Examination of witnesses (Questions 480-499)|
TUESDAY 13 FEBRUARY 2001
MEACHER MP AND
480. Why do you propose to weaken the voice
of the consumer in the region in relation to regional issues?
(Mr Meacher) I was not aware that we were. It was
certainly not the intention. Why do you ask that?
481. Because in the draft proposals you are
replacing statutory regional committeeseven though there
were question marks against them, they were thereand there
is no explicit requirement to set up regional committees. In the
Bill, there is a possibility it can be done but there is no requirement.
(Mr Meacher) We are strengthening the Consumer Council
by making it more independent, by freeing it of allegations in
the past that it was too much under the influence of the Regulator.
It will be again for them, as an independent sovereign body, to
decide how they seek regional representation. Because there are
ten major water companies, it is very important that there should
in my view be some regional representation, but it is a matter
482. Do you not consider there is a need for
regional representation in its own right, not only as an adjunct
of a national body?
(Mr Meacher) My view is that there should be a regional
representation. What you are asking me is whether we should lay
it down in the Act that there shall be.
483. A little phrase here and there would not
hurt, would it?
(Mr Meacher) Let me consider that. I certainly believe
that there should be regional representation. If there is some
dubiety about this, it might well be better to write it into the
legislation. Let me give further thought to that.
484. Would you also consider a role for the
regional chambers and regional assemblies in relation to representation
of regional water companies in the region itself?
(Mr Meacher) I would expect that to be via the independent
Consumer Councils. I do not think we can proliferate the number
of bodies that have responsibility in respect of the water industry.
I would expect that those interests be represented on the Consumer
485. Would you consider the importance of regional
representation within the region as well as regional representation
on a national body?
(Mr Meacher) I am sorry; I have not followed.
486. Would you consider the importance of having
regional representation within the regions, not only regional
representation on a national body? There are issues affecting
consumers which are of relevance within the region in which they
(Mr Meacher) You mean you are proposing a more localised
form of representation within the region?
487. Yes. I am asking that, within this change,
you do not do away with the regional structure. There is a regional
structure now and I am asking that within the new arrangements
you ensure that the regional structure does not disappear.
(Mr Meacher) That seems to me to be much the same
question as you were asking a moment ago. There is not a requirement
within the draft Bill that there should be a regional representation.
488. But you are going to go away and think
(Mr Meacher) Yes. I take the view that there should
be. I do not think one can lower it to the level of localised
representation within the region. If we have regional representation,
those localised interests as well as stakeholder interests ought
to be represented on those bodies. That is sufficient to represent
the consumer interest in those regions.
489. Could we dwell briefly on some of the lacunae
as identified by Dr Helm? Perhaps you would like to comment on
his assertion that in his view the issue of proper utility regulation
competition, sustainable development and climate change agenda
and, very importantly, the new restructuring proposals within
the industry are not adequately addressed in the Bill, none of
(Mr Meacher) First of all with regard to sustainable
development, should the Director General of Ofwat have to have
regard to sustainable development? This is arguable and I personally
take the view that that would be desirable. It would bring Ofwat
in line with the other utility regulators. It would ensure that
Ofwat takes account of sustainable development with regard to
long life asset maintenance. It would ensure that Ofwat and the
Environment Agency shared a common objective, joined up regulation.
It would balance the duty to promote the customer interest with
sustainable development but with the downside that it could complicate
or confuse the clarity of the regulatory role. On balance, my
judgment is that he should be required to have regard to sustainable
Mr Brake: That is your view. Is that the government's
490. You are still the Minister, are you not?
You were when you came in.
(Mr Meacher) No one told me otherwise and I intend
to carry on with that presumption. This is an issue which is being
discussed within government at the present time. I know the Director
General, Philip Fletcher, has given his views on this which are
probably fairly similar. When it comes to the Bill that is going
to be introducedand there are a number of omissions, I
entirely agreethis is a matter which does have to be clarified.
In my view, as Minister responsible for water, having to take
account of Ofwat and of other relevant departments, DTI and Treasury
in particular, he should take account of sustainable development.
491. Will you be able to swing it or not?
(Mr Meacher) I believe that the government's overall
commitment to sustainable development from the Prime Minister
downwards, even if there were some resistance which I do not think
there will be, would make it extremely difficult to suggest that
the Regulator should not have to take account of sustainable development.
We are requiring all government departments in all of their planning
to take account of sustainable development. There seems no reason
whatever to make an exception here, but we do need to make it
explicit, I agree. Secondly, competition. Competition has been
deliberately omitted because we are consulting. We issued a consultation
paper earlier this year. Since the paper was published, we have
had a number of proposals for restructuring. The Committee will
know that following Kelda and the rejection of that by the previous
regulator earlier last year there has been a proposal in respect
of Welsh Water or Hyder, which has now been taken over by WPD,
for there to be restructuring. We discussed this and examined
it with great care. In the end, it is a matter for the director
general of Ofwat. He has given his view on this, which I think
is a very balanced view. There are issues about the separation
of assets from operations. There are issues as to whether the
debt financing model provides adequate incentive for management
to promote efficiency compared to the equity model. There is also
the question whether there is sufficient incentive to justify
it from the point of view of the consumer, because the gains are
something of the order of two or three per cent over three or
five years and might benefit the consumer by something of the
order of five or six pounds a year if the fund which is built
up to deal with liabilities does not have to be used for major
problems in the meantime. Against a reduction in the periodic
review of average consumer charges of something like £30
a year, these are the issues which were considered. What is most
important is that the Regulator made clear that, whilst he was
prepared to agree in this case, there were special considerations.
First of all, WPD, the owners, wished to diversify out of water.
Secondly, the political authoritiesin this case the National
Assembly for Waleswere extremely keen on this. That would
not necessarily be the case with political authorities elsewhere.
Thirdly, there was the discount on the price as a regulated company
of something of the order of six or seven per cent. Those considerations,
he pointed out, would not necessarily apply elsewhere. We are
taking account of this particular case and what proposals the
industry may subsequently come forward with in finalising our
competitions proposals. That is why they are not in the Bill at
the present time.
492. Is it possible that when eventually the
Bill comes forward it will include no competition measures at
all and those will be tackled separately at a later date?
(Mr Meacher) It is always risky in Whitehall, I have
learned, to make absolute predictions but I strongly believe that
it will contain competition provisions.
493. It is a bit nonsensical to say, "We
are doing this in relation to one water company but of course
it is not a precedent", is it not?
(Mr Meacher) I do not agree. I think it is reasonable
to say that there were special conditions applying here which
do not necessarily apply elsewhere. We should look at every application
made on a case by case basis. If a very similar proposal came
forward, it would not necessarily be treated in the same way by
the Regulator for the fact that the three reasons he stated would
not necessarily apply in other cases.
494. My experience of government is that, when
two apparently similar companies with very similar remits operating
in the same industry are faced with what they regard as similar
circumstances and the government divines differently between the
two, that is not a recipe for happiness.
(Mr Meacher) It may not be a recipe for happiness
but it may be a justifiable position to take which would withstand
legal challenge and I believe that the Regulator, who very carefully
crafted his response, is in a position to justify that.
495. Minister, section four I understand allows
you to issue guidance to the director general on how to achieve
social objectives but does not require you to do so. Could you
give the Committee the reasons why?
(Mr Meacher) We believe that part of the consideration
which the Regulator should take into account at the time of the
quinquennial periodic review should not only be the economic situation
in the light of the previous quinquennial period and the upcoming
one, but also take account of social and environmental factors.
We believe that it should be in the form of advice and guidance
rather than direction because it is for him ultimately to make
the judgment that he has to make at the periodic review of what
is the appropriate price level for the succeeding period, what
is the pattern of prices over the next five years, taking account
of social and environmental concerns. To dictate to him exactly
how he should make that judgment would be to diminish the proper
role he has to take account of all of these factors. I am doubtful
about how far government should excessively prescribe how others
who we set up with confidence and in whom we have faith should
make their judgments.
496. Is it not the case that we are not talking
about the director general setting parameters but insisting that
the water companies take on board certain responsibilities. For
instance, since the consultation period early last year, the water
companies have come up with their own suggestions on how to tackle
particular problems which were plainly rejected by the director
general and it just stands there. There has been no further movement.
(Mr Meacher) I think you are referring to the rejection
of the Kelda proposals by Yorkshire Water but, in the light of
that rejection by the then
director general, there have been further discussions
in the industry and the latest proposals in respect of Welsh Water
or Hyder have sought to meet the strictures that he laid down.
It can be argued to a degree that they do.
497. What would your reaction be if the director
general, because he is not required to do this, just did not do
it, towards meeting various social objectives?
(Mr Meacher) This is guidance to the director general
to take account of social and environmental concerns. What, you
are saying, if the government believe that he had recklessly disregarded
proper social and environmental concerns in the case of making
his judgments and had exclusively looked at economic matters and
efficiency? That is a matter that we would strongly raise with
him. I do not believe for one moment that this is going to happen,
not least because of my knowledge of the current director general
whom I had some part in appointing. I believe that he would be
more than willing to take account of social and environmental
concerns but to dictate exactly how he should do that and how
those factors should influence a judgment in a particular consideration
is a degree of dirigisme, a degree of interventionism, which I
think is probably uncalled for. I do not believe there will be
a problem but if there were I would expect to discuss the matter
with him vigorously.
498. That might be all well and good when you
have a damned good director general but this Bill is going to
be with us for many years and directors general are going to come
(Mr Meacher) I understand that. It is a matter of
judgment, how far we put people into very senior, key positions,
to use their expertise and judgment to make decisions, and then
tell them exactly how they should do it. I think that is going
too far. We should tell them what they should take account of
in reaching those decisions and we should expect them to do it.
If they fail to do it, we would certainly take the matter up with
them. If there continued to be a major lacuna in terms of social
and environmental concerns, we might have to change the legislation,
but I would be unwilling at this point to be that directly intervening.
499. I do not think you need worry, Minister.
No one is going to think of this government as being dirigiste.
I want to bring you on to abstraction. How do you respond to the
criticism that the abstraction proposals of the Bill could risk
the long term security of public water supply?
(Mr Meacher) I do not think they will because current
abstraction licences are unaffected. They continue as they are
at the moment, unless they have to be curtailed in the interests
of protecting SSSIs or alleviating low river flows. With regard
to new abstraction licences, it is proposed that they should be
time limited to 12 years. We think that is a proper balance between