Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heppell.]

I welcome this opportunity to bring the issue of high water Bills and water poverty in the south-west to the attention of the House. My hon. Friends and many other colleagues in the House have been assiduous in drawing Ministers' attention to the issue over many years, through debates, questions and meetings, and the Minister has been good in responding. The fact that many Members across the south-west are still plugging away on it bears testament to the fact that it remains a major unresolved issue in my part of the world.

The problem of unaffordable water bills in the south-west is not new. It was originally caused by the privatisation of the water industry, which led to massive increases in south-west water bills. While many of the facts that I will set out are already known, because the issue has been so well debated, it is important that we re-rehearse some of those facts for the record.

We know that the problems were caused by a series of fundamental errors in the privatisation process under the Conservatives in the 1980s. Water companies and private investors initially made big profits on privatisation, because of big discounts. The amount of money set aside for a "green dowry" massively underestimated what the coastline clean-up would cost. The result was huge increases in water bills once that was realised, and the south-west's great expanse of coastline meant that it bore the brunt of clean-up costs, leaving us with the highest water bills in the country. That has been the case since then.

My hon. Friend rightly pointed out that there has been considerable investment in the sewerage infrastructure around the coastline of the south-west peninsula as a result of various clean-up initiatives. Does she agree that that investment has not just led to high water Bills now, but is likely to lead to higher water bills for people in the south-west because of the cost of maintaining the infrastructure in future years?

My hon. Friend is right—the clean-up will leave a legacy. People will have to maintain the cost of the infrastructure, and because the peninsula is rural and isolated the costs will be higher than they would be otherwise.

Since water privatisation, people living in the area covered by South West Water have consistently paid the highest Bills in the country. This year's increases were about 17 or 18 per cent., and by 2009–10 the bills will hit an average of nearly £700 a year. That is not the only problem, however. As well as paying the highest water bills, people in the south-west have some of the lowest incomes and the highest house prices in the country.

Cornwall is the poorest county in the country. Wages are £100 a week lower than the national average and houses are among the most unaffordable. The peninsula also has more pensioners than the national average, and many people subsist on low fixed incomes. For people on low fixed incomes—hard-working families, pensioners and other individuals—the cost of water becomes increasingly unaffordable as increases rise, year on year, above inflation. They are the same people who find increases in unfair council tax unaffordable, but at least some people have the option of council tax benefit if they are on the lowest incomes. No such support is available to help these people to meet the cost of their water and sewerage, essential utilities.

Water bills and council tax were the two main issues that I encountered on the doorstep in the run-up to the last General Election. While people in my Constituency understood that the unfairness of the council tax was a national problem and they were not the only ones suffering, they were outraged that they were being discriminated against and facing a disproportionate burden compared with the rest of the country when it came to their water and sewerage bills.

The figures are depressing. Towards the end of the decade, some of the poorest pensioners in the south-west could be spending 7 per cent. of their disposable incomes on water and sewerage. Indeed, WaterVoice estimates that it could be as much as 10 per cent. The average working household will be spending twice as much of its disposable income on water and sewerage as the national average. The poorest households in the country will be those paying the highest water bills—bills that are set to increase by 25 per cent. by 2010.

The hon. Lady is right to speak of the disproportionate effects of water Bills on low-income pensioners. According to the Department for Work and Pensions, 250,000 children across the south-west are living in households in the bottom quintile of income distribution. If we are to address pensioner and child poverty, we must find a means of mitigating the effects of water charges, particularly in our region. I hope that the hon. Lady welcomes the proposed south-west affordability pilot, which may provide information enabling us to deal with part of the problem.

I am coming to that—and I understand that, slowly, the Government are as well.

Given the amount that is being paid, it is not surprising that people are so enraged about the increases. People in London pay an average of £200 a year, about £4 a week. That is relatively insignificant compared with the figure, three times that amount, that my constituents will be asked to pay by the end of the decade. It is the further increases that have aggrieved people so much. Before the increases they were unhappy about their water Bills, but prices were stable and they were prepared to swallow hard and pay. Now, with the likelihood of further dramatic price hikes, the issue is bubbling up again.

The Government know of the problems but, as Alison Seabeck pointed out, they have failed to address the inequalities adequately. While they publicly acknowledge in debates and meetings that water poverty is a problem in the south-west, we have seen no action to tackle the structural problems that have caused the increases. There has been a cross-Government review of water affordability and, following that—as the hon. Lady also mentioned—we have heard the announcement of a water affordability pilot in the south-west. It was heralded a year ago, conveniently ahead of the General Election, but we were not told a year ago that it would not be up and running until well into 2006. So far, no customer in the south-west has seen the benefit of the pilot or of any reduction in water bills. Sadly, under the present Government they do not look likely to.

The reality is that the pilot will benefit only a small number of people—a fraction of the percentage of the population who are paying the bills—who are already on water meters. They will see benefits in some respects, such as a benefits entitlement check, advice on debt management and repayment planning, water efficiency advice and the installation of water-efficient appliances and devices such as hippos for toilet cisterns, tap inserts and efficient shower heads. As my hon. Friend Mr. Rogerson has already said, the pilot takes no account of the infrastructure costs of providing sewerage to housing. For many people, that is the largest part of their bill. It is not the water they use—no matter how efficient they are, they will still face massive bills on account of sewerage costs.

Does the hon. Lady agree that as the largest part of the water bill is for sewerage charges and as they have been inflated by the EU, which has insisted on increased quality of bathing and ordinary drinking water, the Government should help with those charges, as the water charges are quite reasonable?

I certainly agree that the Government should do so, but residents and visitors to the south-west alike appreciate having clean beaches to visit.

My hon. Friend is aware that all the regulations that Mr. Steen mentioned were already telegraphed by the time that privatisation was under way. Does she agree that the proposed pilot for 2006 has not even reached its scoping level and will benefit only up to 1,000 out of 600,000 households in the south-west?

I agree, and I am as disappointed as my hon. Friend about that. The concern is that it will not help the people—many of whom will be older or on low incomes—who are not currently on a metered water supply. Certain households would not benefit from switching to a meter because they use a high volume of water, perhaps because one of the household members is ill or because it is a large family. The pilot does not even begin to tackle the structural problems that are due to the existing tariff structures and high sewerage costs that generate high Bills for some people.

The pilot may help around the edges, but it does not address the fundamental problem that 3 per cent. of our population is having to pay the costs of maintaining 30 per cent. of our coastline, and the costs required to regenerate and maintain water and sewerage infrastructure across a large, peripheral and rural area are higher than in urban areas. That is the fundamental issue that has not been addressed.

I think that I am right in saying that my colleagues and I are not particular about exactly how this problem is resolved, providing that it is dealt with. Many new suggestions have been made about how to help reduce the bills. One example is the introduction of new tariff structures. In previous debates, the Minister has said:

"We have not shut down the idea of review of structures, prices and tariffs. We remain open to new ideas about them."—[Hansard, 10 November 2004; Vol. 426, c. 312WH.]

If he has not shut down that idea, I would welcome any information about the work that his Department has undertaken to review those structures, prices and tariffs and about what conclusions were reached.

Another alternative was suggested by WaterVoice, which drew attention to the Water Charges Equalisation Act 1977. Enacted by the Labour Government, it recognised the problem caused by disparities in water bills across the country. Of course, it was repealed in 1983 by the Conservative Government and several years after that came water privatisation.

The hon. Lady is casting aspersions on the former Conservative Government of eight years ago and she has demonstrated concern about privatisation, but she has not advanced any positive suggestions about what the Liberal Democrats would do. Is she proposing that water and sewerage charges should be harmonised throughout the UK?

I am proposing a variety of suggestions. The last one is another precedent set by a Labour Government—indeed, this Labour Government—in an attempt to mitigate the unfair costs that some people face in respect of utility bill payments.

My hon. Friend Matthew Taylor unearthed an interesting piece of information from Trade and Industry questions the other week. The Minister for Energy helpfully informed him that the typical household electricity bill in Scotland saw a saving of £27 a year—the result of a subsidy to electricity consumers in northern Scotland introduced in April this year. My hon. Friend also asked the Minister for Energy to have a word in the ear of Department for Environment, Food and Rural Affairs Ministers to explain why such a subsidy was required in northern Scotland to keep down fuel Bills and reduce Fuel Poverty.

Surely the Minister recognises that increasing water bills in the south-west will pose very similar problems. I encourage him to make a foray on to his own patch on this issue, as the Trade and Industry Minister was very keen to ensure that he did not trespass on his. What are the Minister's views on the potential applicability of such an idea to water consumers? He will doubtless agree that it would appear hypocritical for his Government to provide support in one part of the United Kingdom but not in another.

This problem has a very long history. I hope that tonight's debate will bring some hope to my constituents and that they will finally get a fair deal on water bills. They do not care what form the solution takes, just as long as it results in bills that are more affordable. I do not consider that an unreasonable request.

I congratulate Julia Goldsworthy on making a case that, as she rightly stated, has been made on many occasions by various Members of this House, including her predecessor, who was very active on this issue. That case was also made recently by my hon. Friends the Members for Plymouth, Sutton (Linda Gilroy) and for Plymouth, Devonport (Alison Seabeck), and by a delegation organised by Matthew Taylor.

I start by considering the very roots of the problem. I know that Adam Afriyie said that the previous, Conservative Government are completely blameless on this issue, but the green dowry is a real problem that stems from 1989, when, as part of the privatisation process, the then Government wrote off existing debt of some £5 billion for all water companies. They also provided an additional cash injection of £1.5 billion—the so-called green dowry—in recognition of the upgrades that a number of companies would need.

Of course, hindsight is a wonderful thing, but it seems questionable whether the green dowry for the south-west was anything like sufficient at that time to compensate for the poor infrastructure, especially given the important point that it was calculated that such infrastructure investment would not be needed, as sea disposal of sewage was considered acceptable in 1989. It is not acceptable, and although there is no doubt that prices have gone up, people appreciate—as the hon. Member for Falmouth and Camborne said—that our beaches and rivers now enjoy record water quality. That is very desirable, but it is clear that it has come at a price. A better dowry for the south-west would have been sensible, recognising the scale of the problem in 1989. Had that happened, we would not face the difficulties that we currently face.

The dowry to which the Minister refers dates from some 16 years ago. One can argue that the decision was right or wrong, but this Government have had eight years to resolve the situation. Surely he will come up with answers this evening, rather than simply laying the blame at the door of a previous Government in respect of events that took place many years ago.

Far be it from me to lay the blame on previous Conservative Governments; I am simply painting the background to the existing problems and describing their root. However, I will certainly touch on potential solutions.

I should point out to the hon. Member for Falmouth and Camborne that there are no easy answers to this problem, and one reason why is that the companies involved are private companies. I take it that the hon. Member for Windsor is not suggesting that we provide public subsidies for private companies, because that does not quite go with Conservative philosophy. It should not be forgotten that during the previous price round, the regulator, rightly or wrongly, cut Bills by an average of just over 10 per cent. Although prices will rise between now and this time next year, which will affect customers in the south-west, in real terms they will still be paying less than they did in 1999. In 2006, the average bill will still be 2 per cent. lower, in real terms, than it was in 1999. These are nevertheless average prices, and such prices can mask disproportionate effects upon individuals. I am not being complacent about that. It is also fair to point out that the number of pensioners in relative poverty in the south-west fell by about a quarter between 1996–97 and 2002–03, from 270,000 to 210,000. It is true that pensioners' incomes in the south-west are marginally lower than those in Great Britain as a whole, but they are higher than in all regions outside London, the south-east and the east. Pensioners' incomes have risen faster than earnings over the past nine years.

In the country as a whole, pensioners' incomes have risen by 27 per cent., compared with 15 per cent. for wages, as a result of uprating the basic state pension in line with inflation, or by 2.5 per cent. each year, in uprating the guaranteed credit element of the pension credit in line with earnings so that the poorest pensioners will see year-on-year increases in income that are greater than inflation.

I stress these points because one of the ways in which the Government have approached the issue has been to tackle low incomes generally. That is a powerful argument. There are many different mechanisms in respect of utility prices, but low incomes are key to the problem. Affordability is also a key point. That problem applies throughout the country. There are certain improvements in the south-west that are dedicated to the area, including, in particular, water coloration and drinking water quality. There is also the issue of connecting homes to mains sewerage, which is a particular problem in the south-west. I understand that the current price round is designed to connect 261 properties to the mains, which is quite a lot. It is designed also to address sewer flooding, which is a problem in parts of the south-west, as it is in other parts of the country.

It would be wrong to think that the costs that fall upon south-west consumers are for the benefits of other people. Many of the costs are for the benefit of south-west customers and consumers. However, I recognise the point that the hon. Lady is making.

The Minister has given figures for average pensioner income. In the area that we are talking about, many pensioners come from a more wealthy background to retire in the area, which masks the underlying trend among local pensioners. Do the figures that the Minister has given reflect the figures for pensioner income throughout the far wider Government south-west zone than the area of South West Water, which is clearly geographically much smaller than the Government zone?

I do not dispute the point that the hon. Gentleman makes. There will be distortions as a result of wealthy pensioners who retire in the south-west, and that can mask real poverty. We are aware of that as a Government; we take it seriously.

I shall deal with the idea of lifting some of the price burden on to other areas to lower the price within the south-west. There are some problems, as I have said before when discussing these matters with hon. Members who have suggested that there should be cross-subsidy. Ultimately, all costs fall on the consumer. Ofwat sets an upper limit on prices. There is a strong argument for a strong and visible link between what the company spends and the customers who fund those moneys through their Bills. If some of the cost is offset, that reduces the pressure on companies to ensure that they are offering the best service to their consumers.

There is also a problem with how we shift prices into other regions, because each region has its own problems and costs. The hon. Lady mentioned the Thames region. There is much discussion about the Thames interceptor, which would cost between £3 billion and £4 billion. As a result of particular problems with the Thames region, particularly with leakage, the level of increase in the region has been higher than in the south-west, although the overall bill is lower. I accept that.

On the logic of what the hon. Lady argues in terms of transferring costs, she must surely recognise that many consumers in the Thames region think that as the Thames runs through the capital, it is important that the river should be clean because of the Olympics and London's role as a national showcase, and that some of the cost should be spread to other people. How do we explain to poor people in Newcastle, Liverpool or Sheffield that their bills have to rise? Although what she proposes would help poor people in the south-west, it would also help wealthy people in the south-west—the very people who, as Andrew George said, have gone there to retire. How can we offload their charges on to poor people?

My hon. Friend mentions Newcastle, but someone on pension credit in the south-west will pay two to three times as much—perhaps 7 to 10 per cent.—as a proportion of their income as the equivalent person in Birmingham. I am sure he accepts that that is unfair and needs to be addressed.

I thank the Minister for meeting my hon. Friend Alison Seabeck and me last week, when he explained the difficulties. I also thank him for considering tariffs. However, will he encourage people to look across the piece to other Departments—the Department for Work and Pensions and the Treasury—to find solutions, rather than telling us that we cannot do something about a situation that is patently unfair?

My hon. Friend has a distinguished record on the subject, especially with her involvement in the Public Utilities Reform Group and the relevant all-party group. She raises an interesting point. I repeat that there are no easy solutions, but I also repeat that I have an open mind. I am willing to explore new ideas. She has some thoughtful ideas on how we might address the problem. They raise issues for DWP and other Departments, but I am happy to examine her ideas in detail.

The assistance for areas with high electricity distribution costs scheme has been presented as a panacea. I regret that that is not the case. I have, however, looked carefully at the AAHEDC—assistance for areas with high electricity distribution costs—scheme and can claim to be something of an expert on its intricacies and details. I regret to say that I cannot understand how it could act as a solution. The electricity and water companies are very different. They have different infrastructure, operation and regulations. The big difference is that the electricity company has a national grid, on which the scheme is based, but water companies tend to be self-contained within their regions. There is no comparison.

Under the AAHEDC scheme, electricity suppliers in Britain subsidise the distribution company in northern Scotland. It works through National Grid Transco. The company collects a designated payment from all GB suppliers to be paid to the Scottish hydroelectric distribution company, which passes on its benefits to suppliers in its region by reducing its distribution use of system charges. The scheme is designed to assist the development of hydropower. That is part of its background and the reason for its existence. The benefits of hydropower are distributed throughout the grid. I am afraid that there is no comparison and, in that sense, the scheme is irrelevant. What is important is how it works.

There is no national grid for water. There are no network charges between water companies that can be adjusted in the same way. There are also other differences. The electricity scheme represents the continuation of a scheme that has been in place since 1943. As a matter of fact, it was put in place by a coalition Government. The scheme is not new. Indeed, the AAHEDC is a continuation of it. As I said, in part it is a form of support for renewable energy development. We have other mechanisms for renewable energy. The scheme is an early version of those. I am afraid that the comparison is a dead end.

The Minister says that there is no comparison, but the comparison between the support that the Government wish to give to renewable energy is equivalent to the support that we would wish to give to the tourist industry and the viability of the coast line around the south-west. That carries a premium by comparison with the clean-up costs in the rest of the country.

It does carry a premium, but other regions, companies and customer groups could make similar arguments about their circumstances. I mentioned Thames, but other parts of the country also have high costs. The hon. Gentleman's argument is a difficult one to make.

The issue is one of affordability for those least able to pay. We want to address that issue and that is why we have the vulnerable groups regulations. Last year, a cross-Government steering group reviewed the way in which lower income households are helped with their water and sewerage charges. The Government are working with Ofwat, the water companies and the Consumer Council for Water to take forward the recommendations of the affordability report. That includes looking into alternative tariff structures and charging options, and a pilot study in the south-west.

The first strand of work is to look at the scope for redistributing the burden among customers of a company through tariff and charge structures. We did review the water charging system in 1997–98 and that resulted in the Water Industry Act 1999, which introduced protection against disconnection, and the free meter option. I stress that for many people in the south-west going on to a meter would cut their costs—

Not for everybody.

I do not dispute that, but I urge people to take up the option. It is free and they can try a meter for a year, after which they have the right to have it taken out if they do not think that it saves them money. That is a fair offer and I urge the hon. Lady to encourage her constituents to take it up.

We are open to new ideas on charging methods and tariffs. A working group will look at the current charging system and explore a range of tariff options. The group includes representatives from the Treasury, Ofwat, the Consumer Council for Water and the water companies. The group will consider how tariffs might distribute the total burden of a company's charges in ways that might address affordability. It will consider, for example, the block tariff, which has great scope for improving the situation.

As the hon. Lady says, we are setting up the south-west affordability pilot study, and I regret that it has taken some time. It is a new approach and we have to tender for the work, which takes a little time, although we have reached the closing stages. The pilot is limited—we never pretended otherwise—but it will benefit the most vulnerable, and that should be our priority.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes to Eleven o'clock.