House of Commons
Tuesday 2 February 2010
The House met at half-past Two o’clock
[Mr. Speaker in the Chair]
Oral Answers to Questions
The Chancellor of the Exchequer was asked—
Reform is necessary at domestic, European and international level to ensure that we have a regulatory system that can effectively monitor and, where necessary, curb risk-taking in the financial services sector.
I thank my right hon. Friend for that reply. On the use of regulatory tools, has he noticed that commentators increasingly suggest that a more equal society is a more effective and efficient society? Will he use those tools to bear down on the very high incomes that we still see particularly in the banking sector?
I agree with my hon. Friend that it is important that we have a fair and just society; that we ensure that, when people are rewarded, they are rewarded for their effort; and, in the banking industry in particular, that the relationship between what somebody does and what they get should be better aligned. That is why we received the agreement of the G20 countries and imposed restrictions on what the banks in which we have shareholdings can do. I hope that over the next short period, banks in this country and others remember that they live in the same world as the rest of us. They ought to show restraint at a time when everybody else is having to pull in their belts.
As the measures already announced by the British and European Governments are widely seen as being inadequate “to stop the second shoe falling”, will the Chancellor do his best to persuade the Financial Stability Board and the European Central Bank to embrace as many as possible of the proposals in the Volcker plan, so that we can have genuinely international bank reform?
I agree with the hon. Gentleman that global agreement on the reforms that we need is highly desirable. The proposals that the United States made 10 days ago, the requirements for increased capital, where necessary, to ensure that the amount of capital held is commensurate with the risk undertaken, and the measures to take forward the work on resolution plans—living wills, if you like—are all very important. They represent a common objective. For the reasons that I explained earlier, I do not take the same view of the proposal that might come from the United States on breaking up large banks. The real problem is the interconnectivity of institutions, and we need reforms on that. However, I certainly agree with the hon. Gentleman that, importantly, regulation in Europe and in the United States should move forward together, and that is one of the things that I shall raise at the G7 Ministers’ meeting in Canada this weekend.
Is it not the case that banks that mainly handle hedge funds are seen by many as casino banks? Is it not time that we looked at that world of hedge funds and separated their activity in banking terms from that of banks that handle everyday mortgage and saving—that is domestic—needs?
I do not think that the division that my hon. Friend provides is quite as simple as that. Hedge funds can perform a useful function, but it is important to ensure that, when banks engage in risky activity, they have sufficient capital behind them if things go wrong. That is why we are very happy to work with some of the proposals from the United States and, indeed, other parts of the world. Most people recognise that the situation is quite complex, and I see that the Opposition have now shifted their position from warmly embracing the break-up of banks to an assurance, which the shadow Chancellor gave to bankers at the weekend in Davos, that they would not do any such thing.
The Chancellor and I have agreed to differ on the Government’s rejection of the Governor of the Bank of England’s advice on breaking up those banks, but now that the President of the United States has made the case that proprietary and, indeed, wider, own-account trading by banks is dangerous and must be separated from traditional banking, do the Government not wish to rethink their position at all?
Interestingly, if one looks at Paul Volcker’s proposals, which he made as part of his Group of Thirty proposals a year ago, one finds that he recognised that proprietary trading could be risky and recommended that greater capital be held against such risky activities. We have expressed that view before, and the issue clearly needs to be looked at. However, we must also bear in mind that most British banks do not engage in that much proprietary trading, and it certainly was not the root cause of the recent problems.
I say to the hon. Gentleman, as I have said to him before, that traditionally the regulatory system was modelled on the basis that if one firm was all right, the entire system was all right. Over the past 18 months or so, however, we have seen that we have to look behind that, because risks were laid off to institutions, which laid them off to further institutions. In some cases, we found that the first firm that had attempted to lay off its risk was buying it back through another part of the empire, without having any idea of what it was doing. The interconnections of financial institutions are the problem, and that is why the hon. Gentleman’s proposals do not fit the bill. In fact, he is rather like a general fighting the last war rather than taking account of where we are likely to be in the future.
The Chancellor says that this is not the basic cause of the problems within the UK system. Is it not true, however, that there were enormous losses within the Royal Bank of Scotland, for example, as well as within the mortgage lenders? Is not the real reason why the Government—and, for that matter, the Conservatives—are not willing to go down this route the fact that they have been persuaded by the City, for its own self-interested reasons, to adopt this position of a level playing field? Whereas the Government took the world lead in the bank rescue operation, they are now lagging behind the rest of the world in dealing with this very dangerous problem.
No, I do not accept that. If the hon. Gentleman reflects on what has happened since 2007, he will see that the problems were partly to do with liquidity. For example, Northern Rock was totally dependent on wholesale funding, and when that dried up, the bank effectively collapsed. However, the other problem was that too many firms, such as RBS, clearly did not understand the extent to which they were exposed, and because of that they got into difficulties. That was a feature of many of the banks that failed. We need, first, to ensure that we have adequate capital that stands behind the banks’ activities, and that that capital is commensurate with the nature of the operations. Secondly, we have to ensure that in the event of a bank getting into difficulties there is a resolution plan—a living will—whereby the regulators of the banks know exactly what needs to be done and who needs to be doing what.
The crucial thing—this comes back to the point raised by the hon. Member for Louth and Horncastle (Sir Peter Tapsell)—is that it is necessary for us to ensure that the regulatory reforms are not just put in place here but done on a broad-based international basis. That is what we need, and it is in all our interests to ensure that it happens. Let us remember that at the end of the day we have to ensure that we have a robust regulatory system, but also a system that ensures that banks are there to provide credit for the economy, which is the objective of all the reforms that are being put in place.
The Chancellor is proving quite a defender of the old model of finance. The President of the United States did not say that he wanted a return to a full-scale Glass-Steagall approach and the break-up of the banks; he said that he wanted to separate retail deposit-taking from large-scale proprietary trading, large internal hedge funds, and large internal private equity funds. I agree with him, and I think that these things should be agreed internationally. Could the Chancellor explain very specifically why he disagrees with the President of the United States?
As I have said before, we have still to see the details of what the President is proposing; I understand that we will see more during the course of this week. I have to say to the hon. Gentleman that we are dealing with a complex set of proposals. On the day that the President made his announcement, according to Robert Peston—[Hon. Members: “Ah!”] Well, I am sure that he is right on this. Robert Peston said that the shadow Chancellor had told him
“explicitly…that a Tory government would impose an identical dismantling of British banks to those suggested by President Obama.”
Yet on 28 January, in The Wall Street Journal, the hon. Gentleman said:
“I fully understand that modern universal banks need to offer their customers investment banking services”—
in other words, a complete climbdown from the position that he had adopted only seven days earlier.
Let me make this clear to the Chancellor of the Exchequer. I agree wholeheartedly with the President of the United States that large-scale proprietary trading should not sit alongside retail deposit taking. If I were in the Chancellor’s job, I would be trying to work on that internationally instead of opposing it.
May I ask the Chancellor about something else that the President proposed in that speech? He said that he wanted a bank levy; and, of course, the Swedish Government have proposed a forward-looking insurance levy. At the Finance Ministers’ meeting, the Prime Minister floated the idea of a Tobin tax, but the Governor of the Bank of England told the Treasury Committee:
“I don’t know anyone on the international circuit who is enthusiastic about it”.
Given that the Governor talks to the Chancellor a lot, presumably the Chancellor is included among those who are not enthusiastic about it. Can we take it that the Tobin tax idea is now completely dead?
On the hon. Gentleman’s first point, I said that where there is common ground between us and those in the United States, we will work closely with them; that is something that I intend to pursue at the G7 meeting this weekend, along with other Finance Ministers. I do not accept the proposition that if we simply break up banks we will sort the problem that needs to be sorted, because of the connections between financial institutions. That needs to be got right. The hon. Gentleman—he is allowed to do this—has changed his mind over a period of all of seven days. Today he was promising a speech on a new economic model; it is clear that we get a new economic model from him every single day.
International levies and an insurance fund are something worth looking at, and we will certainly work not only with the Americans but with other countries on that.
We are concerned about the impact of high-cost credit products on the most vulnerable in society. The Office of Fair Trading is reviewing the market for high-cost credit, and its report is due out in the spring. We will respond quickly to address the issues raised.
I thank the hon. Gentleman for his question and pay tribute to him for his work in protecting vulnerable people and for the number of times he brings these issues to the House to draw attention to them.
Alongside the work that the OFT is doing on a regulatory basis, we are trying to increase the supply of low-cost credit. There is a key role in that for the growth fund, through which £98.75 million has been made available. It is on target to meet the goal of 150,000 affordable loans a year, through credit unions and community development financial institutions, which are trusted in the community and to which people know they can go to get the low-cost credit that they need.
I welcome what my hon. Friend says, but does she agree that the biggest concern is the high interest when people sign up for credit and then the intimidation and bullying that they face in order to get repayments? What more can we do to ensure that there are alternatives, so that people can access the money that they need? How can we promote that, especially through the credit unions?
I certainly pay tribute to the credit union movement for its work. As I said, credit unions are rooted in their communities and provide people that those communities know. They give people the information that they need to make informed choices, so they know that they do not have to go to the high-cost doorstep lenders and that there are places where they can access low-cost credit. As I said, credit unions are a prime example of how they can do that.
Last week the Treasury ruled out a clampdown on store cards because of the impact that it would have on store card issuers. Why are the Government ignoring the risk that shoppers can be sucked into taking out a store card because of the discounts offered on that day’s shopping, but then end up paying one and a half times the interest rate that is normally charged on credit cards? Is it not time to give the OFT the power to clamp down on excessive rates and the marketing of store cards?
As I said, the OFT has been carrying out a quite comprehensive review of high-cost consumer credit and other credit products. It is looking at the attitude and behaviour of consumers and how they use those products, and it is examining evidence from international research. As I said, it will report in the spring, and we are committed to examining that report and taking action on what is put forward.
UK Credit Rating
As the House would expect, Treasury officials meet a wide range of organisations and have done so for a number of years.
The Chancellor will be aware that the Governor of the Bank of England urged him to publish a credible deficit reduction plan or risk losing Britain’s triple A rating. The CBI has said:
“Current plans to halve the deficit over four years are too little, too late. The UK’s AAA credit rating must be put beyond doubt.”
Is it not high time that the Chancellor produced a credible deficit reduction plan so that it could be reduced substantially over the lifetime of a single Parliament?
That is not quite what the Governor said, but I say to the hon. Gentleman that we are committed to halving the deficit over a four-year period, which means a sharp reduction in spending. We propose to do that once we believe that recovery is established, from 2011. The Governor made the point that to withdraw support prematurely would risk damaging the economy. I agree with the hon. Gentleman that it is important to have a firm, credible plan. What is quite clear, though, especially in the past few hours, is that the Opposition do not have a credible plan, or even a plan at all. It is quite obvious that they are living from one day to the next. Their proposals are a complete and utter shambles.
Is it not about time that we looked at the way in which that system works, with faceless individuals who seem to have the power of countries in their hands? Is it not about time we demanded transparency, so that those individuals have to answer for some of the decisions they make after scurrying around, briefing against countries? We want some transparency in the system.
Inevitably in markets, people say things for different reasons, but what is important is that people are left in no doubt that we have a firm proposal to reduce the deficit over a four-year period. When one looks at the pre-Budget report, one will see that the structural deficit, which begins to be reduced next year, comes down by something like two thirds over that period. That is an example of where we are prepared to act.
What undermines credibility is someone saying one week that they need to tear up our plans and that not doing so is moral cowardice, and then the hon. Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, when asked about the proposals, saying, as he did yesterday, “I can’t give you a specific figure now.” When pushed, he said, “Well, it might be £1 billion,” and then he says, “Of course, we don’t have a detailed plan worked out.” That is blindingly obvious. To coin a phrase, he can’t go on like this.
Could the Chancellor reassure the House that he and the Treasury fully understand the consequences of any downgrade of the UK’s triple A credit rating? Apart from the impact on demand for new issues of gilts and the costs of funds, he will be aware that many holders of UK gilts are restricted to holding triple A assets, and therefore that a downgrade risks provoking wholesale disposals by them. Does he have an estimate of the proportion of UK gilts that are held by institutions that hold only triple A rated assets? If he does not, will he ask the Debt Management Office to prepare one and have it available on Ministers’ desks on 7 May?
The only rating that is being downgraded at the moment is the shadow Chancellor’s. I put it to the shadow Chief Secretary that a week ago, the Leader of the Opposition said:
“We cannot go on like this…And you just need to look at Greece to see what happens if we do”
but yesterday, the shadow Chief Secretary, when asked on the television—
Capital Allowances (Plant and Machinery)
Reforms implemented in April 2008 ensure that capital allowances are more closely aligned with true economic depreciation, and that business investment decisions better reflect commercial rather than tax considerations.
At a time when the manufacturing purchasing manufacturers’ index is at last rising strongly, will the Minister assure me that this Labour Government will not slash capital allowances for plant and machinery, as proposed by the Conservatives? Such a cut would devastate manufacturing in the west midlands and the UK, and cause a double-dip recession.
My hon. Friend is right to point to the very promising manufacturing figures that were announced today and to recognise the importance of the capital allowances regime in ensuring investment in our future. Frankly, it is quite ridiculous to have a policy that says, “We’re going to give with one hand, and take away with the other,”—a policy of giving corporation tax reductions but taking away the capital allowances that are needed by manufacturing businesses in this country. I am not against cutting corporation taxes—indeed, this Government have cut them by 5p in the main rate since we came to power—but we should not do it at the expense of investment in our future, which is what the Conservatives would do.
There is a strong case for a lower rate and a simpler structure. However, increasing the cost of labour through increases in national insurance contributions, while having a generous programme of capital allowances, is unbalancing the cost of capital versus labour, when we have 2.3 million unemployed.
The hon. Gentleman cannot get away from the fact that his policy is to reduce capital allowances to 12.5 per cent. and abolish the annual investment allowance. That would mean that more than 400,000 businesses in this country would see an 87.5 per cent. reduction in the tax relief that they can obtain at the moment. That is not a credible policy to support medium-sized businesses or investment in this country.
Fiscal and Monetary Policy
As I set out in the pre-Budget report, we will continue to provide fiscal support during 2010-11, alongside the monetary policy action being taken by the Bank of England.
I very much agree with my hon. Friend. It is important to recognise that across the world, including in this country, it is the support given by Governments that has enabled us to avoid the recession becoming a global depression. It is also one of the reasons why countries are beginning to come back into growth. To remove that support prematurely would run the risk of derailing the recovery. That would be unforgivable, given all the pain that people have had to go through, and that is why we will continue to support businesses and families, to ensure that we get the recovery firmly established. Then we have not only to reduce the deficit, but to ensure long-term growth to provide the jobs in the future.
But cannot the Chancellor see that because he is overspending and over-borrowing in the public sector he is squeezing the private sector, which is having to pay high and rising rates of interest if it can get credit at all? What does he say to people with Skipton mortgages or small businesses that cannot borrow a single penny?
As the right hon. Gentleman will know, we have taken steps to ensure that the banks increase the amount of gross lending that they are putting into the economy. At a time when private sector investment has stopped or reduced, if it had not been for the public sector intervention, the downturn would have been much greater than it is. As it is, we can see signs of increasing confidence—he will have seen the survey of manufacturers published yesterday, which is very encouraging. Across the world, we can see the results of Governments acting together and making a real difference. To remove that support prematurely, if indeed that is the Opposition’s policy today—who knows?—would be the wrong thing to do because it would be damaging to the country.
Does my right hon. Friend accept that the exchange rate is crucial in maintaining a good level of demand in the domestic economy, and that the bounce-back in manufacturing is due largely to the wise and substantial depreciation of sterling? Will he continue the downward pressure on the sterling exchange rate to ensure that our recovery is sustained?
As my hon. Friend knows, the Government’s policy is to target inflation, but it is the combined efforts of fiscal policy and monetary policy that will make a difference and ensure that we can get through this and achieve the sustainable growth that is absolutely essential. It is very important that we secure that growth and we continue to take no risks with the recovery, and that is why the approach of the Conservatives is profoundly wrong.
UK Budget Deficit
The International Monetary Fund sets out estimates of deficits around the world. We remain determined to halve the deficit over four years, and we have set out clear plans to do so.
The Chief Secretary knows full well that in percentage terms this country has the highest budgetary deficit in the entire G20, as well as an extremely anaemic growth rate. What particular failure of Government policy has brought about that fiasco?
We make no apology for intervening to protect businesses and families from the worst economic storm for the last 60 years, but the reason that we had the flexibility to take that action is that we went into this recession with the second lowest level of debt in the G7. If the hon. Gentleman takes the IMF figures for 2014, he will see that the figures for this country are 18 per cent. lower than the average for the G7. Once recovery is set in, we have to take steps to halve the deficit over the course of four years and to bring down the structural deficit by some two thirds, and we have set out clear plans to do so—in sharp contrast to the Conservatives.
Does my right hon. Friend agree that the worst possible thing to do in dealing with the deficit would be to make disproportionate cuts during the lifetime of the next Parliament? That would lead to savage cuts in public services and a catastrophic loss of jobs in the public sector.
My hon. Friend is right. Suggestions have been put to us for reducing public spending next year—for example, reducing eligibility for child trust funds—but of course that would require legislation in this House, which it is unlikely could be delivered within the next financial year. Others have said that we could reduce eligibility for child tax credits, but of course the proposals that we were told would save £400 million would, in fact, save only £45 million. So the Conservative party has offered no credible plans to reduce public spending next year. However, the key point is that it would be the wrong thing to do because it would put at risk the recovery that we have fought hard for.
We detect avoidance early and we tackle it quickly. The disclosure regime has already helped to prevent more than £12 billion in avoidance opportunities, and in the pre-Budget report, we announced further steps to strengthen it. Building on progress at the G20 London summit, we have signed 21 agreements on tax information exchange with other countries since last January.
If the Government are serious about tackling tax avoidance, why have 25,000 jobs in Her Majesty’s Revenue and Customs been cut in the past five years, including recently 20 in my constituency? Surely that hampers the ability of the Minister’s Department to investigate, gather evidence and prosecute dodgers.
No, we have to manage the affairs of HMRC and other Departments in the most efficient and effective way possible. As the hon. Gentleman said, there has been a substantial reduction in the number of people working in HMRC, partly because of the merger between the old Customs and Revenue Departments, which has enabled a more efficient operation. It is doing a better job, and we are reducing the tax gap, bringing in the tax that the Exchequer needs.
May I applaud the Government’s plans to curb bogus self-employment in the construction industry, which costs this country £1.7 billion a year in lost revenue? May I ask the Minister for an assurance that he will resist any opposition to our plans from construction industry bosses who only want to maintain that culture of hire and fire in the industry?
Private Finance Initiative
Financial viability is assessed as part of the consideration of a project’s outlined business case and follows Treasury Green Book rules.
The Economic Secretary will be aware that the country is dependent on a number of waste facilities under private finance initiative projects set when the economy was in a better state. How confident is he that those PFI initiatives will be bid for and met, and that, as a result, the Government will be able to meet their landfill targets?
On waste projects, and many other projects supported through the PFI, the Government have a record of which we can be proud. The hon. Lady will be aware of the Manchester waste project of the last calendar year and of the support for it from the Treasury industry finance unit. A number of other waste projects are currently in the PFI pipeline and extend to £19 billion of potential projects. We want to ensure that those projects are delivered, that they deliver good value for money for the taxpayer, and that they help local authorities to meet their landfill targets and our overall carbon targets.
Fiscal Support (Families)
The child element of the child tax credit will rise by £65 in April; working tax credit and child benefit will rise by 1.5 per cent; tax thresholds will be frozen, providing a real-terms gain for taxpayers; and, from September, free primary school meals will start to be provided to children from lower income working families.
I thank my right hon. Friend for that answer. May I pass on to the Government the thanks of many of my constituents for the working families tax credit—as it says on the tin, “working families”. He knows that one of the major problems that a family can face is unemployment. What more can he do to reduce the fear and possibility of families facing that hardship?
My hon. Friend is absolutely right. Tax credits have played a crucial role, not least in protecting families from unemployment during the downturn, because access to the tax credit system has made reduced hours, instead of job losses, more feasible for people. For example, from April to October last year, 400,000 families whose incomes have fallen have had extra help, averaging £37 per week. Alongside that, of course, we have provided substantial additional resources to Jobcentre Plus, which is why, contrary to many expectations, the number of people in work has remained much more buoyant.
Can the Minister confirm whether Energywatch is right to say that the number of families in fuel poverty, at 5.9 million, is greater than at any time in the past 10 years? Could he also tell the House whether the Government plan to meet the child poverty target that they set for 2010?
It is of course the case that we have provided substantial support to families over the past couple of years during the downturn. That is why, for example, there are so many fewer home repossessions than were expected, while unemployment is less and the crime rate has gone down rather than up. There is still more to be done on fuel poverty. On child poverty, independent estimates are that we will be about two thirds of the way towards the 2010 target, despite the obvious challenges that we have faced during the downturn, and, as the hon. Gentleman knows, we have legislated for a 2020 target as well.
Many parents are unaware of the support available to them to help them pay the costs of child care if they want to go back into work or remain in work. Will my right hon. Friend liaise with colleagues to ensure that parents understand that there is a child care tax credit, that there will be more free child care places later this year and that there will be pilots for low-cost loans to help parents pay up-front child care costs, so that they can remain in work and their children can be lifted out of poverty?
Better Healthcare Closer to Home
Moving health care closer to home is a policy objective of this Government. I think that the hon. Gentleman has in mind a scheme that has been submitted by his local NHS to the Department of Health. That scheme is currently under consideration by that Department and when it comes to me, I can assure him that I will review it thoroughly, but also promptly.
I would like to thank the Health Minister, the right hon. and learned Member for North Warwickshire (Mr. O’Brien), for his support for the project. Would the Chief Secretary be willing to meet concerned local Members of Parliament over the next couple of weeks, so that we can ensure that the pressure is maintained on the different partners involved in the project and ensure that Better Healthcare Closer to Home is delivered for the residents of Sutton and Merton? The next four weeks are critical.
I am always happy to meet groups of right hon. and hon. Members. In particular, I would like to put on record my thanks to my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) for her tireless campaigning on behalf of the project. We are proud of the number of hospitals that the Government have built. We said that we would build 100 new hospitals by 2010; in fact, the Department of Health is on course to build 126 by the end of this year. The scheme to which the hon. Gentleman referred is yet to come to me for approval. The House would expect me to look at the business case thoroughly when it arrives, but as I said to him a moment ago, I also understand the need for speed.
My hon. Friend can rest assured on that point. I met the Secretary of State for Health last week to begin our preparations together for considering that particular project. I hope that she will be able to join me and any other hon. Members who would like to get together to discuss that important new development.
Public Sector Debt
As set out in the pre-Budget report, public sector net debt is forecast to peak at 77.7 per cent. of GDP in 2014-15. Projections beyond that are consistent with debt falling as a share of GDP in 2015-16. Although the UK’s public debt is rising in response to the recent shocks, it will remain in line with that of other advanced economies.
That means that the national debt will reach £1.4 trillion. Is the Minister aware that if we repaid debt at the rate of £1 every second, we could repay £1 million in 12 days, but that it would take 44,000 years to repay the total debt to which he has alluded? Does that not strengthen the case for starting early?
As has been made very clear, we want to take action to curb the deficit and reduce debt. We have set out plans to halve the deficit over four years. The right hon. Gentleman should be aware that our figures for net debt compare pretty much with those of France and Germany and with the G7 average this year, not according to the Government’s figures, but according to the International Monetary Fund’s figures. I am sure he will welcome that.
Alcohol (Minimum Price)
There are a number of different approaches available if proposals for a minimum price for alcohol were implemented. The revenue impacts, which could be positive or negative, would depend on the level of any minimum price and the way in which minimum pricing was implemented.
We would have to take such a consideration into account if we were introducing minimum pricing. Duty alone could not deliver minimum pricing for alcohol products, but when we consider changes to duty rates, we have to consider impacts on the industry, as well as on Exchequer revenues.
I thank my hon. Friend for his question. I refer him to the answer that I gave to the original question. We cannot use alcohol duty alone as a mechanism to deliver minimum pricing for alcohol products; there are a number of practical and legislative constraints. We are, of course, always willing to consider the matter further and to consult other colleagues about it.
Like the hon. Member for Bolton, South-East (Dr. Iddon), the Health Secretary appears enthusiastic about minimum pricing, but it would hit responsible drinkers hard, without any benefit to the public finances. I know that much of the Government’s economic policy is back to the 1970s, but setting the price of goods is surely a step too far. Instead of trying to fix prices, should they not try and fix the problem and raise taxes on problem drinks, rather than on responsible drinkers?
I must remind the hon. Gentleman that there is an EU rates and structure directive that means that beers and spirits must be taxed in proportion to alcohol content, and wines and cider must be taxed in bands of alcohol strength, which constrains what we can do on specific drinks. Also, alcohol duty is paid by producers. That applies equally, regardless whether products are sold in pubs or supermarkets. Many of the problems cited by hon. Members are not about responsible drinkers in pubs, but about the prices charged in supermarkets. As I said, alcohol duty alone cannot deliver a solution.
Early Intervention Policies
The Government fully recognise the benefits of early intervention and the value for money that it brings. That is why I announced in the Command Paper that I laid before the House before Christmas a new programme of work designed to test innovative forms of finance aimed at boosting investment in early intervention.
We all seem to be agreed that we need to reduce the deficit by half over four years, but there are two ways to do that—either by reducing public expenditure, or by reducing the need for that public expenditure by intervening early in the problems that much public expenditure is spent on, so that that expenditure is not necessary. Will my right hon. Friend and the Treasury exercise due diligence in looking at the financial instruments that are being developed on the capital markets, which could raise money in the first instance to make sure that early intervention programmes can be sustained?
I would like to put on record my personal thanks to my hon. Friend for the pioneering work that he has overseen in Nottingham, where there is a great deal for policy makers and for politicians to learn. Like him, I am keen that we explore new ways of drawing money into innovative projects focused on early intervention, and I hope the measures that we have announced to create in this country a social investment wholesale bank, together with social impact bonds that will be brought forward by the Secretary of State for Communities and Local Government and, I hope, the Secretary of State for Justice will be a substantial step in testing some of the ideas that are being pioneered now in Nottingham.
Fiscal and Monetary Policy
As my right hon. Friend the Chancellor said some moments ago, we will continue to provide fiscal support during 2010-11, alongside the monetary policy action being taken by the Bank of England.
My hon. Friend will not be surprised to hear that when I met representatives of 3M Health Care in my constituency, it said that it was quite clear that expenditure in the health service over the last 12 months had meant the difference between keeping the company going and it possibly folding. Will he ensure that moneys spent recognise the impact of such expenditure on the private sector as well as on the public sector? Those 600 company jobs in Loughborough are thanks to the excellent work of investing in the national health service.
My hon. Friend is absolutely right to highlight the importance of public procurement in supporting private sector jobs in this country. The figures show that more than 95 per cent. of Government spending on procurement goes to UK firms. I am sure that we all appreciate that. There is a direct link between Government spending, public procurement and jobs in the UK economy. We need to ensure that we get good value for money while at the same time supporting UK firms.
Would the Minister not accept that this country’s elderly can also help to maintain demand in the economy? Bearing in mind that many of them rely on their savings, on which they getting a negative return because of inflation and taxation, is it not time that the taxation system enabled the elderly, who rely upon savings, to get some meaningful return for their responsibility?
I know the hon. Gentleman has always raised the issue of pensioners and is a champion of them. He will be aware, however, that this Government have taken many pensioners out of poverty through the measures we have introduced—for example, by increasing the limits on individual savings accounts in the 2009 Budget and by providing an opportunity for tax-free savings for the over-50s, including pensioners, which is to be extended to all savers from April this year. Those are welcome measures, and as a Government we will always want to acknowledge the vital role pensioners play in contributing to our economy—just because people are retired, it does not mean that they are not economically active citizens and are not contributing to our society.
The Treasury’s responsibilities remain as I have set out on previous occasions.
Given that this Government’s policies have failed to reverse the rising income inequality of the Tory years, does the Chancellor agree that raising the basic tax allowance would help pensioners like Mr. Whitty of my constituency, who has very little and yet still pays income tax?
Over the past 12 years, we have taken measures to take an increasing number of pensioners out of tax precisely by raising their personal allowances. [Interruption.] I am sure that the hon. Lady is being unintentionally distracted by her hon. Friend the Member for Southport (Dr. Pugh), but I was making the point that because we have raised personal allowances for older people, we have been able to take more pensioners out of tax. On top of that, measures such as the winter fuel allowance and others have helped elderly people meet their responsibilities and enjoy a better standard of living than they would otherwise have done.
I would like to assure my hon. Friend that HM Treasury remains fully supportive of carbon capture and storage. We are committed to the demonstration projects in the UK and we welcome the use of EU funds to bring those projects forward. It is correct that the negotiations and discussions in the comitology process are going on today, so I do not wish to prejudice them. Let me nevertheless be clear that any decisions to support the specific proposal will not in any way prejudice future negotiations on the auctioning of allowance under phase 3 of the directive.
Yesterday, in response to a freedom of information request from us, the Treasury published a document to which it had referred—I have it here—citing international examples of spending consolidations. It has redacted pages and pages of it. It has even redacted the front cover. Can the Chancellor explain why?
I am sure that there was a good reason. As the hon. Gentleman and the House know, the Freedom of Information Act provides for advice to Ministers to be withheld. As for the document referred to, for the most part, it brings together contemporary literature on the question of fiscal consolidation.
It seems to me, however, that it is the hon. Gentleman who has the problem. Five times today he was asked what his plans were for next year, and five times he refused to answer.
We have committed ourselves to maintaining spending on Sure Start children’s centres in real terms beyond next year. We will continue that spending in the following two years in order to protect the invaluable help for families that those centres provide, which my hon. Friend rightly supports and from which people across the country are benefiting.
As the hon. Gentleman will remember, there was correspondence later which was followed up. However, I appreciate his concern about the impact of the problem in his area and the potential of the council’s proposals, and I shall be more than happy to look at those proposals again.
We have made a great deal of progress on tax information exchange agreements in the last year. I believe we have made more progress in the last year than in the previous 10 years put together. Last week the OECD published a report showing good progress across the board. In regard to Belize, however, I can tell the House that no agreements have been signed so far.
The House will know that on 10 December last year the Government published a wide range of proposals relating to matters including transaction taxes, increased capital and the insurance levy. All those matters are still being discussed. The IMF has been asked to come up with proposals, which will be discussed at the spring meetings.
As I said earlier, there are problems which we know need to be dealt with at global level. We have constructive proposals for doing that, and we will work with other countries to ensure that this year we implement what we agreed to do last year. That is critical.
My hon. Friend will know of the virtues of the scheme that was introduced in England. It can not only deliver a reduction in families’ heating bills, but have an impact on reducing the country’s carbon emissions. The requisite spending is a devolved matter in Scotland. Barnett consequentials were provided on the £20 million addition that was made to the budget of the Department of Energy and Climate Change, but the argument will of course need to be prosecuted in Scotland.
I certainly will. It is the case that a new computer system is being used for PAYE this year. It is working very well and is enabling HMRC to hold in one place all the records on one person’s employment and pensions, which was not possible in the past. As the hon. Lady has said, there has been an issue about tax codes, and HMRC will be working to iron out the problem well before the start of the new tax year. I will look into the issue about the phone line—for those who are interested, the number is 0845 3000 627.
I can certainly assure my hon. Friend that we are very concerned about these high-cost credit products. That is why the Office of Fair Trading is bringing forward new guidance on irresponsible lending to cover the marketing and selling of credit products. We are determined to tackle irresponsible lenders, and we are sure that we will be able to take action against those who are unable or unwilling to follow the guidance.
Is the Minister aware that businesses in my constituency are suffering because they cannot get the credit that they need to survive? Can he outline what recent instructions he has given to those banks in receipt of billions of pounds of taxpayers’ money to ensure that small businesses can get the credit that they desperately need?
As I said earlier, we have agreements with the Royal Bank of Scotland and Lloyds to increase the amount of money that they are lending to the small and medium-sized enterprise sector. That lending has been issued, although the net figure is affected by the fact that there have been some quite large-scale repayments. In the first instance, the hon. Gentleman should do what I do and write to the branch of the bank that the small business deals with. If that does not work and the hon. Gentleman continues to have difficulties, I will be happy if he gets in touch with me and lets me know what those specific difficulties are. He will appreciate that sometimes the bank may be acting unreasonably, but that at other times there may be a reason why someone has been refused credit.
I listened with interest to the answers that my right hon. Friend the Chancellor gave to Question 1. The Americans appear to favour safe retail banks, guaranteed by the taxpayer, and casino investment banks that would not have such guarantees. I am sure that he would agree that the British taxpayer should not be on the hook for the risky activities of British bankers. Does he also agree that it is important that we get an early decision from the Government on how they intend to proceed?
First, I think that we should wait and see what the final American proposal is because discussions are taking place and it may not be quite as was reported last week. We will see. In relation to my right hon. Friend’s point about what he calls casino banks, the safe investment banks, the problem with that approach was probably demonstrated most vividly in relation to Lehmans. It did not have a single retail deposit in it. The then American Administration let Lehmans collapse and it brought down the world's banking system on top of it. That rather makes the point that it is difficult for any Government to say in advance that they would never step in in relation to a particular bank, especially if there were a systemic crisis, as there was in 2008. That is the difference that I have in relation to approach but I look forward to discussing the matter with the United States Treasury Secretary when I see him in Canada on Friday.
Last Wednesday, the Chancellor made a welcome announcement to encourage greater investment in gas production west of Shetland. Can he confirm that that sends a signal to other investors in the industry that, if they are willing to come to the Treasury with detailed cases, the Treasury will be willing to look at ways to unlock further potential from our resources offshore?
Up to a point; I would not want to raise false hopes. As the hon. Gentleman knows, because he has long taken an interest in these matters, for some time, there has been a lot of discussion on how we can open up the waters to the west of Shetland to get at the oil and gas supplies there. It is estimated that about 20 per cent. of oil and gas supplies are there, waiting to be exploited. The measure that I introduced last week will, I hope, mean that some companies will be prepared to consider investing there. That is very important if we are to safeguard the security of supply of oil and gas, which is important. Of course I am always open to suggestions, but I would not want people to think that they only had to knock on the door and they will get what they want. That is probably not the case.
Will the Minister take a look at the question of the differential interest rates that apply in many private finance initiative contracts? Interest rates were a lot higher when those contracts were signed, and all interest rates are now a lot lower. Cannot an area of equilibrium be found among those currently paying such high interest rates?
My hon. Friend is well aware of how many of these schemes there are and the details of how they operate, so he will know about the contractual obligations that are entered into and what scope there might be for renegotiating some of the existing contracts. We always look at this issue closely and discuss it widely with the PFI community, and I can certainly undertake to take away my hon. Friend’s suggestions and examine them carefully.
Steps to address excessive risk-taking in the financial sector are necessary, but financial regulations must not be introduced at the expense of competitive business. What is the Chancellor doing to ensure that this principle is followed in the negotiations on the directive on alternative investment fund managers?
The hon. Gentleman will no doubt be aware that we are discussing that directive with the Commission and the presidency, which is held by Spain, because we have concerns about it. The hon. Gentleman is absolutely right that we must ensure that at one and the same time we have sufficient supervision and regulation to make the system safer while also remembering that that must operate alongside the ability of financial institutions to generate the finance upon which our economy and those throughout the world depend.
What is the Treasury’s attitude to proposals by the Campaign for Real Ale and the British Beer and Pub Association to the European Commission that countries should be allowed to levy a lower rate of duty on draught beer, thus helping pubs in the same way as a lower rate of duty on small brewers has helped them?
The cost of London Crossrail is £16 billion, with extra money being found from central Government at Westminster, whereas the cost of the Glasgow air link would be a 40th of that. What will the Government who control the UK purse strings do? Will they take the opportunity to provide the extra money for the Glasgow air link?
Well, I have to say to the hon. Gentleman that it was the Scottish National party Government in Scotland who cancelled the Glasgow air link. Therefore, how on earth he has got the gall to stand up and somehow blame someone else really says it all about the nationalists. They cut the rail link; they have to live with the consequences.
Rugby league remains a game rooted in the community. It is not awash with money and players are not paid huge salaries, yet the Leeds Rhinos testimonial committee has told me that testimonials will now be taxed retrospectively. That is unacceptable; how can the Treasury change the rules, which will damage a sport and its players?
Points of Order
On a point of order, Mr. Speaker. You will recall that on 21 January an urgent question was answered by the Minister for Europe on exchange rate movements and their effect on the Foreign and Commonwealth Office budget following the announcement of a £170 million loss in that budget as a result of sterling’s depreciation. In answer to a question from me about hedging, he said that the Foreign Secretary had written to the shadow Foreign Secretary on the subject. After further questioning from my hon. Friend the Member for Kettering (Mr. Hollobone), the Minister for Europe pledged to put a copy of that letter in the Library. I have to report to you, Mr. Speaker, that that letter has not appeared in the Library—and that according to the FCO, that is because the letter was never written. Can we ensure that the Minister for Europe comes to this House to explain not only why this has happened, but all the background to the effect of the depreciation of sterling, and the FCO’s failure to hedge for it, on the FCO’s budget?
I am grateful to the hon. Gentleman for his point of order. He has given to the House a very specific and detailed sequence of events and the House will have heard it; it is very clearly on the record. What I would say to him is that if a Minister promises that a letter will be placed in the Library, it should be placed in the Library, and that should be done without delay; what is promised should be delivered. I hope that the hon. Gentleman will understand if, beyond that, I simply say that I will look further into the matter, and that he has put his concerns very fairly and squarely on the record today.
On a point of order, Mr. Speaker. Yesterday we reached the end of the business on the Constitutional Reform and Governance Bill in Committee, and we then lost time that could have been spent having a vote on new clause 52. There was a problem with how the handover when the House came out of Committee was to be conducted. We were told that that was an unprecedented development. Will you look into what happened? The matter was raised in two points of order yesterday, but I hope that you will examine how it was not handled well and how we need to learn from that, because Back Benchers, who have very little access to time, could have had the opportunity to move something about which many of us felt strongly.
I am grateful to the hon. Gentleman for his point of order. Although I did not receive advance notice of it—I make no complaint about that, I hasten to add—I had a sense, given the strength of the points of order made last night, that this matter might be raised. I hope, therefore, that it will be helpful to the House if I make a short statement about those events.
I certainly do understand there was a hiatus last night—with the business in Committee on the Constitutional Reform and Governance Bill finishing significantly earlier than expected—and the House was informally suspended for just five minutes. I am grateful, of course, to the Deputy Speakers and to members of the Chairmen’s Panel for their flexibility in chairing proceedings, whatever happens. I cannot comment on what happened in Committee—the House will understand that I am precluded from doing so—but I have inquired about new clause 52. I understand that once new clauses 85 and 86 had been agreed to, that decision of the House overtook new clause 52 and so ruled out the possibility of a separate Division upon it. No doubt Report stage will give Back Benchers other opportunities. As for whether the time of the House was well spent yesterday—the fifth day on this Bill—the management of legislative time on the Floor of the House is a matter for the Government.
Compensation Act 2006 (Amendment)
Motion for leave to bring in a Bill (Standing Order No. 23)
I beg to move,
That leave be given to bring in a Bill to amend the Compensation Act 2006 to ensure that courts considering a claim of negligence or breach of statutory duty apply a presumption that defendants undertaking a desirable activity have satisfied the relevant standard of care; and for connected purposes.
Last month, a large part of Britain was brought almost to a standstill by significant snowfall and freezing conditions. Local authorities up and down the land ran short of salt and were unable to grit many roads—and in particular, many pavements. Those pavements became impassable, or even dangerous, resulting in slips and falls and keeping some of our most vulnerable citizens virtually prisoners in their homes.
To their great credit, some people decided to help their neighbours and the wider community by clearing not just their own driveways and garden paths but the pavement outside their houses or their children’s schools. Others read their newspapers and decided not to. That was substantially because those newspapers quoted a variety of lawyers who said that if people were to clear the snow off their part of the pavement and then someone were to fall over on it, they might be sued for negligence. Inaction, the lawyers said, was the safer option—and so the pavements stayed uncleared, because the council could not do it and householders would not do it. That is the type of situation that the Bill seeks to address.
Of course, some say that there is not really a problem, because the courts are very unlikely to find the public-spirited domestic snow shoveller negligently liable for any injuries, in the absence of spectacular incompetence. They may be right, but I do not think that the public-spirited domestic snow shoveller feels reassured, and many such people, to be on the safe side, remain deterred from doing the right thing by a fear that the law would not be on their side. What matters in that deterrence is not just the likelihood of a negligence action succeeding, but the likelihood of a negligence action being brought in the first place, incurring all the worry and potential expense needed to defend it.
We now live in a Britain where such negligence actions look more likely than they have ever done. Large legal advertising budgets are spent on persuading us that “Where there’s blame, there’s a claim”, and that there almost always is blame. We have been conditioned to believe that there is no such thing as an accident any more, only a negligent act for which somebody owes compensation, even if they were trying to be helpful at the time. So the safest thing is to leave the snow shovel in the shed. That is not a perception that this House should allow to persist.
Others say that there has been a problem, but that the passing of the Compensation Act 2006 has solved it. Section 1 of the Act states, broadly, that a court considering a claim for negligence or breach of statutory duty, in determining whether a defendant should have taken particular steps to meet a standard of care, may have regard to whether a requirement to take those steps might prevent or limit a desirable activity or discourage people from organising or taking part in it. In other words, the desirability of the activity the defendant was engaged in at the time of the alleged negligence, and the benefit to the community of what he or she was doing, constitute only one of the factors that the court may consider, and it is not obliged to consider that factor at all.
During the passage through the House of the Bill that became the Compensation Act, the Government made it clear that section 1 did not, in their view, represent a change in the law. It was instead a restatement of the existing law, intended to reassure those involved in what the Act described as “desirable activities” that in carrying out those activities, they should not fear negligence actions.
The Compensation Act has now been on the statute book for three years, and I am afraid that the national conversation on snow clearing that we have heard over the past few weeks demonstrates that the Act has not succeeded in that aim. I believe that the House must go further. In addressing the specific issue of a private citizen’s involvement in clearing snow and ice from pavements, we could go much further and make that involvement compulsory, as is the case elsewhere in the world.
In the United States, for example, various municipal codes require homeowners and tenants to clear all snow from the sidewalk adjacent to their homes within a specified number of hours after it has fallen, or after sunrise, if the snow has fallen at night. In Germany, the rules are set out in the Satzung über die Verpflichtung zum Reinigen, Schneeräumen und Streuen auf Gehwegen, which, as you will immediately recognise, Mr. Speaker, is the “Statute concerning the obligation for the cleaning, removal of snow, and sanding on walkways”. It sets out householders’ responsibilities in considerable detail, including the substances to be used for gritting their part of the pavement, the maximum grain size thereof and the specified minimum width of the cleared area. The House will be relieved to know that I do not propose the same legislation here.
I propose that we amend section 1 of the 2006 Act so that when a court considers a claim of negligence against someone who has done something for the benefit of their community, it will not simply regard their public-spiritedness as one factor among many that it may or may not take into account. Instead, there should be a presumption that someone who has engaged in that sort of desirable activity has satisfied the relevant standard of care. The court would not be prevented from finding someone negligent if they had gone about that desirable activity in a wholly incompetent or irresponsible way, but it would start from the premise that those who act to help their community should get a very strong benefit of the doubt. I believe that that will succeed in sending to the public the message that section 1 of the 2006 Act seems to have failed to send.
In many ways, this is a modest Bill. It does not seek to affect what anyone does as part of their employment. It does not seek to compel anyone to act nobly, or to condemn those who do not. It seeks simply to remove an obstacle from the path of those people in our society who are willing to put themselves out for others. I do not doubt that the Bill’s drafting could be improved if it were to make progress, but it is meant to send the message that if someone makes an effort to do the right thing, the law will stand behind them, not in their way. We need people to do their bit.
January 2010 will not be the last time we have heavy snow, or the last time local councils run out of grit when there is heavy snow, and we want people to feel able to help their neighbours when the authorities cannot. More generally, in times of snow, flood or any other form of adversity, our communities are at their best when people come together and help each other with individual acts of kindness and consideration. That is what strengthens society, and it is our job as legislators to encourage that—or at the very least not to discourage it. I believe that the Bill would support the kind of society that we all want to see, and I commend it to the House.
Question put and agreed to.
That Jeremy Wright, Mr. Mark Harper, Mrs. Maria Miller, Mr. David Lidington, Mr. Philip Hollobone, Rob Marris, Mrs Siân James, Tim Farron, John Hemming, Angela Watkinson, James Duddridge and Mr. Stephen Crabb present the Bill.
Jeremy Wright accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 5 March, and to be printed (Bill 58).
Flood and Water Management Bill
Consideration of Bill, as amended in the Public Bill Committee
New Clause 22
‘(1) An undertaker’s charges scheme under section 143 of the Water Industry Act 1991 may include provision designed to reduce charges for individuals who would have difficulty paying in full.
(2) Subsection (1) includes schemes which have the effect of subsidisation by other persons.
(3) The Water Services Regulation Authority’s powers in connection with the approval of schemes (and its other powers under the 1991 Act) are subject to subsections (1) and (2).
(4) The Minister must issue guidance in respect of subsections (1) and (2) which must, in particular, include factors to be taken into account in deciding whether one group of customers should subsidise another; for which purpose the Minister shall have regard to the need to balance the desirability of helping individuals who would have difficulty paying in full with the interests of other customers.
(5) Undertakers and the Authority shall have regard to any guidance issued by the Minister under subsection (4).
(6) “The Minister” means—
(a) in the case of an undertaker whose area is wholly or mainly in England, the Secretary of State, and
(b) in the case of an undertaker whose area is wholly or mainly in Wales, the Welsh Ministers.’.—(Huw Irranca-Davies.)
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following: new clause 16—Training and development of employees in water sector—
‘(1) The Water Industry Act 1991 (c.56) is amended as follows.
(2) After section 37(3) insert—
“(4) It shall be the duty of each water undertaker to ensure it maintains investment in the training and development of its workforce. Each undertaker shall be required by Ofwat to include in their twenty-five year strategic plan measures to ensure that sufficient investment is being made in training and development”.’.
New clause 17—Duties for sustainable management and use of water—
‘(1) The Water Industry Act 1991 is amended as follows.
(2) After section (2)3 insert—
“(3A) The Director of Ofwat shall carry out the duties imposed by this section in such a way as to:
(a) promote the sustainable management and use of water;
(b) ensure that the regulatory duty of Ofwat is structured to promote sustainability in the water management supply chain, paying particular attention to innovation in treatment processes, energy efficiency, job security, leakage control and water efficiency activities, including an obligation to promote a more long-term (twenty years or more) approach by water companies to their investment programmes;
(c) promote skills in the water industry, by publishing a skills strategy; and
(d) promote employment in the water industry through an annual report to Ministers on the number of jobs in the sector and in the supply chain.”’.
New clause 18—Role of the Water Services Regulation Authority (OFWAT)—
‘(1) The Water Industry Act 1991 (c. 56), is amended as follows.
(2) After section 2A(d) add—
“(e) to promote—
(i) sustainable water management;
(ii) innovative treatment processes;
(iii) energy and water efficiency;
(iv) job security;
(v) leakage control;
(vi) skills in the water industry; and
(vii) employment in the water industry.”’.
Amendment 22, in clause 43, page 28, line 37, at end add—
‘(6) An undertaker’s charges scheme devised under subsection (1) must be overseen by the Water Services Regulation Authority (Ofwat).’.
May I take this opportunity, now that we have come out of Committee, to thank the Opposition Front-Bench teams and Back Benchers on the Committee, as well as others who have taken a keen interest in the Bill? What was already a good Bill was improved in Committee—and I am sure that it will be an exemplary Bill when it emerges from our deliberations today and goes on to the other place.
This group of amendments relates to the role and responsibilities of Ofwat and the water and sewerage undertakers, and to the design of those undertakers’ schemes of charges. New clause 22 has been tabled in response to concerns raised in Committee about the affordability of water and sewerage bills for some households. The Government are bringing it forward to enable water and sewerage companies to include social tariffs for groups of customers who have difficulty in paying their bills.
Such social tariffs may introduce new cross-subsidies between groups of customers. Ofwat, the independent economic regulator, may not reject charges schemes on that basis out of hand. It still has a crucial role in the process—to ensure that tariffs are in the interests of customers—but it will have to be able to show that any action that it takes in approving or rejecting a charges scheme does not undermine the general principle behind the new clause.
I have one question on that specific point. I applaud the Government for taking on board the feedback that I understand was given in Committee, but I am concerned that, at least in theory, Ofwat could still ignore the attempts by private water companies to provide concessionary rates for customers who are less well off. How can the Minister assure the House that it will not intervene when to do so would be socially unacceptable?
There are safeguards in the new clause, which I will come to in a moment. They include the requirement that Ofwat consult its wider consumer base, because we do not want to solve one problem only to create another. The new clause makes it clear that Ofwat must play a positive role in the charges schemes being brought forward and then work with stakeholders. I have got no further than my opening remarks, and I hope that the hon. Gentleman will allow me to explain a little more.
Under existing legislation, Ofwat has a duty to ensure that charges schemes are not
“unduly preferential or unduly discriminatory”.
The UK Government and Welsh Assembly Government must provide in legislation that social tariffs introducing new cross-subsidies are lawful. We are bringing this new clause forward for that reason, as we believe that it gives Ofwat the legal assurance that it needs to allow companies to bring forward social tariffs.
By way of response to the hon. Member for Montgomeryshire (Lembit Öpik), I can tell him that Ofwat made it clear in evidence to the Committee that it felt that there was not sufficient legal clarity to compel it to consider that approach. This new clause is designed to provide just that clarity; I believe that Ofwat will be reassured in that regard.
As the House is aware, the Walker review of charging for household water and sewerage services published its final report in December. It highlighted the plight of customers who face difficulty meeting their bills because the increase in water metering in some areas can exacerbate the affordability problem for low-income families who had previously been helped by a cross-subsidy inherent in a charging system based largely on a property’s rateable value.
We are considering Anna Walker’s final recommendations carefully, ahead of a full public consultation. One of her recommendations involves possible changes to the vulnerable groups tariff, but we agree with the Committee’s conclusion, prompted by the hon. Member for Cheltenham (Martin Horwood), that it is timely to enable companies to include social tariffs that can reflect local circumstances. Those social tariffs could complement any tariffs that we might want to provide for nationally in secondary legislation in the future.
It would be remiss of me not to praise my hon. Friend the Member for Cheltenham (Martin Horwood) for his contribution in Committee, and I am grateful for that clarification by the Minister. For the sake of the record, however, will he confirm that when private companies seek to provide more generous terms for less well-off customers, the default position for Ofwat is that it will be obliging? Will he make it clear that it will not seek a technical or specific loophole to prevent those more generous terms from being put in place?
I do confirm that that will indeed be Ofwat’s position; the hon. Gentleman is right to raise the matter. The new clause makes Ofwat’s legal position clear, and also puts in place a positive expectation in respect of social tariff schemes. Ofwat must work with the wider consumer base to make sure that the schemes are appropriate, and must not reject them out of hand. The difficulty that Ofwat used to face was quite understandable: even with the existing guidance, it did not feel that there was sufficient clarity in the law.
I too welcome the new clause, because we need to clarify social tariffs on water use. Indeed, we have a social tariff structure on energy use. My hon. Friend will agree that a lot of work has been done on this subject through reports that he has commissioned and by bodies such as the Consumer Council for Water, but the public need to be fully consulted, so I would be grateful for some assurances about that.
Entirely. That is exactly why we have introduced the new clause in its current form. In effect, we are taking a power that, although tightly drafted, still allows us to go out to full consultation, bring forward the underpinning regulations and guidance and make them fit for purpose. We do not want to pre-empt Anna Walker’s package of proposals, as I made clear in Committee, but we might not have this opportunity again for a couple of years—who knows? In which case, we should introduce the measures now, so that we can move ahead.
In appraising the proposal, it is crucial that we know how the Minister defines people
“who would have difficulty paying”.
Cross-subsidy might be involved, and we want to avoid the pretty poor cross-subsidising the even poorer, so it is important that we know where he is minded to draw the line.
The right hon. Gentleman makes a very good point, but that is absolutely why the Bill should not include specific definitions of who does or does not fall into that category. That is exactly the purpose of going out to proper consultation—so that those terms can be defined and we can accurately reflect not only how those individuals or households are defined, but how such definitions in a local area tie in with complementary national schemes.
The new clause would also enable the Secretary of State and Welsh Assembly Ministers to issue guidance to undertakers. That would set out which groups of customers we might expect to benefit from social tariffs—the very point that the right hon. Gentleman made. It would also set out the need for detailed impact assessments and consultation with customers and the Consumer Council for Water to determine what might be an acceptable cross-subsidy. We expect Ofwat to ensure that schemes are consistent with the guidance that we will issue.
New clause 16 would require each water undertaker to invest in the training and development of its work force, and to include that in its 25-year strategic plan. There is a laudable intention behind that proposed change, and I shall come to it in a moment. New clause 17 would give Ofwat a duty to promote the sustainable management and use of water, and to promote sustainability in the water management supply chain. It would also require Ofwat to publish a skills strategy and an annual report to Ministers on employment in the water industry.
New clause 18 would introduce a number of additional primary duties for the Secretary of State—or, as the case may be, Ofwat—when regulating the water industry. New clauses 16 to 18 have laudable intentions, but I said in Committee that they were unnecessary, and I shall expand on that, because it is worth elucidating on the Floor of the House the reasons why that is so.
I said in Committee that when we take all those aspects into account, a review of Ofwat in some form is justified, and I shall consider how best to take that forward. I made that commitment in Committee, and I stand by it. In its inquiry last year into the 2009 price review, or PR09, the Environment, Food and Rural Affairs Committee recommended a fundamental review of Ofwat’s role—and I neglected to thank the Committee for its work on all aspects of the Bill. Such a review would, of course, need to look at social, environmental and economic considerations across the board, not just the themes outlined in those three new clauses. There is a strong justification for such a review.
Will my hon. Friend consider whether that review might cover mergers? Water companies are not currently allowed to merge, but they might be, and although there can be problems with mergers, some could bring significant benefits to consumers.
That is a helpful intervention, and I take my hon. Friend’s point on board. In defining the review’s terms of reference, it will be important not only to make them narrow, but to ensure that they encompass the changing situation in the water industry. We might well consider the aspect to which my hon. Friend refers. I cannot give her a cast-iron guarantee, but if we are going to think about a fundamental review, let us think about a fundamental review in all its aspects.
As I have said, there is a strong justification for carrying out a review. When the water industry was first privatised, the role of the economic regulator was primarily to ensure that companies fulfilled their functions and extracted efficiencies from the industry. However, social and environmental issues such as climate change and the affordability of water have become much more important in the past 20 years, and water companies face new challenges over the sustainability of water supplies. That said, I hope that hon. Members will accept that the primary responsibility for work force planning and development sits with the water companies. As part of its 2009 review of water price limits, Ofwat required companies to develop a 25-year long-term strategic plan called a strategic direction statement, as well as a more detailed five-year business plan that included specific investment proposals for 2010-15. For the first time ever, that puts the period 2010-15 into a much longer-term context.
The Government also have a role in supporting companies in looking to the long term. In particular, Energy and Utility Skills, the sector skills council, works with the water companies to identify the skills needs of the sector and to develop a strategic approach to addressing any gaps. It also develops vocational qualifications with water companies, and relevant skill-based training programmes with training providers. In July 2009, as part of the Government’s re-licensing programme of all 25 sector skills councils, it was announced that EU Skills was not only successful in being re-licensed but judged to be “outstanding”. However, it was also noted by the National Audit Office that engagement with the water sector was not as strong as that with the gas and power sectors, which also fall within EU Skills’ remit. In my view, it is crucial that all parties work together to ensure that the water sector is able to meet future challenges. I urge water companies actively to work together with EU Skills—I will play my part as well—to identify where the skill gaps are and to work up strategies to address any shortfalls.
In relation to putting new duties and responsibilities on to Ofwat, I emphasise that Ofwat’s current duties already require it to contribute to sustainable development. The new duties proposed in new clauses 16 to 18, such as those on investment and training, employment, job security and skills, leakage control, and the sustainable management and use of water, would sit alongside Ofwat’s other primary duties. While we recognise the importance of all the issues identified in the new clauses, not least skills and training, it would not be right for these topical issues to be placed alongside existing primary duties involving high-level and strategic concerns about protecting consumers and ensuring that companies carry out their statutory functions. Nor should they be placed above the secondary duties that encompass much broader aspects of water regulation, such as sustainable development and better regulation in water efficiency. For example, it is unthinkable that Ofwat would not consider issues surrounding sustainable water management, or energy and water efficiency and leakage control, when considering its sustainable development duty. Similarly, work force issues should be taken into account when considering duties involving efficiency and meeting statutory obligations.
I also note that Ministers already have the power to issue social and environmental guidance to Ofwat to underline the importance of the types of issues identified in new clauses 16, 17 and 18. Guidance was issued by the Department for Environment, Food and Rural Affairs in September 2008 and by the Welsh Assembly Government in February 2009, including guidance on sustainable development and on environmental policies such as water efficiency, water quality and climate change.
I thank my hon. Friend for being so generous in giving way. He was kind enough to attend a reception about innovation in the water industry. Is he confident that there are sufficient powers available to the regulator and to the Secretary of State to direct the regulator to ensure that there is sufficient innovation in the water industry?
Indeed there are, but that should be considered as part of the review of Ofwat’s powers and duties. We also have to make good not only on Anna Walker’s report but on what might come out of the Cave report. There is unfinished business in driving forward innovation in relation not only to efficiency but to tackling the carbon footprint of the water industry and so on. My hon. Friend makes a valid point.
As I said, I believe that there is a role for Government. I have recently met unions such as GMB, Unison and others, and of course EU Skills, the sector skills council. There is merit in asking whether the guidance should cover the Government’s expectations for the training and development of the work force in the water sector. I can tell the House that I intend to meet my hon. Friend the Minister for Further Education, Skills, Apprenticeships and Consumer Affairs, a near neighbour of mine in south Wales, to discuss the matter and consider what further steps we might take to address the skills gap in the water sector.
I thank the Minister for his generosity in giving way; it just so happens that the three key points that I want to make are on this group .
The Minister rightly talked about the importance of having a holistic or strategic approach to sustainability and water management. It is clear to me that in Montgomeryshire, where the source of the River Severn lies, there is an interrelation between Ofwat’s responsibilities and those of the Environment Agency, and sometimes there can be a conflict. For example, the level of water needed in the reservoirs to ensure that we do not get a drought in the summer can cause overflow in the winter. Does the Minister have a perspective on that, or would he like to write to me to explain how the Bill will ensure that there is a holistic approach to the potentially conflicting interests and needs of Ofwat and the Environment Agency?
I do not think I need to write to the hon. Gentleman, because I can happily confirm that one of the prime aims behind the Bill is the clarification of responsibilities, both for the EA as the strategic national lead and for upper-tier or unitary local authorities, working hand in hand with internal drainage boards and those on the ground in lower-tier authorities, so that they can deliver local leadership and accountability on flood risk management. Those organisations have duties to work with each other and with all the other authorities—duties that are embedded as a prominent part of the Bill.
Amendment 22 to clause 43, on concessionary schemes for surface water drainage charges for community groups, would require an undertaker’s charges scheme to be overseen by Ofwat. The Water Industry Act 1991 already requires water and sewerage undertakers in England and Wales to submit their annual charges schemes to Ofwat for its approval, and that holds true regardless of whether they include a concessionary scheme for community groups. Including a provision in clause 43 stating that the charges scheme must be overseen by Ofwat would simply add ambiguity, as it is not exactly clear what Ofwat is being asked to oversee, or how that would differ from the power that Ofwat already has to approve undertakers’ charges schemes.
That said, I appreciate that hon. Members of all parties want to be confident that community groups will not face unaffordable water bills as a result of site area charging for surface water drainage. I also recognise that there is a clear role and responsibility for Ofwat in ensuring that that is the case. The issue will therefore be addressed in the Secretary of State’s guidance to undertakers.
Clause 43(6) empowers the Secretary of State and Welsh Ministers to issue guidance to undertakers, to which they would be required to have regard. A draft of that guidance, which will be subject to full public consultation, was made available in Committee. It set out in quite some detail the Government’s thinking on issues such as the need for concessionary schemes, which groups should benefit and what counts as an affordable charge for community groups. I bring to hon. Members’ attention paragraph 3.1 of the draft guidance, which states:
“The Government is clear that it does not want to see community groups facing unaffordable increases in their water bills as a result of site area charging for surface water drainage. We expect undertakers to ensure that this is the case and Ofwat will ensure that undertakers have had regard to this guidance in its approval of individual charges schemes.”
That makes clear the important role that Ofwat will have both in approving individual charges schemes, as it does now, and in policing the Government’s guidance to ensure that community groups will not face unaffordable surface water drainage charges.
Yes, the hon. Gentleman absolutely can have that assurance. We hoped that we would be able to ensure that without legislation, because we already had some guidance in place, but the Bill will provide clarity that schemes need to be worked up across the consumer base. I had an interesting discussion with Church groups about whether we should protect churches to the extent that parishioners come in and say, “Thanks very much, but my bill’s just gone up £10 or £20 to save you.” We need to get the balance right, but the joy of the scheme is that it will have proper local consultation, with proper input from the Consumer Council for Water, local groups and others, so that it is applicable to the local environment. That is a clear responsibility.
Hon. Members can take that assurance back to the churches, scout groups, community halls and others, and tell those organisations to look at the guidance, which is out for consultation, and get their feedback to the Government. I am confident that that sets the way forward so that such groups, which often live hand to mouth, do not use their money and fundraising to pay for surface water charging rather than other things, such as taking scouts on a trip.
To sum up, the objectives of new clauses 16, 17 and 18 can clearly already be achieved within the existing framework. Given the clear commitments I have made, I hope hon. Members will not press them to a Division. I also hope that the hon. Member for Cheltenham will not press amendment 22 to a Division, given that Ofwat already has the power to approve charges schemes, and in view of the proposals in the Secretary of State’s draft guidance on concessionary schemes for community groups.
I echo the Minister’s comments—I am delighted to be at the remaining stages of the Bill, and I hope we can reflect the co-operation and good humour that was enjoyed in Committee.
New clause 18 is consequential on a number of amendments to which we will speak later. We had some sympathy with new clause 17, in the name of the hon. Member for Stroud (Mr. Drew), which is similar to our proposal, but we believe that our expression and script is clearer.
I hope the hon. Gentleman agrees.
Basically, as the Minister said, the Select Committee on Environment, Food and Rural Affairs said in its report that we would need to revisit the regulatory framework for a number of issues that arose in Committee. In new clause 18, we are seeking to add a number of responsibilities that we believe should be specified in the Water Industry Act 1991 to reflect the changes that the Bill makes. Currently, those responsibilities are omitted from the Bill and the Act. I hope that the Minister and the House look favourably on those remarks.
The Minister said that Government new clause 22 was an opportunity to give Ofwat a role in approving or rejecting the charging scheme, and ensuring that decisions are commensurate with the guidance to which he referred—I should state that that guidance was drawn to the Committee’s attention on the penultimate day of our proceedings. What consultation has there been on that guidance? Previous guidance was heavily consulted on. Will he ensure that decisions will be taken with that guidance in mind? What direct consultation has there been with Ofwat?
My hon. Friend the Member for Arundel and South Downs (Nick Herbert), the shadow Secretary of State, and I have mentioned on a number of occasions on public platforms that we have serious concerns about affordability. We believe that regard should be had to the Walker report. If it is the wish of the British people that there should be a Conservative Government, we would be committed to introducing a White Paper, as the Minister is aware, to consider both the Walker report and the Cave review in the round—particularly the former—as regards metering and affordability.
We are a little dismayed that the Government have lifted one specific concern about social tariffs and affordability—we recognise that it is a very real concern—because it looks suspiciously like a piecemeal approach. Affordability is best seen in the context of areas such as the south-west, where 40 per cent. of water consumers are on low incomes, spending more than 3 per cent. of their disposable income on water, which is the general classification for water poverty. We wish to be as vigilant about water poverty as we are about fuel and energy poverty. I remind the Minister that while the Energy Bill includes social tariffs, with which we also have some sympathy, the energy sector had a two-year consultation under a proper framework set out in legislation. It was transparent and equitable, and all parties were fully consulted.
We are also interested in the position of the Liberal Democrats, because they have flatly stated that they are against any form of stealth tax, and we are also on the record as opposing stealth taxes. However, new clause 22 will leave open the possibility of, for example, a hotel tax that is a real blight on hotels, especially in the south-west, which has the greatest problems of affordability.
I wish to press the Minister on why the Government have picked on this aspect of social tariffs when there are many others. They had the opportunity to introduce a fuller water Bill. Indeed, it was not until the Opposition pressed the issue that the Government said that they would introduce a broader Bill, but they have taken many aspects of the draft Bill out at this stage. The Select Committee clearly concluded that they were right to do so, because, as we have said, we need to see a White Paper and a water Bill, along the same lines as the previous Conservative Government’s legislation, which set the framework for the next 20 years. What are the Government thinking and why have they cherry-picked this issue out of the Walker report, the Cave report and the price review 2009? The Select Committee’s conclusions also considered a broader role for Ofwat. Our concern is that this could lead to a bad law, the impact of which has not been properly assessed.
I am grateful to my right hon. Friend for that comment. We are doing some serious work in that regard. We have had some meaningful discussions with the authors of the two reports. We need to take a longer-term view, and that would be part and parcel of the White Paper, but it certainly could have a positive impact on bills.
New clause 22(2) clearly states that subsection (1)
“includes schemes which have the effect of subsidisation by other persons.”
We know that that has the particular legal meaning of “person” and means companies as opposed to individuals and households. Why has the Minister excluded reference to households? He clearly set out that the Government intend a form of cross-subsidisation, but why open that only to companies? What level of advanced consultation has he had with companies about the fact that businesses might be seen to be subsidising individual households having difficulties paying? If the new clause had retained the reference to individuals as opposed to legal persons, the domestic households sector would have been restricted in that regard.
Under new clause 22, as drafted, businesses will be caught by the proposals to subsidise individuals having difficulty paying their bills. As I mentioned, that might be viewed as a stealth tax on business—it could be so used—and, in the current economic climate, could lead to a financial burden on business. What were the Government’s considerations in that regard? Is the Minister really considering doing what other European Union countries have done—imposing an eco-tax on hotels? What is their thinking on that?
As I mentioned, we would have been more persuaded had the Minister gone down the route of the Energy Bill, which gives enabling powers to allow suppliers to provide social price support. Those proposals have been extensively researched and developed over time, and I understand that significant consultations with the parties involved have taken place and that the proposals in the Energy Bill have broad support across the sector. However, my concern is that, in introducing new clause 22 at this stage—perhaps pre-empting a subsequent White Paper and a broader water Bill—the necessary consultations have not taken place. I understand that we are positioned between two extremes, but would he be good enough to tell us the Government’s thinking on that.
I want to press the Minister further. There are significant differences—more than innuendoes—between new clause 22 and the language in clause 43 on community groups. In new clause 22(3), Ofwat is given specific duties to allow concessionary schemes for domestic properties. Clause 43 does not do that, and instead leaves it to guidance for Ofwat to be given specific authority. There seems to be a difference there. Will he explain his thinking behind that? New clause 22(4) states that Ministers must issue guidance relative to subsections (1) and (2), whereas clause 43 states that only undertakers
“shall have regard to any guidance issued by”
Ministers, which appears to remove any compulsion for guidance to be produced. Is that an intended difference? Will he explain the Government’s intention in that regard? Finally, new clause 22(5) states that undertakers and the authority “shall have regard to” the guidance, whereas in clause 43, only undertakers, and not Ofwat, are told to have regard to the guidance. Having achieved what we have achieved in clause 43, we would like to be satisfied that new clause 22 will not result in any consequential differences.
I hope that the Minister and the House will look favourably on new clause 18, because we believe that it is appropriate to set out what the primary duties on the Secretary of State and Ofwat should be. As I said, there are significant consequences for later amendments. We have sympathy with the Government’s new clause 22, but obviously we would like some satisfaction regarding our concerns. In the current credit crunch and economic crisis, the issue of affordability needs to be addressed. However, we would be interested to know why the particular issue in new clause 22 has been lifted from the other significant issues—my right hon. Friend the Member for Wokingham (Mr. Redwood) identified them—that were taken out of the earlier draft Bill.
I start by echoing the remarks of the Minister and the hon. Member for Vale of York (Miss McIntosh) about the positive atmosphere that prevailed in Committee. I share their desire to ensure that that positive and co-operative attitude continues.
New clause 22 is certainly a positive place to start and is broadly based on the ideas behind our new clause 1 in Committee. We have been pleased to add our names to new clause 22 from the Liberal Democrat Benches, in that it seeks to do what we intended with our new clause. At a time of recession, when variable energy prices, potentially rising council tax bills and other things are hitting some of the most vulnerable and poorest citizens in our communities, it is only right that we should pay attention to their needs. We should also pay heed to the fact that the impact assessment on the adoption of private drains has suggested that water bills will have to rise. The Walker review highlighted the issue of metering and the disproportionate impact that it could have on some of our poorest citizens, who are the poorest water customers. It is therefore urgent that the matter be put beyond doubt, because it is possible that the numbers in so-called water poverty will rise.
Water companies have struggled to introduce social tariffs, and that includes even Dwr Cymru and Thames Water, which have tried to do so over many years. The kindest interpretation of Ofwat’s response to many of their approaches to try to introduce social tariffs is that it has struggled with the terms of its remit—I will put it no stronger than that. In answer to the question that the hon. Member for Vale of York asked, the reason why we need the proposal in legislation, and why it is a little special compared with the broad range of recommendations in the Walker review, is that not that many of Anna Walker’s recommendations require primary legislation in quite the same way.
There is clearly a problem, and it is one that is perceived to be connected with the general remit under which Ofwat operates. We heard in our evidence session about the need that had been identified to put the matter beyond doubt in primary legislation. There are not that many recommendations in the Walker review that require primary legislation, and there is certainly not general support for that primary legislation should it derail the Bill before a general election. We also share a desire to get the Bill through before the general election, and new clause 22 seems a good opportunity to tackle the issue in a way that will have general support.
New clause 22 puts the legality of social tariffs beyond doubt. The Secretary of State has drawn the new clause widely. It is not prescriptive and does not pre-empt the consultation that will result from the Walker review, but it does address Walker’s call for social tariffs to be permitted. The Conservative Front-Bench team did not feel able to support our amendment in Committee to allow, in effect, lower water bills for the poorest customers, and the hon. Member for Vale of York has made some slightly grudging comments this afternoon. I do not think that social tariffs for poor water customers are likely to be confused with stealth taxes. I hope that she will feel able to allow the Conservative party to go a little further this evening and support this important new clause. The central issue is fairness to some of our most vulnerable citizens, and in particular for elderly citizens on fixed incomes for whom such bills are unavoidable, who find it difficult to respond to rising bills.
The right hon. Gentleman makes a fair point. Some of the figures put forward by Thames Water, which I can share with him another time, suggest that the number affected is a small percentage of the overall total. That means that if the money was to be recovered through other people’s water bills, the increase for everybody else would be miniscule in practice, so the slightly poor would not have to pay an undue amount in order to subsidise the very poor. However, he makes a fair point. The key issue with new clause 22 is the need to put the legality of social tariffs beyond doubt. While we have the Bill before us—what the Minister said is quite true: we might not see another water Bill for some years—new clause 22 is a timely amendment.
New clauses 16 and 17 cover issues that we discussed in Committee and on which the hon. Member for Stroud (Mr. Drew) had Liberal Democrat support. The new clauses would ensure that the management of flood risk and water management are sustainable not only in environmental terms, but in social and economic terms, and that we have the skill sets to maintain the duties that we are creating in the Bill.
These and many other amendments have dealt with Ofwat’s remit. I note and welcome the Minister’s acknowledgement that Ofwat’s remit needs comprehensive re-examination. That view is shared by all political parties. Whatever the outcome of the general election, it will be an important issue for the new Government to address. Time is not on our side, so while we have the Bill before us, it seems sensible to make these amendments. I hope the Government will accept them, despite the Minister’s comments so far.
In the growing spirit of cross-party solidarity, I welcome new clause 18. We have argued consistently for the reform of Ofwat’s remit, particularly to reflect some of the issues that are addressed in the new clause, which include sustainability, water and energy efficiency, and leakage control not simply as a function of the economics of water companies, but as a desirable end in itself. That is a helpful amendment and again we are happy to support it.
On our amendment 22, I know that hon. Members in all parts of the House were concerned about the so-called rain tax afflicting groups such as churches and scout organisations, and that everybody wanted the problem resolved. The Bill has gone a long way towards that by introducing concessionary charging schemes for community groups. The discussion was helpful in raising the issue of social tariffs generally and making it clear that we could bring those into the Bill as a whole, but as the hon. Member for Vale of York said, it has highlighted an anomaly between two sets of clauses. In new clause 22, water companies must have regard to ministerial guidance, and subsection (5) subjects Ofwat to the same regime, yet in clause 43, which refers to the concessionary charging schemes for community organisations, there is no mention of Ofwat at all.
That has raised legitimate concerns from some of the organisations affected by the so-called rain tax issue. The Scout Association wrote to me:
“Ofwat is specified as having oversight of the process, but the Scouts believe that Ofwat needs clear guidance on the face of the bill from Government as to its oversight of concessionary schemes. Ofwat’s track record in interpreting existing guidance, and its inability to conduct a regulatory impact assessment before recommending site-area charging, has engendered significant mistrust in their regulatory competence”—
the Scout Association’s words, not mine. It goes on:
“Therefore, we believe that either through passing this amendment, or giving other assurances at Report Stage, the Government ought to let community groups know that Ofwat will be in charge of administering all concessionary schemes as a matter of course.”
I note the Minister’s comments. He said that there was a need for confidence in site area charging and that there was a clear responsibility on undertakers to pay attention to the need for concessionary schemes, but his comments still seem to fall short of an explicit reassurance that that will be part and parcel of Ofwat’s role, and that we will not find that ministerial guidance is not quite explicit enough, and that water companies try to introduce a concessionary scheme explicitly to address the needs of community groups but find Ofwat quibbling about it or standing in their way. We are close to having that assurance, and I am sure the Minister can find a form of words that might satisfy us. We will take his word on it—I am tempted to use the phrase, “Scout’s honour.” If he finds the right form of words, we will not press amendment 22 to a Division.
I am delighted to speak to new clauses 16 and 17. In the spirit prevailing in the House today, I commend my hon. Friend the Minister on a near-exemplary performance and his willingness to listen, respond and improve the Bill. The House heard it from me first.
I do not intend to spend long dealing with new clause 22—or, indeed, amendment 22—but I would like to point out that the new clause exemplifies the Minister’s willingness to engage in debate. Some of us were tempted by the Liberal Democrat amendment moved in Committee, but common sense prevailed and we did not have a vote; the Minister was tasked to go away and think about how to introduce individual social tariffs as well as collective ones for voluntary organisations and so forth. That was the nub of the problem. It was not possible to say that we would treat fairly organisations such as the scouts, important though they are, but have no willingness to understand the problems of individual customers. We are talking about some form of cross-subsidisation. As I said in Committee, we have to separate out those who cannot pay from those who will not pay—a growing problem in this industry.
I hear what the hon. Member for Cheltenham (Martin Horwood) says about amendment 22, and I am pleased that he is not going to press it to a vote, but I seek further clarification of whether there has been some narrowing of the methodology that Ofwat will be asked to operate in dealing with cases referred to it where organisations feel that the water company they are paying is being unduly harsh in the charges imposed on them.
I hope that the Minister will clarify the position in his summing-up as we have to nail this issue. He has done invaluable work on a thorny problem, but I hope that we can now move on and be absolutely clear that there is a mechanism whereby if a particular community group feels that it is being unfairly treated, it will have the wherewithal to go to Ofwat, complain and get some action against the relevant water company, particularly given the strong differential between different water companies, as I mentioned in Committee. If the Severn Trent model had been more widely followed, for example, some of the problems that we saw with United Utilities could have been overcome far more quickly.
Although they have tabled at this time, new clauses 16 and 17 in no way move away from our discussions in Committee. However, new clause 16 lays down clearly a duty on the industry to provide skills and training for those who work in it. If I remember correctly, I heard the Minister rightly say that the water industry is not as advanced as the energy or other utility industries in respect of what it already does in that regard. New clause 16 is effectively designed to inform the regulator that water companies will have to demonstrate in detail how they are investing in the training and development of their employees.
I am very much in favour of the hon. Gentleman’s argument, but if we take Welsh Water, for instance, which I believe has a good structure, it has hardly any employees at all, as nearly all its work is contracted out. How will his proposals work out for an organisation like Welsh Water?
That is a particular problem. We have seen contractualisation in all manner of industries, and I always think that the greatest loss is the human capital. What training is going on, who is responsible for it and, if it is not going on, what can be done about it, are issues that are not easy to determine. Given that I am unlikely to push the new clauses to a vote, I hope the Minister has noted that we want clarification of how the arrangements will work in practice. The water industry is a people-oriented industry, and we shall all be the losers if we do not invest in the people who will keep the water flowing.
I should like the water companies to give the regulator details of their total annual investment in the training and development of their employees, details of compulsory employee training and development plans for each successive five-year regulatory period—clearly a long period will be involved—and details of consultation and negotiation between the undertaker and employee representatives on training and work force development strategies. I make no apology for saying that those proposals are a result of my links with Unison, the major trade union involved in the industry. Let me pass on Unison’s thanks to the Minister, who met its representatives, allayed their fear that the Bill would make no provision for training and another opportunity would be lost in an area that had been sadly neglected, and agreed that we must be much clearer about the skills and development programmes that we intend to provide.
Government, the water industry, the employees and the regulator must sing from the same song sheet if we are to have an industry that is fit for the 21st century rather than one that is somewhat historic, both in terms of the infrastructure that we are trying to upgrade and in terms of its failure to invest in people.
New clause 17 also concerns skills training. I was a wee bit disappointed that the hon. Member for Vale of York (Miss McIntosh) felt that her new clause was so superior to mine that I ought to fall on my sword and accept failure. However, I tabled my new clause for a specific reason. I have been talking to the Environmental Industries Commission. As well as containing some nice words about sustainability and the need for a programmed approach to our ability to organise the industry, the new clause has a specific bite to which I want the Minister to respond.
There happens to be an ABB plant in my constituency which produces flow meters. For many years, those at the plant have been telling me that the problem with the water industry and its five-year plans—the beloved “AMP”: no one has yet been able to explain to me what that acronym stands for, but I am sure that it stands for something meaningful—is that we may end up with feast and famine or, dare I say, boom and bust.
During the years in which the industry has agreement on the new expenditure programmes, the supplier companies will be incredibly busy and have to break every record in responding to the demand that they find so difficult to meet. Towards the end of the five-year period, such will be the pace at which the industry has had to proceed that everyone will start waiting for the next five-year structured approach by Ofwat, and there will be very little work to go around.
The aim of new clause 17 is to try to level out some of the activity, given that it is so unbalanced and leads to all manner of problems. As anyone who knows about the water industry will agree, that is entirely counter-productive in the long run. Therefore, I am looking for some assurances from my hon. Friend the Minister. We must consider how we can begin to deal with the problems of the vicious cycle of boom and bust to ensure that the industry can invest over the longer term. It should not think in terms of shorter five-year periods, which is, dare I say it, a drop in the ocean when we consider the history of how we have provided for the supply of water.
We should consider how we can level out investment patterns to ensure that investment is not entirely dependent on the encouragement of the regulatory system; that we get proper operational efficiency within the idea of sustainability, which is where we link in with employee training and development; and that we make the best use of those assets. We will have situations where not just the supply chain but the industry itself will have surplus assets because they have worked so hard to get ahead of the game, but those will not necessarily be employed in the most purposeful way.
I hope that the Minister hears what I say. There is a problem in the industry and we need to rectify it. I hope that we can use the Bill at least to have a debate on that matter. We may not need to have such a measure in primary legislation, but we need to recognise the problem and try to do something about it.
I rise to discuss Government new clause 22. As I have said in interventions, we all feel well disposed and warm towards the aim of more affordable water for people on lower incomes, but I find it difficult to welcome the way in which the Government propose to do that, as we need some indication of the detail that needs to follow to make this a sensible and workable scheme.
The best way to make water more affordable for those on low incomes and for those on any kind of income is to introduce competition and get the costs of producing the water down. I believe that it would probably cut the cost by about a fifth if we introduced comprehensive water competition and used the pipe network as a common carrier. It is easy to do. It has already been done in the case of gas and other fluids requiring access to pipelines. There is no natural monopoly in the provision of water, the collection of water or the delivery of water. If there is any monopoly element in the provision of pipes, it can be dealt with quite easily by a proper common-carrier regulated system.
However, those who are introducing the new clause need to give us more indication of how poor people have to be to qualify under it. It seems to be a cross-subsidy scheme. As the Minister has been gracious enough to accept, if the very poor are beneficiaries, everyone else could be losers. The Liberal Democrat spokesman suggests that it will not mean much of a loss for people on fairly low incomes because not many people would be helped by the scheme. That may be true.
I am sure that the right hon. Gentleman was listening carefully, but that is not what I said. I said that, because the subsidy was going to be spread across a very large number of people—in Thames Water’s proposed scheme, the suggestion is that 95 per cent. would be subsidising and only 5 per cent. benefiting, although that might be a bit niggardly—that would mean a terribly small increase for everyone else. That is what I meant—that the moderately poor would have hardly any increase at all.
I think that that is what I said in slightly different language. I said that not many people would benefit. The hon. Gentleman is saying that only a very small percentage of people would benefit. However, I think that he will find that quite a lot of people think that their water bills are too high. It is not just the people on the lowest 5 per cent. of incomes who think that their water bills are too high. I suspect that perhaps half the people think that their water bills are too high and a lot of them will be very disappointed, so we need to send the right signals if we are really talking about only 5 per cent.
While the hon. Gentleman is right that, on the numbers, the increase for the other 95 per cent. will not be huge, there will none the less be some increase for people who are clearly really quite poor as they are in the bottom 6 or 7 per cent. of the income scale—because, on the hon. Gentleman’s numbers, they will be excluded. We therefore need to have a better feel for the numbers before we can come to a fair conclusion on this; we need to know how big the increase will be, how many people will be paying it, and how many will benefit. I still think it would be much better to find a way of reducing the bills generally, as that would alleviate problems for the many people who find the water bill difficult to afford and feel that it has increased too much in recent years with no improvement in the service.
I also wish to make a few remarks on new clause 18, tabled by my Front-Bench colleagues. It may be sensible, but both the Government and Opposition Front-Bench teams need to help me a little by explaining what they mean by sustainable water management. It is one of those phrases that people trot out; they say, “Wouldn’t it be a good idea to have sustainable water management?” It is very difficult to say, “No, we don’t want that,” as nobody wants unsustainable water management, but we have to unpack this common jargon and explore what it means. If it means we are going to have some common sense on the provision of clean water in adequate quantities at all times of the year and in all years to my constituents, I would welcome that. If it means that the water companies will do rather better in handling the disposal of foul water than at present, which would also matter a great deal to my constituents, I would welcome that very much, too.
Let me offer one of quite a few possible examples of poor water service in my constituency from the main monopoly provider. There is an area of nice housing where there has been over-building on floodplain land. That has led to too much surface water, which the drainage system cannot handle, so the surface water rushes through the housing area, hits and knocks out the pumps that are meant to take the foul water safely underground, and the foul water then swells up from underground and mixes with the surface water already running around in this low-lying housing area. As a result, people have very unpleasant things coming into their drawing rooms and kitchens, and they then cannot live in their houses for the next year while they are being cleaned out, dried out, re-plastered and so forth. That is totally unsatisfactory in 2010 in the United Kingdom, which is meant to be a rich and caring country with lifestyles of a sensible level.
If having sustainable water management means stopping such things happening, and saying to companies that allow them to happen, “You have some responsibility and you need to come up with solutions more urgently out of your rather generous cash flows and large capital programmes,” I am all for having sustainable water management. I suspect that this is what a lot of Members would find that their constituents want. They want more than the sensible and fine words in these various new clauses; rather, they want to know that something will actually happen. That is why I say this could be a very good idea, and I welcome what my Front-Bench colleagues are trying to do, but it can work only if the Minister both agrees that it is a sensible idea and then puts the detailed provisions into the regulations, so that monopoly local providers are under an obligation to deal with the obvious offences that we see in the service they are delivering.
The water industry as a whole has all the characteristics of a monopoly provider. Were we to have three dry and hot summers in a row—oh, blessed memory, when we had such things—I am sure that we would run out of water very quickly and be told we had to kill all our plants in our nice gardens because we could not afford to water them any more. That should not happen. These companies should be able to handle such weather conditions. Above all, however, they should be able to handle conditions in which we have quite a bit of rainfall. This country has had a lot of rainfall over many years; we seem to be having a succession of wet and damp winters and summers at present. Companies should be made to organise things so that they are able to handle such eventualities, because if customers cannot switch to another company that will do the job properly, it is terribly important that there is a regulator in place that will take the necessary action. I therefore hope that if we are in favour of sustainable water management, that means we are in favour of tackling these problems vigorously and thereby reassuring my constituents that they will not be flooded in future.
I welcome the work that other Members have done in Committee and it is good to see the Bill back to complete its remaining stages so early, as that bodes well for its passing through the other place and into legislation. I particularly welcome the addition of clause 44, which fulfils the request made by a number of Members on Second Reading, including myself, for an examination of the debt issue. I shall move on swiftly, before I am told that this is not a Third Reading debate.
I welcome the product of another discussion in Committee—the one on social tariffs—and the work that the hon. Member for Cheltenham (Martin Horwood) has done, alongside Labour Members, in promoting new clause 22. I understand that new clause 22 is modest in its extent—it certainly is as far as fulfilling the Walker review and meeting the challenges in the south-west are concerned—but it is more welcome than the somewhat curmudgeonly comments made by Conservative Members. It gives clarity to something for which there is a great deal of pressure. Legislation needs to provide the regulator, at an early stage, with the ability to allow water undertakers to introduce some of the novel ways that they have been trying out, so as to ensure that there are methods that allow customers in vulnerable situations and those under great pressure in paying their water bills to get back into payment habits, to stop building up debt and to contribute at a level that is possible for them.
So I welcome the work done in Committee, but I wish to seek an assurance from the Minister because this provision is modest. If my understanding is correct, it is simply an intra-regional arrangement, rather than an inter-regional one such as would be needed to fulfil some of the recommendations of the Walker review. I hope that its welcome inclusion in the Bill in no way diminishes the Government’s commitment to examining the full range of measures that could assist in tackling affordability problems, which are nowhere more acute than in the south-west region, in which I live. The Walker report put on the record for the first time the fact that the extent of the under-investment in the region’s sewerage at the time of privatisation in the 1980s was £650 million. This new clause will in no way begin to address that. I thus seek an assurance from the Minister, because I was slightly apprehensive about his comment that it could be another two years before we have this opportunity again.
I welcome what the Minister said about the necessity for a review of Ofwat and its powers, and the way in which Walker envisages new charging and metering arrangements working would certainly bring that in its train. Indeed, I met the regulator earlier today to discuss how she is progressing with the Minister’s welcome request for her to proceed with the examination of those aspects of the Walker review and the options that it set out for addressing the pressing affordability problems in the south-west. I am more convinced than ever that we will need a range of regulatory and Government measures, and not just the narrow ones envisaged in new clause 22, to put right the 20-year pain that we have been experiencing.
I support the new clause, but I seek the Minister’s reassurance that it does not diminish the Government’s appetite for introducing further early proposals to implement other necessary aspects of the review.
I want briefly to touch on new clauses 16 and 17, tabled by my hon. Friend the Member for Stroud (Mr. Drew). The Minister’s comments on the skills issue were very welcome. Notwithstanding the contribution that Unison has made to putting this on the agenda, he and I met some GMB shop stewards in a meeting that was lively for both of us. I was there in my role as chair of the all-party group on water. We were challenged to do things that I do not think we would begin to consider, such as addressing the skills issue by renationalising the water industry.
One had to have considerable sympathy with the views that the shop stewards expressed. They were worried about the pressures arising from what is broadly seen as a pretty tough settlement in PR09. They were also very worried about the investment in skills, development and the work force when everything else gives, in some companies more than others. I welcome what the Minister said and his assurances that that issue was on his agenda and that he was talking to the Minister for Further Education, Skills, Apprenticeships and Consumer Affairs. However, although I am hopeful that we can better align these issues, as has been done in the energy industry—I have seen some very good work done along these lines—if that does not happen the early advent of another water Bill will keep the minds of people who are in charge of the water undertakings focused on getting a move on. Otherwise, some of us will hope to be in a position to bring forward some further thinking along the lines set out by my hon. Friend the Member for Stroud in new clause 16.
As my hon. Friend said in his remarks on new clause 17, innovation is important in addressing some of the drought problems confronting the industry—not, perhaps, in the part of the country that I come from, but in some of the more eastern parts of the country. On show in a reception in the House of Commons were some of the proposals that are coming forward. They require quite a lot of investment and certainty for a number of years ahead.
My hon. Friend made points about the length of time involved and the periodic price review period, as well as about the way that that militates against such decisions being taken in a sensible way. In the all-party water group we have debated the impact of the welcome 25-year water management plans and the strategic statements that are now made, but we almost need more than that. There has been quite a lot of discussion inside and outside this place about whether we need perhaps to review the length of the price review period, which is five years, and about whether that is long enough. It has the perverse sort of outcomes that were outlined by my hon. Friend in his introduction of new clause 17. There would certainly have to be protections for consumers on pricing, but if we can get more sensible, value-for-money, long-term decisions in the investment procedure, that will pay dividends for consumers, too. It gives the water undertakings greater capacity to make sensible, value-for-money decisions. My hon. Friend described that as “levelling out.”
In conclusion, we might want to return to new clause 17 in a future Bill, if note is not taken of it through the methods outlined by the Minister in his introductory speech. I greatly welcome new clause 22, and will certainly support the Government on it.
I rise to speak in support of Government new clause 22, which will enable water companies to operate social tariffs with the aim of reducing charges for individuals who would find it difficult to pay in full. It will make it clear once and for all, beyond any doubt, that Ofwat will have such powers. We are familiar with this concept from the similar system of having reduced council tax charges for low-income households. Hon. Members will also remember that in pre-meter days, water rates were strongly linked to household rates, so we understand the concept that, in an unequal society, this is one way of helping those on the lowest incomes to receive commodities such as water. Likewise, there are measures in the Energy Bill to tackle fuel poverty.
I am very pleased that the Minister has been willing to listen to Members on this issue and to put this measure into the Bill. I know that things have been rather rushed and were done only just in time—after the Walker review came out, there were concerns as to whether the measure could be fitted in—but it is important to pass the measure, which mirrors measures in the Energy Bill and is similar to something that we already do with council tax.
The new clause states that the Minister “must issue guidance” that includes the
“factors to be taken into account”
when water companies draw up such schemes. The guidance will then go to Ofwat. I understand that for Wales, Welsh Assembly Government Ministers will draw up the guidance that Ofwat will use when dealing with water companies that operate wholly or mainly in Wales, such as Dwr Cymru, Welsh Water. Will the Minister confirm that that is the case? I would like to ask a further question on that. We know that Dwr Cymru is extremely proud of the fact that, this year, it managed to give back to every household a dividend of about £21. That was quite controversial because many households did not really notice the difference. The poorest households noticed because that is an enormous amount to them, but the most well-off households did not necessarily particularly notice it. There has been considerable criticism that the money could have been invested in improving the sewerage system in places such as Llanelli, or in working towards the adoption of sewers with which there have been major difficulties in the past for local communities who have had to pay continually for repairs. This issue is controversial, and I would like the Minister to tell us whether the guidance from Welsh Assembly Government Ministers to Ofwat could include guidance on how to deal with dividends, or whether this issue can be decided only in advance in relation to charges. That would be of interest to the water rate payers of Wales. I look forward to the Minister’s clarification of this issue. I strongly support the principle behind the new clause, and I very much look forward to its operation.
The debate has kicked us off very well indeed. As I expected, there has been a good debate on this part of the Bill. I shall try to deal in detail, but fairly rapidly, with some of the points that have been raised. I can give all hon. Members the assurances that they seek, including the right hon. Member for Wokingham (Mr. Redwood), who made a valid point about rushing ahead and whether we are pre-empting what might be the ideal. I think that I can give him the assurance he requires. I acknowledge that, as the hon. Member for Vale of York (Miss McIntosh) has commented, the measures on social tariffs have come late in the day, and I shall explain why. I hope that I can persuade her to join us on this matter and approach it in the same spirit that we have dealt with the rest of the Bill, because we have an opportunity here.
Let me deal first with the question of why now. The hon. Member for Cheltenham (Martin Horwood) talked about putting matters beyond doubt legally. That is the purpose of the measure, but this issue was specifically raised by Ofwat and others in our evidence sessions. In response to Committee members, they said that the impediment to moving on this matter was lack of clarity in the law. We knew that there was huge support for this approach in Committee, and my hon. Friend the Member for Stroud (Mr. Drew) was right to say that I am a listening Minister. It has been a struggle to bring forward a proposal in time, but I pay tribute to my Bill team, who worked very hard. They spoke to stakeholders outside the House to try to get this right, and I think that we have something good.
I do not want to legislate for the sake of it, but I believe that our proposals are broadly welcomed. To pick up the remarks from several hon. Members, including Labour Members, I should like to bring forward legislation rapidly when we return after the general election, if I am in a position to do so, and we have an opportunity in this debate to achieve a consensus on the matter.
Why are we including provisions on social tariffs and bad debts, and not other Walker review recommendations? The review was tasked with looking at a number of wide-ranging and complex issues, which meant that it was published later than we initially hoped. We are amending the Bill to include provisions to tackle bad debt and, because of concerns raised on Second Reading, we have also introduced this provision on social tariffs.
The social tariff measure was a firm recommendation in Anna Walker’s interim report, and her final report said that it should be a priority. This is a timely opportunity to include it because, as has been noted, we need to act soon to help customers who are already facing real hardship. However, other recommendations in Anna Walker’s report, and the Cave report that I mentioned previously, require a lot of further consideration. I assure the House that we will consult fully on them. Although it is still the Government’s intention to bring forward any new legislation that is needed, I should point out that not all the recommendations in Anna Walker’s report require legislation.
In response to the question about businesses, I want to make it clear that the present wording is quite deliberate. We have been working very hard and burning the midnight oil to get it right. As I have made clear, part of the mechanism is that water companies will consult their customer bases before any scheme is implemented. That consultation will have to cover the acceptability of any cross-subsidies, as our guidance will make clear. We will, of course, consult properly on that guidance in the first place.
The right hon. Member for Wokingham quite rightly had reservations about whether this provision should be brought forward now, but it is framed in such a way that it does not pre-empt Anna Walker, or the detail inherent in a proper consultation exercise. I am sure that he would support the idea that we should consult not only those who might benefit, but people who might be asked to carry the burden.
The Consumer Council for Water made its concerns clear, and we framed our approach accordingly. We are not setting out specific proposals now, but ensuring that we have the power to consult and bring in such proposals at an appropriate time.
I assure my hon. Friend that we will take that work into account. The council has done a very good sensitivity analysis of the extent to which people are willing to bear some sort of burden.
There is one matter that I want to knock on the head. We had a very good debate in Westminster Hall the other day, when we discussed possibilities for dealing with the legacy issues in the south-west that arise from the original privatisation of the water companies. I said that the idea of a seasonal tariff was one of about six, seven or a dozen options, but it is not for me as a Minister to say that is the only one that we should take up. In fact, Anna Walker made it clear that a package of measures might need to be brought forward.
Contrary to speculation in the Western Morning News and other newspapers, I am not advocating any particular approach. We need a proper consultation with the wide consumer base before any measure is brought forward. No stealth tax is being imposed, and the fact that we are having this debate in full public view on the Floor of the House shows our desire to get the balance right.
A few Members mentioned the Ofwat review, so let me reiterate what I said, because many of the proposed changes before us relate to Ofwat’s remit. We absolutely acknowledge that we need to take a fundamental look at its remit so that it is fit to meet what are quite changed circumstances from those when privatisation occurred. We need to do so in recognition of the fact that the review must feature not only the proposed changes before us, but other contemporary and long-term issues. That is the appropriate way to undertake such work. Ofwat will do its own post-match review following PR09, but we need to engage not only with the regulator, but with wider stakeholders on a review of how we meet climate change and sustainability objectives. The right hon. Member for Wokingham was right to say that the proposed changes are well intentioned, and the definition of sustainable water management should indeed be part of that review.
I shall return to that issue in a moment. I believe that such powers exist—not in this Bill, but under existing water industry legislation. However, I shall seek some inspiration to recall the exact Act.
I hope that the hon. Member for Cheltenham will accept my assurance that we are seriously minded to undertake an all-encompassing review of Ofwat. Rather than try to include or identify in the Bill some of the issues that might be needed on Ofwat, however, we should do such work properly, in the round, and look at how we meet all the different challenges.
The explicit assurance that I and the Scout Association were looking for, however, was on the exercise of the remit in respect of the concessionary charges scheme. We want an assurance that Ofwat will clearly see that it is responsible for ensuring that the scheme is fairly applied to community groups.
The hon. Gentleman gives me the opportunity to put on record how we see the proposals working. Ofwat would be responsible for scrutinising and approving all charges schemes, and for ensuring that schemes complied with its price limits, were not unduly preferential or discriminatory, had regard to Government guidance, and protected customers. The proposals would make it clear in law that companies could bring forward concessionary schemes for community groups in their charges schemes, and Government guidance to companies would set out how we think those concessionary schemes would work. In approving the charges schemes, Ofwat would ensure that companies had regard to that guidance, and we would not expect Ofwat to approve a charges scheme that did not follow that guidance.
It is not for the Government to tell individual companies how to structure their scheme for charges. Severn Trent is working very well, because it has come up with a scheme that responds to its local, wide-ranging customer base. If a Minister did that work, they would create not least some market uncertainty, which could ultimately push up prices. Severn Trent has run a successful concessionary scheme. Yorkshire Water has also already set fair and affordable area-based surface water drainage charges for its non-domestic customers, so in such cases it might not be necessary to introduce concessionary schemes. However, if companies are allowed such flexibility, they will be able to reflect the circumstances in their area.
Let me make it clear that we will expect all companies that move to area-based charges, of which there are currently only four, to assess whether a concessionary scheme is necessary for their customers, and to ensure that community groups do not face unaffordable surface water drainage charges. Government guidance will make that clear, and I am sure that the hon. Gentleman will provide some input.
Companies will decide which community groups are included in their concessionary schemes, although we have published draft guidance; the Government will provide guidance on the types of organisation that should benefit, and examples of best practice. I think that we got it right with the draft guidance that we supplied to the Public Bill Committee on its opening day on 7 January. The Chairman referred to the package of documents on the desk in the Committee Room. We expect companies to decide to which groups to grant the concession by assessing the benefit to the community, consulting their customers and undertaking an impact assessment. That will ensure that all such schemes are fair for all customers. The absolute assurance is that concessionary schemes will not be brought forward where there are issues of unaffordability for community groups, scouts, churches and so on.
I hope that the House will forgive my pressing this point. In fact, just for once, it is not the ministerial guidance that we, and the Scout Association, are worried about. The concern is whether Ofwat’s remit will still conflict with this issue, and about the fact that Ofwat is not mentioned in the new clause. As long as the Minister can give the assurance that Ofwat will see it as its role to support the implementation of these schemes, we can all relax and attend our scout events.
The answer is a straightforward yes.
I was pleased to have a very productive meeting with my hon. Friend the Member for Stroud and members from Unison. I also met friends from the GMB with my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) and led a delegation with my right hon. Friend the Member for Makerfield (Mr. McCartney). We dealt with issues to do with skills within the utility sector and throughout the water sector.
One of the problems with the water sector is that it is fragmented in comparison with the energy sector, for example, so there is a good role for somebody in bringing people together. That is why I want to seek a meeting with my hon. Friend the Minister for Further Education, Skills, Apprenticeships and Consumer Affairs to talk about how we can lend our weight to trying to get an all-encompassing approach, right down the supply chain and across the industry, so that companies do not have to struggle with a more piecemeal and short-term approach to skills development. EU Skills has been working with members of Water UK to develop a detailed and comprehensive work force planning tool. The key skills issue for the sector is the ageing work force; 11 per cent. are due to retire in the current regulated period, and increasing numbers in subsequent regulatory periods. We all have a role to play, and I will certainly play mine.
My hon. Friend the Member for Stroud talked about the price review and about trying to flatten out some of the decisions on investment and, linked to that, skills and training. For the first time ever, we have the five-year PR09 in the context of a 25-year strategic direction statement to consider the long term as well. DEFRA and Treasury Ministers have encouraged companies to bring forward their expenditure early in the PR09 process, where that is in the interests of customers, in order to flatten out the traditional wave shape that we have sometimes seen. Let us not forget that PR09 allows for more than £22 billion of expenditure to 2015; that is good for jobs and leads to a need for skilled workers.
In his introductory remarks, the right hon. Member for Wokingham expressed support for competition in the water industry to drive prices down. Many issues arise in a purely competitive approach. First, we are in a devolved situation. The right hon. Gentleman is a former Wales Office Minister, as I am, and he will know that Welsh Assembly Government Ministers have a key role to play, as does Welsh Water—Dwr Cymru—which has a somewhat different structure from other such companies. Although it is not without flaw, it is generally perceived in Wales to be a good model of a mutual approach towards water utility provision.
The right hon. Gentleman also talked about the transfer of water. That is not an unfeasible engineering solution, but we need to take into account the carbon impact if long distances are involved. As he rightly said, sustainable water management, among other things, might well be a good idea, but let us do it within the review of the full role of Ofwat.
To pick up the right hon. Gentleman’s earlier point, I have had inspiration on where provision already exists on undertakers. Section 94 of the Water Industry Act 1991 requires undertakers to drain their areas appropriately, and Ofwat is required to ensure that they are able to fulfil those functions. There is also public health legislation and nuisance legislation, both of which would be relevant to powers to prevent and redress instances of local foul sewage pollution. Having been on the receiving end of overflowing sewers, as I said in Committee, I have a great deal of sympathy with that issue.
I turn to the comments of my hon. Friend the Member for Plymouth, Sutton. First, I welcome her work and that of other hon. Members in lobbying on the whole range of issues raised by Cave and Walker, in the south-west and more broadly. I hope that an additional Bill can be brought forward very soon, but we need to take this opportunity to act as well. We have made it clear that we will consult fully on Walker, but we have also already asked Ofwat to examine the recommendations in the report, not least in relation to the south-west, and to advise Ministers accordingly.
I look forward to a rescheduled meeting with the Prime Minister soon, with my hon. Friend and other colleagues. As she rightly said, we need to find a solution to the problem in the south-west. Anna Walker has given us some useful signposts and pointed squarely to where the problem arose. It could have been sorted right at the beginning. My hon. Friend mentioned the long-term impact, and the 25-year long-term planning approach that we now have is a useful way forward.
My hon. Friend the Member for Llanelli (Nia Griffith), alongside other Welsh colleagues, has been assiduous in lobbying to ensure that many of the measures in the Bill are also applied in Wales. I can confirm that Welsh Assembly Government Ministers will produce the draft guidance there. I hear once again her support for the transfer of private sewers, which is an issue that affects all of us in Wales. The Welsh Assembly Government have taken it forward in a slightly different way from that used in England, as we would expect, but as Welsh MPs we all have a role to play in getting involved in the process and ensuring that our constituents who are the most affected are the first to receive transfer where possible.
The only matter on which I will disappoint my hon. Friend is that of whether the guidance can specify how dividends should be shared out. Dividends are a matter for each company, but of course Ofwat, in its overall regulatory role, takes account of the water companies’ ability to fulfil their functions within the price-setting mechanism. Within the guidance under the Bill, however, dividends are a matter for the companies.
In considering how that framework will work, will the Minister also continue to consider how companies can transfer money within wider groups that they are part of? That is significant in some areas. It is not just about dividends for shareholders but about how funds are moved around within groups.
That is a valid point, and it is one thing that we will want to examine in considering the role of Ofwat.
I hope that I have provided the necessary assurances. We are not pre-empting Walker, we are putting a mechanism in place so that we can deliver for the people who are hardest hit by affordability problems. We have already provided for what is set out in several of the amendments, and I have made clear my commitment to a full and comprehensive review of the regulator. That is not to say that its current role is remiss, but we recognise that the challenges that it faces now are significantly different from those at the time of privatisation.
Question put and agreed to.
New clause 22 accordingly read a Second time, and added to the Bill.
New Clause 2
Regular maintenance of water courses
‘The Environment Agency must undertake a programme of regular maintenance work of major water courses on an annual basis with quarterly reports to both Houses of Parliament.’.—(Miss McIntosh.)
Brought up, and read the First time.
With this it will be convenient to discuss the following: new clause 9—Staffing and resources for the Environment Agency—
‘(1) The Secretary of State must make an assessment of the staff, equipment and resources required by the Environment Agency to implement the provisions of the Act in accordance with the lessons learnt from the floods of 2007.’.
New clause 20—The role of Fire and Rescue Authorities during major flooding—
‘(1) A fire and rescue authority must make provision for the purpose of rescuing people and protecting them from serious harm in the event of major flooding in its area.
(2) In making the provision required by subsection (1), a fire and rescue authority must—
(a) secure the provision of such personnel, services and training as may be necessary efficiently to meet all reasonable requirements;
(b) make arrangements for dealing with calls for help;
(c) make arrangements for obtaining necessary information; and
(d) make arrangements for ensuring that reasonable steps are taken to prevent or limit damage to property resulting from action taken pursuant to such provision.
(a) a fire and rescue authority maintains specialist resources (“the first authority”);
(b) major flooding has occurred or is likely to occur in the area of another fire and rescue authority (“the second authority”); and
(c) the second authority has requested the first authority to use those resources in the second authority’s area,
the first authority must use its specialist resources in the area of the second authority to such extent as is reasonable for the purpose of dealing with the emergency.
(4) In this section—
(a) “major flooding” means flooding that causes or is likely to cause one or more individuals to die, be seriously injured or become seriously ill as a result from—
(i) natural causes; or
(ii) an escape of water from a large raised reservoir;
(b) “specialist resources” means resources maintained for the purpose of taking action pursuant to provision made in accordance with subsection (1) including any personnel who have received specialist training for that purpose;
(c) “large raised reservoir” has the same meaning as in section 1 of the Reservoir Act 1975 (ambit of Act and interpretation).’.
Amendment 24, in clause 6, page 4, line 37, at end add—
‘(g) the fire and rescue authorities.’.
Amendment 25, page 5, line 9, at end add—
‘(e) a fire and rescue authority that exercises functions in relation to an area in Wales.’.
Amendment 27, in clause 7, page 5, line 35, at end insert ‘the fire and rescue authorities,’.
Amendment 26, page 5, line 40, at end add—
‘(e) a fire and rescue authority that exercises functions in relation to an area in England.’.
Amendment 5, in clause 9, page 7, line 42, at end add—
‘(10) The Minister shall as soon as possible instigate, publish and have regard to a review undertaken by a panel of independent persons pertaining to the—
(a) recruitment costs which will be incurred by local authorities in implementing the provisions of this section; and
(b) training and equipment costs incurred by local authorities in implementing the provisions of this section.’.
Amendment 4, in clause 18, page 13, line 20, at end add—
‘(4) A report under this section must be laid before and approved by a resolution of each House of Parliament.’.
Government amendments 31 to 34.
Amendment 28, in clause 38, page 24, leave out lines 5 and 6 and insert—
‘(3) Condition 2 is that in carrying out the work the Agency—
(a) has regard to the national flood and coastal erosion risk management strategy under section 7, and
(b) does not create or increase potential harmful consequences of a kind listed in section 2(4)(a) to (d)’.
Government amendments 48 and 49.
I wish to make one or two general remarks at the outset before going through our amendments and those in the name of the hon. Member for Stroud (Mr. Drew), after which I shall allow the Minister time to make the case for the Government amendments, of which several have come at such a late stage.
We had the opportunity to rehearse our arguments about the resourcing of the Environment Agency and local authorities at some length in Committee, but we did not receive the satisfaction and reassurances that we wanted from the Minister. I know that in relation to our amendments in this group, and even more so for those in the next group, he is hoping to give some reassurances that go beyond the Government amendments. If so, it would be helpful if he took the opportunity to state whether the discussions will be on the basis of Pepper v. Hart, so that we can provide assurances to those outside. The Government amendments in this group may not rely on Pepper v. Hart so much as those in the next group.
I have a general point to make on the fire and rescue authorities, if I may, before I address the specifics of the proposals. In Committee, my hon. Friend the Member for Upminster (Angela Watkinson) made some logical points about the prominence of the fire and rescue authorities under the Civil Contingencies Act 2004, which the Minister addressed. I have some sympathy with the proposals of the hon. Member for Stroud and his hon. Friends, but without putting words into the Minister’s mouth, I am sure he will agree that they would raise funding requirements. Nevertheless, there seems to be a lacuna in the law, in that we generally assume that fire and rescue crews will turn up and swing into action, as they did most recently in the Cumbria floods in November and December 2009, but there are resource issues with that, and I am not convinced the Government have yet addressed them.
New clause 2 would place a duty on the Environment Agency to
“undertake a programme of regular maintenance work of major water courses on an annual basis with quarterly reports to both Houses of Parliament.”
In its conclusions, the Pitt report clearly stated—the Government adopted this in their most recent response—that regular maintenance should be done, and more importantly that it must be seen to be done. That is one of only a very few points of dissention that I have with Sir Michael Pitt. At the moment, I am not convinced, anecdotally, that the public believe that regular maintenance is being done. A number of people said that had regular maintenance been done, even the Cumbria floods might not have been as bad. I am not sure about that, because events that happen once in 1,000 years would lead to substantial flooding in any circumstances, but if regular maintenance on major watercourses is not done, water backs up into small watercourses.
Following the 2007, 2008 and 2009 floods, I saw with my own eyes areas where regular maintenance had not been undertaken, where a fairly basic strip of self-planting willow trees could have reduced flooding. As we know, the internal drainage boards have a regular programme, but it is acutely worrying for landowners and those who contribute to IDBs, and to the work of the Environment Agency from the IDB budget, if major watercourses are not regularly maintained and if minor watercourses are flooded as a consequence.
We are asking for work to be undertaken on
“an annual basis with quarterly reports to both Houses of Parliament”,
which could be debated and published. That would send the message that substantial maintenance was being done regularly.
That goes to the heart of a big problem in my constituency, where the rivers Emm and Loddon have flooded on all too many occasions in the past decade. Part of the problem has been the failure of the Environment Agency to maintain the free flow of the waters, which means blockages that exacerbate the flooding. I hope that my hon. Friend is successful with new clause 2.
I am most grateful for that support from my right hon. Friend. There is an argument that the Government have reduced the maintenance programme while increasing along with inflation the budget for substantial infrastructure projects. Capital expenditure has been maintained and even modestly increased, but the same has not happened on the same scale with maintenance.
New clause 9 would require the Secretary of State to
“make an assessment of the staff, equipment and resources required by the Environment Agency to implement the provisions of the Act in accordance with lessons learnt from the floods of 2007”.
We want a clear undertaking that the Pitt requirements will be met, and it is not clear that the Environment Agency will have any new resources. The report that was published last year on the Pitt conclusions included a table that did not show any significant resources for those purposes. I wish to press the Minister on where those resources will be found.
Amendments 5 and 4 similarly seek resources for local authorities. Amendment 5 would amend clause 9 to require the Minister to set up an independent panel to review the recruitment costs of the new staff required by local authorities to implement these new provisions—and the training and equipment costs. Amendment 4 would require a report to be presented to Parliament and approved by both Houses.
The Minister has failed to reassure us that adequate resources will be provided. We have been told that savings will be made, especially on lateral drains, but we have had a strong steer from the Local Government Association that these sums are wrong. The Minister had agreed, through his Department, a new burdens doctrine, but the resource implications of the Bill breach the spirit of that doctrine. Therefore, the Minister should use this opportunity to identify the new additional costs, how he proposes to meet them, and to confirm that they will not be met entirely from existing budgets so that local authorities will not lose funding for activities that they would otherwise wish to undertake.
Water companies were also concerned by the suggestion from local authorities that the water companies should fund certain aspects from their receipts from consumers. I hope that the Minister will take this opportunity to give an undertaking that that will not be the case. It would be totally inappropriate and unacceptable, and not the best way to proceed.
Amendment 28 sets out how the work of the Environment Agency should be carried out, with
“regard to the national flood and coastal erosion risk management strategy”.
It would also ensure that there were no unintended consequences from part 2 of the Bill.
Through new clause 2, we are raising concerns about the extensive and prescriptive role of the Environment Agency; its ability to carry out work that could increase flooding; the erosion of the responsibility to take a balanced approach; and whether the work that the agency undertakes might unwittingly cause damage to human health, the economy, infrastructure or the environment. Is it right to give those powers to the agency, or would that role be better played by local authorities? That is part and parcel of our hope that such powers will remain with, or be passed to, local communities through local authorities and internal drainage boards as appropriate.
Echoed within the group of new clauses and amendments is our concern about which should be the respective and potential local authorities. Without straying beyond the group, will the Minister confirm whether he is minded to provide the flexibility needed to allow district councils to be the proper planning authorities, if it comes to the approving authority for sustainable drainage systems? However, that debate might best be handled when we discuss the next group of amendments.
With those words, I would like to move this little group of new clauses and amendments.