Water Bill

HL Deb 22 May 1989 vol 508 cc87-138

8.7 p.m.

House again in Committee on Clause 75.

Lord Graham of Edmonton moved Amendment No. 347: Page 86, line 28, after ("localities") insert— ("having particular regard to the needs of persons who, by reason of disability or chronic illness, have a need to consume above average quantities of water").

The noble Lord said: In moving this amendment, I shall also speak to Amendment No. 349. Amendment No. 347 stands in the name of my noble friends Lord Carter and Lord Allen of Abbeydale who are unavoidably absent at this stage in the Committee proceedings.

These amendments relate particularly to the needs of people who are disabled or who have a chronic illness. By virtue of what one might call, without offence, their condition, they need to have access to and consume more water than is normal. I am certain that the Minister will want to be helpful to the Committee, but I understand from people in the water meter testing areas that there is an implication that the average water consumption per household will be assessed by the water undertakers in order to calculate charges. I have been given the figure of three baths per person per week at a certain depth.

My concern is that people who need to use more than average quantitites of water will be penalised. Such people include those who undergo kidney dialysis, people with incontinence problems who need to bathe and wash their clothes frequently and people on medication which causes them to drink large quantities of water. If it is argued that this is a social security issue which should be addressed by the benefits review, we want an assurance from the Minister that these points will be taken into account.

However, not all disabled people are on benefit.

We believe that there is no moral reason why someone who, through no fault of his own, cannot cut down his water consumption should be penalised financially. The Minister may perhaps make the case that people who, through no fault of their own, need to use a great deal of water will be penalised financially.

Amendment No. 349 seeks to ensure that by regulation there shall be made: particular provision for consumers who are disabled or of pensionable age, with respect to the installation, connection, disconnection, use, maintenance, authentication and testing of meters and with respect to any unrelated matters".

I am not privy to the number of people in those circumstances who would be affected but I am sure that the Committee will understand that there are many people who are not as fortunate as most, who do not enjoy general good health and who are not able to look after themselves in many ways. The existing provision in the Gas Act might well be looked at in respect of the powers that the Minister might take. For instance, some of the provisions in the Act mean that the supplier can provide special services. I listened very carefully to the noble Earl, Lord Caithness, who spoke earlier about the way in which the tariff could go up or down according to the whim or desire of the companies. I should like the Government to take on board that, if the tariff is to be what one might call a movable target, we feel that it should be written on the face of the Bill that people in special—I almost think the word should be desperate—need should have some special consideration and are the kind of people for whom the tariff should be lower rather than higher.

In the Gas Act, for instance, some of the special services provided relate to examining free of charge the safety and fitting of gas meters for disabled and elderly people who live alone; providing special controls and adaptors for gas appliances and for prepayment meters and repositioning such meters; and giving advice on the use of gas and gas fittings. In practice that has meant that meters can be repositioned to an appropriate height for, say, a wheelchair user who may have difficulty in reaching the meter or a person with arthritis who has difficulty bending down.

One such case has been drawn to my attention and I think that the Committee should hear about it. It concerns a disabled woman who has arthritis. She lives in a water meter test area in Wessex Water Authority. A water meter was installed between the cistern and the wall but it was installed upside down and not at eye level. The water authority did not consult the woman about the installation of the meter. Because of her disability, she is unable to bend and therefore cannot reach the meter; neither is she able to rotate her wrist and is unable to press the button on the meter to obtain a reading. Despite the fact that the information from the water authority reads: "Meters will be installed in such a way that they can be read by customers", there was no consultation and this lady had no choice in the site of the meter.

There must therefore be a statutory duty which has regard to the need of disabled customers when designing and installing meters; otherwise the meters will not serve their stated purpose, which is, in the words of the water authority, to enable people to pay for their water service based on the amount of water that they actually use.

I think that I have said sufficient to indicate that we are dealing with an indeterminate number of people. My heart goes out to those who are already suffering in one way or another and who may well suffer even further because they need water in large quantities because of their condition, age or ailments. I beg to move.

Lord Hesketh

Amendment No. 347 requires that in setting charges undertakers may have particular regard to the needs of those disabled and chronically sick who have a need to consume above average quantities of water. The purpose of Amendment No. 349 is to require my right honourable friend the Secretary of State for the Environment to make regulations under Clause 77 which would make particular provision for the disabled or those of pensionable age with respect to the installation, connection, disconnection, maintenance, authentication and testing of meters and related matters.

Although I have considerable sympathy with the noble Lord's view, we believe that it would be inappropriate for the new water services companies to subsidise their charges to the disabled and chronically sick, or indeed any other vulnerable group such as low income families with young children. The industry currently operates a code of practice which provides advice to domestic customers who have difficulty in paying their bills. The code makes clear that instalment arrangements may be agreed in cases of financial hardship and that it is important for customers to contact the undertaker when they have difficulty in paying their charges so that these arrangements can be agreed.

As the Committee will be aware, particularly since last Thursday, the future code will be considerably stronger still. Extra help is channelled to specific groups, including the long-term sick and disabled, through the premium structure of income-related benefits. We believe that this targets help more effectively on those people who are most in need, an example of which was given by the noble Lord, Lord Graham, in the case of dialysis patients. In dialysis the consumption of water varies between 40 gallons and 120 gallons per week depending upon the machine and the treatment. The cost of that represents between 11p and 33p per week. That is why we feel that it will be better to deal with it through the specific aiming of payments rather than on the face of the Bill itself.

Turning to Amendment No. 349, once again I have every sympathy with the noble Lord's views. Clause 178(2)(d) already gives my right honourable friend the Secretary of State a general power to make regulations with different provision in relation to different persons; for example, about the special needs of the disabled. This will be done if the results of the metering trials or the experience from the introduction of widespread metering generally indicate that it is necessary to supplement the existing regulations about metering, which have been made under Section 5 of the Public Utility Transfers and Water Charges Act 1988, with further regulations catering for the special needs of the old and disabled. However, since the trials have only just got under way, it is too early to draw any firm conclusions. Nonetheless, my right honourable friend the Secretary of State will keep the situation under review.

I hope that, given my earlier remarks and this particular assurance, the noble Lord will see fit to withdraw the two amendments.

Lord Graham of Edmonton

I appreciate that the Minister has gone some way in understanding the case. We are talking in terms of circumstances that we believe will arise, although they may not do so. To that extent it would be churlish not to accept what the Minister has said, which is that the problem is perceived, it is doubted whether anything needs to be written on the face of the Bill and there are provisions within the Bill whereby special circumstances can be taken into account.

The Minister rests his case in the main on saying that those in dire circumstances—in other words, those who need financial assistance—will find by one route or another under existing benefits and regulations that they will be able to obtain assistance. However, there will be many people such as those I have mentioned who will be neither entitled to the social security net nor privy to it nor involved in it. The argument might be put that if they are not, it means that in a certain way they do not really need assistance. I am trying to give to people who, if not already desperately unhappy are indeed suffering in one way or another, the feeling that the country recognises that they deserve to have better consideration and service which is a little cheaper to them than to others.

I do not of course speak for anyone other than myself, but whenever I am told that part of the impost that I bear for anything is levied in order that people who are less able than I to look after themselves may have something more quickly, cheaply or more easily, then I rest content. That is not a philosophy or a political creed. There are millions of people without any political affiliations whatsoever who share the same view. It may be called Christianity; one may be called a Good Samaritan or whatever. There are lots of people who will quite cheerfully pay a fraction of a penny more for their water in order to enable other people to feel that the rest of the community acknowledge their difficulties. I shall read very carefully what the Minister has said. I am grateful to him. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 348 not moved.]

Clause 75 agreed to.

Clause 76 agreed to.

Clause 77 [Provisions relating to charging by volume]:

[Amendments Nos. 348A, 349 and 349ZA not moved.]

Lord Ross of Newport moved Amendment No. 349A: Page 89, leave out line 27.

The noble Lord said: This is a probing amendment. Clause 74(4) seems to protect the rights of those who have a private water supply. It states: The powers in relation to which this section has effect shall not be exercised so as to contravene any local statutory provision which expressly provides that no charge shall be made for a particular service".

Amendment No. 349A leaves out paragraph (h) of Clause 77(3). The paragraph states that the Secretary of State may by regulations, repeal or amend any local statutory provision".

I am trying to discover whether those people who at present are provided with a free water supply—through some arrangement or statutory provision, which may go back even into the last century—are still entitled to expect that supply to be free. Alternatively, does Clause 77 mean that the Secretary of State may repeal any local statutory provision and that such private water supply may suddenly be cut off?

There is an excellent brewery in the Isle of Wight called Burts of Ventnor. People come many hundreds of miles to drink its beer. It has only about 10 public houses. It has had a free water supply for a long time. This means that its beer is comparatively cheap. I am sure that many of us on the island and elsewhere would be very sorry if Burts were to lose that supply. No doubt there are many such cases around the country that other Members of the Committee could relate.

Amendment No. 349A is a probing amendment. Are those people, at present recognised by the water companies and the water authorities as being entitled to a private water supply, still protected when this measure goes on to the statute book? I beg to move.

The Earl of Arran

This amendment, proposed by the noble Lord, Lord Ross of Newport, would mean that my right honourable friend will no longer have a specific power to make regulations to repeal or amend local statutory provisions to do with water metering.

By removing this power, the amendment would also remove an important consumer protection measure. It would make it difficult for my right honourable friend and water undertakers to tidy up local powers which conflict with the metering code. This code can be said to be formed by Schedule 10 to the Bill and regulations already made under Section 5 of the Public Utility Transfers and Water Charges Act 1988. Those regulations will be saved by Schedule 25 to this Bill and may be supplemented or amended in the future by regulations under Clause 77. All regulations made under Clause 77 are subject to negative resolution procedure of either House of Parliament.

The metering code is intended to apply to all metered customers. It contains a number of provisions designed to safeguard the interests of consumers, for example, maximum fees for testing meters and how bills will be adjusted when meters are proven to be inaccurate. The continuing existence of local enactments which conflict with the code would serve only to confuse customers as to their rights which is clearly not in their interest. This power under subsection (3)(h) for my right honourable friend to make regulations is not new. It merely re-enacts a similar power in Section 6 of the Public Utility Transfers and Water Charges Act 1988 which was considered by this Chamber only last year.

On the particular points that the noble Lord, Lord Ross of Newport, raised, the power is to do with local metering powers only. As to free supplies, they are protected under Clause 74(4). With these assurances and understandings I hope that the noble Lord, Lord Ross of Newport, will see fit to withdraw this amendment.

Lord Ross of Newport

It took a long time to get there, but I am very grateful because the Minister has confirmed what I was seeking to clarify. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 350 had been withdrawn from the Marshalled List.]

Clause 77 agreed to.

Lord Hesketh moved Amendment No. 350A: After Clause 77, insert the following new clause:

("Restrictions on power to make connection and certain other charges.

.—(1) Subject to subsection (2) below, nothing in this Chapter or in any other enactment shall entitle any water undertaker or sewerage undertaker to fix, demand or recover an initial charge for its becoming, or for its taking steps for the purpose of becoming—

1. (a) the person who provides a supply of water for domestic purposes to any premises; or
2. (b) the person who provides sewerage services for the purposes of the drainage for domestic purposes of any premises.

(2) Subject to subsection (3) below, nothing in subsection (1) above or in any other enactment shall be construed as prohibiting the fixing, demand or recovery by a water undertaker or sewerage undertaker of—

1. (a) a charge for the connection to a water supply of premises which have never at any previous time (whether before or on or after the transfer date) been connected to a supply of water provided for domestic purposes by a water undertaker or by any other authority or body which at that time provided supplies of water in the course of carrying out functions under any enactment; or
2. (b) a charge for the connection to a public sewer of premises which have never at any previous time (whether before or on or after the transfer date) been connected to a sewer used for the drainage for domestic purposes of those premises by a sewerage undertaker or by any other authority or body which at that time provided sewerage services in the course of carrying out functions under any enactment.

(3) Nothing in this Chapter or in any other enactment or in the terms of any agreement under section 18 of the Public Health Act 1936 (agreements to adopt sewers and works) shall authorise a sewerage undertaker to require any payment to be made to the undertaker in respect of the making by the undertaker of any declaration of vesting under Part II of that Act or in respect of any agreement to make such a declaration.

(4) Nothing in this Chapter or in any other enactment shall authorise a sewerage undertaker to require any payment to be made to the undertaker by a highway authority in respect of the drainage of any highway or the disposal of the contents of any drain or sewer used for draining any highway.

(5) The preceding provisions of this section, so far as they restrict the making of certain charges, are without prejudice—

1. (a) to enactments by virtue of which a water undertaker or sewerage undertaker may recover expenses incurred by it in carrying out works; and
2. (b) to the power of any such undertaker, by virtue of section 74(3) above, to fix the amount of any of its other charges by reference to such matters as it thinks appropriate.

(6) The references in this section to domestic purposes, in relation to the drainage of any premises, shall be construed as references to any of the purposes mentioned in subsection (2)(a) of section 70 above.").

On Question, amendment agreed to.

Schedule 10 [Provisions relating to Meters etc.]:

The Earl of Arran moved Amendment No. 351: Page 219, line 44, after ("meter") insert ("to be used in determining the amount of any charges").

The noble Earl said: On behalf of my noble friend, with the leave of the Committee, I beg to move Amendment No. 351 and at the same time to speak to Amendments Nos. 352 to 354. These amendments are designed to clarify water and sewerage undertakers' powers to recover the cost of metering new non-domestic supplies and trade-effluent discharges from the customer.

Water undertakers already have powers in paragraph 1 of Schedule 1 to the Public Utility Transfers and Water Charges Act 1988, which are re-enacted in Clause 43 of this Bill, to require developers to pay for the cost of installing a meter as a condition of connecting a new supply for domestic purposes. Undertakers can also make it a condition of an agreement for a new non-domestic supply under Clause 46 that a meter is installed and that the customer pays by measure. In such cases, it is only fair that the developer or new customer should pay for the cost of a meter to be installed, which can run into several thousand pounds in the case of a very large diameter supply. However, the present drafting of paragraph 2 of Schedule 10 does not enable water or sewerage undertakers to recover the cost of installing meters directly from new non-domestic customers or developers.

In cases of dispute concerning the terms of any agreement for a supply of water for non-domestic purposes—for example, over the cost of installing a meter—Clause 46 provides for the director general to make a determination or refer the matter to arbitration by such a person as he may appoint. There are similar provisions in Schedule 8 to this Bill for the director to decide appeals against conditions of trade effluent consents under Section 2 of the Public Health (Drainage of Trade Premises) Act 1937.

In drafting the Bill it has always been our intention that domestic and non-domestic customers should be treated on an equal footing, wherever possible. This group of amendments will ensure that this is achieved where the terms of new agreements with non-domestic customers require them to have a meter installed and to pay by measure. I beg to move.

On Question, amendment agreed to.

The Earl of Arran moved Amendments Nos. 352 to 354: Page 220, line 9, at end insert— ("( ) any sums which it is entitled to recover in pursuance of any terms or conditions determined under section 46 of this Act;"). Page 220, line 11, at end insert— ("( ) any expenses incurred in relation to a meter which is or is to be used in determining the amount of—

1. (i) any charges which are to be paid in connection with the carrying out of a sewerage undertaker's trade effluent functions; or
2. (ii) any charges provision for which is contained in an agreement entered into in accordance with section 7 of the Public Health (Drainage of Trade Premises) Act 1937;").

Page 220, line 32, at end insert— ("(5) The reference in sub-paragraph (2) above to a sewerage undertaker's trade effluent functions is a reference to its functions under the Public Health [Drainage of Trade Premises) Act 1937, Part V of the Public Health Act 1961 and sections 43 to 45 of the Control of Pollution Act 1974.").

On Question, amendments agreed to.

[Amendments Nos. 355 and 355A had been withdrawn from the Marshalled List.]

Schedule 10, as amended, agreed to.

8.30 p.m.

Clause 78 [Prohibition on charging by rateable value]:

Lord Ross of Newport moved Amendment No. 355AB: Page 89, line 46, at end insert— ("(2A) The Secretary of State may by regulations made by statutory instrument provide for a rating valuation list made under section 67 of the General Rating Act 1967 to be amended to provide for dwellings that have been erected or altered after 31st March 1990.").

The noble Lord said: It is just possible that I may be told that Amendment No. 350A, which the Government introduced earlier this afternoon, covers this matter, but the gist of this amendment is that it seeks to cover any new properties built after 31st March next year which are not on a meter. In other words they are not being charged for a supply by volume. We know that the Government have given the new plcs, up to the turn of the century to decide on which basis they are to charge, whether by volume or some form of metering. Until then the old rateable value basis will be used for existing properties. However, what happens in relation to new properties built in the intervening period? The amendment suggests that we should be able to use the existing valuation list, which in many cases will be used for other purposes. Obviously the Inland Revenue will be obliged to assess the rateable value of new properties based on the term s of the existing list.

If the Government believe that their Amendment No. 350A—it raised some queries in the Committee but we are not entirely sure whether we have the right answer—covers this matter, I accept it. But, if that is not the case, what will happen to properties which are built in the intervening period but which are not metered? How will the basis be charged? Is it to be left totally to the plcs or is there some way in which properties can be assessed on the rateable value based on the existing valuation list? I beg to move.

Lord Hesketh

This amendment would enable my right honourable friend the Secretary of State to make regulations providing for the rating valuation list made under the General Rate Act 1967 to be amended to include valuations for dwellings that have been altered or erected after 31st March 1990. It would provide an expensive and undesirable method for maintaining the domestic rating systems for water charging purposes until the prohibition on the use of rateable values, provided for by this clause, comes into effect on 1st April 2000.

Maintaining the 1973 valuation list purely for water charging purposes would be expensive. Valuers and support staff would have to be retained by the Valuation Office and support staff would have to be retained by the Valuation Office to inspect and value each new and altered property. This would mean that they would not be able to be redeployed on other duties. There would need to be a procedure for dealing with appeals about valuations, possibly involving valuation tribunals. All this would cost money which would have to be met by the new water companies and recovered by them through higher charges to customers, or at the expense of the taxpayer.

The amendment we believe is unnecessary. Many water undertakers have already announced their intention to require all new properties and conversions to be metered, at the developer's expense, as a condition of connecting a new supply using powers available to them under Schedule 1 to the Public Utility Transfers and Water Charges Act 1988. These powers, which are to be re-enacted under Clause 43, provide a fair and inexpensive way of dealing with new properties and major alterations. Other undertakers have indicated that they intend to introduce a flat rate charge for new domestic properties. Once again, such an option is clearly less expensive than getting new properties and conversions valued.

The amendment is undesirable since rateable values provide only a very rough proxy for water consumption, which as we all know can be unfair, particularly for small households living in highly rated properties. Preserving after 1st April 1990 the system of relativities which were relevant when the 1973 list was drawn up for newly built or altered properties will serve only to compound the inequities of the present method of charging. Clearly, the sooner new methods of charging are introduced the better.

There are good reasons for allowing the new water companies to continue to use existing rateable values until the year 2000, particularly if they decide to introduce widespread metering, because installation programmes would need to be phased over several years. These reasons do not apply to new and substantially altered properties, I invite the noble Lord, Lord Ross of Newport to withdraw this amendment.

Lord Ross of Newport

I believe that there will be inequities both ways. There will be people up to the year 2000 who will still be paying on the basis of the old valuation list and others who have had their houses built from now on who will be metered, but not in all cases. We know already that the Welsh authority will not be metering, so there must be some other basis of charge. Whatever the Government say about inequities, there will be inequities.

It is totally unrealistic to say that valuation lists will not be used. They will be used for rental increases and we shall all be using rateable values for some years to come. The valuation officers have been basing valuations on the terms of the 1973 list for the last 16 years and no doubt that will continue. In withdrawing my amendment, I draw the attention of the general public to the unsatisfactory nature of this answer for those people who, apparently, if they move into a house built post-1990 will be on a basis different from those applied in most parts of the country. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 78 shall stand part of the Bill?

The Earl of Balfour

Although I wholeheartedly support this clause in respect of domestic rates, because they are being superseded by the community charge, to the best of my knowledge there will continue to be business and industrial rates for some years to come. I see no reason why those properties should not be charged by the water or sewage undertaker on the basis of their rateable value unless and until those properties are metered. It is for this reason that I suggest that the clause should not stand part of the Bill.

Lord Hesketh

This clause will prevent water and sewerage undertakers from fixing any charges, to both domestic and non-domestic customers, by direct or indirect reference to any rateable value, after 31st March 2000. The domestic rating system will be abolished on the introduction of the community charge next April. As domestic rateable values become increasingly out of date, it will become increasingly inappropriate to use them as the basis for water and sewerage charges—even more so than it is now. The new water services companies will therefore have to find alternative means of charging their customers. Options currently being considered by the water industry include metering and a flat rate charge, possibly with extra charges for the use of hosepipes and sprinklers, or a combination of both methods. It will be for each company to decide which method or methods of charging to adopt in the light of its own circumstances and the results of the metering trials.

As the majority of domestic customers, and many non-domestic customers, currently have their charges based on the rateable value of their properties, it will be no small task for the companies to choose and implement their new method of charging. This is especially true if a company decides to introduce metering, where the installation programme would be complex and would have to be phased over several years. This clause therefore allows the water and sewerage undertakers a period of 10 years in which to implement their new methods of charging. Any method they adopt must comply with the conditions in the instrument of appointment prohibiting undue discrimination against or undue preference to any class of customers. During this time they will be able to continue to use the values on the 1973 valuation lists and those on lists created under Section 41 or Section 52 of the Local Government Finance Act 1988.

The prohibition is to extend to charges indirectly or partly related to any value shown on a rating list. So companies will not be able simply to uprate existing rateable value-based charges for inflation, nor will they be allowed to use banded rateable values. However, companies will not be prevented from basing charges on factors which may affect rateable values such as floor area or the number of habitable rooms in a property. This will allow undertakers to use such factors as the basis of a new system of unmeasured charges and for apportioning joint meter readings to properties on shared supplies where the cost of separating the supply can be very expensive.

Companies will be able to recover charges fixed for any period up to 31st March 2000 but not paid by that date. All other charges which contravene the prohibition will be irrecoverable. The prohibition will not apply to charges made by the National Rivers Authority.

I recommend that the clause stand part.

The Earl of Balfour

I am grateful for that explanation. I am sure that it will clear up many misunderstandings in relation to businesses and industries. I agree that Clause 78 as drafted should stand part of the Bill.

Clause 78 agreed to.

[Amendment No. 355B not moved.]

Clause 79 [Exemption from charges for water for fire fighting]:

Lord Graham of Edmonton moved Amendment No. 355C: Page 90, line 5, after second ("of") insert ("training personnel or of").

The noble Lord said: I should like to speak also to Amendments Nos. 355D and 355E. Their purpose is to discuss the free availability of water in order to carry out certain functions in respect of the fire service. The effect of the amendments would be to extend the provisions of free water to water authorities to include that used for the purpose of training and dealing with emergencies other than fires. We believe that the amendments are necessary in order to ensure that increased charges following privatisation do not lead to a situation in which financial pressure might compel fire authorities to reduce training provisions or constrain themselves to deal only with particular types of emergencies.

The amendments are tabled for a further purpose; namely, we should like the Government to give a firm statement that water used by fire authorities for the purpose of extinguishing fires will continue to be provided free of charge, and also that some reports suggesting that the water authorities are pressing the Government to allow them to charge for such water can therefore be discounted as a cause for concern.

When the legislation was originally drafted firemen did little more than hold a hose from which water was emitted. However, the: technique of fighting fires has undergone an updating, if not a radical review. Water is now mixed with chemicals and the resultant mixture is applied to the fire. That updating means that there has been a recent proper upgrade in the level of training. Water is supplied free of charge for the testing of equipment. Therefore we believe that water which is required for training personnel to operate that equipment should also be free of charge. The water so consumed is almost immediately returned to the water authority via the drainage system. I submit that it is a waste of public money to require the additional equipment and administration necessary to raise charges for that insignificant field of activity.

As regards other emergency services, the Minister may well tell the Committee that such a provision is not required. However, we are advised by local authorities that they would like to see it written on the face of the Bill. In addition to fighting fires, special services are provided by a fire authority. The example of the fire brigade being called to rescue a cat from a tree is often replaced by its being called to free people trapped in lifts in tower blocks. That is a matter which needs to be taken into account.

At the end of this week the noble Earl, Lord Caithness, will have the pleasure of visiting Edmonton where he will see a substantial upgrading in the provisions. I recall that, sadly, some tower blocks were the subject of adverse comments and firemen were frequently called our. to deal with broken lifts. The noble Earl will see a vast improvement in the situation and it is a credit to the local authority and all those concerned. We are asking for special circumstances whereby when the fire brigade is called out to perform such duties it should be able to do so without cost.

There is also the duty of clearing the increased number of chemical spillages. I do not wish to be a scaremonger but, sadly, chemical spillages on our roads are more prevalent. In order to clear them, a considerable amount of water is required. Although the amendments may not be correctly drawn, they are designed to exempt the supply of water used in dealing with such cases as it is exempt from fire fighting. I beg to move.

Lord Hesketh

Clause 79 prohibits water undertakers from charging for water taken to extinguish fires or test fire fighting equipment or for the availability of water for those purposes. It is based upon Section 2 of the Water Act 1981 which, although it was never brought into force, is to be repealed by this Bill. The purpose of these amendments is to extend the prohibition on charging to include water taken for fire fighting training exercises or for other emergency services provided by a fire authority.

I have considerable sympathy with the views expressed by the noble Lord, Lord Graham. As one who dwells for part of his life on the 17th floor of Marsham Street, I am pleased to say that the Government will consider this group of amendments with a view to amending the Bill on Report. Having given that undertaking I invite him to withdraw the amendments.

Lord Tordoff

Before the noble Lord does so, I rise to declare an interest in that I am associated with the chemical industry. I also do so to ask what evidence the noble Lord has to show that the number of chemical spillages is now greater.

Lord Graham of Edmonton

The evidence is the advice that I have received from the local authority associations. That may not be acceptable to the noble Lord. I was careful not to say that I have quantifiable evidence. However, the associations tell me that more chemicals are available and are now used in industry. They must be transported on our roads and inevitably, because of the road conditions, accidents occur.

I should like to respond to the noble Lord's comment about living on the 17th floor of Marsham Street. On this Bill life is full of ups and downs! I was pleased to hear his comments and I am sure that they will be accepted with gratitude by the local authorities. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 355D and 355E not moved.]

Clause 79 agreed to.

Clause 80 [Initial Government holdings]:

[Amendment No. 356 had been withdrawn from the Marshalled List.]

Lord Nugent of Guildford moved Amendment No. 357: Page 90, line 23, leave out ("from time to time").

The noble Lord said: With this amendment, I should also like to speak to Amendments Nos. 358 and 359. The purpose of the amendments is to require the Secretary of State to pay to each of the new water plcs a share of the proceeds of the sale of the new companies on the market; a share for each plc to be related to the value of the assets transferred to each of the regional water authorities under the 1973 Act.

At that time local authorities opposed the passage of the Bill in the Commons and only withdrew their opposition in return for agreement by the Government to a majority of local authority members on each regional water authority. That was conceded by the Secretary of State of the day. Ten years later, by the 1983 Act, the Government abolished the local authority majority on each regional water authority and reduced the boards to small executive bodies appointed by the Secretary of State.

The local authorities accepted that loss of control over their assets reluctantly but on the grounds that the water industry was still in the public sector. However, now that the Government are privatising the water industry, the local authorities consider that in the interests of their ratepayers they should claim for the value of the assets transferred in 1973.

I understand that about 20 major local authorities have joined forces to prepare a legal action accordingly. Our amendment would secure a payment to the new water plcs and not to the local authorities. However, as the implication for the plcs is a reduction of water charges, and as that would benefit every household and industry in the country, it seems possible that the embattled local authorities might feel able to accept that as a significant compensation for their ratepayers, and they would terminate their legal action. I hope so.

The amendments have a second purpose; namely, to strengthen the financial position of the water plcs, in fact to give them a dowry, as they prepare to start trading as private companies. With the possible exception of Thames Water Authority, the regional water authorities appear to be seriously under-funded to meet the costs of privatisation plus the heavy capital programme required to conform with EC standards. Unless that shortage is remedied, the shares in the new plcs will be difficult to sell. Secondly, an uncomfortably high increase in charges will be necessary next year and in subsequent years.

Perhaps I may spell out those two major financial burdens. On Second Reading I gave an estimate of £843 million for the cost of privatisation. My noble friend refuted my figure but did not tell us the correct one. I still believe that my figure was about right. That is equal to about plus 27 per cent. on charges. On the capital expenditure programme, the water authorities have been given an uncomfortable boost by the need to conform within four years, which was the amendment which noble Lords opposite recently succeeded in making, with the EC drinking water standards. Therefore an accelerated programme of denitrification is needed and the estimated cost of that is between £2 billion to £3 billion, which is very expensive.

Incidentally, I understand that the European environment commissioner is Italian. I should like to know how he is getting on with water standards in his own country. I can give him some personal experience of swimming in the sea around the short outfalls off the coast of Italy. It will take many years before all those are dealt with. However, we have to conform with the standards. It is evident that the requirements for completing about one third of the long outfalls in the sea as well as many inland sewage treatment plants requiring rebuilding necessitates a very large capital expenditure. I estimated the capital expenditure for the 10 plcs over the next five years as something in the order of £10 billion—a very large sum. My noble friend the Minister has seen the asset management plans of the industry and he can confirm whether that is right.

To meet annual capital expenditure of that order plus dividends and taxation will commit the new water companies to a progression of steeply rising water charges. That would be a disastrous start for the new private water companies and I am sure that the Minister will not contemplate any such thing. There has been much speculation in the media about the provision of a dowry to strengthen the finances of the new water companies in order to enable them to manage those substantial commitments. Our amendment suggests one way of providing that, and obviously there could be others.

For example, the remission of the existing loan account amounting to around £5 billion, four fifths of which is held by the Government. I see that under Clause 83 my noble friend is taking the power to extinguish by statutory order existing loans from the National Loans Fund with the consent of the Treasury—and I hardly need say that. Although that would not be directly related to the value of the assets transferred in 1973, the effect would be the same. That is, that the new water companies could manage their formidable capital programme within the range of reasonable future increases in water charges. That would certainly meet in substance the aim of our amendment. I look forward to hearing the Minister's response to our amendment, and whether he can accept it as a solution to the problem. I beg to move.

The Earl of Halsbury

In rising to support my noble friend Lord Nugent, not for the first time, perhaps I may say that I am six weeks wiser than when I last supported him in one of his earlier amendments because the six weeks during which I have deserted your Lordships' Chamber have been devoted to attending a Select Committee on the Cardiff Barrage Bill which is entirely concerned with water. In saying that I am six weeks wiser, I do not mean that I am six weeks wiser than my noble friend because that would be impossible, but I am six weeks wiser than I was.

In announcing the Committee's decision, the noble Lord, Lord Elibank, our chairman, said that the report would be made to the House. Therefore, it would be highly improper of me to pre-empt that report by referring to matters given on oath before us, to the evidence or to the conclusions to which we have come, which, perhaps I may say, I have not seen in draft so I cannot commit an indiscretion by suggesting what they may be.

One thing we did, which was unprivileged, was to pay a visit to Cardiff to talk to the local dignitaries about the problems there. That was not evidence given on oath but personal conversations with people of importance. One matter which made me realise what an immense task lies ahead of us is that the South West Water Authority does not know where all the sewers are. It only knows those it has been able to discover since it was incorporated, and there are still sources of pollution of unknown origin permeating the waters of the Ely and the Taff. Those have to be discovered by a process of research.

Talking of research, perhaps I may slightly chance the subject to my own shopping habits, because as a bachelor I have to do my shopping on my way to your Lordships' House. I pause in a little street called Stratford Road which is a short cut between Earls Court Road and Marloes Road which lead into the Cromwell Road. During the past year both sides of Stratford Road have been dug up by every public utility that one can imagine. On the last occasion when, to my exasperation, I found I could not get through, I located someone who looked like a foreman. I said, "In heaven's name what are you doing?" His answer was monosyllabic—or nearly so. It was two syllables. He said, "Research". The roads were being dug up to find out what was underneath because no one knew. It is centuries since our sewerage systems were created. There is going to be an immense amount of this kind of research—all of which has to be paid for—because we simply do not know what is under our pavements

One point made to me is that the fresh waterway to be secured behind the barrage at Cardiff will not be suitable for what are called immersible sports. There are various kinds of water sports. Dinghy sailing is one of them. Although one may occasionally upset a dinghy it is not necessarily part of the whole operation. Water skiing, wind surfing and swimming involve immersion in water and it can be presumed that one will swallow water at some time or other.

Last Saturday I was privileged, as the guest of Mowlem, which is in charge of much of the London Dockland scheme, to visit the control tower of the City of London airport. There before me I saw the airstrip with planes taking off and landing; there also I saw the King George V dock with boys and girls water skiing to their heart's content. So it is possible to reclaim dockland in such a way as to have immersible sports. However, if the Cardiff Bay barrage scheme is to succeed, a great deal of money will probably have to be spent. I agree entirely with the noble Lord, Lord Nugent, that generous finance must be provided—a dowry that endows the water supply public companies as far ahead as can be foreseen. This must not be a windfall for the Treasury. Whatever we get from the public from the sale of these undertakings should be paid over to the companies as working capital. I support the amendment.

9 p.m.

Lord McIntosh of Haringey

There are a number of elements in this group of amendments with which we have some sympathy. We certainly have great sympathy with the sentiments behind the amendments as expressed by the noble Lord, Lord Nugent, and the noble Earl, Lord Halsbury. These amendments recognise that in a sense what is being done in the Bill is a form of institutionalised theft against the local authorities who spent so much money—not their money; it is never the local authorities' money, but the ratepayers' money—over the years in building up the assets of the water authorities which were taken away from them by the 1973 Water Act. The amendments recognise that there is a difference between those assets which come from the local authorities—in other words, those built up before 1973—and those which were built up by the regional authorities in the following years.

To that extent the analysis of the amendments is impeccable. However, the conclusion surely is not impeccable, however much the noble Lord, Lord Nugent, may be representing the views of 20 local authorities who have been seeking to take action against the Government. What the amendments actually propose is that the pre-1973 assets, taken from the local authorities by the 1973 Water Bill on the basis that they would remain in public ownership with the new regional water authorities having a majority of elected members on them—this was why there was no strong objection by the local authorities to the Bill—should be given to the successor companies. The amendments are not proposing that the assets should be given back to the people who built them up but that they should be given to the privatised successor companies. I find that an extraordinary argument. In effect we are saying that the industry should still be given away but that it should be given away to private companies as a dowry, the word used—

The Earl of Halsbury

Perhaps the noble Lord will allow me to intervene. The money should be given as working capital. One cannot run a business without working capital.

Lord McIntosh of Haringey

It is neither my responsibility nor that of the noble Earl that there is a proposal to privatise the water industry. In many ways the noble Earl is as unhappy as I am about that. I certainly agree that capital must be produced for the water and sewerage industry, but that is the responsibility of the Government who are trying to privatise the industry. We shall shortly—in fact, let us come to it now—be dealing with the accumulated debts of the industry in relation to its assets. That affects the viability of the flotation.

I agree with the noble Earl. The water industry should have an adequate working capital to carry out the capital and revenue works necessary, but the Government's proposals do not allow that. All that these amendments do, in effect, is transfer funds from the Treasury, which would otherwise benefit from the flotation, directly to the successor companies. I object enough to selling off the publicly-owned water industry; I object even more to giving it away, which paradoxically would result from these amendments.

The noble Lord, Lord Nugent, referred to the local authorities' view that the Government do not own the industry they are trying to sell. Anyone who looks at the industry over the years will realise that that is indeed the case. Until 1973 local authorities ran and paid for 75 per cent. of water supplies—that is, all but those owned by the statutory water companies—and 100 per cent. of the sewerage services. If one takes a specific example I can do no better than refer to Birmingham. Until 1973, Birmingham was the largest public sector body in the water industry, apart from the Metropolitan Water Board in London. The growth of the Birmingham water industry came from the initiative, above all, of Joseph Chamberlain in the 19th century. In the early part of the 19th century Birmingham had appalling squalor and appalling urban conditions. The average life expectancy in the early 19th century in Birmingham was 32 years. There was a Birmingham water company under private control which supplied water to only half of the population of Birmingham and supplied it for only three days a week. Only 150,000 people had piped water. Together with those who did not have this piped water supply, for the rest of the time these people had to drink from contaminated wells. There is no doubt and no wonder that the effect was that cholera, typhoid and smallpox were endemic in Birmingham.

As regards sewerage there was virtually no provision at all. Open conduits carrying untreated sewage went to Saltley where it was discharged untreated into the River Tame. It became apparent to the people of Birmingham and those who ran the city that this was absolutely unacceptable. In 1849 a calculation was made that to supply a complete water drainage and sewerage system for every household in Birmingham would cost tuppence a week. Although Birmingham was a booming economy, the boom was in manufacturing industry for export and it was not in providing services. So the waterworks company or anybody else was simply not prepared to do that work.

In 1859 the Birmingham Town Council obtained an improvement Act authorising the spending of a two-shilling rate and the issuing of loans for water and sewerage investment. It spent £200,000—a great deal of money—to give some of the basic infrastructure that was needed. The economist group on the council, who were really the precursors of Thatcherite conservatism, agreed under pressure that it had to do more than that. That was despite the fact that the waterworks company took the council to court in 1868 for having the audacity to supply free water.

In 1872 the Disraeli government passed the Public Health Act. That was the basis on which Joseph Chamberlain was able, on behalf of the Birmingham Council, to acquire the waterworks company, for which it spent £1.35 million. That was an enormous amount of money in those days. From that time the whole condition of the water and sewerage service in Birmingham was transformed. It was done by the council, and as Chamberlain said, it is difficult and indeed almost impossible to reconcile the rights and interests of the public with the claims of any individual company seeking as its natural and legitimate object the largest private gain". That arose from a situation where 100 years ago the Birmingham Mail reported: without the additions which have been made the town would have been a desert or Sahara, while the Edgbaston horticulturists would have been reduced to the necessity of moistening their lawns with beer". Over the years the town council carried out a series of progressive measures to provide the water and sewerage services that were necessary. It constructed a whole series of reservoirs in the Elan Valley in Wales which was probably the largest civil engineering project in the 19th century. It had a gravity-fed aqueduct which brought water 80 miles from Wales. This work was carried out entirely at the expense of the citizens of Birmingham and by no one else. There was no government subvention of any kind. It was paid for through the general rate fund or, as water consumers, through the charges levied.

In the 1920s and 1930s trunk sewerage and drainage mains were constructed to ensure that all foul water could be fed to sewage treatment works rather than being discharged untreated into the Tame. In the 1950s more water was needed and the Claerwen Valley dam was constructed in Wales. In the 1960s there was a comprehensive reconstruction of sewers. In 1973 when the Water Act was passed and Birmingham's water undertaking was split up to form parts of the Severn, Trent and Welsh water authorities, the capital value of the investment of the people of Birmingham was estimated at £507 million.

That is the legacy which it is now proposed that the Government should sell off to the private sector, with the proceeds going to the Treasury. The amendment of the noble Lord, Lord Nugent, proposes not that the proceeds should go to the Treasury but to the successor water companies. I do not believe that the people of Birmingham will thank either the Government or the noble Lord for the solution that is proposed. This is public investment made over a long period of years by foresighted and mostly Conservative city fathers with the funds produced by the ratepayers of Birmingham. I can produce this example over and over again from other cities in England and Wales. It is not right that this should happen and the noble Lord's amendment, however well intentioned, does not solve the problem or remedy the injustice that is proposed.

The Earl of Caithness

The Committee will be grateful to my noble friend Lord Nugent for setting out so clearly the intentions behind his amendments. Perhaps I may recap; the effect of these amendments is to require the Secretary of State to offer securities in the water authorities' successor companies for sale to the public by auction or tender in a way that realises the best price obtainable. They then require that the sums received by the Secretary of State on disposal of the securities are divided between the companies and the Treasury. The amount received by the companies is to represent the value of property, rights and liabilities transferred to the relevant water authority under the Water Act 1973. Companies are to use their share of proceeds for purposes for which capital is properly applicable.

Amendment No. 359A, in the name of the noble Lord, Lord McIntosh of Haringey, also diverts proceeds from the Consolidated Fund, but instead of diverting proceeds to the successor companies they would go to any local authority from which assets were transferred in 1973, or its successor. Perhaps I may deal with Amendment No. 359A, in the name of the noble Lord, Lord McIntosh, being an amendment to my noble friend's Amendment No. 359. In justification of this amendment the noble Lord said that the Treasury is not entitled to the proceeds from the disposal of assets transferred from local authorities to water authorities in 1973. The implication is that the Government, representing the taxpayer, have no right to those assets or the proceeds from their sale. I believe that this is a fundamentally mistaken perception of the effect of the Water Act 1973, the Water Act 1983 and the present Bill.

There can be no doubt that various assets which before 1973 belonged to local authorities were lawfully transferred by schemes made under the Water Act 1973 to the present water authorities. The Act did not require any compensation to be paid, but as is usual with transfers within the considerable public sector, debts were transferred together with the assets. It is worth stressing this, for it is interesting how the noble Lord, Lord McIntosh of Haringey, refers only to assets and never to debts taken over. He also refers exclusively to ratepayers having met the cost of past capital works without acknowledging the contribution of taxpayers through the grant system. It was the ordinary man and woman in the street and their forebears who paid for our water and sewerage systems. Whatever the effect of the 1973 Act in giving local authorities a continuing involvement in the control of water authorities, this was overtaken, again with the approval of Parliament, when the Water Act 1983 reduced the excessive size of water authority boards and removed the automatic majority of local government representatives.

The 1973 transfers were effected by or under statute, and the same will be true of the transfers which will be made under the Water Bill. The Bill at present provides, as is appropriate for the disposal of property owned by the Government, that the proceeds of the sale of securites shall be paid into the Consolidated Fund. This provision will be found in Clause 80(7).

I turn now to the amendment of my noble friend Lord Nugent. At one stage he said that there were alternatives to his amendment. In particular he drew the Committee's attention to Clause 83 under which the Government will first have extinguished all the debts which the water authorities owe at the time of the transfer date to the National Loans Fund. Those debts will be of the order of about £5 billion, as he indicated. However, his amendment does not provide for the amount of debt extinguished to be taken into account before the distribution of proceeds to the successor companies. Of course I understand my noble friend's arguments and concerns but I should like to make some points which should serve to qualify them.

First, we need to put in place a system of regulation of water charges which will stand the test of time. The price of water and sewerage will have to rise as the public demand higher water quality and reduced pollution from sewage effluent. In discussing this issue it is common ground that we do not want an on-going annual subsidy. This distorts prices, weakens signals to investors and providers of capital and leaves the Government too much involved in what should be commercial matters. Moreover, if it is the polluter who is to pay—I think that that is generally agreed—we must seek to make sure that industrial polluters as well as the customers pay for their share of pollution as it applies to water supply and sewage treatment works. This is what we are doing.

Secondly, my right honourable friend the Chancellor of the Exchequer will also have a duty to Parliament to obtain the best possible value for the assets he is selling. As some noble Lords will be aware, some Secretaries of State in the past have been accused by the Public Accounts Committee of underpricing public assets. I have to say that noble Lords have today been in an exceptionally generous mood with taxpayers' money, for which my right honourable friend is responsible perhaps rather more than this Chamber, though with the reform of the House of Lords in the offing from the party of the noble Lord, Lord McIntosh, it might be that the House of Lords will be allowed to deal with money matters again.

Where I think the Government will be able to help is to say that it is not our intention to maximise proceeds at the expense of the substantial capital programmes that are to be undertaken. We are very well aware of the need to set up the WS plcs, each separate one of them, on the basis of a capital structure which reflects the obligations on each business and in particular the size of their required investment programme over the years ahead.

As in all privatisations the Government will write off all the National Loans Fund debt in the run-up to flotation as part of the process of putting in place new capital structures appropriate for the WS plcs. The assets of the National Loans Fund will be reduced accordingly, but the Government will have new assets in the form of equity and debt securities in the WS plcs. We do not yet have all the information that we need to assess the appropriate balance between equity and debt now. But we can say that the capital structures of each of the WS plcs will be determined in the light of the circumstances and needs of that company.

I hope that Members of the Committee will agree that what I have said shows sensitivity to the points which have been made. Prices will rise to meet higher standards, but I think the Government are able to meet the concerns of all sides of the Committee by saying that three factors will restrain the rate of increase. First, under the stimulus of price control, the industry will share efficiency gains with the customer. These are gains which would not be so effectively encouraged in the public sector or if the companies were subject to dividend control.

Secondly, in the capital restructuring which I have described we shall ensure that the successor companies are not encumbered by an unreasonably large burden of debt and we shall ensure that each company is in a position fully to meet its obligations. I think that is especially important in view of the remarks made by the noble Earl, Lord Halsbury. It is not our intention to maximise proceeds at the expense of the substantial capital programmes that are to be taken.

Thirdly—and this is new to Members of the Committee—we shall be bringing forward further government amendments at Report stage to underpin this. We shall ensure that customers share the benefit of any disposals of surplus land in future, so there will be no question of asset stripping at the expense of the consumer.

I believe that it would be inappropriate for this Chamber to seek to add to those factors by putting additional taxpayers' money into the pot, on top of the debt write-off which I have already described.

Lord McIntosh of Haringey

Clearly the Minister has made a number of very significant statements and it would be virtually impossible for me to respond in an authoritative way to the complex arguments which he has put forward. Therefore I wish to thank him for what he said. I take the opportunity of rising now to speak before the noble Lord, Lord Nugent, who must close the debate on this amendment.

As I understand it, the principal point that he is making is that the debt to the National Loans Fund will be written off. I understand that he is saying so for three reasons: first, that this will encourage the efficiency of the private sector—well, that is a matter upon which he knows we disagree—secondly, that the successor companies, and ultimately the plcs, will not be encumbered by a large burden of debt; and, thirdly, that there will be amendments introduced to ensure that customers share the benefit of surplus land disposal, so that we shall not have the sort of asset stripping which we had with the sale of the Royal Ordnance Factories to British Aerospace.

As to the third reason, I think that I can give that an unequivocal welcome. Of course we wait to see the text of the amendments which will be introduced, but anything which ensures that customers share the benefits of the disposal of surplus land must be worth while. It will be most interesting to see the comments of the financial press as to the effect that this will have on the viability of flotation. One can see that this is all part of a package whereby the flotation is being enormously helped by the Treasury giving up a large part of its ill-gotten gains from privatisation. That is what writing off the debt to the National Loans Fund actually results in.

It is an interesting thought, is it not, that the statutory water companies which will soon become plcs will find themselves, as I understand it, without the benefit of this write-off of their debts—that is, unless I have misunderstood the noble Earl. The Minister accused me of paying attention only to the assets and not to the debts. I can assure him that discussion of the debts is the subject of further amendments. Moreover, I certainly have much to say on that subject before the Committee rises tonight. I welcome the sharing of benefits of surplus land disposal.

The fundamental conclusion that I draw must be the reaction that I gave to the noble Lord, Lord Nugent. In so far as we are proceeding with privatisation, and the benefit is not going to the Treasury but to the succcessor companies, the new privatised water undertakings, we have reached the nadir of privatisation. We are now not selling off public assets, we are giving them away. If the taxpayers do not benefit and the money goes by a write-off to the private companies, then what is the purpose of privatisation? It has become an ideological nightmare and it has no economic justification whatsoever.

Let us look at the figures. The present day net value of the assets transferred to the authorities under the 1973 Act, free of the debt of £2.2 billion which was transferred, is £12.4 billion. The expected income to the Treasury from the sale of the water industry is expected to be £5 billion to £7 billion. The debt of the water authorities is £5.5 billion. What is left of any benefit to the taxpayer? What is left of any benefit to the Treasury?

I think that noble Lords should ask themselves, when they see these concessions, what is now happening following the privatisation procedures. This is something which no longer bears any semblance of a relationship to economic rationality. If it were not so late at night, we should do something about these amendments, I can assure you.

Baroness Blatch

Before the noble Lord sits down, would he not agree that a good part of the massive loan debt that would have been bequeathed to the new plcs was inherited in the 1973 transfer, and that freeing up the necessity to service that considerable debt will be a direct benefit to the customer? While the plcs are obliged to service this massive debt the calls on any other moneys, either to improve services or to give a better service to the public, will be impaired. It seems to me that, possibly more indirectly for the noble Lord opposite, there will be a direct impact on the cost of services to the public and the ability of the plcs to meet the obligation to improve services to the customer.

Lord McIntosh of Haringey

We are in Committee and it would be as well if the noble Baroness were to make her own speeches rather than intervening in mine. However, she has got the figures totally wrong. We have looked very closely at the balance between the debts and the assets of the regional water authorities. The debts of the regional water authorities amount to approaching 50 per cent. of their assets. I will come on to this when we discuss later amendments.

I have already given the figures concerned with this group of amendments, which confound the argument that the noble Baroness is putting forward. Net of the £2.2 billion which was owed by the transferred business in 1973, net of the value of the assets transferred from the local authorities perforce without payment in 1973, the debt is now £12.4 billion.

Lord Nugent of Guildford

I should like to thank my noble friend Lord Caithness for his response to our amendment. It is a somewhat involved situation. The amendment was partially factual and partial probing. My noble friend has substantially met the purposes for which we moved our amendment. I did not expect the amendment to be accepted in the form in which I put it down, but his concept of how the new plcs would have to be financed appeals to me. Although I understand the political and philosophical objection of the noble Lord, Lord McIntosh, to it, I think it is worth making this point. I would entirely agree with him that it is a very peculiar privatisation. However, if the water industry were not being privatised there is no doubt whatsoever that the government of the day would have to finance the capital expenditure of the industry on a large scale in order to avoid excessively high increases in charges.

9.30 p.m.

Lord McIntosh of Haringey

I entirely agree with what the noble Lord has said, and I should like to confirm that we are not unaware of this point. As he may know, my honourable friend Mrs. Ann Taylor, who is our spokesman on water, has made her estimate, which seems to be fairly well accepted, that the cost of putting matters right in the water and sewerage industry could be of the order of £12 billion, which would have to fall on the taxpayer. We are not making these statements in ignorance. However, we feel that these are public responsibilities and that, once the public has paid to do what is right to put matters in order again as concerns both water quality and sewerage, the assets which remain, which will be net assets, should stay in the hands of the public sector. That is the fundamental difference between us.

Lord Nugent of Guildford

I quite understand the noble Lord's point, but I thought it needed to be said that in any event the Government—in other words, the taxpayer—would have to finance the huge capital programme which is now needed. It is a matter of opinion, different on each side, as to whether that can be done better and with more benefit to the public by financing from the private sector and the private market or from the public sector.

I should also like to thank by noble friend for his concept of the benefit of the sale of the very large land assets, especially the development value assets, and that at least 50 per cent. should accrue to the benefit of the customer. That seems to me to be entirely right, as also does his concept of the extinction of the debt. Clearly, he and his right honourable friend had always considered that they were going to do this because that was why they drafted Clause 83 in the way they did. So I give my noble friend the credit for having foreseen before my amendment ever appeared on the Order Paper that something of the kind was always going to have to be done.

With regard to the question of local authorities, I very much sympathise with the local authorities which are preparing to fight a legal battle. I hope that they will see that what is being done here will benefit their ratepayers and, indeed, everybody throughout the country in terms of charges. Their legal battle is not going to be easy, as they must well know, so perhaps they will recognise that there is something for them to gain here and they will decide to settle for that.

I conclude by thanking our noble friend for his handsome concession to our amendments. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 358 to 359A not moved.]

Lord Ross of Newport moved Amendment No. 360: Page 91, line 18, leave out ("Consolidated Fund") and insert ("Water Development Fund established by section (water development fund) below").

The noble Lord said: I have to be very brief because we have just had to close on a 40-minute debate on the issue which concerns the amendment which I am proposing. The variation which we are putting forward proposes that the Water Development Fund should be in the hands of the NRA and then distributed to the various water companies, but perhaps I may be allowed to say a little because I did not speak in the last debate.

It seems to me absolutely criminal that we are adding to the cost of the water companies by an enormous amount by the very act of privatisation. The noble Lord, Lord Nugent, mentioned the figure of 27 per cent. On television last Sunday week a professor at Nottingham University suggested that the whole process of privatisation added as much as 50 per cent. to the cost. Who knows what has been spent up to this moment on advertising? We have been told that something like £30 million has been committed on that. So really the whole act of privatisation is adding to the cost. Again, only this Sunday both the Sunday Times and the Observer and no doubt other papers mentioned that additional costs will fall on the successor authorities, particularly with regard to lead piping, among other things. There will be an enormous bill.

There is only one consolation, which has not been raised before. I understand that quite a lot of the water companies have high assets held in reserve. I stand to be corrected but I have been told that the Yorkshire Water Authority has had reserves of over £85 million since 1983 and currently it has £320 to £400 million as retained profits and reserves. Apparently this was being held back because the authority expected that Part II of the Control of Pollution Act would be implemented much earlier. I do not know whether the Minister may wish to respond on that point. Some water authorities may well be holding high assets and perhaps that is something to set against what will happen in the future.

In his Second Reading speech, my noble friend Lord Ezra referred to the need for a water development fund. That is why we drew up new Clause 80. After the earlier debate I do not wish to press the amendment now: no doubt it will be found to have many holes in it when the Minister comes to respond. I do not expect a lengthy reply, but something must be done.

Part of the proposal has been realised by the Minister in his response today, and he commented briefly on the amendment which the Government will put down to Clause 8. I am not sure that I entirely like the outline of his amendment. Perhaps it will look better when it appears on the Order Paper. I hope that it will deal with environmental problems and not just the sale of assets, which will fall to the authorities. That must be right but I hope to goodness that we shall not have too many sales. We are all frightened to death of that and it was the subject of the earlier argument on the Bill.

Whatever money can be set aside to assist the successor plcs to deal with the enormous problems which will face them is very necessary. The noble Earl, Lord Halsbury, who has just spoken, talked about the situation in South Wales and not knowing where some of the raw sewage outlets are. I have already referred to some of those which I know about. I shall never forget, some years ago, taking an appeal for a housing development. The objection of the planning authority was that it would add to the burden on the sewers, which just could not take any more effluent from the new houses which would be built. I telephoned the local borough surveyor and asked whether he could confirm or deny that. He said that there were so many raw sewage outlets that another 20 houses would not matter a damn. That was only 10 years ago. Fortunately, money has been spent to deal with that situation but I have no doubt that the same thing obtains in many areas of the country and it is an enormous problem.

Perhaps I may finish by saying that I do not expect any support from my noble friend—I call him my friend—on the Labour Front Bench. I agree with him basically that this is a fallback situation. Presumably the Bill will become law. I bitterly regret it. I believe that it is wrong, we shall live to regret it and that the Government will ultimately live to regret it. I believe passionately that this money was largely spent by ratepayers in years gone by. Yes, there have been government grants and probably many more recently. The evidence has been given to us by the noble Lord, Lord McIntosh, about the old days and the ratepayers of Birmingham. A great deal of ratepayers' money was spent building up our sewerage and water systems over the years, and very proud we were of them too—rightly so. It seems to me to be wrong that the systems should now be privatised. I always thought that the TSB privatisation was robbery and I think this is too. I beg to move.

Lord Trafford

I very readily accept the description which the noble Lord, Lord Ross, gave when he said that the amendments were a fallback position. It seems to me, however, that they have probably been very effectively superseded even in the noble Lord's own mind by the statement made by my noble friend on the Front Bench about 20 minutes ago. It appears to me that the rules of the contest at the moment have been slightly changed and that therefore we have to recalculate the sums. As I understand it, the proposals put forward by my noble friend represent one of the possible solutions to a problem which it appears some Members of the Committee do not wish to consider. That problem is that one way or another some billions of pounds will have to be found in the future.

The noble Lord, Lord McIntosh of Haringey, just outlined the view that one alternative was for the Government to loan the money and put it forward. No doubt that would be his preferred solution. Another solution is the suggestion that is at present under discussion in these amendments. Another is more on the lines of the solution put forward by my noble friend. It is the secondary benefits rather than the readjustment of the structure of the capital which will probably decide which solution will be the better one.

I, unlike the noble Lord, Lord McIntosh, do not believe that the local authorities are necessarily the losers. I accept that they lost in 1973. However, a large amount of that loss which the noble Lord attributes to ratepayers' money was taxpayers' money. We are still talking today, in 1989, about taxpayers' money. The noble Lord, Lord McIntosh, and I assume from his last remarks the noble Lord, Lord Ross of Newport, would go along with this. Again it is taxpayers' money, through some form of government loan, which should be put forward to meet the huge charges which will arise as a result of the need to improve quality, service and water and deal with the pollution of rivers and other matters.

There are, however, other possibilities. One of the difficulties of taking these straight lines is that either one perpetuates the situation of annual subsidy from public money, which we do not wish to recommend, or one has to decide that the alternative to taxpayers' money and to subsidies being pumped into this industry almost indefinitely is to raise the sums needed by means of restructured capital and smaller rises in prices. I repeat the caveat that one would have to see what the specific proposals are in the government amendment that my noble friend has mentioned. However, my main point is that, as I understand it, these amendments are now slightly out of date in the sense that they will probably be superseded by what comes next.

Lord Ross of Newport

I prefaced my remarks by saying rather what the noble Lord has just concluded. However, I shall certainly want to read what the Minister has to say.

Lord McIntosh of Haringey

The noble Lord, Lord Trafford, is a loyal supporter of the Government, but he has been left somewhat beached by the changed attitude which they have expressed. That has meant that he has totally failed to understand the thrust of what I was trying to say. That is undoubtedly my fault. The point I am trying to make, which is one that Members opposite do not appear to be able to grasp, is that there is such a thing as public investment and public service for a public service. If we are talking about public investment, as we undoubtedly are, whether or not it is in the form of giving public money to the successor undertakings, as that is what writing off a debt means, the investment has to be made however it is done. That was the point that the noble Lord, Lord Nugent of Guildford, correctly made.

But having made the public investment with public money, whether that is taxpayers' money or ratepayers' money—it does not make any difference from that point of view—what is absolutely unacceptable is that we should then hand over the revitalised asset for private profit. That is what sticks in our throat and what we cannot stand. As I said earlier, if we object to selling off the water industry, the Chamber should consider how much more we object to the proposal which is made by the noble Lord, Lord Ross, now—in effect to give away the water industry. That constitutes feathering the nest before the cuckoo gets into it.

Lord Trafford

I did not misunderstand the noble Lord's argument at all. I know his argument about public investment and public service. I do not particularly wish to prolong this debate. However, I must say that I conceded this very point. I recognise where the noble Lord stands on this matter. I also recognise that one of the great difficulties is that so long as one depends upon public investment the same situation will occur with water as has occurred previously—a 50 per cent. cut in that so-called investment. That is what happened in the late 1970s, for all sorts of no doubt at the time excellent reasons such as economic pressures. I do not wish to make a specific party point on the matter; but it is a fact that that is what has happened in public investment in this particular public service. Therefore one has to look at other solutions to the problem.

I do not disagree with the noble Lord that he has consistently held to that point of view. The fact that I do not agree that it is the right point of view does not make me a loyal supporter of the Government; it makes me a chap who disagrees with the noble Lord, Lord McIntosh.

9.45 p.m.

Lord McIntosh of Haringey

On the basis of those arguments, the noble Lord ought to have followed us into the Lobby last Monday when we secured that there would be a reasonable and rational timetable for investment to improve drinking water quality. I am sorry to see that he did not.

Baroness Blatch

I am concerned with the practicalities of the issue. According to Amendment No. 361 the NRA would have a water development fund which it would then dispense to the water plcs for particular projects. The amendment appears to ignore the fact that flotation proceeds from authorities, some large, some small, will differ, as will the needs of those authorities. Sometimes the needs will be disproportionate to the flotation proceeds. It appears that those particular aspects have not been taken into account in the amendment.

The Earl of Caithness

The amendment of the noble Lord, Lord Ross of Newport, would also divert proceeds from the Consolidated Fund, but in this case they would be used to set up a water development fund which would be managed by the National Rivers Authority to fund grants to water and sewerage undertakers and local authorities for a range of purposes associated with sewage treatment and disposal, water treatment, works to achieve minimum acceptable flows and remedying of pollution from abandoned mines.

That is just as much of an intervention in the Chancellor's control of the taxpayers' money as the previous group of amendments. Indeed the effect would be to divert the whole of the proceeds of flotation, notwithstanding the debt that has been extinguished before those securities are offered for sale, to fund the proposed new water development fund. It would be unusual for the other place to devote a specific but as yet unknown amount of taxpayers' money to set up a grant fund. It would be all the more exceptional for this Chamber to do so.

The amendment would give the authority a new, and I believe an inappropriate, role in the financial affairs of the privatised industry and in matters relating to drinking water quality. It would require the authority to run a grant regime, with all the work that that entails in checking the appropriateness of costs, and the regularity and propriety of claims and payments. Staff would be needed with expertise in a wider range of matters than the authority has at present to involve itself in, in particular those relating to the clean water side and the distribution side of the water undertakers' functions. This would be a major distraction from environmental work.

In so far as they relate to pollution, the payment of grants for anti-pollution works would mean that the taxpayer rather than the polluter pays. The more I thought about this, the more I thought that something did not chime quite right, and of course it does not. It occurred to me that it was Amendment No. 10, proposed by the noble Lord, Lord McIntosh of Haringey, and supported by the noble Lord, Lord Ross, that was designed specifically to make the polluter pay. That is a totally different proposition from that which the noble Lord, Lord Ross, is now putting forward, which is that there should be a grant system.

By charging its domestic and industrial customers for sewerage services, including environmentally acceptable treatment and disposal of effluent, the industry is implementing the polluter pays principle.

We shall all benefit from a cleaner environment, but that is not in itself an argument for funding the industry's clean-up programmes at the taxpayers' expense. We all create pollution; we all benefit from sewerage services. There is no reason why we should not pay for their costs, and we believe it is best that those costs should fall as charges for the services provided.

Lord Ross of Newport

I shall not delay the Committee for more than a minute or two longer. I think that we are in some difficulty in any event since we do not know how the Government will put through their privatisation. Will they privatise the full 100 per cent. or 49 per cent. or 51 per cent? Will they split it up into different authorities? I do not know, and I hope that some day we shall find out.

I recognise the condemnation of some of the terms of the amendment. I accept those criticisms. I believe that the polluter should pay. But at least it was an attempt to seek some way in which money can be found. I believe that noble Lords on both sides of the Chamber agree that that money must be spent over the next three or four years to improve the situation in this country. With those few words, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 80 agreed to.

[Amendment No. 361 not moved.]

Clause 81 agreed to.

Clause 82 [Transfer of successor company liabilities to holding companies]:

Lord McIntosh of Haringey moved Amendment No. 361 A: Page 92, line 20, leave out ("and").

The noble Lord said: In moving this amendment, I should also like to speak to Amendment No. 361B. In reference to an earlier amendment, the noble Earl, Lord Caithness, accused me of looking only at the assets and not paying attention to the debts. I do not think that he can at that time have remembered that we had put down these amendments, which seek to deal with the real problem that the Government face in their privatisation proposals arising from the very variable debt obligations of the different water authorities.

As the Bill stands, the Secretary of State will have the ability to juggle with the finances of the regional water authorities and their successor companies. He will have the ability to create a totally artificial balance sheet in order to prepare those companies for privatisation. It is nothing to do with what they have spent or with the condition of the business that they inherit. It is nothing to do with the efficiency or inefficiency of their operations in the past. It is simply to do with the fact that, as things stand and with the debt structure of the regional water authorities as it is, those businesses are simply not capable of being privatised. The Government could not privatise the water industry without restructuring the debt.

Members of the Committee may think that I am exaggerating or joking; that is not the case. The regional water authorities had £5.5 billion of debt at the end of 1987–88. It may be more by now, but that is the most recent published figure. It represents 45 per cent. of the historic cost asset value. It represents about 50 per cent. of what analysts expect will be raised from the sale. It would not matter so much if the debt were distributed among the water authorities, but that is not the case. The Thames Water Authority has a debt of only 12 per cent. of its historic cost asset value. The Northumbrian Water Authority has a debt of 62 per cent. of its historic cost asset value.

Anyone who thinks about investing in a water authority or any other business knows that if its debts account for more than 45 per cent. on average and, in many cases, more than that, it will not be able to undertake significant amounts of investment without doing so from retained profits. In other words, there is nothing left for the shareholders in any of the regional water authorities or their successor companies, with the possible exception of the Thames Water Authority. The next in line is probably the South-West Water Authority with 29 per cent. of its asset value in debts.

Unless the Government play totally artificial games with their historic debts, acknowledging no relation whatsoever with the efficiency of the companies, their economics, their costs of production or anything else, they will simply not be able to privatise the water business. That is why they give the Secretary of State the freedom to play ducks and drakes and to shuffle the debt around between the successor companies.

As I said earlier, we have reached the nadir of economic rationale when we come to this privatisation proposal. We have now shown that in one further respect privatisation of the water industry is an economic nonsense. It can only be achieved by skulduggery with the figures. It cannot be described in any other way. That is what is proposed, and that is what our amendment would get rid of. I beg to move.

The Earl of Caithness

I must admit that I found it difficult when reading this amendment to know what the noble Lord, Lord McIntosh, intended to convey by the phrase "net liabilities of any company". I wondered whether he meant that the value of debt in loan stock and other fixed interest forms should not be increased or whether he meant that the value of such debt taken with the value of equity should together not be increased. I regret to tell him that I must confess to still not being clear about his intention.

Amendment No. 361B, which is the substantive amendment of the two amendments that we are considering, deals only with the transfer of liabilities between the successor company and its nominated holding company. I can assure the noble Lord that, because we should not want the group of companies to start in a disadvantageous tax position, we shall specifically avoid increasing the debt that the successor company owes to its nominated holding company beyond the level of debt owed by the nominated holding company.

While on the question of debt, it may be worth clarifying a point that I made earlier which, with respect, I think that the noble Lord may have misinterpreted. When I said that he only talked about assets and refused to acknowledge that there was a debt, I was of course talking about the situation in 1973.I did know that these amendments on debt were to come before us.

Lord McIntosh of Haringey

The noble Earl seeks to attack these amendments by suggesting that we have not appreciated the difference between one water authority and another. The problem which the Government have is that this is not simply a write-off of debt. If that were the case, we could disagree with them but we could also understand how they could reach that position. What is proposed here is a complete freedom for the Secretary of State not just to write off debts but to write in debts. That would be the situation of the consumers of Thames Water. The people who live in the Thames Water Authority area have paid for their assets once. They are now being asked to pay for them again so that the City can be given a big enough price for the other water authorities, which are not in that happy position, to go ahead.

Why otherwise is it proposed that the shares of all the water authorities together should be sold on day 1 in a bundle with investors having no choice as to which of the authorities they are buying into, and only on day 2 is there to be a market in the shares of the individual water supply plcs?

The answer is that the Government know very well that, with the possible exception of Thames Water Authority, and with the proviso that the Government are now making further concessions to ensure that receipts to the Treasury are reduced by writing off loans to the national loan fund, these water businesses are not saleable. They are not privatisable. That is true not only because of their physical condition but because of the obligations toward the consumers and the environment which are now belatedly being recognised by the Government.

All these matters will have to be dealt with at another stage. This is clearly not the time to pursue the issue and take the view of the Committee. I am delighted to give way to the noble Earl.

The Earl of Caithness

I am grateful to the noble Lord and particularly for his further explanation of the amendments. It helps me to a certain extent, and therefore allows me to say a little more. I think that it is worth repeating a point that I made earlier; namely, that debt write-off in the run-up to flotation is well precedented in other privatisations. The noble Lord seems to indicate that we are proposing something quite new. It is a well precedented measure. It is part of the process of putting in place new capital structures appropriate for the company to be floated. The assets of the national loans fund will be reduced accordingly but the Government will have new assets in the form of equity and debt security in the WS plcs. In all cases equity will have to be increased because there is none now. In some cases debt will be reduced and in others debt may be increased.

The important point to bear in mind is that it is the combination of debt and equity that is to be sold. An increase of debt may be the best means of maximising the return to taxpayers.

The noble Lord suggested in that second intervention—which has helped me in particular with reference to Thames Water Authority—that if the debt is increased, the customers will have to pay twice over, once because they have paid already by the higher charges needed to amortise the debt written off in the past and once again in the future for the new debt created. That is simply not so. Even in the public sector, companies or other reorganisations are expected to pay a return on capital and to repay loans to them. Not to require a return is simply to invite a waste of resources. Whether the customer is paying so that the debt is serviced or paying so that a combination of less debt but with some equity is serviced would make little difference to the customer for two reasons. First, the Bill provides safeguards for the customers through the general duties imposed by Clause 7 on the Secretary of State and director. I refer Members of the Committee in particular to Clause 7(3). Secondly, the charges will be controlled by the price formula in the conditions of appointment.

10 p.m.

Lord McIntosh of Haringey

I am glad that my second intervention gave the Minister an opportunity to repeat some of the words that he used in response to the amendment of the noble Lord, Lord Nugent. I was in no doubt as to what he meant. I had no doubt that he meant, as he has now confirmed, that the debt structure of the water authorities is to be reorganised so that some of them will benefit and some will lose. Clearly one that will lose is Thames Water Authority. It is useful to have the Minister's confirmation of that.

However, he has not shown in any way that the changes that are taking place have any business logic or economic rationale or are related in any way to the operations, the historical costs or the asset structure of the businesses. It is simply an artificial balance sheet that is being created solely for the purpose of privatisation. If one adds to that, as we were reminded by the noble Lord, Lord Ross of Newport, the huge costs to the taxpayer and the consumers of the privatisation process, we realise that economic logic and thinking have gone mad in these amendments.

As I indicated, we shall be forced to return to this issue because it is absolutely fundamental to the concept of privatisation. We are revealing in this series of amendments and in the probing that is taking place in this Chamber that privatisation is nonsense for the water industry. It is no good the Minister saying to me that this is the first time that debts have been written off. That may be a criticism of earlier privatisation. It is certainly not a defence of this privatisation. The whole business structure of the privatisation proposals is crumbling about the Government's ears. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 361B not moved.]

Clause 82 agreed to.

Clause 83 [Conversion of certain loans]:

Lord McIntosh of Haringey moved Amendment No. 361C: Page 92, line 41, at end insert— ("(1A) The Secretary of State shall, within one month of the passing of this Act, lay before Parliament a report setting out his current expectation of the contents of any order to be made under subsection (1) above.").

The noble Lord said: In moving this amendment, I hope that I may give the Government an opportunity to go a little further in the exercise of the glasnost that we have had in the last hour and a half or so. The amendment proposes that within a month of the passing of the Act the Secretary of State should: lay before Parliament a report setting out his current expectation of the contents of any order to be made under subsection (1)".

Subsection (1), as the Committee will recall, allows the Secretary of State by statutory instrument to extinguish all or any of the liabilities of the nominated holding company. I remind the Committee that we are dealing here with a business which has assets of £11 billion and debts of £5.5 billion. In other words, we have a gearing ratio which can only find its investment funds from retained profits in the private sector, into which it is being catapulted. We have an industry which is simply incapable of surviving without artificial financial protection. In the last hour and a half we have had confirmation from the Government that they propose to provide, at the taxpayers' expense, at the expense of the National Loans Fund, our money, that degree of financial protection for the privatised water industry which is necessary for the privatisation to go ahead. They do not care how much the taxpayer gets. They do not care how much the consumer pays. All they care about is that there should be this privatisation, come hell or high water.

How much is it now proposed will be written off? In responding a few minutes ago, the Minister gave us some idea of the impact on the National Loans Fund, but all he said when talking about the figures was that it would be offset by the value of the equity. How much will be written off? How much will it cost the taxpayer to make the phoney privatisation possible? What the amendment asks for, and it is the least we can demand, is that Parliament should know before the privatisation goes ahead. Is that so unreasonable? I beg to move.

The Earl of Caithness

I am always happy to try to help the noble Lord. I am grateful that he has found this evening rewarding from that point of view. While there is no intention of concealing our proposals in respect of debt extinguishment, I have to tell him that the amendment is not practicable. The provision to extinguish debt is necessary to adjust company structure prior to flotation in order to achieve a successful flotation and in order to give money back to those who paid for the water services in the first place. The necessary decisions will not therefore be made as soon as the amendment suggests, but I assure the noble Lord that it will be done immediately before flotation so that the adjustments may reflect circumstances at that time. I put it to him that that is the appropriate time to make these adjustments.

Lord McIntosh of Haringey

That is gobbledegook. It is simply avoiding the issue which these amendments pose. The amendments suggest that Parliament has a right to know. What the Minister is saying in all sincerity is that there is no possibility of sharing with Parliament what the Government must know, because the Government are proceeding apace with all the negotiations, certainly on the pricing structure and no doubt on all the other aspects of the prospectus which has to be put into place before privatisation can proceed. We must find some way for Parliament to take part in the process of privatisation. If we accept the Government's object in proceeding to privatisation by November of this year, it cannot be done. I do not know how I can express this. It cannot constitutionally be done with all the important issues left out of the Bill and left to be decided by the Secretary of State after Royal Assent has been given. That is the position in which we find ourselves.

Modestly we say in this amendment that on a particular matter which cannot be beyond the knowledge of government the Secretary of State should report to Parliament after the passing of the Bill. We are not saying that the passing of the Bill should be delayed or that anything else should be done except that Parliament should have an opportunity to debate these vital issues of privatisation. I cannot see how in all faith the Government can maintain parliamentary democracy when they refuse to share with Parliament all these vital aspects of privatisation.

When I go through the procedures, I sometimes feel that we are wasting our time. I feel that we are not being taken into the Government's confidence, and they do not propose that Parliament should have any real influence on the progress of the Bill. I feel that we are left with dogma and asseveration rather than argument and democratic discussion. It is a disgrace that the Committee should be treated in this way. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 83 agreed to.

Clauses 84 and 85 agreed to.

Clause 86 [Target investment limit for Government shareholding]:

Lord Graham of Edmonton moved Amendment No. 361D: Page 95, leave out lines 4 and 5.

The noble Lord said: Members of the Committee will note that in the margin at Clause 86 are the words: Target investment limit for Government shareholding".

The amendment seeks to delete subsection (5)(a) which appears at the top of page 95 of the Bill. Clause 86 provides for the setting and attainment of target investment limits for the Government of shareholdings with voting rights following privatisation. As currently provided for, that limit would initially be set at the level of shares which the Government did not sell at the time of the flotation.

The Minister admitted to a House of Commons Standing Committee that the initial shareholding may be as high as 49 per cent. of the total shares in the industry. Such is the financial mess the Government have got themselves into—as has been amply demonstrated in the debates—that they do not know what their initial shareholding will be. It is a subject that I suggest the Committee should stay with for a little longer.

After flotation the Secretary of State will be able to lower the limit as and when he is willing, or more likely able, to bring successive tranches of shares on to the market. However, at no time will the Secretary of State be able to increase the target investment limit by more than one-half of one per cent. of that originally established. Therefore, the Bill as it stands has built into its provisions the prevention of increased state control of the industry at some future date. I ask the blunt question: why should that be? Clearly, the Secretary of State has no more confidence in the Government's ability to stay in power than have the electors in Glamorgan, for instance. Otherwise, why is it so necessary to build into the legislation provisions intended to stop a future Labour Government from re-establishing state control of the industry by simply buying up the shares of the WS plcs on the open market, or through greater voting rights being attached to state-held shares? Clearly Clause 86 is intended to achieve that.

I presume that the Secretary of State believes that the provisions of this clause will in some way reassure investors that their shareholdings are secure and that the industry cannot be brought back under state control. If that is the case, it is to be hoped that prospective shareholders are not nearly as naive as the Secretary of State. For surely they will realise—as would any reasonably aware person—that, the provisions of the Bill notwithstanding, a future Labour Government will as soon as possible after their election proceed with all the moves necessary to take the water industry back into public control under the accountable and democratic control of locally elected representatives.

The effect of the amendment would be to remove the bar to returning the industry to public control. I suggest that the purpose of the amendment is clear to see. It is to make a categorical commitment to those foolish and gullible enough to buy into the industry that their investment should not be seen as a means of reaping monopoly profits in the long term, and that upon the election of a Labour Government the control over their investment will be forfeit. However, even if that were not to be so, surely potential investors would be aware, even if the Secretary of State is not, that the effects of the Bill could be altered to a considerable degree by issuing instructions to the director to so alter his mode of regulation of the industry as to reform its structure from one based on plc lines to one which would give greater protection to the consumers and the environment.

Therefore, were there to be some delay in a future Labour Government bringing forward the primary legislation necessary to return the industry to public control, there would be no such delay in reforming the industry so as to guarantee its operation along lines more acceptable, even if not totally acceptable, than those upon which it is intended to operate this Bill.

I believe that we are moving, as we have in the two earlier debates, into the whole raison d'être of the Bill as regards not only the Government but also a great many other interests. The Minister must be aware that the City is not altogether happy with the saleability of the shares or with a number of other matters. First, there is the continuing threat of the imposition of EC water purity standards which would place a heavy burden of investment requirements on the industry and so postpone indefinitely the period when profits can be reaped by shareholders instead of being ploughed back into the business. That threat could give shares in the industry a very low yield in the medium term and thus make them an unattractive proposition.

Secondly, there is the continuing threat of the EC intervening to prevent the creation of the level playing field necessary to enable the WS plcs to compete in the capital market following privatisation. Thirdly, there is the increasing concern in the City that parts of the industry may not be the Government's to sell in the first place. While those fears have not yet been fully expressed, it is no coincidence that in the past few weeks a number of Fleet Street City editors have been making discreet inquiries about possible legal moves over assets transferred to the water authorities in 1973.

Perhaps more importantly, there is a widespread feeling in the City that water privatisation is basically very uninteresting, that the industry has few prospects for sales volume growth, that it is unlikely ever to be at the forefront of technology and that it has few prospects for synergetic symbiosis with other industries—and I shall say that again if I am challenged! There is a case being made to sit on the liquid balances, wait six months and then to go for the quick kill in the electricity flotation.

I believe that all those are aspects of the Government's intention in Clause 86 to try to encourage and reassure those on whom they rely to buy shares and to support them in their objectives. We are seeking to make it quite clear that those who buy and invest in the industry under those terms are warned that under a Labour Government their fingers will be burnt. I beg to move.

10.15 p.m.

Lord Harmar-Nicholls

Before my noble friend answers the details of that speech, there is a general matter which should be clarified or confirmed. Has the noble Lord just announced a new policy of the Labour Party which does not appear in its recently published programme?

Lord Graham of Edmonton

No.

Lord Harmar-Nicholls

I think that he has, because he said that if potential purchasers of these shares knew that the Labour Party would be buying them back in some form or would be taking them over in the form of nationalisation, they would not buy the shares in the first place. However, that is not as I understood the programme of the Labour Party as it has been announced publicly. I do not understand it to be as suggested at this late hour in an insignificant sort of an amendment to a Bill; namely, that the Labour Party will take back these privatised shares with no compensation and without the proper price being paid. That is what he said. If the industry is taken back into public ownership—if ever the unpleasant time comes when the Labour Party is in a position to do that—there is no threat if shareholders receive the market price. They cannot lose, so there is no deterrent. Therefore, I should like to know whether I have taken the noble Lord's comments differently from what he intended, or has he just announced that the Labour Party will nationalise in some form or another with no compensation being paid for the shares? That is the clear message from his speech.

Lord McIntosh of Haringey

I do not blame the noble Lord for trying it on, but he is wide of what my noble friend said. There was no suggestion whatever that the shares should be bought without compensation. That was not said at all. It is clear, however, that the next Labour Government—and we are only two years or so away from the next Labour Government—will be taking urgent steps in the simplest possible way (perhaps in a Bill encapsulating this amendment) to secure that we have a majority shareholding in the water industry. Investors must take that into account and also take into account that when we have taken urgent action to secure public control of the water industry, as the people of this country wish us to do, we will then at more leisure take steps to ensure that we have the final structure of a public water industry that we want. There was never any suggestion in my noble friend's words, and no one could read into his words, that no compensation would be paid.

Lord Harmar-Nicholls

In that case perhaps we can get this absolutely clear. Do I understand that people can buy shares in the privatised water industry with the full knowledge that they will not lose in regard to value, even if we have the unpleasant experience of a Labour Government coming back? Can we therefore go on safely buying the shares and be sure that the threat made by the noble Lord is quite without foundation?

Lord McIntosh of Haringey

The noble Lord is trying it on again. Nobody can buy shares in any private company with full guarantees that they will not lose money. That is the nature of the gambling den which is called the City of London. That is what it is all about. We are certainly not giving any guarantee of that sort. We are saying that we will take public control of the water industry but will not do so without compensation.

The Earl of Caithness

Clause 86 requires the Secretary of State to set a target investment limit for government shareholding in each nominated holding company of a successor company not later than six months after flotation. The clause allows this limit to be lowered but not raised. That is well precedented in other privatising legislation. The effect of the amendment would allow the limit to be raised.

The amendment provides the means to nationalise the water industry by buying shares in the market without the requirement for primary legislation. Is that democracy? What an abuse of Parliament that is by the noble Lord, Lord McIntosh of Haringey. The noble Lord castigated us on the previous amendment. He wound up with sound and fury. However, his fury is nothing compared to the fury that he would generate if we were to try to privatise the water industry without primary legislation. The noble Lord is, however, quite happy to nationalise without primary legislation.

During consideration of this Bill we on this side of the Committee have been puzzled by statements about Labour Party policy on ownership of the water industry. I have to agree with my noble friend Lord Harmar-Nicholls that we are even more interested by what seems to be a continual shifting sand of policy. We are all eager to learn more about the unfolding story of the position of the party opposite on this issue. Let a little glasnost get into the Labour Party's ideas; let that party be a bit more open with the electorate because, if it is, the Labour Party knows very well that it will not be in two years' time that we have a Labour Government—oh no, electors are far too wise to fall into that trap.

I take the Committee back to an authoritative leak in The Times in April from which we learnt that a draft Labour Party policy document would not commit the Labour Party to taking the water industry back into public ownership. That is very good stuff. But no, the noble Lord's honourable friend, Dr. Cunningham, had not been let in on that leak, and he hotly denied it when it came to Third Reading. He would have nothing to do with it and he did not believe it.

When we discussed amendments earlier in Committee, my noble friend Lord Beloff sought clarification. That was on 4th May A doubt had again opened up as to whether the intention was public control or public ownership. What is it to be? The noble Lord, Lord McIntosh of Haringey, said that it would all rather depend on how the Bill turned out. He said that they could not give the precise prescription. Now that he has cogitated a little more I wonder whether he can give the precise prescription. Is it to be public control or public ownership? We have seen a little more. We have heard recently of competing for prosperity, but that does not help us. It is the biggest fudge of all. It is suggested that water will be returned to public ownership but not as a priority.

I am not quite sure whether the Labour Party considers it a resolution of its dilemma but it should be ashamed of the principle that lies behind this amendment; namely, that whether or not its policy will be to renationalise the water industry, it would prefer the Bill to be so drafted that it would not require an Act of Parliament to implement that decision. That is entirely unacceptable.

Lord Graham of Edmonton

I confess that perhaps I started this sharpening of the debate. I offer no apology. The weapons at the hands of the Opposition are very limited indeed. At the moment we are not discussing what a future Labour government will do; we are discussing what it is that this Government intend to do on the face of this Bill. We are looking for ways of setting out our stall, reaffirming or reminding the Committee what our policy is and why and how it has changed. At the moment we are concerned to see how, by amendment, substitution, addition or insertion, words can be brought into the Bill.

We have sought to demonstrate that the Government are determined to provide the best possible face and case to the investor as to why it is good business to invest in the proposed companies. We are saying that if the Bill is in such shape and condition and of such colour as to be attractive to the investor, then if there is a Labour government we believe that water should be under the control of the government and their agencies. It is not ownership. I shall be delighted—if the noble Lord, Lord Harmar-Nicholls, wishes—to engage, as I have done previously, in arguments of public, private, pseudo and partial changes. At least the Labour Party acknowledges, from a set of precepts which, if not pre-war, go back many years before, the different means whereby it has sought to control the means of distribution and exchange. We have learnt from our experience. We recognise the reality, not least that of the past 10 years, of what this Government have done not merely to investments but also to the shape of our major institutions.

The Minister may have a point as to whether there is sharp practice or not. But the Government must learn that every piece of legislation that they leave on the statute book is capable of being used and/or abused by an incoming government. It is up to the Government. We can use the present legislation; that is why we are seeking to make this amendment. Therefore, if all we have left is this Bill without the amendment, that is a vehicle to allow a Labour government the opportunity to make changes.

All we are trying to do with this amendment is to warn the investing public, so carefully cultivated by the Government, that if they decide to invest in the future of the water industry it may not be as sweet as the Government have tried to paint it. The alternative to that is for us to say nothing. If we get power on the basis that we have said nothing we can suddenly produce plans that will be seen as treachery and heresy.

What my noble friend Lord McIntosh and I have said to the investing public is not new. I am grateful to the noble Lord, Lord Harmar-Nicholls, for believing that I have either the wit or the authority on the hoof to declare Labour Party policy. I have neither. All I have done is to reaffirm in a form of words which may or may not have been clumsy—I shall read them carefully tomorrow—that it is Labour's intention, given power, to bring the water industry back under public control.

The Minister asks whether it is a first or a second priority. He knows from his experience that priorities in legislation are a complex matter. On this side of the Committee we cannot allow this opportunity to go by and acquiesce in a supine way with what the Government intend to do. We have limited powers. One of the few weapons that we have is the opportunity to make a speech which may or may not see the light of day. However, we are politicians. We have a heart and a voice and we are provoked from time to time—yes, even by words on the face of a Bill.

This has been my opportunity. I can tell the Committee that whatever it has done for noble Lords, I feel a good deal better for it. It has done wonders for me. I shall vote for me next time. I appreciate the spirit in which the Minister has helped me to get these things of my chest.

10.30 p.m.

The Earl of Caithness

I am grateful to the noble Lord for giving way. I should like to emphasise something just in case he wants to change his mind. Did I hear him say that he and the noble Lord, Lord McIntosh of Haringey, have said to the electorate that the next Labour Government wish to take water under public control?

Lord Graham of Edmonton

Yes. The water industry is now leaving public control and is going into private control. That is happening under this Bill. It will be sold off and will be the province of the private investor. I am saying that a Labour government will take steps to return it to a form of public control.

The Earl of Caithness

I am grateful to the noble Lord. Does he not realise that his honourable friend Dr. Cunningham has told the electorate that a Labour government will take it back under public ownership and public control?

Lord Graham of Edmonton

If half an answer is not sufficient and the Minister wants to quote my honourable friend in another place, whose views I respect, he is entitled to do that. I stand by what I said which does not contradict what my honourable friend said in another place.

The Earl of Caithness

It totally contradicts what the noble Lord's honourable friend in another place has said. The noble Lord wants control. The Labour Party in another place which does not seem to communicate with the Labour Party up here—that is its look out if its members do not talk to one another—wants public ownership and control. That is a different matter. There is of course the question which my noble friend Lord Harmar-Nicholls raised. He asked about compensation. It looks as though the Labour Party is up to some of its worst performances tonight.

Baroness Blatch

If the distinction between control and ownership is the securing of more than 51 per cent. of the shares, how will the noble Lord's party select the unsuspecting shareholders from whom they will secure, presumably by compulsory purchase, 51 per cent. of the shares?

Lord McIntosh of Haringey

All this is immensely flattering. We know that the Government have now accepted the fact that they will go out of office at the next general election and be replaced by a Labour Government. That is fine. Otherwise this intense interest in every word that falls from our lips would not make any sense at all, particularly at this time of the night. It is enormously flattering. However, the Minister and noble Lords opposite live in the real world. They know that we do not prepare a detailed legislative programme in advance of an election and that we do not even prepare a manifesto in advance of an election. The details of what goes into that manifesto are not decided by Opposition spokesman in the shadow chamber of Parliament. Let us not play this game any longer; we are all agreed that the water industry will be a public water industry again within less than three years. That is all we need to know.

Lord Tordoff

I wonder whether the noble Lord could assist those of us on these Benches; that is, myself and the great crowd who sit behind me? Can he say whether they intend to take the water industry back into public ownership before or after they abolish the House of Lords?

The Earl of Caithness

While the noble Lord, Lord McIntosh of Haringey, is thinking of a nice answer to that question, may I ask what really is the point of the policy review?

Lord Graham of Edmonton

I believe that all of this is so much water under the bridge. I think that we would all benefit and profit by reading not only what we have said but also the policy review. I say that because if you want to see the future as it will be, then it is written in that document. It would certainly benefit—

The Earl of Caithness

So it is a manifesto!

Lord Graham of Edmonton

Well, I can only repeat what my noble friend said. It is obvious that what a future Labour Government intend to do is a matter of great moment to the outgoing Government who sit on the Benches opposite. As I have already said, it is the job of an opposition to seek to expose points which arouse intense dislike.

We intensely dislike this Bill and that has been made perfectly clear at all stages of the proceedings. However, when it comes to how we intend to redress the position, my noble friend is absolutely right in what he says. First, we on these Benches are spokesmen for the Labour Party but we are not constructors of either a manifesto or of policy statements. There is no dubiety and nothing can be read into what we have said. We have said that we intend to warn off prospective investors—

A Noble Lord

Frighten them off!

Lord Graham of Edmonton

Well, frighten them off, if you will. In fact "frighten" is an even better word and I wish that I had thought of it myself. We intend to frighten off future investors who are being induced to invest in the water industry by means of what the Government have done. They have resisted time after time the proposal to have laid upon the water industry what we believe to be perfectly legitimate protections both for the consumer and for the nation. That has all been done for a purpose; the purpose is to encourage the saleability of the industry.

All we are saying by means of this amendment and others is, "Be very careful"—caveat emptor—before we go too far. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 86 agreed to.

Clauses 87 and 88 agreed to.

Clause 89 [Temporary restrictions on borrowings etc. by the group]:

Lord Graham of Edmonton moved Amendment No. 361E: Page 98, line 5, at end insert— ("(2A) No borrowing undertaken or outstanding within the limit established under subsection (1) above, (or as varied by the Secretary of State by Order under that subsection) shall be extinguished by the Secretary of State under section 83 above.").

The noble Lord said: This amendment seeks to insert on page 98 the words which appear on the Marshalled List: No borrowing undertaken or outstanding within the limit established under subsection (1) above, (or as varied by the Secretary of State by Order under that subsection) shall be extinguished by the Secretary of State under section 83 above".

Clause 89 of the Bill is one which I submit has received little attention hitherto. It sets out the temporary borrowing restrictions on the group to which a successor company belongs prior to privatisation and allows the Secretary of State to vary this amount in the national interest. The limitation on borrowing is set at £1,400 million for each holding company to which a successor company belongs but may be raised to £1,800 million if the Secretary of State specifies by statutory instrument that it would be in the national interest to do so.

The effect of the amendment would be to prevent any loans allowed under this section being subsequently written off under the provisions of Clause 83. The purpose of the amendment is to ask the Government to explain the considerations under the heading "National Interest". How would they be taken into account when deciding whether or not such an interest in the borrowing limit should be made? I believe that the Minister can help to clarify this issue and allay concerns about what such borrowing powers may be used for, and what the total amount of increase in borrowing for the industry would be, rather than for a group within the industry.

Let me exemplify the points I am making. The term "national interest" is meaningless. This Government believe that term to be synonymous with their own interests. Unless one were to have an elected dictatorship, it is difficult to see what this might be.

Leaving this unimportant point aside, let us consider what constitutes the national interest, assuming one could agree the definition. Clearly, with the water industry, barring any wartime emergency measure which may be necessary—but hardly likely before flotation day—the national interest involves the health and wellbeing of its population, and therefore the quality of the drinking water. Is that what the Secretary of State means to allow for in this section (bearing in mind the current position of the EC) that loans could be raised prior to flotation to go part way towards complying with the EC drinking water regulation? I think that the Minister should be specific on that point.

Then we have the term, "group to which a successor company belongs". That is ambiguous in that there does not seem to be a clear indication in the Bill of whether the word "group" is synonymous with the term "public sector water industry". In that case there could be only one group. Alternatively, could there be more than one group formed out of the water authorities prior to flotation? That point is important since, if there could be only one group, then the amount that the industry could be allowed to borrow would be £1,400 million, and a further £400 million in the national interest. If there could be more than one group, then the amount the industry could be allowed to borrow would be those amounts times the number of groups. Were there to be 10 such groups, one for each existing water authority, then the true borrowing for industry that the Secretary of State could allow would be £14,000 million, and in the national interest, a further £4 billion.

While the Bill is clearly ambiguous on those points, there is a greater concern to which the amendment is specifically addressed; namely, that while Section 89 makes it clear what borrowing would be allowed to a group, it does not make clear what proportion of that borrowing would be retained as debt equity following privatisation. That is clearly an important matter, given the fears that have been expressed about the amount the taxpayer may have to pay for privatisation in the form of debt write-offs. That is the point that my noble friend Lord McIntosh dealt with at some length.

The need to prevent that happening arises from suspicions which have been voiced about what the clause will be used for. Some time ago the Secretary of State gave a useful hint as to what one should reasonably suspect, and so fuelled these suspicions. He implied that it would be no bad thing for public money to be spent on funding some of the environmental improvements being insisted upon by the EC. On the basis of what is in that clause, and what this Chamber argued last Tuesday, it would seem reasonable to suspect that the Secretary of State might be prepared to bail the industry out in advance of privatisation if water quality standards contained in the EC Directive 80/778 were to be enforced.

Can the Minister tell us whether that is the case? Is the taxpayer about to have to borrow billions of pounds in order to meet EC requirements, and then see this loan written off to enable privatisation to go ahead? The ambiguities clearly allow for that possibility, and I suggest that the amendment would help to prevent that situation. I beg to move.

10.45 p.m.

The Earl of Caithness

The aggregate amount of borrowing undertaken by a group of companies to which a successor company belongs is subject to a limit imposed by Clause 89. The effect of the amendment would be to prevent any of that debt, including loans made by the Secretary of State while the company is wholly owned by the Crown, from being extinguished.

I think that there are two reasons why the amendment is unacceptable. Although flotation is planned for November, we cannot be certain that it will not be delayed by unforeseen events. This increases the importance of the flexibility provided in the Bill in making decisions on debt extinguishment. We must be able to put in place an appropriate balance of debt and equity so that the capital structure and share price of the offer reflect the circumstances in the market at the time of flotation. Only in this way can we achieve the best price for the benefit of the taxpayer.

In some cases the market situation may require more debt to be injected. In other circumstances a reduction may be appropriate. We must accordingly be able to move in either direction.

The second reason for not accepting the amendment is that it is contrary to the Government's policy. The national loan fund debt cannot be held by a private sector company. Therefore, there must be scope for its extinguishment in any debt rearrangement or conversion necessary before flotation.

10.45 p.m.

Lord McIntosh of Haringey

The noble Earl has not explained what is meant by: The aggregate amount outstanding in respect of the principal of the relevant borrowing of a group to which a successor company belongs". Does he mean that the amount shall not exceed £1,400 million for the whole of the water industry or does he mean £1,400 million for each of what potentially could be a number of different groups?

The Earl of Caithness

I think that the noble Lord will find it clearer in his mind when he looks at subsection (5), which defines "Group".

Lord McIntosh of Haringey

It does not. 'Group' … means that company's nominated holding company and all of the nominated holding company's subsidiaries". That means the successor of a water authority. Therefore a group could be the successors of the Thames Water Authority with a borrowing limit of £1,400 million, and there could be a separate group of the Severn and Trent Water Authority, also with a borrowing level of £1,400 million. Subsection (5) does not explain it any more clearly.

Lord Graham of Edmonton

Surely it is a simple question of whether we are talking about £1,400 million or possibly £14,000 million. In other words, we may have got the multiplication by 10 wrong. But is it the basic figure or is that figure capable of being multiplied?

The Earl of Caithness

As I understand it and read it from the Bill in front of me, it is £1,400 million for each group of companies.

Lord Graham of Edmonton

So is the Minister confirming that it could be £14 billion if in fact there were 10 groups? Could he confirm that?

The Earl of Caithness

Yes.

Lord Graham of Edmonton

We shall read very carefully what the Minister has said when we look at the Official Report tomorrow. Clearly the whole philosophy of the Bill is wrapped up in precisely what we are discussing here. Again I say to the Minister that—and it may be our fault—we have had to ask questions which genuinely we could not read into the words in the Bill. The Minister has not dissembled at all and has given us straight answers, but we have had to ask the questions, and even then we have had to ask further questions on his answers. All I am saying is that there will be people outside the Chamber who will be grateful to the Minister for having expanded on or clarified what the Bill means. We shall look at it tomorrow and may come back at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 89 agreed to.

Clauses 90 to 98 agreed to.

Clause 99 [Procedure for cancelling resolutions for substituting memorandum and articles]:

Lord Elliott of Morpeth moved Amendment No. 361F: Page 107, line 36, leave out ("the resolution to be cancelled") and insert ("an order under subsection (4) below").

The noble Lord said: In moving this amendment I should like to refer also to Amendments Nos. 361 G, 361H and 361 J. The privatisation of the water industry and the procedures for enabling statutory water companies to become plcs are unprecedented, as has been stated so many times in the proceedings on the Bill.

I hope that this will not delay the Committee long. The four amendments to Clause 99 have the aim of removing the possibility of damaging and long delays being occasioned to the procedures by minority shareholders in cases where, in any event, the overwhelming majority of shareholders have already given approval to the proposals. The amendments would enable the High Court to provide compensation to a dissentient minority if the High Court thinks that the minority have in any way been disadvantaged.

The amendment to page 107, line 40, is technical and prevents minorities from a class applying to the High Court. That class's approval does not need to be obtained in any event under this clause. I beg to move.

Lord Hesketh

These amendments relate to the provisions in Clause 99, under which shareholders who object to a statutory water company's resolution to replace its constitution with a new memorandum and articles can apply to the courts to have the resolution cancelled. One amendment would restrict rights of access to the courts in these circumstances. The other three would remove the power of the courts to cancel the resolution and would substitute a discretionary power to award cash compenstion for the diminution in value of those members' interests.

Perhaps I may assure my noble friend Lord Elliott that we shall consider most carefully all that he has said. I undertake that the Government will table amendments on Report to bring the rights awarded to minorities to have access to the courts more closely into line with the Companies Act. I shall also consider what he has said about the proposed restrictions on the powers of the court when the application is made. However, I am not yet persuaded whether it is appropriate for the powers of the courts to be restricted in this way on the point. I hope that my noble friend Lord Elliott will see fit to withdraw the amendments.

Lord McIntosh of Haringey

Before the noble Lord responds, I am opposed to the amendments which he has put forward, and also to the Government's response. Has the noble Lord, Lord Elliott, considered that the statutory water companies, to which he is so devoted and to which he has given such distinguished service, will be defrauded by the proposals of the Government announced this evening?

What is now being proposed is that the loans to the water authorities—in other words, the suppliers of 75 per cent. of the country's water supply—will now be written off in the form of the write-off of the loans to the National Loans Fund. That will not be the case for the 25 per cent. of water consumers who are the customers of the statutory water companies. While the noble Lord is taking away what the Government said and thinking about it for the next stage, will he consider standing up for the rights of the statutory water companies and their customers against this totally unfair discrimination against them which has been announced by the Government tonight?

Lord Elliott of Morpeth

I thank the noble Lord, Lord McIntosh, for his comments. I repeat what I have said at various stages of the Bill, starting with the Second Reading debate, through several amendments. I hope that anything in the shape of write-off or dowry will apply to 100 per cent. of consumers and not just 75 per cent.

I noted what the noble Lord, Lord McIntosh, said in responding to the amendment to which he has referred. I shall take very careful note of it in the record tomorrow and bear it very much in mind. I thank my noble friend for his response to the amendments. I take full note that the Government will come back to them with their own amendments on Report. In consequence, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 361G, 361H and 361J not moved.]

Clause 99 agreed to.

Lord Elliott of Morpeth moved Amendment No. 361K: After Clause 99, insert the following new clause: ("Replacement of borrowing powers of registered water companies.

.—(1) Where—

1. (a) provision relating to borrowed monies of a registered water company is for the time being contained in local statutory provisions; and
2. (b) the company for the time being holds an appointment under Chapter 1 of this Part,

that company may subject to the following provisions of this section by special resolution propose that those local statutory provisions shall cease to have effect.

(2) If the Secretary of State by order approves a proposal by a registered water company in accordance with subsection (1) above, the local statutory provisions in question shall cease to have effect on such date as may be specified in the order.

(3) The Secretary of State shall not make an order under subsection (2) above in relation to a registered water company unless it appears to him—

1. (a) that neither an application under section (procedure for replacing borrowing powers) below with respect to the company's proposal nor an appeal with respect to the subject-matter of such an application is pending and that the time within which any such application or appeal may be made or brought has expired; and
2. (b) where there is—
1. (i) a division of the mortgages, debentures or debenture stock of the company into different classes; and
2. (ii) that the local statutory provisions which are to cease to have effect will be replaced by other provisions which will replace, vary, modify, compromise or release the rights attached to any sach class or by obligations to repay or redeem the said mortgages, debentures or debenture stock,

that a consent to or approval to such proposal has been given approval to such proposal has been given under subsection (4) below in respect of each class the rights attached to which would be so replaced, varied, modified, compromised or released if the order were made.

(4) A consent or approval of a proposal is given for the purposes of subsection (3)(b) above in respect of a class of mortgages, debentures or debenture stock if—

1. (a) consent in writing to the proposal has been given by the holders of not less than three-quarters, in nominal value, of the issued mortgages, debentures or debenture stock of that class; or
2. (b) an extraordinary resolution approving the proposal is passed at a separate general meeting of the holders of mortgages, debentures or debenture stock of that class;

and for the purpose of determining whether the requirements specified in subsection (3)(b) above are satisfied in relation to any two or more classes of mortgages, debentures or debenture stock in a registered water company, it shall be immaterial that consents and approvals have been given in respect of different classes in accordance with different paragraphs of this subsection.

(5) The provisions of the company's registered memorandum and articles (in the case of a registered water company) or the provisions of Table A as prescribed by regulations having effect under section 8 of the Companies Act 1985 (in the case of a statutory water company not registered under Chapter II of Part XXII of the said Act of 1985) shall extend mutatis mutandis for the purpose of convening and regulating separate general meetings of holders of mortgages, debentures or debenture stock and the passing of extraordinary resolutions thereat as if the said holders were members of the company and the meetings were meetings of the company.

(6) Where the Secretary of State makes an order under subsection (2) above in relation to any company and it appears to him to be appropriate to do so for the purposes of, or in consequence of, the approval contained in the order, he may by order repeal or amend any local statutory provision.

(7) The power to make an order under subsection (2) or (6) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament; and an order under subsection (6) above may—

1. (a) make different provision for different cases, including different provision in relation to different persons or circumstances; and
2. (b) contain such supplemental, consequential and transitional provision as the Secretary of State considers appropriate.

(8) In this section and section (procedure for replacing borrowing powers) below— debenture" and "extraordinary resolution" have the same respective meanings as in the Companies Act 1985; registered water company" means any statutory water company to which a certificate under section 688 of that Act has been issued (whether before or after the transfer date).").

The noble Lord said: Clauses 98 and 99 deal with the procedure for enabling statutory water companies to become plcs and do not address the problems as to what should happen thereafter to their borrowings. Having adopted a memorandum and articles of association, certain legislation passed as long ago as 1845 and 1863 would continue to govern their borrowings and the rights of lenders. This cannot be a satisfactory position for a public limited company under the Companies Act of 1985. These new clauses provide a procedure whereby, with the approval of the lenders and that of the Secretary of State, new arrangements can be introduced which will then allow the old statutory provisions to be repealed. The new clauses are based upon the provisions of Clauses 98 and 99, which deal with the adoption of a memorandum and articles of association. I beg to move.

Lord Hesketh

Amendments Nos. 361K and 361L would allow statutory water companies to change their debentures so that, instead of the debentures rights being embedded in local statutes, they would take a non-statutory form. In many ways the two new clauses which would be introduced by these two amendments parallel Clauses 98 and 99, which allow a statutory water company to substitute a memorandum and articles for its current statutory constitution. The approval of 75 per cent. of each class of debenture holder would be required to enable changes to be made and aggrieved minorities would have access to the courts for redress.

I can understand the reluctance of the companies to have their debentures left in an out-dated statutory form when they will be able to adopt a modern constitution for the rest of their affairs. Clearly, as well as being inconvenient, it will raise practical difficulties for them.

However, despite my general sympathy with the aims of the amendments, I have to say that they are flawed. On a purely technical level there are difficulties for example with the scope of the new clauses as specified in subsection (1)(a) of the first new clause which refers to, provision relating to borrowed monies". Clause 95(2)(b) is also concerned with changes to such provisions and the two clauses would not sit well together. More importantly, there are questions not addressed by the new clauses on which there are currently no clearcut answers, but which must be addressed. For example, under the Insolvency Act 1986, new securities do not carry perfect and unqualified rights until six or 12 months have passed, depending on the circumstances. It is far from clear whether the changes proposed here could result in a temporary diminution in rights for the holders.

The most worrying aspect of the proposed clauses, however, is that they propose the removal of the debenture holders' statutory rights without specifying what will take their place. I accept that approval of 75 per cent. of the debenture holders is required, but this would still leave a perhaps unjustifiable degree of freedom to the companies. Clauses 98 and 99, which concern the conversion of the rest of the companies' constitutions, only allow changes from a statutory constitution to memorandum and articles, which are themselves deeply embedded in company law. I do not think we could be content with the proposals for change without the new structure for debenture holders' rights being clearly specified in the Bill and well precedented.

In summary, we consider that we must strike a balance between the disadvantage to the companies of retaining an outdated foundation for their debentures and the potential disadvantages to debenture holders of pushing through major changes which are substantially flawed. I should add that some debenture holders have already expressed their concern on the need for adequate protection of their interests during these unprecedented changes in the water industry. On balance, we do not think that we would be justified in making such major changes without an opportunity for them to be properly considered by all involved when the arguments for change are those of convenience rather than necessity. I must regretfully ask the Committee to resist these amendments.

Lord Elliott of Morpeth

In responding to my noble friend, I must say that I take on board what he said about balance and about there possibly being a need for further consideration. I should hope that before the Bill becomes an Act on the statute book further consideration will be given to this point. Something must be done about the outdated basis on which the companies have to work in this regard. I hope that the Government will give further consideration at Report stage to the problem which the companies face. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 361L not moved.]

The Earl of Arran

I beg to move that the House do now resume.

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

House resumed.

House adjourned at eleven o'clock.