The water industry is one of our most successful industries, and has made major strides in recent decades in improving quality and providing decent first-class services. It has a problem, however, in the large and growing bad debt that impinges on its ability to continue making environmental improvements, and increases the amount paid by bill payers, some of whom are not as well off as those who do not pay.

I have been aware of this growing problem for some time. Just before Christmas, my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) and I were briefed by the managing director of Bournemouth and West Hampshire Water, Tony Cooke, who raised the issue and drew our attention to the very good House of Lords report, chaired by Lord Selborne, that reviewed the water industry. I also thank the other people who have given me briefing material for this debate, including Phillip Mills of Water UK, Michelle Lewis of Yorkshire Water and Colin Skellet of Wessex Water.

So what is the problem? According to the Office of Water Service, the outstanding household revenue in this industry was £814 million in October. In 2005-06, the industry had to write off more than £103 million, and 4.4 million households have revenue outstanding. That is about 15 per cent. of all bill payers. Some £400 million of that debt has been outstanding for more than 12 months. The industry has a high operating expenditure on collection—well over £70 million. The cost of bad debt to the average UK household bill is about £10 or £11, which is a considerable sum. The £814 million that Ofwat reported in October was up from £760 million in the previous year, so the problem is growing. I hope that the Minister will at least acknowledge that there is a problem.

When the Government came to office, they brought in the Water Industry Act 1999, which removed the right to disconnect. I do not argue that we should go back to those days. Indeed, the vast majority of the water industry does not want the power to disconnect, but it wants several areas of public policy to be improved so that it can have a much better chance of bearing down on bad debt and being fair to its customers.

The Government’s decision to stop disconnection, combined with a 1999 High Court ruling that ruled out the use of prepayment devices and restrictions in the water industry as illegal, has given the industry a difficult hand to play on bad debt. Since then, the status of water charge arrears has dropped down the priority list for citizens advice bureaux, money advice centres and customers. I must admit that when constituents of mine have come to me with financial difficulties, the first thing that I have told them is, “Don’t pay your water bill,” because I know that that they can get away with it. I am sure that we all do that, but it puts the industry in an unfair situation. Data protection changes might have added to the problem because they make it difficult for the industry to trace absconders, who are responsible for a quarter of all the debt.

The water industry is a unique case because it has a statutory duty to supply water irrespective of whether payment is received. It has no contract with customers, and hence limited information on them, and no ability to share information or impose special conditions for bad debt risk. Indeed, it is the largest user of the courts, with more than 180,000 claims in 2004-05. In comparison with other utilities, the level of bad debt over 2 per cent. is significantly higher than in the gas, electricity and other industries.

The situation is different in other sectors. If one does not pay one’s council tax, the ultimate incentive to pay is the threat of prison. If one does not pay one’s television licence, one receives a large fine, and if one does not pay one’s vehicle licence, one gets a £1,000 fine. The water industry faces certain difficulties in that regard.

Some 20 per cent. of debtors owe 70 per cent. of the total debt, and 34 per cent. of debtors live in areas with average earnings. Total debt levels are highest in single female households. Debtors have low involvement in the credit market, and 46 per cent. of debtors are in the highest 10 per cent. risk category. Other interesting considerations have been found in research. Sometimes affluent singles and couples in exclusive urban neighbourhoods feature disproportionately among debtors, so debt is not a problem only for people who have problems paying their bills.

The industry is very aware of debt and is pretty good at finding innovative ways of dealing with it. There are helplines so that customers can discuss payment problems, flexible payment plans, charitable trusts and hardship funds. Sometimes it offers free water meters to reduce customer charges. It helps people to apply for direct payments from benefit via Water Direct, gives advice on the vulnerable groups tariff—metered customers on benefits who qualify can receive a reduced bill—and promotes debt advice agencies. Yorkshire Water sponsors local citizens advice bureaux, and has special tariffs and the Yorkshire Water Community Trust for customers who have problems paying bills. Wessex Water has a new tariff to help people who have special problems, and has various charitable and other schemes to help those in real difficulty.

So there is a problem. The industry is unique, with its statutory duty to supply, no contracts and limited information on customers. It has limited sanctions for non-payment and debtors continue to receive service, and data protection issues limit the tracing of non-payers. The problem with affordability is increasing with the increasing debt and the deprioritisation of water charge arrears.

What does the industry want? It wants more ability to share information on debtors and customers so that it can trace absconders and differentiate between debtors. It wants changes to do with Water Direct so that it is not a measure of last resort, including changes with benefits and the widening of application to non-debtors. It also wants—I have mixed feelings about this—responsibility for charges to be extended to commercial landlords, because there is a particular problem with houses in multiple occupation. That certainly affects Bournemouth and West Hampshire Water—no doubt my hon. Friend is aware of those problems in his patch.

The industry would also like there to be changes to the tax credits and benefits system to link water benefits to council tax rebate. I repeat that it does not want to go back to the days of disconnection, but there are various ways in which water flow can be controlled, as the House of Lords pointed out in its report. I believe that in Australia and other countries, companies use various methods to restrict people’s water flow rather than cut them off.

I think that we all accept that it is fine to provide water for basic needs such as flushing lavatories and for washing and cooking, but people who do not pay their bills can also run dishwashers, washing machines and sprinkler systems, and fill swimming pools, because there is no restriction on what they can receive, even if they can afford to pay their bills. That seems odd. I would like the Government to acknowledge that there is a problem and to consider introducing legislation to make it a little easier for the industry to control this growing debt problem that is causing higher bills for ordinary payers and that makes it far more difficult for the industry to deliver the environmental improvements that we all want and expect.

Does my hon. Friend agree that it is necessary to focus on people who have the ability to pay but deliberately do not in the full knowledge that they cannot be cut off and effectively have a free supply? Those who cannot afford to pay are in a different category, but surely those who fall into the first category should be the subject of some constraints—possibly collection through benefit agencies if they receive benefits, or through restricted supply.

I agree with my hon. Friend. As I have illustrated with my examples from Yorkshire Water and Wessex Water, the industry is alive to and aware of the fact that some people have problems paying, and they have various schemes to reduce debt. Of course, if they had more information, they would be able to differentiate between their various customers. It is true that the sharp and the smart get away with taking foreign holidays while not discharging their responsibilities to others—by paying water bills, for example. That is a problem because some people realise that they can get away with things. Several public policy options must be considered to assess whether we can give assistance to the industry so that it can differentiate between the genuine customers in hardship and others, and so that it can bear down on the growing bad debt.

I do not intend to speak for much longer, because I know that the Minister wants to respond to some of my points. This is an important issue. If the Government do not respond to my points by telling us not only their intentions but what they are going to do about the situation, the subject will keep returning. There is currently £800 million outstanding. I suspect that if we do not consider the public policy implications of the industry, it will not be long before the debt is more than £1 billion. The burden will then really be falling on people, many of whom struggle to pay their bills as it is. Why should they pay for others, some of whom are wilful non-payers?

It is always a great pleasure to have you presiding over our debates, Mr. Cook; the phrase “firm but fair” comes to mind.

I am grateful to the hon. Member for Poole (Mr. Syms) for rightly raising this important issue. He asked the Government to acknowledge that there is a problem, and I am happy to do so in a straightforward way at the outset.

The importance of water supply and sanitation, and the regulatory arrangements put in place to reflect that, means that dealing with debt in this sector is not a simple process. The hon. Gentleman was right to highlight the fact that there are different categories of those who are falling behind in their payments profile and that it might be right to look at them in different ways. I must confess that I was no less than astonished to hear him admit and boast to the Chamber that he advised indebted individuals who came to his surgeries not to pay their water bills. I do not believe that such an approach should be a model of good practice for hon. Members, and I am sure that his local water companies will not be best pleased to find out that although this morning he may be championing a solution to the problem, in other modes he is actively part of it.

All customers are liable to pay their bills, and the overwhelming majority do so. In 2004-05 the percentage of revenue owing to companies was 7.6 per cent. after 12 months compared with just 2.5 per cent. after four years. So, although people fall behind over a 12-month period, two thirds of them catch up and make good their indebtedness.

As the hon. Gentleman outlined, bad debt is not solely a problem for the water industry. Arrears on utility and other household bills are quite common, particularly among low-income groups. Domestic gas and electricity prices also rose in 2005-06 and average debt rose in the light of that.

Every year, the Government publish their report on tackling over-indebtedness. Since the first report in 2004, we have made considerable progress in putting in place measures to help people avoid becoming over-indebted and to provide support for those in difficulty. We believe that those measures will, over time, bring about a substantial reduction in people’s vulnerability to over-indebtedness.

The hon. Gentleman was right about water being essential to public health. That is the reason the Government banned all forms of disconnection in 2000. Critics sometimes point to that decision as the reason for high levels of bad debt. Of course, there are some customers who cannot pay and others who do not or will not pay, but vulnerable customers must be protected. I am mindful of the remarks made by the hon. Member for Bournemouth, West (Sir John Butterfill) on that issue, and I will discuss it in a moment.

How can companies deal with those who will not pay? How does one identify those people? How does one ensure that one is not penalising the genuinely vulnerable? No one in this House would seek to penalise such people. The recent House of Lords Select Committee on Science and Technology report on water resource management proposed partial disconnection through trickle valves as a way to encourage households that will not, but could, pay their water bills. The hon. Member for Poole mentioned such approaches.

We are aware of the possibilities for restricting water flow. The option was discussed during the review of water charging carried out between 1997 and 1999. At that time, the Government concluded:

“We believe that the prohibition on domestic disconnection is vital to protect health and hygiene. Anyone who agrees with that statement must agree also that devices which reduce the flow of water available for use to such a small trickle that it can take up to a quarter of an hour to fill the kitchen sink to enable washing-up to be done should be banned too.”

That was the conclusion of a review carried out eight years ago, and the Government have not resiled from it since then.

We take seriously the problems of customer debt and debt collection, and we are keen to see debt well managed throughout the industry. Companies need to manage their bad debt effectively otherwise it may cause costs to other customers, but there must be a fair balance between customer protection and the ability of companies to recover their debts.

Some companies are clearly managing their debt more effectively than others, and there are big variations in debt between company areas. For example, there are two companies with similar customer profiles in the south of England that have totally different levels of debt. We believe that there is scope for those companies lagging behind to do more.

For those customers already in debt to water companies, there is the option of paying through the Department for Work and Pensions third-party deductions scheme, but we must look for ways to prevent households from getting into arrears in the first place.

Some customers have problems affording their bills and it is right that they do not have to fear being disconnected because of an inability to pay, but we continue to look for ways to help them. We are following up the recommendations of the cross-Government review of water affordability. We are examining a range of tariff structures, their impact on low-income households and their effect on company debt. We are carrying out a pilot study in the south-west, looking at how a range of measures can help low-income households with the water bills.

Some companies have taken their own initiatives on those issues. The south-west is the region with the highest bills, but it is also a region with relatively low average incomes. South West Water is expanding the Department for Environment, Food and Rural Affairs-funded affordability pilot in its area, at its shareholders’ expense, to households with debt problems across the region. Those households will have benefit-entitlement checks, meters installed as appropriate, and water-efficiency devices installed. I welcome that new approach.

DEFRA does not have an active role in managing companies’ debt levels, although it participated in the steering group for a research project on the problem involving the industry, Ofwat and Water Voice. The industry regulator, Ofwat, monitors the debt situation, and where water companies’ customer debt increases greatly, Ofwat may take that into account in setting companies’ price limits. That allows the cost of a company’s bad debt to be spread out over the wider customer base, but—this is an important caveat—Ofwat does not allow companies to pass on the costs automatically. It needs to be satisfied that the company is already using the enforcement methods open to it as efficiently and effectively as possible. I hope that that goes some way to allying the fears of the hon. Member for Poole that the overall costs of indebtedness were simply being passed on to other customers willy-nilly and that the rest of the water-consuming public, who pay their bills, were automatically then bearing the load for those who were unable to pay their bills or those who were less responsible in doing so.

One conclusion of the cross-Government review of water affordability was that Ofwat should review its debt guidelines to promote companies’ good practice in debt management. Ofwat consulted on amendments to those guidelines, and we understand that new guidelines will be introduced in the spring.

Debt is a problem, but not one that affects only the water industry. We must ensure that a balance is struck between the needs of companies and the needs of customers, and we look to the regulator to ensure that companies manage their debt in the most effective way.

The Government have taken indebtedness seriously since coming to office in 1997. In real terms, the incomes of some of the poorest people in the population have risen as a result of personal tax and benefit measures that we have introduced. In October last year, families with children were, on average, £1,500 a year better off, and families with children in the poorest fifth of the population were, on average, £3,400 a year better off. Other vulnerable groups include pensioner households, which were, on average, £1,350 a year or about £26 a week better off, and the poorest third of pensioner households were, on average, £2,050 a year or about £39 a week better off.

Yes, we can look at the indebtedness faced by water and utility companies. It is right and it is required often that those companies look at their portfolio of indebtedness, and try to use all methods available to them to help customers in the first instance, but to ensure, when they can, that they make those who are not prepared to pay, rather than those who are unable to pay, stump up and meet their obligations. The Government have tried to operate at both ends of the spectrum in not only looking at levels of indebtedness, but trying to ensure that those who are most vulnerable do not get into debt in the first place. I am confident that the hon. Member for Poole, who spoke so eloquently, agrees that it is much better for society to avoid people getting into a situation where they cannot afford some of the essentials of life, rather than waiting to see what can be done when they are in trouble.