Water Authorities (Return on Assets)

Supplementary Estimates 1985–86 – in the House of Commons at 10:29 pm on 17 December 1985.

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Photo of Dr David Clark Dr David Clark Shadow Minister (Business, Innovation and Skills), Shadow Spokesperson (Education) 10:29, 17 December 1985

I beg to move, That an humble Address be presented to Her Majesty, praying that the Water Authorities (Return on Assets) (No. 2) Order 1985 (S .I., 1985, No. 1805), dated 21st November 1985, a copy of which was laid before this House on 25th November, be annulled. This statutory instrument is quite reprehensible. The Government have clearly exposed in it the weakness of their monetarist approach. In essence, it is a tax on water. That tax has been deplored throughout the length and breadth of the country. We might have been forgiven if we had believed last summer that a tax on water might have solved all of the Government's problems. It is ironic that a Government who are dedicated to tax reductions should tax one of the basic necessities of life.

All hon. Members accept that the basic necessities of life—food and clothing—should not be taxed. Nevertheless, the Government have taxed heat in the form of gas and electricity. One wonders whether they have considered the taxation of air. Indeed, it might come to that eventually.

The statutory instrument might appear to be innocuous. The figures show a rate of return that varies from 1·5 per cent. to 1·73 per cent. Many hon. Members must think that this is a purely notional rate of return. However, the key point, which was so succinctly raised when this issue was debated earlier this year, is: a return on what? Many hon. Members, including Opposition Members, believe that the assets upon which this rate of return is based are false. They are based upon an incorrect accounting procedure. Therefore, 1·5 per cent. to 1·73 per cent. is a very much larger percentage that has to be paid by local authorities to the Exchequer.

The asset figure upon which it is based is not the historic valuation. We are referring to assets which in many cases are over 100 years old. To adopt the current cost accounting procedure as the valuation is a false and incorrect way to handle the issue. We believe that there should be a better way to work out the necessary rate of return.

Opposition Members oppose this concept, but there is wide condemnation of the Government's approach by a very wide sphere of interest, including bodies that are normally the Government's allies. However, increasingly of late I do not believe that the Confederation of British Industry can be counted as one of the Government's closest allies, especially over investment in the infrastructure. The CBI argues, rightly, that the Government's policy will put unnecessary burdens on to the shoulders of industry. As the value of the pound falls and fluctuates, Opposition Members believe that this is not the best time to start to impose additional costs upon industry.

Why are there dire warnings about this order? If one considers the best possible estimate of the effects of the order it is felt that there will be an increase in water charges that ranges between 5 per cent. to 10 per cent. However, most independent assessments predict that the increase will be much nearer 10 per cent. than 5 per cent. This follows a rise of 10 per cent. in the past financial year. It is the declared intention of the Government and the water authorities that increases should not rise faster than the rate of inflation, yet here we have increases that will mean that domestic and industrial water users will be paying a tax direct to the Exchequer. That is a weak way of dealing with the accounting of the water boards. Indeed, the CBI goes as far as to say that it can detract from investment in Britain". It is useful to see what the Government's allies say on this issue. The CBI also states: Whilst … it is essential to control borrowing effectively, the Government's policy of reducing water authority borrowing to zero has the effect of imposing on today's customers the cost of funding not only the provision of existing services but also providing assets which will last far into the future. It is sound business practice to borrow for long-life capital projects and water authorities should be allowed to do this". That is the opinion of the Opposition. Given the outdated infrastructure in much of the water industry—in both the supply and sewerage sectors—it is ridiculous that the borrowing limit for some authorities is to be reduced to almost zero.

The Severn-Trent authority—not exactly an affluent area—is having its borrowing powers reduced to £2·5 million, and the South-West authority to £4 million. The correspondence that I have received from that authority shows that there is a continuing problem of sewage outflow on to the beaches which the authority wants to tackle but is unable so to do. Yet the Government are reducing its ability to borrow money.

If this trend continues the water authorities will be raising considerable amounts of surplus cash for the Exchequer while driving up charges to the users. These target rates of return are inappropriate and inapplicable.

The Water Act required the Government to establish consultative consumer panels. How many of those panels have been consulted, and how many of them support the Government? I have received a letter from the consumer panel for the Northumbrian area, which includes the most depressed part of England, with the highest level of unemployment and industrial inaction. That panel is worried about the effects of the Government's policies, and it writes that any increase in charges has severe repercussions in an already disadvantaged area such as the North East Region and, according to reports in the press, we are again faced with a similar situation this year with a threatened rise of 10 per cent. in charges for Northumbrian Water's consumers". That is against a background of an astronomic rise in water charges during the period of this Government's tutelage. Between 1979 and 1985—in the six years of this Government in power—the average increase has been 105 per cent. In some areas such as Northumbria it has been 137 per cent. That is inflation gone mad. It is time that the Government called off the monetarist approach and helped industries and consumers in areas that have suffered from these massive increases in water charges.

There is a strong feeling that water authorities should not be paying this tax to the Government but that, if there is excess capital, it should be invested in infrastructure to clear up sewage around our coast, for example. We should use the capital to ensure a regular and pure water supply.

It is astonishing that between one quarter and one third of water leaks are from mains pipes. In areas such as Liverpool, more than half of the water is lost before it reaches the consumer. That is wasteful and cannot be tolerated. There could be no more appropriate time than this to debate this order as we had the graphic example of the burst water main in Leeds only last week, when 200,000 homes were without water and people were put to great personal inconvenience.

What happened in Leeds could happen in any of our major industrial towns. The Government have been warned by their own advisers and supporters. If the same happens to other towns, responsibility will lie squarely with the Government. The money should not go to the Exchequer but stay with water authorities to be reinvested in the infrastructure.

The problem with sewage is even worse. I am glad that Environment Ministers are present. What is happening to our rivers is quite scandalous. I can remember the efforts of a Conservative Government in the early 1970s to clean up our rivers. They did an extremely good job and the matter has been pursued by both parties. I am glad to say that it is now possible to catch trout and salmon right up the headstreams of the river Tyne. Since 1979, however, things have changed. In 1984, 709 km of rivers in England and Wales were declared grossly polluted. That is 16 per cent. worse than the figure for 1980. That considerable worsening applies to almost every region. No hon. Member can be proud of it.

The north-west has a widespread problem of poor water quality and low pressures. It has also suffered 600 major sewerage collapses each year. In Merseyside, the Secretary of State for Defence described matters asan affront to the standards of a civilised society". No less than 29 per cent. of Yorkshire's water fails to conform to the EC standard for drinking. That is especially true in the old wool towns of Halifax and Huddersfield. I can vouch for the fact that water often runs brown there.

The Severn-Trent area applied for derogations from EC standards. The Northumbria region is cutting the operational costs of its sewerage works. For example, in 1979, a 21·2 kg of pollution load per person was recorded. That had fallen to just over 16 kg by 1984. There were 21 km of polluted rivers in the northern region in 1979, which was a good record, but there were 36 km in 1984. What happens in these regions could apply to others.

We feel that the Government should be taking the issue seriously. We know that they are trying to put pressure on the water authorities to meet certain operating levels. They are trying to persuade the authorities to sell off their assets, their family silver, as it was so graphically described in another place.

I ask the Minister to give a specific answer to a question which I raised with him when environmental questions were most recently before the House. We understand that in many of the territories of the water authorities in the northern region, especially in the forest of Bowland of the North-West water authority, the moors belonging to the Northumbrian water authority and the moorland in Yorkshire and the Severn-Trent area, and the national parks, there has been de facto access for exercise on foot for generations. When the Minister orders authorities to sell off that land, will he give a guarantee to the House that he will ensure that the people from the northern industrial cities and from elsewhere will continue to have the right of access and exercise, which they have had for generations, without them having to prove 20 years' unchallenged access to retain it? I understand that the Government's ultimate objective is to privatise the water industry. I wonder whether the Minister will confirm that. Will he bear in mind the comment of the CBI, which supports the Government's water privatisation plan? The CBI concludes that in the meantime boards of water authorities should be allowed greater freedom to manage their affairs, especially their pricing, financing and investment.

I look forward to hearing the Minister justifying this preposterous tax to those outside, to my right hon. Friends and to 34 Conservative Members who signed early-day motion 129, which calls upon the Government not to impose a tax on water. That is a view with which we concur and I urge the Government not to press ahead with this preposterous tax.

Photo of Mr John Patten Mr John Patten , Oxford West and Abingdon 10:48, 17 December 1985

No one inside or outside the House much likes paying bills. The payment of water bills seems to excite more controversy and upset than most other payments. That is largely because water seems to be a free item. Although it recycles itself endlessly, it costs a fair amount to purify and deliver, but the public seem to resent paying much for it. That is a feeling that runs deep. They resent even more having to pay for sewerage. Alas and alack, it is difficult and costly to deliver sometimes in some areas, and it has to be paid for. Sewage is hard to get rid of sometimes. The hon. Member for South Shields (Dr. Clark) has rightly referred to the considerable task that faces us in the delivery of high-quality water, which is one of our aims. We aim also to get rid of lead from water by 1989 and to improve the standard of bathing water around our shores.

The rationale for seeking to improve the return on assets earned by the water authorities which deliver the water, get rid of the sewage, protect our coasts and look after land drainage, was brilliantly, clearly and explicitly set out in the admirable speech of my predecessor, my hon. Friend the Member for Eastbourne (Mr. Gow), in February. I recommend his speech to anyone who is interested in this critical issue. I particularly draw the attention of the House to his use of an excellent letter by Dr. Johannes Witteween in 1976 when the International Monetary Fund was called in to the country. My hon. Friend pointed out in his speech in February two intentions that lay behind the rate of return order. They remain the same today—first, to increase the investment that water authorities can make and, secondly, to do so with less public sector borrowing. I was pleased to note that when the chairman of Thames water announced his financial results for the first half of the year up to the year ending 30 September 1985, he took credit for the improvement in his authority's financial position, which has been to a large extent the result of those policies. Mr. Watts says that between September 1984 and September 1985 the authority repaid £50 million of its outstanding loans, so that it is on track to meet all its financial targets for the current year. That is a significant statement by the chairman of Thames water.

I want to look at the general picture, the rates of return and their relationship with investment, which was referred to by the hon. Member for South Shields. I know that that will interest many of my right hon. and hon. Friends. It will be noted that the order laid on 25 November specifies rates of return which are, on average, a little lower than those predicted at the time of the speech of my hon. Friend the Member for Eastbourne. We have found it possible to set a lower average rate of return—about 1·6 per cent. for 1986–87—and at the same time fund a higher level of investment than we thought was possible earlier in the year, without increasing the planned borrowing figure. That is a significant improvement.

We do not just expect, we know, that next year investment in the water industry, in water supply and sewerage, will reach a record level. Never in the history of the water industry will so much money be invested as in 1986–87 —about £900 million. It will soon be £1 billion a year. We have moderated the financial target. That will have an effect on the charges that we can expect. At the same time we have made it possible significantly to increase the levels of investment in water delivery, sewerage, flood protection, land drainage, coastal protection and the improvement in water quality, which is the concern of my hon. Friend the Minister of State for Environment, Countryside and Local Government.

It is significant to realise that the increases in capital investment in the infrastructure of the water industry are part and parcel of an across-the-board increase in investment in infrastructure announced in the autumn statement by my right hon. Friend the Chancellor of the Exchequer. There will be more money for housing, roads, hospital construction and renovation and also more money for water investment and sewerage investment.

As a result of the better-than-expected picture, we are able to set a lower than expected average rate of return. Water charges are likely to increase less than we expected six or seven months ago—by about 8 per cent. Water investment will increase by rather more—about 10 per cent. That is a considerable sum.

I have no doubt that that improvement will be welcomed by hon. Members on both sides of the House and by water consumers everywhere. I hope that it will be. The figures that I have given are, of course, national averages. They will vary regionally. I have good news for the hon. Member for South Shields. Northumbria Water will not find it too difficult to keep its charges this year close to the going rate of inflation. That is different from the gloomy picture that the hon. Gentleman gave us in his speech, and the predictions by his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) last year, when he said that Thames Water would impose a 30 per cent. increase in charges over three years. By how much is it increasing its charges this year? By 3 per cent. That is rather a different picture.

Even the South-West water authority, about which my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) is concerned, expects to increase its water rate by between 6 and 7 per cent. and at the same time substantially to increase the amount of investment that it hopes to make in that year to about £40 million overall. Nowhere in the country do I expect any water authority to have to raise prices by a full 10 per cent., although I expect that some will come close to it.

Efficiency improvements are helping to limit the charges that are necessary. I pay tribute to the water authorities and their chairmen for the substantial increases in efficiency and improvements in producitivity and manpower levels that they have achieved. That is so different from what we inherited in 1979.

Next year we shall review the water authorities' financial targets and their investment and borrowing requirements before decisions are taken in respect of 1987–28 and subsequent years. We are also seriously considering the prospects for privatisation.

I answer the final question asked by the hon. Member for South Shields. Privatisation would mean reviewing every aspect of water authorities' finances. I note that no fewer than 70 of my discerning right hon. and hon. Friends have subscribed to an amendment to early-day motion 176, in support of privatisation. It is interesting to learn of that support from Conservative Members. The Government will note the strength of feeling reflected in that amendment to the early-day motion.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

In the past, profits have been made from the supply of water—indeed, that still occurs in some places. Does the Minister agree that profits have never been made from the transfer and disposal of sewage? As he is now taxing sewage disposal by way of contribution to the Consolidated Fund, whereas before the Consolidated Fund assisted sewage disposal, what is the philosophical reason for getting private profits from the disposal of sewage?

Photo of Mr John Patten Mr John Patten , Oxford West and Abingdon

I am no philosopher, just a simple politician. [Interruption.] I welcome the support of my right hon. and hon. Friends.

Should water privatisation go ahead, the integrated river basin management system would be vital. That system is one of this country's great achievements. It means water in and water out, water supplied, and sewage out. People who might be interested in the [Interruption.] If the hon. Member for Newcastle-under-Lyme (Mr. Golding) wishes to interrupt from a sedentary position or intervene from an upright position to talk about the angling issues which I know concern him, I shall give way. In the meantime, I should like to finish my non-philosophical and entirely pragmatic response to the hon. Member for Newham, South (Mr. Spearing).

Should any water authority be privatised at any stage in future, those people seeking to purchase any water authority will have to weigh the benefits of the sale of water and other services against the disbenefits of having to provide sewerage and other services. I shall give way to the hon. Member for Newcastle-under-Lyme. I expect it is on the angling issue.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

No. May I draw the Minister's attention to the look of shock and horror on the face of his right hon. Friend the Secretary of State and his hon. Friend the Minister for Environment. Countryside and Local Government when he referred to the cleaning of rivers as one of the great achievements. It was their expressions that amused me. It would be better if the Minister spoke with a mirror on a stick so that he could see the reaction on his side of the Chamber.

Photo of Mr John Patten Mr John Patten , Oxford West and Abingdon

I now understand what my right hon. Friend the Secretary of State for the Environment meant when he said that it was an interesting experience to serve for many hours with the hon. Gentleman in Standing Committee on the British Telecommunications Bill. I hope that he will forgive me if I do not give way to him again during the course of my speech.

The hon. Member for South Shields asked four questions. First, he asked about footpaths. I understand how important it is in the lives of people in an industrial or any urban centre, south or north, to get out into the country. Fabian fell walking is also very much part of Labour party tradition and we do not want to do anything to get in the way of that. I can tell the hon. Gentleman that water authorities which dispose of their lands will dispose of them with whatever rights of access the public may already have. I hope that the hon. Gentleman will accept that. Rather than debating the issue across the Dispatch Box now, I would prefer to write him a long letter setting all this out in some detail in an attempt to satisfy him. I have given the assurance that I have given in carefully worded terms and if it is wrong there will be all hell to pay for the people who wrote it.

Photo of Dr David Clark Dr David Clark Shadow Minister (Business, Innovation and Skills), Shadow Spokesperson (Education)

I am grateful to the Minister for giving way and I shall not trespass on his time. We are not only talking about footpaths but about de facto access. As he has guaranteed us that access, I know that everyone will be grateful for that gesture.

Photo of Mr John Patten Mr John Patten , Oxford West and Abingdon

The hon. Gentleman had better listen again to these carefully composed words. Water authorities which dispose of their lands will dispose of them with whatever rights of access—"rights" is rather different from de facto access, as the hon. Gentleman will doubtless accept—the public may have.

Secondly, let me deal with back-door taxation. There is nothing wrong at all with a rate of return of between 1 and 2 per cent. on water industry assets. Any business would expect to earn considerably more. Water authority debt is pretty formidable at the moment. It is about £4·5 billion. Interest charges take up no less than a quarter of all revenue from customers. That is a high percentage. Few businesses would be happy with that sort of interest burden. Some authorities have started to repay past debts, thereby reducing their interest rate liabilities. That strikes me as good husbandry and sound management.

The hon. Gentleman's third question related to current cost accounting. I know that that is a somewhat controversial issue. I am no accountant by training. The pros and cons were set out in the speech by my hon. Friend the Member for Eastbourne earlier this year in February and I can do no better than repeat what he had to say then on why we think that historic cost accounting has a couple of weaknesses.

The first reason is that it fails to reflect the effect of inflation on the value of assets whose lives can exceed 100 years, which are still doing valuable service and which have to be replaced. Secondly, we must somehow take into account the fact that in 1973 significant numbers of assets were transferred to the new water authorities at zero value. The 18th report of the Committee of Public Accounts, published earlier this year, commented in an interesting way on the monitoring and control of water authorities and explicitly endorsed the employment of current cost accounting in setting financial targets for the industry. It is an important debate, which we shall probably never resolve. I would not claim that this or any other Government have yet found the exact fair mechanism for charging for water and all related services. We have simply tried to do the best we could within the current cost framework.

Fourthly, I shall say a word about Leeds. There has been a great deal of concern about the loss of water supply in Leeds during the past week. We were lucky that we had the Army prepared and ready to go in to Leeds to do such sterling service. My right hon. Friend the Minister of State for the Armed Forces was in Leeds on Friday. Events there are now under control and there are no substantial problems. I commend the co-operation of all the agencies and recognise the long hours worked by the staff of the water authority, the fire service and the Army, who came in at short notice.

The burst was unusually severe, but the hon. Gentleman should be a little more cautious before he says, "Water mains burst in Leeds equals the proving of the case that there is under-investment in the water industry." That is simply not the case. The chairman of the Yorkshire water authority, who is holding a full inquiry into the matter, said that the cause of the burst may have been earth movements construction work or all sorts of other possibilities. It is wrong to pick an example of one major burst and suggest that that proves that there is not sufficient investment.

I do not want to indulge in across-the-Dispatch-Box discussions about records—indeed, that would be fruitless now that we have been in government for six and a half years. We take pride in what we have done. During those six and a half years, we have increased investment in the water industry by 30 per cent. in real terms, taking into account inflation, which compares favourably with the 50 per cent. cut imposed by the last Labour Government. By all means help the debate about infrastructure, but be a little cautious before taking on the Government on their record. We have increased investment while the last Labour Government cut investment.

The order is a further step in the progress of our policy of strengthening the water authorities so that they can discharge their responsibilities to the public effectively and cheaply. The industry is no longer a poor relation of local government, and everyone recognises that. Its reorganisation in 1974 on the basis of river basins has provided the right technical framework. With our encouragement, it now has sound finance and competent, commercially orientated management. I hope to see the day when this evolution can take a step forward and the authorities will have the benefit of being set free to serve the public as independent viable businesses in their own right.

11·8 pm

Photo of Mr Bill O'Brien Mr Bill O'Brien , Normanton

The Minister should make inquiries about what people think of the charges being imposed upon water consumers because of the taxes that the Government are imposing upon water authorities. The wrath expressed last year demonstrated the general feeling about that, which has been demonstrated again this year.

We must remember that a number of people on fixed incomes and pensions will suffer the most from the 10 per cent. increase in charges that faces 4·5 million people in Yorkshire. Those in the lower income group and with lower rateable value properties will, because of standing charges, face an increase in excess of 10 per cent. The Minister should have regard to this imposition on water authorities.

The debate was initiated because of the impact of the Government's financial policy on water charges this year. The Minister has confirmed that current charges will range from between 5 per cent. and 10 per cent., but in many cases the charge could be more. In addition to the pensioners and those on fixed incomes, the working poor, who have to rely on Government incentives to take low-paid jobs, will suffer the greatest hardship. My hon. Friend the Member for South Shields (Dr. Clark) said that the increase in water charges, which is greater than the increase in inflation, will not be welcomed by consumers. It will not be welcome in any budget, especially that of industry.

In Yorkshire, the food processing, chemical, textile, paper and brewing industries will be hit especially hard. The fact that the increase in water charges will be higher than the increase in inflation does nothing to sustain the shrine at which the Government worship. The increase of 10 per cent.—more, in some cases—will hit industries in Yorkshire in particular and throughout Britain in general.

The CBI, which usually rallies behind the Government, has said that the high water charges, in addition to the charges for other services, such as gas and electricity, will have adverse effects on international competitiveness and might detract from investment in Britain. I hope that the Government will have regard to such statements. I believe that it is generally accepted by hon. Members and those outside that the Government are proposing a tax on water and sewerage. If we are to be honest with the consumers, we should make that point abundantly clear. The Government are taxing by the back door. Industry will have to pay the greatest amount of tax. The Government's policy of reducing water authorities' borrowing to zero will impose on consumers the cost not only of funding existing services but of providing assets that will last far into the future. The CBI has said that it is sound business practice to borrow for long-life capital projects and that water authorities should be allowed to do so. The Minister has said that any sound business organisation would take certain action in certain circumstances. He should note that that is the advice that business people give to the Government. Industrialists say that it is sound policy to borrow for long-term projects.

We still have private water companies. What would be said if they wished to impose a 10 to 12 per cent. increase? Would they be accused of acting illegally? Here we have public water authorities imposing extra charges on consumers. There could be said to be double standards, with one set for customers of private water authorities, and another for customers of public water authorities.

My hon. Friend the Member for South Shields said that two authorities would this year have their borrowing reduced to zero. He referred to the Severn-Trent and the South-West authorities. It seems that the Southern authority will not be permitted to borrow at all, while the Thames authority will be required to raise £85 million more than it requires to cover all its outgoings, including its capital investment programme.

I have with me the report of the consumer consultative committee for the Thames water authority—the report related to the corporate plan for 1984—in which the committee came out firmly in support of that authority's policy and against the Government's policy of imposing financial targets at a level leading to the premature repayment of debt. One member of the consultative committee argued that investment was more important than the early repayment of debt. While, on the one hand, the Minister holds up Government policy as an example of the way in which water authorities should operate, on the other, the body representing water consumers in the Thames area is against Government policy.

It is right to ask what support the Government have received for their policy from consumer consultative committees. I have checked with the four consumer bodies in Yorkshire, especially about the Government's pricing policy for water authorities, and it is clear that the consumers have no support for the Government.

I recently asked the Minister to explain the procedure if consumers made representations through a local consultative committee—remembering that no consumer can now attend water authority meetings—to the local water authority and the matter could not be resolved. Replying, the Minister told me that in the event of a stalemate, the complainant would have the right to complain to the local ombudsman.

In asking that question, I was not concerned with maladministration but with the whole issue of pricing and consumer complaints. After all, a consumer would not need to go through the consultative committee procedure to approach the local ombudsman. I take it from the Minister's reply, therefore, that, as constituted, consultative committees have no real responsibilities. They exist in name only. They have no power or authority. I hope that something will be done to ensure that consumers are properly represented. If the consultative committees are not operating successfully water authority meetings should be open to allow the public to attend and see what is taking place.

It is claimed that the water authorities should be allowed greater freedom to manage their affairs, in particular, with regard to their pricing, financing and investment policies. That was one of the principles and intentions of the Water Act, 1983. I hope that the Minister will accept that water authorities should have greater freedom.

My hon. Friend the Member for South Shields said that there was wide interest in and objection to the Government's water pricing policy. That is reflected by the number of organisations and individuals who oppose the extra taxes being imposed upon water authorities.

The Minister referred to the incident in Leeds. I represent part of Leeds and that incident plainly aroused a great deal of interest. The Minister said that Mr. Jones, the chairman of the Yorkshire water authority, has instigated an internal inquiry. Should there not be a public inquiry into such an occurrence? My hon. Friend the Member for South Shields said that there is a danger that the Leeds incident is the first of a number that could occur because of the age of the assets and the way that water authorities have to make do with them.

The chairman of the Yorkshire water authority has more than once asked that the authority be allowed to borrow more money to solve the problems that are developing with water and sewage pipes. What would happen if a major sewage pipe fractured? The position would he much more serious and the problem would be much worse than what happened in Leeds. That is why something must be done to improve capital expenditure on such major assets.

I hope that the Minister will take note of the problems that exist. It is no use burying our heads in the political sand and saying that the problems do not exist. They do. I hope that the chairman of the Yorkshire water authority will allow every word of the inquiry's findings to be made public. If not, I shall be asking for a public inquiry.

Reference has also been made to the amount of water going to waste. In some places, 25 to 30 per cent. of the water pumped at source goes to waste before it reaches the consumer. That is because many of the pipes are like sieves. They want replacing. Water authorities are asking to be allowed to replace them by borrowing money or financing the repairs from capital.

I make the point which I have made more than once—I also made it in the Public Accounts Committee—that domestic consumers pay twice for waste water. We could save 25 per cent. of the cost of energy used to pump and raise water from the ground or reservoirs if we could arrest the waste of water. I hope that the Minister will take that important point on board.

Finally, water authorities have said that they oppose privatisation [HON. MEMBERS: "Which authorities?"] Yorkshire water authority and others, and consumer organisations are on record as saying that they oppose privatisation. If the Minister has not seen the records, they can be provided. At this time last year only Thames water authority said that privatisation should be considered, while the rest suggested that it would not be in the best interests of the industry. If the Minister is not aware of that, he should take on board some of the reports of consumer consultative bodies in the various water authority areas. Some water authority members are speaking plainly against privatisation.

The Minister did not refer to the glaring question of meters. In view of the report, I would have expected—

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

The hon. Member is going a little wide of the order. He should stick to the return on the assets of the industry.

Photo of Mr Bill O'Brien Mr Bill O'Brien , Normanton

This is important to the return on the assets because, if meters are installed, they must be financed. The report suggests that there should be experimental areas, which, if the report is implemented, must be financed. Therefore, it is important that the Minister makes a statement tonight on that subject. Any decision about the financial provisions of water authorities will influence that. As no statement was made, I doubt the validity of the report that the press suggest is now available. For that reason that subject is relevant to our debate and I appeal to the Minister to comment on it. Millions of people, some of whom are in favour and some of whom are against metering, will be affected.

I remind that Minister that 4·5 million people in Yorkshire will follow tonight's discussion. Last year they faced up to a 15 per cent. increase in water charges, and it will be the same again this year. That is far above the rate of inflation. If increases are caused by inflation, the level of water charge increases throughout the country should be at the inflation rate.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton 11:28, 17 December 1985

Some hon. Members will remember that this is not the first time that I have disagreed with my Front Bench on water charges. I have listened with interest to the Opposition Front Bench, and it would be complete hypocrisy if the Opposition did not carry their prayer to a Division tonight, which I presume they will do.

We are faced with increases in charges in excess of inflation. The inflation rate is about 5·5 per cent. Moreover, there is no rebate on the charges for people with small incomes, as there was prior to 1973. This is a form of taxation which is imposed behind closed doors by the water authorities, and the Government are imposing a rate of return which no business, however businesslike, would conceive of practising on the basis of a real valuation of its so-called assets. Mile after mile of rotten pipes leak like a sieve and stain the water so that people cannot even wash clothes in it. The book value that such nonsense has is then expected to give a return that may look deceptively modest when we see the figures in the order.

My hon. Friend the Minister has not given any reason for the disparities in the rates of return that he wants the House to pray against, such as the South-West water authority, together with Northumberland, at 1·73, compared with 1·5 in the north-west, when much of the provision that the south-west has to make is for the rest of the country coming on holiday in a dry season, in terms of water collection. That is why there was a rate equalisation system for water charges from the previous Administration across the country.

We now have water authorities alternatively exhorted to behave as if they are businesses and then forbidden to do so. No business would use current earnings for a capital investment programme of the kind necessary to replace the rotten water distribution system. [Interruption.] If there is zero borrowing, one does it either out of current earnings or not at all—unless my hon. Friend is suggesting that it should not be done at all.

Photo of Mr Richard Holt Mr Richard Holt , Langbaurgh

On a point of order, Mr. Deputy Speaker. I did not say a word.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

Unless he is suggesting that, that is what one would have to do.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

My hon. Friend was speaking from a sedentary position, even if he did not realise it.

Photo of Mr Richard Holt Mr Richard Holt , Langbaurgh

On a point of order, Mr. Deputy Speaker. I find it wrong that any hon. Member should attack another hon. Member for speaking when he has not said a word.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

I withdraw what I said, although I did not name my hon. Friend. Another of my hon. Friends spoke. However, if my hon. Friend the Member for Langbaurgh (Mr. Holt) chooses to wear the cap, he is entitled to.

No business operating as a business would replace long-life capital assets of this kind on zero borrowing. The Government Front Bench should make up its mind whether it wishes the water authorities to behave as a business would behave or not.

It is not just the provision of water or the clearing away of sewage, not just the checking of the coast line and flood prevention on water courses that are involved. Other facilities provided by the water authorities are outside their statutory duty but within their statutory competence. Those are not business decisions but fairly political decisions, but the public are not admitted to the meetings at which they are taken. If my hon. Friend the Minister feels that I might have taken that view rather earlier. I can point out that I voted for an amendment when the Bill was going through the House to the effect that the public should be present.

The order will raise personal costs and industrial costs by more than they need to be raised. The water-consuming industries, which are often found in peripheral areas, often have major cost drawbacks anyway, because they are by definition at a considerable distance from their market. Therefore, they have high transport costs. If I may have the ear of my hon. Friend the Minister for Housing, Urban Affairs and Construction—

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

—I shall draw to his attention the fact that the paper industry is in fierce competition with both European Community countries and those countries that were members of the European Free Trade Association where there are still cross-trade barrier permissions that put our industry at a severe disadvantage. The Government are powerless to remedy that. However, having ensured that, compared with our continental competitors some of the energy price disparities have been reduced so that in many cases energy costs are now comparable, the Government must not bump up water charges, which would mean that those industries that need to use a lot of water, or that need to make use of a lot water and then return it to their productive processes, are rendered uncompetitive yet again.

For those reasons, as well as many others that hon. Members may wish to deploy in the short time remaining for this debate, I shall vote for the prayer.

Photo of Simon Hughes Simon Hughes Shadow Spokesperson (Environment, Food and Rural Affairs) 11:36, 17 December 1985

Tonight's events show that we have not quite done away with the controversy in February when the matter was last before the House. The hon. Member for Eastbourne (Mr. Gow) who is, as it were, the shadow behind tonight's proceedings was then exposed to what can only be described as an attack from all sides. He would probably have been exposed to even greater attack had the matter not been delayed for some months while palliative measures were discussed. The underlying reasons for that attack remain. Although matters have moved on a little, valid objections remain and I want to allude briefly to them.

I share many of the views of the hon. Member for Tiverton (Mr. Maxwell-Hyslop). We are dealing with a form of taxation that has been arrived at in secret by authorities appointed by the Minister. For obvious historical reasons, people find this particularly objectionable. This has happened at a time when we need greater investment in the water industry because its assets are coming increasingly quickly to the end of their useful life. In many cases they are now between 60 and 100 years old, and increasingly they are leaking. The industry says that it wants to put the matter right and to do a good job. It has never acceded to the Government's view that it is appropriate that the Government should impose an additional return on assets requirement.

The fundamental objection is that the money that is to be raised from the consumer, which is always raised with some reluctance, should be translated directly into the Treasury coffers to deal with the general economic policy of the Government instead of being applied to the needs of the water industry, which are as great as those of any other part of the infrastructure.

The Minister did not deal with the fact that lying behind all this is the spectre of privatisation. It is well known that the Government are contemplating privatisation, and it is apparent from the Minister's reply that the Government are seeking to increase the appeal of the industry so that it will be easier to hive it off. However, they are reducing the industry's ability to carry out urgent tasks. May I remind the Minister of what I understand the Water Authorities Association would most like in terms of a water policy, because some of the things that the Minister hinted at do not quite deliver the goods. First, they want a system of proper objectives to motivate not only chairmen but also all officers and employees, so that—

Photo of Simon Hughes Simon Hughes Shadow Spokesperson (Environment, Food and Rural Affairs)

Perhaps the hon. Gentleman will allow me to make another related point so that he can deal with them together. The authorities need objectives that reveal themselves in terms of financial planning.

This order is the second of a series, of which last year's was the breakthrough first order. None the less, from what the Minister has said, there is no clear planning basis for the figures for the coming years. The industry wants to simplify its system and to reduce Government interference and imposition so that it can reduce its charges. It also wants a series of targets for more than one year ahead, yet the Minister avoided doing just that. The industry would like targets for three years, but the Minister has not done that because before they are up he anticipates privatisation—there is no secret about that and his gestures suggest it—even though that is not the necessary conclusion of the road down which we are going. In any event, it is not the only helpful way of assisting the industry.

Irrespective of the Government's privatisation plans, with which I disagree, it would be helpful if the targets were spelled out now so that the water industry can see what is required of it and plan accordingly.

The industry would also like to have flexibility in raising finance. It does not want to charge the substantial increases that it is now being forced to charge. In some areas that was 10 per cent. last year and 10 per cent. this year. That is way above the rate of inflation, and it imposes an additional, severe burden with no rebate for those who are often the least able to pay. Although this is not an enormous part of a person's budget, it is a substantial and relevant part. It is taxation above the rate of inflation with no parallel increase in the service provided.

I understand that the chairman of the Thames water authority is an advocate and supporter of privatisation, but last year he complained vociferously about the Government's imposition of these targets. He would argue that his authority's operating costs are largely fixed, that it has a large revenue base, that it has done a lot to reduce costs and that it is not necessary for the Government to require this return on assets.

There are also problems for the Welsh water authority because of the difficulty of marrying the effect of the return on assets order with the attempts to make the system more just as between the high-rated and low-rated authorities. That results in a double imposition.

Equally, other regions are concerned that present policy means that they are not able to obtain proper expenditure, given this imposed additional taxation. The North-West water authority is among them, and I understand that it has tried to get the rate of return reduced because it does not believe that charges—14 per cent. last year, of which 9 per cent. was due entirely to this order—should be increased by anything like that amount this year.

Given that there is such a clawback of money for the Revenue, one must ask whether the use to which it is put is justifiable. That brings me to a specific point about the North-West water authority's liability for the victims of the Abbeystead pumping station disaster. The Minister will be aware that the explosion last May resulted in substantial loss of life, including three employees of the water authority and injury to many others. Every hope has been given that some of the water authority's assets would be used to alleviate the pain and suffering of the victims. So far, however, they have had only £20,000—£10,000 from the North-West water authority almost immediately and another £10,000 last week.

The Department of Employment Minister who went up to St. Michael's in Lancashire on behalf of the Government said that it seemed that the water authority was liable, as it would have been liable even if a tramp had been blown up while asleep on the authority's premises. Parliamentary answers to questions properly asked by Lancashire Members of Parliament have made it clear that Government funds were available. I do not mind who pays, but there have been precedents such as Bradford and Brussels, which could come to the rescue now to meet the hardship of those who are suffering.

The latest estimate is that the first realistic date at which to expect court money is next year. The Minister replied to a question asked by my right hon. Friend the Leader of the Liberal party recently, so he will know that the families of the victims are impatient. The water authority has substantial assets and it has been said that the funds for compensation exist, but no money is forthcoming. It is just this type of failure to use assets at times of need which justifies complaint. I hope that the Minister will direct attention to that case to achieve a satisfactory result before the end of the court case.

I hope also that the needs of the old and others who find water charges an imposition will be met. That can be achieved only by the Government reducing their charges. The water industry should be allowed to assess what it needs and impose charges accordingly. The Government should not tighten the screw by adding to charges which consumers cannot control because those who make the decisions are not accountable to them.

Photo of Mr Roger Freeman Mr Roger Freeman , Kettering 11:47, 17 December 1985

I accept the order because, in present circumstances, it presents an acceptable balance between raising finance for capital investment from the revenue cash flow of the industry, which is what a return on assets is all about, and the external financing limits in aggregate, which is what the public expenditure White Paper is all about.

There are three developments, however, which should give the House cause for some optimism, that we will not have to consider such orders in the future. The three developments are directly relevant to the order because it is about financing capital investment. The first is the new development in Anglian Water—my region—of the introduction of private capital at Flag Fen. Introducing private capital through franchising or joint venture obviates the need for capital investment financed through the PSBR. I hope that my hon. Friend the Minister will pursue that important development in conjunction with the Treasury.

The second development applies in the medium term. I am a strong supporter of privatisation and hope that it comes in region by region. There are many private water authorities and it is perfectly reasonable to privatise each of the major water authorities one by one and for them to operate under regulation just as many hundreds already do.

The third development is metering. We have recently received the report of the Watts committee. Compulsory residential metering would reduce demand by perhaps 10 or 15 per cent. and therefore obviate capital investment in some authority areas. That means that an authority may not need to raise finance for investment in new reservoirs. The second important value of residential metering is that it is important as a matter of equity.

In the long run, we are all in favour of permitting the industry to make its own decisions about the necessary levels of capital investment. In this instance I agree with the hon. Member for Southwark and Bermondsey (Mr. Hughes). Only the industry can make these decisions, and it can do so only if it can participate in the full play of market forces.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme 11:50, 17 December 1985

For many of us, water is not for industrial purposes. For Conservative Members, water is often not for drinking. For my right hon. and hon. Friends, water is not for bathing; they prefer asses' milk generally. As everyone knows, water has only one real use, and that is to provide fishing.

I shall address myself to angling. The angler is in danger of greater exploitation by water authorities because of the imposition of a rate of return. I have been told that I must not abuse my right hon. Friend the Member for Barnsley, Central (Mr. Mason) within the terms of the order, so instead I shall speak in support of the Midland Federation of Fly Fishers, which is concerned about the privatisation of reservoirs.

I am glad that the Secretary of State for the Environment is not present, because he would suffer from shock on hearing what I am about to say. I do not oppose all privatisation of reservoirs. In fact, I am the president of the Tittesworthe fishing club, which has experienced privatisation. The club has taken over the reservoir and the fishing has improved since it was under the control of the Severn-Trent authority. Likewise, in the area of the Anglian authority, Ravensthorpe fishery was privatised last year. It has come under good ownership and control and it is extremely successful.

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

Order. I hope that the hon. Gentleman will explain how he relates these matters to the substance of the order, which is return on assets.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

That is obvious, Mr. Deputy Speaker. If money is lost running a fishery, the rate of return is affected. If money is made running a fishery, that obviously relates to the rate of return. My remarks are addressed to whether profit is made or not, and I believe that they are relevant.

The Midland Federation of Fly Fishers is worried always about rates of return on capital, and it is concerned about the privatisation of Rutland, Graffham and Pitsford reservoirs. Why is that? The federation believes that privatisation of large reservoirs under the control of the Anglian authority will be harmful. The ornithological, boating and angling interests have come together successfully and they have learnt to live together. It has been possible for anglers to enjoy fishing on the reservoirs. The federation is worried that the Anglian authority, thinking that it can maximise revenue by privatising, will privatise vast reservoirs. It claims that they will not be so successful as the small reservoirs. So vast are some of the reservoirs that it will require multi-million pound companies to take control of them. The fishermen are concerned that when that happens they will be taken over by entertainment and marina companies and that there will be all sorts of sports such as water ski-ing, which are incompatible with angling. The Midland Federation of Fly Fishers thinks, and I agree with it, that it would be dreadful for national angling institutions such as Rutland, Graffham and to a lesser extent, Pitsford, to be privatised in that way.

As the international fly fishing competition is to be held at Rutland and Graffham in 1987, it would be a disaster if people came from abroad to fish and saw water skiers on the water in the interest of maximising revenue. That brings me within the order once again.

The anglers are most upset about what the Anglian water authority seems to he doing to pave the way. The authority increased the cost for two anglers to go fishing at Rutland to £33. The anglers found that expensive but were prepared to accept it because there are very good power boats at Rutland. The Anglian water authority then extended those charges under financial pressure from the Government. That brings me within the order again. The authority then extended them to the other fisheries at Graffham and Pitsford. At Graffham the boats are ancient and not worth the price that was being charged.

The water authority was killing off the business. Anglers are generally very generous men and few of them are cynical, but they began to think that the authority was trying to kill off the business to have an excuse to privatise it. Those generous people, with rarely a suspicious thought in their heads, began to suspect that of the water authority.

The anglers have other grievances. They believe that the charging of £25,000 or £30,000 overheads on the fishery accounts has been done to pave the way for the privatisation of the vast waters. I am speaking on behalf of the anglers of Anglia; we do not want that. We want national institutions to remain national. It is acceptable for the smaller waters that will he managed as fisheries to be privatised, particularly if they will have to close.

I shall talk about the wider issue of privatisation.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

One minute is nothing when we are dealing with angling and privatisation.

It is certain that there is tremendous opposition among anglers to the privatisation of water. That does not just apply to the ordinary common working-class fisherman. In the past few months I have been surprised at meetings of the anglers' co-operative association, the anti-pollution body and other angling organisations that there is a tremendous fear that privatisation of water will come. They think that privatisation will mean a reduced quality of angling. The Minister must not under-estimate the opposition to the privatisation of water among those who depend on water for their pleasure.

I regret, particularly in the absence of— It being one and half hours after the commencement of proceedings on the motion, the debate stood adjourned, pursuant to order this day.