The Water Supply

HL Deb 22 April 1985 vol 462 cc976-1000

7.55 p.m.

Lord Nugent of Guildford rose to ask Her Majesty's Government what provision they propose to make for maintaining existing safeguards for the purity of water supply and the protection of the environment in the event of privatisation of the water industry.

The noble Lord said: My Lords, this Question concerns the discussion paper which has been issued by the Department of the Environment with regard to the possibility of water authority privatisation. There are some critical questions to ask.

First, I should declare my support for private enterprise for the very best possible reason: that it has always supported me. My background is that when I started between 50 and 60 years ago I worked on a farm without resources other than what I earned. From scratch I managed to get together the resources by one means and another to get a farm and start on my own and make a success of it. Therefore, I know the virtues of private enterprise. I believe that any aspect of life which has to meet trade in the market is best handled by private enterprise where the incentive is really with the person running it.

I therefore support my noble friends in their general policy in returning to private enterprise a number of large industries, many of which were wrongly nationalised in the past, but the term "privatisation" always gives me a pain in the neck; if only some other word could be found perhaps it would be better. However, I think the policy is correct.

It would be a mistake to think it should be the universal solution to everything, that it should be a dogma that we must return or make into a private company every aspect of life. The modern water industry is certainly an aspect of our economy which I think should not be considered in that context. The modern industry was conceived by the Water Act 1973. A Conservative Government, under the really remarkable vision of my right honourable friend Mr. Peter Walker, created the modern industry. It has the really splendid feature of unified river basin management—single management of the whole water cycle. Both in the interests of safeguarding adequacy and purity of supply and conservation of the water environment this structure of the water industry is recognised as the best in the world and is the envy and admiration of all overseas visitors to this country. All of them suffer in their own countries from fragmentation of functions and all the conflicts and inefficiencies that that entails.

My party, splendid though it is, has never taken credit for creating this excellent structure. There were no fewer than 1,400 separate local sewage authorities, 167 water undertakings based on local authorities, and 29 river authorities. That is nearly 1,600 bodies altogether, many of them highly defective, and they were all brought together into 10 regional water authorities. For 11 years it has worked, and the truly excellent labours of those who work in this industry have gone largely unsung.

My party on the whole was very surprised to find that it had actually nationalised an industry. However, decapitating the industry two years ago by abolishing the National Water Council—a very strange reward for good behaviour—is now proving to have been a great handicap. It has deprived the industry of an effectively constituted mouthpiece to express the general view of the regional water authorities that privatisation could be seriously against the public interest.

Under the present structure of management great progress has been made in strengthening the security of supply, which stood up remarkably well in the semi-drought conditions of last summer, and in cleaning up polluted sections of our rivers. The management structure exists to continue these desirable trends; but here I express to my noble friend the caveat that the Department of the Environment's progressively tighter financial squeeze is already showing signs of causing deterioration. Personally I await with anxiety the river pollution survey due this year—due every five years—because I fear that it will show that there is deterioration taking place. This is unavoidable unless there is adequate capital spending year by year.

Against that background of the current working of the water industry, I should like to look at what is proposed in the Government's discussion paper. The privatisation of the 10 regional water authorities complete I do not propose to discuss, because I am sure that nobody will think that that is in any way possible. But the paper sees the privatisation of the operational functions of supply and sewage treatment and disposal as being the easiest to arrange. I would agree with that. Private companies could carry out those functions. The example of the 30 private water companies which operate with complete satisfaction confirms that such a structure would be viable for the whole country—I suppose one for each regional water authority area for supply—and probably a parallel structure of private companies for sewage service could be set up. There would be more practical difficulties, but it would be possible.

That then leaves what the discussion paper calls the environmental regulation and community services to be provided for. Those fall broadly under the heading of river management and include such matters as allocation of different waters among uses which may be incompatible; management of those waters and licensing of users; augmentation of resources by reservoirs or boreholes; and the upgrading of standards and facilities. But at all stages those functions imply a jurisdiction over the use of water, whether for the water authority's own operational purposes, by individual users or for the public good.

The discussion paper asks how that broad complex of regulation and function could be provided for. The answer is that it could not be performed by a private company operating for profit in any circumstances and would certainly have to be performed by a public authority appointed by Her Majesty's Government and accountable to Parliament. One would be needed for each of the existing 10 regions of the water authorities. Also a national co-ordinating authority would be necessary at the centre. The whole of this structure would resemble our old friend the river authority of the past, writ large.

The paper refers to the fisheries function as a complex mixture of regulation and operation—I can confirm that—closely related to river basin management. It can never be self-financing, and there are important aspects of conservation. Fisheries therefore would have to be combined in the ambit of the river management authorities.

I shall spare your Lordships a discussion on land drainage for flood and coast protection. Interwoven as it is with the farming world, it is a subject of great complexity. Suffice it to say that it is essentially a non-profit-making affair and is dependent on a system of grants which is now the subject of a Ministry of Agriculture, Fisheries and Food review. My noble friend Lord Belstead will know all about that.

However, I have said enough to indicate the main activities of regional water authorities which it would be possible to operate by private companies—water supply and sewage treatment and disposal. But to provide the necessary safeguards it would be essential to set up a structure of river basin authorities, one for each region, and a national co-ordinating authority at the centre responsible for overall water conservation and supply, for maintenance of river quality objectives, particularly control of discharges, and for ensuring the quality of drinking water, with an adequate research capacity to back it up.

That monitoring authority should also be required to monitor the level of charges levied by the operating companies on their customers so that there is no danger of a monopoly position and exploitation. This regional structure of monitoring and regulating authorities would be expensive and would have to be financed by a levy on the operating companies.

The public health factor deserves a special mention beyond what it is given in the discussion paper. The fact is that completely reliable, pure drinking water does not happen by accident. We are richly blessed in this country that we have it. Almost everywhere else we go in the world except America, we take jolly good care not to drink the tap water. In this country we know that it is safe everywhere. That is especially commendable when there is a substantial element of re-use, as there is, for instance, from the River Thames and from some other rivers, which have to carry the effluence of sewage works and industries throughout the country. Throughout the world every year more tens of millions of people—tens of millions of people!—die of water-borne disease than any other single cause. Those diseases include typhoid, cholera and hepatitis, to name but a few of the worst. Those epidemics were serious here in Britain, even in the lifetime of some of our oldest noble friends such as Lord Shinwell and Lord Brockway.

Today the danger here is increased by the presence of many of our citizens who have families overseas, living in countries where those diseases are endemic and whom they visit for holidays. The danger of virus carriers returning here is obvious.

Protection against those dangers is secured by good management continuously at every point and eternal vigilance at the critical points. I refer to monitoring of effluent discharges, regular monitoring of river samples, laboratory research to monitor changes—changes are happening all the time—and ground-water monitoring, especially for nitrate buildup, which is already disturbingly high in East Anglia particularly. The fact is that environmental factors are continuously at work to cause changes in water quality and composition. High-class research must be continuous to keep track of the changes that are taking place and especially the possibility of new viruses.

The existing structure of regional water authorities provides all those safeguards woven into their operations and backed up by the Water Research Centre which they finance. A new privatised water industry would have to reproduce all that as a separate, independent structure, monitoring authorities.

This brief analysis of the prospect of privatising the water industry indicates that it is theoretically possible for private companies to be run for some of the operations, but at the heavy price of breaking up the present admirable structure of unified river basin management. The complex structure of private companies and public monitoring authorities which I have described is unlikely to be operable cheaper than the existing structure because of the large element of duplication. It would probably be more expensive. The Government discussion paper asks all the important questions save one, and that I put to my noble friend: what would be the point of this privatisation?

8.8 p.m.

Lord Energlyn

My Lords, the noble Lord, Lord Nugent, is unquestionably the outstanding authority on the conservation and administration of our water supplies. It is therefore, I think, very fine of him to present this Question in your Lordships' House. Surely the Government will heed what he has said in the past 15 minutes. It was a brilliant survey of the situation. As he says, if one looks at the document it is full of questions but rather thin on answers. The one question that it does not ask is: what is good about this present system?

If one tries to answer that, one is bound to agree with what the noble Lord has so forcefully and so clearly expressed this evening. As he said, where else in the world can one turn on a tap and drink mains water safely? There is nowhere that I know of. Why change the system that makes that remarkable situation a reality? From the time of Elizabeth I this industry has grown because, if I may remind your Lordships, she granted a charter in Hull in order to purify the water to suppress the onset of the plague. The whole attitude to water has grown from those primitive days because people realised how dangerous it was to willy-nilly consume water from any source whatsoever.

Not surprisingly, we were the first people in the world to institute a geological survey of underground water supplies. We were the first people in the world to monitor underground water supplies and to demonstrate the principles of hydrogeology upon which is based our understanding and use of underground supplies. For example, there were events such as those that took place in Trafalgar Square. Originally those fountains were artesian but the chalk waters were overpumped by the hotels, office buildings, and so on, all around them. The water table dropped and the artesian head was destroyed.

Similarly, on the coast, due to the drop in hydrostatic pressure the sea moved into the chalk and polluted the underground supply until it is now unusable. Likewise, in the Humber Estuary the same battle has been going on. It would not have been controlled if it had been left entirely to individual undertakers to institute such controls. Wherever in the world you turn you will see that Britain has been taken as an example of how to develop and how to control underground and overground water supplies. As the paper says, and as the noble Lord, Lord Nugent, has pointed out, there are really four types of water. They are: agricultural water, industrial water, domestic water and drinking water. The interesting point is that it is drinking water that dominates the purity of the other three categories. It could be argued that it is not necessary to have this high degree of purity of water for many industrial uses, particularly for cooling purposes; but we have. A bureaucratic approach like this may be to say, "Oh yes, well, we can do something about that", but it is physically impossible to distribute those four types of water independently around the country.

Indeed, as a side shot, what has been the reason behind the growth over the past decade of the consumption of bottled water? It is to try to drink water which has particular drinking properties. It does not contain chlorine, which offends many people, so they prefer to drink non-chlorinated water. But all the time they are drinking safe water. While there is a possible plausible argument for privatising certain aspects of our water supply, I think that on balance the Government have enough troubles on their shoulders and should leave this one alone.

8.13 p.m.

Baroness White

My Lords, I am sure that we are all very deeply indebted to the noble Lord, Lord Nugent, for drawing attention at this early stage to some of the problems which would be associated with any attempt at wholesale privatisation of the water industry in this country.

After the brilliant introduction by the noble Lord, Lord Nugent, I feel that it would perhaps be inappropriate for one to attempt to go into great detail tonight. I say this also partly because, as is known to some of us, the water authorities themselves are holding discussions and have been asked by the Minister concerned to present him in due course with their conclusions. Until we know in greater detail what they are thinking, perhaps it would be impertinent for some of us to intervene too much in detail.

However, having said that, there are certain basic considerations which are obvious to anyone with a reasonable knowledge of the industry, of its structure and of its functions. The noble Lord, Lord Nugent, is the acknowledged expert in this House on this matter; but I think that those of us who are proposing to take part in this debate also have at least a fair degree of familiarity with the industry and some of its major problems.

Unfortunately, such acquaintance seems to have been lacking in whoever drafted the discussion document issued on the 3rd of April and currently in circulation under commendation of the Minister of State at the Department of the Environment, Mr. Ian Gow. One is relieved to learn that at least it is not regarded by Mr. Gow as a formal consultation document. If it were, I am afraid it would have to be regarded as totally inadequate.

It so happens that on Monday, Tuesday and Friday of last week, I had the pleasure of being in the company, consecutively, of the leading personalities, as members or officers, of the Water Companies Association, who are this year celebrating their centenary; of the chairmen of the water authorities in England and Wales, and finally of the senior members and executives of our Welsh water authority, which is the one with which I am most familiar.

We did not meet on any of these three occasions primarily to discuss the Unstarred Question of the noble Lord, Lord Nugent, but inevitably it became a major topic of conversation. In these three fora that I have described, there were people of very different points of view as regards the political organisation of our economy. However, on two matters I found absolute unanimity.

I am sorry to say that the first matter was that the discussion document is not really worthy of respect. I found there was very strong feeling about this; that people should not have been asked to base their discussions on a document which failed to show evidence of grasping the very serious fundamental problems which the noble Lord, Lord Nugent has so admirably described tonight. I think one should say that.

Secondly there was complete accord with the opinion that whatever changes, if any, may be in view, we must not destroy the great advance made in the 1973 Water Act, which for the first time brought the management of the total water cycle into integrated control on the basis of the major river catchment areas of this country. This was a tremendous advance. I played a modest part in this House when that legislation was going through. That was what introduced me to the intricacies of the water industry. No one can doubt that this structure is of absolutely basic and fundamental importance to the satisfactory management of our water supply, sewage treatment, and all the other ancillary considerations which apply.

It is accepted by everyone that to break up this system would be a criminal offence, in political terms. I cannot believe that the Government have any such intention. I hope that the Minister will make that perfectly clear tonight in his reply, though one appreciates that at this stage perhaps he will not be able to go into it in very great detail.

If one is going to maintain this system, which has proved to be one of the most successful anywhere in the world, then it inevitably imposes considerable restraints both on the degree and the method of any privatisation which it might be sensible to contemplate. The present Government must surely recognise that the water industry is not a good candidate for wholesale privatisation. I am delighted and extremely grateful to the noble Lord, Lord Nugent, for the way in which he has made this absolutely clear, beyond any peradventure.

It must be recognised that this is so even by those who are strongly in favour of privatisation in most circumstances, just as, equally, it must be acknowledged by those whose obsessions lie at the other end of the spectrum that in a free country, you cannot nationalise everything. Similarly, you really cannot privatise everything. Having said that, there are a couple of other points that I would make before turning to the purity of drinking water and the protection of the environment, which I had supposed would be the main subjects of the dissertation of the noble Lord, Lord Nugent.

The first matter is that the impetus of current Government interest in possible privatisation must stem, partly at least, from the recent very well publicised complaints of the chairman of the Thames Water Authority about the restraints on financing his operations. I see that the noble Lord, Lord Skelmersdale, shakes his head. I should be astonished if that had had no influence whatever on Her Majesty's Government. Be that as it may, one must emphasise that Thames is one of the few water authorities, if not the only one, in the country in a position to do all that Mr. Roy Watts would wish to do. There are other authorities, including the one in Wales, that are not so well placed for some of the enterprises that a well-heeled water authority in the South-East of England might wish to undertake. Nevertheless, I believe that the basic grievance and complaint about hindrance on financial grounds is justified. It is not only a matter of cuts. It is a matter of the way in which the financial arrangements are conducted. This has been a matter of concern to me for many years, particularly since my modest previous preoccupation as chairman of the Land Authority for Wales. There I learned something of the way in which Treasury financial constraints impede progress if one is trying to make a public service industry enterprising.

No one at the Treasury under either Labour or Conservative administrations, I am sorry to say, has really faced the problem of how best to finance such organisations so that they are both accountable and enterprising at the same time. The nonsense of end-of-year accounting and the kinds of restraint placed on sensible borrowing for capital works intended to last for decades ahead is so ludicrous that one is ashamed at the failure of successive Governments to deal with it. We cannot go into this subject tonight in any detail. My own view is that it is at the root of some of our major national discontents.

In certain areas, the water industry could provide a good example of genuine public and private partnership. An example to which one obviously turns is the relationship of the water companies. Nowadays, there are not so many of them. But those which have survived have, on the whole, been successful and some even distinctly enterprising and innovative in the technical administration of their organisations. However, they are not ordinary commercial private companies. They are statutory companies. They have to comply with a very detailed system of organisation and responsibility. They can work satisfactorily only within the total framework of the water industry as established by the Act of 1973. It would be an entirely different ball game if one tried to run the whole water industry on the basis of ordinary private commercial companies. The statutory water companies have certain advantages. Many of them are successful and in some respects extremely interesting in the way that they operate. But they are entirely dependent on being part of a total system. Nevertheless, they bring in an element which, I think, is acceptable and can be most valuable.

Similarly, the water authorities are under encouragement from the Government, as one would expect, to put a good deal of their work in certain directions out to contract. We know that this can have its dangers, but it can also have its advantages. I was interested to learn over the weekend that the Welsh Water Authority, according to the most recent estimate, puts out 87 per cent. of its capital works programme to competitive tender. I do not see that the Government can have any cause for complaint about that. My view is that a new approach to financing and also to co-operation with private enterprise at certain levels would meet many of the aspirations of even the present Administration, without the danger that has been so vividly described by the noble Lord, Lord Nugent, of destroying a system that is of inestimable value to the country as a whole.

If Mr. Gow persists, we shall have to discuss these issues again in very great depth. Meanwhile, it is most appropriate that the noble Lord, Lord Nugent, should point out the problems. I had supposed that he would be going into greater detail on the purity of our water supply and the protection of the environment. I had originally supposed that the water quality issue might be the easier of the two areas to deal with. On reflection, I am not so sure even about that. There are ongoing problems of contamination by farm and industrial wastes as well as the risks arising from our rundown sewerage and water supply infrastructure, to which I would expect the noble Lord, Lord Sherfield, to make some reference.

To deal with this complex of considerations, one cannot rely simply on an external monitoring system without, as the noble Lord, Lord Nugent, said, having a quite unnecessary and unacceptable degree of duplication. To my mind, it simply makes no sense. One of the virtues of the integrated control and management of the system, subject to EC and other conditions, is that it is now, on the whole, working well. It would be an absurd extravagance to split this integrated organisation into two. I just hope that the Government will have the good sense to think again.

Similarly, on the protection of the environment, over the past decade and particularly since we have inplemented the Control of Pollution Act, even if by very slow stages, and also the Wildlife and Countryside Act, which placed obligations on the water authorities towards furthering conservation, there has been a very marked improvement. As someone who has worked for many years with voluntary bodies, I can say that we have been slowly building up a very good relationship, at any rate with the water authorities that I know best. Inland drainage has been the least satisfactory area, but even that is currently under discussion and some improvements may come about. Again, the whole matter is integrated with the total water cycle and river catchment managment. The prospect of an attempt to break this up into commercially viable units, if such could be achieved, which I very much doubt, and subject to the constraints that would be unavoidable, frankly fills me with foreboding. One can only hope that wiser counsels will prevail.

8.29 p.m.

Lord Molson

My Lords, my right honourable friend the Secretary of State for the Environment, at the last Conservative Party conference, declared his political faith in forthright terms. He said that as a lifelong Conservative he considered that the burden of proof in favour of a change was on those who advocated it. If he applies that criterion to the discussion paper on water authority privatisation he will proceed no further in this matter. The only argument I detect in the whole document in favour of privatisation is the statement in paragraph 3: Privatisation is a key element in the Government's overall strategy". I take leave to say again, as I have said before, that the policy of this Government is too much influenced by doctrinaire dogma and too little by the old-fashioned Conservative pragmatic view that if something is working well, leave it alone.

I am no expert on water problems like my noble friend Lord Nugent, who has made so convincing a speech in opening this debate, but it happens that as a Member of Parliament I have had an ordinary politician's working experience. The first painful experience was in 1931, only weeks after I had been elected for Doncaster, when several hundreds of my constitutents were evacuated from their homes owing to an overflow of the River Don. Much has been done since then, by the legislation imposing on water authorities responsibility for land drainage and flood protection, to prevent future disasters of that kind. It would be unwise to change a system which is working well.

From Doncaster I moved to the High Peak where naturally I was concerned because reservoirs in my constituency provided water for Manchester, Stockport, Derby and Sheffield. When my constituency was supplying necessary water for all those great towns it was natural that I should accept three postulates: first, the vital importance of water as a national asset; secondly, the need to co-ordinate all the resources of the large catchment area which was my constituency; and thirdly, the importance of unified management from my moorlands to the urban consumers far away.

Privatisation in any shape that I can understand, and which the discussion paper suggests, negates every one of my three postulates. I should have thought that each was obvious and uncontroversial. Let me pick out one word in the discussion paper as a merit of privatisation—"competition". That is precisely what was fortunately avoided in the High Peak. The thirsty industrial towns in the Midlands did not compete against each other but co-operated—to their advantage and not to the disadvantage of my constituents.

If this were a full-dress debate on a proposal to privatise the water industry I should take almost each question asked in this paper and should give an answer in the negative. Speaking on an Unstarred Parliamentary Question, I shall be brief and make only three additional points. The paper, at paragraph 19, says that there would have to be Government regulation of the private companies' financial arrangements so that they could not, exploit a monopoly position to the detriment of its customers". So there would be Government regulation in detail of the private companies' finances. That would not reduce bureaucratic control; it would only complicate it. In the same paragraph it is stated that the charges must provide for reasonable dividends to the shareholders. That would mean higher water charges.

The present system by which the Government can give directions to the water authorities is not unreasonable. I have not criticised the system although I did criticise the directive to the Thames Water Authority to increase the water charges beyond what it considered to be justified and necessary.

To provide sufficient financial inducement for private investors to buy the £57 billion assets would involve greatly increased water charges because the return would have to be substantially more than the present yield. The Government admit that, and they say that the yield is too small. That is why they have issued these directives. So it follows quite clearly that the effect of that would be to raise charges. All these principles would involve also, as the paper implies, financial regulation to avoid abuse of the monopoly power. That is in paragraph 24(d).

In addition to these financial regulations there would have to be what is called in the paper a regulatory agency. This, it is suggested, might be a central regulatory body on the model of the Office of the Director General of Telecommunications. It might need, and I quote: a network of regional bodies mirroring the operational structure of the industry. It might be an additional responsibility of the Office of Fair Trading"— and significantly the words are added— suitably expanded". So this would be a new nationwide bureaucracy to supervise the obligations, objectives and operations of the privatised water undertakings.

I was under the impression that it was the intention of this Government to reduce bureaucracy. This paper demonstrates quite conclusively that privatisation of the water authorities would add a new bureaucracy, and perhaps two. There is no evidence that privatisation would increase the efficiency of the service to compensate for these new bureacracies. Indeed, the paper emphasises so strongly all the difficulties inherent in its own suggestions that (I quote from paragraph 22): if it is decided in principle to proceed", it will be only for the doctrinaire reason that, privatisation is a key element in the Government's overall strategy". The Secretary of State claims that as a Conservative he does not seek to make changes for the sake of change nor for the sake of ideological doctrine. If so, and if he carries that out, he will not proceed any further in this matter.

8.40 p.m.

Lord Sherfield

My Lords, I am very glad of the opportunity to join in this debate on the question posed by the noble Lord, Lord Nugent of Guildford. Nobody that I know knows more about the water industry than the noble Lord, though perhaps the noble Baroness, Lady White, is proxime accessit. I feel rather diffident about intervening in the debate. But I was the chairman of the sub-committee of your Lordships' Select Committee on Science and Technology which in December 1982 produced a report on the scientific and technological aspects of the water industry, and I have, not unnaturally, continued to take an interest in its progress. I should add that the noble Lord, Lord Nugent, was a co-opted member of the sub-committee and his great experience was of enormous value to us. The Select Committee's Report was debated on 25th April 1983 and the definitive response from the Government to the Committee's recommendations was received on 9th November of the same year. The Select Committee found the Government's response forthcoming and generally satisfactory. But it was concerned with research and development and not with politics or administration.

The water industry had sustained a major reorganisation in 1973. While the Select Committee's inquiry was in progress, the Government announced their intention to abolish the National Water Council. This policy was enshrined in the Water Act of May 1983 which, in addition to the abolitions, streamlined the authorities and entrusted the management of each authority to an executive board of between 12 to 15 persons on average. Following the passing of this Act, the Water Authorities Association was set up to coordinate policy, and consumer consultative councils were established to replace consumer representation on the authorities.

All this took some time and the new arrangements are therefore quite young in age. I, certainly, and probably most of my colleagues on the Select Committee—though of course I cannot speak for them—believe that the water industry, thus twice restructured in a decade, should now be allowed to settle down to a period of stable and steady development, especially in the applications of new technology to its major poblems of leakage control, the renewal of the ageing and rapidly deteriorating water delivery and sewerage systems, and the maintenance of the quality of the water itself. Unfortunately, the Department of the Environment, "like fidgety Phil, couldn't sit still", and in a debate on the water industry in another place on 7th February the Minister raised the issue of privatisation, and so, well before the new management of the water authorities had had time to settle down, threatened to throw the whole organisation back into the melting pot.

Acting with unaccustomed speed, the Department of the Environment has now addressed what is described as a discussion paper to the water authorities. This discussion paper has already been knocked about a bit by previous speakers, but I propose to give it one or two further knocks. It is an unusual document to issue from a Government department. It is uncharacteristically succinct. It starts by stating the benefits of privatisation in general, and in the course of 36 short paragraphs it succeeds in asking 49 questions, some of them rhetorical. Moreover, some of these questions are fired off in salvoes like multiple warheads in a ballistic missile. I give one example. It reads: On water conservation it would be desirable to ensure that supply in the longer term is safeguarded and sources used economically. How could this be guaranteed? Would it be necessary to establish a National Water Conservancy of some kind? How would the competing claims of undertakers be resolved? If I were a busy executive of a water authority I should be tempted to answer those questions by simply saying, "How indeed?" But I am sure that the water authorities will be far more polite than I would be.

Seriously, the normal practice would surely be for the department to sit down to think the matter through, and then to send a policy document round for comment and not expect the recipients to do the thinking for the department. This document is just a substitute for thought. It may be due however to the trimming down of the water directorate in the department itself. In our 1982 report we drew attention to the lack of strategic thinking in the department. The situation does not appear to have improved in this respect.

I should like to assure the noble Lord on the Front Bench that I, too, like the noble Lord, Lord Nugent, am a supporter of the principle of privatisation. But in my opinion, as in his, privatisation should be a policy not a dogma. There is an old saying that any stigma is good enough to beat a dogma with, but policy statements deserve and receive reasoned criticism and consideration. At the moment, we do not have a policy statement, only a rather hastily compiled list of questions.

Privatisation, as experience has shown, is not an easy process, but some industries and parts of industries are appropriate candidates, some are less suitable but possible, some may be suited for a trading fund—though the precedent of the Ordnance Survey trading fund in this House is not a very happy one—and some, in our complex modern mixed economy, are not suitable at all. At first sight, the water industry is in the last category. The noble Lord, Lord Nugent, gave some of the reasons with great force and clarity. I venture to add just a couple more. In such major upheavals in an organisation—there are other examples around—there must always be concern about the effect on scientific research and development. This is particularly important in the water industry in which the Water Research Council has established a notable reputation for excellence. Has any thought been given to this aspect of privatisation? In the discussion paper I have found no mention of it. Perhaps the Minister will be able to enlighten the House?

The second point has already been dealt with by the noble Baroness, Lady White. I will simply add that the statutory water companies are mentioned in the department's paper as supplying 25 per cent. of the country's water, but there is no question about the effect on them of the privatisation of the rest of the industry. It is not even clear whether the questionnaire has been sent to them. Possibly, the noble Lord may know the answer to that.

Anyway, my Lords, what is the rush? As I have said, the industry has just been reorganised for the second time in 10 years. The new regime should be given adequate time to find its feet and the department should take adequate time to find some practical solutions to the many difficulties which, to do them justice, they clearly perceive.

It is possible that the noble Lord who is to reply to this debate can make a persuasive case for the privatisation of the industry. Indeed, I am sure he will make a fine attempt at it. But I think he will have great difficulty in making a case for the paper which has been sent to the water authorities by his noble friend.

8.50 p.m.

Lord Craigton

My Lords, I am grateful to my noble friend for allowing us to discuss this important subject. Some years ago the Thames Water Authority tried a much-criticised experiment of returning the salmon to the River Thames. It incurred a great deal of expense and much criticism and it was successful. When I take my boat up the Thames, I find that the towpath is perfectly satisfactory, I do not slip into the river; I find that the stiles which are put up blend with the scenery and are perfect; I find good moorings with no charges made—and all this adds to the beauty, the environment and the use of the river. None of those things could be expected of private enterprise because there is no profit in it.

But, as has been said already today, there is another view which is equally valid. We no longer have to prove that denationalisation benefits both the state and the customer. This is an accepted fact; so it must be right to pass the profitable parts of industry, or the parts that can be made profitable, to private enterprise. I expect that, when this is done, if it happens, I shall get a better supply in my own home. I might even be connected with the main drains; and certainly there will be fewer leaking mains. These two facts are not opposing, they are complementary. With great humility and having read with great interest and much value the discussion paper, I have simply come here this evening to suggest what I believe is a possible pattern of control.

There must be a Minister responsible and answerable to Parliament and to the European Community. The non-profitable activities—there are about a dozen of them and they are very important—must remain so far as is practicable exactly as they are. I do not see why the state should go to the trouble and expense of changing the departmental responsibilities that are giving us so much good service now. The Minister must issue operating licences to take over profitable parts of the industry to a strategically and operationally correct number of private undertakings—no more.

The private undertakings will go public, as others have already done, and the essential element of competition—and this is the point raised by my noble friend Lord Molson—will remain in the prestige and the quoted share price. Interests can be met and will be met by the terms of the licence. We have experience in this country of the issue of licences in relation to broadcasting. I see no reason whatever why the private enterprise water authorities should not be licensed.

But I see one difficulty of which no mention has been made today which faces the whole operation. It is this. To put right the infrastructure after decades of neglect needs more capital than can make privatisation a worthwhile investment. That is absolutely certain. The Government now have an opportunity to face up to this matter and to draw a line for each undertaking below which the State will have to pay for putting right past neglect. That is my suggestion. I believe it is a workable one. I am grateful to my noble friend Lord Nugent for letting me make this speech.

Lord Energlyn

My Lords, before the noble Lord sits down may I ask him how he would picture the privatisation of the sewage stations? These are the most incredible institutions in this country. If I may make one statement, it is said that what Mogden, of the Thames Water Authority, does today the world will do tomorrow. They are quite fantastic.

Lord Craigton

My Lords, the principle of privatisation is that if the operation is being paid for now and can be run at a profit or if it is not making a profit now and if, run by private enterprise, it can be run at a profit, then for both the user and the taxpayer it will pay to nationalise. If not, it should remain as it is and its influence on the private undertakings should be the subject of a licence.

8.55 p.m.

The Earl of Halsbury

My Lords, I must apologise to those of you who thought, when the noble Lord, Lord Craigton resumed his seat, that you would be finished with the matter and could relax and listen to the Front Bench before going home. Whether I put my name down or only dreamt I did, I do not know; and the Whips' Office have not been able to resolve the question either. It was always my full intention to support my noble friend Lord Nugent of Guildford in this debate. We are all very grateful to him for giving us an opportunity to discuss something so very important as water.

I distrust fashionable phrases, fad phrases, popular phrases, until I find out what they really mean in a given context. Privatisation is just such a one. It is very fashionable nowadays in Government circles, which means (by the natural process of politics) that it is very unfashionable in opposition circles. What does it mean in the context of a public utility? I shall refer to three: gas, water and electricity. In regard to gas, I spent a quarter of my working life as a director of one of our regional boards and my knowledge is based on first-hand experience. So far as electricity is concerned, my long personal friendship with the late Sir Ronald Edwards, chairman of the central electricity authority, gave me the opportunity over many lunches to discuss with him the true problems of running public utilities on a national basis. For water, I turn to my friendship with the noble Lord, Lord Nugent of Guildford, who has taught me a little of what he knows so much of.

What is the object of the exercise? Is it to promote efficiency by allowing customer choice to interact with the price mechanism? If that is what it means, it is a clean impossibility. The connection of a householder to his mains, the connection of an industrial user to his mains, is a major piece of capital investment. It cannot be altered. You cannot run two water mains down one high street and then have men permanently digging up the pavement to connect the customer to one main rather than another because there has been a small shift in the price. No likely price differential could possibly pay for decoupling and recoupling to other mains. And, as I say, think of the confusion on our pavements!

If privatisation is to promote competition, it cannot be competition of that kind. It must be by some alternative mechanism. You can decouple mains supply and distributional networks. This, to some extent, is what happens in the gas industry as it now is. The gas fields are in the hands of BP, Shell, Esso, Phillips, Conoco, and so on. They act as independent suppliers to British Gas who own the high pressure mains, and then, when they let down the pressure, delegate the local distribution to local executives of the old regional board variety.

In principle, you could do this with the electricity authority. You could decouple the Central Electricty Generating Board, privatise it among a lot of competing customers and then let them sell their output to the grid and the central electricity authority. But that end in view could only be achieved in reality if there was sufficient spare capacity to give the monopoly buyer a real choice of where he was going to buy. In terms of misuse of resources, you would lose on the swings what you gained on the roundabouts, and I see no point in it.

In the case of gas, however, there is a virtual abundance of spare capacity by simply turning on the taps for a time which is long by comparison with the usual terms of pricing contracts. But I doubt whether the housewife would get more joy from this by way of price reductions.

Another comparison and difference is this. Gas and electricity have no natural boundaries. You can transmit or pipe them from anywhere to anywhere else, but the river basin has a natural boundary, delimited by its component watersheds. It therefore must be treated as a natural unit and be the concern of a board set up independently of local government, because the watershed will criss-cross over more than one county. Another difference is that gas and electricity are not recycled. Water is; and therefore it must be purified to requisite health standards. Water can of course be carried across watersheds in aqueducts or similar devices. Therefore if there are a number of catchment areas, what is surplus to one can be distributed in another; and so the terms of inter-trading between independent organisations represent a problem that has to be solved.

Yet as I pursue this matter that elusive thing, the promotion of efficiency, always seems to slip through one's grasp. How can that be resolved? Horizontal organisations, all doing the same sort of job in different places, can be made to adopt uniform accountancy procedures, the management statistics can be compared on the same basis and the most efficient of the local boards used as a stick with which to beat the less efficient. That was how the gas industry worked under Sir Henry Jones when he was chairman of the Gas Council. Only one thing was denied us: the money market. We had no independent borrowing powers, apart from local overdraft facilities. The Treasury insisted on doing the borrowing for us because, as it asserted, it could borrow cheaper than we could. And of course what it lent us went with Treasury control over the investment to which the borrowings were put—control by a body which had no responsibility at all for performance. And where you have Treasury control, there you have the basis for political interference.

I remember very well how, in the Six-Day War, the oil companies all put up the prices of oil simultaneously and the cement industry raised its prices immediately because of the increased cost of oil. The gas boards were not allowed to do so. So what happened? We simply squandered the accumulated reserves of years by selling gas at a loss, and then had to put up the price of gas in the end. That is what you get out of Treasury control. I often used to argue with chairman after chairman—I had about three of them altogether during my period of service—that what we would give our eyes and ears for would be independent access to the City of London to borrow money on our own terms and theirs, without any control over what we did with it.

So, putting all this together, I would postulate a national body or authority, acting as supervisor for the purpose of supply, storage, recycling and distribution in each river basin, delegated to subordinate boards in each. The authority would be responsible for keeping the subordinate boards on their toes and would borrow what was needed on the market to top up whatever surplus was generated out of its present policies. Of course it would not be fair to ask it to put on to the price the cost of repairing past negligence—the point made by the noble Lord, Lord Craigton, who preceded me. I would certainly agree with that. It is the business of Government to do that. Its terms of reference would be to see that the in-house engineering facilities provided were minimal and the amount of work put out to competitive tender with the engineering industry maximal. I think that point was made by the noble Baroness, Lady White. This is not very unlike what we now have, or could have.

The three kinds of work referred to in the discussion paper—operational activities, environmental operation and regulation and community services—should stick together under one main authority which would probably have separate executives to manage all three of them independently, with a similar structure on the central authority; so that you would have a typical line-and-staff problem to solve. But these things are not insoluble. The problem of writing terms of reference is really the basic issue; the rest is shadow boxing. Privatisation is a nostrum that I simply do not accept as a cure-all for everything; but I believe I am now repeating what has been said by other speakers and I shall resume my seat.

9.5 p.m.

Baroness Nicol

My Lords, it was my intention not to refer tonight to privatisation, but in view of the bait that has been thrown out from so many previous speakers I will make some comment on it. Most speakers—all but one, I think—have agreed that privatisation is not appropriate for this industry. The noble Lord, Lord Craigton, has made an interesting suggestion and I should like to study it a little more before making any comment on it. But even the noble Lord feels that straight privatisation is not a solution. There has to be a fairly complicated superstructure in order to keep it in its right position. We are very grateful indeed to the noble Lord, Lord Nugent, for giving us the opportunity to discuss this, at what I think is an appropriate moment, because I hope that at the end of this there will be a very strong message back to the right honourable Minister as to the views of this House.

One thing is clear: you cannot have competition in a monopoly. Privatisation relies on competition for its success, and you cannot have it in a monopoly. You cannot have commercial sanctions against defaulters where the commodity which you are supplying is essential to life and there is no alternative for them. This, I think, is something which is overlooked. In the days before every house had piped water, water was freely available in other ways, either by means of wells in rural areas or communal pipes in urban areas. That situation no longer exists. So is the suggestion that if the charges are such that some people may not be able to pay, they should be cut off? Surely that cannot be so, and perhaps the Minister will tell us what particular solution can be put forward for that.

As the noble Baroness, Lady White, and the noble Earl, Lord Halsbury, have said, the solution to the problem may well lie somewhere in between, but one item which should be taken very seriously is the need for existing water authorities, if they remain, to be allowed to take commercial decisions. I think most of us were horrified earlier this year at the difficulties of the Thames Water Authority in connection with its rates and the fact that it was not allowed to approach the question of its debts and of raising capital in a commercial way. Many of us questioned that at the time and will continue to question it. I think that that is true of other authorities also. However, let me return to the document which gave rise to this discussion and look a little at its status. It is not really, as many speakers have said, a serious consultation document; it is simply a series of questions. In my view, a kite was being flown. I think that that kite is being tugged at pretty fiercely tonight.

The first criticism I would make of it is the very limited circulation, Even in flying a kite, you need to fly it over a wider area. The views which should have been sought should have included those of the local authorities, the Ministry of Agriculture, Fisheries and Food, conservation bodies and consumer organisations. Without their views, any decision or any further action on the lines of this document would be made on insufficient evidence and most of us here would find it completely unconvincing and scarcely worthy of consideration.

There was a Green Paper issued by the Ministry of Agriculture, Fisheries and Food in March this year—that is, only last month. It was called Financing and Administration of Land Drainage, Flood Prevention and Coast Protection in England and Wales. It set out to examine all the possible financial alternatives which are open for these operations. Nowhere that I can find is privatisation mentioned as an alternative. Page 7, paragraph 2.17, reads: The Government would welcome the views of interested parties on questions relating to Exchequer grant discussed above"— I shall not weary your Lordships by reading too much of it, but it goes on— (a) Water Authorities"— and these are the alternatives offered to the water authorities—

1. "(i) to retain the present system; or
2. (ii) to move to a single fixed rate or to a system of two or three fixed rates, to be allocated by Ministers; or
3. (iii) to change over to a block grant system".

There was no word of privatisation and that was in March this year. We have to ask: does the MAFF know what the DoE is doing, does the DoE know what action the MAFF is taking, or do they just fall out with each other and not discuss these matters at all? I had better return to that and come to all the general privatisation points later because I want to get on to the main questions which were asked tonight.

I now come to two items; one is the purity of water and the other is the need to protect the environment. We have a right to expect that the purity of water supplies will be guaranteed by existing legislation, whatever happens to the rest of the industry. However, the quality of our water is in some areas already suspect, despite the encouraging words of the noble Lord, Lord Nugent; and I believe that we have one of the best water supplies in the world. But there are difficulties arising, as has been said by one or two other speakers, as more chemicals find their way into our water sources and as our sewerage system becomes less efficient through age and dilapidation, so that rivers and estuaries are becoming more polluted.

We are in danger of failing to meet our own required standards, not to mention the new EEC regulations. The need for continuing research, which the noble Lord, Lord Nugent, mentioned in particular, as well as for capital investment in the infrastructure, is essential. It will be interesting to hear what measures are proposed by the Government—and I hope that the Minister has this answer ready—to persuade any potential purchasers of the industry that they should make the enormous investment necessary to maintain and enhance existing standards of water quality.

Turning to the question of environmental protection, it is unlikely that the existing safeguards under Section 22 of the Water Act 1973 or the Countryside Act of 1968 could be transferred to private organisations. They are not the type of responsibility, in their present form, that could be transferred. The Wildlife and Countryside Act might offer some safeguards on SSSIs, but they are not notably successful in other fields and the Government appear to be resisting attempts which are being made from other quarters to strengthen them. We shall come to them also on another evening.

Many of the activities of the water authorities interact with the environment, and their particular responsibilities include the development of water resources, water abstraction, sewage disposal and the treatment of industrial and other wastes. The list is long and probably everyone here knows it better than I do. Some of the duties which need to be undertaken are of a policing nature and I think that the structure suggested by the noble Lord, Lord Craigton, might meet that point, but I need to study it a little more carefully. The existing performance of water authorities has been criticised primarily because of the present limited levels of capital investment. Commentators have questioned whether privatised bodies can attract sufficient additional investment over and above the present levels to make policing of these activities a reality. That is a question which I hope the Minister can answer.

The Select Committee on Science and Technology in its report on the water industry in 1982, which was referred to earlier by the noble Lord on the Cross- Benches, made some very strong recommendations. On page 63, paragraph 636, and again in its recommendations—I shall précis them to prevent reading too many—it recorded its concern about the possible destruction of features of scientific interest and advised urgent action. I think some action has been taken, but that was more than two years ago, and much of the work remains to be done. In the event of privatisation what specific provision would be made for this particular safeguard? The Minister must have been expecting to have to answer that question and I hope that he will have a reply ready.

In the Falklands Islands debate earlier today the noble Earl, Lord Onslow, said how important it was to know the conservation implications of your actions before you carry them out. If it is important in the Falkland Islands, my Lords, how much more important it is that we should know the conservation consequences of actions proposed in this overcrowded and already over-polluted island. The present state of the purity of our water supplies and the lack of interest shown by the Government in the care of the environment in relation to water authority functions makes one uneasy about the quality of safeguards which might be built into any privatisation proposals. The noble Lord, Lord Nugent, is right to question this point, and I hope that the message that goes back from this evening's discussion will prevent the Government putting their hand to this particular political plough while they can still not do so without embarrassment. If they proceed any further, they will find that this is something they should not have done.

We share the concern of the noble Lord, Lord Nugent, and the concern expressed by other noble Lords present, and we look forward to some reassurance from the Minister that this is in fact a kite that is being flown and not a serious recipe for action.

9.16 p.m.

Lord Skelmersdale

My Lords, the House will be most grateful to my noble friend Lord Nugent for raising this evening this important and topical subject of the future of the water industry. We know him as a world renowned expert in his subject and a distinguished chairman of the National Water Council. During my time in your Lordships' House I have learnt an enormous amount from him both on Sub-Committee G of your Lordships Select Committee on the European Community and more recently since I have been privileged to speak for the Government on water matters.

Personally I regret that he was unlucky the other day in the ballot for short debates, as there would then have been more Members of the House present to give their views on this issue. However, perhaps I am wrong in this, as I well remember my noble friend asking me a question when I was winding up a debate on the water industry some two years ago, and, having heard my reply, saying in a loud and probably justifiably annoyed voice: "A very bad answer". I trust that neither he nor anyone else will feel moved to voice the same opinion this evening.

You see, my Lords, there is as yet no answer to my noble friend's Question, which asks Her Majesty's Government, what provision they propose to make for maintaining existing safeguards for the purity of water supply and the protection of the environment in the event of privatisation of the water industry". The reason for this is simple. Contrary to popular belief, which was almost mentioned by the noble Baroness, Lady White, the Government have not decided to privatise the water industry. What we have done, however, is to start on an exercise to discover how we would arrange the affairs of the water industry if we did so decide. To help with this project we have recently published a discussion paper, to which nearly all your Lordships have referred this evening.

My noble friend Lord Molson underrated this document, as I shall explain a little later. For the moment let me say that he has, I feel, misunderstood the use of the word "might" which, as he said, appears several times in that document. Again, the noble Lord, Lord Sherfield, perhaps almost in contradiction of that view, criticised the department for what he feels is a pre-Green Paper. I shall return to this point, too.

Just now I should say that I speak for a Government who believe, in a nutshell, that the state should not run industries, except in very exceptional circumstances. I am on record as defining these as being for purposes of national security, for some defence and wide public consumer purposes and for temporary health care where large numbers of employees are involved. It was, after all, a Conservative Government who nationalised Rolls-Royce.

Since I said this some years ago the Government have come to reassess these ideas. We have come to the conclusion that there is a halfway house, where some functions are provided by the private sector, others by the public sector, within the same industry. It was exactly this realisation that prompted the extremely successful return to the private sector of British Telecom. What we need to discover, and ultimately to decide, is whether, and, if so, how, the water industry should fit into this mood of national realism. As the noble Lord, Lord Energlyn, said, the discussion document is full of questions but not of answers. The noble Lord was quite right; that is fully intentional.

I start from a position where I am convinced that it could be done. I accept without question my noble friend's view that the structure of the industry in this country is the envy of many parts of the world. As has been pointed out so cogently, this envy is caused by the fact that we have water authorities in England and Wales with boundaries related to river basins, so that each authority has responsibility for the whole water cycle within its catchment area.

This reform was brought about by the Water Act 1973. That Act followed the 1971 Report of the Central Water Advisory Committee which argued for strong regional water authorities to ensure proper co-ordination in the planning of river management, water supply, sewerage and sewage disposal, a region for this purpose being defined as: a river basin or grouping of river basins which is sufficiently large to be reasonably self-sufficient in water resources". My noble friend Lord Nugent will remember that phrase well because he was a member of that committee.

If, as my noble friend said, this has not been credited to a Conservative Government heretofor, I intend to do so right now. My detractors may call me an opportunist; all right—let me be an opportunist now. My noble friend is quite right; the Government of my right honourable friend Mr. Edward Heath and under the then Secretary of State, Mr. Walker, took on board most of the conclusions in the report.

Should privatisation go ahead, it need not threaten this aspect of our present organisation, but we shall have to consider very carefully whether any changes are required. This evening your Lordships have made clear your support for the river basin concept, and I believe that it is supported by the water authority chairmen. I can assure the House that the most careful attention will be paid to this view.

In the main part of my speech, however, I want to look at the discussion paper and how the Government will treat the responses to it. The noble Lord, Lord Energlyn, said that this paper is full of questions but not of answers; I have already made reference to that point. The paper makes reference to the importance of privatisation as a means of freeing enterprises from state control, reducing the size of the public sector, and spreading ownership more widely. It should come as no surprise therefore that we are looking at the possibilities for the water industry.

First, why have we embarked upon this exercise at all? During the debate in another place earlier this year on the Water Authorities (Return on Assets) Orders for 1984 and 1985, concern was voiced in some quarters about the controls exercised over the water industries. The authorities themselves have pressed for greater flexibility in their financing arrangements. This was a point to which the noble Baroness, Lady White, referred.

One chairman at least suggested privatisation as the way forward. It was against this background that my honourable friend the Minister for Housing announced that the Government, will be examining the possibility of a measure of privatisation in the industry".—[Official Report, Commons, 7/2/85; col. 1144.] We are giving high priority to this exercise, bearing in mind that the privatisation of the water authorities, with their total assets valued in excess of £27 billion and a total workforce in excess of 52,000 people, would mean a substantial enlargement of the private sector.

The discussion paper was sent to water authority chairmen on 1st April. A copy was also sent to the chairman of the Water Companies' Association. Equally, it is not a formal consultation document. Its purpose is to identify the many complex issues which need to be addressed and on which the views of those most directly involved—the water authorities and the statutory water companies—will be particularly useful at this early stage.

As well as this, I should say that the discussion paper is not in any sense a confidential or private document. A copy has been placed in the Library of the House; and, in answer to my noble friend Lord Craigton, it is freely available on request from the department. We hope that those people who feel that they will be concerned by its possible implications will read it.

I have already mentioned the river basin structure alluded to by my noble friend Lord Nugent as a possibility. Equally, the discussion paper recognises other possibilities. I have also referred to the arrangements established in the recent successful privatisation of British Telecom. That company continues to have public service obligations—for example, the provision of the emergency system to contact the fire, police and ambulance services. This is provided for through the mechanism of a licence policed by a regulatory body. An analogous system might well be developed to provide for the public service functions of the water authorities.

Noble Lords also expressed concern that public health, and in particular the quality of drinking water put into the supply, will not receive the attention it deserves under privatisation. Linked with this is the concern about protection of the environment. The need to ensure that standards of water supply are maintained and that the environment continues to be protected is not in dispute. These objectives are enshrined in statute. They have been consistently stated and pursued by all Governments since before the war. A little later they were advanced by my noble friend Lord Nugent himself, as chairman of the Thames Conservancy and of the National Water Council, and particularly in the policy document River Quality: The Next Steps, which set out in 1976 policies which we carried forward, notably through the implementation of the Control of Pollution Act. Specific reference is made in the discussion paper to safeguarding the water environment and the quality of water in supply. But the paper does not, nor did it ever intend to, come up with answers on how this should be done. That is not its purpose. Its purpose is to invite those directly involved to say how they consider these important objectives could best be achieved.

The discussion paper does make specific reference to the safeguarding of the customer's interests and ensuring that the standard of service he receives is maintained. Again, having stated its objective, the paper asks those directly involved how this can best be done. The paper notes that under privatisation the Government will continue to exercise their responsibilities, for example, under the EC drinking water directive, but the paper also recognises that many aspects of standards of service, such as reliability and pressure, which do not constitute a health risk, also need to be maintained and it asks how these can best be ensured. It is also clear that whatever changes may be made there will have to be safegurds to ensure that the monopoly is not abused and that proper standards are kept up.

In the course of this short debate, various points have been raised to which I will, I hope, provide some answers within the remit that I announced in my opening words. For example, the noble Lord, Lord Energlyn, asked my noble friend Lord Graigton, who, incidentally, I thought was perhaps my only pure supporter on this issue, about sewerage. I give him my answer. Sewerage arrangements were reconsidered during the passage of the Water Act 1983 and the Water Authorities Association has recently agreed new model arrangements with the local authority associations. The future of these arrangements will be one issue requiring attention in the event of privatisation. This is an area where the principle of unified responsibility for the whole water cycle has particular application.

I also wondered during the course of the debate whether the noble Baroness, Lady White, and her noble friend Baroness Nicol, had read the New Scientist article in its issue of 18th April, which made many of the same points that they did. In any event, I believe that in general the standard of water services in this country is good. There are problems in some areas, but it is easy to exaggerate their severity. Naturally, authorities draw attention to problems in their annual plans. It would be surprising if they did not do so because they are the main source used by them for bullying the Government into providing extra resources. We believe that the level of investment now planned will deal with the various problems which water authorities have at an acceptable rate.

My noble friend Lord Nugent spoke briefly—as indeed did other noble Lords—about water companies. The statutes governing the operation of the companies limit the amount of dividends that the companies can pay and the amounts that can be put to reserve or carried forward from year to year. The future position of water companies will need to be considered if the water authorities are privatised because they are presently agents of the water authorities. The question of economic regulation of the water authorities will also arise because of the natural monopoly position of most water services.

My noble friend Lord Nugent raised a number of other questions. For example, he very naturally—in view of the terms of his Question—raised the subject of conservation. To that I would say that if the river basin principle is maintained, it will be in the interests even of privatised companies to safeguard their water resources. Perhaps this is unfair, but I rather suspect that my noble friend—and I have an even stronger suspicion that this also applies to the noble Baroness, Lady Nicol, and my noble friend Lord Craigton—was thinking of other than conservation from the point of view of water stocks, if I may put it that way. They were talking about conservation as has been defined in the Wildlife and Countryside Act 1981.

In the privatisation of British Telecom an organisation was proposed, ultimately adopted and put on to the statute book. It was OFTEL, the Office of Telecommunications. This office is in the process of making exactly the same reulations for those functions of telecommunication which cannot satisfactorily be undertaken by a private company, or indeed a group of private companies. I cannot see any good reason why, if the privatisation of the water industry goes ahead, such an organisation could not be created.

Another point that was raised this evening was that of EEC legislation. Privatised companies will be bound by EEC legislation, just as private companies are in other industries already, and indeed as are the British Government—a subject about which your Lordships frequently make much complaint. The Government are bound to retain machinery to ensure this.

On land drainage matters, I hope I do not have to remind the House that I also speak for the Ministry of Agriculture, Fisheries and Food. I can tell my noble friend Lord Nugent that the discussion paper notes the difficulties, and the Government as a whole would be looking for the best way of maintaining these activities in the event of privatisation. If it is not the best way, your Lordships will be the first people to point that out.

The noble Lord, Lord Sherfield, said that the new arrangements for the water industry were quite young in age. He suggested that the water authorities should settle down after two major changes in a decade to a period of quietude. He went on to criticise at great length the type of discussion paper that this debate is all about. Why should we not have a pre-paper? Why should the Government say, "This is what will be done. How should we do it?". Why should they not say, "We are thinking of this. We should like to hear of any objections to it". It is in no sense meant to be a Green Paper or, incidentally, a pre-Green Paper. It is meant to be judged on its merits.

The noble Baroness, Lady White, said that the paper had previously been written by people who knew nothing about the water industry. Who better to question an industry than people who know little about it? Incidentally, I do not accept criticism in that connection. I believe that those people in the Department of the Environment who wrote it know quite a lot about the water industry, having been in control under my right honourable friend the Secretary of State for a number of years, advising him and conducting negotiations with the water industries.

Baroness White

My Lords, I was echoing very largely the sentiments expressed to me in the various groups that I indicated, where I could find no one with a really good word to say about the discussion paper. They are the people who know. I am an amateur, as is the noble Lord. I was echoing opinions of people who are experts and who know what they are talking about.

Lord Skelmersdale

My Lords, I freely admit to being an amateur. I am even more of an amateur than the noble Baroness has just admitted that she is.

Baroness White

My Lords, I am sure the noble Lord is.

Lord Skelmersdale

Nonetheless, my Lords, the fact that we have a presumption in this country that Government discussion papers are by way of a Green Paper does not automatically mean that all Government discussion has to be promoted by a Green Paper. I fully accept the point made by the noble Baroness and the noble Lord, Lord Sherfield, that this is novel, but that does not necessarily mean that it is bad.

It is always refreshing in your Lordships' House to hear the noble Earl, Lord Halsbury, speak. He spoke about Treasury control of the finances of the gas industry. In effect, he asked whether some sort of refinement of Treasury control for nationalised industries would be possible either alongside or in place of a possible privatisation exercise, which I had the impression he would prefer. I freely admit that that is something that we shall have to consider.

I willingly pay tribute to the report of the Select Committee on Science and Technology, principally on research in the water industry. That committee was chaired by the noble Lord, Lord Sherfield. Although it is not directly relevant to the context of the debate, I should tell him that the Government's response included the establishment of a committee to advise them on long-term research requirements. That committee has been established and is working to produce its report. I hope that that will help the noble Lord in his consideration.

Lord Sherfield

My Lords, will the noble Lord give way for a minute? My question was, what is the effect of these proposed arrangements on research and development in the water industry in the future?

Lord Skelmersdale

My Lords, I am very grateful to the noble Lord for that amplification. The answer is that there need not be an effect. As I have been at pains to point out, I fear over far too long now the Government have not yet made up their minds on this issue. They have promoted discussion as to how it might be done if it were done.

The noble Baroness, Lady Nicol, said, among other things, that you cannot have privatisation in a monopoly. I suspect that she is joining the amateurs in discussion of the water industry. I should remind her that the same was said before the appearance of Mercury on the telecommunications scene. The noble Baroness will recognise that the competition was of very recent origin. Even my noble friend Lord Nugent will agree with me that private water supplies and the already private water companies are of many years' standing. Competition already exists on the supply side of the water industry. Why should it not exist also on the other side of the water industry?

Again the noble Baroness asked how we would satisfy potential investors. This is not a question for today but, I suggest, for another day. Today I should have answered the assertions of the noble Baroness about the uncompetitiveness of the water authorities and her fear that they are being unjustly got at by the Government in their recent directions to the water authorities on the matter of finance. I would have done so, but I realise that I have now been speaking for 25 minutes. Therefore I refer the noble Baroness to my remarks in the Official Report of 14th February this year at column 305.

In conclusion, I say this. We have now entered into a public discussion of the privatisation of the water industry. Can it be done at all? How can it be done? To what extent can it be done? I do not know the answers to those questions. What I do know is that the time is right to examine them. This Government are an inquisitive Government, a practical Government, a reforming Government. We should look at all aspects of the public sector to see if things can be done better, both within and without the public sector. Today we are looking at the water industry; tomorrow is for tomorrow.

Today I end as I began. I am grateful to my noble friend Lord Nugent for giving me the opportunity to put the Government's position firmly before this House with the assurance to the House that the Government will treat this debate as a verbal answer to the questions being asked about water industry privatisation.