Water Bill

Lord Cameron of Dillington Excerpts

Tuesday 25th March 2014 Lords Chamber

[The Lord Speaker (Baroness D'Souza)]

Page 141, line 32, at the end insert the words as printed on the Marshalled List, with the proviso that the last word in that amendment is “reduced” rather than “recorded”.

[Lord Cameron of Dillington (CB)]

My Lords, I declare an interest for the purposes of Report, in that I am a farmer with abstraction licences on my farm. I support Amendments 59 and 60, which ensure that de-averaging on the basis of geographic location is outlawed in the Bill.

The delivery of water in a civilised, developed country should be a universal right. That is not to say that it comes free for anyone, but that all the costs of the necessary infrastructure, such as large pipes running across farms and small pipes running to farms, should be shared between all the parties. In the same way as Royal Mail has a universal service obligation, so should water.

The Minister said in Committee that Ofwat has the powers to prevent this sort of de-averaging, and he repeated that in response to the previous group of amendments. However, he also said that the Government’s charging guidance will say that any de-averaging must occur only where it is in the best interests of customers; but which customers—urban or rural? It is important to set out firm rules here against de-averaging on the grounds of location in the Bill. That is because there is no doubt in my mind that the Bill is merely the first step in a more comprehensive reform of the water industry, which will happen in due course. Like John the Baptist, the Bill is not the light but the precursor of the light to come.

The next Bill will undoubtedly bring in a comprehensive and sustainable abstraction reform—we know that that has been virtually admitted by Defra—while at the same time it will herald a sustainable consumption reform in the form of introduction of universal metering. I know we are coming to that; everybody knows that that is essential and only political games seem to be preventing it happening this time around. Moreover, as a result of these reforms at either end of the supply chain, I envisage a gradual move to the introduction of competition in the water industry in both the commercial and domestic water supply marketplace. At this stage the important principle of preventing de-averaging for different locations, which these amendments achieve, is absolutely paramount.

I am slightly suspicious of the Government’s reluctance to endorse these amendments in Committee, but I get a hint that they might move a bit further at this stage. If they do not, frankly, the writing will be on the wall for remote rural customers. To use the Minister’s words, it will undoubtedly be in the interests of customers —that is, urban customers, who are in the majority—if the minority of remote customers can be charged more. If that were to happen, it would be a major betrayal of the rural consumer. I say that as the person who has been asked by Defra itself to rural-proof government policies.

[Lord De Mauley]

My Lords, my noble friend Lord Selborne has tabled Amendments 30 and 37, which would amend provisions in Schedules 2 and 4 allowing Ofwat to produce the charging rules that enable licensees to apply for discounts, where the licensee, its customer or anyone else, takes action to reduce pressure on water or sewerage networks. These amendments would restrict such discounts to situations where the incumbent water company’s costs are also reduced.

I agree with the sentiment behind the two amendments, but let me explain why they are not necessary. Ofwat’s powers to make rules on discounts are wide-ranging and can take into account impacts on an incumbent’s costs. They must also be consistent with ministerial guidance. It goes without saying that a discount should not result in an increase in costs for the incumbent or its customers. The sorts of things that we are looking for are agreements where customers commit to take positive actions, such as investing in water recycling facilities or agreeing not to take water during peak periods or during a drought. It might also involve a discount in wholesale charges, where a customer or licensee agrees to invest in an upgrade of a network where the incumbent is also making an investment. But my strong concern is that making a reduction in an incumbent’s costs a condition of such discounts protects the competitive position of the incumbent and risks stifling innovation in the sector if a proposal results in a one-off increase in an incumbent’s costs or if a small investment is needed by the incumbent to help the licensee.

I note that the amendment is similar to a provision in Scottish legislation, which also allows licensees to apply for discounts against charges made by Scottish Water. As far as I can determine, no details have been published of any discounts being applied in Scotland, and I do not wish to place such constraints on the system in England. I am confident that ministerial charging guidance and Ofwat’s charging rules can address issues relating to an increase in incumbent’s costs and what may or may not be passed on to other customers not benefiting from a discount.

Amendments 59 and 60 would prevent an incumbent making any charges within its area based on a location of premises. I know that my noble friend seeks to address issues relating to de-averaging, which we have just debated, but these two amendments could result in a significant impact on charges for all customers across England and Wales. It is sometimes necessary for an incumbent to set different charges within its area of appointment, particularly when it is merged with another incumbent. It may be necessary to maintain separate charges for different parts of a merged incumbent’s areas, even after the merger is complete. For example, Affinity Water provides services in three different parts of the country. The charges are different in each of those three areas to reflect the local costs of supplying water.

We are hoping to stimulate more merger activity through Clause 14—for example, to take advantage of economies of scale for the benefit of customers, who could lose out if the merged incumbent had to average its charges across a merged area. There will be winners and losers, but it will mean that the true costs of providing water and sewerage services may no longer be reflected in customers’ charges. Ofwat and the Secretary of State share a statutory duty to protect the interests of customers. The Water Industry Act 1991 provides that this duty should be discharged when appropriate by promoting effective competition. The Government are clear that the purpose of introducing competition into this sector must be to benefit consumers.

I know that noble Lords will be concerned about the potential for impact on rural and vulnerable customers. The noble Lord, Lord Cameron, referred to that. I share those concerns, and I know that noble Lords will be concerned about household customers who cannot switch suppliers. The Secretary of State, Ofwat and the Consumer Council for Water all have specific duties to have regard to the interests of rural customers and those who are unable to switch their suppliers, such as household customers. These duties are already clearly reflected in the charging principles which we have produced to inform these debates and will flow through directly into our charging guidance and Ofwat’s charging rules.

My noble friend referred to discounts for direct debits. To be clear, the discounts covered by the Bill are not discounts offered by incumbents, such as direct debit discounts for charging payment methods, but discounts for novel or innovative proposals which help all customers.

My noble friend was also concerned that charging rules could be different for different localities. This will allow Ofwat to provide extra protection—for example, for rural customers—as supported by its duty to have particular regard to certain classes of customers, such as, indeed, rural customers. Given these comments, I hope that my noble friend will be prepared to withdraw the amendment.

--- Later in debate ---

[Lord Oxburgh]

My Lords, I begin by declaring an interest in a company that designs and manufactures smart meters for gas, electricity and water; the amendment is about water.

I shall not rehearse the arguments about water metering, which were well aired in Committee. The present situation is clear: a householder who wants a water meter is entitled to have one. However, no one is charged for their water by metered volume unless they want to pay in that way or they live in an area designated by the Secretary of State as one of water stress. As has been pointed out by the noble Baroness, Lady Parminter, that situation obtains despite the fact that in 2009 the independent Walker review of water charging set up by Defra concluded that charging by water volume was the only fair and sustainable basis for charging.

In Committee, I pointed out that regardless of the considerable fairness, efficiency and environmental benefits of metering, there were two other important considerations. First, because meters are relatively expensive to install on a one-off basis, it is much more cost-effective if a whole street or neighbourhood is done together. Secondly, because we live in times of changing climate and weather, an area that previously enjoyed an abundant supply of water may become water-stressed quickly and unexpectedly. If meters are already in place, it would be possible to respond to the changed conditions much more quickly. This means that there are good reasons to allow water suppliers to install meters at their discretion and convenience, while leaving the decision on whether to use those meters for water charging with the Secretary of State or the householder. This would allow meter installation at minimum cost and permit a timely response to water stress, if needed, and it was the essence of the amendment that I introduced in Committee.

In subsequent discussions with the Minister, his officials and the supporting Front Bench team, for which I am very grateful, the view was that water companies already had the authority to carry out general meter installation and that this amendment was unnecessary. Numerous communications which I have had since that time—I continue to receive them—suggest that this fact is not well known. I have tabled the present amendment at least in part to allow the Minister to make an authoritative statement on the present situation.

I will make a couple of comments on today’s amendment, the wording for which was offered by WWF and several collaborating organisations. First, I have to apologise to them and to the House that the wording in the amendment is in fact not the most recent wording—but never mind, it gives us an opportunity to discuss the general problem. The amendment would allow water companies to introduce universal metering if, after consultation with customers through the existing water resources management plan and business plan processes, it is found to be the most affordable option for customers overall as well as being the best option for water resources management. This will be consistent with the new resilience duty of Ofwat, and I strongly endorse that proposal. The present procedures for metering approval need widening and are glacially slow even when all those directly affected are in agreement.

Secondly, the text of the amendment provides an excellent illustration of the need for the Secretary of State to supply a clear and authoritative statement on metering to clarify the tortuous complexity of the present legislation. It is hardly surprising if water companies are confused about the law, if indeed they are. The subject matter is not intrinsically complicated, but successive layers of amending legislation, laid one upon the other, make the present state of the law difficult to discover without a great deal of work. At an earlier stage the noble Baroness, Lady Northover, assured me and the House that codification of water legislation would receive the attention of the department. I wonder whether the Minister could simply comment on any progress that has been made.

In conclusion, I believe that metering is important both to give consumers a fair deal and to help the environment. We ought to make it less expensive and easier to accomplish. I beg to move.

[Lord Cameron of Dillington]

My Lords, in supporting my noble friend Lord Oxburgh I realise that we are swimming against an overwhelming political current here. However, it is sometimes the duty of Cross-Benchers to point out the political follies of some of the main parties in this House. It is clear to me from having spoken to many Members of this House—including some very important Members, many of whom are here today—that on a personal vote this amendment, or something like it, would sail through the House. To put it bluntly, a lack of imagination at the other end of the Palace is preventing this happening. One might even say it was a lack of leadership. I say “lack of imagination” because it is quite easy to devise a tariff system or to further enhance or better promote WaterSure or some of the other systems so that large households on low budgets, for example, can continue to pay as little as they do for their water at the moment, or even less.

It has been my ambition throughout the passage of the Bill to ensure that water is valued more by all parties: government; businesses, including energy, which are great water users; farmers; and, above all, domestic consumers. Having read the Committee stage—I apologise that I was not in Committee when this was discussed—I know that it has already been said that no one will value it unless we measure it. That includes those who might be getting assistance. Everyone would value water more if they measured it. What seems strange is that that is the overwhelming view not only of Members of this House but of environmentalists and of most customers, when they are asked—you have only to read the Walker report to see that.

It is also the view of water companies that we should work towards 100% metering. Your Lordships might think that slightly counterintuitive because, if customers value their water more, surely they will buy less. However, water companies know that the costs and delays in providing ever-expanding infrastructure and water supplies to cater for an ever-expanding demand would cripple their balance sheets. In January, some of us heard that a mere extension of a reservoir in Essex took 20 years to achieve: 10 years to prove the case and 10 years to go through planning. How much longer would it take for the many new reservoirs required to cater for this system of unlimited demand? There is no doubt that a reduction in demand by around 15%, which is often cited as what can be achieved by universal metering, would be the equivalent of several new reservoirs. Metering is therefore so much quicker and cheaper, and infinitely better for the environment.

I want to tell your Lordships a small parable from India. In India, water was considered to be a commodity that was given by God and therefore should be free to all people. Because no one was paying for it or valuing it, the investment in infrastructure by the state and the private sector was therefore negligible. It was even worse than our water industry was before privatisation. So as a result of this paucity of investment, communities in both cities and rural villages often got water only for an hour per day, or sometimes two at the most. Anyone who has listened to any debates on overseas development in this House will know that poor sanitation caused by lack of water is the biggest killer of children in the world. Anyway, the Indian Government realised that everyone had to value water more and so changed the law about not charging for water. Almost immediately, a giant leap forward was taken in water supplies and sanitation across India, although it is not perfect and they have a long way to go yet.

Your Lordships may be thinking, “What on earth does this have to do with universal metering?”. However, as I said, it is a parable rather than a parallel because the Indian Government had learnt that you do not want to use water as a political or social tool to iron out the inequalities of life. Apart from anything else, water is one of the heaviest commodities on the planet. It is difficult and expensive to move around. It is best to put the proper value on water and then ensure through other measures that people have the wherewithal to pay for it; that is what I mean by a lack of imagination. Nearly all Western countries have universal metering and most of them, from what I can gather, have some sort of WaterSure scheme or an equivalent which relieve those who might get into financial difficulties. Universal metering is going to happen here eventually, as in the rest of the world, However, I am reminded of the German philosopher—I think it was Otto Mencke, although I cannot be dead certain—who said: “When the end of the world comes, I want to be in England because everything always happens 50 years later there”.