John Redwood

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Competition

Mr. Redwood: I rise in support of new clause 5 and some of the other amendments before us. The Bill is a wasted opportunity. I strongly believe that the successful introduction of competition into the water industry would improve the service and the level of investment, and lower prices. I am disappointed that schedule 4 is still unamended, with a 15 - megalitre threshold for the introduction of competition and a ban on any competition in the household sector. I have declared my interests in the register, and they include owning a household for which I would like to have a competitive water supply. I see that I shall have to await another Bill and another day to see that ambition fulfilled.

In new clause 5, I welcome the requirement that

"The Authority shall prepare and publish a statement of policy with respect to its determination of charges in periodic reviews and interim determinations".

However, the authority will find that difficult, because it will experience conflicting pressures. As I suggested in an intervention, some will seek to challenge the existing incumbents in the industry and will claim that they could deliver water for 10, 15 or 20 per cent. less than the current prices. They will claim that they could do that universally, if they were given access to the water resources; if they were allowed to tap into the rising water tables; if they were able to extract from rivers with sufficient to extract; and if they were allowed to route their product, in part or wholly, through the pipelines of the existing monopolists. The regulator will have to take that into account and the challengers will certainly present an interesting proposition. The incumbents in the industry will say that it is unrealistic. When companies offer to undercut prices at the higher end of the market, the incumbents will claim that those companies will not sort out the problems of the existing network, solve the investment backlog or offer such prices to all users. Under this legislation, that will never be tested, because competition will be so restricted.

New clause 5 is hopeful, but I would like some reassurance from my hon. Friend the Member for Leominster (Mr. Wiggin) - and from the Minister, if he intends to accept it - that the authority, when preparing and publishing its statement of policy, would give due influence to what a competitive market could provide and would not merely consider the claims of the incumbents that they need a certain percentage increase in prices regularly in order to make good the defects of the current structure.

The industry was nationalised for all too long. During that time, it got itself into a position in which about a quarter of its product disappeared between its collection in a reservoir and its routing to a household or business premises. That was a most remarkable degree of waste. I do not think that competitive food companies would accept the loss of 25 per cent. of food products between farm and shop or in the lorries that truck them around the country; yet, until recently, we lived, apparently comfortably, with the idea that a quarter of the product could go missing. That is the kind of issue that the regulator should take into account under new clause 5 when reaching a determination about the efficiency of businesses and a sensible price.

I am pleased that new clause 5 contains the possibility that matters can be referred to the Competition Commission for review. That gives some cause for hope. There is a case for doing just that, given current prices and efficiency in the industry. All too often pressure is low in relatively warm conditions, and we are now hearing, once again, warnings from the industry that, because we had a longish period this summer of not much rainfall, there could be problems ahead. It beggars belief that we find it difficult to guarantee a plentiful supply of water at all times in an island that is regularly soaked with rain.

From some people, we hear that it is somehow not environmentally friendly to want rising water use. Yet anyone who understands the water cycle knows that we do no damage by using water. We use it, it passes through and it is returned to the environmental system. All we need is regulation to make sure that it is taken out in the right way and put back in the right way. Let us use it as often as possible. In a growingly prosperous society, we should expect rising water demand. I trust that the regulator will take account of the growing popularity of water when reaching his or her determination under new clause 5, if it is passed, and under the Bill in general. I have some sympathy with new clause 10. My hon. Friend the Member for South Cambridgeshire (Mr. Lansley) is right to say that we need impact assessments. I was pleased to hear that he thinks that those must also refer to competition assessments and must try to deal with the cruel dilemma that competition may point in one direction on price while the claims of the incumbents may point in another.

We should understand that price is the crucial issue. Water is the exception to the rule in being a utility that was privatised without our introducing competition. As one would expect, it has rising prices while those utilities that were privatised with the introduction of competition showed very sharp declines in prices over a short period. That is true of gas and electricity, as well as the telephone industry to which my hon. Friend referred. In each case, we were warned when we started to introduce competition that it was quite inconceivable that prices would go down. In each case, the monopolist told us that having businesses coming in and creaming the best business from them would increase their costs and make it difficult for them to invest and survive. In each case, that was quite wrong. In each case, competition made the overall market grow and, in spite of falling prices, produced better profitability for, in most cases, the incumbents as well as the challengers. I am glad that my hon. Friend has tried to open that argument by requiring, in new clause 10, that proper impact assessments be carried out and all those issues be considered.

My hon. Friend also tabled amendments in Committee and on Report to try to encourage best corporate practice in the regulator. I did not approach that idea with an immediate spring in my step; as my hon. Friend knows, I am not someone who would have too many public sector posts. If I thought one could get away with one person instead of two, three or five, I would normally welcome that greatly.

I see the point that my hon. Friend is making, however: all the businesses to be regulated by that regulator would be expected to come up with high standards of corporate governance; to split power between, usually, a non - executive chairman and an executive chief operating officer or a chief executive; and to have non - executives on their board to provide some balance and criticism and to intervene when things go wrong. We probably owe it to those businesses to be a little more generous than I should normally be in public sector staffing and accept that there should be a non - executive power balance on the board. Non - executives are always much cheaper than executives and my hon. Friend recommends a non - executive chairman and non - executive board members. That expenditure may be sensible, and it could be false economy to ignore such advice.

I am pleased to hear that the Minister is moving in that direction. I urge him to do the honourable and decent thing and accept the amendments. If his intentions are honourable, why not include the amendments? Why not protect us from some evil future Government who may not share his wisdom and common sense and might want to run the regulatory body without the non - executive counterbalance so wisely thought through by my hon. Friend the Member for South Cambridgeshire and formulated in his amendments?

I hope that the Minister is in listening mode and that he will be prepared to surprise us by his generosity and common sense. He is rare among Ministers in this Government: he understands what he is doing, listens carefully to the arguments and has some influence over what the Government do. I very much welcome that in a Minister and wish there were more like him. He is stranded without promotion because he is so much better than those who are promoted - [Hon. Members: "He was promoted."] But not to the Cabinet. He is obviously too good to get into the Cabinet; one has to reach a low standard to achieve Cabinet rank. I am sorry that the hon. Gentleman is too good for this Cabinet.

The amendments suggesting that Wales be properly represented also appealed to my generous and emollient spirit this evening. As a former Secretary of State for Wales, how could I say that I was against proper representation for the Principality on such an important body? I trust that as a party we shall offer support for the proper representation of Wales.

I do not find myself in the same sympathy with the Lib Dem amendment, moved without a great deal of understanding or force by the hon. Member for Guildford (Sue Doughty) - [Hon. Members: "Ooh."] I asked a simple question of the hon. Lady. Her amendment states that there should be an assessment based on things that can be quantified and an assessment based on things that require qualitative judgment. I asked her how the Minister and the regulator could come to a conclusion if quantities pointed one way and qualities pointed another, but there was no answer from the hon. Lady. She seems to have designed an extremely ambiguous proposal, which would make the legislation more rather than less difficult for the Minister and the regulator. Surely, the art of legislation is to keep it simple, short and clear. The amendment would do none of those things; it throws many things into the pot, as we are used to the Lib Dems doing, and leaves us in a grey area about what might emerge.

Norman Baker rose -

Mr. Redwood: Does the hon. Gentleman want to intervene?

Norman Baker: No.

Mr. Redwood: When somebody stands up in this place, it is normal for them to intervene. However, I see that the hon. Gentleman really wanted to leave. He obviously accepts my criticisms of Lib Dem policy on the matter and is so embarrassed that he has had to flee the Chamber. Perhaps he has gone to look for the person who actually wrote the amendment to find the answer to those interesting questions. The Lib Dems do not have the benefit of a Box of officials to scribble answers when they are under pressure in the Chamber. We saw that lack today when they could give us no answers. Given the performance from the Lib Dem Benches, I urge my hon. Friends not to support their amendment No. 128, as it would create muddle and confusion in a Bill that will benefit from no such extra proposals.

My hon. Friend the Member for South Cambridgeshire has introduced another good proposal: amendment No. 22, which deals with access pricing and returns us to earlier contributions that he and I made in this evening's short debate on these vital matters. Again, that amendment represents a clarification. It would put a little more pressure on the regulator to explore why water prices are so high, to ask why the leading water companies think that prices should go considerably higher and to ask why, so far, so few of the inefficiencies in the leading water undertakings have been squeezed out.

Why is so much of the product still lost between reservoir and market? Why has there not been the same competitive and aggressive promotion of the product as we have with things such as mobile telephony in the now very competitive telephone sector? Why is there so much reluctance to deliver new products and to produce the reserves necessary so that water can be more aggressively sold to the marketplace? Why do we still have such very defensive attitudes to the water industry, thinking that it is somehow wrong to buy and sell the product and wrong for people to want more of it?

I would draw an analogy with the hot cross bun industry. It would be rather odd if, around Easter time, that industry issued a note saying, "It is most inconvenient that everyone wants hot cross buns at the same time. Would people please delay their purchase of hot cross buns until August?" Yet the water industry does that at times. When we want water in August to water our plants, we are often advised that it would not be a very good idea to water them in August. I suspect that, if we have a rainy November and December, we will soon be told that it is all right to water our plants. The only trouble is that they are sodden and most of them died in the drought anyway.

I hope that the important issues that have an impact on consumers - water shortage, advice not to use water when it is needed most, high price, poor investment and poor quality of pipes and the network - will be dealt with under the Bill, but they would be dealt with even better if the proposals made by my hon. Friend the Member for South Cambridgeshire, including amendment No. 22, were passed tonight, and it is with great pleasure that I strongly support them.

Richard Younger-Ross (Teignbridge): I am fascinated to hear the right hon. Gentleman outline a new Tory stealth tax. I wonder what the extra reservoir capacity that he is clearly proposing would cost the consumer?

Mr. Redwood: As I have explained, the competition under my model would produce cheaper prices for consumers. The Liberal Democrats have not yet grasped the point that there was a massive expansion of telecoms capacity after the introduction of competition. Consumers did not have to pay more for the extra capacity; they paid lower prices because the market expanded so much. The same would happen with water if competition were allowed. As always, the Liberal Democrats are 50 years out of date and very keen to have subsidised, poor quality nationalised services for more or less everything. I was not at all surprised to hear them argue that case yet again tonight. At least the hon. Member for Lewes (Norman Baker) argued it a little more cogently than the hon. Member for Guildford, who is their official spokesman on the issue.

I have been sidetracked, but I wish to conclude my remarks by saying what good amendments and new clauses have been tabled by my hon. Friend the Member for South Cambridgeshire. I am very happy to accept new clause 5 - tabled by my hon. Friend the Member for Leominster (Mr. Wiggin), the Conservative Front - Bench spokesman - in the context that I suggested, but I hope that the House will reject the Liberal Democrat amendments, which are full of muddle and confusion.