Lords Sitting of 4 May 1989

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Truro): The LORD CHANCELLOR on the Woolsack.

National Debt Repayment
Lord Orr-Ewing Lord Orr-Ewing asked Her Majesty's Government:
What savings to taxpayers have accrued from the reduction in the national debt over the last two years.
The Secretary of State for Trade and Industry (Lord Young of Graffham): My Lords, the Government have made a net public sector debt repayment (PSDR) of £17·8 billion over the past two years. As my right honourable friend the Chancellor of the Exchequer announced in his Budget speech, this will save over £1½ billion a year in debt interest costs.
Lord Orr-Ewing: My Lords, does the Minister agree that that substantial saving has been a major factor in permitting the Government to spend an extra 40 per cent. in real terms on the health service and between 20 per cent. and 25 per cent. extra, again in real terms, for every pupil in our schools?
Lord Young of Graffham: Yes, my Lords. I hope that my noble friend will not think that I am being too self-centered when I say that the annual saving is rather more than the entire budget of my department.
Lord Jenkins of Hillhead: My Lords, as this day of all days we are being asked to think back over a 10-year span, can the Minister tell the House what has been the net debt reduction, if any, over the past 10 years and what has been the consequent saving in interest to the taxpayer taking those 10 years as a whole?
Lord Young of Graffham: My Lords, over the whole of the 10-year period there has not been a net reduction. However, it may be of interest to learn that the net public sector debt was just over half of GDP in 1979; namely, 50·s6 per cent. In 1989 the estimate is that it will be precisely 32 per cent.
Lord Barnett: My Lords, does the noble Lord agree that there would be an even greater benefit to the taxpayers and the community as a whole if, instead of reducing the national debt, the resources had been used to improve the quality of life for everyone by spending the money on the environment, general infrastructure, and so on? Is that not the policy of the Chancellor? Is it not part of his policy not to reduce the national debt; or is that not a policy with which the Minister agrees?
Lord Young of Graffham: My Lords, it is only by good housekeeping that we are in a position to be able to reduce the public sector debt. Perhaps I may remind the noble Lord, Lord Barnett, that each year the Government are spending more money on precisely the objectives that he outlined. Only by running the economy in the way that the Government have succeeded in doing for the past decade have we been able to see not only the reduction in the public debt but the amazing turnaround in our economy.
Lord Boyd-Carpenter: My Lords, can the Minister say how far one has to go back before last year to find a year in which there has been a net repayment rather than an increase in the national debt?
Lord Young of Graffham: My Lords, we have to go back a very considerable period, I suspect, since these figures were first kept to find a repayment in the order of last year's figure.
Lord Bruce of Donington: My Lords, I note that the Minister has refrained specifically from answering the precise Question put on the Order Paper by his noble friend. Is he aware that the cost of servicing the national debt in 1978–79 was £15·8 billion whereas in 1987–88 it was £17·7 billion and in 1988–89 it was £17·1 billion—all valued at 1987–88 prices? Does he not agree that it would be well worth while to answer his noble friend precisely and say that in point of fact the increase in the debt charge in the years to which the noble Lord, Lord Orr-Ewing, has referred was between £186 million and £574 million, depending on which document is relied upon—either the Financial Statement accompanying the 1989–90 Budget report or the Government's expenditure plans, both of which are issued by the Government?
Lord Young of Graffham: My Lords, I am not sure that I followed the question put by the noble Lord, Lord Bruce of Donington. I shall only say that in all these matters the relevant figure is the percentage of GDP. It is the proportion of the total resources of the nation that goes to pay off our debt. That is coming down and will continue to come down.
Lord Bruce of Donington: My Lords, in response to the Minister on that specific point, may I point out that in 1978——
Noble Lords: Order!
Lord Bruce of Donington: My Lords, is the Minister aware that in 1978–79 the debt charge as a percentage of GDP was 9·9 per cent. and in 1988–89 it is 10·28 per cent?
Lord Young of Graffam: My Lords, no doubt the noble Lord can seek and find individual figures taken from different tables issued by the Government, which I do not deny. However, the only relevant figure here is the proportion of national resources which have to go back to pay the debts of past generations. This Government are lifting from the future the burden of the debts of the past.
Lord Tordoff: My Lords, does the Minister agree that the answer to the question put by his noble friend Lord Boyd-Carpenter is 1968–69?
Lord Young of Graffam: My Lords, it may very well be, but not to the same proportion, which was my answer.
Lord Hailsham of Saint Marylebone: My Lords, before we prolong indefinitely this statistical game of ping-pong, may we reflect that the noble Lord, Lord Bruce, cannot have it both ways? The total borrowing may have increased, but by how much more would it have been increased if we had done a quarter of the things that the Opposition Front Bench has asked us to do?
Lord Young of Graffam: My Lords, since my noble and learned friend has asked that question, perhaps I may say in reply that if the PSBR as a share of GDP had remained at the 1978–79 level, cumulative borrowing today would be £90 billion higher than the outturn and increased debt service would cost us £9 billion each year. That is the measure of the difference.
Lord Stoddart of Swindon: My Lords, is it not a fact that while public debt has been reduced, private debt has increased very considerably indeed with detriment to the economy and in particular the balance of payments? Does the Minister agree that it would be preferable for the Government to ensure that their debt was kept under proper control; indeed, that they should not pay off the national debt so quickly but rather encourage private saving, which would help the general economic situation and the balance of payments situation in particular?
Lord Young of Graffham: My Lords, it is all a matter of perspective. I suspect that if one were sitting opposite it would appear to be to the detriment of the economy; if one were sitting outside your Lordships' House and looking at the real world, it would not.
Lord Peston: My Lords, the Minister said that what really mattered was the decline in the public debt. Is he saying that future generations will welcome the decline in public investment and the quality of the environment in which they will live because this Government have cut such expenditure in order to cut the national debt?
Lord Young of Graffam: My Lords, the noble Lord is too good an economist not to know that the Government have increased expenditure in all those areas in real terms. If he steps outside he will see that the quality of life is rising and not falling. Whether one considers water pollution or any other measures, it is clear that the environment is being improved.
Viscount St. Davids: My Lords, will my noble friend confirm that during their period in office the Labour Party added £40 billion to our debts which, according to my calculations, mean that we have to pay out £4 billion a year simply to service those
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debts? I think that my noble friend will agree that that is considerably more than twice his total budget.
Lord Young of Graffham: My Lords, it is nearly four times my total budget.
Lord Thorneycroft: My Lords, whatever else has happened in the past 10 years, is it not a rather cheerful fact that it has resulted in the Labour Party embarking upon a policy of trying to reverse almost every policy that they pursued before that period?
Lord Young of Graffham: My Lords, I think that that factor has not escaped the notice of those of us on this side of the House at least.

Pest Control: Birds
3.10 p.m.
Lord Stanley of Alderley Lord Stanley of Alderley asked Her Majesty's Government:
Whether they will resist any attempts to make it more difficult to control pests listed in Part II, Schedule 2, of the Wildlife and Countryside Act 1981, in particular magpies and carrion crows.
The Minister of State, Department of the Environment (The Earl of Caithness): My Lords, we have no intention at present of altering the provisions relating to species listed in Schedule 2 Part II of the Wildlife and Countryside Act 1981.
Lord Stanley of Alderley: My Lords, I thank my noble friend for that Answer. Is it true that the Commission believe that our pest schedule, as I call it, is contrary to their birds directive? Is my noble friend aware that he would have the wholehearted support of every shepherd, and indeed of every noble Lord who took an interest in drawing up that schedule in the 1981 Act, if he strongly resisted such a move?
The Earl of Caithness: My Lords, I am very well aware of the support from my noble friend and those who live in the countryside. However, anyone who is remotely concerned with nature and bird life would wish to see the continuation of a pest schedule.
Lord John-Mackie: My Lords, with reference to the concern for bird life, the magpie is the biggest possible killer of bird life.
The Earl of Caithness: My Lords, I hope that the noble Lord speaks for all the Opposition.
Lord Winstanley: My Lords, I am a wholly committed supporter of the Wildlife and Countryside Act. Does the noble Earl agree that it was not the intention of that Act that magpies should be permitted without let or hindrance to steal chicks and eggs from the nests of small birds which others of us have striven hard and long to protect and preserve? While I am not in favour of capital punishment for theft in general, should not an exception be made for the thieving and murderous magpie?
The Earl of Caithness: My Lords, an exception is made for the magpie. I am grateful for the support of the noble Lord, and I hope that of his party.
The Earl of Swinton: My Lords, is my noble friend aware that when the noble Lord, Lord Winstanley, refers to the Commission, he is not referring to the Countryside Commission which I know is wholeheartedly against the common magpie? I believe that he refers to the European Commission. Might it be worth while for my noble friend to hire a coach and to take the Commissioners up and down the motorways? They will then have an idea of the preponderance of these horrible magpies which live all over the land.
The Earl of Caithness: My Lords, an invitation has been offered by my right honourable friend the Secretary of State to the new Commissioner and to Mr. Brinkhorst to come and see some of the appalling damage that these pests do.

Brigade of Gurkhas: Future
3.14 p.m.
Lord Bramall Lord Bramall asked Her Majesty's Government:
When they will be ready to announce their plans on the future of the Brigade of Gurkhas.
The Minister of State for Defence Procurement (Lord Trefgarne): My Lords, we have repeatedly made it clear that we intend that there shall be a future for the Gurkhas after 1997, and hope shortly to be in a position to say something more about this.
Lord Bramall: My Lords, I thank the Minister for his quietly encouraging, although surprisingly somewhat cautious, reply. Does he agree that, whatever the longer-term plans for the shape of the brigade—and I agree that there are a number of factors to take into account—in the shorter term, while we still have responsibility for the stability and security of Hong Kong, while there are very real problems of recruiting and retention in the British Army, there can be no justification whatsoever for restricting the number and strengths of Gurkha units for which no recruiting problems exist?
Lord Trefgarne: My Lords, the noble and gallant Lord will not expect me to anticipate the Statement that is to be made in the not too distant future. However, I can assure him that all the points he has made are being very carefully taken into account.
Lord Irving of Dartford: My Lords, is the noble Lord aware that this matter has been under consideration for at least five years, and that many people appear to believe that the delay arises from a lack of commitment, despite what the noble Lord has said? This would be a very poor recompense for the excellent and courageous service that the Gurkhas have given to this country over a long period of time.
Lord Trefgarne: My Lords, the noble Lord is quite right. The contribution that the Gurkhas have made
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in past times to the effectiveness of the British Army is absolutely magnificent. The urgency is not so great as the noble Lord suggests because we shall be withdrawing finally from Hong Kong in 1997. It is in Hong Kong that Gurkhas are principally employed at the present time.
Lord Mayhew: My Lords, I welcome cautiously the Answer given by the noble Lord. Why is there no reference to the Brigade of Gurkhas and recruiting difficulties in this year's White Paper? Is he aware that the Defence White Paper this year is quite exceptionally skimpy and uninformative?
Lord Trefgarne: My Lords, the content of the White Paper does not exactly arise from the Question on the Order Paper. However, if the noble Lord is asking why there was no extensive reference to Gurkhas in the White Paper, perhaps I may revert to the reply that I have just given to the noble Lord opposite. The White Paper that has recently been published is the 1989 White Paper, and not that for 1997.
Viscount Slim: My Lords, in view of the demographic problems of recruiting that will affect the armed forces in the future, and the fact that the army already looks like being under strength, should not the noble Lord be advising his right honourable friend the Secretary of State to retain every Gurkha and not to consider slicing the numbers?
Lord Trefgarne: My Lords, as is known, the British Army has some modest recruiting problems at the present time. They are indeed no more than modest. I do not think that the size of the Brigade of Gurkhas is a relevant consideration. However, as I have already said, we certainly recognise the importance of the brigade.
Baroness Strange: My Lords, will the Minister agree that it can sometimes be more economical to employ Gurkhas?
Lord Trefgarne: My Lords, that is a rather more complicated question than perhaps my noble friend realises. The cost of employing Gurkhas very much depends upon where they are deployed.
Lord Eden of Winton: My Lords, the Minister has informed the House that we my expect a fuller Statement shortly. Can he give the assurance to the House that it will be before the Summer Recess?
Lord Trefgarne: My Lords, I cannot give a categoric assurance in the way that my noble friend requests. However, I can say that I shall be very surprised if that is not the case.
Lord Bramall: My Lords, is it not rather surprising that the Government have taken so long over this matter? As has already been stated, it is over three years since the initial announcement was made envisaging a continual role for the Gurkhas after 1997. The admirable parliamentary Select Committee report has been published for quite a long time. Can the Minister say why there has been this delay?
Lord Trefgarne: My Lords, there is no particular deliberate delay. As I said earlier, there is no particular urgency either, because there are no immediate plans for any change in the size of the Gurkha Brigade. What we are considering is the size of the Gurkha Brigade post-1997.
Lord Kennet: My Lords, while we are all very glad to know that there will be a future for the Gurkhas after 1997, can the Minister tell us whether that future will be with the British Crown?
Lord Trefgarne: My Lords, yes. In the future there will be a Brigade of Gurkhas within the British Army for as far ahead as we can foresee.
Lord Chalfont: My Lords, will the Minister assure us that if, after 1997, one problem is that of accommodation for the Gurkhas when they leave Hong Kong, he will investigate fully the possibility of stationing another battalion in Brunei, where the training facilities are excellent?
Lord Trefgarne: My Lords, all those possibilities will be considered. However, we have not reached a final conclusion. We shall announce it as soon as we have done so.

Armed Forces Housing
3.20 p.m.
Lord Bramall Lord Bramall asked Her Majesty's Government:
Whether, in view of their current difficulty in retaining men in the armed forces, they intend to reinforce their record as employers by introducing a house purchase scheme.
Lord Trefgarne: My Lords, we welcome the fact that servicemen, like other members of the community, aspire to own their own homes. We have taken a number of measures to help them to combine home ownership with the special demands of service life. We are examining a number of other ideas, including the possibility of setting up a scheme to help servicemen save towards the purchase of a house.
Lord Bramall: My Lords, I thank the Minister for that reply which I might describe as being of some help on the peripheral areas of the problem. Does the Minister agree that domestic and family problems relating to difficulties with housing continue to be one of the greatest incentives to leaving the services early? Does the Minister not agree that at a time of acute manning difficulties what is really required is a much more comprehensive scheme which will allow the soldier to save for his retirement home in a tax-effective manner without being forced to buy a home prematurely and at a time when he is being encouraged to live in government accommodation, often abroad? At present at the end of his service he has nothing to show.
Lord Trefgarne: My Lords, I do not believe that the noble and gallant Lord is right in suggesting that this matter is a key element in the retention affairs
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of the British Army or the other armed forces. While no doubt it is one of the considerations that soldiers and others take into account, it is certainly not the only one. We recognise that there is scope for improvement in the arrangements presently in place and that is why we are considering what can be done.
Lord Alport: My Lords, is my noble friend aware that in the garrison at Colchester certain of the married quarters have been made available for occupation by civilian families under the auspices of the local corporation? If there are surplus married quarters available, could not those quarters be made available for sale to servicemen at reduced prices to encourage them and to give them a chance to start on the home-owning ladder?
Lord Trefgarne: Yes, my Lords, I can reassure my noble friend on that. Surplus married quarters are always offered at a discount to the armed forces before they are placed on the general market.
Lord Ashbourne: My Lords, which of the services is most acutely affected by this problem of retaining skilled personnel, which is a very acute problem in my view? Are the Government taking fully into account the attitudes of wives when they grapple with this problem?
Lord Trefgarne: My Lords, in answer to the second of my noble friend's supplementary questions, yes, we always take into account the views of the whole family unit. Those views are often coincident with the views of the husband. As to the retention of skilled personnel, the problem of retaining highly skilled people is not confined to the armed forces. It is a problem which is manifest right across the British economy, within British industry and other organisations as well as the army
Lord Stoddart of Swindon: My Lords, the noble Lord said that housing and house ownership was not a key element. Is he aware that some of us disagree with him? He must be aware that in the next few years, when there will be enormous competition for young people, the question of house purchase and future housing will concern officers and men and their wives very much indeed and may well become a key element.
Lord Trefgarne: My Lords, I am trying to deal with the present situation. Of course I do not deny that the demographic trough, as it is called, will become more pronounced in the future and the armed forces will have to compete as vigorously as ever to attract their share of competent young people. The provision of appropriate housing will represent one of the elements that we shall have to consider. But I remind the noble Lord that we have a considerable estate of married quarters which are already available to serving personnel, whether they be officers, non-commissioned ranks or others, and those are very much an attraction to many young people.
Lord Irving of Dartford: My Lords, is the noble Lord aware that the failure to retain trained

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personnel is costly and the failure to recruit enough personnel is a serious disability to our defence effort? In view of the urgency of this matter, will he not only give serious consideration to the points made by the noble and gallant Lord, but equally bear in mind that other matters of pay prospects and conditions of service have to be considered if we are to meet the shortage of young people which will shortly arise and which will mean a worse position in respect of recruitment?
Lord Trefgarne: My Lords, I agree with the noble Lord. It will be necessary to ensure that the whole range of conditions of service available in the armed forces, not just the housing provisions, remain as attractive as we can make them if we are to continue to ensure that we recruit our share of the young people whom we shall need.
Lord Mayhew: My Lords, is the noble Lord aware that the problem of recruitment and retention of servicemen is of tremendous importance and of great interest to Parliament? I ask again, why is there no reference to this problem in this year's Defence White Paper? Is he aware that year by year this White Paper is becoming less and less valuable for informing Parliament and more and more of a public relations document?
Lord Trefgarne: My Lords, as far as I can ascertain, the noble Lord's view is unique to himself. The White Paper that we published at the beginning of this week has been widely welcomed by a wide spectrum of political opinion. I am sorry that that does not include the noble Lord. In fact at present the strength of the armed forces is close to the planned strength. Out of a total number of personnel of some 320,000, taking all the services together, overall we are less than 6,000 short, which is a tiny percentage.
Viscount Ridley: My Lords, does my noble friend not agree that the scheme suggested by the noble and gallant Lord, Lord Bramall, would be extremely cost-effective and will he examine it yet faster than he has so far?
Lord Trefgarne: My Lords, we are doing our best to bring this matter to a speedy conclusion. It is in our interests as well as those of our servicemen to ensure that we do that. I assure my noble friend that there will be no unnecessary delay.
Lord Dean of Beswick: My Lords, if the Government intend to put into operation a scheme to enable people in the armed forces to save towards the purchase of a house when they leave the armed forces, will they make sure that the factor in house price rises is taken into account? Otherwise the savings may be completely swallowed up in inflation by the time they are ready to leave the service and may well be worthless.
Lord Trefgarne: My Lords, the noble Lord is quite right. That is an important consideration, but adds to the complexity of any scheme we have to devise.
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That is why it is perhaps taking a little longer than some people would wish. I refer again to the scheme we have now for disposing of surplus married quarters to suitably qualified personnel. They are sold at a substantial discount—normally 30 per cent.
Lord Leatherland: My Lords, does the Minister think that it is time for another general increase in the pay of the armed forces? I remember when I joined in 1914 at a shilling a day, and as a company sergeant major only earned five shillings a day.
Lord Trefgarne: My Lords, I am happy to reassure the noble Lord that the pay is now rather more than five shillings a day.

Business
3.27 p.m.
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Water Bill will be adjourned at approximately 7 p.m. for approximately one hour. During this adjournment the Second Reading of the Employment (Age Limits) Bill will be taken.

Business of the House: Debates, 17th May
The Lord Privy Seal (Lord Belstead): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the debates on the Motions in the names of the Lord Bancroft and the Lord McCluskey set down for 17th May shall each be limited to 2½ hours and that Standing Order 35 and paragraphs 10 to 13 of the Rules for the Conduct of Short Debates shall apply to each debate.—(Lord Belstead.)
On Question, Motion agreed to.

Prisons (Scotland) Bill [H.L.]
3.28 p.m.
The Lord Advocate (Lord Fraser of Carmyllie): My Lords, I beg to move that this Bill be now read a second time. It is a consolidation measure. It consolidates certain enactments relating to prisons and other institutions for offenders in Scotland, and other connected matters. It is pure consolidation and is intended to make no change in the existing law. If your Lordships approve, it will be referred to the Joint Committee on Consolidation Bills which will consider it and make its report to the House in due course. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Fraser of Carmyllie.)
On Question, Bill read a second time, and referred to the Joint Committee on Consolidation Bills.

Water Bill
3.29 p.m.
The Earl of Caithness: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(The Earl of Caithness.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Lord Nugent of Guildford Lord Nugent of Guildford moved Amendment No. 43:
After Clause 3, insert the following new clause:
("Incorporation of statutory companies.
. Schedule (incorporation of statutory companies) to this Act shall have effect to make provision for the incorporation of a statutory company as the successor company of each water authority for the purposes of section 4(2)(a) below and for appointments under Chapter I of Part II of this Act and a company so incorporated is in this Act referred to as a "statutory company".").
The noble Lord said: A large number of consequential amendments have been listed with Amendment No. 43 and no doubt they will be noted. The substance of the amendments is contained in Amendments Nos. 43 and 47, the latter setting out the new schedule. The effect would be to substitute for the plc structure defined in the Bill the statutory water company as defined in the 1945 Water Act. The plc structure in the Bill is set out with the profits, dividends and charges controlled by the Director General of Water Services. If my amendment is agreed the director general and his new bureaucracy which will make such arrangements will become superfluous. The consequential amendments relate to the fact that he will then be removed from the Bill.
I point out to my noble friends that the amendments in no way challenge my party's manifesto to privatise the industry, as I have heard rumoured in some quarters. I recognise the necessity to privatise as a practical need to have access to the money market in order to finance the huge needs of the industry in its future capital programme. Private companies are the only answer to that.
Our amendments construct the new private companies on a more sound basis than exists in the Bill. It has operated successfully in this country since the middle of the last century. It continues to do so with the 29 existing private companies supplying a quarter of the nation's water. The statutory company raises its capital in the money market by fixed interest bonds which are usually redeemable at rates close to gilt edged. The 1945 Act governs the operation of these companies. Schedule 3 to the Act, which is substantially repeated in Amendment No. 47, specifies precisely their financial management. That includes the condition that the surplus cash from one year's trading must go towards reducing charges to the consumer in the following year. The audited accounts must be submitted annually to the Secretary of State for his approval. This financial structure has the prime virtue of assuring that the
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interests of the consumer come first. By implication, in effect he owns the equity of the industry.
With regard to the capacity of the bond market to absorb the sale of the water industry, I am reliably assured that it presents no problem. In present conditions, referred to during Question Time, of the Treasury redeeming national debt, there is a shortage of such stock.
Last Tuesday's debate showed the strength of anxiety about safeguards against the new water companies developing their extensive holdings of land and changing a great deal of the character of the country. The statutory water company gives the best safeguard of all because it is not a profit-making body. Therefore it does not have the incentive to do so, and in practice seldom has.
On Second Reading my noble friend the Minister quoted from the report of the Monopolies and Mergers Commission about the Southern Water Authority's proposal to take over the six statutory water companies in its area. It was to the effect that a statutory water company is not a useful model to follow because it lacks the profit incentive for managers to aim for cost reduction. The report reveals little evidence to support the criticism but it reached the tentative conclusion that the merger should not proceed, and it did not. If that is all the evidence that my noble friend the Minister can marshall against the competence of the statutory companies, noble Lords may conclude that their record is pretty good. That is especially so when set alongside the approval annually of each water company's annual report and accounts by successive Secretaries of State over the past 44 years. It is clear that if serious defects had occurred in the companies' management, then years ago a Secretary of State would have ordered a thorough review and inquiry into the working of the companies. No one has done so.
The truth is that the commission went outside its remit, as it confessed in its report, to express an ex-parte view on the national debate on privatising the water industry. The point is whether it is in the public interest for the water industry to be redesigned in order to make a profit. That is the issue which noble Lords present will decide this afternoon.
I turn to the plc structure in the Bill. As I see it, there are two main defects. Profit-making in the absolute monopoly of water is disliked by most people on ethical grounds. It has never been operated in this country. On a practical level, the scope for profit-making in water is virtually negligible. Indeed, if the scope for making a profit in water was as good as in British Telecom, which was so graphically described by the noble Lord, Lord Wyatt, in the Second Reading debate, I should feel tempted to override the ethical objection with the prospect for obtaining cheaper water services for our people.
In fact, the situation is completely the reverse. Growth in water consumption is virtually static—possibly plus 1 per cent. per annum—and equity shares without a growth factor is a contradiction in terms. Some of the subsidiary activities are growing but the total impact on the balance sheet is only marginal. Technological advance continues but,

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again, cost savings are only marginal. The existing profit level for the industry, shown last year as an aggregate figure by the 10 regional water authorities at £738 million, was the whole of that sum plus another £430 million in loan, giving a total of just under £1,200 million. It was spent on renewals, replacements and additions. So in terms of cash flow nothing was available for distribution as profit. I understand that the capital expenditure for the last year ended was similar to the cash position, at approximately £ 1,200 million. It is worth noting that the accountants' figure for depreciation for the water industry amounts to £1.5 billion per annum and confirms that there really is no profit in the industry.
When we look at the future capital liabilities we obtain an idea of the perspective. They include water supply; improved treatments to remove nitrates, pesticide traces and so forth; more stringent monitoring, especially with the new NRA standards; water supply mains which require rebuilding, relining and so forth; universal metering. We are talking about the expenditure of many billions of pounds on the water supply side of the industry.
When one looks at the sewage treatment and sewers side, the picture is even more horrendous. There must be the completion of the third of the long sea outfalls. Many inland treatment works must be rebuilt or new works built, especially in the northern half of the country. Sewers are falling to pieces in many parts of the country and they need renewing or rebuilding. Sludge disposal has up to date been fairly cheap, but will be much more expensive when the North Sea can no longer be used as a dumping ground. Incineration must be introduced and so forth. That is a huge capital programme which faces us. My rough guess at the cost over the next five years is in the order of £10 billion and continuing, with increased manpower coming in all the time for the new plant.
Again, the Minister is in an advantageous position. He has received reports from the Director General of Water Services on what is called the asset management plans of each of the 10 regional water authorities and water companies. That is required for calculating the K factor. However, can the Minister tell the Committee what is the expert forecast for capital expenditure for the next 15 or 20 years? Is my guess correct or is it perhaps far too low?
The reality is that the water industry faces huge capital expenditure on a range of essential improvements both in the interests of human health and the protection of the environment. Therefore, the financial prospect of these privatised water companies is a progression of annually rising water charges to meet that heavy annual programme of capital expenditure, plus of course inevitably a certain amount for inflation costs.
The Bill requires the Director General of Water Services to set the mysterious K factor at a level to give a reasonable return to the private shareholder. That is priority No. 1 in Clause 7 of the Bill. Therefore, increased efficiency by the future companies is rewarded by increased profit. That is the essence of the Bill. That means that the
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shareholder owns the equity of the industry and comes first before the consumer. I ask noble Lords to consider the reaction of the consumer next year when the new private companies go into action making large increases in charges from this programme which I have outlined and at the same time paying dividends to private shareholders, and in future years at least some companies will pay higher dividends. Those dividends and future higher dividends will be seen as coming out of the increased charges to the consumer. The outcry will be heard even here in Westminster, and heaven help the Secretary of State of the day who must try to explain to angry Members of Parliament and their constituents the complexity of the price fixing formula, the K factor.
For those who are interested, that is encapsulated in some 105 pages of Explanatory Memoranda which describes how it works. If the future Secretary of State can explain all that to angry constituents, he will be a better man than I thought. The constituent, and, indeed, the Member of Parliament, will be convinced that the shareholder is gaining at the expense of higher consumer charges, and it will be a sheer impossibility for them to be convinced that that is not so. That will be a permanent conflict between consumer and shareholder. That is inevitable in a no-growth industry. I should add that the workforce of the water industry regards the prospect of a strained, unhappy industry with great anxiety and it has my sympathies.
I need hardly add that the widespread complaint against annually rising charges, combined with increased dividends, will be blamed on privatisation and will rub off on our party. The fact is that that equity structure for a plc regulated by the Director General of Water Services is simply not robust enough to stand the strain which the future will bring to this industry. Our water industry is set on a course which we all want, of heavy capital expenditure for years to come. Against that background, it would be far safer to stick to the well tried and trusted model of the statutory water company, with fixed dividends and the consumer coming first, rather than engage in the experiment of this sophisticated plc structure, relying on the incentive of an exiguous profit. I beg to move.
3.45 p.m.
The Earl of Caithness: Perhaps it may be opportune for me to break with tradition and say a few words here. The Committee must be grateful to my noble friend Lord Nugent for so clearly setting out his amendments. I hope it will help if I explain the reasons why the Government have chosen the method of privatisation as set out in the Bill, for this is absolutely fundamental not only to our discussions today but also to our future discussions on the Bill and to the successful privatisation of the water industry as set out in our manifesto.
Perhaps I may recap on the amendments. They would adopt the statutory water company model, including control of dividends and reserves rather than prices, for the whole of the industry after privatisation. They would also delete from the Bill

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the Director General of Water Services, and leave the whole burden of economic regulation of the industry and protecting the consumers' interest to the Secretary of State for the Environment.
The amendments attempt to preserve what I will explain is an outdated form of incorporation of water companies and of water supply. They would apply this form not only to the 29 existing statutory water companies but to the successor companies of the 10 regional water authorities. These amendments are not minor surgery. How could they be, since they involve 236 consequential amendments, as well as the deletion of 21 new clauses and one schedule, and that is by no means the full extent of consequentials which might be needed? Although we have considered them today with the same constructive spirit which we demonstrated last Tuesday, I have to say that they would remove two fundamental planks of the Bill. To accept them would, we believe, benefit neither the customer nor the environment.
What are these two planks to which I have referred? One is that the economic regulation of the industry should be through price control, supervised by an independent Director General of Water Services. The second is that at least seven-eighths of services, including all sewerage services, should be delivered by Companies Act companies.
In the interests of the consumer, we strongly believe that there should be a control on prices rather than a control on dividends and reserves as the amendment proposes. One has only to ask any one of the 25 per cent. of the population of England and Wales who receive water from a statutory water company what happened this year when companies began to anticipate the new requirements which would be imposed by this Bill. Increases of up to 42 per cent. were made within the existing controls which these amendments would retain. Even higher increases would have been possible by the SWCs in some cases, without breaching their statutory controls on dividends and reserves. It is manifestly clear that this year's increases confirm that controls on dividends and reserves do not work as a means of price control. They do not protect the customer in the way that price control does.
The form of regulation which we are proposing will also have an inbuilt incentive to greater efficiency. The Director Generals of Gas and Telecommunications have already shown how consumers' interests can best be served through a price control system: one that allows the industry to be profitable if it is efficient but does not guarantee dividends if it is inefficient.
Members of the Committee will be aware of the success of Sir Bryan Carsberg as regulator of British Telecom in encouraging that organisation to improve its efficiency and keep prices down. He has expressed his strong support for price control. In a statement last July he said:
"price-cap regulation is simple to administer and can give a good assurance to customers about the future trend in prices, while also giving the supplier the incentive to become more efficient".
How much more necessary it will be to have such protection when we remember that the water
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authorities to be privatised will be dealing with sewage disposal as well as water supply
Perhaps I may give Members of the Committee an indication of the difference in scale. This year the water authorities plan to spend £1·43 billion. Last year the water companies invested £61 million in water supply compared with £450 million by the authorities. What is the significance of that? It is that the water authorities have three times the number of customers but have six times the amount of investment.
Given that moving from £61 million to £1·43 billion is a 23-fold increase, it will be particularly interesting to see whether the Labour Party will support placing such an open-ended commitment on the customers.
They might not heed my advice, so it is appropriate to remind the Committee that this issue was commented upon by the Monopolies and Mergers Commission in its report (Cmnd. 9765) on the Southern Water Authority and the six SWCs within its area published in April 1986. In particular I would draw the attention of Members of the Committee to the comments in Chapter 2, paragraph 12:
"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 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: i.e. by limiting profits and dividends, applied to the statutory companies conspicuously fails to meet this need".
Not only will the statutory water company model fail to protect the customer as we consider necessary, but the Monopolies and Mergers Commission report also condemns the model as inappropriate for privatisation. Chapter 2, paragraph 31 states:
"With regard to the companies we noted at the outset the unusual arrangements under which their directors and managements have no means of securing any growth in their shareholders' funds or in the price of the shares and hence none of the usual incentives of the private sector other than pride of performance and responsiveness to local opinion. We concluded therefore that this particular form of private ownership was not a useful model to follow".
Clearly the Government could not adopt a model which is so clearly flawed. It is a model which the statutory water companies themselves admit does not meet the needs of a modern company by curtailing many financial freedoms.
Furthermore, the SWC stock is the type of fixed dividend stock which appeals largely to certain sectors of the capital markets, particularly the financial institutions. It is unlikely that the smaller shareholders would be attracted to such stock. We have clearly stated in our manifesto that it is our intention to offer the water authorities for sale to the public. It is questionable whether a sale directed to the institutions would deliver that manifesto commitment.
It may help the Committee if I briefly expand upon the issues of companies law raised by the amendment. The statutory water company format is an out-dated method of forming a business. It is

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restrictive and prevents diversification. The amendments, if accepted, could bring us into unwelcome conflict with the European Commission. Under the Second European Directive on Company Law, all companies should be registered. Most other European countries have implemented this. We have not, but we are encouraging registration as opportunities arise. The Bill furthers that policy. Let there be no doubt: the creation of 10 large new statutory water companies could seriously undermine that stance.
I turn to another important part of our approach. The establishment of a new independent regulator for the water industry is a key component of the Government's plans. The regulator's function will be to ensure that neither the newly privatised nor the existing water companies can unfairly exploit their monopolies. The Director General of Water Services will protect consumers, compare the performance of the different companies and ensure that each company has clear incentives to improve its efficiency.
The director general will ensure that the companies carry out their functions effectively and that they can raise the finance they need to do so. He will be responsible for ensuring that companies comply with the conditions of their appointments. He will set explicit standards of service to the customer.
The general duties in this clause are based on, but not identical to, those in the Telecommunications Act 1984 (Section 3) and the Gas Act 1986 (Section 4). These duties provide an appropriate framework for the regulation of a privatised monopoly utility and one already approved by this Chamber.
Above all we must look to what serving the customer means in practical terms for the industry. Higher standards on water quality and sewage treatment will require substantial growth in capital programmes. We must free the industry from public sector financial constraints and give it proper incentives for economy and efficiency. Privatisation under price control provides this. With these changes the industry will be able to deliver the quality objectives we all want at least cost to the consumer. I know that many of the statutory water companies, and all the water authorities, now believe that price control is the right way forward.
The Earl of Halsbury: I support the amendments in the names of my noble friends and myself. My reason for, as it were, allying myself with my noble friend, as on so many occasions in the past, is my anxiety as an old public servant at the extent to which the Government are getting across the public with unpopular measures. They are in a situation half way through their term of office where they are on bad terms with the Bar, the Law Society, the general medical practitioners, the consultants on the National Health Service and now with the public at large as water consumers.
What the Government do is often right and I associate myself with the remarks of my noble friend. I do not oppose privatisation of water. In many respects the Government are going about it in the
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right way. However, I am disturbed by a kind of creeping Philistinism that is settling into government circles by constant reference to market forces as a remedy for everything under the sun without reference to their true relevance. I want to see the Government at peace with the public. I am not asking them to beat their swords into plough shares or even to turn a tigress into a turtle dove. I ask only that they listen to the wise words of my noble friend, who spoke with more authority on this subject than anyone in this Committee can because he was in charge of the whole show for year after year. Before the noble Earl joined the Front Bench, my noble friend was in charge of the water supplies of this country.
I have been told that the burden on draftsmanship might cause the Bill to fail this Session because of the consequential amendments it might entail. Does it matter whether we privatise this Session or next? What is important is to privatise rightly when we do so. The idea that anyone should make profits out of water and water supply is intensely unpopular with the public at large and I believe it to be intensely unpopular in this House. Water as water should be free for all, as God's gift to man to stop him dying of thirst. Only the connection, piping, recycling and purification should be charged to the consumer, together of course with capital services on the loan stock necessary to effect the rejuvenation of our sewage disposal services, and so on.
That is very much what I said on Second Reading and I do not intend to go on to make a Second Reading speech in Committee. I merely wanted to explain why I am prepared to fight this battle alongside my noble friend as an old companion-in-arms on many subjects. I commend the amendments.
4 p.m.
Lord Jenkin of Roding: I support my noble friend on the Front Bench in urging the Committee to reject these amendments. One must not allow the eloquence of my noble friend Lord Nugent of Guildford to conceal that these amendments, taken together, would not only, as my noble friend the Minister said, destroy two planks of the Bill but they would destroy one of the main purposes of the Bill; namely, to stimulate a significant increase in the efficiency of the water and sewerage undertakings by subjecting them to the disciplines of the capital markets.
Of course my noble friend Lord Nugent is right to say that water is a natural monopoly, but that does not mean that it is impossible to generate efficiency by exposure to the capital markets. The statutory water companies were described by the Monopolies and Mergers Commission in the report already referred to as,
"remaining examples of an unusual kind of commercial organisation".
As has been said, instead of the control of prices which the Bill provides for, the statutory water companies are regulated by control of dividends and reserves.
I shall not read the extensive passages from the Monopolies and Mergers Commission report which

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spell out why this is a thoroughly unsatisfactory way of regulating a monopoly. However, I would say this to my noble friend—and I say it with great diffidence because, as the noble Earl, Lord Halsbury, recognised, my noble friend speaks on these matters with great authority. I think my noble friend has recognised that the passage from the report which the Minister read out a few moments ago blows a major hole in the case for this group of amendments. My noble friend sought to explain it away, as he did on Second Reading (col. 594 of the Official Report), by suggesting that the remarks were made in the context of the Southern Water Authority's proposals to absorb a handful of companies in its area because it thought that it would improve matters. He also sought to argue that it was such a handful of statutory water companies that it was irrelevant and unrepresentative.
I say with great diffidence to my noble friend that he has allowed himself to be drawn into error. Contrary to his assertion, the report was not on a proposed takeover. On the contrary, as a study of the terms of reference from the Secretary of State will demonstrate, it was a routine reference on costs, efficiency and service. It so happens that the six water companies in the southern water area actually account for no less than one-sixth—over 16 per cent.—of the total turnover of all the statutory water companies. I therefore submit that they actually form a substantial and representative sample of those companies. Therefore contrary to what I believe has been a major plank in my noble friend's case, the report constitutes a very relevant argument on this amendment. The key opinion that has already been quoted again by my noble friend on the Front Bench, so far from being selective and unrepresentative, is actually spot on. The Monopolies and Mergers Commission has stated quite firmly that the statutory water company,
"is not a useful model to follow".
To accept this group of amendments would fly in the face of that authoritative and considered judgment.
Why should this be so? All the evidence points to the fact that profits control is simply less effective in regulating monopolies than prices control. Controlling profits does not mean, as my noble friend has suggested, that the benefits are passed on to the customer. It means that there are no incentives whatever on the managers to innovate, to improve efficiency or to cut costs. There are no financial spurs to efficiency. Shareholders have no reason to try to ginger up management because they already get the maximum dividend to which they are entitled. There is no threat of takeover and there is no pressure on costs. In effect, the statutory water company is a cost-plus operation.
That was recognised in the Monopolies and Mergers Commission's report, which says this:
"In terms of performance the company's costs and charges for water supply—with the exception of Portsmouth which has particularly favourable sources of water—are mostly well above those of the Southern Water Authority".
A comparison of the charges that have been made to consumers over the years shows that there have been periods when the water authorities were not subject to stringent Treasury controls and their
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charges rose faster than those of the companies. As every consumer from a water company knows, in the current years—I have to declare an interest as such a consumer—the charges have risen on average by nearly 23 per cent., which is far ahead of those of the water authorities.
We looked at the question of whether we might follow this model. I looked at it in the context of British Telecom's privatisation. The question was whether it would be more sensible to regulate by control of dividends and reserves than by control of profits. We took advice, and the advice we received from a range of authorities was exactly in line with that of the MMC. The regulation of an industry by dividends and reserves control simply is not an acceptable form. It does not generate incentives for efficiency and for cost-cutting; it provides no motive to the managers to go plugging away, to use the words of the MMC, constantly to seek improvements in efficiency.
If we were to accept these amendments this afternoon we should be flying in the face of a very great deal of valid economic opinion. Indeed, my noble friend gave the game away by an almost chance aside in a speech that he made concerning an amendment on land that was discussed on Tuesday. He said that in preference to an amendment moved by the noble Lord, Lord McIntosh, this would be a much better way. He said, as reported at col. 22 of the Official Report, that having it in the form of a statutory water company there would be,
"no incentive to develop this land".
My objection to this group of amendments is that there would be no incentives to do anything because the system simply does not generate them. As I said, water companies are essentially cost-plus organisations. I know that there are many Members of the Committee who have been members of boards of water companies. I know that my noble friend Lord Elliott of Morpeth has played a leading role in this field. It would be quite wrong to criticise the people who have been running these companies, many of whom have done a splendid job. It is not their fault that there has been this unsatisfactory form of supplying water; it is the fault of the model that they have had to operate.
This Bill gives the existing statutory water companies the opportunity to break out of the straitjacket in which they have been held. These amendments would put straitjackets on the rest of the industry. As my noble friend said, this has been a form of company organisation that dates right back to the middle of the last century. It would be a classic example of allowing the prisoners of the past to dictate the progress of the future. That cannot be right and I hope the amendments will be rejected.
Baroness White: I wish to remind the Committee of a remark made by the noble Lord, Lord Nugent of Guildford, during the Second Reading debate when he very rightly pointed out that it took Her Majesty's Government roughly two-and-a-half years from the time that they issued their original White Paper, on which he and those of us who know something of the industry commented, to realise that their original White Paper was completely

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misconceived and simply would not work. That was pointed out by the noble Lord, Lord Nugent, and as a result no doubt of some of the cautions which he adumbrated on that occasion, the Government realised that their original White Paper was entirely unworkable and inadequate. They have therefore amended it with the vital addition of the National Rivers Authority. It has taken four years for them to bring their consideration of these matters to fruition. They believed that they could do everything without a separate regulator, but they gradually realised that the noble Lord, Lord Nugent, was speaking sound sense based on experience and that they could not do what they wanted. They had to change their fundamental plan.
I remind the Committee that while it may be critical of some of the things that the noble Lord, Lord Nugent, has said—we have heard a very eloquent but critical speech from a former Minister, one of the extinct volcanoes of the Conservative Back-Benches—he is the man who really knows what he is talking about. Great stress has been laid, most particularly by the noble Lord, Lord Jenkin of Roding, on the MMC investigation into the Southern Water Authority and the six statutory water companies in its region. I have read that report. I am not sure how many other Members of the Committee have read more than a few selected extracts.
It is perfectly clear that the investigation made on that occasion, which was not directed specifically to the question of what was the best way of privatising the water industry, in a number of respects was not very deep or thorough. For example, there is the question of how one can possibly compare the characteristics and the efficacy of different water companies. I have before me the response made by one of the main water companies in that area. The response of the water company itself was not published but I have been able to obtain a copy. It says:
"Regrettably, discussions on the statistical analysis and interpretation were still in progress when the report went to press".
In other words, the companies make it quite clear that there are certain aspects of the report which were not fully discussed by them with the commission and still less accepted by them. The response goes on:
"However, using a simple system of ranking, the technique used by the commission throughout the investigation, it is apparent that all the companies, except Portsmouth, have an above average factor of difficulty, with three being in the upper quantile for all statutory water companies".
It refers to differences in operating costs and so on. They were quite obviously not fully discussed or adequately considered by the Monopolies and Mergers Commission.
I do not want to weary the Committee by mentioning other points but this is not a report from which one can take a few selected opinions—almost private opinions, one might say—of the members of the Monopolies and Mergers Commission. I am quite sure that other Members of the Committee who have had the opporunity of discussing the matter with some of those concerned with the investigation will bear me out in saying that this
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may have been a useful report in terms of what it was meant to be, but it is not a report on which the Government should have based a major part of their argument as to the desirability of the proposals in the amendments before us.
When it suits the Government's book they are willing to commend the statutory water companies. I have received, as I am sure have other Members of the Committee, some charming little leaflets by courtesy of the noble Earl, Lord Caithness. When it suits the Government's argument it is put positively. We are told:
"One in four people already get their drinking water from the private sector"—
from the 29 statutory water companies. They are perfectly all right for propaganda purposes but not when it comes to running the show.
I had a slightly wry smile when I saw the first claim in this document, that it will now for the first time be a criminal offence to supply water which is unfit for human consumption and that those convicted of such an offence may be imprisoned. For generations—a hundred years and more—we have managed to get by with civil offences being sufficient for supplying water unfit for human consumption. It is only when the entrepreneurial friends come in that we have to make it a criminal offence. No doubt that has occurred to the Minister, but I doubt whether it has occurred to his public relations advisers. The pattern proposed by the noble Lord, Lord Nugent, and those noble Lords who have put their names to the amendment, and others who may speak in its support makes it perfectly clear that water is different. The comparison with telecommunications, of which we heard a good deal from the noble Lord, Lord Wyatt, at Second Reading, and of which we have heard some more today from the Minister, does not fit the conditions of the water industry. It is a completely different ball game. It is an insult to the intelligence of Members of the Committee to try to persuade us that the conditions of the water industry are comparable in any reasonable respect with those of the telecommunications industry.
The proposed extraneous diversification of interests, of which the Bill is really in aid—cable television and the like which are so attractive to the Secretary of State—may or may not prove successful. In the early days some companies may possibly do some asset stripping by selling off land, but thereafter they will have to face the ups and downs of market forces. If the proceeds from charging for the basic services were sufficient to cover the costs—the enormous additional costs, as the noble Lord, Lord Nugent, rightly made clear—these extraneous activities would be unnecessary and irrelevant. But owing to the need for the additional expenditure to improve the system, it must surely be common ground that some external finance must be provided outwith the normal grip of the Treasury. Even on my Front Bench I hope we are agreed on that. We have a pattern with the statutory water companies which makes it possible to raise money in a responsible way, without indulging in a number of speculative and extraneous activities which many people in this country find unacceptable. Surely the

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middle road, which is what the noble Lord, Lord Nugent, and his supporters are proposing, is safer.
I felt disposed to quote in Latin but, in the presence of the noble and learned Lord, Lord Hailsham, I feel that my pronunciation might be different from his and I would hate to offend him. However, having read with attention the Monopolies and Mergers Commission report, on which so much of the Government's case appears to be based, I can only say that this is a feeble framework on which to base a major change for the worse in the management of a basic monopoly service.
4.15 p.m.
Lord Wyatt of Weeford: If these amendments are passed the whole of this important Bill, which has been passed in all its stages by the elected Chamber, will be destroyed. The amendments would create a totally different Bill and make it mean something quite different from what it means now. To take such a grave step in passing these amendments might be justified if the issue was fundamental to the future of the country; but it is not. It might be justified if the constitution itself was threatened; but it is not.
This Chamber often passes amendments which are improvements within the terms of a Bill itself. Often those amendments are rightly accepted by the Government and by another place. However, these amendments are not designed as improvements within the spirit of the Bill; they are designed to wreck it. Moreover, they have no merit. Their object is to produce a half-baked, half-privatisation on the unsatisfactory model of the 29 statutory water companies. The profit motive would vanish and without adequate price control there would be no way to stop the upward trend of prices over a long period of time.
The noble Lord, Lord Nugent, in his charming old-world speech, referred to the report of the Monopolies and Mergers Commission on the Southern Water Authority and the six statutory companies. However, he referred to it in a rather cursory manner. I think in fact that he took one sentence out of it and then departed for other more favourable pastures. When it referred to the statutory water companies, the report said:
"The normal incentives in the private sector for managers to keep plugging away at cost reduction in order (so far as competition or regulation will allow) to add to profits and achieve satisfactory growth in the price of the shares simply do not exist for these companies".
The noble Earl who spoke earlier on the amendment gave us a long quotation from another part of the report. I do not propose to recite that quote again, but the whole of the report gave a strong impression that the model of the statutory water companies was useless, and the commission had studied the matter in great detail——
Baroness White: It had not.
Lord Wyatt of Weeford: The commission certainly did; in fact, it took several months to do so. Moreover, the commission knows what it is talking about. The Bill fulfils the requirements of the report. There is nothing in the statutory water company
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model which can prevent a deterioration in efficiency. The statutory water company is simply placed on a cost-plus system and that always puts prices up and, in the end, cheats the consumer.
Under the provisions of the Bill, to give the Secretary of State the powers of a director general to protect consumers would not do anything at all to protect them. Governments are notoriously bad regulators. They act in the interests of governments and not of consumers. If regulation by government had been any good in the past they would have insisted long ago upon a customer code of practice which the wholly independent director general is intended to enforce. The Government could always have insisted upon an element of competition in fixing prices; but governments never do. There would never have been an Oftel, overseeing and improving for the consumer the affairs of British Telecom, if the company had still been owned by the Government. It is only because it is privatised that the Government now recognise, or will recognise, that they are incapable of regulating anything and therefore they must get an outside body to do it for them.
On Second Reading I said that the director general would fix the same prices everywhere. What I should have said was that the director general will fix prices on the same principles everywhere. It is true that prices will vary according to the particular circumstances of the privatised companies. But the basic notion is that the best improvements in efficiency in one company will be assumed to be incorporated in all the other companies. Moreover, if they are not, then the less efficient companies will incur the wrath of their shareholders by making lower profits than they should have done.
Under the scheme proposed by these amendments there will be no price control; there will only be a dividend control. Therefore, why on earth should any company bother to reduce the costs and increase efficiency? It will not receive any advantage from its profits in increased dividends or anything else. Those who support the amendments have a quaint Victorian belief that the water industry has no growth potential, except when we add to the population, which we do from time to time. That is clearly not the view of the privatised French water businesses. They have acquired control of 12 of our statutory water companies. They know that once the Bill has passed through Parliament intact the growth potential is enormous. Overstaffing and sloppy unbusinesslike approaches will be gone. There will be all kinds of lucrative activities connected with water just waiting to be exploited under privatisation. Of course I know that many people disapprove of that prospect.
There are great possibilities for providing, say, swimming pools, bathrooms and showers more cheaply for consumers but more profitably for the industry——
Lord Dean of Beswick: Pipe dreaming!
Lord Wyatt of Weeford: I am sorry to see that some noble Lords laugh at the simple pleasures of ordinary people. I prefer not to do so. The whole

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nation would welcome a reliable plumbing service which could be set up under privatisation. The desperate search for a cheap, effective, reliable and honest plumber haunts many householders. The business telephone directories give no indication as to which are the ones who will rip you off and which are the ones who will do the job properly at a reasonable price.
Lord McIntosh of Haringey: Perhaps I may intervene here for just a moment. Are not plumbers already private?
Lord Wyatt of Weeford: Yes, they are; I think that I am beginning to educate the noble Lord, Lord McIntosh of Haringey. When you get a larger and more reliable firm in the business then of course you will get a much more reliable service. That, in turn, will encourage the other privatised plumbers to smarten up and become more efficient. That is so obviously a part of competition that I should have thought even the noble Lord on the Opposition Front Bench would have understood it.
The advances in cabling for television and other communications can also be exploited. Many of our sewers are ready-made conduit pipes serving every home in the country. Moreover, our water authorities have great skills in disposing of waste. They could sell those skills profitably to the industries with waste problems, such as the great chemical companies. There is nothing whatever to prevent privatised companies buying into French water companies, or anyone else's water companies if they are for sale. It needs entrepreneurial vision to promote such matters; but the scope is enormous.
These amendments would take us straight back to the age where private profit was sneered at, when it was believed that bumbling local authorities and idle non-profit conscious officially appointed bodies should run our utilities. It might be argued that under the amendments privatised companies would invest their surpluses, which they were not allowed to give to shareholders, in greater improvements. Obviously they would invest some of the surplus in that way. However, the surplus would be far less because they would have no profit incentive to make it higher. In any atmosphere of nil dynamism waste would abound.
The amendments are a battle between the future and the past. If they are carried, not only would we as Members of this place be involved in an unpleasant and unnecessary constitutional clash with the other place, but we would also be declaring our faith in the outmoded business practices of nationalisation and quasi-nationalisation, and the subsidising of superfluous jobs, which led to our gradual and seemingly irreversible decline after the war until 1979. It was on this day 10 years ago that someone with rather different and rather more successful ideas came along. I oppose the amendments.
Lord Renton: I arrived at this debate without having made up my mind because I wanted to hear the case put forward on behalf of these amendments.
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Having heard the case, I feel obliged to oppose it. I do so for two main reasons arising, I must confess, out of the speech made by my noble friend Lord Nugent of Guildford, for whom we all have such high regard. The noble Lord said that the advantage of the statutory water companies which he proposes is that under the scheme consumers would in effect own the industry instead of the shareholders. That seems to me to be a complete fallacy. Indeed, it stretches the imagination because both under the kind of companies proposed by the Government and with the statutory water companies it would be the shareholders who own the company in each case. It is absurd to suggest that the consumers would own it. They will not be the shareholders.
The other fallacy is this: my noble friend says that the statutory water companies will not be making profits, but if we look to paragraph 2 subparagraph (e) of the schedule in Amendment No. 47, we find that it proposes to confer powers on the company to raise money by the creation and issue of share capital, including—this is in brackets—"ordinary shares". Dividends will of course be paid on those ordinary shares. The only way that the money for those dividends can be found will be by the statutory companies making profits. Therefore that seems to me to be somewhat of a quibble.
Lord Nugent of Guildford: If my noble friend will allow me, I sympathise with his query because that point seems odd. The kind of ordinary shares which the statutory companies can raise are those with a maximum dividend which may be paid on the share. They may pay a lower dividend but never one higher than the maximum fixed for that share. They are called ordinary shares, but they are a peculiar type of ordinary share. It is not an ordinary share, as my noble friend understands it. Perhaps I may put another point. I did not say that consumers own the industry; I said that they own the equity of the industry, and that is a different matter.
4.30 p.m.
Lord Renton: Perhaps I may deal with the last point first. Those who own the equity of the industry are those who own the shares; and the shareholders own the equity. Quite frankly, I think that what my noble friend said on that point reinforces the point that I was trying, inadequately no doubt, to put.
On the question of whether the dividend is to be a fixed dividend or a variable one, again I say that a fixed dividend, just like a variable one, has got to come out of profits. To say that this is a non-profit making body is a fallacy. I use the kindest word I can think of.
Lord McIntosh of Haringey: It might be helpful if I came in at this stage. I cannot conceal the fact that the Opposition are not wildly enthusiastic about the amendment. That will be obvious from what I and my noble friends said on Second Reading. We share the view of 80 per cent. of the people of this country who feel that the water industry should remain under some form of public control. The next Labour Government will seek to restore it to public control. Unless there be any doubt on the matter, if we have

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a choice between restoring what we call the "Nugent" model and the "Ridley" model to public control, we would act to restore the "Ridley" model to public control with much greater alacrity, because the abuses under the "Ridley" model of privatisation are much more serious than they are under that of the noble Lord, Lord Nugent.
If we were being cynical about this matter, I suppose that we should let the Bill go through without question, because there is no doubt, as the noble Lord, Lord Nugent, said when introducing the amendment, that the people of this country——
Lord Beloff: May I——
Lord McIntosh of Haringey: Perhaps I may finish the sentence—are strongly opposed to water privatisation, and if water is privatised under any form, but particularly under the "Ridley" model, they will blame this Conservative Government for the exceptional increases in prices which will undoubtedly occur.
Lord Beloff: This is purely for——
Lord McIntosh of Haringey: I give way to the noble Lord, Lord Beloff. I have not finished my remarks.
Lord Beloff: I wish to ask the noble Lord a question for the purpose of clarification. He said twice that any future Labour Government would restore the water industry to public control. Did he mean by that public ownership, because the two things are not identical?
Lord McIntosh of Haringey: I agree that the two are not identical. Our final choice will depend upon the final form that the Bill takes. Neither I, the noble Lord, Lord Beloff, nor the Minister know exactly what form privatisation will take and therefore we cannot give the precise prescription for correcting it afterwards; but correct it we shall.
I listened with great interest to the noble Lord, Lord Nugent. I appreciate his sincerity and his unrivalled knowledge of the water industry. There is no doubt that he argues from great strength when he says that over many years the statutory water companies have provided a service which has been appreciated by their customers and which has resulted in the passing of the benefits of improved management to those customers.
I thought that the Minister was less than fair when he referred to the increases in statutory water company charges in 1989. He made the point, correctly, that some of the statutory water companies have had increases of up to 42 per cent. in 1989. If he were to look at the reasons for those increases, he would see that significantly they are because of the threat of privatisation rather than for any other reason.
The Earl of Caithness: The——
Lord McIntosh of Haringey: Perhaps I may quote the West Kent Water Authority, which had the largest increase of 42p in the pound, of which 21p
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is to meet privatisation requirements. In his report, the chairman of the Eastbourne Water Company, which also had a significant increase said:
"I have never disguised my opinion that privatisation is completely unsuitable for the water industry. I am also extremely disillusioned by the Government's disadvantageous treatment of the statutory water companies".
I shall now gladly give way to the Minister.
The Earl of Caithness: The noble Lord is talking about a fallacy. He is well aware that one cannot privatise a company that is already privatised.
Lord McIntosh of Haringey: As is clear, the chairman of the Eastbourne Water Company was referring to the privatisation of the rest of the water industry. I shall gladly let the Minister see his statement if he wishes to.
As I said, the noble Lord, Lord Nugent, speaks with authority. Many of the things that he says strike home and strike a responsive chord with us. The essence of what he is saying is that under his proposals, which are not revolutionary after all, the shareholders would come before the customer. If it were as simple as that, the amendments would deserve the uncritical support of Members on all sides of the Committee.
Lord Nugent of Guildford: I did not say that the shareholder comes first; I said that the consumer comes first. It is under the Bill that the shareholder comes first.
Lord McIntosh of Haringey: I beg the noble Lord's pardon. What he strictly said was that under the Bill the shareholder comes before the consumer, and that his amendments were intended to correct that position.
Amendment No. 47 is of course the critical amendment because it contains the schedule providing the powers of the statutory water companies to be set up. I look at them with some care. Subsection (b) provides that the water companies could still dispose of land. Their incentive to do so may be less because they would not be able to pass on the proceeds of that disposal of land to the shareholders; they would have to pass them on to the consumers. However, they still have the powers.
Sub-paragraph (e) provides that the investment is still partly funded by borrowing. If that is the case, and if as sub-paragraph (h) says, the borrowing should provide a return of 10 per cent. to 12 per cent. on shareholders funds, according to the latest information that we have, that is rather more than the 8 per cent. on shareholders funds which is expected from the privatisation on the government model.
I think that the balance of the cost of borrowing money to the customers and to the shareholders is all very fine. There will be circumstances in which the noble Lord, Lord Nugent, is right, that the market is ready for more near gilts and it will be an easier flotation than that which the Government propose. I think that that is a case which may be strongly argued. However, whether the final interest rates

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will be on the side of the statutory water company model as opposed to the plc model is much more difficult to argue.
There are thus defects in the amendments proposed by the noble Lord and his friends, but when I compare them with the defects in the Bill, matters become very different. The noble Earl, Lord Caithness, in opposing the amendments said that what was being proposed in the Bill was a control on prices and not a control on dividends and reserves. But that is simply not the case. If we read the Bill carefully—and we shall have to discuss the clause later on today—we find that under Clause 7 the duty of the director general will be to secure a reasonable return on capital for the new water company plcs. That means in effect that the whole regulatory mechanism which we all recognise as being necessary for a privatised water industry is subordinate to the most important obligation on the director general which is to secure a "reasonable" return on investment.
What is a "reasonable" return on investment? If the Opposition had put down an amendment which suggested that anything should be "reasonable", we should have been laughed out of court. The Government Front Bench never has greater fun—supported usually by the noble Lord, Lord Boyd-Carpenter—than when opposing the idea that legislation should contain the word "reasonable" as a definition of a course of action defined by legislation. It does not make any sense. The noble Lord, Lord Boyd-Carpenter, is usually right when he says that when we do it. I am certainly right—and I look for his support—when I say it from these Benches today.
While the obligation on the director general to provide a reasonable rate of return is paramount—the noble Lord, Lord Nugent of Guildford, was quite correct in saying that it is paramount; he said that the K factor which sets the prices is, and I quote him, "priority number one" in Clause 7—all other considerations by definition are secondary. I gladly give way to the noble Baroness.
Baroness Blatch: On the point which the noble Lord makes about paying dividends to shareholders, does he not agree that it will not be possible to pay dividends to shareholders at the expense of not meeting standards set by the regulatory body, even to the extent of having the licence taken away if those standards are not met?
So the first requirement of the plcs will be to meet the required standards set by the regulatory body and have prices controlled by the director general before dividends are paid. I agree that if there is money left at the end of the day, then of course dividends will be paid to shareholders.
4.45 p.m.
Lord McIntosh of Haringey: The noble Baroness will have an opportunity to make another speech if she still wishes to do so. However, the crux of the matter in her argument is the phrase "having the licence taken away". We all know that the licence cannot be taken away. The new water authority plcs
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cannot be allowed to go bankrupt. An interruption in supply cannot be allowed either to industrial or to domestic customers for water. Therefore they have a very safe bed to fall back upon. Their safe bed is protected, as his first duty, by the Director General of Water Services. If anybody says that what the noble Lord, Lord Nugent, is proposing is cost-plus, that argument applies even more strongly to the Government's proposals.
The water company plcs under the Bill have innumerable opportunities to maximise their profits. They have secured agreement from the Government that if there is any unexpected investment requirement they will have what is laughingly called a cost passed through. In other words, they will have the ability to pass it on to their customers. However, if there is any unexpected reduction in investment, nobody is suggesting that the customers shall have a cost passed through. Nobody is suggesting that it is not the shareholders who will benefit.
The Bill is a cost-plus Bill. It provides for all the opportunities for feather-bedding of which the noble Lord, Lord Wyatt of Weeford, so strongly disapproves. It provides them all with the additional incentive that if anything goes wrong with the Government's calculations the shareholders will get an extra benefit. That is the fundamental reason why, with all our reservations, we shall vote for the amendment of the noble Lord, Lord Nugent. The way that the Government's Bill stands, it is, "Heads you win, tails we lose".
Lord Pym: I am one of those who does not think that the proposed plc structure is the appropriate one for the water industry with its peculiar characteristics. Water is not a suitable resource to make money out of, so it does not seem very sensible to introduce into its management entrepreneurial concepts that have money-making as their object. In any case, the opportunities for profit are small, partly because the growth potential is at least small; it is not nothing but it is small. Under the Bill those opportunities will in any case be created arbitrarily by the decisions of the Director General of Water Services.
Furthermore, there cannot be any effective competition, which is one of the hallmarks of the market economy. We hear much today about competition by comparison, the idea being that a few monopoly suppliers will be judged the best and the remainder will somehow be brought up to that standard. Whatever merits there may be in this technique for other industries, in the case of water it is probably impossible to apply it rationally because of the enormous differences in the circumstances of the various undertakings and the proportion of water they supply. There are very substantial regional differences: inherent geographic differences in the nature and cost of the supply of water itself; in population numbers and density; in types of users and topography. The regional undertakings cannot be compared exactly and they can only be compared at all on a basis of a collection of relevant facts and assumptions which must to some extent be ad hoc. I do not think that that can be called competition in any ordinary sense of the

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word. So I find the plc structure an unsatisfactory solution to the privatisation of water. Something better is required.
Fortunately we have the long history of the statutory water companies on which to draw. The Government have not failed to extol their virtues, holding them up as the successful privatised model that supplies 25 per cent. of our water, and clearly wanting the other 75 per cent. to be supplied on a similar basis. At least up until a few months ago I do not think Ministers' rhetoric allowed any other interpretation. But recently the Government have changed their tune. There is now a campaign running to decry the statutory water company pattern, and it is rather a tendentious one.
Reference has been made this afternoon to the Monopolies and Mergers Commission report. My noble friend Lord Caithness also referred to it. But as the commissioners themselves admit, they never addressed the subject of the privatisation of water properly, if at all; nor did they go into it fully. The noble Baroness opposite made that point. So I think that the opinion of the commission is, to say the least, superficial. Frankly it is not worth much. They also had some rather complimentary remarks to make about the statutory water companies. Therefore I do not think it is wise to discard, either lightly or indeed at all, a century of solid, proven experience which lies behind the statutory water companies. Contrary to what I think my noble friend on the Front Bench said in this debate, those companies have protected the consumer, as their record shows.
I believe that the statutory company model is particularly appropriate in the present rather unhappy state of the industry, arising essentially from years of underfunding. There is no dispute about the years of neglect under all governments and the failure to make anything like adequate investment in water. So there is a huge backlog to make good over the next decade or so. On top of that, it so happens that at this moment the European Community has decided that the standards of water supply should be upgraded significantly. Those two factors together mean the prospect ahead is one of far higher investment and expenditure than previously. That carries the inevitable corollary of substantially increased costs. In this situation, surely the political objectives must be to keep the increased charges as restrained as possible, although they are bound to be large, and to make them as acceptable as possible to the consumer.
The statutory water company pattern is surely the best way to achieve this difficult feat. It is a pattern whereby those companies have proved themselves able to reconcile consistently the interests of consumers and the interests of shareholders. Those companies are obliged to reinvest excess profits in their business or return them to the water ratepayer. What a contrast with this Bill. The task facing the Director General of Water Services is one of weighing in the balance the need to give a reasonable return on capital to the shareholder, on the one hand, and the need to protect the interests of the consumer, on the other hand. That task will prove, in my view, too difficult and too artificial to be satisfactory. I
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think my noble friend Lord Nugent of Guildford made that point very well.
There will also be the ever-present temptation to sell off the assets for the benefit of the shareholders, instead of using them for the benefit of consumers by ploughing them back or reducing debt. For all these reasons I support these amendments, but there is another fundamental reason why I do so; that is, the need to maintain the popularity of privatisation. It is a process that has brought many benefits to many people. But if, in a particular instance, millions of people found themselves disadvantaged, as they thought, by a privatisation measure, or felt that that privatisation was not appropriate or not successful, the casualty would very likely be privatisation itself. That is not a risk worth taking, and the risk does not have to be taken. This amendment is a better way forward and goes down a well-trodden path.
The Earl of Gowrie: Following my noble friend, I want to say that it is surely incontrovertible that privatisation has to be tried before it becomes very popular, because over the past 25 years of our history it has been a relatively novel phenomenon. I think too that my noble friend Lord Pym in a characteristically trenchant and persuasive speech neglected the fact that it is the chance of a reasonable profit that attracts funds for investment. He underplayed the argument of the noble Lord, Lord Wyatt of Weeford, that there are a number of people out there in the capital markets who believe very strongly in growth for the water industry, and want to achieve it not by ripping off the consumer, so to say, or by jacking up prices, but by looking to greater efficiencies and cost-cutting as well as opportunities for investment.
Whether I am right or wrong about that matter, I invervene not to make the point, but to make a different one and make it very briefly. The point has little to do with the merits of the Bill. As I have just indicated, speaking for myself, I have no objection to the Bill. I believe in the public ownership of water and much else, and my interpretation of the word "public" is closer to that of the noble Lord, Lord Wyatt of Weeford, than it is to the interpretation of the noble Lord, Lord McIntosh. It also seems to me eminently sensible to separate the regulatory functions of a great utility from the productive functions, specially nowadays when we are at last, thank goodness, beginning to attend more to our responsibilities for the environment.
I am, as I said, concerned less with the Bill itself than with the consequences of accepting the amendment of my noble friend Lord Nugent of Guildford. If the amendment of my noble friend were accepted, it would have a quite devastating effect on the Bill. I am of course aware that my noble friend believes he will not have a devastating effect on the principle of privatisation. However, he will damage this privatisation, this flotation, and therefore this Bill.
If the amendment were accepted, it would also have the secondary effect of precluding this Chamber from giving detailed scrutiny to the rest of the Bill. I suppose we could go through the motions of the

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rest of the Committee stage, but it would be hardly worth our while to do so.
Consider the effect of this amendment on the policy which the Government have set out to implement. The Government wish to privatise on the basis of price control. The amendment sets up a regime based on dividend control. The Government believe that the new water companies should be Companies Act companies or plcs. The amendment wants to make them all statutory water companies, to be outside the provisions of the companies legislation and, incidentally, outside the provisions of Community law. My noble friend made this point from the Front Bench.
The Government believe that the industry should in future be regulated by the Director General of Water Services, very much along the lines of other successfully privatised industries. The amendment removes the director general from the Bill and gives any regulatory function to the Secretary of State. My noble friend Lord Nugent talked of bureaucracy, but I cannot believe that such a suggestion would be less bureaucratic. The Secretary of State will not be a professional in water terms, and nor will most of his advisers.
The Government wish to privatise the water companies and float them on the market, as other utilities have been successfully floated, to the double benefit of the citizen whether as consumer or taxpayer. I speak as a non-executive director of a merchant bank among other things. However, I can tell the Committee that one does not need to come within a hundred yards of a merchant bank to guess that this amendment would make the chances of a successful flotation of the companies set up under it very slim indeed.
I have itemised what I find to be a devastating difference between the amendment of my noble friend and the Government's position. I make no criticism whatsoever—I simply would not have the nerve—of my noble friend for disagreeing with the Government. My noble friend has performed sterling service throughout his very distinguished career to this and every other Conservative Administration, as well as to the water industry. I think he is wrong, but of course he is entitled to oppose the Bill or to criticise the assumptions behind it. However, with great respect to my noble friend, I do not think it is right to use an amendment, not to improve the Bill or deal with something which the Bill has overlooked or not taken sufficiently into account, but to destroy the whole policy of the Government. I think that is wrong and I think it is dangerous in constitutional terms.
If I were in the shoes of the noble Lord, Lord Cledwyn of Penrhos, or of the noble Lord, Lord McIntosh of Haringey, and I were striving to change places with my noble friend on this side of the Chamber, I must say that I would think twice before I urged Opposition Peers to support an amendment which had quite so devastating an effect on a Government Bill, a Bill sent to us by the elected Chamber. I would worry a little about the signals that might send up for my own party's future. As my noble friend Lord Caithness said, the amendment is by no means minor surgery.
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I also think that it would be unwise for my noble friends, like my noble friend Lord Pym, to support this amendment, even if they are critical, as I happen not to be, of aspects of the Bill. I do so for this last reason. The Bill no doubt needs scrutiny. It no doubt needs more time spent on it. I cannot for the life of me see the point of scrutinising it further, of trying to deal with any of its detailed imperfections, if in effect we knock the stuffing out of the whole purpose for which it was designed. It is for this reason more than for any reasons concerning the merits of the Bill, which as I said I support, that I shall vote against my noble friend's amendment and urge the Committee to do the same.
Lord McIntosh of Haringey: Before the noble Earl sits down I should like to intervene because he made a direct challenge to me and to my noble friend Lord Cledwyn. I would not intervene again except for that reason. I said from this Dispatch Box that we would have to reverse the Bill of the noble Lord, Lord Nugent, as much as Mr. Ridley's Bill. Does the noble Earl not agree that from our point of view this could not be thought to be a wrecking amendment? It is something that we should have to deal with in any event.
The Earl of Gowrie: The noble Lord has quite a different interpretation from mine. I said that were I in the noble Lord's shoes I should think twice about doing so.
5 p.m.
Lord Ross of Newport: Having defended the 29 private water companies from nationalisation in 1978 and 1979, and having seen for myself at that time the very good job they did because I visited a number of them before agreeing to support them, I have no difficulty in saying that we have no problem in supporting the amendment put forward so ably by the noble Lord, Lord Nugent, this afternoon.
I do not know, and have never been able to understand, why the Government are so opposed to the use of fixed rate bonds. I thought that that was the right answer when they wanted to privatise the British Airports Authority. I should have thought that it was one of the solutions now that they want to privatise water. It is a method widely used in the United States and in Japan, which are very successful economies. Why on earth can we not do the same in this country? However, if the Government want to commit suicide, so be it. No doubt, on this day of all days, the tiger cubs will be expected to deliver.
Lord Campbell of Alloway: I wish to pursue the line taken by my noble friend Lord Gowrie, who on two matters of principle identified a conflict of approach between the Bill and these amendments. I agree with my noble friend that the argument goes far beyond the merits of this situation, which from my own experience I am not competent to judge. However, from where I speak I accept the rectitude of the Government's approach.
This conflict of principle infects the whole spirit and structure of the Bill. If carried, these amendments would require, no less, that the Bill

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be taken away forthwith for detailed scrutiny and massive redrafting. As my noble friend has said, in the result the exercise of the advisory role of your Lordships' Committee in effect is turned into resort to the delaying power. I respectfully suggest to Members on all sides of the Chamber that that would be a most unwelcome approach.
By convention sooner or later the Government must have their Bill; that is the convention of this Chamber. No doubt these amendments, if carried, would be rejected by another place. If they are carried, as the noble Lord, Lord Wyatt, suggested, they sow the seeds of constitutional conflict—and to what end? As a matter of practical reality what viable purpose could it conceivably serve, other than to engender a sterile conflict between the two Houses of Parliament?
But time is not on our side. There is a sense of urgency, not only in the interests of the consumers of the United Kingdom but also the pressure which is brought to bear upon us in the European Community to improve our standards. That sense of urgency is already recognised by the Government in the amendments which they propose to introduce to render the water authorities liable to prosecution if they fail to keep up with the EC timetable.
I do not take the political point as to whether this is in implementation of the manifesto commitment, whether to give shares to the public is or is not, or whether investment in water bonds at a fixed percentage by an institution is or is not. As I see it, that is quite beside the point. Nor do I take the technical point as to whether want of registration would constitute a breach of the second European directive on company law. Those technicalities are of minor and minimal consequence compared with the constitutional issue touched upon and first taken so well by my noble friend Lord Gowrie. The point that I take beyond that is that the delay involved in carrying these amendments is not only pointless but is wholly unacceptable.
Lord Howie of Troon: Speaking from this side of the Chamber, surely the noble Lord who has just spoken has exaggerated the dangers of delay. It is nice to see the noble Earl, Lord Gowrie, back in the Chamber. I have enjoyed his presence in the Chamber in the past. But when he referred to the speech of the noble Lord, Lord Wyatt, did he not recall—as I think I do—that the noble Lord said that this was not a matter of overwhelming importance? It is not. Since it is not a matter of overwhelming importance, not one of the great measures of state, the constitutional consequences do not arise with that weight which the noble Earl, Lord Gowrie, placed upon them. What would it matter if the privatisation of water were held back for a year, or even for two years? There can be nobody in this Chamber who thinks that that in itself would be a disaster.
The noble Lord, Lord Campbell, cannot really think either that it would be a disaster. Whether water is privatised this year, next year, or never the changes in standards which the European
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Community requires would have to be brought into operation. The money to bring them into operation would have to be found somewhere. It does not need a capital market to find it. Everybody knows that if those increased standards are required to be financed by the Government the Government could find the money. The Government already have the money. We are told over and over again what the surplus is and how it might well be used to repay the National Debt. Instead of repaying the National Debt it could be used to increase the quality of water. There is not the slightest urgency in the matter at all. The whole thing is an illusion.
It might be that the Government would be embarrassed were the Bill to fall and have to be reintroduced later. In my experience governments have been embarrassed by Bills which fell. I remember that in my days in another place there was a Bill to reform this House. It fell and had to be taken back. The Government were terribly embarrassed, but the world went on; it did not come to an end. Who will say that the world would come to an end if this Bill had to be taken back and had to be brought in maybe next year, maybe the year after or maybe never? The whole thing is ridiculous.
It is quite clear from the debate that we have had so far that the mode of organisation proposed by the noble Lord, Lord Nugent, is a highly satisfactory mode for this industry. I am stronger in its support than my noble friend Lord McIntosh, and I hope that, in the fullness of time, he will come round towards the sense of it, because here we have a situation where an organisation is shortly to be privatised, we believe, and maybe unprivatised at some time. The mode of privatisation which the noble Lord, Lord Nugent, has suggested is sound, proven and can be gone over again. The noble Lord, Lord Pym, and the noble Lord, Lord Elliott, know a great deal more about this than I do, though I am a civil engineer. There is no reason why the amendment should not be supported.
That brings me to my last point. What worries me about the Government's proposal is that it needs a regulator. Why does it need a regulator? It needs a regulator because the Government do not trust the plcs. If the Government did trust them not to raise prices beyond a reasonable extent, and not to produce profits beyond a reasonable extent, the Government would not require a regulator. Because they require a regulator the Government, to my mind, give away their case entirely and wholesale. The proven system now proposed again by the noble Lord, Lord Nugent, should be adopted and these amendments passed, and if the Government are embarrassed they will just have to get on with it.
5.15 p.m.
Lord Elliott of Morpeth: I should very much like to take part in this debate. I am open to correction, but I rather feel that I might be the only Member of your Lordships' House actively engaged at this time in the water industry. I am chairman of a statutory company and as such, of course, I declare an interest. In addition to that, I had the very great honour to be president of the Water Companies Association for no less than 12 years, so I have listened to the

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various criticisms of the statutory companies with some considerable interest today.
I would say to the noble Lord, Lord Wyatt, that, having heard his remarks about them, I feel he has never visited a statutory company, and as a vice-president now of the Water Companies Association I invite him to do so. I listened also to my noble friend Lord Jenkin. As Secretary of State, he was my guest on one occasion at the annual meeting of the Water Companies Association. On that occasion, if I remember rightly, my noble friend was very complimentary about the smaller companies as against the bigger authorities. I remember him saying that big is not necessarily beautiful. So again I was a little hurt today at his criticism of the statutory companies.
May I say to my noble friend Lord Nugent—and I so agree with everyone who said that he knows and enjoys, and rightly, the respect in this country of the entire water industry; he was an excellent first chairman of the National Water Council—that I am sorry I cannot support his amendment today. On personal grounds I am very sorry. The reasons why I cannot support his amendment I gave in my Second Reading speech, and I shall not repeat them. All I wish to do in this speech is to answer the two main criticisms that have been made today of the water companies.
I am most grateful to my noble friend Lord Pym because he more or less made my speech for me. His description of the water companies, like that of my noble friend when he opened the debate on the amendment, was an absolutely correct one.
For over 100 years, the companies in the area of their supply have given good service to the public. All 28 statutory companies—I know there are 29, but there are 28 in our association—have two great aims. First, there is consumer relationship and consumer service. They all take great pride in this and they are all very good at it. The second aim of each and every water company has been to keep its prices low, and that it has done.
The report of the Monopolies and Mergers Commission, which was mentioned first by my noble friend when he wound up the Second Reading debate and mentioned again today, as my noble friend Lord Pym quite rightly said, had praise as well as criticism for the statutory companies. But I wonder from where, in that section of criticism, they got their evidence, because so far as I am aware no inquiries were made of my company, and I do not know of any inquiries being made of any other company. I am very much in touch with the chairmen of all 28 companies. However, we received this criticism and I do not think it a fair one.
At the time of the production of the report of the commission, the 28 statutory companies, providing one-quarter of the water supply in England and Wales, were in practically every case producing pure, wholesome water, but at less cost than their neighbouring regional water authorities. I know that that is not a completely fair comment and I do not wish to score a point over the water authorities. There are quite valid differences between us, and the
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picture varies. But I want to say that the Monopolies Commission's view of the statutory water companies is an unfair one.
Secondly, while I want to reply in some degree to the criticism that the water companies have used this financial year to raise their prices subtantially, may I just ask noble Lords to consider this point? We always kept our prices down so I pose the question: why in this year have we put up our prices? The answer is to be found in the changes for the water companies in the Government's proposals. The advice which the companies and their association have received from every source is that the water companies, if they do not convert to plcs after the passing of the Bill, will be judged in future as plcs. This is because the water authorities are to become plcs. Therefore we shall be expected to produce rates of return on assets at debt equity ratios appropriate to plcs.
This has been quite obvious to us for some time, and the only way to achieve acceptable debt equity ratios is to finance much more for future capital expenditure from charges and thus reduce the debt over a period of time. Of course, at this time, as we all know, there are tremendous extra capital requirements for bringing companies, as well as the proposed to be privatised authorities, up to European standards. I hope your Lordships will recognise that in these circumstances unusually large increases were inevitable. The new system of regulation which the Bill will bring into being—and I approve of it very much, as I said on Second Reading, because it is heavily in the interests of the consumer—is not to be brought into existence, so far as the companies are concerned, without considerable cost implications.
We are told constantly that the Bill before the Committee has nothing to do with the increase in prices which the water companies have had to impose. I simply cannot agree with that. It is a play on words, because it is the pending legislation which has led the companies essentially to raise their charges.
That is all I wish to say, but I hope that I have answered the two main criticisms of the water companies. I assure noble Lords of this. I know these companies and I know them well. I know their chairmen, I know many members of their boards and I know, particularly, the professional people employed in them. To suggest that they are laggardly, sluggish and lacking in incentive, effort and ambition is totally false. The 28 statutory water companies are very proud concerns, and I am very proud to be associated with them.
Lord King of Wartnaby: As noble Lords may know, I have had some experience in matters of privatisation. I must with all humility say that privatisation has vast and untold benefits to consumers and the workforce. It is, however, with regret that I must oppose the amendment proposed by my noble friend Lord Nugent. Over a long period of time he has been a true and tried friend of mine, and I disagree with him with some reluctance.
The amendment proposed by the noble Lord would seriously impair the effectiveness of this Bill.

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The careful balance between consumer protection and operational efficiency would be upset. I agree that companies must not be allowed to develop unrestricted profits from monopoly operations, but a cap on dividends and reserves is not the way to exercise control. To do so would remove an important spur to the efficiency of the operating companies with the possible consequence of an increase in the cost of water to the consumer. There will be occasions in certain market conditions when companies will prefer to raise capital by the issue of fixed interest stocks rather than by ordinary shares. However, to limit companies to the use of that financial instrument alone would deprive them of flexibility to the deteriment of the enterprise.
There is also a question of risk. Equity capital, often appropriately called risk capital, is the first protection for the creditor against loss which could arise in the event of an unforeseen operational problem. In difficult times equity shareholders may have to forgo dividends, and it is right that they should reap their rewards when times are good. Fixed interest capital is not satisfactory for this purpose. It would be so unattractive an investment that a very high interest rate may be required to be paid in order to get investors to buy the stock. This would defeat Lord Nugent's objective of a low return business. Restricting reserves is likely to be a recipe for waste, as companies having a good year look for ways to spend or tuck away profits in projects that they would not otherwise have thought of pursuing.
Why is it that the water industry in this country is in serious need of fresh capital investment? There are a number of answers to that question. One is that the public are increasingly and quite properly demanding with regard to matters affecting the environment. I believe that another reason for the need for capital is that water has been largely government-owned. Governments are, by their nature, bound to have difficulty in meeting the capital needs of the organisations which they own—and I speak from experience. I urge noble Lords to reject the amendment proposed by my noble friend Lord Nugent.
Lord Stoddart of Swindon: If I were merely concerned about the hard-nosed party political aspects of this Bill, I would advise that this amendment be rejected because undoubtedly this Bill is the most unpopular measure that the Government have ever brought forward. If this Bill is passed in its present form, it will do the Government considerable damage at the next election. Therefore, it would be as well from the Labour Party's point of view if the Bill went forward unamended.
I am not concerned about that matter. I am concerned about the continued benefit to the consumer and the continued well-being of the water industry. I have been quite appalled at the criticism voiced in this House against the public ownership of water. The noble Lord, Lord Elliott, very ably defended the statutory water companies. I should like to defend the municipalities and the other publicly-owned water undertakings in this country which have developed water supplies and delivered water to every part of the country in a very efficient
294
manner. I am certain that had this been left to private unregulated water companies or plcs, it is doubtful whether all parts of rural Wales, England and Scotland would now be served with piped water and in many cases with proper sewerage facilities. Public ownership has done a pretty good job up until now, and I believe that it would continue to do a good job and improve upon it.
It is quite clear that the Government are not prepared to leave the industry in public ownership. The noble Lord, Lord Nugent, is the foremost expert in these matters in the country with an enormous wealth of experience. His ability and commitment is recognised by all sides of this House and by all sides of another place. He has given the Government the opportunity to go down another route which would be more acceptable to all sides of this House, and much more acceptable to the water consumers, who are the electorate at large.
I hope that noble Lords opposite, particularly those who have a concern—and there are many of them—for the rural areas of this country, will support Lord Nugent's amendment.
Lord Belstead: I do not want to cut other noble Lords out, and I cannot possibly do so because we are in Committee. However, we have been discussing this amendment for two hours. It might be convenient if I were to say a word from the Government Front Bench towards the end of the debate. It will then be a matter for the Committee as to how we proceed.
We have heard from the noble Lord, Lord McIntosh, who I admire and enjoy listening to in complicated Bills of this kind, and from the noble Lord, Lord Stoddart of Swindon, some fairly hard words about the policy of the Government so far as the privatisation of water is concerned. I understand the views of the noble Lords. We differ between the two sides of the House on this matter.
I should like to say one word on that matter in reply. It is true to say that if one were to visit any of the existing water authorities these days one would find a great deal of renovation work in progress. One would find that a great deal of water and drainage pipework is being replaced, some of it more than a century old. It is a legacy from the past. Undoubtedly in the past, and particularly in the major industrial areas of this country, the system of financing capital works has not been equal to the task over the years. That was demonstrated all too clearly in the mid-1970s when the government of noble Lords opposite found that they had to make deep cuts in the capital programme of the water authorities. Before noble Lords opposite jump down my throat and ask what happened after that, under the Government which succeeded in 1979 investment remained at very much that level before it began to climb steadily in the 1980s.
I am most anxious from this side of the House to make one simple point. There is a genuine and a logical reason for believing that this enormous industry, with a very substantial workforce and a heavy capital programme, should be within the private sector, with the twin provisos, first that there

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must be a regulatory body (which in this case is called the National Rivers Authority) responsible for water resources and for the quality of our rivers. That is something which, if I may say so, my noble friend Lord Nugent has very wisely, consistently and successfully pressed for over the past two years. Also there must be effective price regulation in the interests of customers.
At the beginning of this debate my noble friend Lord Caithness made the point that the Bill is drafted on two main foundations. One is that water services in the future, so we plan in the Bill, should be delivered by Companies Act companies; the other is that their prices should be controlled by an independent Director General of Water Services. However, the amendments that are now before the Committee would require the water services of the future to be delivered by companies set up on a very different basis. They would be set up on the basis of the main amendment, which is part of the huge group that we are now discussing; namely, Amendment No. 47. It would be a statutory model in which the companies would be subject to controls on their dividends and reserves but would not have price control and be answerable not to an independent director general but to the Secretary of State.
A crucial point which has become increasingly clear during our long debate this afternoon is that this is an issue which goes to the heart of this Bill. For example, the amendments provide no direct control of prices, and the customer would have no statutory protection against large year-on-year price increases. My noble friend Lord Jenkin of Roding referred to the very high price increases which had to be introduced this year by some of the existing statutory water companies, with increases running up to over 40 per cent. On that point I simply say that as drafted this is a Bill which would provide a control on what would otherwise be an open-ended mechanism. But by sweeping away the clauses which provide for the director general, these amendments would delete that vital price protection from the Bill; and side by side with the absence of any statutory price protection in these amendments goes an absence of any effective stimulus to efficiency.
As I understand these amendments, so long as restrictions on dividends and reserves are observed, there would be no direct control of prices and a company on the model proposed could always have a guaranteed return simply by raising its charges to the customer. The obvious disadvantage of this system has already been spotted by the Monopolies and Mergers Commission, whose criticism my noble friend Lord Caithness referred to in his Second Reading speech and again earlier today. It has been the subject of some exchanges in this Chamber.
The fact is that although many of the existing statutory water companies have faithfully served their local communities—and my noble friend Lord Elliott was absolutely right and justified in speaking with pride of what they have done—having listened to the evidence of my noble friend Lord Caithness in his speech, I am driven to the conclusion that in some cases the companies have been spending too little on their assets. Many Members of this
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Committee who have great experience of business would be the very first to say to me that sooner or later assets have to be renewed and additional capital raised, particularly for the substantial capital spending programmes, in order to achieve the higher quality standards that we all want to see.
Of course I understand the appeal of saying that profits ought not to be made out of water; but I follow the example of my noble friend Lord Renton in asking whether that is in fact the case today. Does it make economic sense? After all, neither the Treasury, with respect to the water authorities, nor the owners of the statutory companies have financed them simply out of philanthropy. Public sector or private, they have expected returns on their capital. We are now talking about a change in the manner of how those returns are regulated so that efficient companies are encouraged but customers have protection through control of prices. I believe that that is sensible and justified.
Therefore the Government feel very strongly that on this occasion they cannot agree with the amendment to which my noble friends and the noble Earl, Lord Halsbury, have put their names. We genuinely believe that to impose the statutory model not only on the 29 existing statutory companies but on the 10 successor companies to the regional water authorities is not the right way forward for the future.
There is however one further point about these amendments which troubles me very much. It arises from the intervention made in this debate by my noble friend Lord Gowrie. I think that my noble friend was perfectly justified in saying that the effect on the Bill of these amendments—and incidentally there are about 230 of them on the Marshalled List—would be devastating. My noble friend was not alone; other Members of the Committee have said very much the same. However, as my noble friend Lord Gowrie said, price control would be removed by these amendments as would the protection of the Director General of Water Services, thus incidentally, removing essential consumer safeguards from the Bill. The water companies of the future would have to exist, as I understand it, outside the provisions of the Companies Act and the Community law. And, having listened to my noble friend Lord King of Wartnaby, I must say that the prospect of 10 such companies appealing to private investors would be quite slim indeed.
If these amendments are accepted, the sheer scale of the redrafting needed to make the Bill consistent with them would be absolutely massive. Every clause dealing with the appointment, the regulation, the duties and the powers of the companies would have to be worked through, and to reconstruct the Bill on this principle might well require literally hundreds of additional amendments.
It is the constitutional right of this Chamber through its revising work to ask another place to think again. It is a right that, whenever possible, I always seek to uphold. Indeed—and it is more often said when sitting on the Opposition Benches—a claim very often made when we receive a Bill which has been guillotined in another place is that we shall give extra scrutiny to those clauses which have not

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been debated at all. However, in passing this amendment and the 200-plus consequential amendments, we should be standing that claim on its head for we should not be scrutinising the rest of the Bill line by line but in effect asking for a major manifesto Bill to be rewritten.
I question fundamentally whether in doing that we should properly be carrying out our revising function. It is for the Committee to decide; but in deciding let us remember the needs of the industry. We shall have to achieve higher quality standards in the foreseeable future and inescapably this will mean substantial growth in capital programmes. Many of the existing statutory water companies—and, incidentally, my noble friend Lord Elliott, who is the chairman of a statutory water company and spoke this afternoon—agreed with the water authorities that the way to achieve that is by privatisation under price control. Let us be absolutely clear. This amendment would kill that concept stone dead. I ask the Committee not to agree to it.
5.30 p.m.
Lord Nugent of Guildford: I am sure that members of the Committee from all sides feel that it is time to bring to an end our debate. First I must thank the speakers who have been good enough to support the amendment that I put forward.
I should like to deal with the point made with his customary diplomacy by my noble friend the Leader of the House, Lord Belstead. He implied that my amendment would wreck the Bill. My noble friend Lord Gowrie actually said it in those terms. I do not agree. I do not see how it can be said that an amendment which would put into the Bill a form of water company which has been in existence in this country for 150 years and in fact covered all our water supply companies in the last century can be a wrecking amendment. It would be an enormous change. I agree that it would be an appalling job to deal with all the consequential amendments. But I do not think that it is fair to say that it is a wrecking amendment; it is not. I am not sure that my noble friend Lord Gowrie quite understands the nature of this industry. Many noble Lords on all sides do understand it. Those of us who understand the nature of the industry can envisage how very badly this plc structure will fit on it.
First, it has been stated on all sides, that the plc structure denies that the incentive for public service is sufficient to run such bodies, although it has done so very effectively for 150 years. In winding up, my noble friend Lord Belstead spoke of the increased charges that the statutory water companies were considering making. There is an automatic safeguard there. If a statutory water company sets the charge too high one year the surplus that it makes must go, according to the statute, to reduce the charges the following year. Therefore the consumer has the best safeguard of all; and it has worked extremely well.
Nobody will wish me to repeat all the arguments again——
Lord Boyd-Carpenter: Hear, hear!
Lord Nugent of Guildford: My noble friend backs me up. I think it is about the only issue on which he has agreed with me today! We are talking about whether we believe that the profit incentive will suit this industry—which has never had it—better than the incentives of the past, of public service and the automatic system of adjusting in the interests of the consumer. It is a fact that the Bill puts the shareholder first, quite definitely, in Clause 7. The Director General of Water Services must ensure that there is a reasonable return for the shareholder, and the consumer then takes the consequences after that has been secured. That is a quite different priority from that of the statutory water company.
That is the issue that the debate has been about. My belief is that the statutory water company works well, and efficiently, and it gives a 100 per cent. safeguard to the consumer. I doubt very much whether the company as laid down in the Bill will do so. I commend the amendment to the Committee.
5.43 p.m.
On Question, Whether the said amendment (No. 43) shall be agreed to?
Their Lordships divided: Contents, 112; Not-Contents, 208.

DIVISION NO.. 1

CONTENTS

Addington, L.

Harris of Greenwich, L.

Airedale, L.

Hatch of Lusby, L.

Alport, L.

Hayter, L.

Ampthill, L.

Hirshfield, L.

Ardwick, L.

Hooson, L.

Auckland, L.

Houghton of Sowerby, L.

Baldwin of Bewdley, E.

Howie of Troon, L.

Birk, B.

Hylton, L.

Bonham-Carter, L.

Hylton-Foster, B.

Bottomley, L.

Irving of Dartford, L.

Bruce of Donington, L.

Jacques, L.

Buckmaster, V.

Jeger, B.

Callaghan of Cardiff, L.

Jenkins of Hillhead, L.

Campbell of Eskan, L.

Kearton, L.

Carmichael of Kelvingrove, L.

Kilmarnock, L.

Lauderdale, E.

Carter, L.

Lawrence, L.

Cledwyn of Penrhos, L.

Leatherland, L.

Cocks of Hartcliffe, L.

Listowel, E.

Craigavon, V.

Llewelyn-Davies of Hastoe, B.

Cross, V.

Dacre of Glanton, L.

Lloyd of Hampstead, L.

Darcy (de Knayth), B.

Lloyd of Kilgerran, L.

David, B.

Lockwood, B.

Dean of Beswick, L.

Longford, E.

Dormand of Easington, L.

Lovell-Davis, L.

Dunrossil, V.

Macaulay of Bragar, L.

Elwyn-Jones, L.

McCarthy, L.

Ewart-Biggs, B.

McIntosh of Haringey, L.

Ezra, L.

McNair, L.

Falkender, B.

Masham of Ilton, B.

Falkland, V.

Mayhew, L.

Fisher of Rednal, B.

Milner of Leeds, L.

Foot, L.

Mishcon, L.

Gainsborough, E.

Monson, L.

Galpern, L.

Moran, L.

Graham of Edmonton, L.

Mountevans, L.

Greenway, L.

Moyne, L.

Grey, E.

Nicol, B.

Halsbury, E. [Teller.]

Northfield, L.

Hampton, L.

Nugent of Guildford, L. [Teller.]

Hanworth, V.

Hardinge of Penshurst, L.

Ogmore, L.

299

Perry of Walton, L.

Stoddart of Swindon, L.

Peston, L.

Strabolgi, L.

Phillips, B.

Swinfen, L.

Pitt of Hampstead, L.

Taylor of Blackburn, L.

Ponsonby of Shulbrede, L.

Thurlow, L.

Pym, L.

Thurso, V.

Rea, L.

Tordoff, L.

Rochester, L.

Underhill, L.

Ross of Newport, L.

Wallace of Coslany, L.

Russell, E.

Walston, L.

Seebohm, L.

White, B.

Sefton of Garston, L.

Williams of Elvel, L.

Sherfield, L.

Willis, L.

Stallard, L.

Young of Dartington, L.

Stewart of Fulham, L.

NOT-CONTENTS

Abinger, L.

Ferrers, E.

Airey of Abingdon, B.

Ferrier, L.

Alexander of Tunis, E.

Forbes, L.

Alexander of Weedon, L.

Forester, L.

Annaly, L.

Forte, L.

Arran, E.

Fortescue, E.

Ashbourne, L.

Fraser of Carmyllie, L.

Bellwin, L.

Gainford, L.

Beloff, L.

Glenarthur, L.

Belstead, L.

Goold, L.

Benson, L.

Gowrie, E.

Bessborough, E.

Grantchester, L.

Bethell, L.

Gray of Contin, L.

Blatch, B.

Gridley, L.

Blyth, L.

Grimston of Westbury, L.

Boardman, L.

Haddington, E.

Bolton, L.

Haig, E.

Boyd-Carpenter, L.

Hailsham of Saint Marylebone, L.

Brabazon of Tara, L.

Braye, B.

Harmar-Nicholls, L.

Bridgeman, V.

Harris of High Cross, L.

Brocket, L.

Harvey of Tasburgh, L.

Brougham and Vaux, L.

Harvington, L.

Butterfield, L.

Havers, L.

Butterworth, L.

Hemphill, L.

Caithness, E.

Henley, L.

Camden, M.

Hertford, M.

Campbell of Alloway, L.

Hesketh, L.

Carnegy of Lour, B.

Hives, L.

Carnock, L.

Hood, V.

Carrington, L.

Hooper, B.

Cathcart, E.

Ironside, L.

Cayzer, L.

Jenkin of Roding, L.

Chelmer, L.

Kemsley, V.

Chorley, L.

Kenilworth, L.

Clinton, L.

Kimball, L.

Clitheroe, L.

King of Wartnaby, L.

Coleraine, L.

Knutsford, V.

Colnbrook, L.

Layton, L.

Colwyn, L.

Lindsey and Abingdon, E.

Constantine of Stanmore, L.

Long, V.

Cork and Orrery, E.

Lyell, L.

Cottesloe, L.

McAlpine of West Green, L.

Cox, B.

Mackay of Clashfern, L.

Craigmyle, L.

Macleod of Borve, B.

Cranbrook, E.

Macpherson of Drumochter, L.

Crickhowell, L.

Cullen of Ashbourne, L.

Malmesbury, E.

Daventry, V.

Mancroft, L.

Davidson, V. [Teller.]

Margadale, L.

De La Warr, E.

Marley, L.

De L'Isle, V.

Marshall of Leeds, L.

Denham, L. [Teller.]

Maude of Stratford-upon-Avon, L.

Derwent, L.

Dilhorne, V.

Merrivale, L.

Dormer, L.

Mersey, V.

Dulverton, L.

Middleton, L.

Dundee, E.

Monk Bretton, L.

Eden of Winton, L.

Monteagle of Brandon, L.

Elibank, L.

Morris, L.

Elliot of Harwood, B.

Mottistone, L.

Elphinstone, L.

Mountgarret, V.

Erne, E.

Mowbray and Stourton, L.

Erroll of Hale, L.

Munster, E.

300

Murton of Lindisfarne, L.

Selsdon, L.

Nelson, E.

Shrewsbury, E.

Norfolk, D.

Skelmersdale, L.

Norrie, L.

Slim, V.

Northesk, E.

Southborough, L.

Onslow, E.

Stanley of Alderley, L.

Oppenheim-Barnes, B.

Strange, B.

Orkney, E.

Strathcarron, L.

Orr-Ewing, L.

Strathclyde, L.

Oxfuird, V.

Strathmore and Kinghorne, E.

Peel, E.

Pender, L.

Strathspey, L.

Pennock, L.

Swansea, L.

Penrhyn, L.

Swinton, E.

Platt of Writtle, B.

Teynham, L.

Portman, V.

Thomas of Gwydir, L.

Portsmouth, E.

Thomas of Swynnerton, L.

Quinton, L.

Thorneycroft, L.

Radnor, E.

Tollemache, L.

Rawlinson of Ewell, L.

Torphichen, L.

Reay, L.

Torrington, V.

Redesdale, L.

Townshend, M.

Rees, L.

Trafford, L.

Reigate, L.

Trefgarne, L.

Remnant, L.

Trenchard, V.

Renton, L.

Trumpington, B.

Renwick, L.

Tryon, L.

Rochdale, V.

Ullswater, V.

Rodney, L.

Vaux of Harrowden, L.

Rollo, L.

Vinson, L.

Romney, E.

Watkinson, V.

Rootes, L.

Whitelaw, V.

Rotherwick, L.

Wigram, L.

Sackville, L.

Willoughby de Broke, L.

Saint Albans, D.

Windlesham, L.

St. Davids, V.

Wolfson, L.

St. Germans, E.

Wyatt of Weeford, L.

St. John of Fawsley, L.

Wynford, L.

Saint Levan, L.

Yarborough, E.

Sanderson of Bowden, L.

Young, B.

Savile, L.

Young of Graffham, L.

Selborne, E.

Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.
5.55 p.m.
Clause 4 [Transfer of the water authorities' functions etc.]:
[Amendments Nos. 44 to 46 not moved.]
Clause 4 agreed to.
Before Schedule 2:
[Amendment No. 47 not moved.]
Schedule 2 [Schemes providing for the Initial Transfers]:
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh): moved Amendment No. 48:
Page 192, line 36, after ("provisions") insert ("and without further assurance").
The noble Lord said: These amendments are concerned with the schemes of transfer under Schedules 2 and 5. They concern the schemes being prepared by the water authorities for the division of their property, rights and liabilities in Schedule 2 between the successor company and the NRA, and in Schedule 5 between the existing appointee and the new appointee. The amendments to each schedule are similar and can be considered together.

301
The first, Amendment No. 48 which inserts:
"and without further assurance"
in paragraph 2(1) in Schedule 2 is to clarify that the transfer scheme effects complete transfer of property, assets and liabilities from the water authority to the successor plc or to the NRA without the need for any further requirements, such as conveyances or transfers. The equivalent Amendment No. 228 to paragraph 3(1) in Schedule 5 ensures the same for transfers between existing and new appointees.
The second and third amendments to Schedule 2, Amendments Nos. 49 and 50 which add two new sub-paragraphs to sub-paragraph (4) of paragraph 2, will allow schemes to include provisions to enable the NRA or the plc as appropriate to require production and safe custody of documents of title held by the other party relating to their rights in respect of land. Again an equivalent amendment is made in Schedule 5, Amendment No. 229.
The final amendments to these schedules, Amendments Nos. 51 and 230, provide that these schemes of transfer may make provision for arbitration and certification where there may be uncertainty in a scheme of transfer as to the rights of either the NRA or the plc, or the existing new appointee, as the case may be.
These amendments are technical amendments, designed primarily to facilitate the procedures for establishing and certifying proof of title of land transferred in schemes of transfer.
I must ask the Committee's forgiveness in not saying when I moved Amendment No. 48 that I was speaking to Amendments Nos. 49 to 51 and to Amendments Nos. 228 to 230. I commend these amendments to the Committee.
On Question, amendment agreed to.
Lord Hesketh Lord Hesketh moved Amendment No. 49:
Page 193, line 23, leave out ("sub-paragraph (2)(c)") and insert ("paragraph (c) of sub-paragraph (2)").
On Question, amendment agreed to.
Lord Hesketh Lord Hesketh moved Amendment No. 50:
page 193, line 26, at end insert ("; and the provision that may be made by virtue of that paragraph includes—

(a) provision for treating any person who is entitled by virtue of a scheme under this Schedule to possession of a document as having given another person an acknowledgement in writing of the right of that other person to the production of the document and to delivery of copies thereof; and

(b) provision applying section 64 of the Law of Property Act 1925 (production and safe custody of documents) in relation to any case in relation to which provision falling within paragraph (a) above has effect.").

On Question, amendment agreed to.
Lord Hesketh Lord Hesketh moved Amendment No. 51:
Page 194, line 15, at end insert—
("(f) that disputes as to the effect of the scheme between the Authority and the successor company to which property, rights and liabilities are transferred in accordance with the scheme are to be referred to such arbitration as may be specified in or determined under the scheme;
302
(g) that determinations on such arbitrations and certificates given jointly by the Authority and a successor company as to the effect of the scheme as between the Authority and that company are to be conclusive for all purposes.").
On Question, amendment agreed to.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 51 A:
Page 194, line 15, at end insert—

("(f) that where persons who immediately before transfer were contributing to the Water Authorities' Superannuation Fund and employed by a successor body, it shall be the duty of that body to provide pension benefits that are no less favourable (including any provision for increasing pensions already in payment) than those which would have been enjoyed under comparative arrangements with the Local Government Superannuation Scheme.").

The noble Lord said: The Minister has quite fairly dealt with the gravamen of the contents of the schedule and the supplementary provisions. We are seeking to add a new subparagraph to the schedule. We are concerned, as the amendment states, about the preservation of employees' pension rights. It would be helpful to the Committee if I were to remind noble Lords of the precise additional words that we want to add. They are:
"that where persons who immediately before transfer were contributing to the Water Authorities' Superannuation Fund and employed by a successor body, it shall be the duty of that body to provide pension benefits that are no less favourable (including any provision for increasing pensions already in payment) than those which would have been enjoyed under comparative arrangements with the Local Government Superannuation Scheme.)".
I am sure that all Members of the Committee will recognise the fact that not only they but employees of water companies are concerned and sensitive about the question of pensions. It is a question not only of enjoying a pension which has been earned but of making sure that it is as protected as possible. The purpose of the amendment is to place a statutory duty on the new water plcs and their associated bodies to provide a pension scheme which will be no less favourable than the statutory local government superannuation scheme.
I can anticipate the Minister's arguments: that, despite the massive number of words, he is disinclined to add more to the face of the Bill; that he does not doubt for one moment that the interests of the employees will be adversely affected; and that they will be no less favourable in the future.
Mr. Michael Howard, the Minister in charge of the Bill in another place, wrote to the NALGO trade union on 3rd April. It is significant to my argument because he said:
"I am not of the opinion that privatised companies should be statutarily bound to specific duties".
It is surprising that he does not believe that privatised companies should be statutarily bound to specific duties. There are generalisations, premises, hopes and anticipations but he uses the words "bound to specific duties". He continues:
"This is contrary to practice in the private sector where a trust deed is the usual means of protecting pension arrangements".
That may be the practice and the usual arrangement. The many thousands of employees in the company are asking the Government to write on the face of the Bill a provision which they presently enjoy. They

303
are not asking for enhancement but for protection of that which they already have.
I know that the Government are proposing to establish what are called "mirror image" pension arrangements for successor bodies subject to trust deeds to be approved by the Secretary of State. I do not for one moment impute to the Secretary of State that he is careless or cavalier in his desire to protect the rights of employees. However, I cannot understand why it is not possible to add such a tiny protection for the employees, who in my view will make a real difference to the success of future water arrangements. In future a plc can decide to cease support for a scheme and close it and then replace it with an inferior scheme.
I have had the benefit of considering the arrangements for employees in the Royal Ordnance Factories and the dockyards, for example, where their status was changed from being protected by statutory undertakings. They were governed by an arrangement which the Government held out to be satisfactory. We know what happened to the workers in the Royal Ordnance Factories and the dockyards after their work was decimated and their interests badly affected.
If the Minister is looking for ways in which to ease the passage of the Bill through this House and to find acceptability in the country, he could make this tiny addition. I assure him that there will be many things which he will wish to monitor and consider in the future. He will certainly need to see whether the companies look after their employees in the same way as the present water authorities. He can avoid the need for that monitoring if he accepts the amendment.
Meaningful protection of employees' pension rights can come only from statutory measures. In my view this amendment should suffice in that regard. We are not saying that there is a general desire for future employers to dishonour agreements. The employees are saying, "Let us put that beyond a peradventure. Let us write on the face of the Bill the kind of amendment that we are proposing". I beg to move.
The Earl of Caithness: I assure the noble Lord, Lord Graham, that the Government are concerned that the former water authority employees' pension rights are protected and have given their assurance that there will be a scheme available to water authority employees who are transferring to a successor company which provides the same benefits at the same rate of contribution by the employees as for the local government superannuation fund at transfer date. This specifically includes full index linking. The assurance will be given effect through the mirror image scheme. That is a point to which the noble Lord indicated I would refer when he answered the question which he posed——
Lord Graham of Edmonton: And very well!
The Earl of Caithness: There may be room on this side of the Committee if the noble Lord wishes to come over to answer as well as to ask the questions.
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Employees who do not transfer to the water authorities' successor companies will be transferred to the National Rivers Authority and will be eligible to remain in the local government superannuation scheme. The mirror image scheme will be safeguarded under trust deed by trustees as is customary in the private sector. That is why statutory requirements on pension rights have not been included in any previous privatisation.
However, the trust deed will contain two provisions which will give members of the scheme particular reassurance about the protection of their future rights. These are, first, that the trustees of the mirror image scheme shall include at least two representatives of members. Secondly, while there remain potential beneficiaries of the mirror image scheme, it shall not be wound up or its benefits altered if any trustee objects.
The mirror image scheme will include the option to follow changes in the local government superannuation scheme. Such decisions will of course be made by the trustees of the scheme. Therefore, while I am sympathetic towards the concern for employees that underlies the amendment, I believe it to be unnecessary.
Lord Graham of Edmonton: I should like to be clear that the Minister is saying that representatives of the employees will form part of the trustees and that nothing will happen to a scheme which will be of disadvantage to them. I should like him to confirm that nothing will happen to that scheme even if one trustee objects. Perhaps on vesting day—or whatever term is used—the rights which a current employee enjoys will be transferred and protected by a trust deed and in future some of the employees who are affected by the scheme will be members of the board of trustees. In that situation we should like to know that nothing can happen to the scheme if one trustee objects. Can the Minister say that my rough understanding of the position is correct?
The Earl of Caithness: The noble Lord has the gist of my reply absolutely right. I should like re-emphasise exactly what I said. First, that the trustees of the mirror image scheme shall include at least two representatives of members. That covers the noble Lord's first point. Secondly, while there remain potential beneficiaries of the mirror image scheme it shall not be wound up or its benefits altered if any trustee objects.
Lord Graham of Edmonton: I am grateful to the Minister. Quite fairly he used a phrase which I had not picked up when saying that while there exists in employment some of the transferred employees, they will continue to have the right to protect the interests which were transferred.
The Minister will understand that I have received my advice from representatives of NALGO. They have drawn my attention to the fact that they continue to be sensitive about the matter, despite what happened in another place and the assurances that were given by Mr. Colin Moynihan. However, in fairness to the Minister, it may well be that there has been a misunderstanding. I shall certainly

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withdraw my amendment, consult those outside the Committee who may be helpful to me and return at a later stage if need be. However, at this stage I am satisfied with what the Minister said and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2, as amended, agreed to.
Clause 5 agreed to.
Schedule 3 agreed to.
Clause 6 [Customer service committees]:
[Amendment No. 52 not moved.]
Baroness Strange Baroness Strange moved Amendment No. 53:
Page 5, line 20, leave out ("may") and insert ("shall").
The noble Baroness said: May I first apologise to Members of the Committee that I did not speak on the Bill at Second Reading. This is the first amendment which I have ever dared to move so I am tip-toeing into the water rather than diving straight in and I hope that the Committee will bear with me.
It seems to me that one of the chief purposes of the Government in bringing forward this Bill is to protect the interests of the consumer. To have smaller companies instead of a nationalised monopoly must be better for the man standing at the sharp, or tap, end. However, it is still a monopoly. In our complicated, largely urban society it is no longer feasible to go out to the spring, stream or pump at the well with a bucket to collect the day's supply of water. I do not and have not seen many people creeping home from the lake in St. James's Park with their buckets of water. We are pretty well stuck with the tap.
The word "may" gives me an instant picture of the director of the water board sitting with a daisy in his hand saying "Shall I set up a customer services committee? Shall I not set up a customer services committee? I may set up a customer services committee. I may not set up a customer services committee". The word "shall" gives the director a plain duty to do so.
Subsection (3) of the clause states that:
"It shall be the duty of the Director",
to set up CFCs. That sets it out quite clearly without ambiguity. Here there are no daisy petals. Surely, therefore, it would be logical also to put in the word "shall" at the beginning of Clause 6, as that is clearly what the Government want. I beg to move.
Lord McIntosh of Haringey: Perhaps I may add my support to the amendment so poetically moved by the noble Baroness. She has made it much clearer than could be said in ordinary prose that a customer service committee, or a consumer council as it is in other privatised industries, is an absolutely essential part of the regulatory process. That has been so in every single privatisation measure introduced so far by this Government.
It would be a tragedy if, through what I can only think has been an error of drafting, there should be
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any risk whatever that the consumer should not be represented in that way. I very much hope that the Government will see their way to rationalising the wording of this clause and agreeing to the amendment.
Baroness Phillips: I too should like to support the noble Baroness. As befits our sex she has moved the amendment with brevity and clarity so I shall not spoil the record by going on at length.
However, to support my noble friend on the Front Bench, this must have been an oversight. I cannot believe that the Government will not accept this amendment. I should be very surprised at that because consumer representation has a double advantage. It can not only carry through any problems but can also bring ideas, as we know only too well, whether one is talking about private industry or a state enterprise. I feel certain that without further ado the Government will accept this very modest amendment.
Lord Ezra: I believe that we must all be beholden to the noble Baroness for moving this simple but important amendment because the protection of customers' interests must be paramount. After all, we have already spent nearly three hours talking about the relationship between the consumer and the shareholder. At the very least, we should be sure that these customer service committees will be set up and that the wording in this clause will be made totally consistent and should reassure all those who are concerned about the protection and safeguarding of consumers.
6.15 p.m.
The Earl of Arran: My noble friend says that this is one of the first amendments which she has ever dared to move. This is one of the first amendments which I have ever dared to answer and therefore she has my sympathy. Perhaps I can set her mind at rest on this amendment which seeks to clarify further that customer service committees will be established.
As my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in the other place, such an amendment is unnecessary because subsection (3)(a) already achieves the desired effect since it places a duty on the director general to establish customer service committees as soon as practicable after the transfer date for the purposes of allocating companies to them. I am advised that to impose a further duty would merely make the Bill defective. Furthermore, it would be incorrect to impose a duty in subsection (1) unless that subsection also determined the number of committees that are to be established and maintained. Since the number of committees may vary, this is not possible.
I should like to emphasise, therefore, that there is a clear duty to establish these committees, and that they they will be established. Given this reassurance I hope that my noble friend will feel able to withdraw this amendment.
Lord McIntosh of Haringey: Before the noble Baroness decides what to do, I say to the noble Earl that he would only have the nerve to make that reply in the absence of his noble friend Lord Renton. In common parlance the words "may" and "shall" means something different. If the Government are seriously saying that "shall" would imply an obligation to specify the number of customer service committees, that could easily have been solved by a much more conciliatory approach in saying that the number of customer service committees can be decided later. It was not necessary to respond in this way to the noble Baroness's amendment which anybody in common parlance would understand as meaning the possibility that customer service committees would not be set up.
I do not doubt that the noble Earl is legally correct and that his advice was honestly given. However, I doubt that it is wise to purse it in this way, and I wonder whether the Government would have been more tactful to have introduced a further amendment which could have enabled them to use the word "shall", which everybody understands.
Lord Ezra: I believe that the noble Lord, Lord McIntosh, has made a very important point. Legally this drafting may be technically correct but the interpretation by the very large number of people who will use the Bill when enacted could raise doubts. I ask the noble Earl at least to take back this amendment. If it requires some redrafting for legal purposes, perhaps the Government could return with a proposal at a later stage.
Baroness Strange: I should like to say to the Minister that that was a very unfavourable and illogical reply. I was very sorry to see such a lack of logic coming from the Government Front Bench. It may be legal but it is not logical. I hope that the Minister may offer me some comfort, although at present I intend to withdraw the amendment. However, I shall certainly return to this matter.
The Earl of Arran: I am assured that this is legally quite correct, as the noble Lord, Lord McIntosh of Haringey, said. However, I see that there is a little unrest and concern about this interpretation and therefore I shall bring it to the attention of our advisers.
Baroness Strange: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 54 to 57 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 57A:
Page 6, line 2, leave out ("Director as the Director") and insert ("Secretary of State as the Secretary of State").
The noble Lord said: In moving this amendment I must immediately apologise to the Committee for having failed to put my name to Amendment No. 52, which I should have done. It was the first of the amendments dealing with the roles of the Secretary of State and the Director General of Water Services and the establishment of customer service
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committees. It was my intention in moving Amendment No. 57 A to complement the amendments to be moved by the noble Lord, Lord Nugent, and it was for that purpose that I put my name to Amendments Nos. 55, 56 and 57. Unfortunately, I neglected to put my name to Amendment No. 52, which is the first occasion on which this matter arises. If the Committee will permit me, therefore, I should like to argue the case for this amendment as a token of the amendments to Clause 6 and to Schedule 4 which deal with the relationship between the Director General of Water Services and the customer service committees.
The problem that we have with the customer service committees as envisaged in this Bill is that they are not independent of the Director General of Water Services but dependent on him for their establishment, their constitution and their operation. We, and those who represent consumer interests generally in this country, feel that this is the wrong way to approach customer service committees and consumer councils. Indeed, there is an excellent precedent in the gas privatisation procedures and with the Gas Consumers Council for what ought to be done.
I remind the Committee that the Gas Consumers Council was to be set up by the Secretary of State; that is, in effect, the Secretary of State for Trade and Industry. It employs its own staff, though its staffing levels and conditions of service are subject to approval by the Department of Trade and Industry and the Treasury. We would not be so bold as to seek to question the Treasury intervention in these matters. However, the council is independent of the Director General of Ofgas. There is a very good reason for that. The regulatory function as established in all these measures, whether for telecommunications, gas or now water, is a clear and specific function but it carries with it the obligation of balancing the needs of all the interested parties in the gas, telecommunications or water industries. The director general has to take into account the interests of the water supply plcs and the various types of customer as well as the statutory obligations placed on him by government.
That is a quite different role from that of customer advocate. In the United States there has been an attempt to set up public utilities committees which combine the role of consumer advocate with the role of regulator. Over a number of years there has been considerable dissatisfaction with the way in which that works and a number of individual states have sought to separate what they call specifically the consumer advocate from the role of the regulatory body. They are right to do so. The consumer advocate has one function only, which is to represent the consumer against the considerable interests of the suppliers; and I remind the Committee that we have monopoly suppliers of water to domestic and non-domestic consumers.
In the gas industry it works. The Gas Consumers Council, set up by the Secretary of State independently of Ofgas, has had some notable successes in recent months. The Gas Consumers Council secured that the industrial pricing policy of British Gas should be referred to the Monopolies

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and Mergers Commission. It is the Gas Consumers Council which has secured that there should be a code of practice which is—and I say this as the husband of a former chairman of the National Gas Consumers Council—an improvement on any previous code of practice on the disconnection of gas consumers who are in arrears; in other words, the Gas Consumers Council achieved from British Gas a better deal for poor consumers than any previous consumer council had achieved from the old gas boards. Therefore, the model works in the legislation of this Government and it seems rational for this model, which does work, to be extended to the water industry.
It will be said to me that this model has not been imposed on British Telecom, and that is true. The Director General of Oftel has control of the consumer advisory committees which he has set up. However, it is noticeable in looking at British Telecom—and on Second Reading there was a stalwart defence of British Telecom by the noble Lord, Lord Wyatt of Weeford—that in the competitive atmosphere in which British Telecom works it is the director general himself who is taking the lead in protecting the consumer because he is acting in a far more vibrant, expanding and technologically changing atmosphere. That is a very different matter from water supply. As everyone agrees, water supply is a natural monopoly. Telecommunications in many of its aspects is not and for the consumer there is the protection of competition.
I suggest to the Committee that the analogy with British Gas is far better than the analogy with British Telecom. If the Government are making a choice as to which of their previous analogies they want to follow, it would be better for them to choose gas rather than telecommunications. For that reason we are seeking with this amendment, and would have sought with Amendment No. 52 if I had put my name to it—I shall gladly give way to the noble Lord if he wishes to assist me.
Lord Hesketh: Is the noble Lord also speaking to Amendment No. 67A?
Lord McIntosh of Haringey: Yes, I am speaking also to Amendment No. 67A, which is on the same point but referring to Schedule 4 as opposed to Clause 6. The point of both amendments, if I may make this clear to Members who do not have the Bill in front of them, is that Clause 6 deals with the principles of the establishment of customer service committees and Schedule 4 deals with the details.
In all these amendments we seek to establish that the Secretary of State rather than the director general should have responsibility for setting up the customer service committees. That is a logical and rational extension of existing government policy. I do not think that even the noble Earl, Lord Gowrie, could call this a wrecking amendment; and he carries the phrase "wrecking amendment" further than I have ever heard it carried before. I hope that the Government will be able to support the principle behind these amendments even though my oversight
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on Amendment No. 52 has made them technically defective. I beg to move.
Lord Ezra: The question of the independence of consumer advocacy is of vital importance. In this very complex legislation which is transferring a basic monopoly enterprise from the public to the private sector it must be seen that the consumer is protected as much as possible. The director has many functions to undertake in that respect but the consumer organisations that are set up under this Bill should be seen to be as independent as possible. It is for that reason that I support this amendment and I very much hope that the Government will be persuaded by the argument to accept it.
Lord Hesketh: Before replying I should make it clear to the Committee that, while I completely accept what was said by the noble Lord, Lord McIntosh, who gave a rather broader picture by explaining his support for Amendment No. 52, I shall be responding only to Amendments No. 57A and 67A.
Amendment No. 57A would provide for the Secretary of State rather than the director general to appoint members of the customer service committees. Amendment No. 67A would transfer to the Secretary of State the director general's responsibility for determining the amount of any compensation for loss of office paid to a chairman of a customer service committee.
In order for the director general to take customer interest properly into account in his role as the economic regulator and in ensuring that the quality of companies standards of operational services to customers are maintained and, where appropriate, improved, it is vital that he has the full and adequate briefing from the customer service committees. In these circumstances it is right and proper that he should appoint the members and chairman of these committees and that they should report to him. As a consequence the committees will carry the additional weight in investigating customer complaints and in taking up more general matters of concern to customers with the new companies. It would thoroughly confuse matters if the committees were to be responsible to the Secretary of State but with the director having a duty to protect customer interests and powers as an economic regulator to enforce that protection.
In our view, the director should also be responsible for deciding all aspects of the remuneration of the very people he appoints to the committees. I can assure the Committee that there is nothing new in the suggestion that compensation for loss of office should be determined by the person who made the original appointment. There are many examples of this in primary legislation introduced by both main political parties over the years. For these reasons I urge the Committee to resist Amendments Nos. 57A and 67A.
Lord McIntosh of Haringey: I appreciate that the Minister has been briefed on the specific amendments. It is entirely my responsibility to have widened the basis of the debate and not his. If he and the Government Front Bench think about the

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issue, you cannot actually separate Amendments Nos. 57A and 67A from the others. The whole point of distinguishing between consumer advocacy and regulation is not unknown to government. It could have been anticipated and it should have been in the light of the amendments put down by the noble Lord, Lord Nugent. He might well have said that they should not have been grouped with his earlier amendment. He would have been perfectly within his rights to do so at any time up until say midday today. If I had my name on the amendment I certainly would have objected to that grouping.
I should have thought that the Government would have taken this opportunity to attempt to defend the principle of subordinating consumer advocacy to regulation. If the Minister feels able to do so, I shall happily give way to him. Since he does not feel able to do so, it is necessary for me to seek the opinion of the Committee on this matter. It is right for us to establish as clearly as we can our support for the separation of powers between consumer advocacy and regulation and to see that that is enshrined in this legislation, as it was in the legislation for the privatisation of British Gas. If Amendment No. 57A meets with the approval of the Committee, I shall undertake to introduce the necessary consequential amendments at a later stage.
6.35 p.m.
On Question, Whether the said amendment (No. 57A) shall be agreed to?
Their Lordships divided: Contents, 52; Not-Contents, 141.

DIVISION NO. 2

CONTENTS

Addington, L.

Lawrence, L.

Airedale, L.

Listowel, E.

Ardwick, L.

Lloyd of Kilgerran, L.

Birk, B.

Lockwood, B.

Cledwyn of Penrhos, L.

Longford, E.

Cocks of Hartcliffe, L.

McCarthy, L.

Craigavon, V.

McIntosh of Haringey, L.

Darcy (de Knayth), B.

Monson, L.

David, B.

Nicol, B.

Dean of Beswick, L.

Northfield, L.

Dormand of Easington, L.

Perry of Walton, L.

Elwyn-Jones, L.

Phillips, B.

Ezra, L.

Ponsonby of Shulbrede, L. [Teller.]

Fisher of Rednal, B.

Foot, L.

Rochester, L.

Galpern, L.

Ross of Newport, L.

Graham of Edmonton, L.

Russell, E.

Hampton, L.

Russell of Liverpool, L.

Hanworth, V.

Stewart of Fulham, L.

Harris of Greenwich, L.

Stoddart of Swindon, L.

Hatch of Lusby, L.

Thurso, V.

Hayter, L.

Tordoff, L. [Teller.]

Hooson, L.

Underhill, L.

Houghton of Sowerby, L.

White, B.

Jeger, B.

Williams of Elvel, L.

Jenkins of Hillhead, L.

Young of Dartington, L.

Kilmarnock, L.

NOT-CONTENTS

Abinger, L.

Ashbourne, L.

Ailesbury, M.

Astor of Hever, L.

Alexander of Tunis, E.

Beloff, L.

Alexander of Weedon, L.

Belstead, L.

Arran, E.

Bessborough, E.

312

Blatch, B.

Marchwood, V.

Blyth, L.

Margadale, L.

Boardman, L.

Marley, L.

Brabazon of Tara, L.

Maude of Stratford-upon-Avon, L.

Bridgeman, V.

Brocket, L.

Merrivale, L.

Brougham and Vaux, L.

Mersey, V.

Butterworth, L.

Monk Bretton, L.

Caithness, E.

Montagu of Beaulieu, L.

Caldecote, V.

Monteagle of Brandon, L.

Campbell of Alloway, L.

Morris, L.

Carnegy of Lour, B.

Mottistone, L.

Carnock, L.

Mountevans, L.

Clinton, L.

Mowbray and Stourton, L.

Clitheroe, L.

Moyne, L.

Coleraine, L.

Munster, E.

Colwyn, L.

Murton of Lindisfarne, L.

Constantine of Stanmore, L.

Napier and Ettrick, L.

Cork and Orrery, E.

Nelson, E.

Cottesloe, L.

Norfolk, D.

Cox, B.

Norrie, L.

Craigmyle, L.

Northesk, E.

Cranbrook, E.

Nugent of Guildford, L.

Crathorne, L.

Onslow, E.

Cross, V.

Orkney, E.

Daventry, V.

Oxfuird, V.

Davidson, V. [Teller.]

Penrhyn, L.

Denham, L. [Teller.]

Portsmouth, E.

Dilhorne, V.

Radnor, E.

Dundee, E.

Reay, L.

Eden of Winton, L.

Redesdale, L.

Elibank, L.

Rees, L.

Elliot of Harwood, B.

Reigate, L.

Elliott of Morpeth, L.

Renwick, L.

Elphinstone, L.

Rochdale, V.

Erne, E.

Rodney, L.

Falmouth, V.

Rollo, L.

Ferrers, E.

Sackville, L.

Ferrier, L.

Saint Levan, L.

Forester, L.

Saltoun of Abernethy, Ly.

Fraser of Carmyllie, L.

Savile, L.

Gainford, L.

Selborne, E.

Glenarthur, L.

Shrewsbury, E.

Grantchester, L.

Skelmersdale, L.

Gray of Contin, L.

Southborough, L.

Greenway, L.

Strange, B.

Gridley, L.

Strathclyde, L.

Haig, E.

Swansea, L.

Hailsham of Saint Marylebone, L.

Swinfen, L.

Teviot, L.

Hardinge of Penshurst, L.

Teynham, L.

Hemphill, L.

Thorneycroft, L.

Henley, L.

Townshend, M.

Hertford, M.

Trafford, L.

Hesketh, L.

Trefgarne, L.

Hives, L.

Trenchard, V.

Hooper, B.

Trumpington, B.

Kemsley, V.

Ullswater, V.

King of Wartnaby, L.

Vaux of Harrowden, L.

Knutsford, V.

Waldegrave, E.

Lauderdale, E.

Willoughby de Broke, L.

Layton, L.

Windlesham, L.

Lindsey and Abingdon, E.

Wise, L.

Long, V.

Wynford, L.

Lyell, L.

Yarborough, E.

Macleod of Borve, B.

Young of Graffham, L.

Malmesbury, E.

Resolved in the negative, and amendment disagreed to accordingly.
6.43 p.m.
[Amendment No. 58 not moved.]
[Amendment No. 59 had been withdrawn from the Marshalled List.]
The Deputy Chairman of Committees (Baroness Cox): I must point out that if Amendment No. 59A is agreed to I cannot call Amendments Nos. 60 or 62.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 59A:
Page 6, line 5, leave out from ("the") to ("and") in line 11 and insert ("Secretary of State shall have regard to—

(a) the desirability of appointing a person who has experience of, and has shown capacity in, representing the interests of consumers of water and users of sewerage services in any area to which the Secretary of State has allocated, or is proposing to allocate, that committee.".

The noble Lord said: With this amendment we are seeking to have the interests of certain groups of people written into the Bill. Under the Bill as it stands the prime consideration seems to be the water or sewerage undertaker and not the consumer. The amendment requires that the Secretary of State shall have regard to:
"(a) the desirability of appointing a person who has experience of, and has shown capacity in, representing the interests of consumers of water and users of sewerage services".
We believe that this aspect must be made crystal clear on the face of the Bill. The purpose of the customer service committee is to protect the consumer and not to sympathise with the technical problems of the industry. There will be technical problems and they can be sympathised with, but in a Bill designed allegedly to be in the best interests of water users we are concerned that the consumers of water should have a place on the committee. It is not good enough that members of the committee should have:
"experience of, and have shown capacity in, some matter relevant to the functions of a water undertaker or sewerage undertaker or to the carrying out of those functions".
If anything, those would be a disqualification for looking after the interests of the consumer.
I hope that the Minister will consider making a concession on a point of which up to now the Government and their spokesmen have made great play. The interests of the water consumer should not only be adequately protected but also adequately represented. This would be a tiny concession. I beg to move.
Baroness Fisher of Rednal: I support my noble friend. The amendment refers to:
"the desirability of appointing a person who has experience of".
We all have experience of water, whether we use it for washing or for some other purpose. We are all consumers of water. I hope that when making these appointments the Government will bear in mind that women know something about water. They have a capacity to represent the interests of consumers. I said during a previous discussion on the Water Bill that only one woman is represented on the eight water authorities. I do not know whether or not she would be called a statutory woman. Today we are celebrating 10 years of a woman Prime Minister.
Lord Graham of Edmonton: Some noble Lords are!
Baroness Fisher of Rednal: I apologise to my noble friend. The Government are celebrating 10 years of a woman Prime Minister. This might be a birthday present which the Prime Minister would welcome on behalf of all women. It is an important point. Women will have "experience of" and will have
314
"shown capacity in", and they can represent consumers.
Baroness Strange: I should like to speak to Amendment No. 61 which is not quite the same as the other two amendments. It is a simple amendment. Two categories of person are to be included in the customer service committee. They are:
"persons who have experience of, and have shown capacity in, some matter relevant to the functions of a water undertaker or sewerage undertaker".
That is straightforward. These people will be the technicians and those with the know-how. Clearly they should be represented. The second category is those who understand the special needs of disabled people. Of course they should be represented. That goes without saying. However, this is a customer service committee we are talking about. We are all customers. As a matter of fact we are all domestic customers too. Surely if there are to be committees—my noble friend the Minister is going to ensure that there will be—and they are to be called customer service committees, they must represent all customers, some of whose interests might conflict with those who have experience of, and have shown capacity in, water and sewerage undertakings.
Perhaps I may quote briefly from Sir Frederick Corfield's Report published by the Selsdon Group in November 1988. He said:
"Since the protection of the consumer rests almost entirely upon the manner in which the Director General of Water Services performs his duties and in particular holds the balance between the interests of consumer and shareholder, it is, one would have thought, essential that the CSCs should be wholly independent and be recruited from people with particular knowledge of the needs and problems of different categories of consumers—metered and unmetered, domestic, industrial, agricultural and horticultural—rather than from people with experience of the functions of a water or sewerage authority and therefore likely to be more in tune with the problems of supply than with the standard of service required by the consumer. While a CSC thus orientated and with a staff selected by the Director General of Water Services may be expected to ease the burden upon him, that presumably is not the object of the exercise".
The CSCs need representatives from all sorts of organisations, and particularly local ones; for example, the Women's Institute, the Townswomen's Guild, Age Concern, Citizens' Advice Bureaux, local authorities, local members of the CBI, the National Farmers' Union, horticultural users, local hospitals and the community health council. All those groups are customers and they all need representation on the CSCs.
A similar privatised industry is the gas industry. In Section 2(3)(a) of the Gas Act 1986 it specifies that membership of the "Consumers' Council" should,
"include members who, by reason of their familiarity with the special requirements and circumstances of the different areas of Great Britain or of small businesses, are able together to represent the interests of the consumers of gas".
We are not all consumers or customers of gas; some of us buy electricity, oil, coal and some of us chop our own wood and have Tilley lamps. Moreover, some of us even have candles. However, we are all customers for water. Therefore, it seems self-evident that customer service committees should represent customers; otherwise they should be called something else.
Lord Hesketh: Amendment No. 59A would replace the requirement on the director to have regard to the desirability to appoint people to the customer service committees with experience or expertise of the water or sewerage industry, by a requirement on the Secretary of State to have regard to the desirability of appointing a person with experience or expertise in representing water and sewerage service customers. Before going any further, I think that I should point out to the noble Baroness, Lady Fisher of Rednal, that at present it is not the Government who will make the appointments; it is the director general.
Amendment No. 61 would similarly require the director general, in making appointments to the committees to have regard to the desirability of appointing people with such expertise and in particular in representing domestic customers.
The requirements in subsection (5) that the director should have regard to relevant expertise of water or sewerage undertakers and of the special needs of the disabled in making appointments to a CSC are not exclusive requirements. They are just two of the considerations the director will need to weigh in getting the balance right. There is no bar on membership by people with no such experience.
The director's touchstone will always be the need to appoint committees that can deal efficiently with the wide range of customer issues and complaints that CSCs are likely to face. As my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in the other place, it is envisaged that the director will need to ensure that there is a similar balance of interests represented on these committees to those of the existing consumer consultative committees; in other words, a three-fold balance of interests between domestic customers, industrial commercial and farming interests and local authorities.
The arrangements for determining how this balance is to be achieved and who the customer representatives are to be, are properly matters best left to the discretion of the director general. It is clear that he will need to ensure that there is effective customer representation if he is to obtain the advice that he requires from these committees to ensure that customers' interests are properly protected. It is for those reasons, as I explained in relation to Amendments Nos. 57A and 67A, that the director should be responsible for making those appointments rather than the Secretary of State.
I believe that the noble Lord, Lord Graham of Edmonton, indicated that he felt the director was biased essentially in favour of the industry against the interests of the customer. In my view it is a misunderstanding of the Bill to see the director as being biased in favour of the industry against the interests of the customer. In Clause 7(2)(a) it makes it a primary duty of the Secretary of State and the director to ensure that the new companies properly carry out their functions; or, in other words, that they ensure the services to customers are properly provided.
While entirely agreeing that there should be customer representatives on these committees,
316
including representatives of domestic customers, I invite the Committee to reject the two amendments for the reasons I have stated.
Lord Graham of Edmonton: It is a continuing disappointment to me that the Minister relies upon generalities; such as, "properly to carry out the functions". It might satisfy the Minister to think that when the director general seeks to "people" the committees, he will make sure that there are people there who are able to carry out the functions from the point of view of the tripartite interests which he has just mentioned. I do not doubt his intentions. However, we are seeking now to demonstrate to the people outside this place—that is, every consumer in the land—that the Government are actually writing into the Bill the provision that among the people who will be on those committees there will be someone who is seen to be—to use a clumsy phrase—a consumer champion; that is, someone who is recognised as more of a consumer person than a technical person. I realise that it will not be easy to do so.
It is not an easy task to achieve a good balance when seeking to select people who are willing to give up time to do this work. It is of course very glib for someone to say, "We will have this person and that person". However, there are many bodies and organisations who should be represented. Indeed, I heard the noble Baroness, Lady Strange, run through a list of such organisations. She speaks from her knowledge and experience in the matter.
We are inviting the Government to demonstrate their good faith. It does not mean to say that we are decrying the integrity of the director general, or even that of the Government. However, we want to see the Government put their money where their mouth is; in other words, we want to see the Government put words where their mouth is. We want the consumers outside this place to realise that all the groups—besides the disabled and others which are specially sought out as being entitled to a place at this particular top table—are public consumers of water. The Government have failed lamentably to convince me on the matter. I believe that they have also failed lamentably to convince the public as to their true bona fides in ensuring that consumers of water will have their interests well looked after, not just by the Government or the director general but also by the people on these committees. I intend to press the amendment to a vote.
6.58 p.m.
On Question, Whether the said amendment (No. 59A) shall be agreed to?
Their Lordships divided: Contents, 54; Not-Contents, 116.

DIVISION NO. 3

CONTENTS

Addington, L.

Birk, B.

Ailesbury, M.

Blyth, L.

Airedale, L.

Broadbridge, L.

Ardwick, L.

Buckmaster, V.

Baldwin of Bewdley, E.

Cledwyn of Penrhos, L.

317

Cocks of Hartcliffe, L.

McIntosh of Haringey, L.

Craigavon, V.

McNair, L.

Dean of Beswick, L.

Monson, L.

Dormand of Easington, L.

Mountevans, L.

Ewart-Biggs, B.

Nicol, B.

Ezra, L.

Phillips, B.

Fisher of Rednal, B.

Ponsonby of Shulbrede, L. [Teller.]

Galpern, L.

Graham of Edmonton, L.

Rochester, L.

Hampton, L.

Ross of Newport, L.

Hayter, L.

Russell, E.

Hooson, L.

Russell of Liverpool, L.

Houghton of Sowerby, L.

Shannon, E.

Irving of Dartford, L.

Stewart of Fulham, L.

Jeger, B.

Stoddart of Swindon, L.

Jenkins of Hillhead, L.

Tordoff, L. [Teller.]

Kilbracken, L.

Underhill, L.

Kilmarnock, L.

White, B.

Listowel, E.

Williams of Elvel, L.

Lloyd of Kilgerran. L.

Willis, L.

Lockwood, B.

Winterbottom, L.

Longford, E.

Young of Dartington, L.

McCarthy, L.

NOT-CONTENTS

Abinger, L.

Hives, L.

Alexander of Tunis, E.

Hooper, B.

Alexander of Weedon, L.

Kemsley, V.

Annan, L.

King of Wartnaby, L.

Arran, E.

Knutsford, V.

Ashbourne, L.

Layton, L.

Astor of Hever, L.

Lindsey and Abingdon, E.

Beloff, L.

Long, V. [Teller.]

Belstead, L.

Lyell, L.

Bessborough, E.

Macleod of Borve, B.

Blatch, B.

Malmesbury, E.

Boardman, L.

Marchwood, V.

Brabazon of Tara, L.

Margadale, L.

Bridgeman, V.

Merrivale, L.

Brocket, L.

Mersey, V.

Brougham and Vaux, L.

Monk Bretton, L.

Caithness, E.

Monteagle of Brandon, L.

Caldecote, V.

Morris, L.

Campbell of Alloway, L.

Mottistone, L.

Carnegy of Lour, B.

Mowbray and Stourton, L.

Carnock, L.

Munster, E.

Clinton, L.

Murton of Lindisfarne, L.

Clitheroe, L.

Napier and Ettrick, L.

Coleraine, L.

Nelson, E.

Colwyn, L.

Norrie, L.

Constantine of Stanmore, L.

Northesk, E.

Cork and Orrery, E.

Nugent of Guildford, L.

Cottesloe, L.

Onslow, E.

Cox, B.

Oppenheim-Barnes, B.

Craigmyle, L.

Orkney, E.

Cranbrook, E.

Oxfuird, V.

Crathorne, L.

Penrhyn, L.

Cross, V.

Portsmouth, E.

Davidson, V. [Teller.]

Radnor, E.

Dormer, L.

Reay, L.

Dundee, E.

Redesdale, L.

Eden of Winton, L.

Rees, L.

Elibank, L.

Reigate, L.

Elliot of Harwood, B.

Rochdale, V.

Erne, E.

Rodney, L.

Falmouth, V.

Sackville, L.

Ferrers, E.

St. John of Bletso, L.

Forester, L.

Saint Levan, L.

Fraser of Carmyllie, L.

Saltoun of Abernethy, Ly.

Glenarthur, L.

Selborne, E.

Grantchester, L.

Skelmersdale, L.

Gray of Contin, L.

Southborough, L.

Greenway, L.

Strange, B.

Gridley, L.

Strathclyde, L.

Haig, E.

Teviot, L.

Hardinge of Penshurst, L.

Trafford, L.

Hemphill, L.

Trefgarne, L.

Henley, L.

Trenchard, V.

Hertford, M.

Trumpington, B.

Hesketh, L.

Ullswater, V.

318

Vaux of Harrowden, L.

Wise, L.

Waldegrave, E.

Wynford, L.

Windlesham, L.

Yarborough, E.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendment No. 60 not moved.]
Baroness Strange Baroness Strange moved Amendment No. 61:
Page 6, line 5, at end insert—
("() the desirability of the persons appointed being persons who have the experience of and capacity in representing the interests of users of water and sewerage services, and in particular of domestic consumers.").
The noble Baroness said: I am not satisfied with what my noble friend the Minister said and so I should like to test the opinion of the Committee. I beg to move.
7.7 p.m.
On Question, Whether the said amendment (No. 61 ) shall be agreed to?
Their Lordships divided: Contents, 47; Not-Contents, 91.

DIVISION NO. 4

CONTENTS

Addington, L.

Lockwood, B.

Airedale, L.

Longford, E.

Ardwick, L.

McCarthy, L.

Baldwin of Bewdley, E.

McIntosh of Haringey, L.

Birk, B.

McNair, L.

Broadbridge, L.

Monson, L.

Buckmaster, V.

Moyne, L.

Cledwyn of Penrhos, L.

Nicol, B.

Cocks of Hartcliffe, L.

Oppenheim-Barnes, B. [Teller.]

Elliot of Harwood, B.

Ewart-Biggs, B.

Phillips, B.

Ezra, L.

Ponsonby of Shulbrede, L.

Galpern, L.

Rochester, L.

Graham of Edmonton, L.

Ross of Newport, L.

Hanworth, V.

Russell, E.

Hooson, L.

Russell of Liverpool, L.

Houghton of Sowerby, L.

Shannon, E.

Irving of Dartford, L.

Stewart of Fulham, L.

Jeger, B.

Strange, B. [Teller.]

Jenkins of Hillhead, L.

Tordoff, L.

Kilbracken, L.

Underhill, L.

Kilmarnock, L.

White, B.

Listowel, E.

Williams of Elvel, L.

Lloyd of Kilgerran, L.

Young of Dartington, L.

NOT-CONTENTS

Abinger, L.

Cork and Orrery, E.

Alexander of Tunis, E.

Cottesloe, L.

Alexander of Weedon, L.

Cox, B.

Arran, E.

Craigmyle, L.

Ashbourne, L.

Cranbrook, E.

Astor of Hever, L.

Crathorne, L.

Beloff, L.

Davidson, V. [Teller.]

Belstead, L.

Dundee, E.

Blatch, B.

Eden of Winton, L.

Boardman, L.

Erne, E.

Brabazon of Tara, L.

Falmouth, V.

Bridgeman, V.

Forester, L.

Brocket, L.

Fraser of Carmyllie, L.

Brougham and Vaux, L.

Glenarthur, L.

Caithness, E.

Gray of Contin, L.

Campbell of Alloway, L.

Greenway, L.

Carnock, L.

Gridley, L.

Clinton, L.

Haig, E.

Coleraine, L.

Hardinge of Penshurst, L.

Colwyn, L.

Hemphill, L.

Constantine of Stanmore, L.

Henley, L.

319

Hertford, M.

Penrhyn, L.

Hesketh, L.

Portsmouth, E.

Hooper, B.

Radnor, E.

Kemsley, V.

Reay, L.

King of Wartnaby, L.

Redesdale, L.

Knutsford, V.

Rees, L.

Layton, L.

Rodney, L.

Long, V. [Teller.]

Sackville, L.

Malmesbury, E.

Saint Levan, L.

Marchwood, V.

Selborne, E.

Margadale, L.

Skelmersdale, L.

Merrivale, L.

Southborough, L.

Mersey, V.

Strathclyde, L.

Monteagle of Brandon, L.

Swinfen, L.

Mottistone, L.

Teviot, L.

Mountevans, L.

Trafford, L.

Munster, E.

Trefgarne, L.

Murton of Lindisfarne, L.

Trenchard, V.

Napier and Ettrick, L.

Ullswater, V.

Norrie, L.

Vaux of Harrowden, L.

Northesk, E.

Waldegrave, E.

Nugent of Guildford, L.

Windlesham, L.

Onslow, E.

Wynford, L.

Orkney, E.

Yarborough, E.

Oxfuird, V.

Resolved in the negative, and amendment disagreed to accordingly.
7.15 p.m.
The Earl of Arran: I think that this might be a very appropriate moment at which to break for dinner. I suggest that we do not return to the Committee stage of the Bill before 8.15 p.m. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Control of Pollution (Amendment) Bill
Brought from the Commons; read a first time, and to be printed.

Employment (Age Limits) Bill [H.L.]
7.17 p.m.
Baroness Phillips: My Lords, I beg to move that this Bill be now read a second time.
I must preface my speech by saying that I have no vested interest in the Bill. I am not seeking a return to the labour market, I have no intention of dragooning all 80 and 90 year-olds back to work. My interest in this matter stems from some six years ago when, quite unusually, five of my friends—all very distinguished people in jobs of some importance—were made redundant on account of their age. It is interesting that that age was precisely 50. What was worse, they were precluded from the jobs advertised for which they could have applied because all the advertisements said, "not over 45 years of age". That was my first introduction to the strange phenomenon from which we seem to suffer in this country: age discrimination.
Your Lordships will have noticed that if the other place wishes to be particularly insulting about this House, they refer to "the geriatric other place",
320
suggesting that there is something rather curious or undesirable about age. That is typical of the theme that runs through many areas. My first reaction to the plight of my friends was how cruel it was to be rejected because of one's age. My second reaction was different: what a waste of talents and skills which could be used. The more I have investigated the matter the more confirmed I am in the belief that in our society we waste material but, by golly, we waste people even more.
Over the years I have asked Questions of the Government on this matter. Quite recently I received some publicity on it and I was absolutely deluged with hundreds of letters. These were no crank letters but sensible ones stating the case and showing me how much wider the problem went than I had imagined. The letters came from colleges, professions and all groups, as well as from the trade unions—that is for the benefit of my noble friend Lord McCarthy on the Front Bench. I only wish that time permitted me to read some of the letters to you, such as one from a lady who said:
"I am 39 years old and increasingly frustrated by recruitment advertisements which stipulate an age limit of 35 years. I ask myself what happened to me on my thirty-fifth birthday. My brain cells did not die, I certainly did not lose the use of my faculties. I did not lose my energy, my confidence, my ability or my enthusiasm. I did decide to read for a degree and, four years later, having obtained an honours degree, I found I was too old".
I shall now just pick out some specimens to illustrate my argument. The British Association for the Advancement of Science announced that it had some special lectureships. One was offered at Brunel, another at Darwin, another at Kelvin, another at Lister and one at Lyell. The subjects covered were fairly weighty ones. But the association stated that lecturers must normally be below 40 years of age.
As an ex-teacher, I know that a class may contain 24 children who are all seven years old, but the only thing they have in common is their chronological age. Some are larger than others; some are smaller than others; some are more advanced intellectually; and some are more advanced physically. However, one certainly cannot use their age as a measurement. Nevertheless, society does that all the time.
The Latey Report made rather amusing reading. According to that report, people could achieve certain things at 15 and other things at 16, 17, 18 and so on. I cannot imagine what scientific basis there could be for those assertions.
Unilever UK advertised for an assistant manager. I must say that I am horrified by the kind of salaries that are being offered for such posts. The company seeks someone with an honours degree. The company also states that the applicant must be articulate, bright, resilient and have a sense of humour. I presume he must have a sense of humour to cope with the salary. Finally, the company states that the applicant must be under 26 years of age. I wonder where maturity is considered to start.
I shall also mention the example of tax inspectors. I saw an advertisement just recently for tax inspectors. The advertisement stated that applicants should not be older than 36 years of age. That seems to be another magic age. I always remember that when I worked in court I was fascinated at the way people picked ages out of the air.

321
So it is obvious that age discrimination goes on, and that legislation is necessary. I know it may be said, although not necessarily this evening, that the demographic curve means that the over 40s, and especially the over 50s are the best thing since sliced bread, and that suddenly they will return to the fold and everyone will want them. Someone will probably suggest that this legislation is not needed. However, I think that the present situation shows not a real change of attitude on the part of the employer, but simply a change brought about by necessity. It only needs another swing for us to be back to square one, and for age to be used as a discriminatory factor again.
As an employer, I know what employers want. They want the best person to do the job. We all know that younger workers cost less, but not many employers will be honest enough to admit that is the reason for rejecting older people. From our experience of anti-sex and anti-race discrimination legislation, we have learnt that legal changes alone cannot end discrimination. But at least legislation would give employees recourse against discriminatory practices.
As is so often the case, the legislation of the United States is ahead of us. There it is unlawful for an employer not to employ, to sack or to reduce the employment conditions of a person in any way because of his age. It is also unlawful to limit, segregate or classify workers in any way that would reduce their employment opportunities or adversely affect their status because of their age. Further, it is unlawful to reduce the wages of any worker because of his age.
I have found that employment is only one part of this story, but one has to start somewhere. Even if the Bill is not taken on board by the Government (although I hope it will be) I have started a campaign to which I shall return. However, I hope I can at least ask for justice. I am not talking about justice for any specific age, I merely wish to state that just as one's sex—or gender as we now delicately call it—is not a reason for being refused or accepted for employment, and just as race is not a reason for being refused or accepted, so age, equally, should come into that category. I beg to move.
Moved, That the Bill be now read a second time.—(Baroness Phillips.)
7.25 p.m.
Lord Rochester: My Lords, I am glad to support the concept underlying the Bill which was so lucidly introduced by the noble Baroness, Lady Phillips. If there is one person in your Lordships' House who has shown that she is very far from being geriatric, it is the noble Baroness. She has demonstrated how frequently advertisements for job vacancies specify an age requirement and particularly, that they state the person required should be aged between, say, 25 and 35. That obviously has a highly damaging effect on women in particular, for that is the very period when large numbers of women are out of the labour market bearing and rearing their children.
322
There is evidence too that age requirements, often for people aged between about 20 and 35, are especially prevalent in advertisements for jobs offering some kind of training; for example, for management and computer trainees, trainee accountants and trainee sales managers. This obviously has the effect of denying to older people the opportunity to train for a new career, just at the time when the Government and the rest of us are stressing the vital need for more and better training to enable this country to match our international competitors in 1992 and beyond.
In my view much more needs to be done if optimum use is to be made of the skills, actual and potential, of the older generation. From last September 600,000 training places were to be made available for the long-term unemployed. In the Government's White Paper Employment for the 1990s, published in February of last year, it was stated in paragraph 5.9 that one of the major objectives of the new training programme would be:
"to make it possible to meet the Government's guarantee of an opportunity to those aged 18 to 24 who have been unemployed for between six and 12 months, and the Government's aim of making available opportunities to all those aged 18 to 50 unemployed for more than two years".
A great many of those 600,000 places have not been filled. When the noble Lord, Lord Skelmersdale, replies I shall be grateful if he would say whether in these circumstances the Government will now consider making training places available to the 300,000 or so long-term unemployed who are aged over 50. I have given him notice of that question. I suggest that a positive decision on this point might help considerably to encourage employers to offer jobs to older people once they have been trained.
Mercifully there are at last signs that employers are beginning to face the demographic facts of life. By 1995, for example, there will be 1·2 million fewer 16 to 24 year-olds in the labour force than there were in 1987. That is a fall of over one-fifth. That means that in the 1990s job applicants will be choosing the organisations for which they wish to work instead of the reverse. Companies which have become complacent are having to recognise that if they are to survive into the next century they will have to expand their recruitment horizons. In doing so they will need to take account of the relationship between demography and the single European market. As the labour market in Europe opens up, countries like West Germany and Italy, which are facing demographic difficulties even more severe than our own, will seek to import skills and labour. In this sellers' market success will go to the countries making best use of their human resources. We must now do our utmost to ensure that the UK is among them.
I have had direct experience of problems associated with early retirement in a large industrial organisation, and have had occasion to observe the miserable waste of talent that that produces. I appreciate that if any group of people has to go to the wall overall it may be least damaging socially that it should be those in their fifties whose children have completed their education and struck out on their own. But that surely makes the case even

323
stronger for enabling those in that group who wish to embark on other careers to do so.
The central question in this debate is whether attempts to counter unreasonable age discrimination in employment can best be made through statutory requirements as absolute as those contained in the Bill that is before us. At a recent forum at St. George's House, Windsor, voluntary initiatives by employers were favoured as a way forward. It was there concluded that such an approach would encourage others to review their policies and practice while retaining their right to use age as a criterion when that was judged to be a necessary requirement. That approach was to be supported by a code of practice to facilitate the process, and by a national campaign to be led by the Government.
My guess is that when the noble Lord, Lord Skelmersdale, replies to the debate he will voice the Government's preference for a voluntary approach. Of course that is what we should all prefer, but, as I have had occasion to say before now, the trouble with voluntarism is that there have to be volunteers. To judge from the statistics volunteers do not yet seem to be coming forward in sufficient numbers. No doubt that was why, at the forum to which I have just referred, it was recognised that there might be a need to supplement best practice guidelines with limited legislation aimed at curbing the use of age limits and criteria in recruitment advertising.
If there are to be statutory sanctions against age discrimination the question arises whether any defences should be made available to employers. In the USA the Age Discrimination in Employment Act contains an affirmative defence permitting the employer to show that age is:
"A bona fide occupational qualification reasonably necessary to the normal operation of the particular business",
or that:
"the differentiation is based on reasonable factors other than age".
In the States public safety has become a key defence involving such occupations as airline crew, air traffic controllers, bus drivers, police and fire staff. The courts over there have consistently ruled that any increase in risks to others resulting from the abandonment of age-related employment criteria should be viewed as an important legal consideration in age discrimination cases.
For my part I would concede that where a firm can demonstrate that an effect of having no age limits would be unreasonably to distort the age distribution of its employees, that too might constitute a justified exception to the general rule. I should like to suggest that the noble Baroness, Lady Phillips, might consider possible amendments to her Bill covering such points.
For the moment this is a Second Reading debate in which we are discussing the general principle that is involved. I am happy to congratulate the noble Baroness on having brought this matter to our attention and, as I said at the outset, to support the concept underlying the Bill.
7.34 p.m.
Lord Seebohm: My Lords, I must declare an interest as President of Age Concern. I consider the principles behind the Bill to be very good indeed. I shall not go into the details because I am quite certain that if the Bill comes to Committee it will need considerable amendment. However, I believe that the general principles are absolutely right and should be given considerable attention.
I look at the matter from two angles, one social and the other economic. On the social side, many people who are full of energy and doing a first class job have to retire when they do not want to and when, in my view, it is quite unnecessary for them to do so. Shortly after I retired from business a young colleague who was still in the business came up to me and said, "How nice to see you again. Enjoying your gardening?" I could have knocked his block off. I could have explained that in the House of Lords we do quite a lot of spade work but the opportunities for doing much gardening are slight. I believe that many people lose a great deal of status and dignity when they retire, despite being full of energy.
Another sad aspect of old age is boredom. Many people who are full of energy could do other things if only they had the opportunity. I believe that the Government have made a very wise decision in allowing people to earn after receiving their pension. That is an enormous change, and I believe that it will allow a lot of people to take up interesting jobs which they have previously been inhibited from doing. That is a very great advance.
On the economic side, as has been explained by the two previous speakers, we are approaching an era when there will be a vast increase in the number of elderly people and a great reduction in those who are producing the goods and the wherewithal for the nation to survive. To waste the experience and valuable contribution to be made by people over the age of 65 seems to me to be a matter which we should look at very carefully. We have to be certain that we make the best use of all available labour and skills.
I am asking for flexibility. There are a great many details which have to be thought through before one can produce legislation. I concur very much with the view that was expressed to me recently by Age Concern. Age Concern would like to see the introduction of a flexible retirement system creating a wide band between the ages of 60 and 70 with entitlement to the state pension at, say, 60 for both men and women, with legislative safeguards precluding the dismissal of employees on the grounds of age up to the higher end of the scale. That may be asking for a little too much. On the other hand, I believe that more flexibility will be essential if we are to survive in the later 1990s because of the demographic change, which we know all about. It is a fact and we cannot change it.
I support the Second Reading in principle but I have no doubt that amendments will need to be made to the Bill.
7.37 p.m.
Lord McCarthy: My Lords, I am sure that we should all want to thank the noble Baroness for initiating this important debate asking why there is not a law to stop age discrimination. So far as I can see from the Bill which she has put before us she is concerned centrally with direct discrimination and not with indirect discrimination.That contrasts with sex discrimination legislation, for example. Nevertheless I think that it is very important that we should debate the matter.
I thank the noble Baroness for two particular reasons. First, it forces one to think through one's own position on this subject. Secondly, so far as I know there is no policy on the matter. There is certainly no policy in the Labour Party or, so far as I know, in the Labour movement. Therefore one is in the unique position of being able to say what one likes and think about the subject as one goes along.
I have tried to think through my own position by asking myself three questions about whether we should be in favour of acting to stop age discrimination. The first question relates to first principles. As an egalitarian, as a liberal, as a radical one normally believes that privilege requires justification. After all, that is the basis on which we have legislation on sex discrimination—a preference for employing men rather than women which is not rooted in their qualifications or merit is unfair to women. It requires justification and it cannot be justified. Similarly race discrimination has to be justified in precisely those terms. One would think that in terms of first principles therefore there must be a similar argument for doing something legally about direct discrimination on grounds of age. The only difference is that very few men become women and even fewer women become men, whereas we all pass through the funnel from youth to age so that there is some difference.
We are not discriminating, as it were, against a minority that cannot become a majority or a majority that cannot become a minority. We are proposing legislation for a process that affects all of us at different ages. But apart from that, it seems to me, on general principles, that there must be a case against age discrimination at any age and the legislation being proposed would defend and protect discrimination against the young, as it would defend and protect discrimination against the old, which is where it is a great improvement on the American legislation which, as I understand it, goes only one way.
So, what of the evidence for actual discrimination on grounds of age? Much of the evidence has been put forward by the noble Baroness tonight. I am bound to say that a lot of it is anecdotal. We lack the kind of large surveys which were done, for example, to establish the extent of race discrimination in the 'sixties and 'seventies. Then we have discrimination legislation on sex discrimination, and we did not really have that kind of legislation to establish sex discrimination. We generally thought that it existed.
In other countries—for example, the United States and Canada—there have been studies and those
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studies have shown that there is very substantial discrimination, which goes beyond the kind of discrimination that the noble Baroness mentioned where we all see it bristling in local newspapers which say in advertisements, "Young people preferred", "College leavers should apply", "Only school-leavers should apply" and so on.
But discrimination is much more difficult to test in areas such as promotion. There is evidence from other countries of very substantial discrimination. As has been said by previous speakers, there are special reasons why we should legislate now. The over-55s' activity rates have been falling since 1976, because the expectation of life and health statistics have been rising over the same period. Work on the whole is becoming less arduous and less strenuous in a large number of occupations, and therefore the arbitrary retirement ages which were fixed for administrative purposes in the 19th century are increasingly subject to challenge. As has been said by all previous speakers, another factor is the reduction in the number of young people coming on to the labour market in the next 10 years or so. For all these reasons, strong arguments can be placed for doing something about age discrimination at this moment.
So I turn to possible arguments against it. One argument would be that it is impracticable; that it is impossible; that you could not affect ages in promotion; and that it has been extremely difficult to do this in the United States. But, after all, in other areas, such as sex discrimination and race discrimination, we know that it is very difficult to do. We know that the success rate is small but positive. And if the fact that a law was not absolutely effective became a reason for not having a law, then we would have very few laws at all. In any case, a law of this kind would declare what the principles should be. It would declare what the country's position was and what the Government's position was. So I do not regard that as a real argument.
The second argument which we may be getting from the noble Lord when he replies, though I have no desire to anticipate what he says, is that it will create more problems than it will solve; that it will be just another burden on business, just another interference with the free market; that the efficiency of the entrepreneur requires the unrestricted application of discrimination. If that is the way the entrepreneur or the businessman thinks on that morning, then, once again, if we took those as arguments, as the Government sometimes do, we would be dispensing with sex discrimination and race discrimination, and dispensing entirely with unfair dismissal legislation and with all protective legislation including health and safety legislation as well. So I do not believe that that is a significant argument.
However, these are some arguments which concern me and which I would address to the noble Baroness. One argument concerns the consequences of an effective piece of legislation and the impact that that might have upon the criteria for redundancy and retirement. The basic criterion for compulsory redundancy now is age and service qualifications. The basic way in which one gets early retirement

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is by special inducements, improved settlements, improved pensions and separate payments in order to induce early retirement voluntarily agreed by the individual worker, or at least in many cases.
I am not certain whether this legislation would not, in fact, tell against that; whether one could have age and service qualifications for redundancy if this Bill became an Act; whether one could have special inducements for early retirement to avoid any redundancy at all under this legislation. After all, Clause 5 of the Bill states:
"It shall be unlawful to implement early retirement procedures with the intention of filling the vacancy thus created or an equivalent post arising from the vacancy thus created with a younger worker."
That is the basic objective of most age and service redundancy provisions, and of virtually all special inducements to early retirement, and there are arguments for having these procedures in place.
There are cases where employers wish to change the age profile of their organisations, when they feel that their age profile is slumped at one end and they want to change the overall age profile in order to bring in a more normal age profile. There are cases where they believe that there are very considerable demands on the part of older workers for redundancies. Can we give such special inducements if this legislation comes into effect?
These are the sort of questions that I should like to have answered, because, if we take age out as a legitimate reason for redundancy, then we are placing in the centre of our arguments for redundancy an argument of capacity. We are really saying that people must be dismissed on the employer's basis, because they are not quite as capable as people who are retained at work. Of course much redundancy is done in that way; the employer selects those workers whom he regards as less effective and less efficient. But most of us have thought that a rather inhuman way of doing it. Most of us have wanted to find some semi-objective standard and age and service qualifications have been accepted widely in industry as a rather civilised way of dealing with redundancy. I am concerned about how far legislation of this kind would involve some problem in that respect.
Finally, I come to the argument: can we afford it? It seems to me that there are no significant costs in virtually all that is suggested by the Bill—advertising standards, promotion practices, refusal of a job on the grounds of age. None of this is expensive. The expensive end of age protection, as has been said, is when one deals with retirement. If one wants a flexible retirement policy, if one wants to equalise the retirement age at, for example, 60, that is extremely expensive. But what is suggested here is worthwhile and useful and is a project which the Government would do very well to consider and to give time for.
7.48 p.m.
Lord Butterfield: My Lords, I wonder whether I may crave your Lordships' indulgence. I had hoped to insert myself between the noble Lord, Lord Seebohm, and the noble Lord, Lord McCarthy.
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Perhaps I may make a few remarks which are in general very much supportive of the fascinating Bill of the noble Baroness, Lady Phillips. I hope it is not thought inappropriate if I say it seems to me that this Bill is probably one of the most major Bills that I have seen introduced here for its potential social impact, since your Lordships so kindly welcomed me into this House.
I just wanted to say how much I agreed with my noble colleague Lord Seebohm, and Age Concern on the whole question of flexibility. I am sure that the noble Baroness, Lady Phillips, will not be distressed about that. There will be—and the noble Lord, Lord McCarthy, touched on this when he spoke about the age profile—some very intriguing problems. Noble Lords will not be surprised that universities which have security of tenure for many of their staff can only restructure if there is some kind of arrangement. However, that might be ruled out by Clause 5(1) which states that it shall be unlawful to implement early retirement with the intention of letting younger people into the posts. I hope that that point will be picked up.
The very important point concerning re-training is incorporated in the Bill. That there should be no age limits on re-training strikes me as a marvellous idea and one to which we should give enormous encouragement.
I am very anxious that we do not block the able young with very geriatric examples like myself who hang on and take retirement later and later. I am reminded of the remarks of the regius professor of medicine at Oxford, Sir William Osler. He referred to men but I know that he would have included women (in those days one only referred to the male patient). He said "a man is as old as his arteries". That is my view. I should like to express my gratitude to noble Lords for allowing me to interject in this debate. Perhaps I may pay a compliment to this House. I am very impressed by the high quality of the cerebral circulation of Members of this great House.
The Parliamentary Under-Secretary of State, Department of Social Security (Lord Skelmersdale): My Lords, the whole House (not just those few of your Lordships in the Chamber at this moment) will be most grateful to the noble Baroness, Lady Phillips, for introducing this Bill on a subject that is of mounting interest not only to all those concerned with the labour market and the future supply of skilled people, but also to those like the noble Lord, Lord McCarthy, who said he was forced to think this subject out from first principles. I do not think that anyone would disagree in their heart of hearts that age discrimination is unfair.
I should like to make it absolutely clear that the Government share the widespread concern about age discrimination in employment. As the noble Baroness Lady Phillips, pointed out, that is particularly important to older workers. Nothing can be more frustrating than feeling able to make a contribution but being denied that opportunity on grounds of age.
I have much sympathy with Members of Parliament in both Houses who are calling for action

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to be taken. In recent months there have been several occasions when the Government have been pressed to answer calls for legislation in this area, of which this Bill is the latest example. I can understand Members' motives, but I do not think that legislation would be the right approach, and the Government are particularly reluctant to support it until every effort has been made to persuade employers voluntarily to change their recruitment and other personnel policies. It is in their own interests to do.
The population aged 16–19 is already declining from its high point of around 3·7 million in the early 1980s and will reach a low of around 2·6 million in the mid 1990s—a reduction of some 25 per cent. That means far fewer young people entering the labour market. Unless employers make full use of the talents of older workers, the economy will suffer.
The noble Baroness, Lady Phillips, mentioned the Government as employers. The noble Baroness is quite right. The age limits on recruitment for Civil Service grades have been raised in many cases in recent years and are being actively reviewed in the light of the demographic changes of which I have just spoken.
I believe that at least some employers are beginning to recognise that fact. I understand, for example, that Tesco has helped solve its recruitment problems in the South-East through actively seeking to recruit older workers, including retired people. British Telecom is considering taking on and training older recruits to meet its need for skilled engineering staff. That may be because it is becoming increasingly concerned about the demographic changes. These changes are now a major topic in public debate, and rightly so.
However, I am afraid that despite some outstanding examples of good recruitment practices among such employers, a considerable change of attitudes is still called for. The noble Lord, Lord McCarthy, spoke of evidence in what I understood him to say was a non-Labour Party policy speech. I can tell the noble Lord that a recent survey of vacancies notified to job centres showed that 14 per cent. excluded applicants over 50. Interestingly, however, 12 per cent. of advertisements specified applicants over 25. Other surveys of job advertisements have shown considerably higher levels of discrimination.
Undoubtedly there remains a problem. The Government do not believe that people should be written off on grounds of age. Like other noble Lords, I ask whether this very prescriptive Bill is the right answer.
The Bill seeks to bring about five main changes and to make it unlawful, first, to specify an upper age limit in job advertisements, and in her speech the noble Baroness majored on that aspect; secondly, the Bill seeks to make it unlawful to refuse someone a job on the grounds of age alone: thirdly, to specify an upper age limit for training; fourthly, to include an upper age limit for promotion; and fifthly, to require a person to retire on the grounds of age alone. According to the Bill, that will be unlawful under any circumstances. The noble Lord, Lord Rochester, called it absolute, and I agree with him.
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I urge on behalf of the Government that there are some situations where it is reasonable for an employer to take age into account—for example, to ensure proper management succession planning. Firms cannot afford to have all their experienced managers retiring within a short period. The Institute of Personnel Management's code of practice recognises that age discrimination in recruitment can be justified to help sensible succession planning.
Ageing is relevant to capacity to do some jobs requiring physical fitness. The example of fire officers and police officers was cited, and one noble Lord mentioned airline pilots. In saying that, I accept the force in the argument that this point does not necessarily justify rigid age limits, as pointed out by the noble Lord, Lord Butterfield. However, the issue is not one on which there is a consensus in society.
Nor is there any consensus that compulsory retirement is in all cases wrong. I can see the strength of employers' arguments that in some cases it is necessary for their operations to have a mechanism which will ensure adequate opportunities for advancement of younger employees. I can also understand those who argue that in some redundancy situations it may be right to select for dismissal those to whom it may be possible to pay a pension. I did not quite follow the argument of the noble Lord, Lord McCarthy, in this connection. I would not like be so definite and so prescriptive as I felt the noble Lord was.
If there is to be legislation on this front I believe that it would need to be very different from that now proposed. As I have made clear, it would have to make provision for exceptions. The noble Baroness, Lady Phillips, mentioned the United States where the legislation provides for exceptions. To take account of possible exceptions in any legislation would be a difficult matter requiring long debate. In my view it would produce a law which was both complex and hard to administer. That is a further reason why the more flexible approach which is allowed by persuasion is preferable to use of law. I am sure that it would be right to make provision for trying first to resolve difficulties through persuasion and encouragement. Until this policy has worked through, the Government do not believe that legislation should be considered.
As the noble Lord, Lord Rochester, pointed out, we are taking every opportunity to raise the issue of age discrimination with employers and to publicise the demographic changes and their implications. For example, as the noble Lord said, the importance of utilising older workers is brought out prominently in the recent White Paper Employment for the 1990s, and has been the subject of several media interviews with my right honourable friend the Secretary of State for Employment and his fellow Ministers.
Staff in the Employment Department's Jobcentres are instructed to challenge age restrictions imposed on vacancies notified to them for which there seems no good reason, and to try to persuade employers to remove them. Even where an employer has insisted on an age limit, the instructions to staff make clear that this should not prevent them approaching the employer about a clearly suitable older candidate.

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The noble Lord, Lord Rochester, kindly gave me notice that he intended to request that we should open the employment training programme to people aged over 50. I fear that there is some misunderstanding. The programme is already open to the over-50s, as are job clubs and the Re-Start Programme. I believe that it has a valuable role to play in re-training older workers in obsolete skills and in giving them opportunities through the planned work experience elements of the programme to demonstrate to employers their capabilities in a work situation. It is true that the Government have a stated aim of offering within the lifetime of this Parliament help back into work for all those aged 18 to 50 who have remained unemployed for two years or more. We also regard it as important to provide opportunities for people over 50. I can assure the noble Lord that the employment training programme is equally available to people in that age group. Not only that, but unemployed people who wish to become self-employed can join the enterprise allowance scheme up to the age of 64. We shall continue and reinforce efforts to encourage better practices among employers and there is evidence that a change of attitude is indeed beginning.
I am glad that the noble Lord, Lord Seebohm, has recognised that we have just achieved a major objective in this field by abolishing the earnings rule for pensions in the recent Budget. By so doing we have already removed a major obstacle to older people who wish to continue working. However the basic issue is whether there should be legislation in this area. The Government share the view of the noble Baroness that age discrimination is wrong. it is both wasteful and unfair, but they believe that the voluntary approach based on persuasion is the right one and far preferable to legislation.
The noble Lord, Lord McCarthy, spoke about the effectiveness of legislation. There are many noble and learned Lords in this House who would be absolutely horrified if the Govenment were to support what I can only regard as public relations legislation. I think that the demographic trends allow us to put powerful arguments to employers based on their own interests. There are encouraging signs that the message is getting through and that the situation will continue to improve. Only if that approach has clearly failed could we consider the introduction of further restrictive legislation on employers at a time when companies need to be as competitive as possible to meet the forthcoming challenge of the single European market. For that reason I regret that the Government have grave reservations about legislating in this field. If this Bill proceeds I agree with those noble Lords who requested somewhat drastic amendment.
8.1 p.m.
Baroness Phillips: My Lords, I should first like to thank all noble Lords who have taken part in the debate on this Bill. I am bound to say that I expected opposition and all kinds of difficulties to be raised. I have never known any idea that I have had or project that I have started in which difficulties of
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many kinds were put forward. I am not a negative but a positive person. Therefore I have to say to the Government that I regret that they cannot do better. I had intended to make some nice remarks about them with regard to the earnings rule but I now have reservations on that point. I feel that I cannot withdraw the Bill, although I should be quite happy to have it amended.
I do not want to leave the matter to voluntary people and flexible moves. In my lifetime I have too often discovered that if matters are left in the voluntary sphere, the good employers will always take advantage of it and the bad employers will not.
The point made about Clause 5 amazed me. I have always thought that there has been a certain confusion between the state pension and retirement. So far as I know there is nothing whatever in the legislation to stop anyone working and receiving retirement pension. They are two totally different things. It seems that we have confused them by linking company pensions and such with retirement, but the original decision to have a retirement age was not connected.
I am speaking here about something which might have been called redundancy. Originally Clause 5 arose as result of the case of Mrs. Ann Clwyd and a Bill which was introduced in the other place three or four years ago. It was a case in which one of those Japanese employers about whom we are now so enthusiastic had invited anybody over the age of 30 to leave the company and give the job to a younger relative. Not unreasonably most of the 30 year-olds did not see the logic of that proposition. That was the occasion of this measure in the first place.
I understand that the cut-off age for airline crew is 29. By what reasoning has that age been selected? What evidence is there to show that at the age of 29 one's brain is not working very well and that eyes and hearing are not so good. By what are such things measured? There is no sure method. We all know people who are dead from the neck up at the age of 20 and others who are active and alert at 60.
It is significant that if anyone wants to work digging up a road or in the catering trade in the kitchens, nobody asks what is his or her age. It is only the good jobs for which that question appears to be relevant. If one is willing to do a job that is not very well paid or which is hard in some way, there is no age test there. The only qualification stipulated by the employer is that the person can do the job. Noble Lords will remember the lady who was sacked because at the age of 28 she was too old to sell hamburgers. I noticed that the noble Lord on the Front Bench did not consider that I had produced many examples of age discrimination. I could however have produced examples for over an hour. I know of many cases concerning a large number of people, and those instances are not necessarily anecdotal.
The lady who at 28 was too old to sell hamburgers was considered to have the wrong "age profile". I tested that theory out on my 14 year-olds who buy hamburgers, and in that situation the young do not notice whether the person serving is 28, 38 or 48. They want the hamburgers and that is all that they

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are concerned with. That shows how ridiculous is the "age profile", which is often conceived by someone who has a very unreal idea.
I take the point made by my noble friend Lord Seebohm and the noble Lord, Lord Butterfield, about flexible retirement. However, I still say that whether someone is one of 500 people who are asked to leave because of age or whether one is the only person who is asked to go there is a sense of rejection and a loss of dignity. Any such action must not be taken on the grounds of retirement.
The "age profile" has now crept into voluntary work. At a certain age one has to leave the magistrates' bench. Why? There is no evidence to support such retirement. Our judges do not have to retire; they can go on for ever. There is a case for far more investigation.
It would be nice to take away the Bill and say, "Splendid, we shall have all sorts of voluntary movements". Many years of dealing with legislation have shown me that that is not the way and that is why I want to take the plunge and urge acceptance of this Bill.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
The Earl of Dundee: My Lords, I beg to move that the House do now adjourn during pleasure until 8.15 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.7 to 8.15 p.m.]

Water Bill
House again in Committee on Clause 6.
[Amendment No. 62 not moved.]
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 62A:
Page 6, line 11, leave out ("and").
The noble Lord said: I believe that it will be for the convenience of the Committee if I speak also to Amendment No. 62B. These amendments seek to have direct representation by adding the words:
"the desirability … including one or more persons representative of persons on low income".
I am sure that the Minister will agree that there are many individuals on low incomes. Water charges, and the concern by individuals about the impact of unhealthy water, impinge more heavily on those who are already suffering on low incomes. People can generally make economies in their cost of living. Many items can be considered and economies made. Even if one has a low income one needs food, clothing, essential furniture, housing, rent and so on. We believe that it would be fitting that such people should be represented on committees with responsibility, under direction laid down by the director general, for looking after consumer services. People with low incomes need special support.
I should remind the Committee that there are hundreds of thousands of people in the circumstances to which I wish to draw the attention of the Committee. A single parent on income support with two children aged seven and nine would receive £64·75 a week. That includes child and one-parent benefit. Out of that he or she would have to pay for food, clothes, fuel and household necessities, save up for essential furniture, bedding and so on and, because of the community charge brought in by this Government, pay 20 per cent. of general rates plus water charges. A single pensioner—and there are hundreds of thousands of those—aged 68 would receive £44·05 per week to meet the same list of outgoings. Finding the money for water charges would not be a light matter for such consumers.
We believe that the position of such unfortunate people can give an illuminating insight for a committee which is concerned with ensuring that the consumer and the water user receive a square deal. I know that the Minister is likely to ask how one defines low income—I have done that—and how does the director general set about contacting people allegedly to represent those with a low income. I admit at once that this will not be easy, but there are various voluntary and self-help organisations which could be consulted representing a number of groups: pensioners groups, single parent groups, claimants' organisations, trade unions with memberships in low paid occupations and so on. The amendment refers to "one or more persons", so the director general would be free to turn to more than one of these sources in a case of a given committee.
In essence, I am inviting the Government to say that people who are already disadvantaged by having to exist on low incomes should have a special place on the committees that we set up. I hope that the Minister will say something helpful on this amendment. I beg to move.
Lord Addington: I should merely like to say that it is reasonable that those on low incomes should have special representation. As has already been said by the noble Lord, Lord Graham of Edmonton, a much greater proportion of these people's income is being taken up by essentials. Thus if they have to meet the costs of such a basic commodity as water, consideration should be given to them in some way.
Lord Hesketh: Amendment No. 62A is consequential on Amendment No. 62B, which requires the Secretary of State to have regard to the desirability of appointing one or more people to represent those on low incomes. As I explained in relation to Amendments Nos. 59A and 61 earlier this evening, the requirement in subsection (5) that the director should have regard to the relevant expertise of water or sewage undertakers by making appointments to these committees is not an exclusive requirement. It is merely a consideration that he should bear in mind in ensuring that the committees deal efficiently with the wider range of customer issues and complaints that they are likely to face. This of course could include people on low incomes.

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It is envisaged that the director will need to ensure that there are domestic customer representatives on these committees. As I have said, the arrangements for determining what the balance of interests should be on these committees and who the customer representatives are are matters best left to the discretion of the director general. However, as I pointed out earlier, those on low incomes are clearly domestic customers and, by definition, as such are representative of one of the three groups that I have described: the domestic customers, farming and industrial interests and local authorities. What is important is that the committees should effectively represent all customers and efficiently deal with the wide range of customer issues and complaints that they are likely to face. In doing so they will need to take account of the interests of those on low incomes, just as they would any other group of indentifiable domestic consumers. For these reasons, we see no reason to single out this group in the way which the amendment seeks to do.
There is also the practical consideration of how persons representative of those on low incomes would be selected. I can assure the Committee that it must be absolutely certain that there is no question that those on low incomes are consumers as much as anyone else is a consumer or customer. The committees will be giving thought to those special requirements. I urge the Committee to resist these two amendments.
Lord Graham of Edmonton: I have no doubt that the committee will bear in mind the concerns of those on low incomes. In other words without any direction or guidance, it must be sensitive to that impact. But can the Minister tell us that in his heart of hearts he believes that people on low incomes will be invited by the appropriate authority to serve as members? There is a world of difference between saying that a committee peopled by the generalities that we have talked about are certain to think of the problems and having someone on the committee such as a single parent with two children of seven and nine. I doubt—I do not want to be offensive—whether a single person with two children of seven and nine is likely to be considered by the director general. I may be wrong. I believe that that person is so important in this context that someone in that broad category of income ought to be represented.
Let us leave aside the fact that neither the Minister nor I can pick or choose. But some people of that kind need to have their views represented and ought to be members of the committee. Does the Minister share my view? Will he go that far, or must these matters be left to the director general?
Lord Hesketh: To an extent, by definition, those who represent the domestic user and the consumer will think primarily at the start—because there is always an area of definition—of those who are closest to being marginalised and who are on a low income. That will be an area of particular interest. I assume that on that basis alone that interest will be to the forefront of their minds.
Lord Graham of Edmonton: It might be in the forefront of their minds when they are thinking about it, but I doubt whether they would think about it sufficiently to opt to come off the committee and allow someone who is in the forefront of their mind to opt to come onto the committee. I am not talking about people being inhumane. The realities that I have seen during my working life and in democratic organisations are that it is highly unlikely that people on low incomes will be invited to serve on committees of this kind. I realise that the Minister is unable to go further than he has. We may return to these amendments at a later stage. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 62B not moved.]
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 63:
Page 6,line 15, at end insert—
("(5A) Any customer services committee appointed by the Director under this section shall include not less than three persons appointed on the recommendation of local authorities in the area of the Committee.").
The noble Lord said: this is a further attempt to write into the Bill what the Minister has already said. He has envisaged that representatives broadly from three groups will be among those who will find their way on to the committee. One group consists of local authorities. We want the matter to be more specific. In another place Mr. Moynihan said that the Government envisaged local authority representation on the main customer service committees, although they could not provide for each local authority to be represented in its area. There is no question of each local authority within the area of the consumer service, which could be massive, being represented.
We can envisage a situation such as in the Severn-Trent area covering counties in the region, the non-metropolitan districts within those county areas and the multi-purpose metropolitan districts within the Birmingham and West Midlands conurbation. If the amendment were passed, given that three local authorities were represented on the committee, there is a way in which each could be represented. Those bodies represent different tiers of local authority. They would be invited to find a man or a woman whom they felt was competent to represent their interests. I believe that this is a reasonably straightforward case.
There are practical reasons why local authorities should have a direct link on the customer committees. First, there is still a powerful link in the minds of people between local councils and water. My noble friend Lord Stoddart made a powerful case in defence of the long involvement of local authorities in running our water organisations. There is certainly a link on consumer issues with public health responsibilities. Public health responsibilities will still remain substantially with local authorities. Secondly, it will enable customer service committees to have access to the reports of environmental health officers in the monitoring of drinking water quality. Thirdly, it will enable the sharing of information with consumers on matters concerning recreation.

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Fourthly, it informs the work of the customer service committees with experience on poverty issues and the impact of pricing on families and others on low incomes.
Even though the Minister says "we envisage local authority", we invite the Government to make sure because there is no guarantee and there must be some mechanism whereby that is done. It may be that a nod is as good as a wink. The director general may go out of his way to represent the local authorities or he may invite them to do so. The amendment does not put him to that trouble. We know that there is a proscription about the minimum and maximum number of people, but we wish to make sure that local authorities are represented. I beg to move.
8.30 p.m.
Lord Ross of Newport: I support the amendment. It is a limited request. I understand that there will be only one committee for each region. I am in the Severn Trent area which covers a huge area of Anglia and more, and the amendment asks for only three members. In the undertakings that were given in 1974 local authorities were given a majority on the executives of the regions. So the amendment is not asking for a great deal.
I agree that the committees must be kept down in size and that there is a limit of between 10 and 20 members according to the size of the area covered by the authority. It is a fact that if they are any good the elected members—and county council elections are taking place this very day—have contact with the general public. It is also a fact that people still go to their local councillors with an issue or a bind to make. At least we should have a semblance of local democracy in place if the amendment was accepted by the Government.
The Government have gone a long way. In a previous answer the Minister admitted that probably there will be some local authority representation. All we are trying to do is to tie that down to a sensible number and say that somewhere down the line there must be an essence of local accountability. It was the local authorities which originally ran the water companies and handed them over to the authorities on the understanding that they would have a majority in their management. That factor having been taken away in 1983, this mild request should receive the support of the Government.
Lord Hesketh: I appreciate the feelings in local government about the ending of the present arrangements for direct representation on customer committees as they currently exist. They have their roots in the local government origin of much of the water industry. But arrangements that were appropriate for public sector utilities are not necessarily appropriate for private sector companies subject to the range of statutory regulation which is provided for in the Bill.
The local authority associations have been consulted about how local authorities might continue to be involved in representing customers' interests on the new committees. However, the
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details of the appointment arrangements are a matter for the director general.
Earlier I went further than was indicated by the noble Lord, Lord Ross, when he said that I admitted that there might be some local authority representatives. In defining three clear groups one-third was local authorities' representatives. Therefore, if one takes a committee of 20 it is approximately six or one-third and, quite conceivably, that could be the example of the number of local authority representatives on it.
That was confirmed by remarks made in another place by my right honourable friend the Parliamentary Under-Secretary of State. On that basis, I believe that we have defined that we have a commitment to local authority representatives and we see no need for a statutory rigidity of the minimum of three local authority representatives. Although I agree in principle with the desirability of local authority representation on the committees—and I have now stated that fact on two separate occasions—I believe that the amendment will in no way be beneficial to the Bill.
Lord Graham of Edmonton: It was interesting that the Minister should look at a prospective committee of 20 against a background of three groups which would be represented, and say that six or seven members may represent local authorities. On the other hand, it is not guaranteed that they will be peopled by the three equal proportions. It could well be that in his wisdom the director general will say that in a particular area he will invite two local authority representatives or 12. Nothing is laid down. The Minister is applying equity in saying that if there are three centres of representation it ought to mean something like six or seven from each.
The amendment seeks to make the point that we believe that local authorities are important because of their historical links as well as their practical day-to-day value to the customer service committees and they need direct representation. However, the Minister has said as much as he is prepared to say tonight, and I shall withdraw the amendment and reserve the right to come back at another stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 63A:
Page 6, line 15, at end insert—
("(5A) The Director shall establish such number of divisional sub-committees of each customer services committee as he considers—

(a) appropriate to ensure appropriate representation of localities within the area of the committee; or

(b) expedient to enable the committee to fulfil any aspect of its functions.

(5B) A divisional sub-committee established under this section shall include representatives of local authorities in its area, who shall comprise not less than one quarter of the total membership").
The noble Lord said: The amendment provides for the creation of divisional service sub-committees in each area. It is not new ground but, as the noble Lord, Lord Ross, has pointed out, there will be

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some large geographical areas which will be covered broadly analogous to the existing water authorities. We are anxious to make sure that as many people as possible are involved in assisting professionals to run the business.
Thames Water Authority covers a massive area and it is difficult to envisage that someone is competent to represent the water consumers throughout that area. We are talking of volunteers who are not professionals. We do not suggest that there should be a precise number of divisional sub-committees in each of the customer service areas but that, where appropriate, the director should have the opportunity, the licence and the legal right to ensure appropriate representation of localities within the area of the committee. We believe that that will be helpful.
In paragraph (5B) of Amendment No. 63A we are ensuring that the people in any of the divisional sub-committees do not over-represent any particular area; they must be spread. Perhaps that is a forlorn hope. It is not designed to help the Government and their committee. However, in accepting the reality that the Bill will reach the statute book in one form or another, we are trying to provide opportunities for local people—little people—in small geographical areas to have an input into the way in which new water arrangements are made. I beg to move.
Lord Hesketh: I am sure that your Lordships will appreciate that there are considerable advantages in the arrangements under Schedule 4 paragraph (1) which would make the appointment of sub-committees permissible but not mandatory. The power of the customer service committees to set up local sub-committees, subject to the approval of the director, provides them with the flexibility in adapting to the needs of their areas and in minimising the burdens, especially of travel, on their members. The director general must of course consider constructively any request for the setting up of sub-committees. But he must retain the right to consider each case on its merits so that the most effective use is made of resources and, as my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in the other place, to avoid any unnecessary proliferation of sub-committees.
This amendment also raises the issue of local authority representation and, as I have explained to the Committee in relation to Amendment No. 63, we envisage an element of such representation on the main customer service committees, although we cannot provide for each local authority to be represented, as the noble Lord, Lord Graham, also pointed out. To do so would make the committees unbalanced in the interests represented having regard to the need for effective as well as representative regional committees.
As my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in another place, in our view it would be wrong to use the power to establish local and other sub-committees as a means of guaranteeing each
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local authority direct representation. The power to appoint sub-committees is there to assist the CSCs in carrying out their functions, as the last amendment of the noble Lord recognised in part.
The noble Lord spoke of a particular situation or a particular area of difficulty and "little people". We believe that if the director general sees a particular set of circumstances which justifies a sub-committee, which in many cases will be unique, that is an example of where he should act. I believe that we are flexible here and for that reason I ask Members of the Committee to resist that amendment.
Lord Graham of Edmonton: I do not intend to press the amendment. The Minister does not dispute any of the arguments which I invite the Government to consider would make these amendments appropriate. He has confidence that the director will be as perceptive as perhaps he and I to the needs of a locality and that, in the light of t he then ruling circumstances, in order to be helpful to himself, to ensure that the job is being done properly, he will act accordingly. I am bound to say that our experience over the years is that there is no substitute for a statutory or mandatory requirement in those circumstances.
The Minister and his colleagues have more than once referred to flexibility. There will be flexibility. All sorts of considerations could inhibit the director from bringing into being committees, not least expense because some expense will have to be borne. It could also be another centre of if not agitation, then a voice of anger at the way in which the service is being run.
We do not want to happen what we suspect could happen or is likely to happen; that is, cosy relationships established by men and women who are put on these committees at the behest and the gift of Ministers and directors. We do not like that but the Minister remains unmoved and I shall not press my amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
8.45 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 63B:
Page 6, line 23, at end insert—
("(9) Nothing in subsection (2) above shall be taken as restricting a committee from:

(a) carrying out its functions in relation to licence holders allocated to it in co-operation or conjunction with one or more other committees; and

(b) considering matters which are relevant to customers of licence holders not allocated to it where similar matters arise with customers of licence holders which are allocated to it").

The noble Lord said: Amendment No. 63B still keeps us on Clause 6 and at the end of line 23 it adds a qualification to Clause 6(2). That subsection quite understandably says that the committee's functions—and we are back to customer service committees—should be restricted only to the companies allocated to it. Indeed one can see that it would be impossible to go away from that otherwise all customer service committees could be dealing

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with the services of all of the new companies which would clearly be unsatisfactory.
However, there is a strong case and good precedence for making sure that the customer service committee has the ability to look at the services of the company or companies which have been allocated to them in co-operation with other customer service committees. Clause 27 says that there can be, in effect, bilateral exchanges of information, which is welcome. We are not against the provisions in Clause 27.
However, we want rather more than that. Short of a national water consumer council which may not be appropriate when there are a number of separate plcs supplying water, we want the possibility of much freer co-operation between the customer service committees. In doing that, we are not doing more than going back to the guidelines issued by the Secretary of State to the old customer consumer consultative committees on water—guidelines for representation of consumer interests. In those guidelines—and it was this Conservative Government who issued those guidelines—the CCCs were permitted to consider such fundamental matters as charging and financial policy. They were also specifically given the ability to consider matters covering:
"an area wider than its own; for example, the general principal of charging for water services or planning for investment."
That is a very important and valuable principle, and one which it would be a pity to lose in this Bill, accepting entirely that the customer service committees should in their work be restricted to the activities of a single water company or group of water companies and accepting entirely for the purposes of this amendment that there is no place for a national committee because privatisation is to be carried out in this way. Nevertheless, a return to the principles of 1983 would be a valid extension of the abilities of the customer service committee to do its work effectively.
Ministers in another place indicated that there would be no difficulty in the chairman of the customer service committee meeting together formally or informally to consider matters of common interest. Of course that is welcome. They also indicated, as is clear from Clause 27, that the director general could arrange for the exchange of information between customer service committees. However, we believe that these amendments would enable customer service committees to act in co-operation or conjunction with one or more other committees; and to consider matters which are relevant to the customers or licence-holders not allocated to it would be a valuable and consistent addition to the power of customer service committees and would be a valuable additional protection for consumers. I beg to move.
Lord Hesketh: Amendment No. 63B seeks to ensure that the customer service committees (CSCs) could carry out their functions in relation to the companies allocated to them in co-operation with one or more other committees, and would enable them to consider matters which are relevant to
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customers of companies not allocated to them where similar matters arise in respect of customers of companies which are allocated to them.
As the noble Lord, Lord McIntosh, pointed out Clause 27(4) already provides for the director general to arrange for individual CSCs to exchange information where relevant to the carrying out of their functions. In addition to this the CSC chairmen could meet informally to discuss matters of common interest, again where necessary to the carrying out of their functions. In our view the Bill therefore provides for the necessary liaison between CSCs and therefore the first part of this amendment is unnecessary.
If the intention of the second part of this amendment is to enable the CSCs to operate at the level of national policy formulation then we believe that the amendment is inappropriate given the relationship between CSCs and the director general, and the regional structure of the industry itself.
As I have said in relation to earlier amendments on this clause, the CSCs are appointed by and report to the director general who is responsible for protecting customer interests. This is unlike the existing arrangements under which in the absence of any such director general the consumer consultative committees are appointed by the water authorities. Under the Bill the customer has a guarantee of an independent voice through the CSCs and the director. There is therefore no need for a separate body or national forum of CSCs to exist independent of him.
For these reasons, I consider the amendment to be unnecessary and I hope that the noble Lord, Lord McIntosh, will see fit to withdraw it.
Lord McIntosh of Haringey: As the noble Lord rose to his feet he knew that we would not be satisfied with that answer. He knew that because we have already made it clear, and have taken the opinion of the Committee on the matter, that we do not agree that it is appropriate for the role of consumer advocacy, which is what the customers service committees are doing, to be subordinate to the role of regulation. Therefore, we do not agree that it is satisfactory for the co-ordination and taking further of the activities of the customer service committees to be left entirely in the hands of the director general, as is proposed.
The Minister's answers are consistent with his wrong views about the relationship between consumer advocacy and regulation; and although we do not agree with them, I cannot say that we are exactly surprised by them. I do not propose at this stage to pursue the matter by taking the view of the Committee; but the value of these amendments has been that we have pointed once again to the inadequate protection of consumers when consumer protection is under the control of the regulator.
Fundamentally, the role of the consumer advocate should be completely independent of the regulator. The amendment proposed by the noble Baroness, Lady Strange, was a good indication of that. We shall have to return with amendments in one form

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or another at a later stage, but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 agreed to.
Schedule 4 [Customer Service Committees]:
[Amendments Nos. 64 to 67, 67A, 68 and 69 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 69A:
Page 197, line 2, leave out sub-paragraph (1) and insert—
("(1) A Customer Service Committee may, with the consent of the Secretary of State as to numbers and conditions of service, appoint such staff as it may determine.").
The noble Lord said: In moving this amendment, I speak also to Amendment No. 69B. Despite the error in comprehension of consumer protection which is evidenced on the Government Front Bench, I hope that this very minor, inoffensive pair of amendments might find some favour with Ministers.
We are not proposing any change in the relationship between the customer service committees and the director general. We are not proposing that the customer service committees should have any power to spend money other than with the authority of the Secretary of State and the Treasury. There is no threat to the public sector borrowing requirement. There is no threat to public expenditure White Papers. All we are saying is that the customer service committees should have the right to appoint staff to help them do their work, subject to any constraints that may be proposed. I cannot think of an amendment which is less offensive. I cannot think of an amendment which it would be more difficult for the Government to resist. I hope that they do not feel it necessary to do so. I beg to move.
Lord Renton: While not suggesting that the amendment should be made, I feel bound to point out that here we have an example of so-called legislation which is of an entirely administrative character. It is mere administrative machinery and one wonders why it should be the subject of law-making at all. But the Government have put it in the Bill as they put it into most Bills. This Bill of 387 pages is prolix enough without having to go into that sort of thing which could perfectly well be covered by departmental arrangements, short of legislation, and the cost of it carried in the ordinary way on the estimates of the department.
Having said that, and having listened to the noble Lord, Lord McIntosh of Haringey, I must say that I do not think that his amendment improves that undesirable situation.
Lord Hesketh: There is a certain thread which has run through the last few amendments, and I fear on this occasion I am not only going to be in error in front of me but also in error behind me—though perhaps in error on different grounds.
These amendments provide that the customer service committees rather than the director general
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would appoint the staff of those committees, subject to the consent of the Secretary of State and the approval of the Treasury.
The director will have a duty to protect the interests of customers of water and sewerage undertakers. We believe not only that he will be in the best position to ensure that the customer service committees have the money and manpower resources they need, but also that it will be in his own interests to ensure that they are properly and effectively staffed. It would compromise the collective independence of the director and the committees reporting to, and advising, him if the Secretary of State were to decide what resources the committees ought to have. The schedule, as drafted, rightly gives that task to the director subject to the normal scrutiny of the Treasury. That is the appropriate, integral approach. I trust the Committee will feel that it is not necessary to accept this amendment, and that the noble Lord, Lord McIntosh of Haringey, will consider withdrawing it.
Lord McIntosh of Haringey: My only response to that piece of gobbledegook is that I am tempted to divide the Committee simply because of the nature of the answer given to me. We are asking people voluntarily to serve on customer service committees. Many noble Lords here tonight serve voluntarily on all sorts of organisations in the public interest. They do not do so because of any hope of aggrandisement or profit but because they believe it to be a worthwhile job where they can make some improvement in the conditions of the people or the orgnisations with which the voluntary bodies are concerned.
People are asked to serve on customer service committees. If they are told that they cannot appoint the staff they need in order to do their job, even subject to the financial control of the Secretary of State or the Treasury, but that someone up above the director general—that sounds grand and remote; and it certainly is—with his administrative staff in some central place in the United Kingdom, whether in London or elsewhere, will appoint their staff, the idea of getting sensible people to give up their time voluntarily to do what is universally agreed to be a useful job becomes extremely difficult.
I gladly give way to the noble Lord.
Lord Lloyd of Kilgerran: I am sorry that I was not present when the noble Lord, Lord McIntosh, opened his remarks on this amendment but I arrived just before the Minister gave his reply. Then I read the amendment and I could not correlate that with what the Minister said in relation to the terms of the amendment. I strongly support what the noble Lord, Lord McIntosh, said in that respect. I thought that the Government were encouraging volunteer activities in many fields and surely this is an opportunity for the Minister—I know how difficult it is for him to make decisions off his own bat having regard to the nature of his brief—to at least take this amendment back and reconsider it. I thank the noble Lord, Lord McIntosh, for allowing me to intervene.
Lord McIntosh of Haringey: I should like now to give the Minister an opportunity to reconsider his position. We now have the reductio ad absurdum of this centralisation of authority and power in the hands of the director general with the castration of the power of the customer service committees. Has the Minister anything further to say to the Committee on this matter?
9 p.m.
Lord Hesketh: The noble Lord, Lord McIntosh, will clearly see that under "Financial provisions" in paragraph 5 of Schedule 4, customer service committees have to prepare financial statements. That of itself insinuates that they will be considering what they believe is an appropriate level of expenditure. The reason that the director general has to have an overall position is that at the end of the day he will be responsible for the money which is supplied by a Vote of Parliament. It requires parliamentary approval. That does not indicate that he is going to refuse to allow the customer service committees to consider what they think is an appropriate level of expenditure. I believe that provides rather a different picture of the matter to that which the noble Lord has presented.
Lord McIntosh of Haringey: It is one thing to maintain financial controls and we are not disputing that in making these amendments. Our amendments say very specifically that there are financial controls resting with the Secretary of State and the Treasury, and therefore accountability to Parliament is not at risk. But making a financial plan is not the same thing for a customer service committee as having the staff that it needs within these restrictions and appointed by itself to do its own work. It is an insult to the potential members of the customer service committee to suggest that they are incapable of doing that themselves.
9.2 p.m.
On Question, Whether the said amendment (No. 69A) shall be agreed to?
Their Lordships divided: Contents, 23; Not-Contents, 70.

DIVISION NO. 5

CONTENTS

Addington, L. [Teller.]

McCarthy, L.

Airedale, L.

McIntosh of Haringey, L.

Buckmaster, V.

McNair, L.

Carter, L.

Monson, L.

Cocks of Hartcliffe, L.

Nicol, B.

Craigavon, V.

Ponsonby of Shulbrede, L. [Teller.]

Dormand of Easington, L.

Elwyn-Jones, L.

Ross of Newport, L.

Graham of Edmonton, L.

Russell, E.

Hacking, L.

Shannon, E.

Lloyd of Kilgerran, L.

Underhill, L.

Lockwood, B.

White, B.

NOT-CONTENTS

Alexander of Tunis, E.

Blatch, B.

Arran, E.

Blyth, L.

Barber, L.

Brabazon of Tara, L.

Beloff, L.

Brougham and Vaux, L.

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Caithness, E.

Monteagle of Brandon, L.

Campbell of Alloway, L.

Morris, L.

Carnegy of Lour, B.

Mountevans, L.

Carnock, L.

Murton of Lindisfarne, L.

Clinton, L.

Norfolk, D.

Cork and Orrery, E.

Norrie, L.

Craigmyle, L.

Onslow, E.

Crathorne, L.

Oppenheim-Barnes, B.

Davidson, V. [Teller.]

Reay, L.

Dundee, E.

Redesdale, L.

Elliot of Harwood, B.

Renton, L.

Faithfull, B.

Rochdale, V.

Falmouth, V.

Sackville, L.

Ferrers, E.

Saltoun of Abernethy, Ly.

Fraser of Carmyllie, L.

Sanderson of Bowden, L.

Gainford, L.

Selborne, E.

Grantchester, L.

Skelmersdale, L.

Hardinge of Penshurst, L.

Stanley of Alderley, L.

Harvington, L.

Strange, B.

Hemphill, L.

Strathclyde, L.

Henley, L.

Swinton, E.

Hesketh, L.

Teviot, L.

Hooper, B.

Thomas of Gwydir, L.

Kemsley, V.

Thomas of Swynnerton, L.

King of Wartnaby, L.

Townshend, M.

Knutsford, V.

Trafford, L.

Layton, L.

Trefgarne, L.

Long, V. [Teller.]

Trumpington, B.

Mancroft, L.

Vaux of Harrowden, L.

Middleton, L.

Waldegrave, E.

Monk Bretton, L.

Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.
9.10 p.m.
[Amendments Nos. 69B to 72 not moved.]
Schedule 4 agreed to.
The Earl of Onslow The Earl of Onslow moved Amendment No. 73:
Before Clause 7, Insert the following new clause:
("General functions in relation to land use planning
. Duties relating to consultation with regard to planning and environmental assessment matters, as defined by article 18 of the Town and Country Planning General Development Order 1988 and the Town and Country Planning (Assessment of Environmental Effects) Regulations 1988, and such other duties relating to functions under the Town and Country Planning Acts as the Secretary of State may from time to time determine, performed by a water authority prior to the transfer date shall, on that date, be vested in the Authority.").
The noble Earl said: However immaculate my argument and however bovine that of my noble friend on the Front Bench I have absolutely no intention of wasting the Committee's time by asking noble Lords to walk around in circles and vote. However, I do not think that my argument will be immaculate, and I am certain that my noble friend on the Front Bench will not reply in a bovine fashion.
Lord Trefgarne: Not moved!
The Earl of Onslow: In spite of the malarkying of my noble friend Lord Trefgarne in interrupting, I shall move my amendment. At the moment the water authorities are statutorily bound to be consulted on planning matters. With the separation of powers, water will be provided by the new water plcs and they will be policed by the National Rivers Authority. It therefore seems infinitely more sensible that consultation on planning matters should be applied to the NRA rather than to the water company plcs. Large chunks of land are involved, some of which

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are surplus and all of which must be carefully looked at. There are environmental and consultation considerations and there is a duty on the plcs to maximise their assets. It would be most invidious if those plcs had to be consulted on their own planning applications.
I have been briefed on this matter by the CPRE. Perhaps it looked round for a noble Lord who could be persuaded to sit up until 9.15 on a Thursday evening to put forward the amendment. It has an immensely strong case. The DoE circular 22/84 says that the water authorities should be consulted. Article 18 of the 1988 general development order describes the relevant water authorities as statutory consultees in the event of a planning application for the following developments: mining, works on the beds or banks of rivers or streams, mineral or oil refineries and storage facilities, wastes and refuse sites, cemetaries and all developments relating to the retention and disposal of sewage, slurry and so on for houses, buildings and caravans unless for a single unit of accommodation for fewer than 10 people.
I have letters from the chief planner of the South Tyneside Metropolitan Borough Council and from the director for planning and transportation of Northampton Borough Council, all of which express support for the idea that the NRA should be the consultative body. The plcs would face a terrific conflict of interest. Nobody is suggesting that the directors or managers of the plcs would be anything other than immensely honourable men but one cannot impose a duty of this kind on people who may have a conflict lof loyalty. I beg to move.
Baroness White: I have no intention of making a long speech on this matter because I raised it inadvertently on Tuesday without realising that the noble Earl, Lord Onslow, had tabled a specific amendment. I should say that we were both briefed from the same source. However, he was more energetic than I in this respect. Nevertheless, I hope very much that we shall receive a satisfactory reply from the Minister.
The only comment I would make on the speech of the noble Earl is that I hope he understands—as I think I am correct in saying—that the statutory consultations, if they were transferred to the plcs, would affect not only the development on their land but also development on other people's land of a certain nature. The issue goes much wider than simply the development of their estates. That is where a quite different kind of conflict of interest could easily arise and where I think it would be entirely improper for a private commercial company to be left in that position. I strongly support, as I hope my noble friend will, the proposal that any such status for statutory consultation should pass to the authority.
9.15 p.m.
Lord Renton: I wish to support my noble friend's amendment. Surely it is very important in planning matters that there should be continuity and that when Parliament is changing the structure of a public service that, nevertheless, the planning functions
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should continue so far as possible undisturbed. If we do not have continuity in planning matters, it is a threat to conservation. Moreover, it is unfair on individuals because people do not know where they stand. Uncertainty is therefore a bad thing.
I think that this amendment is commendable because it ensures that the planning consultations which will have taken place before the Bill comes into force will, under the new aegis, continue with the same effect. Therefore the amendment has the effect that it is both transitional and permanent. I think that we should warmly support it.
Lord McIntosh of Haringey: I too hope that the Government will find it possible to support at least the principle of this amendment. I say that even though I am not in any way confident about its wording. Indeed, I heard the noble Earl, Lord Onslow, say that he would not make us walk around in support of it. That is perhaps a pity since he has received support from all sides of the Committee. However, whether or not the wording is right, the principle must surely be sound: that the consultation rights which have been held by the water authorities, which are public bodies, should not be passed without amendment to private companies; otherwise we shall find that under the Companies Act the private companies will be in a privileged position in relation to other private companies. That seems to me to be a real difficulty which sets them apart from other private companies and which dilutes the effectiveness of the privatisation procedure. I am not saying that I am in favour of the privatisation procedure; but it is a distortion of privatisation to allow this change to go through without the protection proposed in the amendment moved by the noble Earl.
I hope that the Government will go far enough by saying that they recognise there is a valid point here and thus make it possible for the noble Earl to withdraw his amendment with good reason, and not just because he does not like walking around.
The Earl of Arran: In rising to my feet to speak to my noble friend's amendment, I hope that I shall be able to show him for certain that the Government Front Bench is not bovine, especially not on this issue. The proposed new clause as set out in Amendment No. 73 raises an important question about how the present statutory consultation arrangemnts under the Town and Country Planning Act are to be changed to reflect the creation of the National Rivers Authority. I hope to show my noble friend that the purposes behind his suggested new clause will be achieved without the need for specific provisions in the Bill.
Local planning authorities are currently required to consult water authorities before granting planning permission where the application concerns the types of development specified in Article 18 of the Town and Country Planning General Development Order 1988. The types specified are development which may affect rivers, streams and most development relating to the retention, treatment or disposal of sewage, trade waste, slurry or sludge. These relate to water authority pollution control functions which would be transferred to the NRA.

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The Town and Country Planning (Assessment of Environmental Effects) Regulations 1988 require certain projects which are likely to have significant environmental effects to be subject to an assessment of those effects before planning permission may be given. The procedures require the developer to prepare an environmental statement, making use, when appropriate, of information in the possession of relevant public authorities. On receipt of that statement, the local planning authority must consult on it as it does on the related planning application. The 1988 regulations specify that the bodies which must provide information and must be consulted shall be the statutory consultees specified in the general development order, together with one ro two others, including the Nature Conservancy Council, the Countryside Commission and HM Inspectorate of Pollution.
In order to maintain the present statutory position we intend to amend Article 18 of the general development order to provide for the NRA to be consulted in all cases where water authorities are consulted at the moment. This amendment to the GDO will also automatically ensure that the NRA is involved as consultee under the environmental assessment regulations.
Clearly, if in future it becomes necessary to involve the NRA in consultation arrangements beyond those which we will be providing for under the amendments to the general development order, we will not hesitate to do so. I hope that with those assurances my noble friend will agree to withdaw his amendment.
The Earl of Onslow: Is my noble friend saying that basically he agrees and that we do not need to do anything about the matter because it can be achieved by other means? If that is the case, I am delighted.
The Earl of Arran: Yes, I believe that to be the situation.
The Earl of Onslow: That is terrific. It is the second amendment that I have had accepted in two recent Government Bills. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 74 to 77 not moved.]
The Deputy Chairman of Committees (Lord Ampthill): I should tell the Committee that if Amendment No. 77A is agreed to I cannot call Amendments Nos. 78 to 88A.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 77A:
Page 6, line 34, leave out subsections (2) and (3) and insert—
("(2) The Secretary of State or, as the case may be, the Director shall exercise the powers mentioned in subsection (1) above, in the manner that he considers is best calculated—

(a) to ensure that the interest of every person who is a customer or potential customer of a company which has been or may be appointed under Chapter 1 of Part II of this Act to be a water undertaker or sewerage undertaker are protected as respects the fixing and recovery by that company of—

(i) charges in respect of any services provided in the course of the carrying out of the functions of a water undertaker or sewerage undertaker; and

350

(ii) amounts of any other description which such an undertaker is authorised by or under any enactment to require such a person to pay;

and, in particular, that no undue preference is shown, and that there is no undue discrimination, in the fixing of those charges and amounts;

(b) to ensure that the interests of every such person are also protected as respects the other terms on which any services are provided by that company in the course of the carrying out of the functions of a water undertaker or sewerage undertaker and as respects the quality of those services;

(c) to promote economy and efficiency on the part of any such company in the carrying out of the functions of a water undertaker or sewerage undertaker;

(d) to facilitate competition, with respect to such matters as he considers appropriate, between persons holding or seeking appointments under that Chapter;

(e) to secure that the functions of a water undertaker and of a sewerage undertaker are properly carried out as respects every area of England and Wales; and

(f) without prejudice to the generality of paragraph (e) above, to secure that companies holding appointments under Chapter 1 of Part II of this Act as water undertakers or sewerage undertakers are able to finance the proper carrying out of the functions of such undertakers.").

The noble Lord said: In Clause 7 we come to the real test of the Government's good faith in this privatisation Bill. In paragraph 57 of the White Paper (Cmnd. 9734) the Government said that under the proposed legislation the principal duty of the director general would be to safeguard the interests of customers. In a speech to the National Consumer Council last year the Minister of State said—I do not have his exact words—that the director general's job would be to hold the balance between the customers and the licensed water companies and their shareholders.
That is the basis upon which the Government have been arguing the Bill, both in another place and here, but that is not what the Bill says. The Bill says something different. The offending words are in Clause 7(2)(b), which states that the director general is,
"to secure that companies holding appointments under Chapter I of Part II of this Act as water undertakers or sewerage undertakers are able (in particular, by securing reasonable returns on their capital) to finance the proper carrying out of the functions of such undertakers".
Subsection (3) provides that the ensuing duties, which are concerned with charging, are "subject to subsection (2) above"; in other words they are subject to the duty,
"(in particular, by securing reasonable returns on their capital)".
Then Clause 8, which is concerned with the director's general environmental and recreational duties, is subject throughout to Clause 7. I shall not repeat at length the arguments made this afternoon, but fundamentally that means that the director general's principal duty is not, as the White Paper said, to safeguard the consumers' interests, but to secure a reasonable return on the undertakers' capital.
I am not here as the expert on capitalism. That is for the Government Front Bench; but if anyone has the duty, under a private enterprise system, to secure a reasonable return on capital, it must be the capitalist companies themselves and not the regulatory director general. Yet it is the director general who has this responsibility.
According to the Bill the responsibility overrides all other environmental and consumer responsibilities. That is in direct contradiction of all the assurances that have been given by Ministers and in White Papers and other publications throughout the run-up to the Bill. It is the ultimate exposure of the failure of the Bill to protect consumer and environmental interests. It is for that reason that we propose in Amendment No. 77A to replace Clause 7(2) and (3) by the words which are to be found on the Marshalled List.
I realise that at nearly 9.30 at night we shall not have the debate in principle all over again. I realise that it will probably be necessary at another stage of the Bill to draw together all the arguments which lead up to this critical point in the Bill. It may be necessary for us to find other ways to show your Lordships the extent to which, in the drafting of this legislation, the Government have departed from the assurances already given.
We have tried to overcome some of these difficulties by seeking to ensure that the freehold of the land would vest with the National Rivers Authority rather than with the new water companies. The Committee did not agree. The noble Lord, Lord Nugent of Guildford, tried to replace these obligations on the director general by statutory water company status for the new water companies. That would have achieved some of these objectives at least in part. The attempt in Clause 7—which is of course perhaps the most critical clause in the whole Bill—is another attempt to do that.
I do not expect the Government to welcome these arguments any more than they welcomed the other arguments. But it is necessary to say here and now that this is a switch sell. The Government, having put forward this Bill as an environmental measure, a measure to protect consumers, are departing drastically under Clause 7(2)(b) from the public undertakings that have been given.
If the Bill goes through unamended, and especially if this part of the Bill goes through unamended, the outrage of the British people when they come to realise what has been sold them will become apparent. The need for remedial action when there is a government which puts consumers and the environment first—which this Government certainly do not—will become more urgent. I beg to move.
Lord Renton: I shall be very interested to hear what my noble friend has to say about the amendment. The interesting thing is that it seems to be inspired by a pure Thatcherite philosophy of how to run a new business. Those are things that we do not often find in the propaganda of the party opposite. Of course, part of it is borrowed from the Bill as it stands and we agree with it:
"no undue preference", "no undue discrimination".
Then we are asked,
"to ensure that the interests of every such person are also protected as respects the other terms on which any services are provided".
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Then it refers to the "quality of those services".
Then there is an exhortation.
"to promote economy and efficiency",
and above all,
"to facilitate effective competition".
It is wonderful stuff. Again I think we are borrowing from the Bill as it stands:
"to secure that the functions of a water undertaker and of a sewerage undertaker are properly carried out".
Finally—and this repeats what is in the Bill—
"without prejudice to the generality"
of what has gone before, the
"undertakers are [to be] able to finance".
That goes back to our earlier discussion today. The amendment continues:
"the proper carrying out of the functions of such undertakers".
That is all splendid stuff. It is the kind of thing we should like to hear from the party opposite time and time again. However, I wonder whether it is really necessary because, as I understand it, those are the objectives of the Bill as clearly stated throughout. Therefore, despite the wonderful Thatcherite philosophy underlying this amendment, I would doubt whether it is necessary.
9.30 p.m.
Lord Jenkin of Roding: I must apologise for having missed some part of the debate as I was celebrating 10 years elsewhere. I listened to the noble Lord, Lord McIntosh of Haringey, with some interest. Here I beg to differ from my noble friend Lord Renton in that I detected in the noble Lord, Lord McIntosh, that atavistic hatred of the entrepreneur's profit which characterises the economic approach of the party opposite.
The fact of the matter is that the key words that have been left out are those relating to the need to secure a proper return on the capital employed. I come back to the argument that I referred to on Second Reading. The problem of the water industry has been to provide enough capital to carry out the improvements, the maintenance and the renewal that is necessary to provide the standards of water, the quality of water and the standards of the environment which the public increasingly demand. It has been the experience of both parties that one cannot expect the public sector, in competition with all the other demands on public capital, to provide the money that is necessary to do that.
Therefore, the logic is that one tries to raise that money from the private sector. In order to be able to do that, one must ensure that those who are going to put the money up obtain a reasonable return on their capital. If one does not do that, one will not obtain the money and one will stay in the same position.
It may well be that the noble Lord, Lord McIntosh, and his noble friends are right in saying that Clause 7 is the heart of the Bill. It is Clause 7 that will secure all the other objectives that the Chamber seeks to achieve in this Bill in respect of service to customers, quality of supply, the renewal of assets, the improvement of the environment and the safeguarding of all the other interests which will

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figure at some length, I suspect, in our debates. The new companies will be able to raise the capital needed to do that.
Of course in a field of perfect competition that can be carried out in a competitive environment. We recognise that here we face a surrogate for competition in the regulatory powers of the director general. It is the director general's duty under this clause to make sure that, in addition to all those other objectives, he can so use his powers to ensure a reasonable return on the capital which is put up. Otherwise the capital will not be forthcoming and the Bill will be a dead letter.
Perhaps the noble Lord, Lord McIntosh, wants the Bill to be a dead letter. Perhaps he wants to emasculate this Bill. I believe it is Amendment No. 80 in the name of the noble Lord, Lord McIntosh, which seeks specifically to remove the words:
"securing reasonable returns on their capital".
If those words came out of the Bill, we may as well all pack up and go home. I believe this amendment contains the kernel of what is wrong with the Opposition's approach to this legislation. I echo the words of my noble friend Lord Crickhowell at Second Reading; the more I listen to the debates on this matter, the more I am convinced that this Bill is the way we shall secure the objectives we all seek.
Lord Renton: As my noble friend said that he disagreed with me, may I set his mind at rest by saying that I entirely agree with him.
The Earl of Caithness: The noble Lord, Lord McIntosh of Haringey, although moving Amendment No. 77A and, I believe, speaking to Amendment No. 82, ranged very much wider than the amendments. At one stage——
Lord McIntosh of Haringey: I could hardly speak to Amendment No. 82 as the noble Lord in whose name the amendment is tabled is not present tonight.
The Earl of Caithness: As the noble Lord quite rightly said, Amendment No. 82 is in the name of my noble friend Lord Stanley of Alderley. It has the same effect as the amendment of the noble Lord, Lord McIntosh. His address to the amendment ranged much wider than the amendment itself. It was almost a clause stand part speech.
I wonder whether the noble Lord would like me to deal also with Amendment No. 80 at this stage, because much of what he said touched on that point. The noble Lord shakes his head; I shall therefore restrict myself to Amendment No. 77A.
The effect of Amendment No. 77A would be to dismantle the carefully structured framework of duties in Clause 7 so that most of the duties of the Secretary of State and director general would be regarded as having the same priority.
As we consider this Bill we shall find that many of the provisions are linked by a network of connections to other provisions in the Bill. Many of those connections can be followed back to this clause, which we can regard as being at the very centre of the Bill. It is this clause which will determine the
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relationship between the Secretary of State and director general on the one hand and the new water and sewerage undertakers on the other. This clause is crucial as it determines the climate for the water industry after privatisation.
Because it is so crucial I shall of course listen with very great care to what the noble Lord has to say. However, I perceive a difference of philosophy between him and ourselves on this side of the Chamber. I hope that my noble friend Lord Renton will not be misled by some of the honeyed words of the noble Lord. I was reassured by my noble friend's second intervention in which he supported my noble friend Lord Jenkin of Roding, because my noble friend Lord Jenkin was so right. The noble Lord, Lord McIntosh, dislikes the entrepreneurial spirit which has emerged. He is fully in favour of renationalisation. He prefers state ownership to decent regulation and control. He prefers a captive audience to the freedom of a private sector under strict regulation and control. He has a totally different philosophy.
Despite the honeyed words, the noble Lord is intent, if he can, on castrating this Bill to such an extent that it cannot work. If ever—and one would rue the day—the Labour Party came to power, they would renationalise water as quickly as possible, along with as much else in the private sector as they can lay their hands on in as short a time as possible.
I shall take one issue of fundamental difference between the noble Lord and myself. It is an issue on which I have so far refrained from commenting; the noble Lord has waxed lyrical about it. It is his complete misinterpretation of Clause 7(2). The noble Lord refers in particular to Clause 7(2)(b). He has not really brought to the Committee's attention Clause 7(2)(a). Clause 7(2) sets out the powers of:
"the Secretary of State or, as the case may be, the Director".
Clause 7(2)(a) states that one of the powers is:
"to secure that the functions of a water undertaker and of a sewerage undertaker are properly carried out as respects every area of England and Wales".
If a service cannot be properly carried out that is not in the interests of the consumer. The customer is right up front, quite contrary to how the noble Lord tends to portray the situation when he puts his spotlight, very negatively on Clause 7(2)(b). If securing that all the functions of the water and sewerage undertakers are properly carried out is not safeguarding the consumer, I do not know what is. Certainly the noble Lord's support earlier this afternoon for not having any price control is no support for the consumer.
As drafted in the Bill there are the two sets of duties in this clause, to which I have just referred. In subsection (2) are the two primary duties of the Secretary of State and the director. The first requires them to exercise their powers in the way they consider best calculated to secure that water supply and sewerage services are properly provided throughout England and Wales. That is a point on which I have already laid some emphasis. This obligation is twofold: first, there is an obligation to secure that the functions of water and sewerage undertakers are carried out in every part of England and Wales; Secondly, there is this important

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obligation to secure that those functions are properly carried out. The second primary duty, which we shall discuss in more detail in connection with Amendments Nos. 79 and 80, requires the Secretary of State and the director general to exercise their powers in the manner they consider best calculated to secure that appointed companies are able to finance the proper discharge of their functions.
These twin primary duties are backed up by a whole series of secondary duties. These relate to the protection of the interests of customers and potential customers in relation to charging and in relation to other terms of service; they require the Secretary of State and the director general to promote economy and efficiency in the way undertakers carry out their functions; they require the facilitation of effective competition, and this we shall come to when we discuss Amendment No. 87.
The creation of this dual framework is quite deliberate. It reflects the paramount importance for customers that companies are able to carry out their functions properly, and that to do this they will need to be able to finance those functions and earn a return on their capital. For that reason the duties in subsection (2) are a necessary precondition to the others. Similar, but not identical, structures are provided in the Gas and Telecommunications Acts and in the Electricity Bill.
I do not wish to detract in any way from the importance of the qualities in subsection (3); in particular, the duty to protect customers' interests as regards charging. All these are essential elements of the Bill. But the framework of duties simply would not work if, for example, it required the facilitation of effective competition to have equal standing with securing the proper provision of services. That would be the position if these amendments were accepted. Although the party opposite are keen to see the proper provision of services, I am surprised that they should want any of the other duties on the Secretary of State and the director promoted in such a way as to put that proper provision at risk. I hope that the noble Lord has listened with care, as I did to his words when putting forward the amendment, to what I have said in explanation of the Government's thinking behind this clause.
Earl Russell: Before the noble Earl sits down, may I ask him to correct an error? He referred to "the party opposite". There is more than one party opposite the noble Earl.
The Earl of Caithness: Yes, there are three parties opposite and the Cross-Benchers. So far only one party opposite has taken part. So far as I know, very few other parties have taken part except occasionally, I believe, the SLDP. The SDP have been notable by their absence.
Lord McIntosh of Haringey: I have listened with great care to what the Minister has said. I listened also to the noble Lord, Lord Renton, and the noble Lord, Lord Jenkin. If I am accused of being a Thatcherite by the one and of having an atavistic hatred of the entrepreneur by the other, I must be
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getting something right. As I spent more than 30 years, my entire working life, in private business—not in the public service—and of those more than 30 years nearly 25 years have been spent as an entrepreneur meeting a payroll, as the cant phrase goes, I do not take very kindly to being accused of having a hatred of the entrepreneur.
It is worth pursuing these amendments, because each time that we approach this matter the Government reveal a little more of their thinking and a little more of the priorities in their thinking, which is the crux of the matter. The Minister said to us that if we put the interests of the consumer on an equal footing with the interests of the water and sewage undertakers and their need to secure a reasonable return on capital, then we are putting at risk the whole of the privatisation procedure. I agree. That is exactly the position in which we find ourselves.
The whole run-up to this Bill consisted of the assertion that this was an environmental Bill and a Bill to protect the consumer. The Minister in his speech tonight has made it clear that that is not the case. He has made it clear that the priority must be—they cannot be equal—not that the companies themselves are responsible for securing a return on their capital, which is what I understand by capitalism, but that the director general, the Government, the regulatory system is responsible for securing that they have an adequate return on their capital. That is the essence of the Government's position and that is why I said this afternoon, and I repeat, that this is a no-risk situation for the investors in the water privatisation process and a no-win situation for the consumers.
The consumers will suffer whatever happens. The investors in the new water companies will never be allowed to fall by the wayside. In other words, they cannot act as capitalists. They cannot take the real risks that matter, which are that if you take the wrong decisions you go bankrupt. They cannot go bankrupt. They are not going to be capitalist organisations; they are going to be private monopolies supported root and branch by government regulation. The government regulation is not there to protect the consumer; it is there to protect the privatised water companies.
Each time we discuss this matter we get a little bit closer to the truth, and I feel that we are achieving something in clarifying the argument, even if we are not achieving anything in the vote. I am not proposing to take this amendment to a Division tonight. I disagree so profoundly with the position stated on the Government Front Bench that I believe that it is worthy of repetition in another form at another time.
9.45 p.m.
The Earl of Caithness: I am grateful to the noble Lord for giving way. I should like to put firmly on the record that this is very much an environmental Bill and it is very much for the benefit of the customer. It must be clear to all of us that customers cannot benefit from the services unless the efficient companies which provide those services are solvent.

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The inefficient companies can go to the wall. I ask the noble Lord to look forward in the Bill to Clause 23. In that clause provision is made for the inefficient company that does not provide the services.
I am sure that all Members of the Committee will understand that unless a provider of the services is properly financed, this situation will only deteriorate. Did the customer benefit in the late 1970s? In the last five years of the 1970s the customer had to put up with a massive reduction of expenditure—50 per cent. in real terms on sewage works. He had to put up with a massive increase in staff in the bureaucracy and a massive increase in the cost of water. That was a triple that no other government have been able to achieve. Surely we have all learnt from that situation. The only way to protect the customer and to provide a proper service is to make provision so that efficient companies are able to survive and inefficient companies are left to go to the wall.
Lord McIntosh of Haringey: I am sorry that I should have provoked the Minister to repeat that tired set of arguments. We will find an opportunity at another stage therefore to put on the record that the water authorities established under the 1973 Act have been consistently reducing their operating costs over the years and have been increasing their efficiency. That is well established, and it will have to be shown when the prospectus is issued for the new companies because the opportunities for further cost savings are severely restricted by the increases in efficiency that have taken place over the past 15 years. That was not the issue that I thought we were debating, but it is useful to have an opportunity to repudiate the statement which the Minister has just felt it necessary to make.
We will have to come back to this issue in a way which brings it home more clearly than perhaps I have been able to do at this time of night. The issue between us is becoming more and more clear. We are the ones, as the noble Lord, Lord Renton, said, who have the clear appreciation of the capitalist ethic. These are not partisan amendments, as the noble Lord quite rightly said. If it helps the noble Lord, they are drafted by the National Consumer Council. I have them in writing from the council. They are not intended to be socialist or capitalist in partisan terms. They are intended to do what the Government cannot do with the Bill as drafted; namely, protect the consumer and the environment.
Lord Stanley of Alderley: Before the noble Lord withdraws the amendment, may I say that I regret that I did not realise that my noble friend would take this amendment with Amendment No. 77. I thought that he would take it with Amendment No. 80. I have two points to raise on my amendment, but it is up to him to say whether he would rather that I spoke later than now.
Lord McIntosh of Haringey: Although it was grouped with mine, I was not able to refer to the noble Lord's amendment because he was not in the Chamber at the time. Perhaps he would prefer to
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take it separately. I beg leave to withdraw the amendment.
Amendent, by leave, withdrawn.
[Amendment No. 78 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 79:
Page 6, line 39, leave out from ("Wales") to end of line 45.
The noble Lord said: This amendment is another attempt to remove some of the offending words in this clause. It is not as drastic an attempt as in the previous amendment, but I hope that it pinpoints the essence of our argument. In moving the deletion of these words we seek to ensure that the important emphasis is on properly carrying out the functions of a water undertaking or a sewage undertaking rather than the return on capital.
As I said earlier, I listened with great care to the Minister when he referred to the inter-relationship between paragraphs (a) and (b) of Clause 7(2). He is more expert in these matter than I am. Perhaps he can say what is meant by:
"without prejudice to the generality of paragraph (a) above".
I do not quite understand what "generality" means there. So far as I can see, it does not mean that paragraph (b) is subordinate to paragraph (a).
The Minister's argument appeared to be that:
"to secure that the functions of a water undertaker and of a sewerage undertaker are properly carried out"
is in fact a prior obligation on the Secretary of State or the director to the obligation of:
"securing reasonable returns on their capital".
If, as a result of this amendment, he accepts that I agree with him that it is proper that the Secretary of State or the director, as the case may be, should have as the prime responsibility securing that functions of a water undertaker and a sewerage undertaker are properly carried out, and if he then agrees with me that it is the responsibility of the companies concerned by efficient management of their resources and their activities to secure their reasonable return on capital, we might be getting somewhere. Then we would be in the position whereby the role of government and the role of the regulator in ensuring that the consumers are protected by the effective carrying out of the functions of the undertakers is one thing, and the capitalist role of the water companies—and they are supposed to be capitalist companies—in securing their return on capital is another.
However, in the speech that he has just made the Minister appeared to be saying that it is the role of government and the regulator to perform both those functions. But they cannot be carried out; the risk must be the responsibility of the companies. Our amendment ensures that there is a proper distinction made between the role of government on the one hand and the role of the privatised companies on the other. I hope the Committee will agree that that is the rational approach. I beg to move.
Lord Renton: Before the noble Lord sits down, would he not agree that Amendments Nos. 79 and 80 overlap and to a great extent cover the point

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that he is making? Although they are not grouped together, would it not be better for us to dispose of them together?
Lord McIntosh of Haringey: They overlap, but the arguments that I wish to put on them are somewhat different. I am still trying to draw out of the Government some consistency between their public statements and the text of the Bill. Each time I have a go at it I get a little further. If it is at the expense of the Committee this evening I sincerely apologise. However, in my view I did not make progress last time.
I appreciate that the connection between Amendments Nos. 79 and 80 is that if Amendment No. 79 is agreed to, Amendment No. 80 cannot be put. No doubt the Deputy Chairman will put that to us in a moment. However, there are different points to be made about Amendment No. 80.
The Deputy Chairman of Committees: As the noble Lord who is moving the amendment has reminded the Committee, if this amendment should be agreed to I shall be unable to call Amendment No. 80.
The Earl of Caithness: The effect of Amendment No. 79 would be to delete from the framework of duties which determine how the Secretary of State and the Director General of Water Services exercise the powers specified in Clause 7(1) the duty at Clause 7(2)(b). This duty requires them to secure that companies holding appointments are able (in particular by securing reasonable returns on their capital) to finance the proper carrying out of their functions.
Before dealing with the specific amendments, it may help if I remind the Committee of the scope and purpose of this general duties clause. We shall come later in this Bill, in Chapter II of Part II, to the duties and responsibilities of water and sewerage undertakers—the obligations on them to supply wholesome water for example, and the requirement to provide a water supply on demand. Before that, Chapter I of Part II provides for the appointment of water and sewerage undertakers, and the enforcement of many of the duties that will apply to them through the Bill and the conditions of appointment. That chapter contains the requirements for the director general to keep all the appointees' activities connected with water and sewerage supply functions under review and for customer protection arrangements.
The Clause 7 duties bear on the Secretary of State and the director as they carry out all those functions in Chapter I of Part II, as well as certain other functions in the Bill. In other words it provides a framework which determines how the Secretary of State and director should exercise their powers as they impinge on the appointment of undertakers and on the enforcement of the water supply and sewerage functions.
It is essential to the water industry, just as it is for every other regulated industry following privatisation, that the regulators carry out their functions in a way which ensures that an appointed
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company can command the resources necessary to do its job properly. The environmental and water quality objectives which are important to both sides of this Committee could not be achieved if the appointed companies were unable to finance the necessary investment. That is why this clause balances the duty to secure that functions are properly carried out with the duty to secure that the companies that will be responsible for carrying them out can finance the accomplishment of their tasks.
Amendment No. 79, which would delete the whole of subsection (2)(b), would leave out any duty to ensure that companies holding appointments have the means whereby they will be able to discharge their functions. The noble Lord, Lord McIntosh, appears to will the environmental ends of the Bill, and he wishes I am sure to be satisfied that the companies will provide a proper service to the customers—at least I hope that he does. But he must also recognise that companies will have to have the means to achieve those ends. They must be regulated in a way which puts them in a position to finance the proper carrying out of their functions.
The effect of Clause 7(2)(b) as a whole therefore is to ensure that the Secretary of State and the director exercise their functions, for example in respect of limitations on price increases—I realise that that is a matter which Members opposite are against—in a way which allows an efficient company the financial resources to carry out its functions properly. It must be able to return a secure reasonable return on the capital it employs in support of its appointed functions.
Lord McIntosh of Haringey: I am afraid that that was not a successful amendment. It gained me no insight into the Government's thinking. I am sorry about that because I think that the relationship between Clause 7(2)(a) and Clause 7(2)(b) is a vital relationship for the Bill. In response to the previous amendments I thought that what the noble Earl was saying sounded interesting and could even have been hopeful. However, what he has now said is simply a repetition of what has been said earlier. I shall not detain the Committee any longer on this amendment. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
10 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 80:
Page 6, line 43, leave out ("(in particular, by securing reasonable returns on their capital)").
The noble Lord said: The reason I put down this amendment separately and did not agree to a grouping was that in a sense this is a fallback. It is not so strong as Amendment No. 79 or Amendment No. 77A; but it gives me an opportunity to carry on an argument which I started, but was unable to conclude earlier this afternoon: that is, what is meant by "reasonable" in the phrase "a reasonable rate of return". I suggest that there could be three possible interpretations of "reasonable". I should like the Government to tell the Committee which they think is the appropriate definition.
The first alternative would be to continue with the present rate of profit in water and sewerage activities. The problem with that—as the noble Lord, Lord Jenkin, said a few minutes ago—is how would such a rate of return, reasonable as it might seem to the electors and the consumers, achieve the investment necessary for putting right our water and sewerage services? The cost of that, according to the Secretary of State, might equal between 7·5 per cent. and 12·5 per cent. in real terms over the next decade. That is the first alternative.
The second option would mean that we were talking about a rate of return analogous to the rate of return on utilities; in other words, a safe investment. The best analogies for that are in the United States, where utilities as safe investments in the private sector are fairly well established. What that is normally taken to mean is that they produce a rate of return of approximately 5 per cent. on current costs. The effect of that, the Secretary of State tells us, would be an increase of 25 per cent. in real terms over the next decade in the cost of water and sewerage services. That is the closest to the kind of reasonable rate of return which might have been achieved by the amendment of the noble Lord, Lord Nugent of Guildford.
The third alternative—it is important for the Government, if this is the way their minds are thinking, to be quite clear about this—would be a rate of return comparable to a rate of return on the equity market. That would mean, let us say, 15 to 25 per cent. on historic cost or, depending on what view we take of inflation, 8 to 10 per cent. on current cost. The problem with that—the Government really have to take a view on this—is that that would mean an horrendous cost to the consumer. He would be involved in an increase in real terms of at least 50 per cent., probably closer to 80 per cent., in his costs over the next decade.
Yet in the equity market—if these new water supply plcs are to raise their money in the equity market, as opposed to some fixed interest utility market—that is the kind of cost with which we are faced. What do the Government mean by "reasonable"? What is their assumption? The difficulty of the third assumption—which seems to me to be the only one which achieves the objectives clearly set out by the noble Lord, Lord Jenkin—is that, first, it has this horrific effect on prices to the consumer and, secondly, that it involves in itself a distortion of the free market, that we are now bringing into equity markets companies which do not have in themselves the kind of growth in profitability which equity markets normally expect. If the growth of the water business is increasing by perhaps 1 per cent. a year, how shall we achieve the growth of 5 to 10 per cent. which is normally expected in equity markets?
If there is to be any safeguard of the rate of return, which is what Clause 7(2)(b) requires, shall we not be encouraging some of these water companies towards over-investment, because the more one is investing the higher is the basis on which the rate of return will be calculated? There is a fundamental conflict between the concept of a reasonable rate of return—a
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guaranteed reasonable rate of return as being the responsibility of the director general—and the raising of money in a truly capitalist free market.
If it is to be the responsibility of the Government and the director, then we are in serious danger of the worst of both worlds. We shall have very expensive capital for investment purposes and we shall have cost plus as the basis of the day-to-day undertakings of the pricing of water and sewerage services. In other words, we shall have translated to the water industry all of the worst influences and examples of the armaments industry serving the Ministry of Defence and the drugs industry serving the Department of Health. I do not believe that if the British people truly understand the nature of what is being offered to them they will be any more enthusiastic than they have already shown themselves for privatisation in this form. I beg to move.
Lord Jenkin of Roding: I am tempted to my feet again. I believe that the noble Lord, Lord McIntosh, is making extraordinarily heavy weather of this issue. He gives the impression of someone who is erecting on the point of a pin an argument which is primarily based on fantasy.
He mentioned the drug industry. As a former Health Secretary—and a number of my noble friends have exercised the same function—I had responsibility for the pharmaceutical price regulation scheme. It has built into it the same concept of seeking to secure a sufficient return to the companies which supply the National Health Service with drugs in order to enable them to invest and, in particular, to carry out research which is necessary in order to secure that the industry shall remain at the forefront of competition.
Those who have been responsible in the Department of Health for administering the PPRS have never had any difficulty in negotiating and reaching an agreement with the pharmaceutical companies as to the bracket within which they should be looking, having regard to the particular risks that were being taken in relation to a particular drug. It does not appear to me therefore that in the present case there will be offered any significantly different task to the director general. His duty is to ensure that they have the resources with which to finance their operations.
The phrase in the Bill about securing an adequate return is, as it were, in parenthesis. I suspect that it is included ex abudanti cautela. Perhaps it may not need to be included on the grounds that it might or might not be implied. Therefore, in order to make the point clear beyond peradventure, the words are included. But the duty of the director general and the Secretary of State—we are talking primarily of the director general's obligations—is to ensure that water and sewerage undertakers have the resources with which to carry out their functions. That must be in the interests of the consumers. There can be no future for an undertaking which will be unable to have the resources that it needs to do its duty. Therefore, by indulging in stirring up fears and fantasies of horrendous increases in charges which are necessary to meet the situation. I believe that

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the noble Lord is making more complicated that which in practice will not be particularly complicated.
He asks: what kind of market it is likely to be? He must wait and see. My guess is—and no doubt the noble Lord has seen this argued in the financial press—that the shares of water undertakings may well form, in effect, a new segment of the market. The investor will be buying two things with his shares. He is buying a fairly certain, although not absolutely certain, stream of income because the water authorities have a pretty safe business. Therefore, that part of the business will not be very exciting but it should be fairly secure although there will be an element of risk. It will not be gilt-edged and will not be as secure as a class A debenture. However, it will be a fairly steady flow of income.
The second part of the share will be what the companies are able to do outwith the control of the director general and the Secretary of State in developing other businesses; for example, in the way in which Thames Water is currently developing a water bus service up and down the Thames. I believe that there is enormous scope for that sort of thing.
Noble Lords opposite have made some play about the mention sometimes made of cable television. The fact is, as was mentioned in the debate this afternoon, that to take a water authority into partnership with a cable authority is the wisest thing that could be done. There is then an adit into every single building that is served by water, and a fibre optic cable for an inter-active cable system can perfectly well be fed into a building through the sewers that go into the house. That is happening now and will happen a great deal more. That is the kind of additional business which the water company can get. Therefore, the shares of those authorities as they are traded on the market will form a new class and investors will have to make up their minds as to what they are to do.
This comes straight back to the point of the noble Lord's amendment. The water part of that, because it is a monopoly—and we have already discussed this at some length—has to have regulatory power over it, and of course the regulator has to ensure that, along with all the other objectives, he is setting limits on prices at a level which will secure a return on the capital so that the undertakers can finance their obligations.
Frankly, having seen this operating as it does by British Telecom where there is exactly the same position, there really is not the sort of phantasmagoria of difficulty which the noble Lord has conjured up for the Committee this evening. These words are essential in order to avoid doubt, and I hope that my noble friend will not be beguiled or frightened by the arguments of the Front Bench opposite into feeling that he must take this away and look again at it. I think the Government have it absolutely right.
Lord Lloyd of Kilgerran: It is always a great pleasure to follow the noble Lord, Lord Jenkin of Roding, because of his great experience in
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government matters. However, I must say that in my view his analogy with the pharmaceutical industry is totally false on this matter. I was a member of the Sainsbury Committee some years ago which studied the question of the cost of pharmaceuticals and initiated the PPRS. For the PPRS there was no question of securing reasonable returns on their capital in the same sense as in this Bill. In the pharmaceutical industry it was to secure reasonable returns to enable companies to carry out certain aspects of research in the public interest. It was not anything like returns on capital.
Like the noble Lord, Lord McIntosh of Haringey, I have been worried about what is meant by securing reasonable returns on capital. It seems to me that according to the argument that he has put forward, if those words are left in the Bill the cost for the consumer will increase.
Lord Renton: Surely the answer to that is that there has to be capital and fresh capital raised from time to time for development and in order to improve services, including improving the purity of water. Unless a reasonable return is obtained on capital already there it is going to be very difficult, and sometimes impossible, for one of these new companies to raise the further capital that is needed. That is why these words are so essential.
As to what is "reasonable", here I think that one must say—and I am ready to be contradicted—that a reasonable return is such a return as will enable fresh capital to be raised. If the return is not good enough—in other words, not reasonable—fresh capital will not be raised and development will not take place.
Lord Stanley of Alderley: I should apologise to the Committee. I specifically asked that my Amendment No. 82 should be taken with this amendment rather than with Amendment No. 77. Therefore, with the permission of my noble friend on the Front Bench, I will speak to my amendment now as it fits in much closer with the amendment that has been moved. Two points that have been raised are relevant.
The first—and I know I will be crossing swords with my noble friends Lord Jenkin and Lord Renton—is this. If you put a specific requirement in a Bill—and I am now talking about what we on the Back Benches call the Renton factor—it means that a lawyer when he looks at it only looks at that requirement and considers everything else less important. I have been told that on innumerable occasions by my noble friend Lord Renton when I have endeavoured to add something to a Bill. That is the first point I make to my noble friend Lord Jenkin; he is putting much greater priority on this return on capital than on any other aspect. In fact, the rest means nothing. I shall be interested to hear how my noble friend Lord Renton answers that point. When I next endeavour to put something specific in a Bill, I hope that he will not bully me too much.
Lord Renton: Perhaps my noble friend will allow me to intervene. First, he is making a very fair point and a proper challenge.
Lord Lloyd of Kilgerran: Perhaps the noble Lord will speak up as I cannot hear him.
Lord Renton: My noble friend has given way and to save time I am trying to answer his immediate point.
Lord Lloyd of Kilgerran: I understand that but I merely said that I could not hear what the noble Lord was saying as he appeared to be in close conversation with the noble Lord, Lord Stanley.
Lord Renton: I shall speak even louder than I normally do, which I should have thought was much too loud for the Committee's pleasure.
Lord Lloyd of Kilgerran: Never.
Lord Renton: Surely the answer to my noble friend Lord Stanley of Alderley, who has made a proper challenge to me, is this. Yes, I have often said that we should not be selective; when there are a number of factors to be borne in mind, if we bring out one in particular we are emphasising that at the expense of the others. However, there is an exception to every rule. I say that this particular factor of obtaining a reasonable return on capital makes an exception, and one which justifies its being an exception.
Lord Stanley of Alderley: I thank my noble friend. I shall remember that in future.
My second point runs straight on from that point. I accept that there is a real need for these plcs to have a good return on their capital, but surely any director who is worth his salt must realise that it is important that they should do so. If the director kills them off, he is killing the goose that lays the golden egg. Why include a specific item?
I have to say that I am with the noble Lord, Lord McIntosh. On this occasion my noble friend Lord Renton has not persuaded me, though he usually does. I shall now not have to speak to my Amendment No. 82.
The Earl of Caithness: Perhaps I may say to my noble friend Lord Stanley of Alderley that I see room on the Benches opposite if he feels that he is uncomfortable on this side of the Committee. I suggest to him that he reads what I said on Amendment No. 77A because I covered fully the two points that he raised. I draw his attention, as I drew the attention of the noble Lord, Lord McIntosh, to Clause 7(2)(a) rather than——
Lord Stanley of Alderley: I did listen to that part of it.
The Earl of Caithness: I do not know what part of the words that I spoke concerning Amendment No. 77A are referred to or what the noble Lord, Lord McIntosh said. Having been chastised by the noble Lord, Lord McIntosh of Haringey, for referring to my noble friend, when I turned around he was not in his place. Perhaps we may begin that again at a later stage if necessary.
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As we have already debated this subsection at length I do not need to say much more about it in response to this amendment. The effect of Amendment No. 80 and the deletion of the words,
"in particular, by securing reasonable returns on their capital'
would be to lose a form of words that we believe to be important for the water industry and the customer and which carries forward in an amended form the duty of the Secretary of State to statutory water companies in Section 12(6) of the Water Act 1973. I am sure that my noble friend Lord Stanley recalls those words well. It means in effect that something similar has been applied to part of the water industry for the past 16 years. That is the part of the water industry that was not nationalised during the Labour Government of the 1970s. But clearly the noble Lord, Lord McIntosh of Haringey, let the cat out of the bag concerning Amendment No. 43 when he indicated that because there was an operating company making a profit that was to be a target for nationalisation in the future.
Water is not the vehicle through which the water companies will be making a profit, it is the operation of the business in providing water supply to 99 per cent. of the country which is connected to the mains, and taking away the water that we dirty. In case any Members of the Committee have misunderstood what the duty does not mean. It does not mean that the Secretary of State and the director general will be obliged to exercise their powers of appointment and in particular by securing reasonable returns on capital in such a way that inefficient companies can secure a return on capital. They are required only to exercise their powers in a manner best calculated to secure that companies are able to do so. Whether a company actually secures a reasonable return will depend on its efficiency among other things.
The clause does not guarantee shareholders any particular return on their investment, and does not require the regulator to set or vary price controls by reference to any particular level of share prices pertaining from time to time. Share prices will in any event reflect considerations other than the revenue from the performance of appointed functions. For example, there will be scope for earnings from enterprise activities which are not related to the core functions. Perhaps more importantly, the concept of a reasonable return on capital relates to the return on the capital that the company applies to finance the proper carrying out of its appointed functions and not to the flotation price or the market valuation of company stock.
Lord McIntosh of Haringey: I sought to give the Minister an opportunity to answer the question: What is meant by a reasonable return on capital? In order to help him I suggested three alternatives; namely, a continuation of the existing rate of return; a utility rate or an equity rate of return. The noble Lord, Lord Jenkin of Roding, seemed to suggest that the reasonable rate of return would be a new market and somewhere between the utility and the equity rate of return. That seems a perfectly rational answer to give; but the Minister gave no answer at all. I wonder whether he is able to help the Committee.
The Earl of Caithness: I am delighted to try to elucidate further. The noble Lord will not be surprised to hear me say that we are considering very carefully what will be the appropriate rate of return for a stable utility industry in the private sector. A final decision has not been taken.
Lord Lloyd of Kilgerran: The noble Earl referred to the Water Act 1973 having certain words in it. Are the words exactly the same as those in this particular section of the Act? I am sorry that I have not got the Act with me, but I did not know that the Minister was going to quote from it.
The Earl of Caithnes: No. I said that the words were in an amended form.
Lord Lloyd of Kilgerran: As the noble Earl is relying strongly on the wording of the 1973 Act, can he give the exact words? I am sorry to press the Minister.
The Earl of Caithness: It is the amended form as in the Bill. I am afraid that I cannot at this moment give the wording of the 1973 Act.
Lord Lloyd of Kilgerran: I am dissatisfied that the Minister should produce an argument in favour of using in this Bill words from another Act. On an important matter like this he should come prepared with the actual words. He may be right. I do not know.
The Earl of Caithness: In that case, I sincerely apologise to the noble Lord. I have come equipped with thick files and now I have a book.
Lord Lloyd of Kilgerran: I am sorry to press the Minister but his brief is not up to scratch.
The Earl of Caithness: It has nothing to do with my brief not being up to scratch. It is entirely my fault. I have to limit the amount of material I bring into the Chamber. I have two red files with me. I know that those two files do not contain what the noble Lord requires. I hope to be able to give him an answer shortly.
Lord McIntosh of Haringey: I do not know whether it would be kind or cruel to give the Minister time to answer the question of the noble Lord, Lord Lloyd of Kilgerran, but I shall certainly not delay the Committee with that in mind. However, I shall delay the Committee for a moment longer because the persistent refusal of the noble Earl to give an answer to what seems to me to be a reasonable question is all too clear. If the Bill contains the words,
"a reasonable rate of return",
and if it is possible to interpret the words in a number of different ways, it is only proper for the Committee to have the right to interrogate the Minister about what the Government mean. The noble Earl said that the Government have not decided yet. They have not worked it out.
The Committee is being asked to buy a pig in a poke. We do not know what the answer is. We had a gallant attempt from the Government Back
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Benches to give us an answer. I respect the noble Lord, Lord Jenkin, for that attempt. By answering the question he made it clear that the Secretary of State's own estimates of the increase in real terms in water charges over the next decade were grossly inadequate. The Secretary of State's estimates were based on the assumption that the rate of profit would continue as it is now. The noble Lord, Lord Jenkin, is making it clear that we are talking about something between a utility market and an equity market. Therefore we are talking about a figure closer to a 50 per cent. in real terms. That is an honest answer at any rate.
Lord Jenkin of Roding: I do not see how the noble Lord can possibly draw the conclusion that he is now seeking to draw until he knows what the gearing of the companies will be, how much of the capital employed in the business will be represented by debt, which in exactly the same way as the debt existing at the moment will have to be remunerated by a payment of interest, and then how much will be left for equity capital and whether there will be preference capital. He cannot draw the conclusion that the rate of increase of charges will be this, that or the other on the basis of a view that might be taken—I have given my own view—of what will be the status of the equity part of a water undertaker's capital.
Lord McIntosh of Haringey: I agree entirely. The gearing will be absolutely critical. We shall put down amendments to that effect later on. However, that confirms what I am saying. Parliament is being asked to buy a pig in a poke. Parliament is being asked to approve of a privatisation measure without having any idea of the real financial terms on which this privatisation measure is being put forward.
Lord Jenkin of Roding: The noble Lord must not be allowed to get away with that. A few moments ago he was saying that there would be increased charges way ahead of what the Secretary of State is saying. Now he is saying that he does not know. Where is his argument? He does not appear to have one.
Lord McIntosh of Haringey: It is hardly my job to do anything other than seek to draw out the Government's argument. I am not seeking to draw the noble Lord, Lord Jenkin. He is not responsible for the Bill. I am asking the Government to give us straight answers about the cost to the consumer of this legislation. We are entitled to know what the cost to the consumer will be.
It is not good enough for the noble Lord, Lord Jenkin, to give us answers. We want the Minister to give us answers. We want those answers to take into account the most reasonable estimates possible of the gearing and to say whether any of the existing capital will be written off. That affects the amount the Treasury and the taxpayer will receive, which is another critical factor in deciding whether this is the right thing to do. We want to know what their estimate is of the rate of return which is likely to be necessary to achieve the required investment. All of

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those aspects which are absolutely critical to an assessment of whether this measure is justified are simply not known; or, indeed, if they are known, we are not being told about them. Therefore the only conclusion we can come to is that this is not the time to be carrying out a privatisation measure.
The amount of investment required to bring our water quality and our water effluent standards up to Community levels over the next 10, 15 or 20 years is unknown. Therefore the amount of investment and the rate of return required on investment from these water companies is unknown. In those circumstances, we can have no sound basis upon which to estimate the effect of this Bill on consumers or on the environment.
By the amendments we have been seeking to find out whether the Government were at least willing to give us some sort of estimate in this connection, instead of retreating behind the phrase, "We have not yet made up our minds". However, I still think that there is an opportunity here for the Minister to reply both to myself and to the noble Lord, Lord Lloyd of Kilgerran.
10.30 p.m.
The Earl of Caithness: I am delighted to take the opportunity so to do. Perhaps I may start by addressing the remarks made by the noble Lord, Lord Lloyd of Kilgerran. I shall read to him from Section 12(6) of the Water Act 1973:
"The Secretary of State shall not so settle or vary arrangements under this section as to oblige the company to fix their charges at a level which will endanger their ability, so long as their undertaking is managed efficiently, to provide a reasonable return on their paid-up capital, having regard to their probable future expenditure and to the need to provide for any contributions which they may lawfully carry to any reserve fund or contingency fund, to make good depreciation (in so far as provision therefor is not made by any such fund as aforesaid) and to meet all other costs, charges and expenses properly chargeable to revenue".
Lord Lloyd of Kilgerran: I should like to express my grateful thanks to the noble Earl for pointing that section out to me. However, I must apologise for giving him so much trouble at a time when he is so busy.
The Earl of Caithness: I can assure Members of the Commitee that it was no trouble at all; indeed, it was a pleasure to answer the noble Lord's question.
I turn now to the remarks made by the noble Lord, Lord McIntosh of Haringey. Looking at the matter from his position, I can quite understand the remarks he made. Moreover, if the noble Lord's party were ever to privatise an industry I would certainly wish to make exactly the same remarks to him at this stage of the proceedings. However, I can assure him that as soon as I have figures and as soon as we are able to work out all the costs—some of which, as he rightly suggested, we do not have at the moment—I shall be able to provide him with further clarification on the matter.
Lord McIntosh of Haringey: This Bill has been before Parliament since before Christmas. These are absolutely critical figures which have been
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consistently requested by my honourable and right honourable friends as the Bill passed through another place between January and April of this year. Ministers there could not give any answers and it seems that Ministers here are unable to do so. Yet, the answers are essential if we are to make a judgment, and if the people are to make a judgment, as to whether privatisation is necessary.
We are forced back to the conclusion that privatisation is being put forward on ideological rather than economic or financial grounds. We shall have to return to the matter and we shall do so at a time when more noble Lords are available to take part in the debate. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 81:
Page 6, line 45, at end insert ("and
(c) to secure that companies holding appointments under Chapter I of Part II of this Act as water undertakers or sewerage undertakers are required to publish annual and three-yearly financial plans.").
The noble Lord said: We are seeking to extend the powers and functions of the director contained in Clause 7. We are seeking to secure that the companies which are to undertake the supply of water shall be required to publish annual and three-yearly financial plans. The amendment is designed to allow public scrutiny of the plans of water and sewerage undertakers so as to ensure that those undertakers make adequate provision for the investment needs of the industry and take adequate account of the need to implement the improvement of environmental concerns and satisfy consumers' needs.
I am not suggesting that the whole country should be privy to matters of a confidential nature on finance or planning. However, we believe that the public has a right to be kept informed of the state of play. Over the past three months the public has been subjected to a barrage of glossy advertisements and razzamatazz on television, which have been telling us just how marvellous the past 10 years have been and just how wonderful the next period will be with privatised water. We are not interested in that approach. We are concerned that there should be a proper presentation to the public of the privatised water companies' sensible and serious intentions with regard to their role. When they do that, they can be criticised. There will be defects and blemishes. Some individuals will take the opportunity to make points. They may well be political points.
Such public scrutiny is essential if the regulatory system is to work effectively. There is a need to ensure that the investment plans agreed with the Director General of Water Supply fulfil objective requirements at the time they are agreed and when they are implemented, and that the WS plcs' corporate plans do not rely on asset stripping for their implementation.
There are two sources of potential abuse which would be curtailed by such public scrutiny of corporate plans. I have given an indication of the kind of things that can happen. The Committee is

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aware that the delivery can fall short—not just in water, but in many other spheres—of what is proposed. I do not mean solely on the privatisation of a company. What is contained in a prospectus when it sees the light of day looks far more attractive than what is delivered.
I hope that the Minister and his advisers will say kind things about the public's need to be kept informed of the plans; and, secondly, I hope that the Government will want to ensure that the promises, which I shall accept for the purpose of this argument they support and want to see, are carried out. The Government should want to ensure that the plans, which must exist, are available for public scrutiny.
I know that not everyone will take the trouble to look at them, but there will be bodies that will be interested; there will be critics and there will be narks. Everyone should be entitled to study the plans. If the companies are enterprising and imperialistic, and are in the business of expanding their empires, they will have plans of which they will be proud; and I believe that they will be happy to defend them. The amendment seeks to lay down as a duty that the companies publish an annual plan and a three-yearly rolling financial plan to ensure that the prospectus upon which the public will be invited to invest, and to be satisfied that their interests will be protected, goes according to plan. I beg to move.
Lord Addington: This amendment effectively works on two levels. First, it allows the public to know what is going on within the bodies. Secondly, it makes sure that the environmental consequences are never completely squashed by those that are connected with the more directly financial parts of the company's activities. Thus I wish to support the amendment, because if the Bill is to be truly environmentally sound, we must never lose sight of the fact that there must always be environmental considerations in it.
The Earl of Arran: The purpose of Amendment No. 81, proposed by the noble Lord, Lord Graham, is, as he says, to require a condition in the instrument of appointment obliging appointed companies to publish annual and three-yearly financial plans. The requirement to publish such plans is not appropriate to a private sector company. The water authorities submit corporate plans to the department and the Welsh Office so that Ministers can assess their investment plans and exercise the usual public expenditure controls. In future the regime as set out in Chapter I of Part II of the Bill and the model instrument of appointment will apply. The Secretary of State will set the initial parameters of that regime, based upon limiting the level of charges, and the director will receive or be able to obtain all the information necessary to operate it. Information about levels of service and regulatory accounts must be published by the companies. But financial plans will be a matter for the companies, not for approval by the Government of formal publication. I ask the noble Lord, Lord Graham, to appreciate that point and in consideration of the circumstances to withdraw the amendment.
Lord Graham of Edmonton: The Minister, and I believe the Government, fail consistently to understand what we are driving at. That may be our fault. There is an option, not a duty, which I invite the Committee to consider: the plans are so well drawn, so sensible and so in accord with the promises that it would be in the interests of the company to assure the public from time to time that what the Government have promised will happen is happening. I am not talking about everyone being their own accountants and auditors but about telling the public that what the government wanted the capital for and what they were spending money on was broadly what they said they would do. If the public are not kept fully appraised of matters in that way, they will not only be denied the information but they would be entitled to be suspicious that the promises that were made were not being kept.
What the public will then discover is that not only is the quality of the service less than was promised, but the ability of the company to use or misuse its capital is greater than it might have been. Of course the companies will be subject to people taking an interest in what is going on, which they will resent. But it is a new world; this is not the typical privatisation of a nationalised company. We make the case that water is quite exceptional and the public are suspicious. Whether the Government like it or not, there is in general a distrust on the part of the public of the Government's interest in health and clean water in the future. That is a fact of life. The public are unhappy at the Government's proposals to privatise the water industry. I put it no more strongly than that. I do not want to use scare stories. As regards whether the public are for or against the privatisation of water, all the evidence we have been able to get objectively is that they are not in favour of the Government's plans.
No government spokesman, either in this Chamber tonight or anywhere else, can point to the evidence and say that the public are happy or accept the plans based upon what they now know. All I am saying is that the public would be less unhappy if they were satisfied that they were being kept fully in the picture.
I am not talking about running a company without investing money, or members of the public poking their nose in; I am simply talking about good, prudent 1990 common sense in respect of consumer education. However, the Minister quite clearly does not understand what we are driving at. We shall have to try to find another way of coming back on this. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 82 and 83 not moved.]
10.45 p.m.
The Earl of Shannon The Earl of Shannon moved Amendment No. 83A:
Page 6, line 48, at end insert—
("() to secure that all reasonable demands for water supply and sewerage services are satisfied;").
The noble Earl said: The Committee has spent rather a long time in discussing the higher flights of ethics, politics and finance. I am sorry, but I wish the Committee to come down to water.
My amendment speaks for itself. It merely places on record exactly what the water companies are there for. We have ploughed through the Bill up to Clause 7. We have discovered who appoints who and who consults with whom, all of which is done with masses of bureaucracy. We have argued about who disposes of land and all kinds of things. At last we have reached Clause 7. I was pleased to hear this clause called the "kernel of the Bill".
The rubric of Clause 7 states:
"General duties with respect to water supply and sewerage services".
That is the first mention that has been made of what the clause involves. But when we look at Clause 7, we find it does not say much about that. When the Minister was replying to Amendment No. 77A, I suddenly thought he was replying to my amendment. My spirits soared at one moment because the Minister read out Clause 7(2)(a). I noted very carefully what the Minister said. He said:
"to secure that all the functions of a water undertaker".
I thought grand! we are getting somewhere. Then of course the Minister correctly read out the relevant sentence on two further occasions and left out the little word "all". So the provision does not cover all a water undertaker's functions.
We are leaving the fact that someone is going to supply water purely to an assumption, but there is nothing here to say that anyone should supply it. My amendment does not only provide for that. If one is setting up a production plant in industry one will not be very bright if one does not constantly assess one's market and provide for its needs with a reasonable margin. All my amendment calls for is normal good management and for those practices to be followed.
The amendment reads:
"to secure that all reasonable demands for water supply and sewerage services are satisfied".
Without overloading the word "reasonable" too much, I think that is very reasonable. But what it does mean is that there should be an obligation on the water plcs, when they come into being, to carry out good management and make sure that they not only supply their customers as they stand, but that they should have a reasonable margin in hand in order to supply any increase in need. There is a precedent for this in the Electricity Bill where Clause 3( 1 )(a) makes exactly the same provision in respect of the supply of electricity. All I am saying is that perhaps we could do the same in respect of water.
Very possibly all ministerial briefs this evening are heavily stamped across the bottom, "Do not give way on this", and I do not suppose that I shall be any luckier than any other Members of the Committee who have moved amendments this evening. I presume that my amendment will be resisted. It could be resisted on the grounds that it is wrong. In that case the Government would be admitting that they believe in bad management, and that is not a very good advertisement if one will be trying to flog one's shares to the public. It will not go down well in the market.
The other argument could be that the answer is presumed to be elsewhere. If that is the case, I should like to know where. The Minister may be able to tell me exactly where it is not just assumed but where it is stated. Assumptions on the face of a Bill very often go wrong. Courts have totally different opinions and courts do not read what Ministers say. Therefore it should be stated, please. I am sure that the Minister will correct me if he knows where it is stated.
If the Minister's brief reads, "What about Clause 46?" please will he draw a line through it because it is not relevant. That clause merely says that if the companies do not do their job very well and they run short, they have to put domestic customers first. I do not object to that, I am merely suggesting that they should manage their businesses properly, as my amendment suggests. I beg to move.
The Earl of Caithness: Perhaps I can reassure the noble Earl, Lord Shannon, that the Bill already achieves the aims of his amendment. I think, with respect, that he is slightly missing the point. Clause 7 contains the general duties on the Secretary of State and the director not the duties on the water and sewerage undertakers.
The general duties on water and sewerage undertakers to maintain and extend their systems of water supply and sewerage are contained in Clauses 37 and 67 of the Bill. These general duties form the foundation on which more specific water supply and sewerage duties are built.
The important point is that these duties are enforceable by the Secretary of State or director under Clause 20 of the Bill. In considering whether to take action under Clause 20, the Secretary of State and director are bound by the duties imposed by Part I of the Bill, including the duty in Clause 7(2)(a), which requires them to exercise their powers in the way they consider best calculated to secure water supply and sewerage services are properly provided throughout England and Wales. I think that that will entirely meet the noble Earl's concerns.
As I have said, the structure of duties in this Bill is complex, and although based on the gas and telecommunications precedents, the different circumstances of the industries mean that the clauses in the different measures are not exactly similar.
The Earl of Shannon: I am grateful to the noble Earl for that reply. I shall have to look at what he said. I take it that there is an obligation to keep a margin in hand. Or is it just to meet future needs? Can the Minister tell us whether there is any provision that calls for a margin in hand?
The Earl of Caithness: Yes. I think that if the noble Earl turns to Clause 37(1)(b) on page 39 of the Bill, he will find the words:
"for maintaining, improving and extending"
—just what the noble Earl was looking for, I hope.
The Earl of Shannon: I have not been able to find my way—I am still at page 6. I shall look at it. I thank the noble Earl very much, and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Lord Grantchester): Amendment No. 84 appears to be an alternative to Amendment No. 84A.
Lord Carter Lord Carter moved Amendment No. 84:
Page 7, line 1, after ("person") insert ("including in particular, those who are disabled or of pensionable age").
The noble Lord said: As the Deputy Chairman of Committees has said, these are alternatives. I shall speak to both. They are probing amendments intended to discover the reason for an omission from the Bill.
The amendments would impose a specific duty on the Secretary of State and the director with respect to water supplies and sewerage services to have regard to the need of consumers who are disabled or elderly. The amendments would bring the arrangements into line with existing provisions in other Acts covering gas, electricity and telecommunications. I shall not detain the Committee by quoting the relevant provisions in full, but in those Acts each of the sections which cover the general duties of the Secretary of State and the director include the phrase contained in the amendment. The Water Bill does not do so.
At Report stage in another place the Government introduced an amendment to Clause 6(5)(b) which ensures that the service committees shall have regard to the needs of disabled people. These amendments seek to ensure that the same regard will exist when charges are concerned and, as I say, they are intended to bring this Bill into line with other legislation. I hope that the Government will be helpful over this matter. I beg to move.
Lord Hesketh: I am conscious that the Gas Act 1986, the Telecommunications Act 1984 and the Electricity Bill have similar wording to that provided for in these amendments in respect of the quality of service provided. I should emphasise here the quality of service rather than price fixing.
It would be both impractical to operate and contrary to subsection (3)(a) to discriminate positively in price fixing in favour of the elderly and disabled. The proper way to assist these and other vulnerable groups in the community who may have difficulty in paying their water and sewerage charges is through instalment payment plans and in the case of those on low incomes through the assistance provided by income support and family credit. The industry operates a code of of practice under which advice is given to those in financial difficulties drawing attention to instalment plans and to the assistance which the DSS and advice which social services and voluntary bodies such as the Citizens' Advice Bureaux provide. All customers will be protected against overcharging by the annual limit on prices set initially by the Secretary of State.
An amendment to protect the interests of the elderly and the disabled would be more appropriately placed therefore in respect of subsection (3)(b), which inter alia concerns the quality of service. This would be consistent with the precedent set in the legislation concerning the other utilities to which both I and the noble Lord, Lord Carter, previously referred.
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Subject to this qualification in respect of price fixing, I have every sympathy with the concerns which lie behind these two amendments and I agree to consider whether a suitable amendment might be made following the precedents already set in order to ensure that these vulnerable groups in the community are properly protected in their dealings with water and sewerage undertakers. In the light of this undertaking, I hope that the noble Lord will be able to see his way to withdraw the amendment.
Lord Carter: I am grateful to the noble Lord. Am I to understand that the Government will be bringing forward an amendment at the next stage to subsection (3)(b)? In the light of that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 84A not moved.]
Lord Stanley of Alderley Lord Stanley of Alderley moved Amendment No. 85:
Page 7, line 13, after ("discrimination") insert ("against any class of persons").
The noble Lord said: This is a probing amendment. What I want to ask my noble friends is why this phrase which is contained in my amendment, and which was central to Section 30 of the previous Water Act, has been omitted from the Bill. I beg to move.
Earl Russell: I should like to make an apology to my noble kinsman Lord Stanley of Alderley for having been 10 minutes too late to put my name to his amendment. At this time of night, I shall confine myself to saying that I, too, should like to know the answer to his question.
The Earl of Caithness: I am happy to give the answer not only to the two noble kinsmen on opposite sides of the Chamber but to the rest of the Committee as well. My noble friend Lord Stanley referred to Section 30 of the Water Act. I am sure he will also recall similar words in Section 3 of the 1988 Act.
Clause 74 of the Bill provides the corresponding powers for water and sewerage undertakers to fix charges. It does not place restrictions on the exercise of those powers because the intention is, under Clause 7 and Chapter I of Part II of the Bill, to provide, for the the regulation of water charges through conditions in the model instrument of appointment of companies.
Clause 7(3)(a) of this Bill requires the Secretary of State and the director to exercise their powers under Chapter I of Part II so as to ensure that the interests of consumers of potential consumers are protected in respect of any charges made by the undertaker for its services. In particular, the clause places a duty on the director to ensure that no undue preference is shown, and that there is no undue discrimination, in the fixing of those charges.
Perhaps I may turn the attention of my noble friend to condition D3 of the model instrument of appointment. I am sure that he has seen it in the Library. He will find it at page 26. It makes provision

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that requires the appointee ensure that no undue preference is shown to, and that there is no discrimination against, any class of customer or potential customer.
11 p.m.
Lord Stanley of Alderley: I feel that there is a spy in your Lordships' House. My noble friend must have seen me creeping around the Library the day before yesterday in order to obtain paragraph D3. If he did not, he must have another spy. I have read that paragraph. For the moment, as my noble friend is no doubt one stage ahead of me, I will leave it until we come to discuss this matter in more detail under Clause 74. I beg leave to withdraw this amendment.
Amendment, by leave, withdrawn.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 86:
Page 7, line 20, leave out ("and efficiency") and insert ("efficiency and effectiveness").
The noble Lord said: My Lords, I beg to move Amendment No. 86 standing in the name of my noble friend. The effect of this amendment would be to add to the list of general duties of the director, and by inference the Secretary of State, the requirement to discharge their other duties in such a manner as to promote the operational effectiveness of water and sewerage undertakings as well as economy and efficiency.
When these matters were debated in another place, I was interested to see the manner in which Mrs. Emma Nicholson, the Member for Torridge and Devon West, sought to elaborate on the necessity in the consumer interest for those three elements. She likened the water industry in this respect to buying a cake. She said: "When I buy a cake, I expect the cook to have baked it economically so that the price is right, efficiently so that the icing does not run, and effectively so that my energy rises as I consume the best and purest British butter, eggs and flour."
The analogy is apt, and in relation to the water industry the distinction is obvious. Consumers should have a right to expect the service to be run economically so that the price is no higher than necessary, efficiently, so that supply failures and defects are kept to a minimum, and effectively so that resources are used in the best possible fashion to produce the highest possible standard of service.
I think that it is a matter of regret that the Government have not taken this recognition of consumer interest so far as to make provision for the promotion of the third of these expectations, which is effectiveness. That they have not done so evidences a singular misunderstanding of the fact that the interests of the undertakers after privatisation will not always or automatically be the same as those of consumers. The fact that profit may be a conflicting interest is recognised in the system of price control. That efficiency may be a conflicting interest is recognised in the customer charter. That effectiveness may be a conflicting interest is not, however, recognised. This amendment would put
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right that lack of recognition and so correct what we consider to be the Government's singular misunderstanding.
The misunderstanding could be cynically interpreted as a lack of sincerity in seeking to promote consumers—and there are doubtless many who would interpret it as such. I make no such allegation. We think that this is a worthy amendment, and we invite the Minister and the Government to add it to the Bill. I beg to move.
The Earl of Caithness: Amendment No. 86 would require the Secretary of State and director general in exercising their relevant powers to promote not only economy and efficiency in the way undertakers carry out their functions but also to promote effectiveness.
It may be helpful to remind the Committee of the scope of this clause. In the main the requirements of this clause will bite on the actions of the Secretary of State and the director general under Chapter I of Part II of the Bill—in other words, in the appointment of water and sewerage undertakers and in the enforcement of many of the duties that will apply to those undertakers through the provisions in the Bill and the conditions in the instrument of appointment.
In considering this amendment we are asked to consider whether the promotion of the effective performance of duties ought to be in the minds of the Secretary of State and director general as they make appointments and enforce duties and so on. I am bound to say that I agree with the proposition that effectiveness should be in the minds of the regulators. Indeed, the effectiveness of those who will provide our water and sewerage services is such an important quality that we decided not to include it in this list of secondary duties in subsection 7(3) but to incorporate it in the primary duties in subsection 7(2).
In our view, an action would be effective if it was successful in producing the desired result or effect; in other words an appointment would be an effective one if it resulted in the proper provision of water and sewerage services throughout the country. And that is precisely the effect of the primary duty in Clause 7(2).
I believe that I have no disagreement with the noble Lord, Lord Graham, and that is why the effect of his amendment is already incorporated in the Bill.
Lord Graham of Edmonton: I am grateful to the Minister for his explanation. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 87;
Page 7, line 22, leave out from second ("undertaker") to end of line 25.
The noble Lord said: This amendment seeks to remove paragraph (d) from Clause 7(3), which speaks of facilitating:
"effective competition … between persons holding or seeking appointments under that Chapter".
In a sense we do not care very much whether the paragraph is there or not, except that it is patent nonsense to pretend that there should be competition between these undertakers, the persons holding or seeking appointments. It is an insult to put into legislation the pretence, which has already been adequately exploded, that there is any real competition between them.
As has been said by many noble Lords from all sides of the Committee, water is a natural monopoly. It is a natural monopoly because, above all, the fixed costs of distribution—the costs of the piping and so on—are enormously higher than the marginal costs of distribution. The economic theory about monopoly—and I could go back further than Adam Smith but I do not think that in present company it would be welcomed—is that it brings with it higher prices, lower output and surplus profit at the expense of consumers. I do not think that anybody since Adam Smith, neither the more conventional economists nor the Marxist economists such as Joan Robinson, have questioned that view.
The Water Authorities Association, whose company chairmen at any rate have a strong financial interest in privatisation, has put forward a series of arguments seeking to show that there would be effective competition for consumers among the new privatised water companies. We have not heard very much of them in this Chamber since the Bill reached us and for a very good reason: they are all nonsense.
The idea that there should be comparative competition between companies on the basis of the capital market is patently absurd when we have been hearing from the noble Lord, Lord Jenkin, as well as from the Minister, that none of us has the faintest idea of the way in which the capital market will react to the privatisation of water. The idea that there should be competition at the margin between one water company and another in large industrial sites or in greenfield sites is not so much absurd as trivial. The idea that there should be competition in terms of return on capital for shareholders as between one and another is pretty absurd because it is already clear that the Government will not be able to set a single figure of K for all the new water companies or for the old statutory water companies. If there were a single figure of K which were applicable to all of them for prices, that might just about provide a measure of competition. However, that will clearly be impossible and we shall have different Ks for all these companies, or for groups of companies. I have no doubt that they will succeed in rationalising the position a little. If the Government cannot determine the appropriate price, how on earth can the shareholders or consumers do so?
We are saying that there is no such thing as competition. This is a natural monopoly. The competition arguments that have been put forward have no validity whatsoever. Let us not pretend by putting them in the Bill. Let us take out this quite unnecessary subsection. I beg to move.
The Earl of Caithness: I hope that the Committee will bear with me, even at this late hour of night. I want to give the noble Lord a full reply.
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Amendment No. 87 would remove the duty on the Secretary of State and director general to facilitate effective competition between those holding or seeking appointment as water or sewerage undertakers. The effect of this amendment would be to undermine the operation of the appointment structure proposed in Chapter I of Part II of this Bill and, for reasons for which I shall explain, ultimately the water consumer would suffer.
I do not argue with the general statement that water is a natural monopoly. For most of us, there will only be one undertaker and so the competition between companies to attract consumers to their product is not a competition that we shall ever see in this industry. The scope for competition—in the sense of competition between suppliers of other goods—is limited essentially to the boundaries of the areas served by the companies supply water and sewerage services. But in practice there will be significant competition between companies in the framework set out in this Bill.
In the financial markets there will be pressures to displace weak management, and the returns for shareholders in well managed companies will be a constant spur to efficiency and improved performance, from which both customers and shareholders will benefit.
Then there is competition between persons seeking appointments. In the first instance the successor water companies and the statutory water companies will be appointed as undertakers for their present areas of supply. On a later clause we shall discuss the possible termination of appointments. But if notice of termination of appointment is given, or in the event of the appointment of the special administrator to transfer functions to another company, the duty to promote competition between persons seeking appointments will be relevant and in the interests of consumers and members and creditors of the outgoing company alike. It has often been said that the water industry is the natural monopoly par excellence. That is true in the sense that it will be wasteful and disruptive to lay down systems of pipework to give domestic consumers a choice at the tap. It is worth remembering that the industry will find that not all its potential customers are bound to accept its services. Some industrial concerns are able to turn to alternative supplies, perhaps by extracting from a river direct rather than taking water from a water company. That choice will provide a spur to the privatised water industry.
In addition, the Bill provides a specific opportunity for direct competition between water service plcs on development sites where there is at present no water or sewerage infrastructure but where there is in future to be housing development, a shopping centre, an industrial estate, a factory development or even a new town. In such areas there will be an opportunity for companies which do not hold the appointment for the wider area to apply for the appointment to provide the new services.
Finally, there is yardstick or comparative competition. There will be 10 privatised water and sewerage businesses, which will be directly comparable with each other in the services they provide. Those 10 companies will additionally be

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comparable in the provision of water supplies with the statutory water companies. The ability of shareholders in the financial market, the companies' customers and the financial commentators, and, perhaps most important of all, the Director General of Water Services, to make direct comparisons between companies as to their standard of service, their efficiency and potential will be a most important area of competition. Privatisation will clarify the costs that the industry faces; objectives will be clear, as will the expenditure programmes needed to meet them.
There will be scope to make comparisons and assess performance and pressure on each company to demonstrate that its performance is effective and competitive. These therefore are several ways in which the competition will benefit the consumer, the shareholder and the taxpayer, but it will be important for the regulators to take account of the need to foster such competition as they determine the regulatory framework. We therefore strongly oppose the sentiment behind Amendment No. 87. I hope that the noble Lord, having listened to what I have said, will feel able to withdraw it.
Lord McIntosh of Haringey: I suppose this amendment has had an interesting result in that, although I fondly imagined that the phoney arguments that there would be meaningful competition for the privatised water industry were dead and buried, they have been exhumed by the noble Earl in his reply. The problem with this answer—an answer which closely reflected that given by the Minister in another place, that in practice there will be significant competition—is that the requirement for the competition to be effective is that the director must have some kind of performance review procedure. That is the meaning of this subsection, if it has any meaning in it whatsoever.
The trouble with the case for a performance review is that, first, the information required for the system to operate will not be available. Even the Audit Commission, which carries out the comparable performance reviews into local authorities, does not claim that its performance review does anything more than ask questions and help the local authority to ask questions, rather than provide answers. Secondly, it is clear that the director will not have the ability to make accurate comparisons between different water companies. If there was the ability to do that, it would be possible to have a single price determination factor for all the new water companies.
The Government have already abandoned that attempt and by abandoning it they have abandoned any attempt at meaningful competition between the new water companies. The fact is that the geophysical realities which exist in different parts of the country are overwhelmingly more important than the differences in efficiency between the different companies. Prices will be different for reasons which are completely outwith the ability of the new water companies to do anything.
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We cannot have any confidence whatsoever in comparative competition, which the Minister has revived again.
Lord Jenkin of Roding: The noble Lord is seeking, as he has before, to rubbish the concept of comparative competition, or emulation as it is sometimes referred to. Has he studied the paragraphs in the Monopolies and Mergers Commission report which was referred to earlier this afternoon where these matters are examined in some detail as to how far it is possible to produce comparisons, cost figures and performance indicators in a way which can produce meaningful comparisons between different authorities with different geophysical factors in different geographical areas and so on? It is all there. It can be done.
Lord McIntosh of Haringey: I have studied the relevant parts of that Monopolies and Mergers Commission report. I do not claim that I have read the whole thing, but the report was concerned with a single application of a single water authority and the statutory water companies within that authority. That is not the same as saying that it is possible to carry out comparisons across the whole country, which is what the capital market is supposed to do if there is to be meaningful comparative competition.
I repeat, if there were any way of having meaningful comparisons which would enable competitive judgments to be made, then there could be a single value for K across the whole country. The Government, having flirted with that idea, have totally abandoned it. Comparative competition is therefore a dead duck and ought not to be on the face of the Bill. This again is a matter which it is not appropriate to divide the Committee on at this time of night. I seem to be fated not to be allowed to wind up my speech.
The Earl of Caithness: I interrupt the noble Lord to make an important announcement which I am sure all Members present will wish to know. I should like to report that the dowager Lady Hesketh has taken Towcester and District as a Conservative gain. That shows our commitment to local government.
Lord McIntosh of Haringey: I am sorry that we have detained the noble Lord, Lord Hesketh, from the celebrations. I hope that she took it from a Democrat and not from a Labour councillor.
The Earl of Caithness: It was a Liberal.
Lord McIntosh of Haringey: I thought that that might be the case and it lessens the pain somewhat. I hope that the noble Lord, Lord Hesketh, will convey our totally non-partisan familial congratulations to the dowager Lady Hesketh.
Perhaps I may be permitted to conclude my remarks. It is totally inappropriate for this Bill to contain reference to a concept of competition for a privatised water industry which is a figment of the imagination of the chairman of the water authorities and certain people in government. I believe that the truth of that will come home very rapidly if and

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when the Bill becomes law. However, at this time of night I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Addington Lord Addington moved Amendment No. 88:
Page 7. line 25, at end insert—
("(e) to safeguard the quality of water.").
The noble Lord said: The amendment is introduced into Clause 7(3). The subsection sets out the criterion under which the director is to exercise the powers granted to him by the Bill. The amendment would require him to have the duty to exercise his powers to safeguard the quality of water.
In taking decisions as to pricing, he may have to consider proposals by the undertakers to spend money on water quality or on sewerage undertakers' improvements to their works. As his main concern is economy and fair pricing, he may say that expenditure should not be made but rather that prices should be reduced. Equally, in enforcing the duties to undertake, he may have need to conserve water quality matters. But if his concern is economy and efficiency, these matters will be left out of the question. He should have a duty to consider the need to safeguard the quality of water.
I do not believe that the amendment is out of place as the noble Earl, Lord Caithness, has reminded the Committee that the Bill is regarded as being environmental.
I should also like to add my congratulations to the dowager Lady Hesketh. I can hope only that she does not hold the seat for very long. I beg to move.
Earl Russell: I am surprised that the amendment is necessary. One would have expected a clause setting out the duties of the director—particularly coming from so consciously green a government—to include an assurance that it is necessary to safeguard the quality of water. I hope that when the noble Earl comes to reply he may possibly say, as did one of my friends after completing his final examinations, that he had left out all the obvious points because he thought that the examiners knew them.
However, more seriously, we are getting a certain series of words recurring regularly in Bill after Bill emanating from many different departments. In particular, there is an obligation to promote economy and efficiency. The use of the word "effectiveness" is taken very much in that context.
When I find a common form of words recurring over and over again in Bills which come out of different departments, I want to look for the common source. It is with that common source and the thinking behind it that I should like to try to engage tonight. I can recall the same issue coming up in the education Bill when I put down an amendment concerning the powers of the university commissioners. That was very properly shot down on the grounds that it was not sufficiently properly drafted. However, I believe that the quality of water is something in regard to the precision of which there cannot be very much doubt. That is something which is quantifiable and measurable, indeed, it is daily measured.
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We on these Benches have no objection to the notion of effectiveness. We want to ask, like Lady Bracknell, "to effect what?" because this is where we are not entirely confident of the Government's thinking. We have the same problem as with the word "efficiency" which is regularly used in government circles as a synonym for cheapness. We do not believe that that is the only way of being efficient. We do not believe that making profits is the only way of being effective, and we do not want a word like "effectiveness" in this Bill unless it is spelt out, unless the object which is to be effectively carried out is one in which quality matters.
The legislation of this Government seems to me constantly to be acquiring a more medieval flavour. It is developing a hortatory quality. They do not, at least, say that that which they wish to prohibit is to the high displeasure of Almighty God, but that sort of tone is emerging. A hortatory quality matters.
I shall take as an illustration the appointment of Mr. Bright to London Regional Transport. He was under an obligation to promote efficiency, economy and safety. His letter of appointment from the Secretary of State instructed him to promote economy and efficiency. It omitted to mention safety. We all know that that letter of appointment was listened to and that the consequences were serious.
We on these Benches would not like to see the same mistake made twice. Quality of water is an issue of safety and we should like that written into the Bill, so that we do not need to have a major report before money is spent on it.
The Earl of Caithness: The noble Earl, Lord Russell, said that he was surprised that the amendment was necessary. I must tell him that it is not necessary, for such an additional duty as is contained in this amendment would be otiose.
As I have said before, the fundamental duty in Clause 7(2) is to ensure that the functions are properly carried out. That phrase "properly carried out" carries with it the concept of functions being carried out in accordance with all the various duties under this Bill. Before the noble Lord, Lord Addington, spoke to this amendment, I was not sure whether the quality of water to be safeguarded under this amendment was drinking or river water. However, it does not matter what was intended, for elsewhere in the Bill the Secretary of State is bound to set drinking water quality standards and river quality objectives. In other words, there is no need to duplicate in Clause 7 every one of the obligations on the Secretary of State and director general which appear elsewhere in the Bill.
Lord Addington: The object of this amendment is to make sure that general water quality in all its facets is put down as a totem as early as possible and for that to be included in Clause 7. However, as the hour is late and I am fatigued, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Addington: I have a message from the noble Lord, Lord Lloyd of Kilgerran, that he regrets that he is not able to be here at this late hour, but that, in view of the debate, he has decided not to move Amendment No. 88A at this stage.
[Amendment No. 88A not moved.]
[Amendment No. 89 not moved.]
11.30 p.m.
Lord Addington Lord Addington moved Amendment No. 90:
Page 7, line 35, at end insert—
("Provided that the Authority may disregard any duty of an undertaker to exercise its functions in an economic and efficient manner where it considers it necessary to do so for the protection of amenity and the environment.").
The noble Lord said: I move this amendment standing in the name of my noble friend Lord Ezra. This amendment is to Clause 7(5), which effectively subordinates the authorities to the undertakers by requiring them to have regard to the duty of promoting economy and efficiency. Thus, if an authority wishes to promote a scheme to protect the environment in a particular area but an undertaker says that the scheme would make one of its functions less economical, the scheme may have to be abandoned. This amendment allows the authority to disregard these duties where it considers it necessary to protect the amenity and the environment. I beg to move.
Earl Russell: This is not an unnecessary amendment. When one considers the costs of a utility company it may often be found, in the short term, to be economical to lay down pipes, place reservoirs or build dams in a way which is thoroughly unsightly. Environmental groups may ask them not to do so, but with the Bill as presently drafted a company can say that it is entitled to do so and that it is under an obligation to discharge is functions economically and efficiently and that it cannot be done in any other way.
It can be done. I ask the noble Earl to take some trouble to inform himself on how these duties are discharged in California where there is some concern about these matters; in particular, the water company in East Bay—the East Bay Municipal Utilities Department, known most uneuphoniously as EBMUD. Despite its name, it does an excellent job of safeguarding the environment and securing access to it. I would be happy to know that anything as good could be done here, but I do not think that will happen unless more precision is given to the objectives, and the narrow interpretation of "economy and efficiency" is not given the sort of unique primacy which it enjoys at present.
Lord McIntosh of Haringey: I did not intend to intervene but I am tempted by the noble Earl's reference to East Bay, having worked nights in a canning factory in Emeryville at the foot of the Oakland Bay bridge one summer in 1957. As I remember it, my canning factory was sending out very nasty effluents into the bay. I am delighted to hear from the noble Earl that that is no longer possible.
The Earl of Arran: It will come as no surprise to the Committee that regrettably I am not too well informed about the state of California.
Perhaps I may briefly deal with the amendment. The Government fully share the general concern for the need to safeguard the environment and we are fully committed to an effective NRA as a strong independent environmental body to regulate the water environment. The powers that we are giving to the NRA in this Bill are quite sufficient to ensure that this will happen. But to be a responsible regulatory body, it is only right that the NRA should take full account of the concerns of the water undertakers. Sensible environmental policies cannot be developed by ignoring other interests, or pretending that they do not exist. What is needed is the information to make a balanced judgment, particularly where there may be a conflict between different interests.
We are satisfied that the present wording of Clause 7(5) provides the right balance. It recognises the particular importance of the water supply and sewerage businesses and that these must be fully taken into consideration by the NRA in carrying out functions. But it does not constrain the NRA from deciding in a particular case that some other concern, such as the protection of the environment, should take precedence.
I therefore hope I can persuade the noble Lord, with that assurance, to withdraw this amendment.
Lord Addington: I must admit that I should prefer stronger wording about protection of the environment throughout the Bill, so I cannot pretend to be completely happy with the Minister's response; but I am prepared to accept it at this stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 91 not moved.]
Clause 7 agreed to.
The Earl of Arran: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at twenty-five minutes before midnight.