Water Bill

HL Deb 09 May 1989 vol 507 cc549-615

3.2 p.m.

The Minister of State, Department of the Environment (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.]

Clause 11 [Appointment of undertakers]:

Lord Graham of Edmonton moved Amendment No. 147A: Page 10, line 16, at beginning insert— ("( 1 ) The following provisions of this section shall have effect subject to this subsection, and no appointment may be made by the Secretary of State or the Director before the expiry of a period of twelve months after the establishment of the Authority.").

The noble Lord said: We have now reached Part II of the Bill. Members will be aware that there is still a considerable time to go in the debates in Committee. But at least we can say that so far we have taken a number of significant and important steps. First, we have agreed at this stage to the establishment of the National Rivers Authority and are well aware of the interim arrangements. There now begins to emerge the range of duties, functions and work which it must carry out not least in trying to satisfy the public that it is aware of its concerns and responsibilities.

We are not talking in terms of the privatisation of water because that issue was resolved on Second Reading. We are now discussing the process of putting the flesh on the bones of the issue. The Committee will be aware that, whenever convenient, all speakers from this side have endorsed the concept of the National Rivers Authority. However, many Members, including myself, wish that it had stronger powers. A number of government assurances have been given in respect of the function of the National Rivers Authority. No doubt during later debates we shall be asking for more such assurances.

The amendment seeks to suspend the appointments to be made by the Secretary of State or the director before the expiry of a period of 12 months after the establishment of the authority. The amendment is introduced at this stage because Clause 11 deals with the technical mechanics of appointing the water undertakers. We need to be clear about what we are asking the Committee to do.

Many governments are faced with requests from oppositions to defer or delay the implementation of a measure which they dislike. I make no apology to the Committee because we on this side vehemently dislike the Bill's objectives. However, I believe that the case for the amendment is well made and well understood by the people of this country. There has been no survey, no test of opinion, and no opportunity has been taken by the Government or independent sources to indicate the unease of the public as regards the impact of the Bill.

We believe that there is a range of issues which needs to be tested, worked out, argued and debated not on the Floor of either House but by the National Rivers Authority with a range of people. They need to get to grips with the scale of the environmental problems. The pressures which will be put upon the National Rivers Authority are real and great.

My most recent experience of a major Bill was the Football Spectators Bill. With other noble Lords, we sought to make the case that the measure which the Government wished to impose was so large and needed to be got so right that it was worth deferring or delaying the full implementation of that Bill until it was clear beyond a peradventure that the authority—in that instance the Football Memberhip Authority—had got it right. I believe that there is no issue other than the Water Bill about which the maxim, "It is better to get it right than to get it quick" is more apt.

We are not impeding the progress of the Bill. If the amendment is passed there will be no interference with the legislative timetable; the Bill will be obtained. We are not seeking to prevent the act of privatisation. That is the intention of the Government. Once the Bill with the amendments becomes an Act of Parliament there is nothing that the Opposition will be able to do to impede the Act. However, it will provide a breathing space of 12 months during which all the arguments, questions and issues about which the people of this country have expressed their deep concern can be investigated.

For example, it is likely that the National Rivers Authority will have to contract back at least part of its laboratory and testing function to the new plcs. That process, as proposed in the amendment, will enable the authority to set up its initial laboratory and scientific facilities and to establish working patterns and anticipated workloads before any contracting back to the new plcs takes place.

If any contracting back was required in the 12 months' period, that could be to the existing water authorities. The Committee is well aware of the phrase "a dry run" or "a dummy run". When private water plcs begin to operate—I make no aspersions on their ability to deliver what they are contracted to do—will it not be better if opportunities have been taken by the rivers authorities and in other ways to make sure that they are able to do that which they are asked to do? An enormous regulatory framework will be set up to make sure that the business, the management and the running of the water authorities are right. All three Members of the Committee on the other side who are involved with this Bill were here last night to a very late hour. They will well understand that in the fields of conservation, recreation and leisure, there are enormous areas about which there can be dispute and on which there should be discussion and, I hope, amicable agreement.

Last night we got into argument on who is responsible when a plc creates subsidiaries. Will it be the parent body or the subsidiaries who have to carry out the functions under the code of practice? When a core company has an agent, what is the relationship between that agent and the core company? Who will carry the responsibilities? There are a range of matters that have to be considered. Once the Bill has become law and there is a breathing space, then I believe that you will get more sense out of these matters. The Minister may believe there is enthusiasm in the country for water to become privatised. I can tell him that there is a great deal more unease about how this Bill will work than there has been about many others in the past.

What will the Government be gaining if they proceed to complete the measures as fast as they can? They may argue that the market cannot wait and that the Treasury, the Exchequer and the financial management of the Government of their assets are matters to which a timetable applies. I repeat that we on this side of the Committee are not seeking to disturb the legislative timetable with this amendment. We are seeking to delay the implementation of the Act wholly in order to make sure that the health, the wealth and the happiness of the people of this country will be better protected. I beg to move.

3.15 p.m.

Lord Renton

The noble Lord's amendment is a delaying tactic. It is a quite usual gambit of those who oppose Bills. The next best thing is to attempt to delay a Bill coming into force. I hope that none of the Members of the Committee will be carried away by the moderate and conciliatory tone of the noble Lord, Lord Graham of Edmonton. The noble Lord wishes to delay the effect of Clause 11 for a year. That is the operative clause for bringing into force the new organisation proposed by the Bill and the appointment of the proposed water and sewerage undertakers. We are a revising Chamber. It is unusual for us as such a body to ask another place to delay the coming into operation of a Bill which it has already considered at length and in depth.

I would not expect my noble friends on the Front Bench to agree to this amendment, and I sincerely hope that they do not. However, the noble Lord, Lord Graham, and Members of the Committee opposite, may be consoled by the fact that under Clause 187(3) and (4), the commencement clause as it is called—we have a long way to go before we reach it—Clause 11 will be brought into force on a date to be appointed by the Secretary of State by an order made by statutory instrument. That is a quite usual way of bringing a Bill into force, especially when a good deal of preparation will be needed.

If the noble Lord is genuinely seeking (without any intention of causing delay for the sake of it) some flexibility, that flexibility is inherent in Clause 187. The Secretary of State will be the person in the best position to know how far the arrangements have gone for bringing the Bill into force. It will be for him to decide when to bring Clause 11 into operation and appoint the proposed new undertakers. I am opposed to this amendment. I hope and assume that my noble friends on the Front Bench will also be opposed to it.

Lord Harmar-Nicholls

I do not believe that the amendment is at all in keeping with the very reasonable case that the noble Lord, Lord Graham, made. He argues that none of these appointments by the Secretary of State or the director should be made until they are satisfied that they have the right people to do the job and that those appointed are likely to be acceptable. That is what we would expect any sensible Secretary of State or director to do. The amendment says that irrespective of whether the Secretary of State and the director have made up their minds, irrespective of whether they know they have the right people and that all will proceed correctly, they have to wait 12 months. That is an inflexible approach which may well endanger the beginning of this work.

We should not be led astray by the dulcet tones of the noble Lord, the words that he used and his general approach. We should not ignore what it is that we shall be voting for if we are pushed to that situation. The amendment is not on. But the noble Lord's general argument is very much on. I hope that it will be in the minds both of the Secretary of State and the director when the time comes to make the appointments.

Lord Ezra

I wish to follow up what the noble Lord, Lord Renton, said in the latter part of his remarks. With a complex measure of this sort it is clearly right to do things in due order. Everyone has agreed that the NRA has a very important function to perform. The date on which the various other bodies and the plcs come into operation is something that has to be worked out to get the best results. If Clause 187 gives that discretion to the Secretary of State, then I hope that when the noble Earl replies to the debate he will indicate how the discretion will be used in order to make sure that the Bill, when enacted, comes into operation in the most effective manner.

Lord Nugent of Guildford

I wish to call attention to a practical difficulty in the noble Lord's amendment. The business of supplying water, operating the sewage treatment processes and managing the whole of the rest of the vast business has to go on. The regional water authorities which are fulfilling this function come to an end when the legislative process is completed and the undertakings are sold in the market to private shareholders. It would seem quite illogical not to make the necessary appointments in order to take charge of this vast process of water supply and sewage treatment which has to continue. It would be a complete vacuum. However, these things would go on. The people on the ground, so to speak, or in the water would still be there working away. I should have thought that the sooner the new organisation is working with the new people in charge and responsible the better.

The Earl of Balfour

I should like to add one other comment. Part II of the Bill which we are now considering deals entirely with the appointment and regulation of water and sewerage services. The National Rivers Authority does not come into Part II except in the case of Clause 39 which deals with bulk supplies. I do not think that the amendment would be appropriate in the place that it is.

The Earl of Caithness

The effect of the amendment, as my noble friends have so ably pointed out, would be to delay the appointment of the water and sewerage undertakers for at least a year after the establishment of the NRA. I should make it clear to the Committee immediately that the amendment is technically defective. That is not an argument I often use but in this instance it is so defective that it is worth bringing to the Committee's attention.

When the Committee agreed that Clause 4 should stand part of the Bill we were approving the arrangements for the transfer of the functions of the 10 water authorities of England and Wales in a two-way split. All those functions not transferring to the National Rivers Authority would apply to the successor limited companies owned by the Crown and appointed for their areas as water and sewerage undertakers. The property, rights and liabilities of the water authorities would be similarly divided between the successor companies and the NRA in accordance with schemes under Schedule 2. Again we agreed that Schedule 2 should stand part of the Bill. The fact is that this Bill has been drafted on the basis that the appointment of undertakers and the transfer date cannot be separated. If we were to accept the amendment there would be an enormous number of consequential ones.

But setting that technical aspect on one side for the time being, let us consider the merits of what is proposed. It would seem that the noble Lord, Lord Graham of Edmonton, proposes that the production industry—the water and sewerage services—should remain with the existing water authorities while all the pollution control and water resources functions are transferred to the National Rivers Authority. I am not persuaded by the case we have heard this afternoon. Nothing we have heard has justified the double upheaval proposed, with the NRA starting its life getting used to the difficulties of acting as environmental watchdog for another public agency and then more than 12 months later having to readjust its whole approach once the limited companies are appointed. This double trouble would simply not serve anyone's interest. The danger is that to prolong the reorganisation of the water industry will delay the achievement of the benefits of privatisation.

In my Second Reading speech I referred to conflicts of interest in the current system. We have heard the "gamekeeper-poacher" phrase so often that we risk losing sight of the importance of separating the control of the production side of the water industry, which there is every reason to believe is best provided by the private sector, from the regulatory function which this Bill will make clearer or place firmly in the hands of the Secretary of State supported by the NRA and the Director General of Water Services. It is an important feature of what we propose that there should be no conflicts of interest between the regulator and the industry. So long as both the industry and the regulation are under public control there will be people who suggest that there is a threat of conflicts of interest.

We firmly believe that it is important that people should not be able to accuse the Government of fudging decisions crucial to water standards because of public expenditure priorities. It has been suggested that we should allow time for the NRA, to settle down to its task before appointing the new water and sewerage undertakers. Since the enactment of the Public Utility Transfers and Water Charges Act great progress has been made in preparing for the establishment of the NRA. Under the guidance of my noble friend Lord Crickhowell and the NRA Advisory Committee each water authority produced last year a scheme of organisation showing how its NRA functions would be organised. From 1st April this year separate NRA units have been operational within each of the existing water authorities and most of the 6,500 staff are already in place.

In today's debate we have heard no convincing reasons why we should deny the public the earliest possible achievement of the separation of production from regulation. Nor have we heard any convincing reasons why the NRA should need time to settle down in a cosy public sector world before facing the private sector water industry. I am forced to conclude therefore that this is nothing but another attempt to wreck the Government's policy, to delay the Bill by forcing on it a whole series of consequential transitional arrangements which the Opposition have not thought through fully. The consequences are to delay privatisation. As the noble Lord, Lord Graham of Edmonton, said when he moved the amendment, he vehemently dislikes what the Bill sets out to do. What other reason does the noble Lord need for putting forward this amendment?

Lord Graham of Edmonton

If my case did not disappoint the Minister his response came up to my expectations. He said that in order to avoid uncertainty, uncertainty created by the Bill and the Government's intentions, it is best that this be done quickly. I acknowledge what the Minister said about the possible blemishes and defects of the amendment and indeed about its consequences. I am not as competent or as well served as the Minister in these matters. The noble Lord, Lord Nugent, made the same case: now that the ball has started to roll it is best for all concerned to carry on. That is the argument for throwing caution to the winds. It is not I who said that the case for water privatiation has not been handled well. Those were the words of the Prime Minister.

On two or three occasions the Minister used the phrase "the earliest possible benefits". Does he genuinely believe that people out there are waiting and crying out for the implementation of this Bill in order that they can have the benefits? All the evidence indicates that there is unease. I am not talking about hostility or opposition, although if I were talking in political terms I would say that there is hostility and opposition to it.

What is the purpose of the 12-month period? If the Government really believe that they can get their way by argument and persuasion it would provide them with a good deal more time. A general election is certainly more than 12 months away. They will be able to persuade the people and demonstrate to them that they have been ultra cautious and careful. I believe it was the Minister or one of his colleagues who said that these matters will not be proceeded with until the Minister is satisfied. I have my own store of experiences in this Chamber and in another place. I believe that once the Government have their Bill there will be a momentum and impetus to carry it forward.

I do not deny that we on this side of the Committee are vehemently opposed to the principle of privatising water. We have tried to make the case that water is a unique commodity and deserves above all others a mechanism for delay—but we would say to make sure that we have it right. The Minister has not satisfied me. I invite the Committee to share my view. I shall press the amendment to a vote.

3.29 p.m.

On Question, Whether the said amendment (No. 147A) shall be agreed to?

Their Lordships divided: Contents, 48; Not-Contents, 120.

DIVISION NO. 1
CONTENTS
Ampthill, L.	Longford, E.
Ardwick, L.	Lovell-Davis, L.
Boston of Faversham, L.	McCarthy, L.
Bottomley, L.	McIntosh of Haringey, L.
Briginshaw, L.	Mais, L.
Brooks of Tremorfa, L.	Mason of Barnsley, L.
Bruce of Donington, L.	Molloy, L.
Campbell of Eskan, L.	Mountevans, L.
Carmichael of Kelvingrove,L.	Mulley, L.
	Nicol, B.
Cledwyn of Penrhos, L.	Peston, L.
Davies of Penrhys, L.	Phillips, B.
Dean of Beswick, L.	Ponsonby of Shulbrede, L.
Ennals, L.	[Teller.]
Fisher of Rednal, B.	Serota, B.
Graham of Edmonton, L.	Shepherd, L.
[Teller.]	Simon, V.
Hatch of Lusby, L.	Stallard, L.
Hirshfield, L.	Stoddart of Swindon, L.
Irvine of Lairg, L.	Strabolgi, L.
Jenkins of Putney, L.	Taylor of Mansfield, L.
John-Mackie, L.	Turner of Camden, B.
Kearton, L.	Underhill, L.
Kilbracken, L.	Wedderburn of Charlton, L.
Leatherland, L.	White, B.
Lock wood, B.
NOT-CONTENTS
Alexander of Tunis, E.	Erroll of Hale, L.
Alport, L.	Faithfull, B.
Arran, E.	Ferrers, E.
Balfour, E.	Forester, L.
Bauer, L.	Fortescue, E.
Belstead, L.	Fraser of Kilmorack, L.
Bessborough, E.	Gisborough, L.
Blake, L.	Gridley, L.
Blatch, B.	Hailsham of Saint
Blyth, L.	Marylebone, L.
Boyd-Carpenter, L.	Harlech, L.
Brabazon of Tara, L.	Harmar-Nicholls, L.
Brightman, L.	Harvington, L.
Butterworth, L.	Henley, L.
Caithness, E.	Hesketh, L.
Campbell of Croy, L.	Hives, L.
Carnegy of Lour, B.	Hood, V.
Carnock, L.	Hooper, B.
Cayzer, L.	Hylton-Foster, B.
Chelmer, L.	Jenkin of Roding, L.
Constantine of Stanmore, L.	Killearn, L.
Cottesloe, L.	Kinloss, Ly.
Cullen of Ashbourne, L.	Lauderdale, E.
Dacre of Glanton, L.	Lawrence, L.
De L'Isle, V.	Lloyd-George of Dwyfor, E.
Denham. L. [Teller.]	Long, V. [Teller.]
Dulverton, L.	McFadzean, L.
Dundee, E.	Mackay of Clashfern, L.
Dunrossil, V.	MacLehose of Beoch, L.
Ebbisham, L.	Macleod of Borve, B.
Eden of Winton, L.	Malmesbury, E.
Effingham, E.	Margadale, L.
Ellenborough, L.	Marley, L.
Elliot of Harwood, B.	Massereene and Ferrard, V.

Melville, L.	Saint Oswald, L.
Merrivale, L.	Sanderson of Bowden, L.
Middleton, L.	Shannon, E.
Monk Bretton, L.	Sharpies, B.
Montgomery of Alamein, V.	Simon of Glaisdale, L.
Morris, L.	Skelmersdale, L.
Mottistone, L.	Somers, L.
Mowbray and Stourton, L.	Stanley of Alderley, L.
Munster, E.	Strathclyde, L.
Murton of Lindisfarne, L.	Strathspey, L.
Napier and Ettrick, L.	Sudeley, L.
Nelson, E.	Swansea, L.
Norfolk, D.	Swinfen, L.
Norrie, L.	Terrington, L.
Nugent of Guildford, L.	Teviot, L.
O'Brien of Lothbury, L.	Thomas of Gwydir, L.
Orkney, E.	Thomas of Swynnerton, L.
Pender, L.	Trafford, L.
Peyton of Yeovil, L.	Trumpington, B.
Porritt, L.	Tweedsmuir, L.
Pym, L.	Vaux of Harrowden, L.
Radnor, E.	Waldegrave, E.
Reay, L.	Whitelaw, V.
Reigate, L.	Wise, L.
Renton, L.	Wynford, L.
Rugby, L.	Young of Graffham, L.
St. Davids, V.

Resolved in the negative, and amendment disagreed to accordingly.

3.37 p.m.

[Amendment No. 148 had been withdrawn from the Marshalled List.]

Lord McIntosh of Haringey moved Amendment No. 148ZA: Page 10, line 18, leave out from ("State") to ("the") in line 21 and insert ("as").

The noble Lord said: The purpose of this amendment is to restore the answerability to Parliament and the political responsibility of the Secretary of State as regards the appointment of water and sewerage undertakers. It is a curious feature of this part of the Bill that it should be thought appropriate that the task of appointing the new undertakers should be delegated to the Director General of Water Services. As we understood the role of the director general when we were dealing with his responsibilities under Part I of the Bill, he is there to be a regulator of the water and sewerage businesses.

However, the appointment of the water and sewerage undertakings which are to succeed the water authorities is a very different matter. It is a matter which affects the taxpayer. I say that because the ability of the new undertakers to pay the most favourable price for the shares of the new water supply plcs is absolutely critical so far as concerns the taxpayer. Therefore it is of great importance to the Treasury and it is also a matter of considerable political importance. It embraces all the issues of consumer protection and of the environment which we have been debating as we consider the Bill in Committee.

It is one thing to say that the Director General of Water Services will have the continuing role of regulator after privatisation has taken place. That is the structure of the Bill and it is not one that we have sought to change in Committee. To say that the director general should have the ability, acting with the consent or in accordance with the general authorisation given by the Secretary of State, to make an appointment as a water or sewerage undertaker for any area of England and Wales is a different matter. It goes directly against the political responsibility which the Secretary of State ought to have to Parliament and in which the director general ought to be subordinate to the Secretary of State and therefore subordinate to Parliament.

It is not just a matter of the initial appointment of the undertakers; it is the whole question of the potential for takeover of water undertakings which is a matter of widespread and justified public concern. As the new undertakers come in, I suppose that most of them, if not all, will be experienced as water undertakers; but many of them will be inexperienced as sewerage undertakers, because at the moment sewerage functions are held by local authorities. They will therefore be dealing with functions in which they are relatively inexperienced. They will have to make arrangements for contracting out those functions. We also have amendments on that point. It is clear that undertakers could be appointed which have little understanding of those problems.

It is clear that the whole question of preparing for the termination of local authority agency agreements will take up a considerable amount of time in the early days of the new water and sewerage undertakers, and yet the appointment of those undertakers is, according to the Bill, to be delegated to the director general rather than kept in the Secretary of State's hands. It is only the Secretary of State who can satisfy himself that the appointed undertaker intends to make such agency agreements, or to continue such agency agreements, as are necessary to guarantee that the sewerage functions are carried out with sufficient technical competence.

In their draft articles of association, the Government have indicated that in the short term they propose to secure undertakers from the threat of an unwelcome takeover. I emphasise the phrase "in the short term" because there is no guarantee that that assurance will be continued in the longer term. Indeed, the Government have gone out of their way to say that it is entirely proper that the water undertakings should be vulnerable to takeover in the longer term. What we say in the amendment is that the Secretary of State should periodically satisfy himself that the company has not fallen into the hands of people who are not technically competent to carry out the functions. What we require—I hope that the amendment will produce it—is the equivalent of the golden share: a long-term security, based on the accountability of the Secretary of State, of the undertaker's ability to perform his functions.

There is a third reason why it is important to have the amendment; that is, that the Secretary of State is in those respects to act on behalf of consumers. We have had a considerable debate on the director general's role in relation to consumer protection. The Opposition has consistently expressed the view, which is shared by the consumer representative organisations—the Consumers' Association and the government-funded National Consumer Council—that there is a difference between the regulatory function, which is supposed to be impartial as between suppliers, shareholders and consumers, and the role of consumer advocacy.

We take the view that the restriction to the Secretary of State of the power to make the appointment of undertakers is an essential separation of powers from the regulatory function of the director general, because the Secretary of State, being answerable to Parliament, can be taken to represent the views of the consumer. If he does not do so, he can be called to account in Parliament.

The model instrument of appointment which we have is defective in a number of respects. They all require the direct intervention of the Secretary of State to put them right. Let me take just a few of those respects, because of course the model instrument of appointment is not yet included in the Bill although it may be necessary to bring it into the Bill so as to debate it fully at a later stage.

I shall pick just three examples to show how necessary it is to have the amendment now. The first is the need for proper insurance. At the moment, all the protections for the environment and the consumer are hedged about in the Bill with conditions that say that in the event of emergency or disaster or if they are trying to put something right the protections for the environment and the consumer which are supposed to exist have no effect, and the director general is supposed to be lenient with undertakers. All of those provisos which weaken—in many cases fatally weaken—the protection intended for the consumer and the environment could be avoided if it were made a requirement on the undertakers to take out adequate insurance to protect them against those eventualities. That is nothing extraordinary. If that did not happen in the private sector throughout industry, Lloyd's would not have had some of the difficulties that it has experienced in recent years; and the insurance industry as a whole would be a much more secure place.

Such natural disasters are insured against. The hurricane of October 1987 was covered by considerable insurance, but the damage to the water supply in Camelford, which caused so much misery and sickness to the people in Camelford, was not covered. It is now necessary for the people in Camelford whose health has been damaged by the negligence of the water authority to sue that authority, in the knowledge that it does not have the insurance necessary to protect itself against those claims.

It would be possible for the Secretary of State to include an insurance provision in the appointment of the new water and sewerage undertakers. For that purpose, it is important that it is the Secretary of State himself who takes the responsibility for the appointment.

I come to my second example. I shall not expand upon it because it is a subject of a later amendment this afternoon. It relates to price control. The model instrument of appointment makes totally inadequate provision for the regulation of prices under the K formula. It is not just that the model instrument of appointment of December 1988 is itself defective; it is that everything we learn about the turmoil within the department in trying to interpret that model instrument of appointment reveals that it thinks that it is inadequate as well. It is obvious that something is badly wrong with the price-fixing mechanism contained in the Bill. We have not yet had an opportunity to debate it, but we will. In the meantime, it is entirely appropriate that the power to make the appointment should be retained by the Secretary of State.

My third example relates to accountability for codes of conduct. There are to be codes of conduct for customers. We debated a number of codes of conduct when we discussed Clause 10. Undoubtedly there will be additional codes of conduct on disconnections and leakages. It is proposed that they should be the responsibility of the director where the Secretary of State feels that that is appropriate. Accountability for the effectiveness of those codes of conduct should be with Parliament, and therefore the Secretary of State's role in maintaining the authority to make appointments ought to be sustained. That is the purpose of the amendment.

We are not concerned with the Secretary of State for ever having all the powers which could properly be delegated to the director general. We say that at the stage of making the appointment it is the Secretary of State and Parliament which have the real responsibility and that the powers should be retained in their hands. I beg to move.

Lord Jenkin of Roding

Only one part of the speech of the noble Lord, Lord McIntosh, caused me gently to lift my eyebrows. It was when he expressed surprise that the provision was in Clause 10 of the Bill. I should have thought that even the most cursory examination of the Telecommunications Act and the Gas Act would show that the model we have here has ample precedent in both those Acts.

The first appointments are made by the Secretary of State and subsequent appointments are made by the director general. I suggest to the noble Lord the reason why it is entirely right that that should be so. One of the features of state-owned industries which over the years has given rise to complaints by the industries that they are not allowed to manage their businesses properly—they find themselves constantly having to look over their shoulders—is precisely that they are constantly aware that their appointments are due to decisions made by the Minister. The Minister himself inevitably, being a political animal in a political environment, is likely to make decisions which have political implications and overtones.

One of the principal objectives of the whole process of privatisation is that the managements of the industries concerned are removed from the political environment. Parliament takes a major political decision in deciding that that shall happen. But thereafter, once it has happened and Parliament so agrees, the industries are in the private sector. It is crucial that they should not be constantly subject to the threat of ministerial interference because it is known that in the background lies the ministerial power of appointment.

Of course those industries have to be regulated. Of course, as the noble Lord, Lord McIntosh, indicated, there are many matters which he recognises to be appropriate for regulation. The other day we rejected an amendment which would have removed the director general altogether from this scheme. But who is better to determine whether a new company, a new operator or a new undertaker is fit and proper to be appointed if a change of appointment is necessary? Who is better placed to do that than the director general?

A great many of the considerations which will determine whether a person or company should be appointed are matters which fall fairly and squarely within the director general's remit. It is entirely right that the appointment should not be seen to be influenced by political considerations. It is essentially a matter of standards, the capacity and ability to do the job and the assurances which would have to be forthcoming in order to comply with the terms and conditions of the appointment.

The noble Lord may know more about this than I do and he talked about turmoil in the department. This is a draft document; of course parts of it are still subject to consideration and change. It is very helpful that we have it before us when we debate the matter, but even the noble Lord would agree that it contains a very large number of conditions of appointment in Schedule B which constrain the appointed company in a great many ways and also put all sorts of duties on it.

However they are duties which will fall to be scrutinised, monitored and enforced by the director general and not by the Secretary of State. The latter has other duties, so it is the director general's duty. I hope that my noble friends on the Front Bench will not feel themselves beguiled in any way by the words of the noble Lord, Lord McIntosh. There is ample precedent. So far as I am aware it has not yet had to be applied in the case of other industries. But it may eventually be applied here because there will be a number of undertakers—some are manifestly stronger than others—as the industry moves from the public to the private sector. It may well be that there need to be new appointments. However the Bill is quite right; it is entirely right and proper to place that duty in the hands of the director general and not the Secretary of State.

Lord Renten

If I were moving an amendment to Clause 11(1) I should have been more inclined to leave out paragraph (a) than paragraph (b) which the noble Lord, Lord McIntosh, suggests should be omitted. I say that for this reason. It is not a question of appointing individuals as a Minister appoints individuals to area boards of a nationalised industry. This is a question of choosing and appointing companies fit to carry out these duties as undertakers. The inquiries that will have to be made in choosing suitable companies for the purpose are essentialy commercial inquiries. They should be carried out by a truly independent person, as the director will undoubtedly be. He must be independent of Parliament, for example, or at any rate independent of another place.

Under Schedule 3 he is subject to the House of Commons Disqualification Act, which incidentally also applies to the directors of the companies chosen. We find that in Clause 11(9) which we are discussing. They too will be disqualified under the House of Commons Disqualification Act. In those circumstances, and bearing in mind the inquiries that will have to be made. I should have thought that the director was a better person perhaps even than the Secretary of State to carry out the work.

I was a little surprised to hear my noble friend Lord Jenkin say that he assumed that the companies would be appointed at first by the Secretary of State and only when there was to be a change would the director make the appointment. Frankly, that is not how the Bill reads and that is not how I would wish it to read. Of course one is tempted to answer in some detail the various points made and examples given by the noble Lord, Lord McIntosh. But I think that there is the general principle to consider here. My noble friend Lord Jenkin has rightly pointed out that the process must be independent of politics; therefore there is no question of the matter being raised in Parliament. It had better be entirely free from political pressures and have the independent director bearing the responsibility. I should have been happy to see him bear it fully.

Lord Ezra

From what has been said so far, particularly from the interventions of the noble Lords, Lord Jenkin and Lord Renton, there is some confusion about the wording of Clause 11(1). It says that the appointment may be made either by the Secretary of State or, with his consent and authorisation, by the director. The interpretation of the noble Lord, Lord Jenkin, was that the initial appointment was to be made by the Secretary of State and subsequently it would be made by the director. That is not what the wording says.

Further, the noble Lord, Lord Renton. said that his preference would be to eliminate the Secretary of State and give the whole responsibility to the director. The noble Lord, Lord McIntosh, on the other hand, said that he would prefer the Secretary of State to have it. To start with, we ought to have some clarification as to who will make the appointments. That is what we ask the noble Earl. Will it be the Secretary of State or, with his authorisation, the director? Are they going to take it in turn? Will one of them do half the companies and the other one the other half? This is fairly uncertain drafting, whatever else one may think about it.

Further as a public responsibility, namely, to supply water and sewerage services, is involved—although the companies will be private companies, they will have a public responsibility—I believe the Secretary of State should come into these appointments in a positive and formal manner. On the whole, I side with the view of the noble Lord, Lord McIntosh of Haringey. However, I ask for some clarification as to what will happen under this clause if it remains as it is.

4 p.m.

The Earl of Caithness

Perhaps it is opportune for me to clarify the situation. The noble Lord, Lord Ezra, says there is a certain confusion in the drafting. He picked up a point that my noble friend Lord Renton made. Sadly, I have to disagree with one part of my noble friend's remarks. I take my noble friend forward to Clause 11(4). He will see clearly that the initial appointments are made by the Secretary of State. I do not think there is any confusion there. I hope that, on reconsideration, both the noble Lord, Lord Ezra, and my noble friend will realise that the provision is well set out.

These initial appointments are made when the successor companies to the water authorities are still wholly owned by the Crown. The Secretary of State is required to appoint those successor companies to the present water authorities as water and sewerage undertakers. He is also required to appoint the statutory water companies as water undertakers. It is thereafter that appointments may be made by the Secretary of State or by the director with his consent or in accordance with a general authorisation given by the Secretary of State. I confirm to the Committee that it is our intention to give the general authorisation to the director general after the initial appointments have been made.

Lord McIntosh of Haringey

I clearly misread Clause 11(4) too. I understood it to refer to the transfer from statutory water companies to the new regime rather than the transfer from water authorities to the new regime.

The Earl of Caithness

On the advice that I have, I think the noble Lord is wrong. I shall, of course, check because the matter has now been raised by three Members of the Committee. However, in my view, and on the advice that I have, it is clear that Clause 11(4) makes the Secretary of State responsible.

The intended operation of this clause is that subsequent appointments, inset appointments—the appointments we discussed earlier in Committee; for instance those for the greenfield sites—and replacement appointments and variations, will be made and administered by the director under a general authorisation given by the Secretary of State. It may be considered that this would open up the risk of his becoming too influenced by the industry. But, although with these subsequent appointments there is likely to be a choice of successor companies, the director will be under the important duty in Clause 7(3)(d) to facilitate effective competition between persons seeking appointments.

Does Clause 7(3)(d) ring a bell with the Committee? It imposes this important duty on the director general. It rang a bell with me. I looked it up and found that it was one of the clauses that the noble Lord, Lord McIntosh of Haringey, sought to remove at an earlier stage of our proceedings. That occurred at Amendment No. 87. The debate can be found at col. 378 of the Official Report of 4th May. In that debate I announced to the Committee late at night that the mother of my noble friend Lord Hesketh had succeeded in triumphing in the local elections and had taken the Liberal seat of Towcester and District.

Further duties in Clauses 7 and 26, which include a responsibility to exercise his powers in the interests of customers and potential customers, so that functions are properly discharged in every area, impose another safeguard. I feel that the risk of agency capture is not great. There will, for example, be a relatively large number of water and sewerage undertakers. Even when this is taken into account it is not likely that replacement appointments and variations will be made frequently. More importantly—I believe this is telling—his duties under these clauses will provide the director with the necessary knowledge required for assessment of applicants.

A further consideration is that the director will be able to exercise his powers without any suspicion of political interference. That point was well made by both my noble friends Lord Jenkin of Roding and Lord Renton. Therefore, I need to add no more. These two considerations made the director, in my view, the most appropriate and best informed person to make the appointment decision.

There are three points I wish to deal with before I conclude. The first is the subject we were discussing earlier, namely, Clause 11(4). Clause l l (4)(a) refers to the statutory water companies. Clause l l (4)(b) relates to the water authorities. I believe my noble friend Lord Jenkin of Roding and I were correct in expressing to the Committee our conviction that it was carefully taken care of in the Bill.

The second point concerns the assertion of the noble Lord, Lord McIntosh, that taxpayers' interests might suffer on subsequent appointments. It is not usually the case that the taxpayer has an interest when replacement appointments are made. The replacement appointee will indeed be expected to pay for the assets taken over from the outgoing appointee. That payment goes to the outgoing appointee who owns the assets, rather than to the taxpayer.

My third point again concerns the noble Lord, Lord McIntosh of Haringey. The noble Lord said that many of the new appointees will be inexperienced as sewerage undertakers. The suggestion that the water authority successor companies are inexperienced as sewerage undertakers does not, I suggest, correspond with the facts as we see them today. It is true that local authorities undertake some sewerage functions now, and they will continue to do so. Both now and in the future they will be operating under arrangements made with the undertaker, and to his requirements.

Even now, water authorities undertake many sewerage functions themselves. Even in the case of a new appointee appointed sometime in the future, the personnel of the companies and of the local authorities would be likely to remain in place, as no new appointee would be foolhardy enough to try to do without them. The clinching argument is that the director would have to satisfy himself that a new appointee would perform the functions properly.

Lord Renton

Before my noble friend sits down, I wonder whether he will consider this. It is perfectly plain that subsection (1) as it stands is inconsistent with subsection (4), and inconsistent with the view of the matter, which I accept as being correct, put forward by him and by my noble friend Lord Jenkin of Roding. Therefore, quite apart from the questions raised by the noble Lord, Lord McIntosh, on this amendment, I suggest that subsection (1) needs to be made consistent.

It should in effect read—I am not drafting, but merely stating what the effect should be—that, "subject to the following provisions of this chapter, a company may in the first place be appointed by the Secretary of State, or thereafter, with the consent of or in accordance with a general authorisation given by him, by the director". The subsection should be drafted something like that. If that were done, it could save confusion.

The Earl of Caithness

I shall answer my noble friend on that point. I was getting seriously worried that we had arrived at day four of the Committee Stage without having a discussion with my noble friend on the legal drafting of the Bill. We have done that on every Bill in a very happy manner. I shall, of course, take the concerns of my noble friend and draw them to the attention of my advisers.

Lord McIntosh of Haringey

In the early 17th century it was the habit of the king for his own financial gain to award monopoly rights to certain favoured of his subjects, some of whom used to pay him money for the privilege, and some of whom were given the privilege because they had sunk some ships of the king's enemies, had frustrated some of those enemies' intentions or performed political services for the king. During that period Parliament insistently, over and over again, year after year, sought to restrict the ability of the king to grant monopoly rights over such commodities as tobacco, salt, soap, oil and other items which at that time were essentials of life. Parliament was nearly always frustrated because, although measures were nearly always passed, the king had better lawyers than Parliament and found ways round the laws which Parliament passed. (Acts in those days were a good deal shorter than nowadays.) If the lawyers could not find a way round the Acts passed by Parliament, the king simply ignored them. We are approaching that position now.

We are approaching the position in which for the first time in the history even of this Government power is being given to private companies to hold the monopoly rights of supply of a commodity which is absolutely essential to every single person in this country and for which—whatever arguments there may have been about economic competition in comparative costs—there is no distributional competition of any kind. There is no such thing as two types of tap available to any consumer of water.

This is therefore a different proposition from any of the previous privatisation measures. It is different from the privatisation of any of the sources of energy such as gas and electricity. It is different from the privatisation of individual companies such as Amersham International or even the British Airports Authority, and I shall come back to that in a minute. It is different from the privatisation of the means of communication such as British Telecom.

What is being handed out here in the appointments is complete power over the consumer. The only way in which we are protected against that complete power is in the responsibilities of the Secretary of State to the elected representatives of the people in Parliament.

I listened with some amazement to the noble Lord, Lord Jenkin, when he talked in despite (using the word in its old sense) of political decisions by the Secretary of State on the appointment of water authorities. That may be the way in which politicians think about political decisions, politicians who have lived through good or bad decisions.

Lord Renton

I think that either the noble Lord misheard me or I did not make myself clear. I said that these would be commercial decisions.

Lord McIntosh of Haringey

I referred to the noble Lord, Lord Jenkin, and not to the noble Lord, Lord Renton. I did not hear the noble Lord, Lord Renton, make comparable points. The point that I wish to make is that, however much by taking part in these debates we are acting as politicians whatever our other interests may be, however cynical we may be about the nature and limitations of the political process, for the people of this country who will be the captive consumers of the water companies the political decisions are the only protection they have. In our view it is essential that the Secretary of State should retain this first and most important function.

I accept that if subsections (1) and (4) can be brought to mean the same thing the Secretary of State has responsibility for the first appointment. Subsequent appointments, and in particular appointments when there has been a default, are of very great public concern and ought to be subject to the authority of Parliament just as much as the appointments in the first instance. Let us leave the director general to perform his regulatory role. The regulatory role does not and ought not to include the final decision on the making of an appointment to a natural monopoly like water.

There may be defects in the Bill which have caused defects in the drafting of the amendment and I shall not pursue the matter to a vote. However, this is a point on which we shall have to seek at a later stage to secure the protection of consumers and the protection of the democratic process in this country. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.15 p.m.

Lord McIntosh of Haringeymoved Amendment No. 148ZB: Page 10, line 22, at end insert ("and in respect of any such company the Secretary of State shall as soon as practicable publish a statement setting out his intentions with respect to any sale of its shares and the proportions thereof at any stage").

The noble Lord said: Amendment No. 148ZB may be thought to be a matter of less moment than the preceding amendment. However, it is extremely important, not just in the terms in which we have been talking but in terms of the financial community—and it is not often that I speak up for the financial community in this Chamber—that there should be as soon as possible a statement setting out the Secretary of State's intention with relation to the flotation of the company.

I read in this morning's edition of The Times the latest in a series of articles by Graham Searjeant, the Financial Editor, in which he says that it is almost certain that 100 per cent. of the capital of the 10 water authorities will be sold in the share issue scheduled for November despite the unpopularity of water privatisation. He foreshadowed this a couple of weeks ago in an article which, like today's, was clearly based on very considerable inside information about the way in which the department is thinking. If I were asked to put in one sentence what we are saying in this amendment it is that Parliament ought to share the information which is available to the Financial Editor of The Times. So far we have not been vouchsafed the same privileges which Mr. Graham Searjeant has.

In the article he makes some very interesting speculations, which have been continued in the financial press over a number of weeks or even months. He suggests that the preliminary plan is to sell 25 per cent. of the issue overseas, 40 per cent. to private investors and employees and 35 per cent. to British financial institutions. He goes on to say that Japanese investors, enthused by the prospect of dividend yields of around 8 per cent., have already suggested that they could be interested in up to 30 per cent. of the issue. Dividend yields of 8 per cent. are more attractive to Japanese investors than they are to British investors because the sublime economic incompetence of this Government is such that our real interest rates are enormously higher than those of our competitors in the developed world.

That leads to a curious state of affairs, does it not? Here we are subsidising ān industry which has been in public ownership in most of this country almost since the beginning and in many cases certainly since the 16th and 17th centuries. We are doing so at such a time and in such a form that it will be attractive to Japanese investors and not particularly attractive to British investors. I do not know whether that is a more serious reflection on the competence of the economic management of the Treasury or of the economic management of the Department of the Environment. I think both stand pretty thoroughly condemned by the situation in which we find ourselves.

I think that we deserve a few straight answers from the Minister this afternoon. What is the intention of government? Is it their intention to float 100 per cent. of the industry or 51 per cent.? Is it their intention to allocate any particular proportion of the shares in the industry to particular types of investor? Is it their intention to engage in marketing campaigns for the shares overseas? I understand that visits have been made to other countries by those who are interested in marketing to overseas investors what has up till now been the property of the British public. Why is it that we alone in Parliament are not to be given the facts about this flotation?

It has not been possible to say any of this in dealing with the Bill so far because we have not dealt with the appointment. It is still not possible to say it in the way that we should like to because the terms of the flotation do not form part of the Bill. However, we must seriously ask whether the Government are treating Parliament fairly and openly and whether we are being given the information that we ought to be given in order to make a realistic judgment about whether this is a sensible proposition at all. I beg to move.

Lord Jenkin of Roding

The Government will of course publish such a statement. It is called a prospectus and it will set out matters in the greatest possible detail and, I fancy, in rather more detail than the noble Lord, Lord McIntosh of Haringey, will wish to read from cover to cover. I estimate that it will probably fill no fewer than a dozen pages of The Times or the Financial Times at the very least in order to give all the information.

However, I rise not to make an obvious point, but to put before the Committee a possible consideration as to why it would be undesirable for the Government to go into any great detail about the matter in advance of the issue of the prospectus. As he is well informed about these affairs, the noble Lord, Lord McIntosh of Haringey, may be aware that there comes a point with every such privatisation Bill when a letter goes round Whitehall, principally to Ministers, their junior Ministers and their PPSs, and to senior officials. The letter warns them that, in view of the fact that a prospectus seems likely to be issued—there may be more than one prospectus—they should all be exceedingly careful, with that prospect hanging over the industry, as to what they say in public about the issue of shares, the attractiveness of the shares as an investment or the sort of market that might expect to arise once the shares are issued and traded.

That is a perfectly proper precaution. So far as I am aware, it has been taken in every single case when the Government have been the seller of the shares that they own. It is perfectly obvious why that should be so. Otherwise, there would be a considerable risk that statements would be made which would then have to be reflected in the prospectus and which might well affect the marketing of the shares.

It is a difficult operation which I believe Her Majesty's Government have handled reasonably well over the years. It is primarily the responsibility of the Treasury, not of the operational department, acting with the advice of merchant bankers who are very skilled in these matters. However, I would be slow to press my noble friend on the Front Bench to make any statement of the kind for which the noble Lord, Lord McIntosh of Haringey, asks. It seems to me that that would create precisely the difficulties that the procedures, which are most carefully drawn up on legal advice, seek to avoid, and that they would be likely to be flouted.

We must wait for the prospectus until we know precisely what will happen. Whether there can be more general statements of intent, going beyond what my noble friend said in the Second Reading debate, for instance, and what has been said by Ministers in another place, is obviously a matter on which they will have taken advice as regards how far they can go. The kind of detailed statement for which the amendment calls seems to me to be wholly inappropriate.

Lord McIntosh of Haringey

On that point, is the noble Lord suggesting that it would be an improper prejudging of the prospectus for the Government to make a statement as to whether they will sell 51 per cent. or 100 per cent.? That is the most important point that I was making. The Government should make that point clear not only because it is of interest and concern to the electors of this country, but because it is a matter of interest and concern to the City and, in turn, determines who the likely investors will be. Surely, before the prospectus is issued and while the Bill is still before Parliament, the Government should make their position clear on this most important aspect of the flotation.

Lord Jenkin of Roding

I shall take that as an intervention, although I had sat down. That approach may or may not be appropriate. I should not like to make a judgment on the legal issue. It is clear that the noble Lord's Amendment No. 148ZB goes a thousand miles beyond that approach.

Lord Ezra

One could debate a good deal the question of when the detailed information about the flotation of the companies should be made known. I have a certain sympathy for saying that the full details should be presented in the prospectus. Nevertheless, what worries me about what the noble Lord, Lord McIntosh of Haringey, pointed out is that there already appears to have been something of a leak to the financial press. That happens all too often.

I should like to ask the noble Lord whether that information in the financial press represents more or less what the Government have in mind. Was it a sheer guess on the part of the financial journalist or was he subject to one of those regular, off-the-record press briefings about which we hear so much, so that he could publish the information in his journal? Basically, the point raised by the noble Lord, Lord McIntosh of Haringey, about at least knowing whether the Government will sell off the totality or whether they will retain a majority in public hands is of sufficient importance for the information to be made known before the details are published in the prospectus.

Baroness White

Perhaps I may point out to the Minister another matter that is very much in the public mind, particularly after the broadcast on Sunday last; namely, the amount that is to be spent on flotation, and who decides it and when. Is it true that the costs of privatising the water industry, including, as I understood the remarks on that occasion, the costs to the Government of the flotation, will be at least £30 million of our money, either as consumers of water or as taxpayers paying the costs of flotation met by the Government?

Anyone who listened to "The World This Weekend" programme on Radio 4 at one o'clock on Sunday would have been startled by the discussion of the amount that is likely to be spent. I do not pretend that that is an official figure, but, if it is anything approaching that figure, the Government will find that it is not particularly popular with the public in general, whatever it may be in the City of London.

The Earl of Caithness

I begin by congratulating the noble Lord, Lord McIntosh of Haringey, on bringing forward this amendment, for, as any noble Lord who has read the Bill will recognise, it is totally out of place in Clause 11, which deals with the appointment of utility companies initially and at a future date. The clause is not about the privatisation of the holding companies of the 10 utility subsidiaries which will be successor companies to the water authorities.

The noble Lord suggested that the Government have started out with, perhaps, the intention of selling 100 per cent. of the equity in the 10 holding companies and have now changed their mind or are undecided. I can confirm, as did my honourable friend in another place, that the Government fully intend to dispose of all the shares in the holding companies. The question yet to be decided—that is the point that all noble Lords should recognise—is whether it would be timely to do so at the outset, in the offers for sale which will take place later this year, or whether it would be preferable to do so in more than one tranche. It would be unusual to have any preconception about the matter at this stage. There has never been a commitment to an initial offer of 100 per cent. of the shares. One need look no further than the provisions of Clause 86, Target investment limit for Government shareholding", which was present in the Bill as introduced in another place. That provision has effect only if the Government sell less than 100 per cent. of the equity at the outset.

The amendment calls on the Secretary of State to publish a statement setting out his intention with respect to any sale of shares. Although, as drafted, the amendment relates to the appointed subsidiaries, the noble Lord has the holding companies very much in mind. My right honourable friend has of course already published statements about the Government's intention. As far back as July last year, he announced our intention to float all 10 holding companies simultaneously towards the end of his year. That remains our intention.

The amendment goes on to require the publication as soon as practicable of a statement of the proportion of shares to be sold. My right honourable friend will make such an announcement when it is timely to do so. At this stage I cannot forecast when and in what terms any such announcement may be made. The prospectuses of the holding companies will contain details of the remaining government holdings if there are to be any.

I believe that the amendment is unnecessary to the extent that the matters with which it deals have already been covered or will be covered at the latest in the prospectuses for flotation of the companies later this year. I believe that to the extent that the amendment seeks to impose some form of statutory timetable it is misconceived, as my noble friend Lord Jenkin of Roding said so well in an earlier statement. The timing of announcements on offer structure details must be decided in the light of market conditions and considerations.

Lord McIntosh of Haringey

I have seldom been the victim of such a piece of selective quotation as that which the noble Earl has just put forward. He read out a selected part of my amendment; namely: publish a statement setting out his intentions with respect to any sale of its shares". He did not read out the following words: and the proportions thereof at any stage". It is quite clear from the Government's reply that, as I thought, they are treating Parliament with contempt on this most important matter. We have had repeated that it is the Government's intention ultimately to sell 100 per cent. of the water business. We have had repeated the statement that the Government have not yet made up their mind as to the stages in which the business should be sold. I suggest to the Committee that it might just have been possible to delay a decision on this matter—that a delay of this kind could have been defended—while the Bill was going through another place. But the second Chamber is now considering this Bill and the other place will only have an opportunity to consider any amendments that are made and not to reconsider the Bill as a whole.

I suggest that, if it is considering the desirability or otherwise of privatising the water industry, Parliament needs to know when the industry is to be privatised and in what stages. It is not just a matter of academic interest. It needs to know because it affects who will buy the water industry and because the whole of the argument for privatisation depends to some extent on who will buy the industry. It is quite clear from comments in all the financial papers that investors are thinking in those terms and it is quite clear that somebody in government—perhaps not at the highest level—is saying things to the financial press that Ministers are not prepared to say to Parliament.

I do not think that this is satisfactory or that Parliament should think that it is satisfactory. Whatever may be the niceties of these subsidiary companies or the plcs, it is right that we should take a view on this matter by voting on this amendment.

4.33 p.m.

On Question, Whether the said amendment (No. 148ZB) shall be agreed to?

Their Lordships divided: Contents, 76; Not-Contents, 119.

DIVISION NO. 2
CONTENTS
Addington, L.	Blackstone, B.
Amherst, E.	Bonham-Carter, L.
Ampthill, L.	Boston of Faversham, L.
Ardwick, L.	Bottomley, L.
Attlee, E.	Brooks of Tremorfa, L.
Aylestone, L.	Bruce of Donington, L.

Carmichael of Kelvingrove,L.	Milverton, L.
	Molloy, L.
Cledwyn of Penrhos, L.	Mountevans, L.
Davies of Penrhys, L.	Nicol, B.
Dean of Beswick, L.	Northfield, L.
Dormand of Easington, L.	Peston, L.
Elwyn-Jones, L.	Phillips, B.
Ennals, L.	Pitt of Hampstead, L.
Ezra, L.	Ponsonby of Shulbrede, L.
Falkland, V.	[Teller.]
Fisher of Rednal, B.	Robson of Kiddington, B.
Gladwyn, L.	Rochester, L.
Glenamara, L.	Ross of Newport, L.
Graham of Edmonton, L.	Sainsbury, L.
Grey, E.	Serota, B.
Hampton, L.	Shepherd, L.
Hatch of Lusby, L.	Simon, V.
Hirshfield, L.	Stallard, L.
Houghton of Sowerby, L.	Stedman, B.
Hughes, L.	Stoddart of Swindon, L.
Jenkins of Hillhead, L.	Strabolgi, L.
Jenkins of Putney, L.	Taylor of Blackburn, L.
John-Mackie, L.	Taylor of Gryfe, L.
Kearton, L.	Taylor of Mansfield, L.
Kilbracken, L.	Tordoff, L. [Teller.]
Lloyd of Kilgerran, L.	Turner of Camden, B.
Longford, E.	Underhill, L.
Lovell-Davis, L.	Vernon, L.
McCarthy, L.	Wallace of Coslany, L.
McGregor of Durris, L.	Walston, L.
McIntosh of Haringey, L.	Whaddon, L.
McNair, L.	White, B.
Mason of Barnsley, L.	Winstanley, L.

NOT-CONTENTS
Airey of Abingdon, B.	Hailsham of Saint
Alexander of Tunis, E.	Marylebone, L.
Alexander of Weedon, L.	Harlech, L.
Alport, L.	Henley, L.
Arran, E.	Hesketh, L.
Auckland, L.	Hives, L.
Balfour, E.	Hood, V.
Bauer, L.	Hooper, B.
Belstead, L.	Hylton-Foster, B.
Blake, L.	Jenkin of Roding, L.
Blatch, B.	Kimberley, E.
Blyth, L.	Lauderdale, E.
Boyd-Carpenter, L.	Lawrence, L.
Brabazon of Tara, L.	Long, V.
Brougham and Vaux, L.	Luke, L.
Caithness, E.	McFadzean, L.
Campbell of Croy, L.	Mackay of Clashfern, L.
Carnegy of Lour, B.	MacLehose of Beoch, L.
Carnock, L.	Macleod of Borve, B.
Cayzer, L.	Malmesbury, E.
Colnbrook, L.	Margadale, L.
Constantine of Stanmore, L.	Marley, L.
Cottesloe, L.	Marshall of Leeds, L.
Cranbrook, E.	Massereene and Ferrard, V.
Dacre of Glanton, L.	Merrivale, L.
Davidson, V. [Teller.]	Middleton, L.
De L'lsle, V.	Monteagle of Brandon, L.
Denham. L. [Teller.]	Montgomery of Alamein, V.
Dilhorne, V.	Morris, L.
Dundee, E.	Mottistone, L.
Eden of Winton, L.	Mowbray and Stourton, L.
Ellenborough, L.	Munster, E.
Elles, B.	Murton of Lindisfarne, L.
Elliot of Harwood, B.	Nelson, E.
Erroll of Hale, L.	Norfolk, D.
Faithfull, B.	Nugent of Guildford, L.
Ferrers, E.	Oppenheim-Barnes, B.
Forester, L.	Orkney, E.
Fortescue, E.	Pender, L.
Fraser of Carmyllie, L.	Peyton of Yeovil, L.
Fraser of Kilmorack, L.	Platt of Writtle, B.
Gainford, L.	Porritt, L.
Gisborough, L.	Pym, L.
Glenarthur, L.	Radnor, E.
Gridley, L.	Reay, L.

Reigate, L.	Swinfen, L.
Renton, L.	Terrington, L.
Renwick, L.	Teviot, L.
Romney, E.	Thomas of Gwydir, L.
Rugby, L.	Trafford, L.
St. Davids, V.	Trumpington, B.
Saltoun of Abernethy, Ly.	Tweedsmuir, L.
Sanderson of Bowden, L.	Vaux of Harrowden, L.
Sharpies, B.	Waldegrave, E.
Skelmersdale, L.	Whitelaw, V.
Stanley of Alderley, L.	Wise, L.
Strathclyde, L.	Wynford, L.
Strathspey, L.	Young, B.
Sudeley, L.	Young of Graffham, L.
Swansea, L.	Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.

4.41 p.m.

Lord McIntosh of Haringey moved Amendment No. 148ZC: Page 10, line 22, at end insert— ("1A) An appointment under this section shall be made by Order of the Secretary of State, and so such Order shall be made unless a draft has been laid before and approved by resolution of each House of Parliament.").

The noble Lord said: The purpose of this amendment is to insert a new subsection after subsection (1) of Clause 11. That is the right place for it, because it follows immediately subsection (1), which lays down the responsibility for who should make the appointment. But it refers particularly to subsection (3), which reads: The appointment of a company to be a water undertaker or sewerage undertaker shall be by service on the company of an instrument in writing containing the appointment and describing the area for which it is made".

This is, in effect, a piece of correspondence between the Secretary of State or the director and the undertaker and, despite the supreme importance for the consumers who are to be subject to this natural monopoly of the conditions of the appointment and of the area with which the appointment is concerned, there is no opportunity whatsoever for Parliament to consider the appointment, to consider the document and to consider the terms of it.

I do not think even this Government suppose in their fondest moments that there will not be continuing parliamentary discussion of the water business. After all, there has been continuing parliamentary discussion of the other privatised industries, entirely properly, despite the appointment of the Directors General of Telecommunications, of Gas Supply and so on. There will continue to be parliamentary discussion of privatised industries, because Parliament represents the consumers of these industries who are the forced customers for these industries, for these natural monopolies. If that is the case for the other industries which have been privatised, how much more so is it for the water industry?

Members of Parliament are simply not going to get away with responding to their constituents who complain about water supplies by saying, "Oh, it is nothing to do with me. It is the customer service committees; it is the Director General of Water Services; it is the National Rivers Authority. Parliament has no influence on this matter any more". Any Member of Parliament who makes that sort of comment to his constituents will invite an adverse vote at the next general election, and deservedly so.

It is a matter of public concern that we should have an adequate regulatory system for our water industry, and it is a matter of public concern that ultimately there should be an opportunity for parliamentary redress if the regulatory system, which is, after all, ultimately under the control of the Secretary of State, falls down.

We are not in this Bill proposing that all of the regulatory functions of the director should be exercised by the Secretary of State. That view was expressed by the noble Lord, Lord Nugent, last week and the Committee took another view, so I am not opening that subject again. What I am saying is that at the time of the appointment, which is the first occasion on which public concern needs to be expressed, it is important that Parliament should have an opportunity to consider the terms of the appointment.

Unless that is the case, and unless the terms of the appointment are actually available to be discussed in Parliament, subsequent discussion of the water industry and of consumer interests in the water industry will be weakened, because the original terms will not have been subjected to parliamentary scrutiny, and it will not be possible to refer back to them and for the government side to say, "Well, you in Parliament agreed with us that these should be the terms of the appointment".

I hope it will not always be the case that Parliament will agree with everything the Government do in this respect, but it is certainly important that Parliament should have an opportunity to consider the terms, to make detailed comments on them and to have their views taken into account by government in the formulation of the letters of appointment. A written contract between the Secretary of State and the undertaker is simply not adequate for parliamentary control in an industry such as the water industry, which is the subject of this Bill. I beg to move.

Lord Renton

Whether parliamentary control is needed and desirable in the circumstances or not, I think that it is overdoing it to call for an affirmative resolution. We often have to consider whether there shall be a negative or an affirmative procedure for considering statutory instruments by each House of Parliament, but we reserve the affirmative resolution for really important matters. To have the business of each House cluttered up, if I may say so, with matters of this kind, however important they may be, is not exercising the sort of judgment that we ought to exercise.

I say that on the assumption that some kind of parliamentary control is required, as the noble Lord has said. But in the entirely fresh circumstances in which we are legislating for the water industry I would have thought, following the speech made by my noble friend Lord Jenkin of Roding on the last amendment but one, that we really do not need to have that kind of control.

The Earl of Caithness

The effect of this amendment is to modify the power of the Secretary of State or of the director, where the Secretary of State has given his consent or a general authorisation to appoint water and sewerage undertakers, by subjecting their decisions to parliamentary debate. The amendment would apply not only to the initial appointments but to replacement and inset appointments. This term "inset appointments" is used to describe appointments made under Clause 12(2)(b) to make new appointments for areas which are not served by the existing appointee.

The Bill allows for the director to make replacement appointments and inset appointments under a general authorisation given by the Secretary of State. Because the director will have the necessary understanding of the performance of the existing appointees and, under his Clause 26 duties, of the wider context of the industry, he will consequently be the person best qualified to make any subsequent appointments and this is the way in which it is intended the clause will operate. The duties of the director general in Clause 7, which include the responsibility to exercise his powers in the interests of customers and potential customers and so that the functions are properly discharged in every area, provide the necessary safeguards.

My noble friend Lord Renton made a very telling point when he said that what was important within the new structure was that the existing controls and duties of the Secretary of State and/or the director general were such that we were in a different situation. The important things for us to get right are the duties and the enforcement duties of both the Secretary of State and/or the director general, so that in the event of a subsequent appointment being made it is made in the interests of the customers and potential customers. That is in Clause 7. That gives the assurance.

Lord Graham of Edmonton

I cannot understand either the noble Lord, Lord Renton, or the Minister downgrading the desire or the interests of Parliament, either to be involved in or to have oversight of, or to have some opportunity of scrutinising, the appointments. I understood the noble Lord, Lord Renton, when he referred to matters of this kind, and said "however important they may be". I believe that they are important matters. Parliament decides. We know how Parliament decides, by the size of the majority. It is quite clear that this Parliament will not decide, but the principle exists of Parliament wanting to be involved in the scrutiny. I believe that "scrutiny" is the right word.

We continue to ask from this side of the Chamber: who will be responsible? How will it be done, and what safeguards will there be? Water is a unique situation. The degree of accountability can be considered separately. There is no blanket way of doing things. The Minister tells us that in this instance it is not necessary. The noble Lord, Lord Renton, was making the case that the affirmative procedure would be necessary only in very exceptional circumstances. We believe that this is an exceptional circumstance. It is one in which we want to be involved.

Once again the Minister completely fails to understand the crucial importance. People who take an opposite view to him on the issue see the need to ensure that the public understand that Parliament, so far as it can, is trying to ensure—because ultimately Parliament will be responsible—that it is not losing any opportunity to make sure that the people, the places and the legislation are gone through with a fine-tooth comb.

Lord Renton

If I may just deal with the point on which the noble Lord, Lord Graham of Edmonton, took up a phrase that I perhaps incautiously mentioned. There are degrees of importance. I should have said that this is not sufficiently important to be made the subject of an affirmative resolution. But within the context of the Bill of course it is important. But the Bill contains its own checks and balances, obligations, and so on. I should have thought that it was perfectly justifiable, however important one considers these matters, to be left subject to the checks and balances inherent in the Bill.

Lord McIntosh of Haringey

We are not talking about an overwhelming burden on Parliament. We are talking about 10 water authorities in the first instance and 29 statutory water companies. Orders of this kind are commonly brought, even en masse, before Parliament. For example, orders for the establishment of urban development corporations have to be framed for each of the urban development corporations. It is perfectly common and perfectly acceptable for these orders to be brought before Parliament in a bundle to be debated together. I can understand how Members of the Committee may feel some resentment that an additional burden may be caused by orders requiring an affirmative resolution. But if I were a Member of the House of Commons I do not believe that I should feel protected by the delegation of the responsibility of the appointment by the Secretary of State and/or the director by means of a letter of appointment.

Members in another place have constituents. Those constituents will hold Members, particularly Members of the Government party, responsible for the performance of the water industry subsequent to privatisation. This Government will be blamed for the inevitable increase in water charges. If there is any defect in drinking water quality or in the quality of our environment following the Bill, whether or not it is a defect in relation to European legislation, the political fact is that the Government will be blamed for the defects because this Government will have taken responsibility for the new arrangements for the water industry. I should have thought that any self-respecting Member of Parliament would want the opportunity to take part in a debate on the appointment of the new water undertakers, and would want to be able to say to his constituents that he had done just that.

Lord Renton

Is not the noble Lord overlooking the fact that the Secretary of State can be questioned about any of his responsibilities under the Bill in another place? Up to a point he can be questioned about various other matters which arise under the Bill. There can be debates in another place about the way the Bill is working out. But that is very different from saying that there should be a specific obligation in respect of these really quite numerous companies and undertakers for there to be an affirmative resolution. This is far removed from that.

Lord McIntosh of Haringey

The noble Lord is quite right in saying that there can be subsequent debates on the performance of the water undertakings. I venture to suggest that there will be subsequent debates on the performance of the water industry under privatisation. That is an inevitable political fact. But in one sense those debates will concern the whereabouts of the horse when the stable door has been shut behind it. The true responsibility of Parliament ought to be not only to consider what is going wrong after privatisation has taken place but to consider the process of privatisation including not only the passage of the Bill but also the nature of the appointment agreement. This will not be a standard appointment agreement produced on a word processor for all the water undertakings. It is already clear—we shall see this in discussion on the next amendment—that the price charging formula, the RPI plus K formula, will not be the same for all the water undertakings. The nature of the appointment, and the RPI plus K formula for each undertaking, is a matter of public concern, particularly for the Members of Parliament representing the areas concerned by the appointment.

It is appropriate for the full responsibility of Parliament not only for dealing with what goes wrong afterwards, but for dealing with the original state of affairs that Members should have the opportunity to debate the appointment. As between a negative and an affirmative resolution, I concede that the noble Lord, Lord Renton, may have a point: a negative resolution might be more appropriate in this case. For that reason, if for no other, I do not propose to press this amendment to a Division.

The Earl of Caithness

I am grateful to the noble Lord for giving way. I sense that he is coming towards a decision on what he might do with the amendment. I should therefore like to take this opportunity to make a couple of points in answer to what he and the noble Lord, Lord Graham of Edmonton, said in his intervention. I take great issue with the noble Lord, Lord Graham, in saying that we are downgrading the interests of Parliament. We certainly are not. The interests that noble Lords have taken in the Bill is testimony to the importance that we give to the interests of Parliament.

The second point was the suggestion made by the noble Lord, Lord McIntosh, that to bring before Parliament all appointments would not be time demanding. There will be approximately 39 initial appointments and then there will be a continuing flow of inset appointments. We already have evidence that a number of companies involved in the water industry are keen on the inset appointment procedure as a form of competition. They can move into a new area, take the opportunities available and provide a better service to the public than their competitors. That is a relevant form of competition. I return to a comment made by the noble Lord, Lord McIntosh, in respect of the previous amendment. It was that we are giving complete power to the private company over the consumers. That is totally incorrect. One of the reasons the Bill is so lengthy is in order to protect the consumer. It is full of protection of the public interest and to such an extent that the noble Lord, Lord McIntosh, wondered whether the regulation is too harsh. The regulations and the functions are important, not necessarily the ownership, because if Parliament has agreed the strict regulation of the industry that is a key point.

5 p.m.

Lord McIntosh of Haringey

I should be grateful if the noble Earl could show me where on the record I said that the regulation is too harsh. The only occasion on which I recall using those words was during Second Reading when I observed that the Financial Times described the regulatory regime as being very harsh. I certainly did not say that I thought that it was harsh. The Financial Times has the right to state what it thinks. My view is that regulation is the absolute minimum of what is required. A great deal of time is being taken up in Committee in seeking to make the regulatory regime more powerful.

I totally disagree with the Minister's response to my noble friend Lord Graham. I have already indicated that I shall not pursue the amendment partly because of the difference between the negative and the affirmative resolution procedure and also because I accept the fact that the Minister has made a valid point about the difference between the initial appointments and subsequent inset appointments. It may well be that at a later stage we shall return to the issue with amendments reflecting both those possible changes in our position.

The fundamental position that we take, as expressed by my noble friend Lord Graham, is that if, as it will, Parliament has the power to debate the future of the water industry after privatisation it should be concerned with the terms on which that privatisation takes place. If the terms were in the Bill, the passage of the Bill would suffice. They are not in the Bill; they are in the terms of appointment. While that remains the case the terms should be debated by Parliament. In order to enable that to be done more effectively I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 148ZD: Page 10, line 31, at end insert ("including the duty under subsection (5A) below").

The noble Lord said: This is a paving amendment, and in moving it I should like to speak also to Amendments Nos. 150A, which is substantive, 152A and 159C.

The principal amendment, No. 150A, places duties on the water and sewerage undertakers and the director which are to be included into the appointment. They require the director to determine a formula under subsection (5B) of the amendment. It is: such formula or formulae in respect of charges as appear to him to be appropriate, consistent with the need to maintain and improve levels of public health".

Amendment No. 152A refers to the necessity for the Secretary of State to bring before Parliament the details of the charging formula or formulae. Amendment No. 159C specifically refers to a direction containing any allowance for cost inflation to be included into the formula for the determination of price increases. It will be seen that the four amendments sit properly together.

As the Minister reminded the Committee a few moments ago, this is a very lengthy Bill. During the time that I have been in this Chamber it is the first Bill to be printed in two volumes. However, despite its length, it is in many respects a hollow Bill because it does not contain the important facts which we need to know in order to make a true judgment as to the wisdom of government policy in the privatisation of water.

Members on both sides of the Committee have preconceived ideas about whether it is desirable. Members of the public have preconceived ideas about whether it is desirable: they do not like it. But we owe it to ourselves as well as to the public to examine in a little more detail one of the most fundamental issues in the privatisation of water. It is an issue which will be of the greatest concern to the general public. It is an issue which it is not possible to debate in terms of the Bill as it stands before us. It is the issue of charging.

The charging formula on the basis of which water and sewerage undertakings will set their charges is set out in the model instrument of appointment. It has been the subject of considerable public debate, although not on the detailed terms of the Bill. Broadly speaking, it is the RPI plus k formula. I shall not attempt to define what the Government intend by that formula but I wish to point out the differences between that and any previous charging formula in a privatisation Bill.

The most important consideration is that previous formulae for the charging of gas and telecommunications, for example, have been in the form of RPI minus k, x or whatever. It could be argued—and the Government have done so—that the fact that it is RPI minus x means that prices must rise over a period of time more slowly than inflation. In other words, prices must decrease in real terms.

Having worked in private industry almost all my life, I am perfectly familiar with management objectives set to the director of production, for example, in a manufacturing company after having been told that for the next three years the factory costs of its product must decline by 10 or 20 per cent. a year. That objective is intended to secure efficiency of operation, economy and greater profit. Much as we may dislike some of the other implications of the charging formulae for gas or telecommunications, and much as we were dissatisfied with the formulae as they were incorporated in Bills which passed through this Chamber, we recognise the fact that there is a fundamental logic behind the idea that when you have privatised a monopoly you should force it to be efficient by forcing it to keep its prices below the rate of inflation. That appears to be common sense and it has been the basis of whatever popularity the Government's privatisation programme has achieved.

However, when you get to an RPI plus k formula, a formula in which the public must expect increases in prices in the coming years which are greater than the rate of inflation—in other words, water which is more expensive in real terms—that argument drains away. I am sorry; one must avoid metaphors relating to water in dealing with the Water Bill. That argument no longer has any force. The argument of economic efficiency, management and performance as a test of the virtue of privatisation is totally obscured by any formula which allows a real increase in the price of water.

That is made worse because formula k—and of course that is only a simplification of something which in the model instrument of appointment on page 13 is a very complex formula for weighted average charges increase, including a very considerable number of component variables—is intended to cover a number of completely unlike factors. The final determination of k for an individual water or sewerage undertaking will combine in a single figure both some estimation of the effect on the prices it has to charge of its capital programmes over a period of time—and the capital programmes are those programmes which are required to bring the water and sewerage activities up to the standard required both by our Government and by the European Community—and some sort of estimation (putting into figures in some way) of the geophysical (I think is the correct word) features of the area which the undertaking is supplying. In other words, how expensive is it for the water to be collected? Has it to be purified in any way? Does it have to be fetched a long distance to its point of use? It must include an indication of the differential cost of distribution. The cost of distribution in rural areas is very much greater than it is when customers are closely clustered together as in urban areas. In other words, the inherent costs of supply as well as the costs of any capital programmes must be taken into account in calculating k.

Some of those are long-term factors. They relate to the investment required and the condition of the assets. I have not even mentioned the thorny issue of asset management. The consultants for the Government are spending vast amounts of public money, no doubt justifiably, in trying to assess what the asset management cost will be for the individual water authorities. Nobody knows the conditions of our sewers, how much water is being leaked in our water distribution system or what can be done to stop it. Those are all unknowns but they will have to become knowns in order for a realistic figure to be set for k—for the charges which the customers will pay for water.

Therefore, it is a combination of these long-term issues of investment and of the long-term physical environment in which the water and sewerage undertakings are working with short-term issues such as cash flow. I should have thought that water and sewerage undertakings had a relatively favourable cash flow situation in that they can regulate their charges very securely over a financial year. On the other hand, by being privatised they are abandoning some of the security that they have had which has entitled them to borrow money at public rather than private sector rates of interest.

We have already been over this ground. I have sought to pursue with the Government what they expect the new undertakings must pay for their capital. Of course it is quite critical to know what rates of interest they must pay for their capital in order to know how much they should be allowed to charge for water. I suggested that there were three options: the existing rate of interest, the rate of interest on a utilities basis and the rate of interest on an equities basis. I suggested what the cost may be to water customers in real terms over a period of years. I have got nowhere. That is why I say that the Bill is hollow. There has not been an adequate response by the Government as to how much the consumers will have to pay for their water.

The pricing formula of k is an amalgam of completely unlike functions, a basket of factors, which cannot realistically or properly be put together. Let us remind ourselves that those charges will be imposed and no one will be able to say, "No, I am not going to pay that for my water. I shall go elsewhere". That is a fundamental point about the water industry to which we must keep on returning in order that we do not forget it in the mass of propaganda which goes on about the benefits of privatisation. If I were an accountant seeking to take a true and fair view, I should say that k cannot be the simple formula which the Government seek to pretend that it is. It must be more complex. As soon as one looks at the more complex formula and as soon as one realises what the Government are trying to do, it becomes clear that the attempt to privatise water is being made at the wrong time.

I am not making a Second Reading point. We have not had an opportunity to debate the charging to the consumer at all in the Bill so far. It would have been impossible to have had an adequate discussion of the issues on Second Reading. However, as we have proceeded through the Committee stage, it has become eminently clear that if there is to be any sort of rational decision about the cost of water to consumers in this country, there has to be either some greater recognition of the public service element in water, however unpalatable that may be to a Government who are hell-bent on privatising now or some more realistic estimate of the cost of the investment programme which will be necessary and which water authorities will have to undertake over the next 10 years. In other words, I suggest that the charging formula which we have so far, or the attempts at it, are no doubt a brave attempt at trying to reconcile the very many factors involved in the pricing of our water but they are a doomed attempt.

Perhaps I may give a few more reasons why that is the case. The first is concerned with the accountancy side of it and that is something which will have to appear in the prospectus. I am sorry that the noble Lord, Lord Jenkin, is not in his seat because I believe that he would have been interested in this point and I should have welcomed his business judgment on it. It seems to me that the decision as to whether the prospectus should be phrased in historic current cost terms is quite critical to the success or otherwise of the flotation. Whatever decision is taken, the charging formula for water will have to be robust as between historic and current cost calculations. It cannot simply be left to the judgment of investors as to what they choose to believe is the Government's intention. Before they come to finalise the prospectus the Government will have to make a decision on that point. They ought to be discussing this issue with Parliament. However, the way this Bill is formulated it is not possible for the issue to be determined by Parliament. As the Bill is framed it leaves the Director General of Water Services to decide on the issue.

There are two ways in which the Government, if they are behaving responsibly, could deal with that. They could force the director general to specify in advance the accountancy procedures on which he is going to set k or to set up some sort of independent adjustment procedure. I do not know what the Government are going to do but they should be doing something and they ought to be discussing it with Parliament as the Bill goes through. My suspicion is that the Government simply want to avoid current cost accounting at all costs and want to stick to historic cost accounting. They may believe that thinking in the accountancy profession is such that they still have an opportunity before historic cost accounting is totally discredited to get away without specifying current cost accounting.

I understand that Mr. Byatt, the designate Director General of Water Services, wanted current cost accounting and I should be interested to hear the Government's views on the way in which the flotation documents and the prospectus will, in the end, be formulated.

I am sorry if I have gone on at length about what some people may feel to be technicalities. These are not technicalities. These are not matters at the margin. These are matters which make a difference between the Secretary of State's estimate that water prices will increase between 7.5 per cent. and 12.5 per cent. in real terms in the next 10 years and other perfectly respectable economist estimates that prices may have to rise by as much as 150 per cent. in real terms in the next 10 years. However much the Government may have passed by the argument in presenting the Bill so far, customers will be intensely concerned with the effect on water prices of these perhaps rather technical decisions which the Government will have to take. It is for that reason we are proposing amendments which will require the director to set up a price formula which can be defended, attacked and discussed but is at any rate a public matter to be dealt with. It is an issue of great public concern.

I appreciate that in this Committee amendments and arguments about the environment attract a great deal more attention than economic and consumer protection matters. I understand that. I sympathise with that view and I hope that I have taken my share of the necessary role of opposition in seeking to protect the environment as the Bill proceeds through its Committee stage. However, we are now dealing with a subject which, in my view, is at least as important as the environmental concerns expressed in this Committee; namely the protection of water customers from exploitation by a private monopoly, licensed by government, in a way which this Government refuse to explain in public.

The intention of our amendment is to force the Government at least to talk publicly and openly about what is in their mind about the charging procedures for our water, to attempt to defend their formulae and explain what it is they intend for water prices. In my view that was not done in the debates in another place. The Committee deserves no less than it should be done properly now. I beg to move.

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

Clause 11 provides for the appointment of companies as water and sewerage undertakers by the Secretary of State or, with his consent, by the director. Subsection (2)(a) requires the appointed company to meet obligations of water and sewerage undertakers set out elsewhere in legislation, including elsewhere in the provisions of this Bill. Hence this clause deals with the consequences of appointments and is not the place for setting out provisions relating to further conditions to be included in appointments. That is dealt with in Clause 14.

It is thus inappropriate for Amendment No. 150A and its paving Amendment No. 148ZD to seek to place a duty on an appointed company in Clause 11. Putting that aside,the effect of the amendment would be to require the appointed company to seek the approval of the director for its proposed charges for domestic and non-domestic customers. The director would be required to determine whether charges proposed by the company were consistent with a formula determined by him. In turn, that formula would need to be consistent with the public health duties of the director. The director would also be required to ensure that all items, and only those items, admissible by the formula were considered in his determination. The company would have a duty to comply with the director's determination.

We believe that this is a strange amendment. The director is required to devise a charging formula of his own design, presumably to limit the level of charges. He is then required to follow his own rules in applying the formula.

Similarly, Amendment No. 152A makes the presumption, not present in the Bill, that a charging formula, or charging formulae, will apply to water undertakers. It would require the Secretary of State to lay the details of the formula before Parliament together with a statement of the level of charges likely to result and the reasons for the application of the formula. It also envisages that the statement would be provided by the director except in the case of an initial appointment.

This is a curious amendment. It cannot decide whether to admit the truth—that the Government's proposals for regulation of charges are well known—or whether to pretend a bashful ignorance of them. As I have said, the amendment acknowledges that there will be a charges formula. Indeed the model instrument of appointment which contains it was published last December. I remind the Committee that my noble friend Lord Jenkin of Roding has described it as infinitely desirable.

Amendment No. 159C seeks to clarify the scope of direction giving powers that can be included in companies' appointments. This time the proposal is to clarify that conditions could allow the Director General of Water Services to give directions concerning "any additional element", in addition to cost inflation, to be included in any formula for the determination of price increases.

Condition B of the model instrument of appointment provides for increases in a basket of each company's charges to be subject to an annual limit related to the retail prices index; or, to use shorthand, RPI+k: where k is a number which will be inserted in individual licences. Clearly this condition is at the heart of economic regulation of the companies. The level of k will be set in the light of all the factors set out in the general duties clause, Clause 7; completely paraphrased by the noble Lord, Lord McIntosh, earlier this afternoon. This will guide the Secretary of State and the director when exercising their powers under Chapter I of Part II of the Bill.

The level of charges must allow proper discharge of the companies' functions. It also provides a stimulus to making efficiency savings in that profits can thereby be increased, subject to periodic reviews of the limit after 10 years, or after five years if the company or the director require it. In such reviews savings will be shared with customers.

Provision is also made for k to be adjusted where new obligations are imposed or there are substantial adverse circumstances which management could not have avoided. These provisions offer the safeguards that are necessary for viable companies to be established given the range of factors which may move the goal-posts. They will ensure that the companies will be able to discharge their functions, yet they are also carefully tailored to ensure customers' interests are protected.

Where the director's determinations are disputed, the matter will be referred to the Monopolies and Mergers Commission. This is a reasonable safeguard for the companies to expect. It has been incorporated into the structure of Clause 14 and the conditions of appointment. The condition also requires that each company provides the director each year with sufficient information to satisfy him that its proposed charges comply with the charges' limits. The condition reflects the duties of the Secretary of State and the director general set out in Clause 7 which we have already debated. By seeking to identify specific obligations as Amendment No. 150A implies, such as the need to maintain and improve levels of public health, the amendment starts a process which we believe that it cannot hope to complete. The obligations of undertakers are extensive as the size of the Bill reflects, even though it does not contain them all. The aim to be clear and precise is a laudable one, but I can assure the Committee that trying to isolate the relationship between individual obligations and the level of charges within the charges' formula itself is not a fruitful way forward. The general duties already give all the guidance that is needed.

The framework that I have described is superior to the proposals in these amendments which are confused to the extent that they give unqualified powers exclusively to the director and we believe that they are rather autocratic. The noble Lord, Lord McIntosh, took issue with the change in formula from previous electricity and gas privatisations whereby you had RPI minus x plus y versus RPI plus k. There are two very important differences between gas and water. The first is that there is a far higher variable as regards the price of obtaining gas (as we can see by looking back over the past four years) than there is as regards the basic commodity of water. As the noble Lord, Lord McIntosh, pointed out, ahead of the water industry is a major programme of compliance to meet present and future standards. k can be not only a positive number, but it can also be a negative one. The level is dependent on many factors and thus efficiency savings alone could allow RPI minus something.

5.30 p.m.

Lord McIntosh of Haringey

Is the noble Lord seriously suggesting that that will be the case in the next 10 years?

Lord Graham of Edmonton

It could be the case.

Lord Hesketh

As I have just said, I am suggesting that there is no possibility today or tomorrow because of the matter of compliance, but in the years that lie ahead it is possible and it is not unreasonable. The fact is that compliance in the short term does not mean that that is likely. It is all very well for the noble Lord, Lord McIntosh, to smile and stroke his head, but the fact is that he cannot say with certainty that there is no possibility of k becoming a minus because there is such a possibility. We absolutely accept that there will be unavoidable local variations in the inherent cost of supply and the condition of the assets. That is why different companies must have ks appropriate to their circumstances. A good deal of work is being done (as the noble Lord, Lord McIntosh pointed out) to ensure that each company and its customers are fairly treated.

The process must be particular to each company and it must follow common principles. But we cannot accept that the regulator's job is impossible. Water and sewerage undertakers have enough in common for there to be a good deal of scope for comparative competition. The standards set by the most efficient companies will be the guiding light. If it is impossible to make sound judgments as to efficiency and appropriate local costs, how is the industry to be efficiently supervised even in the public sector? The industry is a monopoly whether it is in public or private hands. The noble Lord's deep gloom about the possibility of intelligent informed analysis we believe to be a recipe for despair. Because of that we hope very much that the noble Lord, Lord McIntosh, will be able to withdraw his amendments.

Lord Graham of Edmonton

The Minister seeks to deride the attempts made by my noble friend Lord McIntosh and those on this side of the Committee to describe what we intend. The Minister and his colleague are using emotive and evocative adjectives in describing what we are going to do. If I categorise what he has sought to do as deriding—I shall not go so far as to say rubbishing—the case that has been made, I believe that can be sustained on a reading tomorrow of the Official Report.

The raison d'être of our concern here is not so much that there is a need for a formula, but that the public need to have maximum intelligence of the situation so that they can understand as soon as possible. No one on this side of the Committee has doubted the enormous costs that will be inherent in maintaining satisfactory standards. It will cost a great deal of money. No one is deriding the fact that at the end of the day the consumer, in one way or another, will have to pay. No one is pointing fingers either at the Government or the present water authorities. One has to consider the enormous size of the bills that will have to be picked up particularly as regards the enormous size of the jobs that have to be undertaken; for example, the replacement of the Victorian sewers in places like Manchester. It will be an exercise in futility to try to point the finger of accusation at any government or any authority.

We start from the premise that it is inevitable that there will be a big bill to picked up by the public. My noble friend has alluded to the possibly sanguine or conservative noises that have come from the Government and to the possibly wild exaggerations that have been alluded to by others. It is not an exact science. We recognise that very careful and sensible calculations have to be made. I believe that the public will respond to being intelligently informed of what it is that they are asking the Government to do, and not by privatisation. However, if that is the route, the public are asking the Government for legislation to protect the environment, to promote conservation and to improve the quality of water. They ask that the polluter be punished and that codes of practice should be brought in. The Government will not need to be persuaded by people on this side of the Committee that those provisions have to be planned for.

What the noble Lord says will be read outside far more than what I say because what he says is part of government thinking. I do not deride what the Minister said. He will have read a brief prepared in the department. In it the country is being invited to contemplate the possibility that at some time in the future the cost of water increases could be below the level of the RPI. In theory that is likely to be the case. The Minister has tried to set opposite the increases required to fulfil the Government's ambitions, the efficiency savings that can be made. It takes an enormously flexible imagination to believe that, with the tremendous amount of work that has to be paid for by the consumer, that sum will ever be less than the efficiency savings that can be made.

The Minister speaks in terms of efficiency savings being shared by the shareholders and of there at least being the prospect that in five or 10 years matters will get better for the shareholders. We understand the nexus and the feelings of those who invest their money. They are entitled to a reasonable return. We are saying to the Government that it is right that Parliament should be more closely involved in these matters. I believe that the major issue of charges to the consumer will be determined if not wholly then almost wholly, outside the ambit of Parliament itself and proper debate.

The director general and the plcs will have arguments and put forward propositions. I am not for a moment saying that the director general will not be as strict and as disciplined as we want him to be or as understanding as he needs to be of the need to serve capital. Those who invest in the company will be entitled to make a profit. However, we are concerned with the right of the public to be consulted through the mechanism of understanding what the charges will be. I do not think that it is unfair or punitive for the companies to have to explain the charges to the director general, who will subsequently have the power to amend or reject them. That is what the amendment is about.

The Minister said that the standards set by the most efficient will be the guiding light. That is well understood; but cannot the noble Lord understand that people outside this Chamber will better appreciate the Bill if they are treated intelligently from the beginning and are better informed about what is important? We have discussed quality and management, but the noble Lord must understand that for most people in most things the price is crucial. He will also know that a great deal of mischief can and possibly has been made about the unnecessary way in which the public will have to pick up the bill. A discipline will be exercised on the companies if they have to comply and conform with some of the elements inside their costs.

The noble Lord takes exception to our amendment in which we talk in terms of formulae in respect of charges being consistent with the need to maintain and improve levels of public health. He derided that as being unnecessary and as moving in the direction of being too specific. People outside the Committee would not believe that a Bill which contained a statutory duty to have regard to, to be concerned about and to take into account measures to maintain and improve public health could be other than good. It might not be convenient and might be something that one would wish to avoid. I cannot believe that anything that a public company, one of the major undertakers or the Government would want to do would not comply with maintaining and improving levels of public health. The noble Lord has completely failed to understand what we are about.

The noble Lord resists an attempt to give scope and direction. He said that far too much attention is given to scope and direction. Is it a heinous crime for a Parliament to want to say to those who will be given power and authority—the Secretary of State, the director general and the companies—that we want to be involved in the scope and direction of the charging formula? That is nothing to be ashamed of. The Government have fallen into the trap of believing that in their committed and principled stand in opposition to the Bill Members on this side of the Committee will not be concerned once the Bill becomes an Act about trying to make it fair. The Minister must know of the unease about the possibility of large sums of money being made by people investing in the quality of water. This is not an argument about privatisation. It is an argument about accountability and sense. The Government have shown little of either in deriding our arguments.

5.45 p.m.

Lord Hesketh

Perhaps I may make one point. I have always considered it a great privilege to be a Member of this Chamber. I take issue with the noble Lord, Lord Graham. I would never deride or rubbish the noble Lord, Lord McIntosh, for whom I have the highest regard, as I am sure he knows.

Lord McIntosh of Haringey

This is a difficult situation. We tried in putting forward this amendment to bring on to the face of the Bill the opportunity to discuss one of the most important issues brought up by water privatisation. I refer to the cost to the consumer. We have done so in a form which does no more than bring out into the open the need for realistic calculations of water costs after privatisation. We have not suggested a completely new way of assessing what water charges should be after privatisation. We have done nothing radical. We have not in any way suggested in the amendment delaying the process of privatisation or putting it under a different form of public control. All we are saying is that people care about the price of water and that the Government ought to be more open and honest about the calculations they are making and ought to share their thinking with the public.

The Minister's response, I am sorry to say, made no progress towards explaining what is in the Government's mind, explaining the formulae which will be used to determine prices and sharing with the Committee the Government's view on the effect of the formulae. I said that the formulae as they stand are far too simplistic. I would go further. They are naive.

I am confirmed in that view by this morning's reports about the action that the Office of Fair Trading is likely to take in a reference to the Monopolies and Mergers Commission in regard to BAA, which is the former British Airports Authority. When the Government privatised the British Airports Authority they thought that they were protecting the charges that would be made by this monopoly—it has a monopoly of the services provided in London airports and at a number of other airports—by saying that the RPI minus x formula should apply to the charges made by BAA. They were naive about it. It was a figure of RPI minus 1 per cent., which was presumably a calculation of the savings to be made by increased efficiency.

However, the formula only covered the cost of landing an aircraft and parking it at the airport. It covered only a half of the cost of the airport's income and was based on a charge per passenger, which means that the airports automatically had a huge increase in revenue arising from the increase in passengers crowded into already inadequate conditions in the airports run by BAA. Therefore, even if we took that situation on its own, the charging formula so painstakingly arrived at in the privatisation Bill was inadequate.

However, what the Government completely neglected to do when setting the charges for BAA was to take control of the franchise income of the airports. We are told that as a result a company such as Bee Line which operates from Reading to Heathrow has been informed that the cost of its licence fee will rise from £54 to £10,000. We are also told that the Association of Heathrow Hoteliers says that under the new charges its bill for using the airport will rise from £16,000 to £180,000 per year. Further, we understand that the operators of a half-hour courtesy coach service from a hotel near Gatwick—which has not been charged for in the past—will now face an annual bill of more than £60,000. To say that that is causing dismay is far too mild a description of what is felt by those who are providing essential services at our airports—the transport services, the shops and indeed the airlines which are the customers and the victims of BAA. It results from a private monopoly, an inadequate regulatory regime and an inadequate pricing system.

Unless the Government come clean or at least reveal more than they have done so far about the pricing formulae for water, the horror being expressed by the "franchisees" at British airports under the BAA will be multiplied a millionfold when water customers—that is, all of us—realise what is happening to them.

It is not as if the formula provided any protection for the consumer. In every single case where we can determine what the RPI plus k formula means, there is protection for the undertaker but no protection for the consumer. The whole concept of cost pass through means that additional unexpected costs which arise, and which must be borne by the water undertakers, can be passed through to the customer to be paid. It is not suggested that the customer should share in the benefit of any savings. Oh no! Any savings which are made will go entirely to the shareholders.

What is being proposed is a completely one-sided asymmetrical procedure. When replying to the amendments, which were an attempt to bring the issue out into the open, the Minister made no attempt whatever to defend the one-sided nature of the formulae and the fact that it is always the customer who has to pay. He did not even analyse adequately the reasons for one water undertaking being different from another. The reason is clear: the water industry, more than any other industry I can imagine, is an industry of very high fixed costs.

As I said when introducing the amendment, such costs are non-comparable fixed costs; indeed, they vary from one area to another. They are different according to the historical backlog of work to be done on the water distribution and sewerage systems; they are different as regards the quality of the water being provided, that is, both for drinking and for bathing and therefore subject to the cost impact of the EC regulations which all the water undertakings will have to obey; and they are different in relation to the risk of the kind of disaster which occurred at Camelford with comparable examples in Oxfordshire.

While such differences exist it is not appropriate for the Minister to criticise my arguments by saying that there would be equal problems of pricing in the public sector. There would not be equal problems of pricing in the public sector. The problems of investment in the water industry are the same in the public sector as they are in the private sector. It will not cost any less, or any more, to comply with the European Community regulations or with our own requirements for improved quality water. However, in the private sector it is—as it ought to be—a matter of public investment shared properly by all taxpayers. It is only under privatisation that it becomes necessary to go through this elaborate and deceitful rigmarole of passing costs on in a different way to different customers of different water undertakings. This rod—this complex and incomprehensible series of formulae—is devised for their own back by the Government through the very fact of introducing privatisation. It is not a fundamental feature of the water industry as such; it is a feature of privatisation.

The answers given by the Government to these questions of fundamental importance are so totally inadequate that I think it essential that I should first seek the opinion of the Committee, and, secondly, that I should give Members of this Chamber notice that we shall return to this matter in great detail at a later stage of the Bill's proceedings. I say that because even if the amendments meet with the approval of the Committee they are, as I said, not radical and they do not deal—as I would wish to deal—with the more fundamental issues of pricing under private monopoly conditions.

The Government have not thought out their formula and they have not thought out their policy. Indeed, if they have gone any way along the road of thinking the matter out they have not shared their views with Members of the Committee. It must be said that we in Parliament deserve better than that.

5.56 p.m.

On Question, Whether the said amendment (No. 148ZD) shall be agreed to?

Their Lordships divided: Contents, 69; Not-Contents, 108.

DIVISION NO. 3
CONTENTS
Addington, L.	Craigavon, V.
Ardwick, L.	Davies of Penrhys, L.
Attlee, E.	Dean of Beswick, L.
Aylestone, L.	Dormand of Easington, L.
Barnett, L.	Elwyn-Jones, L.
Bottomley, L.	Ennals, L.
Brightman, L.	Ezra, L.
Broadbridge, L.	Falkland, V.
Brooks of Tremorfa, L.	Fisher of Rednal, B.
Carmichael of Kelvingrove,L. [Teller.]	Graham of Edmonton, L.
	Gregson, L.

Grey, E.	Rochester, L.
Hampton, L.	Ross of Newport, L.
Hatch of Lusby, L.	Rugby, L.
Hughes, L.	Russell, E.
Jenkins of Putney, L.	Saltoun of Abernethy, Ly.
Kennet, L.	Serota, B.
Lloyd of Kilgerran, L.	Shepherd, L.
Lockwood, B.	Simon, V.
McCarthy, L.	Stedman, B.
McGregor of Durris, L.	Stoddart of Swindon, L.
McIntosh of Haringey, L.	Taylor of Blackburn, L.
McNair, L.	Taylor of Mansfield, L.
Mason of Barnsley, L.	Thurlow, L.
Monson, L.	Tordoff, L.
Mountevans, L.	Turner of Camden, B.
Murray of Epping Forest, L.	Underhill, L.
Nicol, B.	Vernon, L.
Northfield, L.	Wallace of Coslany, L.
O'Neill of the Maine, L.	Walston, L.
Phillips, B.	Whaddon, L.
Pitt of Hampstead, L.	White, B.
Ponsonby of Shulbrede, L.[Teller.]	Wigoder, L.
	Williams of Elvel, L.
Rea, L.	Winstanley, L.
Robson of Kiddington, B.

NOT-CONTENTS
Ailesbury, M.	Hylton-Foster, B.
Airey of Abingdon, B.	Ingrow, L.
Alexander of Tunis, E.	Jenkin of Roding, L.
Alport, L.	Lauderdale, E.
Arran, E.	Long, V.
Balfour, E.	Luke, L.
Bauer, L.	McAlpine of West Green, L.
Bessborough, E.	McFadzean, L.
Birdwood, L.	Mackay of Clashfern, L.
Blake, L.	Macleod of Borve, B.
Blatch, B.	Malmesbury, E.
Blyth, L.	Mancroft, L.
Boyd-Carpenter, L.	Margadale, L.
Brabazon of Tara, L.	Marley, L.
Brougham and Vaux, L.	Marshall of Leeds, L.
Butterworth, L.	Massereene and Ferrard, V.
Caithness, E.	Merrivale, L.
Carnegy of Lour, B.	Middleton, L.
Carnock, L.	Monteagle of Brandon, L.
Clitheroe, L.	Morris, L.
Colnbrook, L.	Mottistone, L.
Colwyn, L.	Munster, E.
Constantine of Stanmore, L.	Murton of Lindisfarne, L.
Cottesloe, L.	Nelson, E.
Cranbrook, E.	Nugent of Guildford, L.
Crickhowell, L.	Oppenheim-Barnes, B.
Dacre of Glanton, L.	Orkney, E.
Davidson, V. [Teller.]	Pender, L.
De L'Isle, V.	Peyton of Yeovil, L.
Denham. L. [Teller.]	Prior, L.
Derwent, L.	Pym, L.
Dundee, E.	Radnor, E.
Eden of Winton, L.	Reay, L.
Ellenborough, L.	Rees, L.
Elles, B.	Renwick, L.
Faithfull, B.	Saint Albans, D.
Ferrers, E.	St. Davids, V.
Fortescue, E.	St. John of Fawsley, L.
Fraser of Carmyllie, L.	Sanderson of Bowden, L.
Fraser of Kilmorack, L.	Sharpies, B.
Gisborough, L.	Skelmersdale, L.
Glenarthur, L.	Slim, V.
Gridley, L.	Stanley of Alderley, L.
Hailsham of Saint Marylebone, L.	Strathclyde, L.
	Sudeley, L.
Harlech, L.	Swansea, L.
Havers, L.	Teynham, L.
Henley, L.	Thomas of Gwydir, L.
Hesketh, L.	Trafford, L.
Hives, L.	Trumpington, B.
Hooper, B.	Tryon, L.
Hunter of Newington, L.	Vaux of Harrowden, L.

Wise, L.	Young, B.
WyattofWeeford, L.	Young of Graffham, L.
Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

[Amendments Nos. 148A and 148B not moved.]

6.4 p.m.

Lord McIntosh of Haringey moved Amendment No. 148C: Page 10, line 47, at end insert ("and (e) of requiring the company to have due regard to any code of practice relating to customer service issued by the Director.").

The noble Lord said: The intention of Amendment No. 148C is to introduce the concept of a code of practice relating to customer service which could be drawn up by the Director General of Water Services. The proposal is that a company should be required to have due regard to such a code of practice and the obligations—this is the point of raising the matter in this clause—should be a requirement of the undertaker's appointment.

We have already discussed in Committee on a number of occasions the director general's role as a regulator as opposed to his role as a consumer watchdog. The Bill as drafted forces him to attempt to carry out both those roles, and so he has to reconcile his primary obligations under Clause 7 to keep the industry going and to secure its profitability, with the obligations to the consumer, and the obligations as regards the maintenance of levels of service and the environment, which occurs in other parts of the Bill.

We are not trying to upset what we still believe to be a fundamental contradiction in the director general's role, but we are trying at least to strengthen his hand in relation to the obligations that he has to the consumer and to maintaining levels of service. We should like to see the code of practice deal with some of the detailed service standards issues which it is not possible realistically to make part of the enforcement procedures in Clause 20.

I have already referred to the obligations under Clause 20 and, in particular, under Clause 20(5). But it is fair to say, in anticipation of our discussions on Clause 20—and the Government will agree with this—that these are complicated procedures. Moreover, the whole idea of provisional orders, subject to certain conditions, which precede a final order for compliance, and the whole concept of exclusions which might be evaded in the short term, and avoided in the longer term, by an attempt by a company to remedy the breach, have led to what is an exceptionally complex piece of enforcement legislation in Clause 20.

We recognise that undertakings will have many difficulties. We do not suggest that we should entirely replace the enforcement procedure in Clause 20 with the amendments, but we believe that the fundamental obligations of the water and sewerage undertakings under the Bill should be brought out into the open and to the forefront of the minds of the water and sewerage undertakings, by being included in a code of practice whose observance would be part of the letter of appointment for the water undertaking in the first place. In our view, that would redress the balance which at present seems to be loaded too much in favour of the undertakings and too little in favour of the consumers and the quality of service that they will demand from the water undertakings. I beg to move.

Lord Renton

Quite clearly, if there are to be codes of practice, the people concerned—the people to whom the guidance is directed—should have regard to them. It is just a question of whether there is anywhere else in the Bill—I have been looking at Clause 8, and I am not quite sure whether there is anywhere else in the Bill—which would require the company concerned, and indeed any relevant body, to have due regard to any code of practice. I would assume that there is some way of ensuring that. That is the point upon which I shall be interested to hear my noble friend.

The Earl of Caithness

Amendment No. 148C would make it a statutory requirement that the appointed companies should pay due regard to any customer service codes of practice issued by the director.

It may be helpful if I first explain the nature of the three customer codes of practice which the director is to approve under the draft model instrument of appointment. The first code is essentially a general advice and information document largely of relevance to domestic customers. This is provided for under licence condition F and provides for a code to be drawn up by the appointee setting out inter alia the services offered, the terms and conditions on which they are supplied, arrangements for the payment of bills, where customers can obtain information or advice and the arrangements for handling complaints.

In addition to this more general information document, there are two more specific codes for domestic customers concerning, under condition G, the disconnection of water supply for non-payment of charges and, under condition H, the liability for charges of domestic customers occupying metered premises where there is an unidentified leak on the supply pipe.

To supplement the information contained in the draft model instrument of appointment, I am making available to Members of the Committee further copies in the Library of the model code under condition F and the draft codes under conditions G and H as recommended by the Water Authorities Association and Water Companies Association to their members and published in February. Following points raised in another place I should add that we are currently considering with the industry whether further revisions should be made to the disconnection code concerning the exceptions to county court action for the recovery of water charge arrears. I very much hope that we will be able to make an announcement on these before the Committee debates Clause 49.

I am happy to say that we have not only decided that all three customer codes should be submitted to the director for his approval but that the procedures to be followed in the case of the disconnection and leakage codes are to be written into the licence. The appointee will now, therefore, be required to adopt a procedure in relation to disconnection of water supply to domestic premises for non-payment of charges which is consistent with the principles set out in the revised condition G and consistent with the provisions of Clause 49 of the Bill. The appointee is also to be required to follow the procedures to be set out in condition H under which customers with domestic water meters will not have to pay higher than expected bills resulting from an undetected leak from a supply pipe. As a consequence, the director will now be able to take enforcement action as appropriate for breaches of the procedures set out in these two licence conditions.

In the case of the general customer code of practice under licence condition F, however, there is not an equivalent set of enforceable procedures which it would be sensible to set out in the condition. This code is essentially an information document.

I therefore consider that we have gone as far as is desirable to make these codes enforceable. I say "desirable" because anything further would be inconsistent with their status as codes of practice. Compared with the vagueness of the reference to "due regard to" in the amendment, our approach to enforcement under these proposed licence conditions provides much clearer guidance to the customer, to the company and to the director general. I hope that the noble Lord, Lord McIntosh of Haringey, will welcome it.

Lord McIntosh of Haringey

I sincerely thank the Minister for what he said. The changes that he is proposing in the status of the disconnection code and the leakage code are real changes. The additional power that the director will have to seek to secure compliance with the code and the enforcement that will be applied are certainly an advance on anything that the Government have said before. I wish to pursue this matter with the Minister in a moment.

On the issue of the more general code of practice, the Minister still says very firmly that it is not a matter for compliance because it gives only general guidance. Quite understandably, he criticises the phrase "due regard" in the amendment. However, there are still two points on which I should like further clarification of his proposals. First, when it comes to the leakage and disconnection codes, the Minister talks about enforceability. Is he talking about enforceability in terms of Clause 20 or about enforceability as we are talking about it, because it becomes a condition of the appointment itself?

Secondly, when the Minister says that the more general code is only for guidance, does he mean that there is no part of the more general code which could not be framed in such a way that it had more strength than being simply for guidance? If he means that, it will be necessary for us to take the more general code apart, line by line, and seek to give it more strength than it has at the moment. We are certainly not satisfied that there are not significant elements in the general code of practice which ought to have greater protection.

Perhaps I may repeat my questions, because I spoke for longer than I meant to. First, what is the enforceability of the leakages and enforcement codes? Secondly, is there nothing in the more general code which could not be given greater strength?

6.15 p.m.

The Earl of Caithness

The enforcement duty for leakages and disconnections is through Clause 20 of the Bill. On the second point, I am unable to answer the noble Lord now. I should like to take his point away and consider it. As I have said, there is a very general obligation which is for information only. Whether one can take part of that code out and make it more enforceable without affecting other parts of the code is something which I think needs a little more thought than I have been able to give it since the noble Lord asked me that question.

Lord McIntosh of Haringey

That is a generous and realistic response. I believe that parts of the general code could be treated in the same way as the Government now propose to treat the leakage and disconnection codes, and I think we shall make even more progress than the real progress which we made just now. In the light of that, I am very pleased to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 149 and 150 had been withdrawn from the Marshalled List.]

[Amendment No. 150A not moved.]

Lord McIntosh of Haringeymoved Amendment No. 150B: Page 11, line 31, at end insert— ("(5) A company that is a water or sewerage undertaker shall state in its annual report how it has fulfilled its duties under section 8 above").

The noble Lord said: This is a harmless little amendment. It is already clear that the water or sewerage undertakers will produce annual reports. It is already clear that water authorities and sewerage authorities now take pride in their annual reports in referring to the way in which they carry out their environmental responsibilities. Sometimes when looking at the annual reports one gets the impression that the authorities are environmental charities rather than water undertakings, so keen are they to tell us what good boys and girls they are.

I think that the new water undertakings, the plcs, will welcome the provision offered by this amendment that they should refer in their annual reports to how they have fulfilled their duties under Clause 8. I remind the Committee that that is the clause which specifies the general environmental and recreational duties of the relevant bodies which are the water undertakings in this context. I hope that the amendment will find favour with the Government. I do not believe that it would do anything other than give statutory force to something which the good water and sewerage undertakings ought to be doing anyway. I beg to move

Lord Harmar-Nicholls

I wonder whether this matter needs statutory force. It is one thing to say that somebody must give a report; it is another thing to write into a Bill what must be put into the report. The amendment goes some way towards doing that. If the undertakings are giving a report, the report should reflect the work that they have done and how they have done it. To me, to put it in a statute is putting gilt on the lily.

Lord Ross of Newport

The fact is, as the noble Lord, Lord McIntosh, said, most of the water authorities are very proud of their response to their environmental duties. On Second Reading I produced a newspaper which the Southern Water Authority sends out quarterly, saying exactly what it is doing to improve the environment and to provide habitats and things like that for wildlife. I think that is a marvellous idea. I do not see any reason why there should not be some part in the annual report devoted to environmental responsibilities. I wholeheartedly support this suggestion.

Baroness White

I am sure we would all wish to support the suggestion that this provision should be a mandatory obligation. After all, Section 8 is one of the most important sections from the point of view of public interest and public opinion. I presume that the majority of companies concerned would do this in any case. However, I think the public have a right to expect that this information will be included in any annual report. I cannot believe it would be detrimental to any of the companies concerned that they should be under some obligation to do so.

Lord Jenkin of Roding

I wish to ask a question, which perhaps my noble friend can answer. condition I provides for levels of service information and service targets". That clearly applies to water and sewerage undertakers and, so far as I can see, it refers to the carrying out of all their functions. Would the reports that have to be made under condition I already have to provide the information which the amendment seeks? If so, it does not seem to me to be a substantially heavier burden to suggest that some summary of that should go into an annual report.

My impression is that all the authorities are very proud of what they have done in this regard and wish they could do more. They would like to be able to point that out. However, I am not absolutely certain whether that provision needs to be in the Bill. Nevertheless, I hope that the water companies will be encouraged to sing their achievements loud and long.

The Earl of Arran

This amendment raises matters which were considered at some length yesterday. Therefore, I can offer the noble Lord, Lord McIntosh, a very short response. It may be short, but I hope it will be sweet. The noble Lord may already have divined that. We should like to consider this amendment. We have sympathy with the underlying purpose of the noble Lord, but we should like a little time to consider whether the Bill or, as we are inclined to think, the code of practice is the best way to achieve that. I readily assure the noble Lord that we shall do our best to achieve the underlying objectives of the amendment. In those circumstances, I hope the noble Lord will be content for us to take the amendment away today for further consideration.

Lord McIntosh of Haringey

I cannot resist that, can I? I am content for the Government to take the amendment away and think about it. I am grateful for the interventions of other Members of the Committee, which I am sure helped to convince the Government that this was the right thing to do. I shall only add that it seems to be assumed that all the existing authorities trumpet their environmental achievements. I do not think that is quite the case. I think the necessity for a provision along these lines lies in the fact that although one would think all the authorities trumpet their environmental achievements, that is not the case.

Much public attention has rightly been focused on Clause 8 and on some elements in Clause 8 which may not be fully apparent and certainly do not attract public attention in the way they should. The very discipline of referring to the elements of environmental and recreational protection in the terms they are referred to in Clause 8 may be helpful in reminding the undertakings of the points they should be referring to in their annual reports.

I shall listen with some interest to the conclusion of the Government's considerations. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 151 had been withdrawn from the Marshalled List.]

Lord McIntosh of Haringey moved Amendment No. 151 A: Page 11, line 38, at end insert— ("(6A) Before terminating the appointment of a company holding an appointment under this Chapter or varying the area to which it relates, the Secretary of State or the Director shall—

1. (a) serve notice of his intention to do so on every local authority whose area includes the whole or any part of the area to which the appointment relates and
2. (b) publish a copy of the notice in such manner as may be prescribed.").

The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 151 B, and also to the closely related Amendments Nos. 153A, 155A and 157A. Amendments Nos. 151A and 151B have similar objectives. Those objectives are to secure that local authorities are notified when there is any termination of appointment in their areas. Amendment No. 151A also states that a copy of the termination notice should be published in such a way as may be prescribed by the Secretary of State. This also applies to any variation in the area over which an appointment was made.

I know that some Members of the Committee groan when we on these Benches refer to the continuing role of local authorities. However, I hope they will be convinced that the continuing role of local authorities in relation to the water business is very important, even under the terms of the legislation as drafted. It certainly justifies this quite modest and innocuous notification procedure.

First, local authorities may still be directly involved in the provision of water and sewerage services. They may provide those services directly, or as agents for the undertakings. Secondly, local authorities are planning authorities in the areas concerned, and in view of the inevitable involvement of the new water and sewerage undertakings in the planning process it is important that they should know what is happening to the water undertakings in their areas and that they should be able to assess the implications for them of new planning developments.

Thirdly, in addition to the important recreational functions of the water industry, local authorities have a very significant role in recreation. It is important that they should co-ordinate what they do in the recreational area with the activities of the water and sewerage undertakings and other parts of private industry.

A further point about the role of local authorities is one that should not be ignored, although it often is. Local authorities have a significant function in publicising matters of public interest to the ratepayers in their areas, who are also of course the water consumers. If local authorities are kept adequately informed of changes that affect the service which the undertakings will give to the people in their areas, as water consumers and as users of environmental facilities and recreational services, that can only increase the public understanding of the role of the water undertakings. Therefore, it can only benefit the public good and the public awareness of the virtue of the water undertakings.

Amendments Nos. 153A, 155A and 157A are all identical. They contain a very specific point about the information which should be given to local authorities which are acting as the sewerage agencies for the appointees. I do not think there is anything controversial about this, but it will be clear that when local authorities are acting as agents they should not be kept in the dark about things which are statutorily required to be notified to the appointees. I beg to move.

Lord Hesketh

This group of amendments provides for the notification of local authorities on modification or termination of appointments. Amendment No. 151A requires that the Secretary of State or director shall notify local authorities of his intention to terminate or vary a company's appointment, and shall publish such a notice. Amendment No. 151B is an alternative, and requires that the local authority shall be notified when the company is served with notice of termination or variation. The three amendments to Clause 13 require that notices shall also be served on local authorities acting as sewerage agents.

I hope the Committee will feel able to reject these amendments. They are unnecessary, for the reasons I shall describe. In addition, those relating to Clause 13, which concern sewerage agency, attempt to place agents on the same footing as the company by which they are engaged and so carry the unfortunate implication that that undertaker is a less than fully competent or responsible body.

We believe that these amendments are unnecessary because there is already a requirement, in Clause 13, for the Secretary of State or the director to inform those local authorities which will be affected by replacement appointments or variations to them. Clause 13 requires notice to be given to authorities in time for them to comment so that any representations they may wish to make can be considered. We believe that no purpose is served by requiring the Secretary of State to notify authorities of proposed termination.

I hope that the Committee will therefore reject these amendments.

6.30 p.m.

Lord McIntosh of Haringey

In relation to the specific points concerning Clause 13, the Minister is quite right to remind the Committee that the Secretary of State, under Clause 13(l)(a), has the obligation to notify local authorities of an application in the area. However, he has not specifically responded to my point about—I am sorry; I need to have so many pieces of paper at the same time—local authorities which may not be in the same area but which may act as sewerage agent for the undertaking. I think that there is nothing illogical in saying that a local authority which acts as a sewerage agent but is responsible for a different area should have the same rights of notification as the local authority in whose area the application falls.

Lord Hesketh

In relation to the specific point concerning a local authority which has an agency in a different area—if that is the correct interpretation of what the noble Lord, Lord McIntosh, said—we should like to consider the matter.

Lord McIntosh of Haringey

I think that is fair. The original interpretation of my amendments was incorrect and I think that it would be right for me to give the Government an opportunity to think about the amendments in the way that has been suggested. I hope that the Government will seek to return to the matter at a later stage. If not, we shall. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 151B not moved.]

[Amendment No. 152 had been withdrawn from the Marshalled List.]

[Amendment No. 152A not moved.]

Clause 11 agreed to.

Clause 12 [Restrictions on making replacement appointments]:

[Amendment No. 153 had been withdrawn from the Marshalled List.]

Clause 12 agreed to.

Clause 13 [Procedure for replacement appointments]:

[Amendment No. 153A not moved.]

[Amendments Nos. 154 and 155 had been withdrawn from the Marshalled List.]

[Amendment No. 155A not moved.]

[Amendments Nos. 156 and 157 had been withdrawn from the Marshalled List.]

[Amendment No. 157A not moved.]

Clause 13 agreed to.

Clause 14 [Conditions of appointment]:

Lord McIntosh of Haringey moved Amendment No. 157B: Page 14, line 24, leave out ("may") and insert ("shall").

The noble Lord said: In moving Amendment No. 157B I should like to speak also to Amendment No. 158E. The Committee may recognise the familiar phrase: leave out ("may") and insert ("shall")".

It is something that we have seen with almost monotonous regularity in the course of this Bill and other Bills. In this case there is a particular point in the exercise and I hope that the amendments will receive the approval of the Committee.

Clause 14 is concerned with the more detailed conditions of appointment of the undertakings. The conditions set out in subsection (1) refer to the conditions which the Secretary of State or director may require of the undertakers under Part I of the Bill, Part I being that which imposes both general and detailed environmental and recreational duties on the water undertakers.

We have spent so long discussing Part I of the Bill and we have gone in such detail through the duties which shall be required of the undertakers, as they will be required of the authority and the director in appropriate circumstances, that it seems to me extraordinary that when we come to look at the conditions of employment we should end up with the phrase: An appointment under this Chapter may include",

rather than "shall include".

Presumably Clause 14 is included in the Bill because there is some intention that the conditions will be imposed. If the Government had no intention of imposing those conditions they would not have bothered to introduce Clause 14 at all. There must be some positive intention. The whole structure of Part I is based on duties which are then applied to undertakers under Part II. In Clause 14 they become conditions of appointment and later, in Clause 20, for example—and there are many other examples which I could take—they become enforcement orders. The procedure for the application of the statements of principle in Part I is to be found in Part II. The provision that the duties under Part I should be part of the appointment is, as I said, specifically referred to in Clause 14.

There is little doubt therefore that the appointments are intended to reflect conditions which give effect to the Secretary of State's and the director's duties under Part I. When we look at the model conditions of appointment we see that that is borne out. Admittedly, those model conditions of appointment have not yet been approved and may yet be varied in different ways. Nevertheless, it is peculiar that when the Government's intention appears to be clear they should shy away from an obligation in the first line of Clause 14 which would cause no pain.

This is not purely a matter of form. It is not a purely semantic argument. If the provision is left as it stands in the Bill, if it is left that appointments under the chapter may include these conditions, it is possible that an appointment could be agreed between the Secretary of State and the undertaker which did not involve the conditions. It could be that adequate care was not taken to secure not only that the conditions were agreed to but that they could be carried out.

It is a curious discretion for the Secretary of State or the director to have when so much pain has been incurred in securing the best possible wording, in the Government's view, is included in Part I of the Bill. It is curious, when so many assurances have been given to those who are concerned about the recreational and environmental aspects of water supply, that the possibility remains in Clause 14 as drafted that the Secretary of State or the director may, apparently on a whim, decide not to include the conditions in the terms of the appointment.

Even if a judgment has been made that they are requisite and expedient and ought to be included, there is still a further layer of discretion. Under the present drafting the Secretary of State or the director could be clear that certain conditions would be required to give effect to obligations under Part I but could still decide not to include the obligations under an appointment.

That point might not appear to matter. It might not appear to noble Lords that making it a condition of the appointment is a real threat. But I can assure the Committee that pics which found that an analysis had been made of their environmental and recreational duties under Part I, and then found that their appointment was being approved without the conditions of appointment being effected by them, would understandably think that this was a licence to go ahead and ignore the obligations under Part I.

I do not suggest that the water undertakings as a whole or even individually are a bunch of rogues, but legislation is supposed to provide for all the likely circumstances that might arise. It is supposed to provide for a rational degree of enforcement and compliance with conditions which have long been discussed both in another place and in this Committee and which have achieved a degree of precision that the Government think appropriate for them. If we spent all that time producing statements concerning environmental and recreational duties, why on earth can they not be conditions of appointment? I beg to move.

The Earl of Arran

I fear that we shall have to disappoint the noble Lord as regards these two amendments. Perhaps I may briefly explain why.

The effect of the amendments is to require that all the conditions described in Clause 14, subsections (1) and (2), must be included in the conditions of appointment. However, it is standard practice for clauses describing potential conditions of appointment to use "may" rather than "shall", as may be seen in the Gas Act and the Telecommunications Act. That form of drafting provides a degree of flexibility. The model conditions of appointment for initial appointments have been published, but it is anticipated that those appointments will be in force for at least 25 years. A degree of flexibility to meet changing circumstances is clearly a necessity and it is for those reasons that I ask noble Lords to reject the amendments.

6.45 p.m.

Lord McIntosh of Haringey

We have heard those arguments on many occasions before and they are no more convincing now than they were before. The Government seek to assure us that, when there is a range of potential obligations or opportunities, it is standard practice to use the term "may" instead of the word "shall' on the grounds that it is more flexible to include "may" in order that the Government, the director, the Secretary of State or whoever can pick and choose. I believe that that is the implication of what the noble Lord said in respect of the different obligations.

If it is necessary for the legislation to be so drafted that the director shall impose only those conditions that are appropriate in a particular case, then the legislation should be drafted to say that. It should not be drafted so that all the conditions and all the obligations on the Secretary of State are discretionary rather than mandatory. In other words, I concede that the noble Lord has a case. The amendment would be undesirable if "shall" meant that every single one of the conditions, whether or not they were appropriate, had to be imposed.

However, the remedy is not to throw the baby out with the bath water. It is not to take away any mandatory conditions, but to draft the clause so that the appropriate conditions for the case, the individual undertaker and the range of recreational and environmental obligations of the undertaker are included in the Bill. That may mean more work for the draftsman. It may be more complicated. It may even mean—the noble Lord, Lord Renton, is not here to express horror at this suggestion—that the Bill will be a little longer than it would otherwise have been, but it will mean that it is more precise. That would be desirable even at the expense of a few more lines of primary legislation.

I neglected to refer to Amendment No. 158E which applies the same logic—which I believe to be impeccable—to subsection (2) of Clause 14. In all the examples that I gave, I referred only to the conditions in subsection (1), but Clause 14(2) is complementary to the environmental and recreational duties. It is at least as important because it covers all the other requirements that the director may have to make including, for example, questions which might go so far as reference to the Monopolies and Mergers Commission and questions about disputes between the director and the water undertaking. In those circumstances, it seems even more irrational for the Govenment to maintain their principle of introducing the subsections with the word "may" rather than the word "shall".

Perhaps the noble Lord will answer one question: is there no way in which legislation could be drafted to secure that, where there is a potential list of conditions, only those conditions that the director considers to be appropriate to the case—rather than all of them—could be included? Could not the introductory line therefore be amended to say "shall" rather than "may"?

The Earl of Arran

I do not think that I can bring much succour to the noble Lord. Perhaps I may make one overriding point; namely, that the legislation is designed to meet all circumstances, as the noble Lord has himself said. That is why the Bill must not anticipate that conditions of the type set out in Clause 14 will always be needed. That is the point that we are trying to make.

Lord Harmar-Nicholls

My noble friend is quite right in sticking to his guns on this matter. If the noble Lord had his way, we would not need a Secretary of State or a director. We could have a robot who would merely apply a section of the Bill as we drafted it. Flexibility is important. One cannnot anticipate all the circumstances. I have no doubt that the noble Lord approves of buying a ready made suit off the peg instead of having one made to measure which sometimes gives more satisfaction and is more comfortable to wear. My noble friend is right to retain the flexibility. The words "shall" and "may" are very distinct in the tasks that they impose upon the people who must do the work from day to day.

Lord Graham of Edmonton

We still come back to the central principle; namely, the sense in which people will read the Bill. Let us leave aside the word "may" and assume that there is a list of conditions. The Minister and the noble Lord, Lord Harmar-Nicholls, claim that some licence needs to be in the hands of the director and of the Secretary of State to determine which of those conditions will and will not apply. Let us suppose that, in the fullness of time—which may not be very long—most of the conditions that may have to apply are not applied. A case can always be made out for a condition not being appropriate. I sought earlier to move an amendment to provide the NRA, the Secretary of State and everyone concerned at top level in getting the Act right the means to do so before it began to bite.

I am fairly certain that one of the exercises that could have been considered would have been to see precisely the range of conditions that would have to apply. Suspicion will always exist and may be alluded to. If the list of conditions is so flexible and capable of being varied, one asks why those conditions do not apply in one case and why punitive conditions may apply to one person and not to another.

The noble Lord, Lord Harmar-Nicholls, made the quite reasonable point that one needs flexibility. If flexibility as opposed to rigidity were the hallmark of the measures contained in the Bill there might be a case to be made, but I do not know the clauses to which it would refer. I can almost see the noble Lord rising to his feet, if not tonight, then another evening, because he is always in his place, and pointing out that there should be no sense of dubiety about any legislation. It should be quite clear and there should be no room for argument.

It is true that the conditions under which an appointment shall be made ought not to be capable of being rubbished, ignored or got round stealthily. I believe that my noble friend has made a very valid point. Why, in Clause 14, do we have a permissive provision? At the end of the day we do not know the conditions. It is not a matter of arguing for certain things which must be complied with. We are anxious that the people who have power should use it properly by consulting and undertaking various exercises, and finally, in saying that this is the framework, the yardstick and the measuring rod with which everyone must comply, they must be satisfied. One can be emotive and even pejorative and say that it is hard and that it is a discipline, but they must be satisfied.

My earlier amendment was designed to give people the opportunity of getting things right. It is not that I wish the Bill well but I am a stickler for Bills being enforced and respected. And they must be right. As for the people who will be affected, some of them are our servants; namely the Secretary of State, the director and the people whom he appoints. There are other very important people. It is a clumsy phrase to use to say that they are in it for the money, but they are in for real. It is most important that they know where they stand. They may not like the conditions that are laid down but at least they know their position. It is also important that everyone else should know the position.

There is always the danger, given a power to be flexible or lenient, that someone will feel by comparison badly done by. That is why I believe that these amendments are very sensible.

Lord McIntosh of Haringey

I should like to ask the noble Earl two specific questions. First, does he think that the public, who are very concerned with environmental and recreational matters and who have been widely alerted to the protections which are supposed to exist in Part I of the Bill, will be satisfied with permissive rather than mandatory conditions of appointment in Clause 14? Does he not think that public confidence in the Government's good intentions in drafting Part I will be strengthened if the Government found a way round their drafting difficulties and put "shall" rather than "may"?

Secondly, in the case of subsection (2) where there may well be conflict, in particular with references to the Monopolies and Mergers Commission, between the director general and the undertakers, does he not think that the undertakers' hands will be strengthened if they could say to the Monopolies and Mergers Commission, "Well, the director general did not think it important enough to put in our conditions of appointment"? I wonder whether the noble Earl can help the Committee on those two questions.

The Earl of Arran

Perhaps I can elaborate a little. We on these Benches frequently have to suffer the accusation that this Government are too rigid. I have tried to demonstrate the reasons why in these particular circumstances it is thought that flexibility is the best way to proceed. Let me expand a little on that point.

First, Clause 14(l)(a) is a power for the Secretary of State or the director to include all such conditions as appear to him to be requisite or expedient having regard to Part I duties. That seems very close to what the noble Lord wants. I suggest that it would not make sense to require him to do what he thought requisite or expedient. The only test of the duty would be his own judgment.

The noble Lord referred to subsection (2). Here the appointment has certain effects whatever it says in the conditions. For example subsection (2)(a) has the effect that an undertaker is required to perform all its statutory duties. The director has no discretion to allow a company to ignore them.

I hope that I have been able to be sensible and persuasive in reply to the noble Lord, Lord McIntosh. Once again, for the reasons I have given, I ask him to withdraw the amendment.

Lord McIntosh of Haringey

The noble Earl has made no attempt to answer my questions. He has simply read out the additional section of his brief which says, "If pressed". I am not impressed; I shall press the amendment.

6.57 p.m.

On Question, Whether the said amendment (No. 157B) shall be agreed to?

Their Lordships divided: Contents, 50; Not-Contents, 92.

DIVISION NO. 4
CONTENTS
Ampthill, L.	Nicol, B.
Ardwick, L.	Northfield, L.
Attlee, E.	Pitt of Hampstead, L.
Brooks of Tremorfa, L.	Ponsonby of Shulbrede, L.
Carter, L. [Teller.]	[Teller.]
Davies of Penrhys, L.	Raglan, L.
Dean of Beswick, L.	Robson of Kiddington, B.
Dormand of Easington, L.	Ross of Newport, L.
Elwyn-Jones, L.	Russell, E.
Falkland, V.	Serota, B.
Graham of Edmonton, L.	Stedman, B.
Gregson, L.	Stoddart of Swindon, L.
Grey, E.	Taylor of Blackburn, L.
Hampton, L.	Taylor of Mansfield, L.
Harris of Greenwich, L.	Tordoff, L.
Houghton of Sowerby, L.	Turner of Camden, B.
Jenkins of Putney, L.	Underhill, L.
Lloyd of Kilgerran, L.	Vernon, L.
Lockwood, B.	Wallace of Coslany, L.
McIntosh of Haringey, L.	Walston, L.
McNair, L.	Whaddon, L.
Mason of Barnsley, L.	White, B.
Meston, L.	Wigoder, L.
Monson, L.	Williams of Elvel, L.
Mountevans, L.	Winstanley, L.
Murray of Epping Forest, L.

NOT-CONTENTS
Ailesbury, M.	Balfour, E.
Alport, L.	Bauer, L.
Arran, E.	Belstead, L.
Auckland, L.	Blake, L.

Blatch,B.	Hylton-Foster, B.
Blyth, L.	Ingrow, L.
Boyd-Carpenter, L.	Jenkin of Roding, L.
Brabazon of Tara, L.	Kenilworth, L.
Brightman, L.	Kinloss, Ly.
Brougham and Vaux, L.	Lauderdale, E.
Butterworth, L.	Lindsey and Abingdon, E.
Caithness, E.	Long, V. [Teller.]
Campbell of Croy, L.	McFadzean, L.
Carnegy of Lour, B.	Malmesbury, E.
Carnock, L.	Margadale, L.
Coleraine, L.	Marley, L.
Colnbrook, L.	Marshall of Leeds, L.
Cottesloe, L.	Merrivale, L.
Craigavon, V.	Middleton, L.
Cranbrook, E.	Monteagle of Brandon, L.
Davidson, V. [Teller.]	Montgomery of Alamein, V.
De L'lsle, V.	Morris, L.
Denham. L.	Mottistone, L.
Dundee, E.	Munster, E.
Eden of Winton, L.	Nelson, E.
Ellenborough, L.	Nugent of Guildford, L.
Elliot of Harwood, B.	Oppenheim-Barnes, B.
Faithfull, B.	Orkney, E.
Ferrers, E.	Pender, L.
Fortescue, E.	Reay, L.
Fraser of Carmyllie, L.	Renwick, L.
Gardner of Parkes, B.	St. John of Bletso, L.
Gisborough, L.	Saint Oswald, L.
Glenarthur, L.	Saltoun of Abernethy, Ly.
Grantchester, L.	Sharpies, B.
Greenway, L.	Skelmersdale, L.
Gridley, L.	Stanley of Alderley, L.
Hailsham of Saint	Strathclyde, L.
Marylebone, L.	Sudeley, L.
Harlech, L.	Thomas of Gwydir, L.
Harmar-Nicholls, L.	Trafford, L.
Harrowby, E.	Trumpington, B.
Havers, L.	Vaux of Harrowclen, L.
Henley, L.	Wyatt of Weeford, L.
Hesketh, L.	Wynford, L.
Hives, L.	Young, B.
Hooper, B.

Resolved in the negative, and amendment disagreed to accordingly.

7.4 p.m.

[Amendment No. 158 had been withdrawn from the Marshalled List.]

Lord Graham of Edmonton moved Amendment No. 158A: Page 14, line 31, at end insert— ("(aa) conditions requiring the payment of penalties for any breach of any conditions provided for under this subsection, the amount of such penalties to be determined by or under the conditions and to be payable to the Secretary of State;").

The noble Lord said: I beg to move Amendment No. 158A standing in the names of my noble friend Lord McIntosh of Haringey and the noble Lord, Lord Ezra. I believe it is for the convenience of the Committee if I speak also to Amendments Nos. 158 and 158D.

We are dealing with the very essence of some of those conditions that we should have liked to see made mandatory in respect of the previous amendments. The Committee will recall that the argument then was about whether conditions that were laid down would be mandatory or optional, and we are now to deal with some of the conditions that we want included. They cover a proper system of compensation to consumers for breaches of service obligations as laid down in the conditions of appointment.

The precise structure of the amendments would give the Secretary of State power to include these requirements as conditions in appointments negotiated with the plcs. Amendment No. 158A would require plcs to pay penalties for breach of conditions inserted into the appointment. I do not think there is any argument that, in all cases, there needs to be not only enforceability but sanctions if there is a breach of a condition for being given an appointment, out of which a great deal of money can be made—or a great many people can be made healthy or unhealthy—which, in itself, is a great prize.

But then there is the question of enforcement, and if there has been a dereliction—let us hope not a tragic one—there has to be some form of compensation. So Amendment No. 158A would require plcs to pay penalties for breach of conditions inserted into an appointment and the penalties would be determined by, and payable to, the Secretary of State.

Amendment No. 158B would similarly require the payment of compensation by an appointee to any person affected by the breach of a condition, with the amount of compensation to be determined under the conditions of appointment. Amendment No. 158D would provide that any duty to abide by a condition on a plc would be owed to any person affected by a breach of that duty and would be actionable at the suit of that person.

That is what is intended by these amendments. Whether they have that effect remains to be seen. They cut through the tortuous process of enforcement, which the Committee will come to consider when it comes to Clause 20. Under that clause the Secretary of State or the director are given substantial yet qualified powers to require enforcement in relation to matters such as drinking water quality. There is, however, a complicated procedure of provisional orders before final orders may be issued, and the requirement in subsection (5) of that clause that no final orders may be made where it appears that a company has taken steps to secure compliance. These are very vague provisions.

The amendments seek to highlight the limitations of the Government's well-publicised but vaguely defined £5 per day compensation scheme for consumers for certain breaches of conditions. The Commitee will recall that play has been made about water which fails to arrive or water which is of an indifferent quality. There has been this vague generalisation that it is possible for the consumer who is detrimentally affected to get compensation of £5 a day, if certain conditions are breached. Apart from the low level of payment which is implied by the scheme, which may fall well below the sort of damage caused at, for instance, Camelford in Cornwall, where there was a sad situation last year, or in any other major disasters, that scheme ignores some of the most common occurrences in failure of service.

For example, Amendment No. 159A highlights the fact that the scheme ignores the recurrence of nuisance by foul water flooding. Several thousand homes in the Thames Water area are permanently vulnerable to the problem. It is a persistent nuisance which causes the greatest inconvenience and damage to health. Even if a scheme were applied in such cases, £5 a day seems so trivial an amount of compensation as to be derisory.

The National Consumer Council has played a major part in this aspect, as the Committee will appreciate. We are talking not only about the rights of consumers, but also their protection. The National Consumer Council makes the point that the process of regulation should protect the consumer from exploitation due to lack of choice. If one is dissatisfied with almost any other commodity one can go somewhere else where it will be cheaper, better and obtained more conveniently. That will not be so with the supply of water. I shall be receiving water from a monopolist—that is what the supplier of water will be—who, despite all the claims about competition in the industry, can charge prices higher than the consumer would pay in a competitive market. It can therefore make excessive profits. Regulation must cover prices.

The regulating quality is not realistic unless failure to deliver the required quality results in some form of penalty. In a competitive market a company would lose business as a result of unacceptable reductions in quality. Equally, in a non-competitive market, a financial penalty is the appropriate mechanism. Amendment No. 158A is the appropriate amendment for setting these matters up. The penalty must exceed the cost savings from the reduction in quality. We are not arguing that there will be devices and short cuts, but where there is a failure to comply with the conditions, there ought to be an adequate penalty.

A system of penalty payments for lapses in overall service standards will go some way towards reproducing the incentives of a competitive market. I want to make three short points. First, the system will provide an incentive for the company to ensure that it meets the standards specified. Secondly, it provides the management of the company with immediate feedback from lapses in service quality in a way that is highly visible to shareholders. There is nothing more salutary to anyone in charge of a service than a turning off in demand and the receivers of that service becoming irate, screaming blue murder and threatening legal action. The third point is that it is important that there should be punitive punishments and penalties if publicity indicates to the regulator, the customers and the public that a particular company is failing and that action is required to bring it up to scratch.

We can learn much from the United States which has had considerable experience of regulating private sector utilities. Many state regulators are equipped with such powers and may be able to fine the companies up to 100,000 dollars per day or more for failure to meet quality of service standards. In America these powers are seen as valuable regulatory tools to ensure that quality and quantity standards are maintained. It is unlikely that they will not prove valuable here as well.

This is a crucial, necessary adjunct to the legislation. If the Government want to keep faith with the public upon whom we believe they are fostering their legislation, they should demonstrate that it is not one-sided and that they are on the side of the consumer, particularly when the consumer is detrimentally affected by an inadequate service which is not delivered. I beg to move.

7.15 p.m.

Baroness Blatch

I want to deal with Amendments Nos. 158A and 158B. Clauses 38 and 68 already provide for standards of performance and for payments to those affected where the standards are not met. The amendment requires payments by the undertaker to the Secretary of State in the event of a breach of standards. Why the Secretary of State? The appointment contains a framework within which the undertaking is enabled to meet the required standards imposed under Clauses 38 and 68. There are other clauses which provide for payment of damages if the undertakers fail to meet those standards; for example, Clause 40(6) which deals with requisitioning of water mains, and Clause 45(7), which deals with the supply of water for domestic purposes. Is it not better that any penalties that are to be paid for a breach of standards should be paid to the person affected by those breaches rather than to the Secretary of State?

Lord Brightman

I am disposed to support the amendment because it is entirely a matter of discretion for the Secretary of State or the director. There is no obligation to impose conditions requiring the payment of penalties under the proposed amendment. We know from a previous discussion that Clause 14 is wholly flexible and imposes no obligation on those concerned to include in the appointment the matters which are set out in Clause 14(1). Therefore it seems to me that the amendment is innocuous from the point of view of the Government. It is purely a matter of discretion and imposes no duty whatever.

Lord Ross of Newport

One of the problems of following the noble Lord, Lord Graham of Edmonton, is that one's brief has been very fully put to the Committee. I support the amendment because I believe it is only right that these penalties should be written into the Bill. I suspect that the rights of individuals, which come at a later stage, are too uncertain of being effective. In this case the Secretary of State or the director will impose fines on companies.

For better or worse we seem to be following everything that goes on in the United States these days. I speak of television and such like. Here is an example where the states impose penalties through regulatory powers. From the consumer's point of view, it would be right that the state in this case should enforce the penalties. I hope that it would also recompense those affected. There are some alarming cases at present—not only in Camelford. There is flooding from sewage in parts of my former constituency. The Thames Water Authority has been liable in parts of London, and in Liverpool serious flooding has occurred from sewage. There is a desperate need to protect consumers from that sort of incident.

Having said all that and having gone through all these clauses at various stages, how the Government think that people will subscribe to buy shares at the end of the day I do not know. Many restrictions are being written into the Bill. But that is what the Government want. They want to privatise the water industry, and it is only right that these things should happen. I support the amendment.

Lord Harmar-Nicholls

I am inclined to think that the message behind the amendment ought to be considered with sympathy. Some kind of penalty is necessary to keep people in line. But, like my noble friend, I do not know why the penalty should be payable to the Secretary of State. I should have thought that the consumer who was affected should be entitled to such a payment. I have in mind a business with which I am connected which includes a swimming bath. Because of subsidence in the road, the quality of the water coming in puts the users to a lot of expense. The quality of the water in the bath means that the company should be able to sue the local authority claiming payment for neglect. Whatever the consequence of puttng in a penalty, the message behind the amendment ought to be looked at to see that if obligations are not being met by the undertaking there is some recognition of it.

Baroness White

I should like to draw attention to Amendment No. 158D in particular. It deals with compensation to the individual rather than with the payment of penalties to the Secretary of State or anyone else.

I am indebted to the National Consumers' Council for calling my attention to the amendments. Its representatives have indentified nine separate divisions for compensation to the individual in different parts of the Bill. The council believes that this complex web of regulation and compensation provides inadequate redress for consumers. The arrangements, which are excessively complex, are in practice worthless unless the consumer can afford the services of a solicitor. We all know that the activities of the noble and learned Lord the Lord Chancellor do not deal adequately with those who find it difficult to afford to employ solicitors. I have the greatest sympathy with the suggestion that Amendment No. 158D would simplify a process for any consumer who had been affected by breaches of service standards to seek compensation.

In this instance, in addition to those mentioned by the noble Lord, Lord Graham, all consumers have a special interest unless they are either so poor that they are certain to obtain legal aid or so rich that they do not care. I do not belong to either category, and I strongly support Amendment No. 158D.

Lord Hesketh

The purpose of these amendments is to provide for conditions in the instrument of appointment of a company to require compensation to be paid by the appointee for breaches of any condition of appointment. In the first amendment payment would be made to the Secretary of State and in the second payment would be made to those affected by the breach of conditions. Additional conditions permitted by the amendment would determine the amount of the penalty or compensation to be paid.

The third amendment provides that breaches of conditions should be actionable by those affected. These amendments concentrate on the payment of penalties; but, in our view, where there is a breach of conditions the matter of paramount importance is to ensure that the breach is remedied. To achieve that I consider the real deterrent to be the enforcement procedure.

A framework for enforcement of various obligations by the Secretary of State or director general is provided by Clause 20. In the case of conditions included in instruments of appointment under Clause 14, the director general is responsible. Where an order is made under Clause 20, the duty to comply with the order is, under Clause 22, a duty owed to any person affected by contravention of the order. Breaches of that duty are actionable by such affected persons.

It has been suggested by the National Consumers' Council that given the necessity of maintaining water supplies, revocation of a licence for the supply of water can never really be contemplated. First, we believe that that is not true. Clause 23 provides for the appointment of a special administrator to enable the carrying out of the undertaker's functions during the transfer of those functions and the necessary assets to another company. Secondly, there are a number of steps which can be taken short of licence revocation. These include a public statement by the director general followed if necessary by a provisional or final order as I have already mentioned.

Apart from the practicalities of operating such a system of penalty payments, there are adequate incentives to improve the quality of service to customers under licence condition I. This provides for a system of service indicators and service targets. Where performance is inadequate the director will be able to ask the Secretary of State to make regulations to specify the levels of service to be provided.

The question of customer compensation for a breach of conditions is covered by the guaranteed standards scheme. It would be inappropriate to cover all aspects of service given the strengthened framework of individual statutory rights under the Bill.

The Bill provides for appropriate remedies in cases where the new water plcs fail to comply with their water supply/sewerage and water quality obligations. Breaches of the water supply and sewerage obligations are currently criminal offences. This is to be retained for cases where an undertaker fails to meet its obigations in respect of water constancy and pressure, and provision and maintenance of fire hydrants. Fines for breaches of these obligations are to be increased. The noble Lord, Lord Graham, brought to our attention yet again the case of Camelford. A new criminal offence is to be introduced of supplying water unfit for human consumption. Furthermore, for the first time the Bill provides for the other specific water supply and sewerage obligations, where duties are owed to the individual consumer, to be subject in future to civil liability. This is considered the more appropriate course for breaches of obligations where individuals sustain loss or damage as a result.

We reject the objective that Amendment No. 158D seeks to establish: that the breach of a condition shall be actionable at large irrespective of loss or damage. The conditions of appointment are imposed to provide overall economic regulation of the appointment of an undertaker by the Secretary of State or the director. If the instrument of appointment is not primarily intended to provide remedies of direct application to individuals, these remedies are provided elsewhere. It would therefore be misleading to encourage individuals to seek payment for the breach of a licence condition. One of the functions of the director general is to ensure that the companies meet the conditions of their appointment. It would be more effective for him to ensure that the breach is either remedied or did not occur.

There are a number of new criminal offences that we are introducing for the protection of the consumer. For the reasons that I have laid before the Committee, I recommend that Members reject the amendments.

Lord Harmar-Nicholls

I am not happy with the reply regarding Amendment No. 158A where the "small man" may be involved. In respect of Amendment No. 158D, the "big people" have the resources and can deal with the situation. If the companies do not supply under the proper conditions there should be a penalty and it should be known. Indeed, the Government have adopted that attitude. If my noble friend has a word with the Treasury he will discover that if someone does not pay their VAT within the three months allowed there is an automatic penalty in addition to the interest. If the Treasury believe that that is a good way to make people pay and have the automatic penalty within its power—and, Heaven knows, it uses it—then the users of water should have the same protection.

I agree with my noble friend that it is best for the director general to try to set conditions in which the problem does not arise; and if it has done so, to remedy it quickly. In the meantime, somebody will suffer. One of the biggest inducements to get on with the job and get the plumber in is an automatic penalty for every day lost. I do not believe that my noble friend's answer to Amendment No. 158A is satisfactory.

Lord Hesketh

In answer to the last point made by my noble friend Lord Harmar-Nicholls, the situation is entirely covered by the guaranteed standards scheme.

Lord Graham of Edmonton

The National Consumers' Council does not think much of the guaranteed standards scheme. It is possibly better equipped than the noble Lord, Lord Harmar-Nicholls, or myself to study the matters and relate them to the consumer. The Government appear to be anxious to avoid laying a punishment on the companies found to be derelict in their duties.

The noble Baroness, Lady Blatch, wondered why we were seeking not only to impose a penalty but to give the moneys raised to the Secretary of State. That is outwith the rights, enshrined in the various clauses of the Bill, of individuals to take action. The Government are involved in the cost of a bureaucracy. I should not have thought that the noble Baroness would jib at the proposition that where people have been found to be derelict in obeying the law they will have to pay the penalty.

The noble Lord from the Cross-Benches made a fair point. There is an enormous amount of flexibility here. We are arguing about the principle. The principle is that where a company has been given a licence if not to print money then certainly to earn it, it is under certain obligations. Where it fails to carry them out, whether it is dereliction on the part of an employee or the management, or whether it is an accident, and consumers of water are disadvantaged, the company should pay. That is the case.

My noble friend Lady White drew the attention of the Committee to a range of matters in the Bill. She quite rightly mentioned nine illustrations where the consumer of water ostensibly has a remedy. Clause 46 states that the failure to provide a water main is actionable if it causes loss or damage. Clause 41 states that failure to provide a connection to a water main after notice from the owner or occupier is actionable if it causes loss or damage. In Clause 45(7) failure to supply water or to maintain a connection between a water main and a service pipe is actionable if it causes loss or damage.

This series of amendments is designed to give the consumer more confidence than the generality which we have talked about where if a consumer is disadvantaged he could claim £5 a day for loss of service. We must be quite specific about that. This is another illustration of where the Government are far too sanguine in believing that the breaches will not occur but that if they do occur little people will be able to look after themselves under the existing provisions of the Bill.

These amendments seek to sum up the villains. They are the water undertakers and they will be categorised as such. Therefore, they must pay. The only way to do that is to hit them hard. The people who will suffer in the vast majority of cases are not the large industrial undertakings but ordinary domestic people—the people who live next door to you and I and across the street. We want to give them confidence that if any of the derelictions which I have mentioned happen, they are protected under this Bill by being able to claim compensation. Many people will not claim compensation because they are frightened by the law and by the cost of it.Those people will not be faced by a little shopkeeper but will be faced by a massive industrial undertaking. The water companies which emerge in the next two or three years will be massive, well-breeched industrial complexes. They will be able to take on the consumers. In my view the noble Lord has failed to satisfy the Committee and I intend to press this matter to a vote.

7.34 p.m.

On Question, Whether the said amendment (No. 158A) shall be agreed to?

Their Lordships divided: Contents, 44; Not-Contents, 59.

DIVISION NO. 5
CONTENTS
Ampthill, L.	Lockwood, B.
Brightman, L.	McNair, L.
Broadbridge, L.	Mason of Barnsley, L.
Brooks of Tremorfa, L.	Monson, L.
Carmichael of Kelvingrove,L.	Mountevans, L.
	Murray of Epping Forest, L.
Carter, L.	Nicol, B.
Clwyd, L.	Ponsonby of Shulbrede, L.
Cocks of Hartcliffe, L.	[Teller.]
Davies of Penrhys, L.	Robson of Kiddington, B.
Dean of Beswick, L.	Ross of Newport, L.
Dormand of Easington, L.	Russell, E.
Elwyn-Jones, L.	Russell of Liverpool, L.
Ezra, L.	Stedman, B.
Falkland, V.	Stoddart of Swindon, L.
Graham of Edmonton, L.	Taylor of Blackburn, L.
Grey, E.	Tordoff, L. [Teller.]
Hampton, L.	Turner of Camden, B.
Harris of Greenwich, L.	Underhill, L.
Houghton of Sowerby, L.	Wedderburn of Charlton, L.
Howie of Troon, L.	White, B.
Kilmarnock, L.	Wigoder, L.
Lloyd of Kilgerran, L.	Winstanley, L.

NOT-CONTENTS
Alport, L.	Hives, L.
Arran, E.	Hooper, B.
Balfour, E.	Kinloss, Ly.
Bauer, L.	Lindsey and Abingdon, E.
Belstead, L.	Long, V. [Teller.]
Blake, L.	McFadzean, L.
Blatch, B.	Malmesbury, E.
Blyth, L.	Margadale, L.
Boyd-Carpenter, L.	Marshall of Leeds, L.
Brougham and Vaux, L.	Middleton, L.
Caithness, E.	Monk Bretton, L.
Carnegy of Lour, B.	Monteagle of Brandon, L.
Carnock, L.	Montgomery of Alamein,
Colwyn, L.	Morris, L.
Cranbrook, E.	Mottistone, L.
Davidson, V. [Teller.]	Munster, E.
De L'lsle, V.	Nelson, E.
Dundee, E.	Pender, L.
Eden of Winton, L.	St. John of Bletso, L.
Elliot of Harwood, B.	Saltoun of Abernethy, Ly.
Faithfull, B.	Sharpies, B.
Fortescue, E.	Skelmersdale, L.
Fraser of Carmyllie, L.	Stanley of Alderley, L.
Gisborough, L.	Strathclyde, L.
Glenarthur, L.	Trafford, L.
Grantchester, L.	Trumpington, B.
Greenway, L.	Wise, L.
Gridley, L.	Wynford, L.
Henley, L.	Young, B.
Hesketh, L.

Resolved in the negative, and amendment disagreed to accordingly.

7.41 p.m.

[Amendment No. 158B not moved.]

The Earl of Arran

I hope that the Committee will agree that this is a suitable moment to break for dinner and I suggest that we return to the Committee stage of the Bill at 8.40 p.m.

I beg to move that the House do now resume.

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

House resumed.