HL Deb 13 April 1983 vol 441 cc188-95

3 p.m.

Lord Beaumont of Whitley rose to move, That it be an Instruction to the Committee to whom the Bill is committed that in considering Parts II and III of the Bill they should pay special attention to the Feasibility Report Summary of the Severn-Trent Water Authority (Soar Division), revised March 1981, and to the report of the consultants, dated April 1981, on the Assessment of Agricultural Benefits and Costs of the Soar Valley Improvement Scheme.

The noble Lord said: My Lords, I rise to move the Instruction standing in my name on the Order Paper. When this Bill was before this House on the Second Reading last November I drew your Lordships' attention to the possible implications for the landscape, and wildlife along the valley of the River Soar in Leicestershire if the scheme, which forms the subject of this Bill, was to be implemented in its present form.

It will be recalled that the reason a Private Bill is required in this instance is to provide the Severn-Trent Water Authority with the necessary authorisation to construct certain engineering works along the Soar navigation. These works would bring about flood relief in an area lying roughly between Leicester and Nottingham. The main beneficiaries of the scheme are expected to be owners of residential and commercial properties affected by periodic flooding, road users who currently experience delays caused by occasional blockages to roads in the area, and farmers who might be expected to take advantage of improved drainage to their land to intensify agricultural production.

There is nothing that is unusual about this scheme. Dozens of such river-widening and straightening projects take place each year. But what all these schemes have in common—and this is the point I made during the Second Reading debate on the Bill—is that works associated with river improvements are almost always bound to benefit some interests at the expense of others. The example I used was the effect that the improved drainage to 6,700 acres of agricultural land along the length of the River Soar, and the changes in agricultural practices that could be expected to follow, would have for the appearance of the surrounding countryside and the wildlife found within it. This sort of balancing of advantages and disadvantages is now standard practice for the promoters of any large-scale projects which include an element of public involvement.

The scheme for the River Soar, the subject of this Private Bill, is no exception. I referred to the cost benefit appraisal last November when I criticised the apparent unnecessary secrecy preventing wider public scrutiny of the assumptions and methodology being used in support of such projects. The secrecy is built into the system, and I am not criticising this particular authority in this respect. All too often controversial schemes of this kind have been developed behind a cloak of confidentiality, but in controversial schemes like this, attracting national interest and attention, we really should look at what data and methods of economic appraisal have been used to promote the scheme.

We have had a good airing of this subject recently, during the Committee stage of the Water Bill on 8th March, and I do not need to repeat these concerns, except to say that the general point being made on that occasion was that the secrecy surrounding these economic appraisals in increasingly giving rise to doubts about both the methodology and the assumptions on which they are based. I am pleased to be able to say that the promoters of this Bill have been highly co-operative in making available to me information which does not involve their breaking undertakings of confidentiality to farmers.

However, I am also bound to say that on the evidence of the two documents made available to me by the Severn-Trent Water Authority and mentioned in this Instruction, there is, indeed, substance to the doubts I have just mentioned. Many of the aims of the Bill and of the scheme are beyond reproach and are eminently desirable. I have been alerted and told about the problems of various villages in the area by Julian Hamilton, the Liberal candidate for the area, who has actually been living in one of the houses which is periodically flooded. The villages of Ratcliffe, Kingston, East Leake and Costock in particular will benefit very much from this scheme, but the question arises whether they would not have benefited just as much by a much smaller scheme rather specially tailored to their needs.

The cost benefit analysis prepared for the scheme appears to be profoundly unsatisfactory. It is because I have been allowed an opportunity to examine in some detail the Feasibility Report Summary for the River Soar Scheme, and a supporting document of the agricultural consultants, that I am moving this Instruction today. I do so in the hope that the committee which will be considering this Bill will wish to be satisfied that the river scheme for the Soar can pass a basic test of economic viability which the noble Lord, Lord Skelmersdale, said was the main purpose of these appraisals when he spoke for the Government during the debate on the Water Bill.

In order to illustrate my point, I shall now refer briefly to a few of the points arising from these two documents which the committee may wish to consider. I shall not weary your Lordships by going at any length into them, but I think it is right that I should just mention the outstanding points.

The first issue is whether the test discount rate of 5 per cent. chosen by the scheme's promoters is the most appropriate one for a public investment project of this type. River improvement projects fall within a general category of public expenditure proposals where it is notoriously difficult to estimate a precise value for the expected outputs, and hence especially easy to exaggerate benefits. It might, therefore, have been expected that the Severn-Trent Water Authority would apply a 7 per cent. discount rate in line with advice from Her Majesty's Treasury, in its booklet, Investment Appraisal in the Public Sector (1982). This is merely the first of two or three instances where it appears that the cost benefit lying behind this Bill goes against and is not in line with Treasury guidelines.

The committee considering this Bill will doubtless note that the Feasibility Report Summary prepared by Severn-Trent accepts that, even when everything else is kept unchanged, a change to a 7 per cent. rate of discounting results in a negative net present value for the Soar scheme; in other words, that if the Treasury discount rate was applied the scheme would no longer be economically viable in Treasury eyes.

But it cannot be assumed that everything else would remain unchanged. The committee may wish to pay special attention to two main categories of benefit claimed for this scheme: conversion of agricultural land, currently used predominantly for grazing, to cereal production; and the time savings claimed for road users.

Taking the first of these, it is apparent from the summary report that agricultural benefits are expected to make up the bulk of the total amount of benefits expected from the scheme; perhaps in the region of £5.8 million at current prices, or 75 per cent. of the total projected benefits. With nothing in the two reports to suggest the contrary, it must be assumed that the calculation of this figure is based in part on the current market price for cereals; in other words, on prices guaranteed under the common agricultural policy of the European Economic Community, which we may note in passing results in surpluses of a large number of agricultural commodities. If the committee considers it prudent to take advice on this subject, it may find that many economists, and perhaps even Her Majesty's Treasury, would advise that more meaningful "shadow" prices to be used in an appraisal of this sort would fall somewhere intermediate between EEC market prices and world market prices. If this were done in the case of the Soar project, the result would be to lower the agricultural benefits being claimed by its promoters by some 20 per cent. to 30 per cent.

Still on that question, it is clear that the main basis for projecting the future agricultural, and hence financial, returns should the scheme be fully implemented, is an interview survey of some 30 farmers in the affected areas. It is not my concern here to question the statistical validity of the farmers sampled; rather, the danger of this sort of subjective analysis is that it may carry an inherent bias towards over-estimating farmers' intentions to change their farming practices to take full advantage of the altered drainage patterns.

The report of the consultants makes no reference to this phenomenon known, as many learned in economics here will know, as the "free rider effect", after a famous paper by Nobel prizewinner, Mr. P. A. Samuelson. One way of getting round this problem is to take a comparable survey based on a more objective assessment of farm holdings and farmers. When this was done for the Soar Valley recently by two economists from Leeds University. Messrs. Black and Bowers, they found that the total amount of agricultural benefits would amount to only 71 per cent. of the values claimed in the consultants' report, even when the same market prices are used.

The considerations that I have just mentioned lead me to believe that the net present value of the agricultural benefits claimed for the scheme by its proponents are seriously over-estimated. The same is true of the benefits claimed for road users, estimated in the Summary Report to be in the region of £1.5 million at current prices. This figure is derived by aggregating and putting a price on a large number of individually small time savings by drivers who may encounter delays or diversions during periods of flooding. The estimation of road benefits, whether for new road construction or improvements to existing roads, is a notoriously demanding task for the road engineer. It is for this reason that it might have been hoped that, in line with Department of Transport advice, the promoters of the Soar scheme would have explored a number of different assumptions and variations in driving patterns and behaviour before arriving at the £1.5 million figure.

My comments so far have been directed principally at some of the key assumptions used for calculating the agricultural and road-user benefits. I should like to mention briefly two additional concerns about the methodology employed by the Severn-Trent Water Authority in drawing up its economic appraisal for the Soar Valley scheme. The first concerns the tendency of the promoters to shy away from any attempt to calculate certain negative effects of the scheme, particularly for boat users and anglers, but also for landscape and wildlife, using the excuse that there is an absence of an accepted methodology for measuring certain dis-benefits arising from the project. Of course, it would be naive and wrong to pretend that all costs and benefits could be reduced to a single money amount. Nevertheless, there are techniques well enough known to economists where, with due caution, money equivalents can be adduced for certain recreational benefits.

It is quite wrong for the Severn-Trent Water Authority to set the costs of these recreational benefits at zero, or even to ignore them altogether as in the case of the landscape and wildlife changes, using as support the absence of an accepted methodology. Where certain costs and benefits cannot be properly valued, the advice of Her Majesty's Treasury—and again we come back to Government-based guidelines—in Investment Appraisal in the Public Sector is that they should be quantified so far as practicable, and, where that is not possible, should be listed, making it clear that they are additional factors to be taken into account.

My other criticism—and my last criticism—of the methodology employed by the Severn-Trent Water Authority in its Summary Report is the lack of any mention of reversibility effect, an especially important consideration for public investment projects, such as a river scheme, which have a bearing on environmental quality. Put simply, the effects of some expenditures are reversible while others are, for all practicable purposes, irreversible. The drainage of agricultural land is a good example of the latter. There are special procedures for handling this. What economists frequently refer to as an "option value" should be subtracted from the benefits otherwise attached to the irreversible option. The magnitude of the option value depends on the situation in hand, but they cannot simply be ignored as they have been in the case of the Soar scheme.

Some of these may seem like minor technical points, but I make no apology for that. It is only when the cumulative effect of all these points is taken that we can determine the difference between an acceptable economic appraisal and one that is clearly deficient. If I have trespassed on the patience of the House this afternoon, I apologise. I could have moved this Instruction at Second Reading, which would have taken as long, I may say, but it seemed better to discuss the matter fully with the promoters who have been most co-operative and, I am advised, do not take serious exception to the Instruction that I am moving.

It may be said that we should leave these matters entirely to objectors, and that the Committee is in an awkward situation if there are not petitioners. I sympathise, and I hope I have so phrased the Instruction as not to make the work of the Committee in any way more difficult. But the responsibility rests with us. In this case it seems that we have a chance to act in a very proper category as a watchdog for the public. For various reasons there are now no petitioners. MAFF have been involved, but clearly their cost-benefit instructions differ from those of the Treasury. I believe that the Instruction will help this House to discharge its responsibility to the public. My Lords, I beg to move.

Moved, That it be an Instruction to the Committee to whom the Bill is committed that in considering Parts II and III of the Bill they should pay special attention to the Feasibility Report Summary of the Severn-Trent Water Authority (Soar Division), revised March 1981, and to the Report of the Consultants, dated April 1981, on the Assessment of Agricultural Benefits and Costs of the Soar Valley Improvement Scheme.—(Lord Beaumont of Whitley.)

3.16 p.m.

Lord Nugent of Guildford

My Lords, I should like to make a brief comment on the Instruction which the noble Lord has just moved in such cogent and detailed terms. I should begin by congratulating him on getting such a good trailer in The Times yesterday as a good send-off for him today. As he said, the promoters of the Bill are not opposed to the Instruction. Therefore, obviously, I am not suggesting that your Lordships should reject it.

It is an unusual procedure—some might think a very unusual procedure—to move an Instruction for an unopposed Bill. An unopposed Bill normally is a relatively simple procedure, and of course it has no petitioners against it. The point I wish to make to the noble Lord is that whilst I am sure the Select Committee will study most carefully the long, detailed and cogent speech the noble Lord has made, adducing the objections which he sees, they will be at a serious disadvantage in that there are no petitioners, with counsel, to appear before them objecting to the Bill and with witnesses who can be examined in detail to find out the weight of the objections. Whilst the noble Lord's points will no doubt be considered carefully by the Select Committee, they are at a great disadvantage, and indeed the cause he wishes to represent will be at a disadvantage, if there is no petitioner there in order to develop the matter with witnesses. I should just like to make the comment that on the whole it is a very unusual procedure, and I would suggest that it should remain so.

Lord Shinwell

My Lords, if I intervene it is only for the purpose of asking a question. I hope I am not committing any offence by doing that. I should not dare to take part in a debate on the Water Bill because I know nothing about it. I do not bother much with water anyhow. This is the second occasion, as I understand it, when, after a Second Reading debate, and the subject of the debate being referred, in the ordinary procedural fashion, to a Committee, a Member of your Lordships' House, quite rightly in accordance with the procedure laid down, raises an issue which could have been raised in the course of the debate but apparently it was not done.

Now there is another intervention by another noble Lord raising something which should be referred to the Committee. That the Committee should note. If one finds it difficult to enter into a debate in your Lordships' House, then, as I understand it, all one needs to do is to wait for a week or two and then put a Question on the Order Paper about something that should have been referred to the Committee but was not. If that is the situation, it would suit me very well. I sometimes, as other noble Lords do, find it difficult to put my name on the list when one is not appropriately informed about what is going to happen; so one misses the debate. Therefore, all we would have to do would be to wait and then insert an amendment of some kind, a new reference; and as a result we make a Second Reading speech. May I ask the noble Earl, Lord Ferrers, whether he would answer that question?

The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers)

My Lords, I do not mind being "bounced" by the noble Lord, Lord Shinwell, and being asked to answer his question. It is open to any noble Lord, should he so wish, to move an Instruction to a committee; and, in so far as the noble Lord, Lord Beaumont, has done that, he is entirely within his rights so to do.

Baroness White

My Lords, it is only fair to the noble Lord, Lord Beaumont, to indicate that he drew attention to some of these points on Second Reading, when I briefly supported him, because we felt that something was likely to be amiss unless these matters were taken into consideration. There may have been some error, of omission or commission, in the procedural way in which this has been handled, but the substance is entirely in accord with what Lord Beaumont said today.

The Chairman of Committees (Lord Aberdare)

My Lords, I do not think there have been any errors or omissions, but this Bill has been a somewhat unusual event. As the House will remember, we had the Second Reading on 25th November, in which the noble Lord, Lord Beaumont, and the noble Baroness, Lady White, spoke, and at the time there were two petitions against the Bill. They were not on this subject but on a rather specialised subject. There would have been a Select Committee—this answers the point made by the noble Lord, Lord Shinwell—to consider those two petitions, and at the time I undertook that the remarks made by the noble Lord and the noble Baroness would be referred to that Select Committee.

However, later—on 13th December—the two petitions were withdrawn; and then this Bill would normally have gone to an Unopposed Bill Committee. Now, of course, we have an Instruction; and if the House accepts the Instruction put down by the noble Lord, Lord Beaumont, I hardly think it would be appropriate for it to be considered by an Unopposed Bill Committee. I suggest that if your Lordships accept the Motion I should do what I am empowered to do under Standing Order No. 92 of the Private Bill procedure, which says: The Chairman of Committees may, if he thinks fit, report to the House that, in his opinion, any unopposed Private Bill should be proceeded with as an opposed Private Bill". That would mean that a Select Committee would be set up, could consider the points that have been made today by the noble Lord, Lord Beaumont, and could then make a report to the House. I hope your Lordships will agree that that is the best procedure in the circumstances.

I have great sympathy with what was said by the noble Lord, Lord Nugent. It is not the best of procedures. By far and away the best of procedures would have been if those who object to the Bill had gone through the normal routine and had petitioned against it. Then we could have had a Select Committee and evidence heard on both sides, and that would have been more in accord with our usual practice. But in the circumstances we have now, I suggest that if your Lordships agree to this Instruction I will arrange for a Select Committee to consider the issues which have been raised this afternoon.

Lord Beaumont of Whitley

My Lords, I thank the noble Lord the Chairman of Committees for those comments. It is true that the point arose only after the petitioners withdrew. The time has been extremely constructively spent by discussing with the promoters of the Bill what would be the best way of approaching the problem. There is a serious matter here which should be discussed. I entirely agree it is unfortunate that, by a series of mischances, the usual procedure was not followed. I think the best thing to do now would be to look at the whole matter, and I therefore hope your Lordships will agree to the Motion.

On Question, Motion agreed to.

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