Water Bill

HL Deb 09 May 1989 vol 507 cc620-42

House again in Committee on Clause 14.

Lord Graham of Edmonton moved Amendment No. 158C: Page 14, line 36, at end insert— ("(1A) An appointment made under this Chapter shall include a condition requiring a review of the appointed company's charges at such intervals as the Director may determine being not less than every five years.").

The noble Lord said: This amendment is intended to clarify the position relating to the timescales over which the charging regime of companies will be reviewed. The amendment says: An appointment made under this Chapter shall include a condition requiring a review of the appointed company's charges at such intervals as the Director may determine being not less than every five years".

Under the Government's proposals as they are currently understood, the Secretary of State will set prices over the initial period which we understand is likely to be 10 years. Thereafter the director has a duty to keep matters under review. However, Clause 26 does not specify a period over which such a review may take place. Subsection (3) of that clause enables the Secretary of State to give general directions concerning considerations which the director should take into account and the order of priority in which matters should be brought under review. It is presumably under that power that the timescale, if any, will be established.

We have heard statements by Ministers which have suggested that the review would be on a five-yearly basis. However, that provision does not appear in the Bill. The reason for raising the issue here under Clause 14, rather than when we deal with Clause 46, is precisely the confused presentation of the Bill. The appointment and its conditions, including such matters as pricing, are dealt with at the beginning of Chapter I. The director's review, including the same matters, is dealt with at Clause 26. Although this is by no means the grossest example of the complexities of the Bill, it still seems sensible to discuss conditions of appointment and the review of the operation of such conditions at the same time.

The amendment would have two effects. It would formalise what is understood to be the position in relation to a requirement for a review every five years. It would also introduce a shorter delay in getting the director involved in pricing after the initial price fixing by the Secretary of State. If, as is understood, the Secretary of State intends the initial pricing regime to last for 10 years, the amendment would at least introduce a review of such prices—whether or not it led to any change as a result—after five years. Surely that is desirable in circumstances where prices have been fixed other than by the consumer watchdog in the first instance. Were the Government to concede that the director alone should fix prices from the outset, a period of 10 years may be more acceptable for the initial period in terms of consumer protection. I beg to move.

8.45 p.m.

The Earl of Arran

With the agreement of Members of the Committee I hope to be able to enlighten the noble Lord, Lord Graham of Edmonton, upon this amendment and also upon Amendment No. 164A.

Clause 14 sets out the potential scope of conditions of appointment of the water and sewerage undertakers and contains ancillary provisions concerning their appointment. The conditions of appointment of each company, including those concerning charging, charges schemes, customer services committees and accounts will be set out in each company's instrument of appointment. Those conditions impose enforceable obligations on each undertaker who will need to satisfy the director general that it has complied with those conditions.

The purpose of Amendment No. 158C is to place on the face of the Bill a specific condition which would bind the company to a review of its charges at intervals of not less than every five years. Amendment No. 164A would require the instrument of appointment to include a condition obliging an appointee to submit to the Secretary of State or the director general detailed accounts of its charges. The amendment would require the director or Secretary of State to review and, if he considered appropriate, publish those accounts not less than once every five years. The relevant customer service committee would also be provided with those accounts.

Perhaps I should briefly explain at this point how the Bill and the instrument of appointment work together to control the charges levied by the appointed companies. Clause 74 of the Bill provides utilities with powers to charge. Clause 7(3) places a duty on the director to ensure that customers, and potential customers, are protected as regards charges in respect of water and sewerage services.

The model instrument of appointment includes a specific condition on charges, condition B, which restricts charges increases to an amount linked to the retail prices index by a price control formula.

Condition D of the instrument of appointment places an obligation on the appointee to ensure that it shows no undue preference for, or undue discrimination against, classes of customer in setting its standard charges. On request the appointee must provide information to demonstrate compliance with the condition.

Appointees will also be required under condition B to provide such information about standard charges for water, sewerage and trade effluents that is necessary to satisfy the director that its charges increases comply with the formula. The director therefore effectively monitors the charges level of each appointed company each year. However, the instrument of appointment goes further and provides for the director to conduct a detailed review of the business of each appointee at 10-yearly intervals, or five-yearly, on the request of the appointee or at the director's discretion, This review would include, but go much wider than, a review of the company's charges.

On Amendment No. 164A the director has an explicit duty under Clause 7 to protect customers' interests in charging matters and he would therefore take account of the views of the relevant customer service committee automatically. He may include such information about charges in his annual report as he sees fit and would certainly do so if they were matters of general interest.

Condition E of the instrument of appointment requires that a comprehensive accounting statement, including an analysis of turnover of the appointed business, must be published with the annual accounts of the appointee or the appointee's holding company. Copies of those accounts must be made available to customers on request.

Finally, condition F of the instrument of appointment requires companies to set out their domestic charge schemes within the customers' code of practice, and these too will be available on request free of charge. An outline of the code has already been published. The objectives these amendments seek to meet are already provided for in the Bill and in the model instrument of appointment. I therefore urge the noble Lord, Lord Graham, to consider withdrawing the amendment.

Lord Graham of Edmonton

I am bound to say that the Minister drew to my attention a great deal more of the detail surrounding the issue than I had in mind. I am reasonably satisfied that the phrase the Minister uses constantly, "the underlying intention of the amendment", is met by his explanation. Will he justify the 10-year period, because 10 years is a long time? A great deal happens in 10 years. I believe that the Minister used the term "monitoring". Not only are the charges to be monitored, but so are the accounts and the method of operation. In other words, the totality of the business is, if not under constant review (with a capital R), being monitored carefully.

If the director general is doing his job, he will not merely wait for people to complain but will take an active interest in what goes on. There will not be just one man; there will be a staff. They will be watching the business closely. I asked for a review. That does not mean a change; it merely means a close look to see that all the matters that should be complied with are being complied with. Why has 10 years been chosen as opposed to five years or some different period?

The Earl of Arran

I hope that I can put the mind of the noble Lord, Lord Graham of Edmonton, at ease by saying that 10 years has been chosen because the industry is regarded as being stable and therefore it takes 10 years to change.

Lord Graham of Edmonton

A business which is stable takes 10 years to change! I believe that that explanation is the best we will get tonight. I should have thought that if a business is stable those who are in charge of it would be in charge of it. That is a phrase which goes down with the Ministers as "Euphemisms I have known". People who run a stable business are in control of it. They can make changes at any moment. An unstable business could take a long time to change because no one is in control of the elements.

Anyone who takes on the task of running a water undertaking needs a long time. We are not talking about the life of a company. If capital is to be invested and skilled people are to be attracted into the company they need to know that it is possible to look ahead with certainty. Ten years may well be a fair period for what one might call the putative life of the business. I am arguing for a five-year review so that the public can be satisfied about the changes.

I do not intend to press the amendment. I shall withdraw it. Will the Minister say why he is resisting what I am asking for? That may be a formality in the light of his earlier explanation. From what the Minister said, everything that I envisage being undertaken by my review takes place all the time. Why resist the amendment if it provides the director general and the companies with an opportunity publicly to say, "We have been vetted. We have been examined. We have been given a clean bill of health"? If it emerges that something major needs to be done, such things can be looked at every five years. A few more words from the Minister will satisfy me.

The Earl of Arran

The noble Lord, Lord Graham, seems determined that under condition B the review must be at 10-year intervals. As I hope I made clear when speaking to the amendment, under condition B the review can be five-yearly if required on the request of the appointee, or, at the director's discretion, within not less than five years.

Lord Graham of Edmonton

The Minister is saying that the review could be three-yearly if the company or the director requested it. If it could be three, it could be nine. I am trying to ensure that at least once every five years there is a thorough review of the company's modus operandi and of its compliance with its responsibilities.

I am grateful to the Minister for enlightening me about the number of safeguards that are built into different aspects of the Bill. I shall read what he said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 158D and 158E not moved.]

[Amendment No. 159 had been withdrawn from the Marshalled List.]

Lord Graham of Edmonton moved Amendment No. 159A: Page 14, line 42, at end insert ("including directions as to water pressure, interruptions to supply and foul water flooding").

The noble Lord said: This is a further endeavour to be specific. I know that the Government will talk about the general conditions of appointment set out in Clause 14. The Minister may say that not only are the elements in the amendment specific but they are inappropriate ones to be added to the clause. The amendment was introduced in another place by the Conservative Member of Parliament for Warrington, Mr. Chris Butler. He talked about three specific levels of service: first, water pressure; secondly, interruptions to supply; and, thirdly, foul water flooding.

The Government will of course tell me that the company has to provide the director with details of its intentions as to the quality of its services in the form of service targets to be achieved by a certain date. That date, or time period, will be specified by the Secretary of State on making the appointment or by the Director General of Water Services. As regards the three key aspects of service, the company will have to state its future service targets. If he considers it necessary, the director general may keep the quality of services under review. That important information about service targets is embedded deep in the licence and even then not in any detail.

There is a case for including the specific requirements in the Bill, Ideally, the licence conditions should also specify a whole range of minimum service standards. The water consuming public will also have the points contained in the amendment high up on their list of requirements. We want them included because the people who may be inconvenienced in distressing ways as a result of those derelictions need to have confidence in the provisions.

In the other place, the Conservative Member for Warrington said that he was concerned particularly about foul water flooding from private or unadopted sewers connected to the public main. When those sewers eventually deteriorate, flooding homes with raw sewage, it is often impossible to establish liability for the incident as the original builder of the sewer may no longer exist.

Warrington is not a great distance from Manchester. Mr. Butler could well be making a special case. He is not only entitled to do that; he is obliged to do so on behalf of the people who may have had distressing experiences. Throughout the passage of the Bill, Mr. Butler told the other place that the Government had been extremely unhelpful as regards private sewers. Will the Minister take on board the nexus of the dereliction by those who are responsible for private sewers and the damage that can be caused by the three points that I have mentioned? The Minister, Mr. Moynihan, replied to Mr. Butler that these matters were not put in the Bill itself because their inclusion in the appointment would allow more flexibility for each undertaker. I do not understand how being specific would lead to more flexibility. Perhaps I have it wrong. I see that the Minister is puzzled and he will want some advice on the matter. I have been reading a paraphrasing of Mr. Moynihan's remarks. I did not quote directly from the Official Report. I am told that the Minister said that the three target levels of service were important aspects of the quality of service to customers as they would set benchmarks for the expected level of service to be achieved. They are thus an essential starting point for establishing and managing systems of long-term investment planning.

The question which needs to be asked is this. If these levels of service are so important, why would a general direction, as in this amendment, be inappropriate? It is a probing amendment of course because we want the Minister to tell the Committee that the worries of people raising these matters on behalf of others who could be badly affected may be put at rest.

As regards foul water flooding, according to the work done by Doctor Judith Rees of the London School of Economics, there has been a disturbing increase in sewer failures in most water authority areas. The number of unsatisfactory storm overflows and incidents of foul water flooding appears to have risen—just like the level of the water, I suppose. In the Thames Water Authority, about 13,000 homes are classified as under undue risk of sewage flooding, compared with 8,000 in 1982. I suppose that one could say that with 20 million households perhaps an increase of 5,000 does not amount to very much unless you are one of the 5,000.

In addition, some water authorities, such as Southern, indicate in their plans that the number of households at risk will increase in future as expenditure on sewerage renewal and pipe enlargement lags behind increases in discharge levels. We also now know that foul water flooding is not to be included in the Government's guaranteed standards scheme. So much for the scheme lauded by the noble Lord, Lord Hesketh, before the dinner break. That is something which worries many people greatly and we shall return to it later in the Bill. This omission makes it all the more vital that some general directions in regard to the matter be given on the face of the Bill.

The last point which is covered by the amendment is in respect to water pressure. There is evidence that Thames Water pressure has been substantially reduced in order to save pumping costs. It could also be done to reduce the likelihood of failure of the mains which Thames Water know to be ageing—a way of concealing the true state of the system and reducing or postponing maintenance costs. I do not make that charge because these are surmises and suppositions. But it certainly sounds possible to me.

The managers of water plcs will, after privatisation, be doing their best to see just what they can get away with; in other words, the minimum that they need to do in order to comply with the conditions that they have accepted. This is extremely worrying as it will be many years before the full effect of corner cutting is known. Once again we need something comprehensible in the Bill to allay the fears of the ordinary person who may not be able to cope with the detail of the licence. I beg to move.

9 p.m.

Lord Ross of Newport

Perhaps I may speak briefly in support of the amendment which I agree is probing. It seems to me that the Bill gives a marvellous opportunity to put right some of the problems which still exist. I am not too aware of private sewers going into the main sewers, but obviously they exist. I am very well aware—and I am sure that the noble Earl, with his experience as a land agent will also know—of many instances where private water pipes come off the mains. That causes a lot of problems because in some estates they have not been properly maintained and there has been a refusal on the part of the water authorities and water companies to do anything about the problem. That is perfectly fair, because they are not responsible; but they provide the water.

It seems to me that just as there is still a mess in this country of unadopted roads; and we can never get enough people to put up the money to get those roads taken over and adopted, there is a chance in the Bill to put right some of the things that are still wrong. That would be beneficial to the people who are serviced by these mains. It is a long shot. Perhaps the Minister cannot respond to it at this time; but there is an opportunity here.

Certainly as regards private sewers which are going into the main sewers, presumably there is some responsibility for these and some money or compensation to come from people if the sewers are defective. So it would appear to me that if we could obtain the right terms spread over a fair number of years, this is a chance to put people on water mains which will be repairable by the authorities. The same thing could happen with the sewers. I raise the matter because it is still a problem in many parts of the country.

The Earl of Caithness

The effect of the directions in the amendments would be that the director could impose requirements as to the service to be provided in respect of these three aspects of service. However, I put it to the noble Lord, Lord Graham of Edmonton, that the framework provided by the Bill and the model instrument of appointment of the water and sewerage undertakers already provides a better answer.

Condition I of the model instrument of appointment provides for the appointed companies to provide information annually to the director about the general quality of specified aspects of their service to customers. The Secretary of State will specify an initial list. In some cases the information required will be a summary of the quality achieved in terms of the proportion of customers receiving a specified level of service. In three cases—water pressure, interruptions to supply and foul water flooding—the requirement will be for the company to state its target performance and to report and explain the performance achieved against that target.

I draw to Lord Graham's attention Clauses 38(1) and 68(1) of the Bill. They provide for the Secretary of State on the application of the director to make regulations establishing specific requirements which, if not met, will amount to breaches of the general duties of the undertakers in Clauses 37 and 67. The intention is that where the director does not receive a satisfactory explanation of the quality of service achieved, and cannot be given adequate assurances about improvements, he will be able to ask the Secretary of State to impose specific requirements in such regulations. This is consistent with parliamentary accountability for the imposition of obligations on the companies. The regulations would be enforceable under Clause 20 of the Bill, and breaches could potentially lead to loss of a company's appointment. They are therefore, I submit, a powerful weapon against substandard service.

The noble Lord, Lord Graham of Edmonton, referred to the problem of private sewers. The noble Lord, Lord Ross of Newport, also referred to that matter. If one purchases a house for which there is a private supply or a private sewer, that will be brought to one's attention by the solicitor. I believe the noble Lord, Lord McIntosh of Haringey, gave us a specific example of that. He mentioned a house that he bought and that he was advised by his solicitor of certain restrictions appertaining to that property. Nevertheless, as he informed the Committee at an earlier stage, he went ahead and bought the property. If one purchases a house which has a private sewer, one's solicitor will bring to one's attention the liability and the benefit that attaches to that.

The amendment seeks to establish that the director should be able to act simply by giving directions. We do not accept that. It is right for him to use his powers to protect customers in relation to quality of service, as well as charging matters. But in our view it must be for the Government to establish the standards which the companies are obliged to meet. I think that is the important point; it is the concept of the standards which the companies are obliged to meet which has not worked terribly well in the past because of the absence of a separation of the gamekeeper and poacher functions. The more I listen to Members of the Committee opposite, the more I believe it must be right to separate these functions and to put the supply industry into the private sector.

Lord Graham of Edmonton

I am grateful to the Minister. Can he confirm my understanding of what he said? I understood him to suggest that already the Government envisage that among the directions that will be given and the matters that will be set against the standards are the issues of water pressure, interruptions to supply and foul water flooding. I believe the Minister specifically referred to those problems in the earlier part of his brief.

Perhaps I am asking the Minister to do something which is already the Government's intention. I am asking that these provisions be specifically written on the face of the Bill. However, I believe I heard the Minister say that directions would be given as regards the problems to which I have referred. Those directions would specify that the performance targets of the companies would need to be measured and set against the standards laid down. The whole tenor of the Minister's reply suggested that the standards were the important concept.

I shall withdraw the amendment if the Minister tells me that among the standards that will be set, used as a measurement and acted upon are the issues of water pressure, interruptions to supply and foul water flooding.

The Earl of Caithness

I hope that I can help the noble Lord. I understand the gist of what he is saying with regard to the amendment. I again put it to the noble Lord that the framework provided by the Bill and the model instrument of appointment of the water and sewerage undertakers—I refer the noble Lord again to condition I—cover the points about which he is concerned.

Lord Graham of Edmonton

The Minister needs to do better than that. I asked a specific question. I believe in the earlier part of the Minister's brief he specifically referred to directions in respect of water pressure, interruptions to supply and foul water flooding. I am prepared to wait a little so that assistance may be provided to the Minister. I simply want the Minister to say that those three problems will form part of the monitoring process by the director general when he looks at the manner in which a company complies with the conditions that are laid down.

I shall withdraw my request that those specific directions should be written on the face of the Bill, but I want the Minister to tell the Committee that there is no need for that action in any case because the Government intend to provide for that in some other way.

The Earl of Caithness

The noble Lord has now reached the point I reached when I answered him earlier. His concerns are of course met because, as I said, it will be a requirement for a company to state its target on such matters as water pressure, interruptions to supply and foul water flooding.

Lord Graham of Edmonton

If the Minister had said that two minutes ago—

The Earl of Caithness

I did.

Lord Graham of Edmonton

No, the Minister said that the matter was already covered. I remember that the Minister said what he has just again referred to in his opening speech. However, I wanted that to be on the record.

The Earl of Caithness

It was already on the record; I said it.

Lord Graham of Edmonton

I shall give way to the Minister in a moment. If the Minister is getting annoyed with himself we can all sit back and enjoy the spectacle. I wanted the Minister to confirm that my understanding was correct. It was not a case of wanting to get it on the record twice. I am grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.15 p.m.

Lord Graham of Edmonton moved Amendment No. 159B: Page 14, line 42, at end insert ("including in particular any such direction relating to the charging of non-domestic consumers for the cost of reception, treatment and disposal of trade effluent.").

The noble Lord said: The purpose of Amendment No. 159B is to include trade effluent charges in the Bill as matters for specific direction under the licence. No doubt it will be dismissed by the Government, like the previous amendment, as being too specific for this clause. In other words, there are matters and manners in which trade effluent is recognised as an element, perhaps as one of the five items included in the tariff basket. That is perhaps appropriate.

The tariff basket includes unmeasured water supply, unmeasured sewerage services, measured water supply, measured sewerage services and the reception, treatment and disposal of trade effluent. As I understand it, at present trade effluent is dealt with on a cost recovery basis and not for profit, although the charge includes a 5 per cent. rate of return on any new assets. In general the system is considered reasonably fair. After privatisation trade effluent will be dealt with through the tariff basket.

I should like the Minister to put my fears at rest. I am afraid that within the basket there is potential for cross-subsidisation. The most worrying aspect is the potental for undue subsidisation of industrial customers by domestic consumers. In my view that is a concern of sufficient importance to justify the inclusion in the Bill of the direction contained in the amendment. I beg to move.

The Earl of Caithness

The amendment would specifically allow the director to be enabled to give directions about the charging of non-domestic consumers for the cost of reception, treatment and disposal of trade effluent. Once again, the Bill and the model instrument of appointment already provide a better regulatory framework than the one the amendment seeks to erect. Schedule 8 of the Bill amends the existing legislation concerning trade effluents.

If the noble Lord would be so kind as to turn to that schedule he will see that paragraph 3(4)(a) amends the Public Health (Drainage of Trade Premises) Act 1937 so that the Director General of Water Services may settle appeals concerning individual charges except where a standard charge has been set in a charges scheme under Clause 75 of the Bill. All such charges schemes will however be required to comply with the requirement in condition D of the model instrument of appointment that they must show no undue discrimination between classes of customer.

I hope that that answers the question that the noble Lord posed. Let me repeat it, because he likes it on the record twice.

Lord Hacking

If the noble Lord is repeating what he said perhaps he would be kind enough to give the schedule number. I am finding some difficulty in following this.

The Earl of Caithness

I referred the noble Lord to Schedule 8 and I also referred him to Clause 75. I repeat what I said for the sake of the noble Lord, Lord Graham of Edmonton. All such charges schemes will, however, be required to comply with the requirement in condition D of the model instrument of appointment that they must show no undue discrimination between classes of customer.

There is at present a drafting defect in condition D so that trade effluent charges schemes, unlike other charges schemes, have not been brought within that requirement as intended. That omission will be corrected in the actual appointments. The director general thus already has adequate powers to ensure that trade effluent tariffs are fair. Additionally, trade effluent charges at standard rates will be included in the basket of charges which will be subject to the RPI plus K limit on increases in condition B of the model instrument of appointment, as the noble Lord has already drawn to the attention of the Committee. We therefore see no need for an additional power for the director, in conditions of appointment, further to regulate trade effluent charges by means of directions.

Lord Graham of Edmonton

I am grateful to the Minister, not only for giving me the information but for repeating it. On this occasion, because I listened most attentively the first time, there was no need for him to repeat it, but, nevertheless, I am grateful to him for doing so.

When the Minister has a reasonable and sensible point to make, it is worth repeating. He told us that there would be no discrimination. That is right and proper with respect to any category or class of user. He also told us that the domestic user will not find that his or her charges are higher than those of another user as a result of a partial subsidy to the water user. In general, the public will accept that it must bear a true and proper proportion of the charges, not only for water but for other utilities. However, it will want to avoid any further increase in what it has been told will already be an increased cost for water in the future.

The Minister must also understand that there is suspicion that, as a result of the power and pressure of large industrial users, they will want to be given some advantage. I accept what the Minister has told me and I shall read what he has said and then refer to the Bill. He has told me that a duty is written into the Bill for the director to ensure that there is no discrimination of the kind that I feared. I am grateful to the Minister for his remarks. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 159C not moved.]

[Amendments Nos. 160 to 163 had been withdrawn from the Marshalled List.]

Lord Ross of Newport moved Amendment No. 164: Page 15, line 8, at end insert— ("( ) It shall be a condition of the appointment of every water undertaker and sewerage undertaker that a prescribed percentage of contracts constituting or including an agreement which provides for the carrying out of works by such an undertaker shall be subject to similar restrictions to those imposed by section 4 of the Local Government Act 1988 (works contracts: restrictions) on a defined authority.").

The noble Lord said: My noble friend Lord Ezra apologises that he cannot be here because he has an important engagement elsewhere. This amendment is one of his own devising.

As the Committee will know, noble Lords on these Benches have opposed the privatisation of the water authorities on various grounds, but basically because, in our view, it transfers a public monopoly into a private monopoly. The noble Earl appears to think that the Bill is going in the right direction, but the longer I sit here and think about it the more worried I become. I fear the worst for the future.

However, having accepted that the Bill will go through, my noble friend Lord Ezra undertook to see what else could be done to bring some competition into the industry. That is why we are bringing forward this amendment. It serves to raise the issue of competition in the privatised water industry and to ensure that it is a condition of an undertaker's appointment that certain contracts would be put out to tender in the same way as for a council's direct labour organisation. It is well known that local authorities throughout the country are being obliged more and more to put their services out to tender, for example, in respect of school meals and road repairs. It seems to us that there is no earthly reason why that should not happen among the privatised water companies.

It is interesting to note the provisions of Clause 155, which are very restrictive for a party that believes in competition. Under that clause, certain undertakings are protected from any competition from the privatised water authorities. The same applies to the Civil Aviation Authority, British Coal, the Post Office, British Rail, the CEGB and numerous other examples. I should have thought that this might appeal to the Government. What source of local government should actually be sourced to the privatised water industry? I move the amendment in that respect and hope that at least it might bring some favourable response from the Government. I beg to move.

Lord Hesketh

The effect of this amendment would be to impose an obligation on water and sewerage undertakers to ensure that for a prescribed proportion of works contracts which they enter into they have first to ensure that the contract has been the subject of competitive tendering in a similar way to the requirements of Section 4 of the Local Government Act 1988.

While I do not dispute the benefits of competitive tendering we believe that this amendment is not appropriate to the Water Bill. It is part of the philosophy of privatisation that the successor companies will be as free as any other company in the private sector to carry on their business as they consider best. The objective of the requirements of Section 4 of the Local Government Act 1988 on local authorities is to introduce a mechanism to encourage efficiency in public sector activities. But in the private sector this will not be necessary. The wishes of the shareholders and the profit motive provide the incentive to efficiency.

The fact is that these companies will not be local authorities. It is for that reason that I hope the noble Lord will feel able to withdraw his amendment.

Lord Graham of Edmonton

It is remarkable that the spurs which the Government feel appropriate in the realm of local government should not be considered necessary in private monopoly situations. The Minister said that they would not be necessary. If he really believes that there will be any true competition in the provision of water to domestic or industrial users in the future, then he must know more than the rest of the country. It is a nonsense to talk in terms of protection so far as concerns these companies.

If the Government believe in the keen winds of competition being likely to create efficiency, they ought not to protect this latest baby that they have conceived. Well, it is conceivable. The Government are making a laughing stock of themselves. They are standing on their head when it comes to their arguments which insist that local authorities in 1988, 1989 and 1990 should have to subject themselves to competition but that the latest privatised baby of the Government should be protected from competition of one kind or another in certain services. It is a laugh; it is a joke; but it is real.

Lord Ross of Newport

We have exposed a fairly delicate area in which the Government do not come off very well. I wish that the noble Lord, Lord Harris, were present. He might be very much in support of this idea. I certainly think that the boss of the noble Earl, the Secretary of State himself, might be quite interested in it. I hope that it will be drawn to his attention.

I have spoken in some support of the existing water authorities, and certainly of the one I know in the South. I think that they have done a pretty good job. However, when I look at the depots that they have built and the vans in them—vast numbers of them are occupied by their vehicles—and I consider the local staff, and so forth, I fear for the future. I suggest that it is absolute nonsense to come forward and say that local authorities cannot be trusted and that services must be put out to tender and so on, but that the private monopoly—and we have had the example of the British Airports Authority abusing their monopoly at the present time—should not have to put out some of its contracting to tender.

I think that it should be written into the Bill, and I ask the Government to think again. I do not expect them to do anything tonight, and I shall leave it at that. I think we have won the argument. Nevertheless, I withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 164A not moved.]

[Amendments Nos. 165 and 166 had been withdrawn from the Marshalled List.]

9.30 p.m.

Lord Graham of Edmonton moved Amendment No. 166A: Page 15, line 45, at end insert— ("(7A) Any member of staff of the relevant authority made redundant as a consequence of the transfer of the water authorities' functions shall be compensated in accordance with a scheme to be drawn up by the Secretary of State providing for terms no less beneficial to the individual than those which applied upon the abolition of the Greater London Council and metropolitan county council.").

The noble Lord said: This amendment looks at the potential for a compensation scheme for staff made redundant as a result of the transfer of water authority functions. Earlier amendments, which have already been debated, have looked at the pension rights of staff following transfer, but this amendment goes a stage further in looking at the Government's intention as to compensation and detriment.

The amendment suggests that a scheme should be drawn up by the Secretary of State providing terms no less beneficial to individuals than those which applied on the abolition of the metropolitan county councils and the Greater London Council. Those schemes could be taken as a model for dealing with the obviously complicated position following the transfer of functions.

The Committee will readily understand that in practice a large number of the existing staff of the water authorities are likely to be re-employed by the plc. A number will not be automatically re-employed, but may well find employment within different strata of the new water industry, whether or not within their existing areas. But for others there will be no place in the new structures and this amendment gives the Government the opportunity to spell out what redundancy terms are envisaged for staff in that position.

The Government may also be able to give an indication of whether any detriment terms will be available for staff who in practice end up in jobs which are less well paid under the new regime. There are widespread fears that the result of privatisation may be significant hardship for individuals. If the Government are not able to point to a scheme created by the Secretary of State, will they state what terms are in mind as regards the water authorities or what terms are planned for the new plcs?

The specific proposal in the amendment is that terms should be included in the conditions of appointment. I wonder whether it is the Government's intention to include such conditions and what levels of compensation or detriment will be payable by the new plcs where appropriate.

I wonder whether the Minister will take on board that there needs to be some comment made in relation to the timetable for the flotation and the appointment of new undertakers, and the impact of

such a timetable on the interests of staff and the availability to them of information as to the future. The amendment is intended to raise an important area of issues to which the Committee may wish to return in looking at the practical details of implementation.

The Minister and his colleagues have been very adept at pointing out to me and others on this side of the Committee that the points we raise are already taken care of, that they are in mind or that this can be covered in one way or another. I stand here very happily, willing to have pointed out to me yet again either that the amendment is not necessary or that it is covered. But I hope the Minister will take on board that there are people outside this House who are not only worried as to what will happen to them personally as employees, but are also worried as mothers, fathers, householders and persons with responsibilities. They want to know not what is in it for them, but what the Government have in mind in providing them with the maximum benefit that is possible when the company that they are working for is privatised. I beg to move.

Lord Hesketh

The first point to make to the noble Lord, Lord Graham, is that we are not proposing to abolish anything. We are seeing the water authorities being divided. But in abolishing bodies like the GLC and the metropolitan authorities, where staff contracts could not have anticipated the authorities' demise, it was proper to consider whether special redundancy provisions were justified. The GLC abolition provisions were different because the legislation concerned provided for redundancies.

The Water Bill does not set out to make any staff redundant as a direct consequence of its provisions and we are not expecting any staff to be made redundant. Should any staff be made redundant for any reason, they will be entitled to redundancy payments under the terms of their existing contracts with the water authorities. The other question that the noble Lord, Lord Graham, asked related to detrimental terms, if I understood him correctly. Staff will be transferred—this is the inter-relationship between the new companies and the NRA, which I believe he was talking about—on terms that are no less good than their existing terms. I hope that on the basis of that information the noble Lord, Lord Graham, will see fit to withdraw his amendment.

Lord Graham of Edmonton

I am grateful to the Minister as always for the clarity of his remarks. But they are not much comfort for people outside. It is not possible for me to quantify. First, the Minister tells me that the Government do not envisage any redundancies. I accept that they are not planning to put people out of work. He believes that all those who are currently employed by the water authorities will find jobs under the new aegis. But that could be a pious hope. If the Government are true to their political beliefs he knows that one of the selling points of privatisation is the assertion that non-privatised companies are overstaffed and that there are savings to be made by making people redundant, by reducing the workforce.

I am not telling the Minister anything new. I am not telling him not to believe that which has come to pass. I know from my dealings with privatisations in the past—the dockyards and the ordnance factories in particular—that one inevitable consequence when private companies get their hands on public assets and seek to make better returns to their shareholders is that they reduce the workforce. There was also a reduction in the size and in the capability of Britain to operate its own dockyards and munition factories. But that is a small price for a country to pay in order to line the pockets of shareholders. I am suggesting that the same kind of thing can happen here.

If the noble Earl, Lord Caithness, finds my words offensive, they are designed so to be. I speak of the consequences of privatisation. People have been made redundant, largely to increase the return for the shareholder. When the shareholder is invited to participate in the running and the capitalising of the water authorities, one of the points that will be made is that savings and increased efficiency can be achieved by reducing the workforce.

The Minister tells us that if people are made redundant they will be entitled to the benefits of their existing contracts. That is not a very good inducement. The Minister is really saying that a good, strong trade union will fight to the end and will be able to extract from the putative employer better terms than otherwise. The Minister knows that the statutory governmental scheme is small; it is thin; and it is skinny. In many of the redundancies that take place the terms are doubled, trebled and, in my own experience, quadrupled. That is put down to good trade union organisation. The Government are telling us that they are not prepared to say anything helpful here tonight or to write anything helpful into the Bill, about the kind of yardstick that the director general has to bear in mind which will form part of the conditions of the transfer of employees from the water industry.

Can the Minister tell us whether these employees will be covered by the arrangements known as the TUPE 81 arrangements? Those were the arrangements whereby employees in a nationalised company became employees in a privatised company. Can the Minister tell us whether the kind of conditions which existed as regards redundancies in the dockyards and Royal Ordnance factories will provide the same protection? Although they were not well liked they certainly provided some protection. Can the Minister help about that matter?

Lord Hesketh

In order to make the position absolutely clear I shall quote from page 194 of the Bill. Paragraph 3(2)(e) of Schedule 2 states: that the effect of any transfer under the scheme in relation to contracts of employment with a water authority is not to be to terminate any of those contracts but is to be that the periods of employment with that authority are to count for all purposes as periods of employment with the water authority's successor company or, as the case may require, with the Authority".

Lord Graham of Edmonton

I did not understand what the Minister said. Not only did he speak far too fast but he referred to documents and matters to which I am not privy. If the Minister quoted straight from the Bill I am as entitled as anyone to have that in my hand and to look at it.

The Minister talks in terms of transfer. What does the Bill say about redundancies? The gravamen of these amendments is redundancies, involving people who discover that when their employers change there is no place for them. Let us forget about the detrimental effect when someone who is earning £ 12,000 per year is offered a job at £ 10,000 per year when he is offered a transfer. That is one aspect but the Minister tells me that it cannot happen. I am wondering about the position of someone who is invited to take a job of a different grade and standing. I am talking of someone who is told that regrettably there is no job for him. What does the Bill provide for such people other than what the Minister has told us—that they will be covered by their terms of contract?

Lord Hesketh

I do not believe that I can go much further than I have already. I answered the point clearly when I replied on the first question.

Lord Trafford

Before the noble Lord rises again to speak on the issue I should like quickly to put forward three points. First, if a concern becomes a private company—a plc—it is not in the interests of that company to have bad labour relations. I believe that he and I agree about that, irrespective of other aspects on which we disagree. Secondly, most takeover concerns—and in one sense it would be a takeover—lead to a better payment for severance (call it what you will) than usual. That is because in terms of labour relations it is the right thing to do and the best thing in the interests of those concerned and of the continuing labour force.

Thirdly, if there were any redundancies or changes it is obviously in the interests of the unions and the new management that relations should be the best rather than the worst. Otherwise, before the plc begins it has shot itself through the foot.

Given those points, given the legal protection under the Employment Act, given the Minister's quote from the point of view of transfers, those aspects are covered. Although one can immediately recognise the anxieties expressed eloquently by the noble Lord, a number of built-in protections occur—and I am sure that with his experience they occur to the noble Lord—which do not necessarily lead to the black picture which he has painted.

9.45 p.m.

Lord Graham of Edmonton

I am grateful to the noble Lord, Lord Trafford, because he may well have said substantially what the Minister said, but he did so in a kinder tone and light. I accept the premises which the noble Lord makes. On the basis that a company wishes to continue and enjoy the services of its employees no less favourably than previously, of course good management will try to sort it out.

I hope that the noble Lord, Lord Trafford, equally understands that, based on my experience, I have found that there are more rather than fewer redundancies. The advice which I am given by the trade unions affected is that now is the time to make the points and to get the assurances and, for example, to get the remarks made by the noble Lord, Lord Trafford, on the record as his understanding of how the matter may develop. Of course, that is not a ministerial commitment.

I certainly accept that if one could rely on good sense prevailing, the politics having taken place and the Bill having become an Act, then we shall get on with the job. The unions have the job of protecting their members. I am only concerned that the Minister did not quite appreciate that I was not concerned about people who continue to have their jobs but was concerned about people who lose their jobs. I was rather disappointed that the Minister's defence was that they would be protected under the terms of their contract. In the light of labour conditions of 1989 that does not auger well. I pointed out to the Committee that good trade union practice has ensured that Government terms are upped twice, three and sometimes four times. I am grateful to the Minister because I believe that he has gone so far as he can. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 agreed to.

Clause 15 [Modification by agreement]:

[Amendment No. 167 had been withdrawn from the Marshalled List.]

Lord Graham of Edmonton moved Amendment No. 167A: Page 15, line 49, at end insert ("except that no such consent shall be required if, in the opinion of the Director such modification is reasonably necessary to secure the maintenance of supplies or the protection of public health.").

The noble Lord said: The provisions of Clause 15 allow the director general to modify the conditions of a company's appointment if the company consents to the modification. The consent procedure is lengthy. It requires formal notice and a period for representations. In cases where such modifications are required to secure the maintenance of drinking water supplies to consumers or to safeguard the protection of public health, it is considered proper that the director general should be in a position to act expediently and that his actions should not be fettered by the comparatively long procedural requirements of this clause. The director general would not use those powers frivolously and would in any case be expected to consider the balance between the benefits of swift action and the consequences of such action on the undertaker.

Of course, the Minister will appreciate that this is very much a probing amendment and I look forward to hearing what he has to say. I beg to move.

The Earl of Arran

Again, this is an amendment on which I hope we can put the mind of the noble Lord, Lord Graham, at rest because the point which he makes is already covered in the Bill.

As he said, the effect of this amendment would be to permit the modification of the conditions of employment by the director general without the consent of the company where a modification is needed to ensure continuity of supply or for the protection of public health.

In no way do we dispute—in fact, we fully agree—that the continuity of supply and public health are of vital importance. However, the amendment appears to be based on a fundamental misunderstanding of the operation of the Bill which contains extensive requirements, some 19 clauses and five schedules concerning water supply, sewerage, sewage disposal and water quality. Those requirements are backed by an effective enforcement mechanism to ensure that they are met.

Therefore, it is not necessary to use a modification procedure to meet the objectives of the amendment. To attempt to deal with those important matters both in conditions of appointment and in Bill provisions would only serve to cause duplication and confusion of responsibilities for enforcement. I hope that my explanation meets with the agreement and approval of the noble Lord, Lord Graham. In those circumstances, I hope that he will withdraw his amendment.

Lord Graham of Edmonton

With agreement and approval, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 168 to 172 had been withdrawn from the Marshalled List.]

Clause 15 agreed to.

Clause 16 [Modification references to Monopolies Commission]:

[Amendments Nos. 173 to 179 had been withdrawn from the Marshalled List.]

Clause 16 agreed to.

Clause 17 [Reports on modification references]:

The Earl of Balfour moved Amendment No. 180: Page 18, line 19, leave out ("definite") and insert ("their").

The noble Earl said

Clause 17 follows on to some extent from Clause 16. For the Monopolies and Mergers Commission to come to "definite conclusions" is too strong a phrase, particularly when referring to Clause 16 which in subsection (2) states that, The Director may … vary a reference". In subsection (3) there is also reference to "variation" of a reference.

With that brief explanation that the word "their" widens the Bill a little and is not so definite as the word chosen, I beg to move.

The Earl of Arran

I hope to be able to satisfy the concern of my noble friend on this amendment. Subsection (1) sets out what the MMC must specify in its report and this includes definite conclusions on the questions in the reference. The effect of this amendment would be that the MMC's conclusions need not be definite.

We consider it to be an essential requirement that when circumstances have given rise to the need for a reference to the MMC a clear resolution of the questions put to the commission is obtained. This amendment would have the effect that that essential requirement would not be ensured. If definite conclusions are not reached the consequential effect is that matters which operate against the public interest may also not be identified. It follows that they will not be remedied. Thus the object of seeking a report from the commission is defeated. The wording is identical in the equivalent clauses in the gas and telecommunications Acts.

With that explanation I trust my noble friend will see fit to withdraw his amendment.

The Earl of Balfour

I am most grateful for that explanation. I now realise that the word "definite" is necessary. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Balfour

moved Amendment No. 181: Page 18, line 49, after ("to") insert ("the Secretary of State and to"). The noble Earl said: The last part of Clause 17 states that the Secretary of State may make comments in respect of, the public interest or the commercial interests of any person". Unless he is sent a copy of the report referred to in subsection (4) there could be an unnecessary delay. The reason I felt that both the director and the Secretary of State should have a copy of the report was in case the wrong kind of information leaked out as much as anything else. I beg to move.

The Earl of Arran

Once again I hope to be able to put my noble friend's mind at rest. The effect of this amendment would be that a report of the monopolies commission on a reference under Clause 16 would be sent directly to both the director and the Secretary of State.

While on first thoughts this may seem a sensible proposal, since the director on receipt of a report must send a copy to the Secretary of State, we do not agree that it is the best course of action. It is, in our view, a question of functions. The director clearly will have the information and specialist knowledge necessary to make a reference to the monopolies commission, which may relate to carrying out functions in connection with the appointment or to matters which operate against the public interest. The report should surely be made directly to him. The Secretary of State, whose interest is to exclude if necessary any material which would be against the public interest or the commercial comments the director may wish to draw to his attention. I suggest that with that explanation my noble friend will consider withdrawing his amendment.

The Earl of Balfour

I am most grateful to my noble friend for that explanation, and I am satisfied with the answer. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 182 to 186 had been withdrawn from the Marshalled List.]

Lord Graham of Edmonton moved Amendment No. 186A: Page 19, line 10, leave out ("the commercial interests of any person") and insert ("would be unreasonably damaging to the interests of any person, other than any company which has been appointed under this Chapter, and to the carrying out of whose functions the report relates").

The noble Lord said: I beg to move the amendment that stands in the name of my noble friend Lord McIntosh of Haringey. It is not wholly disconnected with the point that has just been made by the noble Earl. Under Clause 17(6) the Secretary of State may direct the director to exclude matters from the otherwise published version of the report where it appears to him that publication would be against the public interest or the commercial interests of any person. This amendment would allow the first leg of the discretion to stand; that is, that it would be against the public interest. In particular, the Government in the other place themselves made concessions on the question of commercial interests as a barrier to disclosure. The immediate issue arose there in the somewhat unlikely circumstances of what is now Clause 164 of the Bill concerning directions in the interests of national security.

Challenged to find an example of such a direction which should not be published in the commercial interests of any person, the Minister accepted that he could not find any such example and he was willing to strike the words from the Bill. Amendments were removed at Report stage. This amendment picks up a similar principle as regards the MMC reports. On this occasion it would seem possible that the interests of another company not directly involved in the carrying out of the appointment by the company under investigation could be unreasonably affected in certain circumstances. The purpose of having a report at all however could be completely frustrated if the commercial interests barrier was taken to apply to the plc under investigation.

It is difficult to see how in the case of any report which suggests any change or improvement, that it could not be argued that the commercial interests of the plc were affected by those comments becoming public. I beg to move.

Lord Hesketh

The amendment restricts the discretion of the Secretary of State to issue directions to the Director General of Water Services concerning the exclusion of matters in MMC reports when they are published. The amendment would have the effect of excluding the Secretary of State's powers to make such directions when he judges that publication will be against the commercial interests of any person. It substitutes the power for him to make directions against publication when in his view publication will be unreasonably damaging to the interests of any person other than the appointed company.

The amendment is in our view inequitable. The protection provided by the Bill as drafted would apply both to the company being investigated by the Monopolies and Mergers Commission and any other company whose interest could be damaged. That does not mean that where a reference is made to the MMC the commercial interests of the company are to be put before the public interest. The company is not protected in the sense that it will be allowed to withhold relevant matters from the MMC on the grounds of their commercial sensitivity. But it does not follow that everything which must be disclosed to the MMC, and which may or may not be relevant to its findings, must necessarily be published. If companies knew that all their evidence to the MMC, however commercially sensitive, would automatically be published, an unhelpful tendency might be established for companies to hold back or obscure the information which they had provided. That would adversely affect the ability of the commission to protect the public interest which is dependent on securing full exposure of the relevant acts from the company under investigation. The clause as drafted simply gives the Secretary of State a discretion to issue directions. It is for him to judge whether information should be published. Both the Secretary of State and the director can of course take unpublished information into account in taking their decisions.

The amendment is therefore inequitable and potentially unhelpful. And as the subsection as it stands is in line with comparable provisions in the Gas Act and the Telecommunications Act I see no reason why the Water Bill need be different.

Lord Graham of Edmonton

I am grateful to the Minister for his explanations. I shall study what he has said with care, and if I consider that I need to come back at a later stage I reserve the right so to do. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 [Modification following report]:

[Amendments Nos. 187 to 191 had been withdrawn from the Marshalled List.]

Clause 18 agreed to.

Clause 19 [Modification by order under other enactments]:

The Earl of Balfour moved Amendment No. 192: Page 20, line 24, leave out ("that Act") and insert ("the said Act of 1973".)

The noble Earl said: Within Clause 19 we are dealing with two Acts—the Fair Trading Act 1973 and the Competition Act 1980.I feel that there could be some misunderstanding in subsection (2)(b). My amendment seeks purely to remove any doubts. I beg to move.

The Earl of Arran

I wonder whether I may be so bold as to attempt a hat-trick with my noble friend Lord Balfour. This is a technical amendment which is intended to clarify Clause 19(2)(b) where a reference is made to "that Act". The amendment proposes the substitution of, the said Act of 1973". This amendment, though we appreciate its helpful intention, is not necessary. The only preceding reference to an Act in Clause 19(2) is a reference in paragraph (a) to the Fair Trading Act 1973, and the reference to "that Act" in paragraph (b) therefore accords with the convention adopted in the rest of the Bill. This is purely a drafting point but we are satisfied that the reference in question is clearly related to the earlier reference. With great respect, I hope that my noble friend will withdraw the amendment.

The Earl of Balfour

Luckily, in the 1980 Act there are not 73 clauses, so if one starts to look through the Act one can be in no doubt. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 agreed to.

The Earl of Arran

I beg to move that the House do now resume.

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

House resumed.

House adjourned at four minutes past ten o'clock.