§ Mr. Colin Breed (South-East Cornwall)I am delighted to have secured the debate, in which I shall raise the issue of regulating water charges. The debate is timely for many of my constituents whose bills, which are already the highest in the country, have risen by an additional 10 per cent. They have written to me expressing their anger and, in some cases, their worry.
It is 10 years since the previous Government privatised the water utilities. There have been undreamed of riches for very few and benefits for many, but some—particularly those water charge payers in the south-west—have had to pay thousands of pounds more than owners of comparable homes in other parts of the country, which is demonstrably unfair.
The House of Commons Library has produced figures showing that the average annual household bill has increased by well over 100 per cent. since the industry was privatised in 1989, but water bills in the south-west have risen by 142 per cent., which is 76 per cent. in real terms. The average annual water and sewerage bill for customers in the south-west is £354, which is well above the national average of £242.
No wonder people in the south-west are angry and frustrated. The south-west includes some of the poorest areas in Europe, something that the Government have clearly recognised in their endorsement of Cornwall's objective 1 bid. Wages are low and unemployment is high. The region is home to far more elderly pensioners than most other regions. Pensioners who have to rely on a meagre state pension are paying roughly 10 per cent. of their income in water and sewerage bills. All those people clearly fall into the Government's classification of vulnerable groups, but they are paying the highest water and sewerage bills in the country.
Customers in my constituency and across the south-west region have the additional burden of paying for the coastal clean-up.
§ Mr. Andrew George (St. Ives)Does my hon. Friend agree that not only are high charges being made against those on the lowest incomes in the United Kingdom, but, in Cornwall, about 1 per cent. of the nation's population has to pay for 20 per cent. of the coastal clean-up?
§ Mr. BreedMy hon. Friend is quite right. A relatively small number of people in a poor area have to pay for cleaning up the bathing waters off a large part of the national coastline, but we were told that we need not worry about that because the revenue that would be generated from the tourists who would come to the area because of our clean beaches would offset those costs. For an area with one of the lowest gross domestic products in Europe, let alone the country, that argument does not—forgive me for this—hold water.
The background to the differential in water companies' charges was evident even before privatisation. Geographical factors and other specific characteristics make the area different from other parts of the country, but privatization—and, perhaps more particularly, the way in which the industry was privatized—has widened that gap over the past 10 years. Neither the Government nor the regulator has clearly addressed the inequity of the position of people living in the south-west.
1097 In 1989, when privatisation of the water industry was introduced, the then Conservative Government approved a 10-year plan by South West Water to clean up the coastline. That plan was costed at roughly 5 per cent. above inflation—the so-called K factor—but, 18 months later, the Government had a rethink. The then Secretary of State for the Environment, Chris Patten, decided to concede to European pressure to clean up our bathing waters more quickly. That meant that the 10-year clean-up plan was squeezed into a five-year funding plan, which worked out at 11.5 per cent. above inflation—more than twice the original K factor. That was a good idea at the time, but the then Government's ill-thought-out decision has had enormous repercussions for us 10 years later.
§ Ms Candy Atherton (Falmouth and Camborne)Will the hon. Gentleman give way?
§ Mr. BreedI have only a few moments, so I shall carry on with my speech and then give the Minister an opportunity to reply.
That idea was good at the time, but the then Government's decision was ill thought out, as it has cost customers in the south-west rather dear. It is certainly costing us dearly today.
The latest increase in South West Water bills has grossly affected non-metered customers. Bills for the majority of them have risen well above the 4 per cent. agreed by the regulator. Most customers have meters installed for one reason, and one reason only—they think that they will save money. Not surprisingly, the revenue obtained by South West Water is reducing as more and more people take to meters. To address that shortfall, bills have had to rise. The burden has fallen, harshly, on to customers who are not on meters. Many of them are single-parent families or pensioners and they face huge increases on what were already unacceptably high bills.
In opposition, the Labour party vociferously opposed what is effectively compulsory metering. Less than three years ago, in a debate on water metering, the Secretary of State for Health, who was then shadow environment spokesman, said:
The regulator has rigged the water price formula, beginning with the startling decision that the cost of installing meters should not fall upon the customers who get the meters but upon those who do not have meters. He also came to the extraordinary conclusion that the fixed cost element of the charge to unmetered customers should be higher than that for metered customers."—[Official Report, 9 July 1996; Vol. 281, c. 192.]In that same debate, he noted that it was "unacceptable" for the Government to pretend that the regulator had nothing to do with the Government.It is estimated that installing a domestic water meter costs water companies between £250 and £300. As more and more people adopt water meters—particularly when they will be available free of charge soon—can we seriously believe that the industry can or will foot that bill? No, I suggest; the simple fact is that that would result in even higher charges.
After 10 years, it is surely time for a wholesale review of the regulatory system. The water industry faces a period of immense change, with the periodic price review occupying the time of the regulator and the Water 1098 Industry Bill making its way through Parliament. In opposition, the Government rightly berated the Tories' performance over water; now, with the added benefit of 10 years' experience, they have an opportunity to put things right.
November 1999 will be a telling time. We will finally see the results of the much-heralded price review. I understand that the Office of Water Services anticipates a one-off reduction of 15 to 20 per cent. on bills. Such a reduction, which would be welcome, would ensure that bills fell well below the 1999–2000 rate—providing that prices do not rise relentlessly after that initial reduction. However, I am sceptical about whether the industry can deliver that much-needed price stability and implement a substantial permanent reduction to ensure that bills are lowered to about the national average for the long-suffering water charge payers in the south-west.
The regulator has expressed uncertainty about the definition of environmental obligations and the costs associated with those future improvements on which Ministers are insisting. From 2000 to 2005, the industry will be expected to deliver an ambitious package of improvements, although the costs have yet to be assessed in relation to how they will be distributed across the various water companies.
Although we are told that the increase in water bills is likely to be relatively small between 2001 and 2004, sewerage bills are clearly likely to increase significantly —yet again, consumers in coastal areas such as the south-west will be hit.
It is now clear that a framework that will ensure fair, affordable and stable prices is essential. We need firm long-term strategies, implemented by the companies and monitored by the regulator, that provide incentives for efficiency so that customers benefit from a stable pricing structure.
The current regime is based on asset management plans over a 15-year period, while the pricing formula is set for only five years. Companies tend to undertake expenditure towards the end of the pricing period, because they must go through a planning system and deliver improvements by the end of the period. That creates an unbalanced budget, which hampers the long-term investment plans.
The implementation of water directives requiring additional tertiary treatment is a welcome and necessary step, but the effect of those directives has hit the south-west particularly hard. South West Water has been investing heavily in sewage treatment projects to meet the requirements of the urban waste water treatment directive. Those improvements and the way in which customers are charged fall directly in line with the regulator's pricing principle.
A customer's bill should reflect the cost of supplying clean water, disposing of dirty water and draining surface water from the property and the highways, but it should not be significantly higher than the bills of comparable customers elsewhere in the country. Water is a national resource and our coastal waters are national assets. A longer-term view of investment and pricing plans by the regulator, combined with interim reports on progress, would benefit the industry, ensure that companies were carrying out necessary environmental improvements and bring an end to the constant fluctuation in prices.
Customers do not want one-off price cuts if those are then followed by even sharper price increases. In the absence of true commercial competition, which I suspect 1099 is a long way off even now, a long-term strategy is the only way to prevent that from happening. The Water Bill offers an opportunity to rectify, within the regulatory system, some of those deficiencies, which have led to unfair bills which often hit the poorest in society.
Although the Bill recognises that there are vulnerable groups, it has failed to replace as a basis for charging the archaic rateable value system, which causes some of those inequities. Indeed, the Bill extends the use of rateable values, many of which are over 30 years old. Both the regulator and the industry representative, Water UK, would like at least a time limit on the use of rateable values as a basis for charging while other methods are properly evaluated.
Some 18 months ago, I introduced a 10-minute Bill advocating the replacement of rateable values with charges based on council tax banding. Metering would continue on a voluntary basis. The introduction of such a system would have many benefits: it would be relatively cheap, easy to administer, easily understandable and, if properly implemented, would broadly reflect the use of water. It would include the ability to give single households discounts and low-income households rebates. Water companies such as Wessex Water have already suggested trialing the council tax banding system as a method of charging. It would certainly provide easier identification of the vulnerable groups whom we all want to support.
Water has long been a politically sensitive issue in the south-west. Customers are simply fed up with having to pay bills that are far higher than the national average. The Conservative Administration's decision to privatise the water industry has resulted, in the south-west, in a relentless increase in bills. I hope that the Minister has some words of encouragement for my constituents and for people throughout the country. We want an end to the boom-bust situation where water companies boom and customers go bust, and rebates given one year are taken away the next.
I hope that the Minister recognises the need to implement a new regulatory framework, which will provide long-term strategies for the companies, environmental improvements for the country and a stable, fair and cost-effective charging system for all water customers.
§ The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Alan Meale)I am grateful to the hon. Member for South-East Cornwall (Mr. Breed) for raising the subject of water charges on behalf of his constituents. Hon. Members on both sides of the House sympathise with some of the points that he has raised. I welcome the opportunity to set the record straight on the past, the present and the future of water charges in the south-west.
Let me say at once that I entirely agree that, in recent years, water customers everywhere have had a lot to put up with. Customers have seen not only soaring prices, but an industry that sometimes seemed more concerned with the welfare of its shareholders and directors than with its customers.
That is why, within three weeks of coming into office, the new Labour Government held a water summit to start fighting on behalf of the customer for a better deal over 1100 water. My right hon. Friend the Deputy Prime Minister launched a 10-point action plan to help secure reliable, efficient and environmentally sustainable water supplies in the long term.
We are pleased that the water industry has responded positively to our proposals. We are now starting to achieve our aim of giving this country a world-class, water-efficient, and environmentally sustainable water industry. Significant progress has been made since the water summit, but we accept that there is no room for complacency. To take one key example, leakage targets were introduced following the water summit. Those targets will have reduced leakage by a quarter in just three years, but water companies' performance has been mixed and under-performing companies have been told that they will continue to be pressed hard to catch up.
We have informed all water companies that progress with leakage and water conservation must continue. However, overwhelmingly, the most important issue for water customers is still the level of prices. As the hon. Gentleman pointed out, since privatisation in 1989, average household water bills nationally have increased by 36 per cent. and average household sewerage bills by 42 per cent. Those are real-terms increases after allowing for inflation. In nominal terms, household water and sewerage bills have roughly doubled.
§ Ms AthertonDoes my hon. Friend agree that many of my constituents and those of colleagues across the region face a real problem in dealing with South West Water because they face huge bills as well as problems with interim schemes to deal with sewage? I am thinking particularly of the Falmouth sewerage scheme, which may directly threaten the existence of a very old oyster fishery. I have written to the Minister and met his colleagues on a number of occasions about this. It is unacceptable that South West Water has introduced schemes that may have such an environmental effect, at the same time as having the highest charges in the country.
§ Mr. MealeI thank my hon. Friend for that intervention. I congratulate her on the long campaign that she has led in that regard. Like her, I have great sympathy with the people who have had to put up with those problems. I have agreed with her suggestion to visit the area to see for myself the problems that have been caused. She rightly points out, as did the hon. Gentleman, that South West Water must act a little differently than it has acted recently in the interests of its customers.
The Government are determined that that rate of increase must not continue, and that determination is shared by the regulator, the Director General of Water Services, Mr. Ian Byatt. Companies are still working under the price limits set in 1994, but new price limits will apply from April 2000. The director general is concluding his periodic review of prices. In July, we expect him to announce draft limits to apply for 2000–05. Final price limits will be announced later in the year, following further consultation.
The Government have made it clear that we can provide for an ambitious environmental programme: improving our beaches and rivers, making further improvements to our drinking water quality and protecting our precious nature conservation sites. For example, in the south-west, there will be a scheme to protect the internationally 1101 important River Camel. The Government believe that such a programme should still leave scope for substantial cuts in average water bills in April 2000. That is wholly in line with the Government's manifesto commitment.
§ Mr. Paul Tyler (North Cornwall)As the Minister refers specifically to the River Camel, which is in my constituency, may I put a point to him? Does he recognise that, when he and I were on the Opposition Benches, we were united in our concern that the way in which the regulator was operating, and the terms under which the then Government had imposed privatisation, were penalising certain parts of the country? Will he give an assurance that, when the Government examine the way in which the new regulatory system is introduced, the comments by the right hon. Member for Holborn and St. Pancras (Mr. Dobson) in the debate to which my hon. Friend the Member for South-East Cornwall (Mr. Breed) referred will be taken into account? Otherwise, people in the south-west and many other regions will suspect that, in terms of the impact on bills in a low-income area, there is not much change from what happened under the previous Government.
§ Mr. MealeI thank the hon. Gentleman. I seem to be congratulating many hon. Members, but it is true that he has raised the issue on many occasions. He is right to say that my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) gave a view at that time. I have no doubt that, in the consultation, due regard will be paid to pronouncements that have been made by politicians on both sides of the House.
As I have said, the Government believe that such a programme should still leave scope for substantial cuts in the average water bill in April 2000. That is wholly in line with the Government's manifesto commitment to pursue tough and efficient regulation in the interests of the consumer and the environment.
On 1 March, Ministers announced the detailed company programmes to deliver our national objectives. In its investment programme, South West Water will be required by 2005 to complete improvements to more than 2,000 km of distribution system, to improve 309 unsatisfactory combined sewer outflows and to introduce full treatment of the vast majority of sewage discharges and high-level treatment of all company discharges to bathing and—this is of particular interest to my hon. Friend the Member for Falmouth and Camborne (Ms Atherton)—shellfish waters.
Those environmental improvements are essential if the attractiveness of the region to tourists is to be maintained. That investment programme will strengthen the tourism industry that contributes so much to the south-west's economy. The hon. Member for South-East Cornwall mentioned that people are angry. I realise that, but I think that he would accept the importance of the tourism industry to the region. The Department of the Environment, Transport and the Regions is working hard via its 10-point plan to ensure that there is a proper level of investment to protect the environment.
The Government recognise that the south-west has had the highest price increases of any major water company area since privatisation, and continues to face tough 1102 challenges in funding quality improvements. Therefore, we have ensured that the programme does not overburden consumers, while still offering significant improvements in line with our national aims. We have made it clear that we want to ensure that quality objectives do not have unacceptable impacts on water prices in different parts of England and Wales, and that programmes reflect local environmental priorities.
So far, I have been putting the concerns of the hon. Member for South-East Cornwall into context by setting out the background to the current situation. I shall deal now with the specific points about price rises to apply from 1 April 1999.
In the south-west, as elsewhere, companies are still operating under price limits that were set in 1994. For South West Water, average prices are permitted to rise by up to 1 per cent. on top of the rate of inflation. That is the basic limit set by Ofwat. As the hon. Member for South-East Cornwall said, it is referred to as the K factor.
With inflation at 3 per cent., the bills for customers for 1999–2000, which are being issued at this time of year, must not, overall, rise by more than 4 per cent. Price rises of up to RPI plus 1 per cent. have been permitted for South West Water for each year since 1997–98.
Of course, there is no obligation on companies to raise prices to the maximum extent that is allowed by their price limits. I am glad that South West Water has had the grace, in each of the past three years, to give customers a rebate on their bills: £10 in 1996–97 and £15 in both 1997–98 and 1998–99. However, I am sorry that the company has not yet felt able to offer any rebate for next year. I hope that, in view of the continuing and justifiable public concern about water charges in the region, it will look at its position again and consider whether a further rebate is possible in the coming year.
That is one reason for the very high increases in South West Water bills that have been reported in the press. Calculating the increase from last year's bills after rebate to next year's bills without a rebate produces, as I hope hon. Members will appreciate, significant price rises.
There is a further reason why some customers may experience higher price increases. The price limit that is set by Ofwat applies to average increases, but there may be variations around the average in the "tariff basket" that the companies operate. Some customers will see higher increases and some will see lower.
I understand that South West Water makes two technical adjustments in the balance between measured, or metered, charges and unmeasured charges to ensure that there is a fair distribution of charges between those groups. First, customers who choose to be metered tend to use less water than unmetered customers. The costs of metering are charged to metered customers alone, so that a customer with average consumption would pay slightly more to be metered than to pay on an unmeasured basis, but companies make an adjustment to the unmeasured tariff to prevent the differential becoming so great that metered customers are subsidising unmetered customers.
Ofwat has specified that it believes that the difference should be no more than £29 for customers with average consumption. Therefore, South West Water has made an increase of 1.5 per cent. in average unmeasured bills to ensure an appropriate differential between measured and unmeasured charges.
1103 The second, smaller adjustment is to take account of the change in the average rateable value of those properties remaining on an unmeasured charge. Where consumers in higher rateable value properties switch to a meter, there is a fall in the average rateable value for unmeasured properties, requiring some increase in tariffs to ensure that the company receives the same average income.
In the south-west next year, that final adjustment is no more than about 0.5 per cent. An adjustment in the opposite direction would be made if there were a preponderance of occupiers of smaller-value properties moving on to measured charges.
I emphasise that the average permitted increase in price limits for all South West Water customers next year is 4 per cent. While some customers may see their bills rise by more, others will see smaller increases. I do not pretend that a 4 per cent. price increase is good news, but it is not the sensational 10 per cent. or more that has been reported in the press.
As I have already explained, charges from April next year are the subject of the periodic review of price limits. We have specified the environmental objectives to be achieved by 2005, and we expect the Director General of Water Services to announce draft price determinations in the summer. It is for the director general to make decisions on prices, but we believe that the programme that we have set out will allow for some relief to hard-pressed consumers in the south-west in future.
1104 In the little time left before the debate ends, I want to deal with possible use of council tax for water charges. A number of water companies and others have set out a case for using council tax data instead of, or in conjunction with, rateable values as an unmeasured basis of charging.
We shall work with water companies and other groups with an interest to consider proposals for new charging arrangements, but, before any new charging method is implemented, we would need to be assured that it represented an improvement in fairness compared to the present system and that the transition could be managed without unacceptable social effects.
Last, but not least, while still staring at the clock, may I congratulate the hon. Member for South-East Cornwall again on raising what I and other colleagues think is an important issue, which we hope to solve—
§ It being Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.
§ Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.