Water Authorities: Charges (Hansard, 14 February 1985)

§ Baroness Burton of Coventry
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ Lord Skelmersdale
My Lords, yes.

§ Baroness Burton of Coventry
My Lords, does the Minister realise that this success and efficiency has given the Thames Water Authority both the courage and the authority to stand up to the Treasury and say, "No", whereas the other nine water authorities just capitulated? Further to that, as the Government put in Mr. Watts to run the Thames Water Authority, as he has done this most competently, and as he has declared that a 3 per cent. increase in charges was all that was necessary, can the Minister tell the House who is to get this extra cash? Will it be the Exchequer or will it be the Treasury?

§ Lord Skelmersdale
My Lords, the Government's policy is that water authorities should earn a rate of return which is reasonable on a level of investment adequate to meet their own needs. The external finance limit follows from that and it can be either positive or negative. The latter situation arises in industries where outstanding debt is low compared with their assets, so that interest payments absorb little of the internally generated cash. As regards who is to get the money, that remains to be seen, but it certainly will not be the Treasury. In the event that it comes into public ownership, it will, of course, be the Exchequer as a whole.

§ Baroness Burton of Coventry
My Lords, I was not quite clear from the Minister's reply, which was not really positive, in answer to my question. Can he say quite simply whether the Exchequer or the Treasury will get this extra money?

§ Lord Skelmersdale
My Lords, that remains to be seen, but what I said was that if the money comes outside the authority, it will, of course, be the Exchequer as a whole and not the Treasury.

§ Baroness Burton of Coventry
My Lords, before some person who really understands finance gets up to ask a question, may I ask the Minister whether he agrees that if this extra cash is to go to the Exchequer, 304 it is quite undeniable that Mr. Roy Watts will be acting as a tax-collector on behalf of the Government?

§ Lord Skelmersdale
No, my Lords, it is certainly not. The chairman of the Thames Water Authority has no doubt in the matter. In his introduction to his first annual report, which was published on 14th October last, he said: The object is to satisfy our customers and to achieve the right balance between the quality of service we provide and the costs borne by our customers as a result". More recently, he authorised the following comment in a statement by the Thames Water Authority on 20th January: The Government's policy would be a major step towards taxation on drinking water". In other words, even this current policy is not a tax in his view.

§ Lord Beswick
My Lords, if this authority is being run efficiently and if it is not asking for Treasury money, on what principle are the Government interfering with management?

§ Lord Skelmersdale
My Lords, it is in order to get a reasonable rate of return on the Thames Water Authority's assets.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the Government are adopting double standards here? For the purpose of assessing what is a reasonable rate of return they are adopting the current cost accounting principle, which is exactly the same principle that they adopted when they wanted to prove the necessity for the privatisation of British Telecom. But is it not noteworthy that when they went to the investor they then changed their system to historic cost accounting? This is exactly what they are trying to do here. They are employing double standards—a despicable step at the expense of the consumers of water.

§ Lord Skelmersdale
My Lords, I find it very hard to follow the argument of the noble Lord, Lord Bruce, on double standards when each of the current water authority chairmen knew full well, when they were last appointed, that current cost accounting would be observed in their industry.

§ Baroness Gardner of Parkes
My Lords, in view of the fact that a return on capital is required in all other authorities, such as the electricity and gas undertakings, can the Minister inform me why this situation is different? In those other cases consumers are paying in relation to their consumption, but in the case of water they are paying purely in relation to their rateable value, unless they happen to have a metered supply. But not everyone is entitled to a metered supply. Why is there that difference in the equation?

§ Lord Skelmersdale
My Lords, at the end of my noble friend's supplementary question she put her finger squarely on the relative point. In this country by law anybody who wishes to have a metered supply can have a metered supply.

§ Baroness Gardner of Parkes
My Lords, I should like to take that point up further with the Minister. Is he aware that that does not apply to all premises? I must declare an interest, as I have a dental surgery and I was refused the right to a metered supply. I think that this applies only to certain domestic premises. Is that correct?

§ Lord Skelmersdale
No, my Lords. To the best of my knowledge and belief it is not correct. If my noble friend will give me details, I shall take this up with the Thames Water Authority.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that the Government wish authorities to stand on their own feet? Is it not also a fact that the Thames Water Authority is more profitable than either ICI or Marks and Spencer and, indeed, has paid off all its past loans and is already able to contribute £35 million a year to the Government, yet still needs to put up the cost by only 3 per cent. next year? Why are the Government insisting that existing consumers pay for posterity and forcing the Thames Water Authority to put up its charges by 10 per cent. next year?

§ Lord Skelmersdale
My Lords, I fear that I have to inform the noble Lord that he asked his supplementary question from a wrong premise. So far as current cost accounting is concerned—

Noble Lords
Oh!

§ Lord Skelmersdale
I shall get to historic cost in a minute, if the House will allow me. But so far as current cost accounting is concerned, the Thames Water Authority has a return of 1.2 per cent., Marks and Spencer has not published its return and ICI has 6.2 per cent; Thames Water is low. Under historic cost, however, Thames Water has a return of 16.8 per cent., Marks and Spencer 23.9 per cent. and ICI 13.6 per cent.

Lord Bruce of Donington
But, my Lords, is the noble Lord aware that the average through British industry as a whole last year was approximately 15 per cent? So what is the noble Lord quarrelling about in that?

§ Lord Skelmersdale
My Lords, British industry as a whole has valued assets properly and not at the written down or zero costs which pertain in the water industry. That is the difference.

§ Lord Nugent of Guildford
My Lords, is my noble friend aware that the main feature which distinguishes this instance from what goes on in other nationalised industries is that a discussion which normally takes place in private between the chairman and the Secretary of State concerned is this time taking place in public, with a good deal of hostile exchange? That is bound to upset the relationship of everybody.

§ Lord Skelmersdale
Yes, my Lords; I am grateful to my noble friend. I would agree, and I do not think that it can be a good thing for the morale and the general standing of relations between the Government and nationalised industry chairmen as a whole.

§ Lord Beswick
My Lords, is the noble Lord saying that the general public, the consumers, are not entitled to know what the argument is about?

§ Lord Skelmersdale
No, my Lords, certainly not. In the water industry we have the consumer consultative committees which are fully informed and which discuss these matters with the relevant water authority boards.

Lord Morris
My Lords, is my noble friend satisfied that he is comparing like with like? Does he really believe that the sale of socks can be compared to the provision of a public amenity such as water?

§ Lord Skelmersdale
My Lords, I am not responsible for the questions I am asked; only for the answers.