TUESDAY 13 FEBRUARY 2001

THE RT HON MICHAEL MEACHER MP AND MR ALAN DAVIS

  520. Do you think that the success of the Energy Savings Trust is something that could be mirrored with a Water Savings Trust?
  (Mr Meacher) When I first appeared before this Committee, I did make some comments that I was rather in favour of the Water Savings Trust idea, because I do think the Energy Saving Trust has been remarkably successful. I do not demur from that view. It is however the case that some regions are now facing a resource surplus for the foreseeable future. If one said to the great British public after the floods of last December that we are now instituting a Water Savings Trust to which you are going to have to contribute by a levy on your bills, it might produce a degree of incredulity. Secondly, the levy on customers would mean that those on low incomes in water plentiful areas would be subsidising activities in water stressed areas and, to a degree therefore, there is a degree of inequity, although not intended. The duty on water companies to promote the efficient use of water was only introduced in 1995 and I have already indicated the whole range of improvements which has already occurred. I am not opposed to the idea but I have to say I doubt that this is the moment to introduce it.

  521. Can I ask you whether the government's assessment of the impact of climate change is that there is going to be much more water in the United Kingdom and therefore there is no need to implement a measure such as a Water Savings Trust?
  (Mr Meacher) On balance, I think that is probably true. There will be a division even within the United Kingdom between the drier and wetter regions. The wetter regions will become even wetter and more liable to flooding. The drier regions such as East Anglia and parts of the south east will become drier. That applies much more strongly regionally across the world but even within the United Kingdom I would expect overall, as a result of climate change, that the net balance would be an increase in precipitation, an increase in water supply. Again, for that reason, I doubt whether this is the time to introduce it. However, having said that, no one foresaw the droughts of 1994, 1995 and 1996. I continue to take the view, even though people have found it difficult to take it seriously, that we need to prepare for future droughts.

  522. Can I bring you on to some of the bits of the Bill that have been highlighted? We have been told that quite a lot of the major recommendations of Taking Water Responsibly, which was a very coherent approach, are not in the Bill.
  (Mr Meacher) There are parts which are not in the Bill which is precisely because those provisions have not yet been finalised. They will be included in the Bill on its introduction and I think the Environment Agency assured you a week ago that they would provide you with such a list.

  523. They did give us a list but it is a bit worrying that the decisions have not been taken on things which include details of the means by which the abstracted water returns to the environment, power for the Agency to waive the requirement to advertise for applications. There are a lot of detailed points that we have been given. If we give you a copy of these, may we take it that, before the Committee finishes its considerations, we can have your comments on those bits which have been omitted from the Bill?
  (Mr Meacher) As far as we are able to provide them as a result of consultation within government, yes.

  524. I accept all the subjunctive clauses but will you give us an answer?
  (Mr Meacher) Yes.

  525. Can I ask you why there is nothing in the Bill about the health and safety aspects and work on the people working in the industry? We have taken evidence and you know what happens when there are major changes. It is the people working in the industry who suffer. Unless they get it right, no one gets clean water. Why is there not something on the face of the Bill which protects not only their employment but also the quality of their water?
  (Mr Meacher) With regard to the quality of water, that is covered by the Drinking Water inspectorate.

  526. I will not be distracted. There is nothing on the face of this Bill that protects the health and safety involvement of the workers in this industry.
  (Mr Meacher) I suspect they are covered by the Health and Safety at Work Act of 1974 which is a long lasting Bill but a Bill which has stood the test of time.

  527. If there are major changes in companies, they are not protected in any way, are they?
  (Mr Meacher) There is a distinction, I understand, between their employment prospects and I know that the restructuring proposals which have been discussed which are current within the media have caused the unions in particular to be concerned about job cuts. In addition, they are concerned that the periodic review which has tightened the screw on companies considerably after the much laxer periodic reviews of the past, requiring them to achieve an £8 billion extra of water quality investment at the same time as reducing charges on average by 12 per cent and—

  528. We are particularly concerned about the way the companies have been reappraising risk and discounting risk over a much longer period of time. Each time they do that, they cut jobs and delay the renewal of assets. This is the evidence we have received. The risk then must automatically be increased to the public. All right; it may be minimal, but each time you do it you increase the risk to the public. The gas and electricity industry both have clauses in the Utility Act 2000 which requires the Secretary of State to consult the Health and Safety Executive on all relevant issues. If there is not such a provision in water, why not? Why is it not in this Bill?
  (Mr Meacher) The government's view unequivocally is that any restructuring proposals must safeguard the public health and the environment.

  529. Why can you not write in very simply, to save a lot of bother, a requirement to consult the Health and Safety Executive on relevant issues or a requirement on the Secretary of State to satisfy himself companies are renewing assets and have sufficient personnel to guarantee the use of those assets?
  (Mr Meacher) There are several different considerations there. It is the responsibility of Ofwat to ensure the long term maintenance of assets, both the—

  530. Why is there the difference between the other utilities and water? It is such a simple safeguard. You are not detracting from Ofwat's responsibilities of looking after its assets; you just say, "Fine. In future, also consult the Health and Safety Executive."
  (Mr Meacher) These considerations which you have properly brought forward are safeguarded at the present time.

  531. Why are the people working in the industry not convinced of that?
  (Mr Meacher) I am not aware of any cases that have come to my attention where health and safety at work are put at risk for workers in the industry. If so, clearly the Health and Safety Executive would immediately be involved.

  532. You are aware that the companies are reassessing risk and extending the life of their assets?
  (Mr Meacher) I am aware that one of the ways in which they are responding to the periodic review is precisely in the way you suggest: that they may well be considering a reassessment of risk. The proper protection against that is for both the government and the Regulator to make absolutely clear that standards will be maintained, both in terms of public health and in terms of protection of the environment, and that they will be fully enforced. That is certainly my position.

  533. I offer you a simpler way round that: you can go away and think about this one as well.
  (Mr Meacher) I find your request very difficult to resist.

  534. The Secretary of State is going to use his powers to set standards of performance?
  (Mr Meacher) Yes.

  535. Only in exceptional circumstances or always?
  (Mr Meacher) As we consider appropriate. We are not just talking about proposals from Ofwat; we are talking about the Consumer Council, the Drinking Water Inspectorate. In the light of the situation and cases that arise, we will set the standard of performance.

  536. Do you think some of the changes in the Bill are going to increase the cost of capital and customers' bills?
  (Mr Meacher) No, I do not. I know this again has been alleged. The purpose of the Bill is to make the regulatory regime more open, accountable and predictable. That should not raise the cost of capital. We are proposing that there should be a water advisory panel, advising the director general. That should not confuse accountability because it will still be the director general who takes the decisions in the long run.

  537. You have total faith in the director general. You do not think you need any extra powers?
  (Mr Meacher) I think he is a very good director general, but I realise that governments are of the day and so is the director general. The way of dealing with the question of the cost of capital is to look at the structural implications of what we are proposing and I do not believe that those are likely to raise the cost of capital—neither the power to initiate standards of performance, the guidance that we are giving on social, environmental matters, which is guidance not direction. All of those should not affect the question of the cost of capital, in my view. It can be argued that, because we are looking to abstraction licences of normally 12 years, which could be extended, there is a shorter time span for the investment to produce its return. That could affect cost to customers, but the applicant can justify a longer time scale and there is a presumption for renewal so again I do not believe that that should have an effect. If it is necessary to invest extra funding to protect SSSIs, to deal with low river flow, of course that applies at the present time and the current periodic review had 100 such schemes in it. These cost £230 million, but it still produced an overall average national cut in bills of 12 per cent.

  538. It has been put to us that as better off people living in houses with high rateable values realise that they might be better off if they go to metering, this may put a greater cost on people on lower incomes, in terms of the distribution of water charging. Is this something that you are concerned about?
  (Mr Meacher) I do understand the argument and indeed it has been suggested that there would be greater equity within the system if one resorted to some kind of council tax based form of water charging. My response to that is let 100 flowers bloom. If companies can come forward with alternative proposals, there is nothing to stop them. We can ensure that they are provided with data on council tax bands without primary legislation. There is no reason why they should not do it. One particular water company, I do know, has thought about this very seriously. The problem is that all the models that we have looked at do lead to substantial changes, large numbers of winners and losers, and as always the government is concerned about the losers. Quite a lot of those losers may be in the lower income brackets. That is something of a deterrent, but we are looking for greater equity within the system of water charging.

  539. Do I take it from that that you accept that, as time moves forward, it is going to be increasingly difficult to base water charging on a rateable value system based on assessments made nearly 30 years Sago now?
  (Mr Meacher) Absolutely. It is more difficult to base on a rateable value system which is now very dated. The only ways to deal with that are to have property revaluation, which is never very popular—the longer the time which that has been left, the more drastic will be the changes; or to go over to some system of metering. We disagree with the previous government's intentions, which were implicit, I think, to move to universal domestic metering very quickly, but we would be happy if there were a steady increase in voluntary metering. There are still large numbers of consumers for whom it is almost certainly in their economic interests to move to a metered system.