§ Mr. Madel
To ask the Secretary of State for the Environment if he will list the chairmen of the private water companies whom he has called in to see him as a result of their announcing increases in water charges of more than 10 per cent. for the year 1989–90; what response they gave to him; and if he will make a statement.
§ Mr. Howard
[pursuant to his reply 23 February 1989, c. 733]: The Water Companies Association indicated in its statement of 5 February that statutory water companies were likely to raise their charges this year by 30 per cent. or more. In some quarters, increases of 50 per cent. or more were anticipated. I have now met almost all the chairmen of the companies to discuss their proposals. The Department's financial advisers, Deloitte Haskins and Sells, have also scrutinised the companies' proposals and the reasons for the increases.
Some companies already had fixed their charges and were unable to reduce them. However, following the meetings that I have had with them, most companies proposed lower increases and the majority seen by Deloitte have agreed to reduce their proposals further. I now anticipate that the average increase in charges for the statutory water companies will be about 22 per cent. Since Deloittes began its scrutiny, consumers have, therefore, been saved at least £16 million in increased charges.
The Government have always made it clear that water charges will have to rise to meet the higher quality standards which are being demanded of the water industry. The preparation of asset management plans, as part of the new regulatory framework being established by the Water Bill, has also identified in a number of cases serious backlogs of maintenance of underground assets, which mean that companies will have to spend substantially more to maintain existing levels of service. In reviewing the companies' charging proposals, Deloittes sought in particular to identify the increase which could be attributable to these factors; it also sought to avoid 214W recommending any action which would be imprudent when set against the likely sustained higher levels of capital expenditure in future.
The extent to which investment is needed to meet existing requirements and maintain standards indicates underinvestment in many of the statutory water companies which shows just how inadequate the existing system of regulation has been. Such sharp increases in one year should not have been necessary and some of the increases which companies have announced are higher than these considerations alone would justify. Under existing statutory controls, the Government have no power to reverse these decisions.
We shall scrutinise this year's increases in charges very carefully in the light of the new system for controlling these charges which we are introducing in the Water Bill. Where price rises this year cannot be justified, appropriate adjustments will be made to the price ceilings which we set.