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Water and Sewerage Services (Northern Ireland) Order 2006

rose to move, That the draft order laid before the House on 9 October be approved. The noble Lord said: My Lords, this is the second of two orders which started life under the elected devolved Administration in Northern Ireland. I apologise in advance if my speech is longer than I would normally make on such an order but, given its history and importance, it is necessary to put a fair bit on the record before the debate starts. Although I did not say this when speaking to the first order, it would have been much better if the devolved Assembly had been back in November as planned and it had carried on with this work. That is by far the best place for it to happen. In the absence of that, the Government are continuing with the reform programme. I shall give further detail on why that is the case. The order puts in place the legislative framework required to improve the quality of the water we drink and to regulate how the waste water we produce is treated. It also better safeguards the environment and radically improves the delivery of water and sewerage services to consumers. The arrangements which it introduces will ensure that the ongoing capital investment programme in the water and sewerage infrastructure is sustained into the future without impacting on the funding needed for other priority public services. The draft order’s main elements are: establishment of a company, Northern Ireland Water Limited, under 100 per cent government ownership but functioning on a commercial basis to supply water and sewerage services; a definition of the duties and powers of the company to supply water and sewerage services; the establishment of a modern regulatory system for the water utility by widening the remit of the current energy regulator in Northern Ireland to include water issues; the imposition of duties on the company and the regulator to deal with consumer interests while also broadening the role of the Consumer Council to include water and sewerage issues; setting up a framework for charging that will guarantee that the direct charges for water and sewerage services will be fair and reasonable with safeguards for the most vulnerable and low-income households through a reduced tariff; and modernisation of the environmental regulatory regime within which water and sewerage services will be provided. The policies that the draft order gives effect to have been subject to a wide-ranging impact assessment and public consultation over the past three and a half years. Indeed, over this period some 13 separate consultation or impact assessment documents have been published. Latterly, the draft order was issued for consultation over a 12-week period. The 46 responses to the consultation have been published on the Department for Regional Development’s water reform website. The Government are grateful to those who have made substantive submissions regarding the order. 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 26 projects have been completed. There are11 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 asit 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 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. 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 Irelandfor the foreseeable future. Furthermore, the order specifically provides that the Department for Regional Development—the company shareholder, owning100 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. 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 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.