Water and Sewerage Charges (South West Water)

Adrian Sanders Excerpts

Wednesday 9th March 2011 Westminster Hall

[Mr Adrian Sanders (Torbay) (LD)]

It is a pleasure to serve under your chairmanship, Mr Amess. I have not had the experience before, but it is certainly a pleasure.

Today, I am raising a matter that is of great concern to the people of Devon and Cornwall and has been for as long as I have been a Member of Parliament, and I suspect for longer than any of us here today have represented our local communities. I had the pleasure of raising this issue in an Adjournment debate previously, but this is the first time that I have been able to do so as a Member of Parliament on the Government side of the House. The fact that the problem has remained almost exactly the same for so long is both a reflection of the intractable nature of the issues involved and a sad reflection on the record of previous Administrations. They had time to tackle this injustice, but sadly they were unable to come up with a solution. I sincerely hope that the Minister who is here today will not let our Government follow the same path.

Of course, the problem is the disproportionately high water bills in the south-west. Although the new Ofwat settlement has only just been released, the indication is that the average bill in the region will be £517 a year and the price rise will be about 8.1%. Rather mischievously, Ofwat had initially told the press and the public that the rise would be only about 5%, but that forecast assumed that customers would adapt their behaviour in the future. It is accepted that more people will move to using water meters. Around 70% of water customers in the south-west already have one and Anna Walker predicted that that figure would rise to 80% by 2015. Moving to water meters would save those south-west customers around £400 per year, but the money still has to be found from somewhere. Metered bills will rise in response to the dwindling supply of high-paying unmetered customers, adding more than £200 to the bills of metered customers.

Metering and in-region social tariffs have long been identified by Ofwat and the Government as an easy solution, but they do not have an impact on the underlying problem. Even if one takes the price rise as a 5% average, that is still far too high for most people to cope with in this age of austerity. It is also important to remember that I am talking about average bills. Many of my constituents now face water bills far in excess of £1,000. That reflects a range of circumstances, from medical conditions that require extra water to simply having a larger family. As always, unmetered customers suffer the worst. The average bill of £517 in the south-west compares starkly with the average bill in London, for example, which even for unmetered customers is only £332 per year.

The privatisation of utilities was meant to open up sectors to competition and to empower consumers, but the privatisation of water has done nothing of the sort. Can one imagine the outcry if electricity prices were 60% higher in Newcastle than they are in London? Any electricity company that tried to implement such price disparities would simply see its regional market share evaporate.

Hopefully, we are all aware of the background to this problem. The privatisation of water in the late 1980s left South West Water with a backlog of infrastructure improvements to invest in. Combined with a tiny customer base and a lengthy coastline, that backlog meant that under the system of regional monopolies South West Water customers would pay higher bills in perpetuity, with their only recourse being to move somewhere else in the UK.

For all its inaction, the previous Government at least recognised the problem. The result is Anna Walker’s report on water charging, chapter 14 of which focuses specifically on the south-west. The coalition is about to respond to her report, which again makes this debate timely.

I want to cover briefly three points that are relevant to what is happening now and hopefully the Minister can take them into account when he is developing the final policy on this issue. First, the role of Ofwat needs to be assessed very closely. Ofwat’s role as the regulator must be to protect customers and as Regina Finn, its chief executive, said herself:

“People can shop around for the best deal on many things, but not water. Our job is to do this for them.”

I am afraid that the overwhelming view of my constituents is that that “job” is not being done. Many of them see Ofwat as hindering rather than helping the situation in the south-west. Whereas bills fell slightly ahead of inflation in other areas, the south-west has seen the very large rise that I described.

[Mr Ben Bradshaw (Exeter) (Lab)]

Is not the real scandal of this year’s price increase that customers were assured at the time of the last price review under the Labour Government that there would be reductions in their water bills in this price period? South West Water is hiding behind the current Government’s failure to control inflation. That is a sign of gross insensitivity compared with the situation in, say, local authorities, where everybody else is having their pay frozen.

[Mr Sanders]

I only half-share the right hon. Gentleman’s view, because Ofwat is the body that should protect the consumer and it has allowed South West Water to raise charges by the amounts that I described.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

I agree with the hon. Gentleman’s assessment that Ofwat’s role in this regard is key, although I also accept the points made by my right hon. Friend the Member for Exeter (Mr Bradshaw). I have just received an e-mail from one of my constituents that makes exactly the same point as the hon. Gentleman. My constituent says that he lives in a three-bedroom house; there are two residents, and he has received a bill for more than £1,000 for the coming year. Ofwat has agreed these prices. My constituent’s question is, “Do they realise just how much individual customers are having to pay and the impact on those households?” I urge the Minister to look again—please—at the role of Ofwat in all this.

--- Later in debate ---

[Mr Sanders]

Indeed. I would rather like Regina Finn to spend perhaps a year in the south-west on average wages. If that were to happen, I think that we would see a change in Ofwat’s policy.

I also question the use of the retail prices index in setting price rises. Although Ofwat technically enforces price ceilings, it is de facto setting prices. We are moving to a system of uprating pensions and benefits by the consumer prices index. We should do that for water bills too, at least to make the price rise somewhat defensible.

On the wider issue, however, Ofwat has consistently failed to engage with the real problems highlighted in Anna Walker’s review. At the moment, Ofwat does not seem to be interested in finding a resolution to the south-west problem and so it cannot be seen to be standing up for south-west customers. When it comes to the protection of consumers’ interests in the south-west, Ofwat is as useful as a chocolate teapot.

In our discussions with Ofwat, its representatives have told us that solving this problem would be complicated and that we should focus on a social tariff instead, which is where Ofwat is investing its time and energy. Curiously enough, the official line is that Ofwat took that decision unilaterally. Parliamentary answers revealed that neither the Department for Environment, Food and Rural Affairs nor the Treasury gave any instructions or guidance and that Ofwat has not even written down a plan of its work for reviewing Walker. All we have had is a vague indication from the hon. Member for Ogmore (Huw Irranca-Davies), who was the Minister with responsibility for water in the previous Government, that Ofwat should look into reviewing Walker.

The plot thickens, however. When I submitted a freedom of information request on this issue, it emerged that the Treasury briefed Ofwat on what it wanted Ofwat to achieve in its work, but as yet, exactly what that entails has not been disclosed. Perhaps I have been unfair to Ofwat in that the Government are the reason why it is useless at protecting South West Water customers. Maybe the Minister will reveal the truth.

[Andrew George (St Ives) (LD)]

One of the reasons why Ofwat might not be particularly effective in protecting South West Water customers is that when water was privatised, a risk-free money-making system was effectively created. When somebody has a monopoly on services such as water and sewerage services, that is bound to happen. However, the problem in the south-west is that there is a national asset—the beaches—that has to be cleared up and cleaned up at great expense by a very small part of the population. The south-west has 30% of the national beaches, but only 3% of the national population. Of course, if we compare that with the National Gallery or the British Museum, which are funded from national taxation, we in the south-west have to protect a national asset on the basis of having only 3% of the population. That is simply unsustainable.

[Mr Sanders]

My hon. Friend makes a very important point, and I made that same point in a Radio Cornwall interview not an hour ago. It is amazing that that station can be picked up so far away.

My main point is that the development of a solution is fundamentally undemocratic and beyond scrutiny. Deciding which combination of Walker’s recommendations to implement should be down to the political will of Ministers and the Government. It should be for them to take the courageous decision to put an end to this injustice or suffer the political consequences. The solution should not be watered down—excuse the pun—by quangos and officials who have no inherent interest in standing up for water customers, especially not those in the far south-west. Ofwat claims that a levy on other water company areas to bring down bills in the south-west, or to equalise bills across the country, would breach Treasury rules, and it is not keen to explore changing those rules, but the nationwide social tariff suffers from that very same problem, because it involves moving money around between water customers, outside the Government’s coffers.

[Dan Rogerson (North Cornwall) (LD)]

I am very grateful to my hon. Friend for all his work on this issue over a great number of years, and I congratulate him on securing the debate.

Does my hon. Friend not agree that there is perhaps a misapprehension among some people that the south-west is a wealthy part of the country, and that that somehow informs the view that costs could not be shared across the country? There is an idea that many wealthy people are sitting down on huge estates in the south-west and being subsidised by poorer people in urban areas elsewhere when, in fact, areas such as Cornwall are some of the most deprived—there are very low incomes there. That is what ought to inform the decision about a more equitable way forward.

[Mr Sanders]

My hon. Friend is absolutely right. In my constituency of Torbay, the unitary authority area now has a gross value added level lower than Cornwall’s was when it qualified for objective 1 assistance, and there are other such pockets in the south-west.

[Alison Seabeck]

I would like to reinforce the hon. Gentleman’s point. Does he not agree that, with the current increase in water rates, we will see more pensioners, particularly in the area around Torbay and in my constituency of Plymouth Moor View, falling back down below the poverty line? The Government would not want to see that happen, but undoubtedly they will.

[Mr Sanders]

The hon. Lady is absolutely right on that point.

If Ofwat is not supportive, we at least have political unity around the idea that something more than a social tariff and something specific to the south-west needs to be done, and I need only consult the Hansard report from a previous debate on this very issue, in January 2010, to see that. In that debate, we had the support of the then Labour Members for Plymouth and some warm words from the then Minister with responsibility for water, the hon. Member for Ogmore. The right hon. Member for West Dorset (Mr Letwin), who is now one of the Prime Minister’s chief aides, stated that

“there seems to be a strong case for some kind of spreading of cost”—[Official Report, 27 January 2010; Vol. 504, c. 323WH.]

The Liberal Democrats have, of course, championed the cause for many years. I see that I am joined today by Members from all parties, who are united in wanting to get something done for their long-suffering constituents, and I hope that many of them will be able to contribute later in the debate.

The overarching problem, which Walker ably demonstrates, stems from privatisation. On privatisation, South West Water had the smallest asset base—what was called the regulatory capital value—per customer, and it now has the highest, at 210%. South West Water customers will therefore pay far more for longer. If that situation were to occur in any other utility it would be outrageous, but for some reason successive Governments have tolerated it in the water industry. The previous Government sadly never understood the damage caused by the failed privatisation. I describe it as failed not because the water companies have not provided a good service—on the whole they have—but because it has simply not delivered a market, not even a heavily regulated one. No domestic consumer can choose between water companies, and instead of being reinvested fully in the service, the surplus created is converted into profit for shareholders. The water customers in the south-west do not like that, and I suspect that if it happened to other regions they would not like it either.

That brings me to some potential hope in this doom and gloom. We have a new Government. We are in the era of new politics, and appear to have a listening Government, and so I invite the Minister to join in this spirit of new politics and listen to the people of the south-west. If he spoke to them, they would tell him that they do not want just a social tariff or some adjustments around the edges, but a fair and transparent system, whereby they pay the same as everyone else in the UK for the water and sewerage services they use.

The Minister’s party was in power at the time, so he might not join me in wishing that privatisation had never happened in this industry, but I hope that he will acknowledge that it was carried out in a wrong-headed way. The company in the south-west needed a much bigger customer base, and needed to be compensated for the poor state of its infrastructure. If the Minister does join me in this, I hope that he can take the next logical step and support something that addresses these historical problems and lifts the unfairness. I particularly mention unfairness because it is important not to conflate it with affordability, and it would be very foolish if the Government pretended that addressing the problem of water poverty also solved that of unfairness. I shall give an example to illustrate the problem. A family earning £35,000 would never come under the scope of WaterSure or any improved social tariff. They would, however, feel incredibly aggrieved if they had to pay anything up to £400 more for exactly the same service and product than if they lived anywhere else in the country, and that insult is made worse by the fact that the service is a basic necessity.

I understand, however, the Minister’s difficulty in being able to give concrete answers to many of the questions that will be raised today. There will necessarily be input from the Treasury as well as from No. 10, and in a way it is a shame that we cannot have Ministers from both Departments—the Treasury and DEFRA—here today, as some might argue that the solution is to be found at the Treasury. The Treasury can make or break another Department’s plans, but I hope that the Minister is pushing the case both for a social tariff and, more importantly, a solution to the south-west injustice.

Overall, we know the problem. Water bills for all customers in the south-west are far too high, as a result of the way in which the industry was privatised. We need a structural solution, through Government intervention, to remedy that unfairness. I am not sure how much detail the Minister can give in response, but I want him to recognise the difference between addressing water poverty and addressing unfairness. I hope that he can restore, or shall we say maintain, my faith, and that of others, in this Government, by promising to address both those issues.

[Alison Seabeck]

On a point of order, Mr Amess. To avoid any possible misunderstanding, I should draw Members’ attention to an entry in the Register of Members’ Financial Interests by my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), in whom I have an indirect interest: he is my partner.

--- Later in debate ---

[Andrew George]

I am sure that her interest is in something far more glamorous than the adoption of private sewers. I have raised the matter with the Minister and there has been consultation on it. Water companies are aware of the issue and some have undertaken their own calculations of the impact that it might have. I am confused and uncertain about how far down the water companies will have to go—it is possible to get stuck on these issues due to the number of metaphors that could be adopted in relation to them, but I shall not dwell on that for too long—before they take on those obligations. Other issues include the state in which those sewers would have to be in order for them to be fit to be adopted and, indeed, whether the companies will have the opportunity to assess the condition of those drains and sewers in the first place.

The information that appears to be coming from the marketplace and from those who are engaged in the industry is that both the previous and present Governments have not properly assessed the true impact that the proposal is likely to have. The knock-on effect will be on all customers—not only in the south-west, but countrywide—although it will be disproportionately worse for those in the south-west, because any increase in their bills will be on top of something that is already extortionately high. I know that the Minister is looking into the issue. The matter clearly needs to be resolved before we go down the track of finally forcing water companies to adopt private sewers and drains. I hope that the Minister will address the issue in his comments.

The hon. Member for Newton Abbot (Anne Marie Morris) has left the Chamber, but she raised the issue of fairness. When we have debated how we can address the legacy of unfairness that has been left to South West Water customers, we have talked about the potential adoption of a national levy, which is one of the options proposed by the Anna Walker review. A national levy would be a very small, gnat bite of a charge, which few people would notice and which would address some of the inherited legacy of additional unfairness in the south-west and other parts of the country. However, if we adopted such a levy, and if it were simply a flat rate charge for all water rate payers, poor water rate payers in one part of the country—the north-east, for example—might end up subsidising wealthy second home owners, who already pay, if they have water meters, significantly less than most people in their locality. Clearly, to address the issue of fairness, if we were to adopt a national solution, it would have to be significantly more sophisticated than a simple, flat-rate solution. I know that the Minister is well aware of the issues.

[Mr Sanders]

It is worth putting on the record the amount that would be asked of each customer. It is in the Walker review. It is £1.50 per customer per year.

[Andrew George]

I am grateful to my hon. Friend—he has the figure to hand, but I do not. As I have said, it is an imperceptible gnat bite of 3p per week throughout the year. It is not a significant charge for people, and the potential benefits to this country’s water rate payers, such as those in the south-west, who are significantly disadvantaged, would be considerable.

Finally, I have emphasised the benefits to water rate payers if they, in most cases, adopt a water meter. Many of those living in houses in multiple occupation, sheltered housing and so on are not able to install a meter in their own individual property. When they query that and ask South West Water how, given the unfairness of the system—particularly if they are elderly, do not use a lot of water and live n their own—they might reduce their bills and the exorbitant charges that they have to endure, they are told that they have a range of alternative options, one of which is to return to South West Water, which is obliged to offer them an assessed charge, which assesses their notional water usage and charges them on the basis of what they would have been levied had they had a water meter.

In all such cases with which I have dealt over the years, those charges have usually reduced bills by half or more. My point to the Minister is that, rather than expecting water rate payers—particularly those living in sheltered accommodation who do not have assessed charges—to believe that there might be an alternative solution and to then be articulate and confident enough to approach the company to ask for one to reduce their charges, it should be the company’s default position to make those customers aware of the availability of an assessed charge. Many vulnerable people live on their own in sheltered accommodation without the benefit of reduced charges on water meters, but they could at least be given the opportunity of an assessed charge. That is what the company should be doing in the first place.

I have run South West Water down something rotten this afternoon, and to be fair, the chief executive, Christopher Loughlin, is fully engaged with these issues. When I raised the issue of assessed charges, he accepted that the company can be much more on the front foot and assured me that it wants to tackle the issue. He is conscious of the impact on his customers of issues such as the fairness of billing and the charges levied by South West Water, and he is fully behind the campaign by Members from all parties. The company is aware of these issues and would welcome any solution that, while not giving it any particular benefit, would reassure its customers that arrangements can be put in place that are more equitable than those they have had to endure for the past 20 years.