New Clause 11 — Consultation On The Cost Of Environmental Protection Measures

Orders of the Day — Water Bill [Lords] – in the House of Commons at 6:15 pm on 10th November 2003.

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'After section 3 of the WIA there is inserted—

"3A Consultation and liability for expenses incurred in implementing environmental protection regulations

(1) Where a regulation that takes effect after the enactment of this section requires a water undertaker or sewerage undertaker to incur costs for works to meet environmental protection requirements, the Secretary of State shall carry out a financial impact assessment.

(2) In making a financial impact assessment for the purposes of this section, the Secretary of State shall report on the balance of the works benefit to local populations and customers of the relevant undertaker as compared with the environmental benefits that are considered to be in the general national interest.

(3) For the purposes of subsections (1) and (2) above the Secretary of State shall consult—

(a) the Authority;

(b) the Council;

(c) the Environment Agency;

(d) relevant undertakers;

(e) such other persons as the Secretary of State considers it appropriate to consult; and

(f) where the regulations apply to Wales, the Assembly.

(4) The Secretary of State shall send a copy of the financial impact assessment to all consultees and publish it in such a manner as he considers appropriate.

(5) The Secretary of State may direct the Environment Agency to exercise his duties under subsections (1) to (4) above.

(6) Following receipt of a financial impact assessment under this section, the Authority shall, based on the report made for the purposes of subsection (2) above, determine a percentage of the full estimated costs for works required by the relevant regulation or regulations that shall be met by relevant undertakers.

(7) The Authority shall direct that the remaining percentage of estimated costs is met by all water undertakers or sewerage undertakers, as the case may be, in direct ratio to the number of households to which they provide water services or sewerage services or both as a proportion of the total number of households in England and Wales.

(8) Following the written request of a water undertaker or sewerage undertaker, in cases where the undertaker has ongoing financial liabilities for works required by regulations made before this section comes into force, the Secretary of State may decide to undertake a financial impact assessment under this section.

(9) If a financial impact assessment is made under the provisions of subsection (8) above, the Authority shall apply the provisions of subsections (6) and (7) above to the remaining financial liabilities instead of the full estimated costs.

(10) The Secretary of State must provide an undertaker with a written decision on any request made under subsection (8), and provide explanation of the reasons for his decision, within 12 weeks of receiving any such request from an undertaker.

(11) The Secretary of State may make regulations for the purposes of this section.".'.—[Norman Baker.]

Brought up, and read the First time.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I beg to move, That the clause be read a Second time.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

With this it will be convenient to discuss the following:

Amendment No. 132, in clause 57, page 75, line 5, at end insert—

'(11) In section 222 (application to Isles of Scilly)—

(a) in subsection (2), after the word "NRA", there is inserted the words "the Chief Inspector of Drinking Water"; and

(b) after subsection (2) there is inserted—

"(2A) The Secretary of State shall, within a period of one year after the coming into force of section 57 of the Water Act 2003, make proposals to the Council of the Isles of Scilly for the making of an order under subsection (2) in relation to the carrying out of the functions of the Chief Inspector of Drinking Water in those Isles.".'.

Amendment No. 131, in clause 62, page 83, line 36, at end insert—

'(3A) A water resources management plan that contains proposals for infrastructure investment intended to meet the requirements of an estimated growth in the quantities of water required, made by an undertaker for the purposes of subsection (3)(a) above, must include—

(a) a least cost planning assessment that shall address in particular the potential effects of investment in—

(i) water conservation promotion and education;

(ii) water efficiency technology; and

(iii) compulsory metering;

(b) a comparative risk assessment for each infrastructure investment option or alternative proposal considered; and

(c) such other information as the Secretary of State may specify in directions.'.

Amendment No. 16, in clause 83, page 100, leave out lines 40 and 41 and insert

'have a duty to promote water conservation.'.

Government amendments Nos. 95 and 96.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I am grateful to hon. Members who spoke in the previous debate for making their comments brief so as to allow discussion on the next group of amendments. I did not speak in that debate, but I wish to say that the Minister also has the support of the Liberal Democrats in respect of the measures on private sewers. He may reflect on the fact that he has managed to unite the whole House in supporting the Government on that measure. Perhaps he should look for other policies of the same nature. The new clause in question was tabled two hours before a public meeting on sewers that I attended in Polegate in my constituency, and it went down well with the voters.

New clause 11 deals with water pricing, which is a big issue for consumers and others. The cost of water varies widely, and wildly, from one area to another, and not always on the basis of any deep logic. The post-privatisation arrangements were somewhat unfair, and water pricing inequalities have continued ever since.

A particular problem is that some water and sewerage companies have had to bear disproportionate costs because of the need to undertake environmental improvements. All hon. Members will be in favour of those improvements. Over the past 10 to 15 years, for instance, the quality of bathing water has improved markedly. However, that has had a disproportionate impact on water and sewerage companies in certain areas. The south-west has 30 per cent. of the English and Welsh coastline, but only 3 per cent. of the population—as well as a comparatively high amount of poverty. As a result, a disproportionate burden of environmental protection falls on that population. The Ofwat report, "Tariff structure and charges 2002–2003", shows that the average sewerage component of annual water bills is £125 in England and Wales, but £211 in the south-west. Combined with water provision costs, that makes an average annual combined bill of £326 in the south-west, compared with an average of £228 in the rest of the country.

The Government's position has always been that as the improvements benefit the local population, it is only right that that population should pay for them. As a principle, that cannot be faulted, but the problem is that environmental improvements in the south-west are not necessarily for the benefit of that region, but for that of the nation as a whole. A nationwide benefit derives from cleaning up our bathing waters that goes beyond that derived in the south-west. Although one could argue that there is a beneficial impact on tourism, for example, the current water pricing system does not take account of the national aspect.

We all want to enjoy clean beaches and unpolluted coastline, wherever we live. As a Member representing a coastline in the south-east, I do not want to be nimbyish by saying that as long as my coastline is all right, it does not matter what it is like in the south-west. I want the south-west and other areas to be as clean as the south-east. Nevertheless, a different method of pricing is required. The same principle applies to any region where the sewerage costs of domestic bills are particularly high because of the need to meet environmental regulations and requirements. New clause 11 seeks to establish the principle that where it can be assumed that a national benefit derives from environmental improvements, their cost should be spread more widely than the water and sewerage company that has to implement those benefits and, by extension, consumers in that area. The position has been made worse by the higgledy-piggledy post-privatisation water pricing arrangements, which should have been sorted out before now.

Amendment No. 132, which stands in the name of my hon. Friend Andrew George, relates to a water inspectorate for the Isles of Scilly.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs) 6:30 pm, 10th November 2003

I am grateful to my hon. Friend for drawing attention to that amendment, which is very important to the 2,000 of my constituents who are inhabitants of the Isles of Scilly. The Isles of Scilly have been excluded from some of the provisions in the Bill and in previous Acts. If we are to raise standards in water-related environmental matters, particularly drinking water, on the Isles of Scilly, it is important that such amendments are accepted in order to bring them up to the standards that are taken for granted in other parts of the country.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

My hon. Friend makes an important point. It is correct that the Isles of the Scilly are excluded from some legislation, but my hon. Friend looks after his constituents assiduously, and I am sure that any omissions are flagged up in this House through amendments and by other means. I hope that the Minister will respond to the point.

Amendment No. 131, which was tabled in my name and in that of my hon. Friend Sue Doughty, would introduce a rather radical approach to water infrastructure development—radical in this country, that is, but less so elsewhere. It reflects aspects of best performance in the United States, where energy suppliers are not allowed to build new capacity for generation until they have demonstrated that they can meet by other means the requirements that are placed on them. That is the correct environmental approach, which the amendment would apply to the water industry in this country. It says, in effect, that in meeting the challenge of growing demand for water, it cannot and should not, for environmental reasons, be assumed that the only option is to find a way to supply that extra demand. The Government should not base their framework on "predict and provide". Increased abstraction, new reservoirs and new treatment facilities have a considerable environmental impact. We must consider ways of reducing demand, whether by encouraging water efficiency measures or considering metering in certain areas. Various levers can be pulled to reduce demand for water in a more environmentally-friendly way than churning up the countryside to produce new reservoirs. The water companies have not always paid attention to those alternatives: they need a bit of encouragement from the Government to do so.

Groundwater levels have reached record lows in some areas—for example, in Chilgrove in west Sussex, Ardingly in Sussex, and Arlington in my constituency—where levels are down to 22 per cent.—but there has been no concerted, high-profile campaign to persuade consumers to reduce their water usage. On 5 November, the Environment Agency received its first application from a water company for a drought permit, which affects the Cuckmere and Ouse rivers in my constituency. There is not much evidence that the water company in question had done much to restrain consumer demand. I mention examples from my constituency, but doubtless there are others all over the country.

Water companies do not appear to have in mind alternatives to providing new infrastructure; they therefore need encouragement. It is possible to meet legitimate water demands through alternative means such as water efficiency and metering. We should adopt that approach, which is tried and tested in other countries. I hope that the Minister will view that with the seriousness with which the amendment was tabled.

Photo of Bill Wiggin Bill Wiggin Conservative, Leominster

I shall restrict my remarks to amendment No. 16, which would insert a requirement to

"have a duty to promote water conservation."

All hon. Members should recognise that wording, because it was widely supported in Committee. My amendment would strengthen the wording of the Bill with regard to water conservation by further emphasising the need for each public authority to have a stricter duty to conserve water in order to improve water efficiency. Proper conservation of water must take place at every opportunity, but the Bill does not enforce that duty strongly enough. Public authorities should have a greater degree of responsibility to promote better management of water; my amendment would ensure that.

I remind the Minister that Conservative Members voted for this amendment, but that he and his colleagues voted it down. The hon. Lady who tabled it is unavailable at the moment—I believe that she is unwell—but it is most important that this duty is included in the Bill. The existing wording is not nearly strong enough—indeed, it is rather weaselly in comparison with what it should be. I therefore urge the Government to support the amendment: I am sure that in their heart of hearts they would like to do so.

Photo of Richard Younger-Ross Richard Younger-Ross Liberal Democrat, Teignbridge

I was heartened to hear on the radio that the new leader of the Conservative party accepts that some of its past policies were wrong and that the poll tax was a mistake. I was less heartened when Mr. Howard went on to say that water privatisation was a great success because it had created vast investment in the industry. Although I accept that the increase in funding has created the clean sweep schemes and the environmental improvements that we all supported, it has been done at a specific cost, which consumers throughout the country have borne.

As my hon. Friend Norman Baker said, the cost has not been equal across the board. Some people in specific areas have borne a disproportionate amount, especially those whom I represent in Teignbridge and those in my hon. Friends' constituencies in the south-west. Devon and Cornwall have 3 per cent. of the population of Britain, but 30 per cent. of the nation's beaches, and we continue to pay for cleaning them up. It is argued that there is a benefit to the south-west and the Minister nodded earlier when tourism was mentioned. However, a benefit to tourism does not directly benefit pensioners, people on fixed incomes and those on low incomes. There is little to help them to pay their water bills, which have more than doubled since water privatisation and will increase even more.

I ask the Minister to consider the wording of the new clause carefully. It would not force him to take action but empower him. It would make him examine the financial implications and empower him to ensure greater justice throughout the United Kingdom and to introduce water justice. The two words "water justice" are important to people in the south-west. I suspect that, as time goes by and other environmental improvements are introduced and other areas have to bear the cost, people in other parts of the country will also say, "There was a missed opportunity—we could have had an equalisation scheme. We want water justice and we want it now."

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

I should like to speak to amendment No.132, which stands in my name. I especially want to draw the Minister's attention to the specific circumstances on the Isles of Scilly. Water supplies and services there were not privatised under the original legislation. The Isles of Scilly were specifically excluded from section 222 of the Water Industry Act 1991. The position is not only legally but locally complex, in that the council has taken responsibility for water services and drinking water to St. Mary's and Bryher, but the Duchy of Cornwall is largely responsible for the private water arrangements of the islands of St. Agnes and St. Martin's and Tresco Estates is responsible for the residents of Tresco island.

Many constituents have expressed anxiety about drinking water standards. Although the council is doing its best to ensure that drinking water is properly monitored, it would be helpful if the Minister and the Department considered amendment No. 132, which would at least allow for the sort of improvements that may be required in due course. I do not suggest that we should introduce mainland circumstances and privatisation to the Isles of Scilly because that would not be appropriate but I hope that the Minister will at least reflect on the specific, special circumstances that pertain there and ensure that the islands and drinking water customers in particular are properly protected in the same way as those on the mainland.

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

New clause 11 offers a new system of paying for environmental improvements and I understand the case about high costs in the south-west. Like other companies, water companies must meet their costs, including those of environmental standards. Ultimately, all those costs come from their customers. Ofwat sets an upper limit on customer prices, but there is a strong and visible link between what the company spends and the customers who fund that through their bills. Water companies understand that, and it could be argued that it has made them far more sensitive to the views of their customers, whom they rightly perceive as a key concern. Strong evidence in the current periodic review shows that companies' business plans pay more attention to customers' priorities. That is no bad thing.

Although I can understand the reasoning behind new clause 11, I am worried that it would weaken the connection between the company and the customers by creating a national environment fund that drew its money from customers throughout the country. There is a question about whether companies would pay as much heed to their customers if customers throughout the country met the cost of their plans. There would be a lack of accountability and a weakening of the driver that encourages individual companies to keep their costs as low as possible.

Photo of Nick Harvey Nick Harvey Liberal Democrat, North Devon 6:45 pm, 10th November 2003

Holidaymakers throughout the country get the benefit of the capital work that is undertaken. Will the Minister at least consider the point that by opting for a water meter, wealthy owners of second homes in the south-west opt out of contributing to sewerage services and cleaning up the beaches because they have remarkably low bills that reflect their occasional visits? Will he consider the principle of insisting on a standing charge to ensure that they share the burden with regular residents?

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

That is an interesting idea. Of course, it is Liberal Democrat policy to have compulsory water meters. The hon. Gentleman mentioned one of the potential downsides. The issue of second homes is serious and too wide for me to tackle in the debate, but I understand his point.

There are other problems with the new clause. Depending on the details, the proposal might remove the incentive for companies to spend efficiently. If a company currently undertakes an agreed investment programme at a lower cost than planned, the saving benefits the company and can be passed on to its customers at the next price review. That would not be the case if there was a national scheme such as the new clause proposes. It provides that the company be reimbursed for the estimated cost. What happens if the company manages to undertake the programme for less cost? Who keeps the difference? If the national fund meets the cost, there is no motive for the company to invest efficiently. If it pays the estimated cost regardless of the out-turn cost, that asks customers in the rest of the country to fund a windfall saving to a company from which they will never benefit.

I understand the issue of prices in different parts of the country and fairness, but we must consider fairness to other customers. Richard Younger-Ross said that although benefits in clean beaches and good bathing water quality go to the south-west economy, they may not affect individual pensioners. That is a fair point. However, there are pensioners throughout the country, not only in the south-west, and we must consider their costs and the way in which the new clause would apply to them.

Although I understand the argument, I am not convinced that there is a genuine distinction between the environmental measures that benefit a locality and the national benefit. We have mentioned that in the context of tourism and the local economy. We must ensure that prices are as low as possible in all companies. That is an issue for the price review. When making decisions that affect water company obligations, we take account of customers' costs and bill levels in each company but I do not believe that it is necessarily to consumers' advantage to release companies from their responsibility to manage their investment programmes efficiently and justify them. I fear that the proposal might yield a short-term gain, but a cost disadvantage to consumers in the south-west in the long term.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

Does the Minister not accept that Ofwat assesses the efficiency of the companies, along with the appropriateness of their proposed schemes, and sets a K factor that takes into account all those measures? Surely the same principles could therefore be applied to this task?

Photo of Elliot Morley Elliot Morley Minister of State (Environment and Agri-Environment), Department for Environment, Food and Rural Affairs

The difference there is that the K factor formula is applied across the whole country; it is a national formula. What is being proposed here is to even out what I accept are regional disparities by getting consumers in other parts of the country to make a contribution to—in this case—the south-west. I understand the points that have been made, but I would want to approach this issue by ensuring that efficiency drivers and investment programmes were in place to bring down costs for all consumers. That is the best way forward.

Amendment No. 132 applies to the Isles of Scilly. Andrew George will be interested to learn that I know the area very well; in fact, I have visited all the main islands. I understand his point, and he is quite right about the provision for the opt-out. There was always a provision for the council to apply to the Secretary of State to make an order so that the water undertakers' functions under the Act could be performed either by the council or by the relevant water undertaker. I understand the split that the hon. Gentleman mentioned in that regard.

An order was made in 1990 to give the council on the Isles of Scilly various functions. Its provisions, which include enabling powers to make drinking water regulations, place certain emergency duties on water undertakers that could prove very costly for the council. I understand that the arrangements on the Isles of Scilly for monitoring drinking water quality might not be wholly consistent with arrangements on the mainland. I assure the hon. Gentleman, however, that we are already considering how best to use the powers under section 222 of the Water Industry Act 1990, and we shall consult the council about costs and other implications. We therefore accept the thrust of his argument. There are powers available to provide what he is seeking, and we are prepared to talk to the council about how we can address the issue. On that basis, I hope that he will not press his amendment to a vote.

Amendment No. 131 seeks to give greater prominence to certain demand management options, and we recognise that that is important. We had this discussion in Committee. I would say to Norman Baker that water companies are already obliged to produce 25-year plans, so in that respect I believe that the Bill already covers his proposal.

Amendment No. 16 deals with water conservation. We do not disagree with the general principle advanced by Mr. Wiggin, but the fact that the Bill does not mention a duty does not mean that a requirement that public authorities "shall" do something is not a statutory duty. The Bill contains a statutory duty in respect of water conservation. As with other matters that we have discussed, difficulties might arise if we are over-prescriptive in our wording. We have no problem with the hon. Gentleman's arguments about the promotion of water conservation, but there is a statutory requirement in the Bill that meets the thrust of his arguments. In that regard, too, I hope that he will not press his amendment to a vote.

Photo of Norman Baker Norman Baker Liberal Democrat, Lewes

I am grateful to the Minister for addressing the amendments and new clauses tabled by the Liberal Democrats. I am a little disappointed by his response to new clause 11 in particular. I understand his point about not weakening the connection between a water company and its consumers. That is exactly right, but the fact that Ofwat has control over water companies in a way that does not normally apply to private companies undermines his argument. The connection is still there in terms of a company having to justify its investment and forward planning.

The Minister showed, by picking at the new clause, why he thought it was inappropriate. He did not, however, recognise the thrust of our argument or come up with an alternative that would address the legitimate concerns of the south-west and other areas in which there is disproportionate expenditure on environmental matters because of the geography of the area—the coastline, in the case of the south-west. I said earlier that the south-west has 30 per cent. of the English and Welsh coastline, but only 3 per cent. of the population. That does not change, and there must be a way of recognising the disproportionate impact of that fact on consumers in the region.

The Minister recognised that some investment schemes had, at least in part, a national benefit. If there is a national benefit, there should be a national way of paying for it, rather than simply relating it to the local consumer. The Minister has been his usual charming self, and as emollient as ever, but he has not quite convinced me on new clause 11. I therefore wish to press it to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 122, Noes 247.

Division number 356

See full list of votes (From The Public Whip)

Question accordingly negatived.

It being after seven o'clock Mr. Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that hour, pursuant to Order [5November].