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Lord Falconer of Thoroton: My Lords, it is extremely important not to be alarmist and for people simply to be alert. The message from central government is that to give detailed advice on a particular sort of threat is both misleading and unhelpful. The right course is to wait and see what the immediate threat might be under any circumstances, and then take advice from the emergency services. The more detailed advice one gives in a vacuum, the more problems one causes.

Lord Tope: My Lords, is the Minister aware of the study published this week by London First and the London Chamber of Commerce and Industry, which showed that 80 per cent of small and medium-sized businesses had no contingency plans for a terrorist attack or mass evacuation? Do the Government intend to take any action in that respect?

Lord Falconer of Thoroton: My Lords, I repeat that a terrorist attack could mean a variety of things. It is critical to be alert but not alarmed, and to be clear to take advice from the emergency services whenever there is an immediate threat or a threat that matures. Simply to try to cover every possible eventuality would lead to confusion and difficulty when the problem arises.

Baroness Trumpington: My Lords, is the Minister aware that, after the hurricane, all the Whitehall telephone exchanges were out of order, something that

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never happened during the Blitz? Is he sure that steps have been taken to see that that does not happen again?

Lord Falconer of Thoroton: My Lords, I was not aware that in 1987 all the Whitehall exchanges went down. I know that the noble Baroness would have been, because she was a Minister at the time and would have been unable to phone friends and colleagues. Communication is utterly vital in relation to an emergency, and I very much hope—I am sure—that communications have been focused on.

Lord Brooke of Alverthorpe: My Lords, is my noble and learned friend aware that many people in America are stockpiling bottled water and food reserves in their homes? What does he say about that? What advice would he give to someone such as myself who might ask whether they should do the same?

Lord Falconer of Thoroton: My Lords, people should not stockpile at the moment. There is no point in taking such measures. The right course is to be alert, continue as before, and accept the advice of the emergency services when a discernible threat emerges or occurs.

Lord Roberts of Conwy: My Lords, in view of what the noble and learned Lord said about being alarmist, will he put into perspective the proposed London exercise on a massive scale, which we have read about in the press in the past few days?

Lord Falconer of Thoroton: My Lords, the right course for any organisation in central or local government is to be prepared but not to identify or seek to guard against a particular kind of threat when we do not know the precise detail of what may happen. It is right that we should be prepared and should have tried out our services against the possibility of an incident occurring but we should not be alarmist. We should focus on continuing as before and on being willing to take the advice of the emergency services.

Lord Hodgson of Astley Abbotts: My Lords, in the light of the importance that the Government are now giving to civil defence, can the Minister tell the House, first, how many times the senior government committee responsible for this policy area—the Ministerial Group on Protective and Preventative Security, chaired by the Home Secretary—has met? Secondly, how many of the 10 Ministers on the committee have attended each meeting? Thirdly, how often is it expected to meet in the future?

Does the Minister understand that if the Government refuse to answer those simple and innocuous questions on the slight fig leaf of Exemption 2 of the Code of Practice on Access to Government Information, the public will be entitled to believe that the Government do not give real attention to this important area?

Lord Falconer of Thoroton: My Lords, as the noble Lord knows, the public would not be right to think

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that we do not give the appropriate attention to that issue. I cannot tell the House the precise number of times the committee meets, but it meets as often as is necessary. This is a very high priority for the Government.

Water Bill [HL]

3.31 p.m.

Baroness Farrington of Ribbleton: My Lords, I beg to move that this Bill be now read a second time.

The Government's approach to the water environment and water industry is firmly grounded in sustainable development. That is emphasised and discussed in detail in Directing the Flow, which was published last November. Directing the Flow responded to calls from stakeholders with a wide range of interests for an overarching government strategy that would take a longer-term look at the issues facing water. It has been broadly welcomed.

The principles of sustainability are apparent throughout the Bill. At the same time it does not contain the whole of the Government's policies for water. It is not directing the flow in legislative form, and it is not meant to be. It complements a range of measures which are already in place or are being developed elsewhere. These include giving effect to the Water Framework Directive consideration of the spending priorities for the next periodic review of water pricing in 2004.

Part 1 of the Bill deals with water resources, abstraction and impounding. The Government launched the move towards the sustainable use of water resources at the water summit in 1997. The 10-point action plan at that summit included a review of the abstraction licensing regime. After all, the existing system is based on legislation dating from 1963. Following consultation, the Government published their decisions in March 1999.

Along with the provisions in Part 3 about water resource management and drought plans, this part is about long-term sustainable use of water resources, very much against the background of climate change. That is also a major aim of the EU Water Framework Directive. The Bill and the directive are moving forward together.

Sustainability must mean striking a balance between potentially conflicting demands. The provisions in the Bill seek to strike such a balance. At the centre of the process are water resource management and drought plans. Water undertakers already produce those voluntarily, but the Bill makes them compulsory and enforceable. They will sit within the framework set by the Environment Agency's water resources strategy, Water Resources for the Future, and their catchment abstraction management strategies.

At the same time all new licences will be time-limited, normally to 12 years. From 2012 abstraction licences can be revoked without compensation if they can be shown to be seriously environmentally damaging, in accordance with the "polluter pays"

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principle. The time after which an unused licence can be revoked because it has not been used is reduced from seven to four years.

We recognise that there are concerns about the cumulative effect of those changes but sustainability does not mean assuming that things can carry on the same way for ever; it means making sure that we fully understand the level of resources and demand. It means having the levers to make changes where necessary, but also that existing activities should be able to continue unless there are good reasons for adding new limits.

The Bill makes the licensing system more effective, but also reduces the regulatory burden. Most importantly, the new abstraction licence threshold of 20 cubic metres per day means that an estimated 20,000 small-scale abstractors will be exempt from licensing. That is a big deregulatory measure. Farmers, in particular, will benefit from that change as many of these small abstractions are made by them.

The Bill also brings some previously exempt uses of water into the licensing system. We know that there will be quite a lot of attention on those provisions, with the impact on trickle irrigation being a particular concern. The Government are keen to see trickle irrigation continue and flourish as we recognise that it can be an efficient use of water. But we believe that there should be fair treatment across all abstractors, so that a licensed abstractor is not adversely affected by a large, neighbouring, unlicensed abstraction.

The aim of Part 2 is to provide a new and better regulatory environment for the water industry and its consumers. It originated in the 1998 White Paper, A Fair Deal for Consumers—Modernising the Framework for Utility Regulation. There needs to be a basic approach to regulation across utilities. However, the Government's response to the report by the Better Regulation Task Force on economic regulators stressed that regulation is best done to suit the circumstances of the market that is being regulated. There are features unique to water. Those include the need for close involvement by the environmental and drinking water regulators, and the ongoing need for large-scale capital investment.

We need a sustainable industry if the Government's objectives and consumers' needs are to be met. The Bill replaces the existing individual Director General of Water Services with a regulatory authority, which will help to safeguard transparency and consistency. That meets a recommendation of the Better Regulation Task Force. The Bill also places a duty on the authority to look at means of achieving sustainable development, while continuing to ensure the financial health of the industry in a way which is unique among utilities.

The Bill places the consumer at the heart of regulation in two ways. First, it raises protection of consumers' interests to the top tier of the economic regulator's duties. Secondly, it sets up an independent consumer council for water whose sole purpose is to promote the interests of consumers. The Bill gives the council power to investigate complaints, carry out

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more general investigations into consumer issues and publish advice and information. To help it with those tasks it has the power to demand information from the regulator and undertakers.

The Bill will strengthen transparency and quality of service through various provisions. The Secretary of State will be able to set standards of performance without first needing an application from the regulator. That will enable the consumer council, for example, to approach the Secretary of State direct, increasing the level of its independence. If companies fail in their statutory functions they can be fined, potentially up to 10 per cent of their turnover.

These provisions must be used sensibly to avoid adding unnecessarily to costs or making it more difficult to attract investment, which would not benefit the industry or the consumer. For example, we need to avoid the temptation of frequent new standards. A regulatory impact assessment must first show that should any new standards be introduced, they really will be beneficial. Companies also need to know how and in what circumstances the power to fine will be used and that there will be no overlap between enforcement authorities.

As regards competition, genuine, open competition can lead to better prices, more innovation and improved quality of services. But competition is a means of achieving these benefits and not an end in itself. In the case of water there are wider objectives: to protect public health; to protect and improve the environment; to meet the Government's social goals, including affordability of water supplies; and to safeguard services to customers by sustaining an industry that can provide water efficiently and effectively. These wider objectives led the Government to the conclusions that we announced in March last year, and developed in the consultation paper published in July.

The Government believe that keeping the undertakers as vertically integrated companies, with clear responsibility for the operation of their networks—including water resource planning and investment—is important if we are to meet those wider objectives. New entrants will be able to use the undertaker's network to supply their customers, by buying water wholesale from the undertaker and providing retail services to customers, or by introducing their own water stock into a network for onward supply to their customers through common carriage.

We concluded that competition should not include household customers. The regulatory regime, which we would need in order to protect public health, social and environmental objectives and customers' essential needs, would be too complex and costly and still leave too many risks. Finally, we decided that even for commercial and industrial customers we should adopt a cautious approach starting with a consumption threshold of 50 megalitres a year. Introducing competition into the public water supply is a first. We need to be able to monitor how such competition works.

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We would expect a review of the situation by the three regulators no more than three years after the provisions come into force, to consider the impact of the competition framework, including whether the 50 megalitres threshold is still appropriate. The Bill then provides a power to alter the threshold.

The Bill provides the essential framework for a workable system of competition. It sets up a licensing regime to make sure that the licensed water suppliers—the new competitive players—act properly and do not endanger the water supply that they feed into. It also regulates the relationship between licensed suppliers and existing undertakers so that they are all operating in a fair market.

The Bill also contains a number of miscellaneous provisions, which, although not substantial, are nevertheless important for our water priorities. I could put them into a few broad categories. There are provisions that help to enhance the protection of people and property. These include amendments to the Reservoirs Act to enhance existing arrangements for reservoir safety and provisions to enable a streamlining of flood defence organisation and funding.

There are provisions that help to reduce pollution of waterways and groundwater. In particular, the Coal Authority receives powers so that it can take much more effective action against pollution from abandoned coal mines. Finally, there are provisions of benefit to water companies and their consumers. For example, the Bill clarifies how the trade effluent consent system operates. It makes it easier for sewerage undertakers to adopt new lateral drains—the part between the edge of the premises and the main sewer—and reduces the chances of consumers being faced with unexpected repair costs.

The three pillars of sustainable development are environmental, economic and social. Those issues and the right balance between them must be at the heart of our approach to the resources of the water environment and the management of the water and sewerage industry. The Bill takes this agenda forward in such a way that, we believe, gets the balance about right.

The Delegated Powers and Regulatory Reform Committee is satisfied with the great majority of powers proposed in the Bill, but it recommends that two Henry VIII powers defining the regulation-making powers for the Bill generally should be subject to the affirmative, rather than to the negative, procedure. We are content to accept the committee's recommendations and will ensure that amendments to that effect are tabled. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Baroness Farrington of Ribbleton.)

3.45 p.m.

Baroness Byford: My Lords, I thank the noble Baroness, Lady Farrington, for introducing the Water Bill this afternoon. We, on these Benches, in principle welcome its many proposals. It has an important

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sustainable approach to the balance between the water needs of business, members of the public and of the environment in its widest sense. I fear, however, that the Bill will add levels of bureaucracy and costs; it certainly introduces sweeping powers and uses language, such as "significant" and "serious", which give lawyers field days.

The Minister will therefore not be surprised to learn that we have reservations about some of the proposals and many questions, which we shall seek to put in Committee. All of us recognise the crucial part that water plays in our daily lives. We expect to have "on tap" clean, good-quality water at all times, come what may. In introducing the Bill now, the Government have clearly decided to have little regard to the implications of the EU Water Framework Directive (2000/60/EC). That directive came into force in December 2000 and has to be transposed into British law by 31st December 2003. The directive aims to achieve an integrated approach to river basin management and requires all inland and coastal waters to achieve "good status" environmental objectives by 2015.

Knowing that, I am surprised that the Government are pushing ahead with the Bill at this time. I understand that the Minister in another place, Mr Morley, has implied that any additional requirements following the directive will be put before the House in the form of statutory instruments. I perhaps am not the only one who finds that unacceptable, particularly when we have the Bill before us. I hope the noble Lord, Lord Whitty—who knows how difficult it is for the House to alter or to have any influence upon statutory instruments—will give an explanation for that in his winding-up speech.

Over the years we have been faced with drought conditions, although in the past three years floods have caused havoc. Indeed, it was because of the years of drought back in 1997 that the Government held a water summit which produced a 10-point plan for improved water management. Since then, and in particular in the past three years, we have experienced swings between drier weather and deluge. The Water Bill addresses the impact of drought conditions and plans accordingly, though I was disappointed that the issue of water conservation and efficiency is not fully taken on board.

However, I do not think that equal thought has been given to the question of flooding. My noble friend Lord Dixon-Smith will deal with that matter at greater length when he speaks later. In addition, the Government's decision to create larger new towns, particularly in the South and the South East, must take into account the environmental consequences. Perhaps the Minister will tell us what budget the Government have included in the costings for these new towns with regard to water and flooding.

Part 1 of the Bill seeks in general to amend the abstraction licensing framework, promoting greater water conservation and giving consumers a greater role. It provides the Environment Agency with

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additional tools for managing water resources and stronger powers to take action against abstraction that causes environmental damage.

I feel sure that the Minister will receive briefings from businesses which are concerned that the new abstraction licences are to be issued with a time limit. The Government and the Environment Agency, I understand, have indicated a suggested time of 12 years. That, for some businesses, is too short a time span over which to write down their costs. Even if a flexible approach is taken, the business concerned may have no guarantee that approval may be given for a longer period. Does the Minister accept that that is and will be a deterrent to those who want to invest? Will he explain how we will encourage greater competition—something that we support? That is especially difficult when the licence may be revoked without compensation.

We welcome the proposals to remove the need for small businesses that use less than 20 cubic metres of water a day to obtain licences. That accounts for between 1 and 2 per cent of the volume of water abstracted, but affects as many as 20,000 of the current 48,000 licence holders—and, as the noble Baroness said, many farmers.

Part 2 deals with the new regulatory arrangements. The director general of Ofwat will be replaced by a regulatory authority appointed by the Secretary of State. An independent consumer council will be established to raise consumer issues, represent their views and deal with consumer complaints. We welcome the requirement that it should be required to take rural needs into account. A new utilities panel will be responsible for competition issues.

The Government, their agencies and offices are often major users and, sadly, polluters of water. What assurance can the Minister give that a regulatory authority appointed by him will have sufficient independence to take action against the Government—or local government? What protection will there be for senior officials of the authority against removal from office by political direction?

Part 3 deals with a range of specific issues, such as the establishment of a new regional flood defence committee for such areas as may be specified. It also allows for the abolition of existing local flood defence committees. The power to abolish such committees should be exercised with caution. It is important that local knowledge should not be lost and that it is adequately represented in the membership of any replacing regional committee. I should be grateful if the Minister could define a region for us. Are they to be the regions as we now know them, or a mix of different parts of existing regions? We have serious concerns and urge caution against making change purely for change's sake.

Is this not another case of the Government failing to match up to their devolution rhetoric and removing decisions from local determination? Is not the motive here part of the Government's obsession to set up unwanted regional assemblies? Is there not a risk that a region, as designated by Mr Prescott, might choose

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to downgrade local concerns about flood risk to fulfil its other objectives—on housing, say? Whatever the reason, the suspicion inevitably exists.

Part 4 deals with miscellaneous items, as the noble Baroness said. I shall refer to one: the Drinking Water Inspectorate. The Bill also transfers existing local authority functions relating to reservoirs. I am sure that I am not the only one who has grave concerns that the Bill takes away local functions and gives huge additional powers to the Environment Agency.

The Bill has created wide interest. I have received papers from Water UK, Water Voice, wildlife groups, the National Farmers' Union, the Country Landowners' Association, the National Consumer Council, the Environment Agency and British Soft Drinks, to name but a few. That is unusual at this stage of a Bill, and shows how important it is that we get it right.

I now turn now to some specific concerns that we shall raise in Committee. The noble Baroness touched on trickle irrigation. Clause 7 would remove current exemptions to the licensing system, such as trickle irrigation. That system is an efficient and effective method of irrigating crops. Such a removal could have a devastating effect on horticulture and agriculture. Clause 25 amends section 61 of the Water Resources Act 1991 by reducing the period of non-use of licence from seven to four years.

On what grounds has that proposal been made? Was consideration given of the practice, which is current in the farming community, of lengthening crop rotation, which is being sought to encourage good farming practices and a better environment?

Other organisations have expressed serious doubts about the time-limiting of the licences, to which I have already referred. I summarise their concerns as having in common complaints about lack of flexibility in the Government's approach and fears that if the limits are too tight, businesses will be unable to recover their capital investment within the limits set.

There has also been adverse comment on the proposals to set an efficiency duty on water companies alone, rather than on all abstractors, and to set different licence conditions for the new water suppliers than exist for water companies. Several contributors have raised doubts about the proposed competition in supply to major users—in particular, the danger that that will be achieved only if prices to smaller users are increased to compensate.

In Clause 27, the proposal to revoke or vary abstraction licences of a right if they are causing environmental damage, without compensation, after 15th July 2012, in Clause 27, is another area of concern, and must include an appeals mechanism for any decision to withdraw the licence.

I now turn the Select Committee report, to which the noble Baroness referred—I am grateful that she did. In paragraphs 17 and 18, it refers to Clause 95 and recommends that the power to amend or repeal an Act of Parliament under Clause 92(2) should be subject to the affirmative procedure, which the noble Baroness has conceded. Paragraph 18, referring to Clause 96,

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states that the Select Committee recommends that the power to amend or repeal under Clause 96(6) should be subject to the affirmative procedure. I am grateful that that has been established at this stage.

This is a big Bill with many parts. Some of it is fairly dry in setting up procedures—perhaps not a very good pun, as we are dealing with a water Bill. Forgive me, I must be getting a dry throat. But it is our duty to scrutinise the Bill and ensure that we get it right. Water is a precious commodity. As I said, we expect it to be on tap and of quality all the while. That does not happen just by chance. It is our responsibility to ensure that the Bill is practical, fair and user-friendly and will bring the outcomes for which we all hope for individuals, companies and the environment.

3.58 p.m.

Baroness Miller of Chilthorne Domer: My Lords, I thank the Minister for introducing the Bill, which should be an exciting Bill, because water is an exciting and emotive subject. Enough of it is essential to life and, one could say, it is the essence of life. Too much of it becomes threatening, as flood water. Climate change is making weather patterns ever more difficult to predict. Although we have grown better at the art of prediction and try hard to control water supply and floods, we seem ever more at the mercy of the elements. We are, at last, learning to work with the grain of nature, not against it. Therefore, the noble Baroness will be disappointed to learn that I do not find the Bill exciting and that we on these Benches are disappointed by it.

Technological advances mean that we can review how we use, conserve and recycle water in ways that were not dreamt of even 30 years ago. The future should offer a better chance to restore a balance in this country between our needs and those of other species. We in this country should view ourselves as fortunate to have such an adequate water supply. It is a national resource that enables Britain to grow excellent crops, to raise prime livestock, as we often hear in your Lordships' House, and to allow a range of industries to function as well as supporting generous domestic usage. It can and must also support our wonderful wetlands, marshes, fens, broads and the huge variety of other natural habitats.

But this cannot be described as an exciting Bill that furthers many of those aims. It is a regulatory Bill, necessary because water, a national resource, has been privatised. It is argued that privatisation has enabled investment to take place in the infrastructure that guarantees a regular supply, high-quality drinking water and the clean-up of waste water. It has also produced returns for shareholders. And there is less degradation of wetlands and pollution of rivers. So the picture has not been entirely grim since privatisation—that is far from the case.

But the downside is that we now have a complex web of regulations and a plethora of regulatory bodies. The Bill has concentrated hard on dealing with those regulatory issues; so hard that we have 200 pages of

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regulation. But those pages contain no principles about water use or good regulation. The Government laid out excellent principles in their water policy paper, Directing the Flow, on which I commend them. The Minister said that not all their policies were included in the Bill; but I searched hard to find in it any of the policies expressed in Directing the Flow. It is sad that those fine words have not been translated into legislation.

During the passage of the Bill we shall table amendments to include in it some guiding principles. In its present form the Bill perpetuates, to some extent, the uneasy tensions between the regulating bodies. The Liberal Democrats will table amendments to redirect the aim of all concerned to the sustainability principles in which we believe. The Minister said that those principles were also important to the Government and were at the heart of the Bill. In Committee, we can help the Government to achieve their aim of introducing sustainability.

We were pleased with the approach in the European Union's Water Framework Directive, which was a largely British initiative. It redirects the way in which we work—to work with nature not struggle against it. The directive is based on natural catchment areas. We need to start work on it now; yet the Bill barely refers to the existence of the directive. I share Conservative Members' surprise at that. Several aspects of the Bill could have been strengthened. For example, the Water Services Regulation Authority could have been required to take account of the Water Framework Directive. Flood defence committees should have been reorganised along the lines of natural catchment areas, not according to lines on a map as the Bill currently suggests. I declare an interest, as my husband chairs a local flood defence committee. The Scottish Parliament's water Act builds on the opportunities offered by the Water Framework Directive. This Bill would be far stronger if it were amended to take a similar approach.

We will also table amendments to encourage the storage of surplus winter water for the benefit of farmers, upstream communities and habitats. That would enable downstream towns and cities regularly flooded under our present system to look to new land management practices to alleviate an ever-increasing threat. Such practical approaches are missing from the Bill.

The Bill makes three changes, albeit substantial ones, to the regulatory system. It enables the licensing system to be far more sensitive to the needs of the environment, which we welcome. However, it does little to ensure that holders use water efficiently, which is particularly disappointing. The amazing efficiencies that can be gained are best exemplified in the annual Water Efficiency Awards promoted by the Environment Agency, which involves examples from business, agriculture, commerce and industry. Our amendments would recognise the vast potential offered by the technological and working practice changes that people can use to achieve efficiencies, saving not only water but huge amounts of money.

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The Government should commit to targets to stabilise water usage and, by conservation and efficient use of water, to increase our reserves. It is disappointing that the Bill contains no provisions to enable efficiencies—for example, in planning. Directing the Flow talks about joined-up policies, but there is nothing in the Bill to ensure that the construction industry builds according to best water practice. It is astonishing that, in the 21st century, the Government seem content to retain our essentially Victorian, water-borne sewerage system. It is not a forward-looking Bill.

Other opportunities are missed in the Bill, including aspects that we debated at length during the passage of the Countryside and Rights of Way Bill. The Government mention that one of the main, important principles of sustainable development in their water policy is recognising the benefits of water for people to use and enjoy now and in the future. They expand on the issue in paragraph 4.48 of Directing the Flow, saying that they are,

    "committed to finding ways to increase access to water".

When my noble friend Lord Mar and Kellie tabled amendments on the issue, the Minister assured him that something would be done. However, the Bill does nothing to encourage any further use of water in that recreational sense.

Directing the Flow acknowledges the requirement for product information about water use. The Government have made an effort in other areas; for example, they propose to introduce a labelling scheme for cars to promote energy efficiency. Where is water efficiency promotion in the Bill? We welcome the creation of the new consumer council for water. But its proposed powers are worryingly limited and will leave it dependent on the Secretary of State for a voice in some matters. That is an extraordinary state of affairs that we find most unsatisfactory and intend to try to change.

We support the fact that many smaller abstractors have been taken out of regulation. Some details on who is in and who is out of the regime need to be addressed. Other practical issues will also be the subject of amendments from these Benches. We will deal with streamlining in our amendments. The Bill will be the subject of many puns—untapped potential is another that springs to mind.

The Liberal Democrats are far more positive than the Conservatives about a regional approach to water use. I see that that has come as a surprise to Conservative Members. But, in this regard, perhaps more than any other, rainfall and water use are regional issues. The West of England has far more water than the East. A regional approach would be very productive. Regional assemblies could have an extremely strong relationship with their regional flood defence committees. Local expertise need not be lost in that way.

The principles behind a regulatory Bill should be spelt out in the Bill. Better regulation, though important to consumers, should not have been the end of the story of the Bill. Disappointingly, perhaps, we

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can discount the competition element, which is in the Bill. However, it affects a small number of users and will not overcome the fact that the water industry in this country is, for most consumers, nothing but a complex monopoly of companies with a prime duty to their shareholders. I look forward particularly to hearing from my noble friend Lord Livsey of Talgarth on the prospects for not-for-profit water companies.

When MORI carried out a survey of people's attitudes to their water charges, it found that people did mind about factors beyond price. They care about the environmental impact of their water use. They care about wildlife, wetlands, healthy rivers and clean beaches. It would be irresponsible of those whose prime duty it is to care for the environment to pay no heed to the price that people must pay for their water, especially those least able to afford the increases.

A regulation Bill must include the principle that each regulatory body has a duty to pay regard to the aims of the other. The ability of the water regulation authorities to pay attention to the need for sustainability must also be strengthened. It is only in that way that the consumer interest quoted by the noble Baroness, Lady Farrington of Ribbleton, will be at the heart of the Bill.

It is impossible to imagine a resource for which a sustainable approach is more important. We believe that it is possible to make the Bill fulfil at least some of the principles of sustainability, and we look forward to the Committee stage, when we will try to do so.

4.11 p.m.

Lord Beaumont of Whitley: My Lords, I too thank the Minister for introducing the Bill and for the way in which she explained it. We, on this Bench—I use the royal "we" in that sense, as I represent many people outside the House who are interested in the subject—welcome the Bill, on the whole. Obviously, it is a Bill in which Greens should be involved.

Although I welcome the Bill, I have one or two doubts about it. Certainly, there are steps that we can take to improve it at a later stage. The first problem has been raised by every speaker so far—the overlap with the EU Water Framework Directive. It is difficult to see why, when the Water Framework Directive is being incorporated into UK law, we should not wait until it has been incorporated before having our own Water Bill or do the whole thing at one time, rather than, in this peculiar way, doing the two things alongside each other. We should consider that point.

Some of the Bill does not live up to what the directive requires. Article 11(3)(e) of the Water Framework Directive refers to controls on abstraction. The recent consultation on the directive by the Department for Environment, Food and Rural Affairs specifically identified the requirement for such controls to be reviewed periodically. That is a requirement for the time-limiting of licences. The continuation of permanent licences, without a timetable and a mechanism for conversion, would represent a failure to transpose the directive adequately and, hence, would be a breach of its conditions.

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The abstraction licences in operation are, I am told, sufficient to drain all the rivers of Britain. The system works only because the licences are not used in full and, sometimes, are hardly used at all. The fact that, to date, we have not been able to pull them in without compensation has meant that nothing has been done about that. We must seize the opportunity to tackle that problem root and branch. I hope that we will do so and not pussyfoot about, paying too much attention to the authorities, who have gained a great deal of income from the previous abstraction licences, with their lack of controls or ending dates.

There is also the issue of the promotion of efficient and sustainable water use. That also comes under Article 11(3)(e) of the directive, and it must be written more firmly into the Bill. When the noble Baroness who spoke from the Liberal Democrat Benches said that they hoped to put down amendments that would write sustainability more firmly into the Bill, it rang a bell with me. I shall join them in that matter.

We also need transparency. In some parts of the Bill the information needed by the authorities and by consumers is over-regulated, in the interests of commercial confidentiality and other such things. In dealing with water, which is a resource for all of us and one of the most basic resources in the world—after all, your Lordships are, I am told, 95 per cent composed of water which is a basic element—there is not much room for secrecy; we should have totally free access to information and the complete ability to write in sustainability.

Nevertheless, it is a worthwhile Bill. It is worth the immense amount of work that we will have to put into it in the forthcoming months.

4.18 p.m.

Baroness Thornton: My Lords, I welcome the Bill and congratulate my noble friend the Minister on her excellent and clear explanation of it. I apologise for not being here for the first minute of her speech; I was racing down through the Lobby, which was very crowded, trying not to push people over.

The Bill has been a long time in arriving, but it is the better for the care and consultation that has gone into its content. I was slightly alarmed by the notion that the Bill might be delayed even further. Some years ago, I served as a member of Ofwat's Thames customer services committee in London. That was soon after the privatisation of water services. Our committee was keen to serve customer interests as well as we could, but we were often frustrated in our efforts because we were accountable to the regulator's office, which sometimes led to conflict. Access to information was often a problem, as our right to information had to be directed through the Ofwat office, which was also under a duty to the businesses.

I enormously enjoyed my time as a local water watchdog. I was particularly interested to read the aspects of the Bill that addressed customer relations. It is interesting to note that the creation of WaterVoice in 2001–02 was an attempt to create a more arm's-length

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relationship with Ofwat and a recognition that there is a distinct need to have an independent voice for the consumer.

Before making one or two remarks about the consumer voice and the issue of sustainability, I should like to refer to the time when I served on the Thames customer services committee. I remember attending a seminar in the mid-1990s to discuss the issues of competition and competitiveness and how more customer choice could be introduced into the provision of water services.

I am pleased that it is recognised in the Bill that this is a complex matter and one that does not lend itself easily to some of the solutions which have brought greater competition into other utilities. Last year, I found myself with two gas suppliers. Although it was a confusing situation, the quality of my gas did not change. Therefore, I am pleased that the Bill contains practical and sensible proposals as regards the issue of introducing competitiveness. It recognises that for ordinary consumers the main issues are the availability of clean, safe water at a reasonable price.

I am also pleased that the Bill seeks to bring order and clarity into who does what in the industry. I found that it was not always easy to remember who does what out of the River Authority, the Drinking Water Inspectorate, the Environment Agency and so forth.

The discussion in the water industry about the consumers' voice has been long-running. It was addressed in the 1998 Green Paper, A fair deal for consumers—Modernising the framework for utility regulation. Since then discussions have continued as regards the draft Bill—we nearly got there in the Utility Act 2000.

I welcome the proposal in the Bill to set up a new independent consumer council for water, supported by a committee structure in England and Wales. It would replace the current system of customer representation which dates from 1990.

The consumer council for water must have strong powers to obtain, both from water companies and from Ofwat or the new regulator, all the information that it may reasonably require for the purposes of carrying out any of its statutory functions to represent water consumers. Under the Bill's proposal, if Ofwat fails to comply with the direction from the consumer council to provide information, Ofwat will be required to give reasons for its failure. If a water company fails to comply with a direction to provide information, the consumer council would have to refer the refusal to Ofwat to decide whether the company should be ordered to supply the information.

There must be a question as to whether it is satisfactory that the consumer council should rely on Ofwat in this way to carry out its own functions. However, it is to be welcomed that the Secretary of State is taking a power to prescribe an arbitrator to decide, in the event of disputes, whether Ofwat or a water company should be ordered to supply information requested by the consumer council. Those issues should be explored further in Committee.

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The Consumers' Association raised issues about access to information. It has suggested that the Government make clear during the passage of the Bill those areas of information in which the council may be denied access. Such exceptions to the rule of providing requested information have already been identified in the energy market. This suggestion deserves examination.

My second point concerning information is that of the power to require information from new entrants to the market. The Government intend the consumer council for water to be an advocate for all consumers, including those larger users that are able to take advantage of the extension of competition. However, the Bill appears to prohibit the council from directing those new licensed suppliers to provide it with information. The council can direct only the traditional monopoly water companies to provide it with information to enable it to discharge its responsibilities as a consumer advocate. This may be another issue that needs to be addressed during the course of the Bill.

My third point is about the council's ability to publish information. As drafted, the Water Bill appears to set out what the Consumers' Association calls a "wicked" choice for the consumer council for water; namely, to risk being ineffectual when it knows a company to be causing considerable consumer detriment or to be in breach of its statutory powers—another issue to be addressed in Committee. These issues all need to be addressed in the context of what is a progressive and good proposal.

Turning to the issue of sustainability, I congratulate the Government on placing a duty of sustainability on the new regulatory authority. They signalled their intention to do so in their response to the Environment, Food and Rural Affairs Select Committee in another place in January 2002. They stated that the new authority,

    "shall act in a way best calculated . . . to contribute to the achievement of sustainable development".

That commitment has been carried through into the Bill.

Some might say that a strong commitment to a water conservation duty and the new powers in the Bill are unnecessary in the light of rainfall and floods of recent years. Water still remains a precious resource. The long-term problems of climate change, long, dry summers and heavy rainfall mean that the Bill must make an important contribution to changing water usage in the UK. The proposals concerning licensing abstraction are particularly welcome. The Wildlife and Countryside Link have circulated an apposite briefing on the issue in which they explain the link between this and the implementation of a biodiversity strategy. I welcome the Bill. I look forward to our discussion in Committee.

4.26 p.m.

Lord Elliott of Morpeth: My Lords, in taking part in this debate, I wish to declare an interest. For 10 years I was chairman of a water company; for 13 years I was president of the then Water Companies' Association.

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In general, the Bill before us is commendable. I shall comment briefly on some of its proposals. Before doing so—thinking of my now, long experience in the water industry—I am tempted to pose a simple question. What is new? The Bill is mainly about regulation of the water industry. The water industry has always been heavily regulated, and so it should be. Therefore, in some regards the Bill makes excellent proposals. It proposes to strengthen existing regulations and to simplify others. However, there are what have always been known in the water industry as "end of pipe" solutions—bits and pieces of solutions rather than looking at the network as a whole.

My noble friend referred to the Water Framework Directive. Perhaps that will provide a full look at the network as a whole. Perhaps the directive should have come before this Bill, but it has not. A new regulatory authority and a new independent consumer council are to be welcomed, as are the increased supervisory powers of the Environment Agency. I am a little sad about the Environment Agency taking over local government responsibilities. As chairman of a company, it was useful each year to entertain and explain our work to the appropriate committees of a number of local authorities in our catchment area. That was good for public relations. Of course, it could still happen but there will no longer be the same impetus for it.

I have misgivings about the provisions to increase opportunities for competition in the supply of water services. Competition in the water industry has never been easy to achieve. In my opinion, it still will not be. In the period when I presided over representatives of 28 statutory companies—of blessed memory—there was a form of competition in that companies which were proud of their achievements compared themselves with each other. That brought a certain competition.

I fear that the advent of new entrants obtaining water from existing reservoirs and mains will present a considerable number of problems. The proposals in the Bill suggest that if there are new entrants, they will attract large customers from the incumbent company in each area. Large customers are always important to every company. Water is a regulated, price-capped industry with income set in advance. Therefore, if large users leave a company, prices for domestic customers will rise. Surely, that is the opposite of what competition should achieve.

My other major concern is that the Bill proposes time-limited abstraction licences, with the agency preferring a 12-year duration. That has been mentioned several times today. As anyone associated with the water industry knows, equipment lasts much longer than 12 years. As anyone associated with the industry also knows, investment by water companies is a big thing—an enormous amount of money is invested. Investments should be protected for longer than 12 years, so is there not a need for the Environment Agency to grant licences for considerably longer than 12 years?

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There is much else in the Bill which I consider commendable; for instance, the strength of the Drinking Water Inspectorate and flood plans for national security. There are increased powers to deal with pollution from disused mine works. During my chairmanship of a company, I had some experience of that in the former coal field of County Durham, an area which it covered. Having made inquiries this week, I am happy to say that the problem has been resolved, but it is good that a power is given to the coal industry to deal with future problems.

There is greater opportunity for consumer complaints, which is also a good thing. Water companies were always sitting ducks with regard to complaints. I remember receiving a number. It is written into the Bill that frivolous complaints should not be taken seriously. I remember receiving a few frivolous complaints. I once arrived home to find on my front doorstep a glass container with a screw top and a note attached to it. The note had a simple message for me: "Shake it". When I did, I got rather a shock. But I was happy to be assured by the company's chemists that the water had come from a pond and from no area of our supply system.

On another occasion, a gentleman had complained so often that I decided to interview him. I remember asking, "Do you complain about other things besides water?". He gave me a very good answer: he said, "I complain about everything. It's the only way you get anything done". I am therefore pleased to learn that consumer complaints are taken seriously in the Bill, which is right.

Under the Bill, the water industry is to be controlled by five regulators: the board replacing Ofwat concerned with economic and social aspects; both the Environment Agency and English Nature concerned with the protection of the environment; the Drinking Water Inspectorate; and the Health and Safety Commission. Together, those bodies should provide a stable regulatory environment for the industry, but in the past various bodies associated with the industry have lacked co-ordination. In order to improve co-ordination, there needs to be greater co-operation between the various bodies.

I believe that the Bill will contribute to the further strengthening of our water industry and I hope that it will seek to produce the balanced and sustainable framework which the industry certainly needs.

4.34 p.m.

Lord Borrie: My Lords, it is a great pleasure to follow the noble Lord, Lord Elliott of Morpeth, who speaks from long experience and, clearly, uses a great amount of common sense and home truths. I, too, must declare an interest as chairman of Vivendi Water UK and a director of one of its subsidiaries, Three Valleys Water. I, too, am conscious that the Bill completes unfinished business. Having been involved in the debates on the Bill which became the Utilities Act 2000, I know that the water aspects of that Bill were withdrawn.

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The regulatory elements of the Utilities Act 2000 have certain echoes in this Water Bill; for example, the one person regulator. The Director General of Water Services is to be abolished and replaced by a board to be known as the water services regulation authority. The former fashion for one person regulators, which began with the Director General of Fair Trading in 1973 and ran through the specific industry regulators created following privatisation of various utilities in the 1980s, has now been replaced by a fashion for boards, as with Ofgem, Ofcom and the new board of the Office of Fair Trading created by the Enterprise Act 2002.

The merit of knowing precisely where you are when dealing with one individual rather than a committee is being lost. Unless the largely part-time board members are content to confine themselves to broad strategic decisions, we may have slower and less-decisive decision-making. Still, I accept as a reality that boards are now the vogue and I do not propose to try to swim against the prevailing tide.

However, I ask for flexibility and for boards which are not too large. The minimum membership provided under Schedule 1 is a chairman and two other members. I suggest, if I may bravely do so, to my noble friend the Minister that at least as regards initial appointments the board does not go above a total number of five.

Furthermore, I would like the Government to be flexible and, whatever Her Majesty's Opposition may say, retain flexibility on whether initially one person should be both chairman and chief executive officer, rather than committing themselves to having two separate individuals. I say that especially in relation to water. One does not have to follow fashion because on other boards in other companies it is done in that way. I want to make the serious point that water regulation and the management of the staff of what has been called "Ofwat" will not be as big or complex an operation as is the remit and staffing of, for example, Ofcom under the Telecommunications Bill or the Office of Fair Trading. Moreover, having all senior executives reporting to the head of the organisation, rather than reporting to the No. 2, will assist in recruitment and the cohesion of the organisation. I say to the Benches opposite that it would assist if we believed that corporate governance in private companies, and what is desirable there in relation to the roles of chairman and chief executive, should not necessarily be regarded as appropriate in this regulatory regime.

Like my noble friend Lady Thornton, I welcome the recognition in the Bill of the valuable work of WaterVoice, which represents water consumers, by the clear provision for its statutory independence given under the formal name of the Consumer Council for Water in Clause 34. It is useful that it will be more clearly seen as independent of the authority and as representing existing and future consumers. Although my reading of the Bill has not found a provision, I trust that it will represent commercial and industrial as well as private consumers.

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I would ask for the council's membership usefully to be larger than that of the authority because it is an advisory rather than an executive body. Perhaps around 10 to 15 members would be appropriate. There should be regional representation; representation of both individual and business consumers; and, in case the thought has not occurred to my noble friend on the Front Bench, it may be useful to consider putting on to the council someone who has held a senior position within the water industry so that discussion can be wide ranging and well informed.

One of the major concerns of the water companies—it has been alluded to by the noble Lord, Lord Elliott of Morpeth, and others—is the so-called reform of abstraction licensing. Of course reform is needed for various reasons, including those put by the noble Lord, Lord Beaumont of Whitley. All licences are to be time-limited. A period of 12 years seems to be the commonly anticipated figure. The chairman of the Environment Agency, from which we shall surely soon be hearing in our debates, will have the opportunity to review the licences regularly in order to meet changing circumstances such as climate change, the changing needs for water and changes in the natural environment. That is fair enough. But the difficulty here, as the noble Lord, Lord Elliott of Morpeth, pointed out, is that the abstraction of water for public water supply purposes involves the expenditure of considerable capital sums on the construction of major infrastructure works. Water companies investing in such infrastructure need some reassurance as regards the long-term security of their investment.

I am not sure that I have fully understood the reasoning, but the Government seem to have changed their mind about allowing a presumption of renewal on the expiry of a licence. Furthermore, compensation rights for non-renewal are reduced. To my mind, ensuring the security of supply of good-quality water to customers is one of the most important responsibilities borne by water companies and of the regulator in his role of overseeing their work. Surely it must be adequately recognised by both the regulatory bodies and by the Bill that security of supply should be in no wise impaired.

Much space in the Bill—by that I mean literally many pages of the legislation—is given over to the potential for competition. Schedule 4 takes up some 36 pages, setting out the detail of licensing provision for new entrants wanting to retail water and compete with the existing water companies, which of course own the infrastructure in their geographical area. Over recent years Ofwat, the regulator, has been keen to enable competition to take place. I suppose he feels left out because the other utilities—such as gas, electricity and so forth—have, despite their complications, been meritorious in this area. But he has been left out because it is more difficult to introduce competition in the supply of water, although he has sought to enable it through the growth of so-called "inset" appointments in the common belief—it is thought to be encouraged by the Competition Act 1998—that competition could be effectively brought about. In fact, little competition exists.

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Although, as we have heard, the Bill provides specifically for licensed competition—despite the fact that initially it is to be limited to the supply of commercial customers requiring 50 or more megalitres a year—I do not believe that the Government have any real faith in it. I should be glad to hear whether the Minister does have faith in the future of competition. However, at present only 2,000 customers are included in the initial category. Competition, which is customarily the Government's favourite remedy for any industrial inefficiency or sluggishness, does not seem to be considered to have much scope in the field of water supply. I believe that it is doubtful whether many potential new entrants will come forward because there will not be a great deal of money in it. Furthermore, perhaps I may say that the water companies appear to be quite adept at preserving their customer base from any form of cross-border raid by other companies or from third parties.

It follows that the economic regulator will want to see the continuation of a number of companies between which efficiency comparisons can be made in order to settle the periodic price reviews. Comparative competition will still be needed as a substitute for real competition. Unfortunately, this may have the effect of the regulator continuing to oppose any form of restructure through mergers, whatever merits may lie in the resultant economic efficiency and benefit to consumers. Ofwat ought to use a wider range of methods in its price-setting process.

Over the past 12 years or so, consumers of water have enjoyed sufficient supplies of high-quality water. Company plans for the future give assurances that supplies will be maintained. That is due to both the water companies and the regulator, but the regulator should not regard the present precise total of water companies as a number written in stone; in other words, the structure of the water industry should not be ossified.

4.46 p.m.

Baroness O'Cathain: My Lords, I declare an interest as a director of South East Water for the past five years. I shall certainly not use that interest as a case for special pleading, but I shall use the knowledge I have gained in that role to bring to the attention of the House certain points in the Water Bill that could and should be changed in order to achieve what the Bill sets out to do.

My initial reaction to the legislation is that it is a one-sided attempt to deal with the serious problem of water resources, pollution, flood control, land drainage and other issues. It is long on processes and bureaucratic arrangements, but extremely short on demand management. Indeed, there is not even a nod in that direction.

Those close to the water industry are aware of the inherent problems of water shortages, while those not involved in the industry may find it difficult to believe that we do have serious resource problems. A briefing from the Environment Agency points out that in parts of the South and the South-East of England, there is less water per person than in Ethiopia or the Sudan.

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As a country, we waste an enormous amount of water. We are unable to comprehend why events such as hosepipe bans or suggestions that we should share baths can arise. Are we not plagued with rain, rain and more rain? It is rather like the line from the Ancient Mariner that I am sure we all learnt at school:

    "Water, water, everywhere,

Nor any drop to drink". Because of this perception, little attention is paid to the water supplied to the 50 million or so water users in England. Incidentally, it is useful to note that water usage has doubled over the past 50 years. If we have a shortage of water resources today, it does not take much rocket science to calculate that we shall face far greater shortages if our usage continues to increase. I fear that the Bill reinforces that view because it is short on any attempt to face the reality that something will have to be done about demand management.

As has already been pointed out, the Bill is long and complex and, indeed, has already been subject to delay. It is unlikely that another water Bill will appear within quite a few years and therefore it is extremely important for this Bill to be all-encompassing and for it to deal with those matters which are already causing concern to those close to the industry. More than that, the legislation must take a long-term view.

Water is not a "Top of the Pops" issue for Parliament, as evidenced by the rather sparse attendance at this debate and in the fact that the Bill is likely to be committed to a Grand Committee, which is not exactly a big draw in terms of the numbers who attend the proceedings. The subject is unlikely to receive much by way of parliamentary time in the coming 10 years, which is why it is vital to get it right.

In the spirit of being constructive, I should like to flag up a few issues that should be considered during our deliberations on the Bill. I believe that they are fundamental to the efficient and effective management of that most important of all natural resources, water. Will the Minister consider carefully whether the Bill can be amended—and, indeed, added to—to encompass these concerns?

Surely it is one of the duties of Parliament not only to consider carefully the existing situation but to take heed of strong indications of likely future developments and how they will affect the industry. For example, it is known that there will be further and extensive house building in the south and south-east of England. It is known that these areas have a shortage of water resources. Indeed, the Environment Agency has acknowledged that these areas have a shortage of water, but it has not declared the South and South East to be areas of water scarcity. It is also known that these areas are in peril of serious and frequent flooding.

There are ways of planning for the impact of large increases in house building which could overcome to a very great extent water shortages and flooding concerns. It seems strange to me that water companies are not statutory consultees in the planning process. Why? Is it because some of the solutions are sensitive and have been put by successive governments into the

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"all too difficult" basket? Compulsory metering is one such solution. I am convinced that that issue must be addressed if we are not to stagger on from crisis to crisis in water resources.

I call attention to this issue at Second Reading because, although it is not mentioned in the Bill, it is fundamental to the effective and efficient management of demand in the industry. The Bill deals with the environmental sustainability impacts; compulsory metering could lessen the negative impact.

I rather like the quote from the document entitled Using Resources Wisely for the Future, which was produced by the then new department, DEFRA, following the last general election. It states:

    "Sustainable development means thinking in an integrated way about economic, environmental and social objectives. It matters to people because it is an approach which shows that government is interested in the long term as well as in the short term".

Is that really true? Is it not aspiration rather than reality? I fear it may be.

The Environment Agency accepts that real water savings from metering will come about only when there is a sufficient proportion of homes being metered to be able to introduce innovative tariffs to dissuade high domestic use. Which one of us has not turned on the tap before cleaning one's teeth and left the water running for the full two minutes advocated by the dentist? That is but one small example of how unthinkingly profligate we are with water. The attitude of domestic customers across Europe and in most of the developed world is quite different because they have compulsory metering.

Being brave and dealing with compulsory metering could result in huge benefits to the serious and concerning problem of water resources in the South and South East. I do not know whether it would be possible to amend the Bill so fundamentally to encompass this issue, but we should certainly try.

Another hot potato is the question of debt. One could be excused for thinking that this is irrelevant to the Bill. However, it is relevant to the aim expressed by the right honourable Secretary of State, Mrs Beckett, when she wrote in the foreword to the paper Directing the Flow, produced at the end of last year, that,

    "We must embrace wholeheartedly the aims of all three pillars of sustainable development—economic, social and environmental—in our approach to water".

The noble Baroness, Lady Farrington, also referred to this in her very good introduction of the Bill.

The ever-increasing level of customer debt is compromising the economic future of the industry. By way of brief explanation for those not involved in the water industry, the customer debt issue relates to the fact that, although the supply of water is a statutory obligation on the industry, the payment of debt for water used is not a legal obligation on the customer. Water companies have no sanctions against long-term defaulters; they have to continue to supply water.

That fact is now very well known indeed among reluctant payers. I am told that, when people get into debt, the citizen's advice bureau has a schedule of payments that must be made, and water bills come well

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down the list—even after, would you believe, catalogue payments for goods ordered on hire purchase and satellite TV monthly subscriptions. Bad debt is a huge concern within the industry. At the last count it was running at £717 million. The total has risen 10 per cent since the Water Act banned the use of disconnection for non-payment and subsequently when budget payment devices were outlawed.

The snowball effect of this in terms of reluctance by companies to invest is understandable. Those in the industry—working together—have come up with innovative suggestions to tackle this problem, and it is up to the Government to grasp the nettle and to consider statutory measures to reduce this unacceptable level of debt. Is it right that payers should subsidise those who choose not to pay? What price economic and social sustainability?

Investment is essential in every industry; it is probably even more essential in the water industry. Your Lordships would be astonished at the average age of the assets of the industry, mainly in pipes. Victorian pipework was very good and has lasted well over 100 years in some cases—but would you really want to rely on it forever, particularly bearing in mind the absolutely essential nature of water for each and every one of us?

The Bill compounds the felony of discouraging investment. Being charitable, it is probably yet another example of the law of unintended consequences coming into play. Because of the uncertainty surrounding the new regime for extraction licences proposed in the Bill—an issue which has been referred to already—investment decisions within the water companies are likely to be subjected to ever more intense and continuing examination because the payback period linked to the length of the licence could be too short. My noble friend Lord Elliott of Morpeth referred to this issue in his illuminating contribution to the debate.

Twelve years sounds a long time, but it is not. Those who have knowledge of other statutory areas—particularly those involving waste collection and street cleaning—will know that the norm has been to allow contracts of 25 years in length because of the high level of investment. I cannot for one moment consider that the level of investment for rubbish collection and street cleaning is anything like that needed for the water companies to reduce the age of the assets, to ensure a continuous flow of clean water and to reduce leakages. I intend to return to this issue in Committee. However, it would be good if the Minister could have a re-think before then.

I turn now to proposals that are in the Bill. Knowing that the Bill will be subjected to detailed scrutiny in Committee, I wish to make only a general point at this stage. Part 2 of the Bill appears cumbersome, overly bureaucratic and potentially very costly. A new structure will be introduced to regulate the industry; the Environment Agency will be given new and greater powers; and the Secretary of State at the DTI will be given new powers to determine standards of performance for the water industry. That is plain

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wrong because the basis of utility regulation is that it is independent of short-term political pressures and the regulator works only according to duties contained in primary legislation passed by Parliament.

Has anyone given thought to the cost of all this? I am not thinking about the cost of the new staff, new offices, new overheads, training expenses and the time that the regulatory bodies will take to introduce all of that; I am thinking of the cost increases to be born by the industry as a result of this bureaucratic structure and, by extension, to be born by the consumer. More and more people will be beavering away producing information which probably no one will read. The people thus engaged will not be doing much to provide a better service to customers or, for example, to deal with leaks from ever ageing assets. All this frenetic activity will give employment to many, but for what benefit?

The water industry is already highly regulated. There are whole departments in the water companies whose sole job is to provide information to regulators. There are currently three regulators but the number is to be increased. Ofwat collects more information than is seen in any other regulated industry. WaterVoice, the consumer wing of Ofwat—which is to be replaced—has a generally good relationship with the water companies. It asks for a great deal of information, which is given on an ad hoc basis; but that will be the subject of regulation when the new consumer council is introduced. The council will have a statutory right to demand and publish great swathes of data.

I feel obliged to ask three questions. Do we need a fourth regulator? What benefit will that be to customers who already have access to an enormous amount of data from Ofwat? What about commercial confidentiality? Of course we have to have regulations—but, please, not so much and not forever growing like Topsy.

Wearing my business and commercial hat, I am appalled by the ever-increasing cost of bureaucracy, form-filling and box-ticking—and that is true not only of the water industry. No wonder we as a nation are worried about falling behind in the productivity stakes. We need to devote more of our energies to giving service to customers, developing new ways of doing things and eliminating waste—not to form-filling and box-ticking.

The proposals in the Bill concerning the new structure of the regulators have one serious flaw. It is so serious that I believe it must simply have escaped notice. The flaw is that there is no provision/requirement for all the regulators to talk to each other. They almost certainly will; but surely this requirement should be on the face of the Bill. There should be a statutory requirement that they communicate on a regular basis.

The phrase "joined-up government" is a mantra for this Government. Let us now see action rather than hear continuous repetition.

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I look forward to the Minister's comments, and I particularly look forward to trying to make the Bill a better one through our deliberations in Committee.

5.1 p.m.

Baroness Young of Old Scone: My Lords, I have pestered governments for this Bill for over 10 years. I welcome its introduction at this time. Your Lordships will be able to judge my pleasure when I declare my interests as vice-president of the RSPB, president of a county wildlife trust and chief executive of the Environment Agency. I assure noble Lords that in that last capacity I have read and inwardly digested the Addison rules.

Rising water demands are with us. They have increased by 40 per cent since the 1970s. Water is an increasingly scarce resource, as the noble Baroness, Lady O'Cathain, indicated, in the South and the South-East of England particularly. Even in an average year, less water is available per person across England and Wales than in Spain; and in the future we shall see the increasing impact of climate change.

Water is necessary for a whole range of requirements: homes and gardens, industry, water-based recreation, especially for agriculture and also for wildlife. Many of these needs are in competition with each other. The Bill provides a more flexible framework for the sustained balancing of these competing needs for the greater public good.

Noble Lords may remember the water summit that took place in 1997. It was a landmark in environment and water policy. It signalled a welcome and effective commitment by the new Government to the sustainable management of water resources. This Bill takes forward that commitment.

I particularly welcome three groups of provisions: first, those that relate to a more effective regulatory system. The Bill will see the deregulation of 25,000 small, mainly agricultural abstractions. That represents almost half of all the abstraction licences that currently exist in this country; and there are provisions for the easier transfer of licences.

The Bill introduces regulation for the first time in regard to water abstractions, some of them substantial, which are currently not required to have licences, such as the trickle irrigation of crops and the dewatering of quarries and mines. I recognise the anxiety of those in the farming community whose livelihoods depend on water. I believe that the Bill provides sufficient transitional safeguards. Although agricultural abstractions may represent only a small percentage of the total volume of water abstracted, those abstractions are often in areas of high water stress and take place in summer, when there is lower water availability.

I welcome the Bill's provisions for more efficient and sustainable management of water resources. The trading of licences will encourage efficiency of water use. The time limitation of licences and the ability to revoke damaging abstractions without prohibitive compensation after 2012 are welcome provisions. I

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believe that there are appropriate safeguards to ensure that users have plenty of time—at least six years' notice—to adjust to any changes as part of their business cycle. There will be a presumption of renewal.

The noble Lord, Lord Elliott of Morpeth, expressed concern about investment by water companies in long-term assets and not being able to gain the benefit of that investment. He will be well aware from his past experience of the provisions that operate for other water company assets—for example sewage works. These are long-term investments, but the discharge consents are reviewed every four years—and most of my friends who are in water company management do not lie awake worrying about this matter but are quite relaxed about it. I hope that that reassures the noble Lord that there are ways in which long-term assets and regular review can be combined. I hope that responsible abstractors will recognise the importance of time limits to allow for fair reviews of potentially damaging abstractions.

But 90 per cent of licences are currently permanent, and even the provisions for review and revocation in the Bill are all too slow. The Bill would be improved if it enabled a significant conversion of permanent licences quicker than 2012. If that cannot be achieved, not only shall we feel the hot hand of the Water Framework Directive on our collars, but I suspect that we shall not be able to ensure that the highest priority users have an adequate water supply.

The Bill introduces improved water resource planning arrangements. It finally brings into statute the requirement for water companies to have resources and drought plans. Noble Lords may recall that these sprang from the heady days when customers under one water company in the North were having to use standpipes and the chairman of the company—I shall not speak its name for fear of shaming it—was found sneaking across the Border to have a bath in another water company area. The water resources and drought plans will, I hope, consign such occurrences to history as they are brought into statute.

Water is not solely a good thing and scarce—it can be a bad thing and too plentiful at times of flood. I found it slightly bizarre, when standing up to the waist in ice cold water during the New Year floods, to be contemplating a Bill on scarce water resources and drought plans! But the Bill rightly contains provisions for improving flood defence arrangements. The increase in extreme weather events and rising sea levels mean an increase in flood risk. The damage and distress that we saw in 1998, during the severe floods of 2000 and in the floods at the start of this year are all too real.

I welcome the Bill's provisions for the simplification—perhaps I should call it "streamlining" as we are into puns—of the flood defence arrangements. But the public are very unclear as to who is responsible for what in flood defence, and who pays for what. The Bill helps to clarify those responsibilities by reducing a layer of flood defence committees. That will enable more efficient decision-making, but it will continue to be local. The Bill also

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provides simplification of the currently over-complex funding arrangements. They are so arcane that I am not surprised that the public are confused.

All in all, this is a good Bill. But it could be a great Bill with some adjustments. I have alluded to the need for a faster pace on time-limited licences.

The Bill contains an anomaly. Some navigation authority reservoirs would still remain outside the regulatory and management framework. That is a challenge to the principle of consistency. All significant abstractions should be licensed. This means that about 40 per cent of British waterway reservoirs, for example, could impact on water courses without statutory protection for the environment or for other abstractors.

As many speakers have said, the proposal for a new water consumer council is welcome. But I, too, would like to quote the public research indicating that water customers are not interested merely in social issues and issues of price, and that these should not be the sole matters with which the new consumer council for water is tasked. Water customers also value the environment. As the Minister will recall, I have, in the past, occasionally with some success, tried to insert a sustainable development duty in every public body that passed by in your Lordships' House. We managed to do it in the case of regional development agencies and in the National Assembly for Wales, although I failed dismally in the Scotland Bill. We now have a water regulator that will have a sustainable development duty, so why should the consumer council for water not also have that duty? It would be a nice match and reflect the fact that consumers are interested in the environment.

There is a strange silence in the Bill. The Government's strategy Taking Water Responsibly mentioned a duty for all licensed abstractors to use water efficiently. That is not in the Bill due, I understand, to legal difficulties, but it would be useful to explore that further. It would be an important signal to all abstractors to address some of the issues that have been outlined today.

I thank the noble Baroness, Lady Farrington of Ribbleton, and the Minister for bringing the Bill forward. It is important for all water users. I have two stark illustrations of the need to get a grip on these issues. First, nearly 400 of our river or wetland wildlife sites designated by law as nationally or internationally important are currently threatened by abstraction, so there is a real need to bring abstractions into a logical framework. Secondly, we do not want to return to the droughts of 1989 and 1995. I think we are probably due one quite soon, if the point needs to be underlined.

The Bill is vital. It will balance the needs of households, businesses, agriculture, wildlife and the environment.

5.12 p.m.

Earl Peel: My Lords, I thank the noble Baroness, Lady Farrington, for the clear way in which she introduced the Bill. Up to a certain point there seemed to be remarkable consensus that the Bill was largely

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uncontentious and would enhance the successes that have occurred since water privatisation. But my noble friend Lady O'Cathain seems to have put the kibosh on that in an extremely interesting and illuminating speech. Clearly the issues are more complex than people like myself had realised.

As a general point, looking at the figures, it seems that the quality of water in this country has improved quite substantially. The water companies, English Nature, the Environment Agency and everyone involved should take credit for that. I was a little surprised at the rather disparaging remarks of the noble Baroness, Lady Miller. Nitrate concentrations remain high in certain rivers, although I appreciate that the creation of nitrate-vulnerable zones should help to address the problem.

Despite improvements in water quality, many of us remain concerned about the lack of what I might describe as co-ordinated environmental management of river systems. I join my noble friend Lady Byford in asking the Minister why the Water Framework Directive's objectives have not been incorporated into the Bill when it seems logical to do so.

I particularly welcome the introduction of river basin management plans, as that should lead to much needed sustainable management of the whole river system. I speak with some experience, as I am involved in such a scheme on the River Ure in north Yorkshire. It is an entirely voluntary scheme. It involves representatives from all the interested groups within the catchment area and is co-ordinated through the Environment Agency. We originally formed it because a number of us were concerned at the high levels of summer water extraction undertaken by Yorkshire Water, which we felt was having an adverse effect on the environmental integrity of the river. It has been partially successful, with all parties coming together and discussing the problems. We have just engaged a consultant to carry out a full audit of the species in the river, which I believe should have been done a long time ago. But progress has been slow. We have failed to secure the funding for a project officer, which is an essential part of the operation. So the Water Framework Directive is sadly missing from the Bill.

It is clear that the use of water can no longer be taken for granted. Long-term management has become a fundamental requirement, whether it be for consumer use, industry, agriculture, the environment or recreation.

Without wishing to undermine the enormous importance of other clauses of the Bill, I should like to concentrate most of my remarks on the clauses relating to abstraction licences and the need to ensure that they will be applied in an even-handed way. I declare an interest as a landowner, but water abstraction does not involve me directly.

Agriculture has an over-riding dependence on water and it is therefore essential that the industry is treated fairly. It is interesting to note, however, that it only accounts for less than 2 per cent of water abstraction in the United Kingdom. I take the point of the noble Baroness, Lady Young, that its effect on water

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pollution can be considerable. That is why there have been so many regulations of late, many of which have cost the industry a considerable amount of money.

I welcome the concession in Clause 6 which removes the need for those who abstract less than 20 cubic metres of water per day from having to obtain a licence. Anything that reduces red tape these days is only to be welcomed.

I fully acknowledge that abstraction can no longer be seen as an automatic right and that a more co-ordinated system needs to be put in place. To this end, the power in the Bill for the Environment Agency to enter into water resource management schemes with abstractors seems eminently desirable. However, as my noble friend Lord Elliott of Morpeth pointed out, it is important to appreciate that many businesses, including agriculture, have invested, sometimes heavily, in abstraction systems and other capital equipment dependent on the licence and it is only reasonable that compensation should be given if the Environment Agency wishes to terminate or alter a licence.

The Government have chosen 2012 as the year when compensation will cease in the event of an abstraction licence being revoked or altered, although this will happen only when it is deemed that serious environmental damage is taking place. I know that certain conservation bodies are unhappy with this, but I do hope, for the reasons I have given, that the Minister will be robust in resisting any reduction in this timeframe. As I understand it, if someone applies for an abstraction licence after the Bill is enacted, the Environment Agency will issue only fixed-term licences. I believe that that is perfectly reasonable, but what happens if the agency decides during the course of that licence that sufficient environmental damage is being caused to warrant that licence to be revoked or altered? In those circumstances, will the abstractor with the licence receive compensation? If the answer is yes, I pose what I can only describe as the philosophical question—one of principle, I suppose: what is the difference between compensation taking place before 2012 and not taking place after 2012?

I take this opportunity to suggest that it would probably be more equitable for the Environment Agency to issue licences to existing licence holders rather than new ones—assuming, of course, that there was an over-demand for water—as the existing operators will almost certainly have already invested in capital equipment and will be an up and running business.

I have two further quick points on that. "Causing serious environmental damage" is an arbitrary term. It will need further explanation from the Government. Will the Minister confirm whether there is an appeal system against the turning down of an abstraction licence?

The noble Baroness referred in her opening remarks to trickle irrigation, which is efficient and effective and is an important part of the horticultural business. The industry is of significant importance in production and

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employment, which is often in rural areas. Many such businesses are long-established and fully invested and are deeply concerned at the prospect of having to apply for a licence that could be revoked or altered in such a way as to undermine their business seriously. Because they have not had to have licences before, no compensation will be paid. I am not suggesting that such operators should be treated favourably. I am simply asking the Government and the Environment Agency to appreciate that they are coming into the licensing arena for the first time with an up and running business. That must be taken into account.

I also hope that there will be further discussions between DEFRA, English Nature and those who depend on trickle irrigation to try to establish a working practice. I appreciate that the Bill helps in that process, but there is a real feeling of concern. I urge the noble Lord to talk seriously to the industry while the Bill is going through your Lordships' House.

On a general note, it is worth remembering that under the Environment Act 1995, the Environment Agency has an obligation to have regard to the economic and social wellbeing of local communities in rural areas. I am sure that is ingrained on the noble Baroness's heart. I imagine that responsibility will go some way towards allaying my fears. However, when considering the effects of the cessation or alteration of an abstraction licence it is also important for the agency to consider the specific level of investment in plant and machinery that an operator has undertaken.

Further considerable care needs to be given to ensuring that operators do not close down when the consequences would be an increase in imported products, with obvious adverse effects on employment and the balance of payments and an increase in transport, which inevitably means an increase in pollution. We need to balance the issues very carefully. The Countryside Agency is working hard to encourage locally produced goods. It would be a pity if that determination was undermined by the over-zealous approach of the Environment Agency.

One or two other issues will have to be looked at in more detail later during the progress of the Bill, including the compensation of licences in Clause 25 and the need to ensure that the abolition of local flood defence committees does not result in local knowledge being removed from the regional committees. That point was well made by my noble friend Lady Byford. There is also the thorny question of liability and any claims that might arise out of damage caused by water abstraction. There is also the question of reservoirs.

I broadly welcome this long-awaited Bill. It deserves a more harmonious passage through your Lordships' House than some of the more recent Bills that have emanated from DEFRA.

5.24 p.m.

Lord Livsey of Talgarth: My Lords, it is a great privilege to speak on the Bill. This morning we had the WET Bill, this afternoon we have the Water Bill and all we are missing is the noble Baroness, Lady Gardner of Parkes, to have the High Hedges Bill this evening, but perhaps that would be a step too far.

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I appear to be the only person here who was present for the passage of the Water Act 1989, which privatised the industry. I remind any who may think that this is a lengthy and complex Bill that 532 amendments were tabled to the 1989 Bill. I sat in Committee for 205 hours and only two amendments were accepted throughout that time. The Act took over £25 billion of assets and valued them at £7 billion. I tabled an amendment to that Bill that might interest the noble Lord, Lord Elliott. I proposed not-for-profit companies as an alternative to privatisation. The amendment was rejected out of hand by the Secretary of State at the time. I find that ironic, as he was the right honourable Member for Folkestone, and I know well his roots.

Glas Cymru, which my noble friend Lady Miller mentioned, is a not-for-profit company that benefits the environment and consumers by reinvesting its surpluses. It was put together about two and a half years ago by the noble Lord, Lord Burns, and many other talented people to ensure that water supplies in Wales were rescued from the Americans. They raised £2 billion of corporate bonds in the City, creating the holding company Glas Cymru, which means blue Wales—or green Wales, depending on what part of Wales you come from. Welsh Water is the statutory undertaking and is the licence holder for the distribution of water throughout Wales.

In the coming year, consumers in Wales will have a £10 cut in their water bills. That is a start, because water has been more expensive in Wales than almost anywhere else. That extraordinary situation is brought about by the fact that we have difficult geography and lots of water pipes that are very expensive to maintain. As the noble Baroness, Lady O'Cathain, said, some of them are very old.

I believe that the infant success of Glas Cymru will prove that it is possible to have a not-for-profit company delivering very well on the environment, on sustainability and for community and social purposes, which I think is the intention of the Bill, as outlined by the noble Baroness, Lady Farrington, in her excellent opening speech. It is a perfect fit. It will be interesting to see how matters develop.

I do not want to dwell on the speeches that have been made. Part 1 deals with abstraction and impounding, Part 2 deals with regulatory arrangements and Part 3, although headed "Miscellaneous" deals with the Drinking Water Inspectorate—which I found to be a very important body in my work in another place—and the whole consideration of drought, drainage, reservoirs, discharges and water mains.

I thank the Government for including the devolution aspect. The Bill contains powers for the National Assembly for Wales. That is important, because those of us from Wales remember that water is sometimes an explosive subject. Thank goodness that has not been the case for the past 20 years. If the Bill is pursued sensitively, I do not believe that the subject will be explosive in the next 20 years either.

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I am interested in a few matters not yet mentioned. I declare an interest as a fisherman with a very small fishing interest on the River Usk. Compensatory river flow is extremely important to sustain the life of rivers—not only the fish, but otters, insects and everything else. The environment and ecology will not function properly unless there is a decent amount of water coming down. Regulation is clearly necessary for that. In very dry years, it is very difficult when the compensatory flow is cut. The rivers become very low and ecologically unsustainable. It is a difficult situation which must be put right.

I was very impressed by the noble Baroness, Lady Young, the chief executive of the Environment Agency. I am concerned about one issue in particular. Some of the Bill's provisions will remove functions from local control. The question of democratic accountability is extremely important. In that context, however, I welcome the devolution of some aspects to the National Assembly for Wales. Nevertheless, appointees control some aspects of the Environment Agency. In particular, I foresee that the reorganisation of local flood defence committees will lessen democratic accountability. I believe that there can be democratic accountability and a democratic input into river basin management while maintaining local flood defence committees and a regional input. Such an arrangement would be not bureaucratic but entirely logical. As my noble friend Lady Miller said, and as the daily local weather forecast shows, rainfall is a regional phenomenon.

Other issues such as new and expanded reservoirs concern Wales in particular. The following may not mean much to noble Lords, but it would mean a lot to an audience in Wales. Trewern, near Bala, was essentially drowned so that water resources could be provided for Liverpool. In my former constituency, Brecon and Radnorshire, 12 reservoirs serve many different communities. Frankly, we do want any more of our communities to be flooded—thank you very much. I should not expect this Government even to consider doing so.

The noble Baroness, Lady O'Cathain, mentioned the huge demand problem particularly in the South East. I do not want compulsory metering for the whole of the United Kingdom. I think that she advocated compulsory metering only in the South East, and I can understand the reasons for that argument. However, compulsory metering could not be applied in the areas which I represented. Other methods are preferable when the local infrastructure is problematic.

I remember it being said during passage of the Water Bill that up to 40 per cent of all water is lost because of leakage. Some progress has been made. Nevertheless, that is an extraordinary waste of a most valuable resource. Speakers have pointed out today that less water is available in South East England than in Spain. I stand to be corrected, but I believe that, even now, up to 25 per cent of water, and perhaps as much as 30 per cent, is lost through leakage. It is a profligate waste of an essential resource.

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I apologise for not mentioning individual contributors; I am just picking one or two points that I think are important. The important issue of flow control has been mentioned. I am more familiar with the demand end of the issue than the supply end. Indeed, I am very familiar with the Rivers Severn and Wye. People do not understand why, when the reservoirs are full and heavy rain—I cannot use the words I had in mind—is forecast, there is still flooding particularly in the Midlands, the Wye Valley and Hereford. There seems to be no plan to release water from reservoirs before heavy rain. I had to deal with 10 residents of Builth Wells who were flooded out of their houses for three consecutive years and subsequently became uninsurable. It is a scandal that could be overcome by proper co-ordination, some of which is provided by the Bill.

If there is better control, we will not have so much flooding in the Midlands and particularly in the West Midlands. The Bill needs to address that type of issue. It is a vast Bill, though not nearly as large as the water privatisation Bill. I am sure that we will have an interesting time considering it. I thank everyone who has contributed to this debate. I think that the Government will be more sympathetic than the then government were when we considered the water privatisation Bill.

5.37 p.m.

Lord Dixon-Smith: My Lords, I begin by declaring an interest in that I am an abstraction licence holder. It is worth explaining how that came about as it colours my remarks and my approach to the Bill.

Back in the early 1960s I perceived a need to irrigate my farm. I farm in north Essex where the average annual rainfall up until the year 2000 was between 18 and 19 inches. It is a well-known dry area. My farm is not in the driest part of Essex but Essex is certainly among the driest areas of the country. My farm has no water course and no known subterranean water. However, I need water. I called in some experts to address the question of how to supply that water. They told me that the farm had plenty of water and that all they had to do was to impound the winter flow.

As I say, the farm does not have a water course, but it does have a ditch. Normally the ditch has a flow for about four months of the year but for eight months of the year there is no flow. I looked into the matter further and had built at that time an impounding reservoir, banked on all four sides and filled exclusively with water that runs off the farm's ditches although the water passes through some other land on the farm. We store over 700 inches of water. I apologise that I have not caught up with megalitres and cubic metres. However, if I say that an acre inch of water is 22,000 gallons, perhaps that will help those who want to convert my figures.

In an ordinary winter we probably have enough water running off the farm to fill two more such reservoirs. In the past three years I believe that I could have flooded the farm completely to a depth of some

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feet. The Bill was prepared at the end of a dry period and the attitude adopted within it is influenced by drought. Also at the present time people are concerned about another matter.

My experience colours my attitude. We are not particularly short of water in this country but we are particularly short of management of our water. As regards the management of our water, I found it difficult to divine the thinking behind the Bill and how it will work. That is a real problem. I refer to the timing of the Bill and the difference between a drought approach and a flood approach.

Interestingly, in the autumn of 2001 a large number of houses in Essex were flooded. That was a one in 800-year event. Some extraordinary weather patterns have occurred but I say seriously that a deep philosophical problem arises with regard to how one deals with a one in 800-year event. How does one protect oneself against such an event? Neither governments nor institutions last that long. There are more than 30 generations of people in 800 years. Yet we have to deal with these issues. It is a great credit to the insurance industry that it does what it can—and does it very well—to cover such out of the ordinary losses. I hope that the insurance industry will be able to run a profitable business as a result of the enhanced premiums that it will levy in the future. There is a risk, of course. A one in 800-year event can happen in two consecutive years, even if it does not recur in the next 1,500 years.

I refer to the regional flood defence committees that are to be set up under the Bill. However, the problems of flooding are not regional but local and concern particular catchment areas. I believe that there is a potential problem with the Bill in that moving to a regional approach may conceivably be all right from an investment point of view but we need to ensure that the local interest is not lost. As I say, the problems of flooding are often very localised. They relate to particular catchment areas rather than to a whole catchment area. We need to consider that.

The problems of dealing with a surplus and a shortage of water have the same solution. It comes in the creation of far more reservoirs, which we fill in times of surplus flow and diminish in times of low flow in the summer. One cannot wholly prevent flooding by doing that, but one can go a very long way towards it. The idea of sitting on reservoirs that are full for a whole season because the rain keeps falling does not strike me as particularly good management if—perhaps there should be an obligation for this—the water companies are properly involved in flood control, as well as in water resource provision.

I shall mention a matter on the business of flood control that is not in the Bill, although it would be nice if it could be brought into it. I was recently in the United States, and happened to go to Phoenix at the commencement of the storm that caused so much trouble in the east of the United States. Phoenix is in Arizona. Normally, one would think it were a desert. About two days after my arrival—I took complete responsibility for it, of course, as they were glad to

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have it—Phoenix had more rain in a day than it would expect in a year. Flash flooding was the order of the day, but I saw at least one artificial flood plain in operation. Inevitably for the United States, it was a golf course but, the morning after that rain, it was a lake. As a result, several hundred houses were not flooded. We need to think creatively about our approach to the problem.

Surface reservoirs could be impounding reservoirs like mine. They could be great reservoirs, such as are provided in the mountains of Wales or Hanningfield in Essex. My noble friend Lord Hanningfield, who is not present, takes his name not from the reservoir but from the village, as does the reservoir. Another example is what I want to call Grafham Water, but my noble friend Lady Byford might want to call Rutland Water. If we had impounded surplus flow in those reservoirs and used that water in the summer, we could reduce peak flows in the winter and do much to reduce flooding. I accept that we cannot prevent it, mother nature being what she is, but we can manage our resources much better than we do.

We have been blessed with a benign climate in this country. Much has been made of our having less water than Ethiopia or possibly parts of Spain. However, we do not have those countries' evaporation problems, which makes a huge difference.

A point that flows from that—it has already been made by my noble friends Lord Elliott of Morpeth and Lady O'Cathain, and the noble Lord, Lord Borrie—is that if we are to have such major constructions, especially in terms of water services, a 12-year abstraction licence is nonsense. The reservoirs that supply the Midlands, Manchester and Birmingham from Wales are more than a century old. I am not quite sure when they were constructed. One of the Essex reservoirs that do so much to relieve the problems in the South East is nearly 40 years old, and the other is 70 or 80 years old.

One cannot get the construction necessary for us to manage our water resources properly on the back of a 12-year abstraction licence, renewable for 12 more. That is simply not realistic. The water industry has many problems, as my noble friend Lady O'Cathain explained, such as over-investment and trying to get a return. If we expect it to work on that system without the prospect of automatic renewal, the industry will collapse.

The subject becomes even more important when we consider the South East in the context of the Government's proposals for major development in the Thames Gateway, the M11 corridor and so on. We are talking about a quarter of a million houses and a huge enhancement in population. Those major developments will not be possible without major investment in water infrastructure.

The other point is that the provision of that water infrastructure will take time. This does not concern only reservoirs but river basin transfer schemes. We already have a scheme from the Ely Ouse into Essex. There is a scheme under discussion to move water from the Trent to the Ouse so that it can be moved from the

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Ouse to Essex. Those things will not happen without immense confidence in the future. We need to be aware of that background when we consider the Bill.

I turn to what I call the "London paradox". I find the London situation strange. London is well supplied with water from the south, west and north—the North Sea is to the east. That arose historically because London used to have intensive development. There was much industry and commerce in London. As the ground became polluted the water sources became polluted. The first reaction of the water supply companies was to look further out for new and clean supplies. That is as may be and has been done successfully.

However, we should recognise that London's water is very well used indeed, wherever it comes from. The best way to describe it is that it is used at least five or six times between Teddington Weir and the Beckton outflow, and is cleaned up each time. Even through the drought period through which we have just gone, the water table under London was rising between one and two metres per year. There is no shortage of water in London; there is plenty. It is beginning to threaten the lower levels of the deep underground railways and the lower basements of tall buildings which have gone down as well as up. There is a real problem.

There is talk of extracting the water, putting it through fountains and letting it run into the river. However, there is not talk of using it because it is polluted by heavy metal. I cannot help but wonder about the wisdom of pouring water polluted by heavy metal into the Thames estuary, where it can be concentrated in fish, shellfish and seaweed, which are perhaps brought back in for us to eat.

In any event, I cannot help wondering—I do not know the answer—why we cannot clean heavy metals out of water the way we seem to be able to clean organic pollution out of water. If we did that, perhaps we would not have the shortage of water in the South East that we appear to have.

There is much in a practical sense to deal with, which cannot be put on the face of the Bill. The question is how the Bill will impact on those needs and how to tackle those problems. Trying to determine that is obscure. I have read many briefing papers. The Bill is plainer than it was. However, it seems to me that we have to ensure that in practical terms it focuses on those issues. If it does not we might as well not pass it through this place.

5.53 p.m.

Lord Whitty: My Lords, I thank all noble Lords who have taken part in this well-informed debate in which many aspects of water management have been covered. It is true that this is a substantive Bill. However, as a number of noble Lords have said, it is also true that aspects of water management are not and, indeed, cannot be covered by the Bill. A number of comments by noble Lords were on matters which are not covered by the Bill, which they perhaps think should be in the Bill but are more particularly the context for the Bill. For example, the noble Baroness,

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Lady Miller, mentioned that there are many aspects of Directing the Flow which are not reflected in the Bill. Some legislative bases for following those through already exist and others do not require legislation.

The noble Baroness, Lady O'Cathain, was concerned about the lack of measures relating to demand management. Again, those are wider issues than abstraction and licensing. But they are—and must be—part of overall water strategy.

The issues raised by the noble Lord, Lord Dixon-Smith, and others in relation to huge planning problems, in particular in the South East, require major efforts of long-term strategic planning by the water authorities and the planning authorities in the approach to constructing and planning consent. They are part of the context in which the Bill operates but they are not issues that require the kind of legislation that it puts forward. Nevertheless, they are part of the overall context in which the Bill is being produced. They underline the vital importance of having a consistent, new and long-term approach to the way in which we deal with water in this country.

The noble Baroness, Lady Miller, said that she did not find the Bill exciting but that she found the issue exciting. I thought that the debate was exciting. As we go through the Bill, which is quite hefty—it is not as hefty as the privatisation Bill, but it has 202 pages—I am sure that we shall find plenty to talk about in relation to what is in it. We also need to bear in mind the other issues behind those in which it intervenes in the whole process of water management. Other areas are partly touched on, such as flood and water resources. It covers the structure of flood committees, but the totality of flood management is already dealt with under existing powers and planning arrangements.

Such issues as how water companies manage leakage—a point to which the noble Lord, Lord Livsey, referred—are already covered by existing legislative requirements. Some progress has been made, but more is still to be made. The major basis for those issues already exists in the 1991 Act.

Another aspect was addressed, as to what is not in the Bill but is nevertheless part of the context of the Bill. My noble friend Lady Farrington said at the beginning that the Bill is moving in parallel with the Water Framework Directive. The noble Baroness, Lady Byford, and other noble Lords—the noble Baroness, Lady Miller, and the noble Lord, Lord Beaumont, for example—said that more of the Water Framework Directive should be on the face of the Bill.

It has never been intended that the framework directive, as such, would be incorporated in the Bill. The Bill can help to deliver some elements of the directive's objectives, but most of the regulation under the framework directive is specific and will be transposed in the normal way that European directives are. The noble Baroness, Lady Byford, suggested there are some limitations on the role of the House in that respect. But that is the way we have transposed all such

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directives under the European Communities Act. We do not need to incorporate them on the face of primary legislation.

Having dealt with what is not in the Bill, but which is, nevertheless, interesting and important and part of the background, I shall try to deal with one or two of the issues that are. First, on the extraction licences in one form or another, there was objection from a number of noble Lords—from the noble Lords, Lord Elliott and Lord Dixon-Smith—to the intention to time limit all licences and that the normal period would be 12 years.

The Bill changes the option for the Environment Agency to issue new licences into an obligation. Therefore, in the long-term future all new licences will be time limited. That fits in with the Environment Agency's approach to strategic planning.

The noble Earl, Lord Peel, referred to the need to approach the planning of water resources on the basis of catchment areas. We are developing management abstraction schemes on strategies across different catchment areas in England and Wales. That requires an ability to alter the terms of licences. Nevertheless, there is a need to establish a relationship with the abstractor so that the conditions can be attached in order to meet the objectives of those strategies.

There are concerns that the 12-year strategy—although the Environment Agency can issue licences for longer periods; 12 years is not a restriction written into the Bill—and limiting abstraction licences may deter long-term investment. But there are significant elements of uncertainty under the current licensing system, especially environmental considerations, which, by and large, were not taken into account when the original permanent licences were instituted. However, the Environment Agency has powers and will be reviewing permanent licences as part of the process. In some ways, greater certainty will be provided under the conditions issued under future time-limited licences than under current permanent licences.

The noble Earl, Lord Peel, asked about presumption of renewal of licences. There is still a presumption behind the scheme that licences would be renewed in normal circumstances. To answer another of his questions—on appeal before revocation of a licence—one can appeal to the Secretary of State about both the revocation and conditions of the licence. So there are built-in safeguards to the new system.

In a sense, the opposite argument was made by the noble Lord, Lord Beaumont, who suggested that we should have a relatively short period of licensing. The noble Baroness, Lady Young, looked forward to a more rapid conversion of permanent to time-limited licences—which has advantage to companies taking out abstraction licences, as well as to the Environment Agency in its duties to pursue a long-term strategy directly linked to the conditions of the licences. So we shall consider conversion of some existing licences into time-limited licences, with conditions appropriate to modern water management requirements.

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On the detail of who will be covered by the new abstraction licensing system, I am glad that several noble Lords welcome the exclusion of small user-abstractors now covered by the licensing system. Of those 20,000, a significant proportion will be farmers, who will welcome that exclusion. The main concern about extension of coverage relates to trickle irrigation. I understand the anxieties of the horticulture, potato and other industries about the implications, but the whole system concerns the total quantum of water, rather than how it is used.

Although trickle irrigation can be a marvellously effective and efficient use of water, it is not necessarily so in and of itself. It depends how effectively the extractor uses the system. It is therefore important that such users are brought under the regime. However, the Government are concerned that their being brought under the licensing regime is done in such a way as does not threaten or impose excessive cost on their business of horticulture, which, as the noble Earl, Lord Peel, rightly said, is important for rural development. As he said, it is important to talk those industries through the process as we bring them into the system.

The noble Baroness, Lady Byford, raised the question of revocation of licences after four years of non-use. I understand why the move from seven to four years may be inappropriate in certain circumstances. The Bill simply provides a power where there is no good reason for not using the system for four years. Where a crop rotation system or other rational reason for not using the abstraction licence exists, that will clearly be a strong argument against revoking the licence. But there will be situations in which failure to use the abstraction licence, given the need to manage the total system, would be grounds for removing the system after four years.

Compensation will end only in cases where a permanent licence is revoked because an obstruction causes serious environmental damage. It will remain payable when a time-limited licence is revoked. There must be serious environmental damage as opposed to a relatively minor problem with the licence; therefore, there is a significantly reduced likelihood that licences will be subject to such revocation. It is important that, throughout the process, the Environment Agency talks to any holder of a licence that is in danger of being revoked.

Noble Lords raised issues other than the licensing system, such as the nature of the new regulatory authority. My noble friend Lord Borrie was concerned that the board that replaces the individual regulator should be kept relatively small. I agree, particularly in the context of the water sector. The noble Lord also said that the board should have clear responsibilities.

The noble Baroness, Lady Byford, was worried that, because the board of regulators would be appointed by the Government, it could be subject to political pressure. The individual regulator is appointed by the Government at present. The regulator and the regulatory system have proved distinctly independent from the Government over the past few years, which is important. We wish the new system to maintain that independence.

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Concern was expressed about the fact that the Environment Agency is to be the regulator under the Reservoirs Act 1975. Noble Lords were also concerned about other aspects of the removal of what is seen as local control into a national system. Across England and Wales there must be consistency of approach in such important issues as managing the overall system and public safety. It will also be important to have a consistent line of communication with local authorities.

Noble Lords raised several points about the consumer council for water. It will be given additional powers, which was generally welcomed. But my noble friend Lady Thornton was concerned about the council's access to certain information. It is important that the council acquires adequate information. But it is a different situation from that of the competitive sector, where competition occurs at the top end of the market—in supplies to large users. The balance of power and the role of a consumer representative are different in the case of a monopoly supplier providing for a vast range of domestic and small business use. Concern was expressed about the restriction of access to information from the Consumers' Association referred to by my noble friend. Under the Bill, the consumer council for water will have virtually the same access to information as Energywatch has under the energy legislation. There is no distinction.

On competition, the noble Lord, Lord Elliott, was concerned that if we creamed off the large users of water, everyone else's bills would increase. Normally, competition leads to an overall price reduction; but we need to be wary of that immediate effect. Therefore, the director-general of Ofwat and the new body must take into account their duties to all customers rather than simply considering competition to supply larger customers. So, in making a decision to allow access to competition, he, and subsequently the new body, will have to take into account its knock-on effect on all customers, not simply on the supply to customers above 50—like the noble Lord, Lord Dixon-Smith, I cannot remember what the measure of quantum is—megalitres, I think it is. That represents only about 2,000 companies and users. Their interests as big users are important, and competition can operate easily in that context. However, it is also important to manage the knock-on effect on other consumers.

My noble friend Lord Borrie raised an issue that nobody else raised—he decided to knock it down anyway—about whether we had a combined or separate chairman and CEO. As is usual with such regulatory Bills, we will no doubt return to those arguments. I have some sympathy with what my noble friend said.

With regard to the structure of the industry as a whole, there is no presumption that the present structure is set in stone. However, it is important that there be a sort of special merger regime that recognises that there are natural structures for the water catchment areas in the regions. Any proposed merger that limited competition would need to be referred to the Competition Commission, and the commission would need to consider whether the merger would be

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detrimental. We are starting with a structure that has been set under the nationalised system and the new, privatised system for some time. That does not necessarily mean that it is there for all time with regard to the enterprises that manage it. Nor is there a presumption against all such mergers, and so there needs to be some flexibility for the regulator.

Several other issues were raised that could be hugely controversial in the context of the efficient management of water. The noble Baroness, Lady O'Cathain, mentioned metering, and the noble Lord, Lord Livsey of Talgarth, immediately said that that would not be acceptable in Wales. One would have thought that Wales had enough water, although most of it goes to Manchester and Birmingham. No doubt, some of those issues will be touched on, but they are not covered by the Bill. The noble Lord also spoke about the nature of the companies running the water system. I agree that they do quite well in Wales, with a non-profit company, but we do not propose to change the structure of ownership of the industry through this Bill.

I was pleased that my noble friend Lady Young of Old Scone was able to give a broad welcome to the Bill from her perspective with the Environment Agency and wearing her many other hats. It is important that the Environment Agency is sensitive to all the wider issues of water management and to the interests not only of water companies and consumers but to everybody who depends on the effective flow of clean water and the consistent flow of water for industrial and commercial use.

Like other noble Lords, I look forward to the Committee stage. I suspect that it will be wide-ranging, if not as wide-ranging as the Second Reading debate. From what noble Lords have already said, I imagine that a number of amendments to different parts of the Bill will be proposed. I look forward to the discussion.

On Question, Bill read a second time, and committed to a Grand Committee.

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