Water Bill
Lord Whitty Excerpts(10 years, 8 months ago)
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Lord Whitty
“( ) Granting of an authorisation of a retail or restricted retail authorisation for supply to non domestic sector customers must be done in such a way and on such terms that it does not disadvantage domestic customers.”
Lord Whitty (Lab)
My Lords, compared with some of the amendments before us this afternoon, this one is pretty straightforward and also pretty fundamental. We on this side of the House support the principle of extending competition in the non-residential retail sector of water, partly because we have been impressed by the progress made and experience in Scotland. There, not only have businesses and public bodies benefited from competition within the sector but also there appears to be benefit for the household sector from improved efficiency driven by that competition. That is a good model but of course history does not always repeat itself. We have a very different structure here in England and Wales, and markets are funny things. You cannot predict how the knock-on effects of introducing competition will work out in either the short or medium term.
The Government have made it clear that they do not at this juncture wish to give powers to extend competition into the household sector directly. The logic of competition in the non-domestic sector may well lead to improved efficiency but could equally lead to much tighter margins in the incumbent companies. Ideally, there would be other ways of compensating for those tighter margins but there would be a temptation for companies to restore their margins effectively through higher costs or less good customer service to the household sector. We know that that is not the intention of the Government, nor of the Opposition in supporting the Government in the principle of the move in this respect. We also know that Ofwat will use codes and charging regimes to try to prevent such a thing happening to the disadvantage of the household sector. However, would it not be sensible for this essential principle to be embedded right up front in the Bill?
I am sure that the Government will argue that this is probably not the right place for it but, because of the way the Bill is constructed and the slightly obscure way that retail competition comes in the redraft of 20 year-old legislation, the introduction of retail competition does not exactly leap off the pages of the Bill. Therefore, it would be sensible to put the qualification in early.
Accepting Amendment 1 would ensure that there is no ambiguity and that the intention of the Bill is to introduce retail competition in the non-domestic sector, but with no disadvantage in either price or in kind to the domestic sector. In addition to Amendment 1, Amendment 121 in this group would require Ofwat to keep an eye on the relativity between non-household and household charges. Amendment 45 reflects the need not to disadvantage the household sector by either price or lower service in relation to setting charges and establishing codes, which Ofwat is required to do under the Bill.
Amendment 1 is the principal amendment and would amend Clause 1 so that there would be no ambiguity. I very much hope that the Government can accept such an amendment, or something very like it. I beg to move.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, I thank the noble Lord, Lord Whitty, for his Amendments 1, 45 and 121 on the important issue of protecting householders. It is a crucial issue and one that the Government take very seriously.
Before I go further, I ought to take the opportunity to reiterate disclosure of my interests. I have a tributary of the River Thames running through my farm; I have an abstraction licence and a borehole. I own a house that was flooded in 2007 and I own one-third of a commercially operated lake.
The noble Lord, Lord Whitty, introduced the Water Act 2003 to Parliament, which was intended to put the customer at the heart of the water sector. This Government have continued that work through the water White Paper. We have been very keen, throughout the reforms that the Bill makes to the non-household market, that the household customer remains fully protected, and I think that we have achieved that. Indeed, the Bill introduces reforms designed to help us manage future pressures as efficiently as possible, ensuring that customer bills are kept fair for the long term.
The Secretary of State, Ofwat and the Consumer Council for Water all have a shared duty to protect customers. They must have special regard to, among other people, rural customers and people who are unable to switch their suppliers when carrying out their statutory functions.
There are already mechanisms in place to prevent business customers’ bills being subsidised by household bills. Ofwat’s policy of setting different retail price caps for household and non-household in the current price review will ensure that households do not subsidise the competitive market. Let us be clear about what that means. We can be certain that household customers will not cross-subsidise retail competition because there are separate wholesale and retail price limits. The costs of implementation for upstream reforms will be shared, as will the benefits. It is not desirable to prevent that, as this would also isolate household customers from the benefits of this reform.
We expect that household customers will benefit from the improvements and innovations that competition will foster. Water companies will be incentivised to introduce efficiencies and invest in improved customer services in order to retain and attract non-household customers. There will be positive knock-on effects. Household customers are also likely to benefit from these improvements, as our impact assessment shows.
We will come to the issue of de-averaging in later debates, so I will not detain your Lordships by talking about it now.
I stress that the Bill puts in place a framework that enables household customers to be protected against any changes to their bills resulting from the expansion of the competitive market. To be explicit, our charging guidance will say that de-averaging must occur only where it is in the best interests of customers.
I started by saying that we take the protection of customers of customers seriously. I hope that I have been able to reassure the noble Lord that we have thought about these issues very carefully indeed, and I hope that he will agree to withdraw his amendment.
Lord De Mauley
Perhaps I might quickly respond to that. First, what I should have done when I spoke first was to thank those noble Lords who have come to discuss their concerns with the Bill with me. That has been an extremely informative and helpful process. I am grateful to my noble friend for his point; he is not the first to say it. As he kindly says, we have been doing our best to help noble Lords with the Bill and I will continue to do that. I also take his point about informing the wider public. If I may, I will take that point away and see what we can do.
Lord Whitty
My Lords, I thank the Minister and the noble Lord, Lord Crickhowell. I have to say that if the noble Lord, Lord Crickhowell, cannot understand this Bill, with not only his experience of the whole legislative programme and procedures in both Houses but his intimate knowledge of the water sector, there is precious little hope for the rest of us. As for the general public or even those people who are to operate it within the industry and its regulation, there are some serious difficulties.
The noble Lord, Lord Crickhowell, was absolutely right to say, as I mentioned at Second Reading, that the Minister and his officials have been extremely generous with their time and effort. A lot of those documents are extremely comprehensible. It is a pity that that is not reflected in the Bill but it is a huge improvement on some departments that we have at times known, under all Governments. So I congratulate Defra and the Minister on the information given to us.
However, given the Bill’s complexity and the difficulty of reflecting it in simple terms for those who are operating it, let alone the average consumer or small business at the far end of the water chain, would it not be simpler to put something quite straightforward, like my amendment, right at the beginning of the Bill, so that everybody could understand it? The Minister has not taken this point fully.
I can understand the Bill sufficiently to see that there are checks and balances in relation to the charging system. It is difficult to see how the domestic sector would, literally, come to subsidise the non-domestic sector as a result of competition being introduced in the latter. However, it is not just about pricing. If the incumbent is faced with squeezed margins it is not just a question of banging the price up a bit because that is, by and large, set for five years and Ofwat would be pretty stringent in ensuring that it stays. However, you can save money by diminution of service and this is why I use the word “disadvantage” rather than referring to cross-subsidy. The sector could suffer from non-price effects of this if it went wrong and competition, instead of driving efficiency across the board, as we are told it has done in Scotland, did not have that effect on the supply to the domestic sector.
I would like to see this at the front of the Bill but I am clearly not going to get that from the Minister today. However, I suspect that, as we go on, there will be other points where greater clarity and part of the Bill being written in large letters would help people to understand. I beg leave to withdraw the amendment.
Lord Whitty
My Lords, I thank my noble friend Lord Hanworth and the noble Baroness, Lady Parminter, for drawing our attention to this aspect of the reform. It is passing strange that, in one of the very nice charts that the department produced and on which we have been congratulating it, it is clear that this market operator is the key to how the situation will play out in practice. We are setting up a market that does not exist, and we are trying to create and sustain it in a way that on the one hand gives the Secretary of State certain powers and on the other Ofwat certain powers, building on its existing ones.
Nowhere in this legislation are there any specifics about this market operator. As my noble friend has found out—I did not know this and I am not sure if any other noble Lord knew—there is a 61-page document on Open Water’s website telling us what it is doing. Having tried to fight my way through that document I am not sure that I am any better informed. Nevertheless, it is clearly an important body. The noble Earl, Lord Selborne, may be right that the Secretary of State should not be laying down precisely how it operates.
The Minister owes it to the House at least to put on the record what the Government expect of this organisation. It has very wide functions. It is crucial to how the market is going to operate, and has fairly substantial powers in terms of dealing with relations between existing companies and with the regulator. This is absent from the legislation, in even the mildest form. That is a bit bizarre. Its objectives include registration and switching; financial settlements; market governance; slightly ambiguously, the enforcement of codes—certainly their operation and administration—and the operation of the industry database. It is owned not as a separate, independent stand-alone company, but by the operators in the industry, which are nine regional monopolies, or eight if Wales is not involved; I am not entirely sure about that. It will allow new entrants to come in, which is jolly good of it. It is not entirely sure whether potential new entrants also have a role in this in relation to the market operating well.
The organisation’s relationship with Ofwat is not clear. It is not owned by Ofwat, which it says explicitly. It is not a subdivision of Ofwat, but is it a contract from Ofwat? Is Ofwat giving these responsibilities to that organisation that is then run by the industry, in the way that the noble Earl, Lord Selborne, describes? If so, are that responsibility and contract ever contestable? There are a lot of questions here. In some ways, the powers and responsibilities that it has, and the governance that it appears to have, would have been familiar to 18th-century economists. They would probably have called it an institutionalised cartel. I am sure that is not what the Government intend, but the way it is described in these documents tends to suggest that it is a fixed market and not as open as the Government like to claim.
Leaving aside one’s anxiety about this issue not having even the slightest mention in the legislation, before we finish our consideration of the Bill the department and the Minister need to lay out a little more precisely how this body will be set up, how it will operate, to whom it is responsible and how its performance is to be judged. Therefore, although these are basically probing amendments, I support the intention behind them.
Lord Whitty
“(e) the Consumer Council for Water or other appropriate statutory consumer body”
Lord Whitty
Amendment 3 is the first of a number of amendments that we will propose from the Opposition Front Bench on engagement with the Consumer Council for Water. It is important to recognise that one of the main players in the water sector has been the Consumer Council for Water. The Minister referred to me bringing in the 2003 Bill, which was when we took the Consumer Council for Water out of Ofwat and made it an independent, self-standing, statutory consumer body. While there has been a lot of change in statutory consumer bodies over the years, the consumer council has played an important role. While it has supported the regulator’s focus on the consumer, it has also challenged it. There has been a reasonable relationship between Ofwat and the consumer council. In recent years, Ofwat has encouraged some greater sense of responsibility on the part of the water companies and set up consumer challenge groups, which have fed into the boards of those companies. The Consumer Council for Water has helped to facilitate that. It is therefore important that that relationship is fully institutionalised.
Baroness Northover
My Lords, I thank the noble Lord, Lord Whitty, for tabling these amendments. The Government recognise the significant role that CCWater plays in the industry by representing water and sewerage customers in England and Wales. The noble Lord made that case cogently.
However, these amendments concern the licence authorisations that relate to inputting water to the network, and the noble Lord is clearly well aware of that point. This means that they relate solely to the relationship between water supply licensees and the incumbent water companies, rather than that between licensees and customers. Before issuing a wholesale or supplementary authorisation, Ofwat must consult the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate. This is not least because they can provide intelligence on any prospective licensees that are trying to operate in this area. The purpose of this is to ensure that these parties are fit and proper persons for the purpose of operating in the new markets.
We would like CCWater to continue carrying out its valuable work of protecting customers and handling customer complaints. It is worth noting that Ofwat already publishes a notice on its website asking for comments from interested parties before it issues a licence with either a retail or restricted retail authorisation. CCWater therefore has the opportunity to respond on any issues that might affect customers at this point. I hope that any concerns, as identified by the noble Lord, Lord Whitty, can be addressed in that way. I hope that he is reassured by this and is willing to withdraw the amendment.
Lord Whitty
I thank the noble Baroness for those comments. She is right that these clauses deal with the relationship between new bulk suppliers and the incumbents, but that has a significant effect on the nature of the market beyond that. If the purpose of this consultation is to establish whether the newcomers negotiating a relationship with the incumbent are fit and proper persons, one issue is the effect on consumers down the line. I accept that Ofwat is open to people writing in, but why is the statutory consumer organisation not one of those listed to give a view in the first place? We are changing the market, and there should be a consumer view on how that market is changing and who is entering that market. I am looking not for a veto, but for an input. I hope that the Government will think slightly more. It would not cost them that much to add a new paragraph (e) to this subsection, and it would be consistent with what is done later in the Bill—admittedly on parts closer to the consumer—and with the established legislation and regulations. I withdraw the amendment for now, but I would hope that the Government could consider this further.
Lord Crickhowell
My Lords, there is something to be said for learning from experience. The fact is, we have the experience of the Water Industry Commission for Scotland, which introduced highly successful arrangements from 2008. It is very clear in its recommendations on this particular point, and in the paper sent to some of us it has taken note of the debate that took place in the other place. It says specifically:
“In our view the prudent course of action would be to remove the direct link between the provider of resource services and the retailer/customer. This would remove any ambiguity that could be exploited by a large corporation to the detriment of all other customers. It would also allow a market to develop that could help in building resilience and improving our environment”.
On the front of the paper, it simply says:
“Some of these issues were raised and debated during the Committee stage in the House of Commons but as yet the Government has not been persuaded to accept amendments on the topics of substance we discuss in this note”.
Clearly, in the light of the good experience in Scotland and the very firm advice given to us, we need to know why the Government are not accepting the advice. I shall be very interested to hear what my noble friend has to say.
Lord Whitty
My Lords, I speak only because the noble Earl, Lord Selborne, and to some extent the noble Lord, Lord Moynihan, have rather pre-empted my speeches on the next group. Clearly we are on the same page. The reason I did not put my name to these amendments was that I was not entirely clear what they would do. I thought it would be better to establish a principle position on de-averaging and see what the Government thought. Clearly the Scottish experience is important. Given that experience, it is incumbent on the Government to tell us why they are not legislating in that way for England and Wales, and whether the precise amendments suggested by our Scottish colleagues would work under the Ofwat regime. Clearly the principle is an important one and it is one I will come back to on the next group.
Lord De Mauley
My Lords, these amendments, tabled by my noble friends Lord Selborne and Lord Moynihan, seek to introduce a fundamental change which would narrow the approach to upstream competition in this Bill by removing the link between upstream arrangements and retail arrangements with customers. They would mean that licensees would be able to make arrangements with incumbent water companies to provide water and sewerage services without needing to have a specific customer to consume the water or use the sewerage services through the retail market. The implication is therefore that the market might be established through incumbents tendering for new resources under a so-called single buyer model. This would be a significant change from the regime that has been in place since the Water Act 2003 and which we propose to extend through this Bill.
The current approach provides common carriage rights to licensees who want to provide their customers with water resources or sewerage treatment services using incumbents’ networks. Common carriage is the term used when new entrants are given rights to use incumbents’ networks to provide services to their customers. A single buyer approach is a very different model with decisions on tendering for water supplies or sewerage services resting with the incumbent. It provides fewer rights and less flexibility for new entrants.
The Water Act 2003 brought in a specific common carriage regime for new entrants to access the public supply system by making water supply a licensable activity. Under this regime, the same licensee that puts the water into the system must supply the retail services to the customer. The Bill reforms the existing regime by allowing different licensees to input water and provide retail services to eligible customers, but still requires there to be a specific customer. There is nothing in existing legislation that prevents incumbent water companies from making arrangements with third-party water suppliers or sewerage service providers to input water into the system or deal with sewerage disposal. Indeed, we are pleased to see that Thames Water has gone to the market to see which third parties could provide it with water in order for it to meet future water resource needs. Potential suppliers to Thames Water do not need a water supply licence to be able to make an input under this tendering process. There is no need to amend the Bill to make it possible for third-party suppliers to sell water to incumbents, should we feel this is the right way to go in the future. Clause 12 is designed to enable this. The Bill also provides for licensees to withdraw waste water and sludge from the sewerage system through the disposal authorisation in the sewerage licence. This could be used by Ofwat to introduce a similar model to a single buyer arrangement in the sewerage market if it feels that this would be appropriate.
Through the Bill, we are seeking to bring in new resources and introduce more innovation into the sector. My noble friends’ amendments would allow incumbents to dictate the future direction of upstream markets. This would reduce pressure on those incumbents to introduce efficiencies that will benefit customers and the environment because only those licensees that are able to bid for and win contracts would be able to enter the market. Incumbents rather than customers would therefore determine future upstream markets.
My noble friends have indicated that the main objective of the amendments is to remove risks connected with the de-averaging of water charges. As the noble Lord, Lord Whitty, said, that is something which we will come to in a little more detail in the next group of amendments, but I hope that your Lordships will allow me to say a few words on it now in response to the contributions that have been made. There is a crystal clear steer from the Government in our charging principles that Ofwat must not allow de-averaging that is harmful to customers. Ofwat has all the necessary regulatory tools to enable it to limit the effect of de-averaging on customer charges. Ofwat has clearly stated that it believes that these tools are sufficient. The Government’s charging principles make it plain that Ofwat must use these tools to ensure that any de-averaging or cost reflectivity is in the overall interests of customers. Two independent experts have reviewed the issue of de-averaging: Professor George Yarrow for Ofwat and Professor Martin Cave for the Consumer Council for Water. Both experts confirmed that Ofwat can facilitate upstream competition without any de-averaging. De-averaging has not happened in other regulated utility sectors, even though greater proportions of those markets are open to competition, and it is no more likely to happen in the water sector.
I stress again that the Bill puts in place a framework that enables household customers to be protected against any changes to their bills resulting from the expansion of the competitive market. Our charging guidance will explicitly say that de-averaging must occur only where it is in the best interests of customers.
My noble friend Lord Selborne raised the case of Shotton as a legal precedent to support the case that de-averaging is a real risk. It is a complex and long-running case, but I hope I can persuade him that it is a misunderstanding to describe it as a case of de-averaging. Shotton was a very unusual case and it is not appropriate to extrapolate from it more widely. For example, it concerned a discrete system that served only two customers, one of which was served by Albion Water. This is very rare. To give some context, the case only represented 0.01% of Welsh Water’s turnover. At the time of the dispute, this agreement was not subject to regulation by Ofwat. The Bill includes measures that will bring all such transfers within the scope of the regulatory regime. Ministerial guidance and Ofwat’s charging rules will therefore set out how charges between water companies and inset appointees such as Albion Water should be determined in future.
My noble friend raised the concern that EU competition law might require that indiscriminate de-averaging takes place, affecting both business and household customers. First and foremost, there is no general prohibition under competition law against the use of average pricing. In fact, it is common practice in both regulated and unregulated sectors. The obvious examples are the gas, electricity and telecoms sectors. In each of these regulated, networked sectors, regionally averaged prices have remained the norm. There is no suggestion that this approach is inconsistent with competition law.
My noble friends Lord Moynihan and Lord Crickhowell referred to parallels with the Scottish system where there is no upstream competition. In England, we have a very different market structure and a different set of resource challenges. We are learning from the example of Scotland where it is appropriate to do so but they are different systems and their regulation will accordingly be different. Perhaps we might discuss the Scottish situation in more detail in subsequent groups of amendments.
My noble friends’ amendments remove the direct risk of de-averaging but may not lead to a better outcome for customers. They could still see an increase in charges if incumbents introduced overly burdensome standards in tendering contracts or made poor decisions over which bids to accept. Ultimately, incumbents would not be incentivised to make their upstream services more efficient and would continue to be incentivised to make decisions that benefit themselves rather than customers.
Given that these amendments considerably narrow the scope of competition in the sector, I ask my noble friend to withdraw his amendment.
Lord Whitty
“( ) The rules must include provision for and in connection with ensuring that there are no variations between charges, or the amount of charges, imposed by a water undertaker under different section 66D agreements in consequence of the location at which the duty or duties to be performed by that undertaker under such agreements fall to be performed.”
Lord Whitty
My Lords, some of the issues covered by Amendment 9 have been discussed in the previous group. I do not entirely disagree with the Minister’s response on common carriage, in terms of how water gets delivered and having as broad a range of potential new retailers as possible. However, the outcome seems to be that if you have de-averaged prices, you have discrimination between users. Whether all the structural amendments—some in this group and some in the previous group with the amendment of the noble Earl, Lord Selborne—would be necessary to prevent that, the Bill ought to enunciate that principle. At the end of the day, we do not want a market where the easiest route leads to suppliers cherry picking and to a two- or three-tier market for the final delivery of water to businesses, public authorities and so forth—the non-domestic retail market.
In one sense, Scotland shows us what the benefit to business, and the knock-on effect to the domestic side, has been. It has been not in differentiated prices but in better service, in driving water efficiency both in the delivery and use of water, in better means of dealing with waste water, in better water treatment in specialist cases and in disposal of water and waste. If you put competition wholly on the price side, you will not get those advantages. It will be easy for a supplier, on the supply side, to have a more accessible or more cheaply accessible source of water at the upstream level to bring to its business consumers or, on the demand side, to have a group of businesses and other institutions taking advantage of its terms because they are all fairly close together and all have similar requirements, and therefore there are economies of scale in actually supplying that institution.
I do not think that the Government envisaged—and nor did we on this side—the increasing competition in the retail sector as being primarily about wholesale price. Reassuring noises have been made about Ofwat having the ability to ensure that de-averaging does not take place. The natural drive of the market, however, is likely to make it quite attractive. Unless Ofwat has a clear line, which this amendment would give them, that the wholesale price and therefore the retail price of wholesale water would not be differentiated by location, we will get some differentiation of outcome. We will get cherry picking and we will get distortion. It will hit particularly the more remote rural areas and rural businesses in those areas; it will hit particularly businesses in rundown parts of the inner city, where not many of them are inclined to negotiate deals with the company; and it will hit businesses where it is difficult to see how a new arrangement would work.
Unless there is an overall presumption that there should be no de-averaging then it is quite easy to see how the market would end up with that. It may be that Ofwat’s powers would be exerted to prevent that, but this Bill does not require Ofwat to do so. The terminology that de-averaging would exist only if there was an “overall benefit” to consumers makes it quite difficult to assess. You have an example of de-averaging which clearly might benefit the immediate consumers who are benefiting from that de-averaged price, but how do you then assess its effect in the short and medium term on consumers as a whole? It is quite a difficult judgment for Ofwat. If the outcome the Government want is that which has been delivered in other quasi-utility markets—largely it has been—why not actually tell Ofwat to deliver that? Surely it would be easier.
I hope that the Government take this slightly more seriously. It will not necessarily unravel their whole approach to competition in this Bill. It is simply giving Ofwat an explicit duty that will deliver an outcome the Government say they want. The Government should not fundamentally object to this amendment. It may require a bit of back-up along the lines the noble Earl, Lord Selborne, has suggested already, but it requires at least the principle to be reflected in the Bill. Otherwise, we will get cherry picking and we will get discrimination, which is unlikely to drive the kind of efficiencies that we have been praising the Scottish system for delivering. I beg to move.
Lord Cameron of Dillington (CB)
My Lords, as this is the first time I have intervened in Committee, I declare an interest as a farmer with abstraction licences. Even though I come from Somerset, my farmland is not yet flooded. However, if the current rains continue, it is unlikely that I will be able to say that on Report.
I want to back up the noble Baroness, Lady Parminter, who said that she could not understand why we had only a week between Second Reading and Committee. This is a very complicated Bill and I am not certain why that particular protocol has been broken on this occasion. I have never had an explanation of it. Maybe I have missed some explanation somewhere, but I think it is wrong. I hope it is not a precursor to a Commons-style approach to Bills, where arguments and the length of discussion are ridden over roughshod.
I strongly support Amendment 9 and the whole question it addresses. It is very important that de-averaging does not take place. I would have supported the noble Earl, Lord Selborne, in his amendments to ensure there are no detriments or de-averaging if I had understood that that was their intention. The noble Lord, Lord Whitty, said that he was not entirely clear what the amendments intended; personally, I could not understand them at all. Anyway, I would have supported the noble Earl had I known.
Water, like Royal Mail, should be covered by a universal service obligation that is amendable only with the permission of Parliament. Water should be a universal right—although clearly there can be exceptions, as with Royal Mail. For instance, I believe that a postman does not have to deliver to a household where he is permanently attacked by a savage dog. The water equivalent of that might be a blatant leak in a householder’s garden where the water was going to waste; there could be exceptions.
It is very important, particularly in rural areas, that de-averaging does not happen. I have heard the view expressed that de-averaging is bound to happen with the introduction of competition, especially if that competition eventually moves on to cover domestic premises. I personally hope that it will but obviously we should go softly, softly. I do not see competition as incompatible with de-averaging. It is possible to invest efficiently in the overall infrastructure and still charge your customers competitively, based on an average cost per litre, once the overall infrastructure is in place and the supply of water adequate for the demand. That obviously means we must manage the supply, the overall abstraction and the demand—preferably through universal metering but we have yet to come to those debates.
For the time being, I strongly support the thinking behind Amendment 9. Neither remote nor very remote properties should have to pay more per litre than their urban counterparts. I sincerely hope that the Minister was right, when replying to the previous debate, to say that Ofwat has the power to prevent de-averaging. I sincerely hope that it will use those powers.
Lord De Mauley
My Lords, before I address this group of amendments, perhaps I may answer the noble Lord, Lord Cameron, and my noble friend Lady Parminter, who asked about the truncated period between Committee and Report. I fear that these things are way above my pay grade and are decided through the usual channels. All I can do is apologise to noble Lords for any inconvenience that that may have caused and assure noble Lords that my door remains open. I will be there to answer questions between days in Committee and between Committee and Report; I hope that I can be helpful.
Turning to this group of amendments, I thank noble Lords for some articulate speeches about a complicated issue. It is one that we take very seriously. As noble Lords said in earlier debates, this is not an easy area to get one’s head around. Specifically on de-averaging, when we talk about averaging or de-averaging of costs, we are discussing how best to share the costs of sourcing and disposing of water between customers. Most providers of goods and services average their costs to some extent.
In my view, it makes sense to share the costs of maintaining the network on which all customers rely across all customers, regardless of their location. The network makes up about 90% of a water company’s assets, so when we discuss de-averaging in the context of the Bill, we are talking only about charges in the competitive part of the market, which accounts for about 10% of the companies’ activity. I think that many noble Lords agree that there could be real benefits from increasing the cost-reflectivity of charges for different sources of water to reflect the environmental costs of supply. That is especially important in water-stressed areas or for business users that use large volumes of water.
Strange as it may seem, at present, there are almost no economic incentives for businesses that use large volumes of water to seek out the least environmentally damaging source of water. Nor are there any economic incentives to encourage incumbent water companies or new entrants to the market to help businesses to identify the most environmentally efficient sources of water. The Bill is intended to change that. Our upstream reforms will encourage competition for business customers and incentivise more efficient use of resources. More efficient use of water resources must be good for customers and good for the environment.
I discussed earlier the measures in place to ensure that householders are protected. In regard to de-averaging, as I said in the debate on the previous group, we are clear in our charging principles that de-averaging must occur only where it is in the best interests of customers. In answer to my noble friend Lord Moynihan, when we issue the charging guidance we will make it clear that there must be robust boundaries on the scope of any de-averaging. In particular, Ofwat will be expected to exert control to prevent the de-averaging of network costs and any negative bill impacts that could arise from this. Any moves to enable greater cost reflectivity will be targeted squarely on water resource costs in the competitive parts of the market. This is where there may be social and environmental benefits from encouraging sharper price signals. The Government are completely committed to maintaining bill stability. Customers have made it clear repeatedly that stability is important to them. We will not permit anything that undermines that stability.
The charging rules that Ofwat makes, within the framework set by the Government’s charging guidance, will be flexible. As the situation changes over time, our guidance and the rules that Ofwat sets about charges will be able to respond to the way in which the market evolves. I mentioned earlier that it makes sense to provide a price signal that reflects important decisions about our precious water resources. Using the Bill to ban any kind of price signal would, I suggest, be disproportionate. At the same time, we want to ensure that customer bills remain stable and reasonable. The flexible framework of charging guidance and charging rules will achieve this.
The suggestion was made in the debate that customers could end up paying for stranded assets. This is a regulated sector and the important question of what costs should be borne by customers is one for the regulator. In fact, this point is less about de-averaging than about whether the investment made by incumbent water and sewerage companies is made efficiently and in the interests of customers. No one here, I suggest, would think it right that customers should have to foot the bill for inefficient investment. It must therefore be right that the regulator has the powers to protect customers from paying for inefficient investment.
My noble friend Lord Selborne asked how Ofwat can enforce rules on de-averaging. The charging rules produced by Ofwat will regulate the price relationship between the incumbent and the licensee. It will be able to set out how incumbents apportion the costs of the network and distribution. In making these decisions, it will need to take account of its duties, which include having regard to rural customers. It will also have to reflect the Government’s charging guidance. The Secretary of State can veto Ofwat’s charging rules if they do not reflect the guidance.
Noble Lords asked whether rural customers might lose out. Ofwat will continue to have a statutory duty to have particular regard to rural customers and the charging principles that the Government published recently reinforce the protections that will remain for rural customers. They require Ofwat to ensure that any greater cost reflectivity must provide benefits to customers. No customers should be unfairly disadvantaged by the way that reform impacts on water charges. The noble Lord, Lord Cameron, referred to water being a universal right and I strongly agree. Water companies are under a statutory duty to supply and the Bill will not change that fundamental requirement.
I mentioned earlier that both Professor George Yarrow and Professor Martin Cave confirmed that Ofwat has the tools to regulate the upstream market without any de-averaging. The Bill will impose a legally binding framework for the industry and the regulator regarding their approach to the averaging of prices. This view is supported by competition experts. For these reasons, I hope that the noble Lord will be reassured and be able to withdraw his amendment.
Lord Whitty
My Lords, I thank noble Lords who have spoken in support of this principle. On this occasion, I found the Minister’s reply slightly confusing. I thought that there were some novel parts and a few red herrings in there. He says he is in favour of robust boundaries to de-averaging then claims in aid Professor Cave and Professor Yarrow who say Ofwat have the powers. However, all the amendment asks is that we make those powers explicit and that we require Ofwat not to discriminate on the basis of location. There might be certain areas where they could discriminate but not in relation to location of either source or customer.
If the Minister is saying that that will happen because Ofwat already has all these duties to ensure everybody is treated fairly, including rural and remote consumers and so forth, why not stipulate what they are trying to do in the Bill, rather than through the interaction of several parts of different codes? The noble Lord’s argument about discouraging the use of the least environmentally efficient sources of water was a little unclear. Any individual source of water from a new provider is a very small part of the totality of the incumbent company’s activities. Discouraging environmentally inefficient or damaging sources of water will, and should, be tackled through the abstraction regime well before the Minister introduces upstream competition. The noble Baroness, Lady Parminter, and I have amendments to that effect later on. That is, surely, the direct way to discourage environmentally damaging and inefficient sourcing of water at the top end.
At the other end, the requirement of the noble Lord, Lord Cameron, that water should be universally delivered is not only a matter of delivering it but doing so at approximately the same cost wherever you live. That has happened, under various Acts of Parliament, with water regimes going way back to private and municipal companies, through nationalisation and every stage of privatisation. It would be a pity if this legislation, with all its benefits in improving efficiency at the far end of the water chain, were to move away from that basic principle. The Minister has not yet established that there is a good reason for moving away from that, nor that Ofwat’s existing powers, important though they are, would necessarily deliver that outcome. We shall probably return to this subject at a later point. For the moment, I withdraw the amendment.
Lord Whitty
My Lords, to be honest I do not intend to challenge any of the Government’s amendments, even those that I understand. However, I would ask one question of the Minister. I had expected to see in this group of amendments, although maybe it will come later on Report, a response one way or the other to paragraph 12 of the report of the Delegated Powers and Regulatory Reform Committee, where the dehybridisation procedure—or the procedure to remove the hybridisation procedure—is adopted. It drew the House’s attention to that and to how it is being dealt with by the Government. If the Minister is saying that it may come up in a general reply to the committee, I am quite satisfied with that, but I thought that I would raise the matter here as it is in this part of the Bill.
Lord De Mauley
I assure noble Lords that we will deal with all the issues raised by the Delegated Powers and Regulatory Reform Committee, and I am sure that we will accept the vast majority. There are some quite complicated issues in there, which we are working through at the moment.
Lord Whitty
My Lords, my name is also on the amendment to which the noble Earl, Lord Selborne, has just referred. My reason for putting my name to it was very much the point he was underlining. Only by some form of no-detriment clause—some of the amendments go slightly wider—can we protect what is intended to be an outcome of retail competition, which is more focus on energy and environmental improvements at the retail-user end and final delivery. Historically, Ofwat has not been particularly good at being prepared to finance—if that is the word—through the price review, or to give priority in the price review to water efficiency schemes. I think that Ofwat improved a little in the previous price review and it shows intention to do so again in the next one, but the reality is that we have not done very well on that front. The introduction of upstream and, to some extent, retail competition could, if it is not contained, have an effect on improvements in water efficiency at the retail end, and the positive move by Ofwat in recent years to focus on water efficiency could be reversed. I strongly support what the noble Earl, Lord Selborne, has said on the amendment.
Lord De Mauley
My Lords, perhaps I may start by saying that our approach to retail competition is being developed jointly with the industry, along with the England and Scottish regulators, and others. This group is well placed to identify the conditions that will work best in England, capturing any lessons learnt and building on the Scottish experience.
I am not sure how a no-detriment duty would sit alongside the general duty for the Secretary of State and Ofwat to secure that licensees meet their statutory obligations and the conditions of their licences, given that these are set by the existing duties on Ofwat and Ministers. Ofwat is under a general duty to ensure that incumbents are able to finance their statutory functions. This duty enables Ofwat to create the right incentives to ensure that incumbents can benefit from investments that deliver improved water efficiency in their respective areas. It is suggested that incumbents may show preference to licensees that do not concentrate on water efficiency activities. This is addressed through Clause 23, which requires Ofwat to ensure that incumbent water companies do not discriminate in the provision of services. Ofwat is also able to address such issues through its Competition Act power, which incidentally is a power that WICS does not have in Scotland. In England and Wales, both incumbents and licensees are subject to a duty under the Water Industry Act 1991 to help their respective customers conserve water. I would not want to undermine the market for water efficiency services. I am sure that that was not an intended impact of the amendment.
Curbing the licensees’ water efficiency activities could also put them at a competitive disadvantage if a similar duty was not placed on the retail side of the incumbent’s business. Why should licensees be kept under a duty which potentially curbs their water efficiency activities, while an incumbent’s retail business is allowed to operate without this barrier? Amendments 46 and 53, in particular, may be a barrier to licensees working with customers to become more water-efficient because they impose a condition that any new arrangements designed to reduce pressure on networks must not impose any more costs on incumbent water companies. This same requirement is not being placed on the incumbents’ retail businesses through these amendments. A no-detriment clause works in Scotland due to its circumstances, having just one incumbent retailer and wholesaler. It simply will not work in the same way in England and Wales. For that reason, I ask my noble friend to withdraw his amendment.
Lord Whitty
“Separation of retail and wholesale activities
Any company granted a water supply licence under section 17A of the Water Industry Act 1991, prior to the passing of this Act, must establish separate legal identities for its—(a) retail activities, and(b) wholesale activities,within one year of the passing of this Act.”
Lord Whitty
My Lords, I shall speak also to Amendment 97. I am asking the Committee to consider a rather more radical approach to the structure of this industry. In earlier debates today, there was reference to unravelling some of the accounting structures of companies. Indeed, the Minister referred to the requirement on separate indication of charging by the retail and wholesale ends. We have to remember what was said by several of us at Second Reading. This is a very odd industry. In England, it consists, effectively, of eight regional monopolies, all of which are totally vertically integrated, with high profitability over the years since privatisation. There has also been high investment but there has nevertheless been high profitability for their owners and high dividends have been paid out. There has also been a high level of gearing in order to meet those investments by going to the money markets. Most of them are now owned by international investment funds although in many cases they have had a sequence of owners. However, they retain a close resemblance to the pre-privatisation water authorities.
Over the years, there has been some degree of breaking up of monopolies in other industries, including vertical splits, to encourage a more effective form of competition. The recent report by Martin Cave and Ofwat’s own assessment of the situation give rise to suggestions that Ofwat, too, ought to be able to require separation of the wholesale and retail ends of the currently vertically integrated water companies. When we move to retail competition, its major feature is likely to be that the retail arms of other incumbent companies will begin to compete in the areas that are dominated by the historic incumbent companies. To some extent, that has happened in Scotland, where English-based companies provide some of the competition in the non-domestic retail sector.
We would expect those companies to continue, one way or another, to dominate the scene, even if they are in more direct competition with each other. As other noble Lords have said, that means that we have to separate out how those companies operate on the retail side and consider what the relationship between the wholesale water undertaker operation and the retail operation will be. One can do some of that by ring-fencing, separate accounting, Chinese walling or whatever, but we need to consider separation as legal entities or even disinvestment from one company to another. That option is not available to Ofwat or, indeed, the CMA, whatever the performance of companies, the competitive flaws of the market or the outcome for consumers may be. This argument about where to separate quasi-monopolies has applied. We have had many debates over recent years about banking, we have had the situation of the railways and the issue arose at some length during the debates on the Energy Bill. It is horses for courses, but the fact that there is no power to require this, even in a situation which is still pretty well dominated by regional monopolies, seems to be an omission.
There are reasons why Ofwat and successive Governments have not gone down this road, one of the main ones being that it might well frighten off investment. This is a pretty good investment. It has provided a very substantial return to those people who have invested in the English water industry over the past 20 or so years. They have had a pretty good and reliable return. Over the past two price review periods some would say that, particularly because of the over-allowance by Ofwat for the costs of capital, they have had an exceptionally good return on prices which have been designated by the regulator. That is not to say that a change in the circumstances would not cause some hesitation on the part of investors, but the reality is that on whatever basis we operate it will continue to provide a good, safe, consistent return to international investors. For that reason we should discount some of the scare stories that surround the issue of enforced separation.
These two proposals give the Government an option. Amendment 49 would give Ofwat, and by extension the CMA in certain circumstances, the power to mandate separation either for one company, or, following a market review, for all companies operating in that sector. That is a pretty substantial increase in their powers, although it is not very different from what the CMA can do in most markets if it finds that there is a breach of general competition law. The rather softer alternative which I think the Government might well consider more is Amendment 97. That would allow for voluntary separation in certain circumstances or negotiated separation if Ofwat were to intervene in order to enforce better competition and better performance.
Amendment 97 therefore is a minimalist form of separation. Amendment 49 is more draconian. The Minister can probably guess which I should prefer, but in this context I would be happy to see the Government take up either. At some point down the line, the current structure of the water sector is going to have to be challenged more fundamentally than is done by the Bill. If we were to give the contingency power to Ofwat now, or make it easier for the companies themselves or for Ofwat to negotiate and suggest to companies that they should split, that would give us the ability to reshape the industry following the introduction of retail competition even to the degree provided for in the Bill.
I suspect that the Government are going to be deeply resistant to either option, but they are wrong. The structure of the industry is not one which can be sustained for very much longer. It is one that requires significant investment and we do not want to frighten the investors. On the other hand, we have to face up to the reality that proper competition, meeting both business and household consumer needs plus the very substantial environmental demands on the industry, may well require a more radical solution to the structure of the industry than is envisaged in this reform.
I hope that the Government will at least take this matter seriously. Giving Ofwat some powers in this area would be a significant move forward. I beg to move.
Lord De Mauley
My Lords, I am grateful to the noble Lord, Lord Whitty, for tabling Amendments 49 and 97, which are about an important subject, that of separation, whether legal or functional. Legal separation is what Amendment 49 deals with. The amendment would require the eight licensed water suppliers currently operating under the existing water supply licensing regime—so not the incumbent water companies—to set up legally separated entities for the retail and wholesale parts of their business. It is unnecessary to require these licensees to undergo legal separation. In the current market, such licensees can already choose to offer retail services only. In fact all of them do. In the new market, licensees will be able to offer both retail and upstream services separately.
As drafted, this amendment would not require the legal separation of incumbent water companies, but I understand that that is the intention behind it. Legal separation of the incumbent water companies is usually perceived as a way of preventing them from discriminating against new licensees entering the market in favour of their own retail businesses. This discrimination could be either through the prices they charge or by other non-price forms of anti-competitive behaviour. However, legal separation would not eliminate the risk of discrimination in competitive markets, nor is it the only way to deal with discrimination. Ofwat has a range of tools it could use, for example by making licence changes to govern the relationship between the retail and wholesale parts of the companies. These could go as far as requiring effective functional separation. The Bill also gives Ofwat stronger powers to ensure that it can take action to tackle discrimination and ensure a level playing field for all market participants.
The water White Paper made it clear that we would not drive fundamental structural change to the industry, such as forcing the legal separation of incumbent water companies. We were persuaded by the arguments of water companies and investors in the sector that doing so would reduce the regulatory stability of the sector and put future investment at risk, something to which the noble Lord, Lord Whitty, referred. We must not take risks with a successful model given the challenges we face in building the resilience of the sector and the importance of keeping customer bills affordable.
The Government expect Ofwat and other competition authorities to take firm action to prevent discriminatory pricing or behaviour. This could include requiring undertakings from market participants to address anti-competitive behaviour, for example by introducing functional separation. Furthermore, under Clause 23, the Government have also introduced a duty on the Secretary of State, Welsh Ministers and Ofwat to ensure that incumbent water companies do not exercise undue preference to their own retail businesses, associated licensees or other incumbent water companies on non-price matters. Ofwat therefore has sufficient powers to reduce discriminatory behaviour without there being legal separation of incumbent water companies.
As the noble Lord, Lord Whitty, explained, Amendment 97 would enable licensed water suppliers to choose to specialise in either retail or wholesale services. Clause 1 and Schedule 1 to the Bill already enable this by removing the requirements in existing legislation for suppliers of upstream services also to provide retail services. This amendment is therefore unnecessary to achieve the objective the noble Lord seeks.
Forcing separation would not simply be about costs to investors, it would impact on costs to customers. If the sector becomes less attractive, the cost of capital increases, and increases of as little as 1% can lead to £20 on a bill. We must remember the need to ensure that bills remain affordable. I therefore ask the noble Lord to withdraw his amendment.
Lord Whitty
My Lords, clearly I am going to withdraw my amendment because the noble Lord indicated in his opening paragraphs that it is in the wrong place to achieve what I thought it might achieve. However, the subject is worthy of further consideration. It is true that Ofwat has a power of functional separation in Schedule 1 but it is only one way round. The amendment would provide for it to be both ways round. It would give some flexibility to Ofwat, but only on functional separation.
On ownership separation, this is such an odd market that at some point some Government will have to consider this. The proposed clause, as drafted and as intended, did not say that we would do it, but it would give Ofwat reserve powers to do it in relation to either one company which was engaged in anti-competitive behaviour—which is wider than simply the relationship between its own wholesale and retail internal pricing system—or across the board.
The power exists and is used by both the European and British competition authorities in almost every other sector—we have required breweries to give up their pubs and banks to give up their retail branches—but water is more protected because it has a sector-specific structure of regulation which has built up, for understandable reasons, from the old nationalised structure into a regionally based oligopoly. It has attracted a serious amount of investment, but at a cost. Part of the cost is inflexible and the Bill seeks to introduce a greater degree of flexibility. I accept that, but, ultimately, you would not necessarily want the structure for all time.
Therefore, although I do not advocate wholesale intervention at this point, Ofwat, as the sector-specific competition authority, needs stronger powers than it currently has. My proposed new clause clearly would not give it those powers, and even if it did the Minister would not accept it. We have a problem with the nature of the industry. It has had some fairly bad publicity recently in terms of its levels of profitability, its method of gearing and the way that it treats its customers. There is considerable room for improvement. One potential stick for that would be to give Ofwat wider powers. Indeed, a future White Paper may well address this issue more radically than we are doing today. In the mean time, I shall withdraw my amendment.
Lord Whitty
My Lords, I can accept quite a bit of what the noble Lord, Lord Crickhowell, has just said, but it does not deal with the totality of the noble Baroness’s amendment, which I broadly support. Amendment 74 deals with bulk transfers which may well be within the context of an existing abstraction licence—it is only change of use if it is used for some other purpose. The Environment Agency does not have a licence control except in terms of change of use. It is an Ofwat responsibility, in increasing upstream competition, to arrange for these bulk transfers. It is complicated but it seems to me that if there is a serious environmental problem, the Environment Agency and its Welsh counterpart need some powers over and above consultation—which already exists—to stop those transfers taking place. I think that is really where the noble Baroness’s amendment is aimed.
The consultation rights already exist and the noble Lord, Lord Crickhowell, has spelt this out. In most cases, under the previous regime, Ofwat and the Environment Agency have certainly in recent years reached an amicable agreement. However, there is the possibility of a clash under the new regime, and in those circumstances the noble Baroness’s Amendment 74 would be appropriate.
Lord Crickhowell
I am grateful to the noble Lord. I do not have the papers immediately to hand but I have it in mind that if there is a change of use, that prompts Ofwat to have to consult the Environment Agency. I may be wrong on that and no doubt my noble friend will be able to deal with it.
Lord Whitty
If there is a change of use—for example, if you are a landowner with an extraction licence who now, under the new regime, wants to put it into the water system—then the Environment Agency has to give a change of use certificate, and will judge that in the same way as if it was a new extraction licence. So that control is there. However, if it is simply a bulk transfer within existing use and with existing abstractors, then that break is not there. I think I am right in saying that.
Lord Whitty
My Lords, I have Amendment 104 in this group, which touches on exactly the issue that the noble Earl referred to right at the beginning of his remarks. The essential problem here is that we have two issues: the introduction of upstream competition and the deficiencies in the present abstraction regime. Logically, it would be sensible to have accomplished, or at least set in train, the abstraction reform before we introduce upstream competition. In fact, the Bill gets it entirely the other way round.
The inadequacy of the abstraction regime has been fairly long-standing. I can remember having arguments within Defra when we brought in the 2003 Bill that we ought to have been more radical at that point. Indeed, ever since, the situation in several catchment areas has seriously deteriorated. Although the noble Lord, Lord Cameron, is right that it sounds odd for us to be talking about it in light of the recent inclement weather in most of the country, the reality in the long term is that a lot of our catchments are not in very good condition, either in terms of water resources or of their environmental flow. Abstraction levels and potential abstraction levels have had a serious effect on that.
The Government know this and have undertaken a review of the abstraction regime. It has been rather a long time coming, but they have nevertheless got to the point where they issued a very good consultation paper only last month, which gives two options as to how we could conduct the framework of reform. They could have gone a little further—issues such as charging, which the noble Earl also referred to, ought to be part of this. However, if we are unable to introduce that reform until into the 2020s, and meanwhile we have triggered upstream competition, we are aggravating the position. Once there are new suppliers, they will be looking at new sources. They will be looking at trading licences. In reality, it is not only the abstraction that is taking place that is damaging to a lot of our catchments, but the potential abstraction under existing licences. Many of these existing licences, which we talk about being introduced in the 1960s, are grandfathered rights, which probably existed centuries previously when the demand for water was less and the precipitation was probably even more than we recently experienced.
We have catchment areas that are subject to increased demand at the far end, to increased environmental deterioration and to climate change, and present potential problems for water quality as well as water supply. That problem needs addressing. If existing licences provide for twice the level that is actually abstracted—in other words, less than 50% of the potential abstraction actually occurs—and more people are trying to get their hands, figuratively speaking, on the water to put it back into the system and to enhance competition, then we have got a perfect storm. What, however, if we do it the other way around—if we speed up the introduction of abstraction reform and get the legislation we need? Some of it can be done without legislation, but probably not all of it. For example, the issue of compensation was a major inhibitor on the Environment Agency, as it comes out of the Environment Agency’s budget and the Treasury makes absolutely certain that it comes out of your budget. This inhibits the degree to which you can introduce modifications of termination of abstraction agreements. Probably, because it is a property right, that needs primary legislation. We need to move to primary legislation fast. We need to introduce it and you cannot introduce it all at once. It will take a bit of time to introduce it, but we need to start as rapidly as possible.
Once we have an abstraction regime that puts a cap, catchment by catchment, on the amount of water in aggregate that people can extract, and defines that in terms of the flow of the river, the demand on that river, and the potential environmental damage or benefit to which that river contributes, then we can relatively easily within that framework introduce competition, trading, sophisticated agreements of swapping water between one entrepreneur and another and indeed across boundaries of the water company areas. If you do it the other way around, however, you will affect the environment and the supply of water. You will make it much more difficult later to introduce rules in relation to the competition which affect the abstraction licences which exist, let alone new ones.
The Environment Agency is not without some powers in this respect. As we said in relation to the previous group of amendments, at the point of change of use, the Environment Agency can effectively introduce new provisions. However, not all of these will be change of use and if you have an abstraction licence currently, which would allow you to take out twice as much water as you actually need, then only part of that licence would be used for the public water supply system and the rest would remain. In effect, instead of taking 40% of the abstraction you would be taking 100% and only half of that would go into the public supply to provide for additional competition.
Although there are powers for the Environment Agency, they need to be strengthened. The sequence of events needs to be a rapid conclusion of the current consultation on abstraction, and introduction of the primary legislation and other regulations that we need as rapidly as possible over the next few years If we sped it up we could probably do that by 2020, which the department says is probably the earliest date that we could introduce upstream reform in any case. If we do not have that legislative sequence, we will get to 2020 without abstraction reform being properly implemented, and have all the problems of suddenly introducing upstream competition.
All we are asking in these amendments is to put the order right, put both elements in the Bill, and recognise that we will still need another Bill to do the abstraction reform in detail. I am suggesting that the division between the primary legislation for abstraction reform and the introduction triggering the provisions on upstream competition should be five years. The noble Lord, Lord Cameron, queries whether that actually made matters worse, but that is more or less the timescale the Government are working on for upstream competition in any case, so it does fit. If necessary we can alter that five years, but we need some clear sequence. At the moment the Government are dealing with only half of it in this Bill. The department have started the other half but we need to do them the other way around. I hope that the Government at least accept that principle, even if they are not prepared to accept the noble Baroness’s or my amendment tonight.
Lord De Mauley
My Lords, I thank my noble friend Lady Parminter for moving her amendment and other noble Lords for their contributions to this debate. This is, we all agree, a vital area. Amendment 96 would delay regulations under Clause 12 and the market for private water sales to water companies from coming into force until draft legislation is presented to Parliament on abstraction reform. Amendment 104 would introduce a new clause to prevent Clause 1 from coming into force until five years after the Royal Assent of future primary legislation on abstraction reform.
These amendments would delay both the upstream reforms and the retail market reforms in the Bill. We do not think they are necessary. I will explain why. We are fully committed to delivering abstraction reform and we share the views of noble Lords that just because we have had the wettest January on record does not mean that we will not imminently go into drought. We have seen that in recent years. We do not share the view, however, that there are risks in introducing upstream reform ahead of abstraction reform.
The Government and the Open Water programme—a partnership between the industry and regulators—are working towards retail market opening in 2017. Our retail reforms are widely supported by customers, who will benefit from improved customer service as a result of these changes. Non-household customers will be free to negotiate the best package to suit their needs. Customers with multiple sites will benefit hugely from being able to negotiate for a single bill from a single supplier. Improved customer services will have knock-on effects for household customers too.
Upstream reform will be introduced at a slower pace, as the noble Lord, Lord Whitty, acknowledged beyond the 2019 price review. This is because we recognise— and I thank my noble friend Lord Crickhowell, for his expert views which supported this—that upstream reforms will require careful planning and close working between the water industry, regulators and customer representatives. However, it is important to progress upstream reform because the current regulatory model is not delivering the kind of efficient resource use and innovation that we need. This reform will help to keep bills affordable and, vitally, to benefit the environment.
I assure noble Lords that there are sufficient safeguards in the existing regimes to prevent an unsustainable increase in abstraction being caused by the Bill. In order to sell water into public supply, abstractors will need to apply to the Environment Agency or Natural Resources Wales for a “change of use” for their abstraction licence. The Environment Agency can refuse such a request if it will lead to unsustainable abstraction. It can also refuse if it would cause deterioration in the catchment, or apply conditions to ensure that this does not happen.
In addition, Ofwat must ensure that anyone wishing to input to the public water supply system holds the appropriate abstraction licence, and informs the Environment Agency about any trades with other abstractors.
Through this Bill, in Clause 1, the Government will also require Ofwat to consult the Environment Agency or Natural Resources Wales before issuing a water supply licence. As my noble friend Lady Northover explained in the context of an earlier group of amendments, there are also safeguards in the existing regimes to prevent an unsustainable increase in abstraction by water companies for the purposes of water trading or “bulk supply” agreements. I also assure noble Lords that we are completely committed to abstraction reform and the introduction of a new system fit to face future challenges including changing climate and population growth.
Water Bill
Lord Whitty Excerpts(10 years, 8 months ago)
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Lord Whitty
“Retail exit
(1) The Secretary of State may by regulations make provision about the transfer of an undertaker’s assets and liabilities associated with its non-household retail business into a separate company.
(2) Regulations under this section are to be made by statutory instrument.
(3) Regulations under subsection (1) may, in particular, make provision for any such transfer to be subject to—
(a) approval by the Secretary of State; (b) any such safeguards as may be specified in the regulations;(c) the transferee company holding a licence containing a retail authorisation pursuant to section 17A of the Water Industry Act 1991;(d) the provision of any information or other such assistance from the relevant undertaker as may be required by the Secretary of State for the purposes of approving the transfer.”
Lord Whitty (Lab)
My Lords, at Second Reading there was bemusement on all sides of the House as to why the Government were being resistant to the concept of exit in the new retail market. I am not sure that the Minister’s words, either on that occasion or in any briefing since, have convinced me as to why, uniquely in this market—or almost uniquely—we should not allow exit.
It is a funny market in which we are trying to encourage new entrants by designating the area in which they should operate, and designating the terms and regulations under which they should operate. We envisage benefits to business and other non-domestic consumers within that market as a result of that competition, and we are assuming that it will bring benefits to a wider part of the whole water structure and water consumers. However, to maximise the effect of a market, there have to be winners and losers; and we are talking about competition and different companies with different forms of experience.
There is not only bemusement around the House about why the Government were resistant to the concept of exit. Out there, many bodies—including Ofwat itself, which I would have thought is fairly significant—are saying that we should allow exit. Although some of the incumbent companies are opposed to it—Water UK has said that, on balance, it is not really convinced by it—some of the major companies are in favour. I have not declared many interests so far, but my current interests are that I am a consumer of two water companies, Thames and Wessex, both of which have written to me and said that they are in favour of providing an exit clause.
Why would you allow a situation to continue in which somebody is supplying part of the non-household retail market but not doing well at it? Remember that there is an obligation on the regulator to ensure that everybody who wishes to be connected to the water supply will be connected to the water supply, so nobody is going to be stranded despite some of the things that have been said. Why should a supplier who is losing customers and presumably losing money, or certainly not making as much money as they had hoped, be prevented from leaving when Ofwat can arrange for somebody else to take over those assets and that market? I do not know of a serious precedent in any other field. We are trying to encourage a degree of churn, with new entrants, new competition and new drive for reducing costs, yet failing companies, or relatively failing companies, are not allowed to pull out.
This is odd, but even odder is what seems to be the Government’s main objection. The Government were kind enough to send us a further explanation, and although there are some other points in it that we do need to take seriously, the main point was that providing for exit would create uncertainty and put off investors. I tried to downplay investor panic when speaking to the last but one amendment, but there are arguments about that. Investors are getting a good return, but why would they want to persevere in an area in which they were not getting a good return, where they were failing, and where on their own internal economic analysis they were being advised to get out? Investors see the UK water market as a pretty good return, a steady return and one that will last a long time. However, there may be a part of that market they are supplying and where they are failing. Customers may be pulling away from them and going to rivals or they may be getting a high level of complaints—one way or another they are failing, and that will show up in their balance sheet eventually. Why would international investors say we absolutely will not invest in England unless we are forced to remain in an unprofitable market?
There seems a fair degree of absurdity in the explanation. That argument for the Government falls. Maybe some strange investor has told somebody in the department or a government adviser that that is the case, but logically, that cannot possibly be the reason. The problem is that the department has got stuck on this. The reality is that it was a bit untidy to allow for exit. New rules and procedures would have to be invented and safeguards built in, and that was not the priority. The priority was to get new people in, not to get people out.
Fair enough, but we have moved on, because a range of people have, as I have said, raised this issue. The Government now have to think again. There are some objections to providing for exit and some concerns about it, but those concerns are covered by the safeguards that are built into the amendment. The Government may want to elaborate on it, but it provides that for exit, Ofwat has to approve it, ensure that there is a substitute supply and make sure that there is no disruption as far the business consumer is concerned, and Secretary of State approval is also needed. That might appear a bit draconian to some investor who desperately wanted to get out. However, it provides a safeguard to counter for example the objection that comes—rather quietly, but nevertheless it does come—from the Consumer Council for Water, which is a bit worried that they would have people left literally high and dry. That could not happen under this system: Ofwat must supply. In a strange situation, the Secretary of State could block it if there was a real reason for thinking consumers might be in danger, whether they are consumers in a competitive market or other consumers affected by the knock-on effect.
Lord Whitty
My Lords, I am slightly baffled by the Minister’s reply, which seemed to repeat the main arguments that noble Lords all around the Committee have knocked down. I am very grateful for their interventions, particularly the forensic analysis by the noble Lord, Lord Moynihan, of why this is a misunderstanding of markets.
I tried to do a relatively simple thing. We are creating a market in the non-household retail sector and my amendment addresses only that. We are encouraging entry and improvements, and we surely have to recognise that that will drive some people out in normal circumstances. I cannot see what the creation of a market means if you cannot have that churn. The Government seem fairly stuck on this. Some of the things the Minister said really relate to wider considerations and there is nothing in these amendments—certainly not in my amendment—that means forced separation. This is voluntary withdrawal by incumbents from a relatively small part of the market. Their new rivals coming in already have that right so it is not a level playing field. Really, what does this market mean? I know it is small and that we are making changes that are quite new within the water sector, but surely we ought just to be bold enough to allow this. I hope the Minister will recognise that there is a lot of experience in this Committee and in the industry with a consensus for allowing this, subject to the kind of safeguards written into my amendment, which give Ofwat and the Secretary of State huge powers to prevent any catastrophic effect on consumers of any sort.
Just before I stood up, I tried to find the quote from Cathryn Ross of Ofwat that the noble Lord, Lord Moynihan, used. I will just end on that point. If we took the Government’s line—I have lost the quote again now—we would effectively provide for failing companies and bake in cost. The Government do not really want to do that, do they? I hope they will think again. Meanwhile, I will withdraw the amendment.
Water Bill
Lord Whitty Excerpts(10 years, 8 months ago)
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Lord Whitty (Lab)
My Lords, I thank the Minister for a very clear, not to say dry, exposition of the terms of the Bill. I particularly thank him and his officials from Defra and Ofwat for making themselves available to so many of us in the run-up to the Bill and trying to explain some of its more obscure aspects.
I do not have the same interests as the Minister, in that I have taken the precaution of living on top of a hill. However, I have form. One or two noble Lords were around when I took the Bill that became the Water Act 2003 through this House. Since then, I am probably the only Member of your Lordships’ House who has served on the boards of both Ofwat and the Environment Agency, albeit rather briefly in the case of Ofwat, so I have some experience of this interesting industry. I am afraid that that experience leads me to conclude that the Bill is not really up to the job of sorting out a strategic future for the sector. However, I can tell the Minister that the Opposition will not fundamentally oppose the main elements of the Bill. We will be vigorously querying them, and will make some propositions, but the real problem I have with the Bill is what it omits.
In one sense, that is slightly surprising. As the Minister said, two years ago, admittedly under a different Secretary of State—one who actually believed that climate change was occurring—the Government produced a very good White Paper, Water for Life. That White Paper dealt holistically with water as a resource, as an environmental force—for good or evil—as an amenity and as an economic and infrastructure system. The White Paper was positively received by the industry, environmental groups, consumer groups, the regulator and politicians of all parties. It was therefore assumed that the Government would produce a Bill which implemented all elements of that strategy. Instead, the Government produced a much thinner Bill—thin in content rather than in volume, I have to say to the noble Lord, Lord Crickhowell. The initial Bill was even thinner and was roundly criticised by the Select Committee in another place under the leadership of the redoubtable Anne McIntosh MP. The Government then produced a slightly better Bill, which is what we now have. It went through the House of Commons fairly quickly and, just before Report, the Government introduced the key element, to which the Minister has referred, on flood insurance. We will be taking quite a rushed job on the Bill, but a number of issues need some pretty thorough examination.
The water system is one massive system, natural and engineered; the water industry is one massive industry, dominated by very large companies. The system has to be managed and regulated in a holistic way, but I am afraid the Bill only tinkers at the edges, important though some of those interventions are. So there are huge gaps in this Bill.
In terms of what is in the Bill, there are three main objectives. First, on flood insurance, as the Minister said, foremost in our mind must be the distress and suffering caused by the recent floods, and their impact on families, farms and businesses. Part 4 of the Bill sets up the Flood Re system, which the Minister described. I congratulate the Government, particularly the Minister’s former colleague, Richard Benyon, on reaching a conclusion with the insurance industry, which I know is not the easiest of negotiators. We will support the overall concept of Flood Re and the contingency provisions under the flood insurance scheme—my noble friend Lord Grantchester will expand on our position on that later on. Noble Lords will be aware that a number of representations are being made by groups that feel excluded from the scheme, and no doubt we will have an interesting time in Committee, but I strongly support the concept.
The second main element of the Bill is retail competition for non-domestic consumers, which is the flagship policy here. We support that objective—indeed, attempts were made to introduce competition in the 2003 Act and in the 2010 Act, but they never really materialised under that regime and only four instances ever occurred. However, in Scotland, where there is a different structure and a state-owned wholesale company, we have seen rapid development of a retail non-domestic market, which is working for the public sector, for businesses and for charities, particularly those which operate on multiple sites. They have seen benefits in terms of bills, water efficiency and customer service. Although only about 5% of non-domestic consumers have switched in Scotland, the very fact of competition has had a beneficial effect on the rest of the market.
However, we must also recognise the limitations involved. Theoretically, 1.2 million customers will now be able to choose alternative retailers, but, in practice, the option is likely to be most attractive to entities such as supermarkets which operate on multiple sites or to public sector bodies such as local authorities and universities which have a lot of bills that they would wish to consolidate. It is unlikely that there will be anything like 1.2 million people taking advantage of the market; the majority of small businesses, for example, are even less likely to switch—as we have seen from the energy market—than are domestic consumers. Although competition is important and puts an edge into the industry, we should not exaggerate the degree to which it is transformational.
Moreover, we have to consider carefully the effect on household consumers. Twenty million household consumers will continue to rely on regulation rather than competition to get them a better deal. We will have to strengthen protections in the Bill to ensure that domestic consumers are not disadvantaged by the fact that part of the non-domestic market is getting a better deal. The Minister gave an assurance to that effect in that Ofwat has the tools, which I think is how he put it, but those need to be strengthened and made clearer in the Bill.
Even where there is effective competition and some choice, the provisions do not fully deliver an effective, functioning market. I shall take just two or three issues. Entry into the market appears to be largely by negotiation with the incumbent company rather than by open and transparent price competition, as would be the case in most markets. Even more surprisingly, there is no provision for exit from the market. Surely provision for exit from the retail market by poorly performing competitors or incumbents is essential for a properly functioning market. Most stakeholders seem to favour providing for it, with safeguards to protect the consumer, so we will be looking at whether we should provide in the Bill for exit from the market. We also need tighter provisions on non-discrimination by incumbent companies to make this work at all. Therefore, we support the direction of travel, but there are a lot of details that we will wish to go into.
Thirdly, there is a resilience duty in the Bill. This caused a little bit of manoeuvring in the Commons and I am not entirely clear that the resilience duty that the Government have come up with goes as far as we would wish. Historically, there has been a dual system of regulation in water, with Ofwat being the economic regulator—sometimes very narrowly defining what that meant—and the Environment Agency being the environment regulator.
Synergy and cohesion have got better in recent years. Since 2003, Ofwat has had a secondary sustainability duty. Nevertheless, the record shows that Ofwat has in its price review tended to give greater priority to things that related solely to the economic side and less to what was needed for the environmental or resource-conservation side. We need to look again at that. That is why I think that green NGOs and many of our colleagues in the Commons were pressing for sustainable development, which is currently a secondary duty, to be elevated to a primary duty.
The resilience duty is, in a sense, the Government’s response to that. Resilience is undoubtedly important, and the Minister said that it will be interpreted in a broad sense, but it is a bit vague. Resilience certainly does not cover the range of subjects that sustainable development does, and it is still criticised by some NGOs. The Government have strengthened the position since they first introduced it into the Bill, and we need to take account of that, but we will still want to probe whether resilience is really the better expression or whether, as I suspect, it could exclude key aspects that are covered by sustainable development—especially, to take an obvious example, social sustainability, which is an important aspect of how the water market works. We intend to probe those issues in Committee.
That covers what is in the Bill, but there are some massive things which are not—two very large elephants in the room. First, there is the bizarre financial structure of the industry, which has been commented on in the press in a timely way in the past few days. Secondly, there is the management and regulation of the physical water system, the movement of water from precipitation right the way through our streams, rivers, culverts and pipes to our taps or to the ocean. We know that it is a huge and risky system—the past few weeks have told us that, and only a few months earlier we were talking about the scarcity of water in certain parts of the country. The existence of scarcity or excess crucially affects our ecology, our agriculture, our way of life and our communities. Those are huge issues; they were addressed in the White Paper, but not really reflected in the Bill.
I shall take the economic structure of the industry first. The Minister says that privatisation has been a success and, in the limited sense that we have had substantial investment, it has—and we do not want to jeopardise that—but this is an odd industry. It is dominated by regional monopolies which are themselves vertically integrated. Some of them have been subject to takeover and they are now mostly owned by overseas-based investment funds. I do not decry that, but it means that their structure for raising finance is odd for a public utility. They are also highly profitable. On some calculations, there has been a return of 17.5% on asset value since privatisation. They are, as the newspapers have pointed out in the past couple of days, very high payers of dividends, with nearly 90% of profits returned as dividends last year.
The sector is very highly geared, for the most part. On average, well over 70% of capital comes from the markets, not from equity sources, as was assumed when we first privatised the industry. The industry also has a fairly poor record on innovation, as some of your Lordships’ Select Committees have pointed out over the past few years. At the far end, over the past 10 years there has been a 55% increase in prices to the consumer. The industry has also been relatively poor, although improving, on customer service. That does not describe either a modern, dynamic, innovative market or an effective delivery mechanism for a general social good. Although delivery of investment has been important, those other aspects need addressing.
The system of regulation needs a pretty fundamental rethink. In the past few months, Ofwat itself has recognised the need to change. The regulator is proposing significant changes in the coming price review and has already implemented a significant improvement in consumer engagement. I welcome that, and the role of the Consumer Council for Water in that. In the price review, however, Ofwat is going to put less emphasis on capital expenditure and have more flexibility between different forms of expenditure, which I welcome. It is taking a longer-term view on investment and more emphasis is likely on interconnection, water efficiency and demand management and on environmental measures. I welcome pretty much all those Ofwat initiatives, but they are within a framework which does not necessarily push them in that way. The initiatives need to be embedded because they will be seriously challenged by some of the operators and undertakers within this industry. The system of regulation needs review and the Government need to be a bit more radical. They need to look at whether there are stronger measures which can ensure that the companies actually deliver, including perhaps addressing fundamental issues such as the proper and full separation of the wholesale from the retail market.
We also have a pretty odd way in which we pay for water, with most domestic consumers still operating on a rateable value which is several years or decades old. The result is that its affordability to our citizens and businesses is very much in question. In the household sector, more than 12% have very serious problems with affordability. The previous Government’s 2010 Act provided for social tariffs to make water more affordable to vulnerable families, but I am afraid that first the regulator and then the industry have been slow in taking them up. The Minister said that they will have them the next year or the year after, but the fact of the matter is that the record at the moment is not very good. If we add all the schemes together, including the WaterSure scheme which the Government promoted for large families or those with serious medical conditions, there are only 70,000 or 80,000 people covered in total. Yet from the figures which I just quoted, we know that there are about 2 million having problems with affordability. Since the companies appear to be so recalcitrant in coming forward, we will be pressing for a stronger move towards social tariffs and for some form of national affordability scheme to be introduced, to set targets for minimum standards and for the way in which companies treat their less well-off consumers.
There are also big problems with the water system itself. There is a huge loss and misdirection of water both in its supposedly natural movement, which is often in practice the result of human land management, and in the engineered part of the system. Inappropriate land management, deforestation at the top of water courses, the changing and dredging of natural watercourses and the loss of natural water meadows and flood soaks all have the effect of pushing more water downstream, just at the time when it should not be. Excessive man-made abstractions of water, currently and historically, threaten the system itself and some of our key geological features. For example, we are destroying our chalk streams from Yorkshire down to Dorset—a landscape and geological feature which is almost unique to England. In economic terms, excessive abstraction means not only not enough storage in the winter to provide for the needs of agriculture and society in the hotter months but that the whole management of the system becomes difficult. Meanwhile in the engineered part of the system, increased floodwater leads to sewage leaks, with their attendant risks, and increased leakage from the clean water system.
All those issues were covered in the White Paper, but they are not in the Bill. However, there is one thing in the Bill which threatens effective achievement of a better system of water management as a whole. That concerns upstream competition being provided for in the Bill before we have properly regulated and introduced a new system of abstraction reform. The present system of abstraction licensing is 50 years old and even then has grandfathered ancient rights. I have been arguing for radical abstraction reform for well over a decade. The Bill rightly ends compensation to water companies for the modification of abstraction licences, which is an issue that the Environment Agency has been trying to modify within the current structure over recent years.
The Bill provides for upstream competition to be introduced. The Government have said that this will not happen before 2020, but nevertheless to introduce upstream competition before we have actually reformed the extraction system is highly dangerous. Abstraction licences are not used to their full; only about 42% of water allowable under such licences is actually abstracted. That means that there is a lot of potential water to be abstracted under the present system. If we introduce competition and the ability to source that water differently, the effect may well be that we create scarcity in those areas where there is not already scarcity. It is already a problem that a majority of our water catchment areas are overextracted. Upstream competition and trading could work if there were a limit on abstractions, but until we get to a proper system I think that the Government are wrong to provide for upstream competition even in the way that it is provided for on a contingency basis in the Bill. It must be clear by the time the Bill leaves this House and goes on to the statute book that upstream competition is dependent on there first being a proper regime for abstraction; otherwise, we will have the worst of both worlds.
I hope that we return to many of these features in Committee and at subsequent stages, and I hope that the Government take note particularly of our concerns over abstraction reform at the top end of the system and affordability at the point where it reaches our homes.
Working Time (Amendment) Regulations 2013
Lord Whitty Excerpts(11 years, 2 months ago)
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The Deputy Chairman of Committees
My Lords, I should have said at the beginning of the Committee that, in view of the extreme heat, if anybody wishes to remove their jacket they are welcome to do so.
Lord Whitty
My Lords, the noble Lord, Lord De Mauley, might be pleased to hear that I will not remove my jacket.
I have vehemently opposed the whole principle in relation to the agricultural wages board. I am not in essence opposing the provision today because, as the noble Lord said, it is a logical tidying-up measure. However, serious questions arise about its timing and the way in which it has been introduced. He will recall that during the passage of the Enterprise and Regulatory Reform Act there were arguments about the impact assessment produced by the Government at that stage, which Ministers in effect discounted and put to one side. To some extent the Minister has repeated that today. That impact assessment produced for Defra showed a total detriment to agricultural workers of about £250 million over 10 years and a consequential benefit to farmers from that saving in their wages bill. I argued at the time that that was a notional benefit to farmers since, in effect, most of it would end up in the pockets of the supermarkets. Nevertheless, that was the Government’s argument at the time. During the course of deliberations, they disavowed that whole impact assessment.
The noble Lord has repeated today that many employers will improve the terms and conditions of agricultural workers. That, however, is totally contrary to the best expert advice available to the ministry at the time that the amendment to the Enterprise and Regulatory Reform Act was put through. In relation to limits on hours, I suspect there is not a big detriment. There may even be a benefit. However, we do not have another impact assessment. We do not have any indication of there being any analysis by the department as to which way that would work.
Obviously, the Government’s logic is to bring everything in line with general minimum terms and conditions legislation, whether in terms of the minimum wage Act or the working time directive and the legislation stemming from that. I think that that is logical. However, it is perhaps also interesting that Regulation 3 of this very short instrument enshrines the Government’s view that the conditions of the existing workforce, or those who are taken on before 1 October, will not be changed by this enactment. That is, of course, legally correct. However, the current terms and conditions will remain in place only until they are altered, until the employer gives notice of the end of their terms and conditions.
The totality of the Government’s approach here is to change the balance of power between the employee in the agricultural sector and the farmer or other employer. It is hardly worth the paper that it is written on to say that existing terms and conditions will continue to apply to those who are already in the workforce. It may take a few months or a few years for that to change. One of the reasons that the impact assessment was ultimately rejected by Ministers on the Floor of the House was that they recognised there would be a significant disbenefit to workers in the industry: not only new workers but existing workers would be faced with the likelihood of their terms and conditions being changed once the agricultural wages board disappears.
I think the Minister is probably right that this is relatively straightforward and unlikely to cause huge detriment. It is nevertheless part of the overall principle that we have opposed from these Benches. It is part of the attitude towards wages within the agricultural sector that this is being done without any meaningful underpinning even of the terms and conditions of people who are already in the industry.
Having said that, my main concern about the timing of this relates to the way in which it was written. It continues to provide for Scotland to be excluded from this measure because Scotland has always had its own agricultural wages board and still does. That means that it applies in England and Wales. Only last week, however, the Welsh Assembly passed legislation to establish a statutory body within Wales which would have the possibility of retaining the statutory force both of the substance and of the enforcement of the agricultural wages board. There would, therefore, be a new agricultural wages board for Wales.
Surely it would be more sensible to wait to introduce any consequential statutory instruments until it was clear how they would in theory apply to Wales—until it is clear how that new Welsh structure will evolve. The original proposition from Wales was that the legislation would not apply to Wales. They were, therefore, broadly content that the previous way in which the AWB had applied to the Welsh farming workforce would continue. However, we are now chipping away at that for workers in Wales as far as working time is concerned. That shows a serious disrespect for devolution, for the position of the Welsh Assembly and for the attitude that has been taken by the Welsh farming industry and the workers within it.
The timing—less than a week after Wales passed a clear indication that it did not want the changes to apply there—is, to say the least, unfortunate. I hope that the Minister will give us some guarantee that he has consulted with his Welsh colleagues and that this will not apply immediately to Wales, if it is still in the process of establishing its own statutory board as of 1 October.
Lord De Mauley
I thank the noble Lords, Lord Whitty and Lord Knight, for their contributions. As I said earlier, the amendments we are proposing to the Working Time Regulations are necessary technical amendments to the legislation as a result of the end of the agricultural minimum wage regulatory regime on 1 October, as the noble Lord, Lord Knight, was good enough to acknowledge. The amendments have no impact on levels of protection for agricultural workers and I believe that they are, in themselves, relatively uncontentious. However I recognise that, as the noble Lord, Lord Whitty, said, recent developments in Wales raise certain issues in regard to abolition of the agricultural wages board which noble Lords are rightly interested to hear about.
The Agricultural Sector (Wales) Bill, passed by the National Assembly for Wales on Wednesday last week, would restore a separate agricultural minimum wage regime in Wales. It might be helpful here if I gave noble Lords some explanation about relevant procedural matters.
Under the Government of Wales Act 2006 there is a recognised procedure for the consideration of whether Bills passed by the National Assembly for Wales are within its legislative competence. Essentially, this provides that the Attorney-General and the Counsel General for Wales—either or both—have four weeks after a Bill is passed by the National Assembly in which to decide whether to refer any question of competence to the Supreme Court. After this period, if no referral is made and the Secretary of State for Wales has indicated that he will not use his powers under the Government of Wales Act to intervene, the Bill is submitted for Royal Assent. This applies to all Bills passed by the National Assembly and this is the stage which we have now reached with the Agricultural Sector (Wales) Bill.
My right honourable friend the Attorney-General is currently assessing the legislation to determine whether its provisions are within the Assembly’s competence, as he does with all legislation passed by the Assembly. It would not be right for me to speculate here what conclusion either the Attorney-General, or indeed the Counsel General, might reach. I will say that, as noble Lords are aware from previous debates on this issue, the UK Government regard the agricultural wages regime as wage-setting and employment law, which are subjects that are not devolved to Wales. However, it is for my right honourable friend the Attorney-General and the Counsel General separately to consider whether or not a reference should be made to the Supreme Court on the question of the competence of the provisions of the Welsh Bill. This is a decision for them which it would not be appropriate for me to second-guess. Should either the Attorney-General or the Counsel General for Wales, or both, decide that such a reference should be made, it will be up to the Supreme Court to consider the Bill and make a judgment.
I hope, therefore, that that makes the position clear. There is a statutory procedure to be followed in the case of all Bills passed by the National Assembly and, quite properly, that procedure is now being followed in relation to the Agricultural Sector (Wales) Bill. The noble Lord, Lord Whitty—
Lord De Mauley
I am now coming on to some of the other points. Perhaps I may proceed, and if I do not cover them the noble Lord can intervene then. Would he like me to try?
Lord De Mauley
The words I used apply to both England and Wales. That is the point. It would leave those coming into agricultural employment in Wales in limbo as well. We do not want them to be left without certainty as to commencement of leave year and the other things we have been referring to here.
Lord Whitty
My point is on Wales. Although I recognise the delicacy of the position of the Attorney-General in looking at the question of competence of the Welsh Assembly, in advice going to the Attorney-General presumably the department has made clear the point that I made when the Government made a similar point during the passage of the Enterprise and Regulatory Reform Act: that although the Government have now invented the doctrine that this is employment legislation, since at least 1948, the wages board has been the responsibility of Defra or MAFF, not of whatever department was responsible for employment law. That may not be a clincher for the Attorney-General, but it is an important indication of the approach of previous Governments and in previous legislation—that is, as a matter of agricultural not general employment legislation.
Lord De Mauley
The noble Lord has been around for longer than I have in these affairs. I am absolutely certain that that has been done, but I will reiterate it. He makes a perfectly fair point and I will make sure that it is made again.
Perhaps I may continue with the next series of points. The Government’s position, as noble Lords know, is that abolishing the agricultural minimum wage will bring agriculture into line with other sectors in the economy. Allowing farmers to compete fairly in the labour market and for agricultural wages to follow market levels will enhance the competitiveness of the sector and may increase employment. This will in turn encourage long-term prosperity in rural areas.
Having said that, my experience is that workers, often on highly complex machinery and managing animals, which these days is also a pretty technical affair, are highly skilled and that the market for them is highly competitive. We have been quite clear that there is uncertainty about what the actual impact will be. The costs and benefits are made up of a number of elements, including the potential impact on wages for workers and other terms and conditions and the reduction in employment costs paid to government and others. The reality will, as I said, depend on demand, which evidence shows is increasing.
The real benefits will be from allowing farmers and workers the same flexibility to agree terms and conditions as employers and workers in other sectors of the economy, while ensuring the same levels of protection for workers. As I said in my opening remarks, workers with pre-existing contracts will retain those entitlements, and that is enshrined in legislation. I take the noble Lord’s point about that.
The noble Lord, Lord Knight, made a number of points. I acknowledge what he said about what is covered by the agricultural wages board. Of course he is right. Essentially, he asked why we had not done any back-assessment on the regulations. As we discussed, these are minor, technical amendments to the Working Time Regulations as a consequence of abolition of the agricultural wages board. They do not have an impact on the level of protection for workers, nor do we consider that they will have a significant impact on businesses, so an impact assessment has not been carried out.
The noble Lord asked whether we would be working with employers to remind them of their obligations. We have prepared guidance on the changes for agricultural workers and employers, which we have already shared with stakeholders. That guidance will be published on the Defra website shortly.
The Government firmly believe that the end of the separate agricultural minimum wage regime is in the best interests of the industry. The proposed amendments to the Working Time Regulations are a minor piece of the jigsaw to complete a simplified employment regime across all sectors of the economy. This will provide simplification, transparency and greater flexibility, thereby encouraging investment, growth and job opportunities in the sector, which will benefit both workers and employers. A successful agricultural industry will contribute to the growth of the wider rural economy, which is one of my department’s four key objectives. I beg to move.
Horsemeat
Lord Whitty Excerpts(11 years, 7 months ago)
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Lord De Mauley
That is an interesting question. I am sure that countries in the rest of the world have their own problems. I am not aware of this specific problem arising elsewhere.
Lord Whitty
My Lords, will the Minister give a proper answer to my noble friend Lady Crawley, who after the previous Statement asked whether the cuts in resources for trading standards and the equivalent Meat Hygiene Service had had any effect on the effectiveness of enforcement? Secondly, in his assurances on health, will he assure me that the issue of people who are allergic to live horses has been covered in the possibilities of people being allergic to dead horsemeat? Thirdly, is his Secretary of State—a rabid anti-European—now convinced that European food chain issues can be resolved only by agreement at European level?
Lord De Mauley
That is quite a mouthful, my Lords. On the first point, the FSA oversees a rigorous, risk-based system of checking by local authorities. More than 92,000 tests were carried out in 2011-12. The FSA has assured Ministers that the recent machinery of government changes have not impacted on its surveillance and testing. On the health issue of people being allergic to live horses, I am not aware that this translates into the dead horsemeat arena. I am reliably informed that there are no risks to health unless the meat is contaminated with bute. We covered that issue in connection with the previous Statement. I am amazed at the noble Lord’s suggestion about my right honourable friend’s attitude to Europe. He is in Europe today, discussing the matter with his European colleagues in a very collegiate fashion. The noble Lord can rest assured.
Public Bodies (Abolition of Environment Protection Advisory Committees) Order 2012
Lord Whitty Excerpts(12 years, 2 months ago)
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Lord Whitty
My Lords, I start by declaring an interest as a shortly-to-be-retiring—I regret—member of the board of the Environment Agency. In that context, I thank the Minister very much for his remarks about the performance of the agency staff during the great difficulty of having four or five serious flood instances in different parts of the country at more or less the same time, which is, thank God, a pretty unusual event. I think that the agency delivered.
I also need to inform the Minister that to some extent I am here to represent my noble friend Lord Smith of Finsbury, who is chair of the Environment Agency and who apologises for not being here today. Much of what I say reflects his views although, as I am retiring from the board, I can also make my own remarks.
I welcome the changes. The noble Lord, Lord Greaves, has already referred to the rather lengthy proceedings that the Minister had to undergo in his previous capacity during the passage of the Public Bodies Bill, which he no doubt recalls without great nostalgia. The order concerns the sole part of the Bill to which I did not object. That is because, in this instance, a statutory structure is not necessarily the best way to carry out partnership, share information and mobilise members outside the agency. It is important that the work of the advisory committees is recognised. The people who have served on them have given stalwart service and have tried to represent the interests involved in delivering environmental and fishery outcomes but also to feed back information from the agency to those bodies.
However, there are probably better and certainly more flexible ways to do that which are more nimble and able to move with the times. I have some slight sympathy with the view of the noble Lord, Lord Greaves, of the more advanced forms of social media— I am not entirely in front of the curve myself on that—but, in this area, the social media used in their broadest sense are a useful means of communication about flooding but also in more day-to-day environmental problems in mobilising those who are interested from public agencies, private citizens and organisations. The response time for using social media is much faster than with more traditional methods of communication.
When Defra consulted on that, there was not a huge number of responses. Of those who responded, those for and against were more or less in balance. There was a distinct negative balance in the north-west—as the noble Lord, Lord Greaves, will be pleased to hear. That is not necessarily because they are more stroppy in the north-west. The agency has therefore taken steps to address the situation in the north-west, including a proactive use of social media. I think that it is true to say that most organisations in the north-west are now satisfied that the new forms of consultation will be an adequate replacement.
In my own area, which is the same as that of the noble Lord, Lord Knight, the Environment Agency has developed from a situation a few years ago where it was not seen as the most user-friendly organisation to having much more constructive relationships with organisations involved in these fields. For example, people will know that fishermen are not necessarily the easiest people to engage with, particularly if one is from a public body, but the relationship between the agency and the organisations involved in fisheries in the south-west has become very positive on the salmon, trout and coarse fishing side. We have for some time had a fisheries forum. That will be built upon and the relationships at different, more local levels will replace the rather centralised operation of the advisory committees. The situation is similar with the rivers and the river trusts in the area. Indeed, I am aware that in some areas the river trusts are taking on some responsibilities from the agency.
The abolished committees, while they were useful, are likely to be replaced by something more positive that will deliver the environmental outcomes that we all seek, whether it is on the electronic consultation and social media side or, possibly more importantly, the overall engagement. I know that the noble Lord, Lord Greaves, also objects to some of the conceptual terms in there, which I do not entirely dissent from. However, there is a degree of empowerment here. Bodies on the ground are taking responsibility in keeping the agency informed and being guided by the agency in dealing with incidents. For example, on rivers where there are not major flooding incidents, it takes first-line responsibility. That is quite important.
Lord Greaves
My Lords, I wish to make it clear that it is not the process that I object to, it is the words used to describe it.
Lord Whitty
My Lords, I probably share that view. However, the reality is that it allows more people to be engaged and to take responsibility. To that extent, I share the objectives of the Government. The only note of caution I introduce is that the processes of engagement, empowerment and partnership—all abstract terms but in day-to-day terms they mean talking to people a lot more and in a lot more detail and probably for longer than sending out signals from the centre—are time-consuming and therefore staff resources-consuming and, to some extent, money-consuming.
In other words, the big society—if one was to call it that—is not costless. In some ways, it may be more costly than more centrally directed activities and institutionalised responsibilities. At the worst end under the old system, a member of staff might well worry about the advisory committee a month before it is due to meet and write appropriate papers and probably get a decent outcome. However, this requires a year-long engagement with the bodies that are represented on those committees. So, from the point of view of agency staff resources, this does not really save money. I know its primary aim is not to save money but to come up with a better system but, nevertheless, the Explanatory Note suggests that some of the formal money will be saved. It will not be saved. It will be deployed in a more effective way and there will be, if anything, more pressure on staff than under the old system. Subject to that caveat and the fact that we will at some point review these proceedings and changes to see if they are working, I support the Minister in these orders.
Lord Knight of Weymouth
My Lords, I, too, support the orders. As ever, it is a delight to come back to public bodies orders and to reminisce about some of the Minister’s finest moments in the main Chamber working on that Bill. I am sure that he will recall better than I that when these bodies were discussed, my noble friend Lord Grantchester broadly welcomed the move to rationalise the system. At the heart of this is ensuring that stakeholders around fishing are properly engaged. That means not just the professional people and businesses that are dependent upon fishing and angling but the more than 6 million people who over the past two years have indulged in some form of freshwater fishing. This is an important issue for a large number of people.
My questions concern the two key areas. I pay tribute to the Secondary Legislation Scrutiny Committee, whose fourth report of Session I found extremely helpful in getting my head around these orders. I start with the issue of accountability, which, as the Minister said, is the main issue about which the committee had concerns. He reminded us that its recommendation was for the Government to reconsider the need for formal monitoring and evaluation of the successor arrangements, and I welcome what he said about reviews. This is a “big society” approach, replacing a fairly complex set of statutory bodies—regional quangos, if you like—with a different form of engagement with civil society in local communities.
There is a concern that, in the absence of a formal set of structures, there will be reduced accountability, and I am sure that the review will focus on making sure that that has worked well. I would be grateful for a little more detail about how the review might work; who it might be led by, whether that person will be independent of Defra and whether the report will be published and the process transparent so that we can properly scrutinise it here in Parliament. Answers to those sorts of questions now or later would be very helpful in giving us, and the limited numbers who responded to the consultation on these orders, some comfort around the welcome announcement that the Minister made regarding the review and the positive response that he has given to the Committee, which I very much welcome.
On effectiveness, the Explanatory Memorandum talks about the need for effective local stakeholder engagement and partnership. It is clear that the money currently being spent on these sets of bodies—£225,000 and £192,000 respectively—is being reinvested in that engagement. I would be interested to know a little more about how that money might be spent. Perhaps unlike the noble Lord, Lord Greaves, I am quite an enthusiast for communication through social media. Indeed, in the recent flooding incident, one of the things that was quite striking was that these days the telephone is a far less reliable form of communication because most of us no longer just have a telephone that plugs into the wall and is powered off the little bit of power that comes out of the phone line; most of us have wireless phones that depend on mains power. If you are going through a flood, for example, you turn off that mains power and then your phone does not work. One of the advantages of using social media is that for many of us they are run off our smartphones or mobiles. It is difficult for any agency to keep up with the changes that people make to their mobile phone numbers, but engaging with apps, Twitter and even Facebook seems to be quite an effective way of adding a bit of resilience as technology changes.
Agriculture: Animal Feed
Lord Whitty Excerpts(13 years ago)
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Lord Henley
My noble friend is right to point to further consequences of feeding animals in this way, in terms of producing the amount of soya used. Again, I stress to her, we should not make any changes unless the scientific evidence assures us that that is right and proper.
Lord Whitty
My Lords, would the Minister accept that the Government and the European authorities are right to proceed with caution on this front? I speak both as the Minister who was allegedly in charge during the last stages of food and mouth and as a former consumer champion. The noble Lord, Lord May, has spoken about BSE and we still do not know how the foot and mouth virus entered the chain. While some relaxation may be possible, I advise extreme caution.
Lord Henley
My Lords, I am sure that the noble Lord was totally in charge, and not just allegedly. As he puts it, we will proceed only if the scientific evidence is right and proper.
Public Bodies Bill [HL]
Lord Whitty Excerpts(13 years, 6 months ago)
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Lord Whitty
My Lords, I support the amendments in the name of my noble friend Lady Hayter, specifically Amendment 62. I do not want to dissociate myself from the general praise for the Minister, the noble Lord, Lord Taylor; he has been the most flexible of Ministers that we have yet seen in this coalition Government, and we are all extremely grateful to him, not least for his Amendment 60A. However, it is still slightly lacking; if the Minister is now the Lincolnshire poacher, where does that leave the gamekeeper? Parliament is the gamekeeper, but with the whole of the Bill Parliament is letting go the central principle that primary legislation can be amended only by other primary legislation. If we are to do so—and I understand the logic and the safeguards that are beginning to be built into the Bill—then we need to be quite explicit about how we are letting it go.
My noble friend Lady Hayter’s amendments make it clear that, when the aims and objectives of a particular body are specified in existing primary legislation and when any Minister wants to activate one of these mergers, abolitions or changes in function, then as part of the process the Minister must go specifically through those aims and objectives and explain how they will be achieved in the absence of the body or after the proposed changes to the nature of the body have been made. In the terms of the noble Lord, Lord Pannick, that means a bit more discipline. It requires Ministers to put before this House what the original primary legislation required of the body and how that will now be carried out. If that is to be transferred, that needs to be explicit; if that is to be merged with the requirements of another body, that needs to be explicit; if that is to be transferred to a private body, that needs to be explicit, with the other complications that arise from that; if that is to revert to the Minister, that needs to be explicit; or, if that is to disappear into the ether, Parliament needs to be clear what is happening. When we agree to these safeguards—and the Constitution Committee has now accepted that, broadly speaking, these safeguards meet the criteria—we need to ensure that the process runs through a check of what was set out in the original legislation. My noble friend’s amendment would take us a significant way towards achieving that and exerting that degree of discipline on the future use of this legislation by Ministers.
Baroness Butler-Sloss
My Lords, I add my praise to the Minister, which the noble and learned Lord, Lord Woolf, expressed so well. Even so, some tweaks might be provided, as the noble Lord, Lord Pannick, was saying. I entirely agree with him. I speak particularly in relation to Amendment 62 tabled by the noble Baroness, Lady Hayter, because the World Wildlife Fund, which I think the whole House will agree is an extraordinarily sensible organisation, is concerned for the Marine Management Organisation to which she referred. However, she referred to it in the earlier amendment and not Amendment 62. The problem the World Wildlife Fund sees as set out in the briefing I received—I am sure many noble Lords will have received it—requires at least some clear indication by the Minister that the Marine Management Organisation is not at risk. The bodies listed in Schedule 4 could have their funding arrangements changed by secondary legislation and the World Wildlife Fund is concerned that some degree of pressure—for instance, from drilling organisations—might imperil the Marine Management Organisation. It seems to me, if I may respectfully say so to the Minister, that either the amendment of the noble Baroness, Lady Hayter, should be accepted or at least the Minister should give a very clear policy decision that this could not possibly happen.
Lord Whitty
My Lords, I support the amendment in the name of my noble friend Lord Hunt and indeed the one referred to by my noble friend Lord Kennedy but I want to speak specifically to Amendment 66. First, I thank the Minister. At the last stage in this Bill, I moved an amendment relating to TUPE procedures. I had a quite lengthy meeting with the Minister and his officials and received a fairly clear letter, given that this is a complex area of law. Although there is still a bit of a grey area, I will the leave the issue of the exact procedures at that.
Amendment 66 relates to the staff of the public bodies we are referring to here and to the trades unions that represent them. However amicably we deal with the Bill, the Government must recognise that there is a suspicion out there that this Bill, which relates to quangos, is part of a more general attack on public sector employees, their terms and conditions, and their organisations. The Minister may deny that, but pronouncements by some of his colleagues and the media which support the present coalition give at least some justification to that concern. Therefore, a straightforward clause which makes it clear that when we are changing the nature of these bodies, there will be consultation with the staff and their recognised trades unions before the proposal is brought back to Parliament, would be a wise precaution. Like the noble Lord, Lord Pannick, I do not think that the general formulation effectively covers the need to ensure specifically that there is consultation with the employees and their representatives.
Lord Adonis
The case made by my noble friend Lord Hunt in respect of the super-affirmative procedure is extremely strong. There is a fundamental point of principle here: do we take ourselves, the House of Lords, seriously as a legislature? If we do, I do not believe it right that we should delegate the degree of power that we are delegating to the Executive without retaining more of the power of control simply to debate and amend the proposals that come forward in respect of the merger, abolition or reconstitution of public bodies. The critical factor at stake is that all these bodies were established by statute. They are all important bodies—you just need to read the schedules to see the importance of the bodies listed—and they were all subject to lengthy debate in Parliament when they were established. All that my noble friend Lord Hunt is seeking to do, with the full authority of the relevant committee of the House, is to give the House a somewhat larger power to amend orders and to require proper debate and a proper account by the Government to Parliament where they are not minded to take account of that debate and any amendments that are proposed. It seems to me that, if we are not prepared to stand up for the rights and responsibilities of this House to that extent, we are quite wrongly denuding ourselves of our proper responsibility as a legislature.
Lord Whitty
I can only agree with what my noble friend Lord Adonis has just said with regards to Amendment 71. However, I rise in the regrettable absence of the noble Lord, Lord Newton of Braintree, to speak to Amendment 69D. This refers to the functions of those bodies that are to be abolished in Schedule 1 and would require the Government to give a clear indication of which functions are to be retained and by whom they are to be carried out.
I draw attention to this and have become active on this Bill because of an interest of mine as the former chair of Consumer Focus. Consumer Focus is still in Schedule 1, but, as I have previously argued, that is probably the wrong place, in that the Government have indicated that they want to transfer its functions rather than to abolish them. While Consumer Focus remains as a body to be abolished, it is right that the legislation should require the Government to specify to whom its functions should be transferred. The Government’s current indication is that they wish to transfer the majority of its functions to Citizens Advice and some of its functions to a body relating to Northern Ireland law, the Consumer Council for Northern Ireland. Citizens Advice is a charity incorporated under English law and separately under Scottish law. It is not at all clear that the Government will actually transfer all those functions to Citizens Advice or, pre-empting an amendment that the Minister will move in the last group, whether Citizens Advice would necessarily agree to take on those responsibilities; as an independent charity, it has a right to refuse to do so.
Developments in Scotland and Wales may well also result in somewhat different arrangements being set up after the forthcoming elections. Indeed, arguments relating to the regulated industries are different from the general run of consumer issues. Given all that uncertainty at this stage when we are passing the primary legislation, it is surely incumbent on Ministers or future Ministers to give a clear indication to Parliament of where the current functions set down in primary legislation are going to go or whether they are going to lapse. The amendment in the name of the noble Lord, Lord Newton, would achieve that objective and therefore I see no reason why the Government should not accept it, if not tonight then at some later stage.
In the mean time, I endorse the general view expressed by my noble friends Lord Adonis and Lord Dubs and by the noble Baroness, Lady Thomas, that at some point we are going to have to look at the way in which we deal with the secondary legislation under this Bill, because the normal form of so doing will not be adequate for many of these changes.
Lord Blackwell
My Lords, I am not convinced that the additional procedures set out in Amendment 71 are necessary. I should stress that since I am a member of the Delegated Powers Committee, and a board member of an organisation that is referred to in the Bill, I am speaking in a personal capacity.
Because of the way in which the powers of the Government have been limited as the Bill has passed through the House and the Government have introduced amendments, the proposal that is now set out in the Bill for an enhanced affirmative procedure does what is required. It gives committees the opportunity to state issues and make the House and the Government aware of those issues, and gives the Government the opportunity, which they do not have normally, to amend the order to take account of those concerns. That is an appropriate and proper amendment.
However, I am nervous about transferring more power to any committee for it, of itself, to seek to amend these orders. Moving power from the Floor of the House to those committees would take the role of committees further than it should be taken. As I see it, the role of the committees works well when they are advising the House and they are raising issues. Generally, they deal with such contentious areas—
Public Bodies Bill [HL]
Lord Whitty Excerpts(13 years, 6 months ago)
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The Earl of Caithness
My Lords, the noble Lord, Lord Clark, induces me to get to my feet, if only to correct him. He made that lovely, sweeping statement that all those on this side of the House are landowners and farmers, particularly those who spoke on 1 December. If I may correct him, I am not a landowner and I am not a farmer. I was a land agent. I acted for farmers, I acted for landowners, I acted for tenants and I acted for farm workers. Therefore I have no interest to declare and I do not fall into the category in which he sought to portray me.
We are all extremely grateful to see my noble friend Lady Byford back in her place and active again. She adds a great deal of common sense and a huge amount of knowledge to our debates on farming and the environment. I thought what she said was very soundly based, as indeed was what the noble Lord, Lord Cameron, said in Committee. I listened with care to what the noble Baroness, Lady Quin, said. I found nothing new from what she said in Committee, although she did praise the strength of the arguments for those supporting her amendments in Committee. I would only praise the strength of the arguments against.
Lord Whitty
My Lords, I apologise to noble Lords that, because the House has made such good progress today, I was not present at the beginning of the debate. However, as my name is attached to the amendment, perhaps I may touch on two issues, neither of which has been mentioned since I have been in the Chamber. If either has already been mentioned, I apologise.
The first point follows on from what my noble friend Lord Clark has just said. The structure that the Agricultural Wages Board sets does recognise skills throughout this sector. The fact that many workers in many parts of the country are paid more than the legal minimum does not take away the need to have that structure. The requirements of agriculture are becoming more and more sophisticated at one end, but less and less sophisticated at another. At the higher end, those skills need to be rewarded. The structure provided by the AWB allowed individual farmers and farm enterprises to base their actual wages on a similar structure.
The noble Lord, Lord Henley, will know by now that every farmer you meet will tell you that every cost saving that he makes is immediately recouped by the supermarkets. One of my fears in this is that, once it is known that there is a reduction in the legal minimum, which sets a floor above which voluntary payments by employers stretch to quite high levels for some workers, the supermarkets and the big processors will say, “Your labour costs need to go down by the same degree as the legal minimum goes down”—that is, in proportion to the difference between the wages board minimum and the statutory minimum wage. For the total bill, that is an enormous amount of money and therefore a saving to the supermarkets. I know that the Government intend to address other pressures that the supermarkets put on the agricultural sector, but this will be one more excuse for them to lean on farmers to reduce their prices and therefore to reduce their wages. If the noble Lord wishes to start that process, there will be real dangers, and the skilled force will begin to disappear.
At the other end of the labour force, a lot of agricultural labour, and particularly seasonal labour, depends on migrant labour and is operated by a set of gangmasters. There is nothing wrong with labour providers, provided that they obey the rules. But one of the main ways in which the exploitation by some gangmasters of the workforce is identified is that they are not meeting the legal minimum set out in the Agricultural Wages Board regulations. Once that is seen—and it is a relatively simple thing to establish—all sorts of other abuses over conditions of health and safety, immigration status and tax and national insurance become apparent. As a result, the Gangmasters Licensing Authority has been able to clean up a lot of that end. It has been a very important way in which the authority can do so. If we remove that clear legal minimum, I fear that it is one less lever for us to clean up the supply of labour in what has been, in some parts, a very exploited sector.
There are all sorts of reasons why, historically, there is an attachment on this side of the House and in the Labour movement as a whole to the Agricultural Wages Board. I am a Dorset man myself these days, so I come from a great Tolpuddle tradition, but I am not simply relying on history. I am relying on the effect that the removal of this one remaining legal-minimum, sector-specific wage will have on the quality and quantity of the workforce in agriculture and how it is treated. In the end, if that happens it will be to the detriment of agriculture as well.
Baroness Butler-Sloss
My Lords, I had not intended to speak in this part of the debate, and I apologise to the House that I have not spoken about this in Committee, but I take up and endorse a point made by the noble Lord, Lord Whitty. I declare an interest as co-chairman of the All-Party Parliamentary Group on Human Trafficking. One group that is potentially trafficked and has been trafficked in the past comprises agricultural and horticultural workers. I was extremely glad to hear the noble Lord, Lord Whitty, speak about the Gangmasters Licensing Authority, which remains in great danger of being abolished, although Schedule 7, where it appeared, is no longer part of the Bill. I would be very much more concerned about the loss of that authority, which has a specific requirement to look after those exploited in the fields and the horticultural industry, than I am about the loss of the Agricultural Wages Board, which does not specifically deal with that migrant group, part of which is capable of being trafficked.
Lord Whitty
My Lords, as my noble friend Lord Borrie has hinted, I declare a recent interest as a former chair of Consumer Focus. The noble Baroness, Lady Wilcox, is one of my predecessors, as is the noble Baroness, Lady Oppenheim-Barnes, who is here as well. This might seem to be a slightly esoteric debate, but it is not. Consumer Focus, the National Consumer Council and the other bodies that preceded Consumer Focus have done decades of work on behalf of consumers. They have influenced Governments, regulators, business behaviour and behaviour in the public sector. It is important that that role is preserved along with that level of expertise.
Public Bodies Bill [HL]
Lord Whitty Excerpts(13 years, 7 months ago)
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Lord Whitty
Lord Whitty
My Lords, this is genuinely a probing amendment, and I shall not spend a lot of time on it. I suppose the probe could be distilled to the question: why? The Central Arbitration Committee and the Certification Officer vaguely operate in the same area of life and are indeed serviced by the staff of ACAS, but they do very different jobs. One of them is effectively an arbitrator and the other is a regulator. It is not normal to confuse the two roles. Indeed, confusing the two roles in other fields is generally frowned upon, particularly in the area of regulation where the role of the regulator as against the role of the ombudsman is kept very distinct. They are slightly different in that the CAC acts as an arbitrator between trade unions and employers, in the main, and in some specified statutory functions, whereas the certification officer effectively regulates the internal affairs of trade unions, employers’ associations and other friendly societies.
The fact that they are drawn from two bits of the secretariat of ACAS does not mean that the two secretariats can be merged without causing some difficulties. The cost saving seems to me to be negligible, if it is positive at all. Inside information tells me that it might save one photocopier and possibly a fax machine as well, but that is likely to be offset by the increased cost of having two headings on the notepaper for the new organisation, the name of which has presumably yet to be devised.
My more serious point is that there is a potential conflict of interest here unless the two secretariats remain seriously Chinese-walled. Somebody who is dealing with a dispute between a trade union and an employer should not be the same person who is dealing with an issue between a trade union and one of its members. Unless those two duties are kept separate, there is a potential or apparent conflict of interest. This has worked perfectly well hitherto, and there have been no great hiccups. The two organisations perform different roles, and I do not see the point. Perhaps the Minister can explain. I beg to move.
Baroness Royall of Blaisdon
My Lords, I think my noble friend has said it all. I am grateful to him for raising the proposed merger of these two bodies. Here we have two small but very important organisations that deal with related areas of law but are distinct in their functions. As my noble friend said, one is a regulator and one is an arbitrator. It is fair to say that everybody who knows the two organisations, the people involved and their work is bemused about why they are being merged. They wonder whether it is just a paper exercise in order simply to decrease the number of quangos. The cost savings are potentially very small. I will be grateful if the Minister will tell me what costs will be saved. My noble friend made a point about the separation that must exist between the two functions. It is extremely important that there should be walls, be they Chinese or otherwise, and we need to know that they will exist if the two bodies are merged.
Lord Taylor of Holbeach
I thank the noble Lord for moving this amendment. He very effectively described the functions of both bodies. They have both existed for many years, and both operate in the sensitive area of trade union and industrial relations law. I stress that the Government value their roles. They are both expert in their respective fields, and they both enjoy solid reputations for impartiality. The similarities do not end there. They both undertake judicial functions, they have a shared understanding of judicial procedures, their officeholders and support staff both possess detailed knowledge of trade unions and of industrial relations more broadly. Both bodies are relatively small and are both housed in the same building. They both receive administrative support from ACAS—the Advisory, Conciliation and Arbitration Service. There is therefore already significant linkage between the two bodies, and the Bill will take that process a stage further by merging them. Some efficiency savings will be produced as a result, but I have to say to the noble Baroness, Lady Royall, that they are not likely to be huge. The total budget costs for both organisations are about £1.25 million, so the efficiency savings will not be huge, but there will be some. In particular, their support staff could be deployed more flexibly to meet the peaks and troughs of case loads.
A merger would also simplify the institutional landscape and avoid any potential confusion in the eyes of users about their respective roles. Therefore, the Government consider that a merger is advantageous to all concerned. A merger will not affect the underlying law which these bodies help to enforce. I should add that the Government have no plans as a consequence of this merger to change the various rights and duties embodied in trade union law. Our intention is to ensure that the merger will not affect the experience of persons, be they individuals, unions or employer groups, who currently use the services of these bodies. In particular, we want to maintain the same procedures which the CAC and the CO currently apply when considering their respective cases. BIS, which has a lead responsibility for these two bodies, has already discussed the potential merger with the CAC, the CO and ACAS, and has sought the views of the TUC and the CBI. We believe that we have reached an understanding on how a workable merger can be achieved.
In summary, there is a strong case for these two small bodies to be merged. We believe that this can be achieved without prejudicing in any way the performance of their important and sensitive duties, and I hope that the noble Lord will feel able to withdraw his amendment.
Lord Whitty
Well, my Lords, that was a bit thin. The Government are keeping the functions of the two organisations, which they recognise are distinct. The organisations already have good administrative support and operate quite sensibly, and there is virtually no cost saving, if any. The one point that he made with which I disagree is that the users of those organisations know perfectly well what they are for, and they are distinct. If a member has a complaint about his trade union, he does not want an arbitrator, he wants someone to tell that trade union that it has been acting against its own rules in the way in which it has dealt with him, whereas the CAC is in essence an arbitrator. The Government wish to make this tidier, and BIS wants to cross another organisation off the list. I am not going to make a big point about this, but the reality is that there is no rationalisation, no overlap and no administrative saving. There is, however, a lingering doubt that there might be some conflict of interest when the noble Lord talks about rationalising the role of the two secretariats. That might come back and bite us, although the probability of that happening is fairly low. Nevertheless, it is still there, and the appearance of a Chinese wall will at least be necessary, in which case any administrative rationalisation will be even less. I will not press this amendment tonight and I will not press it again, although I do think that the Government’s argument is a bit thin. I beg leave to withdraw the amendment.