Water Charges (Hansard, 23 February 1989)

§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)
My Lords, the Government have made clear to the statutory water companies that until they are brought into the regulatory regime proposed under the Water Bill, they continue to be bound by the limits on charges in their existing statutes.

§ Lord Molloy
My Lords, that is not a very comforting Answer to my Question which was: will the Government stop any price increases for water? It is that which is frightening people. Is the Minister aware that specialists on the subject—both those who support privatisation and those who are opposed to it—are agreed on one issue? It is that the Government are not taking serious steps adequately to protect the consumers. For example, Ernst and Whinney, chartered accountants, is reported to have told the Water Companies Association to ignore any government protest and insist on big price increases this year. Does the Minister intend to do anything about that? Is it not the Government's policy to phase in charges, and that the water companies are expected to effect significant increases in their prices in a few months' time?
Therefore, will the Minister say whether it is the intention of the Government strictly to abide by what they have previously said? It was that there will be no overwhelming increases in the price of water and that more stringent rules will be laid down before another increase is permitted.

§ Lord Hesketh
My Lords, my right honourable friend the Minister for Water and Planning has made it clear that he sees no justification for water 754 companies increasing their charges by anything like the percentages some have proposed. He has asked the chairman of any water company planning to increase its charges by more than 10 per cent. to explain the reasons behind the increase.

§ Lord Barnett
My Lords, given the Government's philosophy in this sphere, why is the Minister seeking to interfere with a private company's judgment on this matter?

§ Lord Hesketh
My Lords, because he feels, as the noble Lord, Lord Molloy, pointed out, that we should be looking at phased increases.

§ Lord Hatch of Lusby
My Lords, is the noble Lord aware that yesterday his right honourable friend the Secretary of State told another place that it would cost over £2 billion to put our water and beaches into a state which would satisfy EC regulations? Will he answer the Question which I asked yesterday and which he said he would postpone answering until today regarding the Government's attitude to the statement by Mr. Swallow, the director or the Water Companies Association, that under Government policy shareholders' profits must take precedence over consumer interests?

§ Lord Hesketh
My Lords, with regard to the future pricing of water by the statutory water companies, of course there will be factor K. It is clear that the value of K will be drawn up on the basis of the financial standing of the company and its future financial profile. Where that shows surplus funds built up through charges increases not related to needs but purely for the purpose of swelling reserves, the value of K will be lower than it otherwise would have been. Therefore, the reduction of the charges will increase in future years allowing customers the benefit of those surpluses. That means that there will be no advantage to the statutory water companies if they do that for other than good reasons.

§ Lord Stoddart of Swindon
My Lords, is the noble Lord aware that the consumer is not worried but will be worried about algebra equations in relation to the water industry and the price he will have to pay? Before the water industry is denationalised and privatised, would it not be better if the Government used some of the enormous funds accruing to the Treasury this year and in subsequent years in order to put right the water industry and the environment of our beaches? At least we should then know that we have decent, potable, pure water and clean beaches which we shall certainly not know if there is privatisation.

§ Lord Hesketh
My Lords, I am always slightly confused by the attempt to relate privatisation to environmental demand. I and the Government believe that the consumer is willing to pay for quality and that cost has nothing to do with privatisation.

§ Lord Hatch of Lusby
My Lords, will the noble Lord answer the Question which I asked him yesterday and which I asked him again this afternoon? Do the Government agree with Mr. 755 Swallow that their policy for privatising water and setting up private water companies indicates that the shareholders will be put before the consumer?

§ Lord Hesketh
My Lords, the shareholders will depend upon a satisfied consumer.

§ Lord McIntosh of Haringey
My Lords, as the water companies claim that the increase in prices is occasioned by the impending privatisation proposals and as at the same time the Government are apparently saying that they have no power over the water companies to do anything other than to urge them to phase their increases, will not the public draw the justified conclusion that those increases are the direct responsibility of the Government?

§ Lord Hesketh
My Lords, it is too early to comment on individual cases. A number of companies may face increased costs in making a start towards meeting the drinking water directive and in drawing up their asset management plans in preparation for the new regulatory regime. Both those areas will benefit the consumer. Some may have thought that large increases this year will give them a higher charging base when the new charging regime starts. People—individuals and groups—probably find it easier to blame the Government than anything else.

§ Baroness Robson of Kiddington
My Lords, as regards the Minister's reply that the water companies depend on a satisfied consumer, does he not agree that it would be very difficult for the consumer to boycott the water companies?

§ Lord Hesketh
My Lords, when I referred to the consumer earlier I was referring to the fact that the consumer demands quality. We were discussing the implication whereby privatisation is confused with the demands of the consumer for environmental benefit.

§ Lord Cledwyn of Penrhos
My Lords, is it not the case that the letter from the accountants Ernst and Whinney said specifically that the Government had initially approved the increased water charges and had also said that the Government approved a proposal that the charges were justified because privatisation was to take place? Will he be good enough to say whether or not that is accurate?

§ Lord Hesketh
My Lords, the Government have made clear to the advisers of the Water Companies Association that while the present statutory controls remain in force, water companies must continue to abide by them. That guidance did not invite the water companies to exploit those limits to the full in advance of the regulation under the Water Bill, nor did it indicate that failure to do so would put them at a disadvantage under the new regime.

§ Lord Molloy
My Lords, if this were simply a political issue many of us would wish the Government to continue, because 90 per cent. of the members of the public who participate in the polls and radio'phone-ins are against this entire measure. 756 However, we are talking about rather more than a political issue and the freeing of water. Is the Minister aware that the water of this nation is just as important as any other part of a fundamental line of defence, and that the defence of this country should not be messed about by this Conservative Government?

§ Lord Hesketh
My Lords, as a result of privatisation, standards will improve. I should remind your Lordships' House that this is not the first time that there have been high increases in water costs. Water authority rates rose by more than 40 per cent. in 1975–76 and by 26 per cent. in the following year.