the media; and, fourthly, to report and make recommendations.

I fully understand the great public concern and the sense of irritation over this incident. I have spoken personally to both the chief executive and the chairman of West of Scotland Water today. I am glad to be able to report that contamination levels are falling steadily, and I understand that 17,000 of the 22,000 households originally affected now have clean water. I have been assured that lessons will be learned, but I shall want to look hard at Mr. Fraser' s report. Because of the urgent need to get the facts and learn the lessons, I am anxious to have a tight but realistic timetable. Therefore, I have asked for the report to be completed by the end of March. I shall not make judgments before I see it, but if further action is required, I shall not hesitate to take it.

This episode does, nevertheless, serve to remind us that the water industry faces two immediate and major problems. The first is water purity—the stark fact being that the purity of Scottish water is far down the United Kingdom league; indeed, the three authorities in Scotland are in the bottom five when comparisons are made across the United Kingdom.

The second problem is the chronic need for investment, especially in sewerage, to meet the requirements of European directives. Although the period of local authority control is looked back on as a time when the ownership of the industry was generally acceptable, we have to accept that the infrastructure—often Victorian—was allowed to decay, and the consequences of that now mean that very great sums are required to bring the industry up to a satisfactory level. We have to consider how we can best assist the industry in its task to meet the real demands ahead.

I come now to the various options that emerged during the review. We looked carefully at a wide range of proposals for the industry. Splitting the three authorities between the 32 separate unitary authorities was quickly ruled out. It is clear that disturbing the three-authority structure would have disproportionate costs.

A leading option, however, was to seek to improve accountability by transferring responsibility for water and sewerage services to joint boards of local authorities. Joint boards can be an effective way of providing strategic services, and the water authorities undoubtedly provide a vital public service. However, the water authorities are also large businesses with massive investment requirements and just three authorities cover Scotland's 32 local authorities. I have therefore had to reject this approach. The last local government reorganisation made those options virtually impossible.

We also carefully considered the imaginative case advanced by some consultees to convert the public water authorities into private non-profit-distributing companies such as mutuals. Such bodies would be freed from the capital controls of the public sector, but at a cost. That cost would be freeing them from answerability to any democratic body. I do not believe that that is what the Scottish people want. It would be entirely outside the public sector. The industry would effectively be privatised.

A mutual would be nominally controlled by its membership, but how effective control over the boards would operate is much less clear. I am also not convinced that a mutual, monopoly water authority would be under sufficient pressure to be efficient, as all experience tells us that individual customers will not be motivated to protect their interests. Nor am I convinced that unwelcome pressures to demutualise could be avoided. In the short term, it would be very disruptive for the industry. I have therefore also had to reject that way forward.

Despite that, it is clear to me that, if the investment needs of the Scottish water industry are to be met at a cost the consumer can afford, we shall need to harness private capital and expertise, within a framework of continuing public accountability. Let me first deal with the crucial issue of accountability.

Since we launched the review, the Scottish people have given a resounding endorsement to the concept of a Scottish Parliament. Our White Paper on Scotland's Parliament made clear our concerns about the number of public bodies in Scotland being run without clear democratic oversight. It said that we saw the new Parliament as a means of bringing them under strengthened democratic accountability. Responsibility for the water and sewerage industry will pass to the Scottish Parliament. In the longer term, the Parliament may wish to look again at some of the arguments for change, but those could not and should not be options for today and tomorrow. In any event, I would expect that it will wish to allow the system to settle, and to perform, before considering any further options.

The Scottish Parliament will be able to bring the water authorities under the proper level of scrutiny that a modern democracy demands, through its oversight of the Scottish Executive. That is the best way of delivering the will of the Scottish people for their water industry to remain unambiguously in public ownership and to be clearly democratically accountable.

As well as the water authorities becoming more accountable, I wish to see them become more responsive at a local level. As part of developing local responsiveness I shall ask the water authorities to build further on their links with the local authorities and community councils in their areas, which will be helped by the community planning system we are shortly to introduce.

I also look to the water authorities to get closer to their customers and to other important local stakeholders including environmental interests. I shall very shortly issue a direction to the water authorities to review their systems for involving local interests, particularly local authorities, and to improve and strengthen those systems. I also propose to place a statutory duty on the water authorities to consult the local authorities whose electors would be affected by major decisions. That should improve the water authorities' responsiveness to the concerns of local communities.

Moreover, I can today announce new appointments to the water authority boards. Ian Preston and John Robertson, chairmen of the East and North water authorities respectively, will demit office at the end of March. I am very grateful to both of them for their good work and dedicated public service. In the East water authority, Councillor Robert Cairns will take over, and in the North, Councillor Colin Rennie. John Jameson remains chairman of the West authority. In addition to the two new chairmen, I am appointing as new members in the East authority, Councillor Jeanette Burness, Councillor Thomas Dair, David Bleiman and John Broadfoot. New members in the West authority are Councillor Gerald Carroll, Councillor David Munn and Jane McKay; and in the North authority I am appointing Nigel Hawkins as a new member. I am also reappointing a total of seven current members to the boards. Those appointments bring the number of local councillors on boards up to 16 out of the 33 members, excluding chief executives—roughly half the total. Of those 16 elected members, six are Labour councillors. I have made full details of the appointments available in the Library.

One aspect of local responsiveness that I wish to explore further is how best to help with the problems of water supply and sewerage in many of our remoter rural areas. I have asked officials to consider whether there is a case for reintroducing rural grants to help with such problems.

As I have already said, the water industry review has again emphasised that the industry is in need of very substantial investment if the Scottish people are to have the quality of water that they deserve. That investment will have to be paid for, which, put simply, means that all water consumers will have to pay more in the years ahead. Let me be quite clear: this investment is needed to bring the quality of our water up to the standards in other parts of the country, to protect our beaches, rivers and seas, and to renew the infrastructure gifted us by previous generations, which more recent generations have neglected.

The private finance initiative is paying off by helping us to acquire additional resources to meet European Community environmental deadlines, and by identifying innovatory ways of making savings in the capital and operating cost of projects. The water authorities have substantial plans for PFI projects, amounting to some £600 million, to help meet their investment needs in the years ahead. The Government are committed to developing opportunities for public-private partnerships. I encourage the water authorities to be innovative with such partnerships while working within the framework of strengthened democratic control that I have outlined.

The Scottish people will need safeguards to ensure that money raised is well spent. There was consensus among the major consultees that the current division between price regulation by the customers council and efficiency regulation by the Scottish Office has proved untenable. I propose to create a new position of regulator responsible for all aspects of economic regulation, and for promoting the customer interest.

The water authorities will be under legitimate democratic oversight, but they are still monopolies, and the new regulator will have operational independence to ensure that the customer gets the best possible deal. The regulator will be accountable to the Scottish Parliament through the Scottish Executive. To safeguard the independence of the regulator's role, the position will be established in statute.

The functions of the current customers council will be transferred to the new unified regulator, and the council in its current form will be wound up. However, it is essential that customers continue to have a strong independent voice. I propose to develop the role of the three customers council area committees as the champion of the individual customer. Those committees in their developed form will be accountable to the new regulator, and will provide a point of contact for the public.

I have also listened carefully to representations about the damaging uncertainty for the industry of the current one-year time horizon for price and external financing limits decisions. I propose a longer-term pricing framework, and we should aim to ensure as stable a borrowing framework as possible, despite changing circumstances in successive public spending plans.

I have also listened carefully to the views expressed to us during the review about the contribution that people with business experience have made to the boards of the new public authorities, alongside councillors. As will be clear from the appointments that I have announced, I judge it essential that we continue to draw on the expertise that the private sector can offer to ensure well-balanced and effective boards.

In sum, my proposals represent real local responsiveness, and real democratic control. They show that we have listened very carefully and thoughtfully to what has been said during our extensive consultations. We are seizing the opportunities created by the Scottish Parliament to have more democratic control of the industry, and to find the best way forward, given the particular sensitivities of the industry. We shall not play politics with Scottish water.

My proposals to change the system of regulation will require legislation, and the Government will look for an appropriate opportunity to legislate. I am publishing today a factual document that I asked the review team to prepare, which sets out in more detail the outcome of the review. Copies will be available from the Vote Office.

I commend the proposals to the House.

Mr. Michael Ancram (Devizes)

Rather to my surprise, I give a qualified welcome to the statement, not so much for what is in it as for what is not in it. I begin by welcoming the somewhat belated response to last week's serious incident in the west of Scotland, and the appointment of Mr. Robert Fraser to hold an inquiry. What happened last week has caused much justified concern to local residents and to local businesses, and there is an urgent need not only for rectification but for reassurance. I am sure that the appointment of Mr. Robert Fraser will help in that regard.

The statement constitutes a surprising but none the less welcome climbdown from the Labour party's former position. After the lion's roars of the right hon. Member for Hamilton, South (Mr. Robertson) when he was shadow Secretary of State for Scotland and spoke about water—and, indeed, the pledges in the manifesto—the Secretary of State has produced a mouse of a statement, and a mouse which is strangely silent.

Let me remind the Secretary of State of what was said before the election. He may recall—indeed, he reminded us today—that the manifesto contained a pledge to return Scotland's water services to local democratic control. In 1995, the Scottish Labour manifesto issued before the Scottish unitary authority elections stated: The next Labour Government will return water to directly-elected control. In the same year, the right hon. Member for Hamilton, South said at the Scottish Labour party conference: I make this clear pledge to the Scottish people. On my first day in St. Andrew's House I will end this undemocratic farce. All the Water Quango Appointees—whoever they are—will be told to clear their desks"— and he added bravely: and I won't take no for an answer." When we strip away the verbiage of today's statement, we find very little change. There is a change in the system of regulation, and in some of the membership of the authorities—although, as we have heard today, not enough to provide locally democratic control—but the three-authority structure that was so opposed by the Labour party in opposition is retained. There is no return to directly elected or indeed local control, and there is no wholesale clearing of desks, as promised by the right hon. Member for Hamilton, South.'

I must say that I welcome this outbreak of realism—this victory for common sense over pre-election rhetoric. Conservative Members are becoming used to Labour's pre-election promises being jettisoned in government, but we would welcome the jettisoning of many more, and we certainly welcome the abandonment of one today. We also welcome the fact that the need for investment from the private sector—which was at the heart of our policy—has caused a change of mind, as the Secretary of State made clear in the small print of what he said.

I note the Secretary of State's concern about the purity of Scottish water, and his comment that the three Scottish authorities are among the bottom five in the United Kingdom league. How has Scotland fared relatively since water privatisation in England? Have the Scottish authorities gone up or down in the league? I also note the right hon. Gentleman's comment that, under public ownership and local authority control, the infrastructure was allowed to decay. Was that not because that type of control and ownership prevented private investment from being made available to repair the infrastructure? Is that not the real reason why the right hon. Gentleman has decided to proceed as he has announced today?

The right hon. Gentleman spoke of the future role of a Scottish Parliament. We await the publication of the Bill setting up such a Parliament with some anticipation, but is the right hon. Gentleman not concerned that leaving a final decision to a Scottish Parliament prolongs uncertainty, and makes less likely the vital private investment that is so urgently needed? Does he envisage a Scottish Parliament opting for an all-Scotland water authority, and would he seek to dissuade it if it sought to do so?

What criteria were applied in the replacement of the chairmen of the North and East authorities by Labour councillors? What business experience do those councillors have, particularly in the utility industries, and are their experience and expertise greater than those of the two existing chairmen? In what ways will the new chairmen be able to increase the amount of private finance being invested in the water and sewerage industry in Scotland, and what has COSLA's reaction been to the right hon. Gentleman's rejection of the mutualisation plan that it submitted?

All in all, this has been an interesting diet of past words for the right hon. Gentleman, and we have enjoyed watching him make a meal of them. We make no complaint: there is always much joy in heaven over any sinner that repents, and we welcome the Secretary of State's transition from the populist rhetoric of opposition to the economic reality of administration. Conservative Members hope that there will be many moves in that direction in the future.

Mr. Dewar

I loved the ending! I must tell the right hon. Member for Devizes (Mr. Ancram), however, that repentance of sins is one of the few areas in which I bend my knee to him.

The right hon. Gentleman mentioned the West of Scotland water authority, and I welcome his welcome. Of course I am deeply concerned about what has happened. I have not only a ministerial but a constituency interest, as have one or two of my team colleagues. We will await the report with considerable interest, and I hope that lessons will really be learned if faults are found in the system.

As for the appointments of the two new chairmen, those two candidates—like every other candidate who was appointed—had to undergo a rigorous Nolan procedure, in which their credentials and suitability for the posts were assessed. They came through with flying colours. The work and the performance of both are known to me, and I have no hesitation in seeing a useful and distinguished role for them. I pay tribute to their predecessors, and do so with every genuineness. Both have given long service—"dedicated service" was the phrase that I used; I think that that phrase is sometimes undervalued. It was time for a change, however, and I think that the two new incumbents will do very well.

The right hon. Gentleman asked specifically about the business backgrounds of the new chairmen. If we applied that test to Ministers in any party, some interesting gaps might appear. People have the ability and the mental equipment to do certain jobs, and I am very confident about these appointments.

As for mutualisation, yes, there was some lively debate, but I think that the vast majority of the consultees came down against the proposition. I tried—within the bounds of decent length—to explain some of the reasons for that. If the right hon. Gentleman looks at the arguments, as set out both by the review body and by those who offered opinions, he will see why there were difficulties about the scheme. I have no doubt that people will continue to argue for the other point of view, but, as I stressed in my statement, I feel that a period of stability to allow the arrangements to settle in would be wise and, I hope, helpful.

I do not mind being abused for responsibility, by the right hon. Gentleman or by anyone else. As far as I am concerned, we could have a very interesting economic argument; but the industry will require some £1.5 billion by the year 2000, which means that we must attack on all fronts. The Government must do their best, of course, but private-public sector partnerships must also be brought into play. I consider that a sensible approach.

What we have here is a scheme that leaves Scottish water unambiguously in the public sector, giving it a much more durable and, in my view, effective framework and a much greater level of both democratic accountability and democratic control through its membership and through the Scottish Parliament.

Mrs. Maria Fyfe (Glasgow, Maryhill)

I welcome the appointment of Jane McKay, whose experience and ability were not recognised as they ought to have been by the previous Administration. I also welcome the return to democratic and public control of the industry.

Does my right hon. Friend agree that it is a bit rich for the Opposition spokesperson to comment on these matters, given that it was bodies such as Strathclyde regional council whose campaign against water privatisation helped to retain that important industry in public hands? Had it not been for Strathclyde's vigorous campaign, Scotland might be suffering from water privatisation like the rest of the United Kingdom.

Mr. Dewar

I agree with my hon. Friend and I am grateful for her comments. To be fair, the present Opposition spokesman on Scottish affairs was otherwise engaged, as, in a sense, I was, while those debates were taking place—he looks slightly disengaged at the moment in fact, but I would not hold that against him. The important thing is that he must live with the fact that there is a strong view in Scotland that the public sector is the proper place for the water industry. That does not mean that the public sector and, in particular, the water authorities do not have to introduce innovative and imaginative procedures that would allow them to raise standards in the way that we want. I look forward to that happening.

Mr. James Wallace (Orkney and Shetland)

I welcome the investigation under Mr. Robert Fraser. While staying with family in Milngavie on Sunday evening, I had to suffer the deprivations of the contaminated water. Can the Secretary of State give any indication of when a normal water supply is likely to be resumed to the remaining 5,000 houses?

The hon. Member for Glasgow, Maryhill (Mrs. Fyfe) mentioned Strathclyde and the referendum that was held there. Will the Secretary of State confirm that, save exchanging a few councillors for previously non-elected personnel on the boards, he is substantially retaining the scheme that 97 per cent. of the people voted against in the referendum?.

Mr. Dewar


Mr. Wallace

I think that the Secretary of State will find that the structure is substantially the same as that against which those people voted. Can he not accept that that is not local accountability? If anyone were to be found culpable for what has happened in the west of Scotland, surely he should be answerable democratically to an electorate and not—through some way—to the Secretary of State or, ultimately, to the Scottish Parliament.

I welcome the fact that the Secretary of State has said that he is to examine the rural grants, but will he accept that there is no logic in connecting the islands areas, for example, to any other part of Scotland for water, as water falls there and is self-contained? Local authorities should have greater input, so that they can take economic development and water together and we do not have another body that has a totally different responsibility. That is the argument for democratic control, which could come through joint boards, which were so lightly dismissed in his statement.

Will the Secretary of State accept that the public sector borrowing requirement is substantially for investment that is to be met by tax and here we are dealing with investment—we accept that substantial investment is needed in water—that is met from revenue from customers? Would it not make sense to take the water industry in Scotland out of the PSBR, remove it from the Secretary of State's external finance limit and allow the industry to go to the market, to raise funds there and to be subject to normal market conditions?

Mr. Dewar

I listened with interest to what the hon. and learned Member said with increasing confusion—increasing confusion seemed to be inherent and in-built in his statement. Of course, it is tempting to say, "Take investment outwith the PSBR limits", but it is difficult to reconcile that with putting it firmly into the local government sector. We can do one or the other and it may be possible to argue for one or the other, but we cannot have our cake and eat it in the way in which he suggests.

This is not just a tinkering of personnel. Changes such as the introduction of the regulator and the demise of the customers council—the great tightening up in that area—will, I hope, increase pressure for efficiency and give a much more satisfactory regulatory machinery. We will have one regulatory individual, one regulatory force, which is involved not just in the pricing side of the argument, but in the wider strategic side—the economics of the industry. That is an important change.

Finally—well very nearly finally—I am surprised by the way in which the hon. and learned Member writes off the scrutiny of the Scottish Parliament. In his perhaps more benign moments, I think that he would accept that the intention is to produce a much more effective scrutiny machinery—given the scale of politics in Scotland—than has been possible, for example, in this distinguished House. The more immediate accessibility of the Scottish Parliament will be an important factor in that sense.

There was not a vote against the present arrangements in the referendum. The referendum was a vote on privatisation.

Mr. Wallace

It was not.

Mr. Dewar

Oh yes it was. Privatisation is certainly what the vast majority of people voted on, so I think that the hon. and learned Member is in some difficulty.

The final thing that I will say, and it is important, is that I cannot, of course, give a hard and fast answer on when the inconvenience and dislocation that have resulted from the diesel spill at Burncrooks will end, but I have said today that we understand that 17,000 of the 22,000 households now have clean water. I understand that the situation is improving rapidly, so I hope that, throughout the whole area—even in Milngavie; particularly perhaps in Milngavie—we will see a quick end to the problems.

Mr. Ernie Ross (Dundee, West)

I welcome my right hon. Friend's statement. It was cheeky for the right hon. Member for Devizes (Mr. Ancram) to talk about handing things back to local control as he gerrymandered the local authority system before the election, which makes it almost impossible to do that.

I know that people in Tayside will welcome the appointments of Councillor Colin Rennie, who—I suppose that I should declare an interest—works part time for me and my hon. Friend the Member for Dundee, East (Mr. McAllion), and who will obviously have to stop doing that from March next year, and of Nigel Hawkins, who is well known as a member of Dundee Partnership.

Much more important, I agree with my right hon. Friend's statement. I was surprised that the hon. and learned Member for Orkney and Shetland (Mr. Wallace) should have so little faith in the Scottish Parliament. Only yesterday, at the Scottish Constitutional Convention, we were talking about the new committee system. Clearly, this would fit well into that.

Mr. Dewar

I thoroughly endorse what my hon. Friend says, and I am grateful for his interest in these matters. The change in personnel is significant. It goes beyond perhaps the individuals concerned; it is also a matter of approach on the part of the Government to the appointments and a recognition of the special situation of the water industry in Scotland. I have already chided the hon. and learned Member for Orkney and Shetland, so it would not be fair to go back to that. As I have said, I know that in other forums and on other occasions, he takes a much more enthusiastic view of what we can achieve through the Scottish Parliament. In this particular sector, I hope that much will be done. I gather that the hon. and learned Member will be a candidate, so he will see it no doubt from within; some others of us may just watch from without.

Mr. Alasdair Morgan (Galloway and Upper Nithsdale)

Can the Secretary of State explain in more detail exactly where the democratisation is, because I must admit that I thought that a page was missing from my copy of the statement? Will he explain how replacing Michael Forsyth's appointees with some of his own—from whichever party or from none—is an improvement? Surely a quango is still a quango. As regulators have so far been appointed only for privatised utilities, what message and signal does it send to the electors of Scotland that the new democratic arrangements for Scottish water need a regulator? Lastly, given that he has the support of the Conservative party, does he have no doubts at all about the democratisation of his scheme?

Mr. Dewar

I take the view that even the Conservative party may get the odd thing right if it tries long enough and works hard enough. I am sorry that the hon. Gentleman takes such a cynical view of those whose Benches—admittedly separated by the chasm of the Gangway—he shares, but may I caution him in any event: if he thought that the comments of the right hon. Member for Devizes (Mr. Ancram) amounted to a ringing endorsement, he lives in a depressed world. There is an important distinction.

When the water industry was left by the Conservative Government, clearly, it had been reluctantly halted on the brink of total privatisation. One got the impression that it was a staging post until better political times, when the job could be completed. We are now putting water unambiguously in the public sector. As I have said, we are strengthening the democratic controls and we are reconnecting in terms not just of membership, but of the statutory duty to consult, to which I have referred, with local authorities. Of course, we are also looking forward to the more immediate links that can be built with a Scottish Parliament. There is real democratic content, although I recognise it is not all that the hon. Gentleman wants in terms of the wider political settlement. However, I hope that he recognises that there are substantial and real gains.

Mr. Tam Dalyell (Linlithgow)

Paragraph 4.17 of the review report refers to the new investment needed to meet Ministers' policies on the environment and health". The Secretary of State will know from my hon. Friend the Member for Midlothian (Mr. Clarke) in particular and from my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs of the desperate need for investment not only in the Esk valley but in other parts of Lothian in relation to industry and improving the environment. Has my right hon. Friend any good news for us about where the investment is likely to come from?

Mr. Dewar

I recognise the problem to which my hon. Friend refers. I think that the Esk valley scheme was directly and sensibly raised a few days ago by my hon. Friend the Member for Midlothian, so I know that there is much pressure on the issue. I spoke about an amount of £1.5 billion up to the year 2000. It is clear that substantial sums are needed, and there is about £600 million in the pipeline in the form of partnership schemes and private finance initiatives of one sort or another. If I remember rightly, the East of Scotland water authority's Esk valley project is included in the list, and the scheme is one of those that are currently in preparation. I assure my hon. Friend that there is a real commitment and that it will be reflected in the new authorities, as, to be fair, it is reflected in the present system, to try to tackle the problems as energetically and as quickly as we can.

Mr. Donald Gorrie (Edinburgh, West)

I have great personal confidence in Councillor Robert Cairns and my remarks in no way reflect on him.

The Secretary of State's idea of accountability is not mine. To appoint a regulator and to claim that that is some form of accountability is to take us back to colonial governorship. Surely the Secretary of State should re-examine the possibility of joint boards working effectively, whether they consist of councillors or Members of the Scottish Parliament or both. Could he not look at the issue of user democracy, which is different from the mutualisation that he has mentioned and, I understand, works in parts of the Netherlands? There are other ways to make the water industry more accountable. He should accept the point made by my hon. and learned Friend the Member for Orkney and Shetland (Mr. Wallace); capital could be found if the right hon. Gentleman merely put a pen through some of the more stupid Treasury regulations, as happens in continental countries, so that we could find the capital under a democratic system without going into this PFI rubbish.

Mr. Dewar

The hon. Gentleman uses not so much a pen as a broad brush in his approach to these problems. [Interruption.] Why not? Management of the Treasury cannot be conducted in that way. I suspect that if the Liberal Democrats had a role in power they might find that the, "Pssch, don't bother me with Treasury rules" approach would create some difficulties. There is difficulty about mutualisation, and I tried to sketch it in. I am not sure of the distinction between a mutual system and user democracy, but, under a mutual system, ownership, at least in theory, would lie with the person on whom the bill was served. There are difficulties in regarding that as effective and public control. No doubt that discussion can take place on another occasion.

I am genuinely surprised about the way in which the regulator and that change has been dismissed by Liberal Democrat Members. I do not know whether the hon. Gentleman intended it, but I got the impression that he was laying down a new Liberal Democrat policy against regulators. They will have some difficulty in explaining the virtues of that to the consumer movement.

Mr. Ian Davidson (Glasgow, Pollok)

May I welcome the good bits of the Minister's statement and express my immense disappointment at the lack of progress in democratising Scotland's water service? To move to a system under which one man, one vote appoints 33 members to the three water authorities is not sufficient to meet the needs that have been expressed by the people of Scotland throughout long campaigns against privatisation and Tory policy. I do not understand why joint authorities are made impossible by local government reorganisation. Strathclyde police and the fire service have continued under local government reorganisation, and I can see no reason why, if COSLA and local authorities had been consulted, they could not have come up with a workable means of appointing people with an electoral mandate to run the water authorities in the public interest.

There is great difficulty in Scotland over the number of people who are accountable to no one bar the Secretary of State. If we are keen on the dequangoisation of Scotland, we ought to have started at the first available opportunity, which is with the water service. I suppose that I and many others in Scotland have to look forward to the Scottish Parliament to do the job properly. I wish that, in this appointment as in others, the Secretary of State would be more prepared to trust those who have an electoral mandate directly from the people of Scotland.

Mr. Dewar

I appreciate, of course, that my hon. Friend in his council and parliamentary career has espoused and argued that view. I do not think that it is practical. Without wishing to burden him with additional and perhaps unwelcome Christmas cheer, may I suggest to him that he reads the report and the consultation documents that were produced? If he does that, he will find, of course, that there was some discussion of joint authorities. However, I do not think that there was what could be described as a weight of opinion for that option. I think that we have struck a fair balance. It is important to have continuity in the industry. There are currently many difficult projects in train, and I regard the statement's contents as genuine progress. I hope that my hon. Friend will join me in at least seeing that as some improvement.

Mr. Roy Beggs (East Antrim)

Looking on from Northern Ireland, I welcome the fact that the Secretary of State has established that the water industry will be in the public sector for the future. He could have gone a little further by ensuring more influence by elected representatives. Nevertheless, he has faced the problem of lack of water purity, the difficulties over sewage disposal and the need for more investment in that service. I was surprised to hear in his statement that, even with the £600 million of PFI investment, no target date has been set for water quality to be up to at least the average of other United Kingdom regions.

Mr. Dewar

I did not feel able to set that target. It will be some time before the new arrangements come into force. The regulator's new unified approach, the ability to balance the interests of the consumer in the broader sense, which includes not only the level of charges but the service that is delivered, and the pressure for greatly increased efficiency will all help.

I have a list of important PFI projects that are in the process of procurement. For example, my hon. Friend the Member for Linlithgow (Mr. Dalyell) will be interested in the Almond valley and Seafield scheme. There is a range of such schemes, and much is happening. I am grateful to the hon. Member for East Antrim (Mr. Beggs) for his broad welcome. I agree that the settlement is based very much on public duty in the public sector and on the vital and essential place of the water industry in our everyday life.

Mr. Norman A. Godman (Greenock and Inverclyde)

May I tell my right hon. Friend how welcome his words are on the public inquiry into the West of Scotland water authority? It is run by a bunch of useless incompetents. Was not it the case that they did not have a comprehensive contingency plan in place to deal with the recent emergency? In that regard, they are quite unlike the other two authorities. Those incompetent administrators recently sought to ride roughshod over serious local concerns in Gourock in connection with the building of a sewerage system. Inverclyde council changed things slightly. I hope that we shall not again see local concerns being ignored.

I, too, welcome the appointment of Jane McKay, and I share the sentiments of my hon. Friend the Member for Glasgow, Pollok (Mr. Davidson).

Mr. Dewar

I am glad that there is a welcome for that particular appointment, but I should say that that candidate went through the same selection process as all the rest. Although the selection process can at times be a little constrictive, I welcome the fact that we now have some consistency, at least in its basic part.

I cannot join my hon. Friend in making judgments on what happened in the Burncrooks incident or in making assumptions about whether there was personal culpability or whether systems were adequate. I certainly think that it is important that hard questions are answered, and that will be the inquiry's job. Once we have the facts, perhaps we can make judgments about what is best and what lessons have to be learned.

Mr. Andrew Lansley (South Cambridgeshire)

I am sure that the House will welcome the Secretary of State's statement that he does not intend to play politics with the water industry and will recognise in that statement a euphemism for dropping the pre-election policy and rhetoric of the Labour party, which is embracing in large measure the previous Conservative Administration's policies on the water industry's structure. Does he realise that—as in the vote on lone-parent benefits, and subject to the detail of legislation that he introduces—he can expect to receive support from the Conservative party for measures that are similar to those proposed by the previous Conservative Government?

On a point of practical detail, does the right hon. Gentleman expect that, as the PFI proceeds in the water industry, ownership of key assets in that industry will progressively transfer out of public ownership and into private ownership?

Mr. Dewar

I do not make that assumption at all. Apart from anything else, the authorities' asset base is a matter for judgment and good sense in management. I do not take the type of ideological approach to these matters that the hon. Gentleman, by implication, wishes on me, and I am sorry that he should try to do that. His support in these matters is not necessary, and I caution Conservative Members for assuming that it would even be welcomed. He must make his own decision in this and in other cases. I should like to think that on this issue, as on many other issues, I have been admirably consistent over the years. Although often consistently wrong, I have at least been consistent.

Mr. Frank Roy (Motherwell and Wishaw)

I congratulate my right hon. Friend on his statement, which will be seen by the people of Scotland as the roar of their Scottish lion—rather than as the squeak of a mouse from afar. Last night, at a public meeting in my constituency held by the Scottish water council, it was stated that there was a need for more transparency and public accountability in the water industry. Does he agree that bringing more councillors on to boards will make them more accountable, more responsive and more transparent?

Mr. Dewar

I am grateful to my hon. Friend, although I am not sure that I ever see myself as a lion. I would be a rather skinny version of the beast—although I should add that I enjoy Scotch beef.

We will keep the situation under review, and I hope that there will be a period of stability. It will be some time before we have a legislative opportunity to make some of the changes, but I very much hope that boards will be allowed to work effectively in the public interest and in the interests of everyone. I am confident that that will be the case, but we will continue to monitor and not be afraid to go further down a particular policy road to get the type of results that we all want.

Mr. Malcolm Chisholm (Edinburgh, North and Leith)

I welcome my right hon. Friend's statement, and particularly the very significant increase in democratic accountability for Scottish water within the public sector. Will he undertake to explain to the Scottish people the unavoidable necessity for increased water charges in the next few years? Specifically, will he explain that increases are nothing whatever to do with the use of public-private partnerships, which are absolutely essential, but arise because of the considerable backlog of under-investment inherited after 18 years of Conservative rule?

Mr. Dewar

My hon. Friend is still working from a good brief, I see. Yes, he is absolutely right: there is no painless escape from the current situation. Large sums will have to be raised, and large sums will have to be spent. That is partly a problem for the Treasury and partly a matter of partnership arrangements and the PFI approach. The consumer will bear some of the strain, and it would be dishonest if we did not recognise that that fact is built into the situation. I am grateful for my hon. Friend's realism.