Water Bill

HL Deb 17 April 1989 vol 506 cc567-681

4.8 p.m.

Second Reading debate resumed.

Lord Ezra

My Lords, the privatisation of water is probably the most controversial of the privatisation measures which this Government have introduced. I think it right to recall briefly the way in which their thinking on privatisation appears to have developed.

Initially the intention was to transfer to the private sector from the public sector those enterprises which could respond positively to competition; namely, those which were either already in a competitive situation or potentially in one. Such bodies for example as Amersham International, Jaguar, Associated British Ports, National Freight, National Bus, Britoil, were transferred.

That policy seemed to be confirmed in the Conservative Party's manifesto in 1983. That stated: Merely to replace state monopolies with private ones would be to waste an historic opportunity". Clearly, here was a statement of intent that, when there were transfers from the public to the private sector, they should be within the framework of competition. However, that policy seemed to be modified in due course. When the Government turned their attention to the privatisation of what had previously been regarded as public utilities, that raised an entirely new issue. There was then very little escape from the fact that, in transferring those massive organisations to the private sector, they would be so transferred either as total monopolies or as quasi monopolies. That raised the whole difficult question of regulation.

Our first experience of that matter was with Telecom. I do not believe that one can say that the first few months at any rate of the experience of the privatised Telecom organisation was regarded as entirely successful, although, to be fair, it is making very great efforts to recover from that experience now. Then there was the example of the gas industry which was simply transferred as it stood as a public monopoly into the private sector, in spite of many qualms being expressed on this side of the House. While there was some degree of regulation for the domestic market, there was none at all for the industrial market. In due course, that matter was referred to the Monopolies Commission which ruled that there had been an abuse of monopoly. Corrective action has now been taken. That lesson appears to have been learnt regarding the electricity industry, and efforts are being made to introduce a degree of competition at the generating end.

However, in the case of water, it is difficult to see how any major element of competition can be introduced. That raises the whole question of the way in which it is being handled. Initially, when the Government announced their intention to privatise water, they did so in the White Paper of 1986 in which the intention was to privatise the 10 water authorities as they stood on the basis of the river catchment areas, on which basis they had been created in the Water Act of 1973.

However, in due course, the Government changed their mind. They were subjected to a considerable amount of pressure from varying interests, and after the 1987 election they came forward with the proposals that we now have before us. I believe that it would be a pity if, because the Government have changed their mind—no doubt on reasonable grounds—we should in any way demean the very substantial contribution made by the water authorities on the river catchment basis. Initially, when the Government came out with their changed proposals, the chairmen of the water authorities were virtually unanimous in their opposition to the proposal. They since appear to have come round.

We are now concerned with the new proposals. There are undoubtedly very grave doubts about the matter, as the noble Lord, Lord McIntosh of Haringey, mentioned. As regards consumers, there has probably not so far been a measure so unpopular—certainly not among privatisation measures—which has struck the public imagination. Noble Lords will have seen the many reports on consumers' reactions. I have in front of me one of the latest which I received this morning from the Consumers Association. It conducted surveys in November and February and noticed very little change in consumers' response. I do not wish to go into detail, but the report stated: For every positive comment—for example, that service or water quality would get better—we recorded 11 negative ones". Rightly or wrongly therefore there is a perception of serious doubt about the measure in the public mind. I should have thought it important for Parliament to try to allay those doubts in whatever ways we can.

As regards environmental groups, they too are very dubious about the impact of the measures. Grave concern has been registered by a whole variety of groups in which Members of all sides of this House are much involved. That matter will undoubtedly be dealt with later. So far as we on these Benches are concerned, my noble friend Lord Ross of Newport will deal with that matter when he speaks.

The noble Lord, Lord McIntosh of Haringey, expressed the doubts that potential investors have expressed about this sort of investment with its severe and restrictive regulation. There are therefore doubts all round. I believe that we shall have to bear those doubts in mind as we go through the various stages of dealing with the Bill.

Against that background, I should like to draw attention to some of the specific issues which I feel will attract a good deal of attention when we come to later stages. Let us start with the National Rivers Authority. I believe that the NRA concept, as it has now developed, has obtained pretty strong support. We heard that point made by the noble Lord, Lord McIntosh of Haringey, and we on these Benches support the concept. It is satisfactory to note that, in his organisation of the matter, the noble Lord, Lord Crickhowell, puts the emphasis on its regional organisation. That is fine; but I am a little disturbed that those regional bodies are described in the Bill as advisory. I believe that, if the emphasis is to be on regional operation—with which I entirely agree—a stronger mention of their regional activities should be inserted in the Bill. In the debates in another place, concern was expressed about whether the NRA will have the resources necessary to do its vital job. We shall hear from the noble Lord, Lord Crickhowell, about that matter later. It is a matter into which we shall want to go.

Next there is the question of consumer representation. Consumers' interests will certainly be taken into account because the Director General of Water Services will have to set up consumer service committees. But that raises the large issue of whether those committees should be dependent on the regulator. The regulator's role is different from pure consumer protection. He is there to see that all interests are served—the interests of the producer, the supplier, the consumer and so on. There is therefore a strong case, as has been ventilated in the debates elsewhere, that a strong, independent consumer organisation should be set up. I am sure that we shall consider that point when we come to the next stage.

The question of price regulation raises many issues. Of course, there is general agreement that, if a monoply is to be privatised, there must be very strict regulation of prices. There is no argument about that, but the pricing formula, as described in the document accompanying the Bill known as the Model Instrument of Appointment of the water and sewerage undertakers—which I recommend as important reading for all noble Lords—shows how complex the whole arrangement for price control is. When one starts to read it, it gives the impression that it will be fixed according to clearly defined principles; but then one finds that there is a K factor which can be varied according to the capital commitments against which the different authorities or companies may come up. Then there is what is known as the cost pass through factor—it is almost as if we are talking about a character in Jules Verne—and there is the discretionary pass through factor.

That is entirely new jargon and will take a great deal of getting used to. It appears to mean that one starts from a precise way in which prices shall be determined. Then one has three quite important modifying factors; namely, the K factor, the cost pass through factor—which is meant to reflect new statutory obligations that could involve capital expenditure—and the discretionary pass through factor which, as I understand it, is meant to reflect untoward developments that could not have been foreseen when the prices were originally fixed. So there is an enormous amount of discretion in this whole pricing area and I am sure that we shall want to go into that in great detail.

The question of competition also arises. The regulator has a duty to introduce competition. I tried to probe into what he was intended to do about it by initiating a debate in this House on 8th November. It seemed to me that there was relatively little scope, and competition by comparison to which the Government attached so much importance is really very difficult to go by because of the enormous variation between different regions and the different companies. The only kind of competition that could possibly be introduced would be at the production end. It cannot be done at the selling end but it may be possible at the production end. That is something at which we need to look.

Next there is the question of the local authorities and their status. Inevitably they are involved in this whole area. They have their environmental health responsibility, their very widespread sewerage responsibilities at the present time on an agency basis, and they are involved in waste disposal, recreational and other similar functions.

What is not clear is whether they will retain those activities or whether they will be diminished under the terms of the Bill. That is something that we shall want to probe. I should have thought that the local authorities must continue to play a very large part in these matters. They represent the local communities. They have built up skill and know-how in these sectors. I should have thought it quite wrong that their responsibilities should be diminished.

The noble Lord, Lord McIntosh, raised the question of land assets. I am sure they will be mentioned by other noble Lords. Perhaps there is as much concern about what the new companies will do with their enormous land assets as there is about any other aspect of the Bill. I think that we need to do something more than is envisaged in the Bill to allay apprehensions in that regard.

Let me conclude by trying to suggest four ways to allay the very serious and grave doubts that consumers, environmentalists and potential investors have in this proposition. We have a duty in this House to do everything we can to try to improve this measure. The Bill went through another place virtually unscathed. In this Chamber we must try to have modifications made if we possibly can. I put forward therefore four proposals for consideration.

The first is that because this is an industry which now faces an enormous increase in expenditure as a result of standards which were either fixed in the past and not yet achieved, as under the Control of Pollution Act, or are now being fixed as new ones by the European Community, I think that there ought to be a special way of facilitating this. I should therefore like to propose that there should be retention of all or part of the proceeds of privatisation, and that they should be credited to a Water Development Fund under the control of the NRA to pay for these special improved standards. That would to a considerable degree allay the, fears of the public about what will happen to water charges.

Secondly, because of the grave concern that the payment of and progressive increase in dividends could become a dominant factor in the way in which these enterprises are run, I suggest that initially they be launched on the basis of either preference shares or convertible loan stock. That is a proposition which in fact has been put forward very strongly and consistently, and I have seen many references to it in the Daily Telegraph. It would mean that both consumers and investors felt that they had better safeguards. Consumers would feel more protected because there would be a limit on the amount of dividend, at any rate for a specified period, and investors would feel safer because they would know precisely where they stood. I strongly recommend that proposal for consideration.

Thirdly, to stimulate competition we ought to study very carefully the proposals in the Electricity Bill. A major effort is there being made by the Government to introduce competition at the generating end. The comparable activity in water of course lies in the water treatment and sewage treatment plants and in the distribution network. I think we should look again at the Bill to see if some greater degree of competition could be introduced in the operation of those parts of the water business.

Finally, my fourth proposal is to do something about the land. For example, there has been a suggestion that the freehold of the land should be transferred to the NRA but its usage should be retained in the hands of the companies. If they wished to dispose of any part of the land they would have to obtain authorisation and give justification for it to the NRA. So that is a way in which the fears about indiscriminate land disposal and development could be allayed.

I have made these suggestions and drawn attention to the matters which I feel we shall certainly want to consider. The aim and object must be to try to improve this measure in the light of the very definite public apprehension that it has aroused.

4.26 p.m.

Lord Wyatt of Weeford

My Lords, I think it somewhat revealing that the noble Lord, Lord McIntosh, in his opposition to this Bill, relies on something which was said by Joe Chamberlain in 1875 about natural monopolies being publicly owned. It showed how dead, unfortunately, is still the thinking in the Labour Party, because a great deal has happened since 1875, including the realisation that in general the nationalisation of anything is a disaster.

The noble Lord, Lord McIntosh, referred to the assets of the water authorities being of the order of £20 billion and lamented that these were apparently to be sold off to the public for substantially less than that. But as they stand at the moment they are of no particular use to anyone in developing and modernising the industry. They are locked up. Water cannot use them as security to borrow money. The noble Lord also referred to the Royal Ordnance fiasco. I think that he had a good point there. The Government did overlook the potential value of the land or the sites attached. However my understanding is that no such mistake will be made this time and the possible potential development value of any land which may be sold with the water authorities will be fully valued and reflected in the price of the shares.

I support this Bill because I believe that private ownership always works better than public ownership. That is so whether the operation is in a highly competitive field or to a large extent is a monopoly. Indeed, where there are strong monopolistic conditions, private ownership is even more necessary for the benefit of the customers' pockets. In the case of water it is necessary for the customers' health as well as for the benefit of the environment. I do not draw the same conclusion as that drawn by the noble Lord, Lord Ezra, from what has happened to British Telecom. British Telecom was a great sprawling monopoly until privatisation in 1984. Its capital equipment budget had to be approved yearly by the Government and, like water, it could not use its assets as security for any loans that it might have wanted to raise. It could not raise money as a privately owned business can. Any money borrowed went straight against the public sector borrowing requirement, and all governments try to keep public sector borrowing down. That is the nature of the beast. So British Telecom was woefully kept behind by all governments in modernising its system and it could not get its prices down either.

Professor Sir Bryan Carsberg has been Director General of Oftel since privatisation in 1984. On 21st March he spoke at the Centre for Strategic and International Studies in Washington and said: Governments do not generally effectively regulate industries that they own. Regulation and ownership should be separated and separation is not effectively achieved by entrusting regulation to a separate part of the ministerial department when the same minister, or even a different department with a different minister, exercises ownership rights. In any case, ministerial regulation involves the risk that long-term industrial interests may be sacrificed to short-term political ones". We have seen plenty of that going on since the last war; and it is about time we ended it. Sir Bryan went on to say: Incentive regulation works best in conjunction with private ownership because the incentives do not motivate people so effectively under state ownership". Sir Bryan has fewer powers than the regulators of water will have under this Bill. However, his regulating achievements have been remarkable all the same. From January 1980 to June 1984 the retail price index went up by 43.4 per cent. BT's main line prices in the same period went up by 51 per cent. There was therefore a real price increase of some 5.3 per cent. But from June 1984 to March 1989, when Oftel was getting under way, there has been a very different story. The retail price index has gone up by 25.9 per cent. while BT's main line prices have risen by only 5.5 per cent. There has therefore been a price reduction in real terms of 16.2 per cent. in the past four and a half years.

Sir Bryan's new formula for the next four years means that BT's main line prices will be held yearly at 4.5 per cent. less than inflation—whatever that may turn out to be. That could not have happened under public ownership. Nor could the great improvements in BT's services. From now on, new exchange lines must be installed within two working days of the promised date. Repairs must also be carried out within two working days. Otherwise, BT will have to pay a fine of a minimum of £5 a day to the customer for every day it is late. Even though there is an upper limit of £1,000 for residential customers and £5,000 for business customers, this will certainly be a very sharp incentive for much speedier service.

At the Tote, of which I am the chairman, we have some experience of Sir Bryan's beneficial activities. Our new private lines to our betting offices were continually breaking down. They were often left unrepaired for days. BT kept promising to put them in order again but never did. However, when I contacted Sir Bryan's office he dramatically improved the situation and we now have a far better service. We should have been helpless had BT still been nationalised. We should have been waved aside and no one would have taken any notice.

Again, under Sir Bryan's prodding, 96.5 per cent. of public call boxes are now in working order at any one time. This compares with 77 per cent. in 1987. There have been many other improvements and more are on the way. All this is directly relevant to the privatisation of water. Publicly owned authorities allowed to regulate themselves cannot and will not regulate themselves properly.

Recently, The Sunday Times published a series of articles showing how one great water authority after another blatantly failed to use its powers to prevent water pollution by others and in particular to prevent water pollution by themselves. For instance, one in three of the Anglian Water sewerage works created pollution illegally during 1987. They are by no means alone in failing to carry out the law or to see that the law is implemented. As Juvenal wrote, "Sed quis custodiet ipsos custodes?". In other words, under public ownership, who is to guard the guards? Juvenal was talking about the futility of guarding wives against potential lovers because of the ease with which naughty wives can for their purposes seduce guards with whom they are in very close contact. However, with privatisation of water, the guards will be completely independent. They will not live in the same house; and they will be non-seduceable.

The Director General of Water Services will be like Sir Bryan Carsberg of Oftel. He will fix the prices of water. They will be the same everywhere so that the less and the least efficient of the new private companies will make less profit. That will provoke their shareholders into demanding more efficiency; and there will be no more jerking up water prices, as there was recently by the privately owned companies which supply 25 per cent. of our water trying to get in on the act before the new control arrives in this Bill which controls all water prices even though they were previously privately owned water authorities. When they are privatised, the investment of the water authorities will not be a charge on the public sector borrowing requirement.

As the noble Earl, Lord Caithness, remarked, during the 1970s the Labour Government unfortunately had to be rescued by the International Monetary Fund. Investment in keeping water and sewerage plants up to date was slashed by a third, and prices rose first by 42 per cent. and then by 26 per cent. But now that the water authorities can raise money in the City for investment, there will be no longer any bars to modernisation which there always are when there are governments in charge, and in particular Labour governments. Nor will the new Director General of Water Services be any less vigilant than Sir Bryan at Oftel. There will not be one guard for water; there will be two. The second will be the National Rivers Authority with the noble Lord, Lord Crickhowell, as chairman. I am sure that noble Lords will agree that he was a great success as Secretary of State for Wales. He has the energy, the powers and the ability to make the water companies far more pollution conscious than they ever were in the public domain.

The noble Lord, Lord Crickhowell, will tell the privatised water companies what they must do. Their shareholders will suffer dire penalties if they do not obey the noble Lord, Lord Crickhowell. To begin with, the cost of obtaining purer water and preventing the pollution of the environment will put prices up, as the Minister said, but not much of that is going to be borne by the Government. Most of it will have to be financed by the privatised firms. As the years go by, pollution will disappear from our rivers and coastline, and our water will become cheaper in real terms. It will have a much higher standard of purity than today. That may be bad business for the mineral water companies—they do much of their trade because of the widespread impurity of our tap water—but it will be good business for water consumers.

There will also be the Director General of Water Services to penalise water companies which do not treat their customers decently. For example, when they fail to reconnect disrupted water supplies within a given time they will be forced to pay compensation or, if they do not comply with the charter that the Director General will publish, saying what consumers are entitled to expect, consumers will receive a cash refund for the defects of the water suppliers.

The similarities with Oftel are obvious. It is working with British Telecom and it will work with water. What we should be afraid of with regard to water is if water is not privatised. Self-regulating publicly owned water authorities would never set for themselves the high standards which will now be exacted from them. The spur will be a nasty loss of profits if they do not comply. Water and sewerage have never been free since we stopped living in a state of nature and began to care about health. This Bill will secure the cheapest possible pure water. There will be far stronger safeguards against pollution than there could ever be under cosy public ownership, when Ministers and civil servants restrict investment and ignore their own misdeeds and those of their friends in the public domain.

4.45 p.m.

Baroness Stedman

My Lords, throughout my 15 years' membership of your Lordships' House very few Bills have aroused so many fears and doubts among so many organisations as this Bill. Many of the environmental organisations want to be sure that there are enforceable measures in the Bill to secure the permanent protection of the landscape and our countryside. They want to be sure that the existing provision for public access will remain. They want to see the code of practice made mandatory and areas of really fine landscape importance vested in some kind of public body or a voluntary body managing those areas in the public interest.

After privatisation a great deal of land will pass to the public companies which will then be able to exploit their assets. They will have a strong incentive to do so, given the high cost of modernising the sewerage systems and conforming to the EC health standards. I do not believe that the safeguards in the Bill are in any way adequate. They are only discretionary; they are unenforceable; and, in any case, they would no longer apply if the land was not absolutely necessary to the water authorities.

The National Rivers Authority has only discretionary powers to police the management of the water catchment lands. The Secretary of State's powers of enforcement are limited and subject to the need to give precedence to financial considerations. The proposed code of practice on environmental duties of the new plcs will not be enforceable as the Bill stands. At the same time there is no duty laid upon the plcs to manage their land sensitively or to maintain access agreements on land not needed by them.

The National Trust is one of the organisations concerned that existing planning controls are inadequate. If the water companies start to sell off the finest areas of our countryside and landscape, then the National Trust will find itself under considerable pressure to acquire or accept the land. It does not have the necessary resources to either buy, manage or preserve such large areas.

The Royal Institute of Chartered Surveyors also has doubts about the code of practice. It feels that the code does not tackle the problem of continuing conservation and recreational facilities and says that it is too riddled with phrases like, "having regard to", "taking account of", or, "provide as far as is reasonably practicable". Everything seems to be subordinated to economic expediency. We must have a positive management plan. Public access must be preserved and the plcs should not be allowed to evade their obligations by forming subsidiary companies to deal with one or more of their properties. The Royal Institute of Chartered Surveyors is satisfied that neither the code nor the Bill as drafted could prevent this happening.

The Ramblers' Association is naturally worried about access to the countryside. We all have the right at present to go on foot into a great deal of very lovely countryside. Unless amendments are made to the Bill the plcs will only have to have regard to the desirability of preserving access and will be able to form subsidiary companies and find new owners to whom they can transfer or sell the land. The Bill also encourages water undertakers to charge people to walk on land which, until now, they have freely roamed.

The National Farmers Union is expressing grave concern about increases in water charges, especially in rural areas which tend to be at the end of a long pipeline. This means more expense, greater difficulties of maintenance and much less profit to the plcs. If rural charges become prohibitively expensive, the NFU fears that there will be a reversion to the private supplies. They are worried that a decline in the quality of water may ensure. It is also worried about the compulsory purchase powers which are given to the plcs and the artificially limited rates of compensation for the land which they require. What is going to happen to the agricultural tenants on land which passes to the plcs on privatisation? That land should be protected from inappropriate development, and informal access should be maintained.

I am sure that other speakers will give more detail of the views of the Nature Conservancy Council. It too has questioned how the quality of our rivers will be improved and maintained. It doubts whether the NRA will have the right resources, or adequate resources, to cope with environmental protection and regulatory functions after privatisation. If there are to be real benefits to nature conservation, then the Nature Conservancy Council must also have the necessary resources and powers to do its job properly.

The National Consumer Council is worried about the lack of independent and national consumer representation. The regulator is there to balance the public interest; he is not there as a public watchdog. There should be a national consumer body with real consumer expertise among its members.

The Minister referred in his excellent opening statement to the amendments that he will be proposing with regard to conservation within national parks. Like the noble Lord, Lord McIntosh, on these Benches we await those amendments with interest. However, if they are only going to require the National Parks Authority to notify the water companies of any features within the parks which it regards as having special importance and only require the plcs to consult the park authorities about proposals which would significantly affect those sites, then we could be in a very dangerous situation. Indeed, the Open Spaces Society suggests that this would lead to a three-tier landscape: the water company land in the parks which the park authorities consider to be special; the other land in the parks which is not deemed to be special, and the land outside the parks. I believe that the land outside the parks and that portion of the parks not labelled "special" will be at greater risk if this kind of classification is used because those two categories of land make up the majority of the half million acres of the water authority holdings. They might be at greater risk with that type of amendment than they would be without it.

The park authorities will have no powers to prevent companies carrying out damaging activities on the land. The plcs are only likely to be able to consult the national parks about their proposed activities in special areas and then to take account of their views. We must place a firm duty on the water authorities, the water companies and their successors, to protect the landscape, the natural beauty, and the conservation value of the land which they now own.

We also want to seek to protect and not to interfere with or encroach upon the public right to enjoy and use the land as at present. We need to keep the rights of access and the freedom to roam on our hills and countryside. Although the Local Authorities Association supports the establishment of the National Rivers Authority, it is uneasy about the supply, disposal and pricing of water by commercial organisations which are monopoly suppliers within their own regions. The association takes a very firm view that the management of the water industry should remain in the public domain and allow for democratic involvement in its management.

The Association of County Councils wants to ensure that the rivers authority has all the powers and resources necessary to enforce the maintenance of the standards of water quality for environmental protection and for pollution control. It wants to see local government involvement on the National Rivers Authority, on the regional river advisory bodies and on the flood defence committees. It asks for better consumer representation that is proposed at present and it would like to see some form of statutory liaison arrangements between the counties, the National Rivers Authority at regional level and the privatised plcs to ensure the proper co-ordination of structure and district planning and water resource strategies. It would also like to see some liaison in the forward investment policies of the water authorities.

The local authorities are afraid that existing public provision of very many water facilities and recreational facilities might be at risk or be discouraged by aggressive charging or by developing and disposing of non-operational water authority lands.

The counties suspect that the planned expenditure on vital flood protection will fall heavily on local communities through the precept and, like many other organisations and individuals, they are concerned about the implications of water pricing, including the system of water metering, for low income consumers. If there is likely to be an increase in the level of disconnections, we must have safeguards against environmental and health hazards. These have community health implications and it is right that the county councils should be concerned about the matter. There is a wide and rich variation of views, doubts and fears, and in general terms we have to remember that the Government paid nothing for the present water authorities, so they do not own them or their assets.

As the noble Lord, Lord McIntosh, made very clear, under the present set-up in private companies there is a limited fixed return for the shareholders, and any excess goes back into improving the services or is used for consumers' benefit. I believe the assets of any proposed sale have to be retained to improve the infrastructure. I support the view that some way must be found to use a substantial proportion of the sale proceeds for the infrastructure, for work on sewers, sewage disposal and sewage works. Those costs should not all fall on the consumers just because the Government's financial grip over the last decade has not allowed for essential works to be done.

Privatisation without compensation is as wicked as nationalisation without compensation. In 1974 the local authorities received not one penny when their water service assets were transferred to the regional water authorities. All they had was an assurance that there would be a majority of local authority representatives on the new boards. In 1983 that assurance was discarded. The proposals in this Bill remove any last hope of democratic involvement in running the water industry.

There can be no genuine competition in the water industry, only comparisons between one plc and another. That does nothing to help the consumer, who has to get his water in the area where he lives. The consumers are going to be completely captive and at the mercy of private profit-making monopolies.

Privatisation is also going to bring with it the added burden of paying dividends to shareholders, and the impact of rising prices will bear most heavily on the poorest families. Under the new social security changes, water charges will have to be met from the general social security benefits and not from any specific allowance. I fear there may be many more disconnections for non-payment. We know the difficulties that some of the poorer consumers now face because the existing water authorities are unwilling to accept instalments from those who do not have a bank account. Private profit-making companies must not have the complete power to disconnect consumers. If you are deprived of your water supply there is no alternative that you can use. Water is vital and necessary to each one of us. The power to disconnect is too great to be given to junior officials in water companies. Any debt must be pursued through the courts, and disconnection should be considered only in extreme circumstances.

On these Benches we are not convinced that the privatisation of water will be in the best interests of the general public. We believe that the charges will rise and that the consumer will lose out. As a party, the SDP is not against the privatisation of some industries, but water is not the right vehicle for that kind of exercise. We will co-operate with the other parties in this House to do what we can to amend the Bill as it passes on its way.

4.56 p.m.

Lord Crickhowell

My Lords, I have to confess that I am a relatively recent convert. Although party to the original decision to privatise the water industry, I was not an enthusiast. After taking up my present job, I argued for a while that it was the decision to go for an NRA that was important and that it could operate almost equally well whether the industry was in the public or the private sector. But, as chairman of the advisory committee, I have been uniquely placed to discover the condition of our rivers and the truth about what has been going on within the industry and inside Government. I changed my mind, and have become one of the strongest advocates of privatisation. I now firmly believe that simply to establish an NRA to control public sector bodies would be a hopelessly unsatisfactory solution. There are two reasons for that.

The first reason is financial. Anyone who has had experience of public expenditure matters must recognise that, whatever the political colour of the government, there will be tight constraints on expenditure and the investment needs of the water industry will be subordinate to the overall requirements of Exchequer policy and of government expenditure priorities. I now firmly believe that the right course is to have an independent policing body that sets standards and seeks to enforce them while leaving the industry to go the markets for its finance.

The second reason is the old one about poachers and gamekeepers. On the whole, people have talked about this matter simply in terms of the reluctance of water authorities to take effective action to police their own discharges, but there is another aspect. We have to face the fact that if the water authorities remained in the public sector the NRA would almost inevitably find itself circumscribed by the fact that the actions that it took would sometimes have very uncomfortable results and resource implications for the Government. I can imagine all too well some of the indirect pressures that might be applied to an NRA that was judged to be acting with excessive enthusiasm.

If I reach that conclusion I do so because of what I have discovered since I took up my present duties about the unhappy reality of the long-existing relationships between the water authorities and the responsible government departments. The truth is that at present we have a system of discharge consents that is to a significant extent not based on objective standards but designed to do little more than maintain the status quo and ensure that at least the situation does not get worse. The arrangements have been designed with a view to avoiding an embarrassing number of failures and an excessive number of prosecutions of public organisations. Even when set on that basis, they have not fulfilled the objective and a considerable number of sewage treatment works consistently fail to achieve satisfactory standards.

We must therefore move away from the cosy relationships which I am afraid are inevitable when public bodies seek to police themselves and each other. I believe that the present Secretary of State for the Environment deserves much more credit than he has so far been given for getting the structure right and for introducing a measure of such immense potential for improving environmental standards.

Already the decision has had the effect of bringing into the open and making a subject for public debate the truth about the unsatisfactory state of our rivers and what needs to be done about them. There is a need for an immense and sustained attack on these problems. The Bill provides a mechanism by which we can hope to succeed in that great task.

It is a brave and necessary Bill. It is brave because the Government may be blamed for cost increases that are not the result of privatisation but of the price that must be paid for environmental improvement. I hope that the Government will not dismiss too lightly the idea that some of the resources released by the privatisation measure should be ploughed back in order to speed up the environmental programme within a pattern of more acceptable price increases.

I am confident that the scope exists to make the NRA a formidable and effective body. In broad terms I am satisfied with the powers given, although there are changes which I should welcome and to which I shall refer. The scope for adequate financial provision also exists so long as the Government accept our recommendations that the NRA should be given the widest possible charging powers to reduce to a minimum its dependence on the Treasury. My committee's arguments have been set out in detail in its response to the Government's consultation document Charging for Discharge Consents and can be found in the Library. However, if I am to ask for wide charging powers I must ensure that we run the NRA as efficiently as possible.

I was astonished by the criticisms which were voiced in another place about a statement I made in a speech last October. In it I said that we should operate a slim, efficient, cost-conscious organisation. I make no apology for that statement, which does not imply any judgment about what should be the total size of the organisation or of the resources devoted to the tasks which it must perform. The size and resources will ultimately depend on the job to be done, on the amount that can be recouped in charges and on the level of grant. The only certain fact is that, whatever those resources, the more efficiently we use them, the more we shall be able to do.

I should like to make only two further comments about resources. I am certain that the volume of sampling, monitoring and laboratory work must be substantially increased. We are budgeting for a large increase in the sampling costs during the first two or three years of our operations. However, while travelling round the regions I was startled to discover how little technical innovation there has been so that sampling can be carried out more efficiently. At times I gained the impression that we have gone little further than the use of buckets for taking samples. I have already given instructions that we should urgently set in hand a major programme of research and development in order to introduce on the widest possible scale automatic sampling techniques that will significantly reduce the cost of the operation and enormously strengthen the NRA's ability to control pollution.

My second observation about financial matters concerns borrowing powers. I welcome the amendment, which was introduced at a late stage in the House of Commons, giving the NRA borrowing powers for its land drainage and flood protection functions. However, I seriously wonder whether it is wise, when there is already a requirement that the NRA should have the approval of the Secretary of State and the Treasury, to specify that the clause will be used only to meet expenditure in emergencies. That is a point which needs further probing.

So far I have talked of resources in only financial terms. The most important resources of the NRA are its employees. At one stage I was afraid that we might find it difficult to attract the very best people. I need not have feared. We have had no difficulty in attracting men and women of the highest possible calibre at every level in the organisation. My noble friend Lord Caithness has told the House the name of the new chief executive. Dr. Bowman is a man of high reputation and his qualifications are highly suited for the new job.

In the regions the new units are up and running and in most cases they are working in their own buildings independently of their water authority colleagues, although they are still formally employed by them. I have no doubt that if the Bill becomes law later in the summer the regional units will be fully ready to take over their responsibilities. I am absolutely satisfied that the laboratory arrangements based on the recommendations of my committee will enable us to supervise the water authorities and other dischargers with complete confidence and integrity, and that any ongoing contractual relationships will not compromise our independence.

Most of the work of the NRA will be carried out in the regions. We propose to have not more than 60 people in the policy unit in London. There will be 6,500 outside London. While we must have national objectives and consistent national policies, we shall seek to give the maximum flexibility and the greatest possible scope for local decision-making to regional management and to the local advisory boards that we intend to set up. We shall also be enormously dependent on the advice of our committees at regional level.

I should like to return to what, apart from protecting life and property through flood defence, will be the most important single task of the NRA. It is to improve the environment of our rivers by reducing pollution. I have spoken of the cosy, incestuous relationships that have inhibited effective action. Clearly, it is vitally important that the NRA is seen to be independent, effective and determined. It is for that reason that, from the outset, my committee has dug in its toes about an issue which is important not only in terms of future effectiveness but as a symbol that there shall be no covering up of unpalatable realities.

I have referred previously in this House to the subject of look-up tables. Properly used, they can be a useful tool to avoid some of the inherent difficulties which arise when performance must be measured on the basis of relatively few samples. What was wrong was that more weight was given to the need to protect the water authorities against unfair prosecution than to the need to protect the environment and river users. My committee feels most strongly that the present system cannot be a satisfactory basis for monitoring discharge consents except for the shortest possible transitional period. In our view, both the effectiveness of the NRA's monitoring function and public confidence are dependent on that being accepted and water authorities being placed in the same position as all other dischargers.

We should much prefer an immediate decision and a clear timetable for implementation. But if the constraints dictated by an imminent flotation—and the legal complications of that are extraordinary—lead the Secretary of State to decide that there must be further consultation about method, it is a job that the new NRA should be told to do speedily and independetly of any review of standards (which is a separate issue) with a view to early introduction of the new arrangements. My committee fully understands the resource problems of implementing large capital programmes and will always be ready to discuss reasonable timetables for compliance. We are not prepared to compromise the integrity of the NRA by endorsing arrangements which we believe to be fundamentally unsound.

Those who pretend that environmental measures do not raise big practical and financial problems delude themselves and may delude others. It is for that reason that we believe that as long as the system is clear and equitable, the Government are perfectly entitled to allow the water authorities which have firm and agreed programmes for improvement time to carry them out.

Let us make no mistake. Even if there is an agreed programme, there will be cases where, for a variety of reasons, standards are not complied with. In those circumstances the NRA should not—and if I am responsible will not—hestitate to take firm and effective action. Our objective is not to prosecute but to raise standards. However, we must make it perfectly clear that once the timetables are set and once the standards are established, if people do not fulfil their obligations and fail to respond to warning or prompting they should suffer the penalties provided by the Bill and—this may be more important—the judgment of their fellow citizens.

There are detailed points in the Bill which still concern me, including the practicality of the relationships proposed between the NRA and HMIP, but those can be dealt with in Committee. However, there is one matter which is fundamental to the relationship of the new NRA with government. We have been repeatedly told by Ministers that the NRA is to be a strong and independent body. Yet the Bill provides that its management arrangements should all be subject in some detail to the approval of the Secretary of State and the Treasury, which in practice means their officials. I am talking about what may be described as pay and rations matters. Here we have a new organisation being set up in a new climate of government where great emphasis is rightly placed on management responsibility. We face a situation that those responsible for running the NRA are to be second guessed by the officials on a whole range of day to day matters. That is a little absurd and will not improve the temper of the chairman. I have asked that the issue should be looked at again. Within financial limits, we should be allowed to run our business in the most efficient way possible and be answerable for our own performance.

A risk which confronts the chairman of the NRA is that if he ever mentions one of his responsibilities, he will probably be accused of neglecting others. Because I have concentrated on certain important points of principle, I hope that it will not be thought that I do not attach great significance to the full range of the NRA's new responsibilities. I keep being told by angling organisations that their concerns and interests will be neglected. I can think of nothing less likely. They are strongly represented among the members of my committee and at every level in the organisation. We are also working hard to ensure that our committee structure is widely representative of all river users. We attach high importance to the conservation of the plants and wildlife beside our rivers.

In assessing its priorities the NRA will need the wisdom of Solomon. Indeed, I sometimes think that he had a much easier problem to solve than is likely to confront the chairman of the NRA. Already I hear the clamour of argument as birdmen and farmers, navigators and fishermen, riparian owners and canoeists, industrialists and the green campaigners all argue that the rivers are for them. They are all right, but they are not for each of them exclusively and those who work in the NRA will have an immensely difficult job in meeting all their demands and seeking to fulfil all their aspirations. However, I believe that this immensely important environmental Bill provides us with an opportunity to do all of them a great and considerable service.

5.15 p.m.

Baroness White

My Lords, first, I must warmly congratulate my noble friend Lord McIntosh of Haringey on a brilliant analysis of the Bill before us. I thought it was an outstanding performance and I believe that all noble Lords in the House must be grateful for what he put before us, whether or not they agree with his arguments. I should also like to congratulate the noble Lord, Lord Crickhowell, on an extremely impressive analysis of his responsibilities, some of which I should like to touch upon in a few moments.

The Bill before us today is, in some important respects, a logical development from the Water Act 1973, on which I led for the then Opposition. I went to the Library just before lunch today, and I am correct in my supposition that the noble Lord, Lord Nugent of Guildford, and myself are the only two persons on the list of speakers this afternoon who spoke on that occasion in 1973. Of course, that Act established the present water authorities on a river catchment area basis—a pattern now generally accepted with approval, although its more distant future under privatisation is not entirely clear.

My party was less than enthusiastic about the subsequent modification of the Act in 1983, referred to by the noble Baroness, Lady Stedman. That removed the local authority members from their preponderant position on the water authorities. However, as I pointed out in earlier legislation, there was no real democratic control. The local authority members were not amenable to the electorate for their decisions or for their work on the water authorities. Therefore, I personally welcomed the change in 1983 as one for the better. It secured a much more effective management by a smaller number of people, chosen on the whole for relevant experience, although political patronage intrudes from time to time in the appointments.

We are now faced with the proposed separation of the regulatory from the operational functions by the establishment of the National Rivers Authority and its regional centres. To my mind that is a very wise step. As the noble Lord, Lord Crickhowell, made abundantly clear in his speech today, it can work satisfactorily only if the National Rivers Authority is by some means or other afforded adequate resources, including attractive career opportunities for its scientific and technical staff. I believe he is quite correct in claiming that the NRA has so far attracted people of outstanding ability, including Dr. Bowman, whose appointment was announced today. However, it will have to prove that it can keep them. I am not quite so confident about that unless other conditions are fulfilled.

As the noble Lord, Lord Crickhowell, mentioned, the NRA will have to work out a modus vivendi with the Inspectorate of Pollution, and it has already lost the first round. I may be at fault, because I have not read the 388 pages of the Bill word for word, but the noble Earl, Lord Caithness, referred to a particular inspectorate for drinking water. I am not certain what that means. However, no doubt we shall find out at a later stage of the Bill.

I also hope that the Government will seek advice from the NRA to argue their case with authority in relation to the expanding corpus of water quality legislation and cognate proposals emanating from Brussels and also, to some extent, from the European Parliament. At a later stage we shall have to consider in detail the responsibility of the NRA for flood control, fisheries, navigation, and so on, but generally speaking most people with some knowledge of the matter, including Members of the House who have so far spoken, warmly welcome the new proposed body.

We now come to the other half of the Bill before us and the privatisation of what are currently the water authorities. Here, I must say that the intellectual dishonesty of much of the Government's case as put to the public makes people like myself, with a long-standing acquaintance with the water industry, really depressed. The most obvious examples have been the references to the existing statutory water companies, about which I have no doubt we shall hear something from the noble Lord, Lord Elliott of Morpeth.

Many of your Lordships must have heard on the radio and seen on television even the Prime Minister herself, and others in authority such as the chairman of Thames Water, refer again and again to the statutory water companies as though they were shareholder-oriented and governed by the same market interests as the plcs which the Government wish them to become. It would be unparliamentary to suggest that a Minister or other person in authority was a liar, and I do not intend to do so, but in my vocabulary someone who knows the truth and conceals a significant aspect of it with a desire to deceive—I can only put it like that—comes very near the line. There have been far too many references to "Twenty five per cent. of the water industry is privatised already". It is not an ordinary privatisation. It is not in the form of the plcs proposed under this legislation.

We then have what many of us can only regard as the nonsense of comparative competition. Again, that is an absurdity to anyone with the slightest knowledge of the physical differences between the different geographical water supply and distribution systems: the unavoidable costs according to whether one can rely on river flow or has to maintain aquifer storage; whether one is supplying a large, concentrated urban population or, as in Wales, a very thinly dispersed rural population for the greater part of the area; whether you have to deal with a long coastline with many beaches and complex estuarial systems, and so on. Where the operator is in any case obliged to maintain the services regardless of profitability, comparative competiton for basic necessities loses its meaning.

Of course, Mr. Ridley and his friends draw attention to diversification, by which the newly fledged plcs may make profits regardless of geographical boundaries or natural hindrances, provided they have the true entrepeneurial spirit. I must confess that I was astonished to find, from the Second Reading of this Bill in another place, that among suitable enterprises for the newly liberated water companies, Mr. Ridley listed cable television. A Back-Bench Conservative colleague from North Wales included funeral services. I hope the chairman of Welsh Water will relish his new role as a profit-making undertaker!

I am not against suitable exploitation of expertise. If one can build a dam in Thailand or a reservoir in northern Nigeria and improve on technical experience and skill in that exercise, by all means do so; but as a consumer I have no wish to see the enterprises on which the community relies for the proper management of the most absolute necessity of life speculating their resources and spending their energy and talents on matters which have no rational relationships whatever with their responsibilities to the public. I am sure I represent the vast majority of consumers and householders in this view. We do not want it.

Only glib references are made in public to the charging formula and to the cost of the services of the director general and the customer services committees. I understand that these costs will fall on customers. I also understand that profit from diversification will be kept for the shareholders. Any ordinary citizen who understands the charging formula by which his bills will be regulated and who can give a reliable value to the "K" factor will be cleverer than most Members of your Lordships' House. It also seems that profits on land sales will go to shareholders and will not be used to reduce charges to customers. If I am wrong about that, I should be glad to be told.

On the other hand, we are warned that the cost of renewing a largely outworn water supply and sewerage system will fall squarely on the consumer. The extent of these enormous liabilities was examined with some throughness a few years ago by a Select Committee of your Lordships' House. One could go on for some while on that line but I shall resist doing so because there are many who wish to speak this afternoon. I find it completely unconvincing that we have to go in for plcs with all these extraneous interests in order to have a intelligent disposition of the water and sewerage systems in this country.

It is true that the organisation so ably represented by the noble Lord, Lord Crickhowell, is an acceptable improvement. It is also true, as the chairmen of the water authorities have stated in their memorandum which I believe was circulated to all Members of your Lordships' House, that the present situation is not satisfactory. It is particularly galling to any member of a water authority to learn that inherited debts, which have been an intolerable millstone since 1973, may now be liquidated by the Treasury on account of flotation. The water authorities have been trying for years to get the Treasury to make some contribution and to take some of the burden of interest charges from the shoulders of the present-day consumers.

For the consumers themselves—which means all of us—if the proceeds of selling off public assets for which the Treasury paid nothing in the first place are not used to clean up the system and renew the crumbling pipes and sewers which neglect has rendered unsatisfactory, if not actually unsafe, it would be so grossly unfair that one cannot understand why any government should even contemplate it. There should be no hesitation in announcing that the proceeds of this particular privatisation, if it is to come about, should not be lost in the maw of the Treasury but should be directed for use whence they came. I believe there is general agreement in many parts of the House that this is an exceptional privatisation and that it should be treated exceptionally.

I refer again to the conditions which could make the NRA really effective. No party or government in modern times has really stood up to the Treasury on the administrative side, as opposed to the fiscal or monetary side of public policy. I am depressed by the suggestion in my own party's rethinking process that some colleagues are once again proposing to set out a new department as a counterpoise to the Treasury. We tried that in the 1960s and it did not work. If we are to make any form of public enterprise satisfactorily enterprising as well as responsible, one must tackle the Treasury itself. It would be no bad thing to start with water.

In saying that, I am thinking not just of the water companies but of the National Rivers Authority. I will keep my detailed comments on this for a later stage in the Bill when I have studied the very interesting and comprehensive speech of the noble Lord, Lord Crickhowell. However, I have this advice for the noble Lord. Unless he can secure a better relationship with the Treasury than other quangos have obtained, the high hopes he has so eloquently expressed may not be realised. They are hopes with which I have every sympathy; but he could find himself, if he is not successful, the keeper not of the jewel in the crown but of a poor relation in the privatised water industry.

5.29 p.m.

Lord Harris of High Cross

My Lords, there will be general agreement that we have had a good crop of speeches, with many more to come. I hope I will be excused of partisanship if I say how much I enjoyed the powerful arguments deployed by my noble friend Lord Wyatt and how persuasive I found the contribution of the noble Lord, Lord Crickhowell, who certainly heightened confidence in the future under the proposed legislation.

Despite an apprenticeship of some 10 years in your Lordships' House, Second Reading debates are the only parts of the legislative process that I find wholly comprehensible. My understanding is that Second Reading invites us to take a broad view of principles from any vantage point that we may have. My only claim on your Lordships' brief attention is as a humble market economist. I acknowledge that this humility is often well disguised. But then the central case for a market economy is a confession that we do not know enough about the future of rapidly changing industries and economies to control matters very effectively from the centre. Indeed there is increasing agreement among economists from the East and the West that a major merit of competition is that it disperses responsibility and allows a variety of people, who think they know what they are up to, to stake out their own money and show how well they can do as judged by the sovereign consumer.

But what are we to do about public utilities where geographical monopoly appears inevitable for technical reasons? According to my economic adviser, Professor Milton Friedman, we are faced with three unalluring alternatives; namely, private monopoly, public monopoly or public regulation. Despite the quite extraordinary complacency of the noble Lord, Lord Ezra, and others about the public status quo in this and other nationalised industries, all three of these options are highly imperfect. As so often in economics we have to choose between evils. Professor Friedman has described how even good market economists have disagreed. Thus he tells us how Henry Simon from Chicago University so disliked the results of public regulation of private monopoly in America that he urged outright public monopoly as a lesser evil. Walter Euken, a noted German liberal, so objected to the public monopoly of the German railways that he recommended public regulation. Friedman's conclusion was: Having learned from both, I reluctantly conclude that, if tolerable, private monopoly may be the least of the evils". The overriding objection to the present public monopoly of water, as of anything else, is that it unites economic and political power in the same frail hands. We might all agree that governments have indispensable functions in facilitating all production. First, over a century or more they have accepted the responsibility for setting standards with labelling, purity, safety, weights and measures and all the rest. Secondly, the Government have responsibility for monitoring the results. Thirdly, they have the responsibility of enforcing compliance and where necessary imposing penalties. Nationalised industry fundamentally violates this division of labour. We have had many analogies about students setting and marking their own exam papers. Mine is that it is like a game of cricket in which the bowler umpires his own appeals and the batsman keeps his own scorebook.

I strongly support this latest measure of denationalisation as separating economic activity from direct political control. It is not quite Friedman's untrammelled private monopoly, but the necessarily uneasy and rather messy compromise of private property rights heavily qualified by public regulation. It is at least a great deal better than that disgraceful enterprise of a national gas monopoly launched by Mr. Peter Walker and Sir Daniel Rooke. Under this Bill, the gain for consumers is to escape from the mischief that has plagued state industries in the whole of the post-war years whereby decisions on pricing and long-term investment are perverted to serve short-term political expediency.

I listened with astonishment to the noble Lord, Lord McIntosh, who seemed to complain—I quote his words—that "past investment has been too low". Who made it too low and how did that come about? Perhaps the noble Lord will consult his friends and colleagues who will tell him the reasons. I do not doubt that both parties share some part of the responsibility for collapsing sewers and fractured water mains. Their political curbs on investment have been all the more damaging in an industry like water where demand for both quantity and quality has been increasing. It has been said that we do not so much consume water as borrow it and return it later with pollutants added. The trouble remains that there has been more borrowing and pollution without sufficient re-investment and extension of plant. During unprecedented inflation, investment has been held back in effect by under-pricing and under-provision for depreciation.

Therefore I have a further reason for welcoming denationalisation and the new entrepreneurs now straining at the leash. We may at last hope for more rapid progress towards paying for water more equitably and economically by metering. When I switched to a water meter six years ago my bill immediately halved because I no longer had to subsidise my neighbours who were topping up their swimming pools, keeping their lawn sprinklers on all night and, I suspect, having many more baths and showers at my expense than was really good for them.

My interest in metering dates back to 1962 when the Institute of Economic Affairs with which I have some association ran an essay competition for students. The subject was The scope for pricing in maximising the efficiency of resources. What should be of particular interest to noble Lords on the Labour Benches is that the competition was named after Evan Durbin who was an outstanding economist and a colleague of Hugh Gaitskell as a Labour MP. One of the judges was the noble Lord, Lord Peston, who at one time was a distinguished academic economist. The first price of 250 guineas was shared between two academics who wrote about economic charges for water. They showed that direct pricing by metering in Malvern and, more commonly, abroad leads to greater economy in consumption including fewer dripping taps. If that seminal IEA paper had been heeded 27 years ago we would have seen earlier progress with metering and a slower growth in demand which would have moderated the cost that now confronts the industry for investing in higher capacity.

In conclusion I say that opposition to metering has been one further example of the hidden price that we have paid for insulating the water industry from the vigorous life force of the market. This Bill brings the prospect of sharper cost comparisons, keener cost consciousness and more effective cost containment. It deserves the support of all who thirst for pure water as cheaply as it will be possible to provide.

5.39 p.m.

Earl Russell

My Lords, First water, then gold, preferring necessity before pleasure". Those were the words of Francis Bacon, speaking in another place in 1601. The sense that has underlain a great deal of the debate on this Bill is that there is something special about water. It goes a long way back. Even Adam Smith, whom I hope that this Government will not fault on ideological grounds, reckoned sanitation as among the acts of public good that should not be left to the provision of the market. In part that is because water is essential for life. I take the point that the Prime Minister has made that food is equally essential to life. But one imagines that the Prime Minister knew enough about the market to know that food is not a single commodity. Every day we observe foods competing with each other in the market.

What is special about water is not only that it is essential to life but also that, for once in a blue moon, it is generally true that there is no alternative. One of the many reasons why I am on these Benches is that I have never been able to bring myself to see a general ideological preference either for private or for public ownership. I believe that noble Lords opposite will understand what my noble friend Lord Jenkins of Hillhead meant when he described steel as the Monte Cassino of the Labour movement. Similarly, I wonder whether water may prove to be the bridge too far of the Conservative movement.

Having said that about my inability to form a general preference, I force myself to the difficult task of considering criteria. One of the criteria is that something is not entirely suitable for private ownership if it is a natural monopoly. I listened with interest to what the noble Lord, Lord Harris of High Cross, said about having a private monopoly if "tolerable". It is an interesting phrase. It reminded me of a passage in the Koran which says that a man may have four wives if he can treat them fairly. There is now a school of Moslem theologians which regards that as a prohibition. We might regard the noble Lord's caveat in the same light. I know about the doctrine of competition by comparison. If I understood correctly what the noble Earl, Lord Arran, said on 8th November, it is essentially a competition in the share price. That doctrine seems to come out of the "ivory square mile".

Another possible criterion is the objectives which we wish to set for an industry. On these Benches we are perfectly content with the privatisation of an industry where the profit motive may legitimately apply and where it is a suitable management objective. Jaguar, Rolls-Royce and British Steel are cases in point. However, the objectives of the water industry seem to be primarily non-commercial. The chief priority must be at all times and in all circumstances to provide a service. That includes the uneconomic task of providing resources in a drought of the kind that happens only once in a century. I cannot see that as being in the interests of a commercial company, and I cannot see it as fair to impose on a commercial company non-commercial objectives without paying for meeting those objectives. There are such cases in plenty in the Bill itself.

I was interested, for example, in Clause 39, which makes provision for a compulsory transfer of water between one area authority and another. There is no leaving that to the play of the market. I was interested also in Clause 79, which provides that there shall be no charge for water supplied for fire fighting. I am glad that the problem has been spotted. It seems a little unreasonable that a water authority with commercial objectives and with shareholders to satisfy should have to meet the cost itself. If the Government wish to impose a non-commercial objective, they should pay for it.

One possible criterion, and a good one, for whether an industry should be in public or private ownership is whether we could let it go bankrupt. The relevance of that factor to the story of Rolls-Royce is clear. In Clauses 23 to 30, this Bill provides clearly that the water authorities cannot be left to go bankrupt. Indeed, the Government are aware that they cannot run water on strictly commercial criteria. While I was listening to the speech of the noble Lord, Lord Wyatt of Weeford, I wondered at moments whether it was being proposed not to subject the industry to the discipline of the market but to the discipline of the noble Lord, Lord Crickhowell. I mean no disrespect to the noble Lord by that remark. I was much impressed by his speech. It allayed at least some of my fears about the Bill. However, the noble Lord is not a market in himself.

I also think that there is a good deal of sense in the well tried principle that reorganisation leads to disorganisation. I was pleased that the noble Earl, Lord Caithness, even if not the noble Lord, Lord Harris, accepted the burden of proof. When I think about the problem of reorganisation leading to disorganisation, I am somewhat dismayed by the implications of Clause 50, which provides for separate pipes, subject to some safeguards, for every separate household. When I think of the impact of that provision on my own street, which is almost all flats, I wonder when I shall ever be able to walk across the street again.

Is there any empirical case, as distinct from an ideological case, for the Bill? The case is slender. In another place the Secretary of State argued the case in terms of efficiency. That is a limited definition of efficiency. It is a problem we have had with the Government before. They think that efficiency means the same as cheapness. In the provision of a service, it does not. There may be an incentive to make it cheap. There is no incentive to supply remote rural areas, a problem about which I hope my noble kinsman Lord Stanley of Alderley will say more later. There is no incentive to provide spare capacity. If there were an incentive to be more efficient in providing clean water, the whole apparatus of the National Rivers Authority would have been unnecessary.

The Secretary of State also argued that it was necessary to privatise because a privatised industry will not be bound by the yearly limits of public expenditure planning. I wonder whether the Secretary of State realises what a self-condemnation that statement was. Who fixes those limits? The Government know perfectly well that more money needs to be spent, and yet they say that, even though Parliament is sovereign and they have a large majority, they cannot spend that money. I understand that the Treasury, like the poor, is always with us. The Treasury is made up of civil servants—and neither the adjective nor the noun should be forgotten. The Treasury is not our master.

I also wonder whether the Government are correct in believing that there is an inexhaustible private purse just waiting to be tapped. I share the doubt expressed by my honourable friend Mr. Livsey in another place that the private sector has the resources necessary for the control of pollution. The figures show that there are some reasons for doubt. The national debt is now down to £157 billion. The private sector debt, including mortgages, is now £236.4 billion. Is the private purse really so very much more inexhaustible than the public purse? If more money needs to be spent, as it does, is that really an argument for privatisation? I cannot see it.

I accept that at the end of the day we have to pay. Either the consumer or the taxpayer has to pay. That means that we have to pay. However, the form in which we do it is not entirely irrelevant. The way in which the charges are shared out is relevant. There is an advantage in terms of fairness, which is something not yet to be forgotten about, in proportioning the charge between those who can pay rather than letting it fall strictly on the consumer at the point of use. One of the factors about charges at the point of use is that they actually deter use, as the noble Lord, Lord Harris of High Cross, argued clearly. He prided himself on reducing the number of baths he took because of the cost of water. The noble Lord's habits are his own affair, but is this public policy? That is an important question.

A year ago I would never have thought that I should be speaking on a Bill which would make the Education Reform Bill look small. I think that the volume of legislation—and I mean that word literally—has increased, is increasing and ought to be diminished.

5.50 p.m.

Lord Nugent of Guildford

My Lords, I am glad to have the chance to add a few words to this debate on the Bill. I should like to begin by congratulating my noble friend Lord Caithness on his presentation of this vast and complex Bill. He did so in what seemed to me—I made a note of this—to be most mellifluous terms. There are indeed many conflicts to come. However, the legislation certainly sounded very easy when he explained it to us. I congratulate my noble friend on the creation of the NRA; and I also congratulate my noble friend Lord Crickhowell on his presentation of the subject. I have no doubt that the NRA will provide a robust safeguard for the future water environment of our country. I congratulate my noble friend upon putting forward that proposal in the Bill. Further, I am sure that my noble friend Lord Crickhowell will make a most successful chairman.

As a matter of historical interest, the Government produced their first publication on privatising the water industry four years ago. It was a discussion document which invited reactions to their proposal at that time to privatise the 10 regional water authorities, complete with all regulatory and statutory functions. I tabled an Unstarred Question in this House in order to express my own doubts about the merits of the proposal. Indeed, other noble Lords were good enough to join me in the matter. I pointed out then the constitutional necessity of cutting off from the proposed plcs the regulatory and environmental functions of the regional water authorities and placing them with a government-appointed authority with a regional structure to monitor the whole water cycle. Two and a half years passed by before the Government came round to that view. They announced, in the autumn of 1987, the formation of a National Rivers Authority which would be responsible for the regulatory and environmental functions which are now familiar to us. The mills of God did indeed grind slow, but the interval may have given Ministers time to take account of the opinion I had offered two and a half years earlier.

I hope that this propitious precedent may dispose my noble friend the Minister to look favourably on two further improvements to the Bill which I shall suggest in the remainder of my speech. Even for water, the most improbable candidate for privatisation, I recognise that there are advantages, the most notable, of course, being the freedom for management to raise its capital in the money market—as already referred to several times by other noble Lords—without Treasury restraint, which is the inevitable penalty of nationalised industry finance.

However, for a successful privatisation of any kind, it is necessary to convince the nation that, as the consumer of the product, it will benefit. So far, that conviction has been notably lacking. Many noble Lords have already referred to that fact. Three out of four people in the MORI poll are against privatisation. The noble Lord, Lord Ezra, gave us a figure of one out of every 11 people having objections to the legislation. I see four objections which my noble friend has to meet.

First, water is a complete monopoly—a fact already referred to—but there is no more prospect of choice for the supplier under a private company than there is under a public authority. Consumers are protected with a profit-making private company only when there is competition. Here, the comparison with the food market which has been referred to by my right honourable friend the Prime Minister and others clearly shows how different this matter is. We are all inevitably tied to our present supplier.

Secondly, there is a general belief that water is a God-given commodity on which life itself depends and that there is an ethical objection to making a profit out of it. Any one of us has only to speak to almost anyone we know out in the country as a whole to receive that reaction. In 19th century Britain, when enterprise and profit were the watchwords of our economy, there were hundreds of statutory water companies all over the country. However, they were governed by the admirable quotation, which the noble Lord, Lord McIntosh of Haringey, gave us, of the great Joseph Chamberlain. He said: Water should never be a source of profit; all profits should go in the reduction of the price of water". That is still the general feeling today.

Thirdly, local authorities claim that the basis upon which they handed over the assets of the industry, following the 1973 Act, without compensation was that they got a majority of local authority members on each regional water authority board. However, the Government broke that agreement under the provisions of the Water Act 1983. The noble Lord, Lord McIntosh, referred to that fact. The Act removed all local authority members from the regional water authorities. As noble Lords must know, many local authorities are preparing a legal challenge for compensation now that the Government are selling the industry to private shareholders.

Fourthly, there is the public belief that the sale of the regional water authorities to private shareholders will increase water charges. Mr. Stanley Hill, the leading water industry accountant, estimates an increase of 27 per cent. on charges as a direct result of privatisation. Regional water authorities, of course, do not pay dividends or corporation tax at present. Moreover, the additional costs of such matters—which are large—and other matters connected especially with the amounts which must be paid to the National Rivers Authority, all add up to something of the order of £843 million. That would be in addition to a figure for inflation for next year and one for the control of pollution. Therefore the average increase next year for water authorities is expected to be between 30 and 40 per cent.

That is an alarming prospect; and it is alarming people throughout the country. However, if my figures are not correct, I invite my noble friend, when he replies to the debate to tell us what are the correct figures. Those four objections make a formidable case.

My noble friend the Minister has told us that the Government's answer to consumer fears is provided by the appointment of the Director General of Water Services. He will set the level of charges for each water company according to a complicated formula which will ensure a reasonable dividend for the shareholder and, at the same time, a fair charge to the consumer—that is, if it is possible to reconcile those two objectives, and some noble Lords have doubted it. This complicated machinery fails to reassure consumers. In an industry which is virtually static in turnover there is a very limited scope for technological improvement.

Perhaps I may say to the noble Lord, Lord Wyatt —who I am sorry to see is not now in his place—that there is no comparison with British Telecom. Everyone knew that there was immense scope for technological improvement and expansion in volume in that company. I am delighted to know that that privatised industry is beginning to achieve those aims. That gives benefit to the consumers and also benefit to the shareholders. However, the scope for such improvement in the water industry simply does not exist. The result is that the consumer, if he takes a look at the situation, can see perfectly well that if there is to be any sort of increased dividend for the shareholder it will come out of an increase in the charges to the consumer. There is no other way to achieve that aim. Moreover, the changeover will set the consumer and the shareholder in permanent conflict. The shareholder will be given the equity of the industry. That has never happened before.

This financial structure is not objectionable to the consumer alone; I should say that it was also objectionable to the staff in the water industry. It is true that the chairman has spoken saying that the staff welcome the proposals. However, I know the staff throughout the industry pretty well. They do not care for having to serve two masters—namely, the consumer and the shareholder. They will find that situation most difficult.

I turn to the two amendments to the Bill which I believe will relieve those fears and make my noble friend's proposals for privatisation acceptable and will avoid the impending financial and electoral penalties. First, I ask my noble friend to recognise that there is substance in the claim by local authorities as to the value of the assets transferred in 1974, without compensation, in return for a majority on the RWAs. That agreement was washed out by the 1983 Act, which removed all local authority members. Hence the claim today. As other noble Lords have said, not only is there an equitable claim here but—my word! —there is also a necessity.

The new water companies will have immense bills to pay in the coming years for improving the plant in the industry, especially in regard to sewage disposal. Therefore a share of the proceeds of the sale would be a very great help to them and, I suggest, would not offend the taxpayer, because, after all, every household and every industry would benefit if there were some relief to the new companies. I may perhaps go along with the noble Lord, Lord Ezra, who suggested a development fund. I do not mind how it comes about so long as the sum goes back into the industry.

Secondly, I come to my old friends the statutory water companies. Here I should say to my noble friend the Minister that his reference to the report of the Monopolies and Mergers Commission was a little selective. The report was in regard to the Southern Water Authority's proposals to absorb a handful of companies in its area because it thought that would improve matters. There has never been a survey of all the 29 water companies. Most of them are extremely efficient. My noble friend was not fair in judging them by that small sample.

The Water Act 1945 has been in force for over 40 years. It codified the 19th century structure of the statutory water companies, so we have experienced them for about 140 years. We have found that the structure works well. The companies work on the principle that all dividends are limited by statute. In so far as a company trading produces a surplus, it must go to reducing the charges the following year. Audited accounts must be submitted annually to the Secretary of State for his approval. The third schedule to the 1945 Act specifically controls those conditions. The water companies' financial manage- ment is under tight control. In effect, it is the consumer, not the shareholder, who owns the equity in the water company. That is what most people in the country want.

The amendment which I suggest would dispose of the new bureaucracy of the Director General of Water Services and his cohort of accountants and inspectors. It would save £3 million a year on the water charges. It is that the 29 existing water companies should continue as they are.

I say to my noble friend in all sincerity that if he would kindly give sympathetic consideration to those two amendments he would greatly improve his Bill and he would obtain the benefits of privatisation without the blemishes.

6.3 p.m.

Lord Mason of Barnsley

My Lords, at the outset of my speech I should declare an interest. It is only a minor one, but I am a member of the National Rivers Authority Advisory Committee. Your Lordships should know that at the outset in view of what I have to say.

Never before has there been such public concern about water. The problems of polluted rivers and seas, which has been with us for some years and yet has only recently surfaced, is a major national concern. Without doubt, one factor has been the underfunding by water authorities and the lack of sufficient investment in tackling pollution. The second factor is the awareness of the European Community's directives on water quality and its drive to rid our coastal waters and beaches of the threat to our nation's health.

Thirdly, there is the enormous publicity given to this most controversial Water Bill. There has been a national awakening. Never before has the nation been so stirred by a privatisation measure. Since 1979, well over 20 major industries have been privatised—gas, steel, Rolls-Royce, British Telecom, and so on—creating much political friction and heated political debate. So has this measure, but this proposed privatisation measure moves into a more sensitive sector of our lives. For some it is the sacred sector, next to taking over the air that we breathe.

Apart from the natural attitude of the opposition against the measure, there exists this time a vast body of opinion which includes all the environmentalist groups—the Greens—all the angling organsations, the water sports enthusiasts, worried about the future of the environment and their sports, as well as all water consumers who are concerned and worried about the water that they drink, its quality, its content and its cleanliness. So this time it is not just a political squabble between political parties. Instead, the whole populace, for a variety of reasons, feels involved, and 85 per cent., according to one poll that I saw, are opposed. So far as concerns the privatisation of the 10 water authorities, so am I.

I believe that such a vital commodity, which concerns the health of our nation, should not be in private profiteering hands. However, another place has determined its course. We in this Chamber can only revise. So privatisation of our water, through the establishment of 10 major private companies, is likely to go ahead.

The saving grace in the Bill is the proposed establishment of the National Rivers Authority. Some credit is due to the Government for that proposal. It will be a new national public body, with a national board of authority, backed by 10 regional units. The NRA will be accountable to Ministers and Parliament, and that means that water, its quality, its purity, the problems of pollution in our rivers, lakes and the seas around our shores, will be subject to NRA scrutiny. The NRA will accept national responsibility for every aspect of water activity, from the quality of tap water to polluted rivers, dirty seas, floods and related major accidents.

The NRA will not only be the only recognisable national body with national policies for river management and water quality; it will also be responsible for environmental quality and pollution control. It will have the national and statutory responsibility for land drainage, flood protection and catchment management; that is, the control of our water resources, especially on the issue of abstraction licences. It will cover fisheries, which should please the 3 million anglers who depend upon clean water for their sport, and who are among the foremost environmentalists; it will cover recreation, conservation and navigation. It will be publicly accountable in all those areas of water activity.

Given therefore an adequately funded send-off, the NRA could be a power of good for our country. The public will need to be satisfied that the NRA is properly and adequately funded. There will of course be some self-financing, but adequate borrowing powers must be available from the outset. I was pleased to note the statement made by the Secretary of State on 15th March that the NRA will have borrowing powers in relation to its flood defence functions to enable it to cope with unexpected expenditure, and that provision has been made for that in the Bill.

An adequate financial base for the NRA is essential. I hope that the Minister can give assurances on that point. It will give some comfort to those who are worried about the whole variety of pollution matters. I believe that the public will want to see the NRA as the guardian of the nation's water—its rivers, its lakes and its coastal seas. The Government and the NRA must not create unnecessary concern that pollution will be controlled only to the extent that cash is available.

The National Rivers Authority Advisory Committee has expressed concern about sewage treatment works discharges; and whether that affects the flotation of the new plcs or not, there is a major problem here and heavy investment will be needed. The water authorities have been, and still are, major polluters by their own works, and have been polluting and getting away with it for years, much to the detriment of the environment and their consumers, and with hardly any punishment.

Catching up will cost cash, and if the NRA is to start with any degree of national respect the Government must agree a system which is clearly established at the outset that treats all discharges, sewage treatment works, industrial pollution, and so on, in the same way, clearly seen and understood, with a timetable of those many major cleansing operations.

As the noble Lord, Lord Crickhowell, said in February, in this House, The present system is disguising an unacceptable level of failure". The Government may be embarrassed by this fact but it has been going on for some years and the NRA will have to make sure that it is cleaned up. The water authorities—the worst polluters—had no watchdog until Her Majesty's Inspectorate of Pollution, and even that has been beset with internal trouble and friction with Her Majesty's Government. But all this is now in the open and—unfortunately at some consumer cost—pollution discharges will have to be brought under control.

I am the chairman of the Anglers Co-operative Association of this country, the foremost anti-pollution organisation in the land. The Anglers Co-operative Association was founded in 1948 to bring actions in the courts against polluters by using the common law. It has brought many hundreds of cases which have resulted in injunctions to prevent further pollution and in recovering damages for those whose waters had been destroyed. Since July 1985 it has been possible, because of implementation of Part II of the Control of Pollution Act, for the association to highlight pollution problems from unsatisfactory sewage treatment works. That has been possible because the Act provided for the setting up of public registers of discharge analyses and for the disclosure of discharge consent conditions.

Three successful prosecutions have been brought, at great expense, by the association. Thames Water Authority pleaded guilty to pollutions from its works at Aylesbury and at Wargrave. The Anglian Water Authority pleaded guilty to pollution from its works at Mildenhall. It has pleaded guilty because it would have been a nonsense for it to maintain that the register which the authorities had prepared would be invalid as evidence because the samples were not taken formally. To take a formal sample, three samples must be taken at the same time. One of these is handed to the polluter so that he may make his own analysis. One is stored, the other is analysed and, if shown to be breaching consent conditions, may be used as evidence in a prosecution.

The association would like to use the register to bring into the open the pollution problems which are being caused by some fish farmers. There is a farm at Downton on the Hampshire Avon which has been shown to breach consent conditions on many occasions. The Wessex Water Authority, which has the power to prosecute the offender, has chosen not to bring an action, relying, it claims, upon the powers of persuasion and education. The ACA has been advised by legal experts that it cannot bring an action based upon the figures shown on the public register because the samples taken by the authority were taken for monitoring only and not in a formal manner. So the pollution continues.

The National Rivers Authority will be charged under Clause 113 with the duty of carrying out a sampling regime and maintaining public registers which will contain information about the samples taken. Clauses 143 and 144 give the NRA the necessary powers to sample in a systematic manner. The Government have confirmed that formal samples taken in accordance with Clause 144 will be recorded on the public register and can therefore be used by third parties, anglers or other members of the public in bringing prosecutions.

The Government have, however, also said that it would be inappropriate to deny the authority discretion as to whether samples should be taken formally or not. As chairman of the ACA, I naturally sympathise with the views of anglers and others. At the same time, as a member of the NRA advisory committee, I believe that the creation of the NRA should make it less necessary on the same scale of activity as before for the ACA and others to bring private prosecutions, as they have had to do in the past. The NRA will be an independent regulatory body with a duty to control water pollution, to enforce compliance and to prosecute whenever it judges that prosecution is best or is the only means of enforcement.

I am not happy about the discretion argument, but I am convinced that the NRA should start to take samples as soon as it begins to suspect that breaches are occurring. Taking formal samples is of course more expensive than taking single samples. It is essential that the NRA be given the necessary resources to carry out an adequate sampling regime and to take as many formal samples as it can. I hope therefore that the Minister will be able to assure me that the NRA will be given all the necessary resources. I believe that the NRA and the ACA can and should work together to safeguard the wellbeing of our rivers and our estuaries.

This is an extremely important matter concerning all the anglers in the country and the cleanliness of our rivers. The ACA is the anglers' friend and champion and has been successful in taking many polluters of our fishing rivers to court. The ACA wishes to be assured that this will still be possible. I hope therefore that I can receive the assurances I need for the Anglers Co-operative Association. It needs to be encouraged to carry on its fight against the river polluters and its constant d rive to make the polluters pay.

The Earl of Radnor

My Lords, before the noble Lord sits down, I am the person who runs that fish farm on the Hampshire Avon. Perhaps I may ask the noble Lord whether he realises that although I do breach and unfortunately have breached consent on various occasions, on a greater number of occasions the water coming into the fish farm has been dirtier than my discharge consent. On one notable occasion—the last time, I think, the farm was tested—I was deemed to have breached my consent on a fish farm through which no water whatsoever was passing.

Lord Mason of Barnsley

My Lords, I am sure that your Lordships will be pleased that my speech caused that intervention. We have been most enlightened because of it and I hope that the education process works. If not, there may be a prosecution.

6.17 p.m.

Lord Sherfield

My Lords, I must begin by saying that owing to an engagement from which it is impossible for me to extricate myself, I must apologise both to the House and to the Minister that I shall not be able to stay until the end of the debate.

When I received the Bill from the Printed Paper Office, I was reminded of what the Duke of Gloucester said to Edward Gibbon when the historian presented a copy of one of his volumes to His Royal Highness: Another damned thick square book, Mr. Gibbon. Always scribble, scribble, scribble, Mr. Gibbon, eh! In quoting that, I mean no reflection on the unfortunate parliamentary draftsmen.

I am in favour of privatisation of many industries and functions; but, as I said in an early debate on this subject in April 1985, not of water. However, since then a great many things have happened. The policy and principle seem to have been settled and in that respect we are already over the dam, although of course we hope to improve the Bill. I shall therefore leave the pros and cons of the principle and the policy to others and concentrate on one point only—the future of research and development in the industry.

In the changes of structure involved in the reorganisation of industries or academic institutions, it is research which tends to lose out. In 1982 I was in the chair of a sub-committee which produced for the Select Committee on Science and Technology a report on research in the water industry. We received a positive reply to our recommendations from the Government of the day, and the Select Committee regarded the resulting situation as satisfactory. In the subsequent reorganisation of the industry, the position of research mainly represented by the Water Research Centre was, I think, reasonably well safeguarded.

I can only find one reference to research in the Bill. Clause 39 imposes a duty on the NRA to make arrangements for the carrying out of research in respect of matters to which the functions of the authority relate. We shall no doubt find out in due course what that provision amounts to.

However, I am glad to see a slot for a chief scientist on the headquarters staff of the NRA. Presumably, if the Government are not satisfied with the level or quality of research, they can give directions to the authority under Clause 142. But how about the future of the water research centre? There, as some noble Lords may know, there has been a very interesting development. A few days ago it was announced that there had been a management and staff buy-out of the water research centre, which has now become a public limited company.

If my information is correct, the staff will hold 57 per cent. of the voting shares, the remainder being held by all the United Kingdom water utilities. These utilities have entered into five year research agreements with the water research centre to ensure continuity of the national research and development programme. A foundation for water research will continue in existence, although I am not clear about its precise functions and its relationship to the new companies.

Some of your Lordships will know that tomorrow the water research centre is holding a reception which is to be addressed by the Secretary of State for the Environment. No doubt we shall hear more on that occasion about the arrangements for the future of the centre. However, I feel that at the end of this debate the House will want to have a statement from the Minister on the Government's point of view. With the power in the Bill, to which I have already referred, the future research in the industry, at least regarding the NRA and the WRC, seems to be reasonably well safeguarded for the next five years. But how about the privatised sector? What will happen if the arrangements for the future of the water research centre prove insufficient or unsatisfactory?

I remind your Lordships that in a debate on an earlier Water Bill in 1983, the Government accepted responsibility for ensuring the existence of a long-term research strategy for the water industry. That was in response to a recommendation in the report of the Select Committee for Science and Technology to which I referred earlier. Do the Government still accept this responsibility and, if they do, how will it be implemented under the new arrangements? Will the Director General of the National Rivers Authority have any supervision over the research effort in the private sector, or will that be the direct responsibility of the department? I am sure your Lordships would welcome a statement from the Minister on those points.

The escalating public demand for increased environmental protection could, under any regime, increase the costs of water to the consumer. That is all the more reason therefore that the measures taken should have the benefit of sound scientific research and advice.

6.23 p.m.

Lord Jenkin of Roding

My Lords, during the course of this debate we have heard a number of noble Lords complaining about the Bill. A number of noble Lords seemed to imply, as the noble Lord, Lord Harris of High Cross, pointed out, that somehow we have to stick with what we have got. I listened to the noble Lord, Lord McIntosh of Haringey, with a growing sense of astonishment. The noble Lord was apparently completely unable to recognise the very real difficulties which have confronted the water industry and those who have been responsible for it. He well deserved the charge of the noble Lord, Lord Harris of High Cross, who described him as complacent.

In 1983 I inherited responsibility for this industry as Secretary of State for the Environment. I inherited the structure of 10 water authorities and 29 statutory water companies. I also inherited a huge backlog of investment need which had been greatly exacerbated by the cutbacks of the 1970s, to which my noble friend on the Front Bench referred. It is a fact that when water investment has to compete with investment in hospitals, schools, roads and other much desired public provision, water and sewerage do not appear to take a high place in the queue. They lose out.

Conversely, I also inherited a rapidly rising pressure for higher standards of water, cleaner rivers, estuaries and beaches and a purer water supply. Investment in the industry has increased quite sharply. It is 50 per cent. up on 1979, and a further 20 per cent. increase is scheduled for this year. However, it is widely recognised that that is not enough, and that present programmes will not deal with the backlog. They will not produce the standard of environment that we need. I have heard a figure mentioned of a further £2.5 billion on top of the cost of present programmes. It is said that that will need to be spent over the next 10 years. I should say in parenthesis that I am glad to learn that Ministers are still considering whether some part of the proceeds of privatisation may go towards meeting some part of that investment cost.

I also inherited a very confused system of pollution control and water quality regulation. A number of noble Lords have made the point about poachers and gamekeepers. That is nothing new to me. I worked in the chemical industry for a number of years. That industry became very cynical about the determination of the water authorities and their predecessors to enforce high standards of discharge on industry, while allowing large numbers of their own sewerage works to continue to pollute the water. It is a fact that one in five of the sewerage works operated by the water industry breach their current discharge consents; 20 per cent. breach the discharge consents at some stage.

Much the most difficult thing that I inherited was the manifest reluctance of the Treasury to recognise that anything was wrong. The Treasury did not recognise the extent of the quality problem because to do so would have presented an unarguable case for more capital spending. That was not the first time I had that experience. When I was at the Department of Health and Social Security I had to write the foreword to the Lawther Committee Report on lead poisoning. I made an oblique reference to an ancestor of mine who had carried out all the early quantitative analysis on lead poisoning. I said that that showed, 150 years later, how much more remained to be done.

The Treasury tried to take that reference out because it considered it was a plea for more public expenditure. Happily, my noble and learned friend Lord Hailsham of Saint Marylebone came to my rescue and said that I was entitled to my pride in my ancestry. That reference is there in the foreword to the Lawther Committee Report.

It is all very well for the noble Baroness, Lady White, to say that somebody must deal with the Treasury: the fact of the matter is the only way to deal with the Treasury is to take things out of its control. However, I started by doing three other things. First, I strengthened the controls by activating Part II of the Control of Pollution Act 1974.The noble Lord, Lord Mason of Barnsley, referred to that. As he rightly said, that legislation exposed to public view through the registers the extent of the breaches of the discharge consents.

Secondly, I set in train the strengthening of the pollution inspectorate. That eventually became known as HMIP—Her Majesty's Inspectorate of Pollution. That brought under one roof the various different inspectorates and so increased their authority and their clout. Thirdly, I bit on the bullet at some considerable political cost by allowing the water authorities to raise their charges so that they could raise more of the essential investment that they needed.

However, the thing that really convinced me that the system had to be changed was when a private construction company in Yorkshire came along to see me, with the Yorkshire Water Authority, to say that they had reached an agreement whereby that company would, at its own cost, build and operate a sewerage works for the water authority on the basis of a long-term operating contract with the authority. That of course required Treasury permission. The Treasury said no. It would have been much more expensive for the contractor to raise the money on the market than it would have been for the water authority, which had the benefit of gilt-edged borrowing, so they were not allowed to do it. It was a real Catch-22 situation. Happily now, with the second Dartford river crossing, wiser counsels seem to have prevailed. That had a powerful influence, and I came to the conclusion that something had to be done to change the whole system.

It was exactly the same problem that I had faced at the Department of Industry over British Telecom: confused regulation, inadequate investment, rising charges. My noble friend Lord Nugent may be right that one cannot take the parallel with British Telecom too far; but on those points the parallel was identical and the remedy was the same. The remedy was to take the operation out of the control of the Treasury and to move it into the private sector where it could look for its money from the market. That was what we did with British Telecom. I initiated that Bill before the 1983 election. It fell with the election. So we started again with water. We examined the problem in depth.

I frankly admit that I got it wrong. I started by saying—and, I may say, under some pressure from the water authorities—that we had to privatise the river catchment area authorities in one go. As others have said, particularly my noble friend Lord Nugent, that was not a very satisfactory basis. We recognised that there would have to be a Director General of Water Services, but I thought that perhaps HMIP would provide a sufficiently strong control over river quality. My successors recognised that that would not be appropriate, and that it was unrealistic to suppose that HMIP could exercise adequate control; it was unsatisfactory that plcs should regulate other operators in the market; and it was unlikely that the structure would commend itself to Parliament.

So my noble friends, very rightly, changed course. The Bill proposes the establishment of the National Rivers Authority while at the same time allowing privatisation of the commercial operations of the water authorities to go ahead with the NRA providing a firm bastion over water quality and standards. I have no hesitation whatever in saying that the structure now in the Bill is a great deal better than the earlier proposals for which I bore some responsibility. The separation of regulation from operation is the biggest single benefit of that reform.

Noble Lords will have listened with great interest to my noble friend Lord Crickhowell when he said that it is essential that the operational part should not be under the control of the Government because of the inevitable cosy, incestuous relationship and the inevitable effect of Treasury pressure on the operation of the regulator.

There will in fact be four tiers of regulation. The Government will set the standards, and those will be EC standards where that is appropriate. The National Rivers Authority will have a duty to monitor and regulate. Over half of the Bill refers to those functions. There is the pollution inspectorate, which is the Government's expert watchdog which will give added protection, and under the Bill has been given responsibility for the so-called "red list" of particularly dangerous substances that might go into the rivers. Then there is the director general, who has the duty to safeguard the interests of consumers, particularly with regard to charges and standards of service.

The water companies can then get on with the operation of their businesses, raising their capital from the market and subject to all the disciplines of the market. Of course they will not be in competition with each other because, as has been rightly said, water is a natural monopoly. I give way to the noble Lord.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord for giving way. Is it not the case that the 1983 Water Act gave the water authorities the power to raise money in the private market? Was it not his government which refused to give the water authorities the authority to exercise that power which was given by legislation? Therefore, is not the difficulty of the noble Lord's own making?

Lord Jenkin of Roding

My Lords, I recognise the problem. However, perhaps I may say in one sentence, that if the borrowing has de facto a government guarantee, then it is inevitably part of the public sector borrowing requirement. There is no way round that. There used to be different mechanisms, but every single government has operated the same rule. I am sorry, but I think that I must be allowed to get on with my speech.

The only way in which one can allow an authority to borrow from the private sector is for that authority itself to become part of the private sector. As a public authority, it can go to the market to raise its money, but that counts as part of the public sector borrowing requirement. That has been an essential part of our financial control for a great many years.

There will be much debate about the detail of the Bill because it is a long and detailed one. But I have no doubt whatever that there should be a general welcome for the new structure which it sets out. It is a great deal better than my initial proposal; but it is, even more, a great leap forward from the existing structure under which the Treasury controls investment, the water authorities police themselves and the consumer simply pays up whatever. I congratulate the Government on bringing in the Bill. I wish it well.

6.33 p.m.

Lord Walston

My Lords, the noble Lord, Lord Jenkin of Roding, started his fascinating speech by suggesting that the Opposition say that we have to stick with what we have, and that that is the only option open if one refuses this Bill. I cannot go along with that at all. It is perfectly possible to improve what we have without necessarily destroying it lock, stock and barrel.

As my noble friend Lady Stedman said in the course of her admirable speech, we in the SDP do not have preconceived ideas about nationalisation or privatisation. We are pragmatic, not dogmatic, on this matter. We attempt to look at the matter objectively and see which solution will give the best result for the country as a whole. There are certain aspects where privatisation is undoubtedly a good thing. There are others where nationalisation is essential. I think that even noble Lords opposite would agree that there are some industries which should properly remain nationalised.

In an attempt to reach a conclusion on this matter, I refreshed my memory by rereading Privatisation of the Water Authorities in England and Wales, the White Paper of February 1986 (reprinted in 1988). There, as your Lordships will remember, the reasons in favour of privatisation are given on the first page. If noble Lords will allow me, I shall go through those reasons briefly.

The first reasons is: the authorities will be free of government intervention in day-to-day management". So they should be; but it is not necessary to privatise in order to free authorities in that way. That could be done by the Government themselves. The White Paper says they should be: protected from fluctuating political pressures". Political pressures are bound to fluctuate. Surely it is part of the responsibility of the government to control, by one means or another, without day-to-day interference, the running of our vital industries, and in particular our vital services such as water.

The White Paper then says: the authorities will be released from the contraints on financing which public ownership imposes". We have listened to the argument on both sides. I suggest most strongly to your Lordships that the Treasury is not the supreme dictator. The Treasury is the servant of the Government, the Government are the servant of Parliament. If the Government, with Parliament behind them, wish to change the public sector borrowing requirement or anything of that kind, it is no excuse to say that the Treasury will not allow it. What is meant is that the Government will not allow it. If the Government wish to do it, they can allow it.

The White Paper states: access to private capital markets will make it easier for the authorities to pursue effective investment strategies". The same applies to that point. The White Paper goes on to state: the financial markets will be able to compare the performance of individual water authorities against each other and against other sectors of the economy. This will provide the financial spur to improved performance". It is impossible to compare the performance of individual water authorities because of the widely varying conditions in different authority areas. That proposal is a non-starter.

The White Paper says: 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". What is that other than government interference, if not day to day, at least year by year? It is not complete autonomy of the market forces.

The White Paper states: measures will be introduced to provide a clearer strategic framework for the protection of the water environment". Again, that is an example of government interference. I am glad that such measures will be introduced, but, for all that, it is government interference. The White Paper goes on to state: private water authorities will have greater incentive to ascertain the needs and preferences of customers, and to tailor their services and tariffs accordingly". What are those greater incentives? Why should the private water authorities have greater incentives than the present water authorities? Do the latter not carry out their functions adequately?

The White Paper says: private authorities will be better able to compete in the provision of various commercial services, notably in consultancy abroad". What stops the present water authorities doing that? Why do we need to privatise in order to achieve that end? The White Paper goes on to state: privatised authorities will be better able to attract high quality managers from other parts of the private sector". Is that to suggest that managers at present are not of a sufficiently high quality? I shall deal with that point later in considering other parts of the White Paper.

The White Paper states: there will be the opportunity for wide ownership of shares both among employees and among local customers". That is perfectly true, but is that a very great advantage? The White Paper continues: most employees will be more closely involved with their business through their ownership of shares, and motivated to ensure its success". Surely it is the job of good management to ensure that all workers at all levels are properly motivated and involved in the success of the business.

Paragraph 6 of the White Paper asks: Who Will Benefit from Private Ownership? In response, the White Paper states: Customers, in particular, will benefit from charging policy designed to pass on efficiency savings and keep bills down, and the opportunity to hold shares in the undertaking". But what about those shareholders? Surely they will have some share in the increased efficiency that is expected to result. Surely the benefit will not all go to the consumers. We are not told about that.

The White Paper states: The environment will benefit from a new system of Government approval". Surely that could be done far more easily with nationalised industry. If it has not already been done, I believe that we are entitled to ask the Government why it has not yet been done. If they are dissastisfied with the environmental protection, why have they waited so long to do anything about it? A similar argument applies to quality. The White Paper states: By setting explicit objectives for drinking water quality, for river quality … the Government will protect the customer and the public". But surely those measures are already sufficiently stringent. I hope that they are. If they are not, it does not need privatisation to bring that about.

Paragraph 13 of the White Paper states: To protect the interests of the customer, the Government will appoint a regulator to prevent the abuse of monopoly power". But that is a long way from the market economy extolled by the noble Lord, Lord Harris of High Cross. It is a straightforward example of government interference.

The White Paper then deals with the current position of the water authorities. From what has already been said, one would expect them to be shown to be inefficient and badly managed. But Paragraph 18 states: As the water authorities control and regulate all the uses to which their rivers are put, they have generally been able to meet all requirements, even in conditions of extreme difficulty, and they have been able to plan for increasing demands at least cost and without detriment to existing users. During the drought of 1984, when rainfall in its region was less than half the average for the months of April to July, the South Weil. Water Authority, with one of its three strategic reservoirs still under construction, went to exceptional lengths to tap new resources". In other words, the White Paper gives good marks to the water authorities for what they have done.

Paragraph 21 of the White Paper states: Until 1983, the authorities were run by large boards. The Water Act of 1983 set up the present boards, which are smaller and more business-like. All members are appointed by Ministers". But, from what we have heard, it sounds as though the present members of the boards are not doing their job properly. That is apparently why we need new management, new systems and new methods. If that is so, it can only mean that the Government have appointed the wrong members. it do not believe that that is so. I believe that the present members are good and that, on those grounds, there is no need to change the present structure.

In paragraph 25, the White Paper states: The water authorities' ability to operate on the basis of integrated river-basin management and to plan and develop water resources regionally has enabled them to improve their services and to keep pace with rising demand". In other words, they have done a good job, but, apparently, not sufficiently good.

Paragraph 34 of the White Paper relates to the number of staff employed by the authorities and states: Numbers rose between 1976 and 1979, but since 1979 there has been a saving of nearly one-fifth. At the same time, standards of service have been maintained and improved". That is an impressive account of success. The White Paper also states: Investments will have increased from £340 million in 1981–82 to about £525 million in 1986–87—an increase of 38 per cent. in real terms". That is not too bad. The White Paper goes on to say: The Government expects expenditure as at the present level or above to continue in the foreseeable future". The White Paper then deals with the subject of planned investment. The Government have apparently prevented expenditure on schemes which the boards themselves, appointed by the Government, consider necessary. That is yet another example of government interference. We hope that that will not be the case in the future, but there is nothing to prevent it. The White Paper goes on to say: Once privatised, water authorities will be able to organise their financial and managerial affairs without reference to central Government and, in particular, will be free to focus on their primary responsibility—providing a service to their customers while safeguarding the environment". Surely their primary responsibility, as a plc, will be to their shareholders. There is not always complete unanimity of interest between what the shareholders want in the form of higher dividends and what the consumers want in the form of better service and lower prices.

The White Paper goes on to say that: The price formula would, however, be subject to periodic review by the Government. There is only one more quotation with which I shall weary noble Lords. Paragraph 78 states: Profit is a more effective incentive than Government controls". But we have not heard about profit; we have heard about service to the consumer. After all, what profit is there in more effective care of the environment? What profit is there in more effective pollution control? So, if they are to be guided solely by profit, it is a very poor lookout indeed for the environment and the control of pollution.

I have just one more point which has already been mentioned by several noble Lords, including my noble friend, but it is of enormous importance; namely, the half million acres—435,000 acres—that the water authorities now own. What is to become of that? At all costs there must not be a repetition of the inordinate profits made by various organisations which quite openly and legally have bought concerns that the Government have privatised.

If those surplus lands—if indeed they are surplus —are to be disposed of, there must be something (as suggested by various noble Lords, and I think that the noble Lord, Lord McIntosh was the first to mention it) as embodied in the original water Acts which will forbid profits made in that kind of way from being distributed to shareholders. It must enable those profits either to go toward reducing the price of the commodity—which in this case is water—or to be made available for new investment.

Alternatively that land could be excluded from the sale of the assets and vested in the National Rivers Authority with rights that will safeguard pollution control, cleanliness of the waters and access of water plcs wherever that is necessary.

But whatever is done—and obviously many amendments will be tabled to this Bill and it will bring about a great deal of informed discussion—we must ensure that these enormously potentially valuable assets (which are valuable in terms of cash, the environment, access to the general public and for the beauty of the countryside) will not be disposed of purely for the profit of those who have invested in the water plcs, but will be retained for the welfare of the community in its wider sense.

6.52 p.m.

Lord Monson

My Lords, it is rare indeed for a Bill to be so overwhelmingly unpopular as is this one, with only 15 per cent. of the population said to be in favour of it, according to public opinion polls, I understand the arguments of those who claim that water is so elemental that it should never be privatised without the express approval of the people, as determined by a referendum. If a referendum were held on this issue, privatisation would be totally rejected. And if the result of such a referendum were subsequently to be analysed, I am willing to bet that a majority of Conservative voters would have voted no; to say nothing of the majority of voters of other political persuasions. Rejection would have been partly on the grounds of cost. Whatever the theoretical, or indeed practical advantages of water meters as cited by my noble friend Lord Harris of High Cross, we are told that it would cost £3 billion to provide and install water meters in every household in the land. Rejection would also have been partly because of a natural distaste for replacing a public monopoly by a private one, and partly because most people believe that water is indeed special—the noble Lord, Lord Nugent, alluded to both those points.

Some sophisticated individuals sneer at what they consider to be the quasi-superstitious attitude of the British people in this regard; but the fact is that water is regarded as special by almost every race, religion and culture that one can bring to mind. In Islam, one of the attractions of Paradise is a profusion of fountains flowing with fresh, pure water. Buddhists who take their religion seriously—as most do—regard food as almost superfluous; water by contrast is sacred. What is the Christian message? "I will give unto him that is athirst of the fountain of the water of life freely."

So the British, uninspired by any specific religious faith though most of them may be, are by no means alone in this world in regarding water as something special. The much less pleasant underside of the coin destined for privatisation is sewerage. Any odour that attaches to that is certainly not the odour of sanctity. Nevertheless, ever since mid-Victorian times, people have taken it as an article of faith that, apart from those rural areas where households will always have to depend on septic tanks by virtue of their isolation, sewerage is essentially the province of government, whether central or local government. It has nothing to do with the convenience of individuals but everything to do with public health, which is by definition a governmental responsibility. The same considerations apply to those ancillary activities which are likely also to become the responsibility of the plcs.

Having said that, the Government are clearly in a phase when dogma will win out over caution, commonsense and conservatism with a small "c". Some will claim that it will also win out over Conservatism with a capital "C": it is not for me as an Independent to confirm or refute that allegation. So, given the fact that the Bill will go ahead, the question remains: how can it be made more palatable?

The Government have made great play of the wider share ownership that has resulted from successive privatisation issues, but a closer examination shows that wider share ownership is not all that it seems. In the first place, apart from the many astute individuals who have made a quick turn on partly-paid shares in the early stages of dealing when it is the habit of institutions to offer exceptionally low commission rates, most privatisation shareholders are locked into their shareholdings because of the vastly increased minimum commission rates which have come into force since the Big Bang. The Big Bang has been a disaster for small shareholders, whatever benefit it may have brought to the institutions.

Locked-in shareholders are not what capitalism and the market economy is supposed to be about. Locked-in shareholders cannot, by definition, participate in the ebb and flow of the market. Furthermore, and despite the scaling down of large applications, the richer one is the more one benefits from privatisation, given that shares are always floated at a discount to the true market value, partly to get the issue off to a good start, as the saying goes, and partly for political reasons. If an unsophisticated shareholder sees his shares fall below the issue price, possibly for reasons totally unforeseen at the time of flotation, he will automatically blame the Government that made privatisation possible. That will have the adverse electoral effects that are to be expected from such apportionment of blame. It is true that an entirely new breed of shareholder has come into being since privatisation started. This new breed of shareholder tends to consist of the more astute and quick witted—"streetwise" in the current jargon—members of what used to be called the working class. The equally worthy but slower, more cautious and more old-fashioned members of that class, who are reluctant to be tempted into what for them is a risky and untried venture, lose out—in the short term at any rate, although of course in the long term they may turn out to be the clever ones.

Before privatisation started no reputable stockbroker, accountant or bank manager would have advised a client with less than at least £10,000 of spare capital to invest in the ordinary shares of individual companies. Such non-fixed interest investments as they would have recommended would have been investment trusts or unit trusts. Even less would they have recommended buying ordinary shares in individual industrial companies by instalment. They would have taken the view that anyone who was not able to shell out, say £300 in one go rather than in three equal instalments of £100, ought not to be investing at all in equities. I feel that most people who have any financial experience would agree with that view. That is leaving aside the near certainty that many inexperienced, and even some experienced, investors will mislay their allotment letters, or partly paid share certificates, or will forget to pay the second and subsequent instalments, thereby losing their entitlement to shares altogether. The Government have been inviting the unsophisticated to ignore traditional sound advice and to take risks, notwithstanding that these risks are slightly reduced by virtue of the underpricing of the shares being offered. It proves that whatever benefits there may or may not be—and economists differ on this—in terms of efficiency, privatisation is not all that it is cracked up to be from the point of view of the small shareholder.

There is a most important additional factor to be considered. As the noble Lord, Lord McIntosh of Haringey, the noble Baronesses, Lady Stedman, and Lady White, and possibly others, have pointed out, the land assets of water companies do not belong to the Government in any moral sense, whatever technical, legal loopholes the Government may be able to use in order to justify their action. It follows that the Treasury does not deserve the money. Nor does it need the money. As we never stop reading in the financial columns, the Treasury is awash with money at the present time.

One partial solution has been suggested by the noble Lord, Lord Ezra, the noble Lord, Lord Nugent, and the noble Lord, Lord Jenkin of Roding; and I am pleased to see that it was given a partial endorsement by the noble Lord, Lord Crickhowell. It is the ploughing back by the Treasury of some of the proceeds of sale in the form of environmental improvements. However, there exists another and more radical solution which would have the added merit of overcoming some of the disadvantages for the average citizen of modest means of conventional privatisation flotations.

I hasten to say that it is not my idea. It has been canvassed before by a number of other people including one eminent stockbroker who, unlike me, is a staunch supporter of the Conservative Party. This solution consists not of offering shares for sale, as in a conventional privatisation, but of allocating an equal number of shares without payment to every individual on the electoral register—to every adult citizen in the country, in other words. In this way water really would be returned to the people—all the people—while the benefits, in terms of efficiency, that are alleged by supporters of the Bill to flow from water privatisation would still be attainable.

7.2 p.m.

Lord Rippon of Hexham

My Lords, if I give a rather tepid welcome to this Bill I hope noble Lords will understand that it is not because of an excessive affection for the Water Act 1973, for which I was responsible. Thomas Jefferson once wrote that no society can make a perpetual law and that every law naturally expires at the end of 19 years. I do not know why he chose 19 years. However, given the torrent of modern legislation, for an Act to have lasted—albeit amended in 1983—for 16 years is not a bad record.

Philosophically, I am entirely in favour of privatisation. In the eloquent and agreeable speech with which my noble friend Lord Caithness opened this debate, he quite rightly pointed out that one in four consumers already obtain their water quite satisfactorily from privately owned companies. I would prefer to see the functions of the water authorities based on the proven model of the statutory water companies, with profit and dividend limitation, where the surplus is applied for the benefit of consumers. To put the matter shortly, I entirely agree with everything that my noble friend Lord Nugent of Guildford said to your Lordships this afternoon.

The case for the statutory water company was fully made out by my noble friends Lord Nugent of Guildford and Lord Elliott of Morpeth, in the debate on the paving Bill in your Lordships' House on 26th February 1988. I believe that that debate and those speeches deserve re-reading, as does the more recent booklet on Water Privatisation and the Consumer published by the Selsdon Group—not notoriously Left wing—and written by Sir Frederick Corfield. If the statutory water model were adopted, the Bill we are now considering would not be so bulky or bureaucratic in content that it costs £19.30 for any member of the public who wishes to read it. It is the first Bill I know that has had to be published in two volumes and weighs two pounds unbound. I entirely agree with what the noble Earl, Lord Russell, said about the volume of legislation today. Professor Hayek has said that parliaments as they presently exist cannot cope with the volume of legislation today. They have neither the time nor the right frame of mind to do so.

I can quite understand why the water authorities are keen on privatisation. It is not least because they want freedom from Treasury restraints that have held back essential capital investment. Equally, I understand why they naturally feel that the opportunity to borrow money from capital markets will enable them to achieve a better service and higher water quality standards. We ought also to recognise that making up that neglected investment, and meeting the higher standards of quality required by Community regulations, will mean that the cost of water services is bound to rise in any event, regardless of privatisation. There are, however, a number of questions that I should like to put to the Minister.

First, what will the Government do to mitigate the burden placed on consumers as a result of the neglect to invest for which they are responsible for the past 10 years, as were the Labour Government for the previous six? It was all right in 1973-74.

Lord Jenkin of Roding

My Lords, I was Chief Secretary to the Treasury.

Lord Rippon of Hexham

My Lords, my noble friend was not so easy about everything, if I may say so. When he replies, the Minister could tell us something about the Government's plans in this regard. Are they prepared to give back to the water industry the proceeds of the privatisation issue? My noble friend Lord Jenkin of Roding has spoken with affection of his 1983 Act. Some of us are in our anecdotage with regard to many of these matters.

I wish to go back to the 1983 Act because the amendment then changed the rules of the game, as has been pointed out. In 1973, I was able to persuade the local authorities that the change was one of form rather than substance, that we were creating a system whereby we could treat water as a national resource, but that they would still retain the ultimate control by having an absolute majority of members on the water authorities. That was taken away in the 1983 Act. There are those who say that it made smaller, more efficient boards. We hear that argument often. I have never believed that efficiency is the sole test of government. I have said on other occasions that I am not particularly impressed by the fact that Mussolini made trains run on time.

However, the importance about the change is this. By their action in 1983 the Government in effect seized the ownership and the control of the assets which previously belonged to the ratepayers and to the consumers. It can therefore be said that the Government are selling something which they did not own and for which they have never paid.

The Government can do what they like in the Bill, but when it comes to issuing their prospectus, the potential shareholders—to which reference has already been made by the noble Lord, Lord Monson—will study it with care. The Government will have to spell out more clearly than they have done to date the charging increase figures which will underpin that prospectus. That charging increase, at present related to a complex formula which no ordinary member of the public or myself can clearly understand, will be disastrously high unless the Government pump back the money they raise from the privatisation into the new companies for the benefit of consumers.

Having dealt with that aspect of the Bill as shortly as I can, I should like the Government to spell out more precisely the safeguards that will ensure the amenity and recreational protection built into the 1973 Act. Having heard the Minister this afternoon, I know that the Government are fully seized of the importance of the environmental and recreational considerations; but there are still, as many noble Lords have pointed out, a number of anxieties remaining. Some of those have been expressed by the National Trust and some by the Ramblers Association. Reference was made by the noble Lord, Lord Walston, to the anxieties about the 500,000 acres of land owned by the water authorities, much of which is of very high landscape quality.

These organisations and other amenity organisations feel that the Bill as drafted will substantially diminish the present protection. I think that that is something they will feel in spite of the assurances which the Government have so far given. Moreover, it would appear that financial considerations may be allowed to override present rights of access. I should therefore like respectfully to ask the Minister whether he will make three things clear: that the present environmental and recreational duties will be re-enacted and that in particular present rights of access will be preserved; that no charge will be made for them and that they cannot be extinguished upon any disposal of land. If the Minister could give those three simple assurances, many of us would be much relieved.

Thirdly, I should like to the Minister to deal with the legitimate complaint, as I see it, of the National Consumer Council and others that there is a lack of independent local or national representation on any of the bodies that are to be set up. We debated the matter of nominated bodies on 22nd March and I think that it is relevant to our debate today, as it is relevant to many others. We spoke of the increasing number of nominated bodies which are regulated and serviced by government departments. Like the rest of your Lordships, I was much impressed by the splendid speech of my noble friend Lord Crickhowell. As long as he is chairman of the National Rivers Authority, which we all welcome, we need have no fears. However, I do not believe that legislation should be drafted in order to give powers to good Ministers or good nominees. It should be drafted to prevent the power falling into the hands of bad Ministers or bad nominees.

In this Bill it is provided that all the members of the National Rivers Authority will be appointed by the Minister of Agriculture and the Secretary of State for the Environment. All the members of the regional advisory committees will in their turn be appointed by the authority. My noble friend Lord Crickhowell made the point that I should like to make; that they will be serviced and regulated by the department. The noble Lord looks for amendments in that regard. Equally, not only will the proposed director of water services be appointed by the Secretary of State, but the director may—not must—appoint up to 10 customer services committees, all the members of which will be chosen by him. The noble Lord, Lord Harris of High Cross, for whom I have a great regard and with whom I agree on many occasions, spoke of the market economy. He placed his trust in Milton Friedman. Sometimes, if I may say so with respect, the noble Lord does not always make the distinction between the market economy and the corporate state.

I should like to refer once again to Professor Hayek. I do so because I know of the high regard in which he is held by the noble Lord and his friends. He says in his book entitled Law, Legislation and Liberty, Volume 3, at page 36: I trust there will come a time when people will look with the same horror at the idea of a body of men, even one authorised by the majority of its citizens, who possesses power to order whatever it likes, as we feel today about other forms of authoritarian government. It creates a barbarism, not because we have given barbarians power, but because we have released power from the restraint of rules, producing effects that are inevitable, whoever the people to whom such power is entrusted". I increasingly deplore the powers which are being given to nominated bodies without proper representation by local people and local authorities. Indeed, I find it ironic that while a Socialist government in France are busy decentralising, a Conservative Administration in this country appear to be hell-bent on establishing centralised arbitrary government from Whitehall. That danger has been growing apace. It is growing in relation to the local health service, the legal profession and the universities, and it is now rampant in this Bill.

I do not believe that this Bill as it stands adequately protects the general public interest or that of consumers. To quote a phrase used by the Attorney-General in relation to those infamous Green Papers, the best I can say of this Bill is that "it is not all bad". It could certainly be better.

7.15 p.m.

Baroness Fisher of Rednal

My Lords, throughout the 19th century and early 20th century local authority water engineers gradually assumed greater responsibility for the water cycle. It was they who established the water supply and sewerage service that has for so long been taken for granted. There is continuing controversy over the Government's plans for water privatisation. That controversy is the growing argument that the Government do not even own the assets which they are planning to sell. The Bill brought forward by the Minister provides for the transfer of property, rights and assets of water authorities to successor water and sewerage companies. The key question asked by various noble Lords is: can they transfer those rights and assets if ownership is not theirs?

I should like to speak briefly about the water authority I know best—originally the Birmingham City Council Water Authority. It was taken over by and large by Severn Trent. Birmingham, as a corporation, decided in 1891 to make sure that clean water was coming to a vast expanding city. By 1904, four huge reservoirs had been constructed. Another was completed in 1950. The project included a 74-mile aquaduct from Wales, descending by gravity to the reservoir in the south of the city. It was an enterprise paid for by the ratepayers in Birmingham and by public borrowing.

I speak with experience as a member of Birmingham City Council for a great number of years. The water rate was always discussed at the full council annual meeting because it was important that the rate being levied by the water committee and by the city council should take into consideration the city rate that was also being levied. That rate was very high in the majority of cases, but the citizens of Birmingham accepted it on the basis that it gave them first-class water from Wales. I know that in the initial stages the Welsh did not like us going there. However, it is true to say that the Elan area is now being looked after by the Welsh water authority. That body is obviously a good custodian for what was started by the Birmingham corporation and paid for by the ratepayers.

Mr. John Humphries, a former member of the Thames Water Authority, analysed the 1973 and the 1983 Water Acts and concluded that neither transferred ownership from local authorities to the Government. Mr. David Widdicombe, QC, who is best known for having been appointed by the Prime Minister to report on alleged political abuses by local authorities, concluded in his opinion that, the Government clearly does not have the legal ownership of water authority assets nor in my opinion does it have any kind of beneficial or equitable ownership, the money for the creation of these assets not having come from the Government. As the noble Baroness, Lady Stedman, has said, on the face of it this Bill appears to be confiscation without compensation to local authorities. No doubt the noble Earl the Minister is aware of the disquiet felt at present by Birmingham City Council, which is seeking legal opinions. The city council is arguing that it has invested from the turn of the century until the late 1960s and the 1970s. It has costed the amount of money and the assets, the value of which is £507 million, and feels that that should come back to it and should not be squandered by the private companies which are taking over.

There is another aspect of the Bill I find worrying. During the latter part of 1987 and in 1988 the Government conceded that they had been insufficiently strict in their interpretation of the EC directives and the provisions limiting the maximum admissible concentration of nitrate in drinking water. The EC drinking water standards were agreed by all member states nine years ago. They laid down standards of cleanliness and safety that were to be put into operation by 1985. I should like to ask the Minister if we can look forward to conforming with EC standards for drinking water in the very near future. I am aware of disquiet that the European Court might bring proposals to prosecute the Government for failing to give such guarantees. It would be a terrible disgrace for the Government to be taken to the European Court on what might be termed safety standards of drinking water. I hope that when the Minister replies he will be able to assure the House that that will not happen because we shall be conforming.

It is important to monitor the water utility companies in their compliance with EC water directives. It is important that the local authorities have an input here. There is a need to check the companies' quality reports and for the local authorities to take their own samples for analysis. This is important for public health: when I say "public health" I mean the safety of public health. I think today we appreciate that the word "safety" means much more than it did in the past.

I am not sure that pollution is dealt with in the Bill as strictly as it should be. Inmy view, pollution and its causes need very stringent controls. We have heard this afternoon how those controls are not being conformed with, and MAFF itself could be accused of dragging its heels with regard to nitrate pollution. We say clearly to the government that the polluter must pay. It is unjust for the consumer to have to pay the bill for pollution. If the rules are kept there should be no pollution; if the rules are broken the penalites must be paid by those who break the law. That is common in respect of any law on the statute book. If you are driving at over 40 miles an hour in a 40-mile-an-hour zone you are called upon to pay the penalty. As with other laws, the transgressor—the polluter—must be the one who pays.

I was pleased to listen to the noble Lord, Lord Rippon. I enjoyed his speech exceedingly. I agree about consumer protection not being adequate, and I hope that this may be further explored in Committee. Accountability to local people, not to persons nominated by the Secretary of State, is very important. I hope that when the Minister replies he will be able to give some assurance about consumer representation. Will he also remember that there are able women who can sit on the committees? The contributions that they make should be recognised.

On the question of disconnections, I support all that has been said. The courts are the proper forums for the resolution of payment disputes. The courts can order disconnection when a customer is proved to have willingly refused to meet his or her obligations. We should leave that authority with the courts.

I shall not dwell upon recreational facilities. I recognise clearly all that has been said. We have to make sure that such facilities are free of charge so that people's ability to use them is safeguarded.

I am not too sure about one point, raised with me only last week, regarding the fire services. I recognise that the supply of water at adequate pressure for fire-fighting is safeguarded in the Bill. Perhaps, however, I may draw the Minister's attention to the fact that effective fire-fighting also requires appropriate training. Can the Minister ensure that the Bill makes it sufficiently clear that there will be no charge for water used for training exercises?

As other noble Lords have said, this is a most unpopular Bill. That is clearly shown by opinion polls. The Prime Minister believes that the Bill has not been clearly presented. It has been suggested that there has been a failure to put the message across. But do the Government really believe that commercial advertising, as my noble friend Lord McIntosh of Haringey said, is really making the point very clearly?

I was on a train only last Friday when I saw a huge hoarding showing a picture of a man partly submerged in water. As the train passed, I saw that it was an advertisement by the water authorities. I read the words: It takes 300 pints of water to make a pair of men's trousers". I thought how interesting and informative that was—something of which the general public should know. Then turning to the Guardian, I saw a full-page picture of a woman whose body was chopped into parts. I was informed that it takes only a pint and a half of water to make a pair of women's frilly panties. So if anyone is thinking of going into a business where they will use a lot of water they may make more profit out of making women's frilly panties than men's trousers. I do not know!

Then again, there is a marvellous TV commercial for water authorities. In it one suddenly sees the roads bursting open to reveal big black pipes. They are underground sewers. I feel so sorry for the lady who is walking along the pavement with her baby in a pram and trying to get over the pipes. I know that no mother would be so silly as to try to get a pram over a road covered with pipes. These advertisements are supposed to be selling the water authorities. Are the Government really convinced that they tell the general public what water privates- ation is all about? I believe that the majority of people know that sewers are under ground. If they do not know, they will soon see so many holes in the road with water authority bollards around them that there will be no lack of knowledge.

I sat on the Front Bench when the noble Lord, Lord Bellwin, introduced the last Water Bill. I recall that he was quite emphatic in telling me that businessmen would run the authorities. It would not be local authorities or stick-in-the-mud councillors but enterprising businessmen. That was only a few years ago. If it is true that effective management depends upon privatisation it is a confession of the dereliction of duty on the part of water authority chairmen.

I understand that the Government wish to quicken the pace of reform. Perhaps the noble Lord, Lord Rippon, does not wish to go quite so fast. However, I should like to conclude by quoting from Caius Pretorius in the year A.D. 66. He said: We trained hard, but it seemed that every time we were beginning to form up into teams, we would be reorganised. I was to learn later in life that we tend to meet any new situation by reorganising and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralisation".

7.34 p.m.

Lord Elliott of Morpeth

My Lords, the House will be grateful to the noble Baoness, Lady Fisher, for giving the information about the manufacture of the garments of the sexes. The debate has been going on for a long time and each speech has produced information of differing kinds. As is customary, I declare an interest. I am chairman of a water company and a vice-president of the Water Companies' Association. I was president of that association for 12 years.

In previous debates in your Lordships' House and in another place I have expressed my belief in the statutory water companies and in the philosophy which they embody. To my mind they are an excellent demonstration that private enterprise, properly controlled and regulated, can participate in providing a public utility service which is very much to the benefit of the public. The companies, with statutory limits on dividends, borrowings and transfers to reserves, have been able to use their private-sector status in the full interests of their customers.

We in the water companies are proud of our record of service. I should like to thank my noble friend Lord Nugent of Guildford for his kind comments about the companies. The noble Lord is highly regarded throughout the water industry and in some ways his knowledge is second to none. I should like to amend his tribute to the companies because he said that most of them are efficient. I should amend that statement to say that all the companies are efficient and most are very efficient. Nevertheless, we are proud of our record.

In June, I shall preside over the 144th Annual General Meeting of the Newcastle and Gateshead Water Company. I believe that during its existence the company has given to its consumers a very good deal. As chairman, it is my earnest hope that our consumers in the area shall continue to have a very good deal.

There are 28 statutory water companies in England and Wales. They supply a quarter of the water for the two countries. In two water authority areas the companies are responsible for over half the supply. In another area it is 49 per cent., while in the Thames area one gallon of water in three comes from the statutory companies.

The association of the companies has always supported the proposal to privatise the authorities. That is simply because we believe that as a result of transfer to the private sector the customers will benefit. However, since privatisation was first proposed the Water Companies' Association has resolutely held the view that river management and environmental protection should remain in the public sector. Consequently, we warmly welcomed the Secretary of State's announcement about the forming of the National Rivers Authority.

Perhaps it is not surprising that, with over 100 years' experience of serving local communities, the companies believe that their method of regulation can be satisfactorily adapted to meet the Government's objectives in providing an efficient and economic system in which the interests of customers and shareholders alike car be safeguarded in a completely privatised water industry. That is a view which I have upheld for some time. I was grateful to my noble friend Lord Rippon for recalling a former speech I made on the subject in your Lordships' House.

I should like to return to that subject later, but suffice it to say that before the Bill was introduced in another place—in fact, since September of last year—the Water Companies' Association accepted the decision of the Government to privatise the authorities as plcs with a system of regulation based on controlling price increases. Since then, the whole effort of the Water Companies' Association has been to ensure that the interests of its members were properly safeguarded in the new arrangements.

As has been stated several times, the privatisation is probably unique because a large proportion of this monopoly business is already in the private sector. Care must be taken to ensure that in transferring the water authorities to the private sector the existing private sector is given a fair chance to compete with the new entry. The companies and their association are concerned about a number of matters in that connection. I hope that your Lordships will bear with me while I explain them briefly. Of course, I hope to return to them at the next stage of the Bill.

First, one has heard that the debt of the water authorities is likely to be written off either wholly or in part. Perhaps I may assure your Lordships that statutory water companies also have debt, some quite a lot. If the water authorities' debt is to be reduced in some general way, that must place the statutory companies at a commercial disadvantage; and that concerns us.

Secondly, and very much on the same lines, the terms of the flotation of the privatised authorities should not be such, as we see it, as artificially to encourage shareholders to invest in them rather than in the statutory companies. If that happens, it will place the business of the statutory water companies in jeopardy; for example, the share price could well be reduced by existing shareholders being persuaded to sell in order to purchase shares in private authorities if they are offered at some kind of discount.

Thirdly, of late there has been a certain amount of comment—and quite a lot during this debate, and I took full note of the reference to the point by my noble friend Lord Crickhowell—about what has become known as the dowry. It has been suggested previously and at least three times today that some of the proceeds of the sale of the privatised authorities should be given back to those authorities to assist them in meeting environmental and water quality standards. I ask that great care should be taken as to how that is done if it is to be done. A way must be found to ensure that customers of the statutory companies also receive the benefits of any dowry arrangements, not least because those customers are also customers of authorities for their sewerage services.

One very important point arises from the fact that water authorities and statutory companies have operated under very different schemes of financial regulation. That has produced a situation where authorities traditionally have low levels of borrowing and statutory companies have high levels of borrowing. In future, statutory water companies, even if they do not become plcs, will be judged by the City against the plc privatised authorities. The Government proposals give water companies the option to become plcs. I was grateful to the noble Baroness, Lady White, for her emphasis during the course of her speech that the statutory companies are not yet plcs. She had quite a point when she said that much has been stated about the private companies, as we are called, suggesting that we are plcs, whereas we are nothing of the kind. The advice which the statutory water companies have received from a number of quarters indicates that, for most if not all companies, there is very little option but to become plcs. If we are to be viable in the new industry environment which the privatisation of the authorities will create, then we must, as we see it, convert the plc status. We appeal that there should be no impediment to statutory water companies becoming plcs at the same time as the water authorities do so.

As the provisions stand in the Bill at present, a minority of shareholders—and even non-voting shareholders—could frustrate or at least delay the conversion process by making application to the court for the decision by a majority of stockholders to be set aside. It would be much better for such shareholders not be able to hold up conversion, although they should of course have the right to seek compensation for any financial damage suffered.

My final point is most important. As the proposals presently stand, some water undertakers will have protection from takeover following flotation and some will not. The Government propose that the privatised authority should have a golden share for five years except in the case of Welsh water, which will be protected, it would seem, in perpetuity. Furthermore—and this is very important to us—it is proposed that mergers between water undertakers with gross assets exceeding £on can be refused by the Monoplies and Mergers Commission solely on the grounds that such a merger would reduce the number of water undertakers. At present, no statutory water company has a golden share and, as regards the Monopolies and Mergers Commission, about half of the statutory water companies would not have that proposed protection.

The reason given for issuing the golden share is that the privatised authorities will have a period of instability and that they will need time because they will be fledgling businesses. However, the companies too will have to adjust to an altogether new situation. We are in the private sector, but it is wholly wrong to suggest that we are completely in the private sector or that the legislation proposed will not very substantially affect the way in which the companies operate. They will never again operate in quite the same way and they too will have to adjust. They will have to adjust to the existence of the National Water Authority. There will be a completely new system of regulation under the Director General of Water Services. They will probably have a new status as plcs and, finally and very importantly, they will have to move towards different rates of return on capital assets and debt equity ratios.

Clearly it is not possible and we realise this, for the Government to confer golden shares on statutory water companies: we are already in the private sector. Nevertheless, I ask my noble friend to accept that this is a considerable worry for the companies and is a jeopardy which I hope he will recognise.

The special procedure under the Monopolies and Mergers Commission has been created, we are told, to ensure the continuation of comparative competition. Being a monopoly, as has been said so many times during the course of the debate today, makes it impossible for there to be direct competition. However, the Government believe—and so do I, as I stated in the last speech which I made on this subject in your Lordships' House—that it is possible to have competition by comparison. In that way the director general can use his powers based on a benchmark comparison to secure an improvement in efficiency right across the industry.

At present the Government are saying that it is not necessary for the purposes of comparative competition to secure the continuation in existence of undertakers of less than £30 million gross assets. With that, I profoundly disagree. Big is not necessarily beautiful. Greater efficiency does not go hand in hand with greater size and competition is not divisible according to asset values. The recent efficiency studies carried out by Deloitte, Haskins and Sells on behalf of the Department of the Environment, showed that many smaller companies proved to be more efficient than their bigger neighbours. I believe it is wholly wrong in principle and in logic for the Director General of Water Services to be deprived of the use of some of the smaller companies for the purposes of the all essential comparative competition.

Those are the particular concerns which the statutory companies have and I hope that the Government will accept that they are well founded and will do what they can to meet their concerns. Earlier I referred to my belief that the statutory water model should be used as a basis for regulating the new industry. I must say that my view was formed at a time when I did not have the benefit of seeing the full details of the regulatory framework as they have now appeared. I see this new framework as being very safe for the consumer. It is very extensive: indeed, as a member of the water industry, I assure your Lordships that it is so extensive as to be almost awesome.

I recognise the intent and the integrity of the Government in seeking to protect customers. Increases will be limited by an independent person —the Director General of Water Services. There is to be a system of monitoring standards of service. Coupled with that will be regulations on water quality, voluntary codes of practice and a scheme of guaranteed standards. On top of all that, the Government are proposing a system of capital expenditure appraisal and review which is probably unprecedented. As a result of that appraisal system, it has become apparent that a considerable amount of further capital expenditure is required throughout the whole water industry. That has been fully recognised during the course of the debate. Charge increases are not popular, but the charges are being increased and it is very necessary that they should be in order that water quality, apart from anything else, may be improved.

I conclude by saying that, having been involved in the water industry, I have had the benefit of being able to study the proposed system of customer protection extremely closely. I am now persuaded of its merits. Furthermore, I have genuine doubts whether this level of control in the interests of consumers would be possible in a profit-controlled regime. The amount of protection for customers can only be tolerable for shareholders if there is no structural fetter on their profit expectations.

I should like to say once again that the 28 statutory companies have a long history of service—a history of which they are very proud. I was very pleased, as I am sure we all were, to hear my noble friend Lord Crickhowell say that he had been able to recruit people of the highest calibre to serve in the body of which he is now to become the head. We are pleased about that. The National Rivers Authority should have the very best people. The water companies already employ people of the highest professional quality. I know that to be so because I know them all. They recognise the challenges facing them under the proposals embodied in the Bill. They will meet them. The proposals are certainly robust and are certainly challenging, but I believe they are sound. I support the Bill.

7.52 p.m.

Lord Greenway

My Lords, at the ouset of this debate the noble Lord, Lord McIntosh of Haringey, implored the Minister to keep an open mind on this Bill. I hope noble Lords will forgive me if I, speaking from this Bench, keep a very open mind on this extremely long and complicated Bill.

I confine my remarks this evening to the somewhat narrow aspect of recreational boating interests and to reflect the views of the Inland Waterways Association, the Royal Yachting Association and the British Marine Industries Federation which, between them, represent all recreational boat users—other than canoeists and water skiers—hire-boat interests, marina operators and boat builders who could be affected by the Bill.

Approximately 80 water authority reservoirs supporting pleasure craft activities are to be vested in the successor water supply plcs; and control of three major river navigations—namely, the Upper Medway, the Thames and Anglian—plus one harbour (Rye) are to be given over to the NRA. A large number of boating clubs and many thousands of individuals are dependent for the whole of their boating activities on these water authority facilities. The Minister rightly stressed the importance of both conservation and recreation. However, on scrutinising the Bill in detail it would appear that its effect upon recreational boating activities is intended to be broadly neutral. No new or enhanced recreational duties or functions are proposed, but with major organisational changes proposed in the Bill and the concentration in policy terms on competition and environmental considerations the effects upon existing recreational boating activities are in some danger of being overlooked.

This gives rise to a number of concerns. First, there is inadequate provision for representation of recreational interests through advisory committees. At present the 10 water authorities of England and Wales are advised by regional recreational and conservation consultative committees which are comprised of individuals nominated by interested organisations, including the Inland Waterways Association, the RYA and the BMIF. That arrangement works extemely well. The boating interests are fearful, however, that the proposal to set up multi-purpose regional rivers advisory committees to advise the NRA will have the effect of reducing the influence of both conservation and recreational interests, notwithstanding the general duties imposed on the NRA by Clause 8. They would like to see provision for the establishment in each region of a separate environmental and recreational committee.

I turn now to the general environmental and recreational duties contained in Clause 8. It would appear that these generally reflect existing water authority duties contained in the Water Act 1973. However, there appears to be some diminution of recreational duties. The boating interests would very much like to see this clause re-enacted without qualification and made applicable to all the relevant authorities, including the Secretary of State, and also made applicable in relation to land which may be disposed of by the new plcs.

The code of practice contained in the Bill is generally welcomed by the boating interests. They are, however, concerned that this draft code is seriously deficient in regard to provision for recreation. First and foremost, it says very little about recreation. It appears to be addressed almost entirely to what are admittedly important environ- mental considerations. In addition, there seems to be a failure in the code to address the need for consultation with recreational interests, the factors relevant to the pricing of recreational facilities, the legitimate expectations of existing users of recreational facilities and the impact on them of new facilities and, finally, the need when considering environmental measures to have regard to their impact on existing recreational activities. Now is not the time or the hour to go into the whys and the wherefores of the Sandford principle. Suffice to say that amendments will be proposed in relation to parliamentary scrutiny and consultation.

A further point of concern shared by anglers and conservationists is the adverse effects of high levels of abstraction and the absence of any provision requiring minimal acceptable flows to be established for all inland waters. There is a belief that this clause should be amended accordingly.

Finally, I turn to the provision under Clause 153 for the water plcs to make by-laws in respect of waterways and navigation. This clause reflects powers available to the water authorities under the Countryside Act 1968. However, there is a new subsection (2) which would enable the NRA to make by-laws in relation to any inland waters which are not otherwise controlled. However, the definition of "inland waters" contained in the schedule includes, any channel, creek, bay, estuary or arm of the sea". Thus, the NRA would be given unprecedented by-law and registration powers to control navigation in tidal waters. There seems no basis for such wide-ranging powers, particularly given that tidal waters do not contribute to water supply. Moreover, at least in relation to estuaries and creeks, the proposals would seem unintentional for, with the exception of Rye Harbour which is controlled by Southern Water, the NRA will have no immediate experience of, or interest in, regulating boating or sailing in coastal waters. It would also necessarily involve diversion of the NRA's limited funds and resources.

The boating interests are not happy with this new subsection. They were not consulted in advance and they will seek either to exclude this subsection or at least amend it so that coastal waters are excluded. I and other noble Lords will be rehearsing these arguments in greater detail at subsequent stages of the Bill.

8 p.m.

Lord Pym

My Lords, many features of this Bill are a very necessary advance and much to be welcomed. For example, I think of the measures for dealing with pollution and the establishment of the National Rivers Authority. As an incidental consequence of that, there is the appointment of my noble friend Lord Crickhowell, who made a powerful speech this afternoon. His enthusiasm will be a great asset so long as he is there. Despite the undoubted advances, I am one of those who would have preferred that this Bill had not come forward in its present form.

My principal reason is that water is a resource of such a particular character that concepts such as profit motive and competition are simply unsuited to its supply. As has been said many times, self-evidently it is a monopoly resource and one where public health considerations are paramount. Most people do not regard water as a suitable commodity for other people to make money from. That was a point very well made by my noble friend Lord Nugent of Guildford, with his life-long experience in the industry. Our existing water companies are not money-making organisations. There is no more enthusiastic supporter of the concept of privatisation than me. Nationalisation was the apotheosis of socialism, and socialism is now seen everywhere as an unsuccessful and outdated method of trying to organise our national affairs.

It took a long time for this truth to become widely apparent to the electorate, but at last it has been possible to make massive transfers from the public to the private sector, and, I believe, on a permanent basis. I do not want to see this process of privatisation checked or damaged in any way. I want to see it continuing to enjoy a massive public support. But there is a danger that if a particular privatisation measure was thought by the electorate to be unsatisfactory in practice or to people's disadvantage, privatisation itself could become unpopular or unwelcome, which is the worst thing that could happen.

It seems to me that there is a risk that this Bill may produce a result that dims the electorate's enthusiasm for privatisation. That is why, from the very inception of the Bill in the last Parliament, I warned of the political danger and hoped that second thoughts would prevail. They have, but only to a limited extent. I say to the noble Earl, Lord Russell, that this is not a bridge too far; it is a bridge that is unsafe. That is a consideration that does not apply to any previous privatisation measure nor to a number that are in prospect for the future.

This Bill is now going to pass through Parliament and therefore our task is to do what we can to make it a workable, acceptable and successful Act. I believe that this can be achieved if two particular changes are made. I confess that both points have been made already, and more than once. The first concerns the proceeds of sale, to which my noble friend Lord Rippon referred. Since the inception of the Bill it has emerged in a way that was not apparent to the public before that the quality and standard of much of our water is below what it should be and that substantial expenditure will be needed to correct that. Everybody agrees that there have been years of neglect, especially as regards sewers and other areas. The time has now arrived when the backlog has to be tackled. In his opening speech in this debate my noble friend the Minister admitted that.

It will be an expensive business. For the Government to sell off the water industry, to gobble up the money and then to turn to the users and require them to pay the very high cost of making good the years of neglect will feel totally unfair to many people. That is quite apart from the fact that it is at least arguable that the Government are not the owners of the assets anyway. Certainly they have not paid for them. In view of the scale of the work required to attain the necessary standards, the Government should make over the proceeds of sale to all the privatised undertakings as a contribution to the upgrading and investment to which they will be committed.

Clearly the Government believe that they own the assets; otherwise they would not be putting them on sale. That being so, it seems only right that they should meet part of the cost of what they themselves neglected to do. If they do that, one of the unfortunate consequences of this Bill—namely, the high charges that are bound to come along and which the public will tend to think are due to privatisation—will be avoided. The second major change I should like to see concerns the nature and structure of the proposed privatised water undertakings.

Listening to the rhetoric of the Government during the past year or two, one can be forgiven for thinking that the 25 per cent. of our water now supplied by the statutory companies was in the hands of plcs run by a collection of innovative and professional entrepreneurs with highly profitable results. They are held out by the Government as the model of successful private enterprise. This Bill is presented as the vehicle that will transfer the supply of the other 75 per cent. of our water from its present wholly unsatisfactory basis, as the Government imply, to the private sector with all its benefits of competition, market forces, profits, and the rest.

However, the comparison is not like that at all. In the first place, those companies always had their freedom of action precisely constrained, especially in terms of dividends and profits, but in other ways too. Their freedom of action is limited. However that may be, they have been very successful on that basis and have served their customers extremely well for a century and more. It would seem logical to take this long experience of customer satisfaction in the controlled private sector as the model for the whole industry. It will also have the advantage of conserving the huge land assets of all water undertakings for the benefit of water consumers, and that means everyone.

The fact that the Government are going to bring forward new amendments on this aspect of the Bill at this comparatively late stage indicates that the anxieties people feel here are justified. As this Bill now stands, it does not put the new undertakings on the same basis as the statutory companies. It goes in the opposite direction and alters, albeit on an optional basis, the character and constitution of the existing statutory water companies. That is a retrograde step. I hope that your Lordships will think it right to amend this Bill in a way that builds on the proven success of our statutory companies. After all, the Government themselves frequently applaud these companies and hold them out as models to be emulated, as my noble friend Lord Crickhowell and others have said today. One would think it sensible to build on their success. I support very much what my noble friend Lord Elliott of Morpeth said.

I believe that these two changes—they are not fundamental in principle but they are pretty major —would go a long way to allay public anxiety over this Bill. They would certainly take the danger out of the privatisation process which exists at present. They would provide a better basis for the long-term future of this very important industry and for the British people it supplies.

8.9 p.m.

Lord Addington

My Lords, in considering the privatisation of water we are surely considering a more fundamental privatisation than any that has gone before, for the simple reason that drinkable water is as important to life as breathable oxygen. Possibly it should be thought of in something like the same light. The first consideration of any government when dealing with water is the fact that we should have a clean and ready supply of it because it is so important to the health of the nation. Many noble Lords have reminded us of Joseph Chamberlain and his work in cleaning up the water supply of Birmingham. We can look at other historical figures such as Chadwick in London. Those two men probably made a greater contribution to the health of the nation than any doctor or combination of doctors. If one stops such a major source of infection as dirty water, one effectively takes on the nation's health at first hand and prevents a deterioration through further major infection.

I am certainly not the best qualified Member of your Lordships' House to lecture on the ethics and practicalities of privatising such a natural monopoly as water. I agree with my noble friend Lord Ezra who said that any funds raised from the privatisation should be ploughed back into the water industry. The Government should take more responsibility for funding the water industry. They have told us for a considerable time that they enjoy a large budget surplus. Surely some of those funds, if invested correctly, could find a useful home in the water industry.

The one part of the Bill that has received almost universal approval is the creation of the National Rivers Authority. The noble Lord, Lord Crickhowell, made an impressive speech in which he stated that, providing the authority is independent and has sufficient resources, there is absolutely no reason why it should not be a great boon to the environment and to society as a whole. The National Rivers Authority could be a torch bearer for enlightened progress and the preservation of the environment. On the other hand, it could be a bureaucratic dead duck if it does not have the necessary tools to do the job.

The National Rivers Authority faces a huge problem. In 1985 a river quality survey found that 903 kilometers of our waterways faced a net deterioration in standards. More than 23,000 pollution incidents were recorded in 1987. The National Rivers Authority will have 450 pollution control officers out of a staff of 6,500. Each one will have to patrol more than 100 kilometres of waterway. Each 100 kilometres will have somewhere between 45 and 65 effluent discharges. I hope that there will be sufficient resources. I somehow doubt it.

If the National Rivers Authority is not to be hopelessly under-funded and under-resourced to carry out this vital job, the best organisation in the world will be required. I welcome the idea of a regional structure for the National Rivers Authority because the problems of water pollution are of a regional nature. I hail from East Anglia. In that part of the world we are primarily concerned with nitrate and pesticide pollution and seepage into ground water which will cause pollution in years to come. I hope that the authority in East Anglia will be differently organised in structure and in the training of staff from the authority in the North-West of the country. There it will be dealing with the industrial heartlands of the nation and the problems caused to the River Mersey, which has long been a chemical dustbin. The difference in the types of pollution should be given careful consideration. I refer in particular to the growth in the amount of farm pollution. The exact figure for the number of pollution incidents in 1987 is 23,253. Of those, 19 per cent. are thought to be agricultural. These usually involve the aforementioned pesticides and nitrates, but also include slurry, which manages to get into the water supply through spreading. If we are to deal with these problems, we must have correctly trained staff.

After more than five hours of debate and 20 speakers, virtually everything that I wanted to say has already been covered. I should like to conclude on one thought. If we are to have an effective guard against pollution damage as distinct from other problems, the Government should not hesitate to provide new resources for the National Rivers Authority and also for the new companies even after privatisation. It is clear that this problem affects not only those who deal with balance sheets and the bank balances of companies, but the nation as a whole.

8.15 p.m.

The Earl of Cranbrook

My Lords, for the past couple of years I have been a non-executive board member of the Anglian Water Authority. I was appointed by the Secretary of State for the Environment and have special responsibilities for environmental issues. As such, since the beginning of this year I have been a member of the NRA working group of that authority. I have lately transferred. I am now a member of the plc working group and, if the Bill becomes law, I have expectations of being appointed with the same remit to the board of the plc.

As long ago as 1984 the Royal Commission on Environmental Pollution had already recognised in its 10th report that the availability of funds, rather than statutory powers, is the key to environmental improvements. My experience on the water authority has shown me personally all too clearly the constraining effect of Treasury control with a Government who are determined above all to limit public expenditure. I cannot altogether swallow the ethical argument that sees water somehow ordained as a public sector good. I note en passant that those who hold this view hold it with regard to the provision of a treated supply of pure water but do not apparently hold it in the same sense with regard to the equally important function of the present water authorities, which is the treatment of foul water and the conversion of it back into a clean and tolerable form in which it can be restored to the environment.

I see the advantages of separated functions. I see the merits of a system which provides a public regulator and a private service industry for the supply of clean water and the treatment of dirty water. To that extent, I favour the Bill in principle. From the practical point of view, however, I recognise points that require revision. I shall first mention one which has been a personal preoccupation of mine and which I have raised with my colleagues on the water authority from the beginning, though I have hesitated to air it publicly. I refer to the name of the National Rivers Authority. The acronym NRA is beginning to slip off our tongues as if we had been saying it for years, although I noticed that just now the noble Lord, Lord Elliott of Morpeth, called it the National Water Authority when he spelt out the letters in full. Therefore we are not entirely used to it. It is not a national body; it applies only to England and Wales. It is not exclusively a rivers authority; it has equally important functions regarding flood defence; it is also required to protect the coastal and marine environments.

I know that this issue also interests the noble Lord, Lord Bridges, and I do not wish altogether to sail into his wind. I heard him raise this issue at a presentation when a full bench of Ministers from the Department of the Environment, headed by the Secretary of State, sat in the Queen Elizabeth Conference Centre across the road. I heard the Secretary of State's reply, that he did not care too much about the name. He said that anything else would do just as well if it was snappy. I feel that a public body of this importance should have a name that conveys to the public what it is about and what its functions are. If I am asked what I propose, I begin to get into deep water. I have tried out various things. I tried out the "Natural Waters Authority". I tried out various other ideas. At the moment I favour the "Water Environment Protection Authority". I offer that to my noble friend as a personal gesture.

I now come to other issues which are important from the point of view of the management of the existing water authorities and of their successors. I shall call the successors the NRA and the plcs. First, as has already been mentioned by the noble Lord, Lord Crickhowell, it is intended under the provisions of the Bill that the NRA should have the status of a non-departmental public body. As the noble Lord said, that means that it will be second guessed by officials. I very much hope that Her Majesty's Government will take note of what the noble Lord said; that they will reconsider the issue; and that they will take the opportunity to amend the legislation.

At present, under Schedule 1 paragraph 3, the NRA cannot increase the number of staff it requires without the approval of the Secretary of State. Again, under the same paragraph, the NRA requires the Secretary of State's approval to pay pensions or allowances to its employees. Under Clause 140, it requires the Secretary of State's consent before its skills or expertise can be marketed abroad. Surely those are issues upon which the noble Lord, Lord Crickhowell, and his successors should be given freedom. If he chooses to put forward such amendments, I shall certainly support them.

Baroness White

My Lords, I hope the noble Earl will forgive my interruption, but does he agree that the consent of the Treasury is also required for almost all the matters to which he referred?

The Earl of Cranbrook

My Lords, from what I have heard this afternoon, I assume that the Treasury is breathing hard down the back of any Secretary of State all the time.

There are other loopholes in the legislation which must be filled. First, there are certain environmental polluters for whom the legislation allows dispensation. In Clause 104, pollution from a vessel is excepted from control. Under Clause 105, polluting discharges are permitted from a waste tip, let us say, if the person responsible holds a disposal licence. I remind noble Lords that a disposal licence is issued by a local authority and not by a water authority. That is a constant cause of concern to the water authorities. Dispensation is also given—and this is also a major cause of concern—if the discharge is from a highway or a highway drain. Those are important points which need to be picked up in the legislation.

My next point is that much pollution is chronic. It is important that the NRA should have the necessary powers to control chronic pollution when it has occurred once or twice and is likely to occur again. What is needed is the power of injunction; it is simply not sufficient to wait again and again for a polluting incident and then take the offender to court. I have been advised that the power to issue—if that is the right word—or demand an injunction was available to the river authorities by virtue of Section 3 of the Rivers (Prevention of Pollution) Act 1951, but that it was removed by the Control of Pollution Act 1974. Therefore what I am asking for in this case is simply that the Government should restore to their proposed regulatory authority the capacity which existed in one of its rather remote predecessors.

From the point of view of the future plcs, there are other issues which are important and which will require debate. One of those is the development contribution. Is it fair that existing customers should subsidise the cost of providing services to new properties? There is a big issue on the costs of providing water and taking sewage from new housing developments. The question of where those costs should appropriately fall needs to be considered. Existing customers should not subsidise new customers. That is an important issue. In another place, the Minister for Water and Planning indicated that he was considering the matter. Therefore I hope that my noble friend will bring forward amendments in that respect.

It has been suggested to me that there is a maze of superimposed provisions in the legislation and that it requires consolidation. This would be helpful, even if the Bill is made even bigger, even longer and even weightier; but it should provide clearer drafting. It would be helpful if the opportunity was taken to consolidate all the existing legislation which will apply to water and sewerage undertakers and the NRA. At present the Bill contains only a series of essential amendments to existing legislation. So, in many cases, the new Bill places a further layer on top of existing legislation.

The Bill is also confused as regards the provisions which apply to both the NRA and the plc. In the future those bodies will be two completely separate organisations. It seems highly likely that, whatever the lifetime of this Bill may be—16 or 19 years' expectation of existence, as we heard just now from the noble Lord, Lord Rippon—the powers, for example, to lay pipes or take similar actions will need amending during the life of the Act. It will become an even more confusing document if certain sections are amended with regard to the plc and others are amended with regard to the NRA. I believe that the Bill will be much clearer and much better presented, and will remain a much more workable document in the future if these matters are already separated—although it would appear to be a repetitious procedure—and if the powers of the NRA and those of the future plc are separately laid out in a clearer fashion.

Finally I come to a point which has been raised by the noble Baroness, Lady Stedman, the noble Lord, Lord Greenway, and, to some extent, by the noble Lord, Lord Rippon. Recreational users of water, environmental NGOs, local authorities, consumers, and doubtless many others, seek representation on the advisory or consultative committees which are to be set up. 1n our water authority I have experience of sitting in with the Regional Recreation and Conservation Consultative Committee. Here we have representatives of those various interests. It is a very big committee and it simply does not work; in other words, it does not get together. Each of those little groups has separate interests and feels that it is there to represent and to fight for its corner. Therefore we have an extremely cumbersome committee. We have long meetings where first one interest is discussed, then another, and so on. Each group attacks the points with which it is concerned. I am convinced that if we are to set up such committees we should have relatively small bodies which are the actual advisory and consultative committee. Those committees should have the power to set up specialist advisory or working groups which would report to them and which would deal with specialist interests and special topics.

8.27 p.m.

Baroness Nicol

My Lords, I should like to confine my few remarks this evening to environmental matters, some of which have already been touched upon. In company with almost every other speaker, I think that the formation of the NRA—which is what we must call it at present, despite the remarks made by the noble Earl, Lord Cranbrook—is a useful development in pollution control. But, despite all the arguments which have been made this afternoon, I still believe that it could have been created without privatisation of the whole water industry. Its function could have been part of a much needed environmental protection agency to strengthen and co-ordinate all aspects of environmental protection. As it is, we are offered a body with strategic responsibilities for water polluton control, but with no strategic responsibilities for ensuring that the land resources of the water utility plcs are properly managed for conservation and amenity. It seems to me that those functions could well have been brought together in the NRA.

The Government claim that the establishment of the NRA will end the present situation where water authorities monitor their own water pollution activities. We agree that this would be a welcome development. Indeed, the matter has already been raised this afternoon by the noble Earl, Lord Caithness, and by the noble Lords, Lord Wyatt of Weeford, Lord Crickhowell and Lord Jenkin, among others. Obviously it is greatly to be desired. However, there is nothing in the Bill to prevent the NRA contracting the monitoring function back to the water utility plcs, which would make the present unsatisfactory situation even worse.

It has even been suggested to me that the need for a slim efficient NRA precludes the duplication of effort which would be required if that function was not contracted back. Therefore I hope that the Minister, when he comes to reply, will reassure us on that point, because it would indeed make a mockery of the whole exercise if that were to happen.

The water utility plcs will, in any case, enjoy powers over other private companies in an unprecedented way. The CBI opposes the concept that the regulatory functions of the present water authorities should be vested in private companies. The noble Lord, Lord Jenkin of Roding, seemed to think that that provision has been got rid of; so far as I can see, it is still in the Bill.

The water authorities own about 1 million acres of land throughout England and Wales, as we have heard many times today. There is widespread anxiety about the consequences of the transfer of that land from public to private ownership. A large number of bodies have lobbied us all. I am sure that your Lordships will have heard of most of them. The Nature Conservancy Council, the Countryside Commission, the Royal Society for Nature Conservation, the Council for the Protection of Rural England, the Royal Society for the Protection of Birds, the Worldwide Fund for Nature, the Ramblers' Association, the National Trust, the National Farmers' Union, the Country Landowners' Association, the Council for British Architects, several of the local authority organisations and many more bodies have expressed their unease about the implications of this dramatic change in land ownership.

Much of the land has conservation and wildlife importance, with many sites of special scientific interest. Much of it has landscape value and is enjoyed for recreational purposes. There are many sites of historical and archaeological interest. Archaeology and the man-made heritage are a relevant issue. The water authority activities which will be transferred to the NRA and the water utility plcs have wide implications for the heritage. That is something that has not yet been discussed this afternoon. The activities to be transferred include structural developments, drainage schemes, dredging and flood control measures.

The Bill fails to define adequately the archaeological and historic interests. The Government rely upon a code of practice to ensure high conservation standards, but the draft code does not even match the standards of environmental assessment and integration of conservation policies set by the Government's own Conservation Guidelines for Drainage Authorities issued only 14 months ago.

Too little is being done to enforce high standards of conservation of the heritage and to ensure that these duties are maintained by any subsidiary companies or any body to whom land is sold or leased.

There is uncertainty about the future of access, a point that has been mentioned by a number of people this afternoon, including the noble Baroness, Lady Stedman. With regard to land owned by the new private water undertakers, they are required merely to "have regard to the desirability of preserving access". We wish to see a much more positive requirement and one which will endure even if the land is managed by a subsidiary company or by any other landowner to whom it may be transferred or sold.

We recognise the need for water utility plcs to charge for recreation where they have provided facilities, but we must be assured that the right of access to the simple pleasure of walking, which has been freely enjoyed for so long, should continue as now.

The role of the water authorities in the planning process has been important and in some cases crucial. Their advice was often a determining factor in whether or not development took place. That was acceptable when water authorities were publicly owned and their advice could be expected to be impartial.

The situation will be radically changed after privatisation, with the possibility that developers could become major shareholders in the water utility plcs and could distort the planning system. How do the Government propose to guard against this possible abuse? Would it not be sensible to adopt the suggestion of the Council for the Protection of Rural England that the NRA should become a statutory consultee in the planning process? The CPRE suggests that without that safeguard there is nothing to prevent water undertakers from engaging in speculative infrastructure provision to enhance land held by shareholder companies, or to show reluctance to supply water and sewerage for land owned by competitors. That is a real danger, and I hope that the Government will take it seriously, to see whether there is some way that they can guard against it.

Why is it necessary in any case to transfer the freeholds of all those lands to the water utility plcs? It has already been suggested this afternoon that that is not necessary. There are large areas where any kind of development would be unthinkable. I am thinking especially of areas of the Lake District. Would it not be more acceptable in the long-term interests of conservation for the water utility plcs to be given rights of access and abstraction and to vest the freeholds in the NRA—the noble Lord, Lord Ezra, made that point earlier—or in established conservation bodies if suitable financial arrangements can be made with them?

There are many more possible environmental improvements which will be explored at the next stage of the Bill. The greatest danger still remains—the exposure of an essential life support system to the perils of a private monopoly whose ultimate sole aim is to make profits for its shareholders, and against whom many ordinary consumers and conservation interests have no sanctions. There is no way that we can turn off the tap, and to talk about comparative competition in terms of the ordinary consumer is nonsense. They have little protection and only the most complicated and obscure redress. We hope to make improvements in the provisions for redress at a later stage.

This is a bad Bill, produced for the wrong reasons. I am confident that the Government will ultimately regret it.

8.36 p.m.

Lord Middleton

My Lords, at this stage of the debate I believe that all the arguments on the main issues have been heard. I shall confine what I have to say to one or two conservation points. I am prompted to do that by having served for the past three years on the Nature Conservancy Council. I dare say that it will not be totally unexpected if I refer to parts of the Bill that worry farmers.

I welcome the general environmental duties which Clause 8 lays upon the Secretary of State, the director and the NRA to promote conservation. It is right that the Nature Conservancy Council should have to be consulted on the matters set out in the Bill. I believe, however, that there is a case for the NCC to be made a statutory consultee on water quality objectives. As I read the Bill, it seems merely to provide for a body such as the NCC to make representations under Clause 102 after the Secretary of State has established water quality objectives. That is too late in the proceedings because the NCC is the Government's scientific advisory body on the environment. It should be brought in at a much earlier stage.

The noble Lord, Lord Crickhowell, reminded us, most amusingly, of how difficult it is to strike the right balance where different interests are in conflict, especially where one of those interests is an environmental one. I see all kinds of problems arising where the water companies' duties towards conservation are in conflict with their duties to promote recreation. From the letters that I have received—I am sure that many others of your Lordships have also received them—it seems that the bodies representing each of those interests would like to see their own requirements receive priority and so be written into the Bill.

I do not see how one can legislate for the resolution of such problems as will arise but where the circumstances in every case will be different. However, I should be grateful if my noble friend the Minister would give an assurance that the duty on the Secretary of State or the director under Clause 7 to promote economy and efficiency will not prevent him from making an order under Clause 20 to enforce compliance where a plc is in breach of its environmental duties.

It is not wholly clear to me whether the conservation duties laid upon the water companies and the director extend to all bodies such as navigation authorities and to local authorities acting as sewerage agencies or undertaking land drainage. I feel that must be the case in regard to the latter. but I am not so sure about the navigation authorities.

Lastly on conservation matters, there is the problem of low flow in rivers which can affect their ability to cope with pollution. The Bill gives a discretionary power to the NRA to apply to the Secretary of State for an order prescribing minimum flow. Clause 123, however, seems to me to be rather weakly drafted and I should like to refer to this at a later stage. I believe that the NRA should have additional powers to review abstraction licences.

The criticism of Clause 147 that it gives the privatised companies the power of public authorities to acquire land compulsorily at existing value has in my view considerable justification. It seems to me to be unjust and unacceptable that private companies should not be made to operate like other bodies in the private sector as regards land values. The private companies are encouraged—rightly, I think—to engage in a very wide range of commercial activities over and above the supplying of water. They will be looking for profit. They will be very happy to buy up land cheaply and go in with other commercial firms to provide recreational facilities, for instance. There are examples now where land acquired for a reservoir is being developed both above and below the shoreline for all kinds of commercial purposes.

My noble friend the Minister is, I am sure, aware of the disquiet that is felt on the matter. From his own professional experience he will also be aware of the present system which applies to the entry onto land by oil companies and by British Gas and the scales for compensation available when it comes to pipe laying.

My noble friend will also be aware that there is a wide gap between the performance, of those undertakers and that of the water authorities. It stems from the statutory instrument of 1974 which amended the Water Act 1945 where it gave powers to water undertakers to lay pipes. As a result, the water authorities can enter onto land without prior agreement and the compensation paid—usually very late—is assessed at a much lower rate than that offered by the other bodies which I have mentioned.

The Bill proposes that these current powers should be transferred to the water companies, and in my view that is not right. The water authorities got on very well up to 1974, laying pipelines under the old conditions. I believe that the 1945 Act formula should be reintroduced so that the companies are required to negotiate entry with back-up powers available in case of special urgency.

There are matters relating to private water supplies in rural areas that are best dealt with at a later stage. There is, however, an anxiety about Clause 75 which I believe is justified. It was referred to by the noble Baroness, Lady, Stedman, That clause provides for the introduction of a scheme of charges which under subsection 3(a) may, make different provision … in relation to different circumstances or localities". The fear is that ordinary domestic consumers in rural communities may face higher charges because of the higher cost of providing water or sewerage in remote areas. In my view, this would be just as wrong as making it more expensive to post letters in the more remote areas.

One of the many briefing letters on this Bill which I have seen is from the Water Authorities Association. It contains this short sentence: It is better for operational matters to be in the private sector, subject to public regulation, rather than being in the public sector subject to political regulation". That, I think, goes to the heart of the matter and it is why I support the broad thrust of the Bill.

8.45 p.m.

Lord Moran

My Lords, this Bill is a vast improvement on the Government's original proposals. On that the present Secretary of State for the Environment, and perhaps also the noble Lord, Lord Nugent, should be congratulated. The National Rivers Authority is an admirable concept. I think that the Government have got it 97 per cent. right. The appointment of a former Secretary of State as its chairman shows the importance that the Government attach to it, and we listened with great attention to the important and generally encouraging speech he made this afternoon.

The advisory committee also comprises people like the noble Lord, Lord Mason, Mr. Kinnersley and Professor Edwards, who command the confidence of all who are concerned with our rivers. We need, however, to be certain that the NRA will have the autonomy and the resources that it ought to have. I am therefore glad that Mr. Ridley should have said on 4th April that it needed to be, not only independent, but strong and effective too". But we should bear in mind the unfortunate precedent of the Crown Prosecution Service. This, too, was an imaginative concept which, if properly worked out, could have been a major step forward. But those responsible allowed the Treasury to impose fatally damaging conditions. As a result, most of the best lawyers departed for jobs in the City and the new Director of Public Prosecutions is left to pick up the bits. We must ensure that the NRA is not similarly hamstrung.

I view the privatisation of the water authorities with misgiving. Though there may be more efficient management in the private sector, economists and businessmen know that the only thing worse than a public monopoly is a private monopoly. I am therefore attracted by the proposals made by the noble Lord, Lord Nugent. In Wales we are happily to have a 15 per cent. limit on single shareholdings, but in England the golden share will provide only five years' temporary protection. If a quarter of BP has to be saved from the foreigner, what about our water companies? Nor do I much want to see such companies belonging to some of our present day tycoons.

What does surprise me is that the Government should have embarked on a measure about which their own supporters are so unhappy. I have talked to a lot of people, many of them Conservatives. I have yet to meet one private person who is actually in favour of privatising water. I also fail to understand why the employees of the water authorities who transfer to the plcs should be offered free shares while, for obvious reasons, those who transfer to the NRA will not. I think that the plcs should not be allowed to impose higher charges on rural customers. Here I entirely agree with the noble Lord, Lord Middleton. I also agree with him that as private companies they should not be allowed to purchase land compulsorily and therefore cheaply.

However, since the sale is likely to take place, I support the suggestion put forward by several noble Lords that the proceeds should be used to pay for the massive clean-up that everyone agrees is now necessary—the modernisation of sewage plants, the ending of major industrial and agricultural pollution and the restoration of clean beaches. Since we know that the Exchequer is not short of money, it would surely be sensible to finance the clean-up in this way so that water costs to the consumers would not have to rise so much. Rightly or wrongly, large price rises will be blamed on the Government, so doing this would blunt much of the criticism the Government must otherwise face.

NRA funding will be crucial. I think it is very important that it should stand on its own feet financially and be independent of the government of the day. It ought not to be subject to close and detailed Treasury control on day-to-day matters. I hope that the Government will respond to the plea made by the noble Lord, Lord Crickhowell, on 1st February for a greater degree of self-financing and may still be prepared to introduce the river management precept he spoke about. I hope, too, that they will pay close attention to what he said today. Meanwhile, I welcome the proposals for the NRA to recover pollution control costs from dischargers. Then surely the NRA ought to have borrowing powers for all its functions, not just for flood protection, or to be allowed to build up reserves.

As regards fisheries, I speak here as one who has the honour to be president of the Welsh Salmon and Trout Angling Association and a member of the Regional Fisheries Advisory Committee for Wales. The enforcement of legislation, specifically the measures against illegal fishing required by the Salmon and Freshwater Fisheries Act 1975 and the Salmon Act 1986 ought, like the enforcement of any other criminal legislation, to be paid for by the public at large, as a matter of principle. But 40 years' experience of the public service has left me with an ineradicable distrust of the Treasury, so I would not like to see enforcement simply paid for by Exchequer grants, which could all too easily be cut. The cost ought, I believe, to come largely out of a successor to the existing environmental service charge. That is justifiable because everyone is concerned with the environment.

Anglers will be contributing substantially, through licences and through the levies on riparian owners which will replace fishery rates, following the changes in the Local Government Finance Act with which I had something to do. But the first call on these monies ought to be the maintenance, improvement and development of fisheries—a responsibility which the NRA will inherit from the water authorities—scientific research, fisheries management, fish passes, counters and hatcheries.

There is, I think, at present nothing in the Bill to require the monies collected from anglers and riparian owners to be spent on fisheries. They could be clawed back by the Treasury, which would be wrong. We must surely have something in the Bill to require these monies to be spent on fisheries. For the rivers themselves, the first essential is the maintenance of a reasonable quantity of water. The problem is abstraction, legal and illegal, for water supply, spray irrigation—that is all lost and not returned to the river—or industrial purposes. The fears of the 1960s about constantly rising abstractions proved groundless, but we may now be becoming too complacent. On some rivers, particularly on chalk streams, there has been excessive abstraction or pumping of ground water.

When I was a boy I fished the Upper Kennet at Manton. It was then a splendid chalk stream, full of large trout. Today, if I stop on Manton Bridge to look at the Kennet, I see a river that is a shadow of what it once was. In the 1976 drought the River Lugg in Herefordshire in its upper reaches was pumped dry to supply water for gravel washing. On the Wye under normal dry weather conditions, spray irrigation takes out 5 per cent. of the flow at Hereford.

The NRA should be able to keep under review and control all abstractions from rivers, so that it can, where necessary, maintain and enforce adequate minimum flows. Powers to revoke or vary abstraction licences are in the 1963 Water Act, but have hardly ever been used. In my view they should be. We should restore rivers like the Upper Kennet. There should be no exemptions, and no unreviewable licences of right for existing abstractors. This is also the view of the Nature Conservancy Council which rightly points out, as did the noble Lord, Lord Middleton, that low flow also affects the ability of rivers to cope with pollution. I hope the Minister will agree that the Bill should confer these powers on the NRA.

I turn now to the all-important question of water quality. I think that the Secretary of State's decisions ought to be subject to negative resolution in Parliament and, consequently, out in the open. I hope the NRA will press steadily for an improvement in water quality in rivers below the Class 1 standard. I ask whether river standards will in future be set on biological as well as chemical criteria, and whether they will take account of the needs of nature conservation.

Our rivers were, until recently, steadily improving in quality and are in much better shape than most of those in Europe, but the quality has slipped back recently; 10 per cent. of them are still Class III or IV. That represents a 3 per cent. increase since 1980. We must look to the NRA to ensure that the improvement is resumed and maintained. But in this area the main battle must be the fight against pollution. Everyone agrees that the present situation is unsatisfactory. As the noble Lord, Lord Jenkin of Roding, pointed out, one-fifth of our sewerage works are operating illegally. There is, in places, gross and uncontrolled industrial pollution. That was vividly described in the Sunday Times article of 19th February and in a series of articles in the Yorkshire Post. There is also the growing problem of farm pollution, with a record number of 4,141 incidents last year. We need to know in detail how the NRA means to tackle all these problems.

I welcome the action being taken by the water authorities to bring their sewerage treatment works into compliance with existing consents, although these are themselves often inadequate to secure good river quality. However, that action has not been taken before time. I am a little concerned about the relaxing of standards for so many of our sewerage works to enable them to keep within the law. Will this situation be strictly temporary? How, if persuasion fails, can the NRA prosecute industrialists and farmers in the next three years when the plcs are being protected? A maximum fine of £2,000 in magistrates' courts for polluting rivers is clearly derisory. It makes it far cheaper for a big firm to pay the fine than to put matters right.

I see that the Government are urging the future NRA to prosecute flagrant offenders in Crown Courts, where unlimited fines can be imposed and really obstinate offenders sent to prison; but it is magistrates who decide which court hears the case. Can the Government assure us that the polluter will in future really pay everything—the cost of the clean-up, the cost of the prosecution, the cost of restocking with fish and other matters? We need deterrent measures which really do deter and which compel boards of companies and farmers to take effective measures, in their own interests, to prevent pollution.

The Friday edition of The Times reported that an American securities firm was having to pay 1 billion dollars for breaches of security laws. Grossly polluting our rivers seems to me a more serious offence. Can we do something urgently about discharges from abandoned mines? Mr. Moynihan has admitted that that problem is serious and intractable. Can we take much more effective measures to check the mass planting of conifers on poor upland land which increases the acidification of upland rivers and the release of toxic aluminium?

I strongly support what the noble Lord, Lord Mason of Barnsley, said about sampling and private rights of prosecution which have been exercised so effectively in the past by the Anglers Co-operative Association. We must ensure that that association continues its invaluable work.

We are, I think, almost five years past the dates of compliance with the Community directives on drinking water and beaches. We are still only proposing to comply with them as soon as is reasonably practicable. What do we propose to do about the new Community draft directive on nitrates in water, which requires compulsory restrictions on chemical fertilisers and on animal manure in vulnerable zones? Are we being vigilant enough about contamination of our drinking water supplies by pesticides, lead and aluminium? I ask also, how will the NRA's responsibilities fit in with those of Her Majesty's Inspectorate of Pollution, which is to be responsible for authorising discharges of red list substances to water, but cannot charge for effluent consents? It looks as though the present division of roles is a recipe for confusion.

I have pointed out that the nation's 3 million anglers will be substantial contributors to the NRA, and rightly so. But all the angling organisations think that anglers ought to be given more say. The present proposal is that there should be one fisheries man on the NRA appointed by MAFF and purely advisory regional fisheries committees. All the angling organisations regard this as inadequate. I see the difficulties about making the regional fisheries committees fully executive. Their chairman will, I think, sit on the small regional management boards which will take decisions. But the NRA ought to keep this under review and see whether, as time goes on, anglers representatives cannot take a more direct part in determining fisheries policies and priorities.

On a different matter, given the restricted scope for growth of the plcs, I am, like many noble Lords, worried about the possible sale of land for profit by the plcs for thoroughly undesirable developments. I welcome the Government's intention to ensure that previous Acts, like the Birmingham Corporation Act which protects the Elan Valley, cannot be extinguished. But there are areas that are not so protected and the present planning system, with its presumption in favour of the developer, offers little real protection, as anyone with recent personal experience knows. It would be horrifying to see some of the most splendid landscapes in Britain ruined by leisure centres, caravans or whatever. Can we not ensure in the Bill that, if land needs to be sold off, the National Trust, for example, can be given first refusal of the best areas and helped with the necessary funding? Something on those lines would be widely welcomed.

Mr. Ridley, in his speech of 4th April, said that the NRA needed: freedom to hold the ring between the many sometimes competing interests that want to enjoy our lakes, rivers and estuaries". In December 1987, the Government said, too, that the NRA's responsibilities would: involve controls over all who use rivers and other natural waters". I am glad that the NRA will do this. In this House in January 1988, I argued that the NRA ought to be given powers to control all forms of recreation on inland waters. That is still my view. Anglers are strictly controlled, being liable to prosecution if they break the relevant by-laws. However, canoeists, for example, are not controlled at all and pay no licence fees or rates. They are indeed given some £200,000 a year of taxpayers' money by the Sports Council. I think we should get away from the obsolete concept of navigation and concentrate on the urgent problem of regulating all forms of recreation, with the NRA regulating clashes of interest on all—I repeat all—affected waters. I hope that we can clarify these points and make those and other improvements at Committee stage. Then the NRA can do the really effective job which I believe the whole country wants it to do.

9 p.m.

The Earl of Radnor

My Lords, I should like to support the Bill. I congratulate my noble friend Lord Caithness on explaining it so clearly. At the same time I thoroughly enjoyed hearing the noble Lord, Lord McIntosh of Haringey, as I always do, trying to convince me that the whole idea was a misconception. The noble Lord quoted Joseph Chamberlain. I think that he was a bad person to quote. As the noble Lord said, he wanted to keep water in the public sector. My goodness, perhaps it was cheap; but what happened to it? It was used cheaply. People made a great deal of money out of it while at the same time polluting many of our rivers. We might now at last be able to start putting matters right. It was from that period—I believe the noble Lord, Lord Wyatt of Weeford, mentioned 1875—that the damage was done.

Lord McIntosh of Haringey

My Lords, the noble Earl has a curious view of 19th century history and of the history of the water industry long before the 19th century. It was those in the public sector, notably the big cities, who were in the forefront of improving water quality throughout the 19th century. They had to take over from the private sector in order to do so.

The Earl of Radnor

My Lords, all I can say is that they did not succeed.

I believe that the Bill will provide a tremendous improvement. I criticise what has happened in the past for a very simple reason: the system has not been working. The water authorities have been run by very able people, with very good staff and modern machinery. They have delivered water to us through our taps; they have mended our pipes when these have broken. I have been to the headquarters of one water authority. They are splendidly modern. The authority obviously does a very good job. However, a number of noble Lords have mentioned why the system does not work.

The water authorities have never succeeded in getting sufficient money out of government to deal with foul water and to put matters right at that end of the equation. If the past repeats itself, and I see no reason why it should not, I believe that there is no prospect that that will ever be put right. It will not be put right until such time as the water authorities, in the form of plcs, are able to use all the means of raising money—which I agree will almost inevitably include increased charges—so that our environment is not progressively destroyed. The picture in that area is definitely not a good one.

So far as concerns charges, the Director General of Water Services will monitor and control matters. I hope that he will be given the funds to do so successfully. With regard to our river systems, coastal waters, ground waters and other environmen- tal areas, the NRA will be responsible. I must emphasise that I believe that it is very important that the NRA has proper funding and does not have to take all its funds from extraction licences. That would be wrong and unfair on a number of businesses, particularly in the country.

The system is not working. It needs more money. Money never comes from the Government in adequate amounts in such circumstances. We must look elsewhere; hence privatisation.

This is not the right time to go into detals but I believe that one or two should be mentioned. I apologise to noble Lords. I had intended at the outset to declare an interest as a fish farmer—a fact that has already emerged in the debate—who irrigates his land, and also as a consumer of an enormous amount of water, because I am a teetotaller. My father always told me that it rusted an iron constitution and one should avoid it like the plague. I believe that abstraction licences and the cost thereof must be considered in Committee. There is serious concern in the fish farming industry that the industry could be crippled if charges are raised much higher than the cost of administering them. That is one matter which will have to be considered closely.

Another issue of vital importance, included, I believe, in the Bill because of the EC, is water protection zones. That section of the Bill is very widely worded. A long time ago in your Lordships' Chamber I queried at Question Time the wisdom of accepting levels of 50 milligrams of nitrate per litre. I believe that water protection zones must be directed at nitrates. If those standards were applied, not only in England but all over Europe, there would be enormous disruption. That would be particularly so in the eastern counties of this country. There would have to be tremendous changes in farming methods. The Bill mentions compensation. But how complicated it would be to work out! The Bill does not explain it.

To follow the noble Lord, Lord Middleton, the question of compulsory purchase is another subject on which I have spoken previously. How can compulsory purchase in favour of a company which in turn will make money be achieved fairly? Some of your Lordships will remember that I raised the subject in relation to the Channel Tunnel. I thought it inequitable but I was told by the noble Lord, Lord Belstead, that this was what happened in respect of service stations on motorways. I thought that inequitable too. It is another area that should be looked at closely.

The advisory bodies have been noted and referred to. Obviously, they must be formed from a broad spectrum and make sense. However, I notice that the advisory bodies are allowed to include people from the bodies that they advise. That seems completely wrong; it is something that I should like to change. It seems reminiscent in a small way of the Mad Hatter's tea party. Perhaps it is a misprint.

Following the remarks of the noble Earl, Lord Cranbrook, who is no longer in his place, I must say that the Bill gives the impression that our coastal waters are, at the end of the day, ignored. There is a great deal about rivers and ground water. I am sure that it is a difficult matter, but I note that ships are exonerated. They are pushed outside the scope of the legislation. I believe that "vessels" is the word used. We must think what constitutes a vessel. Perhaps I may return to a type of fish farming which I do not practise. Cage farming in Scotland is now an immensely important industry which should perhaps be thought of in terms of control or pollution. I sincerely hope that control will not inhibit an industry that is so important to the west coast of Scotland where, I believe, its gross product in terms of money is now greater than that for the whole of the Scotch beef industry.

I believe that I have probably spoken for a sufficient length of time, but there are two broad questions that I should like to raise. The first is a very broad matter; namely, the business mentioned by the noble Lord, Lord Moran, of taking water from the chalk aquaffers or, for ease and great cheapness, from the head rivers of river systems, instead of spending a great deal more money and going towards the mouth of a river when the water has to be purified, pumped and so on. There is absolutely no doubt that in the South of England, rivers are becoming smaller. Certainly, they have shrunk considerably since my childhood. As yet people do not know exactly what happens behind those enormous soft rock formations. I believe that if a little money were spent on drawing water further downstream, it would pay dividends to those who come after us.

The final question that I should like to raise, which is well worth discussion, concerns the issue of minimum flows in rivers. Again, from the fish farmer's point of view, it is extraordinarily hard to be told that there is to be a minimum flow if one is already geared up to something rather larger. I do not understand exactly how that can be decided upon. I do not understand how it will affect everyone. However, I believe that, on occasion, it could be very damaging to commercial interests, particularly in the countryside. To return to my opening remarks, I simply say that I support the Bill and wish it well.

9.11 p.m.

Baroness Ewart-Biggs

My Lords, perhaps I may first point out to the Minister and to the House that I have seriously underestimated the length of the debate. I am sorry to say that I may riot be able to stay until the end, but I shall read Hansard with interest tomorrow morning.

Having listened with great admiration to the many noble Lords who have spoken with expertise and great knowledge of the subject, I should like to make a few brief comments about how the Bill will affect the consumer. First, perhaps I may reiterate what my noble friend Lord McIntosh of Haringey said what seems to be a very long time ago; namely, that we cannot stress sufficiently the fact that water is our country's largest monopoly. It is our most fundamental resource on which our health and well-being depend.

We on this side of the House are convinced that this natural resource and the water industry's assets should be publicly owned and controlled and managed efficiently and openly in the public interest. The industry should be democratically accountable at regional and national level. We feel fairly secure in our thinking because, as many noble Lords have pointed out, a large majority of the public agree with our views on the matter. The noble Earl, Lord Radnor, said that my noble friend had a misconception about the Bill. I can only say that a great many members of the public seem to have the same misconception.

The noble Lord, Lord Ezra, mentioned a consumer association that had undertaken two surveys, one in November and the other in February, and pointed out that for every one positive answer 11 negative responses had been received. It is interesting that the survey that took place in February, after a massive publicity and advertisement campaign on this Bill by the Government, showed precisely the same results as the one in November. So quite clearly the public understand the Bill but have grave misgivings about it.

So what are people worried about? There are many reasons for anxiety. Let me take three: first, the lack of competition; secondly, rising prices; and, thirdly, the inadequate representation for the consumer. On the first point, there is little doubt, as has been said before, that the Bill sets out to confer the most far-reaching private monopoly powers ever conceived by government. People will have no choice whatsoever about where they buy their water. The public are quite right about competition. There is no competition.

As regards the second point, it is impossible to understand how privatisation can possibly avoid causing heavy price rises to consumers since it is they who will have to pay for profits, dividends, corporation tax, higher salaries and installation of the meters that will undoubtedly follow. It stands to reason that there can be no possible attraction for an investor to buy shares in the plcs other than the expectation of a higher return on his investment than that obtainable by simply lending his money or investing in fixed interest securities. Consequently these companies will have to obtain from their customers substantially more revenue than is currently necessary, which makes a rise in prices unavoidable.

So when the meters arrive what will happen to the huge numbers of people on very low incomes who need more water than most? What will happen to low paid industrial workers who need to use a lot of water at home as they carry out much dirtier jobs than most? What about those who before April would have had an automatic benefit increase when water rates were increased? What about the 50,000 sick and disabled who receive extra money for laundry and bath costs because of their individual problems? What about the many one-parent families who previously received assistance? And what about those pensioners who before April also received additional benefit?

There is no doubt at all that it is the least fortunate people who will suffer most from higher charges and the introduction of metering. The escalating number of disconnections for non-payment of water rates—over 1,400 last year—is well documented by the Citizens' Advice Bureaux. What is there in this Bill to prevent those numbers increasing further? As your Lordships will remember, disconnections of gas heaters doubled in the first year after privatisation of the gas industry and are still very high indeed in spite of all the efforts of British Gas.

My third point concerns the arrangements in this Bill for consumer representation. As many speakers have already explained, the Bill provides for a Director General of Water Services. It has also been pointed out that he has been given a role to balance the sometimes conflicting interests of the water and sewerage companies, their shareholders and consumers. The National Consumer Council and other consumer bodies are extremely concerned that the Bill makes the director's responsibility for ensuring the financial viability of individual companies take precedence over his responsibility for consumer protection. After all, it is only after the director general is satisfied that the company is obtaining a reasonable return on its capital that he turns his attention to the consumer.

The director general is to be required to appoint not more than 10 consumer service committees to represent consumer interests. He will be responsible for the appointment of their chairmen and staff. He will also control the activities of those committees, including the reports that they publish. Surely that in no way gives the consumer interest a strong enough representation. As I have said, the director general is also reponsible for balancing the interests of the industry, shareholders and consumers; and the consumers of a monopoly supplier have no economic power because they are unable to take their business elsewhere.

In order to redress that weakness it is vital that the consumers' view should be strongly represented to the companies, the director and other appropriate organisations. Consumer bodies should be independent, adequately funded and capable of dealing with universal issues of consumer concern at a national level. They should also include members with a clear consumer brief. This is also an area in which consumer bodies are very worried. They would like to see in the Bill a requirement on the CSCs to establish sub-committees, each covering much smaller geographical areas than at present proposed.

Lastly, despite a welcome amendment to ensure representation of people with disabilities on the CSCs, the only other criterion for membership continues to be industry expertise. Although the importance of technical knowledge on committees is understandable, the consumer interest must be at least as important and worthy of statutory recognition as experience and understanding of the industry. These are issues that at Committee stage I hope we shall be able to change and improve with regard to the representation of the consumer.

Finally, what form of redress will the water consumer have? The arrangements for regulating and enforcing water and sewerage quality standards are extraordinarily abstruse. They are backed up by even more complicated matters of redress and compensation. For example, the consumer will be able to sue for failure to connect his house to a mains sewer. There is automatic compensation if a company does not deal with a written complaint promptly. He may sue for damages if a company breaches an enforcement order, presumably following an extensive period of breaching a condition of enforceable requirement. However, the Government have said that they are not prepared to introduce compensation for foul water flooding. There are no provisions for statutory compensation for breaches of water quality standards, unless the company is in breach of an enforcement order. Consumers will have to continue to rely on common law and the Consumer Protection Act for redress. That of course is only if they can afford the services of a solicitor.

Given these facts, it is hardly surprising that the opinion polls reflect such a high and entirely justifiable level of mistrust in this Bill. People find privatisation of water ill-conceived and unjust. In particular, they find it unnecessary. At the risk of lowering the intellectual level of this debate, and because water provides so many excellent opportunities to make puns, perhaps I may end by saying that in attaining the Water Bill the Government run a grave risk of meeting their own Waterloo!

9.22 p.m.

Lord Stanley of Alderley

My Lords, I have no views on whether or not water should be privatised. However, it might help my noble friend if I listed some of the points that concern me or that I feel need clarification during the passage of the Bill.

First, I am not happy that the NRA has been given enough tools to do its job, in particular money. We have polluted for centuries. Therefore the cost should surely be met by a large injection of capital to try to improve the system. This applies in particular to compensation for water protection zones, if they are set up. In common with most noble Lords, I believe that water is a service which is essential to all society. I am therefore most concerned that the phrase, "no undue discrimination against any class of persons" has been omitted from this Bill. It was central to the Water Act 1973. I ask my noble friend whether there will be a higher charge for remote areas to the detriment of those already impoverished areas.

In this context, I am very concerned that the first priority of the Director General of Water Services is the plcs' profitability and not the consumer. Like my noble friends, Lord Middleton and Lord Radnor, I am not happy with plcs having power under the Land Compensation Act 1961 compulsorily to purchase land at existing use value and then to sell either that land or, perhaps more deviously, developed land that has become redundant because of the purchase of a greenfield site. I believe that that is unhealthy for a number of reasons. The Government's written reply of 7th March does not satisfy me.

Like my noble friend Lord Radnor, I am concerned about farmers' rights to extract water and whether existing rights granted under the 1973 Act will remain. I am also concerned that the new plcs will have to raise charges to the user to uneconomic levels. I am anxious too about sewage sea outfalls. I am very doubtful whether shredding is the answer in areas like the Menai Straits, and in dealing with detergents which are now a major constituent of such discharges.

I hope that the Government will see their way to providing a better service to advise on pollution, in particular on farm effluent. I hope that the NRA will be very much involved in this service. I welcome the remarks of the noble Lord, Lord Crickhowell, regarding the need to update sampling techniques and research. Prevention must be better than cure, although I certainly do not defend any farmer who wilfully pollutes.

Wearing another hat—or should I say cap?—I hope that the Government will look carefully at the future position of the recreational users of water, particularly sailors, as mentioned by the noble Lord, Lord Greenway.

I have no doubt that I shall be concerned about other matters as noble Lords bring them to the attention of the House, but I hope that these few points will keep my noble friend on the Front Bench happy for a while. I hope also that the patience of my noble kinsman the Chief Whip will survive the oncoming onslaught.

9.27 p.m.

The Earl of Shannon

My Lords, you will be pleased to hear that I do no intend to detain you long this evening in view of the many speakers in this debate and the late hour. I shall therefore not debate the relative merits of the privatisation of the water industry or its non-privatisation. That topic has already been covered by many speakers and from every conceivable aspect.

I intend to address myself to some of the provisions in the Bill relating to industry. We must remember that the prosperity of our national economy depends upon our industry. However much we might like to jump on the presently popular and attractive "greenomania" bandwagon and go overboard on environmental restrictions, we must observe a sense of fair dealing, especially with regard to a customer who at the last count provided the water industry with almost 45 per cent. of its total income. That, by any standard, is some customer. I am not suggesting that industry should have a totaly free hand to do what it likes. I am suggesting that we should allow it to continue to operate in a fair and reasonable manner, making realistic payments for the services which it enjoys and without undue and unnecessary restriction.

Industry is operating under the Public Health (Drainage of Trade Premises) Act 1937. It is that position under that Act which is being eroded under this Bill as drafted. I suggest that we should not allow that to happen without being fully aware of what we are changing and without being convinced of the necessity of doing so.

Under the 1937 Act, business has a right to have its effluent disposed of by the sewerage undertaker. This fundamental obligation by the undertaker, who will be in a monopoly position, must be preserved. Such reasonable effluent disposal must be by contractual arrangement between the discharger and the undertaker, with liability to civil action for any transgressions. It is totally wrong that one limited company should have the right to take criminal proceedings against another. This could lead to a temptation to use such proceedings for commercial advantage. Such a right of criminal prosecution should only be vested in the Director General of Water Services.

I understand that the Government have said that regulation should be kept separate from production. Here we have them beautifully muddled. To make a discharger to a sewerage works criminally accountable would discourage businesses from connecting to sewers, although in many, especially urban, areas it would be difficult if not impossible to make other discharge, and if it were it might even increase the likelihood of pollution as the effluent would be deprived of the benefit of dilution and treatment at the sewerage works. The discharge of unconsented and uncontracted effluent would in all probability start to damage the sewage works but would immediately be identified and diverted for further treatment at that stage and before a water course became polluted. Of course, the discharger would be fully liable for the cost of remedy by civil action.

The water supply plcs must be under an obligation to accept trade effluents even if they are difficult to treat, for which they must be paid the appropriate charge. They must not be allowed merely to choose to accept those which they regard as most profitable for them and their shareholders. They will be in a monopoly position and must not be allowed to abuse it.

On the subject of consents as to what may be discharged, we have another erosion of the 1937 Act which allowed appeal to the Secretary of State in disagreement over such matters. I suggest that that should remain as most appeals will relate to issues of a predominantly technical nature.

Again on the subject of consents, I suggest the new provision for the publication of those is a severe breach of confidence. Identifying the individual constituents of an effluent can disclose the industrial process. What gives us any right to do that? The offence, if any, to the public is at the point of discharge from the sewage works, not at the input stage to the sewage works. The details of that input are, or should be, confidental between the discharger and the sewerage contractor, with the general public not concerned until the point of discharge from the sewage works.

With the possible exception of dangerous or red list substances, the publication of consents would seriously undermine business confidence in this legislation and probably lead to unnecessary vexatious actions by all and sundry and any green busybody with time on his hands.

In conclusion, perhaps I may summarise those points. The water supply plcs should not have the right to bring criminal charges against their customers. Such regulatory functions should be exercised by the Director General of Water Services. The relationship between the discharger and the sewerage undertaker must be commercially contractual and not regulatory. The water supply plcs must have an obligation to accept trade effluent realistically charged for and not use their monopoly position to pick and choose what they feel to be the most profitable.

An ultimate appeal on matters of consents, charges and discharge must remain to the Secretary of State and not to the director general of the regulatory body. Apart from the possibility of dangerous substances and the public need for that information to be proved and not assumed, the contractual arrangements between the discharger and the sewerage undertaker should remain confidential. I look forward to hearing that we be putting those matters right at the next stage of the Bill.

9.35 p.m.

Lord Mountevans

My Lords, at this stage of the proceedings there is not much to say: all that one can do is to try to say it in another way. I should like to pay a general tribute to the Government. They have said that they will listen to us. The noble Earl, Lord Caithness, has been sitting in the House for six hours listening to us speak and deny. The fact that he is present appeals to me enormously.

I was surprised by the fact that no one has declared an interest. All noble Lords have said that water is important to us but none has said that we use tap water and rely on people to take away sewage. That appears to be a declaration of interest and I should like to make that declaration.

What I wished to say has already been said by many noble Lords. The points have been made by the noble Baroness, Lady Nicol, the noble Earl, Lord Caithness, and the noble Lords, Lord McIntosh and Lord Ezra. I am particularly concerned about access. It was difficult for me to work out the way in which I could deliver an "access" speech until I listened to a local radio station this morning. Mr. Alan Mattingly of the Ramblers' Association focused my mind on the subject.

It has already been said this evening that approximately half a million acres of land will be affected by the Bill. If we go on the privatisation and profit route they may be shut off from the likes of me, the routine user. I shall not repeat what has already been said about where those acres are in the Lakes, the Peaks or the Brecon Beacons. But I am concerned that we should retain the right of public access as given to us under former legislation.

I welcome the noble Earl's comments about the undertakers. They are liable to come before us with an enhancement of the right of access. However, Government Front Bench speeches and reality do not necessarily reconcile with each other. Therefore, I should like a little more from the noble Earl to persuade me that I shall retain my right of access to those patches of land. When referring to half a million acres perhaps to use the word "patch" is to use the wrong description.

The undertakers shall have a right through this, that and the other. In his opening remarks the noble Earl said that the interests of bystanders such as myself will be looked after by means of a code of practice or amendments. But if the owners decide to transfer the land to a subsidairy company or to a third party (a private enterprise company) I shall lose my right of access. I shall remain convinced of that unless the noble Earl reassures me. Although we may have the code of practice or the amendments which the noble Earl may introduce later in the proceedings, the subsidiary companies or third parties are not bound by those. Therefore, I ask the noble Earl to assure me that I shall retain my rights of access.

There is another problem which is close to my heart, namely the EC standard for beaches, because I live within 200 yards of a cliff between Southampton and Bournemouth. We are not together on these. However, I am indebted to the noble Earl in a totally different context. He pointed out that neither are the Norwegians or the Germans—some of the people who shout most loudly. They are window dressing, posing and going to their local press. However, we do have a problem of which I know, living in Christchurch Bay. I should like to know from where the funding is coming which will make Christchurch Bay a place where I can take my godchildren, nephews and so on swimming, as a former Lord Chancellor used to say. Therefore, when the noble Earl winds up, will he assure me on that?—or perhaps he will merely say that it will be the beneficiaries who buy shares under privatisation who will pay for it. Beyond that I have not much to say. One could spiel away for 20 minutes, but that would be totally unfair to noble Lords who follow me.

9.40 p.m.

Lord Clinton

My Lords, well over 15 years ago we formed the Riparian Owners' Association for our local river, the Torridge. At that time we were concerned at the considerable drop in fish caught both by the rods and, to some extent, by the netsmen. That prompted us to see what could be done. Looking back I now think how naive we were in our ideas of how the problem could be solved. The reduction of netting, controlling poaching, water flows and, above all, better management of the river system were all considered and acted upon. However, it was some time before pollution came to our attention and we realised how very important it was for the river system to be clean.

Four years ago or so, when it was considered that privatisation of the water authority might take place, we set up the South West Riparian Owners' Association which has representatives from all the rivers under the control of the South West Water Authority, which will be privatised. It was that and the apparent difficulty in persuading the river authority as to the extent to which the rivers had deteriorated which convinced us that something had to be done. I now know that resources were not available for the work which had to be done, and I suspect that lack of funds was the reason for the delays and the unwillingness to agree with us at that time.

I welcome this Bill for only one main reason and that is the setting up of the NRA, which will protect the management of the rivers and other waters, and I especially welcome Chapter I, "Control of Pollution" at Clauses 96 to 98. I hope that we can persuade the Government to implement those measures and to act with sufficient expertise, staff, funds and, above all, with determination to put the rivers of England back in working order and clean for the future. In saying that I also include Wales. However, I believe that many of us would have preferred to see the NRA set up first and the controls set in hand and put into place before privatisation, so that standards could be set at an early stage.

I have some concern for the ability of the NRA to carry out its work if there is nobody to audit its performance. I should like to know what position Her Majesty's Inspectorate of Pollution will have in the future. It seems important that an independent body should watch the performance not only of the water industry but of the NRA. was greatly encouraged by the speech of my noble friend Lord Crickhowell, and I very much support the points made by the noble Lord, Lord Moran. believe that he said it all.

My concern is also that there will be, as there has been in the past, relaxation on river quality objectives. In the South West, particularly in 1979 and again in 1982 and recently, relaxations were given to sewage treatment works on discharge consent conditions to avoid prosecutions. We are currently faced with a programme of sewage treatment works relaxations to facilitate privatisation, yet at the same time we are denied access to the details and cannot satisfy ourselves that they are temporary and reasonable. That is due to the document clearing group. This is not the best way of going about it and I feel that it is essential to have co-operation between the NRA, the riperian owners and those who are fishing, as well as the local conservation and fishing interests.

One of my concerns with past routine monitoring of the water quality is that it has taken place only in office hours, not at weekends. It seems essential that this monitoring should be done over 24 hours, day and night, throughout the week. It is essential that there is co-operation between all those involved, and if we are to control increased pollution continual monitoring must take place.

Absent from the Bill, so far as I can see, is the need for any recommendation on research and development. I very much hope that this will take place in the future and that there will be provision in the Bill for RD with responsibility for it within the NRA, as there is much more work to be done on that subject.

I said that I welcome the Bill, especially the setting up of the NRA—a title on which one stutters at certain times, but I hope it will not be changed as I have become used to it. However, we have a Water Bill with neither a clear nor costed timescale for the improvements, as I see it. There is not even a mandatory duty on the Minister to set up a river water quality classification system. Let us hope that that can be changed. The Bill seems to say, so often, that the Minister "may" rather than "shall". The problem is enormous and I hope that it can be overcome. I hope it will be possible during the course of the progress of the Bill through your Lordships' House to put into place an organisation that will deal with the vast problems of our rivers, so that we will be able to look back at the turn of the century to rivers free of pollution.

9.47 p.m.

Baroness Lockwood

My Lords, I join with noble Lords who have expressed concern about the contents of this Bill. It is a concern which reflects not only their own feelings but also the general concern that has been expressed throughout the country by individuals and a wide range of organisations.

My own concern is directed to three points: first, the basic concern about disposal of a public asset which must be a monopoly providing an essential service to the public; secondly, the effect of the Bill on charges; and, thirdly, the effect on access to the countryside. Despite what the noble Lord, Lord Jenkin of Roding, said, my opposition to the Bill is not based on a universal support for the status quo. On the contrary, there are certain aspects which need to be put right and a body such as the proposed National Rivers Authority, or an even stronger body, would be welcome in any proposed structure.

There are also other problems that we have to face. For example, in the Yorkshire region we have severe problems with the sewerage network and with the quality of the rivers, many of which have been degraded in recent years. In that context, surprisingly, I agree with something said by Nicholas Ridley when he recently opened a new sewage waste incinerator at Bradford. He remarked: the Yorkshire area has been … a bit ropey in the past. But that's because I haven't allowed them the money". He was right. I entirely support what he said: though again, in view of what the noble Lord, Lord Jenkin of Roding, said, it might be Nicholas Ridley himself or it might be the Treasury which refused the money. Whatever the position, the fact remains that there has been under-investment in this national asset. Mr. Ridley then went on to say that the results of privatisation would open a glorious new dawn for the industry. When he was asked if the investment would not mean higher prices, he said: Yes, indeed. If you want cleaner rivers, you must pay higher charges. But let's face it, water rates are not the biggest part of anyone's expenditure". I agree with the first point. Having reached the present situation through past neglect, we shall have to pay more for a better service. I believe that consumers will be prepared to pay a reasonable price for this essential service if the charges are levied in an equitable way. As regards Mr. Ridley's second point that water rates are not the biggest part of one's expenditure, that depends on the extent of your income in the first place.

It is not individuals alone who are concerned about the possibility of rising prices. For example, the Confederation of British Wool Textiles is very concerned about water privatisation not only for the reasons that the noble Earl, Lord Shannon, explained but also because of the possible consequent increase in prices that would make the industry uncompetitive with our competitors abroad. For individual consumers the burden of water charges can vary according to their level of income. Other noble Lords today have drawn attention to the very complicated process of assessing the basic charges for our future water supplies. I do not want to elaborate further on that.

It has been widely assumed and the view has been encouraged by the Government that water metering will replace the present water rate system. However, at a recent meeting of the Yorkshire Water Authority, the authority said quite categorically that, on the ground of cost, it had no intention of introducing wholesale metering in the Yorkshire region. Nevertheless, a pilot scheme is under way. A report from the Wakefield District Council as regards metering trials raises very serious concern. It underlines a belief that larger families will suffer.

For example, the report states: Large families who use large amounts of water for basic hygiene needs rather than outdoor or luxury activities will be penalised by high prices. This is particularly marked in the low rateable value property where large families on low income will find their water bills increasing as much as seven-fold". That will be a very serious burden if metering becomes more or less universal. As regards the effect in terms of hygiene of economising in the use of water, the results can be quite serious. As one noble Lord said, it is not just a question of reducing the number of baths that one might take; it is much more serious than that. It is generally recognised now that the incidence of food poisoning is attributed to a considerable extent to poor hygiene practices in kitchens. Therefore, if there is any economising either by the domestic consumer or by the catering consumer—which is also a possibility—then a reduction in hygiene standards could lead to quite serious problems. It is a point with which we should concern ourselves at a later stage in the Bill's progress.

The cost factor is not limited to water standards and supplies. As noble Lords have indicated, it extends to the environmental and conservation sphere. The opening in recent years of access to land around our water catchment areas has greatly enhanced leisure opportunities. These opportunities range from simple access for walkers wanting to enjoy the peace and quiet of the countryside to more sophisticated facilities for the car and boat owner. We must ensure that a balance is kept between the two extremes. We must also ensure that future development either for private profit or for the use of a limited number of individuals does not despoil the environment.

There is a feeling in areas such as the Yorkshire Dales National Park that formal development for leisure purposes has gone far enough and that further such development on a large scale would completely destroy the environment that the national park has sought to preserve. Land adjoining the reservoirs both in the national park area and in some of the areas surrounding it—for example, the Washburn area and Niddersdale in Yorkshire, which are not part of the national park but nevertheless adjoin it—are a likely target for development. Such development could provide lucrative income and return on investment. We must ensure that it is kept well under control.

I look forward to seeing the amendments to which the noble Earl has already referred. We shall examine them carefully to ensure that access for the walker who wants to enjoy the beauty and quietness of the countryside is preserved and that the general environment and wildlife are not endangered by development for profit purposes.

9.58 p.m.

Lord Broadbridge

My Lords, in a Bill which together with its schedules comprises some 90,000 words, I should like to speak solely to the belief held by many of us that the proposal to sell off the water industry poses serious dangers to the environment, an area pithily dealt with some six hours ago by the noble Baroness, Lady Stedman.

The environment to which I refer is the 430,000 acres of land holdings belonging to the 10 existing water authorities. In a report at the end of last year entitled Liquid Assets, published by the Council for the Preservation of Rural England, the authors—from Leeds University—expressed deep concern that existing planning controls will not be able to contain the pressures on the newly formed water companies to exploit these 430,000 acres for non-water service purposes. I should like to devote the remainder of my brief contribution to an example with which I am concerned.

Before doing so I should in fairness turn to the Bill to see what is says about land conversion and disposal. Although there is much on existing activities, such as flood defence and the functions of the authority in relation to salmon, freshwater fisheries and so on, the only reference I can find to land disposal is in Clause 141, under the general powers of the authority. The Bill reads: The Authority … without prejudice to the generality of that power, shall have power, for the purposes of, or in connection with, the carrying out of those functions, to institute criminal proceedings, to acquire and dispose of land and other property and to carry out such engineering or building operations at such places as the Authority considers appropriate". Perhaps noble Lords will forgive me if I repeat the crucial words, to acquire and dispose of land and other property … as the Authority considers appropriate I can find no reference to guidelines, let alone more emphatic advice, in the Bill which will assist me or, more to the point, which will direct the authority in any disposals. I am sure that with the new authority there will be a requirement for adequate capitalisation and the paying of dividends to shareholders and consequent pressure to sell and/or develop for residential, commercial, recreational and other uses. As the CPRE report says: It is not clear that the Government itself has fully examined the full environmental implications of its water privatisation policy". I should like to ask the Minister who is to reply whether he thinks that the Government have done so. With an environmentally minded Prime Minister and an environmentally conscious Government one would expect that to be the case. Alas, the only words I can find about disposal of land, in the clause I quoted earlier, do not speak of any guidance or restrictions. They add up to 86 words in a Bill containing approximately 90,000 words, or 0.00096 of the total. I view the Bill as being as much about the use of land as of water. And the fraction I have quoted seems remote from fifty-fifty.

I should like to quote the example of the New River as an awful warning. The New River is a man-made but now naturalised channel built by Sir Hugh Myddleton in 1610 to bring London its first regular supply of fresh water from springs in Amwell in Hertfordshire some 40 miles to a New River Head—as it is called—at Amwell in Islington. A company was set up by Royal Charter. James I lent some of the capital and, at the gala opening, distinguished himself by falling in. This river, with associated reservoirs and other works, still does the same job some 380 years later. But a new underground tunnel will totally replace it in 1990 and the Thames Water Authority will have no water supply use for those works. The principal features are the New River Head in Islington—which contains the base of the windmill first used for power—the reservoir and filter beds in Stoke Newington, and the river itself which has been described as a greenway out of London, alive with birds, fish and plants.

In her pertinent speech in the debate on the Adjournment in another place on 24th February last, the Member for Hackney North and Stoke Newington said, at col. 1351 of Hansard: In the 29-acre Stoke Newington reservoir and filter beds site in my constituency we have what one might call a secret garden. My constituency is one of the poorest areas of the country and is one of the most built up parts of the inner city. Yet right in the middle of it we have a site the size of Regent's Park, which is an oasis—a green lung—for hundreds of thousands of people in Hackney, Haringey and Islington". She went on to say: That green space is unique—in its size, in the wildlife for which it provides a home, and in the service and pleasure that it provides for thousands of council tenants". Some two years ago, in anticipation of the redundancy of the whole New River set-up, Thames Water put forward a plan to develop the site by filling in the reservoirs and filter beds at Stoke Newington and building 1,100 luxury houses and flats—quite inappropriate to the area—together with supermarkets, shops and the like. More than one plan has been submitted only to be withdrawn and another in the same vein replace it.

Thames Water's public relations officers have issued statements which conflict with management activities. Despite the fact that the river has been flowing for close on 380 years, no level of flow required to keep the New River active has yet come from the authority which, I heard this morning, is now inclined towards stopping it flowing. Thus all is confusion and one cannot help feeling that this is deliberate in order to keep the public guessing and confused—a case of white man speak with forked tongue.

Over the years I have been not a little involved in the matter. As long as 15 years ago I showed the New River Head to the noble Baroness, Lady Birk, when she was our Minister here responsible for the environment, together with the then local MP. However, the future of the head itself is still unresolved. Last summer the New River Action Group—a group consisting of members of the public and councillors from the six local authorities through which the river flows—held a televised meeting which I chaired jointly with the Member for Islington South. We filled the Sadler's Wells Theatre. Moreover, the issue was sufficiently persuasive that we were able to get Dr. Bellamy, the international naturalist, as our guest speaker.

As president of the Islington Society, I have been involved in probing correspondence with Mr. Roy Watts who runs Thames Water. But there it is—this awful plan for water authority land disposal. However, the Minister in another place, replying to the debate from which I have already quoted, said at col. 1358: On conservation, the Bill provides that after privatisation the companies will continue to be under a duty of further conservation in the performance of their functions. Indeed, in our Water Bill the duties are strengthened by enforcement powers given to the Secretary of State, and by the code of practice which we published in draft recently. On recreation, the Bill provides that both the private companies and the NRA will inherit the duty of the water authorities to put the water and lands to best use for recreation. That will be particularly important in relation to the companies which will inherit most of the reservoirs and land assets". I should like to ask the Minister who is to reply: what is the present status of that draft code of practice? Who has reviewed it? And, most important, how mandatory and binding is it? Would it not be better to embody it into the Bill by government amendment and make it statutory? Naturally, I do not expect the Minister to be familiar with the somewhat parochial goings on that I have mentioned in connection with the New River; but surely he appreciates the general principles which are at stake. I offered, slightly impertinently, a parochial example only in the belief that it would be a microcosm of many similar situations which must be taking place all over the country. That, in a sense, makes it a national situation rather than a parochial one.

If that code of practice is already around, why is our largest water authority today pressing ahead with plans which must surely be in defiance of the principles of the code? It can surely only be because it does not see itself bound by it. Without real teeth, a code of practice will be nothing more than a paper tiger or, to use a simile more appropriate to a Water Bill, a drop in the ocean.

10.7 p.m.

Lord Norrie

My Lords, at this stage I shall confine my speech to three important aspects of water privatisation: access, recreation and conservation in the countryside. Will the Bill protect them? The existing water authorities are the guardians of a substantial area of our country, as alluded to by the noble Lord, Lord Broadbridge. To put that into perspective, it is an area slightly larger than Warwickshire. It includes some of Britain's most spectacular landscape, a haven for flora and fauna and accessible to some of our most popular recreations, pursued by millions of people every year.

The proposed Water Bill pays lip service only to protecting and maintaining those priceless natural amenities following privatisation. If we allow the Bill to pass in its present form, we may have to accept a future in which neither access nor recreational use of our countryside is guaranteed.

The only conservation and recreation concerns in the Bill are not opposed. Indeed, my right honourable friend the Secretary of State for the Environment went so far recently as to say that he saw absolutely no conflict between conservation and countryside recreation. The Bill contains measures to protect the environment and recreation. That is an attractive feature of the legislation and is to be welcomed. However, the Government must recognise that there is widespread agreement among conservation and recreation experts that the measures, although well intentioned, do not go far enough. It would be irresponsible to ignore the professional view of the outdoor pursuits and water recreation divisions of the Central Council for Physical Recreation (CCPR). Together they represent no fewer than 53 nationally recognised sport and recreation bodies in recreations such as walking, camping, boating, and angling, which alone enjoys the participation of 3.5 million people. They all depend on access to the countryside and to water.

The Bill imposes duties on the National Rivers Authority and the water undertakers to protect access and to promote recreation. As far as they go, these duties are to be welcomed. In particular, the Government's amendments in another place ensure that all existing arrangements will be covered, and undoubtedly this represents a step forward.

However, the CCPR is—and I think rightly—concerned that the duties are weak. Neither access nor existing recreational use is guaranteed. The Secretary of State for the Environment has said that the new water companies will be under clear duties to put their water and land to the best use for recreation. But I am afraid that the Bill simply does not live up to this claim. The companies need only have regard to the desirability of preserving access, and they need only promote the use of water for recreation to such an extent as they consider desirable. As businessmen, their bottom line could differ considerably from that of those of us who care about the countryside.

What is needed is a cast-iron guarantee that existing rights of access and recreational use of water authority land and water will be preserved. What we get is a series of promises that the matters will be looked at by private commercial concerns. The same applies to the conservation duties.

While I welcome the provision in the Bill for a code of practice to back up the conservation and recreation duties, I am concerned that the code cannot be enforced. In fact, to all intents and purposes the code is voluntary. Ultimately the Secretary of State will have to use an enforcement procedure which is surely only a reserve power to make a water company comply with its conservation and recreation duties. It is hard to conceive that the Secretary of State will put a water undertaker's licence at risk over a detail of its recreation policy. The result will be a code of practice which will have no teeth. That is exactly what the noble Lord, Lord Broadbridge, said, speaking before me.

The custody of our natural conservation and recreational facilities must be taken more seriously. I have said that the conservation and recreation duties in the Bill are welcome, but that they need to go further. Surely a fundamental principle of such duties is that they should apply to all the water and land owned by the water authorities. I regret to have to tell your Lordships that I believe this principle is being dangerously undermined. As many noble Lords have said, private water companies will be allowed to sell off or transfer land which they do not use for functional or operational purposes. As a consequence, this land will fall outside the net of the conservation and recreation measures in the Bill.

So far as I am aware, no one can tell us how much land is operational. We must be aware that it is quite possible that privatisation will positively encourage private water companies to sell off land. Let me give noble Lords an example. Let us say that there is a private water company owning 500 acres of upland catchment area surplus to business requirements and yet adjacent to a beautiful lake, already attracting many visitors. The water company might well come to a lucrative arrangement with a development company which sees the potential for, say, a theme park in an area close to an already established tourist atttraction. Under the present conditions in the Bill, the development company would not be bound by the same planning restrictions and controls as a private water company and could legitimately apply for a change of use. I may be painting a very extreme picture, but we must be prepared for extremes where such loopholes exist.

The Government claim that the planning system is adequate to protect the environment in these cases. If that is so, what is the need for special duties in the Bill in the first place? The simple point is this: much water authority land is especially important for its amenity use. That is why it requires special measures in the privatisation legislation to protect that amenity use. That is why the measures must apply to all existing water authority land.

I welcome the Government's amendments requiring consultation with the National Parks Authority, but I find it somewhat disturbing that the code does not mention the voluntary sector. Yet extensive conservation work programmes are carried out by non-governmental organisations. As president of the British Trust for Conservation Volunteers, I can tell your Lordships that we work with many water authorities. As an example, I should say that BTCV's annual programme with the North West Water Authority is 6,000 workdays. The BTCV carries out tree planting, drystone walling, fencing, path and access work, boardwalks and conservation and moorland management on those workdays. That is why it is so vital to establish good working relationships with the National Rivers Authority and private water companies. This is an omission in the code which must be put right.

These issues are too important to be left to the whim of commercially-orientated companies. It is excellent that measures in the Bill implicitly accept the need for public protection of conservation and recreation. But that protection is pointless unless it actually works and can be enforced.

The Secretary of State for the Environment tells us that he has, set out to provide in the Bill a secure framework for the protection, enhancement and enjoyment of water and its environ. Let us listen to the experts in the recreation field, and let us listen to the experts in the conservation field. They are all telling this House that the framework is not secure.

10.15 p.m.

Lord Bridges

My Lords, the part of the Bill which I wish to address—I shall do so briefly at this stage in the proceedings—concerns the transference of responsibility for flood defence from the present water authorities to the proposed National Rivers Authority. This matter is covered in Part III, Chapter III of the Bill. It is not by any means the most controversial part of the Bill, and it is understandable that most of the attention in our debate today has concentrated on the broader aspects of privatisation. However, I think the part of the Bill which I now address will be important in laying down long-term arrangements for future defence against flood. I should like to suggest that in some areas the Bill leaves me with the feeling that some further clarification and improvement are desirable.

I shall deal first with the title of the proposed National Rivers Authority and then with some of the financial aspects of flood defence. As regards the title "National Rivers Authority", I should make it plain that I have no objection at all to the concept of the NRA, which seems to me to be an excellent one. However, I follow the noble Earl, Lord Cranbrook, in thinking that the present title is misleading for precisely the reasons that the noble Earl gave. It is not a national body; it is confined to England and Wales. It does not cover Scotland or Northern Ireland.

We are not in the habit of describing a significant public body in this country as national unless it covers the whole of the territory of the United Kingdom. I think that is a sound practice and I do not think it would be wise to alter that practice. I think the reasons against doing so are both constitutional and political. If one has any doubt about that, one should ask the nearest Scotsman or inhabitant of Northern Ireland for his views.

As the noble Earl, Lord Cranbrook, also pointed out, the single word "rivers" is not a fully accurate description of the main field of activities of the authority. Indeed, I am informed that perhaps more than 50 per cent. of its resources will be devoted to flood prevention and drainage. Neither of those functions is evident in its title. These considerations lead me to suggest that a broader title would be better. Possible titles may occur to your Lordships, but titles such as the Waters Authority, or perhaps the Rivers and Coastal Authority, would give a clearer idea of the functions of this significant new body.

I suggest this is not just a matter of pedantic definition. The name of every public authority needs to convey to the citizen what it is that the body is intended to do. In my opinion the title "National Rivers Authority" does not do that.

I turn next to questions of finance. As I understand the scheme of the Bill, it is intended that the present system of financing flood defence will, in broad terms, be transferred as it stands from the water authorities to the new NRA, and the NRA will be funded directly by the Treasury.

The questions that we need to consider are, first, the total amount of the annual grant and whether it will be adequate to finance the necessary flood control work; secondly, the borrowing powers of the NRA to finance capital works; thirdly, the system of economic analysis used to appraise and justify those works; and, finally, the contribution to be made by the local authorities. I shall deal very briefly with each of those questions in turn.

The first point concerns the total amount of the annual grant. I may be wrong, but I have not read anywhere an indication of the approximate amount of the annual grant in aid which it is intended to provide to fund the necessary flood defence work. It has to be said that the amount spent on this work in the past decade has not been generous in relation to growing needs. Recently Her Majesty's Government announced that an extra £50 million was to be made available over the next few years to fund these flood protection works. That sum is derived from savings from the common agricultural policy. That decision is naturally welcome, but I think that we need an assurance from the Government, while the Bill is going through this House, that generous grant in aid will be provided annually. There is a very large backlog of work to be undertaken and the future prospects are, frankly, daunting. If the scheme provided in the Bill is to work properly the scale of the funding needs to be made clear at the outset.

The proposed borrowing powers of the NRA are obviously important in this connection. The Government's decision, announced earlier this month in another place, to permit the authority to borrow up to £160 million is certainly a helpful improvement. However, it is not entirely clear whether the NRA—or whatever it may be called—will be permitted to engage in long-term borrowing to finance capital works. This, as we all know, is the sensible way to finance them. I certainly hope that that will be the case.

Unfortunately, I was not in the House when the noble Lord, Lord Crickhowell, addressed this subject earlier this afternoon. I have heard that he said that that sum of money was to be made available for emergency works. It is a characteristic of floods that they have to be dealt with in an emergency, but there have to be funds for long-term improvements. Possibly there is some room for hope that the necessary long-term finance will be made available to the new authority. It would also be helpful if the upper borrowing limit could be varied by statutory instrument at some future date instead of by recourse to further primary legislation, as I believe would be the effect of the Bill at the moment.

Next, I should particularly like to draw attention to the system of cost-benefit analysis now employed to appraise flood works. That system has been worked out, with money provided by the Minister of Agriculture, by the Flood Hazard Research Centre of Middlesex Polytechnic. The effect of the system —I do not know what its intension was—is to determine which parts of our coastline should be defended and which not. The system employs methods of discounting the value of property likely to be damaged by flood which I can only describe as rather extraordinary. The effectiveness of the system is reduced by the fact that urban property is given more favourable protection than property in rural areas.

I personally regard that as a mistaken approach, because I cannot accept that a system based on the partial defence of our coastline is a valid one for the government of an island to adopt. One might unkindly compare it to the Maginot Line concept where one defends only a part of one's frontier. I do not think that that system should be continued and I greatly hope that the Ministers responsible for that important area of our policy will take a critical look at the guidelines produced by the Middlesex Polytechnic.

On consideration of this matter, I do not believe that the Government are addressing the right question. I believe that, in those cases, the Government need to know which stretches of our coastline positively need urgent protection and which can safely be left for another few years within the financial resources available. if a cost-benefit analysis is employed, it needs to compare directly the costs of work done now with the losses of property and the cost of restitution in the case of flood. The Middlesex Polytechnic system does not do that.

Finally, there is the question of the local authority contribution. That now looks like a very heavy burden, particularly since the Government decreased their own contribution a few years ago from 85 per cent. to 65 per cent. Since that time, the full vulnerability of our coastline has become more apparent. I learnt that there is also some apprehension that drainage precepts, which have hitherto been immune from ratecapping, will not be so in future under the new system. Given the unpredictable nature of flood defence works and its uneven incidence between one year and another, that would seem to be regrettable.

I have become aware of the importance of the subject in the last two years, facing a particular danger from the sea in East Anglia. Happily, after lengthy examination, the Government decided that the work required in that case should be done. But my involvement in the operation of the system leads me to believe that all is not well in that area. The need for investment is substantial and growing. It is perhaps understandable that this aspect of the Bill has not so far attracted much attention, but I suggest that a review of the arrangements now in place is desirable. If they are simply to be transferred to the new authority, there should be a fresh look at them as soon as is convenient. For the purposes of the Bill, a change in the proposed title of the authority to reflect the importance of flood defence would be a good way to begin.

I hope that Her Majesty's Government will be able to examine sympathetically the specific points that I have mentioned and will give the House a positive indication on them in the course of further proceedings on the Bill.

10.28 p.m.

The Earl of Balfour

My Lords, I have been involved with water for many years because most of my estate is on a private supply coming from a good quality spring. The total length of the pipes is about 3.5 miles, half being of a good quality cast iron and the remainder of lead. Two-thirds of the lead pipes have been replaced and I plan to replace the rest next year, taking advantage of the government grant.

I have studied the Water Bill and concluded that it is a good Bill. The 10 regional authorities of England and Wales were set up under the Water Act 1973 and took over the functions of about 1,600 local undertakers. They supply three-quarters of the country, the remainder being supplied, as I understand it, by 29 private water companies, although I have heard the figure of 28 quoted twice today. By 1980–81, the capital expenditure was £692 million, of which 41 per cent. was financed by borrowing. By 1987–88, the capital expenditure had risen to £1,186 million, but by then only 4 per cent. was financed by borrowing. That is quite an achievement.

In 1979, those water authorities employed just over 63,000 people. They now currently employ 48,500 people, which is again a good achievement. After the transfer date, the 10 regional authorities will be taken over by the Crown (that is provided for in Chapter V of Part II). They will then be responsible for water and sewerage only. All their other functions will be taken over by the National Rivers Authority. The NRA will take on about 6,500 water authority employees, thereby reducing to about 42,000 people the manpower of the old authorities. But I am glad to see that there is a provision for those authorities, while under the Crown, to borrow £1,400 million should they so need it (that appears in Clause 89 of the Bill).

I am confident that the water and sewerage undertakers should be managed economically and efficiently by public liability companies—or perhaps I should correct that and say private companies. But I ask my noble friend to treat the larger and smaller companies in such a way that there is no discrimination before then, as my noble friend Lord Elliott of Morpeth has very adequately illustrated. Whatever kind of companies they are, they will be under the strict control of the Director General of Water Services, who, along with the NRA, has special responsibilities for the control of environmental and recreational facilities.

The new plcs or companies—depending on the type of body they become—fall completely within all the requirements of local government planning regulations, the Monopolies and Mergers Commission and the fair trading and competition Acts.

I believe that today I can definitely say that every industry has learnt in the past 10 years that, if it does not improve and invest, time will leave it behind. I can equally say, as a landowner, that there is not a landowner or fanner in the country who has not at some time in the present or the past borrowed money on the security of the land that he owns but he never sells land unless he has to do so in order to meet death duties and the like. I believe that the worry about water undertakers disposing of land is unfounded. I am sure that they will hang on to every piece that they have.

Equally, if they do get into financial difficulties, the High Court with the Secretary of State and the director can bring in a special administration procedure, thereby ensuring that water continues to flow out of our taps and sewage is properly dealt with. It is clearly laid down in this well drafted legislation that the Secretary of State and the director have full powers to examine the books and records and have access to a wide range of information on any water or sewerage undertaker.

Chapter II of Part II covers the quality and quantity of water fit for domestic purposes, with the environmental health department of any local authority having full powers of investigation. Detailed regulations cover fire hydrants, repairs and maintenance of water mains and service pipes. Chapter III deals in a similar way with sewage.

Although the limits on charging and metering are under the Secretary of State's sole control (Chapter IV), the main regulations on payment and meters come under the director with any complaints being dealt with either by the appeals procedure or a customer service committee (that is provided for in Clause 27).

Part III and most of the remaining clauses of the Bill deal with that huge quango the National Rivers Authority. The authority will have control over pollution, water quality objectives, controlled waters, with licensing arrangements for all discharges, coastal defence, drought, flood defence, regional flood defence committees, salmon and freshwater fisheries, harbours, navigation conservancy and compulsory purchase. "Controlled waters" are the coastal waters around England and Wales up to three miles seaward, every river and water course, the water in every dock and harbour, lake, pond or reservoir, and underground waters. My noble friend Lord Crickhowell will have many functions to carry out. The Secretary of State lays down the standards, including the EC regulations. The director is responsible for water resources and sewerage.

I may have repeated a little of what the noble Lord, Lord Mason of Barnsley, said. However, I have the distinct impression that he said that the functions of the NRA covered internal drainage boards. As I understand it, internal drainage boards and areas remain exactly the same. That is covered by Clause 136.

When this Bill was first printed, I was concerned that the National Rivers Authority would not have sufficient government funds or borrowing powers to meet its many obligations. However, the NRA can borrow up to £100 million, in respect of mostly coastal defence. These provisions appear in Part II of Schedule 1. It can receive grants of about 32 per cent. of its expenditure for its many functions, some coming from the Secretary of State and some from the Ministry of Agriculture, Fisheries and Food.

I have read this Bill with great care, and, except for a few minor points, the drafting has met nearly all my doubts. I am completely satisfied that, with the separation in the Bill of ownership from regulation, the general public is fairly well protected. My noble friend Lord Cranbrook suggested that the Bill be extended to consolidate all the related legislation. However, I have been informed by others that consolidation requires a completely different procedure and therefore his suggestion cannot be followed.

Subject to the Government giving enough support to the NRA, in a few years' time all our beaches and rivers will be clean and safe to bathe in. This Bill deserves the wholehearted support of your Lordships.

10.38 p.m.

The Earl of Halsbury

My Lords, speaking at so late an hour, I shall be as brief as I can. Perhaps I may be allowed to offer an apology, valid for the next five weeks, to the noble Earl and other Front Bench speakers for being unable to be here for their speeches. I am for the time being a prisoner of the committee on the Cardiff Bay Barrage Bill, which sits from 10.15 in the morning until four o'clock in the afternoon and precludes my listening to early speeches.

Therefore I shall not comment on what has been said other than to say that from 10.15 this morning until now I have been concerned solely and absolutely with water. It has been "Water, water everywhere"—and if I had been brought up on the principles of the noble Earl, Lord Radnor, it would have been nothing other than a case of never a drop to drink. Mercifully, I was indoctrinated into the familiarity where the only liquor nobler than water is available for a consideration within a few yards from here. All I can say is that my heart bleeds for the noble Lord who is the chairman of the NRA, listening to all the claims made on his suppositious wisdom of Solomon. Whereas I have only a five-week stint in this job, he is in it, I am afraid—and good luck to him—for many years.

I now come to my conclusion. First, it is always useless to look backwards and ask whose fault it is that we are in the situation in which we find ourselves. It is probably everybody's fault, if we knew the whole truth in every matter. What matters is to live in the present. The present requires that we make a very large investment in the here and now and for some time to come in the water industry, which for one reason or another has been relatively neglected in years gone by.

In finding the capital funds for this privatisation it would be quite wrong to force the consumer to be an involuntary investor in his source of supply. It is right that the consumer should pay for the capital services on that source of supply as part of the cost of the water he consumes. It would be right to endow the water industry with the capital receipts from privatisation so that it has an endowment of capital in order to start work on what is so urgently necessary. It would be wrong to leave this major manipulation under Treasury control.

I now pass to what I might call an appreciation and critique of the Treasury. It is a worthy body of men, the only one dedicated to the proposition that Her Majesty's Government should spend less. Everybody else wants Her Majesty's Government to spend more, provided that it is on their pet hobby or interest, or whatever it may be. If it was left to them on a basis of "You scratch my back and I scratch yours", we would all be bankrupt but for the discipline imposed upon us by the Treasury.

I now come to my critique. The Treasury does not care what you do not spend money on as long as you do not spend it. This can lead to a certain shortness of vision. If this very large investment is to be made efficiently, it is much better that it should be done by privatisation. That is my belief. However, when it comes to the form of doing so, I have doubts about the provisions of this Bill. Twenty-five per cent. of our water supplies are currently financed by statutory water companies which borrow money at fixed interest rates by one means or another, either as local loans or as preference shares, or whatever it may be. I cannot see why that should not be the pattern for the future water industry. To introduce equity capital into this matter is a wrong concept. It is right that water should not be the subject of speculators who wish to reinsure themselves against depreciation by holding equity capital.

I now come to a feature of the Bill which seems to me to be very important and absolutely essential: the separation of direction and management from inspection and quality control. I have a particular view of mankind, of whom I am one, being uniformly sluts left to their own devices. The reason is very simple. If one goes back to the palaeolithic age, for 100,000 years we were hunters, wandering after the game that we hunted. We would never spend tonight where we spent last night or where we were going to spend tomorrow night. We were wanderers on the face of the earth who left our personal refuse, droppings and food waste (I do not need to go into the detail) for nature to clean up under aerobic conditions. The dung beetles, the ants and the vultures got it all nice and clean and tidy again by the time our ancestors returned on their wanderings, following the game to the point where they had started two or three weeks or perhaps two or three months before.

Cleanliness and tidiness is a cultural acquisition. It is not a genetic endowment. Left to our own devices, we would live in a sluts' paradise. It is only houseproud women who train their children to become houseproud mothers in their turn. That being the case, I think that polluters should pay by one means or another. I am not going to argue the toss with my noble friend Lord Shannon about the means.

I want to remind your Lordships that when I was young, which is beginning to be a fair time ago, Pittsburg was known as "hell with the lid off" because of the amount of smoke there. The city fathers decided that they would install smoke meters in all the chimneys of all the polluters and make them pay a penal rate for their pollution. Within five years Pittsburg was a clean air city. That is the way I should like matters to proceed.

I should also like to commend to the Government for consideration that we ought to have a scientific advisory council for the national authority. I imagine one of the members of that board, which should be a commercial board concerned with commercial considerations, should be the head of their technical advisory department; but such departments can easily suffer from in-breeding, and to have an advisory council chaired, if you like, by the technical director of the authority, to sit in judgment on the advice he was being given by his own subordinates would be a very good insurance policy against the organisation as a whole suffering from hardening of the arteries as time wore on and initial enthusiasms became eroded.

Those are the conclusions I have come to in the time available for me to study this Bill, and I recommend them to your Lordships.

10.46 p.m.

Lord Ross of Newport

My Lords, it has been a long debate and practically everything that can be said about this measure has been said and repeated on numerous occasions. However there remains the fact that only a few speeches have expressed total support for the Bill in its present form, and I suggest that they have come from the sources that one would normally expect.

I do not intend to keep the Minister from his bed for much longer, though at least he has a chauffeur-driven car to take him home. I am half asleep myself, but perhaps I may comment that I find it typical of post-war politics in Britain that in 1978, at the time of the Lib-Lab pact, I happened to play a crucial role in preventing the 29 water companies—there are actually 29, 28 of which are quite large and one which I think is in Wiltshire is very small—from being nationalised. I was entertained to lunch by Lord Elliott of Morpeth and his colleagues every time thereafter when I was sitting in the other place. I think I was the only non-Conservative person present, but nevertheless that was the case. They were clever enough to spot that at that time I was a spokesman on the environment for the Liberal Party, and my colleagues and I felt that those private water companies were providing a perfectly good service based on sensible charging and were best left alone.

I only wish that I could play that role today, because I have no hesitation in saying that I believe the establishment of the ten regional water authorities in 1974 was one of the few really good things to come out of the local government reorganisation at that time. I congratulate the noble Lord, Lord Rippon, for the part he played in it, for on the whole the country has benefited to a great extent by the actions of those authorities since that time. Obviously there is a lot more still to be done, but I agree with the chairman of the Wessex authority who pointed this out recently in a speech. I had a sort of feeling that there has been so much condemnation of those authorities that we have had some of the Government's propaganda put over to us today.

Perhaps I could just indicate from my own knowledge—one has to talk from one's own knowledge—what has been spent in my part of the world by the Southern Water Authority in recent years.

Over £14 million have been spent in the Isle of Wight. Following the drought in 1976, when we suffered badly and our own local supplies ran out and we had to bring water across from the mainland, a pipline was laid under the Solent. There were 76 raw sewage outlets in Cowes alone until about three years ago. They have all been picked up, capped and taken to an inland plant. Sewer outlets have been extended at Ryde, Sandown and Yarmouth, and new mains have been laid. It is true that, despite all that work, several of our beaches are not up to EC standards, but I expect that to change very soon as a result of that work.

I should like to put on record that I believe the regional water authorities, despite their lack of money—the noble Earl, Lord Balfour, quoted some statistics about how they have cut the number of employees and cut their coat according to their cloth—have played a very good part. No doubt they would have liked to do more, as we all should have wished, but they have been a success. I have no doubt that similar examples can be given for different parts of the coutnry. The Thames Barrier is another example of substantial expenditure by at least two regional water authorities.

In 1974 the situation was bad, but there has been a substantial improvement since that time. As many noble Lords have pointed out, because our Victorian sewers and water mains are breaking up an enormous amount of money must be spent. My party's favourite speech during the last two General Elections never failed to draw attention to the need for more public money to be spent in these areas not only to put them in order but also to cut unemployment. That was not done but it could and should have been. I suggest that during the past few years the Government have had adequate funds to do that work with a £14 billion surplus in the public sector; nevertheless, all the regional water authorities are perfectly capable of doing what is necessary. They have worked well and, in my view, they should be left to get on with the job. They certainly have the expertise.

Having defended the private water companies, I share the view that has been expressed in many quarters. My colleagues and I would not object to the privatisation taking place on the format of the 28 private water companies. That would meet the general consensus and I would go along with that. I am not against privatisation as such but I am totally opposed to it being done by a flotation on the Stock Exchange.

The water authorities' environmental record is good. That of the Southern Water Authority is very good. It has published a document on conservation matters—Issue No. 7—and it has been extremely good at saving kingfishers and even getting a fox out of a sewage plant. The authorities have done a great deal to provide sailing facilities on reservoirs, and have looked after bird life and so forth. There is much to be commended, and on the whole they have done a good job. That will now be put at risk.

Despite initial opposition from those authorities, the NRA is welcome. However, if local government had been given a chance it could have played the part equally well, but this Government apparently do not believe in local democracy. In 1983 they even cut out our local representation on the Southern Water Authority. That had been valuable because we had two representatives who sat on the authority and reported to the county council and the boroughs about what was happening. They were able to exert a little pressure. Those representatives were removed and a lady from Andover took over, but she knew nothing about the Isle of Wight.

One will no longer be able to put pressure on one's local MP. Water authorities reported annually to MPs in the Committee Room in another place. When an issue was upsetting constituents in an area covered by, say, the Southern Water Authority, Members would attend in large numbers and put the chairman through the hoop. If they were satisfied about what was happening, the chairman got away with it very easily. However, that was a way in which such matters could be drawn to attention and undertakings obtained.

We are looking to the NRA to do a great deal about pollution. We are saying that it must put its own house in order and that the polluter must pay. As was said by the noble Earl, Lord Halsbury, we are a filthy nation—probably the most filthy in Western Europe, if not in the Western world. Quite rightly, the Government are drawing attention to that fact but I hope that they will put some money into it. One needs only to travel on the train outside London and look at the stuff which is thrown over the backs of gardens. When travelling into Shrewsbury the sight is disgraceful. It is going into streams and finally entering rivers, and some of it is pretty polluting.

That fact must be taken on board. It need not be the job of the NRA or the water authorities but there must be a general clean-up. The sooner we tackle it the better. I suppose that we should begin by tackling the problem in the schools and persuading children to impress upon their parents that we no longer do such things. We might then get somewhere, but we must start soon because the situation is disgusting.

If it was not for municipal enterprise in days gone by, we should be in an even sorrier mess today. I hope that our major cities, for example, Birmingham and others, will demand proper compensation for the loss of their major assets. If that holds up the flotation, so much the better.

I do not believe that the various chairmen, with one notable exception, really thought that privatisation was such a good idea initially. However, there is no doubt that they will all gain financially, and probably substantially, so they are all now safely on board. But at what cost to our nation. The few concessions made in the other place are minimal. Even the consultation with the National Parks Authority is a Trojan horse, as the Open Spaces Society was quick to point out.

I suppose that amendments will be tabled from all sides of the House and we shall try to gain some crumbs of comfort for bodies like the CPRE and the National Trust, archaeologists, ramblers, the sailing fraternity and so on, who have appreciated how the 450,000 acres are now at risk. They have been preserved by the water authorities and before that by the municipal authorities for our enjoyment. However, now the caravan site operators and the park home builders are casting their eagle eyes over that land. Some of the French companies which are taking over the private water companies are in the construction industry. I ask the Government to take note of that fact.

However, I believe that politically time is on our side. I do not believe that the Prime Minister or the Secretary of State for the Environment fully appreciate exactly what sort of backlash from the general public is likely to descend upon them in the years immediately ahead. Water charges are increasing substantially. The noble Lord, Lord Nugent, who knows his stuff, predicted that they will rise by at least 30 per cent. Metering is in a mess. The Isle of Wight is a trial area; I can assure the Minister that metering is in a mess. There are all sorts of problems particularly in flats and multi-occupation premises. The housing associations are trying to sort out who to charge for what. I shall make sure that meters are not put into my place until I am certain that everyone is to be metered separately.

The poll tax, rising commercial rates, rent increases, ever-increasing interest rates, the higher cost of petrol which is going up by 20p per gallon, fares and electricity charges are all coming on top of each other. We know that 14,000 people had their water cut off last year. Some very angry people will not be able to live with these demands. They will respond in the only way they know how, that is, through the ballot box. And the sooner the better.

10.58 p.m.

Lord Gallacher

My Lords, we should remind ourselves, although it is self-evident from the debate, that the present structure of the water industry in England and Wales stems entirely from the legislative endeavours of Conservative governments. So what is being changed has nothing to do with the Labour Party; it is entirely to do with the present Government. Indeed, before coming to the debate this afternoon I took the liberty of reading the Second Reading speeches by the respective Secretaries of State in 1973 and 1983. In contrasting their hopes and aspirations with the speech of the noble Earl today, on which I congratulate him, one is led to consider what a strange game politics still can be.

Water and sewerage—the heart of the concerns expressed throughout the day—are true, natural monopolies. In that respect, they are rot like energy, transport or even telecommunications where a choice of sorts is available to consumers. Consequently, any fundamental change in arrangements for water and sewerage are bound to be looked at fairly closely by consumers. I believe that that is at the heart of the widespread concern expressed about the Government's intentions embracing a wide assortment of interests which I shall not detail as they have already been discussed to a very considerable extent.

We welcome, as have so many speakers, the proposal to establish a National Rivers Authority. This was not in the 1986 proposals and represents a concession by the Government to public pressure. We should like to see the NRA with more powers than presently proposed. Certainly we should like to feel that adequate funding will be available to it, because without that it will not be able to fulfil the high hopes which the noble Lord, Lord Crickhowell, expressed for it in his memorable speech.

The Bill grants much freedom to plcs and yet in some sense is restrictive in regard to the NRA. In legislative terms we find that imbalance somewhat difficult to understand. The demise—for that is what it is—of the statutory water companies is a tragedy because they represent a form of organisation which would have been acceptable to the nation at large in preference to plcs for the 10 regional water authorities now existing. Any idea that, quite apart from what the Bill proposes for them, they could continue as they have done in the past has already been shattered by what one can fairly describe as the French connection.

I have before me an extract from my local newspaper, the Kent Messenger, for 7th April in which the Member of Parliament for Tonbridge and Malling, Sir John Stanley, expresses serious concern, serious doubt and serious misgivings about an increase this year of 42 per cent. by the West Kent statutory undertaking in its supply charge structure. Although Sir John wanted a reference of this imposition to the Monopolies and Mergers Commission the Minister for Water and Planning, also a Member of Parliament for a Kent constituency, refused it and said that the most to be hoped for is that the following year—that is, next year—companies which have done this (West Kent is only one) will be restricted to minimal or no increases.

The report states that a factor in the increase has undoubtedly been the influence of the SAUR French organisation which acquired shares in the West Kent undertaking. The same could be said of Eastbourne. Therefore, the character of the statutory water undertakings has been irretrievably altered. Indeed, on conversion to plcs, as the Bill authorises, they will certainly need to be closely watched; in some ways even more closely than the present regional water authorities which will form the 10 new plcs and which will, as I said, be the subject from the outset of a separate issue of shares and therefore to some extent under the watchful eye of the Director General of Water Services.

It has already been pointed out that the regional water authorities are land-asset rich—some 450,000 acres. Those of us who contributed solemnly to the rating demands of the old Metropolitan Water Board must look particularly enviously at the Thames Water Authority, because one is reminded of the phrase, "a half acre in Middlesex is worth two acres in Heaven". However, Clause 83 allows the Secretary of State to write off loans which the new plcs will have unless such action is taken. Clauses 95, 96 and 97 cover the conversion of the statutory water companies into plcs. This I find particularly regrettable because they have served the consumer well.

As I said, we welcome the National Rivers Authority. Its flood defence role is covered in Clauses 132 to 136. In a sense, that is satisfactory. However, we need to ask what will happen if the NRA decides that it needs wider powers than the Bill currently gives it. The same query arises on the responsibilities which the Bill imposes on the NRA in respect of salmon conservancy and navigation.

Clause 147 on compulsory land purchase by the new plcs and the NRA allows authority for this if the Secretary of State and the Minister of Agriculture give compulsory purchase their blessing. This raises at once the logical query as to what happens if and when land which has been compulsorily acquired by the plcs is subsequently disposed of. We on this side believe that we should at least raise with the Government at the due time whether or not such disposals of land compulsorily purchased by water plcs should not first be offered to the National Rivers Authority.

In Clause 158 and subsequent clauses, the powers of plcs in relation to local authorities are defined. We ask: where the plc decides to terminate the use of local authority services, will there be any provision for an appeal by local authorities to either the National Rivers Authority or the Director General of Water Services? In this connection we ask ourselves, bearing in mind the state of relations between the Department of the Environment and local authorities in England and Wales, whether the department wishes to see a lesser role for local authorities in the water industry than the important role that they currrently discharge.

As regards financial effects, there is stringent Treasury control spelt out in the Bill concerning the National Rivers Authority. Again, the matter has been raised by other speakers, but we are entitled to ask again whether the National Rivers Authority will be a victim of cutbacks by the Treasury without regard to its capital commitments and its undoubted need for forward planning concerning its extensive activities. Will the Treasury treat the National Rivers Authority as just another instrument of economic policy? These situations are not unknown.

The customer services committees are of considerable importance to us. My noble friend Lady Ewart-Biggs has dealt with this question at some length. We believe that placing these important bodies under the wing, so to speak, of the Director General of Water Services is excessively harsh. We believe that they are entitled to greater freedom bearing in mind the extent to which the Director General of Water Services has to balance functions. He may not consider the role of the consumer quite as important in that balance as the customer services committees undoubtedly will.

For example, we believe that these customer services committees in the areas of the 10 water plcs should have the right of access to the board of any plc for the region and other water plcs in that region. The customer services committees should have the right to report directly, and not initially to the Director General of Water Services. The chairpersons of these committees should be able to meet together at least twice a year for the discussion of matters of common interest, and to draw on the experience of each other.

Finally, I turn to the question of bills. We welcome the fact that before disconnections are made a court order will be required. We are wondering what will happen when the community charge machinery is in force as regards people who rent their properties; for example, council house tenants. It is our understanding that when that happens council house tenants will no longer pay their water and sewerage rates as part and parcel of their weekly rent and that they will be billed separately for these services. That seems to us to introduce a very new and novel element into the lives of people who have never been accustomed to paying bills of that kind in that fashion. Unless some special provision is made for them, initially at least there may be some fairly serious situations in which water and sewage bills are unpaid.

For example, if one considers the Southern Water Authority as it now is, it has 4 million sewage customers but only 2 million water users. That means half of the people in the region are paying their bills either with their rent, if they are rented tenants, or directly if they are owner occupiers. If the water bill is paid to one authority and the sewage bill is paid to another, these rented tenants will be paying two bills whereas, as I said previously, they paid no bill at all. That is a matter calling for a very great deal of education or a very great deal of sympathetic handling by the authorities. If disconnection takes place on a court order one can readily see how that will occur if it is merely a water disconnection. But if it is also a sewage disconnection then there are problems of public health involved which seem to us to be of very considerable moment and which need to be thought about. It is a role in which the customer services committee should play a major role in making the public well aware of the change of circumstances affecting a very important aspect of their lives, where the paying of bills carries with it certain privileges, and where failure to pay them will undoubtedly result in some fairly painful experiences for people who may not be as well used to managing their affairs as perhaps they should be.

These are some of the queries that legitimately arise from the debate today. We welcome the sympathetic way in which the Minister introduced the Bill, and in particular the remark he made that he would be prepared to consider in Committee, and possibly also on Report, amendments of a reasonable kind. We can assure him that the amendments from this side of the House will be of that character. We hope that he will carry through his promise of sympathy when we get down to the nitty-gritty of detailed amendments.

My final point concerns a remark made by the noble Lord, Lord Jenkin of Roding. He suggested that the Minister had indicated to the House that some part of the sale proceeds would be available for investment by plcs. It was not within our recollection that the Minister made such a promise. I should like to be clear in my own mind, so that I sleep well tonight, whether the noble Lord was right or whether my hearing of the Minister was perhaps more accurate.

Those are the main points we wish to raise. We cannot say that we support the Bill, but at any rate we shall attempt to amend it constructively.

11.11 p.m.

The Earl of Caithness

My Lords, with such an important measure, it has come as no surprise to me that so many noble Lords should choose to speak in the debate. I am encouraged by this interest; it shows that we shall be giving the Bill proper examination. I am grateful to those noble Lords who have taken part and especially grateful to those who have stayed. From these Benches we shall be listening carefully to the debates over the next couple of months. Building on what we have heard today, I believe that we shall enjoy some stimulating arguments. We have heard some exceptional speeches, I refer in particular to those of my noble friends, Lord Crickhowell and Lord Jenkin of Roding, with their vast experience of this matter.

This is a complex Bill. At 388 pages it is one of the longest ever. The explanatory notes that are available in the Printed Paper Office run to 550 pages. So it is perhaps not surprising that there are some details of it which your Lordships have not yet fully digested. There will be time enough for that. But it is vitally important to be clew- what it is we are not doing. For a start—I must point this out to the noble Lord, Lord Monson, even though he is not here—it is not the water we are privatising, but the water and sewerage businesses. We are seeking to transfer a nationalised industry to the private sector. The water itself is provided by the Almighty, sometimes rather more often than we would like. But it is not open to most of us to go to some babbling brook and remove just what we need. We want it to flow from our taps in whatever quantity we want for bathing and drinking, for washing our cars and for watering our gardens. What is more, we require it all to be treated to such standards as makes it safe to drink—even that which we pour on our gardens.

Once we have used the water we expect it to disappear down the drains, taking away whatever we choose to put into it, out of sight and out of mind. But behind this simple set of demands lies a complex network of pipes, plants, treatment works, reservoirs, sewers and sewage works. There are chemists, engineers, plumbers, scientists and managers. This is an enormous production industry. And it is that industry we intend to privatise, because all the evidence is that privatisation leads to more efficient operation from which customers and shareholders will benefit.

It is right that production industries such as this should be in the private sector but subject of course to proper health, environmental and economic regulation. Freed from the public sector, the industry will be able to achieve the standards we all want to see that much quicker and with the efficiency only the private sector can provide. It will be free, for example, to get out and show the world how expert and competitive the British water industry is.

Inevitably, we have had a wide-ranging discussion on public ownership against private ownership. The noble Lord, Lord McIntosh of Haringey, was supported in what he said by a number of noble Lords. He said that his party would nationalise the water industry. The new-look Labour Party is an even more terrifying prospect than the great nationalising governments of the past. But at least they did not nationalise the 25 per cent. which remained in private hands for many years.

What the noble Lord, Lord McIntosh, said really worried me because of its effect on standards, consumers and the environment. Public ownership and regulation have not been totally satisfactory in the past. Indeed, the noble Lord admitted that point. In a recent article he wrote: I saw political control and officer manipulation at its worst". My noble friend Lord Crickhowell has already complained about excessive government control on the proposed NRA. However, none of the noble Lords advocating state control has shown any reason why the situation would not be much worse under a much more comprehensive, bureaucratic system such as the one which they propose.

The great sadness and mischief is that the Labour Party believes that public interest equates to public ownership. I prefer what the noble Lord, Lord Wyatt of Weeford, proposed; namely, that the public interest is best protected by strict regulation of a private enterprise. The noble Lord, Lord McIntosh of Haringey, quoted from Joseph Chamberlain. However, it was a Scotsman, Adam Smith, who first noticed the benefits of transferring enterprises from the Crown to the people As he said, the attention of the Sovereign can be at best a very general and vague consideration of what is likely to contribute to the better cultivation of the greater part of his dominions". Put simply, public ownership does not mean public service, because a nationalised industry cannot be made accountable to the people who really own it; namely, the public.

Lord McIntosh of Haringey

My Lords, is the Minister seriously claiming that what is proposed is to transfer the water industry from the Crown to the people? Surely, in practice, it is transferring the water industry from all of the people to a very few people.

The Earl of Caithness

My Lords, it is putting it back to the public where it belongs and where it can really be managed in the best way for everyone. If the noble Lord had listened to the second part of what I said, that fact would have been clear to him.

The noble Lords, Lord McIntosh of Haringey, and Lord Walston, and the noble Baroness, Lady Stedman, thought that the consumer and the environment could only benefit under political control, as regards both the regulation and the operation of the industry. I must remind the parties opposite that during their years of control between 1975 and 1979 they achieved a unique treble: they massively increased the prices which consumers had to pay; they massively increased the staff and, at the same time, they massively cut investment in this industry—all with enormously detrimental results. Thankfully, the situation has now changed, as the noble Lord, Lord Walston, accepted. But, as the noble Earl, Lord Halsbury, said, we need to look forward and move on to obtain better standards and a better environment.

It is rewarding that so many of your Lordships have welcomed the proposal to establish the National Rivers Authority. However, some noble Lords have expressed concern about the resources which will be available to the NRA. I should like to reassure your Lordships that the Government are fully committed to providing the authority with the resources which it needs. We fully accept the need for a strong and independent NRA. I am sure that all your Lordships who heard the excellent speech made by my noble friend Lord Crickhowell will agree that he will provide the NRA with the strong, independent leadership which it needs to become the important and respected environmental body required to fulfil those important functions.

We have demonstrated our commitment to giving the NRA all the powers it needs by the amendment introduced in another place. That amendment will allow the authority long-term borrowing powers for its flood defence functions. I note the concern expressed by my noble friend that such powers are intended only for emergencies. The reason for this is that we believe with proper planning it should be possible for the regional flood defence committees to plan their expenditure so that borrowing is not required.

I should also like to emphasise that we attach great importance to the NRA maximising income from its customers so as to reduce its dependence on the Exchequer. That point was emphasised in the policy statement on the NRA made in December 1987. Even so, some of the activities of the NRA are for the benefit of the community as a whole and it is therefore only right that they should be paid for by grant from the Exchequer. We shall, of course, take full note of the concerns expressed by your Lordships about the powers and resources of the NRA. However, I can assure your Lordships that we are absolutely committed to giving the authority all the powers and resources which it needs.

The noble Lord, Lord Mason of Barnsley, mentioned his work with the NRA. He also mentioned his concern for the fishermen. I agree with him that fishermen are among the best environmentalists; indeed, fish are among the best environmentalists because they notice when the river quality changes. However, I must say to the noble Lord that I disagree with him on one point which he made. I believe that the best answer is for the industry to be put into private hands in order to achieve the necessary high standards.

Before completing my comments on the NRA, I should like to refer the noble Lord, Lord Bridges, who asked about the grant in aid for the NRA, to the financial memorandum to the Bill on page xiii, which makes it clear that grant in aid for the NRA will be about £71 million in its first full year of operation.

Several of your Lordships mentioned conservation and recreation, especially in relation to the land not used by the water and sewerage undertakers. I say to my noble friend Lord Rippon of Hexham that the Bill re-enacts the existing conservation and recreation duties. In some respects it strengthens them. It is true that the duties in the Bill attach to the carrying out of water functions and not to the land itself. It is not the purpose of the Bill to control uses of land no longer required for water functions: that is the purpose of the planning system, which is especially strong in the national parks and areas of outstanding natural beauty.

I had hoped that the noble Baroness, Lady Lockwood, who mentioned that point, would have reminded the House that most of the land in those areas is already in private ownership. There is no evidence that that inhibits public enjoyment of it or leads to undesirable development. Considering her experience, the noble Baroness, Lady Stedman, did not explain why the planning system would not work in future when she acknowledged, by implication, that it had worked in the past. I urge the noble Baroness to look again at the proposed enforcement regime. It is nowhere near as weak as she suggested. The Bill in no way changes the present legislative position with regard to charging for access and recreation.

The noble Lord, Lord Greenway, raised some anxieties and wished to strengthen the interest of those concerned with boating. I know that he accepts that a balance has to be struck between all the interests involved in recreation and conservation.

When one discusses such matters one is bound to have conflict. There are those, as the noble Baroness, Lady Nicol, said, who want access to all places at all times; and yet my noble friend Lord Middleton will know what a disastrous effect that can have on Schedule 1 birds. In certain areas of the national parks some of the most beautiful countryside is suffering damage from erosion to such an extent that access may have to be restricted. The angler, as the noble Lord, Lord Moran, said, will want his interests fully protected; while the noble Lord, Lord Mountevans, wants access by others to the same waters, although it may be those selfsame waters that my noble friend Lord Cranbrook will want to protect for conservation reasons. My noble friend Lord Clinton looks for a minimum flow in rivers, whereas my noble friend Lord Radnor introduces a further conflict because he wants that as well as the right to extract from them. My noble friend Lord Norrie wants good access for recreation and at the same time full conservation, with all the in-built conflict that that entails. I therefore tend to agree with my noble friend Lord Crickhowell that it will require more than the wisdom of Solomon to solve all those difficulties, some of which he will have to deal with.

My noble friends Lord Middleton, Lord Radnor and Lord Stanley of Alderley mentioned the water industry's compulsory purchase powers, which enable it to acquire the land that it needs to fulfil its statutory obligations. The successor companies will need the same powers for the same purpose. It is worth reminding the House that the compulsory purchase powers will be available only with the Secretary of State's approval and only for the land needed to carry out the water and sewerage functions. There is no question of the powers being available for other purposes, or to the enterprise subsidiaries. The Secretary of State's consent will be required for disposal of any land compulsorily acquired that becomes surplus to requirements; for example, after the completion of works. The general rule will require the land to be offered first to the former owners, at the current market value.

The compulsory works powers will be subject to the oversight of the director general and to the mandatory codes of practice. Payments will have to be made to complainants who show that failure to comply with the code has caused them to suffer loss or damage or to be inconvenienced. These penalty payments are an innovation and are in addition to the provision for full and fair compensation when the land value is depreciated or loss or damage caused by the exercise of the powers.

I mentioned the statutory water company model in my opening speech, but in response to my noble friends Lord Nugent of Guildford and Lord Pym, and the noble Earl, Lord Halsbury. perhaps I may quote, for the sake of clarity, from the 1986 report that I mentioned. The Monopolies and Mergers Commission said: While we do not regard the issue of privatising the water industry as within our remit, the foregoing analysis leads us to offer one observation which may be relevant to it. This is that the existing private statutory companies are not in our view a useful model to follow. Where private concerns have monopoly power over essential services, the need is to combine adequate safeguards for the consumer with some appropriate means of providing a profit incentive to management to reduce costs and increase efficiency. The form of regulation, is by limiting profits and dividends, applied to the statutory companies conspicuously fails to meet this need". There could hardly be a more damning indictment of the statutory water company model. But the message was brought home with some force earlier this year—

Lord Nugent of Guildford

My Lords, will my noble friend allow me to intervene? Would he be good enough to tell the House what this report was concerned with? It was concerned with the proposal by the Southern Water Authority to absorb the half-dozen water companies in its region because it wished to cover the whole area itself. The report ended by recommending that it should not do it, so it does not seem to be quite so damning as the noble Earl indicated.

The Earl of Caithness

My Lords, as I explained, the report was not looking at the privatised water industry because, as the commission said, that was not within its remit. But it commented on the model, and I think that was a fairly damning condemnation.

The message was brought home with some force earlier this year when the companies started to increase prices by amounts quite unjustified in some cases. Indeed, it was the noble Lord, Lord Gallacher, who raised the problem, and doubtless he will welcome the proposals in the Bill which will prevent that in future. It is a matter we cannot control at the moment. Such increases will of course be taken into account when the Secretary of State sets the initial price controls for future years.

My noble friend Lord Elliott gave a very constructive and fair-minded summary of points which had been made to the department by the water companies and which are being carefully evaluated. I was most interested in what he had to say on the relationship between the framework for consumer protection and the need to leave a profit incentive with the companies. That, I agree, is a balance which has to be struck.

Another point which was raised by many of your Lordships was whether the water authorities could be properly sold. It is for Parliament to decide on the form and ownership of the water industry. In 1973, no doubt based on appropriate analysis at the time, Parliament created the water authorities as public corporations largely under local government control. Not only the assets but also the debts of the local authorities were transferred. In 1983, again no doubt based on appropriate analysis at the time, Parliament decided to reduce the very large board memberships which confused executive responsibility with representation of various interests. I cannot find out exactly what my noble friend Lord Rippon of Hexham said in 1973, but I discovered that he voted at Second Reading in favour of the Bill in which the water authorities became less like local authorities and more like boards of private sector companies and nationalised industries.

The motivating factor was the need for greater efficiency. This Bill continues the trend; it introduces a yet superior framework for the industry. But the point is that the changes in 1973 and 1983 were for Parliament to decide. Each step in the reconstitution of the industry, including not only the transfer of assets but also—I must stress this—its associated debts, has been proper and lawful. Now it is again for Parliament to decide.

Some of your Lordships raised questions about the proceeds of the flotation. That point was raised particularly by the noble Lord, Lord Gallacher. The terms on which the industry is sold will reflect the need for future capital and investment on programmes to improve drinking water quality and sewage treatment. I have listened carefully to what has been said in this House today, not least by my noble friends Lord Jenkin of Roding, Lord Rippon of Hexham and Lord Elliott of Morpeth, and I appreciate the sentiments that they have expressed. However, for now I shall say no more than that we shall ensure that the industry is in a position fully to meet its obligations. I listened with interest to what your Lordships had to say about a dowry. I know that my right honourable friend and honourable friend will also take careful note of what has been said.

My noble friend Lord Nugent of Guildford linked price rises to privatisation. But in fact there is no doubt that prices would rise without privatisation, and those rises might be of even greater amounts, given that we would not have the efficiency gains that the private sector should deliver under the watchful eye of the Director General of Water Services. The charges will increase because of the need to spend more to achieve the high standards we all want to see.

I would say to my noble friend that it is true that new companies will make provision for dividends. However, dividends and tax liability will not be additional to the current financing costs, but will be substituted for them. The industry's current financial targets were expressed as a rate of return on the current cost value of the assets. The Treasury will not require that of the industry after privatisation.

I listened carefully to the sound arguments put forward by the noble Lord, Lord Harris of High Cross. However, I can assure him and the noble Lords, Lord Monson and Lord Ross of Newport, and the noble Baroness, Lady Lockwood, who made the similar mistake of associating metering with privatisation, that it is totally independent of the privatisation.

The noble Lord, Lord Ezra, asked whether the quality of service under a privatised industry could be guaranteed. In fact we are putting a whole range of mechanisms into place to encourage and discipline higher standards. On the one hand is the strong but fair regulation, backed up by the formal enforcement powers held by the Secretary of State and the director general; on the other are such innovatory incentives as the £5 cash payment scheme. That sum will be payable for each day that certain standards are not met. This will encourage the industry to keep appointments, to answer complaints on time, and not to delay restoring water to those cut off for maintenance reasons.

I have to say it is a complete misunderstanding for the noble Lord, Lord McIntosh of Haringey, and for my noble friend Lord Stanley of Alderley to see the director as being biased in favour of the industry against the interests of the consumer. The Bill makes it a primary duty of the Secretary of State and the director to ensure that companies carry out their duties properly. If that is not for the benefit of the consumer, what is?

I know that some of your Lordships raised the question of customer services committees. Doubtless that and other points I have not been able to reply to tonight will be discussed in Committee. I am sorry that I do not have time to answer all of the points that I wished to answer. There will doubtless be opportunities to deal with them at a later date.

Several of your Lordships touched on the unpopular reputation that this measure is said to enjoy. As for popularity, at comparable stages in the run up to previous privatisations, opinion polls showed less than wholehearted enthusiasm. But those privatisations were, nevertheless, very successful. I am sure that as we debate the Bill and the flotation comes nearer, more and more people will come to see the benefits of our policy. For we know that people care deeply about their water. We know they want to benefit from the highest possible standards. Standards are high now, for instance 90 per cent. of our rivers are of good or fair quality in comparison with 75 per cent. in Europe, but there is room for improvement.

With the best will in the world, the evidence before us shows that annual discussions with the Treasury for that part of the water industry that is not already privately owned have not achieved the standards nor the control of water pollution we demand.

Investment is now running at more than £1.2 billion a year. But the Government will always have to take a broader view of public sector finance than the needs of a single industry. This Bill offers a new way forward to achieve the standards we all want and demand. It does so by separating the water and sewerage businesses from the strict regulatory control which should and will be the job of independent public bodies. I commend the Bill to your Lordships.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

House adjourned at twenty-five minutes before midnight.