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Welsh Water Authority (Privatisation)

– in the House of Commons at 4:16 pm on 5th February 1986.

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Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke 4:16 pm, 5th February 1986

With permission, Mr. Speaker, I wish to make a statement about the privatisation of the Welsh water authority.

As my right hon. Friend the Secretary of State for the Environment has told the House, the Government have decided to transfer the water authorities in England and Wales to private ownership and a White Paper setting out our proposals has been presented to Parliament. The House will be aware that the water authorities in England and Wales were established so that a single body controls water and sewerage in river catchment areas; and that the Welsh water authority excludes that part of mid-Wales which drains into the Severn, but covers those parts of England that drain into the Wye and Dee.

During the consultation that followed the publication of our discussion paper last April, the Welsh water authority urged that the present integrated river basin management should continue if the industry was privatised. We agree with that recommendation and the authority will therefore be privatised with its existing boundaries and functions intact, with the exception of the co-ordination and financing of flood defence and land drainage. The privatised Welsh water company will operate under a licence from the new director general of water services, who will lay down strict conditions on pricing and service standards. The director general will appoint a regional consumer committee representing all consumer interests and in Wales this committee will be assisted by divisional committees. The privatisation of the WWA will, for the first time, enable employees and customers in Wales to have a direct stake in the industry.

The regulatory regime will provide general powers with regard to the supply of water in bulk between undertakings. The right of appeal will remain when water undertakers are unable to agree terms for such transfers, but this will be to the director general, rather than the Secretary of State. In determining appeals he will apply the same general principles as apply to other aspects of charging policy, in that charges should be cost-related and should not be discriminatory.

Considerable progress has been made since the authority was reorganised in 1982. Services and efficiency have been greatly improved and a large investment programme undertaken. I pay tribute to the chairman, board and employees for these achievements. I believe that privatisation will enable them to get on with their job with greater freedom and without the constraints on financing which public ownership imposes. Customers will benefit from the improving service that will result.

Photo of Mr Roy Hughes Mr Roy Hughes , Newport East

First, I apologise for the absence of my hon. Friend the Member for Alyn and Deeside (Mr. Jones).

I have listened to the Secretary of State this afternoon. I am profoundly disturbed by his proposals about the water supply in Wales. Water is a basic amenity and one does not need to be a political extremist to believe that its proper place is in the public sector, under democratic control. I appreciate that strictly regulated and controlled private water companies exist, but water should not be subject to the vagaries of the market place, as these proposals envisage. The Welsh water authority and its chairman Mr. John Elfed Jones, oppose privatisation. They believe that it would be inefficient and cumbersomely administered. Rural areas would certainly suffer, because the Welsh water authority provides jobs in those areas, many of which are heavily blighted by economic conditions. Charges could escalate in rural areas as a result of these proposals.

The trade unions in the water industry oppose the proposals. That applies to white-collar workers, essentially represented by the National and Local Government Officers Association, and by the operatives represented essentially by the General, Municipal, Boilermakers and Allied Trades Union. They are not seduced by the glossy promises of shareholdings. They appreciate the puny percentage that went to the employees of British Telecom. Water authority workers have cause for concern about their pension rights. They bear in mind the recent experience of busmen as a result of transport legislation. They now appreciate the difficulties affecting workers in the gas industry.

The Welsh water authority has already experienced many turbulent and highly expensive reorganisation schemes. Likewise, the Government have changed the method of accounting for the water industry, which has forced charges up, yet restricted borrowing and investment. All these measures have sent prices rocketing and, of course, it is the consumers who have to pay.

The Government's actions are underhand, to say the least. They have been preparing the groundwork for privatisation. These proposals are yet another example of selling the assets of the nation to fill the Treasury's coffers in order to bribe the electorate so as to secure a Tory victory at the next general election.

It is estimated that the sale of the water assets throughout the country could raise between £3 billion and £5 billion — even more than the flotation of British Telecom. The Secretary of State for Wales is part and parcel of this sordid exercise. Once again, he is selling Wales short. The Opposition will oppose these proposals through all the avenues open to us.

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I am sure that the hon. Gentleman will oppose these proposals, just as he has opposed every constructive proposal that has been presented to the House in my time.

The hon. Gentleman said that the water authorities' proper place is in the public sector, but he did not attempt to substantiate that statement. He admitted that many water authorities run perfectly well in the private sector under strict regulatory control, as in the United States and France.

The hon. Gentleman talked about the vagaries of the market place. The market place will be a powerful factor in improving efficiency. It will set a standard against which efficiency can be measured. The performance of authorities is best measured by the market.

There is absolutely no reason why charges should escalate. Professor Littlechild shows convincingly why the proposed regime for controlling prices and services should result in lower charges, which will be passed on to the consumer.

The hon. Gentleman asked about employees' rights. They will be protected. I am sure that many employees will welcome the opportunity to share in the enterprise in which they work, just as many employees have a share in British Telecom. Pension rights to which they have contributed will be safeguarded.

The hon. Gentleman said that charges had risen. If they have, it is to pay for the massive capital programme being undertaken by the Welsh water authority following the neglect and capital cuts initiated by the Labour Government. It will be possible to raise money in the markets more cheaply and with greater freedom than under the present arrangements.

The hon. Gentleman referred to the views of the chairman of the Welsh water authority. I have discussed the matter with him. He told me that privatisation and the removal of Welsh water from the constraints of Government financial controls offers opportunities for wider share ownership among employees and customers, and that the benefits will be passed on in higher standards of service, which can be protected adequately under these arrangements. The chairman also tells me that he hopes that Welsh water will be one of the first in the queue for privatisation.

Several Hon. Members:

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. I again remind the House of the time constraints today. I shall have to limit questions on this statement until 4.45 pm.

Photo of Sir Raymond Gower Sir Raymond Gower , Vale of Glamorgan

Will my right hon. Friend have general ministerial responsibility for this service and for some ancillary matters such as the protection of the coast and sewerage?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

Yes. The licensing and direct control of services will lie with the director general. He will appoint local consultative committees. At present they are appointed by the water authorities. This is a clear advance in consumer representation. Land drainage continues to be publicly financed, and the proposed changes do not alter my responsibilities.

Photo of Mr Michael Foot Mr Michael Foot , Blaenau Gwent

Can the right hon. Gentleman name any reputable public body in Wales which has expressed its support for this proposition? If so, it would be contemptible support for a contemptible proposal.

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I see no reason to describe as contemptible a proposal which improves the freedom of water authorities to operate without detailed financial constraints such as they operate under at present, which will improve water and pollution standards, and which will improve the consultative regime and allow the Welsh people to own shares in the enterprise.

Photo of Mr Stefan Terlezki Mr Stefan Terlezki , Cardiff West

For the foreseeable future, many water consumers in Wales will continue to be anxious about charges. Can my right hon. Friend say whether we can look forward to charge increases remaining within or below the rate of inflation?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I am sure that the regime will help to improve the efficiency of authorities and therefore to reduce charges. When my hon. Friend reads Professor Littlechild's recommendations, he will see that they are based on RPI-X. That is the proposal on which the pricing arrangements will be based.

Photo of Mr Geraint Howells Mr Geraint Howells , Ceredigion and Pembroke North

I listened with interest to the Secretary of State's statement about the privatisation of the Welsh water authority. My only comment is that it is a scandal that he is prepared to connive at the disposal of yet another priceless national asset.

What will happen to the inherited and present debt of the Welsh water authority, which amounts to about £440 million? Can the right hon. Gentleman give an assurance to the elderly, the young and the needy in Wales that they will not pay more for their water supply after privatisation? Will he tell the House what the prospects are for those currently employed by the Welsh water authority?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I have already given assurances about employees. I am sure that the proposed arrangements will improve efficiency and lower costs.

The hon. Gentleman referred to a priceless national asset. I am sure that members of the public will wish to have direct ownership of and participation in that. He referred to the capital position of the authority with respect to inherited debt. In order to bring the authority to the market there will have to be careful financial restructuring, and that will involve rearrangements for capital debt. If the hon. Gentleman reads Professor Littlechild's report, he will note that that is one of the matters that we will have to consider for each water authority, so that they come to the market on a sensible basis.

I have made that matter perfectly clear to the chairman of the Welsh water authority, and I am sure that that is one reason why he has substantially changed his views since he first heard the suggestion and feared that the changes would go ahead on the basis of the existing capital debt —something that has been the subject of concern in the Select Committee and elsewhere for a long time.

Photo of Mr Ian Grist Mr Ian Grist , Cardiff Central

Is my right hon. Friend aware that swapping a private monopoly for a public monopoly is not necessarily an advantage? It will be rather difficult to convince many people that it is. Who will compete to supply my home with water?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

If my hon. Friend reads the report of Professor Littlechild, he will recognise that there are real advantages to be gained and that many will be passed on to the consumer. Not least, the performance of the authority will be measured in the market place, and the performance of management will be judged in the market place when it wishes to raise finance. There is also always the threat of takeover by another authority as an inducement to better management. In the competitive service between authorities there will be a real inducement to improve efficiency, even in the monopoly referred to by my hon. Friend.

Photo of Mr Brynmor John Mr Brynmor John , Pontypridd

The right hon. Gentleman knows that the industrial and housing development in Llantrisant in my constituency has been harmed by inadequate sewerage facilities for many years. Does that not point to greater local responsibility for the Welsh water authority, rather than to the lesser responsibility in the proposals? How will market forces ensure that the sewage works, when finally built, will be properly constructed on a greenfield site rather than cheek by jowl with a built-up area?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

The right hon. Gentleman is aware that problems with private owners have held up that development. I do not think that the fault lies with the Welsh water authority.

The shortcomings in the sewerage arrangements that will be inherited from the state-owned body should be easier to overcome because it will be easier for the new authority to raise money in the market without annual financial constraints from the Treasury, which will make it easier to provide facilities of the sort which the hon. Gentleman rightly desires for his constituents.

Photo of Sir Anthony Meyer Sir Anthony Meyer , Clwyd North West

Will my right hon. Friend assure my worried constituents that the privatised water authority will not emulate British Telecom in devising a charging structure that benefits the large users to the detriment of the small users?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I see absolutely no reason why that matter cannot and will not be adequately covered by the director general and by the proposed licensing regime.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley , Caernarfon

May I bring the Secretary of State to the bottom line of this question? Is it not the truth that the net assets of the Welsh water authority are £1,600 million, and the current return 1·5 per cent., giving a profit of £24 million? Thus, to obtain a return in the market place that will make the investment attractive, will it not be necessary either to double the charges made by the authority to bring in an additional £140 million a year or to sell the assets at a fraction of their real value, making it an asset-stripping giveaway? Which of those does the Secretary of State think is likely to happen?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I find that question curious coming from someone who, over a long period, has repeatedly, asked that we should write off the inherited capital debt.

Photo of Mr Keith Raffan Mr Keith Raffan , Delyn

Is my right hon. Friend aware that when the chairman of the Welsh water authority gave evidence to the Select Committee during its inquiry into coastal sewage pollution, he said that because of the strong nature and longevity of the infrastructure there was a strong argument that the authority should borrow more? Would not privatisation enable the authority to do just that? Could not the authority then free itself from financial restraints, such as the external financing limit, and accelerate its £75 million programme of outflow replacement?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

My hon. Friend is right on every point. The chairman of the authority wants to get on with the capital programme and therefore is anxious that privatisation should come sooner rather than later.

Photo of Mr Donald Coleman Mr Donald Coleman , Neath

The Secretary of State chastised my hon. Friend the Member for Newport, East (Mr. Hughes) for voting against so-called constructive proposals. May I remind him that in a previous Parliament he voted for the present arrangements?

How does the right hon. Gentleman expect flood protection schemes, which are a community service, to be carried out by a private concern? How does he think sewerage management — I am concerned about the Neath trans-sewage scheme — will be carried out by private companies?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I see no reason why, under the licensing arrangements, sewage cannot be properly and effectively controlled. Flood defence and land drainage will be managed by separate public bodies, and their financing and control will remain with the public sector.

Photo of Mr Gwilym Jones Mr Gwilym Jones , Cardiff North

Does my right hon. Friend agree that the transfer of the appointment of the consumer representative body from the state-owned water authority to the independent director general, together with increased powers for those consumer bodies, will represent much a superior and truly independent system?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

There will be a real advance in consumer representation arrangements. Many people have long complained that authorities appoint their own consumer bodies. The fact that they will in future be appointed by an independent director general will be a considerable advance.

Photo of Mr Ron Davies Mr Ron Davies , Caerphilly

What powers will be available to the successor private companies to require the installation of domestic meters, against the wishes of individual home owners?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

As my right hon. Friend the Secretary of State for the Environment said earlier, we intend to conduct experiments on metering. We have already issued a consultative document and we will have to see how the experiment works before we take any final decisions on the eventual introduction of metering on a large scale. However, a considerable number of Welsh water authority customers have already chosen to meter, and a significant number have transferred to that during the past 12 months.

Photo of Mr Gareth Wardell Mr Gareth Wardell , Gower

How many privately owned houses in Wales are served by unadopted sewers? Secondly, will the right hon. Gentleman guarantee that those houses will be made up to public sewerage standards before privatisation? Thirdly, will he ensure that there is a separate Bill for Wales and the Welsh water authority?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

There will be one Bill to cover England and Wales.

I am sorry that the existing authority and its predecessors have left arrangements for unadopted sewers which the hon. Gentleman considers unsatisfactory. There is nothing in the proposals that will change the existing position.

Photo of Ann Clwyd Ann Clwyd , Cynon Valley

I do not disbelieve the Secretary of State's account of his conversation with the chairman of the Welsh water authority, but is he aware that 70 minutes ago I had a conversation with the chief executive of the Welsh water authority, who said: The Welsh Water Authority as a whole can see no benefit for the consumer in privatisation."? This is not the first time that the Welsh water authority has spoken with two heads. Which is the true head?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

The hon. Lady will know that when we consulted on this matter some time ago the authority said that, on balance, it could not see any great gains from the proposals to privatise. It believed that there would be greater freedom and thought that there would be some anxieties. Since then, I have discussed these matters with the chairman and I have spoken to him today. I too can quote, because I wrote down his words myself. The chairman believes that the proposals offer a real opportunity to maximise the benefits of the business for employees and customers. believe that the chairman is absolutely right.

Photo of Mr Roger Thomas Mr Roger Thomas , Carmarthen

In view of the almost total anti-privatisation need, well documented in a memorandum produced by the chairman of the Welsh water authority less than a year ago, would it now be the honourable thing for the Minister to sack his handmaiden and his hand-picked board?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

The hon. Gentleman should look at the evidence given on this matter to the Select Committee. He will discover that as the proposals have clarified themselves, and as the members of the authority board have begun to see what the Government intend on capital reorganisation, licensing and control systems and the proposals set out in the Littlechild report, they have begun to realise that there are real advantages. I repeat that the chairman believes that it is to the authority's advantage that it should be privatised sooner rather than later.

Photo of Mr Raymond Powell Mr Raymond Powell , Ogmore

I am surprised that the Secretary of State prays in aid the evidence of the Select Commitee report. The Select Committee sat for 18 months preparing a report which he rejected on the Floor of the House. Therefore, for him to pray in aid some of its points is wrong. As my hon. Friend the Member for Carmarthen (Dr. Thomas) said, the statements made in the report were subject to amendment by the chairman, John Elfed Jones, whom the Secretary of State appointed to the Welsh water authority, and by other appointees who have declared their opposition to privatisation.

I am concerned about the limiting of charges for customers. Only 12 months ago, a system of streamlining charges was introduced, which increased charges to the poorer rated areas in Wales, particularly in ray constituency, where mining valley communities are paying twice the water rate that they were paying in 1973. I am further concerned about the new proposals limiting charges, under section 62(4) of the regulations for customer protection. I hope that the right hon. Gentleman will do something about that.

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

I have already referred to the evidence given by the chairman to the Select Committee, who made it clear that it would be attractive to have the freedom to borrow according to the means of the authority. He was concerned about the regulatory aspects, and the way that we are dealing with those has now been spelt out. The regime that I have described, with the director general and licensing arrangements, will provide safeguards for individual householders and for the pricing system. which will be at least as good as, and in many respects better than, any arrangements in force now.

Photo of Mr Richard Livsey Mr Richard Livsey , Brecon and Radnor

The Secretary of State will know that I represent the constituency where the headquarters of the Welsh water authority is situated. I can confirm that the management is opposed to privatisation of the authority. Can the Secretary of State guarantee that after privatisation the Welsh water authority headquarters will remain in Brecon and that local employment will be protected?

Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke

That will be entirely a matter for the organisation, but I see no reason why it should wish to move, particularly as it is going ahead with the construction of new headquarters there.