Water Act 2003 (Consequential and Supplementary Provisions) Regulations 2005

My Lords, I find myself on slightly more familiar ground with this order and these regulations. This legislation provides some of the means for implementing Section 56 of the Water Act 2003, which amended the Water Industry Act 1991, and its most contentious part—that is, the introduction of competition in the supply of water for large customers only. It gives effect to the new water supply licensing regime. We have no quarrel with the Water Supply Licence (Modification of Standard Conditions) Order 2005, nor with Parts 2 and 4 of the Water Act 2003 (Consequential and Supplementary Provisions) Regulations 2005, which introduce the means of setting up the consumer council and the regulatory authority. However, there are questions still to be asked about Part 3, which concerns the new competition regulations. The Minister said that applications for licences under the new regime would start on 1 December this year. In the light of further discussion and consultation since the Act became law, do the Government have any feel for how many licences are likely to be applied for over a period of, say, two or three years; what proportion of the supply these may include; and how many of the possibly 2,000 or more large customers are likely to be interested in finding new suppliers under this system? The principle is very clear—that is, to introduce a degree of competition in order to bring prices down—but whether it is sensible in the present circumstances is a different matter. The principle was agreed when the legislation was passed, but nevertheless it is still worth commenting upon. Some interesting and useful explanatory background notes have been circulated to Members of the House. Paragraph 7.2 of the Explanatory Memorandum sets out the dilemma which the Government are in. It states:"““The Government believes that properly managed competition should lead to greater efficiencies, keener prices, innovation and better services, to the benefit of customers””." Well, to the benefit of some customers, perhaps. It goes on to state:"““The potential benefits of competition must at the same time be balanced against the Government’s wider objectives to protect public health, protect and improve the environment, meet the Government’s social goals, and to safeguard services to customers””." In other words, it is all things to all people. ““Balance”” is a weasel word whenever it is used in this way because it avoids the fundamental question of what the priorities are. Of course, there has to be a balance between everything—but a balance of what? How much of each particular element do you feed into the balance, or is it a case of ““Let’s see where the scales end up””? The effect of this legislation on the environment is minimal and negative. As far as we can see, no environmental benefits are likely to accrue from this new system. It would be interesting if the Minister could tell us what environmental benefits will arise, as opposed to lower costs for larger customers. The noble Baroness, Lady Byford, made the point, as did my honourable friend Colin Breed in the House of Commons earlier today, that if the existing water undertakers—not the new suppliers—find that some of their most profitable business is being, in the words of the noble Baroness, cherry-picked, they will have to recoup those costs from somewhere. What guarantee do the Government have that those costs will be recouped by greater efficiencies or, indeed, by a reduction in the water undertakers’ profits, which they would not want? What guarantee is there that this will not result in higher prices for ordinary domestic consumers in the medium term? Under the new regulatory system, are the Government issuing strong guidance to the regulator that any increase in costs due to this competition must be discounted when it comes to setting and approving prices for domestic customers? That is a fundamental question. Another fundamental question goes back to the environmental point. In the present circumstances, are reductions in water prices desirable, given that we are always talking about using the market to produce environmental objectives when, whether we like it or not, water is becoming a commodity in increasingly short supply? Without other serious incentives to conserve water, will not reducing prices simply result in the large customers paying little or no attention to the need to conserve water when their costs may already have been cut without their having to do that? Finally, I refer to the Question which my noble friend Lady Miller of Chilthorne Domer asked last week about whether adequate measures are in place to deal with the resulting water shortages. This is all clearly part and parcel of the same problem. While we are in a potential drought situation, there is some dispute about whether drought is a short-term or longer-term thing. Let me quote the Minister’s words back at him. He said,"““it is important to draw a distinction between the short-term issue of drought and that of longer-term demand””.—[Official Report, 7/7/05; col. 737.]" Given what appears to be happening to the climate generally and the extra demand for water, it seems to us that the need for water conservation is not just a short-term drought matter, but a medium and long-term problem we must face up to. At the very best, the proposal to introduce competition into the industry does nothing towards that objective.