Water Authorities: Finance Policy (Hansard, 21 January 1985)

§ The Earl of Kinnoull
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Parliamentary Under-Secretary of State, Department of the Environment (The Earl of Avon)
My Lords, the statutes have provided water authority customers with no formal procedure for objecting to water charges apart from the right under paragraph 39C of Schedule 3 to the Water Act 1973 (as amended by a schedule to the Local Government Finance Act 1982) to inspect the accounts at each audit and to make representations to the auditor. But they are free to express their opinions on their own account or through the consumer consultative committees which were established under the Water Act 1983 to represent consumers' interests to the water authorities and the companies.

§ The Earl of Kinnoull
My Lords, may I thank my noble friend for that long reply? Would he not agree that the present accounting system for statutory bodies and nationalised industries, known as the "current cost convention" and the target rates of return throw up some unjustified and excessive profits, to the detriment of consumers? Would my noble friend say what is the justification, for instance, of the Thames Water Authority needing to produce profits estimated at £70 million for 1985–86 that a 12 per cent. increase in charges would produce?

§ The Earl of Avon
My Lords, I do not really agree with my noble friend. Requiring the water authorities to achieve a rate of return on their asset is a sound business practice and it ensures that resources are used to the best advantage—with which principle the noble Lord, Lord Bruce of Donington, as an accountant, would no doubt agree.

§ Baroness Burton of Coventry
My Lords, having listened very carefully to what the Minister said in his original reply, may I ask him whether he is aware that we discussed the consumer consultative committees on Thursday last when his noble friend Lord Skelmersdale, I think, agreed that these committees should be able to consider fundamental questions, including general charging and financial policies? As that was accepted and is in the Secretary of State's guidelines, does the Minister's reply to the noble Earl, Lord Kinnoull, mean that the matter he has referred to could in turn be referred to the consumer committee?

§ The Earl of Avon
My Lords, I read the exchange last week which the noble Baroness had with my noble friend Lord Skelmersdale and I am glad that she took the same reading of it as I did. The point is that the consumer committees can have this information and indeed they should have it; and I very much hope they do have this information.

§ Baroness Birk
My Lords, where is the logic at the moment in compelling water authorities to increase their charges to the ratepayer at a time when local authorities are being forced to do exactly the opposite? Secondly, is it not true, as the CBI has pointed out, that at a time when the target is to reduce industrial costs, the increase of 25 to 30 per cent. in real terms over the next three years for an essential commodity is a serious blow for manufacturing industry? So is it not true that both domestic and industrial consumers are suffering very badly—industry as a whole and the ratepayers as a whole—through the Government's actions alone?

§ The Earl of Avon
My Lords, somebody else has to pay. The higher returns will allow the water authorities to undertake more investment in water services and sewerage, and next year the higher investment is 3 expected to be about £80 million, with further increases in later years. The higher charges ensure that the consumer and not the taxpayer pays for the improved service that he receives.

§ Lord Nugent of Guildford
My Lords, is my noble friend aware that the water industry, like other nationalised industries, is required to provide for its capital programme by a measure of self-finance? Is he aware that the water industry is at a far lower scale than any other nationalised industry, having inherited a situation where there was no self-financing at all for capital expenditure and so the whole of the burden fell on the Public Works Loans Board—in other words, on the shoulders of the whole community? Therefore is my noble friend aware that it is very much in the interests of all concerned that the measure of self-financing by the water industry, including the Thames Water Authority, should be increased so that the amount of money required to be borne by the rest of the community is reduced?

§ The Earl of Avon
My Lords, I am grateful to my noble friend for the supplementary question. I think that the Government are right in considering that the water authority's present average rate of return of 1 per cent. is too low and the higher targets will allow water authorities to increase their investment and reduce their borrowing.

§ Baroness Burton of Coventry
My Lords, from the reply of the noble Earl it seems that I must apologise for not having made myself clear. Is he aware that I asked him whether the rights of objection that ratepayers may exercise, as specified by the noble Earl, Lord Kinnoull, could be taken up by the consumer consultative committees? I did not ask whether the consultative committees could have this information: I asked whether they could act on it.

§ The Earl of Avon
My Lords, the water authorities are obliged to consult their consumer consultative committees well in advance before deciding upon proposals. I am advised that we have had active correspondence with the consultative committees and that representations from them look to be encouraging and appear to be indicating that the system is working as it should.

§ Lord Dean of Beswick
My Lords, can the Minister tell us whether the editorial in today's Evening Standard is correct in saying that one of the major authorities—the largest in the country—is refusing to act as an income tax collector to collect further taxation for the Chancellor of the Exchequer? If they pursue this course, can the Minister tell us whether additional legislation will be required to enable the Government to force water authorities to carry out the Minister's bidding?

§ The Earl of Avon
My Lords, the noble Lord is ahead of me on the editorial in the Evening Standard. I normally read it after Question Time. But so far as the other supplementary question of the noble Lord is concerned, as we do not agree that this is indirect taxation the problem does not arise.

§ Baroness Fisher of Rednal
My Lords, has the Minister seen a copy of the Water Bulletin? That is the magazine which is issued weekly and which covers all water issues. Today's issue has various comments from the water chiefs and finishes up by stating: Announcing increases in water charges for 1985/86 last week water authority chiefs reminded customers that the Government carried the blame for the size of the increases".

§ The Earl of Avon
My Lords, I have already said to the House that the rate of return of 1 per cent. is too low, and we believe that 1.4 per cent. would be about right. I do not think that that really quantifies with that particular article.

§ The Earl of Kinnoull
My Lords, is my noble friend aware that there are no rebates available for water rates? In view of the excessive increase, will he consider bringing water rates into line with general rate rebates?

§ The Earl of Avon
My Lords, water service charges are a relatively small part of bills and are taken into account when supplementary benefit is calculated. Some 3 million householders get help in this way.

§ Baroness Birk
My Lords, I am sorry to intervene again, but the Minister said that 1.7 per cent. is quite low, which of course it is as an increase, but it is not the real increase. The real increase is the rate of current replacement, which is four times as high and works out at 6.8 per cent.

§ The Earl of Avon
My Lords, I will not argue with the noble Baroness's figure, but my figure should have been 1.4 per cent.