§ 3.50 p.m.
§ The Minister of State, Department of the Environ-ment (Lord Elton)
My Lords, by your Lordships' leave I will now repeat a Statement being made in another place by my right honourable friend the Secretary of State for the Environment. The Statement is as follows:
"With permission, Mr. Speaker, I will make a statement about the future of the water authorities in England and Wales.
"On 7th February 1985, the then Minister for Housing and Construction, my honourable friend the Member for Eastbourne, announced that the Government would examine the prospects for privatisation in the water industry. A discussion paper followed in April. In the light of the responses, and of professional advice on the financial issues, the Government have now decided to transfer the 10 water authorities in England and Wales to private ownership; already, 25 per cent. of water is supplied by private sector water companies.
"With my right honourable friends the Secretary of State for Wales and the Minister for Agriculture, Fisheries and Food, I have today presented to Parliament a White Paper setting out our proposals. Legislation will be necessary, and we shall put the water authorities on the market as soon as possible thereafter.
1152 "Our privatisation programme already covers a wide range of businesses. But transferring water to the private sector will offer unique opportunities and challenges. The water authorities are not merely suppliers of goods and services. They are managers of natural resources. They safeguard the quality of our rivers. They control water pollution. They have important responsibilities for fisheries, conservation, recreation and navigation. These functions are interdependent and inseparable.
"We will maintain the principle of integrated river basin management and we will maintain existing boundaries. The water authorities will be privatised with all their existing responsibilities but for the one exception of land drainage and flood protection. Financing and co-ordination of that function will remain a public sector responsibility.
"The authorities are largely natural monopolies. The public will, rightly, expect us to set up a firm regulatory framework. We will appoint a director general for water services. He will control the authorities through an operating licence. This will lay down strict conditions on pricing and on service standards. The system of promoting the interests of consumers will take into account a report which I am publishing today from Professor Littlechild of Birmingham University. Under the director general there will also be strong machinery for representing consumer interests and investigating complaints.
"Water authorities are responsible in England and Wales for the implementation of national policy for the water environment. Necessary existing safeguards—including appeals against water authority decisions on discharges and Government controls on the authorities' own discharges—will continue. And we shall strengthen the system of pollution control in two main ways: first, we shall legislate to make their river quality objectives subject to ministerial approval; second, we shall provide for any new requirements to be laid down through a parliamentary procedure. In this way we will use the opportunity of privatisation to improve environmental standards on a continuing basis.
"Mr. Speaker, over the last seven years considerable progress has been made in improving the management efficiency of water authorities. Their operating costs have been reduced in real terms, even while the demand for their services has been growing. Manpower has been reduced by 20 per cent. The number of board appointments has been reduced even more dramatically—from 313 to 123. In 1979 their investment was falling; in real terms it is now above its 1979 level and it is rising. In the last six years we have made the water authorities fit and ready to join the private sector. And, as reported to the Public Accounts Committee, the quality of water services has been improving in almost all regions.
"Privatisation is the next logical step. It will bring benefits to customers, to the industry itself and to the nation as a whole in improved quality, more efficient service, greater commitment of the staff to the work they are doing, and greater awareness of customer preference.
1153 "With the disciplines and freedoms of the private sector I expect the industry to move from strength to strength. I know these proposals will be welcomed."
My Lords, that concludes the Statement.
§ Baroness Nicol
My Lords, we are grateful to the Minister for repeating the Statement made by his right honourable friend. I am sorry to disappoint him on his last sentence. The proposals certainly will not be welcomed on this side of the House; nor, indeed, am I so sure of the welcome they will receive elsewhere in the country. The consultation paper issued in April last year caused many misgivings. I understand that of the 43 responses which have come to the Minister only seven are in favour of the proposals. I am a little puzzled about on what he bases his optimism. They must be seven very powerful representations.
Your Lordships may remember the reaction in this House to a question posed by the noble Lord, Lord Nugent of Guildford. I am sorry he is not in his place today. On an Unstarred Question when the document was first published the reaction in your Lordships' House was almost unanimously against total privatisation. There was one voice in favour of total privatisation; all the others qualified their remarks and many were totally opposed to it. How can the Government justify selling off what is the nation's most fundamental natural resource on which people's lives depend? This is not just an ordinary privatisation. Is nothing sacred? As my honourable friend said earlier this week, is nothing in this country to be left that is not for sale?
Nearly 99 per cent. of households in England and Wales are connected to the water supply and 95 per cent. to the sewerage system. These proposals will create huge monopolies to supply an essential service without even the limited choice that is available when privatisation takes place in the fuel industries. In spite of the remarks made in the Statement, the service is at present showing an urgent need for capital investment on a scale that is unlikely to be found from private sources. It will be interesting to see how much private money is laid on the line for it. I understand that the total value of the holdings is some £27 billion. I do not propose to go into the effect on the market of this flotation. There will be others better qualified than myself to do it.
I understand that metering will now be compulsory. Who will pay for the installation of meters? As we said in response to a Question earlier this week, large families; low paid workers who have dirty jobs to do and the sick, especially those who are dependent on kidney machines, will be the hardest hit by having their water supplies metered. If this is to be in private hands, who will help them when they need it? I understand that some cities will be subject to these experiments on compulsory metering. Which cities are to be the subject of the initial experiment?
What sanction will there be for non-payment of water rates? Are the Government seriously suggesting that water supplies could be cut off in urban areas? It is faintly conceivable that in rural areas people might survive, but think of the possibility of having water supplies cut off in urban areas.
1154 What will happen to the present duty of water authorities to have regard for conservation? I know it is dismissed in a general way in the Statement but I really cannot see how the present duty on water authorities to further the causes of conservation can be carried out without very strict restrictions and I cannot see private water companies taking that on.
What about consumer interests? Again, we have a mention in the Statement that the system of promoting the interests of consumers will take into account a report from Professor Littlechild. Of course we have not seen that report, and we will keep some of our remarks until we have. However, it seems to me that the needs of consumers in the water industry have already suffered a heavy blow by the 1983 legislation. They are very much under-represented on the present water authorities. Can we have some reassurances on what will happen to them now?
The only reason for this, as it seems to us, entirely destructive exercise is to raise money for the Exchequer, not to reinvest in the public good (on which we could perhaps have relied in the past) but to enable promises about tax cuts to be kept. Those are promises, however one may look at it, that were made to those who are not most in need. Those who are paying tax at the moment are not most in need, and it is those most in need who are likely to be hit by what is being proposed today. We believe that water resources are national assets which should be in public ownership and control. I assure your Lordships that a future Labour government will take appropriate action.
§ 4 p.m.
§ Lord Diamond
My Lords, we on these Benches wish to associate ourselves with the appreciation that has been expressed to the noble Lord the Minister for repeating the Statement in this House.
I suppose that a community's primary need is a reliable supply of clean water. Thus the first question we must ask ourselves is: how will the consumer be safeguarded under these proposals? In particular we ask: how is a consumer going to turn to an alternative supplier, if dissatisfied with the present supplier and the terms on which he is being supplied with this primary need? Under these proposals, might not there develop a real conflict between the interests of the new shareholders and the interests of the nation in terms of environment, on subjects such as pollution, conservation and recreation, all these matters which are the natural domain of public policy and public control? How will Members in another place be able to safeguard their constituents' interests, and how will this House be able to safeguard the wider interests of the regions?
What will happen to the pensions of the present employees? How will their future pensions be safeguarded? I am sorry to ask a rather personal question. The Government have obviously been very coy about this, but are we entitled to know how much the Government are expecting to realise? One matter which has been completely omitted from two pages of Statement is the simple answer to the question, "How much?". If, as we are told here, there has been such a vast improvement both in the quality and in the efficiency of these water companies, in the water 1155 supply services which have been conducted under public ownership in the past seven years, I am bound to ask what on earth the reason is for changing that and privatising it. Is it in pursuance of the now well-established policy of Her Majesty's Government of private monopolisation? Or is it simply that the grocery bills are accumulating again?
§ Lord Elton
My Lords, with at least the same sincerity that the noble Baroness and the noble Lord thanked me for reading the Statement, I thank them for their reception of it.
The noble Baroness, Lady Nicol, referred to the consultation and said that there were only seven consultees who were outright in favour of the proposals. I can tell her that there were only 11 who were outright against, and the rest were drawing our attention to particular areas of concern. She pointed out that our lives depend upon water. Indeed they do, and they depend upon a great deal else which can be delivered to us either through the private or through the public sector, such as a health service. It does not follow that because a service is privatised it need not be effective. Indeed, it is our belief that the service will in the end be more effective than it is now and that there will be a better level of service as well as a more efficient way of providing for it.
As to the extent of the investment needs of the industry, that is fully covered in the White Paper, which I appreciate the noble Baroness has not had an opportuntiy to read; but she will be able to avail herself of that.
The noble Baroness went on to the question of metering, and asked whether it would be compulsory. As the Watts Report recommended, we are first asking the water industry to obtain better information on consumption patterns, costs of metering, and the results of charging by measure. Compulsory trials will be legislated for and therefore Parliament will have an opportunity, and the noble Baroness will have an opportunity, to voice an opinion. Some extension of metering is likely to follow. As to where the experiments are to take place, that of course will depend upon the information which the authoritiies are now obtaining and which they will consider for that purpose.
The noble Baroness spoke as if nobody had ever been cut off from their water supply for non-payment in the past and as if this was an entirely new departure. I should not expect a great increase in cut-offs, if only because it is an expensive process. However, I understand that 3,500 people were cut off under the existing system last year, and this is not something that she can pray as an argument against privatisation.
On the question of conservation, the noble Baroness was joined in her concern by the noble Lord, Lord Diamond. In regard to the environment, I can tell your Lordships that all the existing safeguards will be maintained by imposing all the existing duties of the water authorities upon their successors. In addition to this, the Secretary of State will have new powers of regulation and river quality objectives will be given a statutory force for the first time. The director general will be able to impose more detailed targets within this framework and enforce them through the licensing 1156 system and if need be through the courts. Furthermore—and this is another point the noble Lord raised—we shall establish separate consumer consultative committees to act as the director general's watchdogs over each authority in their area.
I should add that the local authorities will continue to have the duty which they now have under Section 11 of the Water Act 1973 to ensure that water is sufficient and wholesome within their areas. They will therefore continue to test water supplies and notify the successor authorities, the water supply private limited companies, and they will be under the same constraints as the water authorities are now; and these are ulitimately backed by the Secretary of State. Thus if your Lordships ponder on that, you will see that the whole of the existing panoply of control of quality and service, and more particularly protection to the environment, will be maintained and in fact will be added to and made more secure.
The noble Baroness asked about charges. There will be a provision in the licence to control the level of charge and that no doubt will be a matter for discussion. I have to tell the noble Baroness that I do not think it is normal to reveal what one hopes to make from a flotation (and what an appropriate process that is!) before one actually goes to the market.
Experts may disabuse me of my misunderstanding. I can say that the purpose is not simply to "sell the family silver"—and I think I have heard the reference before. The point is to get the water supply industry out from under the hand of the Treasury where it is competing for capital with completely disparate subjects and bring it into the market. When the noble Baroness and the noble Lord asked me how this can be competitive or how one would be connected with another supply, the competition will be in the market place for capital funds. We already encourage water authorities to publish and compare their performance. They will now have the Stock Market on which to have a true valuation of what they are doing.
§ Lord Boyd-Carpenter
My Lords, on the question of charges, can my noble friend tell your Lordships whether the new companies will have the same arbitrary discretion that the current water authorities have to decide whether any particular customer shall be charged on meter or on rateable value? Can he also say whether the new companies will inherit the (in my view, most mistaken) title of "authority" which they were given under the previous arrangements? Is my noble friend aware that if you call a body an "authority", its almost inevitable psychological effect is that it becomes authoritarian? As these bodies have always been simply suppliers of a commodity, will the opportunity be taken to get rid of this word "authority"?
Finally, does my noble friend recall that the noble Baroness opposite said that a Labour Government would in this matter take appropriate action. Is my noble friend aware that if that happened it would be the first time in history?
§ Lord Elton
My Lords, I had better get the name right first. They will not be authorities and therefore I trust that they will not feel constrained to become authoritarian, which is what my noble friend is saying. 1157 They will be water supply private limited companies, which I find much more difficult to say. If I drop back to "water authorities", then my noble friend will know that it is merely for convenience and not to describe them. As to my noble friend's first question, the question of metering, they will feel the normal commercial instinct to charge for their product, and if metering proves cost effective, no doubt they will use it. As to any further detail, that must await the experiment which, as I say, is not yet arranged. As to the appropriateness of the reaction of the party opposite, of course it may not always be appropriate to reality but may be entirely appropriate to the party opposite.
§ Baroness White
My Lords, would the Minister not agree that his reference to the National Health Service in this context is complete hypocrisy; for not only is there competition between private and public medical attention but even within the National Health Service one is able to change one's doctor if he proves less than satisfactory and we are even now encouraged to go to other national health regions for operations if they cannot be satisfactorily supplied locally. So perhaps I may suggest that he might leave that out of any future speech. We are coming to Wales shortly; and the noble Lord is becoming quite an authority on the Principality. On the financial side it is perfectly true that some of the water authorities, while we are still allowed so to call them, have had constraints imposed upon them by the Treasury. Those constraints, in fact, could be removed if anybody within this Government were prepared to tackle the Treasury. But are the rumours true that the Government are prepared to groom and fatten the authorities for the market by, in some cases, making financial arrangements with them prior to, but because of, the proposed privatisation, which they are not prepared to do while they are public authorities? Some of us would regard that as a publicly immoral action but which might appeal to the present Government.
§ 4.15 p.m.
§ Lord Elton
My Lords, the noble Baroness has taken issue with me about my quotation of the National Health Service as a service where there was now competition and that this had not threatened the lives of the people who depended upon it. That was—
§ Baroness White
There will be no competition in the proposed authorities. One will not be able to change one's water and sewerage supplier.
§ Lord Elton
My Lords, I only said that I regretted using the example since it brought a charge of hypocrisy from the noble Baroness which I am sure she did not intend.
§ Lord Elton
My Lords, in that case, I deeply regret that the noble Baroness believes that I have been hypocritical. The point that I am trying to make is that the fact that you have something from a private source does not make it in any way unreliable. The noble Baroness has picked up an aspect of my argument upon which I had not intended to rely. The noble 1158 Baroness then asked me whether we were conducting certain financial transactions which would not normally be allowed to a body in the public sector and, if we were, that she would regard this as immoral. I am certainly not aware of anything being done in this sector which is in any way immoral. Whether it is unusual or not, I would have to consider. But in my present state of knowledge I should have thought that it was not. The noble Baroness asked me to leave something out of my next speech. I shall leave out as much as I can.
§ Lord Harvington
My Lords, can my noble friend tell the House whether, so far he knows under the new arrangements, the rights of navigation are affected at all? There is tremendous use, as he well knows, for amenity purposes of the waterways of England over which the old waterways authorites (especially in East Anglia, I believe) had a great deal of control. I wonder whether he can throw any light upon this because it affects a very large number of Her Majesty's subjects.
§ Lord Elton
My Lords, the companies will be required, through conditions in their operating licence, to maintain generally the existing range and level of facilities and there will be arrangements for consultation on specific changes.
§ Lord Kaldor
My Lords, will the noble Lord agree that water is an absolutely prime essential commodity for life and that, secondly, from the point of view of each particular consumer the supply is naturally a monopoly? One cannot imagine that a particular house or home should be "tapped", so to speak, by rival water supply companies' taps from which one could choose. Does it not follow that potentially enormous profits are to be made from the private supply of water if the water supplying companies are allowed to charge what they like because people would pay everything they possibly can (even more than for eating) rather than go without water?
The answer to that, no doubt, as the noble Lord has told us, is that the charges will be controlled. If the charges are effectively controlled and water is supplied at the lowest price, where is the money to be made from selling the assets? Those assets will only command a price in the market if there are large prospective profits to be made from selling water. I do not see how there is any way out of this. Either you sell water at a price which brings you large profits, and then you can sell the assets at a large price, or else you want to protect the consumer and provide water at the lowest possible charges, in which case I cannot see how the Government can make any money from selling the assets from which the noble Lord indicated that the Government hoped to make a very large sum.
§ Lord Elton
My Lords, on the question of the uniqueness of supply, I entirely agree that you are not likely to have two taps in your basin and choose which one you turn on according to the pricing system. I have tried to show in an earlier answer how the competition works through the financing rather than through the delivery of the service. This does not mean that there is no prospect of a reasonable value being realised from this asset when it is sold, because the same considerations apply broadly as in the case of British 1159 Telecom, and we found that that worked very well. It also had the subsequent benefit that it enormously increased private share ownership, and we hope that this privatisation will have that effect as well. It also increased the identification of the people working in the service with the service that they are delivering, and we hope that that, too, will happen again.
I return to a point which I had omitted from my reply to the noble Baroness, Lady Nicol, for fear that it would be too long, under the eagle eye of the noble Baroness, Lady White. Twenty-five per cent. of water has been supplied through the private sector in the past and it therefore occurs to me to wonder why, if that was so terrible, it was not nationalised by the party opposite.
§ Baroness White
My Lords, before the noble Lord leaves that subject, does he not agree that the private companies work within a system closely regulated by the authorities?
§ Lord Elton
My Lords, having had some knowledge of what the noble Baroness said in her speech in a recent debate, I did not need to hear the whole question. I think she was saying that these were statutory companies subject to a degree of control on price. That will be true under the new system through the formula in the licensing system, and therefore I think that there is a true comparison.
§ Lord Ezra
My Lords, there is no doubt that the Statement we have heard today raises major matters of public policy. The noble Lord, Lord Elton, in repeating the Statement to us, said that the Government accepted the maintenance of the principle of integrated river basin management and the maintenance of existing boundaries. I am sure that we would all agree with that. One of the greatest achievements of the British water industry in recent years has been this principle of integration.
It is further said that they would be responsible for the management of major natural resources. Thirdly, the noble Lord has said that a satisfactory regulatory body would be established to safeguard the interests of consumers. I must say that I have a certain sympathy with the point raised by the noble Lord, Lord Kaldor, a moment ago, because if all this is to be done; if we maintain the integrated system; if on behalf of the nation we maintain the objective of managing effectively natural resources; and if we have a very strong consumer safeguard organisation, will this in fact result in a saleable proposition?
I think the dilemma that the Government will face is that if they want to protect the consumer, which all of us on these Benches would applaud, to that extent they will weaken the attraction to the shareholders. I believe that this is a dilemma which might best be resolved by leaving things as they are.
§ Lord Elton
My Lords, I note the noble Lord's observation, although I am not sure I detect a question that I can answer. I can only say that I fully recognise that there is a delicate balance to be preserved when the pricing formula is established. I believe it will be possible to strike a balance which both provides a saleable asset and protects the interests of the 1160 consumer on the one hand, and of the general public on the other, and there is a very close overlap between the two.
§ Baroness Nicol
My Lords, I just want to remove any possible misunderstanding. I am sorry that the noble Lord, Lord Boyd-Carpenter, did not quite understand my remarks. I should like to say that a future Labour Government will return the water industry to public ownership, and that is an action which most of the people of this country will find entirely appropriate.
§ Lord Elton
My Lords, the noble Baroness may or may not be right in thinking that most of the public would think it entirely appropriate now. I think that after they have had some experience of the regime we propose to introduce they would regret it very much.
§ Lord Diamond
My Lords, is not the position even more critical than was stated by my noble ally Lord Ezra? What the noble Lord the Minister has told us is that the competition will rest in terms of the appeal to the market. In other words, he is not concerned about the first sale because, as the Statement says, over the past years the Government have been tailoring the accounts and the activities with a view to privatisation—they have said so perfectly openly here—so that there is a marketable proposition. But the noble Lord then goes on to say that of course all these water boards, all these companies, will need capital, enormous amounts of capital, and they will have to get it from the market. They will have to satisfy the Stock Exchange that their shares should stand high so as to ensure new contributions by existing shareholders. They will have to do that by making wide margins of profit in the future. How is that consistent with a wholesome, reliable and cheap supply of water to the consumer?
§ Lord Elton
My Lords, the regulatory and statutory system which I have sought to outline, but not to describe in detail, will be the environment within which the new water supply private limited companies will have to operate. That will be apparent to the market when the companies are offered for purchase. Another contributory factor, part of that which I have described, is the pricing mechanism. My concern with the noble Lord's statement is that he is seeing something contradictory between, on the one hand, the wish to provide a viable commercial company, and, on the other, to ensure sufficient capital resources for it to be viable.
We believe that the companies will be viable and that this will be apparent to the market. Before we work further through the equations which the noble Lord wishes me to resolve, the noble Lord should have an opportunity to read the White Paper itself so that we can see in detail what we are discussing.