HL Deb 21 May 1986 vol 475 cc298-361

3.7 p.m.

Baroness Nicol rose to call attention to the case for large-scale investment in the water industry, and to the implications of privatisation for pollution control, environmental protection and consumer interests; and to move for Papers.

The noble Baroness said: My Lords, I beg to move the Motion standing in my name on the Order Paper. Your Lordships will notice that the Motion falls into two parts. The first part refers to the case for large-scale investment in the water industry. We believe that the need for large-scale investment can be identified and calculated, and that it is essential and urgent whether or not the industry is privatised. If the Minister does not accept this case he will have to demolish a heavy weight of expert opinion in various reports and statements currently available. If he accepts the case, then we ask him to tell us in his reply how he sees the need being met, first in the existing situation and, second, in what is for the time being the hypothetical situation of the industry being privatised.

There is still much work to be done in determining the extent of repairs and replacements to assets, especially those underground. The Institution of Civil Engineers, in the Second Report of the Infrastructure Planning Group published in April this year—it is quite new—draws attention to the fact, as does the National Economic Development Office in its report, the Nation's Infrastructure, Water, published in March this year. Some major surveys are in progress, and the use of new technology should lead to a more accurate picture being built up in a reasonable time provided that the water authorities can be persuaded to press ahead. However, even the most optimistic observers do not expect an improved estimate to emerge at the end of this survey. There is general agreement that investment must be increased. Capital spending in the last few years has been depressed by the Government's financial constraints in pursuit of a lower PSBR, and although 69 per cent. of the authorities' annual planned expenditure is devoted to preservation, restoration and improvements of their assets, it is thought more is needed.

The National Economic Development Office report, on page 3, paragraph 2.7, says: The main areas where more investment is needed are in the rehabilitation of water mains and sewers; the replacement of outworn plant and equipment in pumping stations and in treatment works, the aesthetic aspects of water quality and the improvement of surface water quality; sea outfalls; and flood prevention; coastal and sea defences".

It is quite a long shopping list; but I would add to that list the need to find alternative means of sewage sludge disposal. We shall be under continuing pressure from the European Community to produce and finally to eliminate our present cheaper practice of dumping at sea, and land-based alternatives will need considerable capital investment. Those cannot be quantified because they depend on a number of variables which cannot be decided at the moment, but certainly investment will be needed.

Even in advance of the results of some of the water authorities' surveys, there appears to be little argument about the deplorable state of our sewers. Collapses each year are at the rate of 16 per 1,000 kilometres. The state of water mains is even worse. Bursts average 216 per 1,000 kilometres per annum, and if we stop to think what that means in terms of disruption to traffic and to all our lives, it really becomes quite a serious problem.

It is estimated that one-third of all mains are badly corroded, leading not only to structural failure but to poor water quality. The loss of treated water through leakages is estimated at 25 per cent., and that is after treatment, which makes it a very expensive loss indeed.

The Government's White Paper draws attention to the fact that about half of our 141,000 miles of sewers are post-war, and the Government seem to take some comfort from that fact. However, there is an added hazard: many of the newer mains are thinner-walled and will require replacement or relining after a shorter period than that which we have come to rely on in the past. The Water Research Centre is quoted as saying that the present £60 million per annum spent on mains should be increased by £10 million to allow for more relining alone. The Chartered Institute of Public Finance and Accountancy calculates that at present capital works are not being replaced as fast as they wear out. So the problem, bad though it is, is likely to become worse. Major investment is also needed to bring treatment plant and technology up to standard.

The standard of our bathing beaches is now below that of many European countries, and far too many of our rivers are still heavily polluted. At paragraph 31 the White Paper admits that past improvements have not been sustained in the past two years. At the end of 1983 water authorities submitted estimates to the Department of the Environment of the annual investment needed to maintain or achieve various levels of service. The minimum total for just keeping pace was somewhere between £675 million and £725 million per annum. The maximum—and, my Lords, this maximum on the list which they drew up covered many items which almost all of us in this House would consider essentials and not desirable options—was £1,100 million. In addition to that, there is the Ministry of Agriculture, Fisheries and Food requirement of £64 million per annum for sea defences, coastal protection and land drainage, making a total of £1,164 million per annum.

We believe that comprehensive surveys throughout the industry are essential, to be followed by strategic repair and renewal programmes. The NEDO Report makes the practical point that the health of the support industries, with expertise in all these fields, requires long-term investment strategies if the expertise is to continue to be available when needed. I am sure that we would all want to see stability in these industries, which is being undermined at the moment.

This ties in well with the Water Research Centre's view, expressed in its sewer rehabilitation manual, that costs could be reduced by planning phased upgrading to prevent crisis replacement. In other words, we do not wait until the sewers fall in; we have a phased replacement programme, which seems to be common sense from the point of view of the industry and from the point of view of the consumer.

We believe that greater financial flexibility could be given to existing authorities to manage their own affairs without the need to privatise, with all the complicated control procedures which are now being contemplated. At this point I should like to mention the second Green Paper which the Government issued on water and sewerage law. This does not strictly fall within the terms of today's Motion and therefore I do not propose to speak about it. However, I thought that I should mention it as being a most useful document which I think bears debate in the future. I look forward to the day when we can discuss the possibility of taking up some of its proposals. However, as I say, it does not really refer to today's Motion.

I turn now to the second part of today's Motion. The three areas that we identify are pollution control, environmental conservation and consumer protection. These are the areas of responsibility most at risk in the proposed privatisation. The authorities are responsible for maintaining drinking water standards. They also control abstractions of water for industrial and other purposes, and discharges, including their own; and they have specific duties for environmental protection and for the care of wildlife.

There is a widespread feeling that these functions are properly the role of public bodies and should not be in the hands of private companies. That the Government themselves recognise this fact is implicit in the complicated system of controls and supervision which they have put forward for discussion, and I shall return to that in a moment.

Given the new companies' need to give top priority to making profits, there is likely to be some difficulty with their role as conservationists. To give just one example, recreational use of water can be in direct conflict with the needs of waterfowl and other wildlife. I know that my noble friend Lord Graham will have more to say about the recreational side of the water authorities' responsibilities, so I do not propose to dwell on it.

I hope that the Nature Conservancy Council will be listened to when safeguards are being worked out. The Royal Society for Nature Conservation is concerned about the recreational issue, and is emphatic that conservation duties should be a statutory obligation on the water service public limited companies, with provision for consultation with conservation bodies on drainage operations. This is something which so far has not been mentioned in the Green Paper, and I hope that the Government will come round to it.

I have heard from a number of organisations which, while quite properly not taking a view on privatisation, are concerned that any legislation on conservation matters should be firm and simple. I do not think that any of us here would argue about that.

I turn now to the Green Paper itself: The Water Environment: the Next Steps. It is an interesting document even though it seems to pose more problems than it solves. The first page sets out the rough shape and scope of the new controls. If noble Lords will bear with me, I should like to read them, on the assumption that not everyone will have read the document. These are the responsibilities which will have to be covered by other means if the water industry is privatised. In Section 1 at paragraph 1.2 (c) it says: Financing and co-ordination of flood protection and land drainage will become the responsibility of special bodies which will have close links with the water authorities. Sub-paragraph (d) states: A Director General of Water Services will be appointed to regulate the main services of WSPLCs through a licensing system. Licences will specify price and service standard controls for the utility services, and can include other requirements, giving them legal force. Sub-paragraph (e) says: The Director General will appoint committees to represent the interests of customers of each WSPLC. Finally, sub-paragraph (f) says: There will be new and strong safeguards for the water environment. Existing "statutory duties relating to recreation, conservation, navigation and fisheries will continue. Fair enough, my Lords; the Government seem to be about to take care of everything.

In Section 2 the Secretary of State is given specific powers to require water services plcs to maintain various activities, including some powers to establish inquiries. I wonder whether these various proposals are in line with the new freedom expected by the water services plcs, or whether the whole complicated exercise is an admission by the Government that these areas simply cannot be privatised.

I am afraid that there will be a number of questions for the Minister on this document. But it is, after all, a consultation document, and I hope he will have some answers for us. For example, at paragraph 1.5 we see that the Government are giving increasing attention to protection of the marine environment. We welcome this, but does it mean that government finance is to be available, or will the tougher standards which are to be imposed be imposed on the water services plcs for them to finance? Even if the various regulatory systems can be made to work, they represent yet another movement of authority from the regions to London, and this cannot be good for the consumer.

And what of the cost of these regulatory systems? At paragraph 2.13 the Green Paper refers to the establishment of "a small inspectorate"; small in relation to what? What is the estimated cost of this small inspectorate? Are we to pay twice for the same work, through charges to the plcs and through taxes to the Department of the Environment? How much duplication does the Minister envisage?

Even with the Government's reservations, the powers to be given to the water services plcs are formidable. In their issuing of licences and consents they will be able to control the activities of other private companies in an unprecedented way. There is no evidence that this will be acceptable to those other companies. Indeed, the chairman of the CBI's Water Panel, Mr. A. R. Guy, in a letter to the Financial Times on 29th January of this year draws attention to this point, among many others, and I have received many similar comments from a variety of different sources, all expressing the same anxiety.

I give just one example of one of the proposed powers at paragraph 5.11 of the Green Paper. It says: the Government considers that it may be desirable … to facilitate designation of protection zones for major water sources on a standard and simplified basis. The two main features will be:

  1. (a) a power to designate areas without individual local inquiries; and
  2. (b) the application of common regulatory regimes, including a requirement for the consent of the WSPLC to specified activities".
We welcome the idea of protection zones, but we do not consider that such a dramatic power—and it is a dramatic power—should be given to any private company.

All the subjects I have mentioned in one way or another impinge on consumer interests, especially the powers of the director general's committees and the other questions on costs. My noble friend Lord Gallacher will wish to enlarge on these issues and so I shall leave him to deal with them. We do, however, welcome the Government's statement at paragraph 1.7(c) about the public's need to have adequate access to information. This is a point that we have pushed in much legislation in the past, and I am glad that the Government are to take a positive line in this case.

But the image of the new water services plcs will necessarily be of an aggressive, marketing, profit-seeking body working in the interests of its shareholders rather than in the interests of its consumers. It will be no different from any other large, profit-making concern, except of course that it will not have any competition, which may make some difference. To suggest that these companies can keep a role as public watchdogs on the notoriously unprofitable areas of environmental protection and conservation simply does not make sense.

The Water Authorities Association and some individual water authorities themselves are resisting the Government's proposal to separate land drainage and flood protection from the water services plcs. If the Government yield to this pressure, they may find that antagonism from many responsible organisations to the proposed privatisation becomes a reality.

In fact, on the whole question there are so many conflicting interests that there is great danger of doing lasting damage to what, after all, is a successful system, even if it has been under financed. If you are to change a successful system, you should be expected to prove the need.

Would it not be in the long-term interest of the consumer that this natural monopoly of an essential commodity should remain in public hands? Freedom to manage finance in a realistic way could be given to water authorities without the need to privatise. The whole exercise reminds me of Edward Lear's Jumblies. Your Lordships' will recall that, their heads were green and their hands were blue and they went to sea in a sieve". This flotation is about as seaworthy as a sieve. The Jumblies came back from their trip, but not for 20 years. I predict that if this unpopular privatisation is pursued, our Government of Jumblies will be away for at least that long. My Lords, I beg to move for Papers.

3.27 p.m.

The Minister of State, Department of the Environment (Lord Elton)

My Lords, the noble Baroness, Lady Nicol, in a speech of characteristic charm and restraint has drawn your Lodships' attention to a number of aspects of the water industry, but it is privatisation that stands behind the whole of this debate, and indeed stood at the end of her speech; and to privatisation no doubt a great many of your Lordships will return throughout the interesting four-and-a-half hours that lie ahead of us.

I shall not speak for long at this stage. The time for me to answer the debate, and indeed the noble Baroness, is at the end of it, not the beginning. But I think I ought to place before your Lordships, before we go any further, just a few observations about privatisation so as to make things clear.

The first observation is this. The privatisation of the water industry is not something to be seen on its own. It is not a single event. It is part of a series; and it is as part of a series that it can best be understood and most fairly judged; because that series—that programme—of privatisation is a central part of what this Government are about.

Let me remind your Lordships that when our party came to power in 1979 there were no fewer than 1,500,000 people working in state-owned industries. Those industries accounted for about one-tenth of the retail price index, one-seventh of total investment in the economy, and about 10 per cent. of the GDP in 1979. By the end of next year our programme will have almost halved the nationalised industries' share of GDP.

The philosophy that brought such a very large slice of the private economic activity of this country into the hands of the state is, of course, well known to your Lordships because it is, or certainly was, the philosophy of the party opposite. Central to its objectives was the wish that the wealth of the nation should be in the ownership of the nation, which, being translated, means that every elector should get a slice of the action. Nationalisation was intended to achieve that objective.

My Lords, that is exceedingly neat in theory, but it proved disastrously complicated in practice. Anyone may be able to prove ownership to the intellectual elector by philosophic reasoning, but you cannot convince the average elector of it by practical demonstration. By that I mean that even if he knows he owns the power stations or British Airways, he does not feel as though he does. In that, nationalisation was not successful.

Another central objective of nationalisation, as I understand it, was to place those essential businesses under political control. In that, nationalisation was successful. So, in this new sector of British industry, businesses no longer had individual shareholders whose direct interest in their performance was commercial. Instead, they were given one corporate owner whose ultimate objectives were political even when they were expressed in financial terms. I have to make this clear at the outset because it explains both why nationalisation so often does not work and why the Conservative Party has been determined and is determined, to dismantle it over the years in order to restore efficiency and wellbeing to much that is humdrum, inefficient and unproductive in the economy.

The noble Baroness said that we must prove the need. This is the crying need of this country right across industry and the economy. It is possible that noble Lords opposite may feel that what I have so far said can all be safely brushed aside as mere Tory dogma.

Noble Lords

Hear, hear!

Lord Elton

My Lords, I welcome that confirmation. I hoped that I should get it. A dogma of course is a theory of which you disapprove and which has not been successfully tested in practice. But your Lordships will agree that a safe test of this particular dogma would be simply to privatise a part of nationalised industry and see what happens. My Lords, we have done it! We have done it 17 times. And what we are talking about is, as a result, not dogma but established fact. Privatisation of any industry, which is what we now propose for the water industry, generates success far beyond whatever that industry achieved when it was in the dead hand of the state. That is so by any criteria. I see that the noble Lord opposite is burning to rise. I do not recall whether his name is down to speak but maybe he is going to leap into the "gap" if it is not. He will then have plenty of time to marshal his ammunition to demolish what I am about to say. But it had better be pretty good because it seems to me that what I have said stands by any criteria.

Is your criterion profit? The profits of British Aerospace have increased three-fold in five years and those of National Freight seven-fold. Is it production? Jaguar made 14,000 cars in 1979; they made 38,500 cars in 1985. Is it value to the customer? Between 1980 and 1983, after liberalisation of the licensing requirements, 700 new, long-distance coach services were introduced and fares fell by 40 per cent. in real terms. Is it customer satisfaction? In 1981 a survey of Jaguar's American customers showed that only 20 per cent. of them were satisfied with the car they had bought only 35 days after they had bought it. By 1984 that figure was 90 per cent. Is it the involvement of the members of an industrial concern in its success? To date, more than one-third of a million employees have obtained shares through privatisation of the companies in which they work. Or is it the criterion of the involvement not of the workers but of the public—that sense of ownership that nationalisation itself was intended to bring about? Let me remind your Lordships that British Telecom is now owned by 1,700,000 private shareholders and they know that they own it because they get a slice of the action.

Your Lordships may say—and the noble Lord, Lord Williams, certainly will say—that I have chosen examples to fit my case. Of course I have. Who would not? I have chosen from a wealth of others that prove to our ample satisfaction that privatisation brings new life to old industries to the benefit of all concerned. Some noble Lords may feel that water is too important to be left to private companies. In that they will be in sympathy with the noble Baroness, Lady Nicol. Water is essential to life. The purity of what we drink is essential to health. But is not food essential to life? Is not the purity of what we eat essential to our health? Yet not one of those that I have heard has for a moment suggested that private enterprise is not perfectly able to supply food. The state certainly sets standards and safeguards for the food industry. And so it will with water. But every day, with every meal, with every mouthful, except at the most unfortunate dinner parties, we prove that private industry is a fit provider of the essentials of life and we do so without a moment's anxiety. When we privatise water, we shall nevertheless take the opportunity actually to strengthen our control of certain quality objectives and the machinery for representing consumer interests and investigating consumer complaints. I shall return to that when I reply to this debate.

Some noble Lords may say, nonetheless, that water is too integral to the environment to leave it in the control of private enterprise. We are deeply aware of this aspect of public concern and deeply committed to the protection of standards. I must not anticipate this debate; but your Lordships will have seen, and the noble Baroness has helpfully quoted from, the consultation paper called The Water Environment: The Next Steps. It was published in April and we asked for comments by 27th June. Chapter 8 summarises our proposals. I shall listen with close interest not only as I have done to the noble Baroness but to the comments of all noble Lords, and they will be taken into consideration with the other views expressed during the consultation. But no one who has read this document can still believe that we will leave the environmental aspects of water policy to chance. The pollution control and environmental protection referred to in the Motion now before us are at the very heart of our proposals.

Noble Lords will wish to protect actual consumers as well as their environment and we recognise the need for safeguards against monopoly abuse. We shall therefore set up a regulatory regime headed by the Director General of Water Services. He will police the licences under which the water companies will be appointed. These will set standards for service as well as limits on charges. He will also set up new consumer consultative committees, one for each company, to deal with consumer affairs and investigate specific complaints.

The first item in the catalogue of concern which the noble Baroness has put before us in her Motion is neither the environment nor the consumer. It is "the case for large-scale investment" in the industry. Indeed, there is such a case. I freely admit it and it seems to me to contribute notably to the case for privatisation. Your Lordships are probably aware that the highest level of real-terms expenditure on the industry was as far back as 1975–76, and that by 1980–81 it had declined—under whose supervision I will not say—to £653 million at the same prices. By 1986–87, the increase of about 35 per cent. will have taken us back to £891 million.

In cash terms, we have provided those amounts for the industry in the current year rising to £990 million in 1988–89, as I said a moment ago. This will maintain the real-terms increase in the capital investment in the industry. That is not a shoddy record: £990 million is a great deal of money. Some of your Lordships think it should be larger—the noble Baroness, I think, included. But even at its present level, it is not the sort of money that the Chancellor finds in his back pocket when he hangs up his suit at the end of a busy day. It is serious money that has to be found from government resources, a purse constantly drained by every aspect of government activity and constantly replenished from the taxpayers' pocket. The Government do not have unlimited money under this administration. They have only what they can borrow and what they can take from the taxpayer. There is very little else. Out of that money, they have to pay for all their activities and for everything that people want of them. As long as the water industry is nationalised, the money to pay for it has to come from that strictly limited amount, and it is competing for it with all those other uses.

Money spent on water cannot be spent on education; it cannot be spent on health. That is what the Institution of Civil Engineers meant in paragraph 31 of the second report of their infrastructure planning group, to which the noble Baroness referred. They said: Water authorities are currently vulnerable to government decision on capital expenditure despite recognition by all concerned that stability and longer term planning are paramount. The role of government is also recognised in paragraph 11 of the Civil Engineering ECD's report on water to which the noble Baroness also referred.

It must be wrong that the water industry should be dependent for its capital resources upon the success—notable though it has lately been—of my right honourable friend the Secretary of State fighting his corner in the annual Cabinet battle about public expenditure, capital allowances or cash. That is why I said that the capital needs of the industry, to which the noble Baroness so ably draws our attention, contribute notably to the case for privatisation. Privatisation, under the careful regulation which we propose, which will protect both the environment from pollution and the customer from exploitation is not a dangerous exercise. It will give the industry access to new money under the discipline of the market. The provision of water by a company under careful regulation is nothing new. There are now 28 statutory companies supplying water to 25 per cent. of the population in England and Wales. That is about 12 million people. There is nothing frightening about company water. One in four of us are drinking it already.

3.40 p.m.

Lord Ezra

My Lords, I should like to congratulate the noble Lord, Lord Elton, on the stirring party political speech that he has just made. It seems to me that it is not a realistic response to the very moderate and positive Motion proposed by the noble Baroness, Lady Nicol. I should like to keep to the Motion and say that the Benches from which I speak take a very objective view of what should be publicly and privately owned. However, I do not believe that this is the Second Reading of the Government's Bill yet to be published on the privatisation of the water industry; it is a Motion directed to a consideration of the requirement for capital investment in the water industry, and it expresses some concern about what might happen to the environmental, pollution and consumer considerations under possible privatisation. I should like to speak strictly to the Motion.

First, I think that it is necessary for us to pay tribute to the great achievements in the British water industry. Indeed, I do not need to look any further than the Government's White Paper in which they refer to the positive consequences of the 1973 Water Act and the way in which the water industry of the country has been organised so as to take into account all aspects of the production, use and environmental impact of water. I am delighted that that is something to which on all sides of the House we can adhere. The problem is whether the future of the British water industry really is in the direction that the Government have in mind or whether it lies in the direction of consolidating what already exists.

Let us take the question of investment. The noble Lord, Lord Elton, has told us very eloquently that of course the Government's purse is not unlimited. But there is the question of the vital needs of the infrastructure. When one looks at some of the reports that have been produced on the subject—and a number have been mentioned in the course of the speech of the noble Baroness, Lady Nicol—one finds that not only the professional bodies but also the water authorities themselves are very concerned at the limitation on investment so far; so let us leave aside for the moment all questions of possible privatisation. They will take some time, anyway. One has the legislative process to be gone through. Let us look at investment for its own sake at the present time.

What do we need to do about the water industry of Britain? We have an exceptionally good system, but we have an inadequate supply of capital to refurbish and to maintain the physical assets. That seems to be common ground. In the report of the Institution of Civil Engineers, the NEDC report and, indeed, in the White Paper itself, it is implied that there is inadequate financing of the water industry at present. It is suggested that, if it were privatised, it would all be resolved. I am saying that we cannot wait until then. Let us resolve the matter now. If the industry is to be privatised, at least let it be done in a form in which it is working totally successfully and adequately, and let it not be starved of the necessary finance.

Let us make sure that such items as are referred to in the NEDC report are attended to. These include the corrosion of water mains in many parts of the country, the sewerage collapses in many parts of the country, pollution in numerous rivers and estuaries—there is a whole host of purely physical matters that need to be attended to. I should have thought that it would be common ground between us in this noble House that these should be dealt with without delay. The question of whether this industry ultimately is to be publicly or privately owned seems to me to be irrelevant to the question of whether it should be adequately capitalised, whether the maintenance and performance of the industry with the good system now established should be persevered in.

Therefore the first point that I should like to put to the noble Lord who will reply to the debate is: what plans have the Government in mind to put right the numerous matters of a physical nature that need to be corrected in the water industry which is based on such an effective system but is now lacking in the necessary capital investment to make it work properly?

The second part of the noble Baroness's speech related to the possible impact of privatisation on the questions of pollution and environmental control and consumers' interests. Here I believe that there is a problem. Under the existing arrangements the water authorities are both operating and regulating it. This has worked pretty well. But they are publicly-owned monopolies, so the public can take some comfort from the fact that they are owned by the public, under government control.

If these bodies are to be transferred into private companies, the question then arises whether there should not be a division of functions and whether the supply of water and sewerage services should be regarded as the commercial part of the operation but the environmental and pollution responsibilities should be regarded as the continuing public part of the operation. The fact that the Government have already decided that drainage and flood prevention should be withdrawn from water authorities in the event of their being privatised seems to support this view.

I would put it to the noble Lord that they cannot have it both ways. If we are to have a water system in this country which includes not only the supply of water and sewerage services but also control of the environmental and pollution aspects, then it seems to me that that sort of organisation properly lies in the public sector. But, if it is decided to convert this into the private sector, then there should be a division of these responsibilities and the environmental and pollution aspects as well as the land drainage and flood prevention aspects should be kept in public hands and the commercial supply of water and sewerage should be in private hands, if that is the Government's wish and desire. I do not see that the existing totally integrated water supply system which, as the Government's own White Paper has shown, has attracted a great deal of attention throughout the world, can be privatised exactly as it stands.

We all know that those who serve in the water industry would be totally opposed to a division of their functions. From the correspondence received by those of us who are participating in this debate it is perfectly clear that the prime objective of those serving in the industry is to maintain the integrity of the industry. They are saying that if it is the Government's wish to privatise, let it be privatised in toto. But I am saying, looking at it as objectively as possible, that I do not believe these objectives are consistent. There has to be a division between the public responsibilities of environment pollution, flood prevention and drainage control, on the one hand, and the supply of water and sewerage services, on the other. Therefore I am particularly grateful to the noble Baroness, Lady Nicol, for having given us the opportunity, in advance of debating the Bill yet to be published, to air some of these views.

The Government at the moment are in a consultancy phase over this project. We therefore have the opportunity today to express our opinions, and I put it to them urgently that there are two things to be done. First, we have to make absolutely sure that the physical aspects of our otherwise admirable water industry are properly provided for by adequate financing and that the Government should not wait until there is a change in their status. Secondly, they should look very carefully yet again at the public and private aspects of possible privatisation.

3.52 p.m.

Lord Gallacher

My Lords, looking at the document Cmnd. 9734, Privatisation of the Water Authorities in England and Wales, although it is officially a White Paper, one ponders really as to what the status of the document is. Beyond the normal concept of a White Paper, it reads in part like a company prospectus. It certainly is a document highly motivated in terms of advertising. Further, I think that in the White Paper the Government are seeking very hard to convince themselves that they are doing the right thing. I must say that on a sober reading of the document, and even after listening to the spirited speech by the noble Lord the Minister this afternoon, I am far from convinced that they are doing the right thing.

Broadly speaking, so far as the consumers are concerned, the document seeks to assure them that they will be better off if they buy from Her Majesty's Government regional water authorities in England and Wales, which they already own, even at one stage removed. The cost of servicing share capital as a result of the issue, the cost of servicing borrowing by water supply plcs is not even mentioned briefly in the document. I think we are indebted to the noble Lord, Lord Ezra, for mentioning the arrears of capital maintenance which will face water supply plcs if the Government do not, in the interim period between now and privatisation, expend a great deal more money on essential functions.

One asks oneself, having in a sense dual nationality, if it is so advantageous to privatise, why have the Scots been left out of this scheme? The Scots have a built-in sense of being disadvantaged—sometimes real and sometimes imaginery—but I am not aware that the fiery cross has been lit in Scotland over this issue. They also have a reputation for being canny with their money, and I think it is that aspect of their character which has dominated their thinking so far as the privatisation of water is concerned.

If we may look briefly at what happened when gas was nationalised, which took place under a Labour administration, we see that that happened only after a public inquiry, which decided that gas supply was a natural monopoly, and the Labour Government proceeded to create a public corporation. They paid compensation to the 300 municipalities whose undertakings became part of the nationalised corporation: a mere £2 million for severance. The Government of the day justified their action on the basis that what they were doing was transferring from one public authority to another. This is not the case so far as water is concerned.

The document which this Government have published concedes that water authorities are natural monopolies whose services are essential to public health; and so the proposition before us is that there should be one company per region in England and Wales, not several. And so we have the concept of water supply plcs.

The profit motive is preferred in the document to statutory undertakings. The Minister had a great deal to say about the fact that we are already supplied in large measure by statutory undertakings in England and Wales. He claimed (I think with some measure of justification) that those statutory undertakings do a useful job for consumers. I also believe that if the Government had proposed to do what they want to do on the basis of extending the ownership by statutory undertakings, there would have been more sympathy in the country at large for what they are doing than there is for preferring the profit motive.

There are to be safeguards to prevent overcharging and low service standards; but one must inevitably ask when talking of safeguards of this kind: to whom will public limited companies owe a superior duty—to shareholders or to customers? There is a phrase in the paper which intrigued me greatly, which speaks of the managers of the plcs being driven by the normal commercial motivation of the private sector. That leads me to think that the managers, quite properly, will owe a superior duty to the shareholders of their company. Indeed, it would be remarkable if they did not.

We are pursuing also, if the legislation follows the pattern mapped out in the White Paper, the same kind of scheme as the Government created for the privatisation of British Telecom and the proposed privatisation of British Gas. The water supply plcs are to operate under licence, regulated by the newly-created office of Director General of Water Services. It is mentioned that a licensing period might be of the order of 25 years, which is the same as for gas and British Telecom. It is also suggested that there might be a formula for prices which may have an initial validity of five years. It is suggested, too, that the Director General of Water Services can make changes so far as prices are concerned by agreement with the licensee. If such changes are proposed and not agreed, the possibility of a reference to the Monopolies and Mergers Commission is canvassed in the document. That, again, is the same as was proposed for gas and British Telecom. Therefore, the Monopolies and Mergers Commission, which was conceived to discharge an entirely different function, is to be burdened with what I think could prove to be a well nigh impossible task of sitting in judgment in cases of this kind.

Because of the Green Paper Paying for Local Government rateable value is not now considered to be a suitable basis for charging domestic ratepayers and the Government have been obliged in the paper on water to look at the alternatives by way of charging for water supply. So the concept of metering for domestic consumers is mentioned in the document. I think it is quite an ominous reference, because it is said that not merely should the plcs perhaps assist with the installation cost of meters but that this initial capital cost may be justified by reason of the fact that, once metered, the demand for water will be considerably lower and consequently future capital investment, as a result of lower demand, can be correspondingly less. That sounds to me like ominous news for low-income groups in this country.

Turning to the 1973 Water Act, which was, of course, the work of a Conservative administration, that Act made no provision for consumer machinery. Although there were criticisms of the absence of consumer machinery at the time, I think on the whole the situation was bearable because the authorities created and constituted under the 1973 Act had a very liberal representation of local government members as part of them, and as these people were elected their existence was known and, in consequence, their capacity to safeguard the interests of consumers could, I think, be taken for granted.

Incidentally, the role of local authorities following privatisation is an aspect about which I think we should hear more from the Minister, because it seems to me that in the planning area alone local authorities are likely to be vitally interested in the activities of water supply plcs, and, if there is to be no special provision for the interests of local authorities in legislation, perhaps the Minister may care to tell us whether they might even be allowed to become shareholders in order, as it were, to hold a watching brief on behalf of their ratepayers.

In 1983 the character of the controlling authorities of water undertakings was completely transformed. They became smaller bodies, like regional gas or regional electricity undertakings, and, of course, these small bodies were then obliged to operate to targets set for them by Her Majesty's Government. Consumer machinery was established and members were chosen by regional water authorities themselves to represent consumer interests, after consultation with bodies such as the CBI and the National Farmers' Union. Two types of consumer committee are in existence for each of the existing regions. There is the divisional consultative committee and the regional consumer and recreation committee.

There is, I must say, and was at the material time in 1983, some criticism about the narrow basis of consultation which the existing regional water authorities undertook in connection with appointments to the consumer committees which they created. Thus, I think it is fair to say that one cannot form an objective judgment as to the value of the consumer machinery which was created in 1983, although the White Paper assumes that as they exist they must be good, they must be doing a useful job and that everybody must be aware of that fact and of their continuing existence.

On privatisation, I think it is absolutely fundamental that powerful regional consultative committees are created with the necessary resources to undertake the job which they will have to do on behalf of consumers. They are to report direct to the Director General of Water Services with the right of complaint to him. I believe that their reports should also be made public and laid before Parliament, just as the water supply public limited companies themselves will have to make returns to Government under existing company law.

I also ask myself why the Director General of Water Services should be given the task of appointing members to regional consultative committees on privatisation. It would seem to me that this also ought to be a function of government just as it will be for the national Gas Consumers' Council.

About their existence and operating activities, I should like to ask the Minister when he replies whether the regional consumer committees will be able to engage independent financial consultants to guide them on pricing and service matters following privatisation. I think this is a very important facility which they will need, having regard to disparities in the comparative strengths of water supply public limited companies—a point which has already been touched on.

How, for example, can one compare the results and resources of the Thames water supply PLC with one in, say, the north-west of England where it is understood major arrears of capital investment are facing the company on privatisation, because it has not been done prior to this date?

I ask whether regional consumer consultative committees will have a right of direct access to the boards of the water supply plcs in whose areas they are operating. Will maximum publicity be given to their existence, and what form will that publicity take? I mention this because, as has already been said, little knowledge is available so far about the existing consumer machinery. Also, I think it is important that the chairmen of these bodies, however appointed, should be allowed to meet collectively once or twice a year for an exchange of experiences, so that they can, in fact, inform each other of the activities of their committees.

So far as owner-occupiers of older properties are concerned, I think that these people will be in the hands of water supply plcs to a very marked degree, quite apart from charges. For example, in the matter of escapes of water—and I have had recent personal experience of this—although one could call in an outside plumber, the fact that the escape is between the company's mains and one's house, leads one automatically to say, "We must bring in the water board to have a look at this." To the extent that one does this as a sensible precaution, then one is virtually bound once the fault has been diagnosed to authorise the water authority to undertake the work and accept their billing for it. And, as I know from further recent experience, it is even difficult for water authorities to give a reliable estimate for this type of work until they have actually seen what the job entails.

There is also, so far as all domestic water consumers are concerned, the problem of cut-offs for non- or delayed payment of accounts. This could cause acute hardship—more so even than with gas and electricity, because there are alternatives available in such circumstances. There is no other source of supply available so far as a cut-off of water is concerned. I wonder whether, as one of the revenue-raising devices, our old friend the standing charge might be introduced by water authorities in order to make them slightly more profitable.

So far as the overall role of the Director General of Water Services is concerned, in looking at the comparative levels of service I find this an almost impossible function for any single man to discharge. The circumstances of these bodies will vary considerably and, consequently, I think that meaningful comparisons as between one region and another will be virtually impossible to make, especially, as has already been pointed out, given the degree of difference in the areas they are serving, the problems they are facing and the kind of capital expenditure which they either undertake or decline to undertake, as the case may be.

So, from the consumer angle I think that the proposals are defective. I think that the machinery so far postulated for the protection of consumers is, on the whole, inadequate. Therefore, I hope that if the Government feel that they must introduce legislation, serious thought will be given to this, because undoubtedly water users could be placed at risk.

4.8 p.m.

Lord Sherfield

My Lords, this is not the first time in recent months that we have debated the need for investment in the water industry and the implications of privatisation; nor, I am sure, will it be the last. We are grateful to the noble Baroness for giving us the opportunity this afternoon to take another canter round the course.

As some of your Lordships may know, my short-lived knowledge of this subject is derived from an inquiry by the Select Committee on Science and Technology of which I took the chair. The message of this inquiry was very clear. The infrastructure of the water industry was in bad shape. It had suffered from many years of neglect. The reorganisation of the industry in 1973 brought to light some of these deficiencies for the first time and a start had been made on putting them right. But the failures in sewers and water mains were sufficiently common for the water authorities to rely largely on a policy of crisis maintenance. It is a policy that should not be allowed to continue. Crisis maintenance needs to be replaced by preventive maintenance. More needs to be spent in the short term in order to prevent failures and repair bills that go beyond the industry's means.

I should like briefly to remind noble Lords of some of the Select Committee's comments. First, on sewers, the policy for sewerage repair has, as I have just said, been one of crisis maintenance. When a sewer fails it has to be mended. Too many failures have taken place in the worst trouble spots such as Manchester for any other policy to be adopted. Only very recently have preventive measures begun and these are on a small scale. Expenditure on preventive renovation during 1981–82 was only £8 million and some of this was spent in association with collapses. At 1982 prices we calculated that in that year expenditure on sewer maintenance should have been £310 million whereas actual expenditure was running at £205 million. The Select Committee found enough evidence to believe that there was a significant risk of decay in the sewerage system getting beyond the water authorities' control.

Secondly, on water supply, annual maintenance expenditure at 1982 prices ought to have been £140 million but was in fact only £90 million in that year. The committee concluded that the deterioration of iron water mains was worrying, with the possibility that the high failure of pipes in corrosive environments was likely to go even higher. Although the urgency of action on water mains was judged to be less than in the case of sewers, the water supply system had the same need for preventive maintenance, and all the water industry's underground assets required additional capital expenditure now—or perhaps I should have said "then"—to forestall greater expenditure in the more distant future. I imagine that the people of Leeds who were without water for several days earlier this year as a result of a burst water main would support this point of view.

I am aware, of course, that the figures given for 1985–86 in pages 36 and 37 of the White Paper are substantially greater than this. The noble Baroness, Lady Nicol, has mentioned the civil engineering Little Neddy report on the infrastructure of the water industry published in March this year. Interestingly enough, that committee reversed the Select Committee's priorities and suggested that the water mains were a cause for greater concern than the sewers. The report pointed out that capital investment had risen by 30 per cent. above its 1980 level. The noble Lord, Lord Elton, gave the figures and I need not repeat them. But investment had fallen by half between 1974 and 1980, and we have still not returned to the pre-1974 level. This does not suggest to me that the challenge of preventive maintenance has yet been met.

There are, I feel sure, exceptions. For example, I notice that the Severn-Trent Water Authority has just published a five-year capital works programme which should go far to remedy the situation in that area. But in this connection the Neddy report said: While many authorities are tackling the problem with a systematic programme over the next few years for assets in key areas, others have still to develop a strategy on time and scale of operations". So even without a reorganisation of the water authorities the situation is not very reassuring. Will privatisation increase the likelihood that the problem will be more actively tackled? I doubt it. In the first place, I wonder whether there will be much incentive to invest in the water supply PLCs in some areas of the country, particularly the North. These investors will be letting themselves in for some rather high bills. In the second place, privatisation may well disturb the newly-emerging programmes for systematic spending on infrastructure, about which I have just given one example.

While I support the principle of privatisation in general—I am certainly not going to debate that with the noble Lord this afternoon—it does not seem to me that privatisation sits very well with water. I am aware that privatisation has been welcomed by several water authority chairmen and that the Government have found support in the industry, subject to some reservations, to one of which the noble Baroness, Lady Nicol, referred. But the concerns and reservations which were expressed by myself and, with far greater authority, by the noble Lord, Lord Nugent of Guildford, in the debate on his Unstarred Question on 5th April last, have not been dissipated by the White Paper.

The Government accept the case for river basin management. That has been so successful since its introduction by the Water Act 1973 that no government are likely to change it. We are therefore bound to have single suppliers of water. The White Paper recognises that, the water authorities are for the most part natural monopolies. The work required to create their infrastructure makes it more essential for the services to be provided by one company than by several". I think that the noble Lord, Lord Gallacher, referred to that also. Since the chief merits of private enterprise lie in competition, it is not clear to me what advantage is to be gained by the creation of a private monopoly in place of a public monoply. Is there much room for competition other than in the capital market? There is every need for strong authorities capable of planning and maintaining a pure water supply, disposing of foul water and preventing pollution; that is, preventing pollution both from their own operations and from the operations of others. After all, many of their functions are essentially public sector responsibilities.

I now come finally to my greatest concern about privatisation. It is the question of research and development. The consultative Green Paper did not mention this at all. The White Paper gives it two sentences. It says, first, that the water supply PLCs, like other private technology-based organisations"— whatever that may mean— will need a sound research and development capability"; and, secondly, that the operating licence will require, water supply public limited companies to carry out or obtain adequate research and development for their responsibilities". That is not much said, especially as basic and strategic research are usually the first casualties of a reorganisation, a trading fund, and the like. Moreover, the two sentences are tacked on, apparently as an afterthought, at the end of a sentence about the terms of the operating licence being enforceable in the courts and about the revoking of licences in such circumstances. But how will the licence require these companies to carry out or obtain adequate research and development? How do you judge what is adequate? Who is the judge of what is adequate? What sanctions are there if the research and development is not adequate? It is almost inconceivable that an operating licence would be revoked for this reason alone, and with licences lasting 25 years or more the result could be quite serious before any change would be made.

When I raised this question in the debate on the Unstarred Question of the noble Lord, Lord Nugent, to which I have already referred, the noble Lord replying for the Government said that privatisation need not have any effect on research. That, so far as I remember, was all that he did say. I am not too concerned about applied research and development. Any company with its profit and shareholders' interests at heart ought to be aware of the importance of research and development and its scope to improve profits, though I wish that hope was realised by more companies in British manufacturing industry. But what about research in support of the public interest that the water authorities now carry out? What about large research programmes that are conducted by water authorities jointly? What about research within a long timeframe, especially that relating to underground engineering?

If precedent is any guide, then we are likely to see the squeezing out of strategic research. So what is required is a person or a body with the responsibility of ensuring that strategic research for the water industry is undertaken. Is that to be a function of government or of the already overburdened director general? In our report in 1982 we recommended that the Department of the Environment should assume responsibility for ensuring the existence of a long-term research strategy in the water industry that would take into account the needs of not only that industry but also of other interests affected by the water industry's activities. The Government agreed. They said that they would be prepared to take an overview of what might be required, and they set up a long-term research requirements committee for that purpose. That was an excellent development.

Where do we stand now? First, I have heard a suggestion that the long-term research requirements committee will be disbanded when it reports. I hope that that is a false rumour, for the Government's responsibility cannot suddenly terminate. Secondly, how do the Government intend to take their overview of research requirements when the water industry is made up of private companies? Thirdly, how is the continuation of the Water Research Centre, for which I have the highest regard, to be ensured? That centre is doing excellent work on all aspects of the water industry's functions. Secession from it by big water undertakings or even the threat of secession could cripple the centre.

In the Select Committee report, we went so far as to recommend that membership of the centre should be compulsory. For reasons that I understand, that recommendation was rejected. However, at that time the Government gave a strong indication that while the centre should earn the subscriptions of its members, the water authorities were expected to keep up their membership. The Government said that as a last resort they were prepared to use the power in Section 24 of the Water Act 1973 to direct a water authority on its arrangements for research, including subscribing or otherwise financially contributing to the Water Research Centre. That reserve must obviously be maintained, but an assurance is needed that it will be.

I should be grateful to the Minister if he will explain whether the Government still accept their responsibility for strategic research, and, if so, whether they will ensure the continued membership of the Water Research Centre by water authorities, whether or not they are privatised. I was not satisfied with the assurances given me by the noble Lord, Lord Skelmersdale, which I quoted earlier. I feel reasonably certain that privatisation would harm the water industry's research efforts significantly, and that this is one of the implications of privatisation for pollution control, environmental protection and consumer interests, that we cannot afford to overlook.

4.25 p.m.

Lord Elliott of Morpeth

My Lords, having knowledge of the Water Research Centre, I should like to support very much the comments that the noble Lord, Lord Sherfield, has just made. I would with him express the hope that research and development in the water industry will be continued post-privatisation at the level at which it has been done in the past. The centre is very valuable and I hope that it can be maintained.

In considering the implications of the second half of the Motion, concerning the effects of privatisation for the environment in general, my particular experience of the water industry may be of some interest. The noble Baroness, in her excellent and comprehensive speech, suggested that control of water should not be in the hands of the private sector. Perhaps this is an appropriate moment for your Lordships to appreciate that as well as the 10 regional water authorities that we have had until now, and still have at this moment, we have also 28 private water companies. Between them they supply no less than one-quarter of the population of England and Wales.

Those private water companies are, as the noble Lord, Lord Gallacher, pointed out, statutory companies. They are required to return excess profits to the consumer and they have dividend control. But they are private companies. They raise their money on the market, and have no difficulty in doing so—which may be of interest to your Lordships. I believe that they are highly regarded by their consumers, with whom they have excellent relations. That close contact with consumers means that environmental matters automatically have a high priority with the private companies.

I declare a personal interest in that I am the chairman of one of those 28 private companies. I am chairman at this time of the Newcastle and Gateshead Water Company, which has the very best of relations with its customers—at least, it does to the best of my knowledge, and I sincerely hope that it has. It is a big company that supplies water to the whole of the city of Newcastle, to the whole of Gateshead, and to the whole of the county of Northumberland, with the exception of Tynemouth.

I also have the honour to be at this time the president of the Water Company's Association, and through that contact I am aware of the similar concern that all the companies have for the environment and for customers in their particular areas. I am very pleased to note that in the Government's present proposals due regard is to be taken of the water companies and that, as stated in the Green Paper, further discussions are to take place on their future role.

In her speech the noble Baroness quite rightly raised the question, as did other noble Lords, of capital works and sewers. Sewers do not of course come into the orbit of the private water companies. It is true to say that a certain number of the sewers in this country are in need of renovation, but half of them have been renewed since the end of the last world war and less than a quarter are pre-1914. However, I agree with the noble Baroness that there is need for a national survey and an absolutely sound assessment of the needs of that requirement. The noble Baroness said that we should not wait until the sewers fall in, and I am sure that is right.

If I may say a final word about the water companies, their record in maintaining mains as against sewers is an excellent one, and they have not waited until the mains have either fallen in or have got into a bad condition. The water companies have been very good stewards of the water mains in their areas of supply. I welcome this opportunity of commending them for that.

The overriding control of pollution until now—and until we have a new Act of Parliament—has been the responsibility of the regional water authorities. I suggest to noble Lords who have referred today to future control in this sphere that presumably it will be with the director general, but environmental control these days is surely very much a matter of EC directives. In consequence, the Secretary of State is required to achieve certain standards, and will do so. In paragraph 2.13 the consultative document makes clear, as I see it, that a broad control will be established through regulations, statutory codes and conditions of operating licences which will be issued by the director general. In his opening speech my noble friend enlarged, I thought quite adequately, on this point.

It will be for the Secretary of State to support the new plcs in their role as pollution control authorities. The document further states that an important new development will be the establishment of a small inspectorate within the Department of the Environment. The noble Baroness, Lady Nicol, in her opening speech, rightly asked about the cost of this. That is an aspect to which we should turn our attention. I suggest that this inspectorate should not be too small, if I may say that to my noble friend. Water undertakings of all kinds, private and regional water authorities, have known—granted, to a lessening degree—the problem of discharges of undesirable pollution of various kinds into rivers above the extraction point of the water undertaking concerned. It must be very much in the public interest to have an assurance that control in this sphere will continue to be adequate, and be seen to be adequate. I believe there will be considerable public concern here.

The 1983 Act established consumer consultative committees on which, again, the noble Lord, Lord Gallacher, spoke. These were established on a divisional basis, and in my experience as chairman of a private water authority they have worked well. I share with the noble Lord. Lord Gallacher, the hope that the new, bigger proposed regional consultative committees will work as well. The proposal to have these bigger bodies means that they could be stronger. On the other hand, again there is the possibility of big not being beautiful. I very much hope that we shall know a continuance of consumers feeling that they have adequate and easy machinery for complaint. Those of us in the water industry have often said, in one part of it or another, that the consumers are the cornerstone of the water industry and that the consumers must come first.

Finally, I believe that the present proposal for the water industry will not destroy the system of integrated river basin management, which was the main outcome of the 1973 Act. I join with the noble Lord, Lord Ezra, in paying tribute to that Act and to the outcome of it. The system has worked very well, and I hope it will continue to work. It has worked in the past with authorities and companies working in harmony and it has been a model greatly admired in many parts of the world.

With adequate safeguards I am satisfied that the proposed legislation will mean not only the continuance of an efficient industry, but also an improved one. Every industry must go forward and I believe that this proposal to privatise the water industry means that the industry will go forward. As the noble Lord, Lord Ezra, said, it is part of the policy of the present Government to reduce the public sector, to reduce the borrowing requirement and in due course release resources for schools, hospitals and the support of those in society least able to help themselves.

4.34 p.m.

Baroness White

My Lords, I am sure we are all very glad to hear from the noble Lord, Lord Elliott of Morpeth, who is a specialist in the activities of the statutory water companies and a doughty champion on their behalf, though I think he will agree that a recent report on the Southern Regional Authority was not altogether complimentary to the statutory companies in that area.

Although we have two distinguished noble Lords from the opposite Benches still to speak I do not think that the Minister can feel that he is overwhelmed by the enthusiastic regiment of supporters behind him. However, there is one speaker from the opposite Benches whom we all miss today: the noble Lord, Lord Nugent of Guildford, to whom the noble Lord, Lord Sherfield, has already referred. I am sure we all sympathise with his need for surgical treatment which has caused him to stay away today. I understand that, happily, he is making a good recovery.

One has only to read the debate of 22nd April last year, referred to by the noble Lord, Lord Sherfield, to recognise how much relieved the Government Front Bench must be by his enforced absence. The noble Lord, Lord Nugent, is far too loyal a party member to embarrass his colleagues more than he can help, but his complete opposition to the privatisation proposals for water was fully stated in that debate; although he indicated also with great clarity that in other directions he favours private ownership. I have good reason to believe that the views of the noble Lord, Lord Nugent, have not been changed by the various White and Green Papers or the financial guesswork which have been issued over the past few weeks. These papers refer only to England and Wales and I noted, as did my noble friend Lord Gallacher, that the Scots are not clamouring to climb on this bandwagon. My notes read, "They are a canny race".

Improvements in organisation in England and Wales in the water industry are no doubt possible, and certain changes in financial arrangements with the Government undoubtedly could be advantageous. However, the listing in the White Paper of the supposed 11 advantages of private ownership are, to anyone familiar with the water industry, little more than a series of non sequiturs. I have here, as other noble Lords may have, the recent summary by the Association of Chief Technical Officers of local authorities. They say categorically that, Nine of the 11 benefits listed by the Government as benefits from privatisation could be achieved within the existing framework". That, of course, is true. By far the best analysis that I have seen of the White Paper summary prospectus—which I suppose is what we should call it—is the analysis published on 25th April by the Chartered Institute of Public Finance and Accountancy—well known to anyone familiar with local government as CIPFA. This analysis faithfully pinpoints the fallacies underlying the sales talk contained in the White Paper. I strongly recommend it to your Lordships. I have no doubt that a copy can be obtained in the Library. It analyses, one by one, all the 11 suggested advantages of private ownership for the water industry.

Because of my well-known Welsh interests I am particularly concerned with points (iv) and (v). Point (iv) concerns the suggestion that, financial markets will be able to compare the performance of individual water authorities against each other and against other sections of the economy. This will provide the financial spur to improved performance". Point (v) reads: a system of economic regulation will be designed to ensure that the benefits of greater efficiency are systematically passed on to customers in the form of lower prices and better service than would otherwise have occurred". The comment of CIPFA on the first point is: The implication of the White Paper could well be that the privatised authorities in the regions with the problems and largest commitments (e.g. North West, Welsh) could pay more for their money than those more favourably placed. (e.g. Thames). This in turn could well be aggravated by the application of a uniform prices increase regulator, as is proposed. But this is the real point of its comment: Differences in conditions as between regions is always likely to be a much greater factor than any assessment of performance efficiency. Comparison with 'other sections of the economy' is almost meaningless except in the context of dividend records". How true that is. Even someone who is an enthusiast for privatisation, Mr. Bill Harper, the chief executive of Thames Water, recently is on the record as saying: The elegant simplicity of the Littlechild report"— that is the report on financial prognostications— is not going to be achieved easily because water authorities will start at different positions". Of course they will; and they will continue for any foreseeable future in different positions, because nature has decreed that to be so. There is no equality; there is no possibility of estimating relative efficiency without taking fully into account the entirely different physical conditions under which the 10 water authorities will of natural necessity have to operate. Therefore, this is just bogus.

Then we turn to the economic regulator, and again I quote from the CIPFA analysis: It must be obvious that a crude (economic) regulator of the kind proposed must mean that those water companies on the sunny side of the average will enjoy a permission to increase their charges more than they need to, this leading perhaps to moderating the 'stimulus to efficiency' and the payment of uncovenanted dividend increases. Those on the shady side would not be able to make ends meet and the conservation of profits for capital expenditure would suffer in consequence". Those two comments indicate the fallacies that underlie some of what might appear to be convincing advantages of private ownership contained in the White Paper issued by the Government.

As I say, I am naturally particularly interested in the fate of the Welsh Water Authority. Most of us in Wales have been pleased to learn that the present constraint on our exports to England of bulk water supplies, which demands at present a no-profit basis, is likely to be lifted. But, my Lords, there should not be too many illusions about this. In past years it could have been of great benefit to Welsh water had that constraint not been there. But with the present superabundance of water in some areas, strongly influenced by the recent massive decline in industrial demand, this concession is much less significant than it would have been some years ago. It will nevertheless probably not be much welcomed in Birmingham or Liverpool (to which we export), even though those cities, like London, are built over aquifers, where the underground water table is now rising so rapidly—in parts of London by as much as a metre a year—that the stability of structures with deep foundations is causing concern. I mention that en passant.

But to return to the White Paper, in my view there is nothing in it which justifies switching, largely for ideological reasons, to the hopelessly cumbersome and costly regulatory schemes which privatisation of the industry would make necessary. One of the reasons, of course, for the Government espousing privatisation of water is simply that the Chancellor hopes to skim off a tidy sum in the once-for-all sale of the most basic of our public services.

Lord Graham of Edmonton

That is right, my Lords.

Baroness White

Of course it is right, my Lords. That is obvious, is it not? But it is manifestly inadequate to justify the highly centralised, extremely bureaucratic structure which is to be imposed on the water industry in three tiers—the private companies themselves, the Department of the Environment and the director general, as referred to by my noble friend Lord Gallacher. I can only assume that the Government have been in direct communication with The Almighty and have engaged the Archangel Gabriel, because nobody else would be adequate for the job.

The present organisation of the industry is on the whole a good one. The Government have decided—and I think that we are all satisfied with this—that the river-basin structure adopted in the 1973 Act is to be retained. That is operationally absolutely right, but surely it may prove to be financially constricting. The system does not lend itself to the happy take-over situation envisaged by Mr. Littlechild. But, as has already been mentioned, the Government nevertheless intend to dissociate land drainage and flood control from management of the total water cycle. One can only suppose that that is due to differences of view—shall I put it?—between the Department of the Environment and the Ministry of Agriculture, Fisheries and Food.

Looking at it from the point of view of water management, it is a completely irrational division. It has arisen hitherto largely for historic reasons. Certainly there are ways in which the present land drainage system might well be modified or reorganised, including its financial provisions. But the water authorities are united in being deeply disturbed by the Government's intention in this direction. All of us who are known to be interested in this matter have been asked to stress that there is unanimity among the water authorities that this is an undesirable division and that it has arisen for reasons other than concern for the management in its totality of the water cycle.

As I say, on the whole the present organisation is a good one. In my view the managerial weakness of the 1973 Act was corrected by the Water Act of 1983. I am sure that the change from representative to managerial boards was sound and should be supported. But what are we now being offered? It is a complex structure of major and minor private companies—I am sure that the noble Lord, Lord Elliott, will not mind my calling the statutory companies minor in this context—with the tiers of regulation and administration superimposed, as I said, by the director general and by the Department of the Environment.

If those supervisors are to exercise their responsibilities effectively, then, as the noble Lord, Lord Nugent, foresaw a year ago, they are bound to be more expensive than the existing structure because, of the large element of duplication involved"— and I use his words. Much of what is suggested in the Green Paper on the environment is desirable in itself, but one does not need privatisation of the industry to achieve it, any more than one needs privatisation to carry out the interesting and important proposals in the paper on sewerage law referred to by my noble friend Lady Nicol. There is no need to privatise to carry out those ideas.

Under privatisation adequate control and monitoring would need staff, laboratory resources and testing resources far in excess of what would need to be engaged in a straightfoward departmental-water authority relationship. There is no avoiding that. The suggestion made by Mr. John Patten, the Minister in the Department of the Environment, that under the proposed privatisation only some four or five departmental inspectors would be required is regarded in the industry with complete incredulity. I have a number of friends in many parts of the water industry and I can assure your Lordships that they are staggered by a Minister making such an unrealistic suggestion.

The Secretary of State for the Environment proposes to assume a whole range of new responsibilities, including the taking on of the tricky exercise of setting environmental quality objectives and standards for every river in the country. I should expect the noble Lord, Lord Nathan, perhaps to elaborate on that aspect of the matter. Having been myself from the beginning of our relationshop with the European Community in Brussels in this field, with its most complex requirements for pollution control and water quality, I can assure your Lordships that while the system which we operate in this country is defensible in broad principle—that is to say, that one should take account of the receiving element as well as the discharges that flow into it—it can be highly arbitrary in operation. It is regarded with deep suspicion by the European Community which almost daily is becoming more environmentally conscious.

If the department is to assess quality, to monitor performance, to establish protection zones and to undertake all the other duties that it proposes, not only will it assume a vast network of detailed responsibilities, but all those activities will inevitably make any investor think twice. The combined efforts at control of the director general and the Department of the Environment would I suggest make investors think not twice but thrice; I certainly should.

There are too many points which cry out for mention for anyone to cover in one afternoon, but I must summarise a few more. How can one justify private companies controlling the activities of other private companies hitherto controlled by statute? How can private companies be allowed to exercise the by-law making powers of a public authority? What is the relationship of a private company to a major customer (another private company) who it may have to discipline and possibly fine heavily for breaches of discharge consents or other activities? Will that be entirely an objective exercise? One has to ponder.

Those are serious matters in any democratic system of government. They are hardly touched upon in official pronouncements. With so much else for the Government to do, even in narrow party terms, it is foolish obstinacy for them to persist in clinging to such an inappropriate candidate for early privatisation.

The noble Lord, Lord Elton, disappointed me this afternooon. He fell well below his customary standards by copy-catting Mr. John Moore, the Financial Secretary to the Treasury, in his references to the food industry. That was unworthy of him. If there is one characteristic of the water supply industry which is obvious to every member of the House, it is that it is a natural monopoly. If there is anything characteristic of the food industry it is that it is one of the most competitive in any economy. I hope that we hear no more of that.

Lord Elton

My Lords—

Baroness White

In a moment. I am irresistibly reminded of G. K. Chesterton's advice to the late Lord Birkenhead, "Chuck it, Smith."

Does the noble Lord still want to get up?

Lord Elton

My Lords, I do not see why not, although the noble Baroness is in rumbustious form. I am sure that she will forgive me if I just make the point that the comparison between food and water is a comparison not between their organisation but between the degree of essentialness that they have. The point to which the noble Baroness was addressing herself, if it was the same as mine, was the safety of the commodity supplied. The large number of suppliers makes control more difficult.

Baroness White

My Lords, I was not; I was taking it, as would anyone else who heard it, as the characteristics of the two activities in the two sectors. I was not comparing it with the atmosphere, for instance, which I am sure the Government would try to privatise if they were able.

The noble Lord, Lord Elton, defends the Government's proposals—but he would, would he not? I can only say that I believe that he and his colleagues misread the mind of the electorate. I have not been able to find anyone who is enthusiastic about the privatisation of the water supply industry except, possibly, some of the top brass in the existing water authorities who know that under privatisation they would receive increased salaries and perquisites of office. That is just human nature. I do not blame them for it. It is just the normal calculation of probabilities. I do not believe that people will rush enthusiastically to buy water shares as they did, for example, with British Telecom. I suggest that the Government should think again.

4.55 p.m.

Lord Nathan

My Lords, I think that at this hour I should resist the temptation put in my way by the noble Baroness, Lady White, to speak at length on environmental quality objectives and standards. However, perhaps I may be permitted to make a passing reference to them. I should like to confine my remarks to a short point raised, perhaps incidentally by the noble Baroness, that public sector responsibilities, presently exercised by the water authorities, are to be transferred subject, it is true, to certain safeguards, to private companies established for the purpose of making a profit.

That is what raises a difficulty for me. One must envisage either the continuance of water authorities under their present arrangements, responsible for river basin management, which I think has worked rather well, or the separation of the water supply and perhaps the supply of sewerage services from the other functions of pollution control and environmental concerns, very much on the lines indicated in the speech of the noble Lord, Lord Ezra.

We are in a dilemma. I do not believe that we can satisfactorily foresee a situation in which the public sector responsibilities of water authorities are conducted by private companies constituted for the purpose of making profit. Those public sector responsibilities may be briefly indicated under these heads: first, the regulatory power; secondly, their relationship to the planning and land use development procedures; and, thirdly, the development of infrastructure.

In a purely national context reference is made to the regulatory functions of water authorities in paragraph 4.4 of the consultation paper; the Government appear to have satisfied themselves that existing safeguards against abuse with regard to the effluent discharge consent system are sufficient. The main headings under which those safeguards fall are set out in the Green Paper.

It is true that if an applicant for a consent to discharge believes that the consent granted by the authority is too stringent, he can appeal. Under this proposal, as where a planning application is made to a local authority, there is no safeguard against consent conditions being set too leniently; that is to say, the application is accepted and there is no appeal against that. It may be said in the present case that there are procedures under which public interest bodies can examine applications, which have to be published, and that they may apply to the Secretary of State to call in the application so that it would be determined by him.

First, that will become very much more difficult if the proposal to eliminate the requirement of publication in the Official Gazette is adopted, because it would be much more difficult for public interest bodies, with a nationwide coverage, to follow all the applications involved.

Secondly, it is not easy—it requires a great deal of attention—to know which are the important applications. They need not be large. They need not be novel. They could, however, be of substantial public importance. It has to be remembered that once a consent is granted, it cannot be amended during a certain period without payment of compensation. It is, therefore, an important matter. If consent has been granted, that is more or less, that. There is also concern as to the possibility of abuse of power by the water supply plc. It is obviously possible that the applicant for a discharge consent may be a competitor of a substantial shareholder or indeed of a director of the WSPLC.

There is, too, the question of enforcement. Proposals are from time to time made by Government, admirable in themselves, but no adequate provision is made for a system or finance for implementation and enforcement. Reference has already been made to the small inspectorate in the department. This reference to a small inspectorate gives me no confidence that there will be adequate supervision and enforcement. Reading the proposals, it seems to me that the department will have a great deal to do. It will have to monitor and supervise discharge consents granted by the water supply plcs. It will have to monitor and grant consents required by the WSPLCs themselves, particularly in their capacity as sewage disposal authorities. It will have to hear appeals from WSPLCs, and it will be involved in the establishment of environmental objectives and standards on a national basis as indicated in the consultation document. So there is a lot to be done. In relation to the establishment of these objectives and standards, practically nothing has so far been done in estuaries and coastal waters. The five-yearly reviews envisaged for the objectives and modifications of the standards are bound also to absorb much manpower.

The first matter that requires review is the position of water supply plcs as regulatory bodies, the enforcement of regulations and proper supervision, all of which will involve manpower and money. This is, I believe, not adequately dealt with in the consultative document. In the light of what I have said about the water supply plcs acting as regulatory bodies in the national context, it will not be surprising that I much doubt whether a private company, which a WSPLC will be, can constitute a "competent authority" for the purpose of authorising discharges under EC directives. There are quite a number of these. I am unaware of any case in which a private body has been accepted, or indeed where the suggestion has been made that it should be accepted, as a "competent authority for this purpose.

A related matter that has caused me some concern arose from my experience of working on the eleventh report of the Royal Commission of Environmental Pollution of which I have had the privilege for some time of being a member. To ensure protection of its water resources a water authority must be intimately concerned in many aspects of development and planning. For instance, if an application is being made for a licence for a landfill waste disposal site, it is essential that the water authority consider its implications. In many cases it will also be concerned with industrial development or the modification of industrial use because of the risk of escape of polluting substances to surface or groundwater. So these private water supply plcs will be intimately concerned in planning procedures. These planning procedures involve an element of political consideration. There is a balance to be struck between the needs in the public interest of having industry established and the obvious desirability of having purity of water supplies. If there was not that dilemma, we would not be having this debate today. They will, therefore, be involved in that sense in exercising a judgment, essentially an administrative and a political judgment.

There is a further point that has caused me, and I know others, some concern that may seem a little removed from what I have been saying. The WSPLCs will be providing mains water and sewerage facilities which are part of the public infrastructure. Where these are placed tends to influence housing and other development. Here again, there could well be a conflict between the public responsibility of the WSPLCs and the interests of private developers who could be shareholders or on the boards of the WSPLCs. There again, the whole question of the establishment and planning of our infrastructure is in point. In consequence, there are a number of important areas in which a WSPLC can become involved in a conflict of interest between its public duty and the potential private interests of itself or its shareholders.

There are other areas of conflict of interest that are worrying. So far as I am aware, a water authority under present arrangements has control over the exploitation of ground water resources without restriction. There must be a tendency for a private, profit-orientated body to seek to exploit these resources, particularly towards the end of its licence period, which, it is suggested, should be 25 years. It would be more sensible, perhaps, to do that from a commercial point of view than to build a reservoir. This is, of course, a serious matter, as the water table would be lowered. It is an area that might have to be subject again to ministerial control or control by the proposed director general. There are an enormous number of areas in which one can see that control will have to be imposed.

Having referred to matters that cause me concern, I should like to conclude by referring to some excellent proposals contained in the Green Paper that do not appear to depend for their virtue or implementation on any change in the constitution of the water authorities. The establishment of environmental objectives and standards on a statutory basis is much to be welcomed. I hope that it may be possible to achieve this within a fairly short time, notwithstanding the work involved. It is well known, as the noble Baroness, Lady White, has said, that the other members of the Community prefer to control discharges by emission standards. They regard environmental quality objectives and standards as a soft option. The absence of objectives and standards puts us in an impossible position in discussion on these matters with our partners in the EC.

The careful consideration given to water source protection zones and the proposals made to amend the existing law seem to me to represent a major advance in water pollution control policy. I accept that there are certain matters requiring careful consideration with regard to the implementation of water source protection zones as proposed in the consultation paper, but I believe the idea to be an excellent one and I hope that it will be implemented.

There are many other proposals of a quite minor character that likewise represent a movement in the right direction. I hope, therefore, that whatever the outcome of the debate on the privatisation of the water industry, these excellent ideas will be pursued and adopted.

5.8 p.m.

Lord Selsdon

My Lords, I have often wondered in your Lordships' House why we continue to draw this division between the words "private" and "public". To me, it seems to be a question of either something being in public ownership or owned by the public. Personally, I would prefer the latter, which some people define as privatisation. I would not wish in my contribution today to enter into this form of argument or debate. I want to talk about the water industry as a whole and to say, by way of declaration of interest, that I have always had a great affection for this industry because it gave me my first job. In those days of advanced technology, I was in a drawing office taking quantities off for sewerage systems. We were trying to produce new pipes and systems for distribution of water and drainage.

We produced the first pitch fibre pipes made of pitch and pulp, and for some strange reason, second- and fourth-hand copies of the News of the World—which was always the paper most appropriate for turning into sewerage pipes. At the time we produced PVC pipes, and I had the difficult job, being young and therefore disposable or expendable, of having to try to sell these new fangled products to the most difficult people in the world to sell things to—the water authorities.

The quality of people in those sectors was such that if one won an order for one's product it was immediately accepted world-wide as being in the forefront of technology. It was an uphill battle. There was no way one could charm them. One could not take them out to lunch. One had to persuade them on pure technology. One had men who were dressed in clean uniforms with white gloves who, if one was involved in painting a pumping station, would run their fingers behind the pipes and use mirrors to make sure that everything was conducted to a high standard. I would say that our water industry had people of the highest standard and quality of any industry in this country and in the world.

Since then, what has happened? Water is the basis of our society. We waste it, squander it and take it for granted. We do not expect to pay for it because it is there. We do not even organise it properly. Sometimes the lack of it creates a drought. There may be a flood on the same day in different parts of the country. But throughout we have to accept that in the days of our Victorian ancestors they recognised the importance of water in the maintenance of health, of raising standards and quality of life. We have failed to invest in the water and sewerage industries. More than that, this failure of investment and perhaps our retrenchment from the outside world, has led to a decline in the private sector. Companies which made their livelihood supplying the water and sewerage industries went into bankruptcy. Many of the products disappeared. Today, therefore, it is probably impossible for us from our own manufacturers to build a complete sewerage system.

I came into this as a trader at one time. I should declare an interest once more. I am chairman of an organisation called British Wastewater Ltd, a company formed to revitalise an industry by winning contracts for water and sewerage overseas. I therefore have a commercial interest. We have only £100. Our first contract is revitalising Cairo. It is only £2,000 million. We shall be building a pumping station the size of the Albert Hall which will pump the equivalent of a third of the Thames in volume every day. It will save 30,000 lives a year. We shall be building under Cairo a tunnel five metres wide with modern technology in extremely difficult soft slurry conditions. That technology is British. But, as I have mentioned before, we found that many of the products we wanted had to come from abroad, that our technology was decadent and decaying.

In promoting ourselves, one of our great assets was to take people down the sewers of London and let them see the pumping stations, but to say openly, "Look what British technology can do without being updated. It is archaic and old-fashioned, designed for ever, and it works". But the people who make it work are those in that sector—whether one calls it the public or private sector. I can tell noble Lords that they would like to get on with their job. Many of them find successive governments a pain in the neck because they will not give them the resources they need because factors above the ground have a greater political charisma, whether it be defence at one level or health or education at another.

Coming as I do from these Benches, I feel sad that my own Government have failed to cut their expenditure as they promised they would. I think that it is slightly unwise in that they have failed to explain where they are spending their money. However, if they were pragmatic they would say that in terms of priority they would give other areas preference over water and sewerage; and many of us feel that health and education should be of higher priority than even rebuilding the sewers.

It is true that if we were to modernise our water and sewerage systems we should need to spend not less than £1,000 million a year for a minimum of six years: that is, £400 million on water and £600 million on sewerage. Our industry and our manufacturers naturally cry out for increased government expenditure that will give them yet another public client which always pays its bills. They are saying that without it they cannot survive; the pumpmakers will go. But what has happened is that within the industry sector many of the smaller businesses that fell by the wayside have been revitalised by management buyouts. They have effectively been privatised from their big bureaucratic fathers who were not particularly interested in them anyway. Many of the businesses are now being revived, often on the back of overseas contracts.

It is right and proper that on all sides of this House we should encourage increased spending in this sector, not solely because we need it—because frankly the standards are still higher than those of many countries—but because it is an area where we are still supreme and we have a lot to offer the world and much that we can do to help revitalise a sector of the industry before it is lost for ever.

I commented once recently that we do not make tower cranes any more. We do not and cannot produce the glazed bricks that are needed to line a sewerage tunnel if we use glazed bricks. The production of those ceased years ago. There are many areas that are fading. But if one asks, "Will the Government spend £1,000 million a year on water and sewerage and cut something else?", then I would say that that would be doubtful.

One therefore comes to that other sector of our economy. Within a private sector organisation or structure there is no doubt at all that the water industry could fund its total expansion with no problem. Noble Lords have seen the issues that have been capable of being launched in this country at this time. The funding mechanisms are there. It would seem much more appropriate that the future of this sector was funded within the private sector mechanism rather than relying upon queuing within a system which might affect PSBR, or might be deemed to be inflationary. We can finance it; of that I have no doubt.

Furthermore, I have no doubt of the genuine interest of people investing in and participating in the water industry. Many of us forget that these great institutions—whether it be the Thames Water Authority, controlling everything along the Thames and up the Lee Valley—or others, are not simply managing water and sewerage. They own land and assets that can be developed. They are moving into the recreational area. I have chaired a government body, and for many years I had a permanent argument about why we had to call a gravel pit a wet mineral working. In fact, if we did not call it a wet mineral working it did not qualify under an Act for some form of government grant or allowance.

If I may turn to Wales, the Welsh may sell water to England but they are selling water to Saudi Arabia as back cargoes in oil tankers. The possibilities of the development of certain areas of other activities within the water authorities—the land or recreational development—are considerable.

Baroness White

My Lords, I am sorry to intervene, but the noble Lord provoked me. The noble Lord will agree that they are doing this under the present system. They are not so constrained as the Government would have us suppose. Roy Watts could line the whole of the Thames from Oxford to Greenwich with luxury houseboats and cabin cruisers. There is nothing to stop him.

Lord Selsdon

My Lords, I am sorry that the noble Baroness raised this matter. It is difficult for me to deal with it in the Saudi Arabia context. I have reason to believe that it would be more effectively achieved within the private sector. Perhaps we may discuss this at a later date. I am not saying that it is because Saudi Arabia prefers to deal with the private sector, but in dealing with some of these countries there is need for a certain elasticity of mind which is often denied to the public sector because of the words "public accountability" and certain restrictions.

Many of the people from these authorities are very great people, as the noble Baroness knows. There is the trading element which comes from these authorities. However, I was moving on to say that they have an opportunity of developing into outside areas. They own vast assets which have not been properly utilised. Perhaps I may draw attention to the success of enterprise zones. London Docklands are not so far away from here. Effectively, £1 million of public expenditure a week is generating £7 million of private expenditure in the development because of the freedom that the private sector has. I accept the views of noble Lords that it is difficult to provide controls, and that, of all the bodies it may be that water is the most difficult to privatise.

However, within this field the potential is very great indeed. If anyone could prove to me that a government would be willing to make the kind of investment that is needed in this sector, and sacrifice other sectors, I would accept it. I do not foresee a compromise, but rather that the Government will not be able to privatise all the authorities at the same time, for reasons that we know. We can say that perhaps £5 billion will be raised. That £5 billion would almost certainly not be ploughed back by government into this sector. It would be consumed in other areas.

However, within some authorities at a very early date it would be possible to revitalise systems with private finance raised on the markets without any need to increase the rate or the cost of water to the consumer. We are talking here not of loans but of genuine investment. In many countries of the world I have noted that where there is a successful authority—whether it be called a public utility or a private corporation—if the economic reasons for it being set up in the first place still remain, it is possible to run it without the need for Government subvention.

The subject of R & D has been raised. The best way of obtaining research and development in this area is by the placing of an order for products which solve a problem, where the updating comes from the private sector. It is regrettable that the level of research by private sector companies into new products and new technologies is as low as it is, but demand-led investment is often the best way of achieving it. For example, in our project in Cairo we found that as soon as we went out into the world to ask for products which we could not make, very quickly British companies came forward with alternative proposals. Very quickly they imported the technology that had gone abroad, and the demand-led activites created investment and new R & D.

I emphasise once more that it is impossible to demonstrate that this Government, or any government of the day, would, from their own resources or from borrowed resources, fund the level of investment needed in these industries; it would be seen that they have left it too long. If they could fund it now, I would perhaps change my views; but as I see it, the sooner we move towards the privatisation of those industries which can stand on their own feet without government intervention and government resources, the quicker we shall see the revitalisation of the water industry and the water and sewerage systems which we so badly need.

5.23 p.m.

Lord Sefton of Garston

My Lords, I am of course not aware where the noble Lord, Lord Selsdon, is employed but if I was the chairman of his company and I heard that speech, I would immediately promote him and offer him double the salary. From that point of view I thought that it was an excellent speech. However, from another point of view it was completely and utterly weak.

We have spoken about the private sector being able to operate the water industry more effectively. I have no doubt that the median for measuring that would be the net effect on the company at the end of its operations. However, if the noble Lord suggested to his employer that the company should invest money to such an extent that it cost £1,500 to supply water to every dwelling, and that the only return they were ever likely to receive would be £34 per year, I do not think that his employer would regard him very favourably, because at the end of the day that company would be carrying a deficit.

That illustrates the fundamental difference between us. The noble Lord was somewhat puzzled about the difference between ownership by the public and private enterprise. It is quite simple. The noble Lord, the Minister, sidetracked me by saying that this has been done 17 times. The noble Lord was boasting; in fact, he was doing more than that, he was being dogmatic about the usefulness of private enterprise. I see that the noble Lord the Minister nods his head in agreement. I do not mind the noble Lord boasting about that being done 17 times. Perhaps I may put a scenario to him. There is an organisation in this part of the world called Ford of Europe. It is a very effective organisation. It is so effective that it can lend and earn interest for its parent company in the United States of America, that hot-bed of capitalism; it can earn £99 interest a year on the money that it borrows from Ford of Europe. That is a very good achievement from a capitalist point of view. Are they very interested in Britain? At the first opportunity to go for cheap labour in Spain, they went. Now if you buy a Ford car you will be lucky if it is British; you will be lucky if it is made in Britain.

If one looks at the pattern of private enterprise in this country one finds exactly the same thing. Worse still, the Stock Exchange will laud them highly and will put money into their shares. I was in the building trade; I was a plumber and I almost started talking about plumbing. But all the while I had this nagging thought in my head: are the 17 privatisations of benefit to this nation? There was a time in the building trade where it you used a screw and a hinge, or you bolted a gutter together, the screw and the bolt were made by a firm called GKN. That company exported nuts and bolts all over the world. You cannot buy a British nut and bolt, one which is made here, because it is more profitable for the same company to buy them in from countries where cheap labour obtains. That is private enterprise and I have no doubt that the noble Lord, Lord Elton, would praise that to the rooftops. That is his dogmatism. If we could persuade every company in Great Britain to be more profitable on the basis of employing cheap labour and exploiting cheap labour elsewhere in the world, it would be hailed on the Stock Exchange and by most people on the other side of the House as a success story.

I do not think that is a success story. I am sorry to have to disagree with the dogmatism of the noble Lord, Lord Elton. It is not good. It is particularly not good when we talk about the supply of a basic need for ordinary people. One of the rules in the privatisation of water will be a simply one; it will be that you pay for the water you use, and you will pay for it at the market rate. You will pay for it according to the type of property you live in, because quite clearly there cannot be a means of paying for water on the basis of each individual in the house. Therefore, it will be paid for according to the type of property. Important matters are dealt with on the basis of simple premises. Even on the basis of a simple premise that one should not penalise a large family against a small family in relation to the supply of a basic need such as water (because obviously a larger family will need more water), does that mean that this House agrees that the larger families should pay rather than is the case now, that the community as a whole subsidises that large family because ultimately the children of that large family will benefit this nation. Therefore, a communal service is written into the water industry.

On a previous occasion I cited a case in the Welsh hills where for many years they tried to manage without the supply of water. Finally, the local authority stepped in because it was imbued with the sense of service to people and it provided a water supply. No doubt in some way the company of the noble Lord, Lord Selsdon, would have benefited by the provision of the new plastic pipes which took the water up those hills. I have also no doubt that the introduction of those plastic pipes improved the supply. That is not a credit to the private company; it is a credit to the local authority which paid for the installation of those pipes and provided the service.

The noble Lord then said that we are rather inclined to take the supply of water for granted—that it is always there. I have heard that argument before and it has been retold over and over again for over 150 years. I come from Liverpool. They employed the first medical officer of health because of the bad conditions in the town. Liverpool had one of the first municipal water supplies from a place called Lake Vyrnwy, which they piped to Liverpool. However, they did not supply water to the people because at that time the city fathers said that they could not install a tap in a working man's house because he would leave it running. Regardless of the convenience of having a tap, they said that the people would leave the taps running and waste water. Therefore, the water supply was taken to the docks. They then advertised the Mersey Docks and Harbour Board as the one place in the United Kingdom which could provide a copious supply of clean fresh water for all the ships—for which fresh water was vital—and thus encouraged trade to come to Liverpool. We are not talking about a situation 100 years ago. I am not that old. I was the leader of Liverpool City Council. One of my first jobs was to introduce water into houses that had not got it up until then. The tap was still outside serving six houses. Do not talk to me about privatising water supplies. It will be the most damnable thing out.

Let me refer again to Lake Vyrnwy. That was a marvellous undertaking. We brought the water down by pipeline—a mistake—from Lake Vyrnwy 85 miles to Liverpool. We had a clean, copious supply. It was a mistake because Lake Vyrnwy could have been used to regulate the water level in rivers between Lake Vyrnwy and Liverpool and it was not, and we lost that chance.

We learnt our lesson. The last major water undertaking carried out in this country was carried out by Liverpool City Council, and I am proud to have been the leader at that time. This time we did not make the same mistake. We constructed a new reservoir at the top of Tryweryn and brought the water down by river to Chester, and that did two things. It provided us with the necessary supply of water for the future in Liverpool for industrial and housing development, and it also regulated the water levels. It is not just flooding that matters: water levels are important to an agricultural community.

If the Government are proposing that that should be taken out of the hands of the privateers, as I like to call them, and placed in a public authority, what do you do in a situation where a river provides not only flood control and the right level of water but also pros ides a supply of drinking water to a town? There you evidently have the mix of the two responsibilities. On that basis you never will get private enterprise doing what is rightfully done inside the public sector.

This Government must have the record for turning about on their own important basic policy decisions, compared with any other government in history. There was local government; the health service; water; local government reorganisation. All of those this Government's colleagues—and some of them are still sitting on the Government Benches—carried out. And now they want to scrap the lot. They are not making any inquiries as to whether or not the proposals they made for water reorganisation and local government reorganisation were successful. No; do not bother with that. Their dogmatic attitude tells them that if they say something, it is right; and they go ahead on that basis.

I was the chairman of the finance committee of the North-West Water Authority, and that is the most important committee there is on it. At the same time I was the chairman of Merseyside County Council, and before that I had been the leader of Liverpool City Council. One of the problems that disturbed me was how to decide priorities in an area such as Merseyside, with all the suffering and deprivation. How do you decide priorities against water? For instance, in order to conjure up good public relations the water authority decided to spend a lot of money improving the River Mersey. To my knowledge—and I have lived there for 70 years—nobody ever died from falling in the River Mersey. Nevertheless, facilities were improved for sport and recreation, attempts were made to clean up the river, and in the year I am thinking of they spent £2 million. This was just after the reorganisation.

In that year people died in Liverpool through hypothermia, because we did not have enough money to provide them with the heat and fuel that they needed. That is a basic statement of what happened. But what we had done was create a vested interest in the sanctity of the North-West Water Authority, so it was not their job to consider the question of hypothermia in Merseyside. Of course it was not. It was their job to support the retention of the North-West Water Authority.

Just because I oppose the North-West Water Authority does not mean that I cannot put a word in for them. They are paying interest of £125 million a year on investments up to date. Some of it is for outworn, outdated sewers in Manchester and Liverpool in the main. They are already approaching £200 million a year in investments. I asked them for a writing-off of these debts. Unless they get it they cannot possibly go ahead with the investment that is needed in the North-West. That does not come from me; it comes from an organisation which I consider is anathema to anybody interested in the real priorities inside our community.

Is private enterprise going to put in that kind of investment, or are we going to have a situation where this Government are going to write off those debts, start the necessary large-scale investment to restore health to the water service, and then flog it off to the private sector? Of course we are going to have the latter; and let us not mince words.

I was once asked, "What is the difference if a place becomes nationalised as opposed to being privatised; or the other way about?" I said, "I don't know". But it seems to me that one of the major differences when a nationalised industry becomes privatised is that the people in charge of it suddenly have their salaries doubled. I am making no bones about it. An examination of the salary structure in all those organisations will bear that out, and it will get worse.

When we were discussing the Transport Bill in this House I made the point that the mistake the Government were making was that right throughout their history, since 1979, they led themselves into the hands of the bureaucrats. Transport in London under the present system is beginning to reveal itself as a complete failure. Anybody who now motors through London, seeing the congestion build up because of the cutting down of buses and the encouragement of private cars to go on the road in London, can see that.

All the other measures that the Government have brought out for privatisation lead simply to the point of view that you go into a sector where it is sacred to be profitable. I have heard government spokesmen on those Benches and in the other place boasting that if you can make money, then you are entitled to draw £50,000, £60,000 or £70,000 a year when other members of our community are on the dole—boasting that it is right.

Why do they say it is right? They say it because they are the only words that the City of London (which makes nothing and has never produced an ounce of wealth in its whole creation but has exploited money and investment) know for success. What we are fundamentally discussing in these privatisation measures (and let us not wrap it up) is whether or not the community itself should control its own affairs, or whether slowly but surely there is going to be a drain away from responsibility inside the community. If this Government have their way, ultimately they will place everything in the hands of private enterprise, and the only sacred thing there will be is turning a fast buck.

I have news for the Government, and for anybody else who lives in the affluent South-East. A fortnight ago, before the municipal elections, in spite of the difficulties of the Labour Party in Liverpool, in spite of the problems that that city was facing because of the extreme views held by certain individuals in that city—and some people thought that the electorate would throw them out—I said, "Don't be surprised if once again, through our ordinary, normal democratic machinery, those same people are returned to power". And they were.

That should be taken as a warning. If sapping the community's wealth in order to improve the pockets of some private individuals—and that is what this is about—goes on, sooner or later that small disturbance in Liverpool is going to spread, and some of the ordinary people in this land are going to say, "Enough is enough, and to hell with that kind of government".

5.40 p.m.

Lord Williams of Elvel

My Lords, I must first apologise that I have certain time constraints and I may not be here in order to hear the winding-up speeches. I hope to be able to do so but I may be in time trouble. May I also resist the temptation that the noble Lord, Lord Elton, offered me of responding to his challenge to reply to the brief which was clearly written by the Conservative Central Office.

Lord Elton

My Lords, I would happily exonerate the noble Lord from that duty if he would be kind enough to reply to the speech which came immediately before.

Lord Williams of Elvel

My Lords, I am very happy to refer the noble Lord to the debate that we had, the eccnomic debate, on 9th April (in col. 255) when I replied to the same Conservative Central Office brief which was then read out by the noble Lord, Lord Brabazon of Tara; and on 10th April (at cols. 353 and 354) when I replied to the same Central Office brief which was read by the noble Lord, Lord Gray of Contin; and to the Airports Bill Committee stage where the noble Earl, Lord Caithness, read out the same Conservative Central Office brief. I replied to that. If the noble Lord will kindly read those copies of the Official Report he will see the replies that I had to make at those points.

One specific company that the noble Lord mentioned was Jaguar. I must say that out of all this rubbish I will just pick that one particular company; because if he asked the Conservative Central Office researchers to do their homework, they will find (as I said on 9th April, in col. 255) that in fact the turnround in profits in Jaguar and the turnround in efficiency in Jaguar came well before privatisation rather than after privatisation. I think that that can be established by the facts. Nevertheless, the Central Office brief ignores what the Conservative manifesto in 1983 said, because whatever the merits of privatising a trading company which is trading and competing in the market I think that the Conservative manifesto of 1983 said clearly that they, the Conservative Party, were not going into the business of privatising public monopolies. We said this at the time of the Gas Bill and we are saying it again because this is a clear contravention of what the Conservative Party put forward at that time.

Nevertheless, leaving all that aside, I have read through the White Paper on water privatisation; I read through the report produced by Professor Littlechild; I read through the monopolies report on the Southern Water Authority published in February 1986, and I have the advantage over some noble Lords, I think, of being able to refer to old Price Commission reports on the Thames Water Authority and on the Welsh Water Authority which were completed in the late 1970s.

I should like to address that part of this Motion which was so ably moved by my noble friend Lady Nicol which refers to the implications of privatisation for consumer interests. It seems to me that there are three serious questions which have to be asked. The first is this. Are the water authorities really trading, commercial operations and, as such, fit for listing on the Stock Exchange; or are they community services providing basic requirements for a civilised society on a monopoly basis? Secondly, is there any form of economic regulation that makes sense if these authorities are in the private sector? And, thirdly, is there any chance at all of competition playing a role in consumer protection?

I will take those questions in that order. I do not think it is of any use the noble Lord referring us to the statutory water companies, because the statutory water companies of course have divided control. If the noble Lord is proposing that the new WS PLC should have dividend control he is going slightly outside the remit of the White Paper. I do not think, from the shake of his head, that he is in fact suggesting this; so that we can regard the statutory water companies—as indeed does Professor Littlechild—as being not a good model for privatisation.

But to be a commercial operation you have to be in a position to set out proper accounts so that the consumer can understand two very basic things: the price of the product and the cost of the product. These have to be very clearly spelt out. The price of the product in the case of the water authorities which the Government are proposing to privatise is commented upon by Professor Littlechild, who reports in Table 1 of his document that two-thirds of the turnover of the Severn-Trent Water Authority and 57 per cent. of the turnover of the North-West Water Authority are in unmeasured water supply and in unmeasured sewerage. In other words, there is no identifiable price for the product: it is based on rateable values or whatever other alternative there may be.

The White Paper tell us: Most domestic customers still choose to be charged for water services on the basis of rateable value". That expression "choose" seems to be something of a cheek, if I may say do; because those of us who live in separate dwellings are invited as domestic customers to pay if we want to be metered. It is not a question of our choosing one way or the other and of the water authority paying. We may choose to spend a few hundred pounds getting ourselves metered if we are lucky enough to be in that position, but it is not really a true choice. Until there is full metering, no clear commercial price of water can be established either for metered customers or for non-metered customers; because you have to divide the allocation between metered customers and non-metered customers and if you are on rateable value on one side and on metering on another side the distortions between the two are bound to be evident.

When we get to sewerage the position is even more complex. The same table that I quoted from Professor Littlechild's report says that just over half of the turnover of the Severn-Trent Water Authority is in sewerage and just under half of the North-West Water Authority turnover also is in sewerage. I cannot conceive—and maybe the noble Lord can help us out on this—how you can arrive at a proper way of pricing the product, if I may put it like that with due fastidiousness towards your Lordships, when we come to sewerage of this nature. The cost of the product is even more difficult to determine. In the case of the Southern Water Authority the Monopolies and Mergers Commission calculated that 25 per cent. of the water fed into the system never reaches the consumer. It is known as unaccounted-for water. How you allocate unaccounted-for water between different classes of consumer in different volumes I have no idea; nor do I believe that anybody else has any idea.

But worse is to come. We all know that the water authorities are essentially a very capital intensive series of businesses. When an industry is capital intensive, depreciation of the assets of that business—which are, after all, a vital cost in replacing the assets—form a high proportion of the cost of the final product. Any water authority must know the value of its assets, where its assets are and the active life of those assets in order that it can set a fair depreciation policy which will allow it to substitute those assets with new assets as they run out.

The Price Commission report on the Thames Water Authority clearly illustrated the problem. Seventy per cent. of the assets of the Thames Water Authority were underground in sewerage and water mains. The programme of inspection which the Thames Water Authority had embarked upon in the late '70s was due to be completed by the mid-1990s, at which point, the report said, the authority will have sufficient information to establish appropriate lives for its underground assets. Depreciation in the Thames Water Authority accounted at that time for approximately 16 per cent. of the total expenditure of the authority. I do not know what the figure is now but I should be very surprised if it were very different from that.

It seems to me that if you are talking about a very large element in the cost of an authority's depreciation of the assets, it has to be right. It has to be right to protect the consumer who wishes to know what the real profits of the authority are, because if the authority does what the Thames Water Authority used to do in the 1970s, which was simply to charge depreciation plus a "guestimate" for what it thought was necessary in order to replace its assets, this will not be good enough either for the consumer or, if I may say so, for The Stock Exchange should these authorities come to be floated.

I do not see how these difficulties can be got over. It may be that the noble Lord, Lord Elton, can help us. I have read nothing in any of the White Papers or reports that convinces me otherwise. Indeed, Professor Littlechild confirms my view when he writes on page 5 of the report: Consumers will demand a more comprehensive and permanent scheme of regulation than would be appropriate in any other private or privatised industry. This is exactly what he was getting at, that these are not commercial operations, and one cannot say fairer than the learned Professor Littlechild.

The Government, in their White Paper, recommend the well-tried formula for regulation of price control through the mechanism of RPI minus X. Of course, RPI has been seriously undermined recently by the Institute of Fiscal Studies, which has criticised the whole basis on which the retail price index has been made up. It comes to the conclusion—it is a very authoritative report that I hope the Government will study with care—that between 1974 and 1982 the poorest 10 per cent. of households faced price increases on average 8 per cent. higher than those faced by the richest 10 per cent.; in other words, the weightings in the RPI are biased against the poorest households in the country. I leave aside the question of how much that has saved the Government in terms of uprating benefits to the poorest households, but it seems to me that if we start basing a price control formula on the RPI we are basing it on a very suspect indicator.

But what about X? Professor Littlechild goes into some detail about X, and he gives the game away. He says: Periodic revisions of X should be based on industry efficiency yardsticks. If there is an industry yardstick, why have the RPI at all? Why not have just X? Why not have a price control with which others are perfectly familiar? The noble Lord, Lord Boyd-Carpenter, were he in his place, with his great knowledge of the cement manufacturing industry, will have been perfectly familiar with this over the years. Why not have just X? It is much easier to operate a price control that is related to the industry in question than it is to operate a price control that is related to some arbitrary indicator that is suspect and then feed in something to do with the industry.

My last question is: what are the possibilities for competition in protection for the consumer? The learned Professor Littlechild, in chapter 5, goes to some lengths—he is getting a bit desperate at this point—to say that the real competition will be in the capital market between water authorities. He says: The stock market sharpens the drive to efficiency". Capital requirements will have to be competed for by the different water authorities. They will be competing with other sources of capital for their funds.

I think that Professor Littlechild needs to take a look at the capital markets to see how they operate in practice. He could do no better than to take a trip to New York and see how Consolidated Edison, which is the New York utility producing electricity for New York, was able to raise funds in the New York stock market without any problem whatsoever, although it was making extraordinary losses, because of one basic fact: investors knew that Consolidated Edison would never go bankrupt.

This is going to be the case with water supply plcs, or whatever they may be: they will not be allowed to go bankrupt. Therefore, this is a very clear case where one can raise fixed interest debt on the assets, raise preference shares as utilities in the United States do, and probably even raise money in ordinary shares on the assumption that this is not risk capital competing with one's latest business expansion scheme or whatever, it is simply investment in a solid asset-based company that will have a monopoly and will never be allowed to go bankrupt.

As to the threat of takeover—something that will be very important in increasing the efficiency of the water supply plcs—Professor Littlechild says: The threat of takeover thus has a particularly important role to play in the water industry". He goes on, with some doubt, to say: Who might be interested in taking over a water authority? The learned professor puts forward a very interesting question here, and he comes up with the solution that foreign water companies might be interested in acquiring a UK water authority, as he says, to gain valuable experience and expertise in bidding for international contracts". We are starting here to enter the world of complete fantasy. I am not going to be vulgar and mention the thought that the Ukraine water authority might be an interested party in taking over one of the water authorities in the United Kingdom, but I go on to chapter 4 of the Littlechild Report, which is entitled "The Scope for Competition". Water services plcs can offer services across water authority boundaries. Professor Littlechild says: Consumers will be better served and protected if they have the right to invite supply from neighbouring authorities. As to the other services that water service plcs could go in for, he says: They could even move into plumbing". In this fantasy world that we have, I am bound to say that in reading the report, although I was much enjoying the richly comic vein in which I thought it was written, I did, I am afraid, doze off. I had in front of me a map of the water authorities showing clearly the incursion (and my old friend Lady White will know what I mean) of the Severn Trent Water Authority into Welsh territory—an invasion that has taken it to the very foothills of the magic mountain of Plinlimon. My task was clear: it was to revive the old glory of the once proud princedom of the Welsh March, the princedom of Elvel, and lead our competitive plumbers into attack against the English who had so treacherously breached King Offa's Dyke. It is at that point that I must have woken up because I realised that the competitive plumbers of the Severn Trent Water Authority would no doubt be led by my noble friends Lady Fisher of Rednal and Lord Graham of Edmonton, and I felt that the task was perhaps for another day.

It just goes to show what rubbish this all is. You can believe in this policy only if you are in a dream; indeed, if you live in a dream. The noble Lord, Lord Elton, was perfectly clear about the purpose of the policy. It has nothing to do with whether or not the water authorities are commercial operations; it has to do with the government requirement for cash. He was quite clear about that, and that is perfectly all right—we understand that. But I very much hope (because he is an intelligent and honourable noble Lord, if I may say so, and I have known him a great number of years) that he will reconsider this whole policy, because he must know that this is meretricious rubbish. If he and the Government go ahead with this policy, then I warn them that we shall fight, and we shall fight to the end because we know that, in this case above all other privatisation cases, our position is intellectually and logically sustainable and their position is wrong.

6 p.m.

Lord Craigton

My Lords, the noble Lord, Lord Williams, spent several minutes making fun of or talking about the Littlechild Report. However, in reading it with great interest, I do not take that as being government policy: it is a guide to what our thinking should be. It seemed to me rather a waste of time, as the noble Lord, Lord Williams, seemed to do, to blame the Government for what is in the Littlechild Report. Nor do I blame the noble Baroness, Lady White, who said that our Benches were very empty. Why is that, my Lords? It is because so many of us agree with the Government's proposals.

I start off as a conservationist. The principles of the privatisation legislation are just what we are looking for. They provide an opportunity to consolidate and extend the considerable environmental gains achieved in the water industry's field in recent years. No control will be lost. The fixing of policy objectives and priorities and their review from time to time will remain with Ministers, who are answerable to Parliament. Quality standards will be reviewed from time to time.

The legislation gives Ministers powers, subject to parliamentary approval, to ensure that environmental policies are implemented and that at all times the Government will be kept fully informed. The operating licence includes environmental conditions, backed up by regulations and statutory codes, all regulated by the Director General of Water Services, supported by his inspectorate. Having listened to the speeches today, I am not at all sure how big that inspectorate should be in order adequately to do their job.

The director general will be a powerful figure indeed. He will fix the level of charges for the individual water supply plcs and he will fix the extent of support for environmental services from the charges on water and sewage. There seems to me some danger in the director general becoming too distant from Ministers and Parliament. It seems an unwise suggestion that he should appoint his consultative committee. That committee should surely be appointed by Ministers and should include those concerned with, as well as those responsible for, environmental matters.

Environmental interests and needs are growing. I realise that in the vast turnover of the water companies the environmental costs are now less than 2 per cent. But it is important that powers should be enacted, when the Act is passed, to strike the correct figure at any time, whatever that correct figure for environmental costs should be. It should not be a cost which is limited by any fixed figure at all.

On a different point, I am unhappy that regulations for discharge consent should no longer be advertised in the London Gazette. Minor local proposals can involve important and perhaps contentious matters of policy and be of national interest. If the Gazette is cut out (and I can see the reason for it) at the very least interested organisations should be on a mailing list held by the water supply company, who are bound to supply the information in good time—on payment, of course.

I note that consideration will be given to amending and widening Section 31(4) of the 1974 Control of Pollution Act, which refers to regulations to prevent polluting matter from entering water. This is a subject that must also be the concern of the Health and Safety Executive. The noble Lord, Lord Melchett, referred the other day in this House to the bulls which, after lengthy debate, were permitted by your Lordships to occupy a field with a public footpath in it. They were subsequently turned out of the field by the officials of the Health and Safety Executive. We do not want that sort of thing to happen over a pollution matter; so an amendment to Section 31(4) to prevent this conflict of interests may be desirable. As I say, as a conservationist, I welcome the proposal. Not only will all statutory duties continue, but opportunity will be taken to strengthen and widen conservation protection measures.

In this measure we shall also have the opportunity to face up to the many cases of capital spending which is long overdue, of which the noble Baroness, Lady Nicol, gave us so many examples. In the parts of the country that are affected, this is a matter of considerable concern. I quote from my local paper, and I can assure your Lordships that the article is not inspired by me. The Windsor Express on 9th May had a big headline: Put Homes on Mains Drainage—Demand. The article reads: Wraysbury people could lose their last hopes of being put on mains drainage before the next century if immediate action is not taken. This was the warning from Councillor Harry Parker at last week's meeting of Windsor and Maidenhead Council. 'I make no apologies for bringing up again the question of the 2,600 homes in this borough who are not on mains drainage,' he said. 'I have no doubt that the Thames Water Authority will be privatised but nothing in the White Paper about it suggests that any attempt will be made to solve this problem if it is.' My Lords, that is five miles from London Airport. My home—and I declare an interest—is one of the 2,600 homes referred to. This is but one example of a national problem that can no longer be ignored, as so many speakers have said. I do not quarrel with a uniform rate of charges, RPI minus X, which allows some provision for the cost of capital works within the charges and profits of the water supply plcs. However, I believe the Government will find that, without some extra balancing factor, some companies will be unable sensibly to afford to do some of the work that really should be done.

I suggest there are two ways out. When capital works clearly cannot be done through the RPI formula, the cost of such works, if manageable, should be charged additional to the formula which a water supply plc can levy on its users. This would meet many of the overdue needs and would be fair to all concerned.

However, there is also work to be done that neither the supply company nor its customers can reasonably be expected to meet: such work as cleaning up the Mersey and the alleviation of some of the enormous flooding risks in London. The need for such works can probably be justified better on environmental than on customer service grounds. Through past neglect or changed circumstances, they have become a national responsibility.

Paragraph 12.7 of the Littlechild Report, which has some very good stuff in it, points to what well might be the answer. The cost of such work done on environmental grounds should be met by Government subsidy. I add my own words: it should be Government subsidy tailored in time and amount to what the nation can reasonably afford.

Finally, I refer to the promise in paragraph 19 of the White Paper. It is very short: The catchment-based structure of the water industry has worked well in practice. It has been recognised throughout the world as being a good and cost-effective model for other countries to follow. It is the main reason why the Government intends to retain the structure of the water authorities essentially as they stand in the transfer to private ownership. In relation to land drainage and flood protection, this promise is not kept. As I see it, the plan is to return to the pre-1974 situation, when separate bodies dealing with land-drainage functions did the work and were paid by the county. Now the proposal is that there should be 10 quangos, contracting out work, perhaps with the water companies. Policy and decisions will be in the hands of the quangos. There is no guidance on how they will be financed. This proposal erodes the advantage of unified river basin management, now so successful and world acclaimed. My Lords, why make this major change? Can we really treat seriously the reason given in paragraph 46 of the White Paper? It reads: Their non-commercial nature would make it difficult to vest them in private sector bodies having no commercial incentive to carry out works desirable in the public interest. What is so different or special about land drainage in the public interest? The privatisation proposals are full of ultimate government control in conservation and other fields. Why should the Secretary of State take out the land drainage problems? I suggest that MAFF should retain the same domination over land drainge and flood prevention as the DoE has over environmental matters. The noble Lord, Lord Ezra, made the same point. The DoE should be in exactly the same position on environmental matters as MAFF should be in over land drainage and flood prevention.

The cost of land drainage could be met as an addition to the normal bill for services which already meet water, sewerage and conservation. The White Paper speaks of a cost of £100 million, but an added cost of £2 or £3 a year to the millions of consumers would meet this. The taxpayer would save this, would save the cost of the 10 quangos and would save the cost of the staff to make the scheme work—a scheme which, if it proceeds as is presently proposed, would seriously undermine the proper functioning of the privatisation of Britain's splendid water industry.

6.12 p.m.

Lord Graham of Edmonton

My Lords, I have enjoyed listening to the debate, which has been stimulating. I have been very impressed by the manner in which—perhaps sometimes by accident—we have covered almost all the questions that could be asked at this stage. I want to begin, as others have done, by expressing gratitude to the noble Baroness, Lady Nicol, not only for initiating the debate, but also for the splendid way in which she laid down the markers. The Minister may very well have been able to anticipate them by the words that form the Motion; nevertheless, that will provide him with a further opportunity of commenting later.

I have heard all the speakers, and there are one or two to whom I should like to draw attention. I was deeply impressed by the speech of the noble Lord, Lord Selsdon, because it showed enormous knowledge and experience of the subject that I would not even begin to claim, even though at the end of it his underlying philosophy towards it was different from mine. I certainly want to record how impressed I was by the ease and the fluency with which he was able to deal with the subject.

Of course, he had the perfect follow-on speech—perhaps by an accident of timing; I do not know—from my noble friend Lord Sefton, who spoke with a different kind of depth and knowledge but also with passion and emotion, not from the business point of view, although he has business experience in the subject, but from the point of view of the way it affects ordinary people and consumers, particularly those who live on his beloved Merseyside.

The debate has been mainly about privatisation or the change from a publicly-owned and controlled water system to a privately-owned one. I do not want to deal with the basic principle, which was covered in the speeches not only from this side of the House, but also from the noble Lord, Lord Ezra, and others. I was certainly grateful to my noble friend Lord Gallacher for putting to the Minister what I intend to put, which is that it is not so much a matter of doctrine as a matter of the consequences and effects, given that privatisation or change will come. I am certain that it will not be possible for the Minister to reply to all the points made, but there will be time for him to do so later, because we are in this consultative process.

My noble friend Lord Gallacher most effectively dealt with the damage to consumers' interests. I want to look at some of the spin-offs, particularly in the fields of recreation, sport and conservation. When we look at the column in this report headed "Recreational Activities at Reservoirs in England and Wales in 1985", we immediately begin to see that we are not talking simply in terms of turning on the tap and getting water. As those with some knowledge of business know, there are not only the interests of consumers to be considered. There is an enormous industry—and it is right to call it an industry—attached to water which is concerned not only with drinking but also with using water.

I have no statistics about the members of the public who use water for their activities, but I know that the Lee Valley regional park—I had the privilege of being a founder member of that almost 20 years ago—provides an enourmous benefit for the people of my community. Last year 3½ million people visited this one water-related public amenity. Literally millions of our people look upon water not merely as something to drink, but also as something to use.

I want to ask the Minister whether, in looking at values, the Government have really considered the impact upon the kind of uses that I am going to mention. I have here a list of reservoirs, and paragraph (d) of this report refers to, the need for financing and charging systems to allocate costs effectively to those whose actions give rise to those costs". This point was made by my noble friend Lord Gallacher.

We are really getting down to the nitty-gritty. If you are using water to drink or for sport and recreation, there will be a subtle change in the emphasis. The be-all and end-all of your ability to use water will not be the need to drink it or to enjoy it in the community, but your ability to pay. That may be seen by Members opposite to be right and proper; if you cannot afford to pay for the water, you do not drink it. If you have a need of water for hygiene or recreation, you have a choice. You do not really need it if you cannot pay for it. The only way you will get it is to pay for it.

The Minister must satisfy the House, but, more importantly, those outside, that he understands that when there is a change in the ownership of water he will take on board some of the fears which have been expressed to me and others. I believe that when the shareholders are not Great Britain Ltd., but those who own the shares after there has been a flotation, their prime or only concern will be whether the industry pays, because that is why they will be putting their money into it. They will ask: Do we get an adequate reward? Is this the best place to put our capital?

If at the end of the day the only consideration of those who become shareholders in the various plcs is not whether the public interest is being served but whether "my" interest is being served, if the only criterion is not whether it is good for the people to extend the use of recreation, to protect the environment, to look after the habitats of birds and to make sure that SSSIs are protected, but "Does it pay?" and "Do we get an adequate return?", I say to the Minister, who I know is sympathetic in these matters, that we shall have to have some answers. If to avoid this damage management arrangements have to be made, who will pay for them? Will it be the Nature Conservancy Council? If the conservancy council pays to stop this exploitation of water, who pays for the Nature Conservancy Council—the public and the taxpayer?

I was very impressed by the remarks of the noble Lord, Lord Nathan, who raised in general the same point that I am going to make. Let us consider those who manage water (the shareholders in a water authority) and those who wish to exploit—I do not use that word in a pejorative manner—the possibilities of eating into the green belt. Perhaps there is a synthesis of interest between the shareholders in a development company and the shareholders in a water undertaking—and we all know that at times they will be the same people. We need to be very concerned—the noble Lord, Lord Nathan, raised this as a question to be taken seriously—where that which should not be a conflict of interest can perhaps, not accidentally but deliberately, be seen to be unhealthy and unwholesome from the public's point of view.

When we see the absence of independent regulatory bodies, when we see the absence of someone who can guarantee the standard of the quality of water, when we see the power to license and prosecute being put in the hands of private companies, I am sure that noble Lords opposite, including the Minister, must feel some unease, especially if what we believe is likely to be the outcome turns out to be the case.

I should like to ask the Minister to consider, if not now, then later when he reads the debate, the concerns of bodies such as the Royal Society for the Protection of Birds. The society tells me that it is fearful that the safeguards which are required to protect the environment will be inadequate. It recognises the power and the organisational ability of lobbies which have massive sums of money behind them. We are talking about people who want to develop privately owned new towns. We know that a series of initiatives and public inquiries are going on at this time. Against those we are talking about what are essentially voluntary—not amateur—bodies, relying upon millions of people paying small sums of money. The Minister must satisfy us that those interests are protected.

In the White Paper the Director General of Water Services has a dual role. It is, to safeguard the interests of the customers and ensure at the same time that the companies have every incentive to perform well in the interests of their shareholders". I repeat that, ultimately, it is what is good for "my" shareholding that counts, not what is good for the environment in which my shareholding is held. The Minister must satisfy us that he has taken that point on board.

The Nature Conservancy Council has drawn my attention to the fact that at present it has conservation duties laid upon it. I want the Minister to spend some time—perhaps not tonight—satisfying those outside that he believes he will be able to be insistent. The noble Lord, Lord Craigton, was fulsome in his belief that the Minister would be able to insist on the new structure being every bit as good—certainly we should not want it to be less—if not better in preserving and conserving all of the interests which he holds and I share. I want the Minister to tell us how he will be able to make a private company spend its money in a better way than we as public servants have been able to ensure when we have had the duty in the past to fund public authorities.

I want to congratulate bodies such as that for the Lee Valley regional park. One would not have thought in the past that we should be thinking in terms of privatising water. Bodies such as the Lee Valley regional park, which is a public body, are entitled to ask, "Are we next?" The Minister cannot say; the manifesto has not been written. If the criterion is that anything that can be done by public enterprise can be better done by private enterprise, everybody is entitled to ask, "Are we next?" I can tell the Minister—and I speak with no direct brief for the Lee Valley regional park—that it has done a marvellous job under changes of boards and changes of governments. It is a marvellous concept, but only because it has long-term vision.

It was started 25 years ago. There are other bodies like the Lee Valley regional park. How will corn parable bodies be set up in other parts of the country to do the kind of things that we want done? There is such desire by government and by private capital. I am not one of those who says that there is not an opportunity to marry private capital with public need and for profits to be made. I want the Minister to tell us that bodies such as Lee Valley regional park will be able to look forward to a satisfactory life and that they will not have to face the fear of privatisation.

There is 50 per cent. more water in the Lee Valley regional park than in the Norfolk Broads; and yet 25 years ago much of that water was unused. The noble Lord, Lord Gallacher, and the noble Baronesses, Lady Nicol and Lady David, and I, know the Lee Valley well and can remember when it was a collection of glass houses and worked-out gravel pits. It has been put together by people with imagination. They have turned something which, if not derelict, was outworn and outmoded into a living, vibrant public water resource. I know because I live there, and from time to time I enjoy myself at Pickett's Lock, Broxbourne Lido and other places.

I want the Minister to tell the House that he has a faith as great as I have in the public sector's ability to do many of the things in the recreation field which can be done only if they are underwritten by public money. I want to see a steady growth in the exploitation of the uses of water for recreation and conservation, and I want to see public access fully maintained. I want the Minister to say something on that matter for the public outside. We want to hear from the Minister how he believes that can happen with these enormous vested interests, one of the aims of which is to make money, while other people enjoy the heritage of our water resources.

Many of us remain to be convinced that water privatisation will not lead to damage of a serious kind to the freedom of water authorities to serve the interests of the consumer, the countryside, and the nation. I simply say to the Minister that tonight he has the opportunity to reduce the alarm felt by not only many Members of your Lordships' House but also many organisations outside. The Minister will understand that I am not stimulated for party purposes by Members on this side of the House who have expressed their views on this crucial matter. If he can take that opportunity, he will do us all a good service.

6.30 p.m.

Baroness David

My Lords, we have had a very interesting and well-informed debate. It has also been a lively one. I believe that the Opposition was totally justified in devoting one it its debating days to this very important subject. We had hoped that the White Paper would be debated in Government time, but it was not. Perhaps it is not hard to see why.

The White Paper has not received a very warm welcome except from the noble Lord, Lord Selsdon. It received a fairly tepid welcome from the two other noble Lords who spoke from the Tory Benches, and it had a very critical reception from everybody else who has spoken. If the noble Lord the Minister says that one would expect the Labour Party to be critical, then I would mention the very critical speeches from the Cross-Benches.

The case for greater investment in the infrastructure has been very well made by my noble friend Lady Nicol and by many other noble Lords who have spoken, as it was in the report on water of the Select Committee for Science and Technology way back in December 1982. It is very satisfactory that the noble Lord, Lord Sherfield, who was the chairman of that committee, has spoken today.

The first two recommendations of that committee were, first, that a sense of urgency should be introduced into tackling sewer dereliction; secondly, that the National Water Council's call for additional investment in sewer renovation and renewal should be acted upon. The Minister has, as expected, told the House that capital expenditure is planned to rise from £798 million in 1984–85 to £1,024 million in 1988–89, those figures being in cash terms. But the water authorities' 1985 plans bid for an increase of about 10 per cent. over those figures at the end of that period.

The Civil Engineering EDC, in its report the Nation's Infrastructure, Water, that has been mentioned by many speakers, and which is an extremely interesting document, while accepting that the increased level of investment will remedy some of the serious deficiencies in levels of service, states that progress is expected to be slow, and that: Flooding from sewers is likely to remain a serious problem in many areas while improvements in rivers, estuarial waters and coastline quality are expected to be very long term. Improvements planned for the aesthetic quality of drinking water in the medium term will still leave serious problems in some regions". It is perhaps significant that in the Green Paper entitled The Water Environment: The Next Steps there is no deadline set for the extension of environmental quality objectives to estuarial, coastal and underground waters.

The strict financial control that the Government have exercised over the capital spending of the water authorities, and the obligations put onto them to increase their charges well beyond the rate of inflation in order to help them pay off their debts, have prevented the authorities from improving their sewers and water mains in the way in which many of them wished. There can be little doubt that the reason why some chairmen are now more willing to accept privatisation is that because, in the words of the White Paper, the authorities will be free of Government intervention and day-to-day management, and they will be protected from fluctuating political pressures. Also, they will be released from the constraints of financing that public ownership imposes.

It is not public ownership that imposes those constraints: it is the Government. If the Government were willing to write off the water authority debts, as they may possibly do before privatisation, and free the authorities from Treasury economies, then I guess that the chairmen and boards would be very happy to carry on as they now are.

Research has enabled great advances to be made in the use of modern techniqiues for finding out the condition of the infrastructure, and it has helped to discover new ways of replacing or repairing unsatisfactory sewers and mains. The Select Committee recommendation that the industry should spend more on research, about which the noble Lord, Lord Sherfield, has already spoken, including subscriptions to the Water Research Centre, is as relevant today as it was in 1982. I hope that the Minister will tell the House what is to be the future of the Water Research Centre and how it will be funded if privatisation becomes a reality.

I turn to the second part of the Motion. My noble friends Lord Gallacher and Lord Williams have dealt so admirably with the effect of privatisation upon the consumer that I shall say nothing on that score, except to endorse all that they have said and express my own fear that the consumer will probably face higher charges and a less satisfactory service. That is particularly so if metering is forced upon them, because then the poor, the old, big families and perhaps food business proprietors will economise on their use of water with, no doubt, very deleterious effects on health.

The Littlechild Report suggests that the willingness of shareholders to discipline slack managers in the plcs will be a key to their efficiency, but one commentator says how much better it would be if those shareholders were, in significant numbers, the populace who drink, bath, fish and flush. We know from experience of British Telecom that it is very unlikely that there will be significant numbers of those shareholders. Between only 2 per cent. and 3 per cent. of the population own shares in British Telecom, and the cost of the service to the domestic consumer has risen very substantially. That is not a good omen for the water industry. It is hard to believe that the proposed consultative committees organised on a regional rather than on a divisional basis, as they are now, could be close enough to the consumer to be of much use. Who will the members be, and how will the director general appoint them?

Perhaps the greatest anxieties have been expressed about what will be the effect of privatisation upon the environment and pollution control. I ask the Minister whether there is a firm commitment by the Government to require WSPLCs to give effect to EC directives and to national environmental policies. It has been suggested that the green document entitled The Water Environment: The Next Steps was produced because of the wish to diffuse environmental opposition to the White Paper and to placate the growing green vote. I suspect that is probably true.

Nevertheless, there are some encouraging statements in it, as the noble Lord, Lord Nathan, said. In paragraph 2.1 it states that the Government are concerned that the arrangements for safeguarding the environment and for promoting amenity should be consolidated and strengthened. It is important that the Secretary of State should have overall responsibility for the water environment, as paragraph 2.5 says.

Chapter 3 relates almost entirely to water quality. The protection of the water environment, referred to briefly in paragraph 3.11, is dealt with in section 7. Some good points are made there, but nowhere is the duty of Ministers for good conservation practice clearly stated. We should like to hear the Minister give some comfort there.

The Nature Conservancy Council has produced some preliminary notes on the document and says that its initial impression is that the proposals contained in the consultation paper could be considerably improved upon. The council goes on to comment: The NCC has for a number of years expressed dissatisfaction with the NWC River Quality Classification which the Secretary of State proposes to make statutory. We would like to see 'conservation' included as a water quality objective alongside drinking water, fisheries and amenity. For Class 1 rivers this would require tighter standards for nitrates, phosphates and suspended solids". The Environment Data Services Report claims that the plans for control of river and drinking water quality under privatisation run directly counter to a high-level review of environmental policy by the Central Policy Planning Unit of the DoE. As the Minister knows, I asked his office if I could see this review, but was told that it was confidential. However, it has been leaked and I want to ask the Minister if it is correct that it recommends a new public water control inspectorate. What one suspects is that that planning unit thought the same as the noble Lords, Lord Ezra and Lord Nathan, that if the water supply side should be a private concern, then the regulatory function should be entirely separate from it. I wonder whether that is what that planning unit said.

The review is said to warn the Government that water pollution issues are likely to become more contentious in future, and it voices concern at recent cuts in river quality monitoring by the water authorities. The White Paper passes over in one brief sentence the recent reversal of the improvement in river quality which is causing much concern to environmentalists. The ENDS Report 133 says that one authority—Thames—has hacked its biological and chemical sampling of rivers to ribbons in recent years. The frequency with which it monitors its own sewage effluents is the lowest in the country—five times lower, in fact, than that in the best authorities—and Thames is the authority that is likely to be sold off first.

Unless the WSPLCs have some additional powers specifically to put aside funds for conservation activities in their own schemes and for landowners who wish to see conservation-orientated schemes on their land adjacent to water courses, conservation in the widest sense will not be achieved. How much of the plcs' budgets will have to be spent on maintaining and improving the water environment? What we want is a further commitment from the Government that there really is to be consolidation and strengthening; that conservation is to be part of the whole thinking and not just a frill added on. The fact remains that the good things in the Green Paper could perfectly well be done now, with Government good will, and that privatisation would probably make the doing of them much more difficult.

I want to say a few words on national parks. The water authorities own 40,000 acres of scenic land, rivers and lakes: 10 per cent. in the Peak District National Park; 7 per cent. of the Lake District; 5 per cent. of Dartmoor; often whole river basins or extensive upland water catchment areas of critical importance for wildlife, landscape and informal recreation. As public bodies, the water authorities demonstrate the obligations they have to society as a whole in adopting land-use policies which benefit other users and interests. Privatisation could jeopardise all that. Private companies will be under pressure to generate income from all their activities and land holdings, perhaps by changing the use of the land: for example, by conversion to more intensive agriculture or by promoting income-generating recreation activities which might contradict nature and landscape conservation objectives. They might sell extensive areas of land.

The biggest threat comes from forestry which is now seen as the most viable alternative to hill farming in the uplands. The consultation paper makes one cursory reference to these issues, in paragraph 7.13. Assurances on the safeguarding of conservation and recreation values in the extensive water authority land in the national parks are urgently needed. I was slightly alarmed by some of the comments made by the noble Lord, Lord Selsdon, about the use of land and the ideas for expansion of recreation which I thought might not be very much liked by the national parks boards.

I should like to say something of the local authorities' reaction to all these matters. There is, naturally, resentment that assets which were taken from them after the passing of the 1973 Act should be sold off to raise money for the Government. This would reverse the trend from 1870 onwards with, first, the Gas and Waterworks Facilities Act and then the Local Government Acts of 1882, 1888 and 1894 which resulted in public utility undertakings increasingly being taken into municipal ownership. Joseph Chamberlain is constantly being quoted because of his insistence on keeping such fundamental services under municipal control because of the health hazards involved. Would that modern Tories felt the same! But in 1971 the Central Advisory Water Committee recommended the development of a comprehensive water management plan for each river basin and that was put into effect with the 1973 Water Act.

The principle of integrated river basin management has worked well. That is retained and that is good. But the 1973 Act left locally elected representatives in a majority on the boards, together with appointees of the Ministers. Then, with the 1983 Water Act that representation was abolished altogether. So, it is not surprising that local authorities are a bit sour and the already poor relationship between central and local government cannot be made better by all this.

The ACC policy committee last week resolved to express its grave concern at the Government's proposals for the privatisation of the water industry. It formally noted:

  1. "(a) that the supply, disposal and pricing of a vital commodity is to be placed in the hands of monopoly commercial organisations, and that local authorities are to be excluded from the minimal consultation procedures proposed;
  2. (b) that pollution control and enforcement will be placed in the hands of organisations that would profit from low standards".
Therefore, the policy committee opposed the privatisation of water. The report continues: Considering the report on proposed changes to water and sewerage law, the Committee resolved to note with particular concern that there is to be no requirement for WSPLCs to consult with local authorities on the environmental effect of sewerage schemes, nor to publish reports on the impact of major projects. The Committee also noted with particular concern that the existing rights of Highway Authorities to surface water drainage are to be removed, leading to additional burdens of bureaucracy and potential costs for member counties, especially in rural areas". I hope the Minister will be able to give some reassurance to the ACC when he replies.

The concerns of the ADC are no less, although different. The district councils would like a return to the pre-1973 situation when they were responsible in their own right for sewerage. It was unlikely that this would happen but they expected that they would continue to have the presumptive right to act as sewerage agents which they had under Section 15 of the 1973 Act, and which was confirmed in the 1983 Act. This right is to be taken from them and there is resentment and anxiety about that. As they pointed out in their response to the discussion paper last year, there are vital public health considerations.

Besides the engineering skills required, an organisation responsible for sewerage would need access to public health expertise and to local knowledge and records now located with district councils. Environmental health officers employed by the districts are invaluable where public health is concerned. It is they who will be called in when things go wrong under a new regime. They will have greater difficulties in resolving problems. Dealing with private companies can be very complicated. Potable water supplies will have to be monitored. I ask the Minister: what powers will the environmental health officers have?

The noble Lord, Lord Sandford, president of the ADC, is not speaking today, but he asked whether the point could be made when speaking of the district councils that if the WSPLCs decide to withdraw sewerage agencies from the districts they should be compensated for the cost of capital equipment which they had to buy: for instance, the cost of workshops, vehicles, and so on. There would also be redundancies among staff and the cost of those redundancies should not have to be borne by ratepayers. I rather like the idea put forward by my noble friend Lord Gallacher that perhaps local authorities could become shareholders in the plcs.

Are there any really good and sound reasons for a further reorganisation of the water industry? We have been given no evidence to prove the case and comparisons with other countries are not helpful. Are the Government wise to take on this big and disruptive piece of legislation in what may be the last Session of this Parliament? The Bill, if introduced, according to Mr. John Patten will be an enormous one of about 100 clauses. Apart from those parts dealing with the water and sewerage law, it will be highly controversial and cannot help but have a stormy passage, taking up a great deal of parliamentary time. It would be most unlikely that more than one authority—Thames—could be sold off before the next election.

We had powerful speeches in this House on 22nd April last year when the discussion document was debated, as has already been mentioned by various noble Lords. The opposition of the noble Lord, Lord Nugent (and I regret his absence as much as anybody), has also been mentioned. Although he is not a general opponent of privatisation, he is in the case of water, and he referred to it as a dogma.

The noble Lord, Lord Molson, who was here earlier but who unfortunately was not speaking, took part in the same debate. He referred to the Secretary of State saying at the Conservative Party conference that he considered that the burden of proof in favour of change was on those who advocated it. The noble Lord said: 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 … 'Privatisation is a key element in the Government's overall strategy'. I take leave to say again … 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". That was in col. 984 of the Official Report of 22nd April last year.

I wish that the Government had listened to the voices of their own supporters. The noble Lord, Lord Elton, himself, in speaking earlier in the debate, referred to this as being one in a series of privatisations. I think that showed that it is part of Conservative doctrine and dogma just to go ahead with privatisation because that is what they say they believe in. It is dogma that is making the Government try to get rid of the water industry.

Even the Government grant that not everything can be privatised. Land drainage, flood and sea defences will be hived off, thus taking something from the integrated river-basin management which we all agree works well—and the noble Lord, Lord Craigton, made that point. There will be the cost of the public bodies to run those organisations, the cost of the director general and his staff and the cost of the small inspectorate—perhaps not so small if the request of the noble Lord, Lord Elliott, is listened to. The noble Lord, Lord Nathan, was also critical of the ability of a small inspectorate to do the job.

Have all those things been budgeted for? Has a balance sheet been drawn up? The talk is that the assets of the water authorities are £27 billion but that the sales might realise £8 billion. The noble Lord, Lord Selsdon, mentioned £5 billion. I suppose that selling off cheap is the only way that the Government think they will get bidders. Buying shares in WSPLCs I should not have thought was an attractive proposition. I do not see that sale being a winner. "I would not be among the potential investors", said Mr. Len Hill, chairman of the South-West Water Authority and also chairman of the Water Authorities Association.

The Labour Party is firmly committed to returning the water industry to public ownership as a matter of priority. I hope that this debate will be considered as part of the consultative process and that it may have some influence on Government thinking and perhaps persuade them that it is not right that water, which everyone needs and must use, and on which the nation's health depends, should be handed over to private ownership. Water is different.

6.53 p.m.

Lord Elton

My Lords, I can undertake at the outset of my reply to this debate, which I give by leave as my second intervention, that it will affect Her Majesty's Government's thinking. Whether it will affect it in the way that some noble contributors to our exchanges would wish is another matter. It has been a valuable and instructive debate, and I should like to thank the noble Baroness, Lady Nicol, for providing the occasion for it. With other noble Lords and noble Baronesses, I regret that my noble friend Lord Nugent of Guildford could not be with us today for reasons of health, and with them wish him a speedy recovery. In spite of the view that noble Baronesses opposite attribute to him, I am happy to say that I sent him a card saying "I wish you were here"!

I shall try in the 25 minutes or so allotted to me to respond to as many of the interventions as I can, but I have already discarded a large number of answers to substantive points that noble Lords and noble Baronesses have made. I hope that they will bear with me if they have to wait for the post for some of the quite important questions that they have asked to be answered. I undertake that the letters that I send will be put in the Library as well as in the letter-box.

I shall not be writing to the noble Lord, Lord Gallacher, about either his dual nationality or the different approach of the Scots. On the former, I can only congratulate him; on the latter, I can say that our different future is, as so often is the case across the Border, dictated by our different pasts. For historical reasons, I am advised, water supply, as well as sewerage services are in Scotland provided by local authorities. They do not therefore lend themselves to privatisation in the same way as in England.

I might have started with an apology for even asking to speak twice in this debate, despite its importance, but as I am facing no fewer than two spokesmen from the Opposition Front Bench and, I understand, three speeches (though the last one I trust will be somewhat short) I felt that I had to put myself in a good position with the House. I think I ought also at the start to deal with at least one point made by the noble Lord. Lord Williams, although he is not here to hear my reply and cannot therefore expect me to deal with some of the other points. He intended to damage my party rather than myself, I think. He said that in our 1983 manifesto the Conservative Party said that we would not privatise public utility monopolies. I turn to page 17 of the manifesto to read: Merely to replace state monopolies by private ones would be to waste an historic opportunity, so we will take steps to ensure that these new firms do not exploit their powerful positions to the detriment of consumers or their competitors". That seems to be entirely consistent with the speech that I made at the opening and the policy that I am advancing and not consistent with the criticism of the noble Lord.

In my opening remarks I explained to your Lordships in terms which are familiar because they are good why the Government believe in privatisation and the benefits that we expect generally to flow from it. I have said, and I repeat, that it is not right for water to have to compete for a share of the finite sum of government spending power with other such essential services as education or health. (I now launch into the first and I fear unsuccessful experiment in a new system of filing my supplementary remarks—but it has worked!) That is the constraint that limits the speed at which we can modernise water plant; and that, I must remind the noble Lord, Lord Ezra, is the constraint of which he complains.

We have ever since 1981–82 increased our real terms capital spend on the industry, but the constraint remains and only privatisation will remove it. I know that it has been suggested that we could at a stroke of policy remove government constraint on public expenditure. If we were to do it across the whole of public expenditure, that would be an act of policy entirely against not only the tradition of the party that I represent but the interests of the nation. The noble Baroness, Lady David, in her concluding speech advanced a candidate, but I am surprised that it should be water rather than health and social security. She will find herself at once in conflict with the noble Lord, Lord Sefton of Garston, who clearly has exactly the opposite view and holds it with some passion.

Privatisation will take the water industry out of that artificial constraint and unfortunate competition and put it under the natural constraint and competition of the market. My noble friend Lord Selsdon so ably deployed the arguments about the constraint of public expenditure that I need spend no longer on them.

If I may now move to the noble Lord, Lord Sefton of Garston, he gave us a fascinating and challenging insight into the politics both of water and of Merseyside. I must resist the temptation of tilting with him on the well-trampled field of our respective parties' dogma. But although at times I fear that I lost the thread that he was following, he made one vital connection by however intricate a route. It was this—and this is a point that I have already sought to make twice. Where cash is wanted by government, at whatever level, for remedies, for instance, for hypothermia and for policies connected with water, those two purposes are in competition with each other. I hope that he may, therefore, in the cool of the night consider the advantage of taking water, as we propose, right out of that competition. That is the upside of a policy on which I well understand he is more familiar with the downside.

Lord Sefton of Garston

My Lords—

Lord Elton

My Lords, if I yield to the noble Lord I shall have to yield to all the others. I shall be over time. I intend no discourtesy, but if it also conceals my ignorance or incompetence I have no complaint.

The commercial motivation of the new companies will be to make a profit for their shareholders, and we shall therefore so arrange things that the size of the profit will depend upon the efficiency of their operation. That means avoiding two principal dangers. The first is the danger that they will exploit their customers. That danger has been clearly seen and will be carefully prevented. As we have provided for telecommunications and we are providing in the gas legislation, the water services will be regulated by an independent director general, answerable to Parliament but independent of government. His principal duty will be to safeguard the interests of customers and, at the same time, to ensure that the water service companies have the means and incentive to perform well from the point of view of their shareholders. He will operate on each water service company through a licence. The licence will limit the price increases in the light of those companies' financial needs. It will be part of his task to see that they are not staying in business by letting standards slide.

The water authorities' consumer consultative arrangements are at present organised by each authority separately and they do not have any direct link to the Government or any other national body. Our intention is that when the authorities are privatised the director general should be responsible for establishing them and should maintain and use them to help him protect the ordinary consumer.

In reply to the question of the noble Lord, Lord Gallacher, I can say that under the arrangements that we propose the Secretary of State will be responsible for environmental and public health matters connected with the water industry and the director general will be responsible for protecting consumers by policing the licences under which the water service public limited companies will operate. It is therefore right that the director general rather than the Secretary of State should appoint the consumer committees which will be reporting to him.

We propose that the director general and the regional consumer committees should have complementary roles. The director general's office will provide the committees with their staff and act as a general resource at national level. In their turn, the committees and their local staff will provide the director general with information at a local level. By working in that way, they will provide strong and cost-effective means of safeguarding consumer interests.

We propose that there should be a single regional consumer committee for each of the new companies. They will be able to take a view of the whole range of each of the companies' activities, and since those are regionally limited it is appropriate that the consumer committees should have a regional structure. But I see nothing against the chairman, the chairman and secretary, or whatever is suggested, from time to time coming together nationally, as the noble Lord suggested, to pool their experience and share their wisdom.

The noble Lord, Lord Sherfield, was interested in, among other things, the Water Research Centre which has slipped into this part of my speech, I think perhaps out of sequence. The noble Lord will be aware that the water authorities have, and I am sure he has recognised that the water supply companies will have, duties to do research. There is no statutory guarantee at the moment that the Water Research Centre will continue but its future is being considered by the members and of course by the authorities which support it by their subscriptions. I shall certainly take to my right honourable friend the noble Lord's concern on that point so that he will take due notice of it at the appropriate time.

As privatisation approaches, the Government will review the charges already set or proposed by the existing authorities. Those will provide the starting point for the new companies. Embodied in the licence will be the formula to be applied to those prices for the purpose of keeping them in line with changing circumstances. That formula will be based on the retail prices index, as suggested by Professor Littlechild in his report, which I regard as valuable.

The exact terms of the formula are still to be decided. They were summed up, I think, in the term "minus X" earlier in the debate. It is a term which interested the noble Lord, Lord Williams. I was interested in his view of the validity of the retail prices index as a reference point, but whatever his reservations it seems to me, at first glance at least, that to discard it and rely merely on "X", as he suggested, removes the connection between the new companies and actual costs at a vital point. That cannot be right. I may have misunderstood him, but I do not expect to agree with him, whatever he meant, because of the tone of the rest of his speech.

The Government's present close involvement with the financing of the water industry puts them in a good position to determine the appropriate level of charges. The intention, whatever the formula, will be to establish a settled mechanism. The director general will be able to vary it but we do not intend that he should do so frequently. The duration of the licence is not yet decided, but your Lordships will see from the White Paper that we intend that it shall be for a substantial time. The example that we have in mind, as the noble Lord, Lord Gallacher, said, is British Telecom. Its licence is valid for 25 years. A long duration will ensure that new investors have a clear interest in maintaining their capital equipment to a high standard.

As to the basis of charging, the noble Lord is right. We favour an experimental introduction of metering. It is reasonable at least to think that it might be fair because it shows what the people and companies use. We need to be convinced of its practicality from experience, and therefore we have in mind an experiment and not a commitment. I do not accept that that constitutes a threat to the less well off. Water companies and authorities already cut off supplies in extreme cases when they cannot obtain their money. It is a cumbersome and expensive procedure which is not popular with them, as I said when I made my original statement. I think that I recall saying that whereas there are 18 million households supplied there were only 3,500 cut-offs over the past year which I make out as one in 5,000.

We are and will remain aware of the conditions in the capital market to which we shall be going. The spring of 1986, or the summer if one can so recognise it, is not the time to say what those conditions will be in autumn 1987. We do not necessarily intend to put all 10 companies on the market at once. The rate of flotation will depend upon the circumstances at the time and the outcome will of course reflect the differing condition of different water authorities' capital plant, to which the noble Lord, Lord Sherfield, referred so cogently.

I said that there were two dangers against which we must guard when introducing commercial motivation. The first was the exploitation of the customer and I have dealt, at least transiently, with that; although I shall have to write to many noble Lords about it and no doubt we shall return to the subject. The second (and it is one which your Lordships take seriously) is the danger that the new companies will skimp or neglect their environmental duties, that they will become the polluters rather than the preservers of our natural habitat.

Your Lordships will wish me to devote some care to explaining what we have in mind and I am happy to do so. What we propose will not only preserve the whole panoply of existing safeguards and standards; it will add to them. As is clear from the Green Paper, which the noble Baroness, Lady David, in an uncharacteristically unfair gesture dismissed as a frill—

Baroness David

My Lords, that is unfair. I said that there were some things in the Green Paper which were welcome. I said that we did not wish to see conservation treated not as part of the whole thinking but instead as a frill. That is different from what the noble Lord said.

Lord Elton

My Lords, I am grateful to the noble Baroness. In water, one expects both spills and frills. I am afraid that I was wrong. I can confirm for a start that Her Majesty's Government are committed to regulate to bring in European Community as well as national government policies.

I gratefully acknowledge the recognition of the noble Lord, Lord Nathan, of the advance that much of this represents, even if he was at pains to separate it from the philosophy of privatisation. The Secretary of State will provide for the assessment from time to time of the availability and quality of natural waters, and it will be he who sets the quality objectives and standards to which natural waters must be maintained or improved. Ministers will have a power, subject to parliamentary procedure, to require water companies to implement specific national and EC environmental policies. They will also have power to prescribe precautions or establish protection zones for avoiding water pollution. That is contained in a passage of the Green Paper read out by the noble Baroness, Lady Nicol, at the beginning of the debate. There is power also to establish local inquiries on any matter relevant to maintaining the quality of natural waters and to require water companies to provide information on environmental protection matters.

We also intend them to have effective powers to impose requirements of a general character on water companies as to their environmental duties. Those will include the duty of monitoring natural waters and sampling discharges as well as requirements on the way that they enforce pollution control legislation and operate emergency procedures. We intend to set up a small inspectorate within the department and the Welsh Office to monitor the company's own performance as abstracters and dischargers and to provide guidance.

The noble Baroness, Lady Nicol, asked how much duplication we intended as a result of not including the inspectorate within the plcs. I think that I recall correctly what she said. My own view is that while a good deal of self-regulation is appropriate in bodies under such a degree of restraint in their conduct, nonetheless one can only have absolute assurance if there is an independent inspectorate. Indeed, some of the comments about how these companies would conduct themselves towards other companies, towards planning authorities and towards developers suggest that a number of your Lordships do not think that they should be left entirely on their honour, as it were. I am not at the moment in a position to anticipate the exact size of the inspectorate. It is a Green Paper that we are speaking from. But it is intended that it should be lean rather than fat. Most of the expenditure questions that arise cease, therefore, to be as relevant as they might have been when the noble Baroness asked them. I shall, however, write to her.

Under this system, the Secretary of State will set statutory quality objectives and standards for natural waters as a firm basis for national policies. This is a large task. We shall establish them first for rivers and thereafter for estuaries, coastal and underground waters. Water companies will be required to assess effluent discharges consent applications in the light of objectives and standards, and the Secretary of State will take them into account in matters for his decision. He will have power to review the objectives at intervals of not less than five years. More frequent reviews would involve policy difficulties for those operating under them. There will be provision at that stage, as at so many stages, for public consultation. We intend that those objectives and standards will themselves be made public by registers or by other means. That is the answer to another question.

I understand the anxieties of some of your Lordships about entrusting the regulation of discharges to a profit-making company that is itself a discharger. But if your Lordships consider the regime under which they will have that responsibility, you can be reassured. There are four principal safeguards. The first is a framework of national policy to guide individual decisions. The second is the Secretary of State's powers to give consent to the company's own discharge and to withhold it, and indeed to call in any application for his own determination, which will continue. The third is the right of appeal to the Secretary of State, which will be preserved. The fourth is that the public will be given access to information through registers.

Moreover, existing categories of exemption for discharge consent controls will be withdrawn. This will ensure that all discharges of environmental importance are subject to control. I hope that your Lordships are beginning to see that this is an increment on the protection that we already have. We shall also take the opportunity to simplify and to streamline current controls. We propose that the Secretary of State shall have power to prescribe substances which, if discharged to land, require consent. We are all beginning to realise how such material percolates through to water.

We also consider that Section 46(1) to (3) of the Control of Pollution Act should be replaced with a power for the Secretary of State to vary or revoke a consent where aquatic flora and fauna are at risk and that all consent applications should be advertised by the applicant, though not necessarily in the London Gazette. I can put it no more definitively. However, looking at my noble friend Lord Craigton, I should perhaps leap down the page to say that he asked us to amend Section 31(4) and (5) of the same Act. In developing our proposals for water protection zones, we shall be reviewing this area of legislation. I shall ensure that my noble friend's opinions are taken into account during that process.

Your Lordships are aware that pollution from occasional spillages and other incidents has been rising steadily. Effective preventive measures are needed and the provisions of the Control of Pollution Act implemented last year provide a basis for that. In particular, effective measures are needed to protect water sources including rivers used for water extraction, aquifers and reservoir gathering grounds. We are considering amending the powers in Section 31(5), as I have just told my noble friend.

At this point, I should refer to a matter raised by the noble Lord, Lord Ezra, and my noble friend Lord Craigton. Both prefer—they are indeed not alone—that the services of land drainage and flood protection should be left together with the other services provided by the water companies. I do not believe that noble Lords can dismiss entirely the fact that those works are extremely expensive or that they generate no income at all. That means that the water companies will not be able, and cannot be expected, to raise money on the market for that purpose. It makes sense to involve them, we agree; but not, we think, as the responsible body. That is why we propose that they should be involved as contractors to the responsible bodies which will have access to the appropriate but necessarily limited funds. Whether or not the responsible bodies use the water companies as contractors, we intend that they shall work in a regime that takes the fullest possible account of the need to preserve the unified system of river basin management and also be subject to all the environmental considerations to which I have referred.

I think that I must draw to a conclusion. I shall therefore not continue with what many of your Lordships will, I hope, have read in the Green Paper. The rest, as so eloquently advertised from both sides of the Table, will, I am sure, be instantly read as soon as your Lordships go home. I shall merely pick up one or two remaining points for which there is barely time.

The noble Baroness, Lady Nicol, was concerned that conservation obligations and regulations should be statutory. She hoped, in particular, that the Nature Conservancy Council would be listened to. I am happy to reassure her. The Government have already said that they propose to publish a code of practice with statutory force. In our Green Paper, we indicated that we would be inviting the help of the NCC and the Countryside Commission in preparing the code. I can therefore satisfy the noble Baroness on both those points. I cannot satisfy the noble Baroness's noble friend about the paper from the Central Policy Planning Unit that was quoted. It is, as she rightly said, an internal working document which Ministers are considering at the moment. She must form her own judgment of her source as to whether or not she knows what the content is.

I can best conclude by saying that I am not abashed, though I think I am flattered, by the vehemence of some of your Lordships' attacks upon me. Sometimes I have felt that your Lordships have been in danger of being too nice. That was certainly not the case this afternoon. I name no names as I look round the Chamber. I can say, however, that I believe that what we propose takes water out of an inappropriate area of competition for limited funds with benefits in policy areas that the noble Lord, Lord Sefton of Garston—I am sure that he will write to me about this—will acknowledge.

We do not see the sense in the Secretary of State competing for funds for other subjects in this way. We believe that under the eye of the Secretary of State and the director general the water authorities will deliver a better service to the customer who will be better heard by the consumer consultative arrangements that we propose; that they will use their money more efficiently under the eye of the investors; that they will be more aware of and responsive to their responsibilities to the natural environment which we all wish to inherit and enjoy; and that the result of this operation—whether one calls its origin "dogma" or "philosophy"—will be of great benefit to the community and to the economy. Finally, to say that the money goes to the Government means that it goes to the taxpayer and the country.

I am grateful to your Lordships for the patience with which you have listened to me for the second time, and for the eloquence and the experience which you have contributed to this debate. I shall answer many more questions by post shortly.

Baroness Nicol

My Lords, let me set the Minister's mind at rest immediately; there will not be a third Front Bench speech. I should like to thank the noble Lord for his reply and to say simply that in the last few minutes he has made it obvious to me that there is a long way to go in this debate and that there will be another opportunity—I should like to think that there will not be, but I fear that there will—in the autumn, to consider this matter.

May I thank all those noble Lords who have taken part in the debate. We have had an interesting and well-informed discussion. I am grateful for the care which has been put into it. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

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