Water Bill

HL Deb 04 May 1989 vol 507 cc265-319

3.29 p.m.

The Earl of Caithness

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(The Earl of Caithness.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Lord Nugent of Guildford moved Amendment No. 43: After Clause 3, insert the following new clause: ("Incorporation of statutory companies. . Schedule (incorporation of statutory companies) to this Act shall have effect to make provision for the incorporation of a statutory company as the successor company of each water authority for the purposes of section 4(2)(a) below and for appointments under Chapter I of Part II of this Act and a company so incorporated is in this Act referred to as a "statutory company".").

The noble Lord said: A large number of consequential amendments have been listed with Amendment No. 43 and no doubt they will be noted. The substance of the amendments is contained in Amendments Nos. 43 and 47, the latter setting out the new schedule. The effect would be to substitute for the plc structure defined in the Bill the statutory water company as defined in the 1945 Water Act. The plc structure in the Bill is set out with the profits, dividends and charges controlled by the Director General of Water Services. If my amendment is agreed the director general and his new bureaucracy which will make such arrangements will become superfluous. The consequential amendments relate to the fact that he will then be removed from the Bill.

I point out to my noble friends that the amendments in no way challenge my party's manifesto to privatise the industry, as I have heard rumoured in some quarters. I recognise the necessity to privatise as a practical need to have access to the money market in order to finance the huge needs of the industry in its future capital programme. Private companies are the only answer to that.

Our amendments construct the new private companies on a more sound basis than exists in the Bill. It has operated successfully in this country since the middle of the last century. It continues to do so with the 29 existing private companies supplying a quarter of the nation's water. The statutory company raises its capital in the money market by fixed interest bonds which are usually redeemable at rates close to gilt edged. The 1945 Act governs the operation of these companies. Schedule 3 to the Act, which is substantially repeated in Amendment No. 47, specifies precisely their financial management. That includes the condition that the surplus cash from one year's trading must go towards reducing charges to the consumer in the following year. The audited accounts must be submitted annually to the Secretary of State for his approval. This financial structure has the prime virtue of assuring that the interests of the consumer come first. By implication, in effect he owns the equity of the industry.

With regard to the capacity of the bond market to absorb the sale of the water industry, I am reliably assured that it presents no problem. In present conditions, referred to during Question Time, of the Treasury redeeming national debt, there is a shortage of such stock.

Last Tuesday's debate showed the strength of anxiety about safeguards against the new water companies developing their extensive holdings of land and changing a great deal of the character of the country. The statutory water company gives the best safeguard of all because it is not a profit-making body. Therefore it does not have the incentive to do so, and in practice seldom has.

On Second Reading my noble friend the Minister quoted from the report of the Monopolies and Mergers Commission about the Southern Water Authority's proposal to take over the six statutory water companies in its area. It was to the effect that a statutory water company is not a useful model to follow because it lacks the profit incentive for managers to aim for cost reduction. The report reveals little evidence to support the criticism but it reached the tentative conclusion that the merger should not proceed, and it did not. If that is all the evidence that my noble friend the Minister can marshall against the competence of the statutory companies, noble Lords may conclude that their record is pretty good. That is especially so when set alongside the approval annually of each water company's annual report and accounts by successive Secretaries of State over the past 44 years. It is clear that if serious defects had occurred in the companies' management, then years ago a Secretary of State would have ordered a thorough review and inquiry into the working of the companies. No one has done so.

The truth is that the commission went outside its remit, as it confessed in its report, to express an ex-parte view on the national debate on privatising the water industry. The point is whether it is in the public interest for the water industry to be redesigned in order to make a profit. That is the issue which noble Lords present will decide this afternoon.

I turn to the plc structure in the Bill. As I see it, there are two main defects. Profit-making in the absolute monopoly of water is disliked by most people on ethical grounds. It has never been operated in this country. On a practical level, the scope for profit-making in water is virtually negligible. Indeed, if the scope for making a profit in water was as good as in British Telecom, which was so graphically described by the noble Lord, Lord Wyatt, in the Second Reading debate, I should feel tempted to override the ethical objection with the prospect for obtaining cheaper water services for our people.

In fact, the situation is completely the reverse. Growth in water consumption is virtually static—possibly plus 1 per cent. per annum—and equity shares without a growth factor is a contradiction in terms. Some of the subsidiary activities are growing but the total impact on the balance sheet is only marginal. Technological advance continues but, again, cost savings are only marginal. The existing profit level for the industry, shown last year as an aggregate figure by the 10 regional water authorities at £738 million, was the whole of that sum plus another £430 million in loan, giving a total of just under £1,200 million. It was spent on renewals, replacements and additions. So in terms of cash flow nothing was available for distribution as profit. I understand that the capital expenditure for the last year ended was similar to the cash position, at approximately £ 1,200 million. It is worth noting that the accountants' figure for depreciation for the water industry amounts to £1.5 billion per annum and confirms that there really is no profit in the industry.

When we look at the future capital liabilities we obtain an idea of the perspective. They include water supply; improved treatments to remove nitrates, pesticide traces and so forth; more stringent monitoring, especially with the new NRA standards; water supply mains which require rebuilding, relining and so forth; universal metering. We are talking about the expenditure of many billions of pounds on the water supply side of the industry.

When one looks at the sewage treatment and sewers side, the picture is even more horrendous. There must be the completion of the third of the long sea outfalls. Many inland treatment works must be rebuilt or new works built, especially in the northern half of the country. Sewers are falling to pieces in many parts of the country and they need renewing or rebuilding. Sludge disposal has up to date been fairly cheap, but will be much more expensive when the North Sea can no longer be used as a dumping ground. Incineration must be introduced and so forth. That is a huge capital programme which faces us. My rough guess at the cost over the next five years is in the order of £10 billion and continuing, with increased manpower coming in all the time for the new plant.

Again, the Minister is in an advantageous position. He has received reports from the Director General of Water Services on what is called the asset management plans of each of the 10 regional water authorities and water companies. That is required for calculating the K factor. However, can the Minister tell the Committee what is the expert forecast for capital expenditure for the next 15 or 20 years? Is my guess correct or is it perhaps far too low?

The reality is that the water industry faces huge capital expenditure on a range of essential improvements both in the interests of human health and the protection of the environment. Therefore, the financial prospect of these privatised water companies is a progression of annually rising water charges to meet that heavy annual programme of capital expenditure, plus of course inevitably a certain amount for inflation costs.

The Bill requires the Director General of Water Services to set the mysterious K factor at a level to give a reasonable return to the private shareholder. That is priority No. 1 in Clause 7 of the Bill. Therefore, increased efficiency by the future companies is rewarded by increased profit. That is the essence of the Bill. That means that the shareholder owns the equity of the industry and comes first before the consumer. I ask noble Lords to consider the reaction of the consumer next year when the new private companies go into action making large increases in charges from this programme which I have outlined and at the same time paying dividends to private shareholders, and in future years at least some companies will pay higher dividends. Those dividends and future higher dividends will be seen as coming out of the increased charges to the consumer. The outcry will be heard even here in Westminster, and heaven help the Secretary of State of the day who must try to explain to angry Members of Parliament and their constituents the complexity of the price fixing formula, the K factor.

For those who are interested, that is encapsulated in some 105 pages of Explanatory Memoranda which describes how it works. If the future Secretary of State can explain all that to angry constituents, he will be a better man than I thought. The constituent, and, indeed, the Member of Parliament, will be convinced that the shareholder is gaining at the expense of higher consumer charges, and it will be a sheer impossibility for them to be convinced that that is not so. That will be a permanent conflict between consumer and shareholder. That is inevitable in a no-growth industry. I should add that the workforce of the water industry regards the prospect of a strained, unhappy industry with great anxiety and it has my sympathies.

I need hardly add that the widespread complaint against annually rising charges, combined with increased dividends, will be blamed on privatisation and will rub off on our party. The fact is that that equity structure for a plc regulated by the Director General of Water Services is simply not robust enough to stand the strain which the future will bring to this industry. Our water industry is set on a course which we all want, of heavy capital expenditure for years to come. Against that background, it would be far safer to stick to the well tried and trusted model of the statutory water company, with fixed dividends and the consumer coming first, rather than engage in the experiment of this sophisticated plc structure, relying on the incentive of an exiguous profit. I beg to move.

3.45 p.m.

The Earl of Caithness

Perhaps it may be opportune for me to break with tradition and say a few words here. The Committee must be grateful to my noble friend Lord Nugent for so clearly setting out his amendments. I hope it will help if I explain the reasons why the Government have chosen the method of privatisation as set out in the Bill, for this is absolutely fundamental not only to our discussions today but also to our future discussions on the Bill and to the successful privatisation of the water industry as set out in our manifesto.

Perhaps I may recap on the amendments. They would adopt the statutory water company model, including control of dividends and reserves rather than prices, for the whole of the industry after privatisation. They would also delete from the Bill the Director General of Water Services, and leave the whole burden of economic regulation of the industry and protecting the consumers' interest to the Secretary of State for the Environment.

The amendments attempt to preserve what I will explain is an outdated form of incorporation of water companies and of water supply. They would apply this form not only to the 29 existing statutory water companies but to the successor companies of the 10 regional water authorities. These amendments are not minor surgery. How could they be, since they involve 236 consequential amendments, as well as the deletion of 21 new clauses and one schedule, and that is by no means the full extent of consequentials which might be needed? Although we have considered them today with the same constructive spirit which we demonstrated last Tuesday, I have to say that they would remove two fundamental planks of the Bill. To accept them would, we believe, benefit neither the customer nor the environment.

What are these two planks to which I have referred? One is that the economic regulation of the industry should be through price control, supervised by an independent Director General of Water Services. The second is that at least seven-eighths of services, including all sewerage services, should be delivered by Companies Act companies.

In the interests of the consumer, we strongly believe that there should be a control on prices rather than a control on dividends and reserves as the amendment proposes. One has only to ask any one of the 25 per cent. of the population of England and Wales who receive water from a statutory water company what happened this year when companies began to anticipate the new requirements which would be imposed by this Bill. Increases of up to 42 per cent. were made within the existing controls which these amendments would retain. Even higher increases would have been possible by the SWCs in some cases, without breaching their statutory controls on dividends and reserves. It is manifestly clear that this year's increases confirm that controls on dividends and reserves do not work as a means of price control. They do not protect the customer in the way that price control does.

The form of regulation which we are proposing will also have an inbuilt incentive to greater efficiency. The Director Generals of Gas and Telecommunications have already shown how consumers' interests can best be served through a price control system: one that allows the industry to be profitable if it is efficient but does not guarantee dividends if it is inefficient.

Members of the Committee will be aware of the success of Sir Bryan Carsberg as regulator of British Telecom in encouraging that organisation to improve its efficiency and keep prices down. He has expressed his strong support for price control. In a statement last July he said: price-cap regulation is simple to administer and can give a good assurance to customers about the future trend in prices, while also giving the supplier the incentive to become more efficient". How much more necessary it will be to have such protection when we remember that the water authorities to be privatised will be dealing with sewage disposal as well as water supply

Perhaps I may give Members of the Committee an indication of the difference in scale. This year the water authorities plan to spend £1.43 billion. Last year the water companies invested £61 million in water supply compared with £450 million by the authorities. What is the significance of that? It is that the water authorities have three times the number of customers but have six times the amount of investment.

Given that moving from £61 million to £1.43 billion is a 23-fold increase, it will be particularly interesting to see whether the Labour Party will support placing such an open-ended commitment on the customers.

They might not heed my advice, so it is appropriate to remind the Committee that this issue was commented upon by the Monopolies and Mergers Commission in its report (Cmnd. 9765) on the Southern Water Authority and the six SWCs within its area published in April 1986. In particular I would draw the attention of Members of the Committee to the comments in Chapter 2, paragraph 12: While we do not regard the issue of privatising the water industry as within our remit the foregoing analysis leads us to offer one observation which may be relevant to it. This is that the existing statutory companies are not in our view a useful model to follow. Where private concerns have monopoly power over essential services, the need is to combine adequate safeguards for the consumer with some appropriate means of providing a profit incentive to management to reduce costs and increase efficiency. The form of regulation: i.e. by limiting profits and dividends, applied to the statutory companies conspicuously fails to meet this need". Not only will the statutory water company model fail to protect the customer as we consider necessary, but the Monopolies and Mergers Commission report also condemns the model as inappropriate for privatisation. Chapter 2, paragraph 31 states: With regard to the companies we noted at the outset the unusual arrangements under which their directors and managements have no means of securing any growth in their shareholders' funds or in the price of the shares and hence none of the usual incentives of the private sector other than pride of performance and responsiveness to local opinion. We concluded therefore that this particular form of private ownership was not a useful model to follow". Clearly the Government could not adopt a model which is so clearly flawed. It is a model which the statutory water companies themselves admit does not meet the needs of a modern company by curtailing many financial freedoms.

Furthermore, the SWC stock is the type of fixed dividend stock which appeals largely to certain sectors of the capital markets, particularly the financial institutions. It is unlikely that the smaller shareholders would be attracted to such stock. We have clearly stated in our manifesto that it is our intention to offer the water authorities for sale to the public. It is questionable whether a sale directed to the institutions would deliver that manifesto commitment.

It may help the Committee if I briefly expand upon the issues of companies law raised by the amendment. The statutory water company format is an out-dated method of forming a business. It is restrictive and prevents diversification. The amendments, if accepted, could bring us into unwelcome conflict with the European Commission. Under the Second European Directive on Company Law, all companies should be registered. Most other European countries have implemented this. We have not, but we are encouraging registration as opportunities arise. The Bill furthers that policy. Let there be no doubt: the creation of 10 large new statutory water companies could seriously undermine that stance.

I turn to another important part of our approach. The establishment of a new independent regulator for the water industry is a key component of the Government's plans. The regulator's function will be to ensure that neither the newly privatised nor the existing water companies can unfairly exploit their monopolies. The Director General of Water Services will protect consumers, compare the performance of the different companies and ensure that each company has clear incentives to improve its efficiency.

The director general will ensure that the companies carry out their functions effectively and that they can raise the finance they need to do so. He will be responsible for ensuring that companies comply with the conditions of their appointments. He will set explicit standards of service to the customer.

The general duties in this clause are based on, but not identical to, those in the Telecommunications Act 1984 (Section 3) and the Gas Act 1986 (Section 4). These duties provide an appropriate framework for the regulation of a privatised monopoly utility and one already approved by this Chamber.

Above all we must look to what serving the customer means in practical terms for the industry. Higher standards on water quality and sewage treatment will require substantial growth in capital programmes. We must free the industry from public sector financial constraints and give it proper incentives for economy and efficiency. Privatisation under price control provides this. With these changes the industry will be able to deliver the quality objectives we all want at least cost to the consumer. I know that many of the statutory water companies, and all the water authorities, now believe that price control is the right way forward.

The Earl of Halsbury

I support the amendments in the names of my noble friends and myself. My reason for, as it were, allying myself with my noble friend, as on so many occasions in the past, is my anxiety as an old public servant at the extent to which the Government are getting across the public with unpopular measures. They are in a situation half way through their term of office where they are on bad terms with the Bar, the Law Society, the general medical practitioners, the consultants on the National Health Service and now with the public at large as water consumers.

What the Government do is often right and I associate myself with the remarks of my noble friend. I do not oppose privatisation of water. In many respects the Government are going about it in the right way. However, I am disturbed by a kind of creeping Philistinism that is settling into government circles by constant reference to market forces as a remedy for everything under the sun without reference to their true relevance. I want to see the Government at peace with the public. I am not asking them to beat their swords into plough shares or even to turn a tigress into a turtle dove. I ask only that they listen to the wise words of my noble friend, who spoke with more authority on this subject than anyone in this Committee can because he was in charge of the whole show for year after year. Before the noble Earl joined the Front Bench, my noble friend was in charge of the water supplies of this country.

I have been told that the burden on draftsmanship might cause the Bill to fail this Session because of the consequential amendments it might entail. Does it matter whether we privatise this Session or next? What is important is to privatise rightly when we do so. The idea that anyone should make profits out of water and water supply is intensely unpopular with the public at large and I believe it to be intensely unpopular in this House. Water as water should be free for all, as God's gift to man to stop him dying of thirst. Only the connection, piping, recycling and purification should be charged to the consumer, together of course with capital services on the loan stock necessary to effect the rejuvenation of our sewage disposal services, and so on.

That is very much what I said on Second Reading and I do not intend to go on to make a Second Reading speech in Committee. I merely wanted to explain why I am prepared to fight this battle alongside my noble friend as an old companion-in-arms on many subjects. I commend the amendments.

4 p.m.

Lord Jenkin of Roding

I support my noble friend on the Front Bench in urging the Committee to reject these amendments. One must not allow the eloquence of my noble friend Lord Nugent of Guildford to conceal that these amendments, taken together, would not only, as my noble friend the Minister said, destroy two planks of the Bill but they would destroy one of the main purposes of the Bill; namely, to stimulate a significant increase in the efficiency of the water and sewerage undertakings by subjecting them to the disciplines of the capital markets.

Of course my noble friend Lord Nugent is right to say that water is a natural monopoly, but that does not mean that it is impossible to generate efficiency by exposure to the capital markets. The statutory water companies were described by the Monopolies and Mergers Commission in the report already referred to as, remaining examples of an unusual kind of commercial organisation". As has been said, instead of the control of prices which the Bill provides for, the statutory water companies are regulated by control of dividends and reserves.

I shall not read the extensive passages from the Monopolies and Mergers Commission report which spell out why this is a thoroughly unsatisfactory way of regulating a monopoly. However, I would say this to my noble friend—and I say it with great diffidence because, as the noble Earl, Lord Halsbury, recognised, my noble friend speaks on these matters with great authority. I think my noble friend has recognised that the passage from the report which the Minister read out a few moments ago blows a major hole in the case for this group of amendments. My noble friend sought to explain it away, as he did on Second Reading (col. 594 of the Official Report), by suggesting that the remarks were made in the context of the Southern Water Authority's proposals to absorb a handful of companies in its area because it thought that it would improve matters. He also sought to argue that it was such a handful of statutory water companies that it was irrelevant and unrepresentative.

I say with great diffidence to my noble friend that he has allowed himself to be drawn into error. Contrary to his assertion, the report was not on a proposed takeover. On the contrary, as a study of the terms of reference from the Secretary of State will demonstrate, it was a routine reference on costs, efficiency and service. It so happens that the six water companies in the southern water area actually account for no less than one-sixth—over 16 per cent.—of the total turnover of all the statutory water companies. I therefore submit that they actually form a substantial and representative sample of those companies. Therefore contrary to what I believe has been a major plank in my noble friend's case, the report constitutes a very relevant argument on this amendment. The key opinion that has already been quoted again by my noble friend on the Front Bench, so far from being selective and unrepresentative, is actually spot on. The Monopolies and Mergers Commission has stated quite firmly that the statutory water company, is not a useful model to follow". To accept this group of amendments would fly in the face of that authoritative and considered judgment.

Why should this be so? All the evidence points to the fact that profits control is simply less effective in regulating monopolies than prices control. Controlling profits does not mean, as my noble friend has suggested, that the benefits are passed on to the customer. It means that there are no incentives whatever on the managers to innovate, to improve efficiency or to cut costs. There are no financial spurs to efficiency. Shareholders have no reason to try to ginger up management because they already get the maximum dividend to which they are entitled. There is no threat of takeover and there is no pressure on costs. In effect, the statutory water company is a cost-plus operation.

That was recognised in the Monopolies and Mergers Commission's report, which says this: In terms of performance the company's costs and charges for water supply—with the exception of Portsmouth which has particularly favourable sources of water—are mostly well above those of the Southern Water Authority". A comparison of the charges that have been made to consumers over the years shows that there have been periods when the water authorities were not subject to stringent Treasury controls and their charges rose faster than those of the companies. As every consumer from a water company knows, in the current years—I have to declare an interest as such a consumer—the charges have risen on average by nearly 23 per cent., which is far ahead of those of the water authorities.

We looked at the question of whether we might follow this model. I looked at it in the context of British Telecom's privatisation. The question was whether it would be more sensible to regulate by control of dividends and reserves than by control of profits. We took advice, and the advice we received from a range of authorities was exactly in line with that of the MMC. The regulation of an industry by dividends and reserves control simply is not an acceptable form. It does not generate incentives for efficiency and for cost-cutting; it provides no motive to the managers to go plugging away, to use the words of the MMC, constantly to seek improvements in efficiency.

If we were to accept these amendments this afternoon we should be flying in the face of a very great deal of valid economic opinion. Indeed, my noble friend gave the game away by an almost chance aside in a speech that he made concerning an amendment on land that was discussed on Tuesday. He said that in preference to an amendment moved by the noble Lord, Lord McIntosh, this would be a much better way. He said, as reported at col. 22 of the Official Report, that having it in the form of a statutory water company there would be, no incentive to develop this land". My objection to this group of amendments is that there would be no incentives to do anything because the system simply does not generate them. As I said, water companies are essentially cost-plus organisations. I know that there are many Members of the Committee who have been members of boards of water companies. I know that my noble friend Lord Elliott of Morpeth has played a leading role in this field. It would be quite wrong to criticise the people who have been running these companies, many of whom have done a splendid job. It is not their fault that there has been this unsatisfactory form of supplying water; it is the fault of the model that they have had to operate.

This Bill gives the existing statutory water companies the opportunity to break out of the straitjacket in which they have been held. These amendments would put straitjackets on the rest of the industry. As my noble friend said, this has been a form of company organisation that dates right back to the middle of the last century. It would be a classic example of allowing the prisoners of the past to dictate the progress of the future. That cannot be right and I hope the amendments will be rejected.

Baroness White

I wish to remind the Committee of a remark made by the noble Lord, Lord Nugent of Guildford, during the Second Reading debate when he very rightly pointed out that it took Her Majesty's Government roughly two-and-a-half years from the time that they issued their original White Paper, on which he and those of us who know something of the industry commented, to realise that their original White Paper was completely misconceived and simply would not work. That was pointed out by the noble Lord, Lord Nugent, and as a result no doubt of some of the cautions which he adumbrated on that occasion, the Government realised that their original White Paper was entirely unworkable and inadequate. They have therefore amended it with the vital addition of the National Rivers Authority. It has taken four years for them to bring their consideration of these matters to fruition. They believed that they could do everything without a separate regulator, but they gradually realised that the noble Lord, Lord Nugent, was speaking sound sense based on experience and that they could not do what they wanted. They had to change their fundamental plan.

I remind the Committee that while it may be critical of some of the things that the noble Lord, Lord Nugent, has said—we have heard a very eloquent but critical speech from a former Minister, one of the extinct volcanoes of the Conservative Back-Benches—he is the man who really knows what he is talking about. Great stress has been laid, most particularly by the noble Lord, Lord Jenkin of Roding, on the MMC investigation into the Southern Water Authority and the six statutory water companies in its region. I have read that report. I am not sure how many other Members of the Committee have read more than a few selected extracts.

It is perfectly clear that the investigation made on that occasion, which was not directed specifically to the question of what was the best way of privatising the water industry, in a number of respects was not very deep or thorough. For example, there is the question of how one can possibly compare the characteristics and the efficacy of different water companies. I have before me the response made by one of the main water companies in that area. The response of the water company itself was not published but I have been able to obtain a copy. It says: Regrettably, discussions on the statistical analysis and interpretation were still in progress when the report went to press". In other words, the companies make it quite clear that there are certain aspects of the report which were not fully discussed by them with the commission and still less accepted by them. The response goes on: However, using a simple system of ranking, the technique used by the commission throughout the investigation, it is apparent that all the companies, except Portsmouth, have an above average factor of difficulty, with three being in the upper quantile for all statutory water companies". It refers to differences in operating costs and so on. They were quite obviously not fully discussed or adequately considered by the Monopolies and Mergers Commission.

I do not want to weary the Committee by mentioning other points but this is not a report from which one can take a few selected opinions—almost private opinions, one might say—of the members of the Monopolies and Mergers Commission. I am quite sure that other Members of the Committee who have had the opporunity of discussing the matter with some of those concerned with the investigation will bear me out in saying that this may have been a useful report in terms of what it was meant to be, but it is not a report on which the Government should have based a major part of their argument as to the desirability of the proposals in the amendments before us.

When it suits the Government's book they are willing to commend the statutory water companies. I have received, as I am sure have other Members of the Committee, some charming little leaflets by courtesy of the noble Earl, Lord Caithness. When it suits the Government's argument it is put positively. We are told: One in four people already get their drinking water from the private sector"— from the 29 statutory water companies. They are perfectly all right for propaganda purposes but not when it comes to running the show.

I had a slightly wry smile when I saw the first claim in this document, that it will now for the first time be a criminal offence to supply water which is unfit for human consumption and that those convicted of such an offence may be imprisoned. For generations—a hundred years and more—we have managed to get by with civil offences being sufficient for supplying water unfit for human consumption. It is only when the entrepreneurial friends come in that we have to make it a criminal offence. No doubt that has occurred to the Minister, but I doubt whether it has occurred to his public relations advisers. The pattern proposed by the noble Lord, Lord Nugent, and those noble Lords who have put their names to the amendment, and others who may speak in its support makes it perfectly clear that water is different. The comparison with telecommunications, of which we heard a good deal from the noble Lord, Lord Wyatt, at Second Reading, and of which we have heard some more today from the Minister, does not fit the conditions of the water industry. It is a completely different ball game. It is an insult to the intelligence of Members of the Committee to try to persuade us that the conditions of the water industry are comparable in any reasonable respect with those of the telecommunications industry.

The proposed extraneous diversification of interests, of which the Bill is really in aid—cable television and the like which are so attractive to the Secretary of State—may or may not prove successful. In the early days some companies may possibly do some asset stripping by selling off land, but thereafter they will have to face the ups and downs of market forces. If the proceeds from charging for the basic services were sufficient to cover the costs—the enormous additional costs, as the noble Lord, Lord Nugent, rightly made clear—these extraneous activities would be unnecessary and irrelevant. But owing to the need for the additional expenditure to improve the system, it must surely be common ground that some external finance must be provided outwith the normal grip of the Treasury. Even on my Front Bench I hope we are agreed on that. We have a pattern with the statutory water companies which makes it possible to raise money in a responsible way, without indulging in a number of speculative and extraneous activities which many people in this country find unacceptable. Surely the middle road, which is what the noble Lord, Lord Nugent, and his supporters are proposing, is safer.

I felt disposed to quote in Latin but, in the presence of the noble and learned Lord, Lord Hailsham, I feel that my pronunciation might be different from his and I would hate to offend him. However, having read with attention the Monopolies and Mergers Commission report, on which so much of the Government's case appears to be based, I can only say that this is a feeble framework on which to base a major change for the worse in the management of a basic monopoly service.

4.15 p.m.

Lord Wyatt of Weeford

If these amendments are passed the whole of this important Bill, which has been passed in all its stages by the elected Chamber, will be destroyed. The amendments would create a totally different Bill and make it mean something quite different from what it means now. To take such a grave step in passing these amendments might be justified if the issue was fundamental to the future of the country; but it is not. It might be justified if the constitution itself was threatened; but it is not.

This Chamber often passes amendments which are improvements within the terms of a Bill itself. Often those amendments are rightly accepted by the Government and by another place. However, these amendments are not designed as improvements within the spirit of the Bill; they are designed to wreck it. Moreover, they have no merit. Their object is to produce a half-baked, half-privatisation on the unsatisfactory model of the 29 statutory water companies. The profit motive would vanish and without adequate price control there would be no way to stop the upward trend of prices over a long period of time.

The noble Lord, Lord Nugent, in his charming old-world speech, referred to the report of the Monopolies and Mergers Commission on the Southern Water Authority and the six statutory companies. However, he referred to it in a rather cursory manner. I think in fact that he took one sentence out of it and then departed for other more favourable pastures. When it referred to the statutory water companies, the report said: The normal incentives in the private sector for managers to keep plugging away at cost reduction in order (so far as competition or regulation will allow) to add to profits and achieve satisfactory growth in the price of the shares simply do not exist for these companies". The noble Earl who spoke earlier on the amendment gave us a long quotation from another part of the report. I do not propose to recite that quote again, but the whole of the report gave a strong impression that the model of the statutory water companies was useless, and the commission had studied the matter in great detail——

Baroness White

It had not.

Lord Wyatt of Weeford

The commission certainly did; in fact, it took several months to do so. Moreover, the commission knows what it is talking about. The Bill fulfils the requirements of the report. There is nothing in the statutory water company model which can prevent a deterioration in efficiency. The statutory water company is simply placed on a cost-plus system and that always puts prices up and, in the end, cheats the consumer.

Under the provisions of the Bill, to give the Secretary of State the powers of a director general to protect consumers would not do anything at all to protect them. Governments are notoriously bad regulators. They act in the interests of governments and not of consumers. If regulation by government had been any good in the past they would have insisted long ago upon a customer code of practice which the wholly independent director general is intended to enforce. The Government could always have insisted upon an element of competition in fixing prices; but governments never do. There would never have been an Oftel, overseeing and improving for the consumer the affairs of British Telecom, if the company had still been owned by the Government. It is only because it is privatised that the Government now recognise, or will recognise, that they are incapable of regulating anything and therefore they must get an outside body to do it for them.

On Second Reading I said that the director general would fix the same prices everywhere. What I should have said was that the director general will fix prices on the same principles everywhere. It is true that prices will vary according to the particular circumstances of the privatised companies. But the basic notion is that the best improvements in efficiency in one company will be assumed to be incorporated in all the other companies. Moreover, if they are not, then the less efficient companies will incur the wrath of their shareholders by making lower profits than they should have done.

Under the scheme proposed by these amendments there will be no price control; there will only be a dividend control. Therefore, why on earth should any company bother to reduce the costs and increase efficiency? It will not receive any advantage from its profits in increased dividends or anything else. Those who support the amendments have a quaint Victorian belief that the water industry has no growth potential, except when we add to the population, which we do from time to time. That is clearly not the view of the privatised French water businesses. They have acquired control of 12 of our statutory water companies. They know that once the Bill has passed through Parliament intact the growth potential is enormous. Overstaffing and sloppy unbusinesslike approaches will be gone. There will be all kinds of lucrative activities connected with water just waiting to be exploited under privatisation. Of course I know that many people disapprove of that prospect.

There are great possibilities for providing, say, swimming pools, bathrooms and showers more cheaply for consumers but more profitably for the industry——

Lord Dean of Beswick

Pipe dreaming!

Lord Wyatt of Weeford

I am sorry to see that some noble Lords laugh at the simple pleasures of ordinary people. I prefer not to do so. The whole nation would welcome a reliable plumbing service which could be set up under privatisation. The desperate search for a cheap, effective, reliable and honest plumber haunts many householders. The business telephone directories give no indication as to which are the ones who will rip you off and which are the ones who will do the job properly at a reasonable price.

Lord McIntosh of Haringey

Perhaps I may intervene here for just a moment. Are not plumbers already private?

Lord Wyatt of Weeford

Yes, they are; I think that I am beginning to educate the noble Lord, Lord McIntosh of Haringey. When you get a larger and more reliable firm in the business then of course you will get a much more reliable service. That, in turn, will encourage the other privatised plumbers to smarten up and become more efficient. That is so obviously a part of competition that I should have thought even the noble Lord on the Opposition Front Bench would have understood it.

The advances in cabling for television and other communications can also be exploited. Many of our sewers are ready-made conduit pipes serving every home in the country. Moreover, our water authorities have great skills in disposing of waste. They could sell those skills profitably to the industries with waste problems, such as the great chemical companies. There is nothing whatever to prevent privatised companies buying into French water companies, or anyone else's water companies if they are for sale. It needs entrepreneurial vision to promote such matters; but the scope is enormous.

These amendments would take us straight back to the age where private profit was sneered at, when it was believed that bumbling local authorities and idle non-profit conscious officially appointed bodies should run our utilities. It might be argued that under the amendments privatised companies would invest their surpluses, which they were not allowed to give to shareholders, in greater improvements. Obviously they would invest some of the surplus in that way. However, the surplus would be far less because they would have no profit incentive to make it higher. In any atmosphere of nil dynamism waste would abound.

The amendments are a battle between the future and the past. If they are carried, not only would we as Members of this place be involved in an unpleasant and unnecessary constitutional clash with the other place, but we would also be declaring our faith in the outmoded business practices of nationalisation and quasi-nationalisation, and the subsidising of superfluous jobs, which led to our gradual and seemingly irreversible decline after the war until 1979. It was on this day 10 years ago that someone with rather different and rather more successful ideas came along. I oppose the amendments.

Lord Renton

I arrived at this debate without having made up my mind because I wanted to hear the case put forward on behalf of these amendments. Having heard the case, I feel obliged to oppose it. I do so for two main reasons arising, I must confess, out of the speech made by my noble friend Lord Nugent of Guildford, for whom we all have such high regard. The noble Lord said that the advantage of the statutory water companies which he proposes is that under the scheme consumers would in effect own the industry instead of the shareholders. That seems to me to be a complete fallacy. Indeed, it stretches the imagination because both under the kind of companies proposed by the Government and with the statutory water companies it would be the shareholders who own the company in each case. It is absurd to suggest that the consumers would own it. They will not be the shareholders.

The other fallacy is this: my noble friend says that the statutory water companies will not be making profits, but if we look to paragraph 2 subparagraph (e) of the schedule in Amendment No. 47, we find that it proposes to confer powers on the company to raise money by the creation and issue of share capital, including—this is in brackets—"ordinary shares". Dividends will of course be paid on those ordinary shares. The only way that the money for those dividends can be found will be by the statutory companies making profits. Therefore that seems to me to be somewhat of a quibble.

Lord Nugent of Guildford

If my noble friend will allow me, I sympathise with his query because that point seems odd. The kind of ordinary shares which the statutory companies can raise are those with a maximum dividend which may be paid on the share. They may pay a lower dividend but never one higher than the maximum fixed for that share. They are called ordinary shares, but they are a peculiar type of ordinary share. It is not an ordinary share, as my noble friend understands it. Perhaps I may put another point. I did not say that consumers own the industry; I said that they own the equity of the industry, and that is a different matter.

4.30 p.m.

Lord Renton

Perhaps I may deal with the last point first. Those who own the equity of the industry are those who own the shares; and the shareholders own the equity. Quite frankly, I think that what my noble friend said on that point reinforces the point that I was trying, inadequately no doubt, to put.

On the question of whether the dividend is to be a fixed dividend or a variable one, again I say that a fixed dividend, just like a variable one, has got to come out of profits. To say that this is a non-profit making body is a fallacy. I use the kindest word I can think of.

Lord McIntosh of Haringey

It might be helpful if I came in at this stage. I cannot conceal the fact that the Opposition are not wildly enthusiastic about the amendment. That will be obvious from what I and my noble friends said on Second Reading. We share the view of 80 per cent. of the people of this country who feel that the water industry should remain under some form of public control. The next Labour Government will seek to restore it to public control. Unless there be any doubt on the matter, if we have a choice between restoring what we call the "Nugent" model and the "Ridley" model to public control, we would act to restore the "Ridley" model to public control with much greater alacrity, because the abuses under the "Ridley" model of privatisation are much more serious than they are under that of the noble Lord, Lord Nugent.

If we were being cynical about this matter, I suppose that we should let the Bill go through without question, because there is no doubt, as the noble Lord, Lord Nugent, said when introducing the amendment, that the people of this country——

Lord Beloff

May I——

Lord McIntosh of Haringey

Perhaps I may finish the sentence—are strongly opposed to water privatisation, and if water is privatised under any form, but particularly under the "Ridley" model, they will blame this Conservative Government for the exceptional increases in prices which will undoubtedly occur.

Lord Beloff

This is purely for——

Lord McIntosh of Haringey

I give way to the noble Lord, Lord Beloff. I have not finished my remarks.

Lord Beloff

I wish to ask the noble Lord a question for the purpose of clarification. He said twice that any future Labour Government would restore the water industry to public control. Did he mean by that public ownership, because the two things are not identical?

Lord McIntosh of Haringey

I agree that the two are not identical. Our final choice will depend upon the final form that the Bill takes. Neither I, the noble Lord, Lord Beloff, nor the Minister know exactly what form privatisation will take and therefore we cannot give the precise prescription for correcting it afterwards; but correct it we shall.

I listened with great interest to the noble Lord, Lord Nugent. I appreciate his sincerity and his unrivalled knowledge of the water industry. There is no doubt that he argues from great strength when he says that over many years the statutory water companies have provided a service which has been appreciated by their customers and which has resulted in the passing of the benefits of improved management to those customers.

I thought that the Minister was less than fair when he referred to the increases in statutory water company charges in 1989. He made the point, correctly, that some of the statutory water companies have had increases of up to 42 per cent. in 1989. If he were to look at the reasons for those increases, he would see that significantly they are because of the threat of privatisation rather than for any other reason.

The Earl of Caithness

The——

Lord McIntosh of Haringey

Perhaps I may quote the West Kent Water Authority, which had the largest increase of 42p in the pound, of which 21p is to meet privatisation requirements. In his report, the chairman of the Eastbourne Water Company, which also had a significant increase said: I have never disguised my opinion that privatisation is completely unsuitable for the water industry. I am also extremely disillusioned by the Government's disadvantageous treatment of the statutory water companies". I shall now gladly give way to the Minister.

The Earl of Caithness

The noble Lord is talking about a fallacy. He is well aware that one cannot privatise a company that is already privatised.

Lord McIntosh of Haringey

As is clear, the chairman of the Eastbourne Water Company was referring to the privatisation of the rest of the water industry. I shall gladly let the Minister see his statement if he wishes to.

As I said, the noble Lord, Lord Nugent, speaks with authority. Many of the things that he says strike home and strike a responsive chord with us. The essence of what he is saying is that under his proposals, which are not revolutionary after all, the shareholders would come before the customer. If it were as simple as that, the amendments would deserve the uncritical support of Members on all sides of the Committee.

Lord Nugent of Guildford

I did not say that the shareholder comes first; I said that the consumer comes first. It is under the Bill that the shareholder comes first.

Lord McIntosh of Haringey

I beg the noble Lord's pardon. What he strictly said was that under the Bill the shareholder comes before the consumer, and that his amendments were intended to correct that position.

Amendment No. 47 is of course the critical amendment because it contains the schedule providing the powers of the statutory water companies to be set up. I look at them with some care. Subsection (b) provides that the water companies could still dispose of land. Their incentive to do so may be less because they would not be able to pass on the proceeds of that disposal of land to the shareholders; they would have to pass them on to the consumers. However, they still have the powers.

Sub-paragraph (e) provides that the investment is still partly funded by borrowing. If that is the case, and if as sub-paragraph (h) says, the borrowing should provide a return of 10 per cent. to 12 per cent. on shareholders funds, according to the latest information that we have, that is rather more than the 8 per cent. on shareholders funds which is expected from the privatisation on the government model.

I think that the balance of the cost of borrowing money to the customers and to the shareholders is all very fine. There will be circumstances in which the noble Lord, Lord Nugent, is right, that the market is ready for more near gilts and it will be an easier flotation than that which the Government propose. I think that that is a case which may be strongly argued. However, whether the final interest rates will be on the side of the statutory water company model as opposed to the plc model is much more difficult to argue.

There are thus defects in the amendments proposed by the noble Lord and his friends, but when I compare them with the defects in the Bill, matters become very different. The noble Earl, Lord Caithness, in opposing the amendments said that what was being proposed in the Bill was a control on prices and not a control on dividends and reserves. But that is simply not the case. If we read the Bill carefully—and we shall have to discuss the clause later on today—we find that under Clause 7 the duty of the director general will be to secure a reasonable return on capital for the new water company plcs. That means in effect that the whole regulatory mechanism which we all recognise as being necessary for a privatised water industry is subordinate to the most important obligation on the director general which is to secure a "reasonable" return on investment.

What is a "reasonable" return on investment? If the Opposition had put down an amendment which suggested that anything should be "reasonable", we should have been laughed out of court. The Government Front Bench never has greater fun—supported usually by the noble Lord, Lord Boyd-Carpenter—than when opposing the idea that legislation should contain the word "reasonable" as a definition of a course of action defined by legislation. It does not make any sense. The noble Lord, Lord Boyd-Carpenter, is usually right when he says that when we do it. I am certainly right—and I look for his support—when I say it from these Benches today.

While the obligation on the director general to provide a reasonable rate of return is paramount—the noble Lord, Lord Nugent of Guildford, was quite correct in saying that it is paramount; he said that the K factor which sets the prices is, and I quote him, "priority number one" in Clause 7—all other considerations by definition are secondary. I gladly give way to the noble Baroness.

Baroness Blatch

On the point which the noble Lord makes about paying dividends to shareholders, does he not agree that it will not be possible to pay dividends to shareholders at the expense of not meeting standards set by the regulatory body, even to the extent of having the licence taken away if those standards are not met?

So the first requirement of the plcs will be to meet the required standards set by the regulatory body and have prices controlled by the director general before dividends are paid. I agree that if there is money left at the end of the day, then of course dividends will be paid to shareholders.

4.45 p.m.

Lord McIntosh of Haringey

The noble Baroness will have an opportunity to make another speech if she still wishes to do so. However, the crux of the matter in her argument is the phrase "having the licence taken away". We all know that the licence cannot be taken away. The new water authority plcs cannot be allowed to go bankrupt. An interruption in supply cannot be allowed either to industrial or to domestic customers for water. Therefore they have a very safe bed to fall back upon. Their safe bed is protected, as his first duty, by the Director General of Water Services. If anybody says that what the noble Lord, Lord Nugent, is proposing is cost-plus, that argument applies even more strongly to the Government's proposals.

The water company plcs under the Bill have innumerable opportunities to maximise their profits. They have secured agreement from the Government that if there is any unexpected investment requirement they will have what is laughingly called a cost passed through. In other words, they will have the ability to pass it on to their customers. However, if there is any unexpected reduction in investment, nobody is suggesting that the customers shall have a cost passed through. Nobody is suggesting that it is not the shareholders who will benefit.

The Bill is a cost-plus Bill. It provides for all the opportunities for feather-bedding of which the noble Lord, Lord Wyatt of Weeford, so strongly disapproves. It provides them all with the additional incentive that if anything goes wrong with the Government's calculations the shareholders will get an extra benefit. That is the fundamental reason why, with all our reservations, we shall vote for the amendment of the noble Lord, Lord Nugent. The way that the Government's Bill stands, it is, "Heads you win, tails we lose".

Lord Pym

I am one of those who does not think that the proposed plc structure is the appropriate one for the water industry with its peculiar characteristics. Water is not a suitable resource to make money out of, so it does not seem very sensible to introduce into its management entrepreneurial concepts that have money-making as their object. In any case, the opportunities for profit are small, partly because the growth potential is at least small; it is not nothing but it is small. Under the Bill those opportunities will in any case be created arbitrarily by the decisions of the Director General of Water Services.

Furthermore, there cannot be any effective competition, which is one of the hallmarks of the market economy. We hear much today about competition by comparison, the idea being that a few monopoly suppliers will be judged the best and the remainder will somehow be brought up to that standard. Whatever merits there may be in this technique for other industries, in the case of water it is probably impossible to apply it rationally because of the enormous differences in the circumstances of the various undertakings and the proportion of water they supply. There are very substantial regional differences: inherent geographic differences in the nature and cost of the supply of water itself; in population numbers and density; in types of users and topography. The regional undertakings cannot be compared exactly and they can only be compared at all on a basis of a collection of relevant facts and assumptions which must to some extent be ad hoc. I do not think that that can be called competition in any ordinary sense of the word. So I find the plc structure an unsatisfactory solution to the privatisation of water. Something better is required.

Fortunately we have the long history of the statutory water companies on which to draw. The Government have not failed to extol their virtues, holding them up as the successful privatised model that supplies 25 per cent. of our water, and clearly wanting the other 75 per cent. to be supplied on a similar basis. At least up until a few months ago I do not think Ministers' rhetoric allowed any other interpretation. But recently the Government have changed their tune. There is now a campaign running to decry the statutory water company pattern, and it is rather a tendentious one.

Reference has been made this afternoon to the Monopolies and Mergers Commission report. My noble friend Lord Caithness also referred to it. But as the commissioners themselves admit, they never addressed the subject of the privatisation of water properly, if at all; nor did they go into it fully. The noble Baroness opposite made that point. So I think that the opinion of the commission is, to say the least, superficial. Frankly it is not worth much. They also had some rather complimentary remarks to make about the statutory water companies. Therefore I do not think it is wise to discard, either lightly or indeed at all, a century of solid, proven experience which lies behind the statutory water companies. Contrary to what I think my noble friend on the Front Bench said in this debate, those companies have protected the consumer, as their record shows.

I believe that the statutory company model is particularly appropriate in the present rather unhappy state of the industry, arising essentially from years of underfunding. There is no dispute about the years of neglect under all governments and the failure to make anything like adequate investment in water. So there is a huge backlog to make good over the next decade or so. On top of that, it so happens that at this moment the European Community has decided that the standards of water supply should be upgraded significantly. Those two factors together mean the prospect ahead is one of far higher investment and expenditure than previously. That carries the inevitable corollary of substantially increased costs. In this situation, surely the political objectives must be to keep the increased charges as restrained as possible, although they are bound to be large, and to make them as acceptable as possible to the consumer.

The statutory water company pattern is surely the best way to achieve this difficult feat. It is a pattern whereby those companies have proved themselves able to reconcile consistently the interests of consumers and the interests of shareholders. Those companies are obliged to reinvest excess profits in their business or return them to the water ratepayer. What a contrast with this Bill. The task facing the Director General of Water Services is one of weighing in the balance the need to give a reasonable return on capital to the shareholder, on the one hand, and the need to protect the interests of the consumer, on the other hand. That task will prove, in my view, too difficult and too artificial to be satisfactory. I think my noble friend Lord Nugent of Guildford made that point very well.

There will also be the ever-present temptation to sell off the assets for the benefit of the shareholders, instead of using them for the benefit of consumers by ploughing them back or reducing debt. For all these reasons I support these amendments, but there is another fundamental reason why I do so; that is, the need to maintain the popularity of privatisation. It is a process that has brought many benefits to many people. But if, in a particular instance, millions of people found themselves disadvantaged, as they thought, by a privatisation measure, or felt that that privatisation was not appropriate or not successful, the casualty would very likely be privatisation itself. That is not a risk worth taking, and the risk does not have to be taken. This amendment is a better way forward and goes down a well-trodden path.

The Earl of Gowrie

Following my noble friend, I want to say that it is surely incontrovertible that privatisation has to be tried before it becomes very popular, because over the past 25 years of our history it has been a relatively novel phenomenon. I think too that my noble friend Lord Pym in a characteristically trenchant and persuasive speech neglected the fact that it is the chance of a reasonable profit that attracts funds for investment. He underplayed the argument of the noble Lord, Lord Wyatt of Weeford, that there are a number of people out there in the capital markets who believe very strongly in growth for the water industry, and want to achieve it not by ripping off the consumer, so to say, or by jacking up prices, but by looking to greater efficiencies and cost-cutting as well as opportunities for investment.

Whether I am right or wrong about that matter, I invervene not to make the point, but to make a different one and make it very briefly. The point has little to do with the merits of the Bill. As I have just indicated, speaking for myself, I have no objection to the Bill. I believe in the public ownership of water and much else, and my interpretation of the word "public" is closer to that of the noble Lord, Lord Wyatt of Weeford, than it is to the interpretation of the noble Lord, Lord McIntosh. It also seems to me eminently sensible to separate the regulatory functions of a great utility from the productive functions, specially nowadays when we are at last, thank goodness, beginning to attend more to our responsibilities for the environment.

I am, as I said, concerned less with the Bill itself than with the consequences of accepting the amendment of my noble friend Lord Nugent of Guildford. If the amendment of my noble friend were accepted, it would have a quite devastating effect on the Bill. I am of course aware that my noble friend believes he will not have a devastating effect on the principle of privatisation. However, he will damage this privatisation, this flotation, and therefore this Bill.

If the amendment were accepted, it would also have the secondary effect of precluding this Chamber from giving detailed scrutiny to the rest of the Bill. I suppose we could go through the motions of the rest of the Committee stage, but it would be hardly worth our while to do so.

Consider the effect of this amendment on the policy which the Government have set out to implement. The Government wish to privatise on the basis of price control. The amendment sets up a regime based on dividend control. The Government believe that the new water companies should be Companies Act companies or plcs. The amendment wants to make them all statutory water companies, to be outside the provisions of the companies legislation and, incidentally, outside the provisions of Community law. My noble friend made this point from the Front Bench.

The Government believe that the industry should in future be regulated by the Director General of Water Services, very much along the lines of other successfully privatised industries. The amendment removes the director general from the Bill and gives any regulatory function to the Secretary of State. My noble friend Lord Nugent talked of bureaucracy, but I cannot believe that such a suggestion would be less bureaucratic. The Secretary of State will not be a professional in water terms, and nor will most of his advisers.

The Government wish to privatise the water companies and float them on the market, as other utilities have been successfully floated, to the double benefit of the citizen whether as consumer or taxpayer. I speak as a non-executive director of a merchant bank among other things. However, I can tell the Committee that one does not need to come within a hundred yards of a merchant bank to guess that this amendment would make the chances of a successful flotation of the companies set up under it very slim indeed.

I have itemised what I find to be a devastating difference between the amendment of my noble friend and the Government's position. I make no criticism whatsoever—I simply would not have the nerve—of my noble friend for disagreeing with the Government. My noble friend has performed sterling service throughout his very distinguished career to this and every other Conservative Administration, as well as to the water industry. I think he is wrong, but of course he is entitled to oppose the Bill or to criticise the assumptions behind it. However, with great respect to my noble friend, I do not think it is right to use an amendment, not to improve the Bill or deal with something which the Bill has overlooked or not taken sufficiently into account, but to destroy the whole policy of the Government. I think that is wrong and I think it is dangerous in constitutional terms.

If I were in the shoes of the noble Lord, Lord Cledwyn of Penrhos, or of the noble Lord, Lord McIntosh of Haringey, and I were striving to change places with my noble friend on this side of the Chamber, I must say that I would think twice before I urged Opposition Peers to support an amendment which had quite so devastating an effect on a Government Bill, a Bill sent to us by the elected Chamber. I would worry a little about the signals that might send up for my own party's future. As my noble friend Lord Caithness said, the amendment is by no means minor surgery.

I also think that it would be unwise for my noble friends, like my noble friend Lord Pym, to support this amendment, even if they are critical, as I happen not to be, of aspects of the Bill. I do so for this last reason. The Bill no doubt needs scrutiny. It no doubt needs more time spent on it. I cannot for the life of me see the point of scrutinising it further, of trying to deal with any of its detailed imperfections, if in effect we knock the stuffing out of the whole purpose for which it was designed. It is for this reason more than for any reasons concerning the merits of the Bill, which as I said I support, that I shall vote against my noble friend's amendment and urge the Committee to do the same.

Lord McIntosh of Haringey

Before the noble Earl sits down I should like to intervene because he made a direct challenge to me and to my noble friend Lord Cledwyn. I would not intervene again except for that reason. I said from this Dispatch Box that we would have to reverse the Bill of the noble Lord, Lord Nugent, as much as Mr. Ridley's Bill. Does the noble Earl not agree that from our point of view this could not be thought to be a wrecking amendment? It is something that we should have to deal with in any event.

The Earl of Gowrie

The noble Lord has quite a different interpretation from mine. I said that were I in the noble Lord's shoes I should think twice about doing so.

5 p.m.

Lord Ross of Newport

Having defended the 29 private water companies from nationalisation in 1978 and 1979, and having seen for myself at that time the very good job they did because I visited a number of them before agreeing to support them, I have no difficulty in saying that we have no problem in supporting the amendment put forward so ably by the noble Lord, Lord Nugent, this afternoon.

I do not know, and have never been able to understand, why the Government are so opposed to the use of fixed rate bonds. I thought that that was the right answer when they wanted to privatise the British Airports Authority. I should have thought that it was one of the solutions now that they want to privatise water. It is a method widely used in the United States and in Japan, which are very successful economies. Why on earth can we not do the same in this country? However, if the Government want to commit suicide, so be it. No doubt, on this day of all days, the tiger cubs will be expected to deliver.

Lord Campbell of Alloway

I wish to pursue the line taken by my noble friend Lord Gowrie, who on two matters of principle identified a conflict of approach between the Bill and these amendments. I agree with my noble friend that the argument goes far beyond the merits of this situation, which from my own experience I am not competent to judge. However, from where I speak I accept the rectitude of the Government's approach.

This conflict of principle infects the whole spirit and structure of the Bill. If carried, these amendments would require, no less, that the Bill be taken away forthwith for detailed scrutiny and massive redrafting. As my noble friend has said, in the result the exercise of the advisory role of your Lordships' Committee in effect is turned into resort to the delaying power. I respectfully suggest to Members on all sides of the Chamber that that would be a most unwelcome approach.

By convention sooner or later the Government must have their Bill; that is the convention of this Chamber. No doubt these amendments, if carried, would be rejected by another place. If they are carried, as the noble Lord, Lord Wyatt, suggested, they sow the seeds of constitutional conflict—and to what end? As a matter of practical reality what viable purpose could it conceivably serve, other than to engender a sterile conflict between the two Houses of Parliament?

But time is not on our side. There is a sense of urgency, not only in the interests of the consumers of the United Kingdom but also the pressure which is brought to bear upon us in the European Community to improve our standards. That sense of urgency is already recognised by the Government in the amendments which they propose to introduce to render the water authorities liable to prosecution if they fail to keep up with the EC timetable.

I do not take the political point as to whether this is in implementation of the manifesto commitment, whether to give shares to the public is or is not, or whether investment in water bonds at a fixed percentage by an institution is or is not. As I see it, that is quite beside the point. Nor do I take the technical point as to whether want of registration would constitute a breach of the second European directive on company law. Those technicalities are of minor and minimal consequence compared with the constitutional issue touched upon and first taken so well by my noble friend Lord Gowrie. The point that I take beyond that is that the delay involved in carrying these amendments is not only pointless but is wholly unacceptable.

Lord Howie of Troon

Speaking from this side of the Chamber, surely the noble Lord who has just spoken has exaggerated the dangers of delay. It is nice to see the noble Earl, Lord Gowrie, back in the Chamber. I have enjoyed his presence in the Chamber in the past. But when he referred to the speech of the noble Lord, Lord Wyatt, did he not recall—as I think I do—that the noble Lord said that this was not a matter of overwhelming importance? It is not. Since it is not a matter of overwhelming importance, not one of the great measures of state, the constitutional consequences do not arise with that weight which the noble Earl, Lord Gowrie, placed upon them. What would it matter if the privatisation of water were held back for a year, or even for two years? There can be nobody in this Chamber who thinks that that in itself would be a disaster.

The noble Lord, Lord Campbell, cannot really think either that it would be a disaster. Whether water is privatised this year, next year, or never the changes in standards which the European Community requires would have to be brought into operation. The money to bring them into operation would have to be found somewhere. It does not need a capital market to find it. Everybody knows that if those increased standards are required to be financed by the Government the Government could find the money. The Government already have the money. We are told over and over again what the surplus is and how it might well be used to repay the National Debt. Instead of repaying the National Debt it could be used to increase the quality of water. There is not the slightest urgency in the matter at all. The whole thing is an illusion.

It might be that the Government would be embarrassed were the Bill to fall and have to be reintroduced later. In my experience governments have been embarrassed by Bills which fell. I remember that in my days in another place there was a Bill to reform this House. It fell and had to be taken back. The Government were terribly embarrassed, but the world went on; it did not come to an end. Who will say that the world would come to an end if this Bill had to be taken back and had to be brought in maybe next year, maybe the year after or maybe never? The whole thing is ridiculous.

It is quite clear from the debate that we have had so far that the mode of organisation proposed by the noble Lord, Lord Nugent, is a highly satisfactory mode for this industry. I am stronger in its support than my noble friend Lord McIntosh, and I hope that, in the fullness of time, he will come round towards the sense of it, because here we have a situation where an organisation is shortly to be privatised, we believe, and maybe unprivatised at some time. The mode of privatisation which the noble Lord, Lord Nugent, has suggested is sound, proven and can be gone over again. The noble Lord, Lord Pym, and the noble Lord, Lord Elliott, know a great deal more about this than I do, though I am a civil engineer. There is no reason why the amendment should not be supported.

That brings me to my last point. What worries me about the Government's proposal is that it needs a regulator. Why does it need a regulator? It needs a regulator because the Government do not trust the plcs. If the Government did trust them not to raise prices beyond a reasonable extent, and not to produce profits beyond a reasonable extent, the Government would not require a regulator. Because they require a regulator the Government, to my mind, give away their case entirely and wholesale. The proven system now proposed again by the noble Lord, Lord Nugent, should be adopted and these amendments passed, and if the Government are embarrassed they will just have to get on with it.

5.15 p.m.

Lord Elliott of Morpeth

I should very much like to take part in this debate. I am open to correction, but I rather feel that I might be the only Member of your Lordships' House actively engaged at this time in the water industry. I am chairman of a statutory company and as such, of course, I declare an interest. In addition to that, I had the very great honour to be president of the Water Companies Association for no less than 12 years, so I have listened to the various criticisms of the statutory companies with some considerable interest today.

I would say to the noble Lord, Lord Wyatt, that, having heard his remarks about them, I feel he has never visited a statutory company, and as a vice-president now of the Water Companies Association I invite him to do so. I listened also to my noble friend Lord Jenkin. As Secretary of State, he was my guest on one occasion at the annual meeting of the Water Companies Association. On that occasion, if I remember rightly, my noble friend was very complimentary about the smaller companies as against the bigger authorities. I remember him saying that big is not necessarily beautiful. So again I was a little hurt today at his criticism of the statutory companies.

May I say to my noble friend Lord Nugent—and I so agree with everyone who said that he knows and enjoys, and rightly, the respect in this country of the entire water industry; he was an excellent first chairman of the National Water Council—that I am sorry I cannot support his amendment today. On personal grounds I am very sorry. The reasons why I cannot support his amendment I gave in my Second Reading speech, and I shall not repeat them. All I wish to do in this speech is to answer the two main criticisms that have been made today of the water companies.

I am most grateful to my noble friend Lord Pym because he more or less made my speech for me. His description of the water companies, like that of my noble friend when he opened the debate on the amendment, was an absolutely correct one.

For over 100 years, the companies in the area of their supply have given good service to the public. All 28 statutory companies—I know there are 29, but there are 28 in our association—have two great aims. First, there is consumer relationship and consumer service. They all take great pride in this and they are all very good at it. The second aim of each and every water company has been to keep its prices low, and that it has done.

The report of the Monopolies and Mergers Commission, which was mentioned first by my noble friend when he wound up the Second Reading debate and mentioned again today, as my noble friend Lord Pym quite rightly said, had praise as well as criticism for the statutory companies. But I wonder from where, in that section of criticism, they got their evidence, because so far as I am aware no inquiries were made of my company, and I do not know of any inquiries being made of any other company. I am very much in touch with the chairmen of all 28 companies. However, we received this criticism and I do not think it a fair one.

At the time of the production of the report of the commission, the 28 statutory companies, providing one-quarter of the water supply in England and Wales, were in practically every case producing pure, wholesome water, but at less cost than their neighbouring regional water authorities. I know that that is not a completely fair comment and I do not wish to score a point over the water authorities. There are quite valid differences between us, and the picture varies. But I want to say that the Monopolies Commission's view of the statutory water companies is an unfair one.

Secondly, while I want to reply in some degree to the criticism that the water companies have used this financial year to raise their prices subtantially, may I just ask noble Lords to consider this point? We always kept our prices down so I pose the question: why in this year have we put up our prices? The answer is to be found in the changes for the water companies in the Government's proposals. The advice which the companies and their association have received from every source is that the water companies, if they do not convert to plcs after the passing of the Bill, will be judged in future as plcs. This is because the water authorities are to become plcs. Therefore we shall be expected to produce rates of return on assets at debt equity ratios appropriate to plcs.

This has been quite obvious to us for some time, and the only way to achieve acceptable debt equity ratios is to finance much more for future capital expenditure from charges and thus reduce the debt over a period of time. Of course, at this time, as we all know, there are tremendous extra capital requirements for bringing companies, as well as the proposed to be privatised authorities, up to European standards. I hope your Lordships will recognise that in these circumstances unusually large increases were inevitable. The new system of regulation which the Bill will bring into being—and I approve of it very much, as I said on Second Reading, because it is heavily in the interests of the consumer—is not to be brought into existence, so far as the companies are concerned, without considerable cost implications.

We are told constantly that the Bill before the Committee has nothing to do with the increase in prices which the water companies have had to impose. I simply cannot agree with that. It is a play on words, because it is the pending legislation which has led the companies essentially to raise their charges.

That is all I wish to say, but I hope that I have answered the two main criticisms of the water companies. I assure noble Lords of this. I know these companies and I know them well. I know their chairmen, I know many members of their boards and I know, particularly, the professional people employed in them. To suggest that they are laggardly, sluggish and lacking in incentive, effort and ambition is totally false. The 28 statutory water companies are very proud concerns, and I am very proud to be associated with them.

Lord King of Wartnaby

As noble Lords may know, I have had some experience in matters of privatisation. I must with all humility say that privatisation has vast and untold benefits to consumers and the workforce. It is, however, with regret that I must oppose the amendment proposed by my noble friend Lord Nugent. Over a long period of time he has been a true and tried friend of mine, and I disagree with him with some reluctance.

The amendment proposed by the noble Lord would seriously impair the effectiveness of this Bill. The careful balance between consumer protection and operational efficiency would be upset. I agree that companies must not be allowed to develop unrestricted profits from monopoly operations, but a cap on dividends and reserves is not the way to exercise control. To do so would remove an important spur to the efficiency of the operating companies with the possible consequence of an increase in the cost of water to the consumer. There will be occasions in certain market conditions when companies will prefer to raise capital by the issue of fixed interest stocks rather than by ordinary shares. However, to limit companies to the use of that financial instrument alone would deprive them of flexibility to the deteriment of the enterprise.

There is also a question of risk. Equity capital, often appropriately called risk capital, is the first protection for the creditor against loss which could arise in the event of an unforeseen operational problem. In difficult times equity shareholders may have to forgo dividends, and it is right that they should reap their rewards when times are good. Fixed interest capital is not satisfactory for this purpose. It would be so unattractive an investment that a very high interest rate may be required to be paid in order to get investors to buy the stock. This would defeat Lord Nugent's objective of a low return business. Restricting reserves is likely to be a recipe for waste, as companies having a good year look for ways to spend or tuck away profits in projects that they would not otherwise have thought of pursuing.

Why is it that the water industry in this country is in serious need of fresh capital investment? There are a number of answers to that question. One is that the public are increasingly and quite properly demanding with regard to matters affecting the environment. I believe that another reason for the need for capital is that water has been largely government-owned. Governments are, by their nature, bound to have difficulty in meeting the capital needs of the organisations which they own—and I speak from experience. I urge noble Lords to reject the amendment proposed by my noble friend Lord Nugent.

Lord Stoddart of Swindon

If I were merely concerned about the hard-nosed party political aspects of this Bill, I would advise that this amendment be rejected because undoubtedly this Bill is the most unpopular measure that the Government have ever brought forward. If this Bill is passed in its present form, it will do the Government considerable damage at the next election. Therefore, it would be as well from the Labour Party's point of view if the Bill went forward unamended.

I am not concerned about that matter. I am concerned about the continued benefit to the consumer and the continued well-being of the water industry. I have been quite appalled at the criticism voiced in this House against the public ownership of water. The noble Lord, Lord Elliott, very ably defended the statutory water companies. I should like to defend the municipalities and the other publicly-owned water undertakings in this country which have developed water supplies and delivered water to every part of the country in a very efficient manner. I am certain that had this been left to private unregulated water companies or plcs, it is doubtful whether all parts of rural Wales, England and Scotland would now be served with piped water and in many cases with proper sewerage facilities. Public ownership has done a pretty good job up until now, and I believe that it would continue to do a good job and improve upon it.

It is quite clear that the Government are not prepared to leave the industry in public ownership. The noble Lord, Lord Nugent, is the foremost expert in these matters in the country with an enormous wealth of experience. His ability and commitment is recognised by all sides of this House and by all sides of another place. He has given the Government the opportunity to go down another route which would be more acceptable to all sides of this House, and much more acceptable to the water consumers, who are the electorate at large.

I hope that noble Lords opposite, particularly those who have a concern—and there are many of them—for the rural areas of this country, will support Lord Nugent's amendment.

Lord Belstead

I do not want to cut other noble Lords out, and I cannot possibly do so because we are in Committee. However, we have been discussing this amendment for two hours. It might be convenient if I were to say a word from the Government Front Bench towards the end of the debate. It will then be a matter for the Committee as to how we proceed.

We have heard from the noble Lord, Lord McIntosh, who I admire and enjoy listening to in complicated Bills of this kind, and from the noble Lord, Lord Stoddart of Swindon, some fairly hard words about the policy of the Government so far as the privatisation of water is concerned. I understand the views of the noble Lords. We differ between the two sides of the House on this matter.

I should like to say one word on that matter in reply. It is true to say that if one were to visit any of the existing water authorities these days one would find a great deal of renovation work in progress. One would find that a great deal of water and drainage pipework is being replaced, some of it more than a century old. It is a legacy from the past. Undoubtedly in the past, and particularly in the major industrial areas of this country, the system of financing capital works has not been equal to the task over the years. That was demonstrated all too clearly in the mid-1970s when the government of noble Lords opposite found that they had to make deep cuts in the capital programme of the water authorities. Before noble Lords opposite jump down my throat and ask what happened after that, under the Government which succeeded in 1979 investment remained at very much that level before it began to climb steadily in the 1980s.

I am most anxious from this side of the House to make one simple point. There is a genuine and a logical reason for believing that this enormous industry, with a very substantial workforce and a heavy capital programme, should be within the private sector, with the twin provisos, first that there must be a regulatory body (which in this case is called the National Rivers Authority) responsible for water resources and for the quality of our rivers. That is something which, if I may say so, my noble friend Lord Nugent has very wisely, consistently and successfully pressed for over the past two years. Also there must be effective price regulation in the interests of customers.

At the beginning of this debate my noble friend Lord Caithness made the point that the Bill is drafted on two main foundations. One is that water services in the future, so we plan in the Bill, should be delivered by Companies Act companies; the other is that their prices should be controlled by an independent Director General of Water Services. However, the amendments that are now before the Committee would require the water services of the future to be delivered by companies set up on a very different basis. They would be set up on the basis of the main amendment, which is part of the huge group that we are now discussing; namely, Amendment No. 47. It would be a statutory model in which the companies would be subject to controls on their dividends and reserves but would not have price control and be answerable not to an independent director general but to the Secretary of State.

A crucial point which has become increasingly clear during our long debate this afternoon is that this is an issue which goes to the heart of this Bill. For example, the amendments provide no direct control of prices, and the customer would have no statutory protection against large year-on-year price increases. My noble friend Lord Jenkin of Roding referred to the very high price increases which had to be introduced this year by some of the existing statutory water companies, with increases running up to over 40 per cent. On that point I simply say that as drafted this is a Bill which would provide a control on what would otherwise be an open-ended mechanism. But by sweeping away the clauses which provide for the director general, these amendments would delete that vital price protection from the Bill; and side by side with the absence of any statutory price protection in these amendments goes an absence of any effective stimulus to efficiency.

As I understand these amendments, so long as restrictions on dividends and reserves are observed, there would be no direct control of prices and a company on the model proposed could always have a guaranteed return simply by raising its charges to the customer. The obvious disadvantage of this system has already been spotted by the Monopolies and Mergers Commission, whose criticism my noble friend Lord Caithness referred to in his Second Reading speech and again earlier today. It has been the subject of some exchanges in this Chamber.

The fact is that although many of the existing statutory water companies have faithfully served their local communities—and my noble friend Lord Elliott was absolutely right and justified in speaking with pride of what they have done—having listened to the evidence of my noble friend Lord Caithness in his speech, I am driven to the conclusion that in some cases the companies have been spending too little on their assets. Many Members of this Committee who have great experience of business would be the very first to say to me that sooner or later assets have to be renewed and additional capital raised, particularly for the substantial capital spending programmes, in order to achieve the higher quality standards that we all want to see.

Of course I understand the appeal of saying that profits ought not to be made out of water; but I follow the example of my noble friend Lord Renton in asking whether that is in fact the case today. Does it make economic sense? After all, neither the Treasury, with respect to the water authorities, nor the owners of the statutory companies have financed them simply out of philanthropy. Public sector or private, they have expected returns on their capital. We are now talking about a change in the manner of how those returns are regulated so that efficient companies are encouraged but customers have protection through control of prices. I believe that that is sensible and justified.

Therefore the Government feel very strongly that on this occasion they cannot agree with the amendment to which my noble friends and the noble Earl, Lord Halsbury, have put their names. We genuinely believe that to impose the statutory model not only on the 29 existing statutory companies but on the 10 successor companies to the regional water authorities is not the right way forward for the future.

There is however one further point about these amendments which troubles me very much. It arises from the intervention made in this debate by my noble friend Lord Gowrie. I think that my noble friend was perfectly justified in saying that the effect on the Bill of these amendments—and incidentally there are about 230 of them on the Marshalled List—would be devastating. My noble friend was not alone; other Members of the Committee have said very much the same. However, as my noble friend Lord Gowrie said, price control would be removed by these amendments as would the protection of the Director General of Water Services, thus incidentally, removing essential consumer safeguards from the Bill. The water companies of the future would have to exist, as I understand it, outside the provisions of the Companies Act and the Community law. And, having listened to my noble friend Lord King of Wartnaby, I must say that the prospect of 10 such companies appealing to private investors would be quite slim indeed.

If these amendments are accepted, the sheer scale of the redrafting needed to make the Bill consistent with them would be absolutely massive. Every clause dealing with the appointment, the regulation, the duties and the powers of the companies would have to be worked through, and to reconstruct the Bill on this principle might well require literally hundreds of additional amendments.

It is the constitutional right of this Chamber through its revising work to ask another place to think again. It is a right that, whenever possible, I always seek to uphold. Indeed—and it is more often said when sitting on the Opposition Benches—a claim very often made when we receive a Bill which has been guillotined in another place is that we shall give extra scrutiny to those clauses which have not been debated at all. However, in passing this amendment and the 200-plus consequential amendments, we should be standing that claim on its head for we should not be scrutinising the rest of the Bill line by line but in effect asking for a major manifesto Bill to be rewritten.

I question fundamentally whether in doing that we should properly be carrying out our revising function. It is for the Committee to decide; but in deciding let us remember the needs of the industry. We shall have to achieve higher quality standards in the foreseeable future and inescapably this will mean substantial growth in capital programmes. Many of the existing statutory water companies—and, incidentally, my noble friend Lord Elliott, who is the chairman of a statutory water company and spoke this afternoon—agreed with the water authorities that the way to achieve that is by privatisation under price control. Let us be absolutely clear. This amendment would kill that concept stone dead. I ask the Committee not to agree to it.

5.30 p.m.

Lord Nugent of Guildford

I am sure that members of the Committee from all sides feel that it is time to bring to an end our debate. First I must thank the speakers who have been good enough to support the amendment that I put forward.

I should like to deal with the point made with his customary diplomacy by my noble friend the Leader of the House, Lord Belstead. He implied that my amendment would wreck the Bill. My noble friend Lord Gowrie actually said it in those terms. I do not agree. I do not see how it can be said that an amendment which would put into the Bill a form of water company which has been in existence in this country for 150 years and in fact covered all our water supply companies in the last century can be a wrecking amendment. It would be an enormous change. I agree that it would be an appalling job to deal with all the consequential amendments. But I do not think that it is fair to say that it is a wrecking amendment; it is not. I am not sure that my noble friend Lord Gowrie quite understands the nature of this industry. Many noble Lords on all sides do understand it. Those of us who understand the nature of the industry can envisage how very badly this plc structure will fit on it.

First, it has been stated on all sides, that the plc structure denies that the incentive for public service is sufficient to run such bodies, although it has done so very effectively for 150 years. In winding up, my noble friend Lord Belstead spoke of the increased charges that the statutory water companies were considering making. There is an automatic safeguard there. If a statutory water company sets the charge too high one year the surplus that it makes must go, according to the statute, to reduce the charges the following year. Therefore the consumer has the best safeguard of all; and it has worked extremely well.

Nobody will wish me to repeat all the arguments again——

Lord Boyd-Carpenter

Hear, hear!

Lord Nugent of Guildford

My noble friend backs me up. I think it is about the only issue on which he has agreed with me today! We are talking about whether we believe that the profit incentive will suit this industry—which has never had it—better than the incentives of the past, of public service and the automatic system of adjusting in the interests of the consumer. It is a fact that the Bill puts the shareholder first, quite definitely, in Clause 7. The Director General of Water Services must ensure that there is a reasonable return for the shareholder, and the consumer then takes the consequences after that has been secured. That is a quite different priority from that of the statutory water company.

That is the issue that the debate has been about. My belief is that the statutory water company works well, and efficiently, and it gives a 100 per cent. safeguard to the consumer. I doubt very much whether the company as laid down in the Bill will do so. I commend the amendment to the Committee.

5.43 p.m.

On Question, Whether the said amendment (No. 43) shall be agreed to?

Their Lordships divided: Contents, 112; Not-Contents, 208.

DIVISION NO.. 1
CONTENTS
Addington, L.	Harris of Greenwich, L.
Airedale, L.	Hatch of Lusby, L.
Alport, L.	Hayter, L.
Ampthill, L.	Hirshfield, L.
Ardwick, L.	Hooson, L.
Auckland, L.	Houghton of Sowerby, L.
Baldwin of Bewdley, E.	Howie of Troon, L.
Birk, B.	Hylton, L.
Bonham-Carter, L.	Hylton-Foster, B.
Bottomley, L.	Irving of Dartford, L.
Bruce of Donington, L.	Jacques, L.
Buckmaster, V.	Jeger, B.
Callaghan of Cardiff, L.	Jenkins of Hillhead, L.
Campbell of Eskan, L.	Kearton, L.
Carmichael of Kelvingrove, L.	Kilmarnock, L.
	Lauderdale, E.
Carter, L.	Lawrence, L.
Cledwyn of Penrhos, L.	Leatherland, L.
Cocks of Hartcliffe, L.	Listowel, E.
Craigavon, V.	Llewelyn-Davies of Hastoe, B.
Cross, V.
Dacre of Glanton, L.	Lloyd of Hampstead, L.
Darcy (de Knayth), B.	Lloyd of Kilgerran, L.
David, B.	Lockwood, B.
Dean of Beswick, L.	Longford, E.
Dormand of Easington, L.	Lovell-Davis, L.
Dunrossil, V.	Macaulay of Bragar, L.
Elwyn-Jones, L.	McCarthy, L.
Ewart-Biggs, B.	McIntosh of Haringey, L.
Ezra, L.	McNair, L.
Falkender, B.	Masham of Ilton, B.
Falkland, V.	Mayhew, L.
Fisher of Rednal, B.	Milner of Leeds, L.
Foot, L.	Mishcon, L.
Gainsborough, E.	Monson, L.
Galpern, L.	Moran, L.
Graham of Edmonton, L.	Mountevans, L.
Greenway, L.	Moyne, L.
Grey, E.	Nicol, B.
Halsbury, E. [Teller.]	Northfield, L.
Hampton, L.	Nugent of Guildford, L. [Teller.]
Hanworth, V.
Hardinge of Penshurst, L.	Ogmore, L.

Perry of Walton, L.	Stoddart of Swindon, L.
Peston, L.	Strabolgi, L.
Phillips, B.	Swinfen, L.
Pitt of Hampstead, L.	Taylor of Blackburn, L.
Ponsonby of Shulbrede, L.	Thurlow, L.
Pym, L.	Thurso, V.
Rea, L.	Tordoff, L.
Rochester, L.	Underhill, L.
Ross of Newport, L.	Wallace of Coslany, L.
Russell, E.	Walston, L.
Seebohm, L.	White, B.
Sefton of Garston, L.	Williams of Elvel, L.
Sherfield, L.	Willis, L.
Stallard, L.	Young of Dartington, L.
Stewart of Fulham, L.

NOT-CONTENTS
Abinger, L.	Ferrers, E.
Airey of Abingdon, B.	Ferrier, L.
Alexander of Tunis, E.	Forbes, L.
Alexander of Weedon, L.	Forester, L.
Annaly, L.	Forte, L.
Arran, E.	Fortescue, E.
Ashbourne, L.	Fraser of Carmyllie, L.
Bellwin, L.	Gainford, L.
Beloff, L.	Glenarthur, L.
Belstead, L.	Goold, L.
Benson, L.	Gowrie, E.
Bessborough, E.	Grantchester, L.
Bethell, L.	Gray of Contin, L.
Blatch, B.	Gridley, L.
Blyth, L.	Grimston of Westbury, L.
Boardman, L.	Haddington, E.
Bolton, L.	Haig, E.
Boyd-Carpenter, L.	Hailsham of Saint Marylebone, L.
Brabazon of Tara, L.
Braye, B.	Harmar-Nicholls, L.
Bridgeman, V.	Harris of High Cross, L.
Brocket, L.	Harvey of Tasburgh, L.
Brougham and Vaux, L.	Harvington, L.
Butterfield, L.	Havers, L.
Butterworth, L.	Hemphill, L.
Caithness, E.	Henley, L.
Camden, M.	Hertford, M.
Campbell of Alloway, L.	Hesketh, L.
Carnegy of Lour, B.	Hives, L.
Carnock, L.	Hood, V.
Carrington, L.	Hooper, B.
Cathcart, E.	Ironside, L.
Cayzer, L.	Jenkin of Roding, L.
Chelmer, L.	Kemsley, V.
Chorley, L.	Kenilworth, L.
Clinton, L.	Kimball, L.
Clitheroe, L.	King of Wartnaby, L.
Coleraine, L.	Knutsford, V.
Colnbrook, L.	Layton, L.
Colwyn, L.	Lindsey and Abingdon, E.
Constantine of Stanmore, L.	Long, V.
Cork and Orrery, E.	Lyell, L.
Cottesloe, L.	McAlpine of West Green, L.
Cox, B.	Mackay of Clashfern, L.
Craigmyle, L.	Macleod of Borve, B.
Cranbrook, E.	Macpherson of Drumochter, L.
Crickhowell, L.
Cullen of Ashbourne, L.	Malmesbury, E.
Daventry, V.	Mancroft, L.
Davidson, V. [Teller.]	Margadale, L.
De La Warr, E.	Marley, L.
De L'Isle, V.	Marshall of Leeds, L.
Denham, L. [Teller.]	Maude of Stratford-upon-Avon, L.
Derwent, L.
Dilhorne, V.	Merrivale, L.
Dormer, L.	Mersey, V.
Dulverton, L.	Middleton, L.
Dundee, E.	Monk Bretton, L.
Eden of Winton, L.	Monteagle of Brandon, L.
Elibank, L.	Morris, L.
Elliot of Harwood, B.	Mottistone, L.
Elphinstone, L.	Mountgarret, V.
Erne, E.	Mowbray and Stourton, L.
Erroll of Hale, L.	Munster, E.

Murton of Lindisfarne, L.	Selsdon, L.
Nelson, E.	Shrewsbury, E.
Norfolk, D.	Skelmersdale, L.
Norrie, L.	Slim, V.
Northesk, E.	Southborough, L.
Onslow, E.	Stanley of Alderley, L.
Oppenheim-Barnes, B.	Strange, B.
Orkney, E.	Strathcarron, L.
Orr-Ewing, L.	Strathclyde, L.
Oxfuird, V.	Strathmore and Kinghorne, E.
Peel, E.
Pender, L.	Strathspey, L.
Pennock, L.	Swansea, L.
Penrhyn, L.	Swinton, E.
Platt of Writtle, B.	Teynham, L.
Portman, V.	Thomas of Gwydir, L.
Portsmouth, E.	Thomas of Swynnerton, L.
Quinton, L.	Thorneycroft, L.
Radnor, E.	Tollemache, L.
Rawlinson of Ewell, L.	Torphichen, L.
Reay, L.	Torrington, V.
Redesdale, L.	Townshend, M.
Rees, L.	Trafford, L.
Reigate, L.	Trefgarne, L.
Remnant, L.	Trenchard, V.
Renton, L.	Trumpington, B.
Renwick, L.	Tryon, L.
Rochdale, V.	Ullswater, V.
Rodney, L.	Vaux of Harrowden, L.
Rollo, L.	Vinson, L.
Romney, E.	Watkinson, V.
Rootes, L.	Whitelaw, V.
Rotherwick, L.	Wigram, L.
Sackville, L.	Willoughby de Broke, L.
Saint Albans, D.	Windlesham, L.
St. Davids, V.	Wolfson, L.
St. Germans, E.	Wyatt of Weeford, L.
St. John of Fawsley, L.	Wynford, L.
Saint Levan, L.	Yarborough, E.
Sanderson of Bowden, L.	Young, B.
Savile, L.	Young of Graffham, L.
Selborne, E.	Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.55 p.m.

Clause 4 [Transfer of the water authorities' functions etc.]:

[Amendments Nos. 44 to 46 not moved.]

Clause 4 agreed to.

Before Schedule 2:

[Amendment No. 47 not moved.]

Schedule 2 [Schemes providing for the Initial Transfers]:

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)

moved Amendment No. 48: Page 192, line 36, after ("provisions") insert ("and without further assurance"). The noble Lord said: These amendments are concerned with the schemes of transfer under Schedules 2 and 5. They concern the schemes being prepared by the water authorities for the division of their property, rights and liabilities in Schedule 2 between the successor company and the NRA, and in Schedule 5 between the existing appointee and the new appointee. The amendments to each schedule are similar and can be considered together.

The first, Amendment No. 48 which inserts: and without further assurance in paragraph 2(1) in Schedule 2 is to clarify that the transfer scheme effects complete transfer of property, assets and liabilities from the water authority to the successor plc or to the NRA without the need for any further requirements, such as conveyances or transfers. The equivalent Amendment No. 228 to paragraph 3(1) in Schedule 5 ensures the same for transfers between existing and new appointees.

The second and third amendments to Schedule 2, Amendments Nos. 49 and 50 which add two new sub-paragraphs to sub-paragraph (4) of paragraph 2, will allow schemes to include provisions to enable the NRA or the plc as appropriate to require production and safe custody of documents of title held by the other party relating to their rights in respect of land. Again an equivalent amendment is made in Schedule 5, Amendment No. 229.

The final amendments to these schedules, Amendments Nos. 51 and 230, provide that these schemes of transfer may make provision for arbitration and certification where there may be uncertainty in a scheme of transfer as to the rights of either the NRA or the plc, or the existing new appointee, as the case may be.

These amendments are technical amendments, designed primarily to facilitate the procedures for establishing and certifying proof of title of land transferred in schemes of transfer.

I must ask the Committee's forgiveness in not saying when I moved Amendment No. 48 that I was speaking to Amendments Nos. 49 to 51 and to Amendments Nos. 228 to 230. I commend these amendments to the Committee.

On Question, amendment agreed to.

Lord Hesketh moved Amendment No. 49: Page 193, line 23, leave out ("sub-paragraph (2)(c)") and insert ("paragraph (c) of sub-paragraph (2)").

On Question, amendment agreed to.

Lord Hesketh moved Amendment No. 50: page 193, line 26, at end insert ("; and the provision that may be made by virtue of that paragraph includes—

1. (a) provision for treating any person who is entitled by virtue of a scheme under this Schedule to possession of a document as having given another person an acknowledgement in writing of the right of that other person to the production of the document and to delivery of copies thereof; and
2. (b) provision applying section 64 of the Law of Property Act 1925 (production and safe custody of documents) in relation to any case in relation to which provision falling within paragraph (a) above has effect.").

On Question, amendment agreed to.

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

On Question, amendment agreed to.

Lord Graham of Edmonton moved Amendment No. 51 A: Page 194, line 15, at end insert—

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

The noble Lord said: The Minister has quite fairly dealt with the gravamen of the contents of the schedule and the supplementary provisions. We are seeking to add a new subparagraph to the schedule. We are concerned, as the amendment states, about the preservation of employees' pension rights. It would be helpful to the Committee if I were to remind noble Lords of the precise additional words that we want to add. They are: that where persons who immediately before transfer were contributing to the Water Authorities' Superannuation Fund and employed by a successor body, it shall be the duty of that body to provide pension benefits that are no less favourable (including any provision for increasing pensions already in payment) than those which would have been enjoyed under comparative arrangements with the Local Government Superannuation Scheme.)".

I am sure that all Members of the Committee will recognise the fact that not only they but employees of water companies are concerned and sensitive about the question of pensions. It is a question not only of enjoying a pension which has been earned but of making sure that it is as protected as possible. The purpose of the amendment is to place a statutory duty on the new water plcs and their associated bodies to provide a pension scheme which will be no less favourable than the statutory local government superannuation scheme.

I can anticipate the Minister's arguments: that, despite the massive number of words, he is disinclined to add more to the face of the Bill; that he does not doubt for one moment that the interests of the employees will be adversely affected; and that they will be no less favourable in the future.

Mr. Michael Howard, the Minister in charge of the Bill in another place, wrote to the NALGO trade union on 3rd April. It is significant to my argument because he said: I am not of the opinion that privatised companies should be statutarily bound to specific duties".

It is surprising that he does not believe that privatised companies should be statutarily bound to specific duties. There are generalisations, premises, hopes and anticipations but he uses the words "bound to specific duties". He continues: This is contrary to practice in the private sector where a trust deed is the usual means of protecting pension arrangements".

That may be the practice and the usual arrangement. The many thousands of employees in the company are asking the Government to write on the face of the Bill a provision which they presently enjoy. They are not asking for enhancement but for protection of that which they already have.

I know that the Government are proposing to establish what are called "mirror image" pension arrangements for successor bodies subject to trust deeds to be approved by the Secretary of State. I do not for one moment impute to the Secretary of State that he is careless or cavalier in his desire to protect the rights of employees. However, I cannot understand why it is not possible to add such a tiny protection for the employees, who in my view will make a real difference to the success of future water arrangements. In future a plc can decide to cease support for a scheme and close it and then replace it with an inferior scheme.

I have had the benefit of considering the arrangements for employees in the Royal Ordnance Factories and the dockyards, for example, where their status was changed from being protected by statutory undertakings. They were governed by an arrangement which the Government held out to be satisfactory. We know what happened to the workers in the Royal Ordnance Factories and the dockyards after their work was decimated and their interests badly affected.

If the Minister is looking for ways in which to ease the passage of the Bill through this House and to find acceptability in the country, he could make this tiny addition. I assure him that there will be many things which he will wish to monitor and consider in the future. He will certainly need to see whether the companies look after their employees in the same way as the present water authorities. He can avoid the need for that monitoring if he accepts the amendment.

Meaningful protection of employees' pension rights can come only from statutory measures. In my view this amendment should suffice in that regard. We are not saying that there is a general desire for future employers to dishonour agreements. The employees are saying, "Let us put that beyond a peradventure. Let us write on the face of the Bill the kind of amendment that we are proposing". I beg to move.

The Earl of Caithness

I assure the noble Lord, Lord Graham, that the Government are concerned that the former water authority employees' pension rights are protected and have given their assurance that there will be a scheme available to water authority employees who are transferring to a successor company which provides the same benefits at the same rate of contribution by the employees as for the local government superannuation fund at transfer date. This specifically includes full index linking. The assurance will be given effect through the mirror image scheme. That is a point to which the noble Lord indicated I would refer when he answered the question which he posed——

Lord Graham of Edmonton

And very well!

The Earl of Caithness

There may be room on this side of the Committee if the noble Lord wishes to come over to answer as well as to ask the questions.

Employees who do not transfer to the water authorities' successor companies will be transferred to the National Rivers Authority and will be eligible to remain in the local government superannuation scheme. The mirror image scheme will be safeguarded under trust deed by trustees as is customary in the private sector. That is why statutory requirements on pension rights have not been included in any previous privatisation.

However, the trust deed will contain two provisions which will give members of the scheme particular reassurance about the protection of their future rights. These are, first, that the trustees of the mirror image scheme shall include at least two representatives of members. Secondly, while there remain potential beneficiaries of the mirror image scheme, it shall not be wound up or its benefits altered if any trustee objects.

The mirror image scheme will include the option to follow changes in the local government superannuation scheme. Such decisions will of course be made by the trustees of the scheme. Therefore, while I am sympathetic towards the concern for employees that underlies the amendment, I believe it to be unnecessary.

Lord Graham of Edmonton

I should like to be clear that the Minister is saying that representatives of the employees will form part of the trustees and that nothing will happen to a scheme which will be of disadvantage to them. I should like him to confirm that nothing will happen to that scheme even if one trustee objects. Perhaps on vesting day—or whatever term is used—the rights which a current employee enjoys will be transferred and protected by a trust deed and in future some of the employees who are affected by the scheme will be members of the board of trustees. In that situation we should like to know that nothing can happen to the scheme if one trustee objects. Can the Minister say that my rough understanding of the position is correct?

The Earl of Caithness

The noble Lord has the gist of my reply absolutely right. I should like re-emphasise exactly what I said. First, that the trustees of the mirror image scheme shall include at least two representatives of members. That covers the noble Lord's first point. Secondly, while there remain potential beneficiaries of the mirror image scheme it shall not be wound up or its benefits altered if any trustee objects.

Lord Graham of Edmonton

I am grateful to the Minister. Quite fairly he used a phrase which I had not picked up when saying that while there exists in employment some of the transferred employees, they will continue to have the right to protect the interests which were transferred.

The Minister will understand that I have received my advice from representatives of NALGO. They have drawn my attention to the fact that they continue to be sensitive about the matter, despite what happened in another place and the assurances that were given by Mr. Colin Moynihan. However, in fairness to the Minister, it may well be that there has been a misunderstanding. I shall certainly withdraw my amendment, consult those outside the Committee who may be helpful to me and return at a later stage if need be. However, at this stage I am satisfied with what the Minister said and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2, as amended, agreed to.

Clause 5 agreed to.

Schedule 3 agreed to.

Clause 6 [Customer service committees]:

[Amendment No. 52 not moved.]

Baroness Strange moved Amendment No. 53: Page 5, line 20, leave out ("may") and insert ("shall").

The noble Baroness said: May I first apologise to Members of the Committee that I did not speak on the Bill at Second Reading. This is the first amendment which I have ever dared to move so I am tip-toeing into the water rather than diving straight in and I hope that the Committee will bear with me.

It seems to me that one of the chief purposes of the Government in bringing forward this Bill is to protect the interests of the consumer. To have smaller companies instead of a nationalised monopoly must be better for the man standing at the sharp, or tap, end. However, it is still a monopoly. In our complicated, largely urban society it is no longer feasible to go out to the spring, stream or pump at the well with a bucket to collect the day's supply of water. I do not and have not seen many people creeping home from the lake in St. James's Park with their buckets of water. We are pretty well stuck with the tap.

The word "may" gives me an instant picture of the director of the water board sitting with a daisy in his hand saying "Shall I set up a customer services committee? Shall I not set up a customer services committee? I may set up a customer services committee. I may not set up a customer services committee". The word "shall" gives the director a plain duty to do so.

Subsection (3) of the clause states that: It shall be the duty of the Director",

to set up CFCs. That sets it out quite clearly without ambiguity. Here there are no daisy petals. Surely, therefore, it would be logical also to put in the word "shall" at the beginning of Clause 6, as that is clearly what the Government want. I beg to move.

Lord McIntosh of Haringey

Perhaps I may add my support to the amendment so poetically moved by the noble Baroness. She has made it much clearer than could be said in ordinary prose that a customer service committee, or a consumer council as it is in other privatised industries, is an absolutely essential part of the regulatory process. That has been so in every single privatisation measure introduced so far by this Government.

It would be a tragedy if, through what I can only think has been an error of drafting, there should be any risk whatever that the consumer should not be represented in that way. I very much hope that the Government will see their way to rationalising the wording of this clause and agreeing to the amendment.

Baroness Phillips

I too should like to support the noble Baroness. As befits our sex she has moved the amendment with brevity and clarity so I shall not spoil the record by going on at length.

However, to support my noble friend on the Front Bench, this must have been an oversight. I cannot believe that the Government will not accept this amendment. I should be very surprised at that because consumer representation has a double advantage. It can not only carry through any problems but can also bring ideas, as we know only too well, whether one is talking about private industry or a state enterprise. I feel certain that without further ado the Government will accept this very modest amendment.

Lord Ezra

I believe that we must all be beholden to the noble Baroness for moving this simple but important amendment because the protection of customers' interests must be paramount. After all, we have already spent nearly three hours talking about the relationship between the consumer and the shareholder. At the very least, we should be sure that these customer service committees will be set up and that the wording in this clause will be made totally consistent and should reassure all those who are concerned about the protection and safeguarding of consumers.

6.15 p.m.

The Earl of Arran

My noble friend says that this is one of the first amendments which she has ever dared to move. This is one of the first amendments which I have ever dared to answer and therefore she has my sympathy. Perhaps I can set her mind at rest on this amendment which seeks to clarify further that customer service committees will be established.

As my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in the other place, such an amendment is unnecessary because subsection (3)(a) already achieves the desired effect since it places a duty on the director general to establish customer service committees as soon as practicable after the transfer date for the purposes of allocating companies to them. I am advised that to impose a further duty would merely make the Bill defective. Furthermore, it would be incorrect to impose a duty in subsection (1) unless that subsection also determined the number of committees that are to be established and maintained. Since the number of committees may vary, this is not possible.

I should like to emphasise, therefore, that there is a clear duty to establish these committees, and that they they will be established. Given this reassurance I hope that my noble friend will feel able to withdraw this amendment.

Lord McIntosh of Haringey

Before the noble Baroness decides what to do, I say to the noble Earl that he would only have the nerve to make that reply in the absence of his noble friend Lord Renton. In common parlance the words "may" and "shall" means something different. If the Government are seriously saying that "shall" would imply an obligation to specify the number of customer service committees, that could easily have been solved by a much more conciliatory approach in saying that the number of customer service committees can be decided later. It was not necessary to respond in this way to the noble Baroness's amendment which anybody in common parlance would understand as meaning the possibility that customer service committees would not be set up.

I do not doubt that the noble Earl is legally correct and that his advice was honestly given. However, I doubt that it is wise to purse it in this way, and I wonder whether the Government would have been more tactful to have introduced a further amendment which could have enabled them to use the word "shall", which everybody understands.

Lord Ezra

I believe that the noble Lord, Lord McIntosh, has made a very important point. Legally this drafting may be technically correct but the interpretation by the very large number of people who will use the Bill when enacted could raise doubts. I ask the noble Earl at least to take back this amendment. If it requires some redrafting for legal purposes, perhaps the Government could return with a proposal at a later stage.

Baroness Strange

I should like to say to the Minister that that was a very unfavourable and illogical reply. I was very sorry to see such a lack of logic coming from the Government Front Bench. It may be legal but it is not logical. I hope that the Minister may offer me some comfort, although at present I intend to withdraw the amendment. However, I shall certainly return to this matter.

The Earl of Arran

I am assured that this is legally quite correct, as the noble Lord, Lord McIntosh of Haringey, said. However, I see that there is a little unrest and concern about this interpretation and therefore I shall bring it to the attention of our advisers.

Baroness Strange

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 54 to 57 not moved.]

Lord McIntosh of Haringey moved Amendment No. 57A: Page 6, line 2, leave out ("Director as the Director") and insert ("Secretary of State as the Secretary of State").

The noble Lord said: In moving this amendment I must immediately apologise to the Committee for having failed to put my name to Amendment No. 52, which I should have done. It was the first of the amendments dealing with the roles of the Secretary of State and the Director General of Water Services and the establishment of customer service committees. It was my intention in moving Amendment No. 57 A to complement the amendments to be moved by the noble Lord, Lord Nugent, and it was for that purpose that I put my name to Amendments Nos. 55, 56 and 57. Unfortunately, I neglected to put my name to Amendment No. 52, which is the first occasion on which this matter arises. If the Committee will permit me, therefore, I should like to argue the case for this amendment as a token of the amendments to Clause 6 and to Schedule 4 which deal with the relationship between the Director General of Water Services and the customer service committees.

The problem that we have with the customer service committees as envisaged in this Bill is that they are not independent of the Director General of Water Services but dependent on him for their establishment, their constitution and their operation. We, and those who represent consumer interests generally in this country, feel that this is the wrong way to approach customer service committees and consumer councils. Indeed, there is an excellent precedent in the gas privatisation procedures and with the Gas Consumers Council for what ought to be done.

I remind the Committee that the Gas Consumers Council was to be set up by the Secretary of State; that is, in effect, the Secretary of State for Trade and Industry. It employs its own staff, though its staffing levels and conditions of service are subject to approval by the Department of Trade and Industry and the Treasury. We would not be so bold as to seek to question the Treasury intervention in these matters. However, the council is independent of the Director General of Ofgas. There is a very good reason for that. The regulatory function as established in all these measures, whether for telecommunications, gas or now water, is a clear and specific function but it carries with it the obligation of balancing the needs of all the interested parties in the gas, telecommunications or water industries. The director general has to take into account the interests of the water supply plcs and the various types of customer as well as the statutory obligations placed on him by government.

That is a quite different role from that of customer advocate. In the United States there has been an attempt to set up public utilities committees which combine the role of consumer advocate with the role of regulator. Over a number of years there has been considerable dissatisfaction with the way in which that works and a number of individual states have sought to separate what they call specifically the consumer advocate from the role of the regulatory body. They are right to do so. The consumer advocate has one function only, which is to represent the consumer against the considerable interests of the suppliers; and I remind the Committee that we have monopoly suppliers of water to domestic and non-domestic consumers.

In the gas industry it works. The Gas Consumers Council, set up by the Secretary of State independently of Ofgas, has had some notable successes in recent months. The Gas Consumers Council secured that the industrial pricing policy of British Gas should be referred to the Monopolies and Mergers Commission. It is the Gas Consumers Council which has secured that there should be a code of practice which is—and I say this as the husband of a former chairman of the National Gas Consumers Council—an improvement on any previous code of practice on the disconnection of gas consumers who are in arrears; in other words, the Gas Consumers Council achieved from British Gas a better deal for poor consumers than any previous consumer council had achieved from the old gas boards. Therefore, the model works in the legislation of this Government and it seems rational for this model, which does work, to be extended to the water industry.

It will be said to me that this model has not been imposed on British Telecom, and that is true. The Director General of Oftel has control of the consumer advisory committees which he has set up. However, it is noticeable in looking at British Telecom—and on Second Reading there was a stalwart defence of British Telecom by the noble Lord, Lord Wyatt of Weeford—that in the competitive atmosphere in which British Telecom works it is the director general himself who is taking the lead in protecting the consumer because he is acting in a far more vibrant, expanding and technologically changing atmosphere. That is a very different matter from water supply. As everyone agrees, water supply is a natural monopoly. Telecommunications in many of its aspects is not and for the consumer there is the protection of competition.

I suggest to the Committee that the analogy with British Gas is far better than the analogy with British Telecom. If the Government are making a choice as to which of their previous analogies they want to follow, it would be better for them to choose gas rather than telecommunications. For that reason we are seeking with this amendment, and would have sought with Amendment No. 52 if I had put my name to it—I shall gladly give way to the noble Lord if he wishes to assist me.

Lord Hesketh

Is the noble Lord also speaking to Amendment No. 67A?

Lord McIntosh of Haringey

Yes, I am speaking also to Amendment No. 67A, which is on the same point but referring to Schedule 4 as opposed to Clause 6. The point of both amendments, if I may make this clear to Members who do not have the Bill in front of them, is that Clause 6 deals with the principles of the establishment of customer service committees and Schedule 4 deals with the details.

In all these amendments we seek to establish that the Secretary of State rather than the director general should have responsibility for setting up the customer service committees. That is a logical and rational extension of existing government policy. I do not think that even the noble Earl, Lord Gowrie, could call this a wrecking amendment; and he carries the phrase "wrecking amendment" further than I have ever heard it carried before. I hope that the Government will be able to support the principle behind these amendments even though my oversight on Amendment No. 52 has made them technically defective. I beg to move.

Lord Ezra

The question of the independence of consumer advocacy is of vital importance. In this very complex legislation which is transferring a basic monopoly enterprise from the public to the private sector it must be seen that the consumer is protected as much as possible. The director has many functions to undertake in that respect but the consumer organisations that are set up under this Bill should be seen to be as independent as possible. It is for that reason that I support this amendment and I very much hope that the Government will be persuaded by the argument to accept it.

Lord Hesketh

Before replying I should make it clear to the Committee that, while I completely accept what was said by the noble Lord, Lord McIntosh, who gave a rather broader picture by explaining his support for Amendment No. 52, I shall be responding only to Amendments No. 57A and 67A.

Amendment No. 57A would provide for the Secretary of State rather than the director general to appoint members of the customer service committees. Amendment No. 67A would transfer to the Secretary of State the director general's responsibility for determining the amount of any compensation for loss of office paid to a chairman of a customer service committee.

In order for the director general to take customer interest properly into account in his role as the economic regulator and in ensuring that the quality of companies standards of operational services to customers are maintained and, where appropriate, improved, it is vital that he has the full and adequate briefing from the customer service committees. In these circumstances it is right and proper that he should appoint the members and chairman of these committees and that they should report to him. As a consequence the committees will carry the additional weight in investigating customer complaints and in taking up more general matters of concern to customers with the new companies. It would thoroughly confuse matters if the committees were to be responsible to the Secretary of State but with the director having a duty to protect customer interests and powers as an economic regulator to enforce that protection.

In our view, the director should also be responsible for deciding all aspects of the remuneration of the very people he appoints to the committees. I can assure the Committee that there is nothing new in the suggestion that compensation for loss of office should be determined by the person who made the original appointment. There are many examples of this in primary legislation introduced by both main political parties over the years. For these reasons I urge the Committee to resist Amendments Nos. 57A and 67A.

Lord McIntosh of Haringey

I appreciate that the Minister has been briefed on the specific amendments. It is entirely my responsibility to have widened the basis of the debate and not his. If he and the Government Front Bench think about the issue, you cannot actually separate Amendments Nos. 57A and 67A from the others. The whole point of distinguishing between consumer advocacy and regulation is not unknown to government. It could have been anticipated and it should have been in the light of the amendments put down by the noble Lord, Lord Nugent. He might well have said that they should not have been grouped with his earlier amendment. He would have been perfectly within his rights to do so at any time up until say midday today. If I had my name on the amendment I certainly would have objected to that grouping.

I should have thought that the Government would have taken this opportunity to attempt to defend the principle of subordinating consumer advocacy to regulation. If the Minister feels able to do so, I shall happily give way to him. Since he does not feel able to do so, it is necessary for me to seek the opinion of the Committee on this matter. It is right for us to establish as clearly as we can our support for the separation of powers between consumer advocacy and regulation and to see that that is enshrined in this legislation, as it was in the legislation for the privatisation of British Gas. If Amendment No. 57A meets with the approval of the Committee, I shall undertake to introduce the necessary consequential amendments at a later stage.

6.35 p.m.

On Question, Whether the said amendment (No. 57A) shall be agreed to?

Their Lordships divided: Contents, 52; Not-Contents, 141.

DIVISION NO. 2
CONTENTS
Addington, L.	Lawrence, L.
Airedale, L.	Listowel, E.
Ardwick, L.	Lloyd of Kilgerran, L.
Birk, B.	Lockwood, B.
Cledwyn of Penrhos, L.	Longford, E.
Cocks of Hartcliffe, L.	McCarthy, L.
Craigavon, V.	McIntosh of Haringey, L.
Darcy (de Knayth), B.	Monson, L.
David, B.	Nicol, B.
Dean of Beswick, L.	Northfield, L.
Dormand of Easington, L.	Perry of Walton, L.
Elwyn-Jones, L.	Phillips, B.
Ezra, L.	Ponsonby of Shulbrede, L. [Teller.]
Fisher of Rednal, B.
Foot, L.	Rochester, L.
Galpern, L.	Ross of Newport, L.
Graham of Edmonton, L.	Russell, E.
Hampton, L.	Russell of Liverpool, L.
Hanworth, V.	Stewart of Fulham, L.
Harris of Greenwich, L.	Stoddart of Swindon, L.
Hatch of Lusby, L.	Thurso, V.
Hayter, L.	Tordoff, L. [Teller.]
Hooson, L.	Underhill, L.
Houghton of Sowerby, L.	White, B.
Jeger, B.	Williams of Elvel, L.
Jenkins of Hillhead, L.	Young of Dartington, L.
Kilmarnock, L.
NOT-CONTENTS
Abinger, L.	Ashbourne, L.
Ailesbury, M.	Astor of Hever, L.
Alexander of Tunis, E.	Beloff, L.
Alexander of Weedon, L.	Belstead, L.
Arran, E.	Bessborough, E.

Blatch, B.	Marchwood, V.
Blyth, L.	Margadale, L.
Boardman, L.	Marley, L.
Brabazon of Tara, L.	Maude of Stratford-upon-Avon, L.
Bridgeman, V.
Brocket, L.	Merrivale, L.
Brougham and Vaux, L.	Mersey, V.
Butterworth, L.	Monk Bretton, L.
Caithness, E.	Montagu of Beaulieu, L.
Caldecote, V.	Monteagle of Brandon, L.
Campbell of Alloway, L.	Morris, L.
Carnegy of Lour, B.	Mottistone, L.
Carnock, L.	Mountevans, L.
Clinton, L.	Mowbray and Stourton, L.
Clitheroe, L.	Moyne, L.
Coleraine, L.	Munster, E.
Colwyn, L.	Murton of Lindisfarne, L.
Constantine of Stanmore, L.	Napier and Ettrick, L.
Cork and Orrery, E.	Nelson, E.
Cottesloe, L.	Norfolk, D.
Cox, B.	Norrie, L.
Craigmyle, L.	Northesk, E.
Cranbrook, E.	Nugent of Guildford, L.
Crathorne, L.	Onslow, E.
Cross, V.	Orkney, E.
Daventry, V.	Oxfuird, V.
Davidson, V. [Teller.]	Penrhyn, L.
Denham, L. [Teller.]	Portsmouth, E.
Dilhorne, V.	Radnor, E.
Dundee, E.	Reay, L.
Eden of Winton, L.	Redesdale, L.
Elibank, L.	Rees, L.
Elliot of Harwood, B.	Reigate, L.
Elliott of Morpeth, L.	Renwick, L.
Elphinstone, L.	Rochdale, V.
Erne, E.	Rodney, L.
Falmouth, V.	Rollo, L.
Ferrers, E.	Sackville, L.
Ferrier, L.	Saint Levan, L.
Forester, L.	Saltoun of Abernethy, Ly.
Fraser of Carmyllie, L.	Savile, L.
Gainford, L.	Selborne, E.
Glenarthur, L.	Shrewsbury, E.
Grantchester, L.	Skelmersdale, L.
Gray of Contin, L.	Southborough, L.
Greenway, L.	Strange, B.
Gridley, L.	Strathclyde, L.
Haig, E.	Swansea, L.
Hailsham of Saint Marylebone, L.	Swinfen, L.
	Teviot, L.
Hardinge of Penshurst, L.	Teynham, L.
Hemphill, L.	Thorneycroft, L.
Henley, L.	Townshend, M.
Hertford, M.	Trafford, L.
Hesketh, L.	Trefgarne, L.
Hives, L.	Trenchard, V.
Hooper, B.	Trumpington, B.
Kemsley, V.	Ullswater, V.
King of Wartnaby, L.	Vaux of Harrowden, L.
Knutsford, V.	Waldegrave, E.
Lauderdale, E.	Willoughby de Broke, L.
Layton, L.	Windlesham, L.
Lindsey and Abingdon, E.	Wise, L.
Long, V.	Wynford, L.
Lyell, L.	Yarborough, E.
Macleod of Borve, B.	Young of Graffham, L.
Malmesbury, E.

Resolved in the negative, and amendment disagreed to accordingly.

6.43 p.m.

[Amendment No. 58 not moved.]

[Amendment No. 59 had been withdrawn from the Marshalled List.]

The Deputy Chairman of Committees (Baroness Cox)

I must point out that if Amendment No. 59A is agreed to I cannot call Amendments Nos. 60 or 62.

Lord Graham of Edmonton moved Amendment No. 59A: Page 6, line 5, leave out from ("the") to ("and") in line 11 and insert ("Secretary of State shall have regard to—

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

The noble Lord said: With this amendment we are seeking to have the interests of certain groups of people written into the Bill. Under the Bill as it stands the prime consideration seems to be the water or sewerage undertaker and not the consumer. The amendment requires that the Secretary of State shall have regard to: (a) the desirability of appointing a person who has experience of, and has shown capacity in, representing the interests of consumers of water and users of sewerage services".

We believe that this aspect must be made crystal clear on the face of the Bill. The purpose of the customer service committee is to protect the consumer and not to sympathise with the technical problems of the industry. There will be technical problems and they can be sympathised with, but in a Bill designed allegedly to be in the best interests of water users we are concerned that the consumers of water should have a place on the committee. It is not good enough that members of the committee should have: experience of, and have shown capacity in, some matter relevant to the functions of a water undertaker or sewerage undertaker or to the carrying out of those functions".

If anything, those would be a disqualification for looking after the interests of the consumer.

I hope that the Minister will consider making a concession on a point of which up to now the Government and their spokesmen have made great play. The interests of the water consumer should not only be adequately protected but also adequately represented. This would be a tiny concession. I beg to move.

Baroness Fisher of Rednal

I support my noble friend. The amendment refers to: the desirability of appointing a person who has experience of". We all have experience of water, whether we use it for washing or for some other purpose. We are all consumers of water. I hope that when making these appointments the Government will bear in mind that women know something about water. They have a capacity to represent the interests of consumers. I said during a previous discussion on the Water Bill that only one woman is represented on the eight water authorities. I do not know whether or not she would be called a statutory woman. Today we are celebrating 10 years of a woman Prime Minister.

Lord Graham of Edmonton

Some noble Lords are!

Baroness Fisher of Rednal

I apologise to my noble friend. The Government are celebrating 10 years of a woman Prime Minister. This might be a birthday present which the Prime Minister would welcome on behalf of all women. It is an important point. Women will have "experience of" and will have "shown capacity in", and they can represent consumers.

Baroness Strange

I should like to speak to Amendment No. 61 which is not quite the same as the other two amendments. It is a simple amendment. Two categories of person are to be included in the customer service committee. They are: persons who have experience of, and have shown capacity in, some matter relevant to the functions of a water undertaker or sewerage undertaker". That is straightforward. These people will be the technicians and those with the know-how. Clearly they should be represented. The second category is those who understand the special needs of disabled people. Of course they should be represented. That goes without saying. However, this is a customer service committee we are talking about. We are all customers. As a matter of fact we are all domestic customers too. Surely if there are to be committees—my noble friend the Minister is going to ensure that there will be—and they are to be called customer service committees, they must represent all customers, some of whose interests might conflict with those who have experience of, and have shown capacity in, water and sewerage undertakings.

Perhaps I may quote briefly from Sir Frederick Corfield's Report published by the Selsdon Group in November 1988. He said: Since the protection of the consumer rests almost entirely upon the manner in which the Director General of Water Services performs his duties and in particular holds the balance between the interests of consumer and shareholder, it is, one would have thought, essential that the CSCs should be wholly independent and be recruited from people with particular knowledge of the needs and problems of different categories of consumers—metered and unmetered, domestic, industrial, agricultural and horticultural—rather than from people with experience of the functions of a water or sewerage authority and therefore likely to be more in tune with the problems of supply than with the standard of service required by the consumer. While a CSC thus orientated and with a staff selected by the Director General of Water Services may be expected to ease the burden upon him, that presumably is not the object of the exercise". The CSCs need representatives from all sorts of organisations, and particularly local ones; for example, the Women's Institute, the Townswomen's Guild, Age Concern, Citizens' Advice Bureaux, local authorities, local members of the CBI, the National Farmers' Union, horticultural users, local hospitals and the community health council. All those groups are customers and they all need representation on the CSCs.

A similar privatised industry is the gas industry. In Section 2(3)(a) of the Gas Act 1986 it specifies that membership of the "Consumers' Council" should, include members who, by reason of their familiarity with the special requirements and circumstances of the different areas of Great Britain or of small businesses, are able together to represent the interests of the consumers of gas". We are not all consumers or customers of gas; some of us buy electricity, oil, coal and some of us chop our own wood and have Tilley lamps. Moreover, some of us even have candles. However, we are all customers for water. Therefore, it seems self-evident that customer service committees should represent customers; otherwise they should be called something else.

Lord Hesketh

Amendment No. 59A would replace the requirement on the director to have regard to the desirability to appoint people to the customer service committees with experience or expertise of the water or sewerage industry, by a requirement on the Secretary of State to have regard to the desirability of appointing a person with experience or expertise in representing water and sewerage service customers. Before going any further, I think that I should point out to the noble Baroness, Lady Fisher of Rednal, that at present it is not the Government who will make the appointments; it is the director general.

Amendment No. 61 would similarly require the director general, in making appointments to the committees to have regard to the desirability of appointing people with such expertise and in particular in representing domestic customers.

The requirements in subsection (5) that the director should have regard to relevant expertise of water or sewerage undertakers and of the special needs of the disabled in making appointments to a CSC are not exclusive requirements. They are just two of the considerations the director will need to weigh in getting the balance right. There is no bar on membership by people with no such experience.

The director's touchstone will always be the need to appoint committees that can deal efficiently with the wide range of customer issues and complaints that CSCs are likely to face. As my honourable friend the Parliamentary Under-Secretary of State for the Environment explained in the other place, it is envisaged that the director will need to ensure that there is a similar balance of interests represented on these committees to those of the existing consumer consultative committees; in other words, a three-fold balance of interests between domestic customers, industrial commercial and farming interests and local authorities.

The arrangements for determining how this balance is to be achieved and who the customer representatives are to be, are properly matters best left to the discretion of the director general. It is clear that he will need to ensure that there is effective customer representation if he is to obtain the advice that he requires from these committees to ensure that customers' interests are properly protected. It is for those reasons, as I explained in relation to Amendments Nos. 57A and 67A, that the director should be responsible for making those appointments rather than the Secretary of State.

I believe that the noble Lord, Lord Graham of Edmonton, indicated that he felt the director was biased essentially in favour of the industry against the interests of the customer. In my view it is a misunderstanding of the Bill to see the director as being biased in favour of the industry against the interests of the customer. In Clause 7(2)(a) it makes it a primary duty of the Secretary of State and the director to ensure that the new companies properly carry out their functions; or, in other words, that they ensure the services to customers are properly provided.

While entirely agreeing that there should be customer representatives on these committees, including representatives of domestic customers, I invite the Committee to reject the two amendments for the reasons I have stated.

Lord Graham of Edmonton

It is a continuing disappointment to me that the Minister relies upon generalities; such as, "properly to carry out the functions". It might satisfy the Minister to think that when the director general seeks to "people" the committees, he will make sure that there are people there who are able to carry out the functions from the point of view of the tripartite interests which he has just mentioned. I do not doubt his intentions. However, we are seeking now to demonstrate to the people outside this place—that is, every consumer in the land—that the Government are actually writing into the Bill the provision that among the people who will be on those committees there will be someone who is seen to be—to use a clumsy phrase—a consumer champion; that is, someone who is recognised as more of a consumer person than a technical person. I realise that it will not be easy to do so.

It is not an easy task to achieve a good balance when seeking to select people who are willing to give up time to do this work. It is of course very glib for someone to say, "We will have this person and that person". However, there are many bodies and organisations who should be represented. Indeed, I heard the noble Baroness, Lady Strange, run through a list of such organisations. She speaks from her knowledge and experience in the matter.

We are inviting the Government to demonstrate their good faith. It does not mean to say that we are decrying the integrity of the director general, or even that of the Government. However, we want to see the Government put their money where their mouth is; in other words, we want to see the Government put words where their mouth is. We want the consumers outside this place to realise that all the groups—besides the disabled and others which are specially sought out as being entitled to a place at this particular top table—are public consumers of water. The Government have failed lamentably to convince me on the matter. I believe that they have also failed lamentably to convince the public as to their true bona fides in ensuring that consumers of water will have their interests well looked after, not just by the Government or the director general but also by the people on these committees. I intend to press the amendment to a vote.

6.58 p.m.

On Question, Whether the said amendment (No. 59A) shall be agreed to?

Their Lordships divided: Contents, 54; Not-Contents, 116.

DIVISION NO. 3
CONTENTS
Addington, L.	Birk, B.
Ailesbury, M.	Blyth, L.
Airedale, L.	Broadbridge, L.
Ardwick, L.	Buckmaster, V.
Baldwin of Bewdley, E.	Cledwyn of Penrhos, L.

Cocks of Hartcliffe, L.	McIntosh of Haringey, L.
Craigavon, V.	McNair, L.
Dean of Beswick, L.	Monson, L.
Dormand of Easington, L.	Mountevans, L.
Ewart-Biggs, B.	Nicol, B.
Ezra, L.	Phillips, B.
Fisher of Rednal, B.	Ponsonby of Shulbrede, L. [Teller.]
Galpern, L.
Graham of Edmonton, L.	Rochester, L.
Hampton, L.	Ross of Newport, L.
Hayter, L.	Russell, E.
Hooson, L.	Russell of Liverpool, L.
Houghton of Sowerby, L.	Shannon, E.
Irving of Dartford, L.	Stewart of Fulham, L.
Jeger, B.	Stoddart of Swindon, L.
Jenkins of Hillhead, L.	Tordoff, L. [Teller.]
Kilbracken, L.	Underhill, L.
Kilmarnock, L.	White, B.
Listowel, E.	Williams of Elvel, L.
Lloyd of Kilgerran. L.	Willis, L.
Lockwood, B.	Winterbottom, L.
Longford, E.	Young of Dartington, L.
McCarthy, L.

NOT-CONTENTS
Abinger, L.	Hives, L.
Alexander of Tunis, E.	Hooper, B.
Alexander of Weedon, L.	Kemsley, V.
Annan, L.	King of Wartnaby, L.
Arran, E.	Knutsford, V.
Ashbourne, L.	Layton, L.
Astor of Hever, L.	Lindsey and Abingdon, E.
Beloff, L.	Long, V. [Teller.]
Belstead, L.	Lyell, L.
Bessborough, E.	Macleod of Borve, B.
Blatch, B.	Malmesbury, E.
Boardman, L.	Marchwood, V.
Brabazon of Tara, L.	Margadale, L.
Bridgeman, V.	Merrivale, L.
Brocket, L.	Mersey, V.
Brougham and Vaux, L.	Monk Bretton, L.
Caithness, E.	Monteagle of Brandon, L.
Caldecote, V.	Morris, L.
Campbell of Alloway, L.	Mottistone, L.
Carnegy of Lour, B.	Mowbray and Stourton, L.
Carnock, L.	Munster, E.
Clinton, L.	Murton of Lindisfarne, L.
Clitheroe, L.	Napier and Ettrick, L.
Coleraine, L.	Nelson, E.
Colwyn, L.	Norrie, L.
Constantine of Stanmore, L.	Northesk, E.
Cork and Orrery, E.	Nugent of Guildford, L.
Cottesloe, L.	Onslow, E.
Cox, B.	Oppenheim-Barnes, B.
Craigmyle, L.	Orkney, E.
Cranbrook, E.	Oxfuird, V.
Crathorne, L.	Penrhyn, L.
Cross, V.	Portsmouth, E.
Davidson, V. [Teller.]	Radnor, E.
Dormer, L.	Reay, L.
Dundee, E.	Redesdale, L.
Eden of Winton, L.	Rees, L.
Elibank, L.	Reigate, L.
Elliot of Harwood, B.	Rochdale, V.
Erne, E.	Rodney, L.
Falmouth, V.	Sackville, L.
Ferrers, E.	St. John of Bletso, L.
Forester, L.	Saint Levan, L.
Fraser of Carmyllie, L.	Saltoun of Abernethy, Ly.
Glenarthur, L.	Selborne, E.
Grantchester, L.	Skelmersdale, L.
Gray of Contin, L.	Southborough, L.
Greenway, L.	Strange, B.
Gridley, L.	Strathclyde, L.
Haig, E.	Teviot, L.
Hardinge of Penshurst, L.	Trafford, L.
Hemphill, L.	Trefgarne, L.
Henley, L.	Trenchard, V.
Hertford, M.	Trumpington, B.
Hesketh, L.	Ullswater, V.

Vaux of Harrowden, L.	Wise, L.
Waldegrave, E.	Wynford, L.
Windlesham, L.	Yarborough, E.

Resolved in the negative, and amendment disagreed to accordingly.

[Amendment No. 60 not moved.]

Baroness Strange moved Amendment No. 61:

Page 6, line 5, at end insert— ("() the desirability of the persons appointed being persons who have the experience of and capacity in representing the interests of users of water and sewerage services, and in particular of domestic consumers.").

The noble Baroness said: I am not satisfied with what my noble friend the Minister said and so I should like to test the opinion of the Committee. I beg to move.

7.7 p.m.

On Question, Whether the said amendment (No. 61 ) shall be agreed to?

Their Lordships divided: Contents, 47; Not-Contents, 91.

DIVISION NO. 4
CONTENTS
Addington, L.	Lockwood, B.
Airedale, L.	Longford, E.
Ardwick, L.	McCarthy, L.
Baldwin of Bewdley, E.	McIntosh of Haringey, L.
Birk, B.	McNair, L.
Broadbridge, L.	Monson, L.
Buckmaster, V.	Moyne, L.
Cledwyn of Penrhos, L.	Nicol, B.
Cocks of Hartcliffe, L.	Oppenheim-Barnes, B. [Teller.]
Elliot of Harwood, B.
Ewart-Biggs, B.	Phillips, B.
Ezra, L.	Ponsonby of Shulbrede, L.
Galpern, L.	Rochester, L.
Graham of Edmonton, L.	Ross of Newport, L.
Hanworth, V.	Russell, E.
Hooson, L.	Russell of Liverpool, L.
Houghton of Sowerby, L.	Shannon, E.
Irving of Dartford, L.	Stewart of Fulham, L.
Jeger, B.	Strange, B. [Teller.]
Jenkins of Hillhead, L.	Tordoff, L.
Kilbracken, L.	Underhill, L.
Kilmarnock, L.	White, B.
Listowel, E.	Williams of Elvel, L.
Lloyd of Kilgerran, L.	Young of Dartington, L.

NOT-CONTENTS
Abinger, L.	Cork and Orrery, E.
Alexander of Tunis, E.	Cottesloe, L.
Alexander of Weedon, L.	Cox, B.
Arran, E.	Craigmyle, L.
Ashbourne, L.	Cranbrook, E.
Astor of Hever, L.	Crathorne, L.
Beloff, L.	Davidson, V. [Teller.]
Belstead, L.	Dundee, E.
Blatch, B.	Eden of Winton, L.
Boardman, L.	Erne, E.
Brabazon of Tara, L.	Falmouth, V.
Bridgeman, V.	Forester, L.
Brocket, L.	Fraser of Carmyllie, L.
Brougham and Vaux, L.	Glenarthur, L.
Caithness, E.	Gray of Contin, L.
Campbell of Alloway, L.	Greenway, L.
Carnock, L.	Gridley, L.
Clinton, L.	Haig, E.
Coleraine, L.	Hardinge of Penshurst, L.
Colwyn, L.	Hemphill, L.
Constantine of Stanmore, L.	Henley, L.

Hertford, M.	Penrhyn, L.
Hesketh, L.	Portsmouth, E.
Hooper, B.	Radnor, E.
Kemsley, V.	Reay, L.
King of Wartnaby, L.	Redesdale, L.
Knutsford, V.	Rees, L.
Layton, L.	Rodney, L.
Long, V. [Teller.]	Sackville, L.
Malmesbury, E.	Saint Levan, L.
Marchwood, V.	Selborne, E.
Margadale, L.	Skelmersdale, L.
Merrivale, L.	Southborough, L.
Mersey, V.	Strathclyde, L.
Monteagle of Brandon, L.	Swinfen, L.
Mottistone, L.	Teviot, L.
Mountevans, L.	Trafford, L.
Munster, E.	Trefgarne, L.
Murton of Lindisfarne, L.	Trenchard, V.
Napier and Ettrick, L.	Ullswater, V.
Norrie, L.	Vaux of Harrowden, L.
Northesk, E.	Waldegrave, E.
Nugent of Guildford, L.	Windlesham, L.
Onslow, E.	Wynford, L.
Orkney, E.	Yarborough, E.
Oxfuird, V.

Resolved in the negative, and amendment disagreed to accordingly.

7.15 p.m.

The Earl of Arran

I think that this might be a very appropriate moment at which to break for dinner. I suggest that we do not return to the Committee stage of the Bill before 8.15 p.m. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.