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New Clause 1

Volume 21: debated on Monday 5 April 1982

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Water Authorities And National Water Council

'Schedule 3 to the Water Act 1973 shall have effect with the substitution for paragraphs 38 and 39 of that Schedule (accounts and audit of water authorities and National Water Council) of the paragraphs set out in Schedule ( New paragraphs for Schedule 3 to the Water Act 1973) to this Act. '.— [Mr. Giles Shaw.]

Brought up, and read the First time

4.44 pm

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

With this it will be convenient to take amendments Nos. 19, 20, 21, amendment (a), to amendment 21, and amendments Nos. 23, 24 and 25.

The Bill has been fully considered in Committee. Hon. Members who served on that Committee will recognise that one of the matters that caused substantial concern was the position of water authorities under the Bill, particularly public rights of access to water authorities' accounts. During the Committee stage I tried to place an amendment before the Committee for discussion, but I was unable to do that. However, we have now tabled an amendment in the shape of new clause 1, which seeks to meet the points that were brought to the attention of the Committee.

We received numerous representations about the auditing of water authorities, but nearly all made one point—that it is wrong to deny the public access to the books of water authorities when they already have those rights. That is largely because of the system under which water authorities have been audited to date. That system is similar—and identical in most respects—to that applied to local authorities. Under the Bill the audit commission will be the vehicle by which local authorities will be audited, whereas the Secretary of State will appoint auditors, thus bringing them closer to the position of nationalised undertakings.

It was apparent from that move that the traditional rights enjoyed by ratepayers and electors in being able to make representations to auditors would be lost during the passage of the Bill unless it was amended. Therefore, right hon. and hon. Members may be surprised that such a short and comparatively simple new clause, which refers to new paragraphs for schedule 3 to the Water Act 1973 should have taken four pages to achieve. I hasten to assure the House that there is nothing sinister about that. There is no surreptitious attempt to smuggle in new provisions. Tinkering with schedule 2 in order to introduce our amendments on public rights would have led to an unwieldy set of provisions and would have involved extra cross-referencing. Therefore, we considered it better to replace schedule 2 with a new schedule to include the full set of accounting and auditing arrangements for water authorities. That is the purpose of the new schedule.

Most of what the new schedule contains is already in existing legislation or in schedule 2 to the Bill. The only changes of substance relate to the public inspection of accounts and rights to make representations, which are found in paragraph 39C. Paragraph 39A refers to the provisions about general duties of auditors.

In Committee I endeavoured to meet hon. Members by committing the Government to bring forward these amendments. By the amendments, a local government elector is given rights to inspect and copy the accounts, books and deeds relating to the accounts of a water authority, which are the rights that he presently enjoys under section 159 of the Local Government Act 1972. Under 39C(2) he is given the right to question the auditor. The right to challenge an item in the accounts is modelled on the existing provision, although it differs from it in one or two respects. The existing right to make objections is closely tied to the possibility that there has been illegality or wilful misconduct in the incurring of expenditure. There are provisions for the district auditor to follow up any such cases. That is an essential part of his duties under local government legislation.

Therefore, in future the water authority auditor will have two general duties, which are spelt out in paragraph 39A. The first is to ensure that there are proper accounting practices and that any ministerial requirements have been observed in the compilation of the accounts. The second general duty is for the auditor to consider whether he should make a report in the public interest on anything coming to his notice in carrying out the audit. Those duties are connected with existing duties under local government legislation. A useful means of conferring a right of challenge upon the public is also provided. Under paragraph 39C(2) the public will be given the right to draw the auditor's attention to any matter on which he might make a report in the public interest.

That is a full and adequate set of rights that preserves the public's present position in relation to the audit of water authorities. It extends those rights somewhat in that it extends them to the full range of water authorities, not just those which, historically, have been audited by the district auditor process. However, the public rights will not extend to the accounts of the National Water Council. They are inappropriate for such a national body. There has never been any objection to the accounts of the National Water Council.

The remaining amendments in the group—amendments Nos. 19, 20, 21(a), 23, 24 and 25—are consequential. They do not call for comment from me. I commend new clause 1 and those amendments to the House.

We shall be pleased to support the new clause because it is in accordance with an undertaking that the Minister gave after a long debate in Committee—one of the longest debates on one issue. The Minister said that it might appear that a short amendment would be required, but as there are many dovetailing procedures amendment No. 21 has had to be long. It is right that the House should be reminded that the Government substantially changed their attitude to this matter during a four or five hour debate. That was due largely to pressure from both sides of the Committee. That needs to be put on the record.

The House should be aware that the Government's original view was set out during the debate in Committee on 2 March, when the Minister said:
"It is our view, which is why the Bill is so drafted, that there is a sufficiently strong case for saying that, in the vital services with which the water authorities provide the consumer; in their structure and regional organisation; in the way in which Government have used the mechanisms of MMC and other ministerial intervention and the way in which Ministers are perhaps more directly responsible in Parliament to what water authorities do than is the case with individual local authorities, it seemed sensible to us that the regional water authority, in auditing terms, should be treated more as a nationalised undertaking than as a local authority."
That was the point at which the Government, quite fairly, defended the existing provisions in Committee. However, the Minister said:
"I take the point absolutely that in the Bill as drafted, and without amendment No. 143"—
that amendment added water authorities to the other list and was tabled by my hon. Friend the Member for Blaydon (Mr. McWilliam)—
"individual ratepayers would lose their right of access to water authorities' accounts."
I want the Minister to make it absolutely clear that exactly the same rights as now exist will be preserved in the changes. The Minister also said:
"We shall introduce an amendment to the Bill at the appropriate stage which, subject to consultation, we foresee as providing for existing rights to continue so that consumers will have access to water authority accounts and will be able to question the auditor in the manner sought by the hon. Member for Edmonton and my hon. Friend the Member for Reading, North."—[Official Report, Standing Committee D, 2 March 1982; c. 515–519.]
I have received reports from The National Farmers Union, as no doubt, have other members of the Committee. It is not cavilling at the intention of the new clause but draws attention to one or two points. In a letter to me the NTU states:
"At present under the Water Act 1973 water authority audits are regulated by Part VIII of the Local Government Act 1972. By virtue of section 159 of that Act, where the audit is conducted by a district auditor a local government elector may attend before the auditor and make objections"
That is the first point. It must be made clear that the right to make objections to the accounts is preserved. The letter continues:
"an elector may also question the auditor about the accounts, and where the audit is conducted by an approved auditor may request the Secretary of State to direct a district auditor to hold an extraordinary audit"
I want the Minister to confirm that all those existing rights are preserved. The letter adds:
"The elector seems to be losing a right of objection, and a right to request the direction of an extraordinary audit."
The Opposition will raise no objection to the new clause if the Minister can assure us that the provisions of the Water Act 1973, and in particular section 159 of the Local Government Act 1972, are contained and preserved in their entirety. In fact, we shall congratulate the Government on their change in attitude.

I welcome the new clause. I strongly pushed for this change to be made in Committee. I place on record my appreciation of the Reading ratepayers who initiated this move, involving myself as the local Member of Parliament. They ran a successful campaign, contacting about 60 Members of Parliament who had an interest in the subject. They deserve credit for their efforts. I know that they are pleased with the new clause.

The Government are right to leave out the National Water Council. I take a jaundiced view of the water council. I hope that it will be included in the consideration of water authorities now in hand following the recent Green Paper on the future of the water authorities. I am not convinced that the water council does as good a job as it should. In anticipation of the possibility of the water council being abolished, I am not worried about its exclusion from the new clause. It is right that the powers should be extended beyond two water authorities and that the new powers will now cover all water authorities. That is to be widely welcomed.

A promise was given in Committee to table an amendment dealing with the powers and duties of rating authorities to reduce a rate, make refunds to ratepayers, recover sums paid to precepting authorities and to deal with the resultant costs to rating authorities. An amendment has not been tabled. I hope the Government have not changed their mind. My own county council is in some difficulty because no one is in charge at the moment. It would help the county council if such an amendment became law. Some London boroughs would welcome the opportunity to reduce their rate during the year. The Minister will remember that I withdrew an amendment on the understanding that the Government would table an amendment to deal with this matter of a rate reduction or rate refund during a year. I realise that there are legal problems but I urge my hon. Friend to tell us that the matter has not been forgotten.

I believe that my hon. Friend is referring to the cause celebre in Bedfordshire. We had the problem of a supplementary precept before the beginning of the financial year. I agree with my hon. Friend and I hope the Government will make it clear, absolutely clear that a supplementary rate precept, although started in the previous financial year, is void for the financial year beginning 1 April 1982.

My hon. Friend is right. We debated Bedfordshire at great length in Committee. I was avoiding the use of the word "Bedfordshire" for fear of starting an exchange. I am grateful that my hon. Friend has reminded me of the case although it was in my mind. However, I consciously decided not to mention Bedfordshire on this occasion.

I urge the Minister to tell the House that this matter is not forgotten and that in the other place an amendment will be tabled that will give relief to those authorities that are in difficulty.

I welcome the new clause and pay tribute to the Reading ratepayers for their initiative. It meets the points raised and I am delighted that it goes further than existing legislation. I support the new clause and schedule.

I refer to amendment (a) to Government amendment No. 21. This concerns a small but important aspect of the amendments tabled by the Government—the nature of those who are enabled to audit the water authorities. I speak on behalf of the Chartered Institute of Public Finance and Accountancy, which feels strongly on this point. Its members audit water authorities as employees of the district audit service. They are also employees of private firms, which also audit water authorities. Under the Bill none of these members would be allowed to act as auditors in their own right. CIPFA is concerned with public sector accounting and audit and its members have considerable expertise. The exclusion of these members from the list of auditors would, therefore, exclude as principals people with specialist public sector expertise. That exclusion is wrong. The amendment is designed to remedy that.

In the past there has been some opposition from the Institute of Chartered Accountants in England and Wales to the inclusion of CIPFA names in this context. However, negotiations have taken place and agreement has been reached. I shall quote from two letters.

5.0 pm.

The first letter is from the secretary of the Institute of Chartered Accountants to the secretary of CIPFA. It states:
"As you know the Local Government Finance (No. 2) Bill provides, at Schedule 2, Paragraph 2, that a person shall not be qualified for appointment as auditor of a water authority unless he is a member of a body of accountants established in the United Kingdom and recognised for the purpose of section 161(1)(a) of the Companies Act 1948.
We understand that CIPFA intends to suggest to the Department of the Environment that, in addition to members of those bodies recognised by the Department of Trade in accordance with section 161(1)(a) of the Companies Act 1948, members of CIPFA should be qualified to audit water authorities…The object of this letter is to advise you that the Institute of Chartered Accountants in England and Wales will not oppose such an amendment as long as it is understood to be subject to the following qualification … it is agreed by this exchange of correspondence that a member of CIPFA will not, in practice, be eligible to undertake the audit of a water authority unless either:
in the case of a member admitted before 1 January 1974, he has completed three years' experience engaged principally on auditing work in a practising office; or in the case of a member admitted after 31 December 1973, he has completed five years' experience engaged principally on auditing work in a practising office."
CIPFA replied:
"We accept the conditions set out in your letter and this exchange of letters will constitute an agreement between us as to the practical effect of the addition of the name of this Institute."
The two bodies most affected by this small but important aspect are in agreement. It would be in their interest and in the interests of the auditing of water authorities generally if the small amendment were accepted.

I, too, welcome new clause 1. The Bill as published would have taken away the right of ratepayers to examine water authority accounts.

The hon. Member for Reading, North (Mr. Durant) is right to praise the Reading ratepayers, but it was a little churlish of him not to acknowledge the support of right hon. and hon. Members on the Opposition Benches in the debate which brought about the new clause. I do not make a party political point, but together we forced common sense on the Government. Right hon. and hon. Members on the Government Benches repeatedly asked for greater speed, but had we proceeded faster such points would have been missed, to the detriment of ratepayers.

I hope that the Minister will acknowledge the part that we played. Had we gone faster we may not have had the new clause.

I do not wish to be churlish, but the main thrust of the Opposition's argument was that the water authorities were being shifted to a different audit status. The question of the involvement of ratepayers came later.

The hon. Gentleman is partly right. That was part of our argument, but, equally forcefully, we argued that ratepayers would lose their right to review water authority accounts. I could quote from our Committee debates to prove that I am correct, but I am sure that, being an honourable man, the hon. Gentleman will accept my word. I believe that it is vitally important to place that fact on the record.

In Committee, I joined my hon. Friend the Member for Reading, North (Mr. Durant) in tabling the amendment to encourage the Government to rectify this mistake. I join him this afternoon in welcoming the new clause and thanking the Government. I thank my hon. Friend the Minister For fulfilling, in the spirit and tha letter, the assurance that the new clause would be drafted in time for it to be examined, so that, if it was not acceptable other amendments could be tabled.

There is no intention to be churlish. The Opposition made a contribution. The hon. Member for Newcastle upon Tyne, Central (Mr. Cowans) and his right hon. and hon. Friends argued this and many other cases in Committee. They argued them well but not always with conspicuous results. Had it not been for the interest of my hon. Friend and myself they might have argued another case well but with no conspicuous result. We should all thank the Government for responding to cross-party pressures in Committee.

I, too, participated in the Committee debate on 26 March, but I shall not take part in the self-congratulation. I am grateful to the Minister for fulfilling the obligation that he gave, but I agree with the hon. Member for Newcastle upon Tyne, Central (Mr. Cowans) that the new clause does not go far enough. The right of access to information has been restored, but the right of objection should have been enhanced.

I quote again from the letter from the National Association of Local Councils, which states:
"Our Association has been much exercised all last year about the lack of local control over the operations and charges of Water Authorities and we have just settled a policy paper seeking more influence in their decision for those they serve. It seems very wrong that a revision of audit procedures should take away an opportunity for the local public to query the accounts of the Water Authorities."
That association, too, put pressure on the Government. It has been all-party pressure. The debate in Committee helped to bring about the new clause.

There is also general concern about the size of water bills. Many ratepayers have a feeling of futility because they cannot go to an elected representative and gain access to the water authority. Following the consultation paper "The Membership of Regional Water Authorities" and the Department of Trade's paper "Consumers' Interests and the Nationalised Industries", I hope that the Government will bring forward radical proposals for the greater democratisation and accountability of water authorities.

The water rate system needs to be reformed. It is iniquitous that an elderly person living alone can pay the same water rate as a family next door purely because of arbitrary property valuations. I and other Liberal colleagues made representations to the Secretary of State for the Environment about the matter last week in response to his Green Paper on rating.

I hope that we shall see radical proposals to change the way that water authorities operate and to ensure that they become far more responsive to consumers and more accountable. The purpose of the Bill was to get value for ratepayers' money. I hope that we shall not lose sight of that purpose when considering the role of water authorities.

I shall respond briefly to some of the points that have been raised. The hon. Member for Edmonton (Mr. Graham) asked for an assurance, as did the hon. Member for Liverpool, Edge Hill (Mr. Alton), that the rights being embodied in new clause 1 were identical to those that now exist. They are not identical in words although they are in design.

An objector has the right to challenge the auditor but not in precisely the same way as the district auditor accepted those rights under the local authority legislation. The district auditor's response to an objection is in relation to illegality, the rule of the courts and so on, closely allied to procedure in the courts. This is a much wider power. We are providing an open right of challenge linked to the auditor's duty to report matters in the public interest. That meets the request of the NFU. It will continue to have the right to object. That is an appropriate right for the water industry in its new guise.

My hon. Friend the Member for Reading, North (Mr. Durant) welcomed the proposed change. I, too, recognise the part played by the ratepayers of Reading and the other ratepayers' associations that raised this issue. My hon. Friend made a further and extremely important point. He pointed out that there is not as yet an amendment dealing with the powers to reduce a rate. My hon. Friend the Member for Bedfordshire, South (Mr. Madel) also referred to that matter. I assure both my hon. Friends that the matter will be dealt with in another place. My right hon. Friend intends to bring forward an amendment for that purpose. Its omission from the Order Paper today indicates the complexity of dealing with the matter, not a lack of intention that it should be dealt with.

My hon. Friend the Member for Hornchurch (Mr. Squire) spoke in support of amendment (a) to the new schedule, which we are pleased to accept. It allows CIPFA members to join the audit team in the same way as other qualified members. From what I have heard, I believe that there is general acceptance of new clause 1 and the amendments. I welcome that view and I commend the amendments to the House.

Question put and agreed to

Clause read a Second time, and added to the Bill.

On a point of order, Mr. Deputy Speaker. I am unclear whether you have disposed of my amendment (a).

We work through the Amendment Paper, of which the hon. Gentleman has a copy.