Wherever, this is still an opportunity to raise a vital issue that affects my constituents in Torbay and many other people across the far south-west, and it has done so for more than 20 years.
The high water bills facing South West Water customers have been in place since privatisation and stem from the iniquitous requirement for 3 per cent. of the population to pay for the clean sweep programme for 33 per cent. of the UK’s coastline. The average bill for South West Water customers is £490, a staggering £723 for unmetered customers. The next highest average bill is Wessex Water at £412 and the national average is £343.
Ofwat has only recently, since the publication of the interim Anna Walker report, paid some attention to that disparity in water and sewerage charges. South West Water customers with water meters can look forward to a £6 fall in prices by 2015. That is not much, but it is a move in the right direction. Ofwat’s action will also be of little help to unmetered customers, whose bills are set to rise by 29 per cent., taking their average up to £935 a year. While many more will move to metered billing, a number will remain who cannot have meters installed, the majority of whom live in blocks of flats. Their bills will increase exponentially, plunging thousands into water poverty. The £6 reduction itself will be little consolation to many of my constituents on low incomes who are struggling to pay the historically high bills. The south-west has some of the lowest incomes in the UK coupled with some of the highest housing costs.
The Walker review of charging for household water and sewerage services is long overdue. It has now published its final report and, rightly, there is an entire section dedicated to the unique problems faced by consumers in the south-west. Chapter 14 begins by reinforcing the underlying inequalities facing the region: the high proportion of pensioners; the large rural area to be covered; the lower disposable incomes and—importantly in terms of water costs—the domination of tourism in the local economy.
A great attraction in the south-west is its coastline; an estimated 18 million people visit the region every year, and research shows that at least 7 million of those visit specifically to go to the seaside. There is, therefore, an important challenge to keep the coastline clean. More crucially, in terms of water bills, the Walker report recognises the low asset base that South West Water started with at the time of privatisation. That has improved now that the clean sweep programme has been implemented. The company has the highest capital expenditure by far—over 150 per cent. of the average of the water companies.
The right hon. Gentleman makes a point that has been made at meeting after meeting by the hon. Member for Plymouth, Sutton (Linda Gilroy), her colleague, the hon. Member for Plymouth, Devonport (Alison Seabeck), and Liberal Democrats. May I finish, because it is an important point. For example, we all contribute to the wonderful museums and galleries here in London that are a national asset—but they are based in London. The same logic should apply to water charges.
The hon. Gentleman referred to chapter 14 of the Walker report. I am sure he understands that the Prime Minister put that in train several years ago following the affordability pilot. However, since the scale of the problem we were lumbered with 20 years ago is so big, does he agree that, equally, the solutions to it will probably come from more than one direction, as outlined in the Walker report?
The hon. Lady is right and I shall cover some of that ground in a moment.
The report rightly states:
“These high…prices compared to the rest of the country cause the sense of unfairness. They also, of course, aggravate issues of affordability.”
Fortunately, Anna Walker has suggested some potential remedies for that injustice. There is a clear financial imbalance in the way the water companies were set up at privatisation. South West Water customers shouldered a disproportionate burden of the programme to clean up our coastline and improve our bathing waters.
It is clear from the report’s recommendations that retrospective financial redress is necessary, not least to fund the continuing cost of South West Water’s investments. One remedy is a one-off payment, which, as the report states
“is equivalent to reducing the financial burden of the regulatory asset base per customer in the South West Water area.”
That would cost approximately £650 million. Another alternative is an annual subsidy to South West Water. Walker estimated a figure of about £33 million a year. There are options on how to fund the subsidy: direct Government funding or a levy of about £1.50 to every household water and sewerage bill in the rest of the country.
My hon. Friend is making an excellent case, and I congratulate him on securing the debate and on all the work that he has done in the past. The scale of the figures that he is talking about shows the size of the investment that bill payers are being asked to make. That is the crucial point. If the Government cannot help with the lump sum because its scale in the current circumstances is so high, that shows what is being asked of ordinary bill payers in the south-west and, indeed, what has been asked of them during the past 20 years since the botched privatisation.
That is certainly one conclusion that we could rightly draw.
On the matter of an annual or lump sum subsidy, while a one-off payment would go some way to redress the balance—as Walker points out, there are strong arguments in favour of a one-off adjustment—it would not completely rectify the long-term problems facing the region. A further subsidy would be necessary in the future, especially if we envisage a time when another widespread series of improvements are necessary. An annual subsidy would resolve that problem for the foreseeable future. However, those solutions throw up a wider problem surrounding fairness. Aside from South West Water, customers in Wales or Wessex are also paying above the average—in their case, £100 more per year than those, say, in the Thames Water area. If we are to adjust for inexcusably high bills in the south-west, why not in Wales or any other area? Would not the logical extension of the argument be that water bills should be equalised throughout the United Kingdom?
Referring back to what my hon. Friend said about the need for equalisation, does he agree that it is important that we deal with the problem now as a matter of urgency? In future, there will be a need for considerable investment in other parts of the country, and it might be the case that for other national goods the cost needs to be spread throughout the country. Would it not be a double unfairness for South West Water customers to have to pay for their retrospective costs while also having to help foot the bill for the other bill payers in the country?
We need an answer, and we need it soon.
Of course, privatisation should not have happened to this industry. Water is not something that lends itself easily to competition on the free market. Indeed, all we have is a system of regional monopolies, unlike the other utilities, which have seen rigorous competition and benefits for consumers as a result of their privatisations. In effect, all privatisation has done is to siphon off funds to shareholders that could have been invested in a more effective clean sweep programme.
I am extremely grateful. I apologise to the hon. Gentleman for intervening. He is very generous. I totally agree with what he is saying. This is long overdue and most welcome. But would he not concede that historical costs involved pre-privatisation would have had to be paid for by the taxpayer anyway, to do with the infrastructure work of South West Water—the Victorian ducts and so forth? Those costs would have had to have been met by the taxpayer in some way, shape or form, regardless of privatisation.
Indeed those costs would have had to have been met, but they would have been equalised out across the whole of the United Kingdom. They would not have just fallen on those in the far south-west.
In my constituency, customers have not only suffered from high water bills, but a reduction in standards for the clean sweep programme. In the early 1990s, South West Water announced a £95 million project to provide a supertunnel for sewage from the three towns in Torbay. Not only would it have stopped any raw sewage entering the sea, it would have had more than enough capacity to deal with the flash flooding that has become more and more common. The Government of the day reduced the environmental standard required of the clean sweep programme, and so the Torbay scheme—effectively the last big capital works programme—was downsized. Consequently, we have a system of combined sewerage overflows that pollute the sea several times a year. For a tourist economy that in no small part relies on the cleanliness of its beaches and water, it is simply not good enough. Torbay can still boast more blue flag beaches than any other UK seaside resort. If the previous Government had not reduced the environmental standard, we would now be able to market Torbay as an area where every beach is a blue flag beach.
Even more worrying is the flooding that has become a common occurrence in parts of Torbay. The residents of Station lane in Paignton, for example, have suffered frequently as a direct result of the scaled-down clean sweep scheme. I ask the Minister to take separate and urgent action to bring a more satisfactory solution to solve the long-running sores of flooding and sewerage outfalls in my constituency.
Returning to the Walker report, there are recommendations, on which I hope the Minster will comment, that would be of benefit to consumers across the United Kingdom. Chapter 11 focuses on water affordability. The recommendations would help many vulnerable and low-income residents in my constituency: a 20 per cent. discount for those in receipt of tax credits and other benefits; a discounted tariff for low-income families with children; and reforms to the WaterSure scheme. All those will help. There is also scope for targeted water efficiency work interlocking with Warm Front and the decent homes initiatives. Walker recommends focusing these efforts on high water cost areas—the south-west, in particular. For the south-west there is the further suggestion of a seasonal tariff to take into account the population swell and increased water demand during the peak tourist season. Such a scheme is currently being piloted by Wessex Water, but this one focuses more on environmental than affordability criteria. The practicality of such a scheme across the far south-west, with en masse meter readings, is very doubtful. The potential solutions are not, unfortunately, quite as straightforward as they sound.
There will be a great deal of groundwork to be undertaken by Ofwat. For the overall system of redressing the financial balance, there will be, as Walker points out, a range of legal, technical, financial and economic issues. They will need to be contemplated, and financial corrections will need to avoid distorting markets and state aid considerations. Ofwat is best placed to advise Government on how to progress this, and I urge the Minister to instruct Ofwat to waste no time in looking into these matters.
There are difficulties with all the proposals, but the one with the most resonance and the most practicality is an annual levy on other water company areas to address the low customer base in the south-west. It would avoid state aid issues and appears the fairest option to pursue. I hope also that the Minister has had sufficient time to consider the report carefully, as he indicated he would in a parliamentary answer to me earlier this month.
The people of the south-west have suffered from the burden of high water bills for more than 20 years, and I hope that the Minister will give an indication today that such an injustice can finally be put to an end.
I am very pleased to respond to this debate. I congratulate the hon. Member for Torbay (Mr. Sanders) on securing the debate and also on the considered and intelligent way that he made his points on behalf of his constituents and others in the south-west. I am pleased to see several hon. Members who have lobbied me intensively during my time as a Minister in the Department for Environment, Food and Rural Affairs. I am sure they lobbied my predecessors as well. I hope that my progress report today will reassure them.
It is worth pointing out that I responded last year to three separate debates on this issue, all of which were well attended. I could certainly forecast at that point that it would not be long after Anna Walker produced her final report that I would be here once again, and the hon. Gentleman has not disappointed me—quite rightly, too.
Since the last debate in October, we have made a lot of progress on water matters, as the hon. Gentleman said. Ofwat issued its final determinations of water price limits on 26 November, which will reduce bills by an average of £3 and a little more within the south-west. That is good, but it does not solve the underlying issues. Bills in the UK will fall by an average of £3 before inflation between 2010 and 2015. At the same time, critically, provision will also be made for £22 billion in investment.
On 22 December, DEFRA published river basin management plans for 10 river basin districts in England and Wales. The plans set out how we will achieve good water status for each lake, stretch of a river, estuary and coastline. To respond to the hon. Gentleman’s understandable comments, several strands of work in the south-west river basin plan are directly relevant to him and his constituents. We are working with South West Water to investigate urban drainage systems to identify and remedy misconnections and other sources of diffuse pollution that are putting the quality of the coastal water at risk. Because planned development in the area will be concentrated around Torbay, future management of urban drainage in the future is an important consideration. We support how the SeaTorbay partnership is working to improve public understanding of and involvement in coastal wildlife and conservation.
On 19 November, we published the Flood and Water Management Bill. The Bill received Second Reading in the House on 15 December. Last Thursday it completed Committee stage, and Report and Third Reading are provisionally scheduled for 1 February.
Last but by no means least, Anna Walker published her final report on charging for household water and sewerage services on 8 December. It included a package of recommendations to DEFRA Ministers and Welsh Ministers. I am glad that the hon. Gentleman referred to the situation in Wales as well. Welsh constituents are covered not only by Welsh Water/Dwr Cymru but by Severn Trent.
I reiterate my thanks and congratulations to Anna Walker. I think that all Members appreciate the outstanding work that she and her team have done in grappling with a range of complex and incredibly difficult issues, not only in the south-west but nationally, involving the fairness of current charges. Her final recommendations reflect extensive and exhaustive stakeholder engagement, including workshops across England and Wales. Two were held in Plymouth, and I know that some hon. Members attended both the first and second to make their views known. The thoroughness of Anna Walker’s work is reflected by a chapter in the report dedicated to the south-west. She recognised, as do we, that there are issues to be resolved.
The Minister is absolutely right to say that the Walker report homed in on some of the issues in the south-west that cause the greatest problems for people on low incomes, but is water poverty not a national issue? Should the Government not consider it in the same way as fuel poverty? We would not expect fuel customers in the north-east to be responsible for their own winter fuel payments because it is colder up there. Surely, as a point of principle, we should not expect South West Water customers to pay for the fuel-poor; the burden should be spread nationally.
I will turn to the detail of the Walker recommendations and the possible way forward in a moment. Anna Walker rightly identified that, curiously, the issue in the south-west—she highlighted the causes, to which I will turn in a moment—could well in future be a burden somewhere else in the country. We do not want to replicate the mistakes of the past. If I have time, I will turn in my remarks to what discussions have taken place on the Flood and Water Management Bill in light of that. I will come to the hon. Lady’s points in a moment.
Anna Walker concluded that the regulatory regime in England and Wales has served customers well over the last 20 years, but that we now face considerable new challenges across the UK. In particular, demand for water is growing and water supply is already under pressure across the south and east of England. On top of that, we face challenges such as climate change and water affordability.
The final report highlights that water affordability is a real issue for some households across the whole of the UK, but notably in the south-west. It therefore recommended a package of measures for the Government to consider how to help low-income customers. My hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) made the comment that there is a package there, which is quite interesting. There are a range of possible solutions that she puts forward as a package.
Anna Walker proposed that the WaterSure tariff should be retained for low-income customers with high essential use for medical reasons, but that bills should be capped at the national or regional average, depending on which is lower. That would be paid for by regional water customers. She also suggested that all metered customers on certain means-tested benefits should be offered a 20 per cent. discount on their bills or, failing that, that a discount should be introduced for low-income households with one or more children.
Let me just add that during the Committee stage of the Flood and Water Management Bill, the issue of social tariffs operated by companies was raised. It was raised across the room by Labour and Liberal Democrat MPs. I agreed to take away and consider whether a new clause should and could be brought forward on Report to enable companies to operate social tariffs. I thought it would be interesting to put that on the table. The Bill is essentially concerned with the implementation of the Pitt recommendations. We are trying to deal with the issue of debt in water companies, which impacts on the wider consumer base, and if we can get it right, we may be able to do something about an enabling power around social tariffs.
Turning to the chapter in Anna’s report on the south-west, I have acknowledged repeatedly in debates here and elsewhere that South West Water customers pay more for water and sewerage services than other customers do. This year, the average household bill is around £490, which is 43 per cent. more than the national average. Anna looked closely at why that is the case. She concluded that one of the key reasons that bills in the south-west are relatively high when compared to other parts of the country was, frankly, the poor state of the local sewerage infrastructure at the time of privatisation in 1989. The source of the problem goes back to the birth of privatisation and, I do not hesitate to say it, to the midwives who conceived this particular child. She found that South West Water had an underdeveloped set of assets due to the reliance on sewage disposal at sea, which meant that the region had the smallest regulatory asset base per property of any water and sewerage company at that point in time. That meant that South West Water had to spend a lot of money on infrastructure development to meet national standards, with the result that South West Water went from the company with the smallest regulatory asset base per property to the one with the highest, and here we are.
The cost of investing in the sewerage system in Devon and Cornwall, post privatisation, as the hon. Member for Torbay knows, has been met by the company’s customers. Anna Walker identified a number of options that could potentially address that. One option would be a one-off financial adjustment funded by the Government to address the specific circumstances of South West Water at the time of privatisation. A further option that she identified was an annual transfer to the south-west from the Government. Alternatively, she proposed that bills in the South West Water area could be adjusted—either as a one-off, or annually—through contributions by other water customers across the rest of the country.
In addition to her more general recommendations on affordability, Anna suggested that households in the south-west could be helped by a seasonal tariff that would charge more for water during the summer months. That would take account of the fact that water use in the south-west in the summer is up by one third on the rest of the year. Anna Walker indicated that if water in the summer months was charged at three or four times the normal unit cost, then average residents’ bills could be reduced by around £40 to £60 a year. However, I know that there is some concern about seasonal tariffs and their impact on the tourism industry in the south-west. I understand that. Under Anna Walker’s proposal, water bills would increase for hotels, guest houses, restaurants and other seasonal businesses during the summer months. That brings us back to the question of what is the fairest way of charging for water.
Let me pose some questions that Anna rightly posed too. First, is it fair for local or national water customers, or the taxpayer, to pick up the tab, given that it is visitors to the south-west in the summer months who make use of peak-period water? Curiously, the analogy is correct. When I went on holiday to the south-west last year, I had north-east MPs say to me, “Whatever you do, you must make sure that you do not replicate the mistakes of the past and have us paying.” It is a tricky one. Visitors to the south-west in the summer months during the peak period make use of the water and sewerage services. All I am saying is—I am not proposing this as a solution—that a seasonal tariff may offer the opportunity, as Anna proposed, to provide part of a fairer distribution of costs.
May I focus on a part of the matter that is often overlooked? Visitors already pay a contribution through their accommodation tariff—all hotel accommodation is water-metered. Is it second home owners that we are getting at? I think that the tourism industry, which is still the biggest industry and the largest employer in Devon and Cornwall, would see the seasonal tariff as a stealth tax. I would like to knock that one off the table as soon as possible.
I hear what the hon. Gentleman is saying, and I am certainly not favouring one proposal over another, or even proposing a mix at the moment. As we take the matter forward, it is important that the hon. Gentleman and others, their constituents and the wider consumer representation base have the opportunity to properly wrestle with the recommendations and try to find the right way forward. I know that earlier today we were hopeful of securing, with a delegation led by my hon. Friend the Member for Plymouth, Sutton alongside honourable colleagues, a meeting with the Prime Minister. Unfortunately he has been delayed, as we know, by some other business. However, I understand that the meeting will be rearranged not only to raise the issue with him, but to secure—I am convinced that he will give this—his support for resolving the matter. Anna Walker was only one stage.
The hon. Member for Torbay (Mr. Sanders) asked in his speech whether the Minister would refer the options for the south-west to the regulator. I know that the Government have to respond to the whole report and will take time to do that. Will the Minister please comment on that? Hopefully, we will be able to secure the Prime Minister’s interest in doing so too.
Yes, I am happy to do so. As I said, things have progressed, and we are not waiting to get on with it. In our response to the final report, I and colleagues in the Welsh Assembly Government said:
“We welcome the publication of Anna Walker’s final report of her independent review of charging for household water and sewerage services. Anna Walker and her team have done an excellent job engaging with stakeholders and tackling difficult issues around charging for water, fairness and affordability. We will consider Anna Walker’s recommendations carefully”—
it is right that we do so—
“ahead of a full public consultation.”
Also, in line with the specific recommendations that Anna made for the south-west, I have already asked Ofwat to consider and advise on the options for dealing with bills in the south-west.
Neither my right hon. Friend the Member for West Dorset (Mr. Letwin) nor I were aware of the delegation to the Prime Minister. We have not been operating in a vacuum; we have been discussing the issue with South West Water and other stakeholders, which may or may not be of interest to people following the general election. Would it not be in order, as it affects all our constituents in the south-west, for the Conservatives to at least be invited to come along to the delegation, or is it a Lib-Lab pact?
Personally, I would have welcomed any representation that the hon. Gentleman and his party wanted to make. I would only point out that in the year and a half that I have been Minister, I have received no delegation, request for a delegation or representations from the hon. Gentleman and his party whatever. However, even at this late stage, I would welcome any requests for a meeting with me to express their views.
In conclusion, we are awaiting Ofwat’s advice on Anna Walker’s proposals on water charges in the south-west. It is, of course, for Ofwat to consider the practicality and fairness of these proposals ahead of advising Ministers and to decide how much time it needs to complete the task.
Sitting adjourned without Question put (Standing Order No.10(11)).