HL Deb 04 July 1977 vol 385 cc90-116

6.41 p.m.

Report received.

Clause 1 [Equalisation levies payable by certain water authorities]:

Lord SANDFORD moved Amendment No. 1: Page 2, line 7, at beginning insert ("Subject to subsection (4A) below").

The noble Lord said: My Lords, the House will remember that at the previous stage of this Bill there was what I might describe as a slip in the drill at the point where I moved Amendment No. 6. The Chairman of Committees explained later on the same day what had occurred, and generously attributed it to the fact that it was his birthday. This means that the Amendments that I moved, and which the Committee accepted after a Division, could not be printed in the Bill that is before us now, and have to be moved again. I understand through the usual channels that it is not the wish of anybody that all the substantial arguments should be redeployed. Therefore, I think I can describe the Amendments that we have down as being drafting Amendments to the original Amendments to make sure that they fit into the Bill as we now have it. In that sense I beg to move Amendment No. 1, and to indicate that Amendment No. 3 goes with it. I beg to move.

The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)

My Lords, the noble Lord, Lord Sandford, is of course absolutely right that this was lost on a technicality, so I do not propose to repeat my arguments why the Government still find these Amendments unacceptable. All I will say is that, even at this late stage, if the noble Lord, Lord Sandford, has a change of heart we will not hold it against him. I would not think it in the slightest inconsistent. I would think that in the period between Committee stage and Report he has had second thoughts which were much better than the first thoughts, and I would strongly urge him to withdraw his Amendments. If he insists on pressing them against the extraordinarily good advice that I am giving him, I do not propose to divide the House.

Lord SANDFORD

My Lords, I am grateful to the noble Baroness for those gracious words, but I shall not succumb to that siren voice. I should like to press Amendment No. 1, but I should like to correct what I said before and say that it is Amendment No. 4 that is linked to this one.

On Question, Amendment agreed to.

Lord SANDFORD moved Amendment No. 2: Page 2, line 11, after ("of") insert ("the aggregate of").

The noble Lord said: My Lords, I beg to move Amendment No. 2. The same point that I was making about having been lost on a technicality applies here. The point is a different one. Amendments Nos. 2 and 3 are linked together. I beg to move.

Baroness BIRK

My Lords, the same applies to this. It really suffered what I could call a posthumous technical knockout. In any case, the same arguments I used before still apply. I do not know whether the noble Lord will change his mind, but I have nothing more to say on this.

On Question, Amendment agreed to.

Lord SANDFORD moved Amendment No. 3:

Page 2, line 26, at end insert ("multiplied by the appropriate factor. In this subsection the "appropriate factor" means the proportion which the average bill for general rates and water services in respect of premises to which a supply of water is provided by the undertaker on an unmeasured basis bears to the average bill for general rates and water services to such premises throughout England and Wales").

On Question, Amendment agreed to.

Lord SANDFORD moved Amendment No. 4:

Page 2, line 26, at end insert— ("(4A) The amount ascertained under subsection (4) above shall be reduced by any relief received in the corresponding accounting period through the rate support grant by premises to which a supply of water is provided by the undertaker on an unmeasured basis to the extent that such grant takes account of water supply charges.")

On Question, Amendment agreed to.

6.46 p.m.

Lord TREFGARNE moved Amendment No. 5: Page 3, line 5, at end insert ("but shall not in any case exceed the amount of any such levy which the undertaker was directed by him to pay under that subsection in the preceding financial year allowing for any appropriate adjustment in respect of that year made under the said section 3(3).")

The noble Lord said: My Lords, this is a new Amendment. The point we are seeking to raise is a new one. I am sorry that we were not able to raise it at an earlier stage. As the noble Baroness is aware, a number of new features were brought into the Bill at a later stage in the Bill's progress and it has only just now been possible for us to form a view on this matter. Clause 1 empowers the Secretary of State to direct equalisation levies to be paid to the National Water Council by those water authorities, and now water companies, with a unit cost below the national average. The Amendments we have just been considering somewhat amended this arrangement, but the amount of any equalisation levy which a water authority, or water company, may be directed to pay is to be calculated in accordance with the formula set out in Clause 1, from which it is apparent that the amount of a levy may, and probably will, vary front year to year.

The object of this Amendment is to seek to place a limit on the amount of the levy which an authority may be directed to pay so as to secure, so far as possible, that householders in the area of an authority or company which is so directed to pay a levy are not subject to an ever-increasing demand to contribute towards the water rates payable by householders in a recipient area.

During the third sitting of the Standing Committee in another place on 8th February the right honourable gentleman the Under-Secretary of State for Wales, Mr. Jones, at columns 125 and 131 of the Official Report, drew the Committee's attention to paragraph 73 of the consultative document, Review of the Water Industry in England and Wales, which states: The interim equalisation scheme will have a progressively limited effect over a period of years". I repeat, those were the words of the Under-Secretary of State. During the debate, the right honourable gentleman reaffirmed that equalisation levies would be of a progressively diminishing amount, and that within about five years they may be phased out altogether. In the circumstances, the Government may seek to argue that the Amendment is not necessary, but I would put to the noble Baroness that if the assurances that the Government have given on this point are worth anything then there will be no objection to writing this Amendment into the Bill.

Baroness BIRK

My Lords, the noble Lord, Lord Trefgarne, is not right because the two things he is trying to do, do not add up. They are two entirely different things which, with great respect, have become confused here. There is in this Amendment a technical defect in that it refers to the preceding financial year, but that is neither here nor there. It is in substance that the Amendment is quite unacceptable.

We have always said that the equalisation scheme is a self-wasting one and that its effect will diminish over a period of years. That is certainly the case. But the main reason for that effect is not that the equalisation transfers will get smaller year by year, but that they will constitute a smaller proportion of each authority's revenue requirement each year as the cost of financing new capital expenditure, and operating costs increasing in line with inflation, outstrip them. There should certainly be a steady decline in equalisation transfers as the historic debt is paid off, and so the "qualifying asset value" as defined in subsection (3) of Clause 1 gets steadily smaller.

But this does not mean that the relevant financing costs will necessarily fall year by year. The most important element in those costs is interest charges, which of course depend on the current level of interest rates. If there is a marked increase in interest rates from one year to another, then even with the smaller volume of debt, the total financing costs may well be higher. This applies of course to the total equalisation pool—that is, the total financing costs of all authorities which go into the equalisation pool—but it need not affect all authorities or companies equally; interest rates do not always move precisely in line.

Moreover, even if interest rates remain stable and the total equalisation pool diminishes, the position of different undertakers may change. This can arise not only from varying movements in interest rates, but from differences in the rate at which they are paying off their qualifying historic debt. This means that an undertaker's average unit cost may fall significantly faster than the national average unit cost, in which case his equalisation levy might well increase though the total volume of transfers was falling. This is an inevitable consequence of a scheme which equalises a moving figure of costs, and that is what this scheme does.

Unfortunately, it is not possible to provide detailed estimates of levies and payments in future years because they will depend on these individual movements in interest rates. What we can say with some certainty is that if, as we all must hope and indeed can expect, interest rates fall below the very high levels prevailing when the notional figures for the current year were prepared, then the total size of transfers should fall and no authority or company should be faced with any dramatic change from year to year.

There is one further objection to the Amendment. The limitation would apply only to equalisation levies; there is no such limitation on equalisation payments. But if the amount of money raised in levies was reduced below the figure necessary to meet the equalising criteria prescribed in Clause 1(7), there would not be enough money in the pool to make the equalisation payments prescribed in Clause 2(2). As we have said before, equalisation is a self-contained game; you cannot reduce one side of the equation without reducing the other by precisely the same amount. I hope that that clear exposition has convinced the noble Lord that his Amendment is really off-side.

Lord TREFGARNE

My Lords, I am not convinced that it is off-side. The noble Baroness, Lady Birk, says that no provision is made in the Amendment for equalisation of the payments; we were well aware of that when we tabled it, and indeed, had we been able to persuade the Government to accept the Amendment, that matter could have been put right on Third Reading. However, I do not think it will come to that. The noble Baroness has totally resisted the very notion of what we are proposing and it is certainly not my intention to pursue the matter to a Division now. I would have wished that she had been able to repeat the assurance given by her right honourable friend the Secretary of State for Wales, when the Bill was in Standing Committee in another place, indeed, I am sorry she has not felt able to repeat that assurance in even firmer tones than did her right honourable friend.

Baroness BIRK

My Lords, while I do not have a note with me, though I have read it, of what my right honourable friend said in another place, if the noble Lord reads that again together with what I have said today, I think he will find that my right honourable friend was saying the same thing. I suggest that the noble Lord has mixed up—I will not use the word "confused"—the point about interest rates and the point about equalisation. I listened carefully when he repeated what my right honourable friend said, and it seemed to me that it was exactly what I was saying. I was pointing out the difference between the running down which he was describing and how it would work if the Amendment became part of the Bill. There really is no difference between us, as I think the noble Lord will find when he reads the two speeches side by side. I appreciate that this is a very complicated subject.

Lord TREFGARNE

The noble Baroness, Lady Birk, is very likely right, my Lords. I prefer to reserve my position on the matter and study carefully what she said, and if I am so moved and if my noble friends agree, I may consider returning to the matter on Third Reading, having regard to the restraints on our procedures as they apply to Amendments that may be moved at that stage. I do not think there is much profit to be derived from taking the matter further at this point and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.56 p.m.

Lord TREFGARNE moved Amendment No. 6:

Page 3, line 13, at end insert— ("(10) In the first financial year in respect of which an order is made under subsection (1) above, the amount of the levy calculated under subsection (7) above shall be reduced by two-thirds and in the second financial year in respect of which such an order is made the said levy shall be reduced by one-third.").

The noble Lord said: I will, with the permission of the House, speak at the same time to Amendments Nos. 7 and 8. Your Lordships know that this Bill provides for money to be levied on water companies and certain water authorities and then paid over to others less fortunately placed than the companies on which the levy falls. When we moved a similar Amendment in Committee we rather underestimated the position and, as I explained at that time, we had not received all the information that we now have as to how these levies and the resulting payments will fall on the newly included water companies.

In Committee I suggested that the water charges falling on consumers living, for example, in the area served by the Thames Water Authority might increase by 10 per cent. or so, and I advanced such figures as being typical; but I underestimated the figures considerably. New figures have come into my hands which I will put to your Lordships and apply them in the hope of persuading the House to accept the Amendment. I am advised, for example, that under the Bill the Bournemouth and District Water Company—I take this and other examples quite at random—will have to increase its charges by 22 per cent. to provide the necessary monies for the levy to be paid. Another company, in Hartlepool, will have to increase its charges by 24 per cent; I noticed that another company, West Hampshire, will have to increase its charges by 27 per cent; and those served by the Portsmouth Water Company will suffer an increase of 23 per cent. in the charges they will have to pay, all these charges applying starting this year.

It is not beyond the bounds of possibility that inflation generally next year will be 10 per cent. or 15 per cent. That inflation will of course apply not only to the costs of water companies but to all other costs incurred by local authorities, and that will increase the general rates which those authorities have to levy. It appears to us therefore that the increase in the burden on householders, taking together the water rates and the local rates, will be very substantial indeed. It seems to us that this very substantial increase ought to be phased and brought in gradually.

Therefore it is our proposal—and in substance it is the same as the one which we put before your Lordships at the Committee stage—that the increase ought to be phased over a period of three years. Amendment No. 6, which is the one that I am formally moving at the moment, provides that the levy should be reduced by two-thirds in the first year and by one-third in the second year, so that on the third year it comes into full force. Amend ments Nos. 7 and 8, which relate to Clause 2, have the same effect with regard to the payments to be made from the levies collected under Clause 1. I hope that your Lordships will agree that this phasing arrangement (as we have called it) will be beneficial to the water consumers and, indeed, to all the householders in the areas served by the authorities affected by the Bill. I beg to move.

Lord PEDDLE

My Lords, I am sure that there is some virtue in the suggestions behind this Amendment—and I should like to speak with particular emphasis to Amendment No. 8. I think that the Amendment provides the means to staunch the wounds that the Bill, when it later becomes an Act, is likely to inflict upon some water companies and water authorities. In view of the fact that the Bill is theoretically concerned with equity, it seems difficult to argue against the basic principle involved in the Amendment. On Second Reading and at the Committee stage, I stated my views on the basic principles upon which the Bill is based. I think that it is ill-timed, and it certainly does not achieve the objectives that the draftsmen intended to secure. But I was pleased that the Government listened to our plea that the water companies should be included, and I thank my noble friend for her contribution to that end.

Therefore, I do not quite share the point of view in the remark, "Oh yes, we wanted to be in, and we are in, and now we squeal like stuck pigs because it is likely to hurt". I welcome the inclusion of the water companies. I recognise that some will gain and some lose, and that the water companies will lose collectively, or will pay out rather more than £3¼ million more than they receive. What we are concerned with is the effect on the ordinary householder user. He is the person with whom we are concerned, not the company that will be paying out. I have had support for the figures that have already been mentioned, and there will, for instance, be more than nine companies which will have increases in charges of over 12 per cent. One instance of an increase as high as 27 per cent. has already been quoted. I am concerned with the effect upon the user.

The original theoretical concept behind the Bill was equity in the burden of charges. If there are transfers that heighten the inequity and at the same time introduce a measure of distortion, then it is perfectly obvious that we should try to adopt some measures in order to reduce the rather savage impact in certain areas. It is interesting—at least to me—that, tomorrow and the following day, I shall be chairing a seminar at Keble College, promoted by the Water Research Council, which will be concerned with the economics of charging structures in the water services. A high-powered team of people drawn from all over the world will be lecturing there, and the point that is to be emphasised is that charging within the water industry today has a dynamic function. That is something of tremendous significance and, to an increasing degree, the whole modern philosophy with regard to charging within the water industry emphasises that the charges should be a reflection of costs. Yet the Bill is doing precisely the opposite. For a variety of reasons acceptable to them the Government are going to obscure that objective.

I should like also to refer to a booklet which I wrote two years ago at the behest of the Chartered Institute of Public Finance and Accountancy. I had the opportunity of recording the first report of the Secretary of State for the Environment in 1973, in which the statement is made that charging policies should be influenced not only by the need to cover revenue expenditure, but also by the aim to make consumers aware, as far as possible, of the real cost of those services. That was the very kernel of the Government's attitude towards pricing policy at the time. I wrote that booklet only two years ago, and I am very anxious to know whether or not there has been a fundamental change in the policy of the Government, because if there has been a fundamental change, it must, as I said previously, apply to other industries.

We must recognise that, today, charging has a dynamic function, particularly in the nationalised industries. I believe that the Bill will, when it becomes an Act, obscure the relationship between charges and cost. I hope that this Amendment will be accepted, because, if we are to proceed with the proposal inherent in the Bill, I believe that the application of the Amendment will at least soften the blow in some areas. Let us look at the situation. We are introducing a Bill to soften the blow of high charges in certain areas of the country. To do this, we are "clobbering"—and unrealistically so—another area of the country. It is not right. There is something fundamentally wrong with proposals of that kind.

We have gone along with the Government's point of view, and I appreciate the fact that water companies have been included. However, I ask that serious consideration be given to this proposal because, as is shown in the evidence that has been produced, the effect, at least upon the water companies and some water authorities, could be considerable, if not catastrophic, in the initial stages. In turn, there will be the effect on the ordinary user. In the interests of the ordinary user, I ask the Government to adopt this phasing principle, because such a method would at least soften the blow.

Baroness BIRK

My Lords, I am sorry that I cannot agree, either with the noble Lord, Lord Trefgarne, who moved this Amendment, or with my noble friend who has just supported it. Let me start off by pointing out once again that neither the Amendments nor the Bill itself have anything to do with inflation, because the Bill has no effect whatever on public expenditure. What it does is to provide for a self-balancing scheme: one where total payments into the equalisation pool will be exactly matched by total payments from the pool. In that way it is a purely redistributive measure, and it is designed in such a way that it will by easy and cheap for the National Water Council to administer. It is true that the increases in some of the company areas are bigger (although I think I would say that the figures quoted by the noble Lord, Lord Trefgarne, are a bit on the high side), but the Government argument is still valid. These companies will pay more because their charges are so very low. They will all, nevertheless, remain a long way below the national average.

Then, we have not heard anything about the companies which are well above the average. Our scheme will still leave consumers in some companies well above the average—mid-Sussex, for instance, 43 per cent.; East Surrey, 22 per cent.; and mid-Kent, 20 per cent. Phasing over three years means that it will be three years before they get even to that level. Mid-Sussex is still nearly 60 per cent. above the average next year. Doing it in this way—and this, my Lords, is really a very modest Bill—will be long-drawn-out agony. It means that taking the Thames area, for instance, the per capita contribution required of Thames consumers will be low—as little as 2p a week for the average household—while the benefit to Welsh households will be considerably greater—7p a week. There are, it is true, more people in the Thames area than in Wales.

What the Bill does is a great deal to help people now facing very high average water bills, at minimum expense to consumers in areas where average water bills are relatively low. I should have thought that it was helping the fight against inflation to bring down these extraordinarily high charges in Wales, in the South-West, for instance, and in East Anglia. People in these areas—and we are talking about the individuals—feel the high charges, and are suffering from them at the present moment. The Government's proposals are, as I have said, a modest measure, and they fall well short of full equalisation of bills. To reduce the transfers, which is what these Amendments seek to do, by two-thirds in the first year of the scheme and one-third in the second year, would make the transfers really derisory and reduce the whole scheme to a nonsense. The life expectancy of the scheme is about five years. In successive years its significance will diminish as transfers become a smaller and smaller proportion of the undertakers' revenue requirements. For these reasons, I cannot advise the House to accept Amendments which would dilute what is a very modest equalisation proposal.

Lord TREFGARNE

My Lords, how disappointing. The truth of the matter is that, if you live in London, your water rates are going to go up, and the household rates which you pay are already astronomic. So for the noble Baroness to throw away so lightly the effect upon inflation is, I believe, unfortunate, unsatisfactory and misleading. There are many poor people in London, and at the moment they enjoy quite modest water rates. It is the proposal of the Government that these water rates should be substantially increased next year. They are not to be phased over one, two or three years but, next year, are to be increased by 20 per cent. or so. At the same time, the domestic rates which those unfortunate people pay, calculated on the rateable value of their property, as are water rates, will also go up, very likely. Heaven knows! they are high enough already, but that the noble Baroness just dismisses.

As for the unfortunate people of Wales, who the noble Baroness says suffer such astronomic water charges at the moment, it is indeed the case that the people of Wales, although served by the Welsh Water Authority, pay somewhat higher water rates at the moment than those paid elsewhere. But, of course, the truth of the matter also is that the domestic rates paid by those people are substantially lower, and thus the total burden falling upon householders in Wales is significantly less than the burden falling upon householders where, under the proposals of the present Government, the water charges are to be increased.

My Lords, I am not the least bit persuaded by the noble Baroness. She talks of figures somewhat as if it did not matter about the individuals involved. But the individuals do matter, and I believe they are the people we ought to seek to protect. The water companies are not complaining, as I understand it, of their inclusion in the Bill. Indeed, they were anxious to be included, and now, thank goodness! they are included; but it is right and proper that their inclusion should be equitable and that the burden falling, not only upon them but upon the water authorities which are already covered in the Bill, should be phased in gradually, so that the increases which fall upon householders are not lumped on them suddently next year, or even this year, as is the proposal of the Government. I am very disappointed that the Government have found it impossible to yield in any way on the proposal that we have put to your Lordships.

Baroness BIRK

My Lords, I wonder if at this moment, without interrupting the noble Lord's flow, I may put a point to him. I do not accept that I have dismissed lightly the plight of people in different areas. What I should like to put to him is whether he thinks that everyone in, for example, Wales, the South-West, East Anglia or Northumbria is well off, while all the poor of the country are concentrated in the Thames area and in the other areas which will be contributors under the Bill? Because it is just not so: the population there is a mixture, as it is anywhere else. Furthermore, I wonder whether the noble Lord could clarify his view on this figure with regard to the Thames area. The actual figure, as I understand it, is a 5 per cent. increase. In Committee the noble Lord said it was 10 per cent.; now he is claiming 20 per cent. We seem to be having a great numbers game going on here, and I think we ought to get it clear.

Lord TREFGARNE

My Lords, as to the number of poor in Wales or the West Country compared with the number of poor in London, I do not have at my fingertips—nor, I suspect, does the noble Baroness—the total number of those below the average national wage, or whatever line she likes to draw, living in the West Country or living in London. But one thing I do know is that there are a great many people living in the Greater London Area who are very hard-up. They are hard-up for all sorts of reasons, no doubt, but one reason in particular is that the general rates they have to pay are very high. The cost of all the social services and other things provided by the Greater London Council is no doubt very high. All the householders living

in the Greater London Area have to contribute to those costs, and thus the rates they pay reflect that situation.

As for the percentage increases, I do not think it is profitable to bandy detailed percentages around if the noble Baroness does not want to, but the truth of the matter is that the people in London, for example, will pay substantial increases. All the figures that I produce and all the figures which the noble Baroness produces are forward projections, and may in the upshot prove optimistic or pessimistic. If the noble Baroness thinks that my figures are unduly pessimistic and hers are unduly optimistic, or the other way about, so be it. The noble Baroness says that she thinks her figures are right. I wish all her noble and right honourable friends were as confident and accurate in their predictions of, for example, the rate of inflation. I remember, in August 1974, her right honourable friend the Chancellor of the Exchequer announcing to the world that inflation was down to 8 per cent. My inflation was not down to that level then, nor has it been since. I am firmly convinced that this Amendment is a significant improvement to this Bill and I hope your Lordships will agree with me.

7.20 p.m.

On Question, Whether the said Amendment (No. 6) shall be agreed to?

Their Lordships divided: Contents, 44; Not-Contents, 30.

CONTENTS
Alexander of Tunis, E. Hereford, V. Reading, M.
Amherst of Hackney, L. Hornsby-Smith, B. Romney, E.
Amory, V. Long, V. Sandford, L.
Avon, E. Lyell, L. Sandys, L.
Brooke of Ystradfellte, B. Merrivale, L. Southwell, Bp.
Brougham and Vaux, L. Monck, V. Strathclyde, L.
Camoys, L. Monson, L. Strathcona and Mount Royal, L.
Cathcart, E. Morris, L. Sudeley, L.
Cullen of Ashbourne, L. Mowbray and Stourton, L. [Teller] Swinfen, L.
de Clifford, L. Trefgarne, L.
De La Warr, E. Newall, L. Vivian, L.
Denham, L. [Teller] Northchurch, B. Wakefield of Kendal, L.
Drumalbyn, L. O'Hagan, L. Ward of North Tyneside, B.
Elton, L. O'Neill of the Maine, L, Westbury, L.
Hatherton, L. Rankeillour, L. Young, B.
NOT-CONTENTS
Allen of Abbeydale, L. Goronwy-Roberts, L. Peart, L. (L. Privy Seal)
Avebury, L. Hale, L. Phillips, B.
Banks, L. Harris of Greenwich, L. Pitt of Hampstead, L.
Birk, B. Houghton of Sowerby, L. Ponsonby of Shulbrede, L.
Blyton, L. Hylton-Foster, B. Popplewell, L.
Champion, L. Jacques, L. Stone, L.
Collison, L. Lleweiyn-Davies of Hastoe, B. Strabolgi, L.
Davies of Penrhys, L. McCluskey, L. Taylor of Mansfield, L.
George-Brown, L. Milner of Leeds, L. Wallace of Coslany, L. [Teller]
Gore-Booth, L. Oram, L. [Teller] Wynne-Jones, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.

Clause 2 [Equalisation payments to be made to certain water authorities]:

7.27 p.m.

Lord TREFGARNE moved Amendments Nos. 7 and 8:

Page 3, line 21, after ("to") insert ("subsection (3A) of this section and") line 38, at end insert— ("(3A) En the first financial year in respect of which an order is made under section 1(1) above, the amount of the payment calculated under subsection (2) of this section shall be reduced by two-thirds and in the second financial year in respect of which such an order is made the payment shall be reduced by one-third.")

The noble Lord said: My Lords, Amendments Nos. 7 and 8 are consequential upon Amendment No. 6. I am not, therefore, proposing to make a further long speech but would merely say that Amendments Nos. 7 and 8 apply to Clause 2 and their effect is to phase the payments while the Amendment to which your Lordships have just agreed was to phase the levy. I hope you will agree that these two Amendments are consequential. I beg to move.

Lord TREFGARNE moved Amendment No. 9:

After Clause 2, insert the following new clause:

Grant in lieu

.—(1) The Secretary of State may, with the approval of the Treasury out of money provided by Parliament, make to any water authority a grant in lieu of the whole or part of an equalisation payment.

(2) Where such a grant is made the amount of the grant shall be deducted from the amount of the equalisation payment to that water authority and shall also be deducted proportionately from the equalisation levies to be paid by statutory water undertakers under section 1 above.

The noble Lord said: My Lords, this Amendment is similar but not identical to the one moved by my noble friend Lord Sandford during the Committee stage of the Bill. As your Lordships have heard, the Bill provides for a system of levies and payments to equalise the charges of water companies across the land. However, in my view and in that of my noble friends, and, indeed, of my honourable and right honourable friends in another place, this is not a satisfactory method of equalising the charges, if equalisation itself be desirable; and there is certainly room for more than one view as to that. We believe it would be appropriate to give to the Secretary of State the power, but not the obligation, to make certain payments by way of grant where, for one reason or another, the system of levies and payments does not appear appropriate.

During the Committee stage in this House the Amendment that was moved by my noble friend was resisted by the noble Baroness. As I recall, she had three principal objections. The first was that this was an increase in public expenditure; and she "twitted" my noble friend and myself, and others on this side of the House, with our apparent desire to increase public expenditure in this specific area while we have constantly resisted any increase in public expenditure across the whole range of Government activities. We accept that as a reasonable objection to what we were then proposing; that is why this Amendment is not mandatory upon the Secretary of State. It is enabling only, and enables him to take what we believe to be the desirable course when Government finances allow it.

The second objection which the noble Baroness raised was that the Amendment was limited in its scope in that it provided only for a grant to the Welsh Authority. In deference to the wishes of the noble Baroness, we have amended the Amendment—if that is the right expression—so that now the Secretary of State can use the power that we seek to give him to make a grant to any authority covered by the Bill.

The third objection was that the Amendment was out of order because we were encroaching upon the prerogative of the other place. I am sorry to tell the noble Baroness that there was no need for us to alter our Amendment in that respect because the noble Baroness was plumb wrong on that matter. I have taken the best advice, and I am informed that there have been many cases in which the Government have proposed Amendments in this House which are either not covered by the money resolution or which are to a Bill in respect of which no money resolution has been applied. In all such cases, a money resolution has been passed in the Commons when the Lords' Amendments are considered. I am further informed that this is also the view of the authorities in the other place.

I hope that your Lordships will agree therefore that the shortcomings, if there were any, in regard to our Amendment at the Committee stage have now been substantially overcome and that your Lordships will therefore agree that this Amendment ought to be included in the Bill. I beg to move.

7.34 p.m.

Baroness BIRK

My Lords, the noble Lord, Lord Trefgarne, is quite right when he says that there are several reasons why the Government cannot accept the Amendment. In the first place it would be redundant. He reminded me that I "twitted" him last time about the increase in public expenditure. It does not alter the substantial point because the Secretary of State is not making the power mandatory, but, nevertheless, there are some extremely unpalatable implications for public expenditure, even if the Amendment is now on the basis of the Secretary of State being able to choose whether or not he will do this. What would still be very dangerous would be to inaugurate Government subsidies to an industry whose annual revenue requirement is about £1,200 million, and for this reason the Government opted for a self-balancing scheme avoiding central subsidies.

I do not know whether the noble Lord has in mind the possibility of a future Conservative Government having to operate the Bill, because his noble friend all the way through the Committee stage talked as though he was ready to throw the whole Bill out of the window. If one noble Lord wants to keep it with extra public expenditure and the other wants to get rid of it, are they seeking to ensure merely that they will have adequate powers to distribute Exchequer subsidies without having to obtain their own approval? Maybe this is part of the Tory Party's bold new programme of reducing the burden on the taxpayer.

Lord TREFGARNE

My Lords, if the noble Baroness will allow me, I am not forecasting an Election this week, next week or next year, but I have been listening to her right honourable friend the Prime Minister who assures us that all is going to be all right next year. If we are to be guided by what he told his audience at the weekend, then by next year the Government should have plenty of money for subsidising everything, including the unfortunate water consumers in Wales.

Baroness BIRK

My Lords, with great respect, if in the future a Conservative Government are elected—and I hope that does not happen—for the sake of the country I hope that the noble Lord, Lord Trefgarne, does not become the next Chancellor of the Exchequer, because the idea of a Government subsidising an industry with the annual revenue requirement of the water industry, and which has been able to be self-balancing, seems absolutely wrong. I do not think we are going to have that much oil pouring in from anywhere.

However, apart from the public expenditure point, the Amendment now, as the noble Lord quite rightly said, is not restricted just to Wales. Nevertheless, my basic objection is the same. We are keeping to a self-balancing scheme. That means that equalisation involves some going up and some coming down. The argument is the same, except on the last round Wales was just picked out for special preference. It does not alter the basic point that underlying the whole scheme is the question of redistribution and self-balancing. This Amendment removes that and brings it into the taxation and taxpayers' area.

Regarding privilege, I take the point that that is something for another place. I am not convinced that it will not raise a point of privilege. That is no reason to deny it in this House. That is a matter for another place and I certainly would not rest my case solely on that argument. The case is on the main point of a self-balancing scheme. That is the underlying motive of the whole Bill. Therefore I ask the House to reject the Amendment.

Lord TREFGARNE

My Lords, I am sorry that the noble Baroness is not able to offer us a more helpful approach to this Amendment. I am convinced that she and her advisers have not really appreciated the merit of it. It was certainly not our intention that the grant should totally replace the unhappy and, we would say, unsatisfactory equalisation arrangements, but that it should be complementary to them. Our Amendment is drafted in such a way that the grant could be of a sum much less than the total revenue requirements that the noble Baroness has bandied around, which are irrelevant figures in the context in which we are considering them.

We had in mind, as the noble Baroness knows, because this was implicit in the Amendment we moved on Committee stage, that the Secretary of State should have the power to make a grant on a selective basis to certain water companies or water authorities who were particularly hard hit in any one year. However, we find, to our regret, that the Amendment is not acceptable to the noble Baroness and therefore will not pursue the matter further. We are disappointed that the noble Baroness does not agree with our desire to give the Minister this more flexible power. In the circumstances, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 3 [Supplementary provisions as to directions and orders]:

7.41 p.m.

Lord TREFGARNE moved Amendment No. 10: Page 4, line 19, leave out ("he considers") and insert ("is").

The noble Lord said: Clause 3(1) of the Bill refers to the determination of levies and payments on the basis of estimates. Clause 3(3) prescribes the procedure for subsequent adjustment of these estimates to bring them into line with actual figures when the accounts are available; but it leaves it open to the Secretary of State to make such adjustments to the levies or payments as "he considers necessary".

It is not clear why the clause cannot simply prescribe that when the actual figures are known the levies and payments will be adjusted accordingly, unless it be the fact that the Secretary of State wishes to retain the power to change the figures if they do not happen to be to his liking. I am informed that it is quite possible that there will be substantial changes in the amounts when they are recalculated on the basis of the true figures as these become available. We therefore think it is very important that the Secretary of State is not, as is provided in the Bill, empowered to make adjustments to the levies which he alone considers necessary, but clearly as they are necessary. That is the purpose of our Amendment, and I beg to move.

Baroness BIRK

My Lords, as the noble Lord, Lord Trefgarne, has said, the calculations for equalisation levies and payments under Clauses 1 and 2 have of necessity to be based on estimates, since the orders have to be made before the start of the year to which they relate. Clause 3 requires the Secretary of State to recalculate the levies and transfers in the light of the actual figures as soon as they are available and to take any discrepancy between the two sets of calculations into account in subsequent years.

The purpose of this Amendment is presumably simply to remove what might appear to be an unacceptable degree of discretion to the Secretary of State in deciding what adjustment he will make. I have explained why it is essential for the Secretary of State to retain considerable discretion in making the basic calculations —because of the unavoidable need for working to broad assumptions—but I do accept that there is no need for similar discretion at this point. The Secretary of State will indeed do what "is" necessary. In those circumstances, I accept the Amendment.

Lord TREFGARNE

My Lords, words fail me! I am grateful to the noble Baroness. It was a point that we considered to be very important. The noble Baroness has saved the House and my tonsils quite a bit of effort, and I am happy to acknowledge her acceptance of our Amendment.

Clause 6 [Citation, interpretation and extent]:

7.46 p.m.

Lord SANDFORD moved Amendment No. 11:

Page 5, line 29, at end insert— ("() This Act shall come into force at the expiration of the period of three months beginning with the day on which it is passed.")

The noble Lord said, My Lords, I beg to move Amendment No. 11. I have to go back to a point I made at Committee stage, the main substance of which was that I felt it was not appropriate for this Bill to be enacted before we saw the results of the Government's consideration of the issues raised in their Consultative Document, with which they initiated the review of the water industry.

The noble Baroness was able to tell us at Committee stage that a White Paper will be with us quite soon. It was promised for the spring, and she told us it would be here this month, in July. It seems to me important that there should be a period during which the implications of that can be read, marked, learned and inwardly digested by the regional water authorities and the water companies, and indeed all concerned, before starting work on this Bill, if, unfortunately, it is enacted. The noble Baroness resisted the Amendment I moved then on the grounds that its effect would be to delay the issuing of the orders called for in the Bill which, because of the Amendments she was tabling that day, would begin not when I thought they would begin and when they would have begun if the Bill had just included the regional water authorities. The noble Baroness told us that it is necessary that they should first be issued in November because of the different financial years followed and adopted by the water companies.

I withdrew the Amendment in order to take both those points into account, and the new Amendment, I think, does so. It will still ensure that there is a delay after the passing of this Act so that the implications of the Government's White Paper on the water industry can be absorbed; but the delay has been reduced to one of three months, which will not cause any delay in the issuing of the first orders under the Bill. I hope that, with those adjustments, this Amendment will be acceptable to the Government. I beg to move.

Baroness BIRK

My Lords, I appreciate that the Amendment which the noble Lord, Lord Sandford, has now moved will avoid the effect of his earlier Amendment, which would have delayed equalisation for another year; but, frankly, I do not see what possible practical effect his new Amendment would have. He told us on Committee stage, and has repeated it now, that his purpose was that implementation of the Bill should take place only after Parliament has seen and debated the impending White Paper concerning the review of the water industry. I explained to him the Government's intentions on publication of the White Paper, to make equalisation orders under this Bill.

The White Paper will be published later this month and, subject to the Bill gaining Royal Assent, we shall make equalisation orders governing next year in November or December. I very much hope there will be time for a debate on the White Paper before November but, as the noble Lord must be aware, one cannot make promises in such matters. But, whether or not time can be found for such a debate, the arrangements proposed in the Bill would still go ahead. They must go ahead, because those water companies whose financial year starts on 1st January must be given time to take their levy or payment into account when fixing their charges, and the water authorities will have to take equalisation of payments into account in the lengthy process of preparing and submitting their budgets to the Price Commission, which also has to begin in November.

The Amendment, it is true, still allows us to make the orders as planned in November, but I really do not think it would serve any useful purpose. What it may do is to hinder us in one way: it would prevent our making orders any earlier than November if we found ourselves in a position to do so. In that sense, it could be counter to everybody's interests. We should get the orders made as early as possible in order to give people as much notice as possible. I say, frankly, that if the noble Lord wants to press his Amendment I shall not force a Division, but I hope, in view of the time sequence I have pointed out, that he will withdraw the Amendment. I think he will get the opportunities he wants, and his Amendment would merely result in delaying the possibility of getting on with some of the orders before November.

Lord SANDFORD

My Lords, I am grateful to the noble Baroness, Lady Birk, for the way in which she has received this modified Amendment. This, of course, is not the end of the day. The Bill will not be enacted in precisely the form in which it leaves this House. The Amendments that we have been proposing, though primarily designed to improve the Bill, are also to give another place an opportunity to reconsider a number of matters.

I think that the question is whether they want the Bill to come into force the moment they have enacted, which I imagine will be later this month, and before—if it is before—they have seen enough of the White Paper. I am inclined to accept the point that the noble Baroness has made and move this Amendment, knowing that if the Government present our Amendments to another place with reasonable despatch and the White Paper has, in fact, by then been issued and they have seen it—and they can see for themselves whether it has implications for the operation of the Bill—then the Amendment can come out. If, on the other hand, another place take the view that it is inappropriate to have the administrative actions that flow from the Bill operating before they have seen the White Paper, then they can leave it in and it will have that effect. I do not think that the effect it will have will be all that disastrous.

I believe that it is necessary to give another place an opportunity to consider the matter which this Amendment raises; namely, the appropriateness of having a Bill on this minor matter coming into force, before the White Paper reviewing the whole industry is before Parliament. For that reason and bearing in mind that it is quite open to another place to take it out if, in the circumstances, they think that it should come out, I commend Amendment No. 11.

7.53 p.m.

Lord TREFGARNE moved Amendment No. 12: Page 5, line 30, leave out subsection (3).

The noble Lord said: My Lords, this Amendment is in the nature, I believe, of a probing Amendment. Clause 6(3) defines an unmeasured water supply as a supply to consumers whose charges for the supply are not payable by reference to the volume of water supplied". I believe that this observation will require some clarification.

Many measured consumers—consumers who have meters installed—do not in practice pay by reference to the volume of water supplied because of the effect of the minimum charges based upon the rateable value of the premises supplied. If these consumers had to be included in unmeasured supplies a very considerable administrative problem would be created. Furthermore, there are some other added complications of which I believe the Government have not seized themselves. I am told, for example, that in one particular city certain premises are supplied wholly by meter while some similar premises are supplied partly by meter and partly by reference to a fixed charge, while some other equally similar premises are charged on a wholly fixed basis.

I suspect that this inconsistency and, indeed, this haze of mystery, which perchance the noble Baroness, Lady Birk, will be able to clarify, results from the haste with which the Government introduced the Bill in another place, hoping then that the Bill would come into law in time to be brought into force this year. It was, I suspect, for that reason, that those consumers who have metered supplies were totally, or so the Government hoped, excluded from the Bill. Unhappily, as I have related, there are a number of consumers who either wholly or in part are supplied through a meter but who none the less may in fact be charged on a basis related to the rateable value of the property because they consume below the minimum quantity specified for meter charges. I hope that the noble Baroness will be able to help me on this matter. I beg to move.

Baroness BIRK

My Lords, I am glad that the noble Lord, Lord Trefgarne, made it clear that this was a probing Amendment, because this is a difficult matter. The Government have always made it clear that our objective in introducing the Bill is to bring some relief to those people who most need it; namely, the domestic consumers in those areas where charges are above average. We should have liked to limit it entirely to domestic consumers but that simply was not practical: there is no easy way in which either the water authorities or the water companies can distinguish the householder from the other consumers who get their water on an unmeasured basis, and in practical terms we have had no alternative but to include all unmeasured consumers. There are, of course, relatively few non-domestic consumers who get an unmeasured supply; nearly all industry and most commercial premises pay by meter.

It is, however, the normal practice for consumers who pay by meter to be liable to a minimum charge based on rateable value which applies if their consumption falls, so that the metered charge would be lower than the water rate. In this way all consumers are liable to pay no less than the water rate, but those with heavy demands pay more.

The effect of equalisation transfers under this Bill will be to increase the water rate of those undertakers who have to pay levies and to reduce that of those who receive payments. Clause 4 ensures that this is the effect. It is our intention that these changes in the water rate should apply also to minimum charges for metered consumers. That seems to us right and equitable. As I have said, the principle of the minimum charge is that all consumers should be liable to pay at least the basic water rate, and we clearly cannot have two levels of water rate in the-same area. So I can confirm that the definiton in the subsection which this Amendment seeks to remove will allow the water undertakers to increase or reduce minimum charges to metered consumers on the occasions when those minimum charges apply.

I think, in addition, that I should also make clear that for simple practical reasons we do not propose to include such properties in the total numbers used to make the calculations under Clause 1 and Clause 2. There we shall stick to the number of properties without a meter. The reason, of course, is that the basic calculations have to be made before the start of the year and there is no way of knowing which, if any, metered properties will end up paying a minimum charge. At the end of the year it would be a lengthy process to identify those properties which had done so and we believe that bringing them in would make no significant difference to the calculations. It also is our understanding that all the water authorities and the companies are content with this approach. I hope that this rather lengthy explanation makes the position clear. I concede that we are prepared to look at the matter at the end of every year and see whether an adjustment is necessary.

Lord TREFGARNE

My Lords, I believe that in this matter the noble Baroness, Lady Birk, has helped me considerably. I cannot pretend that I am precisely clear about the effect of what she has said, but she sounded very convincing. I shall study very carefully what the noble Baroness has said and see whether the matter needs to be raised again. She certainly grasped the point which I was seeking somewhat inadequately to put before your Lordships; namely, the effect upon those consumers who have a meter installed but who consume less than the minimum requirement. I think that the noble Baroness has made the situation clear. I am sorry that they are not to be included in the calculation, but if, as the noble Baroness has said, the effect of their exclusion is really not to make any significant difference then I suspect that on consideration I shall be satisfied with what the noble Baroness has said. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.