HC Deb 10 November 2003 vol 413 cc44-66 'After section 2 of the WIA there is inserted— "2B Regulatory methodology

(1)The Authority shall prepare and publish a statement of policy with respect to its determination of charges in periodic reviews and interim determinations under all or any of the instruments of appointment of companies as relevant undertakers made by virtue of Part 2 of this Act.

(2)The Authority's statement of policy under this section shall include a statement of its policy with regard to the following matters—

  1. (a)the carrying out of its duties under this Act insofar as they relate to its determination of charges;
  2. (b)the matters to be taken into account and the methodologies to be applied in its determination of charges; and
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  4. (c)the extent to which the performance of functions by persons with powers and duties conferred or imposed by or under this Act or any other enactment are relevant to its determination of charges.

(3)The Authority shall determine charges in periodic reviews and interim determinations under a company's instrument of appointment as a relevant undertaker on the basis of the most recently published statement of policy.

(4)The Authority may revise its statement of policy and where it does so shall publish the revised statement.

(5)Publication under this section shall be in such manner as the Authority considers appropriate for the purpose of bringing the matters contained in the statement of policy to the attention of persons likely to be affected by them and shall not be made less than twelve months before a periodic review.

(6)When preparing or revising its statement of policy under this section, the Authority shall consult relevant undertakers and such other persons as it considers appropriate, subject to the requirements of subsection (7) below.

(7)For the purposes of subsection (6) above—

  1. (a)consultation shall be by way of written notice given by the Authority not less than six months prior to the publication of the statement of policy which it is preparing or revising;
  2. (b)such notice shall state—
    1. (i)the matters which the Authority proposes to publish in its statement of policy and its reasons for including them in the statement; and
    2. (ii)a period of not less than three months within which that person may give written notice of objection with respect to the matters referred to in the notice; and
  3. (c)the Authority shall give each person a reasonable opportunity to make oral representations to it on the matters referred to in the notice.

(8)The Authority shall not issue or publish a statement of policy unless—

  1. (a)no notice of objection to the policy is given to the Authority within the time period specified in its notice under subsection (7); or
  2. (b)if one or more relevant undertakers gives notice of objection to the Authority within that time—
    1. (i)the proportion (expressed as a percentage) of the relevant undertakers who have given notice of objection is less than such percentage as may be prescribed; and
    2. (ii)the percentage given by subsection (9) is less than such percentage as may be prescribed.

(9)The percentage given by this subsection is the proportion (expressed as a percentage) of the relevant undertakers who have given notice of objection, weighted according to their market share in such manner as may be prescribed.

(10)If the conditions referred to in subsection (8) are not met, the Authority shall (within three months of its receipt of the first or only notice of objection) refer the policy to the Competition Commission for review.

(11)Where a reference is made to the Competition Commission under this section, it shall be the duty of the Competition Commission to determine whether the policy which is the subject of the reference operates in a manner best calculated to fulfil the duties of the Authority arising under this Act.

(12)Where a reference is made to the Competition Commission under this section, the Authority shall not prepare or revise its statement of policy other than on the basis of the determinations of the Competition Commission.

(13)The Secretary of State may by regulations make such provision as he considers appropriate for regulating the procedure to be followed with respect to any reference to the Competition Commission under this section.

(14)Without prejudice to the generality of the power conferred by subsection (13) above, regulations under that subsection may, in relation to any such reference, apply (with or without modifications) the provisions of any enactment relating to the references to the Competition Commission under the provisions of this Act, the Fair Trading Act 1973 or the Competition Act 1988.".'.—[Mr. Wiggin.]

Brought up, and read the First time.

Mr. Wiggin

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Michael Lord)

With this it will be convenient to discuss the following:

New clause 6—Health and Safety Commission'After section 2 of the WIA there is inserted— 2A Health and Safety Commission

(1)The Secretary of State, the Assembly and the Authority shall from time to time consult the Health and Safety Commission, and relevant undertakers, about all safety matters which may be relevant to the carrying out of any of their and relevant undertakers' respective functions under this Act.

(2)The Secretary of State, the Assembly and the Authority shall, in carrying out their functions under this Act, take into account any advice given by the Health and Safety Commission about any safety issue, whether or not in response to consultation under subsection (1).".'.

New clause 7—Appeals against enforcement orders

(1)Section 21 of the WIA (validity of enforcement orders) is amended as follows.

(2)At the end of paragraph (a) of subsection (1), there is omitted the word "or".

(3)After paragraph (b) of subsection (1), there is added—

  1. (c)"that the making or confirmation of the order was based on an error of law or fact; or
  2. (d)that in the circumstances of the case, the making or confirmation of the order was not reasonable."

(4)For subsection (2) there is substituted—

(2)"On any such application, the High Court may, if satisfied that any of the grounds set out in subsection (1) above are proved—

  1. (a)quash the order or any provision of the order; or
  2. (b)vary the whole of the order, or any part of the order whether the application relates to that part of the order or not.".'.

New clause 10—Duty to carry out regulatory impact assessments— 'After section 5 of the WIA there is inserted— 5A Duty to carry out impact assessments

(1)This section applies where—

  1. (a) the Authority is proposing to do anything for the purposes of, or in connection with, the carrying out of its functions; and
  2. (b) it appears to it that the proposal is important;
but this section does not apply if it appears to the Authority that the urgency of the matter makes it impracticable or inappropriate for it to comply with the requirements of this section.

(2)A proposal is important for the purposes of this section only if its implementation would be likely to do one or more of the following—

  1. (a) to involve a major change in the activities carried on by the Authority;
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  3. (b)to have a significant impact on persons carrying on business in the markets for any of the services and facilities in relation to which the Authority has functions; or
  4. (c)to have a significant impact on the general public in England and Wales or in a part of England and Wales.

(3)Before implementing its proposal, the Authority must either—

  1. (a) carry out and publish an assessment of the likely impact of implementing the proposal; or
  2. (b)publish a statement setting out its reasons for thinking that it is unnecessary for it to carry out an assessment.

(4) An assessment carried out under this section—

  1. (a) may take such form, and
  2. (b) must relate to such matters.
as the Authority considers appropriate.

(5) In determining the matters to which an assessment under this section should relate, the Authority must have regard to such general guidance relating to the carrying out of impact assessments as it considers appropriate.

(6) Where the Authority publishes an assessment under this section—

  1. (a) it must provide an opportunity of making representations to it about its proposal to members of the public and other persons who, in the Authority's opinion, are likely to be affected to a significant extent by its implementation;
  2. (b) the published assessment must be accompanied by a statement setting out how representations may be made; and
  3. (c) the Authority is not to implement its proposal unless the period for making representations about it has expired and it has considered all the representations that were made in that period.

(7) Where the Authority is required (apart from this section)—

  1. (a) to consult about a proposal to which this section applies, or
  2. (b) to give a person an opportunity of making representations about it,
the requirements of this section are in addition to, but may be performed contemporaneously with, the other requirements.

(8) Every report under section 192B must set out—

  1. (a) a list of the assessments under this section carried out during the financial year to which the report relates; and
  2. (b) a summary of the decisions taken during that year in relation to proposals to which assessments carried out in that year or previous financial years relate.

(9) The publication of anything under this section must be in such manner as the Authority considers appropriate for bringing it to the attention of the persons who, in the Authority's opinion, are likely to be affected if its proposal is implemented.".'.

Amendment No. 19, in schedule 1, page 135, line 8, after 'chairman', insert ',a chief executive'.

Amendment No. 29, in page 135, line 8, leave out 'and'.

Amendment No. 20, in page 135, line 8, leave out 'at least two' and insert 'no fewer than three'.

Amendment No. 30, in page 135, line 9, at end insert 'and one other member appointed by the National Assembly for Wales'.

Amendment No. 21, in page 135, line 9, at end insert— '(IA)'Including the chairman, the majority of members of the Authority shall be nonexecutive members.'.

Amendment No. 31, in page 135, line 24, after 'State', insert 'or the National Assembly for Wales in the case of a member appointed by the Assembly'.

Amendment No. 14, in page 136, line 15, at beginning insert—

  1. (1) 'The Secretary of State shall, after consulting the chairman and the Assembly, appoint a person (who may, subject to subparagraph (2), also be a member of the Authority) to act as chief executive of the Authority on such terms and conditions as the Secretary of State may think appropriate.
  2. (2) A person appointed as chief executive may not at the same time be a chairman.'.

Amendment No. 18, in clause 38, page 42, line 20, at end insert— '(2A) That description must include, so far as the Authority believes it to be relevant for the financial year in question, a statement concerning how the Authority intends thereby to meet its objectives and duties.'.

Amendment No. 127, in clause 41, page 48, line 34, after 'research', insert 'and regulatory impact assessment'.

Amendment No. 128, in page 48, line 47, at end insert `and (b) a regulatory impact assessment of his proposals to be carried out for the purpose of assessing the likely quantitative and qualitative environmental, public health, economic and social impacts of his proposals. (7A) The Secretary of State shall not proceed with any proposal for the making of regulations under subsection (4) above where it is apparent from the regulatory impact assessment carried out under subsection (7)(b) above that the adverse effects of the regulations would outweigh their benefit.'.

Amendment No. 129, in clause 42, page 50, line 17, after 'research', insert 'and regulatory impact assessment'.

Amendment No. 130, in page 50, line 30, at end insert 'and (b) a regulatory impact assessment of his proposals to be carried out for the purpose of assessing the likely quantitative and qualitative environmental, public health, economic and social impacts of his proposals. (7A) The Secretary of State shall not proceed with any proposal for the making of regulations under subsection (4) above where it is apparent from the regulatory impact assessment carried out under subsection (7)(b) above that the adverse effects of the regulations would outweigh their benefit.'.

Government amendments Nos. 87 to 89.

Amendment No. 22, in schedule 4, page 174, line 35, leave out from 'which' to end of line 39 and insert 'represents either—

  1. (a) the amount which the water undertaker—
    1. (i) reasonably expected to recover from relevant customers; but
    2. (ii) is unable to recover from those customers as a result of their premises being supplied with water by the licensed water supplier; or
  2. (b) the amount which represents the costs incurred by the water undertaker in carrying out its functions insofar as they are—
    1. (i) directly related to the customer in question, or
    2. (ii) represent an allocation of the water undertakers' fixed costs,
  3. as the Authority may in any case determine.
(3A) The Authority may, in determining the appropriate amount for the purposes of subsection (3) above, take account of the benefits to consumers of determining an amount which promotes competition in wholesale water supply by secondary water undertakers.'.

Government amendments Nos. 123, 107 and 110.

Mr. Wiggin

The new clause would require the water services regulation authority to publish a statement of policy on its determination of charges. The statement would have to include how it had carried out its duties, the applied methodology and the extent to which functions had been performed. Six months before publishing the statement of policy, the authority would also have to consult relevant undertakers about the determination of charges, which would allow each relevant person the opportunity to make an oral representation on any objections. If the authority did not meet such conditions as are laid out in proposed subsection (8), the policy would be referred to the Competition Commission for determination. The new clause would hold the authority accountable for publishing its intentions of determined charges in order to make the process more open, transparent and inclusive for the water industry.

New clause 6 seeks to ensure that health and safety is maintained in the functioning of all relevant water bodies and undertakers by regular monitoring. That would be carried out through consultation between the Secretary of State, the National Assembly for Wales, the authority and the Health and Safety Commission. The Secretary of State, the Assembly and the authority must take on board any advice given about any safety issue in carrying out their functions. I am concerned that the Bill does not address safety carefully enough, but the new clause would ensure that it does so.

New clause 7 seeks to expand the appeals mechanism through which water undertakers can challenge enforcement orders. Any enforcement order proved to be an error of law or unreasonable, where that is agreed by the High Court, will either be quashed or varied so that it is correct. As the Bill stands, there are not enough provisions for appeal against enforcement orders. New clause 7 would make the arrangements fairer by allowing affected businesses to continue their work if there is an unreasonable or unlawful confirmation of order.

Amendment No. 14 follows best practice in regulatory structures by seeking to ensure that the chairman and chief executive of the water services regulation authority cannot be the same person. I am concerned that combining the posts would give one person too much power over regulation of the water industry, which could be dangerous and which the Bill addresses. A wider range of options is surely more desirable—after all, the Environment Agency separates the posts. In Committee, the Minister said that he would consult the Secretary of State to provide on Report clear guidelines on the exact structure of the procedure and on the views of the Welsh Assembly. I look forward to hearing about that. The amendment would ensure more open, diverse and discursive procedures in the structure of the water services regulation authority—for the good of not only the industry, but the consumer, whom I am, as usual, keen to protect.

Amendment No. 17 reflects my concern that although the new consumer council's access to information about licensed water suppliers is welcome, the availability of that information is too restricted. At present, the Secretary of State has the power to make regulations prescribing circumstances in which water companies or suppliers may refuse the council information. We are worried that there will be fewer duties to provide information than under the Freedom of Information Act 2000. The criteria by which a request for information can be refused should be in the Bill. Up-to-date information is essential if the council is to act in the best interests of consumer protection. As consumers have no choice of supplier in the first place, they should be able to access information to resolve any problems. My amendment would enable the council to publish information if the benefit to the consumer was greater than the prejudicial effects on the interests of the body. Moreover, it reflects the view of the consumer council for water, which welcomes an independent consumer council, but wants the Bill to ensure that it has the right powers and resources to improve consumers' representation.

Mr. Andrew Lansley (South Cambridgeshire)

I am grateful for the opportunity to speak to new clause 10 and the other amendments in my name. The Minister will be familiar with the arguments that surround them, although in some cases I have tried to draft them more accurately—and perhaps more acceptably, from the Minister's point of view—to reflect my intentions.

New clause 10 would require that where the water services regulation authority undertakes something of significance in relation to the industry and water undertakers, and where it is not a matter of urgency, it is under an obligation to carry out and to publish regulatory impact assessments. I shall not dwell on the subject of what those should cover, but hon. Members will note that subsection (5) of the new clause would require the authority to have regard to such general guidance relating to the carrying out of impact assessments as is considered appropriate. That would include the Cabinet Office guidance that was updated in the latter part of last year. There have been some helpful innovations in respect of regulatory impact assessments, not least the inclusion of a competition assessment. The quality of such documents is a matter of continuing debate that I shall not explore further. It is important, however, that regulators should themselves have regard to the impact assessment process.

The text of the new clause is modelled directly on section 7 of the Communications Act 2003, reflecting the duty that the Government properly laid on that sector's new regulator—Ofcom—to undertake regulatory impact assessments. I cannot see why there should be a distinction between the manner in which Ofcom is to undertake its responsibilities as a new regulator and the manner in which the new water services regulation authority is to do so. I am therefore—perhaps over-optimistically—hopeful that the Minister will say, "Thank you very much", and agree to it.

Amendment No. 19 would insert into schedule 1 the provision that the new water services regulation authority should have not only a chairman, but a chief executive—with the implication, of course, that they should be two separate people. That is in line with current regulatory best practice. It is also increasingly regarded as best practice in the corporate sector. Although I do not suggest that everything in the Higgs report is right, the importance of distinguishing between the roles of chairman and chief executive did not cause great controversy.

It is important for business to distinguish between the person who is responsible for strategy and the person who has responsibility for the body's executive functions. It is even more important for regulatory bodies. As my hon. Friend the Member for Leominster (Mr. Wiggin) suggested, there is a danger—it is not theoretical; it has been demonstrated in the past—that a regulator who is one person can be the subject of speculation about personal views and, when a new regulator is appointed, about the way in which the policy will change simply as a consequence of a change of personality.

We cannot remove the problem entirely but the Better Regulation Task Force's report on economic regulators said that it was desirable to move away from having the regulator as one person and that an element of greater regulatory certainty was introduced if the regulator was perceived as a corporate body rather than a personality. We are moving towards the water services regulation authority being a corporate body by looking to an authority rather than a single person such as the director general. It is no reflection on Philip Fletcher as the director general of the Office of Water Services and the way in which he has done his job that all regulators are moving in that direction. It is a retrograde step to reintroduce speculation by combining in one person the role of chairman and chief executive. If I remember rightly, the new combined code for companies reflects the desirability of distinguishing between the role of chairman and chief executive.

Amendments Nos. 20 and 21 would establish that a majority of the new authority should be non-executive members. Amendment No. 20 would establish that, in addition to the chairman and chief executive, there should be a minimum of three additional members, thus making a minimum of five and rendering practical a non-executive majority in an authority of five. Again, that is in line with best practice in corporate governance terms in the companies sector and is reflected in the structure of most regulators, including, to give a recent example, Postcomm.

Paddy Tipping

The hon. Gentleman rehearses arguments that we had in Committee. He and the Minister will recall that voices from all parties in Committee called for best practice. Amendments Nos. 19, 20 and 21 reflect good practice. Although there is no need for the Minister to change the Bill, he gave an undertaking in Committee to reflect on the points that were made and give us more information on Report.

Mr. Lansley

The hon. Gentleman is right. In Committee, he suggested that I should quit while I was ahead. Having engaged his support, if I may interpret his remarks in that way, I shall quit while I am ahead on the amendments. It is in the nature of things that we have to table the amendments again to stimulate the debate. As the hon. Gentleman says, the Bill does not have to look different to produce a different outcome in the composition of the authority. I hope that when the Minister replies to the debate, we may have some good news from him. On the assumption that I am quitting while I am ahead, I shall keep moving and hope that I can win again. I appreciate that I have not won yet, but I hope to do so.

Amendment No. 18 would take account of the fact that when the Better Regulation Task Force considered economic regulators, its recommendations reflected the fact that several regulators had been given a range of additional objectives and statutory duties that could at times come into conflict. At that time, that was not true of the director general of water services. However, we are now incorporating into the legislation some additional objectives and duties for the new water services regulatory authority—not least in relation to the pursuit of consumers' interests whenever appropriate through competition, and to environmental and social objectives.

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At the time, the Better Regulation Task Force said that that could create uncertainty for industry, which would be inherently undesirable. We want regulation to be predictable whenever possible, and we therefore want any possible conflicts of interest within the statutory objectives of the regulator to be interpreted in a way that is relatively predictable for the industry. The taskforce recommended that this should be done each year through the business plan of the authority concerned. In this case, the authority describes its business plan as its forward work programme, and clause 38 contains a number of provisions relating to the forward work programme of the authority. It does not, however, include an obligation to set out in the programme how the authority intends to reconcile its objectives and duties. That is an omission in comparison with the legislation that we passed last year on the establishment of Ofcom, which does have such explicit obligations built into its structure. I hope that the Minister will be able to look positively at this issue.

The purpose of amendment No. 22 is to reflect regulatory practice among a number of regulators when considering the question of access pricing. I will not bore the House on this subject in the manner in which I detained and bored the Committee. I will simply say that, in recent examples, other regulators looking at access pricing for the purpose of stimulating competition have taken different views on how that should be done. The different approaches can be characterised either as a retail-minus or a cost-plus approach. The former looks at the retail price of what has been a monopoly undertaking and subtracts from it the avoidable costs of providing the service to customers, which is to be substituted for by a new entrant to the marketplace, and to say to that new entrant, "It is your responsibility to ensure that the amount paid to the monopoly or statutory undertaking is the equivalent to the amount that it would have expected, less the avoidable costs."

The cost-plus approach says, "Let us find out the costs to the statutory undertaking of providing the service to the new entrant, and, through the new entrant, to the customer." Of course, that triggers a debate about what costs are properly attributable. Members who are interested in this subject will find exactly that kind of debate taking place in the current Postcomm decision about access pricing to the Royal Mail network, where they will find a full discussion of the subject. It is therefore a matter of debate as to what extent the fixed overheads of the statutory undertaking are attributed to the new entrant or, via the new entrant, to the customer. That is why I have tried to make life simpler than it was in Committee by restructuring my proposals.

Amendment No. 22 is therefore very straightforward. It incorporates in paragraph (a) the structure that reflects the legislation as it is currently drafted, which takes the retail-minus approach. Paragraph (b) contains a simple description of a cost-plus approach. In addition, however, I have added sub-paragraph (3A), which would provide the authority with a discretionary power to determine which of those approaches to pricing the authority may use, and, in doing so, to take into account the effects of such a decision on competition. The Minister and other Members who served on the Committee will recall that I was very concerned that the structure of pricing that has been written into the Bill will make the reality of competition far less than it ought to be, even in the limited industry to which competition is to be applied.

Mr. John Redwood (Wokingham)

Does my hon. Friend agree that when challenges have been proposed, they have normally resulted in a 10 to 20 per cent. proposed reduction in water supply prices? That does not sit easily with the monopolists' view that they need a price increase. How might the matter be dealt with under the formula that my hon. Friend suggests? The monopolists will clearly say that they can only offer the price because they are cherry-picking, while the challengers will say that it is because they are more efficient.

Mr. Lansley

At least two mechanisms will operate. There is the extent to which the regulator can deliver price reductions as a consequence of regulatory contestability, and there is the actual impact of competition. My right hon. Friend and I will probably have no trouble in agreeing that regulatory proxies of contestability have proved only modestly successful in comparison with the benefits of competition in delivering cost and thereby price reductions to consumers.

My right hon. Friend's point about a 10 to 20 per cent. reduction is an indication—a modest indication—of what has often been delivered by the introduction of competition. I well remember that when BT introduced competition, certain people who had better be nameless were willing to go to the wall for the defence of the retail prices index formula, claiming that if the reduction went below RPI minus 1 the world as we know it would cease to exist. In fact I think the telecommunications formula reached RPI minus 12 within a few years.

I do not know what degree of cost reduction is available in this case. As we said a number of times in Committee, the actual cost of water in relation to the cost of the fixed infrastructure that the undertaker will have to continue to maintain is very low. That means that it will be difficult to find opportunities for competition to deliver a margin to new entrants to the marketplace while also delivering a benefit to consumers. That is one reason why the amendment is needed, especially in relation to determining the appropriate amount for access pricing by reference to the need for competition. Otherwise I think it will be squeezed out. If the primary undertakers are to receive the amount they expected, less identified and avoidable costs—which constitute a very small part of the overall price to customers, even the very large customers who will be the subject of competition—it will be difficult for secondary suppliers to enter the marketplace and deliver a margin against that.

I am grateful to my right hon. Friend for his intervention, which has allowed me to extend the argument a little. This is not just about offering the authority the flexibility that it ought to have in relation to access pricing; we should also provide a statutory power to help the delivery of competition. As I said in Committee, I am surprised that having talked of the introduction of competition, the Government have framed the Bill in a way that makes it extremely unlikely that it will be effective. It is important for us to challenge that now.

The benefit of the cost-plus route, as opposed to the retail-minus route taken by the Bill in its present form, is that it would expose the costs of primary water undertakers. In the case of Royal Mail, the principal difficulty for the new regulator was the lack of any accurate attribution of costs, or even an understanding of them, in the Post Office on which prices could be based. If the calculation had been made on a retail-minus basis, all the inaccuracies and inflationary elements of costs would have been set in stone, and Royal Mail's management would not now be having to deal with them.

I have gone on longer than I intended to, but that often happens when we discuss access pricing. It is not everybody's cup of tea, but it is terrifically important. It may be hidden away in schedule 4, but in the absence of amendment, I fear that one of the main objectives of the Bill will be damaged.

Sue Doughty (Guildford)

I shall speak first about Liberal Democrat amendments Nos. 127 to 130, then comment on new clause 5.

Our amendments reflect our concern to ensure that any new standards are based on common sense and that there are no unforeseen results. The Bill gives the Secretary of State the power to introduce new standards of performance in water supply and sewerage services for water companies. Until now, standards of performance have been set either by legislation—for example, on drinking water or bathing water quality—or by the director general of water services. In making recommendations, the director general has to strike a balance between the duties given to him by Parliament towards present and future customers. Within the limits of those powers, the director general has been independent of short-term political pressures.

We are worried because the proposals in the Bill infringe both the independence of the authority that will replace the director general of water services and the principle of parliamentary supremacy in setting the framework for water industry regulation. The proposals risk imposing unwarranted costs 5on customers in pursuit of standards of performance set in accordance with short-term political pressures. It is not realistic to expect the proposals on standards of performance to be deleted outright; instead, there should be a duty on the Secretary of State when setting those standards to carry out a full appraisal of the standards and to implement them only if the benefits outweigh the costs.

Mr. Redwood

Can the hon. Lady explain what the Secretary of State and the regulator should do in the event that, say, the quantitative evaluation is positive, but adverse qualitative matters have to be taken into account? If not all the factors are quantified, how are they to form a judgment?

Sue Doughty

We should be examining the cost of changes. There are times when we have to consider standards, sustainability, regulation and other aspects of change, but in cases in which those aspects are neutral and the costs of minor changes outweigh the benefits, we want the Secretary of State to take a view. We do not want a change that will cost an arm and a leg to implement but will bring about no real benefit. Perhaps the Secretary of State has taken a view on public health or on the environment and minor changes are proposed, but the cost of those changes far outweighs the benefit. We are therefore concerned about the regulatory impact assessment. Our aim is to ensure that the Secretary of State takes account of such matters. We want to ensure that unrealistic costs are not placed on water companies and thereby on their customers, and that the checks and balances are determined by Parliament.

We were inclined to support new clause 5, but we have some concerns, in particular about proposed new subsections (8) and (9), which refer to percentages of the relevant undertakers that have to be in agreement. A policy must be considered in the light of the number of objectors weighted according to their market share in such a manner as may be prescribed. The nature of the water industry is such that a small number of companies control the largest market share. The result may be a policy that is skewed in favour of a few companies, as the proposals would allow them to club together to oppose the authority's proposals on a policy statement. We fear that some of the regulatory teeth would thereby be removed.

Mr. Wiggin

I am sympathetic to the hon. Lady's fears, because the new clause is long and complex. However, does she agree that the reason it is weighted towards market share is to give due consideration to the consumer? I know that she is keen on supporting consumers, so I suggest that she looks again at the new clause. As I said, I sympathise with her fears, but they should be allayed on the basis that it is important for consumers to gain proper weighted representation. That provision is built into the new clause.

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Sue Doughty

I understand what the hon. Gentleman says and I have considerable sympathy with his view of consumers. It is one way of looking at the issue, but it also puts disproportionate weight on businesses. I believe that the authority should act on behalf of consumers—that is what it is there to do. My fear is that the water companies, as businesses, would benefit disproportionately. Consumers might benefit sometimes, but otherwise business considerations are paramount.

Sadly, on balance, we cannot support the new clause. We believe that, in the end, the authority should have a written statement of policy and maintain independence.

Mr. Simon Thomas (Ceredigion)

Before I speak to amendments Nos. 29, 30 and 31, I want to support the amendments moved by the hon. Member for South Cambridgeshire (Mr. Lansley) on best practice within what could be called "corporate social responsibility" in the widest context. His point about the separation of powers between the chief executive and the chair of the authority is important. Several hon. Members made that point in Committee and I look forward to hearing the Minister's views on it tonight, so that we may have a better idea of how the Government think the authority should be run according to best practice.

My amendments are simple, though quite far-reaching. They would ensure that the two statutory bodies established by the Bill—the water services regulation authority and the consumer council for water—have among their membership a representative not only from Wales but directly appointed by the National Assembly for Wales. I want to explain in just a couple of minutes why I believe that that is important.

Under the Bill as it stands, members of the important statutory regulation authority will be appointed after the Secretary of State has consulted the National Assembly for Wales. That amounts to consultation, but the National Assembly for Wales has no right directly to make appointments. I dare say that it could suggest names, but it could not ensure that its favoured person sat on the board of the authority, because it is for the Secretary of State to make the appointment.

In respect of the consumer council for water, consultation with the National Assembly applies only to appointment of the chairman, but there will also be a member on the body who is directly appointed by the National Assembly, so a twin level of devolution is going on there.

The Government have accepted that it is important, in view of devolution and the water industry's importance to Wales—or, I should say, because there are cross-boundary issues, within the areas covered by Dwr Cymru, Welsh Water—that Welsh consumers have someone on the consumer council directly appointed by the National Assembly. However, the wider regulatory framework allows only consultation with the Assembly rather than allowing it to appoint directly to the board.

A similar process—I accept that what we are dealing with here is indeed consistent with it—applied to the office of communications. When Ofcom was established, similar processes were taking place and I recall hearing the hon. Member for South Cambridgeshire make similar arguments about the regulatory framework. We examined the issue of users or consumers having representation from Wales, but the Secretary of State made appointments to the statutory or regulatory body on the basis of a different level of consultation with the National Assembly.

The point behind the amendments is simple. Now that devolution is bedding down and the National Assembly is becoming a mature body that is able to take strategic decisions, and given that water is so important to Wales, should there not be a mature relationship of equality between Westminster and Cardiff? When we consider England and Wales provisions—water in Scotland is outwith the Bill—it is not too much to ask that the Assembly have the right to make a direct nomination to the authority. That non-contentious suggestion would not create any problems. However, the Government might have difficulty with it if it set a precedent for other regulatory frameworks, such as communications and broadcasting, which I mentioned earlier. Considering the importance of Welsh water to both England and Wales, I doubt whether such a right would be a problem. I accept that the Government's approach is not to hurry devolution, but if I would like it to move a little quicker, that is not an unacceptable position for a member of Plaid Cymru.

Although my amendments are buried in a group of amendments and we will not have the opportunity to vote on them, I hope that the Minister will take the opportunity to expand a little on what he said in Committee about the relationship between the National Assembly, the authority, the consumer council and the Secretary of State in making the appointments. I want to hear a description of how the relationship will work when the appointments are made, and how the National Assembly Government will be involved in them. I would also like to know how the Assembly will be able to relate to the authority over time and make its views clear on priorities for Wales, which will also affect many English water users, and their context in the work of the authority.

The amendments are straightforward. They touch on larger issues, but we need to have the context for the consumer council and the services authority set out.

Mr. Redwood

I rise in support of new clause 5 and some of the other amendments before us. The Bill is a wasted opportunity. I strongly believe that the successful introduction of competition into the water industry would improve the service and the level of investment, and lower prices. I am disappointed that schedule 4 is still unamended, with a 50-megalitre threshold for the introduction of competition and a ban on any competition in the household sector. I have declared my interests in the register, and they include owning a household for which I would like to have a competitive water supply. I see that I shall have to await another Bill and another day to see that ambition fulfilled.

In new clause 5, I welcome the requirement that The Authority shall prepare and publish a statement of policy with respect to its determination of charges in periodic reviews and interim determinations". However, the authority will find that difficult, because it will experience conflicting pressures. As I suggested in an intervention, some will seek to challenge the existing incumbents in the industry and will claim that they could deliver water for 10, 15 or 20 per cent. less than the current prices. They will claim that they could do that universally, if they were given access to the water resources; if they were allowed to tap into the rising water tables; if they were able to extract from rivers with sufficient to extract; and if they were allowed to route their product, in part or wholly, through the pipelines of the existing monopolists. The regulator will have to take that into account and the challengers will certainly present an interesting proposition. The incumbents in the industry will say that it is unrealistic. When companies offer to undercut prices at the higher end of the market, the incumbents will claim that those companies will not sort out the problems of the existing network, solve the investment backlog or offer such prices to all users. Under this legislation, that will never be tested, because competition will be so restricted.

New clause 5 is hopeful, but I would like some reassurance from my hon. Friend the Member for Leominster (Mr. Wiggin)—and from the Minister, if he intends to accept it—that the authority, when preparing and publishing its statement of policy, would give due influence to what a competitive market could provide and would not merely consider the claims of the incumbents that they need a certain percentage increase in prices regularly in order to make good the defects of the current structure.

The industry was nationalised for all too long. During that time, it got itself into a position in which about a quarter of its product disappeared between its collection in a reservoir and its routing to a household or business premises. That was a most remarkable degree of waste. I do not think that competitive food companies would accept the loss of 25 per cent. of food products between farm and shop or in the lorries that transport them around the country; yet, until recently, we lived, apparently comfortably, with the idea that a quarter of the product could go missing. That is the kind of issue that the regulator should take into account under new clause 5 when reaching a determination about the efficiency of businesses and a sensible price.

I am pleased that new clause 5 contains the possibility that matters can be referred to the Competition Commission for review. That gives some cause for hope. There is a case for doing just that, given current prices and efficiency in the industry. All too often pressure is low in relatively warm conditions, and we are now hearing, once again, warnings from the industry that, because we had a longish period this summer of not much rainfall, there could be problems ahead. It beggars belief that we find it difficult to guarantee a plentiful supply of water at all times in an island that is regularly soaked with rain.

From some people, we hear that it is somehow not environmentally friendly to want rising water use. Yet anyone who understands the water cycle knows that we do no damage by using water. We use it, it passes through and it is returned to the environmental system. All we need is regulation to make sure that it is taken out in the right way and put back in the right way. Let us use it as often as possible. In a growingly prosperous society, we should expect rising water demand. I trust that the regulator will take account of the growing popularity of water when reaching his or her determination under new clause 5, if it is passed, and under the Bill in general.

I have some sympathy with new clause 10. My hon. Friend the Member for South Cambridgeshire (Mr. Lansley) is right to say that we need impact assessments. I was pleased to hear that he thinks that those must also refer to competition assessments and must try to deal with the cruel dilemma that competition may point in one direction on price while the claims of the incumbents may point in another.

We should understand that price is the crucial issue. Water is the exception to the rule in being a utility that was privatised without our introducing competition. As one would expect, it has rising prices while those utilities that were privatised with the introduction of competition showed very sharp declines in prices over a short period. That is true of gas and electricity, as well as the telephone industry to which my hon. Friend referred. In each case, we were warned when we started to introduce competition that it was quite inconceivable that prices would go down. In each case, the monopolist told us that having businesses coming in and creaming the best business from them would increase their costs and make it difficult for them to invest and survive. In each case, that was quite wrong. In each case, competition made the overall market grow and, in spite of falling prices, produced better profitability for, in most cases, the incumbents as well as the challengers. I am glad that my hon. Friend has tried to open that argument by requiring, in new clause 10, that proper impact assessments be carried out and all those issues be considered.

My hon. Friend also tabled amendments in Committee and on Report to try to encourage best corporate practice in the regulator. I did not approach that idea with an immediate spring in my step; as my hon. Friend knows, I am not someone who would have too many public sector posts. If I thought one could get away with one person instead of two, three or five, I would normally welcome that greatly.

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I see the point that my hon. Friend is making, however: all the businesses to be regulated by that regulator would be expected to come up with high standards of corporate governance; to split power between, usually, a non-executive chairman and an executive chief operating officer or a chief executive; and to have non-executives on their board to provide some balance and criticism and to intervene when things go wrong. We probably owe it to those businesses to be a little more generous than I should normally be in public sector staffing and accept that there should be a non-executive power balance on the board. Non-executives are always much cheaper than executives and my hon. Friend recommends a non-executive chairman and non-executive board members. That expenditure may be sensible, and it could be false economy to ignore such advice.

I am pleased to hear that the Minister is moving in that direction. I urge him to do the honourable and decent thing and accept the amendments. If his intentions are honourable, why not include the amendments? Why not protect us from some evil future Government who may not share his wisdom and common sense and might want to run the regulatory body without the non-executive counterbalance so wisely thought through by my hon. Friend the Member for South Cambridgeshire and formulated in his amendments?

I hope that the Minister is in listening mode and that he will be prepared to surprise us by his generosity and common sense. He is rare among Ministers in this Government: he understands what he is doing, listens carefully to the arguments and has some influence over what the Government do. I very much welcome that in a Minister and wish there were more like him. He is stranded without promotion because he is so much better than those who are promoted—[Horn. MEMBERS: "He was promoted."] But not to the Cabinet. He is obviously too good to get into the Cabinet; one has to reach a low standard to achieve Cabinet rank. I am sorry that the hon. Gentleman is too good for this Cabinet.

The amendments suggesting that Wales be properly represented also appealed to my generous and emollient spirit this evening. As a former Secretary of State for Wales, how could I say that I was against proper representation for the Principality on such an important body? I trust that as a party we shall offer support for the proper representation of Wales.

I do not find myself in the same sympathy with the Lib Dem amendment, moved without a great deal of understanding or force by the hon. Member for Guildford (Sue Doughty)—[HON. MEMBERS: "Ooh."] I asked a simple question of the hon. Lady. Her amendment states that there should be an assessment based on things that can be quantified and an assessment based on things that require qualitative judgment. I asked her how the Minister and the regulator could come to a conclusion if quantities pointed one way and qualities pointed another, but there was no answer from the hon. Lady. She seems to have designed an extremely ambiguous proposal, which would make the legislation more rather than less difficult for the Minister and the regulator. Surely, the art of legislation is to keep it simple, short and clear. The amendment would do none of those things; it throws many things into the pot, as we are used to the Lib Dems doing, and leaves us in a grey area about what might emerge.

Norman Baker


Mr. Redwood

Does the hon. Gentleman want to intervene?

Norman Baker: No.

Mr. Redwood

When somebody stands up in this place, it is normal for them to intervene. However, I see that the hon. Gentleman really wanted to leave. He obviously accepts my criticisms of Lib Dem policy on the matter and is so embarrassed that he has had to flee the Chamber. Perhaps he has gone to look for the person who actually wrote the amendment to find the answer to those interesting questions. The Lib Dems do not have the benefit of a Box of officials to scribble answers when they are under pressure in the Chamber. We saw that lack today when they could give us no answers. Given the performance from the Lib Dem Benches, I urge my hon. Friends not to support their amendment No. 128, as it would create muddle and confusion in a Bill that will benefit from no such extra proposals.

My hon. Friend the Member for South Cambridgeshire has introduced another good proposal: amendment No. 22, which deals with access pricing and returns us to earlier contributions that he and I made in this evening's short debate on these vital matters. Again, that amendment represents a clarification. It would put a little more pressure on the regulator to explore why water prices are so high, to ask why the leading water companies think that prices should go considerably higher and to ask why, so far, so few of the inefficiencies in the leading water undertakings have been squeezed out.

Why is so much of the product still lost between reservoir and market? Why has there not been the same competitive and aggressive promotion of the product as we have with things such as mobile telephony in the now very competitive telephone sector? Why is there so much reluctance to deliver new products and to produce the reserves necessary so that water can be more aggressively sold to the marketplace? Why do we still have such very defensive attitudes to the water industry, thinking that it is somehow wrong to buy and sell the product and wrong for people to want more of it?

I would draw an analogy with the hot cross bun industry. It would be rather odd if, around Easter time, that industry issued a note saying, "It is most inconvenient that everyone wants hot cross buns at the same time. Would people please delay their purchase of hot cross buns until August?" Yet the water industry does that at times. When we want water in August to water our plants, we are often advised that it would not be a very good idea to water them in August. I suspect that, if we have a rainy November and December, we will soon be told that it is all right to water our plants. The only trouble is that they are sodden and most of them died in the drought anyway.

I hope that the important issues that have an impact on consumers—water shortage, advice not to use water when it is needed most, high price, poor investment and poor quality of pipes and the network—will be dealt with under the Bill, but they would be dealt with even better if the proposals made by my hon. Friend the Member for South Cambridgeshire, including amendment No. 22, were passed tonight, and it is with great pleasure that I strongly support them.

Richard Younger-Ross (Teignbridge)

I am fascinated to hear the right hon. Gentleman outline a new Tory stealth tax. I wonder what the extra reservoir capacity that he is clearly proposing would cost the consumer?

Mr. Redwood

As I have explained, the competition under my model would produce cheaper prices for consumers. The Liberal Democrats have not yet grasped the point that there was a massive expansion of telecoms capacity after the introduction of competition. Consumers did not have to pay more for the extra capacity; they paid lower prices because the market expanded so much. The same would happen with water if competition was allowed. As always, the Liberal Democrats are 50 years out of date and very keen to have subsidised, poor quality nationalised services for more or less everything. I was not at all surprised to hear them argue that case yet again tonight. At least the hon. Member for Lewes (Norman Baker) argued it a little more cogently than the hon. Member for Guildford, who is their official spokesman on the issue.

I have been sidetracked, but I wish to conclude my remarks by saying what good amendments and new clauses have been tabled by my hon. Friend the Member for South Cambridgeshire. I am very happy to accept new clause 5—tabled by my hon. Friend the Member for Leominster (Mr. Wiggin), the Conservative Front-Bench spokesman—in the context that I suggested, but I hope that the House will reject the Liberal Democrat amendments, which are full of muddle and confusion.

Mr. Morley

Before I turn to this group of amendments, it is worth responding to a few of the comments made by the right hon. Member for Wokingham (Mr. Redwood), who made a very interesting contribution. We touched on such issues on Second Reading. Although he is right about the problems of leakages, the regulator sets targets for leakage reduction, in which there has been a 30 per cent. reduction.

The Bill reflects the Government's view of taking a pragmatic approach to competition. We may differ about that, but the right hon. Gentleman is right to suggest that competition can produce greater efficiency and reduce prices. However, we also need to balance that against the possible effects on health, the environment and consumer prices, particularly if there is an element of cherry-picking that disturbs the cross-subsidy that can occur in water companies, especially between rural and urban areas, an example that has already been mentioned. The 50-megalitre target has been set to give the potential benefits of competition to some 2,300 water users—generally the larger water users—in the public and private sectors. Under the Bill, they will be able to examine the potential for incomers who may wish to offer a different service and different prices in a competitive way. The provision will be reviewed in due course, so that we can examine its impact and potential benefits. If this element of competition is considered a success, it could be extended. This is a pragmatic approach to a provision that could bring benefits.

Nor do we ignore the point that the right hon. Member for Wokingham made about water management and long-term projection. Water companies are already obliged to have a 25-year forward plan that considers changes in water consumption and demand, and to have drought plans in times of water shortage, for example. Given this year's exceptionally low rainfall, water management has been pretty good overall, although our reserves are getting very low. If normal winter rainfall occurs, there should be no problem, but there may be a need for some short-term measures such as recharging reservoirs from rivers. However, that is all catered for through existing mechanisms.

Amendments Nos. 19 and 14 would require the Secretary of State to appoint a chairman and chief executive to the proposed new authority. I have no problem with the idea of a separate chairman and chief executive. After our discussion in Committee, I re- examined the recommendations in the Better Regulation Task Force report and discovered that the Bill is indeed drafted in such a way as to comply with them. The report recognises that there are advantages and disadvantages to separating the roles. Although splitting them may be preferable, to do so may not be appropriate in all cases. The report states that, for example, there are merits in combining the roles when a regulator is first set up. Doing so can help to smooth the transition and the teething pains associated with setting up or reconstituting a new body. Later, it might be appropriate to split the roles, but it makes sense to retain flexibility, so that we can make the right decision based on all the current circumstances.

Mr. Lansley

I am grateful to the Minister for at least partially answering the question, but of course, the Better Regulation Task Force report that he quotes from predates the Higgs report and the new combined code of corporate governance. When the Government constitute the authority, do they intend to appoint a non-executive chairman and a chief executive, or to combine the two roles into one?

Mr. Morley

It would be premature to give an opinion on that, because the legislation is not in place and we have first to consult the devolved Welsh Assembly, as is only right and proper. There are also consultation procedures that must be gone through.

Amendments Nos. 20 and 21 deal with the board's size and non-executive make-up. Again, I have checked, and the Bill's provisions fulfil the taskforce's recommendations. The report clearly states that, although the taskforce recommends that all regulators should have a board, its size is for the regulator and the parent Government body to decide. The Bill is in line with that conclusion, in that it provides broad parameters but does not dictate the structure. Given the regulator's existing duties, I would certainly expect it to have rather more than just three members. But the taskforce's earlier report pressed for a reduced regulatory role if the market allows for that, which would suggest a much smaller regulator.

On the balance of executive and non-executive directors, the taskforce recommends that at least half the board, excluding the chairman, should be non-executive. The make-up of the non-statutory Ofwat board already meets that recommendation. When Ofgem was set up, it had five executive and six non-executive members; such an alternative is also a possibility. We agree that there is value in the point made by the hon. Member for South Cambridgeshire (Mr. Lansley), but we prefer to avoid the problems that could arise if such a provision were set down in the Bill and operated in, for example, the case of vacancies. However, the structure of the non-statutory board of Ofwat provides a very fair balance and meets the points that he made.

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The taskforce report also emphasised the need for flexibility and the importance of avoiding a one-size-fits-all approach to setting up and managing a regulatory body. Although it is too early for the official Government response to the taskforce recommendations, I can reassure the hon. Gentleman that, in appointing the board, the Secretary of State will apply the recommendations and any other developments in best practice. That will also take into account the report "Independent Regulators" of October 2003.

Under new clause 10, the authority would have a duty to carry out impact assessments of any proposals that it makes that may lead to a change in its activities or that may have a significant impact on the water and sewerage industry or the general public. Ofwat's work with the greatest impact is, by its very nature, the periodic review of water prices. The whole review process is structured like a regulatory impact assessment but on a huge scale. It includes the preparation of broad methodology, the proposal and challenge of investment options, assessment of possible efficiency gains and financing prospects, and repeat consultation with companies and other stakeholders. We are in the middle of that detailed and thorough process, so new clause 10 is effectively asking for a regulatory impact assessment on a regulatory impact assessment. Such a provision is not necessary in the Bill.

We concede that RIAs are good regulatory practice and Ofwat is already committed to carrying out such assessments of new policies or policy changes that are expected to have a direct effect on water and sewerage companies or other stakeholders. That is set out in Ofwat's recently published code of practice, which will become a statutory requirement under the Bill. The requirement for RIAs will be a statutory requirement in the Bill. As I have recognised, such duties have been placed on other economic regulators, most notably Ofgem under the Sustainable Energy Act 2003.

The new clause would require the authority to carry out an impact assessment for all major activities regardless of where the initiative originated. One problem with that is that many water initiatives originate in the European Union, and we already carry out RIAs on them. By leaving such a requirement out of the Bill, the authority will be able to decide when an impact assessment is genuinely needed, reflecting the context of this particular regulator.

Amendments Nos. 127 to 130 seek to put into statute the requirement on the Secretary of State to carry out an RIA whenever standards of performance are proposed under these clauses. The amendments would apply only when the initial proposal was the Secretary of State's, but not when Ofwat was proposing the standards. We certainly support the intention behind the amendments, but we do not think it necessary to place such a provision in the Bill. The Secretary of State is already committed to producing an RIA as well as to widespread statutory consultation whenever these clauses are used to propose standards of performance. Hon. Members may recall that we reaffirmed that commitment in the RIA that accompanied the Bill, stating that a separate RIA would be prepared every time the power was used. We are also committed to producing separate assessments that take account of the environmental, public health, competitive and social impacts of proposals.

Amendments Nos. 128 and 130 would seek to prevent the Secretary of State from making regulations if the RIA showed that the costs outweighed the benefits. That consideration is an integral part of the RIA process.

Amendment No. 22 proposes to allow the authority discretion to apply an alternative pricing principle. That risks access and wholesale prices being unduly linked only to costs incurred in serving a particular customer while ignoring certain other common costs. I am not content that such a pricing process would deliver the Government's objectives for competition in the water industry.

Mr. Lansley

I am disappointed that the Minister has not read amendment No. 22 to find out that its structure expressly allows for fixed costs to be attributed, so it does not address only costs that were directly attributable to the customer in question.

Mr. Morley

I understand the hon. Gentleman's point but risks would accompany that approach. We are worried that incoming competitors could cherry-pick benefits. That would work against the interests of consumers, especially those in high-cost areas such as rural areas.

I listened carefully when the hon. Gentleman cited the examples of Postcomm and Ofgem, but water is not like other utilities. There is no national network for water and costs are inevitably highly localised. Within any tariff group, therefore, there are geographical cross-subsidies. Allowing access and wholesale prices to be based on direct costs alone would lead to the unwinding of those geographical cross-subsidies, which would permit the entry of suppliers in low-cost areas even if they were less efficient than the undertaker. That would prompt undertakers to raise prices in high-cost areas, such as rural areas, to cover their costs, which is my worry.

Although there are essentially no cross-subsidies between tariff groups, there are common costs that undertakers have to incur to meet important statutory and social obligations, such as providing free fire-fighting water and lead pipe replacement programmes. Those costs are not associated with a specific customer, so under the amendment a new entrant could avoid some or all of them. The result of that would be that other customers, including households, would have to bear a greater share of the total cost.

New clause 5 would give water and sewerage companies greater certainty about the policy intention, and likely outcome, of the periodic review. Despite the intention that the provision should clarify the review process, I do not think that it is necessary and fear that its impact would do more harm than good. Ofwat already produces and consults on a comprehensive methodology for the periodic review. It is in the regulator's interest to understand concerns about the review and the impact that it might have on those that it regulates. Given the thorough nature of the periodic review process, I cannot understand how it would benefit from the additional long and rigid timetable that the new clause would impose.

The new right of appeal that new clause 5 would offer to companies would be excessive and could considerably lengthen an already long process. It would strengthen the interests of companies against those of consumers still further. The balance has to be right but the provision would not achieve that. The Better Regulation Task Force report on independent regulators that was published in October had important things to say about regulatory appeals. It commented on stakeholders' ability to appeal, including those on whose behalf regulation is carried out, who include consumers. It also said that stakeholders should not be able to use an appeal mechanism merely to delay a decision that a regulator has to make. New clause 5 fails to address both those points.

New clause 7 would widen the scope for companies to question the validity of enforcement orders issued by Ofwat or the Secretary of State if conditions of appointment or relevant statutory duties had not been met. That is not necessary because the Water Industry Act 1991 already provides a transparent appeal system that ensures that Ofwat acts appropriately when issuing an enforcement order.

New clause 6 would require the Secretary of State, the Assembly and the authority to consult the Health and Safety Commission and undertakers about safety matters. I reassure the House that that has already been agreed in a memorandum of understanding between the HSC and the water regulators.

Amendment No. 18 would require the authority to include in its forward work programme a description of how the projects that it plans to undertake would deliver its wider objectives and duties. Although I do not disagree with the general intention of the amendment, it is not necessary because the authority will have the power only to carry out an activity that complies with its overall duties, and Ofwat is already committed to monitoring performance against objectives.

Amendments Nos. 29 to 31, which were tabled by the hon. Member for Ceredigion (Mr. Thomas), would strengthen the role played by the National Assembly for Wales in the appointment of the authority. There is careful consultation between the Secretary of State and the Assembly and they have a close relationship that works very well. The amendments would ensure that the Secretary of State would consult the Assembly before appointing any member of the authority. The Secretary of State is committed to working with the Assembly constructively and openly, as has been demonstrated on many occasions. With that in mind, I believe that the amendments are unnecessary.

I hope that I have answered all questions asked by hon. Members and commend the Government amendments to the House.

Mr. Wiggin

I am grateful to my right hon. Friend the Member for Wokingham (Mr. Redwood) for making an excellent speech in which he drew attention to the importance of Wales; I am more than inclined to agree. He accurately drew attention to the 50-megalitre limit and loss through waste.

Having listened to the Minister's reply, I feel strongly that he failed to answer the excellent question put by my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). Therefore, it is our intention to support amendment No. 19. With that in mind, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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