The Water Industry

HL Deb 21 October 1992 vol 539 cc757-83

3.31 p.m.

Lord Clifford of Chudleigh rose to call attention to the responsibility of Her Majesty's Government for ensuring full representation of the consumer's interest in the operation of the water industry; and to move for Papers.

The noble Lord said: My Lords, let me first declare an interest in the private water company, South West Water plc, by holding shares on behalf of my elder son who is seven years old. They are doing very nicely, thank you very much indeed—but at what cost?

In February this year this House debated with some vigour the method and handling of privatising the 10 national water authorities. Another 22 are private but not all of them are to do with sewage disposal. Some of the issues raised in the debate today may have been discussed in February, but since then more facts and details have come to light which will require a fuller answer and greater explanation.

We are aware of the authorities and bodies which are responsible for monitoring the water that we consume and for the way in which it is disposed of. Ofwat, the Office of Water Services, is responsible for ensuring that the water industry in England and Wales provides consumers with good quality water efficiently and at a fair price. Ofwat was set up and financed by Her Majesty's Government using taxpayers' money. Every asset controlled by the Government is in reality owned by the taxpayer or Her Majesty the Queen. A sum of £7.52 million of taxpayers' money has been allocated to Ofwat in this financial year.

The National Rivers Authority is another monitoring body financed by the abstraction finance fees and set up by Her Majesty's Government to ensure maintenance and improvement of the quality of water for all those who use it. It also receives 29 per cent. of its income from a government grant, again taxpayers' money—water consumers' money. The Drinking Water Inspectorate and the maritime district councils are other authorities which monitor, the latter being financed out of local tax money—soon to be the council tax. It is responsible for armouring coastlines among other aspects, as is the Ministry of Agriculture, Fisheries and Food, which this year has contributed £64 million towards flood defence, coastal defence and arterial drainage. That again involves taxpayers' money.

The West of England has the longest and most frequently battered and eroded coastline in England and Wales. What a shambles has been made of that coastal protection. Stone has been imported from Sweden. Certain rock-laden barges have sunk before they have reached the coastline which is to be armoured. Within 10 miles of certain of the coasts in Devon there are English limestone boulders in abundance. There is employment for Englishmen. If boulders are not used why not use dolos? They are double anchored reinforced concrete blocks of varying weight. They are already in use in the Scottish nuclear power station and at Llandudlas in Wales. They have been used effectively in Australia, Sweden, Saudi Arabia and many other countries. Their construction and positioning would create employment and coastal protection in England.

What responsibility lies on the shoulders of the privatised companies? The private water companies must provide clean, healthy consumable water for everyone living in or visiting England and Wales. They must also be considerate and sensitive to the extra requirements for many of the disabled people in this country before even threatening disconnection for failure to pay.

Her Majesty's Government are well aware that the European Commission had every intention of instituting many legal obligations on member countries which related to the treatment and protection of the environment both onshore and offshore. It is rumoured that Her Majesty's Government were well aware of that as far back as 1985. They were also aware that they would have to budget up to £28 billion in order to comply with that law.

Let us look at the costs. They do not involve just the amount paid, the expenditure on an item. They involve the suffering experienced to obtain an end. For example, South West Water plc may have paid the Exchequer £216 million in 1989 to purchase the water authority which it took over. Let us look at the cost, the financial suffering for the taxpayer, the water consumer. First, there was a grant, a green dowry, of £266 million from the Government. It was taxpayers' money. We must remember that money is the central reality of government policy. But good management, not just monetarism, is what wins governments taxpayers' applause. Secondly, there was a write-off of a £130 million debt inherited from the nationalised water authority. That was taxpayers' money. In effect the taxpayer paid that plc £180 million to avoid the inevitable embarrassment to the Government of being unable to implement the European Commission's policy and obligations by 1999. It should not be forgotten also that South West Water plc benefited handsomely to the sum of £293 million when the company shares were floated.

But the suffering, the cost, does not stop there. Throughout the country the plcs decide their own standing charges. Those may range from a ridiculously high annual payment of £61 for water and £65 for sewerage per household in Dwy Cymru plc to £22 for water and £28 for sewerage in the Thames Valley Utilities plc. It is felt by the monitoring authorities that those standing charges generally should be lowered.

Ofwat regulates the K factor which was instituted and imposed in 1990. It will not be reviewed until 1995. But everything in that K factor is linked to inflation, which is falling. Look at the action taken by Ofwat last week when, with effect from 1st October, Ofwat placed an interim determination notice on the water companies. That should result in a 2 per cent. reduction in the consumer cost since it reflects a 15 per cent. reduction in the construction costs that the water companies had expected this year. Will the Government, through the Department of the Environment, support Ofwat's director who still has four dissenting authorities to bring into line with his direction?

In August South West Water plc received a £30 million loan from the European Investment Bank to help it with its obligations. The interest charged will be paid for by the consumer. The K factor will not change from 11.5 for South West Water until 1995. It is then hoped that Ofwat will take into account such capital loans and accordingly adjust the K factor rate to the benefit of the consumer. Quite apart from obtaining loans on a long-term repayment basis, the water plc should consider making rights issues to the existing shareholders to raise money required for capital expenditure. Another step which the Government could take to ease the burden on the consumer would be to accelerate the tax relief on the capital expenditure of the water companies.

When one considers that the water plcs are a monopoly organisation—a point which was admitted by the chairman of South West Water plc—the capital return is far too high in relation to the low-risk industry in which they operate. What an excellent investment was made by the consumer-supported purchasers of the nationalised water authorities. There was guaranteed capital value growth; no competition over sewerage; ever rising share values; the value of the public limited company increasing without question; and in 1999, once the 10-year restoration/renovation period is over, the companies can be sold at a sinfully large profit. Is the Minister happy about that, especially considering the fact that the consumer paid for the companies in the first place?

Perhaps the greatest attention should be paid to the cost to our health of complying with the European as well as the Westminster standards for potable water. I shall read out the names of 10 different chemicals which the water authorities can add to the water and I beg your Lordships to consider the effect that they can have on one's system. The chemicals include five flocculents, which cause chemical precipitants in lumps or masses. There are the PH or acidic adjusters with chlorine and chlorous introduced to destroy forms of bacteria. Sulphur dioxide is another chemical added which simply adjusts the two chlorines. Our stomach fluids contain natural antibodies which the chlorine is killing. Furthermore, medical studies carried out in the United States show that chlorine is a prime contributor to rectal and bladder cancer. That relates to chlorine in swimming-pools, showers, bath water and drinking water.

Homoeopaths argue that smaller herbal doses are as effective and less harmful than chemical cures. The frequent doses of chlorine which we suffer in our bodies—that is quite apart from the aluminium which is flocculent and which contributes to Alzheimer's disease, as does acid rain—need to be looked at.

What happened at Camelford in Cornwall? A delivery driver accidentally tipped aluminium floc-culent into a tank, the contents of which were distributed directly to the consumer. Was that a shock to the system? If the chemical had been chlorine the amount would have been classified as an overdose. How many accidents and overdoses do we not hear about? Perhaps the major benefit from chemicals is the introduction of fluoride, otherwise we should all be toothless. Doubtless the Minister used his influence to select Strathclyde as the first target for the biggest fluoridisation company in the United Kingdom.

On a slightly lighter note perhaps we should consider that 75 per cent. of our body structure is water. When a friend of mine, who is an alcoholic, visited his doctor he was told, "You must remember, you are just a fingertip away from drowning yourself when you go to the pub"!

Is the National Health Service budget of £27 billion net, apart from private medicine costs, geared to allow for the effects of chemicals in our potable water for drinking or our bathing water? An inquiry into the medium and long-term effect of those chemicals should be instigated by the Government for the sake of the consumer.

We have an alternative; that is bottled water. Companies producing that must comply with EC Regulation No.777 but no chemicals are added. Highland Spring from Scotland is low in salts and minerals and is often used in the treatment of kidney ailments. That is a natural benefit. When looking at the consumption of bottled water throughout Europe, one sees that France, Germany and Italy are major consumers. I wonder why. Demand in the United Kingdom is increasing rapidly. That is the only form of competition to the private water companies but it has obviously been affected by the recession and the consumers' caution as regards spending. Bottled water allows nature's in-built filtration system to provide the cleanliness and the distinction in taste depending on the type and depth of the aquifer.

As has been noted, the majority of consumers pay costs based on the rateable value of their house, but an increasing number of meters are being used to monitor the use of water. Surely it is fairer to all parties for meters to be in operation throughout the country. Approximately 25 per cent. of water is wasted through leakages. If one has a meter one pays only for the water which passes through and not a contribution towards the amount of water lost in the crumbling infrastructure of our water supply pipes.

In this high-tech world homo sapiens is so wasteful. I recently visited Canada, which has the same problem. Despite the fact that Canada has an over-abundance of water it is desperate to see the introduction of metering. It gives the consumer a choice; that is, how much is used casually and how much is obliged to be used.

There exists a regional customers' service committee to hear complaints and pass them to the relevant departments or authorities. Would it not be considered wise to establish a water consumer representation council working in collaboration with the regional bodies and hand-in-hand with Ofwat? The people, the consumers, everyone at Westminster and the taxpayers require their voices to be heard. Let us see H₂0 remaining as a chemical formula and not the water companies' motto and acronym, "Happy₂ Overcharge". My Lords, I beg to move for Papers.

3.48 p.m.

Lord Crickhowell

My Lords, the House will be grateful to the noble Lord, Lord Clifford of Chudleigh, for giving us an opportunity to debate this subject. I do not propose to speak on behalf of the authority of which I am chairman but as someone who, as a former MP and Secretary of State for Wales with direct responsibility for water and now chairman of the NRA, has had a particularly close involvement with the industry for more than 20 years.

I recall the moment when the water authorities took over the responsibility from local government. I remember that in my constituency and elsewhere in Wales people were horrified to discover how many sewage treatment works disappeared for ever under brambles and nettles with no records kept of them.

I am somewhat embarrassed to admit that as the Secretary of State along with the then Secretary of State for the Environment, who now has responsibility for industry, we intervened in the affairs of the water authorities by calling in a prominent accountant to crawl over them and to suggest reductions in their pricing and capital investments. Not many consumers felt very closely involved in that decision-making process during those years and under those structures.

Against that background I listened with a certain amount of surprise to the lines of criticism which the noble Lord pursued, and with some disappointment that he missed the opportunity to address what seems to me, at any rate, the central issue. He talked a great deal about costs and charges but little about the way in which we should arrive at the balance between costs and benefits.

I remind the House of what has happened over recent years. The Water Act privatised the water supply and water sewage treatment functions of the former water authorities, freeing them from the shackles of the Treasury and interfering Ministers like me and allowing them access to the markets. It set in hand a massive and unprecedented round of environmental improvements. It created the NRA and Ofwat which, with the drinking water inspectorate, performs a wide range of regulatory duties, not just of an environmental nature but concerning other vital consumer interests.

The NRA and Ofwat receive immensely valuable help and advice and are greatly influenced at regional level by their network of advisory committees which represent consumers and a wide range of interest groups.

Since the passing of the Water Act the Environmental Protection Act has added hugely to the protective arrangements for the environment—surely a central consumer interest. Soon we are to have an environmental agency wisely incorporating all the functions of the NRA. All that represents some of the most important and beneficial environmental legislation ever passed by a British Government. They have set in motion the largest investment programme for the improvement of water quality and water environment that has ever been undertaken.

By means of privatisation, financial arrangements have been created which make all that possible. Is it even faintly conceivable that without privatisation that programme could be continued in the present grey economic conditions? Of course not. The programme would have been slashed immediately, as it was by all previous governments during similar cycles. Indeed, expenditure on that scale would never have been contemplated. All that seems to me to be of great benefit to the consumer.

When we turn to the mechanisms for directly protecting their more specific and immediate interests, can it really be argued that the old water authorities and the incestuous arrangements within government, within which poacher and gamekeeper cohabited, provided such protection? The answer must be that it did not. The NRA has an extremely effective system of advisory committees and regional advisory boards. It consults widely. There is vigorous and open discussion about the development of policy, with all the issues on the table and not as a cosy discussion inside government departments.

There are ultimate decisions which are quite properly taken by the Government about standards after that public debate. There are also appeal mechanisms in place; for example, the NRA is answerable for its flood defence functions to the local ombudsman and for its other duties to the parliamentary ombudsman.

For its part, Ofwat seems to me to have been fairly vigorous and outspoken in protecting consumer interests, even to the extent that it has sometimes led to tension with its fellow regulator. It has exposed and brought out into the open the debate about costs and benefits, and that debate will be taken further as the NRA and the Government develop the new system of statutory water quality objectives. It has not only dealt with the great strategic issues of the obscure complexities involved in the setting of K but, judging at least from a news release which was issued on 22nd September, it is going about the practical business of raising the standards which the water authorities must achieve. As the noble Lord has already pointed out, it is placing pressure on the public companies about the prices which they charge.

The director-general has also been applying some fairly effective pressures on those costs, about which the noble Lord spoke. I have repeatedly talked about openness. I cannot emphasise strongly enough the extraordinary contrast between the existing situation and the old arrangements which led to decisions of fundamental importance about quality standards, environmental protection, levels of pollution and availability of water, together with the timing and scale of programmes and their pricing consequences, being taken in little huddles in what were probably, in those days, smoke filled rooms with almost no public awareness of what the decisions were and what the consequences might be.

In the present developing situation, the highly desirable and urgent requirements of the European Commission, the British Government and the NRA, urged on by the environmental campaigners, must be costed, prioritised and publicly debated because they can be achieved only if the means are found to pay for them.

To me, that is the central issue which, so far, has not been referred to although it is of such enormous importance for the consumer. The Government, the regulators and many informed organisations are now devoting much time and effort to try to find fair and acceptable ways of establishing what is the proper balance between cost and benefit, between what Greenpeace might demand on the one hand and what the water customer is prepared to pay on the other. We are trying to find ways not just to measure the costs of implementing schemes for environmental improvement but also to measure the value of the environment itself and the cost of the damage done to it.

Recently the director-general drew attention to some of those issues and suggested that the decision should perhaps lie with the water company's customers. However, that is not satisfactory. There are much wider interests entitled to take a view of the matter. Much work is being done on the evaluation of environmental benefits but we are still far from the promised land. In their recent White Paper the Government have come out strongly in favour of a greater use of economic instruments and incentive charges. Sadly, the noble Lord did not touch on those issues and the important and interesting observations made about them in that recent White Paper. However successful the measures may be, I feel confident that there will still be a need for a regulatory regime. The market will be imperfect and, to quote the White Paper, there will have to be a safety net to maintain basic environmental standards.

Those are important questions which need debate and examination. The water quality objectives statutorily set will be a major step forward in determining costs, standards and benefits by open presentation of the arguments. The ultimate decisions will be taken by the Secretary of State and will have to be defended in Parliament. That is the right place for the balance between cost and benefit to be ultimately decided.

The system established by the Water Act, which is already in operation with its three regulators openly stating their position, has moved us already a long way down that road. I hope that the House will contribute significantly to the debate which is taking place about the way in which we carry forward that process with the introduction of water quality objectives.

3.58 p.m.

Lord Cocks of Hartcliffe

My Lords, I too am grateful to the noble Lord, Lord Clifford of Chudleigh, for giving us the opportunity to debate this subject. The noble Lord mentioned some shares. I have some shares in Wessex Water. I understand that that company has recently bought the largest manufacturer of meters in this country. Therefore, if I get through this speech, noble Lords will understand that far from promoting my own interests, I am actually speaking against them.

The privatisation programme has led to the setting up of regulatory bodies which are actually much more important than we realised. In fact, I came across a paper from the pressure group, the Consortium for Fair Electricity Regulation, dated 6th August 1992 and complaining about the long-term contracts placed by the regional electricity companies with the combined cycle gas turbine generating stations. It states that the former Select Committee on Energy tried to tackle the problem by asking the director general to look again at the urgent need to enforce the RECs' licence condition 5 on economic purchasing. It goes on to say, Currently Professor Littlechild is not planning to do this until he reviews price control in 1994/5, by which time irrevocable decisions on power station and pit closures may have been taken". That is fairly germane to what has been happening recently.

I mentioned the regulators in a speech which I made on 30th July in your Lordships' House. I said that there must be a culture developing among them. They are only human and there must be competitive elements and stresses between them. I drew to your Lordships attention the outbreak of "polyphotitis"—the frequency with which photographs of the director general appear in the annual reports, the worst example being the Ofgas Report of 1988, when no fewer than 13 separate photographs of the director general appeared. I asked whether the condition was contagious and suggested that it was, because in the Ofwat first report of 1989 there were seven photographs of the Director General of Water Services and in 1991 there were only three. Possibly the disease is either being cured or is in remission.

I concluded by asking who regulates the regulators. It seems to me that possibly the present Director General of Water Services may have an ambition to impose metering on the people of this country and that this may be his epitaph.

Ofwat recently conducted a consultation exercise. There is a need for a new charging system. The Water Act of 1989 prohibits companies from using the rateable value-based charging methods after March of the year 2000. An enormous amount of paper has been produced relating to that question and I cannot imagine anyone reading it all unless they intend to write a thesis on the matter. For example, The Social Impact of Water Metering, jointly produced by Ofwat and the DoE, comes in three parts. The first report and tables cost £5 each; the hardship report costs £10. In all they consist of 408 pages and weigh 31b 10oz. It must be a great consolation to a young couple wondering whether they can pay the bill to think that they can always look at the hardship report provided they can fork out the £10 required to buy it. The information pack produced by Ofwat consists of a huge volume of material. It weighs just over 2.51b—not the kind of thing one puts in one's pocket for light reading.

The results of the consultation were summarised by the director general in the annual report of 1991, which stated, Consultation plays an important part in our work". It said that the views were sought of both the public and representative bodies as well as the industry. It continued, In the light of these responses I published, in December, a strategy for companies to adopt, starting now and progressing towards the late 1990s". That is summarised in the leaflet, which I am happy to inform your Lordships is free. Setting out his strategy he states, In the long term, metering is the only satisfactory way of achieving payments which are well related to the amount of water used … metering should be targeted, and should spread progressively". That is the ambition and the conclusion reached as a result of the consultation exercise.

Let us examine the consultation exercise. The main part consisted of a survey among domestic customers. At Ofwat's request,28 companies agreed to include with the water bills leaflets and questionnaires in regard to alternative methods of paying for water. They made the point that respondents to the large-scale survey were a self-selecting sample and it was always expected that customers with the strongest views or those who considered themselves likely to gain from a specific option were the most likely to respond.

More than 18 million customers were given the opportunity to exercise their opinions. Almost 290,000 responses were received, representing a response rate of 1.6 per cent. It was said that that response was higher than anticipated when compared with other surveys in which, as in this case, prepaid envelopes were not supplied. It seems to me that to base a strategy on a response rate of 1.6 per cent. is a little dubious to say the least.

What was the leaflet that was issued? I possess a copy of it and, as your Lordships can see, I am one of the 98.4 per cent. of non-responders. It outlines why a change is needed and gives three alternative ways of charging. Anybody who produces a questionnaire of this kind, where different options are given, knows that a virtual science has grown up in the preparation of the questionnaires to ensure that they are totally objective; that they are in no way pointing people towards the answers which the enquirers wish to receive. There are actually people in universities and other departments who specialise in such preparation.

What does this questionnaire consist of? The first alternative given is flat rate charges or a licence fee. It goes on to say, The company charges each household the same amount irrespective of its size. If your water usage is very small it may be worthwhile opting for a meter". To me, that is a clear steer to people to choose the second option of metering. That must devalue the whole exercise. I cannot see how any objective result can be obtained from the questionnaire when that steer is given.

There are other points I find strange about the leaflet. When it talks about metering, one of the advantages it quotes is, you know that neighbours who use more water will pay more". That does not seem to me to be a neighbourly thought. It reminds me of a phrase we used in the Navy from time to time, "Pull up the ladder, Jack, I'm inboard". When it discusses banding or "stepped charges", one of the reasons why this is said to be unsatisfactory is that, economical users subsidise lavish users". The word "lavish" is pejorative. It means that economical users will subsidise large users. Someone with a large family or with health problems in the family may use large amounts of water. In those circumstances I would not say that the word "lavish" is suitable.

Despite the unsatisfactory nature of the questionnaire, the director general based his whole strategy on it. The largest trial area selected, the Isle of Wight, consists of fewer households with children than anywhere else in the United Kingdom. If we go to universal metering it will bear hardest on those who can least afford it—people with large families, disabled people and people with dirty jobs. The National Consumer Council gave an example of a single parent with four young children who moved to Bradford to a housing estate with water meters. The first year's water bill amounted to £348 compared with a water rate of £60 at her previous home.

If we really care about the problems of society, then we should be thinking of the people with medical problems such as users of home dialysis machines and people with incontinence problems. We must think extremely carefully before we adopt a system which will bear down most severely on those in our society who are the least able to stand the consequences.

4.10 p.m.

Lady Kinloss

My Lords, my noble friend Lord Clifford of Chudleigh, has explained very fully the many problems which are of concern to consumers with regard to the water industry. This is very timely because there are currently many justifiable complaints which have been carefully reported to the National Association of Citizens Advice Bureaux, by local citizens advice bureaux.

For many people on low incomes there is no specific benefit rebate to help pay for water, but increases in income support, which are to be welcomed, have not adequately reflected the steep rise in domestic water bills. Although now the price of water is included in the calculations for the up-rating of income support, the shortfall for the years up to 1991 was not made good, thus causing difficulties for low-pay families.

The CAB report, which focuses on evidence submitted to the central office of the service between April 1991 and April 1992, showed a sizeable problem with water debts. In certain areas such as the West Midlands, Yorkshire and Humberside, water problems represented dramatically larger proportions of the areas' total debt count than the average. Many pensioners, disabled people, and families on low incomes with young children, face great problems because of the increased charges. Therefore Ofwat's production of guidelines on debt and disconnection are to be warmly welcomed. That was in April 1992. They are, I understand, having an overall review of debt and disconnection later in the year.

There are still serious problems with water charges being submitted to the central office of the CAB which also has grave reservations about the introduction of metered water supplies in trial areas. Their evidence shows that for many households, especially in large households on low incomes and many disabled people, water metering proves extremely costly. A CAB in the Isle of Wight in a meter-trial area, reports a household of two adults with seven children whose bill was £660 for 1991–92. It was an increase of about £540, following the installation of a meter. They are in receipt of family credit. They could not meet the charge and they received a summons from Southern Water.

A CAB in north London reports a pensioner couple, both aged 86, living on income support. They are faced with a £30 increase on their 1991–92 water bill. They have not got enough to meet the increase. There are some cases where there is a need for companies to accept affordable payments, such as weekly or fortnightly payments, which would help.

There are also the serious problems of disconnections. For example, in Tyne and Wear a CAB reports that a client with two small children whose husband had left her three weeks previously, had her water supply disconnected. Sunderland and South Shields Water Company refused to accept weekly payments and would not negotiate at all. A CAB in the West Midlands reports that the South Staffordshire Water Company disconnected the water supply of a consumer with a severely disabled child. The company required a reconnection fee of £94, which the consumer could not afford.

In the case of disabled people, I understand that some need to use a great deal of water; for example, among others, paraplegics and tetraplegics, especially in cases of incontinence. I refer also to the sufferers of multiple sclerosis. I am told that they need extra water for hygienic and health reasons, apart from feeling comfortable. If for any reason one of these consumers is cut off, he or she is unable to go out somewhere to acquire water. They are certainly unable to use a standpipe if that alternative should be suggested. Water metering will also increase their bills.

A CAB in the West Midlands reports a disabled woman on invalidity benefit who, since her meter had been installed, finds her water charges have been quadrupled. In those parts of the country where supply and disposal are dealt with by separate companies, there is a good deal of confusion among consumers, many of whom do not realise that they will receive two separate bills. In Kent a CAB reports a case of a 72 year-old consumer who was confused by the two bills. The consumer paid one only and was summonsed for non-payment of £41 plus £31 costs.

In those areas where there are two different companies it would seem essential that bills should be easily understood and perhaps an explanation should be enclosed with the bill in order to explain that that particular bill is only for supply and that another will follow for disposal. The Consumers' Association would suggest a national consumer body for the water industry such as that which currently exists for the gas industry. If it could not be agreed that a national consumer body for water should be set up as an independent body, perhaps there could he a body set up with a semi-independent status within Ofwat with the needs of vulnerable consumers kept in mind.

At the present moment only gas consumers have such a body in the Gas Consumers' Council. Could not that example be followed elsewhere in the telecommunications and electricity industries as well as in the water supply industry? For myself, I cannot see, since water is a basic necessity of life, how its supply can be based on ability to pay. There is no alternative to water in order to drink, to wash or for sanitation. It appears to me that the effect of the increase in the cost of water to the consumer has been ill-thought-out and that the matter requires the urgent attention of the Government.

My noble friend Lord Clifford of Chudleigh has already mentioned bottled water. Perhaps when the Minister replies to the debate he can tell the House whether it is true that the quality of water from taps has to be to a higher quality than that which is bought in a bottle. I should also like to ask him whether the Government can ensure that the needs of vulnerable people are met, especially with regard to the payment of their bills, and advice given to any who are in danger of being disconnected.

4.16 p.m.

Viscount Caldecote

My Lords, I believe that this is a timely debate. We are grateful to the noble Lord, Lord Clifford, for initiating it. I would like to raise three issues, two of which have already been the subject of supplementary questions at Question Time. There is no doubt that the water companies have a complete monopoly. There is no alternative supplier or alternative product so it is very much in the public interest to ensure that that monopoly position is not abused in any way.

I would like to draw attention to two areas where I believe problems do exist. They have both been mentioned briefly by the noble Lord, Lord Clifford, but I would like to expand a little on them. The water companies have an obligation to make capital investments mainly to meet future demand and to satisfy the environmental requirements. Too often, when price increases are made and often criticised, the water companies justify those price increases by saying that they have to be made in order to provide the funds for capital expenditure.

That is a very happy and unduly cosy position for a company which many of us who have worked in competitive industry would very much liked to have had. If we needed funds for capital investment how nice it would have been just to put up prices in a non-competitive situation. Of course, that is not possible in normal business and nor is it in the consumers' interest. It certainly was not the practice either in the old statutory water companies. There the value of retained profits was restricted by law. In my experience as a director many years ago of such a statutory water company, that restriction never caused any difficulty in raising new capital for well-conceived capital projects.

Perhaps I may ask my noble friend who is to reply whether the Government will ensure that Ofwat makes it compulsory for such capital expenditure as is required to be provided by raising new capital and not by increasing the costs of water to the consumer.

There is an abuse of the monopoly position of water companies in the field of contracting. Several noble Lords have referred to water meters and the value of installing them. My own experience in that connection is not a very happy one. I asked my local water company for an estimate of the cost of putting in a water meter. They told me that the minimum cost would be £200 and that in addition there would be a survey fee—which I call a fee for an estimate—of £25. That would enable them to give me a firm price which would not be less than £200. I said that I thought that this was rather a high price for installing one simple water meter in one pipe in my garden. They replied that they were allowed to require the work to be done by themselves, and that that was their charge.

I pressed the point and said that I should like to get an estimate from my local plumber to do the work to see whether he could do it cheaper, as I was sure he could have done. They said that they would not allow that. That seems to me to be an abuse of a monopoly position and not in the customer's interest and not in the interests of getting a bigger use of water meters. Again, may I ask my noble friend who is to reply whether he will ensure that customers have the right to obtain competitive tenders in such cases and for the work to be done to the specification of the water company concerned by the contractor chosen by the consumer.

Lastly, I should like to raise a point that I raised with my noble friend during Question Time earlier in the year. It is in the consumer's interest to have fully adequate supplies of water at all times and not to be rationed even in a drought. There is a general shortage of water in the southern part of the country and ample supplies in northern parts of the country, particularly, as I mentioned at Question Time, at the Kielder Dam in Northumberland. Can the Government assure us that the studies being made into the possibility of having a trunk water supply main from the north to the south of England are being actively pursued? I hope the Minister can also give us assurances on the other two points that I have raised—as I believe he can—and that the Government are taking steps to ensure that the monopoly position of the water companies will not be abused in the future.

4.22 p.m.

Lord Allen of Abbeydale

My Lords, in the few minutes at my disposal, I propose to limit myself to one point that was touched on at the end of the speech by my noble friend Lord Clifford of Chudleigh in initiating this debate. As I have been listening to the interesting discussion—and I am grateful to my noble friend for having raised these issues—I could not help thinking of the debates that we had at the end of the last Parliament on what is now the Competition and Service (Utilities) Act 1992. That Act concerned the powers of the regulators of the four privatised public services. It stood out a mile that in only one of the four was there anything like adequate representation of consumers.

As my noble friend Lady Kinloss has already explained the industry concerned is the gas industry, where the Gas Consumers Council alone has the staff, the resources, and the independence to make something like an effective contribution at national level to issues affecting consumers. The Bill was perhaps not the appropriate place for trying to extend that example elsewhere, and indeed we were pressed for time and had to be content with provisions strengthening the role of the regulators, with one or two additional provisions, and notably that which put an obligation on the regulators to conduct market research into the standards that consumers are looking for.

There are certainly arguments for doing still more about the powers of the regulators and possibly making them subject to some additional kind of accountability. But all that would not solve the basic problem that underlies much of what we have been discussing in this debate: that the regulator is not there just to protect the consumers. His job, as I understand it, is to strike this balance between their interests on the one hand and the interests of the industry and its shareholders on the other. Water, as it happens, is just about the most complete of the natural monopolies, and the case for a more effective consumer representation seems to me a powerful one.

I would be the last to decry the work done by the regional customer service committees set up by Ofwat and to which reference has already been made. They identify the anxieties of consumers, look into complaints and advise Ofwat on consumer interests. But they have limited resources, and the plain fact is that they do not add up to a national voice that might influence national decisions on difficult and complicated issues such as pricing formulae and procedures for disconnection.

I do not altogether go along with the rather idealistic picture that the noble Lord, Lord Crickhowell, painted in such attractive and eloquent terms. I would concede that the position is different now from what it was when I used to deal with water problems in what was then the Ministry of Housing and Local Government. But it seems to me that the need for something more is self evident. I have no intention of going over ground that has already been well covered, but it bears repetition that prices for water and sewerage have been soaring at an alarming rate well above inflation, and that this is something that hits those on low incomes especially hard.

Like my noble friend Lady Kinloss, I have been told that problems with water bills—at any rate, in some parts of the country—are increasing faster than pretty well any other type of debt, and it looks as though social security payments have not been able to keep up with the increases. Then there has been a disturbing rise in the number of disconnections. I am told that there were over 21,000 in a recent period of 12 months, and that this is a much larger number than in the previous 12 months. It is worth remembering that disconnection means that one cannot flush the lavatory, one cannot wash the baby's clothes and one cannot even boil a kettle.

Then there is talk of metering. I have some sympathy with those who have already spoken and have expressed some doubt about the merits of metering on a large scale. It can be argued that in general consumers in this country do not waste water. We are near the bottom of the table in Europe for the use of water per head of population. I cannot help thinking that the millions of pounds that would have to be spent on meters might be better used to repair the leaks in the mains which, as has been pointed out, account for waste on such a massive scale. There are a number of quite conflicting considerations that make this a difficult issue.

This is not an exhaustive list by any means of the problems which concern consumers; but I hope that it will perhaps serve as enough to bring out the point that there are a good many issues in this vital service where the voice of the consumer ought to be heard at the national level through an independent body with adequate resources. Since this already happens with gas, it cannot be easily dismissed as a far-fetched fantasy. I hope that the Minister will not try to write it off lightly. It is something that matters to a lot of our fellow citizens.

4.30 p.m.

Lord Hardinge of Penshurst

My Lords, I join in thanking the noble Lord, Lord Clifford, for giving us the opportunity to debate this important subject. I feel diffident in speaking at all considering that many speakers today are or have been in various ways experts in the working of national boards and privatised utilities. The comments that I have to offer spring from a little knowledge—and we know to what that can lead—so I shall be as brief as possible.

My justification for intervening is partly that I was one of only nine of my noble friends on this side of the House who voted against the Government and in favour of the amendment of my noble friend Lord Nugent when the privatisation Bill was before the House. That amendment recommended privatisation by a route which would have removed the profit/dividend motivation completely and would also have required that all the proceeds of the privatisation should go to the new water companies for the capital investment that everyone knew was needed.

Another reason is in some degree parochial in that the area of the south where I live—the Eastbourne, Bexhill, Hastings area—is not heavily represented in your Lordships' House, and sometimes I feel I should speak up for it. By the same token, I must declare an interest, since my water supply at home comes from the Eastbourne Water Company monopoly.

I have had lengthy correspondence with Eastbourne Water and Ofwat, although Dr. Byatt did not see fit to reply personally to me. Answers came, at intervals so great as to be impolite, from a body called the Consumer Affairs Division of Ofwat. This appears to be the sort of stockade that is set up to prevent anyone from pestering the boss.

Others more experienced than I have already referred to the historic absurdity of the water rates being based on the old rating system, so I am going to concentrate on the cost of Eastbourne water. First, must briefly explain the set-up in our area. At present there is a company called South-East Water which does not seem to do much at present although I understand its time of power lies in the future. South-East Water owns Eastbourne Water, Mid-Sussex Water and West Kent Water. Incidentally, those companies are water-only companies—that is, they do not provide sewerage facilities. In our case those come from Southern Water. What is more, South-East Water is owned by the French company Saur, who thereby own the whole lot.

My sources have repeatedly stressed the point that there is no reason to believe that those French-owned companies, or other French-owned companies in other parts of the country, have behaved with any greater insouciance in increasing prices than the general run of British-owned pies. I must emphasise that point.

I come now to the figures. On 31st May this year the Sunday Times published an investigation into water charges which was concerned in particular with the gigantic personal gains accruing to the chairmen of the 10 largest plcs. In one case, the increase in three years amounted to 290 per cent. In the case of charges, the worst was Anglian with an increase of 46 per cent. But that is nothing compared with Eastbourne Water which contrived rises of 100 per cent. in the same period. There are people who cannot pay that. The noble Lady, Lady Kinloss, developed that vital point most admirably and passionately.

On 18th June 1991 the Daily Telegraph made the following comment: His"— that is referring to Byatt— report shows, for instance, that Eastbourne's citizens pay more for their water than any other in Britain (having also suffered almost the highest increases) but that the cheapest water is merely a few miles along the coast in West Hampshire". I can add that even closer Southern Water charges for water supply in Hastings are about half those in Bexhill, the two towns being five miles apart.

I come now to the heart of the matter in the form of a letter from the Sunday Times Insight team with whom I had correspondence following the investigation I referred to earlier. This knocks out all the gobbledygook provided by Ofwat consumer affairs division and speaks in plain, lucid words as follows: During Insight's investigation into the bonuses being paid to water executives we did indeed take a close look at the former statutory companies like Eastbourne Water. As you thought, many of the smaller companies have increased prices to an even greater degree than the 10 former water authorities. Furthermore, many of their executives have large shareholdings in their companies which have been extremely lucrative thanks to generous dividends paid from high profits largely resulting from increased charges". Of course I had permission for that quote from the Sunday Times.I repeat it: extremely lucrative thanks to generous dividends paid from high profits largely resulting from increased charges". That sounds to me like the plain truth, and I should be especially grateful if my noble friend the Minister would comment on those interesting allegations when he replies to the debate.

4.37 p.m.

Lord Ezra

My Lords, although this is a short debate, we have nevertheless ranged very widely. It has been introduced with considerable skill by the noble Lord, Lord Clifford of Chudleigh, and those who have followed have either had direct experience of the water industry or have very clear views on the subject.

We are going through a changing period in the great history of the water industry in Britain. Privatisation was introduced not very long ago. Therefore, it is not unreasonable that a number of issues which have been touched on today should have arisen. Because the nature of the water industry is basically monopolistic strong regulatory bodies have had to be established—notably the NRA, under the distinguished leadership of the noble Lord, Lord Crickhowell, whom we were glad to hear today, and the Office of Water Services.

I should like to mention some of the main difficulties that have arisen. Before that I wish to emphasise what I believe most of us feel: that is, that the water industry of Britain is a great industry with enormous technical skill. As one who has taken a considerable interest in its affairs, and who has visited water treatment plants, sewage plants and research centres, I feel that it is about as advanced an industry as we have in Britain. We must recognise that fact in order to get the balance right, and then consider the shortcomings which have emerged under the changing conditions.

The issue of prices has come in for much comment. The noble Lady, Lady Kinloss, and the noble Lords, Lord Allen and Lord Hardinge, referred to that. There is not the slightest doubt that, of the prices that one pays for the services of the utilities, it is water prices which have gone up fastest. Undoubtedly, a very large measure of investment has to be made to compensate for lack of investment in the past, and there are new environmental standards to be met. Nonetheless, the prices do seem excessive, and they are causing considerable hardship.

Reference has been made to the CAB report which has drawn attention to the fact that water bill problems are increasing faster than any other single type of debt. So one must consider not only why the charges should be rising so fast but also whether there are adequate social security provisions to safeguard those who are least able to afford them but who must have the use of water, as must everybody.

Ofwat is to be congratulated on the debate which it stimulated among consumers about some kind of trade-off between quality and price. It drew the basic issue out into the open: do we want large sums to be spent on continually improving the quality of water, or do we feel that price is more important and that we can make do with a lower quality of water? The unfortunate point about domestic water in particular is that we have to have the same quality whatever use we make of it. It would be very much better if we could have a very high grade tap water for drinking—eau potable, as they say in France—and a lower grade water for the other more menial domestic tasks which I shall not go into. That would be a sensible arrangement if it were commercially and financially possible. I do not know what the problems would be in doing that but it seems to me that we waste much good quality water.

There is also the question of disconnections, which seem to have risen at an alarming rate—a rise in 1991–92 of 177 per cent. over the previous year. That is very disturbing. It is a matter of grave social concern that so many more households should be deprived of such a basic element as water—or indeed gas or electricity in other cases—because of simple inability to pay. There may be among those who are disconnected people who just refuse to pay, but I am sure we all hope that great care is taken about disconnections. It is a disturbing development.

The question of water metering, to which several noble Lords have referred, is a controversial one. Here again we have the impact of the fact that water is a natural resource which we all have to use and that metering has a different impact on the type of user. In the small household in a highly rated area, metering is a great advantage. If one uses relatively less water and pays more for it on a rateable value basis, then one goes for a meter and one gains. But, in the large household with a low rateable value, metering introduces an considerable burden. If metering is to be introduced I believe that it will have to take account of that issue.

In addition to that we have the question raised by the noble Viscount, Lord Caldecote, on the possible abuse of monopoly. This is a natural monopoly and we have to be very watchful all the time that monopolies are not abused. I was horrified to hear his story about the meter. In this day and age when we are meant to be going for an open market I should have thought that he should have been free to have anyone install the meter so long as it was of an authorised type and did the job. That the local water company should have had a total monopoly and been able to fix any price it liked and prevent him from going outside is entirely wrong. I hope that the Minister will comment on that situation. I am sure that that was not intended in framing the legislation.

Finally, we come to the form of consumer representation. It has been pointed out that, in the case of the water, the consumer representation is an integral part of the regulatory authority, as distinct from what happens in the gas industry, where the consumer body is completely different. This is a point to which a number of noble Lords have referred.

I am interested in consumer bodies, having served on a number in my time. The annual report of Ofwat for 1991 starts with an important phrase from the director general. He says that he has sought to increase the power and influence of consumers". He puts that right at the beginning of the report. The second chapter, which is entitled Protecting the Consumer, demonstrates quite an impressive story. There is no doubt that the consumer protection business is taken seriously. In addition I have looked at one of the individual CSC reports—Thames—which is also an impressive document. The chairman, Mr. Philip Chappell, is someone with whom I have dealt in my time and who may be known to other noble Lords. It is a report which recognises the responsibility the body has to safeguard the consumer interest.

There is no doubt that a good deal is being done to safeguard the consumer within the organisation of Ofwat. But the point of principle still remains. Should it be there? Should there not be a totally independent body? The need for an independent body is supported by the fact that the consumer watchdog or consumer representation body—whatever it may be called—not only has watch over the interests of the consumer vis-á-vis the companies but also vis-á-vis the regulatory bodies. It ought to be in an independent position. Even though so much is being done within Ofwat to safeguard the consumer interest, this question of principle needs to be looked at seriously.

4.46 p.m.

Lord McIntosh of Haringey

My Lords, I echo the gratitude expressed by a number of noble Lords to the noble Lord, Lord Clifford of Chudleigh, for introducing this important subject of debate. Unlike many noble Lords I have no particular experience in the water or sewerage industry but I had the task of speaking from this Dispatch Box on both the Water Bill and the Environmental Protection Bill. Some of the debates—not all of them, by any means—are engraved on my heart. Those who took part in the debates at two or three o'clock in the morning will not readily forget the experience and may even have learnt one or two things from them.

The issue of consumer protection in the water industry and in the other utilities is not one which arises for the first time with privatisation, but it certainly is one which achieves prominence and a sense of urgency when the monopolies become private monopolies as opposed to public monopolies. Even the noble Lord, Lord Crickhowell, who certainly did not emerge as a critic of the existing system, admitted that the market for water will be imperfect. The noble Viscount, Lord Caldecote, from the same Benches, also referred to the monopoly position of the water companies and to the possibilities for abuse. It must be accepted that, although these will always be monopolies, despite was was said by the Government when the Water Bill was being put forward, nevertheless the obligation to have some formal structure for protecting consumers is very much greater when those monopolies have their obligation not to the public interest but to their shareholders.

When we look at the water industry we have to ask ourselves the question: what do consumers actually want? They want quality of water, although the noble Lord, Lord Ezra, made a very good point about whether they want a single quality. Both Ofwat and the Water Services Association have published discussion documents on the issue of whether consumers of water really want the very high standards of elimination of impurities which are being imposed by the European Community. That debate will continue. Consumers want a full range of services to be available at all times of the day and night, including in rural areas. Those can be generally accepted to have been maintained under privatisation.

Consumers want social policies to be right; in other words, in particular, they want to see an avoidance of the very painful experience of disconnection to which a number of noble Lords referred. We must remember that, when there is disconnection, it is not free of charge. The pain that is suffered is not paid for only by the people who are deprived of water. In the end, it becomes a public charge in the sense that something has to be done by the publicly-funded social services. The rising tide of disconnection in water is certainly a matter of concern. It is a matter which plainly concerns the Office of Water Services.

But, above all, what consumers of water want is protection from excessive prices. That is where the introduction of privatisation has really made a difference. In his opening speech, the noble Lord, Lord Clifford, said that the capital return to the water industry is too high. Many noble Lords referred to the fact that it is possible for the water industry to reap the benefits of limited liability and of equity pricing on their shares and yet have no risk whatever. In effect, the Government have guaranteed that water undertakings will not go bankrupt. There is none of the speculative risk which accompanies truly private investment, as the noble Viscount, Lord Caldecote, made clear. In those circumstances, to have a return on capital in the water industry which is higher than the return on capital in the public sector can he achieved only at the expense of water consumers. Unless we have—as I believe we do—a very powerful and determined regulator in the water industry, the consumers will suffer very severely.

There are still a number of other measures which could be carried out to improve the functioning of the consumer protection system in the water industry, even without the issue to which I shall return; namely, the independence of the consumer protection structure. Under any structure, there could well be—and should be, in my view—some provision for a line of complaint directly to the customer services committee, not only after unsuccessful complaint to the undertaker. That matter applies not only in water but also in transport, gas, electricity and so on. If you travel on a London bus or the tube, the way in which London Transport allows the London passengers' committee to advertise is noticeable. Reference is made to "comments" or "suggestions". The word "complaint" itself is taboo on the buses or on the tube. That is clearly designed to minimise meaningful objection by consumers.

I do not see why we should not have what exists in many parts of the United States—a system of public hearings. In Wisconsin the Public Services Commission holds public hearings at which there can be attack on proposals for increased tariffs by utilities. The utilities have to defend their position and the commission takes a view at the end of those public hearings. It has never been clear to me why the Government resisted that suggestion when I made it during the passage of the Water Bill.

Above all, there is the issue of the price of return on capital. Again, the noble Lord, Lord Crickhowell, is very satisfied with the present situation. All the same, it is extraordinary. What we have is statutory protection for the water undertakings to carry out the investment which they need and which they can justify to the regulator at a price which they can justify to the regulator. I admit all of that. However, they carry out that investment directly at the cost of current charges to consumers. That is a very curious concept and one which would not really find acceptance in private industry where, normally, you would expect to fund capital investment by borrowing rather than simply through the ability to raise prices on a current basis to the consumers. It does not just raise the issue of a difference between phoney market mechanisms, which is what we have in the water industry. It also raises major issues of inter-generational equity between us and our descendants and, in due course, between our descendants and us. In all of those cases, I suggest that the current regulatory framework for setting prices is more fundamentally wrong than even the Office of Water Services is prepared to accept.

As many noble Lords have pointed out, the crux of the matter so far as concerns the water industry is the role of the regulator. Nothing that I say—and, indeed, nothing that any noble Lord has said—has been in criticism of the activities of the present Director General of Water Services. His reports and his activities have been quoted with approval. I share that view. I believe that Mr. Byatt is making a conscious, deliberate and largely successful effort to overcome the difficulties which arise form the statutory provision that consumer customer services commit-tees are under the control of the regulator. But the fundamental principle is still sound: the role of the regulator ought to be to hold the balance between the consumer and the water undertakings. What he is required to do is both hold the balance and protect the consumers. There is a fundamental inconsistency there.

Therefore, with the noble Lady, Lady Kinloss, the noble Lords, Lord Allen and Lord Ezra, and with others, I, too, believe that consumer protection in the water industry ought to be independent of the regulator—that is, even the best regulator—and should be more like the Gas Consumers' Council. We have had a worthwhile debate. I am glad to have had an opportunity to contribute in a small way.

4.56 p.m.

Lord Strathclyde

My Lords, I should like to begin by congratulating and thanking the noble Lord, Lord Clifford of Chudleigh, for drawing the attention of the House to the question of consumer representation in the water industry. I thought that he made a very good speech, as did all noble Lords. Indeed, I think the House will agree that what we lacked in quantity we made up in quality. I am especially glad that my noble friend Lord Crickhowell, who made an excellent speech, is present today, not least because of his great experience and technical knowledge of the water industry.

Clearly, the main event over the past decade has been privatisation. That has provided the spur to better opportunities to raise investment income and plan for the long term and has led to efficiency savings and improvement in services beyond that which would have been possible within the restrictions of the public sector with its competing interests and political interference. Privatisation of the water industry has proven to be a huge success, and the improvements made in the water industry are real.

Today's debate is about the role of the consumer and his representation. In many industries, consumers are automatically represented through their freedom to choose whether or not to buy a product or to make use of a service being offered. It is that very freedom to choose which is the basis of a market economy, and the efficiency and quality incentives which that provides were among a number of compelling reasons that persuaded the Government to privatise the utilities.

When that happened to the water industry, it was recognised that it was, to an extent, a natural monopoly but one which could equally benefit from the disciplines of the private sector. Because it was a natural monopoly, one of our primary concerns was to ensure the representation and the protection of the interests of consumers. I am sure we all agree that it is especially important for there to he clear lines of responsibility for the protection of consumers. We achieved that through the regulatory system which we established. Its purpose was to ensure that the industry could be monitored properly and that standards paid for were met, with full accountability to those who ultimately foot the bill.

In the 1970s there was a decline in investment in the water industry because of a squeeze on the economy which affected all public sector spending. The need for public sector spending restraint in later years meant that while it was in the public sector the industry could never have hoped to carry out the massive programme of investment which is now under way. Privatisation has released the water industry from the inevitable conflict with other government spending priorities. It has improved the economy of delivery and provided the means to invest in much needed renewal of infrastructure and to meet new environmental standards which we all want.

The noble Lords, Lord Clifford and Lord McIntosh, talked about capital restructuring and the debt write-off. The capital restructuring of the water and sewerage companies was necessary to encourage shareholders to take on the burden of those companies. It is the shareholder who takes the risk. The customers pay for the services that they receive. It is the shareholders who have the use of the assets to provide the services, but if they ever lose their licences, they also lose the assets. The key point must be that the services are supplied to the customer as efficiently as possible and without interruption. It is up to the Director General of Ofwat—I was glad to hear so many noble Lords congratulate him on the work that he does—to endeavour to achieve cheapness of delivery without interruption at minimum cost to the consumer.

Perhaps I may touch briefly upon a point raised by the noble Lord, Lord Ezra, who talked about the possibility of having a quality differential. The problem, I suspect, would be the huge infrastructure costs of installing new water lines, but it is something which needs to be discussed more openly.

During the past few years we have seen massive investment in the industry. It is the consumers who will benefit ultimately from that investment. Consumers will ultimately benefit from the massive investment programme for which the charges limits provide. However, the consumer is not always aware of the reasons for, or the level of, investment, now estimated at £30 billion in the 10 years to the year 2000, or the extent to which standards are being raised. That massive investment is required to meet the drinking water regulations and EC standards for bathing waters and to comply with discharge consents, improve river quality, restore ageing infrastructure and raise levels of service. To that must be added a continual change to requirements as scientific and medical research advances.

Consumers, particularly those on low incomes, are generally and understandably more immediately concerned with the bill coming through their door, the rate at which it is increasing year by year and how it compares with the neighbour's bill. Their anxieties are fuelled by the media's preoccupation with high salaries of company chairmen, directors and senior management, dividends to shareholders, and pollution scares.

The bills are higher, as we knew they must be. The demand for higher standards and improved services and the cost of remedying the under-investment of past years, necessarily mean higher charges. The result is that the average consumer feels vulnerable to the whims of the water companies which can seemingly increase their charges at will.

To ensure specific, independent protection, we needed a new regulator in addition to the newly created National Rivers Authority whose role is essentially to oversee river quality regulation and the continuing Drinking Water Inspectorate. So we appointed the Director General of Water Services whose primary functions are to carry out licensing and financial regulation of the industry and protect the consumer's interest.

The director general's responsibilities range across the whole of the water and sewerage companies' activities from their duties to provide and maintain systems of pipework and treatment works for the supply of water and the removal of sewage to the calculation of individual customers' charges. He exercises those responsibilities in a number of ways. First, the industry's consumers have a right of access to information about their local company's performance and services. On charges, the director general has recently issued a consultation paper, The Cost of Quality, which expresses his concern over possible levels of future increases and aims to ensure that water companies take account of customer views on the quality of service for which the customers are prepared to pay.

Guaranteed standards of service provide consumers with protection on a range of individual matters of concern such as the speed of turn round of inquiries about billing. Failure to achieve those standards entitles the consumer to payments in recognition of the failure and provides the companies with an incentive to improve. The director general has recently proposed extending the existing guaranteed standards scheme regulations to provide improvements for the consumer. Those improvements will include queries being dealt with more quickly; more convenient appointments; and payments or credits when services are affected under certain conditions being extended and increased. Details of the standards are sent annually to every customer.

However, not all consumers will feel that they have been treated fairly by their water or sewerage undertaker. Ten regional customer service committees were set up by the director general specifically to represent consumers' interests and to deal with their complaints. Many of the inquiries they receive are from customers who face difficulty in meeting bills and complain about the unfairness of charging methods. Much work is being undertaken by the CSCs in liaison with the companies to overcome those problems.

I recognise the argument put forward by the noble Lords, Lord Allen of Abbeydale, Lord McIntosh, and many other noble Lords for an independent national council able to campaign on water consumer issues, but I believe that the director general already does that with the help of the committees. They have been operating for two years and have an excellent record of dealing with customer issues and contributing to national debates. I have no reason to believe that the present system is in itself deficient, but I am always open to reasoned argument and evidence which shows that it is.

Lord Ezra

My Lords, on the basic issue, the Minister is right to say that the system works extremely well with the present director general. The anxiety is that a future director general may not be so dedicated to that principle and that there should be some greater structural safeguard for the interest of the consumer than exists under the present regime.

Lord Strathclyde

My Lords, that is the kind of point that could be looked at in the longer term. But, as the noble Lord admitted, the present system does not seem to work too badly.

Perhaps I may now turn to water metering. The noble Lord, Lord Allen, said that it is not a matter that I should take lightly. I hope that he agrees that it is a matter which is not taken lightly by me, the Government or anyone else. It is a serious and important matter for water consumers throughout the country.

Lord Allen of Abbeydale

My Lords, what I said should not be taken lightly was the idea of setting up a body comparable to the Gas Council. I expressed some scepticism about metering; I did not suggest that it should be taken lightly.

Lord Strathclyde

My Lords, I am sorry if I misunderstood the noble Lord. I know that he is worried, as is the noble Lord, Lord Cocks, about metering. Metering is of course only one option for setting charges, but it is potentially the fairest. The director general has raised with the water companies the cost of installing meters. Several companies now operate schemes which reduce that cost or provide for payments to be spread. The cost of installing meters is usually met by the companies, while the customer pays for the meter. At least one company has offered free meters if customers pay for the installation.

The noble Lady, Lady Kinloss, and the noble Lord, Lord Cocks, talked about the hardship aspects of metering. As part of the review carried out it was found that less than 4 per cent. of the sample experienced difficulty. I accept that there will be cases of hardship my department and Ofwat have already indicated that there is a need to seek ways of alleviating such a problem; but, as I said earlier, although metering may not be a panacea, it must be one of the options at which water companies should look between now and the end of the current system in 2000.

Of course, if the consumer believes that he or she has failed to obtain the standard of service to which he or she is entitled, or that there has been unfair treatment in the matter of charges, having involved the company and the customer service committee he or she is entitled to take the case to the director general who is responsible for dealing with any unresolved disputes and who has the statutory duty to protect the consumer's interest.

That brings me to the question of the director general's own accountability. Apart from his or her appointment the director general remains an independent regulator. This is because the water companies are in the private sector and to introduce explicit political control of the regulator could mean that the companies were unduly and unfairly subject to controls which were commercially biased or might ultimately lead to a less satisfactory delivery of water and sewerage services to the consumer. The director general has to answer to the Parliamentary Ombudsman and ultimately the courts. Regulators also appear before Select Committees when asked.

I have concentrated on the water consumer as a customer of the water companies—as the receiver of water and sewerage services—and I realise that I have been unable to give a fuller picture of the work of the other regulators for the customer as consumer; that is, the National Rivers Authority and the Drinking Water Inspectorate, both of which regularly publish reports on their work. The NRA looks after the water environment and has powers to determine the most immediate and practical way to bring about an improvement where water quality in the natural environment falls short of prescribed standards. It also has duties with regard to abstractions from water courses, regulates fisheries and navigation and has flood protection responsibilities. Anyone concerned at any of those issues may telephone their local NRA area office which will deal with the matter, often by sending one of a team of inspectors.

The noble Lord, Lord Clifford, asked about chemical additions to water. As I understand it, the standards covering the chemical composition of drinking water are strictly monitored by the Drinking Water Inspectorate. The standards are set on the basis of the best available research and this research is continuing. We can and do take every account of decisions reached in respectable scientific circles both nationally and internationally.

The noble Lady, Lady Kinloss, asked about bottled water which is subject to different regulations than those applying to public drinking water. Drinking water provided by the water undertakers is regulated to the highest standards and compares favourably in purity with bottled waters. However, to answer the point directly is rather difficult because mineral waters may by definition contain minerals which are not permitted in mains supply drinking water and there is also the question of taste. Tap water has one of the highest standards of purity and I believe that is what most noble Lords would wish.

One area I should mention is the continuing public consultation on the development of water services. At the present time the NRA is consulting on a development strategy for water resources; my department is consulting on water conservation; and Ofwat is seeking views on the affordability and desirability of various proposals relating to quality standards.

In describing the way in which the water customers' interests have been covered I have not lost sight of the fact that the consumer is also in a sense affected by the activities of the companies; for example fell walkers, farmers and holidaymakers on the beaches. I also appreciate that there are certain consumers for whom the cost and quality of service are crucial to their livelihoods as well as to their lives; for example consumers in hotels, residential homes and hospitals. Noble Lords will understand that the range of consumer concerns is very great and that the director general particularly takes account of the specific problems which they pose.

My noble friend Lord Caldecote asked about the transfer of water from region to region, particularly between Kielder reservoir in the north and the reservoirs in the south which have suffered some years of drought. There are areas where interregional transfers already exist but the costs involved in creating the infrastructure to transfer water from Kielder to the south will almost certainly be too great. However, I understand that the British Waterways Board which is responsible for our canal system is working on plans to transfer water from the North West to East Anglia.

I have already mentioned the cost of meters and metering. I should say to my noble friend Lord Caldecote that water meters remain the property of the water companies and therefore they may nominate who installs them. As regards whether the cost is too high, my noble friend may wish to take that matter up with the Director General of Ofwat who, I know, is looking carefully into the whole matter.

My noble friend Lord Hardinge talked about directors' salaries and bonuses. That matter has arisen many times. I hope all noble Lords will agree that those salaries and bonuses are ultimately for the market and shareholders to decide. However, as a Government we have often expressed our concern at large pay rises and at the fact that some companies have set an extremely bad example. We hope that in the future directors will desist from giving themselves such steep pay rises.

My noble friend Lord Hardinge also asked about the Eastbourne Water Company. I shall have to look into that matter further. I hope that I may write to my noble friend. I hope that all noble Lords will agree with me that the arrangements which exist for the representation and protection of water consumers' interests are wide-ranging and effective. They may not in all cases be perfect, but I feel the debate we have had today and the questions that have been raised on consumer representation and the interests of those who may or may not be water metered are paramount in the mind of the Government. Finally, I am grateful to all noble Lords who have spoken in this debate and particularly to the noble Lord, Lord Clifford of Chudleigh, for bringing the matter to our attention.

5.17 p.m.

Lord Clifford of Chudleigh

My Lords, I am grateful for the valuable comments that have been made in this afternoon's debate. We all hope that the Minister and the Secretary of State will take heed of exactly what has been said. Before the Scottish and the Northern Ireland water authorities are possibly privatised there are many lessons to be learnt. Those lessons have been paid for at the cost of the British and Welsh consumer, just as the Scots were the stalking horse for the community charge. Whether or not water authorities are privately operated, it is still Her Majesty's Government's responsibility and elected role to ensure the defence of our shores against both human foes and nature's erosion. Her Majesty's Government must also ensure that the consumer and the taxpayer can afford that essential to life, water. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.