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I will make some general observations on the response to water reform. The Government appreciate that the introduction of new charges is never popular—that is a plain statement of the obvious. However, I hope that there is now a universal appreciation in modern society that water—clean, safe, drinkable water—is not free, and the disposal of our waste water cannot possibly be a free good. Hundreds of millions of pounds are required each year to provide water to our homes and to treat appropriately the waste water that we produce. Billions of pounds of continuing investment are needed to sustain and improve those services. So far, the Government have not received a viable alternative to the introduction of domestic charges that will ensure that this necessary future investment can occur, let alone continuing the existing investment that is ongoing and of a very substantial rate indeed.

For the elucidation of that, I have brought a few figures with me. In the past three years to 2006-07, there has been some £629 million of investment and 26 projects have been completed. They vary from costing £122 million to as little as £400,000. Those

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26 projects have been completed. There are 11 projects under construction at present, at a total cost of £448 million. There is substantial investment going on by any stretch of the imagination in Northern Ireland. In the three years up to 2006-07, there have been 1,130 km of new and replaceable water mains, and 140 km of new and replaced sewers. The idea that there has been no investment in water by the Government is simply not on. The figures are there, and the new plants are there, to show that that is the case.

An argument has been made that it would have been better for the difficult and contentious issues raised by water reform to be addressed by a devolved Administration. Indeed, as I have indicated, the devolved Administration were already grappling with the issues in 2002. That is where this work started. The previous Government here at Westminster tried and failed to introduce reform in the 1990s, so even the devolved Assembly’s attempt was not the first to grapple with what was known to be a serious problem. Unlike our predecessors, we have not failed to tackle the issues. The devolved Administration may well have tackled them, but sadly it has taken us three and a half years to get to a position where there is a realistic prospect of devolution.

Now, at the last minute, the parties are telling us to stop and let them deal with it. They had their chance. If this was the single most important issue, as some of them claim it is, that Assembly would have been back on 24 November, no messing about. It clearly was not the single most important factor, because the Assembly is not back. They have no plan to tell us when they would deal with it. Looking at the procedural timescale, there would have to be a ministerial proposal, which requires executive endorsement; the Assembly would have to put through the legislation, and so on. We are looking at a minimum delay of two years in introducing these reforms. That is a two-year hit. This is not a threat; it would be a two-year hit on other public services. There would be two years’ lack of investment, and we would be two years closer to not meeting the GB standards in terms of water, which are not met in Northern Ireland at present. It would be two years closer to infraction fines from the European Union, which is why we must proceed now.

Let us look briefly at the political realities. If we have devolved government by 26 March next year, as we sincerely hope we will, when the new Ministers will take the pledge of office, the Assembly could repeal this legislation. It will have the power to amend it as it wants. It will be within its ownership. But no Administration, even a devolved one of whatever shape, can avoid the inevitable need to invest in these essential services. By proceeding with this order, we are giving the parties the option of addressing reform now. If the order is defeated today by those who recognise the need for change, but fear their unpopularity, the option will be lost. It is as simple as that. It will be to the long-term detriment of Northern Ireland’s public finances and services.

No one wants to pay additional charges; I have not come here to argue that people do. I was in Northern Ireland at the weekend as duty Minister. I saw the

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adverts on the television and the posters. No one came up to me and said, “By the way, the water charges are a good idea and I really want to pay more”. People did say that something had to be done, but that we are always doing it the wrong way; however, they did not come up with viable alternatives. We know that people do not want to pay additional charges.

There is a popular misconception in Northern Ireland that people already pay for water through the rates. In fact, there is no direct connection between the regional rates and the cost of supplying water and sewerage services. It is also suggested sometimes—indeed, many times in my experience—that any legacy of underinvestment should be addressed before charges are introduced. I have just pointed out the level of investment that has taken place in the past three to five years and which is ongoing. The fact is that Northern Ireland’s position is no different from that of anywhere else in the UK in that respect—and that ignores the investment of over £1 billion in the past five years.

The reality that must be confronted is that the average household payment for services in Northern Ireland is approximately half that made by households in Great Britain. The truth is that Northern Ireland households need to make a greater contribution. We think that that is only fair. Some people say that the Government need to consider the relative poverty or higher costs in Northern Ireland, and I freely admit that some things are more expensive, while other things are cheaper. But a variety of indicators demonstrate clearly that Northern Ireland is not the most deprived region in the UK. People sometimes automatically assume that it is; but I can give examples, including average disposable weekly incomes, unemployment and nominal growth, that demonstrate that Northern Ireland is not the worst region in the UK. There are places in the UK where average weekly disposable incomes are less than in Northern Ireland; namely, the north-east and Wales. That tells you something about equality and fairness. Unemployment in Northern Ireland from May to June this year was 4.4 per cent, compared with the national average of 5.5 per cent. Northern Ireland had the second lowest unemployment out of 12 regions. So, on a variety of indicators, Northern Ireland is not the worst-off region.

We are simply asking households in Northern Ireland to make a fair contribution. I shall provide some illumination on that, although I do not want to spend all my time quoting figures. For the avoidance of doubt, regarding the average level of household taxation in 2006-07, the average property charge per household in England and Wales is £1,043, in Scotland it is £958 and in Northern Ireland it is £668. For England and Wales, the average direct water and sewerage charge, in addition to the property charge, is £294 and in Scotland is £295. The total for property charges and direct water and sewerage in England and Wales is thus £1,337, in Scotland it is £1,253 and in Northern Ireland £668. That looks unfair, bearing in mind that some areas in the UK are less prosperous than Northern Ireland. It is a fact that Northern Ireland receives a higher share of public expenditure than anywhere else in the UK and the lowest share of local taxes and charges.



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The water charges will consist of a standing charge and a variable element based on capital values. The Government freely admit that no system is perfect, but we believe that the proposed arrangements will balance customers’ ability to pay and their use of water and sewerage services. In very general terms, capital value direct charges to more affluent areas are more likely to produce lower bills for the less well off.

We have also developed an affordability tariff. This is unique to Northern Ireland. It is designed to guarantee that no low-income householders need spend more than 3 per cent of their income on the new charges. Approximately 200,000 of the 650,000 households—30 per cent of households in Northern Ireland—will benefit from these measures, which will be funded by the Government and not the other water customers. I want to make that absolutely clear: this subsidy will be funded by the Government and not by the general customer base. The new rate relief was designed to help those not eligible for housing benefit but who were just above the new rating system threshold; it is to help poor people just above eligibility. Anyone in receipt of housing benefit, rate rebate and the new rate relief will receive categorised charges ranging from £90 to £180 per annum, depending on the value of their property. However, the charges will be phased in over three years. Therefore, the maximum bills for these people in 2007 and 2008 will range between £30 and £60 per annum. That is the reality.

The order does not limit the duration of the affordability tariff—it is phased in over three years—and the Government are confident that a devolved Administration will have the necessary flexibility to deal with these matters in future. The poorest person in the cheapest house in Northern Ireland will pay £30 in that first year, £60 in the second and £90 in the third. The poorest person in the most expensive house will pay £60 in the first year and up to £180 in the third year. Those are the affordability tariff figures.

The Government are committed to a long-term, managed transition to widespread metering. That is also a reality elsewhere in the UK; it is not compulsory, but this issue comes up in your Lordships’ House from time to time. We want to do this as soon as possible, so we get to a situation where every household will have the option to select whether a metered tariff is best for them. It would be unfeasible, on logistical and economic grounds, to establish universal metering overnight. I had my ears bent about this over the weekend—that we would like to have a meter but the pensioners have got to come first. Initially, it will be targeted at pensioner households that request installation, and it will be installed in all new-build dwellings. The installation of the meter will, of course, be free of charge.

One issue that has been raised in respect of this order is that the Government have a secret plan for privatising water. It has been suggested that the government company being established to deliver water and sewerage—referred to as the GoCo—is a preparation for privatisation. I want to be absolutely clear about this: the Government have ruled out the privatisation of water and sewerage services in Northern Ireland for the foreseeable future. Furthermore, the order

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specifically provides that the Department for Regional Development—the company shareholder, owning 100 per cent of the shares—cannot take action which would result in a change of control without the approval of the Assembly. Hence any change in the future status of the company will rest fully within the control of local elected representatives.

In effect, this is a triple lock. This is because the company would have a view, and the devolved Minister in charge of that department would have a view and take any proposal to the Executive, who would have to agree; the Assembly would have to agree on cross-party, cross-community voting. Therefore, if any change took place in that way, it would be with the full-hearted consent of the elected, devolved Government in Northern Ireland. We have no plan for this. The argument that this is a pre-runner for privatisation that we the Westminster Government are going to push through does not bear examination.

The legislation’s aim is to enable water and sewerage services to be provided in the most economical way possible. The company will be held to account by the regulator in delivering an exceptionally demanding programme of efficiency improvements so that charges are as low as possible. Performance is currently worse than it was in England and Wales 16 years ago, so there is some way to go.

3.30 pm

Before I move on to the regulatory arrangements, it might be appropriate to raise some other issues. I want the House to be able to debate this matter with as much information as possible available. One issue is the business plan. This is not going to work; I shall stick to the speech that I was intending to make and I can come back to this later if need be.

With regard to the regulatory arrangements, we think that the draft order provides a robust system of governance. It reflects best practice in up-to-date utility regulation and is beyond all comparison with the current arrangements, under which central Government are effectively the sole service deliverer and regulator. The position in Northern Ireland is completely unlike that in Great Britain.

With regard to land disposal, we have been accused of not allowing independent regulation, but I want to make it clear that that is not the case. Article 217 of the draft order says that land disposal by the company—that is, the government company—is subject to departmental control. However, it allows us to give a general authorisation on disposal and, indeed, we will give that authorisation, making decisions on disposal entirely a matter for the independent regulator. There will be exceptions to accommodate the role of the environmental regulator, who covers environmental and heritage services, and land which was originally acquired compulsorily. But the department will not interfere and therefore there will be no conflict with its role as the shareholder in the government company.

The proceeds of any disposal will be retained by the government company—that is, the water company—subject only to regulatory control. The fine detail is contained in the licence, on which we are consulting at

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present, but I give a commitment to look very sympathetically at any issues of regulatory independence that are raised in regard to disposal. I make it absolutely clear that the Government will be handing over to the regulators decisions on whether to dispose of assets.

Lord Trimble: My Lords, can the Minister make it absolutely clear when that will come into force? Will it be immediately—in 2007—or, as I think is currently the case under the licence, not until 2010?

Lord Rooker: My Lords, there are two aspects to that question, and I shall try to answer it from memory. With regard to land, I think that it will happen straightaway. As we understand it, regulators mainly regulate price. However, as I said, because the Government will subsidise the first three years at government cost, clearly the regulator will not regulate price for three years, so there is a dislocation between the timing of the regulator’s powers coming into force on price and when they come in on other matters. The price is subsidised for three years, and I have explained how the Government have arranged that with the affordability tariff and a phasing-in over three years. That cost is carried by the Government, so the regulator will have nothing to do in that respect.

Baroness O'Cathain: My Lords, what, then, does the regulator do for three years?

Lord Rooker: My Lords, as I explained, the order sets out other areas where the regulator will have work. The regulator is regulating more than price—for example, I have just dealt with land disposal and other matters where the regulator will be involved.

Having dealt with land regulation, I shall say a few words about general regulation. We believe that the policy set out in the document is consistent with the overall approach of ensuring independent regulation. We have already said that, where there is a choice between the department and the regulator as regards who does what, the regulator will exercise all enforcement powers from day one. However, there is no choice for the regulator with regard to price because the Government are subsidising it for three years—otherwise, it would make no sense for the Government to propose what they are doing. The only significant departure from the position in England and Wales concerns price controls during those three years. Otherwise the regulator will have all the powers that the water regulators have here. We will be subsidising consumer bills in that period and, by and large, the average bill of £100, rather than £300 because of this constraint, will be well worth having. The Government will subsidise for three years rather than have a free-for-all and let the regulator regulate, which would mean higher prices.

We are committed to independent price regulation after the subsidised phasing-in period. After that, the regulator will take over. We shall not make the same mistake as we believe that the previous Government made with the Northern Ireland electricity industry. We have clearly tried to learn from that. I am not apportioning blame on a party matter. We have just

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learnt from the experience of electricity regulation in Northern Ireland. We will not set up the same sort of long-term contracts which have had the effect of locking down tariffs in a way in which the regulator cannot touch. The regulator will be free to operate once the charging powers go to him.

The draft order introduces new rights for water consumers in Northern Ireland, guaranteeing standards on vital issues such as pressure and constancy. It also allows schemes to be made to compensate consumers where standards are not met. As in other areas, the regulator will take the lead there.

On environmental matters, it has been broadly acknowledged that the draft order will improve the environmental compliance of water and sewerage services. Environmental groups have some specific concern about enforcement. Any measure to protect the company while it finds its feet will be limited in scope and duration. There is no comparison with the current situation in which Crown immunity limits effective action. It is important to ensure that the ongoing capital investment programme in new or improved treatment works and systems is delivered on the ground as soon and as effectively as possible.

I fully accept that water reform is controversial. As noble Lords will know, it has been the subject of judicial review. I shall not read out the judgment, although others may wish to, as that would take quite a long time. Sixteen counts were taken before the judge, who declared that the applicant for judicial review failed on 15 of the 16 counts on which the Government were challenged. I can give a brief summary of each of the 15 if required to do so. There were grounds for success on the 16th ground, slender though they may be. But in relation to the discussion that took place after the judicial review about how it would be dealt with by the courts—in other words the remedy—the judge simply agreed a declaration, which has been placed before your Lordships' House, setting out three of the points he wanted to raise.

He also made a key point in the final paragraph that the court had issued the declaration to draw the narrow matters—I think I am entitled to say that—to the attention of Parliament so that Parliament may determine, as it sees fit, the appropriate action to take in relation to processing the draft order. The declaration confirms that the court has not invalidated anything which occurred up to and including the laying of the draft order on 9 October. However, I fully accept that it is controversial. I have not come here to say that this is a cheap and easy answer. If the order is not carried, that will put a hole in the budget for next year—2007-08—of £85 million to £90 million, which would be serious. These issues have remained unresolved for too long and we need the sustained capital investment in the infrastructure without drawing funding from other priority public services, such as health, education and transport. Those are the areas from which the money would come.

Furthermore, if the order were not passed, it is likely—I put it no higher than that—that Northern Ireland would lose the right to the borrowing power

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won by the First and Deputy First Ministers in 2002, which currently provides up to £200 million of investment every year for Northern Ireland’s public services. That is not to be sniffed at. I beg to move.

Moved, That the draft order laid before the House on 9 October be approved.—(Lord Rooker.)

Lord Trimble rose to move, as an amendment to the above Motion, to leave out all the words after “that” and insert “this House, having regard to the declaration of the High Court of Justice in Northern Ireland that the draft order has not been subject to full consultation, and the repeated request of the Committee on the Programme for Government of the Northern Ireland Assembly that the legislation should be deferred, declines to approve the Water and Sewerage Services (Northern Ireland) Order 2006”.

The noble Lord said: My Lords, I want to make clear what this amendment is not about. It would perhaps have considerably shortened the Minister’s speech had I been able to say this to him before he started. My amendment does not indicate opposition to reform of the water service in Northern Ireland, nor does it in any way indicate opposition to the payment of charges. Both reform and payment are necessary. The Minister acknowledged that this started under the Administration whom I had the honour to head. We knew that it was a serious issue. I am sure Mark Durkan shares my view that one of the most significant things we did in office was to put in place the reinvestment and reform initiative—which the Minister referred to at the end of his remarks—which created a borrowing power for the Northern Ireland Administration designed to deal with this. Of course, we knew that the borrowing would have to be paid for by charges.

Unfortunately, we did not get the chance to carry it much further. Privatisation was not in our mind, but we were conscious of the examples in Scotland and Wales, where water services operate commercially without being fully privatised. We would have looked closely at those examples. Speaking entirely for myself, I would have wanted to move towards metering as rapidly as possible, if for no other reason than general grounds of conservation. I am sure that, had the Administration remained in place, the issue could then have been dealt with. We would have carried this through and had it completely done and dusted by now—three and a half years have been lost since suspension.

The Minister also referred to the legal action of the consumer council. I am glad that he did so, because a veil of silence was drawn over this in another place which did not, to my mind, pay due respect to the judgment of the court. I am delighted that the Minister has put that court judgment and declaration before Members of the House. If the Minister does not mind, I shall say that I think that he was misleading the House ever so slightly by trying to indicate that he had won 15:1 on the points. A better indication of success or otherwise is the court’s order as to costs: it awarded 80 per cent of the costs against the department, so the consumer council won 4:1. That is a more balanced judgment on the matter.



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