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Baroness O'Cathain: I should like clarification. We are talking about a licence being revoked and saying that the costs will be passed on to the person who gets the new licence. Who bears the cost of that? Is it the customers? If it is in a particular geographical area, does it mean that, in the interests of the environment,

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the customers in that region are going to have to pay for the Government's policy on the environment in the country as a whole?

Lord Whitty: This part of the Bill deals with a situation in which the Environment Agency is revoking a licence and granting it to another person. The clause deals with the compensation arrangements. I suppose that eventually the customer would pay for those compensation arrangements, but we would have a more efficient system of delivering water. The judgment has to be made on what is the more efficient way of delivering that water.

The intention of the amendment is to give the original company, whose licence is to be revoked, not only compensation, but also the right to argue that they can match the efficiencies of water company B. There is obviously some justice in that, but the whole process, which the noble Lord, Lord Dixon-Smith, asked about, would involve the Environment Agency in extensive investigation and discussion—call it negotiation if you like—with both the original company and the alternative company before it made any decision on revocation. We expect the agency to explore all the options with the parties concerned before it moves into revocation mode, or into any statutory mode. It may be that voluntary arrangements could be made. The process would involve company A knowing what efficiencies were claimed by an alternative arrangement and being given the chance to match those efficiencies.

Even after the revocation, there is an appeal system. The noble Lord seems to imply that his amendment would, in effect, provide another appeal system. The appeal system would already be able to take into account the grounds on which the Environment Agency made the judgment in the first place. We do not need what would amount to another appeal system.

Lord Dixon-Smith: I think I am reasonably happy about that. There was no intention of setting up a second appeal system. I was seeking to determine how far the agency could say, "This is the new situation and that is the end of it", or whether there will be negotiation. I think the Minister has confirmed that the Environment Agency would have to explore all the options with the parties involved. That makes it a considerable negotiation.

The Minister said that greater efficiency in the use of water resources is the criterion—he did not say that it was the exclusive criterion—that the Environment Agency has to use. That causes a little concern because, if it is done regardless of cost, it might be positively disadvantageous for the community. At some point, we must think about the terms of reference. Although I understand that the purpose of the Bill is to have the most efficient possible use of water, a question of economics is wrapped up in it somewhere. I know that people have got used to paying for bottled water in shops at a greater price

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than one would pay for petrol. But if it were coming through the tap in that way, there might be some complaints. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 agreed to.

Clause 27 [Withdrawal of compensation for certain revocations and variations]:

[Amendment No. 73 not moved.]

On Question, Whether Clause 27 shall stand part of the Bill?

5.45 p.m.

Baroness Byford: We have given notice of our intention to oppose the Question of whether this clause shall stand part of the Bill. The effect of the Bill on some companies is quite large, particularly, in this regard, the National Farmers' Union, which raised its concern with me. It is concerned with the Government's intention to fund compensation for the revocation of abstraction licences until 2012. I understand that the Government's intention may be to fund compensation through the scheme of abstraction licence charges. That means that all abstractors with chargeable licences would fund compensation payments.

Obviously, the implications of that are that compensation for the revocation of abstraction licences causing environmental damage should not be recovered from other abstraction licence payers' fees. The environment is a public good; therefore, we believe that the public purse should pay. Surely, it should not be left to a small sector, such as a group of abstractors, when the whole community will benefit. The concept of an abstraction licence fee system is that it recuperates the cost of the administration of the licensing system that controls abstraction. If money is to be taken out of the licence fee system to pay for compensation, it may be found that not only are there insufficient funds in the system for that, but it could jeopardise the efficient management of such a system.

The funding of the Environment Agency also needs to be considered. The Environment Agency's budget is part financed from income raised from the Environment Agency charging schemes, such as the water abstraction licensing system. However, those schemes are subject to the principle of cost recovery, which, if I am right, means that the charges must cover the costs incurred by the agency in running the scheme. We would not consider that payment of compensation comes under this definition of "running" of the abstraction-licensing scheme.

Furthermore, compensation being paid for water abstraction licence fees can be compared to that of the planning application system. Fees for a planning application are charged in order to cover costs of administration of the application. If the local authority charged the fee for an application but then decided that the application should be revoked, the applicant would be entitled to compensation. However, that compensation does not come from the planning fee scheme, but from general local authority funds.

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I would like the Government to confirm how they intend to pay for the compensation for the revocation of licences. The effect of the amendment would be to retain the current system where compensation is or would be payable from the Government. Section 63(2) of the Water Resources Act 1991 states that if a licence is varied or revoked and compensation is payable by the agency, the Secretary of State or the National Assembly for Wales has the power to indemnify the agency. Compensation would therefore be funded from general taxation. This should remain the case. I have two questions for the Minister. First, why are the Government considering changing that? I refer the Minister to our first day in Committee. In reply to a previous debate, the noble Lord said that the Environment Agency's resources figures had increased:

    "The figure has risen from 620 million in 1999 to just short of 800 million this year".—[Official Report, 27/3/03; col. GC47.]

Secondly, how much of that money will be allocated for this specific purpose?

Lord Livsey of Talgarth: This is a pivotal issue for the Bill. Clearly, grounds to revoke a licence are spelt out in the Bill. It would be appropriate to read one out. Clause 27(1)(d) says that,

    "the ground for revoking or varying the licence is that the Secretary of State is satisfied that the revocation or variation is necessary in order to protect any waters or underground strata, or any flora and fauna dependent on them, from serious damage".

I recollect that in another context an earlier amendment used similar wording. I believe that paragraph (d) is a sustainable reason.

On a matter of principle, it may well be unreasonable to pay compensation in those circumstances. One cannot and should not continue receiving compensation if serious damage is being caused. It is illogical to keep paying compensation when substantial damage may be occurring.

I understand the arguments that have been deployed. However, I recognise that the pleading is to get money out of the public purse in order to ensure that compensation is paid. I would merely comment that the Water Resources Act 1991 was enacted 12 years ago. We now understand much more about global warming and the pressures on the water resource. We must tackle this problem head-on and in a responsible way. That may be by sharing the costs among the users of the water in order to ensure that these very desirable objectives are achieved.

Lord Whitty: A number of issues have been raised on the general funding. The Environment Agency has a duty to secure the proper use of water resources. Compensation is a payment to that end. The agency has to recover the cost of executing those duties from all abstractors. So the costs of compensation come out of that fund. That was confirmed in our 2001 policy document. Therefore, we are not talking about a general taxation situation. The clause that the noble Baroness seeks to delete limits the number of occasions that compensation would be payable. Therefore, it would reduce the degree to which any charge would fall on other abstractors.

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The noble Baroness asked how much all this would cost. That is currently under review. There will be a consultation paper on it. The clause she seeks to delete would reduce the burden on the Environment Agency's budget because compensation would not be payable in those circumstances. As the noble Lord, Lord Livsey, said, we are talking about a situation where the use of the licence is causing serious damage to water, underground strata, flora and fauna, and so on. There is no particular reason why in future compensation should be paid. That is the clause's intent. By deleting the clause we allow additional compensation to be payable and therefore the problem of that being passed on to other abstractors is greater. I hope, therefore, that we do not pursue the deletion of this clause, either now or at a later stage.

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