Water Bill

HL Deb 04 May 1989 vol 507 cc333-86

House again in Committee on Clause 6.

[Amendment No. 62 not moved.]

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.

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 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. 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 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 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—

1. (a) appropriate to ensure appropriate representation of localities within the area of the committee; or
2. (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 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 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 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:

1. (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
2. (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 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 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 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 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 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.

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 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 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 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.

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 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—

1. (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—
1. (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
2. (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;

1. (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;
2. (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;
3. (d) to facilitate competition, with respect to such matters as he considers appropriate, between persons holding or seeking appointments under that Chapter;
4. (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
5. (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". 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 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 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 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 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. 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 take it separately. I beg leave to withdraw the amendment.

Amendent, by leave, withdrawn.

[Amendment No. 78 not moved.]

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 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 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 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 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 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 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.

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 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 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 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 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 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 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 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.

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 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 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 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 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 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.

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 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.

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 when the Bill becomes law. However, at this time of night I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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.

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 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.