Water (Special Measures) Bill [HL]
Wednesday 4th September 2024
(3 months, 2 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text
Water (Special Measures) Bill [HL]
Wednesday 9th October 2024
(2 months, 1 week ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Hayman of Ullock
That the Bill be now read a second time.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I am delighted to begin the Second Reading of the Water (Special Measures) Bill. Improving water quality is a priority for this Government, and we have taken rapid action to ensure that water companies put customers and the environment at the centre of what they do. The Water (Special Measures) Bill is being introduced to drive rapid and meaningful improvements in the performance and culture of the water industry. The Bill not only delivers on the Government’s commitment to put water companies under special measures but is an important first step in enabling wider, transformative change across the water sector.
I am sure noble Lords will agree that there is a lack of public trust in the water industry, and widespread concerns about underinvestment in infrastructure, levels of pollution and failures to address spills of sewage. Between 2020 and 2023, water company executives paid themselves more than £41 million in bonuses, benefits and incentives, despite poor performance in the water sector, and only one-quarter of water company customers think that companies act in the interests of people and the environment. At the same time, the number of serious pollution incidents remains unacceptably high.
That is why this Government are taking swift action to turn around the performance of the water industry as a first step towards enabling long-term change. In his first week in post, the Secretary of State announced a set of immediate steps to improve the performance of the water industry. They include ring-fencing vital funding for infrastructure investment, placing customers and the environment at the heart of water company objectives, and working with Ofwat to strengthen protection for households and businesses when their basic water services are affected. However, this Government know that this is not enough to address the fundamental changes needed to the water system and that targeted legislative action is needed. This brings us to our consideration today of the Water (Special Measures) Bill.
Concerns about the performance of the water industry have risen right to the top of the public and political agenda in recent years. The water industry was privatised under the Water Act 1989. That Act was followed by the Water Industry Act 1991, which largely sets out the regulatory regime for the industry. The industry is regulated principally by the Environment Agency in England and Natural Resources Wales in Wales, along with the Water Services Regulation Authority—Ofwat—and the Drinking Water Inspectorate. The Bill makes new provisions to improve the regulation of water and sewerage companies and gives new and extended powers to these regulators.
I turn to the detail of the provisions. As I have noted, the core provisions of the Bill serve to strengthen the powers of the regulators to hold water companies to account for poor performance. The measures it introduces are intended to complement each other in a way that will ensure that the regulators are better equipped to identify and respond to water company failings. It will encourage behaviour change to ensure that water companies are delivering for their customers and the environment, from the start of the next water industry investment period that is due to begin in April 2025. Accordingly, the Bill provides Ofwat with a new power to establish rules for the water industry relating to governance and remuneration. This power will allow Ofwat to make rules around performance-related pay and the introduction of a fit and proper person test to ensure that water company bosses are not rewarded where performance is not up to scratch.
The Bill also includes provision to make obstruction of the general investigatory powers of the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate punishable by imprisonment and allows for executives to be held personally liable for obstruction where the offence has been committed with their consent, connivance or neglect. This will help the water industry regulators to carry out effective investigations and will bring criminal charges against persistent lawbreakers.
To further ensure that non-compliance is tackled, the Bill includes provisions to enable the Environment Agency and Natural Resources Wales to issue automatic and severe penalties for certain offences, as well as provisions to strengthen environmental civil sanctioning powers so that regulators can impose a penalty on the civil standard of proof for water industry offences. This will ensure that water companies face rapid repercussions where it is immediately clear that they have acted unlawfully, and that rapid enforcement action is taken against minor to moderate offences before they can become a more serious matter.
To ensure that the regulators are able to make full use of their expanded and new powers, the Bill also provides for enhanced cost-recovery powers for the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate to ensure that water companies bear the cost of non-compliance, in line with the “polluter pays” principle. In addition, the Bill contains provisions to ensure the independent monitoring of all water company outlets. These provisions place a requirement on water companies to publish discharge data at 100% of emergency overflows and publish data on discharges from emergency overflows in near-real time. The Bill also places annual pollution incident reduction plans on a statutory footing, increasing transparency around water company operations. The Bill will also bring forward provision to modernise the existing special administration regime for the water industry, to bring it in line with special administration regimes for other regulated sectors and to ensure that taxpayer money is protected in the event of a water industry special administration regime.
Collectively, these measures represent the most significant increase in enforcement powers in a decade. This will help to ensure that water companies are delivering for customers and the environment as we move towards the largest-ever investment period for the water industry, with an £88 billion spending package proposed for the next price review period.
I turn to delegated powers and devolution. The Government are committed to working closely with the devolved Governments to tackle shared problems, including the issues facing the privatised water industry. My officials have worked closely with Welsh counterparts during the development of the Bill, and I am delighted that most provisions in the Bill are expected to apply to both England and, at the request of Welsh Ministers, Wales. Although the Bill does not apply to Scotland or Northern Ireland, my officials have also engaged with these devolved Governments during the Bill’s development.
With regard to the Bill’s powers, it contains provisions both to amend primary legislation and to confer a limited number of delegated powers on regulators and the Secretary of State. To reflect the evolving nature of the issues facing the water industry and the changing expectations of customers, the Bill contains eight legislative and three non-legislative delegated powers. These provisions contain a mix of powers conferred directly on regulators—for example, the power to set rules in relation to remuneration and governance—and powers that will be enacted via the affirmative resolution procedure, such as the power to amend relevant environmental regulations. These delegated powers will enable government to keep pace with and react to developments in the water industry. I assure noble Lords that these powers will be subject to all appropriate scrutiny and safeguards.
Since the Bill’s introduction there has been some inaccurate reporting on the effects of its provisions. I would like to take the opportunity to correct some of these misconceptions, to ensure that we can have a fully informed and helpful debate.
First, it has been reported that some of the Bill’s measures—for example, those that will enable the banning of bonus payments and those that enable imprisonment for obstruction offences—already exist in law. Let me explain why this is not the case. Although it is possible for Ofwat to set expectations with regards to executive remuneration, it does not have the power to set legally binding rules. The Bill introduces such a power, meaning that Ofwat will be able to stop the payment of bonuses to executives where performance has not been up to scratch—for example, in the areas of consumer matters, environmental performance, financial resilience and criminal liability. Similarly, although the obstruction of regulators can be punished by imprisonment, that is currently possible only in extremely limited, emergency circumstances. The Bill strengthens the maximum penalty for all cases of obstruction to imprisonment for up to two years. It also makes that offence triable in the Crown Court and, importantly, ensures that executives can be held liable for wrongdoing, which is not currently the case.
Secondly, there have been reports around the use of special administration regimes to nationalise water companies and on the impact of the special administration regime clauses on customer bills. I want to be clear. Special administration is not a form of renationalisation. It is a tool to ensure that vital public services continue to be provided after a company fails. The Government would take no ownership or management of the company during a special administration regime. It would cost billions of pounds and take years to unpick the current ownership model; it would slow down our reforms, leave sewage pollution to get only worse and stall much- needed investment. There is a very high bar for the imposition of a special administration regime. The Government and Ofwat will always act to protect consumers as a priority, and any intervention that would increase customer bills would be considered very seriously and as a last resort.
Having spoken about what the Bill will do, it is important to note as well what it does not cover. This Bill focuses specifically on measures relating to the regulation of water companies, taking immediate action in response to the poor performance of the water industry in recent years. However, the Government are clear that the Bill alone will not be enough to fix our water system. It is an immediate down payment on the wider reform that is needed after years of failure and environmental damage. It is for this reason that the Government have also announced a review to fundamentally transform how our water system works and clean up our rivers, lakes and seas for good.
Through this review, we will examine holistically the framework that underpins our water sector; we will invite views from a range of experts and stakeholders; and we will hold a public consultation to ensure the proposals are robust and radical enough to meet the public’s appetite to clean up our polluted waterways. I am sure that many noble Lords here today will take a keen interest in the work of this review, and I have already had discussions with many in this House about wider issues facing the water sector. I look forward to working with noble Lords closely as the review progresses, and further detail on this will come forward later this autumn.
To conclude, I know that there is considerable support, both within Parliament and among the public, for this Bill. I hope that Members of your Lordship’s House will agree on the importance of working together to reset and transform the water sector through these first crucial steps and the work to come. I look forward to what I am sure is going to be a passionate debate; I would expect nothing less for a Bill of this importance and I am greatly looking forward to hearing noble Lords’ contributions. I hope that your Lordships will support the Bill and ensure that we work together to strengthen our regulators and hold water companies to account.
Lord Blencathra (Con)
My Lords, I declare my interest as set out in the register.
This is an interesting little Bill. Among the first bits of advice I had from my illustrious predecessor, the great Willie Whitelaw, when I became an MP in his place, was, “Remember, David, in Parliament always distinguish between activity and achievement because there are those who run around being highly active but achieve nothing”.
I understand where the Government are coming from with this Bill. There are problems in the water industry—that is not the fault of privatisation, which has been successful, but of inadequate regulation by Ofwat. Those problems were addressed by the previous Government in the extensive Plan for Water, and the new Secretary of State, in his speech to the water industry on 5 September, seemed to repeat most of the items in that plan. He ruled out nationalisation and said that water companies need to attract private investment. He said he wanted to address catchment-level water solutions, and to that end intends to run a full review and seek a reset of the industry and a new partnership. He also wanted nine more reservoirs built, along with pipelines and peatlands, to help store water. These are very important issues. If that could be delivered then that would be a major reset and a real achievement. We all want to see that review conducted as speedily as possible, especially since the Plan for Water, published by the previous Government in 2023, set out most of what seems to be on the Secretary of State’s agenda.
Then we come to the Bill and what it will achieve. In launching the Bill and the proposal to double compensation for water cut-offs, the Secretary of State used phrases such as “crack down” and “toughen up” as he outlined measures to send executives to prison, automatic fines by the regulator, changing the burden of proof and a whole new range of unspecified powers for the Secretary of State and the Environment Agency. To me, it sounded very much like a remake of Tony Blair’s
“Tough on crime, tough on the causes of crime”—
which did not work then, despite the rhetoric. That is a lot of activity, but where is the impact assessment by the Government to show what it will achieve? The Government hope that automatic fines and the changed burden of proof will free up the Environment Agency to pursue the larger and more complex cases. If that is the case then we should see the calculations leading to that belief.
Will the measures in this Bill improve water quality? Charles Watson, the chair of River Action, said that while it was a “relief” to see the new Government acknowledge problems in the water sector, only a “comprehensive and holistic review” of regulation would fix matters. James Wallace, the chief executive, said:
“Talking about CEO bonuses is not going to sort things out. What we really need to see is a regulator, the Environment Agency, with its teeth given back and its funding given back”.
The Chartered Institution of Water and Environmental Management, while welcoming the review, said it is of paramount importance
“that this review cuts right across the activities of all government departments. From Defra, through housing, transport, energy, health and more. It mustn’t be kept in a Defra-sized box, or it will fail to match Reed’s ambitious pitch”.
I hope the Minister will confirm that the review will cut across all those different government departments and agencies.
Those I have just quoted welcome the Bill as a little step forward, but the real achievement would be if the Government could deliver on the Secretary of State’s vision in the review. That is why I conclude that the Bill is good political talking tough, but it might achieve little; it is possibly activity over achievement. However, we shall examine it fairly and seek to improve it, while asking some key questions.
First, I want to look at new Section 35B of the Water Industry Act 1991, which introduces the concept of “specified standards”. The existing Section 35A already deals with remuneration. The company has to base it on meeting “standards of performance,” in the wording of Section 35A of the 1991 Act. The water services regulation authority, Ofwat, will be given the power to draft rules on what these specified standards are, including whether someone is a fit and proper person to be a senior officer,
“or in respect of other matters”.
That is quite a wide-ranging power. How will it interface with the Company Directors Disqualification Act 1986, which provides extensive powers to disqualify a director? The Financial Conduct Authority also has rules on what is a fit and proper person.
In future, we could see water company executives who will have satisfied all the company law criteria to be a director, but their remuneration will be subject to new so-called “specified standards”. Those standards will include
“consumer matters, … the environment, … the financial resilience of undertakers, and … the criminal liability of undertakers”,
and
“any other matters that the Authority considers appropriate”.
Who on earth will ever want to be a director of any water company with those potentially onerous conditions? We have no idea yet what those conditions will be, and it is essential that we have some indication of that before we get to Report. The Secretary of State has to be consulted under new Section 35C. Since the Government have specifically made a big fuss about these new rules, the Government must have some idea of what they want in them and cannot say, “Oh it is not up to us; it is entirely up to the authority in due course to invent the rules”.
Punishing directors for carrying out the wishes of the shareholders is surely the wrong approach. When Macquarie had 48% of the shares in Thames Water, jacked up the debt by £2.8 billion and took out £1.1 billion in dividends, do we really think that the managing director and directors could have stopped that? The majority shareholder, I submit, was in the driving seat. Macquarie and other shareholders would have rapidly replaced those directors and executives if they tried to limit dividends and spend more of the profits on infra- structure. There is no question on these Benches of us seeking to let water companies off the hook. Where they have failed to deliver, they should suffer sanctions and penalties. However, penalising the management is targeting the wrong group; it is the shareholders who should lose out financially for company wrongdoing, however that may be defined. The description of a person in a “senior role” includes
“such other description of role with the undertaker as may be specified”.
We need to know a little more about who those people might be. That is something we shall need to explore in Committee.
I turn to Clause 4, which amends Section 110 of the Environment Act 1995 with a new imprisonment provision, of which the Government have made a big thing. Sections 110(1) and (2) of the Act sets out the offences of knowingly obstructing “an authorised person” from carrying out lawful duties, of failing
“to comply with any requirement”,
of preventing
“any other person from appearing before an authorised person”
or of failing to “provide facilities” for an investigation. That person shall be guilty of an offence. The penalty is a summary fine or imprisonment to the maximum of the magistrates’ court levels. On indictment, it could be a fine and/or up to two years in prison.
That is the current law, so how does Clause 4 change it? It makes not a single change to the offences in Sections 110(1) and (2). It makes not a single change to the fines and imprisonment. I am very happy to be corrected by the Minister, and I hear what she said about there being a difference. I am happy to be educated on that in Committee, but it seems that the Government here are dancing on the head of a pin—making a big thing about a tiny little change. I think these offences were included in the past. This clause seems to replicate existing provisions to let the Government boast that they are taking tough action against water undertakers, to make a political point.
I instinctively dislike civil penalties imposed by government or arm’s-length bodies or other organisations, whether it is the Inland Revenue or a parking fine company. It avoids due process. I leave it to the noble and learned Lords in this place to give their opinions on the dangers of changing the burden of proof from “beyond reasonable doubt” to just “the balance of probabilities”. I have no problems if a company has genuinely committed the offences and deserves the penalties, but changing the balance of proof could mean that some were unjustly penalised. That could result in large fines and damage to the company’s reputation.
I have similar concerns with Clause 6, on automatic penalties for specified offences that will be created by the Secretary of State. At least those have to be laid before Parliament under the affirmative procedure, and we will have a chance to debate them. As the noble Baroness pointed out on the delegated powers, the Bill gives enormous powers to government agencies. I look forward to reading the Delegated Powers Committee’s report to see what it says about the powers in the Bill and whether it agrees with the Government that the scrutiny they propose is adequate. I also want to see more of the Government’s thinking on the regulations they propose. They cannot say that it will be up to Ofwat and the Environment Agency to invent the rules, and that it is nothing to do with them. They have clear ideas about what they want in the regulations, and we need a steer.
We will also want to explore the Government’s thinking on the involvement of consumers in board decision-making. The Bill is exceptionally vague on that. Clause 1(3) requires a water company to involve consumers in any decisions
“likely to have a material impact”
on consumers. I suggest that any decision made is likely to have an impact on consumers, so what is the Government’s definition of “material”? Clause 1(3) also says that consumer views may be represented by someone being on a “board, committee or panel”. These are radically different concepts, from executive decision-making to an advisory panel. Again, we would like to hear more of the Government’s thinking.
The Secretary of State made a major speech to the water industry on 5 September, and committed the Government to building nine new reservoirs, multiple large-scale water transfer schemes and 8,000 kilometres of water mains pipes, and to upgrading 2,500 storm overflows. As the noble Baroness said, Ofwat costed that at £88 billion. The Secretary of State, in his interview last Sunday, was adamant that every penny of that money would be raised in the private sector and invested within the next five years. As the Secretary of State is clear that these things need to be done—a lot of them were set out in the Plan for Water of 2023 —and it would be a real achievement to do them, why are they being kicked into a long-term review? That is what we should be discussing in this House as soon as possible—the balance between investment and increasing water bills.
The Secretary of State’s endorsement of privatisation and bringing in private investment was interesting. He said that his plans would
“unlock the biggest ever investment in our water sector, and the second biggest private sector investment into any part of the economy for the entirety of this Parliament”.
In other words, he was saying that privatisation worked, but proper regulation was inadequate.
Those are the big issues that will actually deliver a better water industry, not the presentational matters in the Bill. Nevertheless, we will explore it constructively, support it where it is right, and seek to amend it where necessary to ensure due process and clarity. We look forward to addressing all that in Committee.
Earl Russell (LD)
My Lords, I declare my interests as set out in the register. There is much to welcome in the Bill. There is much that we on these Benches will support. Equally, we call on Labour to be braver and bolder and to act with greater urgency. The environment cannot wait while Labour decides on the real systemic reforms that are the only solutions to this crisis.
The most positive thing in the Bill is the acknowledgment of the scale of the problem and the signal from Government that further, more fundamental measures, beyond this Bill, will be tabled in this Parliament. I give Labour my thanks for this. With this we finally have a potential starting point for change. The Bill is a welcome first step, but the Bill alone is far from a comprehensive solution. It is a list of useful measures, but if the Government think that simply blocking the payment of bonuses to poorly performing water company executives and a few other measures will resolve the sewerage crisis, there are real grounds for further thought.
Since privatisation 35 years ago, we have witnessed one of the worst environmental crises in the UK, with unabated and unprecedented pollution. Just 14% of England’s rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours of untreated sewage discharges in England alone. Water, water everywhere, and not a drop of it unpolluted.
Meanwhile, water companies have paid at least £78 billion in dividends, while failing to invest adequately in the infrastructure required. At the same time, they have piled on £64 billion net in debt, when the water companies had been debt-free at the point of privatisation. The regulatory system is broken and has failed to hold companies to account. When researching this speech, I was astonished to find that Ofwat has to give 25 years’ notice to revoke a water licence.
Measures such as monitoring outflows, banning bonuses, automatic fines, lowering the burden of proof, and possible jail terms for obstruction of investigations are all welcome. The reality is that the Bill is just a list of useful, but ultimately nothing more than stopgap, measures. The real change needed is a radical and complete systematic overhaul of the whole system. Feargal Sharkey called the Bill inadequate. He rightly said:
“We want an end to pollution, clean rivers and seas. We wanted transformative action and these small steps do not satisfy that goal”.
Similarly, Charles Watson of River Action said:
“What we’ve got today is a long list of measures that will cost the government nothing and is really not going to fix anything because it’s the system that’s broken”.
The review of water health is welcome. Is the Minister able to confirm that the review will be independent of government, with an independent chair? When will it start work, and when is it expected to complete? Steve Reed has said that a “full review” of the water sector will take place over the course of this Parliament. I hope that Labour has the courage to be brave. It also needs to find its own policies and grasp the reform nettle. Why is more comprehensive legislation not yet ready, after some 100 days, on such a fundamental issue?
The broken system and the consequences of light-touch regulation were all issues at the general election. Our rivers, streams and lakes have been polluted to the point of ecosystem collapse in some cases. I am proud that my party has led the campaign on these issues, which cut through to people on all sides of the political spectrum. The broken system saw the polluter paid time and again, instead of the “polluter pays” principle ever being applied.
My warning to Labour is that the people who voted for it did so with an expectation that real action would be taken to resolve this mess, and that it would be undertaken at scale and pace. The Liberal Democrat position is clear: out-of-control water companies must be forced to put the interests of the environment before profits. They must be held to account for their corporate failings. Our policies include plans to abolish Ofwat and install a clean water authority—a regulator with real powers. We would turn private water firms into public benefit companies—the quickest and least costly method of resolving this mess. England remains the only country in the world to have privatised its entire water system, and for good reason.
The hard part about scrutinising the Bill is that the important parts of the puzzle are not in it at all. They are yet to come, and we do not know exactly when they will arrive and what they will say. I remain to be convinced that, even with further legislation, Labour can keep private water companies and the existing regulation architecture, including Ofwat, in place, and pull off the magic trick of protecting the environment, making regulation fit for purpose, securing the billions of investment and protecting bill payers in the midst of a cost of living crisis.
Can the Minister reaffirm that, where water companies systematically use overflows to dispose of untreated sewage in dry conditions, it is the Government’s intention to swiftly prosecute them? Enforcement powers exist already—water industry bosses can be sent to prison under certain circumstances—but these powers have hardly ever been used. Since 2001, the DWI has brought only three prosecutions and given two cautions. Are the Government clear that the regulators will have a firm touch and prosecute breaches?
It is welcome that the Environment Agency will be able to levy automatic fines and recover costs, but cost recovery is retrospective and does not pay for the enforcement today. The Environment Agency had its budget cut almost in half between 2009 and 2019. Will this Government properly fund enforcement? Laws cannot be enforced without effective regulators. We need fundamental regulatory reform. The Bill could be strengthened through the inclusion of environmental and clean-water duties on Ofwat. Companies that persistently breach obligations should face the prospect of special administration. We need much larger fines that are a real deterrent. We need legislation which ensures that funds from fines will be invested in environmental projects through the water restoration fund. Enforcement is still based solely on ecological impact, with no requirement to restore areas that have been severely polluted in the past. We need more investment in mechanisms and processes that work with nature—so-called nature-based solutions. All water companies should be required to implement pollution reduction plans. Ofwat should have a statutory duty applied to contribute to meeting our climate and nature targets.
The Bill has many measures coming in at different times and subject to different consultation processes by associated regulators and the need for many measures to be approved by statutory instruments. When does the Minister envisage that all the measures contained in the Bill will be enacted? Will the Minister agree to work with your Lordships’ House to ensure that measures in statutory instruments are able to be debated on the Floor of the Chamber as far as is possible? Finally, I worry that the villain of the piece is the lack of funding for enforcement measures. Only real reform, determination and hard cash will ever change this.
The Duke of Wellington (CB)
My Lords, I welcome the Bill. It demonstrates a much greater determination by the new Government to tackle the continuing and barely reducing problem of pollution of our rivers, lakes and beaches. Since we debated these matters three years ago during the passage of the Environment Bill—now the Act—the position has hardly improved. It has needed new Ministers with greater focus to force the water companies to take the matter more seriously. It has been a national disgrace that water companies have in many cases become financial structures to provide investors with an above-average return, through not only dividends but high-yielding bonds and executive management rewards.
We should all remember, as any player of Monopoly knows, that water companies used to be boring utilities providing a secure but not very exciting return. Some 35 years after privatisation, the companies are, on the whole, not owned by the original retail investors, who in many cases had been the consumers of water services in a particular area, but are now owned largely by institutional investors through private equity structures with high leverage. Such structures are not suitable for a regional monopoly utility. Water is essential for all residential and business premises.
I commend the Government for increasing accountability and transparency for the water industry. Yesterday, I heard the chief executive of Ofwat say on the “Today” programme that there needs to be a cultural change in the water companies. I believe that the Bill is likely to help that process as directors of the different companies come to realise their personal accountability. However, I must again suggest to Ministers that they should set up, within the independent review that they have already announced, a review of the current regulatory structure. The Minister has said that there will be a review of the whole industry, and I quite understand that it cannot be part of this Bill, but I hope that when she replies to this debate, she will undertake that a review will definitely include a look at the structure of regulation.
I and other noble Lords have received a suggestion that the growth duty placed on the Environment Agency and Ofwat should be disapplied, but this was added only recently by a statutory instrument. I spoke against that statutory instrument—the then Minister was here a few moments ago but unfortunately is now not in his place—but, as there is no ability by either House of Parliament to amend a statutory instrument, it was passed. I cannot imagine that this new Government would wish to be seen to disapply a growth duty on any public body.
Throughout this Bill, there are frequent references—sometimes slightly confusingly—to new powers for the regulators. Dividing regulation between Ofwat as the financial regulator and the Environment Agency as the environmental regulator has, with hindsight, allowed the industry to evolve in a way that has damaged the aquatic environment and offended the public’s perception of our green and pleasant land. The state of our rivers, lakes and beaches is a national disgrace—we must surely all admit that. At last, this Government are trying to overcome this stain on our reputation and our sense of well-being. I have a concern, however, that unless we improve the way we regulate the polluters we will not in the long term arrive where we want and need to be in terms of the ecological state of our inland and coastal waterways.
A number of us yesterday received emails suggesting that Ofwat should be given an additional duty to protect the environment. Whereas this is a laudable intent and something that all businesses and indeed individuals should aspire to, I am not sure that, in the current regulatory structure, it would be sensible to add this statutory duty to the other regulator while it is principally the duty of the Environment Agency.
I turn now to some specific ways in which I think the Bill could be improved. I am very grateful to the Minister for a meeting that a number of us had with her on Monday. It is, I think, significant that the Bill has been tabled in this House, thus enabling it to be better scrutinised—and improved—before it goes to the other place where, as we know, very few amendments will ever be properly considered, let alone voted on.
I am a bit concerned at the idea of consumer representatives on boards. In my experience, such defined interests on a board are not likely to improve the effectiveness of the board. New Section 35B(6), inserted by Clause 1, on page 2 of the Bill, does refer to a “committee or panel”—as the Opposition spokesman has already said. I believe that one of these would be much more effective and appropriate, particularly if the chief executive was required to have regular meetings with such a panel. If consumer interests are to be represented, why not also environmental interests, which I would have thought are, in this circumstance, equally important?
In new Section 94EA, inserted by Clause 2, the requirement for water and sewerage undertakers to prepare and publish a pollution incident reduction plan should, I suggest to the Minister, be extended to include a legal requirement to implement the plan. There are too many cases of plans being announced and then not being delivered.
The Bill introduces the concept of “emergency overflows” in addition to the permitted combined sewage overflows, or CSOs. I understand the department’s wish to have another category of overflows, but it surely cannot be justified that the water companies can claim that an emergency overflow is legal if it is caused by an electrical power failure, as detailed in new Section 141G(2)(a), inserted by Clause 3. Any other public service provider, such as a hospital or a school, would be required to have in place sufficient electricity generator capacity to cope with power failures. I suggest to the Minister that this is too easy an escape clause for the water companies.
In conclusion, I support this Bill but I hope that, in Committee, we can help the Minister to make this an even better Bill before it goes to the other place.
Lord Lipsey (Lab)
My Lords, my wife and I have had the privilege of living in the Wye valley in Wales for nearly 30 years. We go swimming at Glasbury most mornings in summer, some mornings in winter, and my wife even took the plunge once on Boxing Day, for which she should certainly have a medal. We still do this, but it is a deteriorating experience. Part of the river near us was closed this summer to wild swimmers such as us on the grounds of pollution.
I still think back to the days soon after we moved in when the noble Lord, Lord Birt, took us down to the local village of Erwood to a salmon leap to see those magnificent creatures, 20 pounds and more in weight, swimming up the stream to breed. I am afraid that there are no salmon leaping today—indeed, there are only about 2,000 salmon left in the Wye, and the species is officially regarded as on the verge of disappearing. If we were the generation that allowed the salmon to disappear, I think posterity would have some very nasty things to say about us.
Why has this happened? There are various causes, but overwhelmingly the most important is—I use the word, whatever the risk of offending your Lordships—chicken shit. Something like 80% of the pollution in the Wye is caused by chicken shit that is not moved off the farms, lies on the fields and is driven by water into the stream, where it does untold harm. Residents such as us complain about children who are sick after swimming, rotten egg odours, opaque green pea-soup blooms and brown slime on the bottom. It is not the Wye that we moved next to 30 years ago. This beautiful river is being turned into a sewage dump.
Whose fault is this? It would be nice to find a single person to blame, but there are quite a lot. For example, the Environment Agency was sued recently by Leigh Day, an admirable firm of solicitors acting on a no-win, no-fee basis. The judge said no, because the Environment Agency was getting its act together. That seemed to me to be progress.
As for other culprits, the previous Government produced a Wye action plan in April. It was quite ambitious and quite a good read; the only trouble was that the amount of money they were putting in was totally inadequate for what was needed. There is also a problem of governance, as the river flows through both Wales and England.
There is also a problem with local councils. First, if a council has an application for planning permission for a chicken farm, it cannot look at the total number of chicken farms in the area but has to look at the case for that individual farm—and that causes it, naturally, to have to say yes. That is especially so in areas such as ours, where small farming is so important for employment.
Should we blame the farmers, because after all this substance comes out of the backsides of their chickens? They should not cop the whole rap—small farming is a religion where we live, and quite rightly so. Farmers have been overwhelmed with advice from the Government and their agencies as to what they should be doing, but doing it can be costly, as there is a shortage of government funds and some advice is not taken, however wise it may be.
At the end of the day, the culprits that I prefer to finger are big agra—and in this case Avara in particular. It was formed in 2018 by a joint venture with Cargill, a UK company; it is one of the UK’s biggest food businesses, with £1.5 billion-worth of turkey and chicken. The heart rather misses a beat at the thought of all those chickens and turkeys. Its directors are paid on a scale that would make even water company directors envious, at £438,000 each per year for doing their job. It would do no harm if there was proper scrutiny of their pay, in the way that the water industry itself is to be controlled.
However, in fairness, Avara is not coining it in; it made an operating loss of some £11 million according to its latest annual report. It is certainly not indifferent to the damage that can be caused by its activities; it has to retain a social licence to operate and, if it goes on messing up the environment for everybody, it will not be allowed to stay in business. That means expensive shipping of the stuff to places where it is more used as a fertilizer and less harmful.
I imagine that some of those directors on £438,000 a year are shaking in their boots at the arrival on the scene of the noble Baroness, Lady Hayman. When she wants action, in my experience action is what she normally gets. If this Bill does not provide sufficient solution to the problems, she will find something that does—I promise you that. She repeated today the Government’s pledge of wider scrutiny of water, which could lead to some huge changes.
I also, in a House that is not an elected House, pay tribute to the local citizens who put their backs into campaigning against this stuff, including scientists who provided 200 samples a month of water from the Cambrian mountain source to where the Wye comes out in Monmouth. There is no doubt whatever that they have had had an effect. Natural Resources Wales at one stage claimed that chicken poo had nothing to do with what was going on, but even it has had to concede that now.
We can make some progress through amending this Bill. As noble Lords know, those possibilities are being explored. At the very least, the Bill and the debates on it present a matchless opportunity to promote the cause of this iconic river and stop it dying before our eyes.
Baroness Browning (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Lipsey, and I congratulate him on the work that he has undertaken to protect the beautiful River Wye. I declare that I am a member of the APPG on Water.
I welcome this short but focused Bill to address the water system, which we know is broken on many levels. The tests of its success will be if the measures outlined will be statutory standards rather than guidelines, the real power of regulators, and timely enforcement rather than missed targets.
Clause 1 requires regulators to be able to block payment of bonuses to executives of water companies that fail to protect the environment by allowing UK waterways to be polluted by sewage. Do those penalties include directors’ shares and dividends?
Ofwat’s Water Company Performance Report 2023-24 talks about there being a need for urgent action to drive lasting improvement within the sector, as it is disappointed that water companies have fallen
“further behind on key targets for pollution and internal sewer flooding”.
For a regulator, the choice of that word “disappointed” rather smacks of the benign schoolteacher writing an end-of-term report. I hope that the measures in this Bill will turn it into a real regulator and not just a group of disappointed people.
While we are talking of individual penalties, I ask the Minister what the Government’s position is on regulators not being stuffed with ex-water company employees. Do they have a view on this? Is it pertinent to what the Government are trying to achieve?
Clause 2, which has been mentioned already—on the pollution incident reduction plans to reduce the frequency, seriousness and causes of pollution—is particularly important for the shocking state of our rivers, from the Wye to the Thames, not forgetting those very important chalk streams. I notice here that the power of the Secretary of State, in consultation with the Environment Agency, will be subject to guidance under secondary legislation, which the Minister mentioned. The Minister will be aware that Members of both Houses have interests in particular water courses, as of course do the public. I hope that she will look again and confirm that this secondary legislation will be subject to the affirmative resolution of the House so that we have an opportunity to discuss it—not just some statutory instrument laid without proper scrutiny.
I notice that the document that appeared only late this morning—the memorandum from the Department for Environment, Food and Rural Affairs about delegated legislation—states that, in particular in this part of the Bill:
“This power is intended to be used exceptionally, and only in circumstances where the Secretary of State considers water companies to have failed to include material relevant to the function and purpose of a Pollution Incident Reduction Plan … There is no parliamentary procedure required for giving directions under the WIA 91”—
the original Act—
“and the Department does not consider that the nature of the direction proposed would require a departure from that position”.
I have to ask the Minister to look again at that because it is important in this section of the Bill that Parliament, in both Houses, is aware of it.
Clause 3, which of course is new Chapter 5 of the Water Industry Act 1991, requires water companies to report on discharges within very narrow timeframes. That is all well and good, but I am disappointed that the Government are not also seeking, even if it is in a different Bill coming forward, to reduce the volume of wastewater entering the sewerage system in the first place.
Something which I have raised several times on the Floor of the House is the use of grey water, from rainwater run-off and domestic appliances, which adds to the volume of the sewerage system. I have asked several questions about the need for both domestic and commercial changes to building regulations; I have always been told by the Front Bench that it is too expensive. Surely, with the Government’s ambitious housebuilding programme, now is the time to incorporate it in new builds, where the need for immediate connection to the existing system may end up being in conflict with the measures in this Bill. I hope that the Minister will, if necessary, discuss this with the appropriate department with those responsibilities.
There are a few other things that I would like to raise. Will there be a review of existing licences, some of which go back many years?
When I lived in Devon, my home was subject to three feet of flooding throughout the ground floor on two occasions, eight years apart. When a house floods like that, I know to my personal cost that it is not just a matter of waiting for the water to go down. We were out of our home for six months each time. I would have liked to have heard more about the need for flood prevention in critical areas. We all know this is going to get worse due to climate change.
Have the Government anticipated that higher corporate financial penalties, as promised in the Bill, may be scapegoated in future to explain the lack of infrastructure capital investment? How can this be avoided? I hope the Government have reflected on that.
I hope to participate in Committee, when we shall of course deal with the detail. Will the Minister publish an impact assessment before Committee? Can she confirm the timetable after Royal Assent and say when she anticipates the measures in the Bill will be enacted?
Baroness Parminter (LD)
My Lords, yesterday we learned that water companies failed, for the fourth year in a row, to meet critical pollution reduction targets and that last year over 3 million hours-worth of sewage was flowing through our waterways in England. And yet, like the noble Duke, the Duke of Westminster—
Baroness Parminter (LD)
I heard on Radio 4’s “Today” programme that the response from the regulator was that what was needed was a change in culture. Now, putting aside that it seemed strange that the regulator would say culture change was the answer, the issue is that these companies have had the chance over decades to show that they can change, and they have not. Now is the time for the Government to intervene.
Like others, I welcome the strong manifesto commitment by the new Labour Government to clean up our waters, rivers and beaches, and I welcome this first step. It is not going to do it on its own, as indeed the Minister said in her opening remarks, but it is a welcome first step which will do something to help regulate these failing companies and extend the remit of this sadly ineffective regulator. At the same time, it will hopefully allow the Government to undertake a broader review where they can identify a way forward for this broken model of managing our precious water resources.
The special measures Bill is welcome, but there are a number of areas I would like to see strengthened. I find it very concerning that there is not a public interest remit for the regulator Ofwat. I think the general public would find it very surprising that the regulator for our water companies does not have any need to look at issues of ensuring clean water or improving the environment. However, it does have binding, legal duties to improve the economic performance of companies. Over time, this has allowed them to sweat assets and put profit before public interest. That must change. Again, as the noble Duke, the Duke of Westminster—
Baroness Parminter (LD)
I am so sorry: the noble Duke, the Duke of Wellington—it is not easy to muddle the two, so apologies for that. He rightly made the point that this situation was actually made worse by the last Government when they introduced the legislation that made Ofwat have regard to the desirability of promoting economic growth when it was undertaking its duties. We have to redress that balance. Of course, water companies have to make a profit—we cannot have companies that do not make profits; they would not be in existence—but there is an imbalance between focusing on the bottom line and ensuring that public interest in our water is delivered by these companies. That must be redressed. The special measures Bill, by changing the remit of Ofwat remit to have a public interest duty, is a way to do that.
I very much welcome, in a spirit of hope rather than expectation, the pollution incident reduction plans that will do what they can to ensure that we see less pollution in our rivers and waters in the future. Like other colleagues, I feel very strongly that it should be a duty not just to produce and publish them; there must also be a duty to implement them. It must also be a duty on all water companies, both straight water companies and water sewerage companies. We would like to see some amendments on that.
We need to make sure that those pollution incident reduction plans do not just end up being stuffed full of the cheapest and quickest options to tackle combined sewer overflows. If we allow that, all we will end up with is downstream proposals for end-of-pipe storage, such as concrete storm tanks, at water recovery centres, rather than looking upstream to find sustainable—admittedly more expensive—options that will deliver sustainable drainage and other nature-based solutions. These will not only deal with the combined sewer overflows but will offer other benefits to society more broadly, in terms of flood alleviation and liveability for communities, if we are talking about sustainable urban drainage systems, for example.
So I hope that, in Committee, we will have the chance to ensure that those pollution incident reduction plans are not just stuffed with the quickest and the cheapest but actually move companies towards looking towards the sustainable and the best.
Like other noble Lords, including the noble Earl, Lord Russell, who spoke so well earlier, I want to add my voice to say that I hope that, in summing up, the Minister today will be able to say a bit more about the review on which we are all pinning such high hopes. Like others, I would very much like to see a very clear and firm look taken at the operating and financing models of companies. My party has long and strongly argued for social and environmental purposes to be incorporated in water company corporate articles of association. I very much hope to see that sort of aspect looked at.
We need to make sure that all areas across government are included, because there are so many areas which impinge on how we manage our water, including talking about planning rules for new homes and the right to connect for developers, or incentivising sustainable agriculture so that we help farmers to do what we need them to do and not contribute to some of the run-off that the noble Lord, Lord Lipsey spoke so powerfully about, and really starting to prioritise catchment-scale planning for water. We need to look at all the areas in that review and ensure that we have an enforcement regime that is worthy of the name. Without that, it is not worth the paper it is written on.
I will add one thing that no other Member has yet mentioned this afternoon. I hope that the review will look at the role of consumers, of us as individuals, in paying for all the new infrastructure that will be required to deliver the water services we want and need and also at our responsibility to save water, which for too long has not been articulated strongly enough. I remember that 10 years ago, during the passage of what became the Water Act 2014, I made the case for compulsory water metering and better standards for installations in homes. The case for compulsory water metering with social tariffs has not gone away; it is still here. However, I hope that the Government will at least look at the role of what consumers are expected to do and pay for in this whole review, because they must be an integral part.
I was very pleased to hear the Minister say that there will be public consultation on this, because it is our water system. It is a problem that all of us know about, wherever we live, whether it is on the Wye or me by the River Wey in Surrey. We have all had our water stopped and have all seen slurry in the rivers. All of us have a say in this and the public will want us to do the best we can to help the Government make this special measures Bill and the review what they need to be.
Baroness Jones of Moulsecoomb (GP)
It is always a pleasure to follow the noble Baroness, Lady Parminter, but it is also daunting, because she can speak without notes for eight minutes. I cannot do that because I have so many complaints about the Bill, so excuse me for reading notes.
We have heard about the organisation River Action a couple of times; I am on its board and it will be playing a role in giving advice to the Government on how the Bill can be improved.
I know that the Minister knows how much I admire her and trust her as a Minister and in her role today. But, at the same time, the Bill is deeply disappointing. It is disappointing to the point of being almost a joke, because it does not do what the majority of people would like it to do. It is about the regulation of a capitalist monopoly and the good management of a privatised cash machine that water bill payers subsidise. The money just goes straight out and we do not get a benefit. The Bill tries to regulate by using the same people and organisations that have failed for the past 30 years. How can that change? I do not see that that is possible.
The Bill also tries to threaten the top people with jail time using the same tools that have been failing to work for 20 years. What it does not do is get back the billions of pounds that these company shareholders have pocketed for decades, or even stop those same shareholders from pocketing billions of pounds of our money in the future. Nor does it stop the water companies dumping sewage in the waterways. Instead, we hear about Ofwat making backroom deals that will keep the private companies in business by weakening the enforcement of regulations. I do not understand how that can be happening.
We should enforce the regulations—if the businesses fail, they fail—and let the companies know that this Government want the work done. Ofwat has made clear that the water companies have had the money they need, so they must either get the job done or give us a refund. What the Government should not do is allow these companies to run up more debts in order to pay out more dividends. Those debts and dividend payments have already cost us four months-worth of water bill payments. In what other area of life are consumers paying out four months-worth of bills each year but getting nothing back in return?
We are not even being offered a guarantee of clean water or that the leaks will be fixed. In fact, we have the insanity of a country soaked in record rainfall arranging a deal that would use tankers to import Norwegian water in the event of drought. That is so lunatic that I cannot even finish my sentence about it. As other noble Lords have said, water is a basic of life. We need water—all life needs water—so why is it in private hands and subject to profiteering?
Much of this Bill is about what happens when a water company fails and goes into a special administrative regime. Ministers have said on several occasions that they will not bring water companies into public ownership because of the cost. They have been quoting a six year-old Social Market Foundation report, but they ignore the very recent calculations by Moody’s and the S&P credit rating agency that these shares are junk. Their estimate of how much it would cost is very different.
Professor Ewan McGaughey of King’s College London said:
“Special administration would not cost the Treasury or taxpayers anything ... special administration enables the Minister to put a plan before”
the High Court to cancel a company’s debt
“if continued payments to banks would interfere with properly carrying out the water company’s sewage or clean water functions”.
So why does the Minister not just do that? Special administration sounds great and very cheap. As Professor McGaughey said:
“The best way to clean our water is with more investment. Forty percent more investment would be possible if we stop bailing out banks and shareholders with billpayer rises. It will cost us over £12.5 billion this Parliament to keep paying shareholders and banks. … The right way to close this black hole is to make failed companies lose their licences, cancel the debt and transition to public water … This is all possible under the existing law”.
As for the debt that was accumulated to pay shareholder dividends, I understand that the Thames Water debt is now being traded by hedge funds. They are buying this debt on the cheap because they think this Government are stupid enough, or corrupt enough, to compensate them at a higher level. As much as I hate the idea of rewarding the parasites in our water industry with compensation for worthless shares, I dislike even more the idea of hedge-fund managers making a profit from a Labour Government’s ideological rejection of public ownership, so will the Minister give me an assurance that minimal compensation will be paid to the creditors of failed water companies and that our water bills will not be used to line the pockets of the hedge funds?
The Minister mentioned in her opening statement that this Bill had public support. I knocked on a lot of doors during the general election—I spoke to a lot of people in their homes and on the streets—and I think that a huge number of people, if not the majority, would support the following criteria for a more radical water Bill: no compensation for shareholders, minimal compensation for creditors, and public ownership being one of the options for these failed companies.
I will bring forward amendments to ensure that this Bill does not simply allow these failed zombie companies to continue extracting bill payers’ cash while loading huge amounts of debt on to the balance sheet. The Government need a serious look at the opportunity to bring these companies into public ownership, and this Bill should give Ministers the option to nationalise these companies where it makes sense.
Lord Sikka (Lab)
My Lords, it is always a great pleasure to follow the noble Baroness, Lady Jones of Moulsecoomb. This Bill has more holes than Swiss cheese. I shall give noble Lords some examples. It promises to ban bonuses for senior executives but is silent on how the ban is to be implemented. Water companies can bump up basic executive pay and thereby eliminate the need for any bonus at all. Most water companies are part of large groups of companies and can offer multiple directorships to individuals, so no bonuses are necessary whatever. I hope that in her reply the Minister will tell us how this bonus ban will operate in practice.
The Explanatory Notes refer to a bonus ban for degradation of “financial resilience”. I know a thing or two about financial resilience, but there is no definition in the Bill and I have no idea whatever of what the Government mean by that. Again, I hope that the Minister will give us some ideas. How is this assumed financial resilience to be secured? Shareholders are already reluctant to invest. More debt will not increase resilience. Currently some 28% of the gross revenue of water companies is used to service debt payments. With higher debt that percentage would rise, which would destabilise companies. That leaves higher customer bills as the only option. After 35 years of abuse, that is simply not viable. Again, I look forward to some clarity.
The Bill promises to bring criminal prosecutions against some water company bosses but provides absolutely no criteria. How much sewage and how often does it have to be dumped to trigger an event for prosecution? There is no clue in the Bill. In any case, there is a backlog of 60,000 Crown Court cases, so the chance of any timely prosecution is slim. Perhaps the Minister has in mind some additional investment in the legal system. It would be good to hear that.
The Bill does not curb the payment of dividends. In March 2023, Ofwat said that it would
“stop the payment of dividends if they would risk the company’s financial resilience”.
To date, there have been no restrictions on dividend payments. Not a single water company discloses its distributable reserves, so we have no idea of their dividend- paying capacity anyway.
The Government are pinning their hopes on Ofwat, but Ofwat is not really up to the job. It has presided over the entire mess. It has not curbed financial engineering. Water companies continue to inflate their level of investment by capitalising interest and repair and maintenance payments. That is permitted by Ofwat. Ofwat systematically favours companies over customers. Anyone has only to look at how the pricing formula PR24 operates. Ofwat uses fictitious gearing ratios to enable companies to receive real excess returns. That should really be a criminal offence.
Ofwat cannot be trusted. It is too cosy with the water industry. Two-thirds of England’s biggest water companies employ key executives who have previously worked at Ofwat. Executives of water companies and regulators regularly meet in hotels and expensive private clubs to discuss their common position and how to quell public anger about bill rises and sewage dumping. This Bill does absolutely nothing to check collusion with and the cognitive capture of the entire regulatory apparatus.
On 5 September, the Environment Secretary said that
“customers will have the power to summon board members and hold water executives to account through new customer panels with teeth”.
Without a statutory base, customer panels will achieve absolutely nothing. In my view, at least 50% of the board of directors of any regulatory body and the regulated entity need to be directly elected by customers. Customers must also vote on executive pay. If they think executives deserve higher pay and bonuses, then they can award them. Let there be a bit of democracy. At least give people the power to check abuses. If the Minister has any objections to the democratisation of the water industry, it would be good to hear them.
The main aim of the Bill seems to be to prevent public ownership of the industry. It enables Ministers to restructure water companies and return the monopoly to the private sector, with the cost borne by customers and the public purse. Clause 10 empowers the Government to provide financial assistance that they may or may not ultimately be able to recover. This strategy cannot address the cause of the crisis, which is profiteering and cash extraction by water companies.
If the water industry had been in public ownership for the last 35 years, £85 billion would have gone into infrastructure instead of dividends. Interest payments on debt would have been much lower as the cost of government-backed debt is always lower than that borne by companies; that would have freed billions more for investment. But the Government oppose public ownership.
In response to an Oral Question from me on 23 July 2024, the Minister said that public ownership
“would cost billions of pounds”.—[Official Report, 23/7/24; col. 364.]
That seemed to imply that the Government had actually done some calculation. So I quickly followed it up with a Written Question seeking details of that calculation. All I got in response was a reference to the Social Market Foundation report of 2018. If any of my master’s students had written that as a dissertation, they would have been guaranteed a fail. It is a dismal piece of work commissioned by water companies. A former government adviser has said that that report has “virtually no intellectual substance”. The £90 billion quoted in that report is utterly incorrect. When taking over an industry, one buys only the equity, not the debt—and that is what it included.
In 2019, Moody’s said that the equity value of water companies was only £14.5 billion. Since then, lots of changes have occurred: most water company shares are junk or worthless. Debt is junk: some of the Thames Water debt is trading at less than 6p in the pound. The Government should let the companies collapse and bring them into public ownership at low price. That is how capitalism operates: if a company collapses, it does not get bailed out. Only public ownership can provide long-term stability and it ought to be done through a not-for-profit organisation. The cost of this can be loaded on to the acquired companies, as the private equity model does, or it can be recouped by issuing public bonds, ensuring that people actually own essential industries.
The Bill is delaying the inevitable and, naturally, I will help the Minister by tabling some amendments.
Lord Remnant (Con)
My Lords, I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years between 2014 and 2022, chairing the board’s remuneration committee for that time.
Last month, the Secretary of State said that the Government planned to carry out a full review of the way in which the water industry is regulated and that this would shape future legislation. It is a shame, then, that this piecemeal Bill cannot be assessed in the context of more fundamental reforms to the way in which the water industry operates. Worthy of debate would be the plethora of sector regulators and the frequency of Ofwat’s periodic price reviews. Successive Governments and regulatory price reviews have prioritised lower customer bills over the industry’s investment needs. Now, however, in addition to greater accountability, we should be focusing on the need for more innovation, the recruitment of new talent and, above all else, greater investment to raise standards. My concern is that there are aspects of the Bill that run contrary to these objectives and where scrutiny of the rules set by Ofwat under the Bill’s general provisions, and of the powers exercisable by statutory instruments, will be limited.
I turn to the specific provisions of the Bill. Although I would normally view the stiffening of penalties in the form of automatic penalties, lowering the standard of proof and imposing custodial sentences as less of an effective deterrent than the consequence of a failure of the underlying regulations themselves and/or their oversight, it will be underperforming companies which have the most to fear from this. Clarification on the scope of offences to be covered and the potential value and proportionality of fines will be required, and I leave it to others to comment on whether imprisonment for impeding regulatory investigations is really the most effective utilisation of our apparently scarce prison capacity.
My principal area of concern relates to the rules for remuneration and governance. Clause 1 contains provisions giving Ofwat the power to block the payment of bonuses to the chief executives and directors of water companies. While sensible in principle, the devil will be in the detail, which may lead to unintended consequences. How best to remunerate senior individuals is complex. It involves alignment with the business’s strategic goals, balancing short- and long-term considerations, fixed versus variable pay, and attracting and motivating talent. Decisions are best made by the boards of companies, which take account of the views of all stakeholders, particularly shareholders and regulators, in assessing matters requiring fine judgments. This is not within the core competence of an economic regulator.
It is perhaps overoptimistic of me to expect the Minister to excise Clause 1 from the Bill in its entirety. There may, however, be areas of common ground on which I would welcome her thoughts. The Bill is too widely drawn. It states that the rules will apply only to pay which is linked to
“the meeting of any targets or performance standards”
by the water company or the individual. There is no clarity on how the relevant standards will be measured, which will fall to Ofwat to determine, nor on when the relevant trigger occurs and which remuneration will be affected. For example, will the relevant remuneration be that payable in respect of the year in which the failure occurs or when the penalty is imposed? Where remuneration is based on multi-year performance and there is a failure in only one of the years, would the whole award be impacted or only a proportion?
The key elements will be the metrics which Ofwat applies to determine whether the standards have been met. A properly constructed system of metrics linked to objective measures, which seeks to eliminate reward for failure but which aligns with the company’s own key performance indicators and does not penalise those in the industry who are meeting or outperforming stringent targets, should be the aim. Should the rules, however, be punitive and have the effect of discouraging the best people from working in the industry and restrict water companies from rewarding performance when appropriate, the consequence will be damaging.
Do we really want companies to move away from bonuses and long-term incentive schemes linked to performance to compensating increases in fixed pay? There is a precedent within the financial services industry when mandatory bonus caps were imposed—since removed by the last Government, a move endorsed by the current Government. The experience was not a happy one because it removed incentivisation and increased fixed costs, to the detriment of consumers.
In terms of employees within the scope of these rules, they apply to the chief executive and other directors of the regulated water company. The Bill provides that Ofwat may extend the rules to
“such other description of role”
as it specifies. Not only would such an extension be wider in scope than the current disclosure requirements of the Water Industry Act 1991, but it would be difficult to implement in practice as different water companies will have individuals described differently by title and role. This additional power conferred on Ofwat by the Bill should surely be removed if we wish to attract and support the next generation of leaders in this vital industry from middle management. This will not be achieved by extending these restrictive remuneration practices to them.
Clause 1 also includes provisions intended to establish consumer involvement in corporate decision-making. Clause 1(6) provides that this may include a requirement for persons representing the views of consumers to be
“members of a board, committee or panel”
of the water company. While I support the principle of strengthening the voice of consumers, this should not be through a highly prescriptive, one-size-fits-all approach.
We do not have different categories of director in this country. Non-executive directors may have particular specialisations, but they are chosen for their wider skills and ability to make a comprehensive contribution. Those representing consumer interests may not wish, or be equipped, to sit on corporate boards, with all the responsibilities and liabilities that entails. It should not be for Ofwat to require that such people sit on the boards of the water companies; it should be left to the companies to decide which forum best suits their own requirements, whether it be board, committee or panel. Providing such flexibility was effective when companies enacted the workforce engagement mechanism for the purposes of the UK Corporate Governance Code.
Finally, I turn to the section on special administration orders, which relates to the insolvency of water companies. Clause 10 gives the Secretary of State the power to modify a water company licence in order to recover any shortfall in costs for the Government from its consumers, and new Section 12J(4) extends this recourse to all other companies in the sector. Forcing good companies and their blameless customers to bail out failed companies cannot be justified. This unquantifiable potential liability will serve only to deter much-needed external investment in the sector.
There are provisions of this Bill which will deter the investment that the industry so badly needs, and experienced executives from working in it. Let us not return to a pre-privatisation environment. In particular, the discretion given to Ofwat is too broad, but I look forward to the next stages of the Bill, which will give us opportunities to improve it.
Baroness Pinnock (LD)
My Lords, as many have said, this Bill makes the first tentative steps in the right direction toward reforming the water industry, and it was good to hear the Minister recognise that this is just a start. There are many challenges facing the water industry such as the impact of climate change, which is expected to result in serious water shortages in some parts of the country; the requirement to meet the needs of a growing population, and the consequences for our environment. One of the strategic questions facing the industry and the Government is whether those challenges are better met by requiring the 11 water and wastewater companies, along with the further five water-only companies, to work more closely together in the interests of all of us as customers.
So far in this debate there has been a danger of treating water companies as if they are all behaving in the same way—something we ought to resist. Some companies are efficient and effective both in their operations and in their wider concern for the environment, but some are far from fulfilling the needs of their customers, let alone the needs of the environment. The thrust of this Bill is to force significant improvement of those companies in the latter category. I support what the Government are attempting to do; I am not saying that it is perfect, but it is in the right direction.
Privatised water companies provide an essential public service, which means that there is a delicate balance of responsibilities for each of them to achieve. On the one hand are the shareholders and investors wanting a return, rightly, on their investment, and on the other are customers wanting affordable bills and the environment to be protected and enhanced. It is this balance that, in some cases, has got considerably out of control. As many noble Lords have remarked, the righteous national outrage at the flagrant breaches of the use of storm overflows is just one indicator of an industry that has lost sight of its fundamental purpose.
The rot for some, but not all, companies started with the financial models adopted in the years following privatisation, where owners were able to extract value from the assets but leave the water company with a significant debt ratio—the total debt of the water companies currently exceeds £68 billion. Latterly, Ofwat has recognised that water companies have been too debt-laden and has forced a reduction of the debt ratio at each price review. However, that has been at the margins and has left companies—notably Thames Water—forced to concentrate their business on paying debt interest, perhaps paying down debt, at the expense of the basic public service of the company. This fundamental failure of governance and regulation has resulted in the various unacceptable behaviours that many noble Lords have cited. Clause 1 seeks to address some of those issues.
At this point, I declare that I was a non-executive member of Yorkshire Water for 10 years, fulfilling the role which the Bill identifies as being a voice for communities and customers. That this is a role which all boards should include is welcome, although I accept the argument made by the noble Lord, Lord Remnant, that it is not one we should define as is indicated in the Bill—that will not work.
Aside from the financial models, the problem is Ofwat. As the prime regulator—though not the only regulator—it needs to be abolished and replaced with a body that has more powers. Some of those powers are set out in the Bill, but fundamentally there needs to be a different regulator. As was previously said, we have a revolving-door syndrome whereby executives of water companies become executives of Ofwat, and sometimes back again. That is a malaise that has to be stopped; it reinforces bad behaviours and no new thinking comes into the sector. Perhaps as a result, Ofwat has failed to regulate the sometimes overly high profits to shareholders and bonuses to executives. Furthermore, as other noble Lords have mentioned, Ofwat has no powers to force water companies to improve environmental water quality, which includes preventing storm overflows being used as a cost-saving measure.
One of the inherent challenges in reforming wastewater treatment is that the public sewer system also takes the flows of surface water from the road network—something that the noble Baroness, Lady Browning, spoke about. The Government in their drive for more housing need to ensure that sustainable urban drainage is a part of any new housing development, and that, if need be, surface water attenuation tanks or ponds are part of preventing water surge into the public sewer system.
Finally, I urge the Government to consider ownership as well as financial models of water companies in developing a better approach to this essential public service. As part of that thinking, I urge them to develop the concept of a national water grid. It is surprising that areas where there is perhaps too much water are not used to push water down the systems of various companies to help those who are increasingly going to be short of water.
The system, as it is, is not doing its best; some say it is failing the customers and failing the environment. Some companies, in the drive for profits and investment, have lost sight of their sole purpose, which is to provide an absolutely essential public service. This Bill makes small steps in the right direction, but fundamental changes in approach are still needed, and I look forward to the Minister solving all those problems.
The Earl of Devon (CB)
My Lords, it is a pleasure to follow the noble Baroness. As explained, this is one step in a multistage water industry reform aimed at fixing, once and for all, the parlous state of our rivers and fresh water supply, which is damaging the environment and our well-being, and which acts as a significant drag on our national development ambitions, particularly for housing.
This step is aimed at giving teeth to the regulators to control water company conduct, enforce regulation and punish bad behaviour. It is to be followed by a full review of water industry regulation, which is yet to come, but by which the Minister promises transformative change. Let us hope so. I ask at the outset for the noble Baroness to provide more detail on the timing and the parameters of that full review. As the noble Earl, Lord Russell, noted, it is urgently needed.
I am concerned that the punishment and shackling of water companies inherent in this Bill will not provide the solutions that are required and may only encourage a talent and capital flight from the industry. We would all benefit from a better understanding of the long-term solutions to this decades-old problem. This Bill has an unfortunate hint of short-term tarring and feathering of the water industry management for past sins. Perhaps it is His Majesty’s Government proving that they are not chicken faeces.
I note my interest as a farmer and land manager in rural Devon, with fundus interests in the River Exe estuary, which is blighted by sewage leaks. Areas of the estuary are unsafe for commercial shellfish due to human faecal contamination, and a local swimmer in Exmouth has launched a civil lawsuit against the local water company for her inability to swim off the shore. I am, as we all are, a water company customer. I also work at a law firm that has a number of major water companies as clients, albeit that I do not work for them directly. I therefore see this issue from all sides.
I am minded that water companies have long been wrestling with ageing infrastructure, considerable increases in demand and the need to be competitive in the international marketplace for capital. Moreover, they serve one regulator, Ofwat, which is keen to control consumer prices, and another, the EA, which has suffered a rollercoaster of funding and target changes over the last 20 years. While they have indeed paid excessive bonuses and dividends, it is too simple a narrative to blame corporate greed for the state of our waters.
Given that this Bill is only part of a broader water industry reform, it is obviously not a panacea, and it will not address many of the egregious issues we face. It focuses mostly on the stick, without providing carrots to encourage and support the investment and good behaviour needed. For example, take the provisions regulating executive pay, which we have heard so much about, and sentencing and liability. The pay provisions take power from shareholders and put it in the hands of Ofwat, while the liability and sentencing provisions increase dramatically the jeopardy and peril associated with working for a water company.
To echo the noble Lord, Lord Blencathra, with these provisions in place, how on earth will water companies recruit the expertise needed to implement the fundamental changes that will be required once the full review is complete? Who on earth would want to become a water company director if they will become subject to punitive sanctions and strict limits on performance-related bonuses? Surely, as the noble Lord, Lord Sikka, noted, this will result in considerable increases in basic salaries to attract the necessary talent. This will impact profitability, increase prices paid by customers and limit the funds available to invest in essential infrastructure.
I am grateful for all the briefings we have received, which accept that the industry’s principal challenge is infrastructure investment. Since privatisation in 1989, and doubtless long before that, the water industry has simply not invested at the rate required to keep up with population growth. This Government are determined to put a rocket under housing development, with their promise of 1.5 million new homes, and yet I see no provisions within this Bill to improve long-term infra- structure investment. I understand that the Environment Agency is already rejecting substantial housing developments across the country on the basis that the provision of water and sewerage cannot be guaranteed. We are all aware of the impact of the nutrient neutrality rules blocking development in sensitive catchments. Could the Minister expand upon the Government’s plans to enable the much-needed increase in capital spending to free these constraints?
As for the provisions on special administration regimes, they are clearly designed with the perilous state of Thames Water in mind. I note that no impact assessment has been published. Is there any risk that the introduction of these provisions may encourage water companies to seek the solace of insolvency sooner than they might otherwise do and thus hasten their collapse?
With respect to environmental matters, I am grateful for the briefing on water industry impacts on national parks, including in the Lake District and Lake Windermere. These provide a good case study of the water industry’s travails. It is noticeable that some of the issues identified, including the heightened nutrient run-off in the summer months when fresh water is scarce, are the product of the popularity of the lakes for visitors and not necessarily due to inadequate provision of services to the resident population. Is this, therefore, not necessarily a problem of the water company’s making but rather due to the popularity and success of the national parks in encouraging the huge influx of visitors into these very sensitive ecosystems? Noble Lords who followed our debates on agriculture and the environment will know that I am passionate about access to the countryside. But that needs to be access that is funded and supported by investment in infrastructure, so as not to damage the vulnerable ecosystems that we so cherish.
I have heard similar issues raised in discussions regarding the River Exe, in which concerned communities bemoan the terrible state of the once abundant river, named “Isca” by the Romans due to its surfeit of fish, which is no longer. These communities blame the farmers for their run-off and the water companies for their sewage leaks, without ever truly reflecting upon the mass of population who consume the food that the farmers produce and then produce the waste that the water companies remove—while insisting on ever-lower prices for both services. Ultimately, it is we who are the polluters. We need to invest properly in both our agriculture and in our water companies if we are to care for ourselves, our land and rivers.
Finally, I note the considerable environmental investments that have been undertaken by various water companies over the years, such as the south-west peatlands project, which has re-established over 1,000 hectares of peat on Dartmoor since 2020. Could the Minister explain how the Government intend to build such upon excellent pilot projects to seek nature-based solutions to the infrastructure challenges that the water industry faces?
Lord Inglewood (Non-Afl)
My Lords, I begin by declaring my interests in the register and by saying how much I enjoyed the preceding speech from the noble Earl, Lord Devon.
Nearly 40 years ago, I spent about a couple years as a non-executive director of North West Water, the pre-privatisation predecessor of the United Utilities water section. In my initial briefing, I was absolutely gobsmacked by the revelation of the extent of the problems thrown up by dirty water and its treatment. It was explained to me that, over possibly three or four previous generations, the dominant de facto control over these things had been in the hands of the local authority. In practice, vastly insufficient resources have been put into the underground infrastructure. The Alderman Foodbothams, to use Peter Simple’s graphic phrase, thought there were no votes in burying ratepayers’ money. Of course, they were right then.
Since those days, as we have heard from a number of speakers, there are now more people, more houses and more pollution, coupled with a genuine recognition that pollution really matters and needs addressing effectively. At the time I was involved, privatisation was in the wind. The rationale was that it would help deal with these issues. My experience suggests that the problems that I discovered then were, if anything, underestimated. They are turning out to be more difficult to deal with than was anticipated, not least because a certain amount of the low-hanging fruit has been plucked.
I believe that privatisation as taken forward has brought a number of benefits, but not universal benefits—we should remember that. The question we should ask ourselves is: what are water companies for? Their essential purpose is supplying clean water, then treating dirty water and returning it to the natural environment clean. The combination of corporate structures, with their extensive legal implications, and the regulatory framework was intended to provide a better vehicle for doing that—and, as I said, it has brought benefits. But—this is the important thing—while most directors of responsible companies are decent people who behave responsibly and are law-abiding by instinct, a certain number of people are dazzled by the financial services sector and become disciples of Gordon Gekko, in that “Greed is good”. Dazzled by the gold, they lose a proper sense of proportion. Some of the abuse that has taken place in the water sector is the result of that.
What matters is what is happening on the ground—or perhaps I ought to say what is happening in the water. The noble Earl, Lord Devon, referred to Lake Windermere, where, as we all know, there has been a well-publicised campaign about pollution problems. As he said, those are urban not rural in origin. It is true that the water in the lake is not up to the best target standards, but for years considerable sums have been spent, progress has been made and measures put in hand to improve matters.
The problem is that the way in which that campaign has been promoted has had a damaging impact on the tourist industry there. As your Lordships will know, the tourist industry was very badly hit by Covid and has not properly recovered. The message that has been received in many places is clearly—wearing my hat as the chairman of the Cumbria LEP, I have been told this by a number of angry people in the visitor economy —that, if you go on holiday to Windermere, you will be having your holiday on the Costa del Septic Tank. As can be imagined, that is not something that positively encourages people.
This is a very real and serious concern, which we must bear in mind in parallel with the overriding long-term objective of improving water standards. The scale of the problem is such that we cannot solve it all immediately—and if resources are transferred from one place to another place, somebody else is going to suffer. There has to be progress over time, which will inevitably involve a degree of political direction. We do not want to duck that.
Finally, I turn to a similar but much smaller-scale matter, which I hope I will be allowed—having been given my pass to the political tumbril—to illustrate from my own personal circumstances. It is a good graphic example of something that has a much wider application. The Minister, as a noble Cumbrian, knows that my home is too big, and is situated in the Petteril catchment area, which is part of the Eden catchment area—one of the problem catchments in this country. It has been designated as a place of national importance, which, both by statute and by contract, I am obliged to look after properly—and that is what I am trying to do.
Some of the adjacent cottages, which are an integral part of the whole, are served by a United Utilities septic tank subject to a grandfathered discharge licence dating back between 50 and 100 years. Nobody would get a discharge licence on those terms now, but it is valid. The result is that, from time to time, horrifyingly disgusting discharges go straight into a stream that is part of what I might describe as a water feature—part of the garden, which is of national significance. Visitors pay good money to see that and there is absolutely nothing I can do about it.
I have talked to United Utilities about this, and the people there they explain that there is a licence to discharge, albeit that it is below contemporary standards. It is not a priority for them. I can understand their point, and where their thinking is coming from. Across rural Britain, and England in particular, there are many similar arrangements, which for practical purposes are equivalent to the well-recognised and understood private small-scale systems that exist.
I suggest that the best way of dealing with the kinds of problems that such arrangements bring about is to transfer the responsibility for dealing with those discharges from the utility company to the private landowners affected, together with a dowry to enable them to carry out the work. The companies would be relinquishing their responsibilities and taking them off their balance sheet. Speaking for myself—and, I dare say, for a lot of other people—I would much rather be subject directly to the rules and the law, and be able to take responsibility and gain control over my own immediate environment, than have no choice but passively to endure the noxious consequence of the inactivity of the utility.
I raise that as a thought, and in conclusion I simply join others in saying that I am looking forward to considering the Bill, and also the promised review in due course. This manifesto Bill is targeted at a real abuse, but we need to examine it and ensure that it meets its purpose well and avoids collateral damage. After all, that is what the House of Lords is for.
Lord Whitty (Lab)
My Lords, I do not wish to repeat the statements that have been made on various sides so far, so I will start again and review some of the history. I do so from a number of different perspectives. First, I was once an official of the trade union that organises most of the workers in the water industry, which would strongly prefer a return to public ownership. I have to tell my noble friend the Minister that we are in a strange week. We are reviewing the two most unpopular privatisations, rail and water—unpopular, that is, with their individual consumers. With one it is clear what the second stage will bring—a return to public ownership, in a form that still requires some determination and definition. However, here we are unclear about what the second stage will be.
Having said that, I strongly support what is in this Bill. To those who represent, directly or indirectly, the interests of the directors of water companies, I say that the more stringent measures to be taken against directors and boards of water companies will be triggered where they have broken the regulations, broken the law, and failed to run their company in line with the commitments given at the previous price review and the strategic plan agreed with Ofwat.
Those are egregious offences and they require those draconian powers—as some see them—to ensure that the behaviour of the management of the companies complies with the intention of the law both on the regulation of the industry and on the environmental regulations. When the regulatory restructuring was first established, it was assumed that water was like any other natural monopoly, which required strong regulation as there was no pressure of competition. Indeed, the only competition in this industry has been through takeovers and consolidation, and that has not benefited consumers of water.
I speak from various perspectives. I was a Minister in Defra at a time when water regulation did not seem too bad. Indeed, I acknowledge that, in the first 10 years or so of water privatisation, there was an increase in investment—certainly over and above what the state had done previously—and there were some major improvements. These were financed both by investment within the industry and the sell off by water companies of their non-water assets, including substantial amounts of land, which has made the environmental benefits of the previous water companies and the environmental regulations we have sought from them less easy to deliver. I was subsequently briefly a member of the board of Ofwat and, for quite a long time—mainly under the tutelage of the noble Baroness, Lady Young—a member of the board of the Environment Agency.
My experience in Ofwat was terrible. It was the weakest possible regulator. I remember one major company failed to meet its commitments on leakage, for example. The tariff would have enabled us to fine it £250,000 for its breach of its commitments, but we actually fined it £12,000. It has always been a weak operator.
I then moved across to the Environment Agency. At the time, I consulted with the Ministers of the then Labour Government on whether I could sit on two boards. I subsequently found that that would have been a good idea—naturally, I would have taken only one fee. That is why, if I cannot have the outcome for the longer term—as the noble Baroness, Lady Jones of Moulsecoomb, was advocating—my second choice would be that of the noble Duke, the Duke of Wellington. That is, to have a single regulator that covers a lot, or all, of the three major regulators—four if you include the Welsh board—in one place, with one strategic plan and one strategic outcome at the price review, whose timing and scope need to be reviewed as well. That would make it a much more powerful regulator than it currently is. That is my second choice, and I hope that the review the Minister promised us comes up with that solution fairly fast.
Another problem with the present situation is that Ofwat and the Environment Agency do not properly talk to one another. This has improved a bit, but the coincidence of their objectives, on both timescale and the way they deal with the companies, is not the best example of co-operation I have found in state bodies. Again, that is a reason I support the noble Duke, the Duke of Wellington.
When I stopped being a regulator, I became a consumer champion. I agree with the doubts people have expressed about putting consumers on the board—that may or may not suit a particular company—but the Consumer Council for Water, which has managed to sustain its lack of resources and still perform a useful role, needs to be seriously strengthened. I ask my noble friend the Minister whether, even in this short-term Bill, we could give extra powers and resources to the Consumer Council for Water. It can represent the interests of both household consumers and small companies, which are crucial users of the water industry’s output. Like farmers and others, they are affected by the environmental regulations that are required to clean up our waterways. The role of regulation of the water sector is not simply about the price and cleanliness of the water that comes through our taps—which has, for the first time in my lifetime, been questioned in one or two areas; it is about the environmental effects on our streams, rivers, seas and beaches. Consumers come in many forms, and the consumer role in this sector needs to be strengthened, not weakened.
I hope my noble friend the Minister can take that point on board and that all these considerations are taken into account in the second stage of this and the review. I also hope that that review is concluded fairly fast, because the companies, consumers and the environment need to know. The rivers, lakes and seas mentioned in this debate need a future different from the one that faces them at the moment.
Lord Douglas-Miller (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Whitty. I congratulate the Government and the Minister on making such a prompt start in addressing some of the long-standing issues associated with pollution emanating from the water sector. However, for a sector that is in dire need of significant long-term investment, strong management and increased financial stability, the overall impression the Bill gives is that the Government are anti-business, with far too much stick and not nearly enough carrot.
I completely agree that the water companies collectively need to improve both their performance and their financial resilience—areas in which they have let themselves down over the last years. The level of financial gymnastics that has so exercised the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones, over the years has left the industry in a poor state to invest in the necessary infrastructure improvements and to reduce pollution incidents. Regrettably, the vast majority of those associated with this have long since departed the scene, and this Government’s desire to punish the sector through increased regulation and interference with market forces risks pushing the water companies further down the wrong road and making them less able to respond to the investment that is so desperately required.
It is not, as is often portrayed, a universally poor picture across all fronts in the water sector. In fact, on value, what customers get at the moment is really pretty good. Most get all the clean water that they can consume, and all their wastewater taken away, for little over £1 a day. What they do not get, and what they want to see, is their wastewater being managed responsibly and not illegally poured into our rivers and seas without due process. Crucially, customers do not want to see—although I fear the Bill will deliver it—increased costs and volatility in the sector.
One of the great challenges in this space is that the illegal dumping of sewage is often conflated with the legal process of sewage being released in high-rainfall events, which has been a feature of our system since it was designed by our Victorian forebears. Of course, both these outcomes are highly undesirable. Illegal dumping of sewage should rightly be penalised by strong measures, such as significant fines and bonus reductions, to prevent this happening. However, the reality is that the infrastructure requirements needed to reduce the legal release of sewage in high-rainfall events will take significant investment of time and resources.
Care should be taken by this Government to ensure that we do not create an environment where no good, top-quality executives want to go near this industry because of the draconian penalties and the random way in which government and its agencies run roughshod over the sector. Moving from where we are now to where we want to get to is a far from simple task. It will require capable and hard-working individuals to drive change through. In essence, I am saying: do not frighten the horses in a mad rush to punish an industry where those who have created the problems have long gone and those who are needed to sort it out are in short supply.
This begs the question: how was it allowed to get into this state? The answer, I am afraid, comes back to the inadequacies of the regulators. This is a serious cause for concern, as the Bill gives a whole range of new powers to the regulators, which have not shown a high level of competence to date. I ask the Minister to reflect on whether it is appropriate to give the regulators additional powers that interfere with the running of a large-scale business that they clearly do not understand.
In conclusion—to avoid repetition and in the interests of time—I support the comments made by my noble friends Lord Blencathra and Lord Remnant. In particular, I question the fit-and-proper-person test and the need to have consumer representation on water company boards. This, in my experience, will lead to conflict and paralysis in the boardroom, the inevitable slowing-down of decision-making, increased volatility and, worst of all, increased costs for the consumer.
Lord Cromwell (CB)
My Lords, I support the intention of this Bill in its pre-Committee stage. I know that the Minister will be looking forward to the flow—possibly even the flood—of useful and constructive amendments that will be coming her way from all across the House and beyond.
Water is our most precious resource, yet we have allowed it to be managed for short-term financial gain and with inadequate regulatory intervention. The saying goes, “Don’t excrete where you eat”—or words to that effect—and yet mixing sewage and water, initially excused as an occasional force majeure, is now standard practice. Turning around the decades of infrastructural neglect and creating a resilient water and sewerage system will take a generation and need consistency through multiple electoral cycles. The last Government talked about 25 years and more than £50 billion. Taking water companies into public ownership, as some advocate, would apparently—and I look toward the noble Lord, Lord Sikka, on this—cost an estimated £90 billion and take a long time to implement. Either way, the investment cost is going to be enormous, but not meeting it in the past is how we have got into this mess in the first place.
Meanwhile, climate change, rising population—to which the noble Baroness, Lady Pinnock, referred—and new types of high demand for water, such as data centres, are adding further challenges to the existing infrastructure. I therefore welcome, as others have, the full review of the water system announced by this Government. I hope that the Minister will be able today, to some extent, to share with us what the scope, the format, the timetable and the level of independence are going to be of that review.
The Bill sets out a range of punitive measures for water companies, both personal and corporate, including imprisonment, which many others have spoken about, so I will not detain the House further on those. It also includes consumer representation at board level, and I am with the noble Lord, Lord Whitty, on this. I welcome that challenge being brought to board level rather than being ghettoised in some panel on the second floor. I would much rather it was a board-level issuing challenge. However, while these things may reflect the public mood, the fact is that, as the last speaker mentioned, many of the guilty horses have long ago bolted, heading for the hills with their saddlebags full of treasure. Debt-free companies have been loaded with debt, now at 70% to 80% debt to equity. Despite the failure to invest sufficiently in the infrastructure, substantial transfers of value have been made by water companies to their parent companies across the globe while, in some cases, piously claiming that they had not paid shareholders a dividend for years. This is something that the regulator repeated to us when giving evidence to the committee I was on.
While some water companies—and here again I agree with the noble Baroness, Lady Pinnock—have performed better than others, it is going to be a long, hard and expensive slog to put things right. It will be a thankless task of trying not to succeed but just to make things less bad for a long time, while at the same time under personal risk of financial and/or criminal penalties, compounded by public resentment that the cost will ultimately fall on the consumer. This makes me ponder, as others have: who would now want to take on such a role, with such possible outcomes and high levels of public hostility?
My two questions to the Minister, therefore, are as follows. First, do the Government accept that a very attractive—but no doubt therefore criticised—employment package will be needed to secure, retain and hold to account managers of water companies and of regulators with the necessary skills and robustness? Secondly, do the Government also recognise that, for earlier investors, the party is largely over? They are decreasingly willing to provide capital to UK water companies, and that is a very big challenge for a Government who are seeking private finance to right the wrongs of the past.
Turning now to the regulators tasked with enforcing this Bill, Ofwat has been, so long as water was plentiful and cheap to the consumer, light-touch—and, frankly, outsmarted by private equity financial engineering. The Environment Agency, which will have a vital role in monitoring performance against the stipulations in the Bill, has been drained of resources and morale. I agree again with the noble Lord, Lord Whitty, on the disconnect from Ofwat. Defra, as a supervising department, was found by a committee of this House—of which I had the privilege to be a member—to have been overly complacent about both the water companies and the regulators.
Will the Minister explain how all these issues— the lack of skills, of resources and, above all, of incisiveness—will now change as part of achieving the purpose of this Bill? Simply putting up water bills, as the companies propose, will not create enough money. Hedge funds know this and are reportedly buying up discounted Thames Water paper, to which other speakers referred. Financial restructuring and swapping debt for equity are likely to follow. Will the Minister therefore explain on what grounds the Government think that the regulators—or, indeed, government departments—will be any better at understanding and supervising hedge fund strategies than they were with private equity financial engineering?
Finally, there have been significant issues around the lack of monitoring data and I am glad to see that the Bill starts to address this. Let us remember that it was civil society, not the regulators, that persistently highlighted the sewage pollution issues and it will be an important monitoring ally in keeping both the water companies and the regulators up to the mark. Otherwise, there a risk here of the regulators marking their own homework and blame-shifting between organisations. New Section 141F set out in the Bill is helpful on this, and this is reflected in the positive comments of the Information Commissioner’s Office. Nevertheless, an amendment is going to be needed that expands it to include requirements that monitoring data must be automatically available, online and in real time, including the volume and type of discharge and an explanation of why it happened and what is being done to mitigate and prevent a recurrence.
To conclude, I support the Bill as far as it goes. It is a first and belated step to address one aspect of the problems of the UK water and sewerage system. The systems we inherited from the Victorians reached their capacity in 1960. To build a resilient water and sewerage system fit for the future, we will need a long-term strategy, cross-party co-operation and consistent long-term resourcing. All of these are very, very substantial challenges.
Baroness McIntosh of Pickering (Con)
I am delighted to follow the noble Lord. I congratulate the Government on bringing forward this Bill so early in the Session and on the ongoing work that the noble Baroness set out in the water sector. I welcome her to her place as she guides her first Bill through this House. I declare my interests as an officer of the APPG on water, as co-author of Bricks and Water reports on various aspects of flooding and water management and as having worked with WICS, the Water Industry Commission for Scotland, for some four or five years to 2015.
The Bill examines the role and powers of the water industry regulators and the responsibility of water companies. The Explanatory Memorandum sets out the legal background to the Bill and refers to a number of previous Acts that are referenced or amended by the Bill. However, there was one glaring omission, that of the Flood and Water Management Act 2010, which set out many of the standards referred to in the Bill—for example, on page 2 of the Bill, standards that relate to the environment.
There are clearly, as my noble friend Lady Browning set out, related issues between the flooding and pollution aspects of the Bill. Others—the noble Baroness, Lady Parminter, in particular—have referenced the need for natural and sustainable solutions and to involve farmers in a constructive way to prevent flooding.
The Pitt review, following the severe floods of 2007, set out a number of recommendations, many of which were included in the 2010 Act, following on from the recognition—for the first time ever—of surface water flooding. Yet two of Pitt’s most consequential amendments were never adopted: first, the mandatory construction of sustainable drainage systems in major developments so as to contain flood water and prevent it mixing with sewage through overflows into the combined sewers; and, secondly, ending the automatic right to connect, which has never happened. This simple measure in and of itself would prevent misconnections, whereby the existing infrastructure simply cannot take the volume of sewage from major new developments, often of four- or five-bedroom homes, with four or five times the amount of sewage coming out of them into inadequate Victorian pipes. The developers and local authorities therefore deem the connections to be safe and refuse to put in appropriate infrastructure to ensure that a safe connection can be made. Were water companies also to have the status of statutory consultees in the planning application process, these misconnections could also be averted.
I therefore urge the Minister to use the passage of this Bill to complete the unfinished business from the Pitt review of 2007 by ending the automatic right to connect, ensuring that developers pay for new connections and mandating developers to construct sustainable drainage systems at the time that a development is built. I shall seek to press the Minister to implement Schedule 3 to the Flood and Water Management Act 2010 without delay, to end the automatic right to connect and to insist on mandatory use of SUDS; otherwise, as the noble Baroness, Lady Parminter, so eloquently pointed out, we will just load more sewage into the watercourses, rivers and seas for the foreseeable future, which is not acceptable.
I would also like the Bill to reflect the impact that the housebuilding programme is having on the ability of water companies to perform their duties under the Bill. The Bill gives the House the opportunity to end the gap in responsibilities between planners, investors and housebuilders and to recognise the responsibility of others, such as highways authorities, which contribute to road surface water run-off entering the combined sewers and storm drains without currently having any responsibility to prevent this form of pollution. That is very costly indeed and is a gap that must be plugged—to coin a phrase.
On Clause 2 and the pollution incident reduction plans, can the Minister say how onerous she expects it will be, in terms of both time and resources, for the water companies to implement them? Will allowance be made through either the existing price review or, more likely, subsequent price reviews for this time and resource factor to be taken into account?
During the passage of the Bill, I hope that we will have the opportunity to consider the role of regulators and comparisons between Ofwat and others such as WICS—the Water Industry Commission for Scotland—particularly as regards customer engagement. I also take note of the fact that Ofwat has only comparatively recently allowed prices to be fixed as part of the quin- quennial review to take account of innovation. Actually, innovation lies at the heart of what the Government are proposing to do in this Bill and the future work that they have set out this afternoon.
Two of the areas in which I believe WICS is very strong in the statutory duties that it performs are promoting the interests of Scottish Water’s customers, including having regard to the interests of current and future customers, and ensuring that customer charges reflect the lowest reasonable overall cost for Scottish Water to deliver Scottish Ministers’ objectives for the water sector. That has in no way compromised the independence of WICS in the way that it operates.
In looking at the level of penalties, I urge the Government to make them proportionate to the offence and the scope and means by which it is actually within the power of the water companies to prevent pollution in the manner in which the Government intend them to be held to account.
Regarding the proposal from the noble Duke, the Duke of Wellington, and others, such as the noble Lord, Lord Cromwell, in support of the idea of establishing one regulator, I remember, in a previous life as a shadow Minister, under the good offices of my noble friend Lord Blencathra, looking at this matter prior to one of the elections—probably the 2005 election. We were going to have “blue water thinking” on scrapping the existing regulators and coming up with one new regulator. So that is the challenge that lies at the door of the current Minister and I wish her extremely well in that regard. We stepped back from that commitment at that time.
There is plenty more to say, and I look forward to saying it in Committee.
Baroness Young of Old Scone (Lab)
My Lords, I declare my interests as a former chief executive of the Environment Agency and, briefly, a non-executive director of Anglian Water—I did not gallop over the horizon with bags full of money.
Before I turn to the particulars of the Bill, I will comment on the importance of the wider review of water issues that the Government have promised, because the poor state of our water bodies and rivers is not just about how water companies and others have dealt with sewage. There are other major sources of pollution in agriculture—including, indeed, chicken shit, which the noble Lord, Lord Lipsey, promoted with vigour. There are also other pressures that have caused diminution in the quality of our rivers and water bodies. Surface water run-off is a major aspect, particularly from roads but also from other surfaces, including all urban surfaces, and there are pressures from novel and persistent chemicals.
The state of our water bodies is therefore not just about the sewerage issue, so we need to put the Bill in a much wider context. The state of our water bodies is also about the record and effectiveness of the regulators, Ofwat and the Environment Agency, as many noble Lords have pointed out. It is also about the ineffectiveness of the current arrangements for water pricing. I therefore urge the Minister to publish for consultation the framework for the review and ask that it includes the following four issues.
The first is what action would be needed to reduce overall pollution of the water environment from the whole range of sources, particularly agriculture, and not just sewage pollution. The second is what is needed to get both regulators back to the point where they can regulate effectively. In the case of the Environment Agency, this means resources to enable effective, real-time monitoring; reduce reliance on self-monitoring by operators, particularly the dodgier operators; and fund effective enforcement.
In the case of Ofwat. I believe that it seriously lost the plot from around 2010. It was focusing very much at that stage on the promotion of rather spurious competition in a business which is naturally monopolistic. It was not helped by strong direction from the Government that keeping bills flat was more important than environmental programmes. For those reasons and many others, I would be very cautious about giving more powers to Ofwat until we can be assured that it will operate more effectively in the public interest. After all, Ofwat has been responsible for overseeing the financial shambles that the current water companies have become.
The review should therefore cover the appropriate powers and approaches of the regulators. I do not support the creation of a single regulator for the water industry. I think it would be disastrous to combine economic and environmental interests in one regulator. It would hide the environmental and economic trade-offs. As long as there are two regulators, both robustly defending their part of the equation, either economic or environmental, it is a very transparent system.
In addition, if you think about it, regulating the water companies because of their impact on rivers is a rather crazy thing to do when what we should be doing is regulating rivers and water bodies in an integrated way to take account of all the pressures on them. After all, farmers, planners, builders, water companies, fisheries, forestry and a whole range of other economic activities impact on rivers. If we have one regulator which is talking simply about water company impacts and another regulator which is talking about all other impacts—or if, even worse, the regulators are fragmented even further—I think that we would lose sight completely of integrated management of our water environment. I am surprised that the noble Lord, Lord Whitty, was keen on the single regulator solution. I thought that we had trained him rather better at the Environment Agency—he is off my Christmas card list.
The third thing I would like is a review of the culture in water companies. There is a totally different culture in the parts of water companies that deal with drinking water. There is an absolute prohibition on falling from grace in that part of the water industry because drinking water standards are regarded as inviolable, and it is not good for business to poison people. There is not that culture on the other side of the water industry, which deals with sewage. That is very visible considering the prosecutions against and fines on water companies in the recent past. Many of them are not just negligent, but also carried on for far too long and caused even more damage than was necessary, had they been dealt with promptly. We need a radical look to make sure that the high-quality culture in the drinking water supply is merged in the case of pollution reduction measures. That culture really has to change.
The fourth thing I would like in the review is the need, at long last, for an open public debate about the options, trade-offs and costs of cleaning up the water environment. It is not as simple as punishing the water companies and controlling them, and the water environment then recovering. It will not, and it is unfair to wind the public up to expect that, which is what much of the public debate is about at the moment. People think: “It’s all these rotten water companies and if we sort them out we will have a clean environment”. That is simply not the case. There needs to be a properly informed, understandable public debate about how much the public can pay, what they think it is most important for them to pay for and over what period of time. At the moment we have more heat and steam than illumination.
Can my noble friend the Minister tell the House more about the timescale of this review and whether the scope will be consulted on? I have gone on rather long about the review and have very little to say about the Bill itself. It is a bit performative—kicking the water companies, which have lost the confidence of the public and the Government. It is not a substitute for more fundamental action on water policy and the water environment. However, as the Bill is here, I would like to support several of the amendments to it that have already been mentioned, and raise a few of my own. It is important to give an environmental duty to Ofwat to ensure that it cannot be guided, or by default, soft-pedal the environment, as has happened since 2010. I would like the earmarking of all water company fines to an environmental fund such as the Water Restoration Fund. I would like measures to ensure the commencement of Schedule 3 to the Flood and Water Management Act, as the noble Baroness, Lady McIntosh, mentioned. It is outrageous that 14 years have passed since Parliament endorsed SUDS and soft drainage measures to try to reduce the amount of run-off into the sewerage system and therefore the cause of more overflows. Why on earth are we here creating legislation if it is never commenced? I would also like measures to strengthen the examination and sign-off of the pollution incident reduction plans by regulators and by Ministers to make sure that they are fit for purpose and can be properly implemented and monitored.
There are other amendments to come forward, but I make one last plea to the Minister. It is a more general point about legislation, but this is a good place to make it. She very kindly summarised the number of delegated powers in the Bill. I remember the days when I first came into this House when it was regarded as outrageous if we did not have, in draft, guidance and secondary legislation that flowed from a piece of primary legislation before we finally pressed the button on it at Report and Third Reading. I would like to think that a new Labour Government would bring back a commitment to making sure that this House sees in draft form what the contents of guidance and secondary legislation will look like, so that when we debate the Bill we are not debating a pig in a poke.
Lord Sandhurst (Con)
My Lords, I welcome the Minister to her place.
It is interesting that this Bill should have its Second Reading just the day after we debated the Product Regulation and Metrology Bill. This Bill is not so remarkable as was that Bill for the unbridled power given to Ministers, but it is still noteworthy. As my noble friend Lord Blencathra explained in his important and dispassionate analysis, it has a number of problems. Like other noble Lords, I agree that the water industry needs sorting out. We need increased investment as well as straightforward and conscientious management, but I am anxious about aspects of the methodology embodied in the Bill. I am also anxious that we have no draft guidance and secondary legislation, as the noble Baroness, Lady Young of Old Scone, has just pointed out. We do not know where exactly the Bill is going. We have a general direction of travel, but we really need more detail, and that was my complaint yesterday. We cannot have more Bills like this coming forward, please.
If we are to take this draconian approach, which is embodied, as my noble friend Lord Blencathra said, in the proposal to change the burden of proof and the powers to impose automatic fines, it should be only because there is plain evidence that this should be effective. Why is there no impact assessment? Others have asked for that too. We do not have one; we did not have one yesterday either. These are big Bills in practice, on big topics, where there is so much unknown. A lot of people know a lot about the topic, but it is the detail that matters when drafting legislation.
Why should we take it on trust that what is proposed will have the intended outcome? Has any assessment been carried out? If it has, why has it not been transformed into a proper measured impact assessment to assist all those with an interest in getting things right? Long experience—I have been a lawyer of far too long experience—has shown that this is the wrong way to make legislation, because it results in unintended and unhelpful consequences. I agree with other noble Lords that we should look at this carefully. As my noble friend Lord Blencathra and others have pointed out, we have the proposed powers to set rules about fit and proper persons, we have their interaction with the Company Directors Disqualification Act, and there will also be the Financial Conduct Authority’s rules. This risks a minefield in which the only winners will be the lawyers.
I turn to two or three specific points, the first being the modification of the standard of proof in Clause 5. I acknowledge that this lower standard of proof is used elsewhere, but it is important to note that the original intention of the legislation that we are amending in this clause was to deliver a more consistent penalty regime across sectors. That was following recommendation 8 of the Hampton report. This change, on the face of things, undermines the original function of the 2008 Act. Again, we lack an impact assessment. We do not know the rationale so, before we debate the Bill in Committee, the Government should set out a proper detailed case showing why specifically the standard of proof needs changing in this sector but not in other sectors. How many times is it anticipated that this power will be used?
I turn to the companies’ right to appeal fines imposed by the regulator. This is covered by Clause 6(7), in particular the right of appeal. This provision appears to create the possibility of the regulator imposing an automatic penalty. The company that is the subject of the penalty will not be able to appeal a decision by the regulator to the effect that there were no exceptional circumstances to mitigate the culpability of the company for what is otherwise a strict offence.
In other words, an event has happened which the company rightly or wrongly says made it impossible or very difficult to take reasonable steps to prevent an otherwise unlawful discharge. That discharge will on its face be unlawful but, as matters stand at the moment, the company can escape or mitigate that penalty if, but only if, it can show there are exceptional circumstances.
This Bill would give that decision simply to the regulator, but those words “exceptional circumstances” are important. The courts understand them well; as they have said repeatedly, they do not admit of detailed exegesis—they mean what they say. It is the context that matters. The burden is on the person who asserts exceptional circumstances to make his case. In practice, that is a heavy burden, because it has to be exceptional. If it is not made out, an appeal to the courts is dismissed with costs. What is wrong with that? Where is the evidence that this provision has been misapplied by the courts?
If there is an extraordinarily heavy rainfall or other event that may or may not be an exceptional circumstance, the water company would still have to show that it could not have anticipated that event—and we know that rain does fall in this country—and could not reasonably have taken suitable preventive measures. But why, if the company believes that exceptional circumstances have obtained and is prepared to risk the costs of an appeal, should it be deprived of challenging the regulators’ decision to the contrary? Where is the evidence that this provision is not working appropriately at present? The Government, through the regulator, surely have the details of cases, and the number of cases, where decisions on exceptional circumstances have been appealed, and details of the outcomes. They are all there—the regulator must know. They can point then to the misuse of the provision and failure by the courts. I suggest that may be hard to establish.
Generally, let us have proper information and an impact assessment, then we can make a fair and sensible decision. At present, it does not look right. Adopting a clumsy and over-penal approach will drive up costs and put at risk the very investment that we all want.
I have a final point on legal advice on compatibility with the European Convention on Human Rights. I have highlighted two provisions in particular, Clause 5 and 6, although I do not limit it to that. The Minister has declared on the face of the Bill that the provisions in the Bill are compatible with convention rights. In respect to those two provisions, and others, I am not sure that that is right. We would be greatly assisted if the Minister would provide a copy of the advice. If she is minded to fall back on the argument that the advice is privileged, there is another route. Will she set out in writing, without reference to the advice itself, the legal reasoning that underlies that conclusion in respect of those two clauses? If she does not cite the advice itself, what she sets out is not privileged, and she has not opened up disclosure of the advice. What could be the problem with that? It would put my concerns, and I suspect those of others, to rest.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I congratulate the Minister on her introduction to this Bill. The issue of continual sewage overflows and the failure of water companies to deal with this effectively has been the subject of many debates in this Chamber. It is also a subject of great concern to the public, who have to suffer the consequences of raw sewage in their waterways and lakes, and often in their back gardens. The noble Lord, Lord Lipsey, and others have referred to public involvement in this issue.
This is a hot political issue, which featured in manifestos during the recent general election. I know that the Minister is keen to deal with this problem, and I am pleased that this Bill is one of the first pieces of legislation that the new Government have decided to start in this Chamber—especially since we have had so many debates and Questions on the subject. Every noble Lord this afternoon has welcomed this Bill. The performance of the water companies and their regulators is an especially important part of our everyday lives. Industry through to domestic householders rely on an efficient water system and have been badly let down in the past. I concur completely with the comments of the noble Duke, the Duke of Wellington.
The Bill is only part of an overall programme of reform needed for the water industry. The Government are promising a review. This is urgently needed, and we all look forward to it being holistic and in-depth, and setting out a clear programme of action to provide the country with an efficient water and sewage industry that will be fit for purpose. My noble friend Lord Russell has referred to this.
The Bill itself has 13 clauses and three main sections: remuneration and governance; pollution incident reduction plans; and sanctions. Remuneration and governance are in desperate need of reform. Since privatisation, CEOs, directors and shareholders have enjoyed payouts that do not reflect the appalling performance of the industry. At privatisation, the water companies were debt free. Since then, they have borrowed money on a large scale, not to invest in infrastructure but to reward themselves. No new reservoirs have been built since 1992, and sewage works are crumbling and out of date. Infrastructure needs addressing urgently.
Solutions so far have been concrete construction-based, which has a high carbon footprint. Nature-based solutions, which are more carbon friendly, have been rejected. Only 2% of Ofwat’s budget is allocated to nature recovery solutions. Bill payers have had an extremely poor deal, while the shareholders and directors have been rewarded. It is time that this trend was reversed. There will be amendments in Committee to ensure that this happens efficiently—and we have heard a lot about the amendments that may be coming forward.
It is absurd that Ofwat is unable to rescind the licence of a poorly performing company without giving 25 years’ notice. My noble friend Lord Russell referred to that. I wonder what planet those who drafted that legislation were living on when they drew up that guidance.
Pollution incident reduction plans should help to concentrate the minds of those managers running the sewerage systems. The plans should include reporting on the state of the sewerage infrastructure, alongside the action being proposed to remedy this within a reasonable time limit. Monitoring each sewage discharge within the hour of occurrence is to be welcomed but, once the spillages have been recorded, are they to be published in a way that can be readily accessible to the public and those directly affected? Transparency is strongly recommended by the Information Commissioner’s Office.
I note that the regulations under this section will be made only after the Minister has consulted such persons as the Minister considers fit. That could be anyone—the CEO of the water company concerned, Ofwat, the Environment Agency or some other person. I am sure that this is something that will come forward in Committee. If the regulations are to be meaningful and effective, the regulator has to have teeth and be up for the job. Currently, there is little confidence in the ability of either Ofwat or the Environment Agency to deal with the scale of the problem, which is endemic within the water industry.
This leads me on to sanctions. It is going to be extremely difficult to identify who is the guilty party responsible for a breach of the regulations regarding sewage discharges, as well as dealing with water leakages. The noble Baroness, Lady Jones of Moulsecoomb, raised the issue of leakages. I welcome that the sanctions are to be stricter and toughened up. The Bill gives the job of monitoring and implementing this section to the Environment Agency.
During the passage of both the Agriculture Act and the Environment Act, the woeful reduction in funding for the Environment Agency was a cause for concern to your Lordships across all sections of the Chamber. This funding situation has not improved. It seems unlikely that the Environment Agency will be able to conduct its role in this Bill effectively.
The system of fines laid out in the Bill may be levied and go into a consolidation fund. Those fines will recompense the EA for the cost of the work that it has conducted in imposing fines, but it will be retrospective. Surely any fines levied should go into a fund for remedial action to ensure that a problem does not occur again and be returned to bill payers, who have, after all, suffered as a result of loss of water supply and incursions of sewage into their homes and business premises.
One of the Environment Act’s tenets is that the polluter pays. That has to happen. The noble Lord, Lord Lipsey, gave a graphic description of pollution in the River Wye—and we have heard that before. My noble friend Lady Parminter referred to yesterday’s news that Ofwat had fined water companies £158 million, with Thames Water having the largest share. I received an email from David Black, CEO of Ofwat, yesterday morning informing me of this, and giving me some detail. Later, I listened on the radio to David Henderson, the CEO of the water industry’s union, Water UK, saying the problem was lack of investment due to Ofwat preventing the industry raising consumers’ bills and preventing borrowing for investment. There was no mention that the water companies were set up debt free; nor that some of their assets had been sold off to increase shareholders’ dividends; nor that salaries and bonuses of CEOs and directors had been increased to what an ordinary bill payer would consider an obscene level.
The water industry as a whole is in a dire state. The regulators are ineffective and too close to those they are supposed to be bringing to book. My noble friend Lady Pinnock and the noble Baroness, Lady Browning, raised the issue of ex-water board members being on the regulatory boards—hardly impartial. The noble Lord, Lord Sikka, gave detail of Ofwat’s poor performance. Neither Ofwat nor the Environment Agency are going to change their modus operandi in the way in which the Government envisage. The EA has been chronically underfunded for years. Ofwat already has powers which, if they had been exercised continually since inauguration, would have prevented some of the excesses and failure of service from which the country is suffering. It is no secret that on these Liberal Democrat Benches we would have abandoned the current system and replaced it with a clean water authority to take on the relevant environmental and regulatory powers, including river health, as my noble friend Lord Russell indicated.
We have heard some excellent contributions from all sides of the Chamber. Many have suggested how they would improve the Bill. My noble friend Lady Parminter referred to public interest being essential for Ofwat. The noble Lords, Lord Remnant and Lord Douglas-Miller, and my noble friend Lady Pinnock warned about a broad-brush approach that lumps all water companies together. Your Lordships are exercised about the state of the water and sewage industry, quite rightly so. I am grateful to all those organisations which have provided briefings for this debate, many of which have suggested amendments for Committee. I agree completely with the need for impact assessments and statutory instruments to be prepared.
I look forward to the Minister’s response to the debate and to working with her during future stages of the Bill to ensure that we have a Bill that is effective into the future and dovetails into subsequent legislation which the Government intend to bring forward following the review of the water industry. As all noble Lords have said, this is not going to be an easy task—quite the opposite.
Lord Roborough (Con)
My Lords, I am delighted to speak at Second Reading of this important Bill, which is being followed closely by concerned members of the public across our country. I thank the Minister for her exemplary engagement with me and all Peers with an interest in this area. I am sure that we can continue to have these conversations to make the Bill as effective as possible.
We on this side of the House are committed to cracking down on pollution by water companies and we will support the Government to deliver effective measures that bring polluters to justice. While government can always do better, we are proud of our record. We increased the number of storm overflows monitored across the network from 7% in 2010 to 100% today. The Thames Tideway tunnel is now complete. This is a £4 billion project that happened because our Government faced down opposition from Ofwat and others, including Members of this House, in guaranteeing the scheme by Act of Parliament. Aided by improved monitoring, we took firm action against persistent polluters, delivering the strictest targets ever on water companies to reduce pollution from storm overflows. The Environment Agency can now use new powers to impose unlimited penalties for a wider range of offences. The effectiveness of these measures was shown this week when water companies in England and Wales were told to pay £158 million in penalties to customers, having failed to meet their targets.
In this Bill, we intend to work with the Government and the House to create the right balance of stakeholders’ interests. While the Government may not be willing to accept all our proposals for the current Bill, we hope they will get further attention in the promised further legislation.
Consumers have a right to expect affordable, clean drinking water and clean rivers, lakes and beaches. Our overall concern for consumers in this Bill is that it will add significant compliance costs to the industry that will then need to be passed on to those consumers. There is not enough clarity in the Bill on the potential fees that regulators and the Drinking Water Inspectorate will be able to charge, and we would like to understand what those fees will be and how they will impact consumer bills.
The measures on special administration orders appear to give the Government the power to change a water company’s charges paid by consumers to whatever level they wish to recover costs. It will be important to understand what work the Government have done to establish the impact these measures might have on consumer bills. The Minister mentioned that increases would be taken very seriously, but we may need more reassurance than that.
It is also relevant to raise the question of to whom water companies should pay their fines. We on this side of the House would be interested to hear whether Ministers agree that when water companies fail to deliver a service to customers that is safe and does not pollute our rivers, they are failing their customers and should compensate them accordingly. Ofwat already acts on behalf of the consumer, so can the Minister explain what assessment the Government have made of the impact of consumer involvement on decision-making? What responsibility will those consumer representatives take for such involvement given the dire consequences of failure laid out in this Bill? The noble Duke, the Duke of Wellington, made a number of suggestions which we are likely to be interested in supporting.
Our natural environment deserves to be treated better than it has been for many decades and the industry must continue to clean up its act. It is clear that those who focus on protecting our natural environment are not wholly impressed by this Bill. There have been a number of representations from River Action, Surfers Against Sewage and, as the noble Lord, Lord Lipsey, eloquently pointed out in respect of the River Wye, among others on how the Bill could be improved. We will monitor those and other suggestions with interest.
On pollution incident reduction plans, we agree that water companies need a clear plan of action to deliver positive change. However, it would be useful to know what assessment the Government have made of the practical benefits of the plans to ensure those documents have the desired effect.
We will also be looking at the measures to increase reporting of overflow events. Do the Government intend to make any distinction between events caused by third parties, such as run-off from roads, and those that are a result of failure within a water company?
I turn to employees. This sector creates livelihoods for 100,000 of our fellow countrymen and women, and we must ensure that this remains an industry that is an attractive place to build a career, while we also root out offenders. We support tough sentences for those who break the law but, to slightly repeat my noble friend Lord Remnant’s point, can the Minister explain why sending water executives to prison, under the measures in Clause 4, is really the best use of our prison capacity when current pressure on our prison estate has led to the Government implementing a prisoner early-release scheme? I ask the Minister to publish the Government’s justice impact assessment to understand the impact of this clause.
Clause 2(4) places a serious obligation on those qualifying as being authorised by the agency, and in turn will require a significant compliance effort to ensure that all those impacted are aware of the law and what their obligations are. My noble friend Lord Sandhurst has spoken about a number of other measures that touch on justice-related matters, and it is important we get this right in the Bill. I will not repeat his arguments, but we will certainly be looking to improve the Bill in those areas as it passes through your Lordships’ House.
I would also be grateful if the Minister could confirm that the measures in this Bill on remuneration and performance-related pay are designed to be retroactive, to take effect from the beginning of the financial year prior to the Bill becoming law. In addition, how will this interference in existing employment contracts work in practice? I would also agree with my noble friend Lord Remnant’s points— echoed by other noble Lords, including the noble Lord, Lord Sikka—about unintended consequences, as seen in the financial services industry, that this may simply mean that basic salaries increase dramatically.
The Bill also lacks clarity on the fit and proper person test for senior water executives. I am very familiar with how this works in the financial services industry but, in relation to this industry, I ask the Government to publish exactly how it will work, before the Bill reaches Committee. It is crucial we have more clarity on these issues, as water companies may now need compliance departments to comply with additional regulations. This will also have an impact on customer bills. What assessment have the Government made of the impact of introducing a fit and proper test and these other regulatory requirements on consumer bills? As other noble Lords have pointed out, shareholders and debt holders are essential to providing the long-term investment the industry needs, with £88 billion targeted. Returns must be sufficiently attractive and predictable to attract that capital.
We are concerned that the offences specified under Clause 6 are not listed in the Bill. The Government need to include these in the Bill rather than setting them down later in secondary legislation which noble Lords cannot amend. We would very much like to see a draft of these offences prior to Committee. As other noble Lords have pointed out, there are significant delegated powers provided in this Bill, and I echo all the comments for “More disclosure, please”.
As the noble Duke, the Duke of Wellington, and my noble friend Lord Douglas-Miller and many others mentioned, Ofwat and the Environment Agency may not be the right bodies to deliver the additional monitoring, penalties and enhanced regulatory regime required by this Bill. We would be very grateful to know what assessment Ministers have made of the performance of Ofwat and the Environment Agency before pressing ahead with a Bill that grants those regulators more powers. I particularly take note of the comments made by the noble Lord, Lord Whitty, on this subject.
We are concerned that, under the recovery of costs provisions in a special administration regime, the Government may be able to recover costs incurred in action on one company from the wider industry. That represents a risk that shareholders should not be exposed to, and I would welcome clarification from the Minister on this point.
While the Bill makes significant provisions to increase the accountability of directors, companies and employees to the Government, we would really prefer to give this accountability of management, and performance-related pay, to shareholders, by adding more clarity to the impact of regulatory actions on shareholder returns. That is likely to lead to more coherent and efficient thinking throughout these businesses and less onus on government enforcement. It is also far more likely to achieve the change in culture that many noble Lords have demanded.
The Government should not be placed in a position where they may be forced to step in and correct market failures. Given the failures of regulation to protect the industry from aggressive financial structures, we think it is appropriate to introduce a cap on the leverage that a regulated water company can have within its operating company. Should shareholders and debt investors choose to put additional leverage on these companies above the operating company level, it will be at their own risk as we cannot allow these regulated monopolies providing essential services to be threatened in that delivery. Contributions from many Members suggest this might be a welcome move.
While not within the scope of the Bill, we would also like to see water companies incentivised to work with land and waterway managers on ecosystem restoration, bringing cleaner water and better flood resilience. I very much support the comments and questions on this area from the noble Earl, Lord Devon. Within that context, I also draw the House’s attention to my interest as a land and river owner.
In conclusion, we on these Benches firmly support the Government’s ambition to deliver the cleaner rivers, lakes and beaches we all want, but we will be holding Ministers to account on the measures in the Bill in Committee, to ensure there is more clarity both for noble Lords and for the sector before the Bill goes for scrutiny in the other place. Once again, I thank the Minister for her engagement to date and I look forward to much constructive discussion about the Bill in the coming weeks.
Baroness Hayman of Ullock (Lab)
My Lords, this has been a very interesting and worthwhile debate. I thank all noble Lords who have spoken for their thoughtful, informative and constructive comments.
As we have heard, the Bill is going to be used to drive meaningful improvements in the performance and culture of the water industry, as part of our wider efforts to ensure water companies deliver both for customers and for the environment. Many campaign groups, as well as parliamentarians, have called for measures to hold water companies to account. We also know that there is huge public support for the Government to do something. There is clear and broad recognition of the need for action. Let me now take the opportunity to address some of the points and questions raised during the debate.
First, I would like to stress that the Bill goes beyond the previous Government’s ambition. It is not true that the Bill does not contain anything further than measures put in place by the previous Government. For example, the Bill will go beyond the current regulatory framework. To give a couple of examples, it will provide legal powers to ban bonuses—currently, you can only set expectations—and it will also require water companies to report in near real time on discharges from emergency overflows, which are at present largely unmonitored.
The noble Duke, the Duke of Wellington, the noble Earl, Lord Russell, the noble Lord, Lord Blencathra, my noble friend Lady Young of Old Scone, the noble Earl, Lord Devon, and many other noble Lords were particularly interested in what exactly the review is going to do. As I said, the Bill alone is not enough to fix our water system; it is only an immediate down payment on the wider reform that is needed after many years of failure and environmental damage. As I mentioned, the review is going to be carried out to fundamentally transform how our water system works so that we clean up our rivers, lakes and seas for good. We will invite views from a range of experts, covering areas such as the environment, public health, consumers, investors, engineering and economics. We will have a public consultation to test that any proposals are robust and ambitious enough to clean up the pollution from our waterways. Through our review, we will look at long-term wider reform of the water sector as a whole, including considering and clarifying the roles of regulators. We expect this work to culminate in shaping further legislation and intend to set up further details about the review later this autumn. It is also really important that specific measures are consulted on during the passage of the Bill, and we will be looking to do so.
The noble Baroness, Lady Jones, and my noble friend Lord Sikka particularly asked about nationalising water companies. As I have said previously, the Government have no intention to nationalise the water companies. We are focusing on improving the performance of the water industry as an urgent priority. The measures in the Bill are designed to do exactly that.
As we have said, it will cost billions of pounds and take years to unpick the current ownership model, during which time underinvestment in infrastructure and sewage pollution will only get worse. Research that has been commissioned by the Consumer Council for Water, which we have heard about—
Lord Sikka (Lab)
First, can the Minister say how many billions of pounds, and can she publish that calculation? Secondly, she says it will take a long time, but the Government are going to integrate the newly created companies to manage the railways, and there are numerous mergers and takeovers everywhere where new entities are accommodated. Could the Government publish a paper to see what the complications would be? Although I recognise some of the complications, I do not think that any of this is insurmountable.
Baroness Hayman of Ullock (Lab)
Rather than get into a discussion around this, as I have a lot of questions to answer, I suggest that perhaps the noble Lord and I—and the noble Baroness, if she so wishes—take this away into another meeting and discuss it further when we have more time.
The noble Baroness, Lady Jones of Moulsecoomb, asked about the special administration regime, as did other noble Lords, and she asked particularly about profits for shareholders and creditors. The special administration regime is there to enable a seriously underperforming or insolvent water company to be put into special administration, with the requirement that vital public services—that is, water and wastewater—are continued to be provided pending a rescue package and transfer to new owners. This contrasts with normal administrations, where the appointed administrator is focused on the creditors’ interests only.
A number of noble Lords—the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Parminter, Lady Pinnock and Lady Bakewell, and my noble friend Lady Young of Old Scone, in particular—asked why the Bill is not being used to reform Ofwat or the Environment Agency. The Bill introduces the most significant increase in enforcement powers for the water industry regulators in a decade and is designed to give them the teeth they need to take tougher action against water companies in the next investment period. However, we want to go further. Through the review, as I mentioned, we will look at the regulators in order to carefully consider their roles and responsibilities and how we can ensure that they operate as effectively as possible. So that will be part of the review.
The noble Lord, Lord Douglas-Miller, asked whether the regulators were adequately resourced to implement all the new provisions in the Bill. Through the new cost recovery power in the Bill, we will enable the Environment Agency to fully recover costs for the full extent of its water company enforcement activities. That will include prosecutions and civil sanctions, revocation notices of permits, and pollution incidents. In addition, the EA is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation, increasing compliance checks and quadrupling the number of water company inspections by March next year. This will be fully funded by around £55 million per year through increased grant in aid funding from Defra and additional funding from water quality permit charges levied on water companies. I hope that helps to answer the noble Lord’s question.
There were also questions around the detail of Ofwat’s rules. The noble Lords, Lord Blencathra and Lord Remnant, mentioned this. We feel that it is more appropriate for Ofwat, as the independent regulator, to determine the specific performance metrics that should be considered when setting the rules. Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended—subject to the relevant procedural requirements, of course—where or when it is appropriate to do so in the future. Ofwat would need to consult with relevant persons, including the Secretary of State, Welsh Ministers, the Consumer Council for Water and others, before such rules were finalised. I also reassure noble Lords that Ofwat will issue a policy consultation in October on the scope of the rules.
Consumers were mentioned a number of times. First, on representation on boards, as we go through the Bill, we will look at this in more detail, but the idea behind the Bill is that Ofwat will be required to issue rules on consumer representation. Customers largely foot the bills for water company decisions, so we believe it is right that they have a say where their interests are at stake. Ofwat will need to consult with relevant persons, including the Consumer Council for Water, before finalising the rules on performance-related pay, and fitness and propriety and customer representation. I think my noble friend Lord Whitty asked about some of those issues.
The noble Lord, Lord Roborough, asked in his speech just now about further increases to customer bills. Where increased costs are a result of penalties being issued by the regulators—for example, under the new automatic penalties regime—the penalties will come out of water company profits and not from customers. Where costs are unrelated to penalties—for example, where they will fund new and improved infrastructure—we are working closely with the water industry regulators to see how we can best minimise the impact of measures introduced by the new legislation on customer bills. We do not want to see the customers bearing the brunt of these new actions.
A number of noble Lords, including the noble Lords, Lord Remnant, Lord Douglas-Miller and Lord Cromwell, and the noble Earl, Lord Devon, asked about investor confidence. Private sector investment is at the core of how we grow our economy. The Government are committed to establishing a strategic framework in order to deliver long-term stability, and which is conducive to attracting the sustained investment in the sector that we need. The Bill will deliver a clear and consistent regulatory framework for the water industry and its investors. I do not think anyone would think that investors have a lot of confidence in much of the water industry as it stands. On 10 September, Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions in private sector investment that we desperately need to be able to clean up our rivers, lakes and seas.
On that issue, there was also discussion around attracting talent. A number of noble Lords talked about the fact that it is more stick than carrot and asked how we are going to attract people into this. We believe it is right that companies and their executives are held to account for basic and fundamental performance requirements. Should companies meet their performance expectations, we believe that executives should rightly be rewarded, and there are also previous and existing examples of similar rules in other sectors. I will give a couple of examples. The financial services sector previously had a set cap on the level of bonuses—somebody mentioned that; I am sorry but I cannot remember who it was—and fit and proper person tests are also conducted by the Financial Conduct Authority and the Prudential Regulation Authority in that sector. Those sectors have continued to attract talent.
The noble Earl, Lord Devon, asked about ensuring that water companies invest sufficiently when considering pressures such as climate change and population growth, and about ring-fencing money for improvements. In July, Ofwat announced in its draft determinations a proposed £88 billion worth of expenditure between 2025 and 2030, which will be the largest investment in infrastructure that has ever been made by the water industry. We hope that that investment will deliver much of the work needed to achieve the issues that the noble Earl referred to.
The pollution incident reduction plans were discussed by many noble Lords during the debate. One question was: why have we not included a duty to implement the plans rather than just publish them? I think the noble Baroness, Lady Parminter, in particular talked about this. We say that these plans should be seen as part of the broader package of powers for regulators which exist and which are strengthened through the Bill to reduce pollution incidents.
The Environment Agency already has access to a range of tools to enforce against pollution incidents and this Bill is designed to supplement this with its provisions for automatic penalties and for Ofwat to ban bonuses when water companies have not met environmental standards. Water companies will also be required to report on overall progress on the actions that were set out in the previous plans. A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction.
The noble Baronesses, Lady McIntosh, Lady Browning and Lady Pinnock, all talked about sustainable drainage systems—SUDS. This is a complex issue. Existing planning policy requires that SUDS are included in all new major developments unless there is clear evidence that that would be inappropriate. This is in addition to requirements that SUDS should be given priority in new developments in flood-risk areas. However, I am aware of the issue around the previous legislation that has been sitting in front of us for 14 years, so I want to assure noble Lords that the Government are currently assessing how best to implement their ambitions on SUDS, while also being mindful of the cumulative impact of new regulatory burdens on the development sector. We are having regular discussions and trying to co-ordinate joint work with MHCLG officials on this issue. We want to move this forward.
The impact assessment was mentioned. There is an impact assessment for the Bill—I am sure noble Lords will be delighted to hear that—but it is currently with the Regulatory Policy Committee. We will publish it as soon as it has concluded its review. We are hoping that will be fairly soon.
The timeline for implementation was mentioned. Our ambition is to implement the provisions to give the regulators the powers they need to take tougher action against water companies for the next investment period, which is due to start in April next year.
The use of delegated powers was mentioned by the noble Duke, the Duke of Wellington, the noble Lord, Lord Sandhurst, and my noble friend Lady Young of Old Scone. I want to reiterate the reassurances I made in my opening speech that the provision of delegated powers will be subject to appropriate scrutiny and safeguards. We believe the powers are necessary to ensure that the provisions in the Bill keep pace with the changing requirements on the water industry and the changing expectations of customers. A full justification for the inclusion of delegated powers in the Bill is available through the delegated powers memorandum which has just been published.
On the statutory instruments for new penalties, we will be consulting on whether new automatic penalties can be used. Parliament will debate and vote on secondary legislation before any changes are made, so we intend to bring that before the House.
A few noble Lords mentioned local issues. The noble Earl, Lord Devon, talked about Devon, not unexpectedly, and my noble friend Lord Lipsey talked about the River Wye. I was impressed that he got away with that word. When I was in the other place and we had a similar debate, I got ticked off and had to change what I had said. But we are concerned about the issue of poo in the River Wye and he is right to raise it. There are also issues in Cumbria, where I live, around Lake Windermere and the other lakes, as mentioned by the noble Lord, Lord Inglewood. This is something that I personally feel we need to sort out. Our national parks are hugely important. They should be peaceful, beautiful places, not places that have been damaged by sewage overspills and other pollution. I reassure noble Lords that cleaning up iconic sites such as the River Wye and Lake Windermere is a top government priority. We want to get this sorted. The 2024 price review package that I mentioned earlier will include funding for improvement projects at priority sites and we are also working closely with the Welsh Government, particularly on the issues around the River Wye.
I am just about out of time. If I have missed anything that I should have answered, we will of course check Hansard and I will get back to people in writing, but once again I thank all noble Lords who have spoken today for their valuable contributions. It is clear that we agree on the importance of addressing issues in the water sector swiftly and decisively and that there is a consensus on the core aims of the Bill. The water industry really does need an overhaul, so I look forward to continuing constructive engagement with noble Lords. My door is always open. I commend the Water (Special Measures) Bill to the House and beg to move.
Bill read a second time and committed to a Committee of the Whole House.
Water (Special Measures) Bill [HL]
Monday 28th October 2024
(1 month, 3 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 17-I(b) Amendments for Committee (Supplementary to the Marshalled List) - (28 Oct 2024)
“Purpose(1) The purpose of this Act is to put in place measures to address river pollution by water companies and water and sewerage companies.(2) The Secretary of State and, as the case may be, the Water Services Regulation Authority must have regard to the purpose set out in subsection (1) in implementing the provisions of this Act, and in doing so must also have regard to—(a) the need to meet the biodiversity targets set under sections 1 (environmental targets) and 3 (environmental targets: species abundance) of the Environment Act 2021, and(b) the current or predicted impacts of climate change identified in the most recent report under section 56 of the Climate Change Act 2008 (report on impact of climate change).”
Baroness Willis of Summertown (CB)
My Lords, in moving Amendment 1, I will also speak to Amendment 91 in my name. These amendments seek to set a strategic direction for the Bill and, crucially, to apply a new duty on the water regulator to take account of—and take all reasonable steps to ensure that Ofwat and, by extension, the water companies that it regulates, contribute to—our targets under the Climate Change Act and the Environment Act. It would have immediate effect outside the price review process by applying climate and nature considerations into yearly in-period determinations. I am grateful to the noble Baronesses, Lady Parminter and Lady Young of Old Scone, and the noble Lord, Lord Randall of Uxbridge, as well as the Blueprint Coalition, for their support.
As the first speaker in Committee, and conscious that I was not here at Second Reading, I will quickly say that I fully support the general intent of the Bill and note that this is just one stage of the Government’s wider plans for tackling water pollution. While I do not have major issues with what is in the Bill, it presents us with a legislative opportunity to strengthen the regulator to ensure that Ofwat has the duty to contribute to the delivery of our climate change and nature targets. This is a key chance to modernise Ofwat’s remit and ensure that it is fit for purpose.
As we all know and hear daily, the water industry has a huge impact on our natural environment. Its shortcomings and their effects are well documented—I will not repeat them here—but it is not just the shortcomings of the water industry. It is hard to imagine that these shortcomings would have been possible with a regulator which had a remit that also ensured it took these issues seriously. But the fault, or reason, does not lie simply with Ofwat. It lies with the duties it has—or, more importantly, does not have—which have been legislated by this Parliament over the past three decades. In short, there is a misbalance between what Ofwat currently does and prioritises and what the Government and the public would like us to do: ensure that industry cleans up its act.
In Ofwat’s duties there is no mention of climate change—which is going to make its job harder as we experience more erratic weather events—or biodiversity, on which we have binding targets that will be impossible to achieve without putting an end to sewage pollution in our rivers. We can all acknowledge that the regulators are busy and, without these targets on their list of things to do, this will continue to fall by the wayside or be deprioritised, as it so obviously has been in recent years. That is why I have tabled Amendment 91, which would help the Government and the public to ensure that a greater contribution is made by the sector. With a clear duty, it would mean that the regulator has to further two of the Government’s core aims.
Amendment 91 would amend the Water Industry Act 1991, which established Ofwat, to require it to take all reasonable steps, in exercising its powers, to contribute to the achievement of our biodiversity targets under the Environment Act and our net-zero targets under the Climate Change Act, and to adapt to the impacts of climate change. Such a duty is currently missing from Ofwat’s governance.
Ofwat’s current primary duty, set under Section 2 of the Water Industry Act in 1991, is
“to further the consumer objective … to protect the interests of consumers, wherever appropriate by promoting effective competition”.
Section 3 goes on to state that Ofwat’s work to further the conservation of flora and fauna should be undertaken only as far as is consistent with the primary consumer objective. This clear subordination of environmental considerations to economic ones was not corrected by the introduction of a rather muddled resilience objective in 2014 and was actively exacerbated by the 2024 imposition of a new statutory growth duty on Ofwat
“to have regard to the desirability of promoting economic growth”.
In a speech in the other place last Wednesday, the Secretary of State announced an independent water commission that
“will ensure that we have the robust regulatory framework that we need to attract the significant investment that is required to clean up our waterways”.—[Official Report, Commons, 23/10/24; col. 279.]
That is good and welcome, as is the text in the notes that it must consider alignment with net-zero objectives. However, I went back through it and did a word search. Nature is mentioned once in the notes and there is no mention at all of biodiversity or of consideration of alignment with our mandatory targets for biodiversity, as outlined in the Environment Act and associated secondary legislation.
Is it relevant that we are asking Ofwat and, through it, our water companies to look at the biodiversity and water targets? Over the weekend, I went back and looked at the 2030 species abundance target, which was one of the biodiversity targets that was published as a statutory instrument in January 2023. I counted the list of species that will contribute to this target; included are 244 freshwater invertebrate species, which absolutely require clean water; 40 species of birds that forage and nest in riverine environments—that is 25% of the total list of bird species; and 48 plant species associated with, or growing in, rivers, streams or marshy freshwater environments, which is 22% of the plant list. By the most basic calculation, almost a quarter of the plants and birds on our species abundance list—the list that will be used to check whether we meet those targets—and 100% of our freshwater invertebrates rely on clean, unpolluted rivers to thrive, yet we have no statutory purpose or duty for Ofwat to look at this. Many of those species will not recover unless we improve the quality of our rivers, so this is a fundamental part of what we should be looking at. We urgently need every water company to acknowledge the Environment Act targets and for Ofwat to measure their performance against them.
It may well be argued that this would be covered by the independent water commission review, but there is an issue of timing as well. Even if these biodiversity targets are included as part of the consultation outlined by the Secretary of State last week in the other place, it will not, as stated, have any findings until the first half of 2025; and because of the current price review processes, changes will likely not come into effect until 2029 to 2030, which, if I have understood correctly, means they would be implemented after the biodiversity target to halt species decline in 2030 has come and gone. Perhaps the Minister can clarify on this.
A review is not legislation—I do not need to remind people in this Committee of that. Legislating for a climate and nature duty for Ofwat early in this Parliament would allow benefits to accrue ahead of the looming environmental deadlines falling at the end of Parliament, including the previously stated 2030 biodiversity targets. If we do this now, with a duty that will come into force in 2025, we can build these environmental objectives into work on the next price review from the start, as well as applying climate and nature considerations into yearly in-period determinations and everyday decision-making.
In summary, it would be counterproductive not to take this opportunity to give Ofwat a new duty to help ensure that we meet our climate and, crucially, Environment Act habitat and species targets. I hope we can find some agreement there.
The public were clear at the election that they expected change and that protecting and restoring our environment, including biodiversity, is a priority. This amendment would be a simple, proportionate, pragmatic and positive change that we could make today. I beg to move.
Baroness Parminter (LD)
My Lords, I will be brief because the noble Baroness, Lady Willis, has set out clearly the case for a duty for Ofwat to deliver on the Government’s biodiversity and climate change objectives. I just want to pick up on the point about the review, because I think the Minister will say, “This is a fantastic amendment, but we just need to wait for the review”, and there are three reasons why this Committee will find that response unsatisfactory.
The first point is that made by the noble Baroness, Lady Willis, which is around the timing of the review, which we all welcome, but we do not know when exactly it is going to finish. Of course, by the time it is in legislation, and we do not know when there is going to be a slot, we could have missed our biodiversity targets, let alone our climate target.
Secondly, there is nothing in this amendment which is not already Government-stated policy. It is Government-stated policy to deliver on our biodiversity objectives, to move towards our climate change objectives, and to adapt to respond to those. So why do we need to wait for the review? There is nothing about putting this in legislation now which is counter to the Government’s position and therefore there is no barrier.
Thirdly, the wording is rather clever. It does not say “Ofwat”; it talks about “the Authority”. So, whatever the review decides, it is relevant. It is also clever because it says that it must “take all reasonable steps”. Again, it is not precluding or being prescriptive about that future authority; it is just setting the parameters.
It is a very well-crafted amendment and I think the Committee will be deeply disappointed if the Minister comes back and just says we should wait for the review. It would also make us question what the point of the review is, and we would not wish to do that because we have the highest regard for the Minister. If the Government are not prepared at this stage to put in the Bill that part of the review is to ensure that we deliver on our environmental and climate targets, then how can we be sure the review is going off on the right foot?
Baroness Young of Old Scone (Lab)
My Lords, I add my support to these two amendments, to which I have put my name. I was pondering why Ofwat lost the plot on the environment around 2010. In a way, it is not surprising, because the reality is that it was getting a strong steer from government that the important thing was to keep bills down and that everything else should take second place. It was eminently possible to say that to Ofwat because the number of objectives and duties that it had been given was quite a large, disparate and often conflicting set and was growing yearly.
Ofwat currently has a primary duty under Section 2 of the Water Industry Act 1991 to
“further the consumer objective … to protect the interests of consumers, wherever appropriate, by promoting effective competition”.
That really became the sole mission of Ofwat in the 2010s.
Section 3 says that Ofwat’s work to further the conservation of flora and fauna should be undertaken only as far as it is consistent with the primary consumer objective. So, there is a “get out of jail free” card for Ofwat about environmental improvement and biodiversity decline and they take a very second-class seat. Ofwat also has a duty for pursuing sustainable development and a whole suite of environmental and recreational duties.
In 2014, a very muddled objective was added to Ofwat’s increasing list relating to resilience. In 2024, Ofwat got a statutory duty to promote growth. If one was being benign towards Ofwat, one could say that perhaps it was a bit confused by a number of directions which were mutually inconsistent, but the primary one was that Ofwat was told very firmly to keep prices down, and it pretty well did that in terms of the environmental elements of successive price rounds since then. Had Ofwat been challenged at any point as to whether it was meeting these duties, many of which are about contributing to or furthering or having regard to, it would have been very easy for it simply to construct arguments that demonstrated that it had a limited compliance with almost anything and to deliver nothing that it did not want to deliver.
The Minister will no doubt say that the broader review which has been referred to will consider how to streamline and focus Ofwat’s duties, and I agree that that is important and that the review should do it, but I share the views expressed that we cannot wait that long. The review will report eventually and there will be a delay while legislation comes forward. This amendment, which gives equal prominence to environmental duties and consumer duties, is fundamental if Ofwat is going to immediately play its full part in meeting the legally binding targets of the Environment Act and the Climate Change Act. At the end of the day, though I gather the debate on climate change last Thursday tried to deny it, these are in fact existential issues, which is why there are legally binding targets on both climate change and biodiversity.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate the Minister on bringing forward the first Defra Bill to Committee stage; I congratulate the noble Baroness and those who supported the amendments moved.
I wish to add a note of caution and I declare my interests in the register: not least, I am an officer of the All-Party Parliamentary Water Group, and I worked for five years with the water regulator for Scotland, the Water Industry Commission for Scotland. The degree of caution I would like to urge in this regard is that I believe we are already committed in law. The Water Industry Act 1991 reflects that very carefully, as do the Environment Act and the Agriculture Act and others, not least the Flood and Water Implementation Act 2010, which is built on that.
I urge the Minister to be cautious in trying to reach a balance both in the Bill before us in Committee today and, more especially, the review to which other noble Lords have spoken, which we will go on to consider. I believe that the balance is currently right but falls heavily on the side of environmental benefits. I do not think that it is entirely clear what the costs will be.
I will issue a note of regret that I have not had the chance to go through the 87 pages of the impact assessment, which was released only on Thursday when I was due to speak in a debate on the Friday—literally, the first working day before Committee. One thing I have picked up that the impact assessment looks at is what the cost of natural capital and decarbonisation, for example, would be. I would certainly like more information on this, if possible. In relation to natural capital and decarbonisation, it says:
“This measure will help to protect the Water Environment and improve the state of the UK’s natural capital. The measure will ensure Water Companies take steps to protect the environment”.
It goes on to say:
“The measure is not expected to significantly impact greenhouse gas emissions”.
That is possibly debatable.
We will go on to discuss my main concern in greater depth in relation to amendments in my name in later groups, so I will not argue this at length now. However, I was absolutely astounded to learn this week that water companies are prevented from encouraging customers to take water efficiency measures. This addresses the point raised by the noble Baroness, Lady Young of Old Scone—a very pertinent point in this regard—about keeping customers’ bills down, which has been the concern of successive Governments as well as of the Consumer Council for Water, Citizens Advice and many MPs, as I found when I was next door, along with other noble Peers.
I am concerned that the definition of “wholesome water” is focused entirely on environmental matters and does not allow for measures to introduce water efficiencies, which I think all noble Lords would sign up to, such as recycling grey water to wash vehicles and, possibly, even dishes. I am a firm believer that clean drinking water coming into the home should be kept precisely for that purpose. It is extremely expensive to produce. We should keep drinking water for the purposes of drinking water. We should seek at every opportunity to encourage water companies to encourage their customers, in whichever area they live. In an area of hard water, for example, it is more difficult to work up a lather. Water companies are best placed to know the water quality in that area and I believe they should be allowed to address it.
The second thing that astounded me this week was that Ofwat had taken away some of the powers for water companies to introduce water efficiency schemes. It took some of those moneys away for better use—to give back as grants for water efficiency. I have no truck with Ofwat in this regard, but I would argue that water companies are better placed to know what water efficiency measures will work in each region in which they operate.
I conclude by saying that, while I listened very closely and admire the eloquence and knowledge with which the noble Baroness, Lady Willis of Summertown, moved the amendment, I think we have to err on the side of caution and make sure we are allowing the water companies the tools they need to do the job, to ensure that we preserve as far as possible drinking water for drinking water purposes, and allowing them to roll out measures to ensure that water efficiency going forward will encourage us all to use water differently. They are currently prevented from doing that by the definition as I understand it of “wholesome water”. We will go on to discuss that at a later stage, but one has to be cautious with the best intentions that are sometimes expressed in these amendments.
Lord Cromwell (CB)
My Lords, I also add my support for these amendments, and I agree with much of what has been said already. On the matter of water usage, I have lived in deserts and I find the idea of people power-washing their cars with pure drinking water in this country extraordinary. But that is where we are today, I guess.
Why do I support these amendments? It is simply because it is vital that this Bill is consistent with existing policy and legislation to which it naturally links. The only reservation I have, which may be something that comes out of the review, is that it brings us back to the question of whether Ofwat and the Environment Agency should be a single agency or two separate ones with a division of responsibilities.
Lord Blencathra (Con)
My Lords, I declare my interests as on the register. I thank the noble Baroness, Lady Willis of Summertown, for moving the amendment and for the interesting points she makes regarding the importance of clarifying the intention of this Bill. As we said at Second Reading, we are committed to cracking down on pollution by water companies and we support the Government’s intention to deliver effective measures that bring polluters to justice. While government can always do better, we are proud of our record in the past: we increased the number of storm overflows monitored across the network from 7% in 2010 to 100% today; and the Thames Tideway Tunnel is now complete.
So we on these Benches share the Government’s concerns about the many instances of water and sewerage companies discharging pollution in recent years. This poses a risk to those who use and enjoy our waterways and is causing serious damage to the environment. It is imperative that the Government continue to build on the progress the previous Conservative Government made on improvement, monitoring and tougher action to tackle sewage overflow incidents.
The Government are right to prioritise this issue, but we have serious concerns about the impact of this Bill on the water industry that we expect to explore as we go through Committee. I reiterate my thanks to the Minister, who has continued to engage constructively with us. I am grateful for the time she has given us in the lead-up to Committee. I hope we will continue to make constructive progress and improve this Bill for the benefit of all stakeholders—cost-effective water for consumers and security for the 100,000 employed in the water industry—while protecting the Government from financial risk and restoring our natural environment and incentivising investment.
Amendment 1 would make the purpose of the Bill clear and place a duty on the Secretary of State to have regard to that purpose, as well as the need to meet certain biodiversity targets and the current unpredicted impacts of climate change. The noble Baroness, Lady Willis, is right that we should take every opportunity to improve biodiversity, and there is an opportunity in the Bill to deliver transformative change for our rivers. We have amendments coming up in later groups that would help to incentivise the industry to invest in catchment restoration. That would not only improve water quality and flood management but contribute to nature restoration, biodiversity protection and, more importantly, the recovery of our biodiversity.
The Government want to keep the Bill narrowly focused on the regulation of water companies and their manifesto commitments on penalties for water companies, with the promise of further reform soon. We on these Benches are disappointed that the Government have not brought forward more comprehensive reforms in the Bill. If the promised water Bill does not materialise next year, it would not be the first time that a Government had delivered just partial reform.
We want to see a more ambitious approach from the Government, focused on the whole water sector and not just penalties for water companies—or for executives of water companies. For that reason, we believe there are areas beyond the Government’s fairly narrow focus in the Bill that ought to be included and should not be put at risk by the unclear timing of the future water Bill. The Minister has previously spoken about the need for incentives to attract talent to the sector, as well as an effective penalties regime. We need whole-sector reform if we are to deliver the clean rivers and healthy environment that people across the country are calling for. We support the spirit of the amendment by the noble Baroness, Lady Willis. We on these Benches agree that the Government must go further than the measures included in the Bill, and must do so urgently.
Amendment 91 similarly seeks to place duties on the Secretary of State to take reasonable steps to contribute to the achievement of our biodiversity targets and our climate change targets and to adapting to the impacts of climate change. The Minister will know that, in 2023, the last Government published the first ever comprehensive Environmental Improvement Plan, setting out targets and indicators for water-quality improvement.
Over 25 pages of the plan are devoted to water and targets. There were targets to reduce nitrogen, phosphorus and sediments; a target to halve the length of rivers polluted by abandoned mines; an interim target to construct eight water treatment works; targets on reducing water waste, reducing leakage by a further 20% by 2027; a target to restore 75% of our water bodies to good ecological status; a target to require water companies to have eliminated all adverse ecological impact from sewage discharges at all sensitive sites by 2035 and all other overflows by 2050; a target to create a level of resistance to drought so that emergency measures are needed only once in every 500 years; a target to direct water companies’ fines relating to environmental breaches to improving the water environment; a target to crack down on sewage pollution by holding water companies to account for delivering the targets set out in the Storm Overflows Discharge Reduction Plan; a target to require water companies to upgrade 160 of the wastewater treatment works to meet the strictest phosphorus limits by 2028, with a further upgrade of 400 of them by 2038, which would reduce nutrient pollution from treated wastewater; and—of great concern to me—a target to protect our chalk streams by supporting the chalk stream strategy. Lastly, there was a target to make sustainable drainage systems mandatory in new developments, subject to final decisions following consultation on scope, threshold and process.
I mention those targets to show that the Opposition are not coming here to say that we have just discovered some good ideas and actions for the future. We have a track record of setting tough targets, and they are in the EIP. These targets are specific to water quality and will greatly increase biodiversity. They are not just reasonable steps but specific, measurable targets.
The Government have said that they are urgently reviewing the latest EIP, which is about to be published. I do not expect the Minister to say what the tweaks will be, but can we expect any changes to the water EIP targets when the Government publish them? We share the ambition of the noble Baroness, Lady Willis, for water sector reform, and we hope that the Government will listen to the concerns of noble Lords, who are calling from all sides of the Committee for a more ambitious approach.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank the noble Baroness, Lady Willis of Summertown, for her interest in and general support for the Bill. I am sure that, despite missing Second Reading, she will make a very valuable contribution to Committee.
As I set out at Second Reading, the purpose of this Bill is deliberately narrow in order to improve water industry performance as an urgent priority. On her Amendment 1, I agree with the noble Baroness that addressing the wider issue of river pollution arising from water and sewerage companies’ operations is of critical importance, as of course is meeting our biodiversity targets. The noble Baroness, Lady Parminter, said that she hoped I was not going to just refer to the review, and I am sure she will be delighted to know that I am not.
The noble Baroness, Lady McIntosh of Pickering, made the important point that we already have commitments in law on this; we already have targets that we need to be meeting on biodiversity and the wider environment. It is important to stress that we must have regard to the Climate Change Act in this space. The Government are already required to meet the legally binding targets under the Environment Act 2021 and the Climate Change Act 2008, and to set out their plans to adapt to the impacts of the changing climate.
As the noble Lord, Lord Blencathra, just mentioned, we are doing a rapid review of the environmental improvement plan. This is because we are serious about meeting the Environment Act’s biodiversity targets. We did not feel that it was fit for purpose to meet those targets, which is why we are doing this review—to protect and restore our natural environment and come up with a delivery focus to help meet very ambitious targets.
Ofwat—I think the noble Baroness, Lady McIntosh, mentioned this—has a core duty under Section 2A of the Water Industry Act 1991 to work towards strengthening resilience. This duty ensures that Ofwat is already required to promote long-term planning for water companies to adapt to environmental pressures, including climate change. I take on board the comments of my noble friend Lady Young of Old Scone, who felt that Ofwat at some point lost the plot. This is why we need to look at the role of regulators through the review—I am afraid I will be mentioning the review from time to time today.
I hope that the noble Baroness, Lady Willis, is reassured that the Government share her ambition to tackle the wider issues of river pollution, biodiversity and climate change. I hope she understands that, because we feel we are already acting in this space through legislation that is in place, we will not accept Amendment 1.
Amendment 91 was also tabled by the noble Baroness, Lady Willis. In addition to the duty under Section 2A, Ofwat has a core duty under the Water Industry Act to work to ensure the long-term resilience of water companies’ supply and sewerage systems. Furthermore, on 23 October the Government announced the independent commission into the water sector and its regulation. This is intended to be the largest review of the industry since it was privatised, and part of the development of further legislation, not just a review. We want it to have a positive end in tackling the problems we see in our water industry. The objectives of this independent commission will include ensuring that the water industry regulatory framework delivers long-term stability to restore our rivers, lakes and seas to good health, to meet the challenges of the future and drive economic growth.
I hope the disappointment of the noble Lord, Lord Blencathra, will be replaced with excitement when he sees that these will form the basis of this further legislation to attract long-term investment and set out recommendations to deliver a collaborative, strategic and, importantly, catchment approach to managing water, tackling pollution and restoring nature.
The noble Baroness, Lady McIntosh, made a specific point about the impact assessment. I do not have the assessment in front of me, so I am not entirely sure what section she was referring to. I hope she and I can catch up following Committee and discuss this, so I can answer her questions in more detail.
The commission’s terms of reference do include environmental aspects. The commission’s objectives include to “support best value delivery” of environmental outcomes, and to:
“Rationalise and clarify requirements on water companies”
to achieve better environmental outcomes. Furthermore, under “approach and deliverables”, it says that the chair
“will invite views from an advisory group of nominated experts, covering areas including the environment”,
and
“will also seek views from wider groups of stakeholders, including environmental campaigners”.
Therefore, we are trying to make sure that, as well as meeting the targets already in legislation, we put the environment at the heart of what we are doing.
I hope that the noble Baroness, Lady Willis, is reassured that these two new Clauses are unnecessary as they overlap with existing government requirements, Ofwat’s core duties and our ambitions for the future. I hope she will take an active part in what we are trying to achieve with the commission, and I thank noble Lords for their engagement on these important matters.
Baroness Willis of Summertown (CB)
I thank the Minister and everybody else who has contributed to this discussion on my amendment. I am not going to repeat the valid and important points that have been made, but I will respond to the noble Baroness, Lady McIntosh, on the term “caution on costs”. There is a lot of debate about costs, and nature-based solutions can often be much cheaper while also elevating biodiversity. For the last 20 years we have been told to be cautious about costs and on-costs, and as a result our species targets have gone down and down. The time has come to redress that balance, and I look forward to debating this another time.
On the commission, I appreciate the Minister’s comment that we already have commitments to the environment in the Environment Act and the Climate Change Act. However, I was shocked when I discovered over the weekend that, according to the list of protected species that we want to stop the decline of by 2030—not 2035—25% of plants and birds and 100% of freshwater invertebrate species rely on clean rivers. Therefore, while I am delighted about the commission and will absolutely get behind it and join in, it is going to be too slow and too late to achieve the biodiversity targets we set out in the Environment Act. I look forward to picking up this issue on Report, but for now I beg leave to withdraw the amendment.
Earl Russell
Member’s explanatory statement
This amendment requires Ofwat to issue rules about remuneration and governance.
Earl Russell (LD)
My Lords, in rising to speak to this amendment, I declare my interests as set out in the register. I wish to inform the Committee that my noble friend Lady Bakewell is unwell and unable to attend today, so I will be speaking to many of her amendments as well as my own. This second group of amendments concerns the rules for renumeration and governance, and Amendment 2, tabled by my noble friend Baroness Bakewell, requires Ofwat to issue such rules.
This Government are seeking to strengthen the measures in this Bill by making them firm commitments with due weight in law, and not merely the vague assumptions as currently written into the Bill. We on these Benches have little faith that, without this amendment, the water companies will keep to the spirit of the law on these matters. I have a very similar “must” to “may” amendment, Amendment 24, in group 6, and I shall make general points on both in this speech. We have strong grounds for taking such a position, based on the past performance of the water companies themselves, especially in relation to awarding pay and bonuses and returns to shareholders, which have always come first. Meanwhile, investment in infrastructure and the protection of our environment from the harm these companies have caused and continue to cause have always come a very distant second, if at all.
By way of a very brief introduction, we would of course prefer it if this Government had a more comprehensive and clearer set of plans in place to make more rapid progress on these matters. We on these Benches are clear that we would abolish Ofwat and replace it with a new, unified and far more powerful clean water authority, and we would make water companies public interest companies. This Government have taken a different route and are of a different opinion, believing that the shopping list of measures in this Bill can bring improvements that will hold while a full review is undertaken, before fuller and more fundamental reforms are implemented later on.
We welcome the announcement of the review, but I share the concerns expressed by the noble Baroness, Lady Willis, particularly about our commitment to 30 by 30 and further delay on these matters. The trick for the Government is to make sure that they can make the rapid change required and make Ofwat fit for purpose, since that is their stated intention, and to put in place all our environmental regulations and protections in the timeframes available. That is a bit of a magic trick, and I remain to be convinced that the Government will be able to pull it off, so that is a key concern for us.
We will work to support the Bill where we feel that it brings improvements, and there are many measures that we welcome and will support. We thank the Government for bringing them forward and signalling the future direction of travel and intention to take these matters very seriously. But the measures are really a list of stopgaps and quick fixes, intended to make the system work somewhat better than it has until the full review is finished and implemented. These measures come first and will need to work alongside any further actions. That is something we will need to think about in Committee—how the measures and amendments we are bringing forward and discussing today might work with potential outcomes from the review that is yet to come.
For the measures in the Bill to work, even the stopgap measures, the clauses need to be strong and effective. If they are not firm or binding, or can be easily ignored or circumvented without clear consequences, they simply will not work or do what they are intended to do. This is one area of the Bill that we think can easily and should be strengthened, so that it has the intended and required effect. The wording here as it stands is simply not strong enough. We cannot allow weak and ineffective measures to stand while the country waits for the Government to consider making further legislative changes post the review, and these then to pass through Parliament, to be enacted at a much later stage, which, as we have heard, could be by 2030. I seek clarification from the Minister as to when those measures will go through that process and come into force.
Since privatisation 35 years ago, we have witnessed one of the worst environmental crises in the UK, with unabated and unprecedented pollution. Just 14% of our rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours-worth of untreated sewage discharges in England alone. Meanwhile, water companies have paid at least £78 billion in dividends, while failing to invest adequately in the infrastructure required. At the same time, they have piled on £64 billion net in debt, yet they were privatised debt free. The levels of executive pay and remuneration have rightly caused outrage across the country, as water bosses have got even richer as our bills have got even higher and we face more and more pollution in our rivers and streams.
Clause 1 amends the Water Industry Act 1991 to insert new Section 35B, which links the remuneration of water company directors to the meeting of a single set of specified standards, which include environmental standards. This is a welcome and long overdue measure. Performance-related pay and profits must be linked to the outputs achieved, and investment and environmental standards must be the benchmarks. While the intention is clear, the determination of the proposed legislation is weak. As drafted, it simply says that the authority “may” issue such rules. That is neither clear nor well-defined enough as it stands. The Bill must ensure that Ofwat issues clear and well-defined guidance, in a defined timeframe. What is written is not enough and brings no guarantee that Ofwat will issue such guidance, with no means of holding it to account if it decides that it is simply not minded or does not see any need to issue any guidance.
The Duke of Wellington (CB)
My Lords, first, I congratulate the Government on having set up, last week, the review under Sir Jon Cunliffe. That is an excellent move by the Government; a very respected individual will carry out the review, and a number of us have been asking for this for a while. I really think the Government have made a wise decision.
I want to comment on Amendment 2. I have sympathy with “must” rather than “may”, but I have a reservation about the then wording, “must issue rules”. It seems to me that it is necessary for the authority to issue what I would prefer to call “guidance” rather than “rules”. That would give a certain flexibility to individual companies—no two companies will ever have the same set of circumstances, either among their executive management or in the environment in which they are operating. I ask the Government to consider changing the wording of the clause, so that it reads: “The Authority must issue guidance about the arrangements made by relevant undertakers”.
There is no doubt that the water companies have abused the total independence they have had to date around setting remuneration and everything associated with it. They are monopolies, and I think they have gone too far. Many people have been rather dismayed to see the levels of executive remuneration. I ask the Minister to consider changing “rules” to “guidance”. That would be a great improvement.
On Amendment 3, in a light-hearted manner I point out to the noble Lord, Lord Remnant, a misprint, where his amendment refers to “renumeration” rather than “remuneration”. I am sure that that is an oversight which he will have already noticed.
There is a good point in the amendment from the noble Lord, Lord Remnant, in his proposed new Section 35B(1B)(b), about the importance of attracting, motivating and retaining persons of sufficient quality to work in the industry. We must all remember that what we all want is better-run water companies. I do not think we should be tying too tightly the hands of remuneration committees and the board in general in how they attract and retain executives. I am very persuaded by that particular aspect of the noble Lord’s amendment, but I worry about seeking to define too closely exactly how water companies should make their remuneration arrangements.
Lord Remnant (Con)
My Lords, I will speak to Amendment 3 in my name and I apologise for the typo. I had noticed it, but only recently, and only a moment or two before the noble Duke, the Duke of Wellington, brought it to the Committee’s notice.
As we know, Clause 1 contains rules about remuneration and governance. Most importantly, it contains provisions giving Ofwat the power to block the payment of bonuses to senior executives of water companies. My amendment clarifies that Ofwat’s powers under this clause cannot be exercised in a way which conflicts with its general duties with respect to the water industry and emphasises that the industry’s capital and human resources needs are of critical importance. I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years, between 2014 and 2022, chairing the board’s remuneration committee for that time.
Why is it that these clarifications are required? Essentially, it is because we are giving extremely wide powers to Ofwat to draft rules in a very complex area, seemingly at its discretion and without further scrutiny by this House, which may have many unintended and harmful consequences. There is no clarity in the Bill on the appropriate targets and performance standards, how they will be measured, when relevant triggers occur and which remuneration, in which year, will be affected. This will all be for Ofwat to determine—yes, Ofwat.
I have huge sympathy for regulators—I was one myself for a period, running the Takeover Panel—and know that they attract only criticism and never praise. Having said that, I thought the mood of your Lordships at Second Reading was especially stark in expressing views about Ofwat’s past performance, and some of those views have already been reiterated in the short time we have had today. That was as regards its role as an economic regulator—its core competence. We are now effectively extending Ofwat’s remit into difficult areas of fine judgment best left to company boards and for which Ofwat is totally unsuited. Can we be so reassured by the integrity of the ensuing process and the safeguards built in that my concerns can be assuaged by leaving this clause unamended? I fear not.
First, it offends the principles of natural justice, as there is no distinction between the legislative process and the judicial one. The powers will lie with one body, Ofwat. It will make the rules and then judge companies and individuals under them. Secondly, the Minister may refer me to the consultation process which Ofwat will undertake, to which she drew the attention of your Lordships in her helpful letter dated 25 October. I welcome that, although it would be a heroic achievement for Ofwat to decide definitively on such a wide range of questions and responsibilities that this Bill, if enacted, will impose on it. Yet we all know that consultation is no panacea. The responses will contain many conflicting views and the conclusions that Ofwat will reach will be influenced by the weight it gives to particular views and to some preconceived ideas that it will inevitably hold.
Thirdly, there will be no opportunity for your Lordships to scrutinise the rules promulgated by Ofwat. For this reason, I support the thrust of Amendment 27 in the names of my noble friends Lord Roborough and Lord Blencathra and Amendment 25 from the noble Lord, Lord Sikka, which are designed to achieve such scrutiny. I will leave those noble Lords to talk to them in more detail.
But is this enough? I suggest not, because the scrutiny so achieved would be after the rules had been made by Ofwat. There is a need to influence Ofwat’s thinking much earlier in the process. That is what my amendment is designed to achieve. It is drafted with an eye to the wider objectives to which this Bill should aim: the need for more innovation, the recruitment of new talent and, above all else, the greater investment required to raise standards.
The amendment is in two parts. First, it is designed to ensure that Ofwat does not exercise its powers in a way that conflicts with its general duties under Section 2 of the Water Industry Act 1991. Such duties include a consumer objective, a duty to have regard to principles of best regulatory practice and a growth duty. Indeed, Ofwat refers to such duties in its consultation document when it says that one of its desired outcomes is that the rules should be proportionate. That is to be welcomed.
The Minister may be tempted to say that existing duties in the Water Industry Act and Ofwat’s acknowledgement of them should satisfy me and render this part of my amendment redundant. Were she to do so, I would say that that might hold good if the Bill imposed some constraints on Ofwat rather than adopting a blanket “Over to you, Ofwat” line. In the same section of its consultation document, it appears to qualify its commitment to proportionality by saying that
“we will be bound by statute”—
presumably as a result of this Bill—
“to introduce rules with the requisite effect”.
It is therefore critical that there is not just implicit recognition of Ofwat’s duties under the Water Industry Act of over 30 years ago but explicit recognition of those obligations on the face of the Bill, linked directly to this new and additional power that we will be giving to the regulator.
The second part of my amendment requires Ofwat to have regard to two further considerations in exercising its powers under this clause: namely,
“the need for a relevant undertaker”—
the water company—
“to … attract the investment required for its capital programme, and … attract, motivate and retain persons holding senior roles”.
I can find no reference to these considerations in Ofwat’s consultation document generally, nor in the specific questions it proposes, yet the scale of the investment in the industry that is required is such that we cannot afford to deter that investment, or experienced executives from working in it. Unlike in the past, much of that investment will have to come from equity investors, who assume a higher level of risk than debt investors and have more of a vested interest in, and so take a more critical attitude to, the prospects of a company, its financial plans and, importantly, the quality of the management tasked with delivery.
There is a limited number of appropriately qualified and skilled candidates to take on the most senior roles in water companies, and one of the successes of privatisation has been the ability of such companies to attract successful individuals from outside the utilities sector. In a competitive world for talent, Ofwat should not introduce rules that put water companies at a significant disadvantage when recruiting and seeking to retain such staff.
When launching the independent review of the water sector last week, the Secretary of State was at pains to stress the importance of attracting the investment needed to clean up our waterways and rebuild our broken water infrastructure—and, specifically, facilitating a regulatory environment that attracts investment. The least we can do is play our part in supporting the Secretary of State in this noble endeavour. I should have thought that this amendment would be music to the Minister’s ears, so I look forward to her response with a great deal of hope and expectation, and indeed no little optimism.
Lord Sikka (Lab)
I will speak to Amendment 25. This amendment seeks to strengthen Parliament’s role in crafting and approving regulations for the water industry. The Bill as it stands asks people and Parliament to trust regulators, which the Bill calls “authority”—currently they include Ofwat and the Environment Agency—to make rules. Well, that trust has already been severely eroded.
Lord Roborough (Con)
My Lords, I thank the noble Earl, Lord Russell, for moving the lead amendment in this group. I will speak to Amendment 27 in my name.
Amendment 27 seeks to set a timeframe of six months within which the authority must publish rules regarding remuneration and governance, and it ensures that these rules are scrutinised by both Houses of Parliament through the affirmative procedure for secondary legislation. This amendment is necessary to ensure that water companies are able to review the rules that Ofwat intends to implement within six months of the Act coming into effect. The amendment will also ensure that there are mechanisms for raising any concerns within which Ministers and Parliament can scrutinise them fully.
Baroness Hayman of Ullock (Lab)
My Lords, clearly, public trust in the water sector has been severely damaged and the number of serious pollution incidents is increasing, as we heard very clearly from my noble friend Lord Sikka when he introduced his amendments. At the same time, companies have been paying out millions in bonuses. To rebuild public trust, the Bill enables Ofwat to issue new rules on remuneration and governance to ensure that companies and executives are subject to robust oversight and held accountable for failure. I thank the noble Lords who have tabled amendments relating to the application of these rules.
I will start with Amendment 2, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville. I thank the noble Earl, Lord Russell, for introducing it on the noble Baroness’s behalf and wish her all the best from these Benches. I also listened with interest to the suggestions made by the noble Duke, the Duke of Wellington. Clearly, he and the noble Earl, Lord Russell, had different opinions on the wording. Our approach is intended to strike a balance between the approaches suggested by the noble Lords, to give Ofwat some flexibility while ensuring that it issues rules in relation to our priority areas.
However, I emphasise that the provisions in the Bill state that Ofwat must exercise its power to set rules in relation to performance-related pay, fitness and propriety, and customer representation. Ofwat may also make rules about other remuneration and governance arrangements at its discretion, but it must take action regarding the specific matters referred to in the Bill. We are pleased that Ofwat is already taking action to implement these rules through the publication of its consultation announced on 22 October. This was referred to by number of noble Lords, including the noble Lord, Lord Remnant. I hope the noble Earl will tell the noble Baroness that we hope that this has reassured her that her amendment is unnecessary.
I turn to Amendment 3, tabled by the noble Lord, Lord Remnant. Ofwat has a range of primary duties, including acting to protect the interests of consumers, ensuring that companies properly carry out their functions, and securing that companies are able to finance the delivery of their statutory obligations. I assure the noble Lord that Defra has worked to assure agreement with companies to update their articles of association to place customers and the environment at the heart of business decisions which impact on consumers.
The noble Lord is correct that I am going to say that Ofwat’s existing duties are already consistent with the outcomes that this amendment aims to ensure. This includes ensuring due consideration of the human and capital needs of the sector. He also raised concerns about influencing Ofwat. The current consultation that I have referred to is an initial policy consultation which has been launched with the express purpose of inviting views early. This will be followed up with further statutory consultations, which will also take into account the views shared through this initial policy consultation.
I thank the noble Lord for bringing his knowledge and experience to the development of this legislation. It is very valuable to hear his contributions. However, I hope that he is reassured that, in setting the rules about remuneration and governance, Ofwat will continue to act in accordance with its core duties and understands that it is for this reason that the Government will not accept the amendment.
Amendment 25, tabled by my noble friend Lord Sikka, and Amendment 27, tabled by the noble Lord, Lord Roborough, relate to the timing and process for setting the rules for remuneration and governance. My noble friend took the opportunity to lay out clearly the many concerns around the behaviour of water companies and the ability of regulators to hold them to account. Ofwat is required to undertake statutory consultation with the relevant persons, which includes the Secretary of State, before any rules are finalised. Allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended, subject to the relevant procedural requirements, where it is appropriate to do so in the future. The Government and Ofwat agree that the rules should be in place as soon as possible after Royal Assent, and Ofwat intends to implement them following its statutory consultation, which, as I previously mentioned, has already been launched. I hope the noble Lords are therefore reassured their amendments are not necessary.
Finally, Amendment 101, tabled by my noble friend Lord Sikka, relates to dividend payments. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. Ofwat already has the power to stop the payment of dividends if they would risk the company’s financial resilience and to take enforcement action if companies do not link dividends to performance for consumers and the environment. The amendment risks deterring much needed investment in the sector. I highlight that the Government’s new independent water commission will look at how we can improve the regulatory framework to attract investment and support financial resilience for water companies. I hope this is helpful in explaining to my noble friend why the Government will not accept his amendment.
A few noble Lords talked about the importance of investor confidence and the impact that we could have on this and talent in the water industry. While we believe it is right that companies and their executives are held to account for basic and fundamental performance requirements, it is important that, should companies meet their performance expectations, executives can still be rewarded. The proposed £88 billion in investment under PR24 is the largest ever in the water sector and has the potential to create up to 30,000 new jobs. It is crucial that the sector can recruit the talent it needs to deliver the PR24 proposals, because improving the performance of the water industry will help the industry attract and retain talent. Private sector investment is also at the core of how we grow the economy, and the Bill is designed to deliver a clear and consistent regulatory framework for the water industry and its investors. Noble Lords may be interested to know that on 10 September Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions of pounds in private sector investment that are desperately needed if we are going to clean up Britain’s rivers, lakes and seas.
Finally, I assure the noble Lord, Lord Roborough, that I always try to get on well and work constructively with everybody, including Ofwat. I once again thank the noble Lords for their suggestions and input to this discussion on the general application of the rules for remuneration and governance.
Earl Russell (LD)
My Lords, I thank the Minister for her comments. The noble Duke, the Duke of Wellington, put forward an interesting idea on issuing guidance, and it is one that I will take back to my noble friend for further consideration. The noble Lord, Lord Remnant, talked about the lack of ability to scrutinise the rules, the need to attract talent and the carrot and stick approach. The noble Lord, Lord Sikka, talked about broken trust, the poverty of regulations and the level of convictions in the water industry. His Amendment 101 would curb excessive dividends, financial engineering practices and practices inflating the worth of companies. The noble Lord, Lord Roborough, n his amendment said that rules must be published within six months and he talked about the powers of Ofwat being unchecked.
Lord Sikka (Lab)
Member's explanatory statement
This amendment seeks to confirm that all members of the board are held to account, in a way consistent with company law, and to remove any ambiguity in the Bill about what constitutes a senior role.
Lord Sikka (Lab)
My Lords, Amendment 4 seeks clarity as to what the Bill is getting at. The Bill’s intention appears to apply penalties to only selected directors and not the entire board of directors, even though decisions are made collectively. The Explanatory Notes say it commits to
“ban bonuses for persons holding senior roles”,
and the Bill defines a “senior role” as a person who
“is a chief executive of the undertaker”—
a somewhat unfortunate phrase—
“is a director of the undertaker, or … holds such other description of role with the undertaker”.
The tone of the Bill suggests that references may all be to executive directors, but we know that water companies also have non-executive directors, and under the Companies Act non-executive directors have exactly the same liability and responsibility as executive directors. The Bill does not mention non-executive directors.
Amendment 4 seeks clarity and asks the Minister to confirm that the prohibitions and penalties will apply to not only non-executive directors but legal persons who may be acting as directors, because natural persons can be directors as well as legal persons. I beg to move.
Lord Remnant (Con)
My Lords, I must admit to having experienced a degree of trepidation on discovering that I was to share a group of amendments with the noble Lord, Lord Sikka, and with him alone. Having listened to his views on the Bill in general, so eloquently expressed at Second Reading, I feared that we would find little common ground when debating particular aspects of it. Imagine my surprise, therefore, when I compared his Amendment 4, to which he has just spoken, with my Amendment 18, to which I am about to speak, to discover that we might have more in common than I had thought.
I think that some of the rationale behind Amendment 4 is misplaced. While I agree with the noble Lord that all members of the board under company law are held to account, performance-related pay is in practice paid only to executives, while non-executives are remunerated by way of fixed fee. Given that the provision to which Amendment 4 relates is in respect of performance-related pay, the inclusion of non-executive directors is of no practical importance. Notwithstanding this, Amendments 4 and 18 effectively would achieve the same practical impact in respect of the individuals to whom these remuneration rules apply. Amendment 4 would remove the reference to senior roles and replace it with a reference to directors of the company, while Amendment 18 would retain the concept of senior roles but effectively define them as directors of the company.
I do not believe that it is right for Ofwat to extend the rules to
“such other description of role”
as it specifies. Not only would such an extension be wider in scope than the current disclosure requirements of Section 35A of the Water Industry Act 1991 but it would be difficult to implement in practice, as different water companies will have individuals described differently by title and role. Nor would such an extension be consistent with the general remuneration and corporate governance rules for listed companies, which do not extend to individuals below board level.
I hope the Minister agrees that, through the adoption of my amendment, this additional power conferred on Ofwat by the Bill should be removed. If we wish to attract and support the next generation of leaders in this vital industry from middle management, this will not be achieved by extending these restrictive remuneration practices to them.
Baroness Pinnock (LD)
My Lords, I start by reminding the Committee that I have an experience, rather than an interest, as I was a non-executive director for a number of years on the board of Yorkshire Water. I reassure the noble Lord, Lord Sikka, that I never had a bonus during that time, for the reasons that the noble Lord, Lord Remnant, has explained.
This group of amendments follows on neatly from the previous discussion about performance-related pay and the remuneration of senior directors of water and wastewater companies, so I thought it was worthwhile to draw out a bit more of the debate around this issue. The fundamental problem lies in the fact that water and wastewater companies are regulated by a number of different institutions. Ofwat is the economic regulator and, because of the way that the water Act was written, is primarily looking at the financial performance of the water companies. That inevitably leads to a disregard for the environmental outcomes of water companies as a priority. Consumers, who see that their rivers, lakes and coasts are being heavily polluted by these water companies, are astounded to see the same water companies giving huge bonuses to their directors. That is because the two issues are not related in the mind of Ofwat. That is why my party wants a single regulator for water companies, so that all the issues that are the responsibility of water and wastewater companies are taken into account. Part of that debate was reflected in the first group of amendments, discussed earlier.
We need to remind ourselves that remuneration in companies is decided by boards of directors. They will look at the financial objectives of the company and the outcome of the price review agreed by Ofwat and come to conclusions, whether or not objectives have been achieved or considerable benefit to the company accrued by the actions of directors.
That is part of the problem. As the noble Lord, Lord Sikka, has attempted to describe, the price review is a tussle of words and figures between the companies on the one hand and Ofwat on the other. I remember the discussions. If you are in a company and you want to make sure there is a good outcome for your owners and shareholders, you make sure that the submissions you make in a price review to Ofwat enable profits to be made. That is the whole purpose of a private company. It is at the heart of all the discussions we are having about water companies, their performance and their remuneration and bonuses. The 1991 Act was designed for them to be private companies with shareholders, who were going to receive dividends as a consequence. If that is the prime duty, and the main regulator oversees that prime duty, the other issues that water companies ought to be taking into account—the environmental issues in particular, as we heard earlier—become less important.
I hope that, when we come to Report and discuss these issues more closely, the Minister will think about a government amendment that strengthens the duties of water companies, and of Ofwat as the regulator, to take into account these other issues. For me, that is at the heart of the discussions we have had on this group and the previous group. I agree with the amendment from the noble Lord, Lord Remnant. You cannot try to control pay awards further down the company; those often very talented people need to be attracted into water companies if we are to improve what is a sad state of affairs.
The Duke of Wellington (CB)
My Lords, I support Amendment 18 in the name of the noble Lord, Lord Remnant, which simply deletes new subsection (5)(c) on page 2. It seems to me that we cannot allow the authority—whatever it may be in the future, after the review, or even from now on—to start getting involved in the remuneration of those below board level. That really becomes too much intrusion into the way a company is run.
The noble Lord, Lord Sikka, is entirely correct that, in the end, a director of a company is a director, whether executive or non-executive, as covered by the Bill; it mentions “a director” of the company. It seems to me that, while senior role remuneration should have some guidance from the authority, that should be restricted to the chief executive and other executive board members. There is no point entering into a discussion about non-executive directors, who clearly do not participate in performance-related pay or bonuses or anything like that. I think the noble Lord, Lord Remnant, is right; it would be appropriate to delete new subsection (5)(c) and include in this clause only the chief executive and any other executive director.
Lord Roborough (Con)
My Lords, I thank the noble Lord, Lord Sikka, for moving Amendment 4. It is right that the Government should take steps to put appropriate pressure on water and sewage companies to reduce the frequency and scale of water pollution incidents, and imposing financial penalties on board-level executives is a powerful way of disincentivising unwanted behaviours in the sector. But if we are to have financial penalties targeted at water executives who do not meet the standards expected of them, we must ensure that these are appropriate. As we discussed in the last debate, it is crucial that Parliament gets the opportunity to scrutinise the rules that Ofwat will be implementing.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for their interest in the rules relating to performance-related pay. The public have been clear that they expect to see change in the performance of the water industry and, where performance is poor, that executives should not receive bonuses.
I turn to the amendments in this group: Amendment 4 from my noble friend Lord Sikka and Amendment 18 from the noble Lord, Lord Remnant. I thank them for their introductions and their unexpected agreement. I also thank the noble Baroness, Lady Pinnock, for sharing her experience of working with Yorkshire Water; these shared experiences are important as we develop the legislation going forward.
In line with the general principles of regulatory independence, Ofwat will rightly be responsible for developing and enforcing the rules on remuneration in governance, including determining the individuals in scope. As I mentioned in the previous group, Ofwat published its policy consultation on 22 October, and this will run through to 19 November. This consultation is to design the rules that are outlined in the Bill.
In response to the noble Lord, Lord Roborough, I will say that the consultation sets out Ofwat’s intention to apply rules on performance-related pay only to executive directors who are members of the regulated company board and receive performance-related pay. Ofwat has also stated in its policy consultation that it intends for the rules relating to fitness and propriety to apply in the first instance to chief executives and individuals appointed as directors to the board, and that would include both executive and non-executive directors. But Ofwat may consider extending the rules to other senior management roles in the future.
Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended, subject to the relevant procedural requirements, where or when it is appropriate to do so in the future. Ofwat will of course need to consult with the relevant persons, and this will include the Secretary of State, Welsh Ministers, the Consumer Council for Water and other stakeholders, before these rules are finalised.
In conclusion, the Government will therefore not be accepting these amendments, because we need to ensure that Ofwat can retain the flexibility to expand the group of persons covered by the rules in future if appropriate.
Lord Sikka (Lab)
My Lords, I thank all noble Lords for their contributions to this debate and I am sure that some of the issues will return. Perhaps I may just clarify a point. The Bill also holds out the possibility of criminal sanctions against directors. Are we to assume that non-executive directors will never be charged with anything? The Post Office scandal shows that non-executive directors were culpable, so there appears to be a case for including them in some of these considerations. I am sure I will read Hansard with considerable interest and possibly return next time. For the time being, I beg leave to withdraw the amendment.
Lord Sikka
Member’s explanatory statement
The amendment seeks to strengthen the Bill by focusing on total remuneration, regardless of the form.
Lord Sikka (Lab)
Gosh—my turn again. This amendment seeks to replace the words “performance-related pay” with “total remuneration”. At Second Reading, I raised the question of how the ban on bonus payments was actually to be implemented. At the time, the Minister did not reply and, to my mind, the question still stands. Over the years, I have written many executive remuneration contracts and seen many others; some of them contain many odd bits. For example, so-called performance-related pay may come in the form of cash, shares, share options, chauffeur-driven cars, even gardeners, rent-free accommodation, children’s school fees and much more.
Published company accounts never really make it clear what the complete components are and the executive remuneration contracts are never filed at Companies House for anyone to see what exactly they are getting paid for. The value of some of these payments may not be known until some time in the future. For example, the value of a share option granted today and exercisable after a certain number of months or years would not be known until the date of the exercise. So how will the regulator decide whether any bonus payment is materially significant and deserving of a possible ban? Somebody might simply say, “This does not appear to be significant at the moment, but it could be significant by the time it is exercised”.
Companies can also shift the basis of bonus plans to retain or attract executives. If Ofwat or any other regulator were to impose a ban, it might change the weight attached to the part of the performance that may be considered by the regulator, and thereby defeat the whole objective of imposing any ban. The company can also easily bypass any restriction on bonus payments by adjusting the bonus pay. It can simply say to directors, “Your basic pay will increase and your bonus pay is down”. As many water companies are part of giant conglomerates, directors can be offered seats on other company boards so that their total remuneration is no less, even if a bonus is banned.
So it is not clear to me how this ban is going to be implemented. It looks good on paper, but in practice I have yet to hear the details, so what I am suggesting is that the attention needs to focus on total pay, not just bonuses, because bonuses can easily be bypassed. That is why this amendment seeks to substitute “performance-related pay” with “total remuneration”. I beg to move.
Earl Russell (LD)
My Lords, I have two amendments in this group. Amendment 6, tabled in the name of my noble friend Lady Bakewell, to which I have added my name, would mean a water company could not give performance-related pay to persons holding a senior role if the company had failed to prevent all sewage discharges, spills or leaks. This definition also includes legal spills. We have included legal spills as this practice also needs to stop, and the only way to ensure that it does is by working to put pressure on private water companies to apply the appropriate and necessary levels of investment in infrastructure. Only then will these companies be operating as intended, and only then should they potentially be free to think about remuneration above and beyond basic salaries to their top executives.
I have also added my name to Amendment 28, also in the name of my noble friend Lady Bakewell. This amendment creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills or leaks. Taken together, these amendments seek to help tackle head-on one of the main issues that I am sure many of your Lordships had raised with them, with passion, on the doorsteps at the last general election: the sheer hypocrisy of water companies continuously and seemingly endlessly failing to protect our environment. It is outrageous that they are continuing to get away with unabated sewage spills in our much-loved rivers and lakes, all the while paying themselves massive bonuses and dividends and racking up huge amounts of debt.
We are not able to go to the beach or to wild swim, while they get rich off the back of failure after failure. All of this has been done while failing to adequately invest in the infrastructure that is so desperately needed to end this seemingly endless cycle of scandal. My party has tirelessly campaigned on this issue and we will continue to do so. No other issue has cut through to the electorate on such a scale and with such a level of arguable clarity as this one has. Indeed, the promise to scrap CEO bonuses was a core manifesto pledge we stood on at the last general election. The electorate are outraged and rightly so. No one feels good when they are overcharged for the privilege of receiving an appalling service. To be clear, this is exactly what bill payers are getting with a proposed 40% increase in bills and no end in sight to the pollution of our environment. Our rivers, streams and lakes have been polluted to the point of collapse. My party has led a campaign on these issues that cut through on all sides of the political spectrum.
The broken system has seen those who have a duty to protect polluting with no consequences, and time and again they have rewarded themselves lavishly for the privilege. Instead of the “polluter pays” principle ever being applied, we have the “polluter awards themselves a pay increase” principle applied every time. In 2023 alone there were some 3.6 million hours of untreated sewage discharges in England, up a staggering 105% on the year before. How many fines have been levelled against water companies in the previous few years? I have really struggled to find that information. Meanwhile, water companies have paid at least £78 billion in dividends while failing to invest.
Lord Cromwell (CB)
My Lords, I will speak to Amendment 13 in my name. As this is my first contribution on an amendment of my own, I thank the Minister for meeting me, for the fact sheets and the letter, and for the good news that the commission and the review are taking place. We all appreciate that. I support the Bill and welcome the commission review to come.
I turn to the amendment. As touched on by other speakers, including the noble Baroness, Lady Pinnock, in the debates on the second and third groups of amendments, company employees require appropriate remuneration, just as investors need a return. But the financial engineering introduced previously by investors and company directors—for example, debt levels, transfers to parent companies and other practices that were forensically set out earlier by the noble Lord, Lord Sikka —has enabled opaque enrichment, and has subsequently brought some water companies close to bankruptcy. That is not what monopoly water companies are for, and I believe it lies at the very heart of the current problems of the water companies.
The amendment enables the authority to include rules or guidance, as we may decide, with regard to a company’s structuring and its transparent reporting. It is deliberately left as “may” rather than “must” because the authority may want some flexibility here. Nevertheless, the amendment would act as an overt reference to the responsibility of the authority and water company employees to evaluate clearly the company’s financial structures and changes to them, and how those would impact on the distribution of financial benefits across investors, employees, directors and, indeed, consumers.
Lord Roborough (Con)
My Lords, I will speak to Amendment 17 in my name. I thank the noble Lord, Lord Sikka, yet again for introducing this group and raising these matters for consideration when the Government are establishing the regulations surrounding performance, pay and bonuses.
Amendment 17 seeks to clarify the definition of what constitutes performance-related pay. There are many ways in which companies can create performance-based incentive schemes. That can include multiyear programmes containing cash bonuses, share awards, restricted stock units, share options and pension contributions. In answer to the noble Lord, Lord Sikka, it rarely includes chauffeur-driven cars, private schooling or any other benefits in kind, which tend to be part of the base package.
Is the intention to capture all forms of performance-based rewards within the powers of the Bill? If so, would it not be better to be exhaustive in defining them in the Bill? It is vital that such a definition be as clear as possible to ensure that the Bill achieves its intent to punish senior executives who are not fulfilling their obligations to us all in cleaning up our rivers, lakes and beaches.
In the Bill as drafted, the rules are not clear enough as to what financial components could make up the bonus of a senior water company employee in a given financial year. The amendment is therefore necessary to prevent water companies redesigning performance-based awards to take them outside the scope of the Bill. This is not to suggest any nefarious activity, but anyone currently captured by the Bill would choose not to be if they were able. It would then become impossible for a water company not to offer schemes outside the scope of the Bill if they wanted to attract the best talent.
I understand the intention of Amendment 5 from the noble Lord, Lord Sikka. It is indeed important that we ensure that water companies have no incentives to continue polluting our rivers. We have looked at this issue in our own amendments. Amendment 27 would ensure that any rules relating to pay and governance will be suitably scrutinised, so I believe the issue could be solved without the inclusion of Amendment 5.
Additionally, I ask the noble Lord, Lord Sikka, whether he has considered the impact that this amendment would have on the hiring process of water companies. I think it unlikely that many people would respond to a job advert indicating that you may have a salary but that there is a chance that by the end of the year it could be taken away from you. If the total remuneration of senior roles is included in the Bill, it is inevitable that water companies will lose people with relevant skills and experience in the sector. That will worsen the leadership and perhaps lead to more serious issues within the sector.
It is also possible that the water companies would be forced to delegate their own management to third-party consultants outside the scope of the Bill entirely, in order to find the necessary expertise to run the companies. Have the Government given thought to how to cope with the possibility of such third-party consultants not captured by the Bill?
On Amendment 6 in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, I agree that both legal and illegal dumping of sewage lead to undesirable outcomes. As such, I agree with the sentiment of the amendment. In 2022 we published the Storm Overflows Discharge Reduction Plan, which put in place targets to reduce the release of the overflow of sewage and in fact to stop it, except in situations with unusually heavy rainfall, by 2050. So we recognise that the issue is a pressing one and that action must be taken to ensure our rivers are kept clean. However, in order to stop the legal release of sewage, a substantial investment of money and time is necessary, and the amendment does not allow for such provision of time.
Our sewerage systems are a result of Victorian infrastructure design, and the increasing population and heavier, more frequent storms have led to increased pressure on this system. The suggested penalty will make it even less desirable to hold a senior role in a water company. As such, it will further decrease the number of people with skills and expertise at senior levels. This is unlikely to lead to an improvement in the water system for consumers, which is ultimately the aim we share across these Benches. I fail to see how we can support the noble Baroness’s amendment, despite the case put forward by the noble Earl, Lord Russell.
The amendments tabled by the noble Lord, Lord Cromwell, would require executives to take personal liability through their performance-related pay for unspecified structuring or restructuring that may put companies at financial risk. This would appear to us to be too vague to have much bite. It also potentially means that executives’ performance-related pay would be contingent on issues over which they might not have responsibility because they could be overridden by shareholders.
As I mentioned earlier, in response to an amendment put forward by the noble Lord, Lord Sikka, I encourage noble Lords to support Amendment 92 in my name in a later group, which would be a clear-cut prevention of payments to shareholders where there are potential issues of financial distress.
I look forward to the Minister’s response and hope that the Government will tighten up the definition of performance-related pay in line with our amendment.
Baroness Hayman of Ullock (Lab)
My Lords, I am grateful to noble Lords for their suggestions regarding matters we need to be considering in the rules for performance-related pay. As I previously noted, to rebuild public trust we are creating a new framework for supporting accountability. As part of this, Ofwat will be issuing new rules on bonuses, including standards relating to environmental performance.
I turn to Amendment 5, tabled by my noble friend Lord Sikka. In recent years, public concern has been focused on water company bonuses, particularly in the instances where performance has been poor. Companies must work to regain their customers’ trust, including by holding those in senior roles accountable so that their remuneration better reflects the service that customers rightly expect. We are giving Ofwat new powers to issue rules on remuneration and governance to ensure that companies and executives are held accountable for failure and to drive improvements in performance. We are requiring Ofwat to exercise these powers to prioritise making rules to prohibit bonuses for underperforming companies.
Ofwat already sets expectations on executives’ performance-related pay. This measure will strengthen its existing powers to ensure that bonuses are not paid in any financial year in which standards are not met. Ofwat’s rules on remuneration will cover both financial bonuses and bonuses in kind, limiting any potential loopholes in the policy. We believe that performance-related pay can be an effective tool within the overall remuneration package and will incentivise leaders to focus on improvements that can transform performance. Remuneration committees for each water company independently determine the appropriate level of remuneration for their executives. We therefore do not propose to amend the requirement on Ofwat to make rules to cover total remuneration.
Amendments 6 and 28 were tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and ably introduced by the noble Earl, Lord Russell. These relate to the consideration of environmental standards in the rules for remuneration and governance. In line with the general principles of regulatory independence, Ofwat will rightly be responsible for developing and enforcing these rules. However, the Government are clear that environmental standards are a vital component. Ofwat must, following consultation, provide that environmental standards have to be met by companies if performance-related pay is to be given to persons holding senior roles. Ofwat’s policy consultation, which we have previously discussed, proposes that bonuses will be prohibited if a company has had a serious category 1 or 2 pollution incident in the preceding calendar year.
The noble Lord, Earl Russell, asked for some figures. I can tell him that, since 2015, enforcement action by the EA and Ofwat has resulted in over £400 million in fines to water companies or money back for customers. I hope that noble Earl is therefore reassured that this new clause is unnecessary, noting that Ofwat must already include environmental criteria when designing the rules in relation to performance-related pay.
Lord Sikka (Lab)
My Lords, I thank all noble Lords who participated in this debate, giving us much food for thought. I thank the Minister for her response and I withdraw my amendment for the time being.
Baroness McIntosh of Pickering (Con)
My Lords, I will speak also to Amendment 8 in my name. These amendments are in a group looking at exemptions from the rules under Clause 1. My particular concern relates to the obligations being imposed by Clause 1, and indeed the rest of the Bill, on water companies where they may not and could not possibly be held responsible for the activities they are undertaking because the fault lies with others who are not currently within the remit of the Bill.
The purpose of these amendments is to reflect the fact that water companies should be held responsible under the terms of the Bill, in particular Clause 1, only for those activities within their specific responsibility. Clearly, for example, where there are missed connections between wastewater pipes and major developments, water companies should not be held responsible if they are obliged to fit these new connections into inadequate, antiquated pipes that simply cannot take the amount of waste coming.
The background to this very simple measure follows from the Pitt review—the noble Baroness will recall that I raised this at Second Reading—following the severe floods of 2007. I think it is worthy of note that Sir Michael Pitt is from East Yorkshire, which is more vulnerable to coastal flooding than just about any other part of the country. His 2007 review identified, for the first time, surface water flooding as well.
In connection with surface water flooding, the two most consequential amendments set out that mandatory construction of sustainable drainage systems in major developments should take place so as to contain floodwater and prevent it mixing with sewage through overflows into the combined sewers.
Further, and this is where the developers should have a responsibility and not the water companies, I ask the Minister to look favourably at ending the automatic right to connect, which has so far never happened. That one measure alone would mean that misconnections—whereby the existing infrastructure is deemed to fit the amount of wastewater coming from major new developments—would simply not happen in the future. Most of these developments are made up of four or five-bedroom homes with, dare I say, four or five times the amount of sewage coming out of them into inadequate Victorian pipes. Currently, under the planning rules, developers and local authorities deem those connections to be safe and refuse to put in appropriate infrastructure to ensure that a safe connection can be made. Were the water companies to be recognised in the planning application process as statutory consultees, on the same basis as the Environment Agency comparatively recently has been, those misconnections could be averted. The simple measure of making water companies statutory consultees, on the same basis as the Environment Agency, would help in that regard.
When she looks at these amendments in summing up, would the Minister agree to obliging developers to have sustainable drains fitted to take excess rainwater into a soakaway, pond or culvert to prevent it mixing with sewage water in combined sewers, which is currently leading to sewage overflows? It is not fair to make the water companies responsible for that. Were they to be statutory consultees, they would probably argue that the wastewater will not fit the pipes currently in place.
This has led to some very perverse sewage spills. I remember when I was in the other place there was a school in Filey that suffered £1 million-worth of damage to its swimming pool and, I think, the maths department. Existing developments had to be evacuated for six to nine months because of the public health aspect of sewage coming in. Precisely because a small development of only 30 houses was pumping out so much sewage, the rainwater when mixed with it had nowhere else to go and it went into the school and the existing developments. I am sure noble Lords could give other examples of this.
I ask the Minister to review the way in which highways currently contribute to pollution through rainwater running off the road surface, taking with it oil, brake fluid and other pollutants. When this combines with floodwater, it enters the combined sewers and then often goes into homes, causing huge damage and a public health disaster.
I hope the Minister will agree that water companies should be held responsible for those activities within their control but cannot be held responsible for circumstances which are outwith their control. These two small, tightly-drawn amendments would fit that purpose.
I conclude by asking the Minister this. If these amendments are not added to the Bill, what mechanism do the Government intend to use to ensure that water companies will be held responsible under the Bill only for activities under their direct control and not those under the control of others, such as developers and highways authorities, which are currently excluded from the remit of the Bill? I beg to move.
Baroness Pinnock (LD)
My Lords, I broadly agree with the amendments in the name of the noble Baroness, Lady McIntosh. She raised some important issues, about, first of all, the way that surface water drainage is treated. As the Minister will know, surface water is combined with sewage water in the same pipes in many of our towns and cities, and increasing rainfall and development is putting pressure on that combined drainage system.
The other issue to consider, which the noble Baroness raised, is the pressure put on local authority planning services to agree to housing developments where the existing infrastructure is not appropriate to support them, with developers reluctant to fork out huge sums of money to pay for the additional drainage systems needed. The answer lies in empowering local authorities’ planning services to put conditions on planning consent which specifically require developers to build the appropriate infrastructure to support the development that they wish to build.
There is a related point. I am a local councillor; in my experience, where there is an issue of surface water, the planning services require underwater attenuation tanks to be built to hold that water until it can be released to the natural drainage systems, such as streams. However, the developers are very reluctant to do that, and are seeking to get around it in other ways. Surface water drainage issues and local authorities’ inability to enforce this is something that the Minister may wish to raise with her colleagues in local government when it comes to reforms of the planning system, as it will affect the Minister’s environment responsibilities. I agree with the amendments tabled by the noble Baroness, Lady McIntosh.
Lord Whitty (Lab)
My Lords, I was not planning to speak this evening, and indeed I have to go shortly, but this debate raises broader issues.
I agree with the noble Baroness, Lady McIntosh, that water companies should not be pursued by the authority for things which are not their fault and which they are unable to do anything about. However, this underlines the need to ensure that the new authority, whatever it is, is a very powerful authority.
As noble Lords may recall, the noble Duke, the Duke of Wellington, and I suggested that we should have a combined regulator. That has been rejected so far, but we need a regulator that can take steps against not only the water companies but other bodies which make the water companies’ tasks impossible or extremely difficult, and which are themselves primarily responsible for the pollution, flooding or other damage caused by the water.
That applies not only to developers, although I think that developers are probably explicitly the worst in this context, but, as the noble Baroness has just said, to highways authorities and to discharges from agriculture. If there is a water authority that has to deal with the far end of the effects of these discharges or the inadequacy of the piping, that authority should have the ability to take such steps. At the moment, it is either the local authority that does that in terms of planning permission, or it is the highways authority, which pays no attention whatever to water run-off, frankly, or it is the various bits of agriculture regulation. But if we are concerned about making sure that we have less sullied water and no threat of flooding, which may well be caused by people other than the water companies, I would argue that at some stage the Government will have to consider giving powers to the new authority that cover those companies, or particular actions by those companies, as well as the water companies.
Lord Cromwell (CB)
My Lords, I support the amendments, but I want to make one comment on the discussion, which has possibly strayed a little from the Bill. Dealing with surface run-off and, in particular, developers’ right to connect are outdated. I hope that the Minister will urge those involved with the review to have a serious look at this, because it is completely outdated, and with increasing development, not to mention climate change, it will only get worse. It needs tackling properly.
Lord Blencathra (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for moving this important amendment, which has caused a little bit of welcome excitement in the Committee. Both Amendments 7 and 8 seek to ensure that senior executives do not receive a financial penalty for failures that were not their fault or within their control, and we on these Benches feel that the noble Baroness’s amendments merit consideration by Ministers. The intervention by the noble Lord, Lord Cromwell, at the end also merits some consideration.
It is right that the Government should take steps to ensure that, when a water company fails to meet the standards set by Ofwat, the responsible executive is held to account. While it is right that company directors take responsibility for the successes and failures of a business, under the Bill, other senior officers, who may not be members of the board of directors, could be penalised under these rules. The argument that the relevant senior executive is held responsible, rather than an officer of the company who was not responsible for the decision, is a simple one. Rather than applying financial penalties to all senior executives, including those below board level, these rules should penalise only those who are responsible for the company’s conduct.
It is quite a long time since I last worked in industry, but I do not think that much has changed to this day. Who is responsible depends on the level of direct supervision by a more senior officer. At lower levels of a company, it is quite straightforward: the supervisor or the foreman has minute-by-minute relationships with the team under him or her, so they could be held responsible for faulty work or bad behaviour by their workers. But that is at the lower level. As you get higher up a company, the whole ethos changes. Executives are supposed to set objectives and delegate to their other officers how it is done. The CEO, or directors, tell officers under their command, “Here are your legal duties and these are the company objectives. Here are your own personal targets and objectives—report to me weekly, monthly or whatever on how you are progressing. Now, just get on with it”.
There is no direct day-to-day supervision, and the CEO has to trust that the senior officers below him or her obey the law, behave properly and do not cause the breaches that we are concerned about. It would be wrong to blame and reduce the pay of CEOs or directors based on a mistake by a person under him or her where they have no direct control. Of course, the exception would be in the extraordinary circumstances in which the CEO or executive director gave instructions to the worker to break the law or not to care about the rules. That would be a different matter.
Without these amendments, we are concerned that it may prove difficult to find professionals willing to take on senior roles at water companies if there is a risk they will suffer an unfair loss of performance-related earnings through no fault of their own. It is a basic principle of performance-based pay for employees below board level that it should be tied to their performance as an employee within a team. It would not be an effective incentive scheme if one individual or team were deprived of their performance-related benefits because of the behaviours of failures of another individual below board level. As we discussed at Second Reading, arbitrary punishment will not improve performance; it will only encourage people to seek employment outside the water sector.
If we are to deliver the improvements to the water sector that the British people rightly expect, we must attract more talent to the sector through a fair incentives and penalties regime. The Bill is a bit too broad and could permit rules to be applied to the sector by Ofwat that are unfair and ineffective. Furthermore, when a current bonus scheme, or contractual bonus, provides for the bonus to be payable on the achievement of certain performance conditions, and the performance conditions have been met, an employer is, in effect, obliged to award the bonus. In cases where an employer may grant discretionary bonuses, employers are required to exercise this discretion honestly and in good faith, not to exercise it in an arbitrary, capricious or irrational way, and not to breach the implied term of trust and confidence.
It concerns me that, should the Government choose not to include these amendments in the Bill, and individuals’ performance-related pay was docked for actions or responsibilities beyond their control or remit, it would put the employer in a position of complying with the requirements of rules created by Ofwat under this Bill but then acting contrary to these common-law and contractual requirements. That leads to a concern that this scenario could result in costly and time-consuming litigation, thus diverting funds which would otherwise be better spent improving our water and sewage systems. Therefore, I encourage the Government to accept these amendments so that, should a water company fail to meet the standards set by Ofwat, only the relevant executives are held responsible. However, if the Government are unwilling to put this on a statutory footing, we hope that Ofwat would be willing to enact these principles under its rules, which could be overseen by the House under Amendment 27 as an affirmative instrument.
I want to comment on the points made by my noble friend Lady McIntosh of Pickering on surface water. I put it this way: if we were starting again from scratch a couple of hundred years ago, we would have designed a system whereby we never had rainwater from gutters or car parks running off into Mr Bazalgette’s sewage system—but we are where we are now. In an ideal world, two pipes would come into every house and, as the noble Lord suggested earlier, one would have clean water for drinking and the other water for flushing the toilet or for hose pipes. We cannot go back and do that now—but what we can do is look at new developments, and I hope that the Government will consider the suggestion from the noble Lord, Lord Cromwell, in that regard.
I understood that it is possible if one is building a car park, before one puts in the hardcore, to lay a whole series of ooze pipes and then collect all the rainwater run-off, so it replenishes the underground stream by putting the water back into the subsoil. That should be possible. Whatever it is, we need to look at new developments to ensure that surface water is not unnecessarily going into our sewage system. I hope that the Minister will carefully consider what my noble friend Lady McIntosh of Pickering has said.
Baroness Hayman of Ullock (Lab)
My Lords, through provisions introduced by Clause 1, Ofwat will be able to issue new rules on remuneration and governance to ensure that companies and executives are subject to robust oversight and held accountable for failure. Among other things, these rules will ensure that executives will no longer be able to take bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability.
Amendments 7 and 8, introduced by the noble Baroness, Lady McIntosh of Pickering, seek to ensure that these rules apply only in instances where the failure to meet the required standards is due to a failing by that individual and not another person. I start by reassuring the noble Baroness that, should companies meet their performance expectations, executives will rightly be rewarded. However, the changes proposed through Amendment 7, in particular, would make it more difficult for Ofwat to implement the rules on remuneration and governance in a meaningful way. This is because it would introduce an additional test to be met before the bonus ban could be applied, where a link between the specific actions of an individual senior leader and the performance failings of a company as a whole might be difficult to demonstrate.
Senior executives are also collectively responsible for the actions of the company and therefore should be held responsible for poor performance. However, having said that, Ofwat has stated, in the policy consultation it published last week, that, while it intends for the rules to apply to most performance-related pay decisions by water companies,
“there may be … exceptional circumstances where a payment should not be prohibited”.
For example, if an incident leading to a rule breach was clearly and demonstrably beyond the control of the company, this could be grounds for an exemption from the ban.
Considering the changes proposed by Amendment 8, we also consider it unlikely that individuals in senior roles will fail to meet Ofwat’s future standards of “fitness and propriety” due to a failing on the part of another person. The potential criteria proposed by Ofwat in its consultation to measure “fitness and propriety” include character, previous conduct, and knowledge. These criteria are specific to the individual, rather than the performance of the company, and do not obviously relate to acts by other persons.
I just want to mention an issue that the debate moved on to, around drainage and SUDS. We are going to be discussing SUDS further in group 8, so we shall talk about that then, but I want to assure the noble Baroness that we are engaging with officials in MHCLG, because it is really important that we have a proper discussion around planning and drainage as we move forward with development. I am very aware of the problems that surface water can cause in new development if it is not thought through properly.
The noble Lord, Lord Cromwell, drew the Committee’s notice to the commission and asked whether it would be discussed there. I will draw the Committee’s attention, for interest, to part of the scope of the commission:
“Where housing, planning, agriculture and drainage interlink with strategic planning for the water system, these are in scope. ... The commission should have regard to how the water sector regulatory system provides the certainty around the provision of water infrastructure needed to underpin development plans, housing growth and sustainable development, while strategically protecting and enhancing the environment. This should include how regulation and planning for water infrastructure and for residential and commercial development can work together more effectively to anticipate and invest to provide for future growth, to quickly resolve and prevent issues where water and wastewater capacity constraints may otherwise inhibit necessary development (such as through their impact on requirements for water and nutrient neutrality)”.
So, although it is not entirely dealing with the issue around SUDS, I think it is something we need to explore further with the housing department, for example, and with local government. There is an opportunity to look at development and water within the scope of the commission. I hope that is helpful for noble Lords to understand.
I hope I have reassured the noble Baroness that the rules will be applied to individuals in a proportionate manner, and made clear why the Government consider these amendments to be unnecessary.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful for the opportunity to debate in some depth these two amendments. I just clarify that the automatic right to connect is very different from SUDS and I do not think the noble Baroness addressed that point. I still have reservations, because I believe it is inappropriate in terms of Clause 2 to speak about pollution incident reduction plans when so many of the sewage discharges can self-evidently be found not to be the responsibility of water companies at all. As the noble Lord, Lord Cromwell, so eloquently and appropriately recorded, these incidents are only going to increase as we see the number of major new developments of four-bedroom and five-bedroom houses increase.
Earl Russell
“(d) requiring a relevant undertaker to have arrangements in place for environmental experts to be members of a board, committee or panel of a relevant undertaker.”Member’s explanatory statement
This amendment would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee, or panel.
Earl Russell (LD)
My Lords, the amendments in this group all relate to representation on water company boards. This is the third-largest of the 24 groups we are scrutinising in Committee, so it is clear that many noble Lords are concerned about these matters and have a number of ideas for discussion about how representation can be broadened, made more representative and more fit for purpose, and used as part of the wider toolkit to help ensure that water companies act appropriately and are held to account at all levels.
I have three amendments in this group. Amendment 9 in my name would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee or panel. I find it extraordinary that water companies can be allowed to operate, selling a natural resource, where their actions are having such devastating impacts on our environment, yet they are still not required to have environmental experts at the highest levels of their corporate governance structures. To date, it is hard to avoid the conclusion that many non-executive directors on many water company boards have failed to bring significant added benefits for their presence. How do we expect senior leadership teams and the chief executive officers to have the necessary knowledge, senior accountability and the ability to have due regard in fulfilling their functions if environmental knowledge, expertise and challenge are not mandated at the most senior executive governance and decision-making levels? We have various rules and guidance in place for lots of other types of make-up, backgrounds and skills in other board structures, so why do we not have the environment as a condition? Is it simply that we do not value the environment in our decision-making at senior levels? I think this is something we should not allow to stand.
The environment and environmental decisions need to be at the very heart of water companies’ plans, decisions and actions. We must work to ensure that corporate governance is not able to use ignorance as an excuse for causing environmental damage or for failing to adequately prepare for the impacts of rapid global climate change. Our water companies need to have environmental concerns at the very forefront of their long-term thinking, plans and strategies, from issues such as drought and the impacts of extreme rain events and floods, to the projections and limits on abstraction and the need for new reservoirs. All these matters require environmental knowledge and challenge at the heart of water company boardrooms.
We also need community environmental experts sitting on water company boards—an idea my party included in our last election manifesto. As non-executive directors they could help improve accountability, transparency and community relationships, and provide an important interface that could help ensure that water companies take sewage spills seriously by ensuring that community concerns are raised at board level and that water companies take appropriate action and communicate it effectively with local communities. As environmental experts, they could hold community meetings and report back on action being taken by companies, improving information flows and accountability. Environmental governance concerns are at the very heart of the water companies’ business, and the case for requiring environmental experts to be included on their boards along with consumer representation is, in my opinion, very strong. I kindly ask the Minister to lend government support to this amendment and to give a response from the Government Benches to these ideas.
I have added my name to Amendment 20 in the name of my noble friend Lady Bakewell. This is another simple “may” to “must” amendment and would require Ofwat, as part of its rules on consumer representation, to require water companies to place consumers on their board, committee or panel. It would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. New Section 35B(2) sets out that Ofwat must exercise this power to issue rules that achieve specific effects, but the power in new Section 35B(1) provides only that the authority “may” issue such rules. As the Bill is written now, it is not at all clear that it is incumbent on the authority to use the power specified in the Bill to lay such rules. In our opinion, it is necessary that the Bill clearly states that the authorities have a duty to lay out such rules. I call on the Minister to support this amendment to make certain that the Government’s own intentions are clear and well defined so that they can be enforced as they should. What is the Government’s thinking on when the initial rules might be published?
Finally, Amendment 24 would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. The Bill says:
“If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction”.
All these clauses concern rules on remuneration and governance, including performance-related pay. If the authority does find that a relevant undertaking is contravened, the rules in the Bill do not say that the authority must give a direction. As written, it is not at all clear that it is incumbent on the authority to use the powers specified in the Bill. Why do we have the rules in the Bill if there is not also a clear requirement for breaches to be enforced? Left as it is, the clause leaves a get-out-of-jail-free card for the authority to not give a direction, even where the evidence of a contravention is clear.
Other amendments in this group include one from the noble Lord, Lord Cromwell, which requires the regulator to engage formally with civil society; one from the noble Duke, the Duke of Wellington, which requires CEOs of relevant undertakers to have regular meetings with relevant consumer and environmental panels; and one from the noble Lord, Lord Sikka, on the governance structures of the authority. I beg to move.
Lord Cromwell (CB)
My Lords, I will speak to Amendment 16 in my name. I underline at the outset that this is not about putting people on the board; if that is a misapprehension, I want to dispel it. Civil society has been at the forefront of raising issues around water pollution, including monitoring pollution incidents, and, frankly, it has done a better job than the regulators, which have been playing catch-up ever since.
There is an unbalanced and sometimes adversarial power relationship between civil society, water companies and the regulator, and this has given rise to numerous complaints about a lack of transparency—for example, companies deliberately adopting a very narrow definition of “environmental” in order to reject and bat away inquiries from civil society and others. This amendment would require the regulator and water companies to engage with civil society on a regular and formalised basis to agree actions and to record these actions publicly.
This achieves two things. It addresses the disbalance between civil society, the water companies and the regulators and will be an important means to increase transparency, including detailed public transparency as to what is going on, what the regulators and water companies are being challenged on and what actions are planned. It is very easy to underestimate the importance of this. In a previous role I had, we were handing over large sums of money to organisations and one of the stipulations was that they had to publish on their own website exactly what actions they had committed to. This made life very easy for us, because the media then held them to account against those actions. I suggest that a formal process where these things are recorded properly and publicly will be of great assistance to keep the water companies and the regulators up to the mark. Without a formal process of that sort, the relationship will remain distant and most likely adversarial. Therefore, I hope the Minister will look favourably on this amendment or produce one of her own from the government side.
The Duke of Wellington (CB)
My Lords, I will speak to Amendments 21 and 23 in my name. In effect, they both seek to amend new subsection (6) on page 2. The main point of my amendment is that I believe it does not lead to effective governance of a board of directors if sectional interests are represented directly on the board. It is much more effective and likely to have more influence if a specialist panel is created to advise and meet the chief executive. I cannot understand why the Government’s clause refers only to the views of consumers. It seems essential—I agree in various ways with the noble Earl, Lord Russell—that environmental interests are similarly represented on a panel. It could be a separate panel or one representing both consumer and environmental interests; I think it would be better to have two panels.
The real point is that I have never seen a board work effectively where there is a sectional interest represented directly on the board, with one or two members of the board speaking only for that particular interest. It makes it very difficult to reach a consensus on a board. Most boards work by consensus, and there has to be a collegiate atmosphere on any board. Where a particular interest is represented, be it environmental or consumer, that is less likely to lead to effective management of the board of that company.
I would like to persuade the Minister to delete from new subsection (6) “board” and “committee” but leave in “panel”, to include consumers and environmentalists on those panels and, importantly, that those panels should have regular meetings with the chief executive to exercise real influence over the conclusions of the board when it next meets on that subject.
Lord Remnant (Con)
My Lords, as the noble Earl, Lord Russell, indicated, this group of amendments deals with a common theme of representation on water company boards but has several different facets.
Amendment 22 in my name would ensure that it is for the boards of water companies, rather than Ofwat, to decide in which forum—board, committee or panel—the views of consumers should be represented. As we have heard, Clause 1 includes provisions intended to establish consumer involvement in corporate decision-making. New subsection (6) provides that this
“may include a requirement for persons representing the views of consumers to be members of a board, committee or panel of”
the water company. While I support the principle of strengthening the voice of consumers, this should not be through a highly prescriptive, one-size-fits-all approach.
In this country we do not have different categories of director, as the noble Lord, Lord Sikka, reminded us earlier. Non-executive directors may have specialisations, but they are chosen for their wider skills and ability to make a comprehensive contribution. The noble Duke, the Duke of Wellington, just made a similar point. Those representing consumer interests may not wish or be equipped to sit on corporate boards, with all the responsibilities and liabilities that entails. It should not be for Ofwat to require that such people sit on the boards of water companies but should be left to the companies to decide which forum best suits their requirements, whether that be board, committee or panel.
Providing similar flexibility was effective when companies enacted the workforce engagement mechanism under the UK Corporate Governance Code’s requirements. A very small number of companies appointed a director from the workforce, largely for the considerations I have mentioned. Some established a formal workforce advisory panel, and a greater number appointed a designated non-executive director for workforce engagement. Each company chose the mechanism best suited to its circumstances, and the system has worked well.
Amendment 9 in the name of the noble Earl, Lord Russell, and Amendment 21 in the name of the noble Duke, the Duke of Wellington, extend the provisions of this clause to environmental experts. It will be for your Lordships to decide how widely to draw the categories of relevant interest, however represented, but the principle in the latter amendment of representation other than at board level is very much in line with the rationale behind my amendment. I shall listen with interest to the arguments put by the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones of Moulsecoomb, for their Amendments 82 and 100 respectively. However, they would represent a radical departure from accepted standards of corporate governance and company law, so I would hesitate to support them.
My earlier dose of optimism is becoming somewhat jaded. A recurring theme seems to be emerging in the Minister’s replies: everything is for Ofwat to decide. That displays a touching and, if I may venture, possibly naive belief in Ofwat deciding wisely on many matters that are not within its competence as an economic regulator. Concerns have been expressed on all sides about its past record. Surely it should be the role of this House to take more responsibility on itself and give much more direction and guidance to Ofwat on how it should exercise the significant additional powers this Bill gives it—or, as in this case, remove the key choice from Ofwat and give it to the companies, within a defined framework imposed by us.
Lord Sikka (Lab)
My Lords, my Amendment 82 addresses a major question that the Bill does not address: why do water regulators fail? After all, they have been at it for many years—at least 35 years, some of them—yet they continue to fail. No proposal in the Bill addresses that. They continue to fail because they are isolated from the lives of the people affected by sewage spills, high customer bills, low investment and water simply leaking away.
The regulatory bodies are generally made up of former Ministers and executives. Someone who has done a stint at a water company disappears to Ofwat; Ofwat’s former chief executive is now director of a water company. There is a revolving door. These people have a world of their own which does not connect with that of the people directly affected by their activities. For any regulatory system to be effective, it must represent a plurality of interests, but our regulatory system and bodies are closely aligned with corporate interests. They are, in essence, captured. If this capture is not there—and is not the reason for their failures—then someone will have to explain why the water industry is in a mess and why the guiding hand of regulators has not been able to put it on a path to recovery, good practices or good behaviour.
The Bill seems to propose consumer panels, which are, in essence, toothless: they have no social constituency to report to because they are not really elected by anyone but simply co-opted on the basis that someone knows somebody and brings them in; they are not required to report to any constituencies; they cannot easily object to the practices of the regulatory bodies; and they can simply be bludgeoned into silence and just go along because that is the norm. We have heard that these amendments somehow propose something unusual and therefore we have to be bludgeoned into silence and simply go along, because tradition is oppressive and that is what we have to do.
My amendment calls for direct representation of elected representatives of employees and stakeholders on the board of the regulatory authority and to give them power to vote on executive remuneration. That would be the ultimate sanction when they disapprove of how the regulatory body is safeguarding or protecting the public interest. If they cannot vote on executive remuneration, they will simply be a shadow. The amendment seeks, in essence, to democratise regulation. I know that democracy is not very fashionable these days, so if the Minister opposes this democratisation of regulation, it would be helpful to know how the Government will check cognitive capture of regulatory bodies, because no other solution is being offered by anybody. If we were to expand on this, in the next group I could lay out a complete framework of what else needs to be done, but this is simply to test and, I hope, elicit a response from the Government.
Baroness Jones of Moulsecoomb (GP)
My Lords, I will speak to my Amendment 100. The issues of water pollution and the supply of clean water to everybody are ones I clearly care a lot about. But this Bill is just papering over the cracks. If we are going to paper over cracks, we could at least try a radical departure; perhaps we could try to bring some democracy into the regime.
I take issue with the noble Duke, the Duke of Wellington, and the noble Lord, Lord Remnant. I have chaired a board and it was extremely successful. Part of that was because I invited people who thought very differently on to the board. We had 20 members or so. It was called London Food and we were tasked with writing a report for the Mayor of London on a sustainable food strategy for the city. It was successful, I would argue, partly because of my charm—obviously —but also because we had extremely good reports from every single aspect of food and food supply for London. We had a member from the City who was obviously a Conservative, we had an organic farmer and so on. We had a huge range of people, but we agreed on the strategy and we came to some very useful conclusions. This is what we need: we need some democracy in the systems that try to keep us safe.
Honestly, given the scale of the challenge that the water industry faces at the moment, in trying to make a system work that has proved not to work, we need to ensure that there are some new voices that can represent other parts of society that use the water system and care very deeply about it. We should also involve the people who actually do the work. My amendment brings in people from the workforce.
At the moment, the CEOs and senior staff are more focused on delivering dividends than they are on delivering a quality service, so having worker representatives on the board would provide a constant voice for those whose job it is to provide a service. The regulators have been captured by the industry they are meant to be keeping an eye on, so they are almost useless. This system should not be a national scheme but one based on the geography of the water systems themselves.
I am a believer in democracy and this would be an extremely useful way of making sure that a crucial industry for our society has some resonance with people out there. I am sure that this would be welcomed by the majority of people, just as I am sure that the Minister is aware that polls suggest a majority of people would prefer public ownership. Failing that, however, let us get the public in there, talking and being listened to.
Lord Deben (Con)
My Lords, I rise to support the amendments, particularly those placed before us by the noble Duke, the Duke of Wellington. To the last speaker I have to say that there is a fundamental difference between chairing a committee to produce a report and running a business, which is what the water company has to be. She is absolutely right, however, that this Bill does not properly address the fundamental problem that we have two regulators and they have failed to produce a co-ordinated programme for the water industry.
I speak as somebody who knows a bit about it because, until 10 or 11 years ago, I was chairman of a water-only water company—so do not blame me about sewage as I never had anything to do with that. However, I do therefore know a bit about water companies. It was always impossible to meet the requirements of both the Environment Agency and Ofwat. Ofwat was under pressure from the Government to keep bills down and the Environment Agency, perfectly rightly, was saying that we should do more for the environment. As chairman of a water-only company, I was interested in doing something about the pollution of the water sources right from the beginning instead of having to clean them up, which is a very stupid way of dealing with it. Ofwat, however, would never allow one to do those things, whereas the Environment Agency was much more sympathetic.
Lord Cromwell (CB)
My Lords, we spoke earlier about the issue of two regulators and I will not go back over that. However, I will talk a little more about the presence of people on boards. I think there is a middle ground here—obviously beautifully set out in my amendment. To extrapolate a little from that, I agree that directors in a company have specific responsibilities which would not sit comfortably with having a consumer representative as a member of the board. That is clear and right.
These companies, however, are not just profit-making companies which represent shareholder interests; they are monopolies providing a service to the public for which they achieve a reward. That is an important distinction to make. For that reason, I agree with the noble Baroness, Lady Jones of Moulsecoomb, that avoiding groupthink and having challenge on a board is a very useful thing. However, I would not go so far as to make them directors, for all sorts of legal reasons that others have already expounded.
It pains me to disagree marginally with the noble Duke, the Duke of Wellington. I do not like panels, because they become ghettos that the unfortunate member of board who has to interact with them dreads going to—but they go anyway, they go through the motions and then they come back. I far prefer something more formal: a regular cycle of meetings with representatives of civil society, which are going to be challenging and sometimes uncomfortable but which end with recorded actions that are made public. Otherwise, it becomes just a token exercise and a ghettoisation into panels. I will not try to emulate the tone of the noble Lord, Lord Deben, but the representatives of consumers or environmentalists can be listened to but not heard.
Earl Russell (LD)
My Lords, this has been one of the really interesting groups in the Bill. I am not certain that any of us—from any party, in any amendment—has the complete solution. There are questions about whether a one-size solution fits all. In any case, there is a lot for all of us to go away and think about. These are crucial issues that go to the heart of what we do, how water companies operate, how they are accountable and how people who are impacted by them can feed in to and influence what they do and how they operate.
I thank the noble Lord, Lord Cromwell, for his contribution. I fully support him on the role of civil society. It is particularly important that we all acknowledge, as he did, that we would not be here without the role of civil society. I have an amendment in a later group to encourage the Government to work more with civil society in monitoring the environment.
I also thank the noble Duke, the Duke of Wellington, for his comments on the need for environmental representation. I am not quite certain where I agree on that debate; I will go away and think about it some more. I have also been on a board, and to be honest, it was one of the most difficult things I have done in my life. That was even on a good, well-functioning board. Sometimes, if you are in a difficult situation, even with good people who work together, things can be very difficult.
I also thank the noble Lord, Lord Remnant, for tabling his amendment. The board should decide on its own make-up and we should not dictate to it. Perhaps there is some kind of compromise here between the Government setting guidelines for what needs to happen, while perhaps allowing some freedom within the way that it is organised and monitoring the outputs that come from it. Maybe there is something we can all work on there.
I also thank the noble Lord, Lord Sikka, for his contribution. It is a bold move, indeed, and I am not entirely certain that I agree with that kind of prescriptive democracy. I think that it is better to allow things to be inclusive, as opposed to dictating that they must be in their make-up, but again, I will think about that.
The noble Baroness, Lady Jones, spoke about bringing some democracy into the regime. I certainly think we need that, and that the environment needs a proper, formal voice. I take up the point from the noble Lord, Lord Deben, about the need to watch the environment. If we do not do that, and if nobody has that responsibility or role, then that protective piece that needs to happen will not be there.
I think our areas of agreement were the need to broaden representation to include the environment and community, the need for diversity, the need for boards to work well, the need for constructive challenge to operate and to be brought to these companies at the highest level, and the view what we have now is not working, so we need to go away and find something else.
Lord Sikka (Lab)
My Lords, I have added my name to Amendment 100. The water authorities in Berlin and Paris are publicly owned and have stakeholder-elected directors. In most European countries, large companies have stakeholder-elected directors in them, as either a substantial proportion of the unitary board or a German-style two-tier board where one board is supervisory, and the other is executive. On the supervisory board, directors are directly elected. There are plenty of precedents for stakeholder-elected directors on company boards, and in many ways the UK is an outlier.
Lord Roborough (Con)
My Lords, I thank the noble Earl, Lord Russell, for moving the amendment. I want to speak in support of Amendment 22, from my noble friend Lord Remnant, as well as Amendments 21 and 23 tabled by the noble Duke, the Duke of Wellington.
My noble friend is right to note that the decision whether to be on a board, panel or committee is the job of the company rather than any kind of external regulator. By allowing the company to make that decision, it can decide based on its own business needs. If this was left to Ofwat, not only could it lead to a situation where the board, panel or committee did not fit well into the company structure but it might harm relationships between those forums and the board of the company.
It seems unlikely that a regulator would ever have access to all the information needed to make decisions on how a company’s decision-making systems should be structured, and it is surely the responsibility of the company itself to ensure that it has the right processes in place to make the correct decisions according to its needs. Indeed, as we have heard from many noble Lords, it is clear that the regulator has failed to get important decisions right in the past, to the detriment not only of companies but of the environment. Yes, of course, the regulator should have its role in holding companies to account for their decisions, but the moment regulators are involved in decision-making, it surely takes some responsibility for those choices too.
We are concerned that having consumer representatives on the board or their being involved in any decision-making within the company creates a blurring of responsibility. There is already the risk of some confusion, given the role of regulators, but they are at least experts in the industry and well informed about their roles, acting within well-defined parameters.
I agree with the noble Duke, the Duke of Wellington, on sectional interests and the effective working of a board. Consumer representatives on a board lay themselves open to the responsibilities of being a company director and in some cases a director of a listed company. Do the Government really want such consumer directors to be open to fines or prosecution for failing to deliver accounts on time, trading while insolvent or even insider dealing? It is not clear to me as the Bill is drafted that those consumer representatives could not also be subject to fines or prosecution by the regulator. If a consumer representative proposed an action that led to penalties from the regulator, how could they not be responsible?
Turning this around to the perspective of the existing board and management, if consumers are part of decision-making, then it is conceivable that they could cause or prevent an action by the company that created regulatory breaches and punitive action. How would this coexist with the responsibilities and liabilities of professional managers and board directors? How could this not create liability for the consumer representative?
My comments about consumer representation apply equally, if not more, to the environmental experts proposed in Amendment 9 by the noble Earl, Lord Russell. I understand and applaud the sentiment behind the amendment, of environmental representatives representing the stakeholder that has no natural voice, the environment. However, environmental campaigners already have a strong voice. There are obligations already present for companies, and others may be imposed through amendments to the Bill. I also agree with the noble Duke, the Duke of Wellington, that environmental representatives, alongside consumer representatives, should be limited to panels.
Allowing the company to decide the forum in which such representatives take part would benefit both sides of the agreement. If the company has taken this decision, then it becomes clear that the company, its managers and employees remain jointly responsible for decisions. I am not clear from the Bill exactly how the Government intend that its proposals should work. Both my noble friend Lord Remnant’s Amendment 22 and Amendments 21 and 23 from the noble Duke, the Duke of Wellington, have considerable merit. While there is a contradiction inherent between them, both are good solutions to creating the involvement of consumers that the Government want.
I thank all noble Lords for their involvement in this spirited debate. I ask the Minister to explain exactly how she sees consumer involvement working in practice under the Bill. I also ask that she give serious thought before Report to the amendments that I have addressed.
Baroness Hayman of Ullock (Lab)
My Lords, I thank noble Lords who have taken part in this debate. It has come across clearly that there is no agreement about who should sit on the boards. We want to rebuild trust in the water sector, and to do that we are giving Ofwat new powers to issue new rules on remuneration and governance.
I turn first to Amendment 9 in the name of the noble Earl, Lord Russell, and Amendment 21 in the name of the noble Duke, the Duke of Wellington. The powers on remuneration and governance outline a requirement for Ofwat to set rules on companies for including consumers in decision-making. We feel that it is appropriate for Ofwat, as the independent regulator, to determine how this is implemented. Water companies have a range of legal environmental obligations that they are required to meet, and actions related to these obligations will already be informed by specialists in the company.
We believe that introducing requirements to include environmental experts on company boards would take the focus away from involving consumers in water company decisions, which do not have the same level of legal requirements as the environment does. Environmental issues should already be a key consideration in water company decision-making. Importantly, my officials in Defra have worked to secure agreement with companies to update their articles of association, to place both customers and the environment at the heart of business decisions. I hope that this clarifies to noble Lords that the Bill ensures the prioritisation of consumer representation on company boards and that they feel able not to press their amendments.
Earl Russell (LD)
I thank the Minister for her response. This has been an interesting debate. There is more for us all to think about on these matters. I share a slight concern with the noble Lord, Lord Remnant, that the Government are looking back to Ofwat for a big, expanded role, even though there have been failures in the past. We will come back to the idea of expanding representation in further debates on the Bill.
For us, and I think for others around the Committee, the environmental aspect is important. I hear the Minister’s reassurances that there are new powers on Ofwat. I will go away and look at that, and I thank her for her response. I beg leave to withdraw my amendment.
Water (Special Measures) Bill [HL]
Monday 28th October 2024
(1 month, 3 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 17-I(b) Amendments for Committee (Supplementary to the Marshalled List) - (28 Oct 2024)
Lord Cromwell
“(d) requiring a relevant undertaker to assess and report regularly to the Authority on actual or planned financial structuring of the undertaker, including debt levels, coverage of the associated commercial strategy and any associated risks.” Member’s explanatory statement
The amendment requires that financial engineering becomes a regular focus area for timely reporting in order to assist in regulators’ understanding and alert them in good time to risks or distortions.
Lord Cromwell (CB)
Amendment 10 in my name and Amendment 13, which we discussed earlier, seek to address the problem that lies at the heart of what went wrong with our water industry; the regulators were simply outsmarted by PE financial engineering, either because they were not paying sufficient attention to what was going on or because they just did not understand it. Regulators have either lacked or failed to deploy the skills needed to assess the impact and purposes of financial engineering introduced by corporate investors.
Amendment 10 addresses that shortcoming directly by requiring water companies to report regularly, not only on any financial restructuring or structuring but on the strategy lying behind it and any associated risks. This will ensure that such activities have to be made overt rather than, as hitherto, taking place under the regulators’ noses but apparently below their radar. I beg to move.
Lord Remnant (Con)
My Lords, I am delighted that Clause 10 does not appear to envisage a role for Ofwat. The amendments in this group are not really related to each other. As such, I shall confine my remarks to Amendment 86 in my name and I shall be brief.
Under the “Special administration orders” section of the Bill relating to the insolvency of water companies, Clause 10 gives the Secretary of State the power to modify a water company licence in order to recover any shortfall in costs for the Government from its consumers. New subsection (4) extends this recourse to all other companies in the sector.
I hope the Minister will tell me that I am mistaken in my interpretation of what this new subsection is designed to achieve. Does it not force good companies and their blameless customers to bail out failed companies? Can this possibly be justified? It has been a recurring theme of this debate, supported by the comments of many noble Lords, that the sector is in critical need of substantial investment to raise standards across the board and deliver the service that consumers and the general public so rightly expect. Any suggestion of collective punishment for the financial woes of others is to be resisted.
The consequence of imposing an unquantified and unquantifiable potential liability on the sector will at best push up the returns required by investors to inject capital into the water companies, inevitably increasing costs to consumers. At worst, it risks making the sector uninvestable. That is surely not the intention of new subsection (4), but it may be the consequence. My amendment would remove that risk, and I hope the Minister will support it.
Baroness Pinnock (LD)
My Lords, I will address my comments to the amendment in the name of the noble Lord, Lord Cromwell. I agree with him that financial restructuring of companies has led us to where we are now, with Thames Water potentially on the brink of collapse—who knows who is going to have to fund the huge injection of capital that has apparently now been agreed. Other water companies are heavily indebted. Ofwat, which is after all the economic regulator, did not query, question or challenge those decisions made in the early years of water company privatisation.
The consequence is that anything the Government now attempt to do is basically closing the stable door after the horse has bolted—and raced to the other side of the world—because the companies are where they are. Although I agree with the noble Lord, Lord Cromwell, that any future restructuring ought to be put under the microscope of the economic regulator, the current situation is leading us to a potentially very grave position, which the Government are trying to address with the other financial clauses in the Bill. I read the clause referenced by the noble Lord, Lord Remnant, as being directed pointedly at a particular water company.
I support the amendment moved by the noble Lord, Lord Cromwell. I suppose it is better to change the situation now than leave it as it is, but what has happened already is unfortunate.
Lord Roborough (Con)
My Lords, Amendment 92 is very simple. Had it been in place when the water companies were privatised, it would have prevented the aggressive financial engineering that has led to the financial distress we see regularly reported in the press, which has provoked much anger in this House and elsewhere over the years.
Before I address Amendment 92, I will briefly comment on Amendment 10 moved by the noble Lord, Lord Cromwell. It coexists neatly with my amendment, allowing regulators to be better informed on issues with the financial structures of the companies they regulate, and to be aware of future problems. I am pleased that the noble Lord has moved this amendment, and I broadly agree that the regulator should have better information about the financial structuring of water companies in the interests of protecting their viability and preventing circumstances in which they become overleveraged.
I will speak to the dangers of overleveraging and the problems we have as a result of the weakness of the regulator, but we on this side of the Committee are interested in the amendment moved by the noble Lord, Lord Cromwell, which takes a fairly moderate step towards having a better-informed regulator. That said, it may be possible to go further, either by reforming the way the regulator works in the water sector or, as I propose in Amendment 92, by implementing statutory rules on borrowing for water companies and taking effective steps to prevent capital being taken out of companies that are overleveraged. We need to make the water sector attractive to investors so that they bring more capital into it to fund investment in cleaner and better water infrastructure.
I add my whole-hearted support to the amendment proposed by my noble friend Lord Remnant. It seems grossly unfair that a company that has behaved responsibly should be penalised by the actions of another in the sector. I am aware of precedent in the financial services sector, but that is to protect the integrity of the financial system, which is in all participants’ interests. In this case, each water company is a unique entity whose actions have little or no impact on others. Without this amendment, one bad actor could contaminate the industry.
I add my concerns about the wording that my noble friend Lord Remnant seeks to remove from the Bill. This new subsection as drafted applies the duty to render “relevant financial assistance” to any other company that holds, or held, an appointment under this chapter. This seems to me yet another example of retroactive effects that are littered throughout the Bill and which we will discuss in later groups. Could the Minister explain to the Committee what the Government’s intention is with this retroactive element in the Bill? Will there be a maximum period of time since the relevant company held an appointment for this duty to apply to it? This seems to us to be a concerning power, and we would seek clarifications from the Minister on both the unfairness at the core of this subsection and its retroactive element. I thank my noble friend Lord Remnant for introducing his amendment, and hope that he continues to make progress on this unfairness which exists in the Bill as drafted.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank all noble Lords who have put forward amendments relating to the financial management of water companies. I will start with Amendment 10, tabled by the noble Lord, Lord Cromwell.
Ofwat has a core duty under Section 2 of the Water Industry Act 1991 to ensure that companies can finance the proper carrying out of their statutory obligations. Ofwat already monitors the financial position of water companies and can take action when companies need to strengthen their long-term financial resilience. However, we recognise that some companies will need to take further steps to strengthen that financial resilience. Ofwat has required further assurance from these companies about their financial resilience into 2025 to 2030 and beyond, and the annual monitoring financial resilience report is due to be published this autumn and will provide a publicly available assessment of the financial resilience of each water company. I say to the noble Lord, Lord Cromwell, that we met and discussed these concerns previously. Clearly, the commission that we have talked about a lot today will look at performance and resilience, but I am very happy to discuss this with him further as we move forward through the Bill.
Turning to Amendment 86, tabled by the noble Lord, Lord Remnant, I emphasise that there is a high bar for the introduction of a special administration regime and the Government do not expect to have to use this power. A special administration regime will be required only when there is evidence that a company is insolvent or in serious breach of its statutory duties. The noble Lord’s amendment is to Clause 10, and Clauses 10 and 11 are designed to introduce new powers for the Secretary of State and Welsh Ministers to modify water company licences to cover any shortfall that results from a SAR. Government funding may of course be required to cover the costs of a special administration, and these clauses mean that the Government will be able to recoup any taxpayer money spent during a SAR that cannot be covered upon exit from the SAR, either by rescue or by transfer. I wanted to make that clear. Of course, in the unlikely event that the power in the Bill is used, it allows the Secretary of State or Welsh Ministers to decide, subject to consultation, the rate at which the shortfall is recovered. I hope the noble Lord is therefore reassured that any intervention would be considered very seriously and as a last resort.
I turn now to Amendment 92, tabled by the noble Lord, Lord Roborough. Water companies are allowed to raise debt to fund the delivery of their services and it is for companies to decide their financial structure. At sensible levels—that is the key point—debt can be an appropriate way to fund essential investment. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. This amendment may therefore threaten the ability of companies to attract investment if limits on borrowing are imposed.
I reassure the noble Lord that Ofwat already has appropriate powers to prevent dividends where they would threaten financial resilience. I appreciate that the noble Lord has extensive experience in this area, but I hope he understands why we cannot accept this amendment, because it is vital that we ensure companies are able to finance their functions. If he would like to send in more information about this, I would be very happy to receive it and have a look.
Finally, I once again highlight that the new independent water commission, led by Sir Jon Cunliffe, the former Deputy Governor of the Bank of England, will review the current water industry regulatory framework to ensure that it attracts investment and supports financial resilience for water companies. I once again thank noble Lords for their suggestions and input into this discussion on the financial management of water companies.
Lord Cromwell (CB)
I thank everyone who has participated in this. I think we are all concerned about financial engineering of one sort or another. It is not only borrowing, but that is clearly an important part of it. I am sorry that the amendments have not passed muster, but I look forward very much to further discussions with the Minister, as she offered. I beg leave to withdraw the amendment.
“(iia) meeting relevant standards issued under Schedule 3 of the Flood and Water Management Act 2010 (Sustainable Drainage),”
Baroness McIntosh of Pickering (Con)
My Lords, I welcome the opportunity to debate Amendments 11 and 12 in my name in this group, on flood and water management. The amendments relate to Clause 1 and, in particular, tie the environmental standards which the department has set out in the Bill to those specifically meeting relevant standards issued under Schedule 3 to the Flood and Water Management Act. So it is the same provision to come in two separate places.
I am very grateful to the Minister and members of the Bill team for meeting me prior to Committee to discuss this. I invite the noble Baroness to accept that this amendment and the provisions in Schedule 3 to the Flood and Water Management Act 2010 are Defra legislation, so I would like her department to take ownership of this. She is aware of my desire and passion that we implement the provisions of Schedule 3 to the 2010 Act as a matter of urgency. Defra itself has explained that Schedule 3 provides a framework for the approval and adoption of drainage systems, a sustainable drainage system approving body within unitary and county councils and national standards on the design, construction, operation and maintenance of sustainable drainage systems for the lifetime of the development. Schedule 3 also makes the right to connect surface water run-off to public sewers conditional on the drainage system being approved before any construction work can start. That goes to the point of ending the automatic right to connect that we discussed in a previous group.
Wales has already applied Schedule 3 and has done a report on how it has been implemented. It is not entirely perfect and there are ways in which it could be improved, but we have been yo-yoing on this under successive Governments and it now falls to her Government and her department to really run with this.
Baroness Pinnock (LD)
My Lords, I do not know whether the noble Baroness, Lady McIntosh, is right to try to urge the adoption of Schedule 3 to the Flood and Water Management Act through this Bill, but she is right that there was an expectation that it would be implemented this year. Given the new Government’s determination to expand the construction of housing as quickly as possible across the country, this schedule is pertinent and relates to the water services Act. We ought to try to address it, through this Act or not. The Minister’s heart is in the right place on this one, so now she has the levers of power I am sure that she will pull the right one.
Lord Blencathra (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for tabling these amendments, which rightly seek to tackle the issues of flooding and drainage. The Flood and Water Management Act 2010 set out standards for water companies regarding the reduction of flood risks and created more power for local authorities to be able to take action to protect their local areas.
When in government, we tightened restrictions on water companies to protect our countryside, and we are pleased that this work is being continued. Since 2010, under the Conservatives, government investment has better protected more than 600,000 properties from flooding and coastal erosion. Since 2015, Conservative investment has protected over 900,000 acres of farmland, rightly putting the needs of rural communities first.
In 2020, we built on this further and announced a doubling of capital funding into flood defences in England, to a record £5.6 billion from 2021 to 2027. As the Committee will understand from these steps, we had a strong record of investment in flood defences and water management. It would be helpful to hear from the Minister what plans the Government have to improve on those Conservative measures to protect communities across the UK from the harms of flooding.
Much of our debate on the Bill has so far focused on the corporate structures and financial management of companies in our water industry. It is right that we consider these issues in depth and seek to put the right incentives in place to deliver better outcomes for the key groups and interests that we should be aiming to protect under the Bill; namely, consumers, employees of water companies and the protection of our environment.
While the majority of the public debate around our water sector focuses on the damage that sewage overflows do to our waterways, my noble friend Lady McIntosh is absolutely right to take this opportunity to consider the dangers of flooding and to seek to ensure that water companies put this issue front and centre. We on these Benches certainly understand the issues of sewage contamination in our rivers across the country and would like to solve this issue to preserve the nature and wildlife that this has serious impacts on. We also recognise the horrendous impact that floods have on many communities because those water companies have not done enough in terms of flood management.
The first impact most people experience when water management is poor is flooding on roads and on other key transport links. However, in serious cases—such as the 2007 summer floods and the floods of 2015-16—this can result in threats to lives and livelihoods, enormous costs to the economy and massive devastation for the people affected. I am not sure if the Minister is politically old enough to remember the terrible Carlisle floods a few years ago, but it was horrendous to drive through Carlisle and see thousands of homes with abandoned furniture outside, which was soaked through. In my own constituency, just south of Penrith, at Eamont Bridge, houses had been flooded to a depth of about three inches, but with osmosis, the water had been sucked right up the walls and everything had been destroyed. So, flooding seriously impacts people’s lives.
Reporting on those two exceptional examples together, the Office for Budget Responsibility estimated that the 2007 summer floods cost the UK economy £3.2 billion, while the 2015-16 winter floods cost the economy roughly half of that, at £1.6 billion. These examples alone demonstrate the importance of improving water management to protect our communities from flooding.
That said, it is not only the extreme examples that demonstrate the importance of managing flood risks. As anyone who is involved in farming or other rural affairs will tell you, 2024 has been a very wet year, with many communities facing difficult challenges with flooding. In April 2024, England as a whole received 150% of the long-term average rainfall for the time of year and the north-west was particularly wet—as the noble Baroness and I will testify—with, as my notes say, the wettest April since records began in 1871. I can also tell noble Lords that it was also the wettest August, with one dry day this year.
This is a good opportunity to remind ourselves that it is not just people’s homes that rely on a good water system but our food supply—people’s livelihoods rely on it too. That is why my noble friend Lady McIntosh of Pickering is right to bring this point forward for debate as the Bill makes progress.
When flooding and poor water management affect our rural communities, invariably this has a knock-on effect on agriculture and, in turn, consumer costs. Earlier this month, the Guardian reported that fresh food inflation increased to 1.5% from 1% just in August as the wet weather affected British production of salads and soft fruits, while storms in the Atlantic delayed imports of more exotic fruits, driving up prices.
No Government can control the weather—thank goodness; farmers would like to control it of course, but each would want to control it differently—and no water company can entirely mitigate the impacts of wet periods on our agricultural output. However, good water management is very important when we are faced with unusually poor conditions.
I am grateful to my noble friend Lady McIntosh of Pickering for tabling these amendments to the Bill. I know many farmers will be pleased to hear their concerns about the impacts of poor water management are being discussed in your Lordships’ House tonight. While the Government may not be inclined to accept these amendments, we on this side of the House see this as an important opportunity to ask the Government to please keep the issue of flooding and water management high on the agenda, in light of the very serious impacts it has on people across the country, in both direct damage to their homes and communities and the secondary impact it can have on food prices for all of us.
I would therefore be interested to hear whether the Minister might consider bringing tougher flood mitigation duties for water companies into the Bill. As we have heard constantly, the Government intend to bring forward much wider reforms in the coming year, but, as we approach winter, many families up and down the country will have concerns in the backs of their minds about the risks of flood, in light of the continued failures in our water sector.
Will the Minister take this forward and look at possible improvements that can be made to the Bill now? I hope the Government will listen to the important points raised by my noble friend tonight and consider these carefully before Report.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Baroness, Lady McIntosh of Pickering, for her amendments relating to Ofwat’s duties. I will take Amendments 11 and 12 together.
As I have previously noted, public trust in the water sector has been severely damaged, and the number of serious pollution incidents is increasing, yet companies are still paying out millions in bonuses. To rebuild public trust, we are creating a new framework to support accountability, including the new rules relating to remuneration and governance. As the independent economic regulator of the water industry, Ofwat will be responsible for developing these rules.
However, the Government are clear that environmental standards are a vital component of performance. As such, the Bill requires the forthcoming rules to include standards that relate to the environment. The noble Lord, Lord Blencathra, has mentioned the devastation that flooding can bring; I reassure him and other noble Lords that I completely understand why it is so important for us to tackle flooding. I live in a house that has been flooded—living in Cumbria, you are always aware of these issues.
With regard to the Flood and Water Management Act 2010 specifically, while the Act includes provisions relating to sustainable drainage, it does not prescribe or define any environmental standards capable of being applied in this context. It would therefore not be appropriate to include reference to standards in this legislation within Ofwat’s rules, as Ofwat does not have any functions or expertise in relation to the technical requirements prescribed under the Flood and Water Management Act 2010.
The noble Baroness, Lady McIntosh, suggested that Defra should take ownership of delivering this. The issue we have is that it also impacts directly on development and developers, which is why the Government are currently working with the Ministry of Housing, Communities and Local Government to assess how best to implement their ambitions on sustainable drainage, while also being mindful of the cumulative impact of the new regulatory burdens on the development sector. At this stage, I do not want to pre-empt the outcome of that process.
On this basis, the Government do not accept either of the amendments from the noble Baroness. However, I would like to say that the noble Baroness knows that I am very sympathetic to her concerns. As she said, we have discussed this previously. If she is willing, I suggest that we look to arrange a meeting between herself, myself and MHCLG, in order to discuss this further, where she can clearly explain her concerns to both departments—Defra and MHCLG—that have responsibility for moving forward on this.
Baroness McIntosh of Pickering (Con)
My Lords, I am most grateful to all who have spoken, and in particular for the support of the noble Baroness, Lady Pinnock, and, from a sedentary position, the noble Baroness, Lady Parminter, as well as my noble friend Lord Blencathra. He referred to the flooding. I was actually a candidate—at a very early age—for Workington in 1987. I went back and visited as a shadow Minister during the severe floods of 2007 and 2009, so I am well acquainted with the pressures faced by Carlisle, Keswick and Cockermouth. It was very sad to see that many of the residents felt that they could not afford to take out insurance in those floods.
I will add that it is not just flooding that concerns me; it is the surface water going into the combined sewers taking the sewage from the new developments that do not have mandatory SUDS that is causing the problem.
I would like to take up the Minister’s offer. It would be good to have the meeting before Report, because I would be prepared to come back with these amendments then. Alternatively, if the department wish to come forward with even better amendments that achieve the same end, that would be very welcome.
Lord Roborough
Member’s explanatory statement
This amendment prevents the new rules from overriding existing employment contracts.
Lord Roborough (Con)
My Lords, in moving Amendment 14, I will speak also to my Amendment 15.
As I mentioned in an earlier debate this evening, there are a number of areas in this Bill where its effects are retroactive on existing agreements, but the Bill fails to set out the exact limits of these powers. On these Benches, we have been clear at every stage in the passage of the Bill that we want to see tougher measures to hold water companies to account and to ensure that we have better outcomes for consumers and our environment. However, it would not be right for us to approve this Bill because it has a worthy goal, without scrutinising those areas where it is deficient. We have already spoken about Ofwat’s failures, and noble Lords across the Committee will surely admit that there are improvements to be made to the way that Ofwat itself works. Giving unclear levels of retroactive powers to the regulator is not something that should be accepted by Parliament, and we will scrutinise the Bill very closely on its retroactive impacts.
My Amendment 14 seeks to remove the lines from Clause 1 that seek to empower Ofwat to void existing agreements, including employment contracts. The Bill gives Ofwat the power to issue these rules without proper scrutiny, and in this part of the Bill we see how powerful those rules can be. Retroactively overriding employment contracts may be necessary for the Government’s objective to implement a blanket set of rules on remuneration for senior officers of water companies, but it is surely not an acceptable way to go about regulating the sector. I ask the Minister: what message does it send to a talented person working in the water sector today, as they build their career, to see measures such as this retroactively changing the rules of the game? We on these Benches fear that many talented people may choose to pursue a career outside the sector, for fear that the Government may yet again move the goalposts retrospectively.
I have intentionally tabled my related Amendment 15 separately, to probe whether the Government are willing to move at all on the retroactive impacts of the Bill. Amendment 15 seeks to remove the part of Clause 1 that enables the retroactive deprivation of performance-related pay under the rules. It is surely not right to implement rules now that have effect from the beginning of the year. Our concern is that the lines in the Bill that we seek to remove allow the Government to renegotiate unilaterally an employment contract that has been freely entered into between a third-party employer and a third-party employee. While it is customary that employment legislation often does just such a thing, there is very limited precedent for picking on one class of employees in one particular sector.
This is a very unfortunate precedent to set, which opens the door to a Government inserting themselves into employment contracts across other sectors to achieve the outcomes they want. That smacks of overreach. Should we seek to remove performance-related pay from software company managers if their software crashes; from insurance industry executives if we do not like their handling of claims; or from airline executives if their flights are late? I am sure that there may be some noble Lords across the Chamber nodding their heads that the Government should be doing just that; however, that is completely against the Government’s claims of being business-friendly. No competent executive would ever want to work for a UK-based company were these kinds of rules to be brought in.
Our amendment does not suggest a better alternative but simply suggests that the current method is unacceptable, and that the employed and the employer also need to be cognisant of the law and agree that these contracts be amended or replaced with agreement to reflect the intent of the Bill.
There is also the issue, which my noble friend Lord Remnant may address in greater detail in his comments, of interference in multiyear contracts, where portions of that payment may already have been earned and yet could potentially be prohibited under the Bill. I draw the Committee’s attention to the Explanatory Notes provided to the House by the Department for Environment, Food and Rural Affairs. Paragraph 79, under “Compatibility with the European Convention on Human Rights”, says:
“Provision relating to remuneration of water company executives is also not considered to result in ‘deprivation’ within the meaning of Article 1 of Protocol 1 to the Convention, as the provision relates to future income. Such income will only constitute a possession once it has been earned”.
I suggest that income in prior years in multiyear contracts has already been earned, just not yet paid. Therefore, I question the Minister on how compliance with the ECHR can be guaranteed in this case.
My amendments are, by their nature, probing. Given that they address an election manifesto commitment, they are designed to produce convincing answers from the Government on how these issues can be addressed. I look forward to the Minister’s reply. I beg to move.
Lord Remnant (Con)
My Lords, I am delighted that Amendment 26 in my name falls into the same grouping as those in the name of my noble friends Lord Roborough and Lord Blencathra. Although I very much regret that your Lordships’ time is having to be spent on potentially amending proposed legislation that has retrospective effect, it gives me the opportunity very much to support the arguments advanced by my noble friend Lord Roborough in support of Amendments 14 and 15.
It cannot be right retrospectively to override contract law with respect to employment contracts freely entered into by company and individual in line with relevant legislation and regulations in force at the time. Similarly, to the extent that, today, pay can be recovered from senior individuals under malus and clawback provisions in listed companies’ remuneration policies, such a draconian power can rightly be exercised only in extremely limited circumstances known in advance by the individual. The proposed exercise of the pay prohibition in the Bill retroactively goes way beyond accepted remuneration practice, and unacceptably so.
On my own amendment, I will not repeat the general arguments made by my noble friend against the principle of retroactive or retrospective legislation. I am no lawyer, so I hope that your Lordships will forgive me if I perhaps erroneously use the terms interchangeably. The offending principle, though, remains the same. The general rule in this country, and indeed in most modern legal systems, is that legislative changes apply prospectively. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow’s backward adjustment of it.
The Bill proposes that the provisions about performance-related pay apply from the financial year beginning 1 April 2024. We are currently some seven months into that financial year, and the Bill will not be enacted for some months hence. In effect we are talking about backdating the provisions for the best part of a year. The remuneration arrangements entered into between senior individuals and their employer will have been agreed under remuneration policies agreed by shareholders well before April for them to take effect from 1 April 2024. It surely cannot be right, whatever the merits of the Bill, for its provisions subsequently to alter those arrangements and the remuneration paid, or to be paid, under them.
Few things concern investors more than retrospective legislation, and listed companies will need to consult with and seek approval from shareholders on changes to remuneration policies at their AGM. Requiring retrospective changes risks companies breaching shareholder-approved remuneration policies. More fundamentally, it will undermine investor confidence at a time when they are being asked to fund a record investment programme.
My amendment would simply change the date from which the performance-related pay provisions come into effect from a historic 1 April 2024 to a mildly prospective 1 April 2025. Is that really too much to ask, to avoid breaching a fundamental legal principle? I do not think so and I hope that the Minister will agree with me.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all noble Lords who have stuck with us this evening and carried on the debate. We know that the public have been clear that they want to see change and that where performance is poor, executives should not receive large salaries or bonuses.
I will start with Amendments 14 and 15, tabled by the noble Lord, Lord Roborough. The conditions of existing employment contracts may not align with Ofwat’s new rules. Our concern is that Amendment 14 may prevent Ofwat being able to apply its rules even when performance has not met the required standards. On Amendment 15, it is also right that where companies breach Ofwat’s rules on performance-related pay, Ofwat should be able, if it considers it appropriate, to require the company to recover any payment made in breach of the rules. Linking pay to performance should incentivise decision-making, resulting in improved outcomes for customers in the environment. I reiterate what I said earlier: should companies meet their performance expectations, executives can still be rewarded. So I hope that the noble Lord will understand why we will not accept his amendments.
I turn to Amendment 26, tabled by the noble Lord, Lord Remnant. This legislation will ensure that Ofwat is able to implement rules on performance-related pay in the current financial year. However, I listened really carefully to the speech that the noble Lord just made introducing his amendment. I would really like to understand his concerns better, so I wonder whether he would welcome further discussion on this matter so that we can look at it in more detail. I would very much appreciate it if the noble Lord was prepared to do that. But currently we are not going to accept the amendments as we feel that they would prevent meaningful implementation of the rules.
Lord Roborough (Con)
My Lords, I am grateful for the Minister’s reply. We respect that this is an election manifesto commitment and therefore needs to be in the Bill in some form, but my noble friend Lord Remnant and I would both like to discuss further with the Minister, if possible, how we can help to improve this part of the Bill. In the meantime, I beg leave to withdraw my amendment.
Lord Roborough
“(5A) Rules made for the purposes of determining standards of fitness and propriety mentioned in subsection (2)(b) must include criteria that help the undertaker to assess—(a) whether persons have the knowledge, skills and experience to perform the specific role that they are intended to perform;(b) whether, in assessing a candidate for a position within the management body of the undertaker, the management body as a collective possesses adequate knowledge, skills and experience to understand the undertaker’s activities;(c) how relevant and important any matters which suggest a person might not be fit and proper are;(d) whether appointed persons on temporary absence continue to meet the standards of fitness and propriety.(5B) The criteria in subsection (5A) are to be treated as guidance and may be applied in general terms when the undertaker is determining a person’s fitness and propriety.”
Lord Roborough (Con)
My Lords, I will attempt to be brief, in view of the hour.
Amendment 19 provides a clear definition of the criteria that will be used in determining whether someone is fit and proper to hold a responsible role in the water industry. As currently drafted, there is no definition and, as such, it is likely that everyone consulted would have their own different definition of what “fit and proper” might look like. There is precedent in another industry for such a test, which was undoubtedly in the back of the drafter of the Bill’s mind, in the financial services industry. My amendment is an edited version of the Financial Conduct Authority’s definition of a “fit and proper person”. As I was previously a senior manager in an investment management business under the FCA’s senior manager regime, I have first-hand experience of this test.
Even as laid out by the FCA, there was considerable debate about the application of the tests. I also question whether Ofwat is really the right place for such an assessment to be made. In the financial services sector, it is for the member firm to make its own determination and express its view to the FCA when seeking to register a new employee. The FCA could then query that view and potentially overturn it. Should Ofwat be required to do this, it is likely to use less professional help and real-world experience in forming that view and will require dedicated infrastructure to process applications. If the undertakers are responsible, overseeing those applications becomes relatively straightforward.
This may not be a long debate, with only one amendment, but it is an important amendment to consider when giving effect to the Government’s intentions in this Bill. In providing clarity to the undertakers, what is intended by this provision? I am most interested in the Minister’s response and hope that, if she is not happy with my amendment, she might set out who she considers a fit and proper person and how that will be communicated to Ofwat and the industry. I am also most interested to hear why the Bill’s proposal for how to implement this is different from the financial services industry, despite a reasonably long and moderately successful record within that industry. I beg to move.
Baroness Hayman of Ullock (Lab)
My Lords, how nice to have a quick last group. I thank the noble Lord, Lord Roborough, for introducing the last group of today with his Amendment 19, which seeks to specify the criteria to be covered by the rules on fitness and propriety, ensuring that senior leaders meet the public’s expectations.
I have mentioned Ofwat’s consultation on remuneration and governance before, and I would just like to confirm to the noble Lord that this consultation references similar criteria to those proposed by his amendment. Ofwat’s consultation seeks views on whether it would be appropriate to include a concept of “ability” in the new test, defined as an individual having adequate knowledge and understanding of the duties of the undertaker. Ofwat has stated its intention to design a fit and proper person test with criteria that will improve public trust and company culture in the water sector, having considered how other sectors are regulated around these same principles. I hope this captures the noble Lord’s concern that standards of fitness and propriety will need to be relevant and encompass concepts of knowledge and understanding. Of course, we feel that Ofwat’s independence is an important part of the trust that companies have in the regulatory regime.
The noble Lord asked why we felt Ofwat should be setting these criteria. We think it is right that Ofwat has the opportunity to consult on these criteria and that companies then have the opportunity to respond and perhaps propose different criteria. It needs to be a situation where Ofwat can then tailor these fitness and propriety standards to the water industry, rather than having prescriptive standards set out within the primary legislation. It is important that Ofwat’s independence is clearly upheld, because it will support its ability to hold senior officials to account for their actions.
Ofwat also notes in its consultation that the 16 largest water companies have a licence condition that requires them to meet the four objectives of its board, which are leadership, transparency and the governance principles. These objectives include the requirement for boards and board committees to have the appropriate balance of skills, experience, independence and knowledge. I hope the noble Lord is content that this is already being looked at; I hope that he will look at the consultation and therefore see that his amendment is no longer necessary.
Lord Roborough (Con)
My Lords, I am grateful for the Minister’s reply, and it is certainly very helpful. Perhaps something I could have brought out more in my initial comments were the concerns over accountability. When I look at the FCA’s senior manager regime, and the fit and proper tests, none of that is here—nowhere is there any accountability to Parliament. We will take the Minister’s comments away and give this further thought. I beg leave to withdraw the amendment.
Water (Special Measures) Bill [HL]
Wednesday 30th October 2024
(1 month, 3 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 17-II Second marshalled list for Committee - (29 Oct 2024)
Lord Sikka
“Prohibition of possible conflicts of interest(1) The Water Industry Act 1991 is amended as follows.(2) After section 35D (inserted by section 1 of this Act), insert—“35E Prohibition of possible conflicts of interest(1) An employee, director or advisor of the Authority, or the Secretary of State, may not—(a) take any employment, directorship, commercial opportunity, or other significant transactional relationship with any regulated water company, or connected party, or(b) accept gifts of any amount, that could produce the appearance of a conflict of interest.(2) A connected party under subsection (1)(a) includes a shareholder, significant creditor, or other entity with a significant transactional relationship with a regulated water company.””Member's explanatory statement
The amendment seeks to enhance independence of the regulator.
Lord Sikka (Lab)
My Lords, I should like to introduce the amendments in this group. They all seek to create, strengthen or delete regulations. Amendment 56 tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, seeks review of the environmental permits. Amendment 78 tabled by the noble Baronesses, Lady Parminter, Lady Bakewell of Hardington Mandeville and Lady Jones of Moulsecoomb, and the noble Lord, Lord Randall of Uxbridge, seeks to impose duties on the regulator to provide clean water. Through Amendments 79 and 80, the noble Baroness, Lady Bakewell, of Hardington Mandeville, and the noble Earl, Lord Russell, seek to abolish the water authority and create a clean water authority. Through Amendment 81, the noble Earl seeks a regulatory review of the water industry. Through Amendments 84 and 85, the noble Baroness, Lady Jones of Moulsecoomb, seeks to remove the regulator’s growth objectives and make environmental protection a statutory duty. I am sure that they will have plenty to add when they speak.
Meanwhile, I should like to speak to Amendment 29, which is about the prohibition of possible conflicts of interests. The key principle is that regulators must not only be independent of the regulated entities and personnel but be seen to be independent and free from any conflicts of interests. They must avoid cognitive capture. Individuals from regulatory bodies are in demand by the regulated entities because they can open doors and help to secure favours, and enable water companies to game the regulatory system.
No matter how vehemently such charges are denied, that is how it will always appear to the public at large, and public perceptions matter. Thanks to the wage freeze and the real wage cuts over the past 14 years, too many regulators are poorly paid. While in regulatory positions, they begin to look for greener pastures or are targeted by water companies for enrolment. In fact, every interaction they have with a water company is a potential job interview. There is always a temptation to go easy and be extra helpful to a potential employer, as that can help to land a much better-paid job. No one wants to sour that potential by being tough, awkward or robust with their potential employer. That applies to the regulators’ employees too.
There is plenty of evidence about the merry-go-round between the core regulators and water companies. A report last year noted that at least 27 former Ofwat directors, managers and consultants working in the industry, which they helped to regulate, subsequently began to work for water companies, mostly in senior positions. Six water and sewerage companies in England have hired directors of corporate strategy or heads of regulation from Ofwat. They were the insiders. One celebrated name, Cathryn Ross, at one time interim joint chief executive of Thames Water, was a former head of Ofwat. Several former Ofwat senior people now work at Thames Water. In addition to Ross, there is Jonathan Read, who is a director of regulatory policy and investigations. There is also Giles Stevens, director of regulatory strategy and innovation. Another executive from a regulator was recruited by Thames Water as recently as March last year as a “regulatory engagement lead”. At Severn Trent Water, there are at least nine employees who were previously at Ofwat. They include Shane Anderson, director of strategy and regulation, and Jonathan Ashley, head of economic regulation. Both previously worked as directors at the regulator that oversees water and sewerage firms in England and Wales.
I add for clarity that none of these people has broken any rules; I am not accusing them of doing so. It is simply that the rules are inadequate or, if they exist, incredibly poorly applied and permit this merry-go-round.
Amendment 29 requires that senior staff who work at the regulator cannot and must not have a potential conflict of interest by being lured into a job at a regulated company. It also requires that the Secretary of State must have no conflict of interests or appearance of a conflict: for example, by accepting gifts, free tickets for football matches, or even possibly tokens to buy new suits. None of that should be permitted. All regulators must be seen to be above any reproach, and there must be no question whatever about their integrity. An enforceable statutory framework is needed, and that is what this amendment seeks. We do not need voluntary codes, because they cannot be enforced by any court of law. We need legal backing. I beg to move.
Baroness Parminter (LD)
My Lords, I rise to introduce Amendment 78 and to return to the issue we covered on the first day in Committee around the duty of the water regulator, Ofwat, and the fact that at the moment it does not have a core duty which comprises a public interest. I thank the noble Baroness, Lady Bakewell of Hardington Mandeville, who again is unwell and cannot be with us today, the noble Lord, Lord Randall, and the noble Baroness, Lady Jones of Moulsecoomb, for their support for this amendment.
It is quite clear that the public feel extremely strongly about how the regulator is ensuring, not ensuring or unable to ensure that companies perform their duties towards the public interest correctly. If we have any doubt of that, we saw the strength of feeling in the general election, we see it every day in the newspapers, and I am sure we will see it on the streets of London this Sunday with the March for Clean Water; I declare my interest as stated in the register.
However, if anyone were to sit down and read the Water Industry Act 1991, they would be amazed that there are no duties for Ofwat with regard to the public interest, to promote public health or to ensure the protection and conservation of our environment. They would see it as an absolutely astonishing omission. What they would see is a core duty to ensure the “long-term resilience” of water company services and sewerage systems. That is effectively a “keep the taps on” clause—which my local water company, Thames Water, seems to be unable to do on quite a regular basis, although that is beside the point. Then there is a whole swathe of legally binding economic duties which ensure that Ofwat absolutely focuses the water companies on making a profit. I am not against making a profit; of course they should make a profit. However, Amendment 78 says that we should look for a triple bottom line: for profitability, environmental returns and social outcomes.
As this returns to an issue that we looked at on Monday which is fairly similar to the amendment from the noble Baroness, Lady Willis, which talked about taking all reasonable steps to contribute to the environment and climate change targets, I made sure that I read the Minister’s reply carefully in Hansard because I thought I might get the same sort of reply myself. She made three points. She says that the amendment is not necessary because it overlaps
“with existing government requirements, Ofwat’s core duties and our ambitions for the future”.—[Official Report, 28/10/24; col. 939.]
The Government do not have of themselves the mechanisms to deliver on all these targets; they rely on other bodies to work with them. Giving Ofwat this duty would enable it to support those government requirements and targets.
Secondly, on the point about Ofwat’s core duties, I strongly but respectfully disagree with the Minister. There is no evidence in Ofwat’s existing core duty of any public interest duty. Thirdly, the Minister talks about our ambitions for the future, by which I think that, rightly, she means the water industry commission. I shall quote again from her response on Monday. With regard to the independent water commission, she said the Government would put the environment
“at the heart of what we are doing”.—[Official Report, 28/10/24; col. 939.]
Great, fantastic—but, as we discussed on Monday, once we get the commission done, we will have to wait for legislation and time is rolling on, while our environmental and climate targets are here and now. We cannot wait. We should be using this opportunity in the meantime to strengthen the duties for Ofwat to ensure that our water companies can support the Government in the very necessary task of protecting our environment and delivering clean water for the public.
Earl Russell (LD)
My Lords, I declare my interests as set out in the register. I will speak to Amendments 56, 79, and 80, tabled by my noble friend Lady Bakewell, to which I have added my name, and to Amendment 81 in my name.
Amendment 56 would require the Environment Agency to review permits applying to water and sewerage companies every five years rather than “periodically”, as regulations currently dictate. It brings in measures to ensure that a review of environmental permits happens on a regular basis rather than the ad hoc arrangements that are currently in force. Current Regulation 34 of the Environmental Permitting (England and Wales) Regulations 2016 requires the Environment Agency only to
“periodically review environmental permits”,
including those attached to water and sewerage works. The reality is that many of these permits are unfit for the intended purposes and do not properly protect our rivers, lakes and coastal waters from pollution incidents. It has been a long time since the system was fully reviewed in any meaningful way. The system is outdated, not really fit for purpose and clearly not working as it was intended. The Bill offers an opportunity and it would be wrong not to make use of it.
“Periodic review” could mean absolutely anything. It could mean that there are regular reviews in place, with systems for a review after serious pollution incidents up and working well. Equally, it could mean that water companies conduct reviews only once every 10 years, regardless of the number of incidents that happen over that time. The language we use in the Bill is of the utmost importance. We have an industry that is not abiding by the rules and a regulatory framework that is underresourced and low on morale and has not been able to prevent, contain or stop persistent breaches of environmental regulations. The public are fed up to the back teeth with illegal sewage overflows that no one seems to be taking seriously. They want action and they want it now.
While it can be argued that at least every five years is not often enough, it is a clearly defined requirement that can be monitored and enforced. We must also bear in mind that the Environment Agency is operating under such budgetary pressures that insistence on more frequent reviews would put it under a fair amount of strain. We need to be realistic about where we are and what we can enforce. This is put forward as a compromise that we feel best achieves those two aims. It is important that we set targets that are both achievable and operable. The amendment proposes that the Environment Agency should be placed under a duty to review permits applying to water companies every five years. Ideally, this should be done in advance of each periodic review, to reflect other legal obligations on sewage pollution and water quality and therefore drive investment.
Amendment 79 seeks to abolish the Water Services Regulation Authority. Amendment 80 establishes the “clean water authority” and provides it with duties concerning the water companies’ governance and performance standards. It is well known that the Liberal Democrats do not believe that Ofwat in its current form, alongside an underfunded Environment Agency, can achieve the change necessary to prevent continued sewage overspills, provide a return to clean water running in our streams and rivers, and achieve the reversal of biodiversity decline currently found across our natural environment.
Baroness Jones of Moulsecoomb (GP)
My Lords, following the noble Earl, Lord Russell, is very useful because I agree very much with his last few statements. This is an incredibly helpful group. The Labour Government would be very well advised to take all these amendments. They are so helpful, reasonable and sensible and bring in issues that I think have been left out without any rational reason.
I deeply regret not having signed Amendment 29 in the name of the noble Lord, Lord Sikka. I agree with him completely. In fact, I support most of the amendments in this group. I signed Amendment 78 because who does not want regulators of a public service to work in the interests of the public? That is a very clear statement to make, I would have thought, and it is quite necessary, even though it seems so obvious.
Amendment 84 is in my name. I admit that when I tabled this amendment to remove the duty of economic growth from water companies and regulators, I had not really appreciated that if I looked at it from a completely different perspective, possibly from the perspective of the previous Government, it was a remarkable success story over 14 years because we had huge growth in sewage and pollution—well done, guys—and it had a multiplier impact on gross national product. It is so gross that other countries see it as indicative of the UK’s approach to running privatised services—that is, not very good. When we have a river full of dead fish, the authorities buy more fish to replace them. That is economic growth—a huge success. When E. coli is found in our water systems, we get a double hit of economic growth. There is the extra spending by the NHS on treating all the cases of gastro-enteritis and all the extra money spent on plastic bottles of water handed out when consumers cannot drink from the tap. We even have the prospect of a rain-soaked country like ours spending millions on hiring supertankers to import drinking water from Norway. That is extra spending and extra growth. I can see that growth is a success factor in the previous Government’s estimation. Of course, we also cannot forget the staggering growth in shareholder dividends and CEO salaries. When these private water companies take money out of the hands of bill payers and help the rich to buy new private jets, that also adds to GNP.
My problem is that this kind of GNP adds to most people’s unhappiness. In fact, that is why the promotion of growth for growth’s sake is complete nonsense. I do not understand why anyone would advocate that. The more that rivers are polluted, the unhappier the lives of everybody using that space, whether they are dog walkers, anglers, wild swimmers or nature lovers. The more money that shareholders and CEOs get, the less happy the bill payers are about 40% of their money being spent on debt repayments and dividends. Growth is not an indicator of happiness or of the economy being run for the benefit of many. It is a nonsense soundbite for the economically illiterate and needs to be deleted from this legislation.
On Amendment 85, if Ofwat had been given a duty to protect the environment when it was set up decades ago, we would not be in the mess that we are. There would have been a clear connection in Ofwat’s role between signing off bill payers’ money to fund environmental improvements and ensuring that those improvements actually happened. Ofwat needs two sets of books open on its desk all the time. The first would show the real state of the industry’s finances, including the accounts of the big financial businesses that own the water companies, and the second would show whether those companies were environmentally solvent. By that, I mean whether they are capable of meeting the environmental standards on clean water and the obligations to maintain the health of the waterways.
Whether Ofwat is competent enough to carry out this new duty, or any other duties, is a completely separate debate. We have to remember that Ofwat was meant to be looking after the interests of bill payers but has completely failed to do so. It has allowed the water industry to become owned and controlled by a superstructure of financial institutions that use clever scams to fleece the bill payer in ways that Ofwat has appeared to be completely oblivious to.
We know that if this Government allow Ofwat to remain the main regulator of private water companies over the next few years, its role must include the environment. Fixing the regular discharges of sewage into our waterways, along with the polluting run-off from agriculture, is by far the biggest financial challenge the industry faces. If Ofwat does not understand that duty, the regulation will not match up to the challenge.
I am afraid the Government did not turn out very well on climate change and our ecological crisis in the Budget. They do not seem to understand how climate change comes down to the lowest level and affects every single individual, and I would be really happy to help explain that. It is time to put this particular duty on the environment into the legislation.
Lord Cromwell (CB)
My Lords, a thread that runs through many of these amendments is the divergence between the environmental objectives and the clean water consumption objectives. A number of times, we on these Benches have raised the issue that there are two regulators with those responsibilities separated between them. That is something with which the Minister is going to have to grapple in her reply. I think it was the noble Baroness, Lady Parminter, who made the point that time is of the essence, and that waiting for the review may be too late. There is a choice to be made about giving Ofwat these objectives now or making a more fundamental structural change about who regulates the whole environmental question around water.
The noble Baroness, Lady Jones, may be pleased to note in the Budget the increase in tax on people flying on private jets, which she referred to. Apart from that, I agree that there was not much coverage of the environment.
This thread keeps coming up and it needs to be addressed. Is it going to go into the Bill now or will it become part of the review later?
Lord Remnant (Con)
My Lords, I was not intending to speak to this group of amendments, but I have been so impressed, not for the first time, by the ability of the noble Baroness, Lady Parminter, to speak fluently without notes that I thought I would try to emulate her on this occasion.
I merely make an observation on Amendment 29 from the noble Lord, Lord Sikka, because it is very widely drawn. Clearly, there are no individuals working at any of the regulators who, at the same time, are taking employment from water companies. I assume the amendment is intended to address not that but people moving from the regulator into water companies thereafter. I am not sure whether that in itself produces an appearance of a conflict of interest but, if it does, we have to be careful about constraining people’s ability to earn employment and move from one job to another. Indeed, it may stop experienced and competent people working for regulators in the first place, which is something for us to avoid if we can.
It also has much wider implications. The amendment would apply to this sector but there are lots of other regulated sectors, not least the financial services sector, where I believe this prohibition does not exist. Certainly, many people move from the PRA and the FCA into financial companies, banks, insurance companies and so on. We need to be careful when we consider the implications of this amendment.
Lord Kerr of Kinlochard (CB)
I agree that the amendment from the noble Lord, Lord Sikka, is very widely drawn. As I read it, it would ban the Secretary of State from taking advice from anyone who was a director or an employee of a water company, and that seems rather absurd.
Lord Roborough (Con)
My Lords, I thank the noble Lord, Lord Sikka, for introducing this group on the duties and running of the water regulator. Before I address the amendments, I would like to ask my question from the repeat of an Oral Statement yesterday again; it was also echoed by the noble Earl, Lord Russell, and the noble Baroness, Lady Pinnock. Will the Minister make some commitments on the timing of the legislation that will follow the independent commission? As I mentioned, that timing will have a significant bearing on noble Lords’ commitment to their amendments going into this Bill to address shortcomings of the industry that are blatant now.
The noble Baroness, Lady Pinnock, and I also referenced the commitment by the Secretary of State that this review will not make recommendations that affect the 2024 price review. That would seem to indicate that any new legislation could not come into effect until the end of this decade. Does the Minister agree?
I turn to Amendment 29 in the name of the noble Lord, Lord Sikka, on conflicts of interest. We on these Benches feel that propriety in the water sector is crucial and there should clearly be appropriate rules for all employees of Ofwat. That said, it is not clear to the Official Opposition that this should be placed on a statutory footing and I agree with my noble friend Lord Remnant that there are implications outside the water industry from this kind of move.
It is right that the Government should take steps to ensure that Ofwat is run in a manner that appropriately prioritises the consumer and environment, and the majority of amendments in this group address the failures of Ofwat and the need for improvements. Amendments 79 and 80 from the noble Baroness, Lady Bakewell of Hardington Mandeville, Amendment 81 from the noble Earl, Lord Russell, and Amendments 84 and 85 from the noble Baroness, Lady Jones, all address the fundamental need to reform the way we regulate our water sector.
The Government have not yet told us when they will bring forward whole sector reform. I am grateful that we have an opportunity to discuss reform of the regulator today, and it may not be an issue that disappears from the debate on this Bill until we have confidence that this further reform will be delivered in an acceptable timeframe. While it is worth noting that any transition period would most likely be disruptive, there are certainly important failures that must be addressed at Ofwat. Whether the Government choose to reform our existing regulator or, as has been suggested by a number of noble Lords, abolish and replace it with something better, it is clear that the British people deserve better.
I was going to raise further evidence of the failure of the regulators but the Committee may have heard enough on that. As far back as 2011, the Gray review into Ofwat found:
“Many stakeholders told us that Ofwat was not sufficiently accountable either to Parliament or to stakeholders in general”.
This situation has not changed. As I noted yesterday, it is welcome that the review will address accountability.
On the creation of public benefit companies, which has been hinted at by the Government and mentioned in the amendment from the noble Earl, Lord Russell, it is very much the view of the Official Opposition that the continuation of the role of private capital in the water sector is imperative. Recently, the Thames Tideway tunnel was completed, which modernised the Thames sewage system and has made it fit for the 21st century—a feat that would not have been possible without private investment. This project shows the value of innovation, which is considerably harder to prioritise under a nationalised or public benefit system. When there are market incentives, better financial decisions are made. As such, the existence of private stakeholders and investment allows for a more successful sector.
We recognise that, to prevent water companies from causing further damage to our rivers, lakes and beaches, the regulator must be reformed and we hope that the Minister will listen to the arguments from across the House today as the Government look to finalise their wider plans for whole sector reform.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank everyone who has taken part in today’s first debate in Committee for their valuable contributions and for the amendments suggested regarding the duties and the running of the water regulators. The Government agree that strong and effective regulation is essential if we are to turn around the performance of the water industry. That is why the Bill contains the largest increase in enforcement powers for the water industry’s regulators in a decade.
I start by addressing Amendment 81 in the name of the noble Earl, Lord Russell, and Amendments 79 and 80 in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, which speak to the duties of Ofwat. As I have previously noted, the Bill is intended to drive improvements in the performance and culture of the water industry by strengthening the powers of the regulators to hold companies accountable. However, this Bill will not and cannot fix all the water sector’s problems.
There were a few particular issues. The noble Earl, Lord Russell, asked about drinking water. It is worth noting that Yale’s Environmental Performance Index ranks the drinking water in England and Wales as the best in the world, alongside 10 other countries—we are all on the same level—so we should celebrate that fact about our water industry.
The independent commission that was launched last week, which we heard a lot about on Monday and will, I am sure, continue to hear a lot about, is intended to facilitate the further development of what we need to do to sort out the water industry. As I have mentioned previously, it will be chaired by Sir Jon Cunliffe, who as a former deputy governor of the Bank of England has decades of experience in regulation and finance. The terms of reference for the commission have been published, clarifying its scope and objectives. It will be broad-ranging and make recommendations in line with eight objectives, such as ensuring that
“the water industry has clear objectives for future outcomes and a long-term vision to support best value delivery of environmental, public health, customer and economic outcomes”.
The commission will bring in expertise from a wide range of areas, including the environment, public health, investors, consumers, engineering and economics. I hope the Committee will be pleased that its scope explicitly covers the regulators’ purpose, structure, powers and responsibilities. As the noble Earl, Lord Russell, said, it is really important that the review is able to consider a wide range of suggestions on the future of regulation, so it is right that the commission, rather than this Bill, is the vehicle for considering the water regulators’ roles and responsibilities. We absolutely need to ensure that regulators are fit for purpose to clean up the mess we found ourselves in, with our water systems and lack of investment, if we are to end the appalling pollution that we have witnessed over recent years. I hope this reassures the Committee that, while the Government are not accepting these amendments, we are absolutely committed to strengthening the water industry’s regulatory system through the review.
I move on to Amendment 56 in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, which relates to the review of environmental permits. The water industry regulators take a risk-based approach to managing permits. This is because there are over 21,000 of them. This risk-based approach ensures that regulator resource is managed effectively and allows regulators to focus their efforts on reviewing permits that pose the highest risk of environmental harm.
If we create a duty on regulators to review all water company permits every five years, it could have the adverse effect of preventing them reviewing the higher-risk permits in a timely manner. It would also create significant resource pressure and detract from work to provide wider oversight of water companies. That could result in the conditions of high-risk permits not being updated quickly when issues are identified, potentially increasing the risk of environmental harm. I hope that I have explained clearly why, although the amendment has good intentions, in practical or pragmatic use it would not be effective.
I turn to Amendment 78 in the name of the noble Baroness, Lady Parminter, and Amendment 85 in the name of the noble Baroness, Lady Jones of Moulsecoomb. These amendments both speak to the environmental duties of Ofwat and, as the noble Baroness, Lady Parminter, said, we discussed this a bit on Monday on the amendments of the noble Baroness, Lady Willis.
Ofwat has a range of primary duties. These include duties to protect the interests of consumers, to secure that companies properly carry out their functions, to ensure that companies are adequately financed, and to ensure that companies deliver their statutory obligations, including environmental obligations.
On Amendment 78, tabled by the noble Baroness, Lady Parminter, as part of its draft determinations, Ofwat proposed the largest environmental investment programmes in the sector’s history and will hold companies to account against a wide range of environmental performance commitments. In all, the sector should invest £20 billion to reduce pollution, reduce harm from storm overflows, improve river water quality and increase biodiversity. This includes an expansion in nature-based solutions.
In addition, Ofwat is undertaking its most significant sector-wide enforcement action to date. It has issued draft penalties totalling £168 million and enforcement orders against three companies for failing to manage their wastewater treatment works and networks. I would also like to stress that the duties outlined in paragraph 21 relating to customers and the environment are set out in Sections 2 and 3 of the Water Industry Act 1991. We also know that there is still enforcement action going on for other wastewater companies.
I absolutely agree with the noble Baroness and others that we need to move rapidly on our environmental improvement targets. These are challenging targets, as the noble Baroness knows. Meeting environmental targets and turning around the issues we have with biodiversity in this country is not just about what is in the review or in this Bill; it is also about why we have not been delivering on these targets. This is why the Government have decided to do a rapid review of the environmental improvement performance requirements. It is one way we can start to work much more quickly on how we improve our environment. That is really important. If we constantly wait for the next piece of legislation when we already have things in place, we are not doing justice to what we have already said we will do.
I am sure the noble Baroness, Lady Parminter, knows that I am really committed to improving the environment; it is very close to my heart. She made some very good points, and I suggest it might be useful for us to meet and discuss this between Committee and Report to see how we can bottom out improving our environment, not just through this Bill but in other ways.
We are clear that companies need to deliver on obligations to customers and the environment, but we also need to make sure that Ofwat is properly financed to do this. Again, this is where the review comes in; we need to make sure we can achieve what we want to achieve. There are existing duties which can deliver better, and we need to look at how we push this forward.
We have worked to secure agreements with companies to update their articles of association to ensure that customers and the environment are placed at the heart of business decisions. That is an important move forward.
Under Amendment 84, tabled by the noble Baroness, Lady Jones of Moulsecoomb, the EA and Ofwat would not be subject to the regulators code or the growth duty. The economy relies on a secure supply of water, and water is a key factor in ensuring sustainable growth in the UK. It is therefore important that Ofwat and the Environment Agency consider the implications of their actions on growth, and that they create a stable regulatory environment.
It is, however, also the responsibility of the regulators to appropriately balance their growth duty alongside all other duties. In line with this, the independent commission will consider both the roles and responsibilities of the water industry regulators and how to ensure that the water industry regulatory framework maintains resilient finances and contributes to economic growth. I am sure that the noble Baroness, Lady Jones, will understand that, now we have the commission and the review, we do not want to pre-empt the outcomes. We therefore cannot accept the amendment, but this is the kind of thing to feed into the review, so that we can look at how to take these concerns forward.
Amendment 29, in the name of my noble friend Lord Sikka, speaks to possible conflicts of interest. We believe it would be disproportionate to prevent all Defra and Ofwat employees from being able to accept employment in a water company. However, both Defra and Ofwat take the handling of actual or potential conflicts of interest very seriously, including when either staff or board members leave the organisation. Staff in both organisations are bound by the Civil Service business appointment rules, and any requirements with respect to future employment or business relationships are managed appropriately and proportionately in accordance with these rules.
Lord Sikka (Lab)
My Lords, I thank the Minister for her reply and all noble Lords for their observations, comments and speeches. Amendment 29 does have implications for other sectors, because they all suffer from the same malaise—a merry-go-round of regulatory capture. The result is that regulation is not what it should be.
The Minister referred to the Civil Service code on appointments and the migration of workers to companies. That has clearly failed—otherwise, how else do you explain the Ofwat chief executive becoming the chief executive of Thames Water, given the financial mess and other problems Thames Water has? No matter how the Minister explains it, people will not accept that everything is above board with that kind of migration. However, I hear what noble Lords have said and, in light of that, I may well revise this amendment and return with it. Meanwhile, I beg leave to withdraw the amendment.
Baroness Parminter (LD)
Member's explanatory statement
This amendment ensures that both water-only providers and sewerage providers are required to prepare pollution incident reduction plans.
Baroness Parminter (LD)
In moving Amendment 30 I will introduce it and seven other amendments in this group. I say immediately that a number of them are consequential, and I am very mindful of the time—so do not panic. They are all about pollution reduction.
Amendment 30, proposed by the noble Baroness, Lady Bakewell, is specifically around the issue of pollution incident reduction plans, which I think the whole Committee welcomes. She is seeking to highlight that, at the moment, it is only water and sewerage companies that they apply to; they do not apply to water-only companies. Yet five out of the 16 regional water companies are water-only companies, and they are in areas of high ecological importance, including some that have some of our most precious chalk streams—and we have had plenty of debates in this House explaining how they are of global significance.
I wanted to quote what Ofwat said this summer about water companies. It stated:
“We recognise that water only companies … can be responsible for serious pollution incidents and intend to hold them to account”.
Making water-only companies subject to this provision, as well as water and sewerage companies, would allow it to do just that.
Amendment 32 is in my name and that of the noble Duke, the Duke of Wellington; I thank him for his support. Also in this group are Amendments 31, 39, 40 and 36. They all deal with the issue of the water companies having a duty to publish these pollution incident reduction plans but having no obligation to actually implement them. We are saying that they should have a duty to implement them.
I raised this issue at Second Reading. In response, the Minister said to me about pollution incident reduction plans:
“A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction”.—[Official Report, 9/10/2024; col. 2072.]
I want to unpick that a bit, because I have a couple of issues with it.
First, the Water Industry Strategic Environmental Requirements, a document drawn up in 2022 by the Environment Agency and Natural England, sets out that pollution incident reduction plans can be a mechanism for water companies to discharge their pollution reduction obligations, and says that if they do that then they must be implemented. Secondly, it is fairly common practice in the corporate world that, if there is a duty to undertake an action plan or similar, it should be implemented. The most recent example I could find was in the financial sector, where last year a consumer duty was placed on financial companies, to be overseen by the Financial Conduct Authority, whereby they have to draw up specific action plans, and there is a duty in the law that these must be implemented. If it is in law elsewhere, why is it not appropriate here?
I tried to think whether there was any other reason why the Government might not want water companies to implement these plans. I thought they might be worried that the water companies would use them as a bargaining chip in the price reviews, or with local authorities when they sought permission for various planning applications: they could say, “You’ve got to give us this permission or allow us to spend this money—we’ve got a legal duty and you have to succumb”. I have more faith in local authority members not to accept that position. Equally, as we have just discussed, given that Ofwat does not really have that many environmental duties, I think that it will keep clear of that as well. But even if it is still an overriding concern of the Government, it is not insurmountable. Between now and Report, I think we could come up with some wording that said that, subject to the necessary permissions, the water companies must implement these plans.
These plans are really important. If we do not put it in the Bill that the companies must implement them, it begs the question whether the Government really want them implemented. We know that pollution levels are stubbornly high, and we know that the water companies are not doing enough. Unless they have an explicit duty to follow through on them, we are missing something of a trick.
Finally, Amendment 34A, in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, picks up the important issue of pollution in national parks. I know that a number of local noble Lords, including the noble Earl, Lord Devon, and indeed the Minister herself, raised this at Second Reading. There are stubbornly high levels of pollution in our iconic national parks and the Broads. It is a travesty that not one of the rivers, lakes or streams in our national parks is in good ecological state—that is appalling. It was only earlier this month that we found out that United Utilities had discharged 140 million litres of sewage illegally into Lake Windermere. Frankly, it beggars belief.
This amendment very reasonably proposes that the companies must come up with plans to deal with these pollution incidents by 2030. I think that most members of the public would think that an entirely reasonable request. They have had just about enough of these companies constantly making our rivers, streams and lakes in national parks filthy and stinking while, in many cases, making themselves filthy and stinking rich. I beg to move.
The Duke of Wellington (CB)
My Lords, I support some of the detail in Amendments 30, 31 and 32—I have added my name to Amendment 32. Amendment 30 makes a very good point and I would be surprised if the Minister was not prepared to devise her own amendment that would cover all these points. Obviously, water-only and sewerage undertakers should be included in the scope of this clause.
Amendments 31 and 32 are very similar. As the noble Baroness, Lady Parminter, has already said, it seems extraordinary that a water company could publish a pollution incident reduction plan without intending to implement it. It would then be just a nice idea but nothing more would happen. I would be very surprised if the Minister did not accept it; I cannot quite understand that there is a legal argument for not accepting it. My hope from this short debate is that the Minister will agree to look at these points carefully. I am sure that, with the benefit of parliamentary draftsmen who help on these matters, she could come up with an amendment of her own that would cover the points. Clearly, there is support for what I would say are the rather obvious points made in these amendments, and I hope that the Minister will react accordingly.
Baroness Young of Old Scone (Lab)
My Lords, I support Amendments 32, 39 and 40 in the names of the noble Baroness, Lady Parminter, and the noble Duke, the Duke of Wellington. The case has already been put very well that there is absolutely no point in having these plans drawn up and published if there is no requirement for the companies to implement them and no sanctions if they do not. This seems a bit of a no-brainer. I suggest to the Minister that, if there is some legal impediment to these plans being implemented, we should do away with the requirement to draw up and publish them. That would be the most honest thing to do, if there will be no requirement to implement and no sanctions if they do not; otherwise, they are just dangling in mid-air, of neither use nor ornament.
Lord Roborough (Con)
My Lords, I thank the noble Baroness, Lady Parminter, for introducing this group of amendments and for the strong case that she and the noble Duke, the Duke of Wellington, have made regarding the importance of publishing and, crucially, implementing pollution incident reduction plans, or PIRPs. I wholeheartedly support Amendment 31; I would have published our own equivalent had the noble Baroness, Lady Bakewell, not been so swift with her pen. Without a requirement to implement, a pollution incident reduction plan would, frankly, be of little use.
Moving on to Amendment 34A, and declaring my interest as a landowner within Dartmoor National Park, while I approve of the sentiment behind the amendment, I would be reluctant to make our national parks a special case. We treasure our entire country. My preference would be for the water companies to focus on the worst pollution incident risks, which I imagine will be a consequence of their pollution incident reporting plans, particularly if compliance with those plans becomes strengthened through this group of amendments. We are committed to decreasing the impact of pollution incidents, and in government we committed to creating the water restoration fund, which would have seen the money collected from fines and penalties directly channelled into improving the water environment. We proposed a plan to improve water systems and, as such, we recognise the importance of creating and adhering to these PIRPs.
Baroness Hayman of Ullock (Lab)
My Lords, once again I thank noble Lords for their amendments and for taking part in this debate. I start by emphasising that we expect all water companies to reduce all pollution incidents, in line with their legal duties.
I turn first to Amendment 30, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, which seeks to apply the duty to produce pollution incident reduction plans to water-only companies. Initially, it might be useful to explain why our focus has been on water and sewerage companies only. This is because most pollution incidents arise from sewage incidents, not water supply incidents. We were concerned that, by widening the scope, we could end up diluting the focus of the plans, so that actions were not tailored to the most serious pollution incidents. That is the thinking: the Government want to keep the focus of these plans on sewage incidents, which is why we are not accepting the amendment. Having said that, there have been some very interesting comments around this and I would be very interested to hear some wider thoughts on Amendment 30. Clearly, the noble Baroness is unwell at the moment and is not in her place, but I hope that other noble Lords will go back to her and see whether she would be happy to meet to discuss this further: I think it is something we could pick up, following Committee.
I move now to Amendments 31 and 36, also tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and Amendments 32, 39 and 40, tabled by the noble Baroness, Lady Parminter, which speak to the implementation of measures identified in pollution incident reduction plans. I thank the noble Baroness for her clear introduction and the noble Duke, the Duke of Wellington, and my noble friend Lady Young of Old Scone for their comments on this amendment.
Clearly, it is really important that we ensure water companies are taking decisive action to reduce pollution incidents. I want to highlight that the provision already requires water companies to report each year on progress made in implementing pollution incident reduction measures. This will create an unparalleled level of transparency that will further enable both regulators and the general public to hold water companies to account. Where pollution incident reduction plans do not meet the statutory criteria set out by legislation, the Environment Agency will be able to take enforcement action. This will include ensuring compliance with the duty for the plan to provide an assessment of progress in implementing the measures.
The noble Baroness, Lady Parminter, was trying to understand why this was not something that we accepted. I can reassure her that it has nothing to do with it being used as a bargaining chip—absolutely not. The big concern is that, if we introduce a duty to implement the measures in the pollution incident reduction plans, this could imply an unusual sub-delegation of powers to the water companies, whereby they would effectively be able to create enforceable duties on themselves. We are concerned that this would then have the perverse outcome of incentivising companies to produce less ambitious plans to mitigate the risk of enforcement action. That is one of the fundamental concerns in a nutshell, and it is why we are not going to accept these amendments. If the noble Baroness has any suggestions, I would be very happy to hear them.
I turn now to Amendment 34A, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, which speaks to the important matter of waterways in national parks. The Government agree that national parks form a vital part of our environmental heritage. In line with this, the Government will seek to use the powers in the Levelling-Up and Regeneration Act 2023 —I still have the scars on my back—to ensure that relevant authorities, including water companies, deliver better outcomes in protected landscapes. We are in the preliminary stages of developing those regulations, to ensure that authorities deliver the better outcomes that we need. The idea is that they will provide a more holistic approach, conserving and enhancing the purposes and special qualities of our protected landscapes.
We have also set an expectation that Ofwat should challenge water companies to prioritise improvements in national parks. We are expecting considerable investment over the next price review period, to improve water and sewerage assets discharging into national parks. This, of course, will include the iconic Lake Windermere, which we have heard much about. United Utilities was mentioned in relation to this. Noble Lords might be interested to know that I met with a representative of UU last week and discussed issues around the environment and improving nature—so there is work going on with the water companies behind the scenes in this specific area.
However, the Government consider it important that pollution incident reduction plans should identify actions to address pollution incidents right across England and Wales; the noble Lord, Lord Roborough, made exactly this point. A statutory hierarchy of priority areas risks deprioritising pollution incident reduction plans in other areas, so we have to be very careful that we do not do that, because that bathing waters, for example, in other areas could be impacted. For this reason, the Government will not be accepting this amendment, but clearly I want to stress we do take our protected landscapes very seriously.
I turn now to Amendment 35 tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville. I fully recognise her desire to ensure that we see a reduction in the environmental risk posed by pollution incidents. This is why Clause 2 already requires water companies to address environmental risks in their pollution incident reduction plans. The clause requires water companies to set out the measures they will take to reduce the frequency and seriousness of pollution incidents.
Risk to the environment is already used, among other important factors, to determine the seriousness of a pollution incident in the Environment Agency’s incident categorisation process. This is the framework that water companies are required to refer to when they develop their plans. Therefore, by requiring water companies to report on plans to reduce the seriousness of pollution incidents, we are already requiring them to report on and develop measures to reduce the risk to the environment. While we understand the noble Baroness’s intention, the Government believe that because of the reasons I have just set out the amendment is not necessary.
Finally, I turn to Amendments 41 and 42 tabled by the noble Lord, Lord Roborough, which seek to impose requirements around reporting against pollution incident reduction plans. I reassure him that Clause 2 already requires water companies to publish an assessment of their progress in implementing previous plans. Requiring more frequent reporting would be unlikely to allow water companies sufficient time to implement the lessons learned from previous pollution incidents.
I also reiterate that we expect water companies to be fully accountable when developing their plans and implementing the proposals in them. If a plan does not adequately address the statutory provisions required by the Bill or by broader legal requirements, the Environment Agency will take appropriate enforcement action. The Government therefore do not propose to accept these amendments, but I thank the noble Lord for his suggestion.
I will clarify the strategic policy statement. The key point is that it is directed to Ofwat, not to the water companies. The Government’s strategic priorities for Ofwat include the need for companies to prioritise actions to reduce pollution and considerably improve their environmental performance. The SPS sets general strategic requirements for Ofwat and does not create specific measures, as we expect, under the pollution incident reduction plans.
I thank noble Lords for their input into this discussion and for their suggested amendments.
The Duke of Wellington (CB)
As the noble Baroness sits down, I must say that I did not find her arguments for not accepting a duty to implement to be very convincing. I therefore wonder if she would at least be prepared to meet the noble Baroness, Lady Parminter, and me between now and Report to see if, between us, we can put together some amendment that might be acceptable to the Government.
Baroness Hayman of Ullock (Lab)
I completely understand. This is not a straightforward area, and I would be absolutely delighted to meet the noble Lords to see if we can find a way forward.
Baroness Parminter (LD)
I thank the Minister for her responses to the numerous amendments in this group on pollution incident reduction plans, which I think everyone in this Committee believes is one of the really valuable steps in the Bill. I will pass on her comments about a meeting to the noble Baroness, Lady Bakewell of Hardington Mandeville. Water-only companies are responsible for a number of pollution incidents, particularly around drinking water treatment, but I will leave that for that later discussion.
Like the noble Duke, the Duke of Wellington, I just did not find the Minister’s comments very convincing, but it was not just that. I am not a lawyer, so I did not really understand what a sub-delegation of powers was; I am humble theologian, so I will have to go away and think about that and take some advice from people who know about it. However, the offer made to talk about this further is an important step forward. She will have noticed that everyone across the Committee believes that these are important steps we need to take to ensure that the ambitions that the Government rightly have in this regard are carried out as fully as they need to be.
In making that point, I particularly thank the noble Lord, Lord Roborough, for his comments. His phrase—that the Bill in this area does not ask enough of water companies to deliver on the ambition of pollution incident reduction plans—was absolutely spot on, so I thank him for that.
I hope that my noble friend Lady Bakewell of Hardington Mandeville will be reassured by the Minister’s comments about the Government taking pollution seriously in national parks. I am sure that if she has any further matters to discuss with the Minister when she is well—next week, I hope—she will be in a position to come to the Minister’s door, which we all know is an open door, and we thank her for that. I beg leave to withdraw the amendment.
Member's explanatory statement
This amendment, and another in the name of Baroness McIntosh of Pickering, would require consideration of opportunities to retain water through natural solutions to prevent sewage mixing in combined sewers with excess rainfall, causing pollution incidents.
Baroness McIntosh of Pickering (Con)
My Lords, I am pleased to speak to the amendments in this group in my name: Amendments 34, 38, 53 and 93. I look forward to the discussion on Amendment 51 in the name of the noble Duke, the Duke of Wellington, and Amendments 54 and 88 in the name of my noble friend Lady Browning; I am delighted to have co-signed Amendment 88, but I look forward to hearing her own words.
Amendments 34 and 38 relate to the opportunity to
“require consideration of opportunities to retain water through natural solutions to prevent sewage mixing in combined sewers with excess rainfall, causing pollution incidents”.
I am delighted to have been associated with such a project at the latter stages. I rather naughtily took full credit for the Slowing the Flow at Pickering scheme, although it was my then honourable friend John Greenway who did most of the work, but we were both involved in this successful project. It is important to notice, as I am sure the Minister will agree, that we need not overengineered projects but natural solutions to flood prevention and to prevent excess sewage going into waterways. They could be natural solutions such as soakaways, culverts or, in the case of Slowing the Flow at Pickering, creating dams, planting trees and, apparently, introducing beavers, with mixed success—and they must involve all partners.
In particular, I am keen to see partnership funding, not just from public partners, which were primarily those involved in Slowing the Flow at Pickering, but from private partners. In that regard, I pay tribute to the role that water companies play in preventing flooding upstream in a catchment area, and I applaud the work of companies such as Yorkshire Water and United Utilities, which have good track records in that regard.
My question to the Minister is: if she is not minded to approve these amendments, how do the Government expect to encourage the role of water companies, farmers and others to undertake such flood prevention measures? I urge her to consider that. In Amendment 38, I specifically refer to the preparation of a pollution incident reduction plan, noting that
“a sewerage undertaker must consult with farmers, local authorities and others to identify natural flood prevention solutions to prevent pollution incidents”
occurring. I did not speak to the previous group, but I felt sympathy with many of its amendments, particularly seeing the damage to lakes such as Lake Windermere. It is important to note that this is not always the fault of water companies.
Amendment 53 builds on the amendments to which I referred and requests a report on implementation. Assuming that we have implemented Schedule 3 to the Flood and Water Management Act 2010 as part of this Bill—I am ever optimistic—I request that we have a six-month review in which the Secretary of State or the Minister would
“lay before each House of Parliament a report on the effect of this Act on the implementation of Schedule 3 of”
the Act.
Before I turn to Amendment 93, I note that the Minister, in summing up on the first day in Committee, said her catchphrase. I will repeat it for good measure; noble Lords should be alarmed when we hear this phrase in future. She said that the department is considering with the Ministry of Housing, Communities and Local Government
“how best to implement their ambitions on sustainable drainage”—
here is the killer quote we must be mindful of—
“while also being mindful of the cumulative impact of the new regulatory burdens on the development sector”.
She concludes:
“At this stage, I do not want to pre-empt the outcome of that process”.—[Official Report, 28/10/24; col. 1009.]
I should be obliged if the Minister could give us a little more meat on cumulative impact. She will recall that, at Second Reading, I set out that this was a wonderful one-off opportunity in the Bill to plug the gap and fill the loophole—the gap in responsibilities between planners, investors and housebuilders—and to recognise the responsibility of others, such as highway authorities, which contribute to road surface water runoff entering the combined sewers and storm drains, without currently having any responsibility to prevent this form of pollution. That is very costly and we have already discussed on both days of debate on the Bill the damage that is caused. I repeat what I said on Monday: it is not within the responsibility of water companies where it is the fault of developers and highways authorities in this regard.
I turn to Amendment 93 in my name. Again, I am asking for a review of water reuse and existing regulations within 12 months of the day on which this Bill is passed, whereby the Secretary of State should publish a review of the existing regulations related to water wholesomeness and water companies’ ability to encourage water reuse. A report on the findings must be laid before Parliament. The purpose of this amendment is to the effect that, currently, water wholesomeness excludes from the responsibility of water companies the encouragement of water efficiency measures such as the use of grey water, reuse of water from a shower and other such water efficiency measures, as they are not covered by the definition of “wholesome water”. If that is the case, are the Minister and the department minded to review the definition of wholesome water. There are other amendments on clean water to which I think this also might apply. Currently, it seems bizarre that wholesome water would exclude such water efficiency measures.
The Government are aware that there are already a number of government regulations. This Government announced in September that they intended to roll out a mandatory water efficiency label in which appliances, including toilets, sinks and washing machines would be sold with information about their water usage to help customers reduce their use and save themselves money. That is very welcome. However, for such a system to be effective, surely labels must be tied to a mandatory minimum standard that could be reviewed and possibly tightened over time. If that is outwith the scope of this Bill, is this something to which the Government might return?
I understand that, under current building regulations, this matter could be revisited. Part G of the Building Regulations 2010 seeks to end the system whereby local authorities are given discretion between two water efficiency standards—the optional, albeit achievable, 110 litres per day mandate and the mandatory 125 litres per day standard. Would it not be better if Part G of those building regulations contained one standard only, possibly the lower standard of 110 litres per day, which, in the long term, could be reviewed and tightened, if that were the case? If such a labelling system were carried out and the Government were minded to do so, they could actually save £300 by introducing water efficiency into homes at the time of construction.
I hope that the Minister will look favourably on these amendments. Perhaps, if she does not like them, then, using the parliamentary draftsmen that she and her department have at her disposal, she could come up with a better alternative. But I hope she will find these amendments attractive. I beg to move.
The Duke of Wellington (CB)
My Lords, Amendment 51 in my name has been put in this group even though it relates to a different clause. Clause 3 deals with emergency overflows and seeks to define an emergency overflow. It also includes within Clause 3 what is in effect a let-out for the water companies, in that, where an overflow occurs as a result of an electrical power failure, that is permitted. I must admit that I find that surprising. I am grateful to the Minister, who allowed me to come and discuss this point with her and her officials a few weeks ago. However, I cannot for the life of me understand how failure to have sufficient electrical power generation capacity in a sewerage works is sufficient reason to allow an overflow to occur.
I remember that, just before or during the passage of the Environment Act, there was a major overflow by Thames Water in London, and the reason given at the time was, “Oh, sorry, there’s been a power failure”. That really does not seem good enough. Nobody running a hospital would be able to plead lack of power as a reason to close down all operations under way in the hospital at that moment. It seems to me that a sewerage works is a place where there must be sufficient emergency power generation through generators in case of a power failure.
This is a simple amendment; I hope the Government will take it seriously. It simply would delete, in effect, in new Section 141G(2)(a),
“electrical power failure at sewage disposal works”
as a reason for permitting an emergency overflow. That is my argument and I hope the Minister will take it seriously.
Baroness Browning (Con)
My Lords, I am very pleased for the first time to be able to contribute to Committee on the Bill. I will speak to the two amendments in my name in this group, Amendments 54 and 88. The Minister will already be aware of my enthusiasm for the use of grey water and its importance in new-build domestic construction. I support my noble friend Lady Pickering in what she has just said on this group.
The Committee has already drawn attention to increasing problems of safe disposal of sewage from buildings and the challenge going forward to adequate supplies of domestic drinking water. The fact that the existing system cannot cope with either does not augur well for the Government’s planned housebuilding target, which will include mandatory planning targets set out in the National Planning Policy Framework.
The Minister will know from Second Reading that I support her endeavours in the Bill, but the two amendments in this group tabled in my name seek to mitigate what could quickly become a standoff between the Department for Environment, Food and Rural Affairs and the Ministry for Housing, Communities and Local Government. I urge the Minister to take some action through these two amendments to prevent this, if nothing else.
I am very grateful for the assistance and legal advice given to me on these two amendments by the lawyers at WildFish, a charity involved in the protection of all wild fish in watercourses.
Some developers argue that, because of the legal obligations on sewerage undertakers to treat wastewater, the question of sewer and sewage treatment capacity is not a material consideration in planning. There is therefore a reluctance among planning authorities to impose conditions to protect the environment from sewage pollution, partly because of the case of Barratt Homes v Dŵr Cymru 2009, where the Supreme Court confirmed that Section 106 of the Water Industry Act 1991 provided a right for householders to connect to the sewer network and that only in narrow circumstances could the water company refuse such a connection.
Baroness Young of Old Scone (Lab)
My Lords, I support Amendment 53 in the name of the noble Baroness, Lady McIntosh of Pickering. It gives the Secretary of State six months to report on the implementation of Schedule 3 to the Flood and Water Management Act 2010, which covers sustainable drainage. The Act is what it says on the tin: enacted in 2010—but, if I understand it correctly, Schedule 3, which we slaved over in your Lordships’ House, has never been formally commenced. There is no point in legislating if it is not brought into effect. What is the point of us being here if the legislation we meticulously pore over and pass is never implemented?
This is an important issue of sustainable drainage. The noble Baroness has already outlined how it impacts on housing development and other developments. It has a big impact on river and water body quality, so I look forward to hearing how the Government intend to deal with this issue.
Baroness Pinnock (LD)
My Lords, the amendments from the noble Baronesses, Lady McIntosh of Pickering and Lady Browning, and the noble Duke, the Duke of Wellington, are, in their varied ways, interesting.
The amendment of the noble Baroness, Lady McIntosh, urges the Government to give greater consideration to encouraging water companies to use nature to slow down excessive water flows, particularly in rivers, because that would reduce the impact on combined sewers, which take both sewage and rainfall through the sewerage system. The noble Baroness gave the example of Pickering, which was discussed when I was on the board of Yorkshire Water some years ago. I was very pleased to hear that that approach has worked so well.
There is another interesting example, in Somerset. A group of environmentalists—not a water company—encouraged a river to return from a driven channel to its natural meandering state. That has benefited nature in many ways, but it has also reduced the speed of the water flow, thereby bringing about the benefits the noble Baroness described. The Government could encourage such approaches—not much more is needed. The Pickering scheme was supported by the board of Yorkshire Water because it was a lot less expensive and had many environmental pluses, among which was the reduced carbon cost of not having to use huge amounts of concrete, adopting a nature-driven approach instead.
I hope the Minister will take on board what has been said. The water companies, with a bit of oomph behind them, could be encouraged to experiment and use these ways to reduce water flows and therefore flooding, to reduce excessive water in the system, and to reduce storm water overflow pollution incidents. This would have a huge benefit.
The next issue, which we discussed on Monday, is the failure to implement SUDS. That was supposed to happen this year and has not, but it ought to. On the plus side, although the Government have not implemented it, in my experience planning authorities are already insisting on new planning applications having a SUDS scheme, because of the capacity issues raised by the noble Baroness, Lady Browning. In any major housing development scheme, the sewerage undertaker is required to commentate on the scheme and may say, “Guess what? There’s not enough capacity in the system”. A SUDS scheme is then applied, which reduces the highways rainfall flow so that it goes not into the sewerage system but, via attenuation tanks, into a neighbouring water course.
In some ways these things are already happening, but I agree with the noble Baroness, Lady Browning, about the importance of considering the capacity of the sewerage system and water resource availability. We know that in some parts of the country, particularly the south-east, housing developments do not happen because there is insufficient water supply. I heard what the Minister said earlier—that in the price review to be signed off by the end of this year, sufficient capital was agreed for nine new reservoirs. That is important, but we also need to think about using water more efficiently, as was said earlier. The volume of water that each of us uses compared to even 10 years ago is quite concerning. We need to think carefully about water efficiency, so that we use what is a precious resource more carefully.
I urge the Government to think again about a national water grid. Water is connected across the country, but the water resources are owned by individual water companies. There is quite a lot of water in the north and not anywhere near enough in the south of the country. Water is currently pushed from one part of a company’s resources to the neighbouring water company. For instance, Yorkshire Water regularly pushes water to whatever the neighbouring authority is in the Midlands. The Government should think about using the water in the north—I am sure that we who live in Yorkshire would be willing to sell it at a good price to those of you in the south who do not have enough.
On that basis, we support what has been proposed by the noble Baronesses, Lady McIntosh and Lady Browning, and we look forward to the Minister’s response to those concerns.
Lord Roborough (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for moving her amendment. I am glad that she has tabled amendments that address some of the underlying causes of sewage spills, such as excess rainwater run-off overwhelming sewerage systems. My noble friend is right to look at the root of the problems faced by this industry in order to ensure that the legislation deals with underlying causes, rather than just surface-level symptoms.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all those who have taken part for their interest in the important topic of sustainable water usage and sewerage infrastructure. I shall start by speaking to Amendments 34 and 38, proposed by the noble Baroness, Lady McIntosh of Pickering, and spoken to by other noble Lords. The noble Baroness, Lady Pinnock, gave some examples around this. The Government agree that nature-based solutions, including natural flood prevention solutions, are a useful tool for tackling the root causes of sewage pollution while delivering wide ecological benefits.
Noble Lords who took part in the progress of the levelling-up Act will remember that this was debated in Committee on that Bill and that I spoke against the proposals that preferred the cheapest option because we were concerned about the amount of concrete that this could lead to rather than the best solutions for the environment.
The Government’s strategic policy statement includes Ofwat’s proposal to allow more than £2 billion of investment in nature-based solutions at its draft determinations for price review 24. This includes £1.6 billion to reduce storm overflow spills through catchments and nature-based solutions, and further funding is proposed for nature-based solutions such as reedbeds and wetlands for nutrient removal. The Government have supported water companies trialling nature-based solutions for groundwater-induced storm overflows. This is, of course, subject to the final determinations to be made in December but, if approved, will allow for greater understanding around effectiveness and suitability and enable greater uptake at future price reviews.
Nature-based solutions may feature in pollution incident reduction plans, but we believe it would be inappropriate to mandate their inclusion because they may not necessarily be effective in every circumstance. These plans are intended to ensure that water companies implement mitigations to reduce pollution incidents. Each year, the single biggest source of pollution incidents is issues such as blockages or mechanical failures within the foul sewer water system. These issues are best addressed via monitoring and maintenance measures, such as the detection of bursts, checking pumps and relining sewers. This is important work that needs to take place alongside. It is for these reasons that the Government are not supporting these amendments. However, I reassure the noble Baroness and other noble Lords that the Government remain extremely supportive of using nature-based solutions to tackle the underlying causes of pollution incidents, and I look forward to discussing this topic with her further alongside colleagues from MHCLG in the coming weeks.
I turn to Amendment 51, tabled by the noble Duke, the Duke of Wellington, about the use of back-up generators at emergency overflows. The Government agree that measures should be put in place to reduce discharges from emergency overflows caused by electrical power failures. However, water companies are already required to implement measures to reduce the likelihood of a discharge occurring due to an electrical power failure through conditions in their environmental permits. In particular, water companies must demonstrate that they have back-up systems in place, such as generators or alternative power supplies, to secure the emergency overflow permit. Ultimately, emergency overflows may still be required to operate as a last resort to protect the sewerage infrastructure and prevent upstream properties flooding.
The near real-time reporting of information required by Clause 3 will enable increased transparency around the use of emergency overflows and will better enable resource to be quickly directed to investigate and address any cause of such a discharge. I thank the noble Duke for meeting me previously to discuss his concerns and his amendment. I am not sure that he will be reassured, but those are the reasons we do not believe an amendment in this space is necessary.
Amendment 53 from the noble Baroness, Lady McIntosh of Pickering, is on the important issue of SUDS, which we also discussed on Monday, and to which my noble friend Lady Young of Old Scone and the noble Baroness, Lady Pinnock, also spoke. As I have noted and discussed with the noble Baroness, this Government are strongly committed to requiring standardised sustainable drainage systems in new developments. We are actively considering whether improvements in the delivery of SUDS, which we all wish to see—14 years is far too long to wait for the implementation of legislation—may be better achieved through mechanisms other than Schedule 3 to the Flood and Water Management Act 2010.
I say to the noble Baroness that I have never had a catchphrase before. I was rather hoping for something a little more exciting—suggestions on a postcard. I am sorry to disappoint, but I am not going to use that catchphrase now. I look forward to meeting the noble Baroness alongside my colleagues in MHCLG. There are certain things that we need to discuss to see how we can move things on in this area.
On Amendment 54, I agree with the noble Baroness, Lady Browning, about the importance of having a drainage and sewerage system that can meet current and future demand. I always appreciate her enthusiasm on these matters.
As part of the Environment Act 2021, a duty has been created for water and sewerage companies in England to produce drainage and wastewater management plans. These plans set out how a company intends to improve their drainage and wastewater systems over the next 25 years, accounting for factors including a growing population and changing environmental circumstances. Taking a strategic approach to drainage and wastewater management will help to identify and mitigate issues related to insufficient network capacity.
The Environment Agency has a role as a statutory consultee for local planning authority decisions for certain types of developments that are made under Part III of the Town and Country Planning Act 1990 to help ensure that matters of wastewater and treatment, work capacity and water resource matters are considered as part of key planning decisions.
The Government appreciate the intent behind the amendment but have concerns about how it could operate in practice. That is because it could potentially give sewerage undertakers the right to refuse connections based on their own predictions of capacity without reference to agreed standards. Furthermore, legislation already permits undertakers to refuse connections where they would be prejudicial to their sewerage systems. Where disputes arise, the matter can and should be referred to the independent regulator, which in this case is Ofwat. However, I am happy to look more closely at capacity issues, as the noble Baroness suggests.
On Amendment 88, also from the noble Baroness, Lady Browning, the Government recognise the importance of ensuring the availability of sustainable water supplies to help meet our target of delivering 1 million new homes in this Parliament while protecting the environment. Under existing powers, water companies should ensure that they have sufficient water resources available to supply new homes, in line with the water resources planning guidance. In addition, Natural England and the Environment Agency are required to assess the impact of water company plans on protected sites.
Amendment 93, in the name of the noble Baroness, Lady McIntosh of Pickering, follows on from those amendments. I agree with the noble Baroness and understand the need for increased water efficiency and water reuse. Looking at all these amendments as a whole, I have to say it is completely bonkers that in this country we use drinking water to flush our toilets. That does not happen elsewhere. For that reason, we are already reviewing the relevant regulations. We intend to publish in the new year a consultation on how we could revise those regulations, with the aim of increasing water reuse.
The reuse of water through rainwater harvesting and grey water reuse may have important benefits for the environment because it is part of reducing our reliance on water abstraction. Water reuse systems have a wide range of benefits, such as reduced demand on water infrastructure, reduced carbon emissions and flood protection.
On the noble Baroness’s particular question about the mandatory water efficiency labels that we are introducing, we are completely committed to that but we have not yet made a decision on the minimum standards.
I hope this reassures the noble Baroness that the proposed new clause will not be needed as we are already taking significant steps in this space. I once again thank noble Lords for their important contributions and suggested amendments around sustainable water usage and sewerage infrastructure.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to the Minister and others who have spoken in this debate. I am a little concerned, because I understood the Minister to say that they may seek to achieve sustainable drains through other means than Schedule 3.
Baroness Hayman of Ullock (Lab)
To clarify, we are not suggesting that we do not do that, but we want to look at all the different options so that we can look at how we can practically move forward.
Baroness McIntosh of Pickering (Con)
I just say that I am extremely disappointed. I know this is not necessarily within the gift of the Minister but, as we heard from the noble Baroness, Lady Pinnock, this was meant to be the year that we implemented Schedule 3, and there are only two months left. While I welcome the fact that we are going to meet before Report, I will look to bring something like that back.
I am grateful to my noble friend Lady Browning, who, in mentioning capacity, has underlined the need to end the automatic right to connect and to establish water companies as statutory consultees in all future planning applications. If there is no capacity, I do not see how we can expect water companies to make false connections that will lead to further sewage spills in future.
“(7A) A sewerage undertaker must have regard to opportunities for nature-based solutions to be used to reduce pollution and to deliver other environmental benefits when preparing and publishing a pollution incident reduction plan.”Member's explanatory statement
This amendment would require consideration of opportunities to use nature-based solutions to address pollution within pollution incident reduction plans.
Baroness Jones of Moulsecoomb
My Lords, it is a pleasure to open the debate on this group of amendments, which are focused on nature-based solutions to reduce pollution.
We know that nature is incredible and complex. Every living organism is nigh impossible for humans to replicate, and when those organisms all come together in an ecosystem they are even more complex—the complexity increases by many more degrees of magnitude. Human industrial processes, by comparison, are very crude. Unlike nature’s cycles and interactions, which have evolved over millennia, industrial processes are inefficient and almost always create some kind of waste product. So, while humans still struggle to comprehend the intricacy of those natural processes and cannot replicate them, it is much easier for us to mimic the natural world with nature-based solutions.
The fact is that it is better to protect what we have than to try to reproduce it. While I absolutely support rewilding and restoration projects, making sure that we do not do any more damage is of primary importance. Reed beds are a simple example: not only do they provide a wonderful home for wildlife—they are a priority habitat for nature conservation in the UK—but they are great at cleaning water, filtering out sediment, and buffering against pollutants from industry and agriculture. They also offer some protection from rising sea levels. Slimbridge Wetland Centre is a great demonstration site of that water treatment in action. It is a self-sufficient water treatment system that removes phosphates, nitrates and sediment, leaving just clean, fresh water for the nature reserve. It sounds like a dream.
I do not really need to rehearse all the arguments for nature-based solutions because, in the almost 11 years that I have been here, I heard Labour Peers calling on the then Government to put these solutions into action. Now the issues are the same but the Government are different, and so it is Conservative Peers who are lobbying on these issues and pointing out why it is so urgent for the Government to work with nature. I acknowledge that many Conservative Peers have said that in the past, but now their voices have the opportunity to be heard a little more loudly.
The Committee will probably support the whole concept of nature-based solutions. In that cross-party spirit, I hope the Minister will set out the Government’s plan to put these nature-based solutions at the heart of the recovery plan for our toxic and polluted riverways.
Earl Russell (LD)
My Lords, I will speak to Amendments 55 and 74. I have added my name to Amendment 55 in the name of my noble friend Lady Bakewell and I thank the noble Baroness, Lady Willis of Summertown, for also adding her name in support. This amendment would require water companies to adhere to and deliver stronger environmental objectives and duties within national parks and the Broads, so as to protect waterways across national parks from sewage. The amendment would give the Secretary of State regulation-making power to extend protections to specific bodies of water, such as Lake Windermere.
Our national parks are very special places with national emotional importance, but the sad reality is that the areas that are the most important have some of the weakest environmental protections and this needs to change. There were 377 sewage releases from storm overflows within the boundaries of national parks in England and Wales in 2022, totalling 176,000 hours, equivalent to more than 7,300 days. I am confident that the Minister, like me, will find this as unacceptable as I am sure do all noble Lords present. This amendment seeks to bring forward measures that will help to correct this and return the ecological status of our national parks to a level that we can again be proud of. As we heard in the previous debate, there is not even a single river within a national park that has good ecological health.
It is not just sewage which is causing the problem. The University of York found there was also widespread toxic chemical pollution within some national parks. In many ways this is much more worrying indeed. With huge influxes of seasonal visitors and often old and not-fit-for-purpose sewerage infrastructure, during the summer months especially the systems cannot cope and we have regular sewage spills. This infrastructure needs updating. I want to thank the Minister here. She said on the previous group that she had been meeting United Utilities and that is welcome.
In addition, it is ironic that we have far lower standards for the operation of sewage works in our national parks that we do in our urban equivalents. Proposed new Section 4A(1) in Amendment 55 gives details of how the relevant undertaker must secure high ecological status, enhance wildlife and natural beauty, and reduce total phosphorous discharges into freshwaters within areas of national parks by 2028. Subsection (2) indicates what will happen if this does not happen and calls for the relevant undertaker to be put in special administration and not be eligible for further licences if it fails to demonstrate an adequate process each year and meet the targets in subsection (1). Subsection (3) gives a time limit of one year for the Secretary of State to lay a report on the undertakers’ implementation of the environmental duties in subsections (1) and (2) before Parliament. Subsection (7) of the proposed new section explains exactly what type of environment is covered by this section.
I will not repeat the remarks made about Amendment 34A in group two, but it is worth noting that Lake Windermere is a UNESCO world heritage site which has inspired Beatrix Potter, William Wordsworth and Arthur Ransom and that it contributes over £1 billion a year to the UK national economy. This site is particularly sensitive and I guess that everybody in this House wants to see improvements made to it. I hope other noble Lords can support this amendment and the Minister can support it as well. It might be that the Minister has other ways of doing these things, possibly through statutory instruments, but I look forward to her response.
Finally in this group, Amendment 74 is in my name and I am very grateful to the noble Baroness, Lady Browning, for adding her name in support. This amendment aims to provide “high ecological status” to our chalk streams. To be clear, “high ecological status” is the closest wording the Table Office said was in scope for blue flag status. What I am trying to do is have a conversation with the Minister about putting forward blue flag status for our chalk streams. That is the point of the amendment.
As we have heard, England’s chalk streams are of global significance and are a source of great national pride. They are unique waterways, found particularly in the south of England and Yorkshire. They have been referred to as the “rainforests of England” for their special qualities, the diversity and range of the habitats they provide and the iconic species, from invertebrates to kingfishers, that dwell within them. I confess that I spend quite a lot of my spare time mountain-biking and quite a lot of that is done on the South Downs, so places such as the River Meon are very special to me and I am sure other noble Lords have experiences with other chalk streams.
Research undertaken by my party found that, according to Environment Agency data, in 2022 chalk streams were subject to 14,000 hours of sewage discharges. This is devastating to these very valuable but fragile ecosystems. Wessex Water was guilty of 1,013 separate sewage discharges across the west of England. The worst chalk stream sewage discharge lasted for nearly 3,000 hours in the River Till, a tributary of the Hampshire Avon. Thames Water discharged sewage into the Misbourne in Buckinghamshire for 1,206 hours last year and Southern Water’s 62 discharges into the River Meon last year lasted over 1,000 hours. The figures may have been even higher than that as a number of monitors are not working; I would argue that the true scale of the discharges into these rivers is not properly known, which is also a worry.
I am very grateful for the support for this amendment and I hope the Minister can lend some support to it from the Government. It might be that there is a possibility of further conversations or some kind of compromise around these issues. It might be that the Minister or the Government feel that blue flag status is not quite the appropriate means to help give further protection to these chalk streams. I am open to ideas. I am open to other ways that we could work collectively to try to increase protection for these very fragile systems.
Baroness Browning (Con)
My Lords, I am delighted to have been able to add my name to this very important amendment. I live on the Dorset/Hampshire border and chalk streams are really important in my part of the world.
We have heard from the noble Earl, Lord Russell, of the importance of these chalk streams, which have been managed in England since Roman times. There is the real danger of contamination of the water course itself from sewage and agricultural run-off, but one of the key features of a healthy chalk stream is the water flow. Not all chalk streams are particularly deep but, so long as the water flows regularly, fish can spawn and the other flora and fauna which are so important to them can survive. Once the streams slow down, for whatever reason, particularly from excessive abstraction, that immediately has an impact on all the wildlife that we associate with chalk streams. So I am very pleased to add my name to this very important amendment.
Amendment 90 in this group, which is in my name, is on the general duty to deliver measures set out in water resources management plans. I was a bit concerned whether it is in the right group, but I guess that it is—it is associated. It is all very well to legislate but unless you can enforce legislation, it seems to us legislators all a bit pointless. As far as water resources management plans are concerned, this is about tightening up the regulations to make more sense of them.
Lord Gascoigne (Con)
My Lords, I declare that I am a member of Peers for the Planet and have been a long-time supporter and member of the Conservative Environment Network. It is a great pleasure to speak on this set of amendments, led by the phenomenal noble Baroness, Lady Jones of Moulsecoomb, and to speak to Amendment 104, which is in my name as well as that of my noble friend Lord Roborough and the noble Baroness. I thank them both for their support, especially my noble friend on the Front Bench who has, both in government and opposition, been on the receiving end of my incessant and often incoherent rants about all things nature and the environment, as well as much else besides. I thank Wildlife and Countryside Link, the Rivers Trust, CEN and others who have provided helpful information for this debate.
The Committee will be pleased to know that I am not going to spend too long on why we are looking at the Bill. We all know that, collectively, the industry needs to improve and, truth be told, that it is not the water companies alone which are at fault here. We know the sad circumstances we are fighting to fix in wildlife, nature, biodiversity and water quality, because when a report this year from the Rivers Trust notes that not a single stretch of river in England is in good overall health, something has to change.
There are many great amendments in this group, all of which seek to ensure that water companies give more care to delivering a better environment in using their resources. My amendment builds on Amendment 37 in the name of the noble Baroness, Lady Jones—which, it goes without saying, I support—to focus on nature. If we look across the entirety of the Committee, many amendments seek to place greater emphasis on the importance of the environment. Some amendments ensure the inclusion of nature-based solutions when drawing up a pollution incident reduction plan; some address the industry, as well as regulators; some seek to ensure the delivery of existing pollution reduction plans. Amendment 104 seeks to build on them all by starting at the beginning: to deliver change by putting nature recovery front and centre, inserting nature at the outset and ensuring that licences cannot be granted or proceed unless companies look first at nature-based solutions targeted at reducing flood risk, improving water quality and benefiting nature restoration.
The second part of the amendment—if I may so, it chimes with what was so eloquently articulated by the noble Baroness, Lady Young of Old Scone, on Monday and today by the noble Baroness, Lady Parminter—looks to the regulators to ensure that they too give regard to nature-based solutions and do not penalise or discourage companies that seek to invest in them if they so wish and feel that is right for them. From a purely nature point of view, we cannot achieve our goals without private support and investment.
Turning to the rationale, some may say that this is all pie in the sky—we have heard similar voices in this House—that nice-to-have yet not essential schemes would cost the company itself, and that bills would have to go up just for some nice cuddly green notion. What evidence is there that it works and why do we care? We just want lower bills and clean water.
We have covered the importance of nature so much in this stage of the Bill. The noble Baroness, Lady Willis of Summertown, fired the starting gun in Committee with a superb rallying cry for her amendment on nature and biodiversity. I will not repeat what has been said by others far better qualified than me about why nature matters. I will focus more on why there are wider benefits to both the consumer and the company, beyond helping nature alone. As the noble Baroness, Lady Parminter, said at Second Reading, nature-based solutions do not just help with things such as overflows; there are wider benefits to society too.
Turning to the costs, a few years ago research from across the pond suggested that nature-based solutions could be up to 50% cheaper yet provide around 30% better value for money. While we still have a low uptake to prove that, there are some successes. I was reading the other day about a scheme a water company funded using wetlands to filter water in a natural way. They do not require as much infrastructure and energy but also reduce costs. As good as all that is, it is now a new habitat for native trees, plants and wildlife.
Another company, as noted at Second Reading by the noble Earl, Lord Devon, who is not in his place, does incredible work restoring peatlands, which help to filter and hold water, as well as planting trees and building ponds. Another uses wetlands for wastewater treatment and has shown that to cost 35% less than building a conventional treatment solution; its operational costs are 40% lower too.
In giving these examples—there are others—I am not saying that it is now all perfect. It clearly is not, but they show that some are trying and, crucially, some show that it works, but much more needs to be done. My amendment does not state that nature is the only solution. It insists that it should be considered and be part of the solution, working alongside modern infrastructure, not just to tackle water quality and purification but to help tackle floods and restore nature. We can get there; we just need to give it a kick start.
Before I conclude, I want to make one general point. It has been noted that the Bill is focused on punishments for bad behaviour and past digressions. I respect the revolutionary zeal of some in this House—I really do —and often have to pull myself back from the barricades whenever I think about this issue. As right as it is to punish when things go wrong, we must also bring about regime change from the outset by ensuring, first, that the water companies come up with plans to mitigate and to improve nature and the environment; and, secondly, that the regulators give them the ability to pursue those plans. Even today, the Chancellor talked of pollution in rivers in her Budget Statement. This amendment seeks to tackle that.
As we have said, this country’s population is going only one way. We need to build more homes and put in the infrastructure, and to work with the industry and the private sector to make changes to ensure that the environment is improved. This amendment does not wreck the Bill; it works with the spirit of it. It is not about when something goes wrong but how to prevent it in the first place. With respect, we do not need to wait for the commission to report, either. I know that the Minister cares deeply about nature and we are told that the Government do, too. They have the power, so let us make it happen. I hope that the Government will support this amendment.
Baroness Boycott (CB)
I rise briefly to support the amendment in the name of the noble Lord, Lord Gascoigne, on the use of nature-based solutions. The noble Baroness, Lady Pinnock, mentioned a river in Somerset. I am quite connected with a group which is changing the path of the River Exe as it goes into Tiverton, where it floods every year. They became a group because of a scheme Defra ran about three years ago offering money. The point about these schemes is that they absolutely depend on communities; they have to start from the ground up. My friends have had to liaise with all the farmers in the valley and have finally got them all to agree to give one or two fields so that the river can meander—and there are plenty of beavers involved. The result will be to help the school their kids go to in Tiverton, which floods every year. They have spent a lot of their own money working out what it will actually do. It will reduce the flooding in Tiverton by around 50% to 60%. At the same time, the farmers will get money from biodiversity net gain, and it will help them fill in the forms.
My plea to the Government is: wherever the money comes from—from Defra or the water companies—make sure there are channels for it to get back to the communities that make these schemes happen. They cannot just be legislated for; they have to happen from a group of people who really care.
Lord Cromwell (CB)
I also support Amendment 37, which is, like its proposer, both modest and proportionate. It is obvious that this needs to be taken into account by the Minister. It is about nature-based solutions. If we are declaring our interests, I should say that as a schoolboy I used to work at Slimbridge, I am a farmer at home, I have had a lifelong involvement with environment schemes, and a previous Minister even referred to me rather flatteringly as an environmental warrior.
I will just sound two notes of caution. When we had a committee looking into nature-based solutions, it was very hard to get an idea of the size of the prize. They have a place in the system, as the noble Lord, Lord Gascoigne, has made very clear. However, for a large pollution or sewage outflow from a city, it is hard to envisage nature-based solutions having sufficient impact.
The other note of caution I urge is that, having tried to get a river catchment project together in the past, I learned one thing: how many of the riparian owners up that river had feuds with one another and absolutely refused to co-operate. That was capped off by the Natural England adviser telling me it was all far too complicated and asking if I was sure I wanted to do it.
There is plenty of work to do here, but I support this amendment. It is essential. It is a modest amendment that simply says that nature-based solutions should be considered, and that is completely correct.
Lord Roborough (Con)
My Lords, I thank the noble Baroness, Lady Jones of Moulsecoomb, for moving her amendment. I am pleased she has tabled this amendment, which rightly seeks to include a greater focus on nature-based solutions within this industry. She and I share the objective of restoring nature—unusually, perhaps she thinks for a Conservative Member of this House—and biodiversity. Having seen that she also supports my noble friend Lord Gascoigne’s amendment, I hope we can share some of the means of achieving that objective.
I first remind the Committee of my interests set out in the register as a farmer and land manager, as well as an investor in various natural capital businesses and developer of carbon-enabled forestry and restoring peatlands. I should have also declared in the previous group that I share my lands with a beaver.
I agree with the principle of Amendment 37. However, I fear that, in its current form, it is too loose an obligation that is being created, and it would be too easy for water companies to pay lip service to.
Amendment 55 in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, and Amendment 74 in the name of the noble Earl, Lord Russell, both seek to put water companies under additional obligations towards national parks and chalk streams. I do not believe that it benefits this Bill or industry to prioritise these more glamorous and beautiful natural environments over less high-profile environments that may be in much worse condition. Of course pollution incidents in Lake Windermere or the River Misbourne are heartbreaking, but are they worse than what is routinely happening elsewhere in this country’s lakes, rivers and beaches?
I also believe that special administration as a punishment for non-compliance in national parks is a very extreme measure and may have more to do with the Liberal Democrat position of wanting all companies under government control rather than being a fair penalty.
Baroness Hayman of Ullock (Lab)
My Lords, I thank noble Lords for their amendments and for a very interesting discussion. Clearly, it is very passionately felt as well. I thank the noble Baroness, Lady Jones, for introducing her Amendment 37. I would also like to discuss Amendment 104 tabled by the noble Lord Gascoigne, because they are both about nature-based solutions.
As I mentioned on the previous group, the Government agree that nature-based solutions are an important tool for tackling the root causes of sewage pollution and addressing flood risk, while delivering wide ecological benefits. In line with this, I am pleased that Ofwat has proposed an allowance of over £2 billion for investments in nature-based solutions in PR24. I was pleased that the amendment from the noble Lord, Lord Gascoigne, refers to catchments, because catchment and nature-based solutions are part of that £2 billion investment, and £1.6 billion is looking to reduce storm overflow spills through those solutions.
Ofwat has made it clear in its guidance for PR24 that it expects water companies to adopt more nature-based solutions. The noble Baroness, Lady Jones, mentioned reed beds, and it is important to say that the further funding includes money for reed beds and wetlands for nutrient removal. The Government are also supporting water companies with trialling different nature-based solutions. As I mentioned, this is obviously subject to the final determinations in December, but we hope to move forward in these areas.
At the same time, we need to recognise that nature-based solutions may not always be the most appropriate or effective means of improving water quality or flood risk. We need to ensure that water companies and Ofwat have sufficient flexibility to develop the right solution to deliver the best outcomes for customers and the environment. In a similar vein, although nature-based solutions may feature in pollution incident reduction plans, it is important to recognise that these may not be the most effective or available response to pollution incidents in every circumstance.
Having said that, we will not support the amendments, but I reassure the noble Baroness and the noble Lord that we take this seriously. I am happy to have further discussions on this particular amendment, if that is helpful.
I turn to Amendment 55, tabled by the noble Baroness, Lady Bakewell of Hardington-Mandeville. It is important to draw our attention to the impact of sewage pollution in our national parks. The Government agree that our national parks—Lake Windermere in the Lake District and the Broads have had particular attention regarding this matter—are a vital part of our environmental heritage, and everyone agrees that they must be protected better. For this reason, the Government will seek to use the powers in the Levelling-up and Regeneration Act to ensure that relevant authorities, including water companies, deliver better outcomes in protected landscapes.
I reassure noble Lords that existing plans are in place to protect high-priority sites from sewage pollution, including the Storm Overflows Discharge Reduction Plan. As part of that reduction plan, we expect water companies to tackle overflows discharging to high-priority sites by 2035. These sites include designated bathing waters, SSSIs, special areas of conservation and chalk streams. However, completely eradicating sewage discharges is not possible without a costly redesign of the whole sewerage system.
Similar issues may arise in relation to the proposed requirement for all water bodies in national parks to achieve “high” ecological status. Under the Water Environment (Water Framework Directive) (England and Wales) Regulations, most surface water bodies have an objective to reach “good” ecological status, except where it is technically infeasible or disproportionately costly. I stress that “good” ecological status is a very high standard to achieve, and represents a thriving aquatic environment with only minor disturbance from natural conditions. In this way, it supports a diverse group of aquatic invertebrates, fish, mammals and birds.
“High” ecological status equates to water almost entirely undisturbed from its natural conditions, with almost no impact from human activity. Requiring this very high status would have wide-ranging impacts on any future planning developments and human interaction with national parks—that would include farming and fishing. The requirement would place achieving this demanding objective on only water companies, regardless of the pressures and sectors that are actually impacting on water bodies within the protected landscapes. It would also not allow for the consideration of costs, which would ultimately be borne by water bill payers, and any technical feasibility around this.
It is clearly important to reduce phosphorus levels— I have seen the damage that phosphorus can cause in the lakes near where I live. A reduction of phosphorus levels by 90% by 2028 goes significantly beyond the Environment Act target to reduce phosphorus loading by 80% by 2038—that is assuming that the baseline is at 2020 levels. This would require an extremely expensive and immediate increase to the number of phosphorus improvement schemes planned in the price review of 2024. We are concerned that that is a big jump, with a big extra investment that would immediately be passed on to bill payers. We do not want to risk the delivery of any wider environmental improvements through the price review of 2024.
Amendment 74 was tabled by the noble Earl, Lord Russell. I confirm that the Government are absolutely committed to the protection and restoration of our cherished chalk streams. We recognise that these unique water bodies are not just vital ecosystems but a symbol of our national heritage: we in this country have by far the majority of chalk streams. This requirement would have significant implications for existing legal frameworks’ operational delivery, and would not necessarily result in environmental improvement for chalk streams. As discussed in relation to Amendment 55, requiring “high” ecological status would have the wide-ranging impacts that I mentioned.
The levelling-up Act brought in some protections for chalk streams. The independent water commission on the water sector regulatory system, already announced by the Secretary of State, is the appropriate vehicle for considering broader reforms, including to the current water system and overarching targets for the water sector. In the previous group we talked about better use of water and grey water. If we move forward with that through our review, that will reduce abstraction, which will help to support chalk streams better.
I hope the noble Earl therefore understands why the Government will not accept his amendment. However, he requested a meeting to discuss Blue Flag status as a possible way forward, and I am more than happy to offer him one.
Amendment 90 was tabled by the noble Baroness, Lady Browning. I am grateful to her for this amendment. We are clear that water companies must improve on their delivery of water resources management plans. The independent commission will help to transform how our water system works and will inform further legislation. It would be more appropriate at the moment to consider how we make improvements to the water resources management planning process as part of the independent commission. I note that there are already requirements for the review process in Section 37A of the Water Industry Act 1991. Water companies must also report to the Secretary of State on their reviews annually. Defra works closely with the EA and Ofwat to review water companies’ delivery of their plans, and the EA recently published a summary of assessments of water company delivery and the actions that they must take to deliver their plans.
We are concerned that, in practice, a duty on water companies to deliver all measures simply would not work. Many measures, such as new reservoirs, need further permissions, for example, before they can proceed, and a water company cannot guarantee that it will get those permissions. That is why we will not support that particular amendment. I thank noble Lords again for this interesting and helpful debate.
Baroness Jones of Moulsecoomb (GP)
I thank the Minister for her reply. I do not think anyone in the Committee doubts her sincerity or her concern for nature—that is a given. I am afraid it is the Government I do not trust. I did not trust the last Government and I do not trust this one either—it must be something in my nature.
I supported two other amendments: Amendment 74 in the names of the noble Earl, Lord Russell, and the noble Baroness, Lady Browning, and Amendment 104 in the names of the noble Lords, Lord Gascoigne and Lord Roborough. Chalk streams, for example, are incredibly important; they are so rare. We have the most in the world and we trash them. The amendment of the noble Lord, Lord Gascoigne, goes much further than my modest amendment. The noble Lord, Lord Cromwell, has never called anything I have ever done modest, so I look forward to his signing this same amendment on Report to show that he is sincere.
The noble Baroness, Lady Boycott, talked about local engagement. Just this week, I hosted a group of 30 or 40 people from the Bengali community who are working on recovering mangrove forests in Sundarbans. They do it because they care about the local; they are losing culture, opportunities and so on. I really see that local activity is incredibly important, but the Government have to make that easy. This is the thing about the nature recovery schemes. They are obviously not the only way; they can be extremely effective, and sometimes quite cheap as well. It definitely engages the local community. I was up at Lake Windermere recently, and the local support there for cleaning up the lake was quite astonishingly broad.
Earl Russell
“(ba) the volume and concentration of the discharge;”Member's explanatory statement
This amendment would require water companies to publish the volume and concentration of discharge from an emergency overflow.
Earl Russell (LD)
My Lords, this group of amendments is about rules and requirements for monitoring and the publication of data. I apologise that this is a big group, as well as being the last group that we have to debate before our dinner hour; there are 15 separate amendments here.
Data, what we know, how we know it, how we use that information and how it is shared are all of crucial importance in monitoring what water companies are doing and also for protecting our environment. Knowledge is power, and I am reminded of the words of Ronald Reagan: “Trust, but verify”.
Amendment 43 in my name would quite simply require water companies to publish the volume and concentration of discharges from their emergency outflows. One area of the Government’s Bill that I personally particularly welcome is the plans to improve the real-time monitoring and sharing of data on emergency sewage overflows, introduced as new Section 141F. These measures are very much welcomed on these Benches. Can I clarify with the Minister that it is the Government’s intention to apply the monitoring regime as set out in the Bill to 100% of the outflows?
My amendment here is not a criticism of what is in place; instead, it is an attempt to see if there is scope to build on and slightly improve it, if possible, and explore with the Minister what some of the practical obstacles might be in place, if there are any at all. The measures set out in the Bill do not require transparency in terms of volume and type of discharge. I am fully aware, having done some work in other areas of monitoring and verification, that what I am asking for may well have far-reaching and possibly expensive implications. I am aware that this may involve different types of sensors being used and different information being captured, stored, and interpreted before going on to be shared. I would be interested to hear the Government’s position on these proposals, and what challenges such changes might present for them. Moving to a more robust and complete monitoring set of data is an essential journey that the Government need to take over time.
Amendment 47 in my name would require water companies to publish data on one website to increase transparency and ease of access for the public. This amend seeks to do what it says on the tin. It is relatively straightforward, so I will not speak to it for too long, but it is a quick and affordable improvement, which I hope will win government support. It is designed to strengthen and better enable the intentions of the Government to improve monitoring and the public’s access to the monitoring data. This is important not just to hold water companies to account and protect our environment but to help protect public health as best that we can. Where there are sewage spills, for whatever reason, it is very important that we all work to ensure the quick and smooth access to this information so that the public are aware of potential health risks and can take appropriate measures.
With many multiple water companies and water and sewage companies, and with all their websites having multiple pages and different tabs and set-ups, it would be easy for this information to all be published in full compliance with the Bill yet still leave it virtually impossible for the public to find it quickly and easily. That would defeat the spirit of the legislation, as I interpret it. My hope is that this amendment would have small associated costs but would bring strong associated benefits in transparency and accountability for what is actually happening but also as a means of deterrence. Water companies, I am sure, will think twice about their investment plans and clean-up operations when things go wrong, if they are aware that the public can monitor them easily in real time. It may be that this information is best hosted on either Defra’s or the Environment Agency’s website, and the wording of my amendment does not intend to rule that out as a possibility. I look forward to the response of the Minister to this practical suggestion.
Finally in this group, I come to Amendment 94 in my name. This amendment would require the Secretary of State to take steps to facilitate citizen science with regard to monitoring water companies. It is fair to say that none of us might be sitting or standing here debating the measures in this Bill were it not for the tireless work of concerned citizens and their passionate dedication and care for their local environment. In recent years, we have seen enforcement budgets for the Environment Agency cut almost in half, combined with a light-touch regulation regime, which has allowed water companies to self-monitor, as well as many no-flow incidents and other pressures. Much of the information, knowledge and drive to prevent sewage discharges and much of the information about what is happening out there in the real world has come as a direct result of citizen science and citizens who care about their local environment. It is really important that we as Lords pay tribute to their work as a thank you to them, because the rise of this issue up the national debate and the national consciousness is partly a direct result of the work that they have taken up. That is work where they have taken on roles that really should have been filled by the Government and regulatory agencies. For whatever reason, they did not have the capacity to do that. They are too many of these organisations to mention them all, but I acknowledge the Rivers Trust and its Big River Watch, which has worked for many years to build up a detailed knowledge of local environments, as well as the work of Thames21. I hope that other noble Lords will join me in offering them thanks.
With only 14% of our rivers in good ecological health and with budget pressures, improving citizen science is a win-win for everybody. It acts as another means of assessing the information that Ministers get from their regulators; it acts as a check on that and acts as a deterrent on what water companies are doing. They do not have as much of a relationship with the citizens doing this as they might do with the regulators, so it is a little bit left field in their context; they do not know what is being monitored where and when. It is an important deterrent and a check on the system—a check that it is working as intended. I encourage the Government to make better use of that resource and provide encouragement, support and training. It is also important that, by doing that, the Government help to make sure that the information being provided through these means is more reliable and using agreed baselines and methods, which in itself provides another important sense of information in all these debates.
There are lots of other really good amendments in this group, too many for me to go through them, but I beg to move.
Lord Cromwell (CB)
My Lords, I will speak to three practical amendments in my name in this group: Amendments 44, 46 and 49. They are modest and proportionate—perhaps that is my catchphrase. I support and echo almost everything, I think, that the noble Earl, Lord Russell, said a few moments ago, especially about citizen science.
Public accountability and transparency need data that is both sufficient and timely. As currently drafted, I do not think that this Bill does that sufficiently. My Amendments 44 and 46 together would solve this. Amendment 44 provides for relevant information to be made publicly available and Amendment 46 recognises that this is not something that can always be provided immediately—I am trying to anticipate the Minister’s reply here. Amendment 46 would allow the water companies to indicate when the information would be available, rather than requiring them to produce it immediately. By including these questions in the Bill while allowing a reasonable approach to how soon it can be provided, the amendments would fill the information and accountability gap that is in the Bill currently.
To turn to Amendment 49, experience shows that allowing companies—we had this exact issue during the passage of the Modern Slavery Bill, by the way—to report things exclusively on their own websites results in difficulties such as differences in the information that is included, where it is shown, how easily it can be found and how fully it is reported. That makes it unnecessarily difficult for those seeking to monitor performance on a comparative or aggregated basis. As represented in my amendment, putting this into one place where it is accessible to everybody is not a large amount of work. It is simply a matter of the water company putting it on its own website and firing off a link to the authority, which can put it on its website. That is how it should be, and it would enable comparative measures of performance, which will be lacking if water companies bury this on their own websites and report it in different ways.
Baroness Young of Old Scone (Lab)
My Lords, this is a large group of amendments and I am going to go on a bit; I apologise for that. I will speak first of all to my Amendment 45, which is a probing amendment. I should say, for the avoidance of doubt, that I declare no beavers. The Bill requires sewerage undertakers to publish a range of information when there is a discharge from an emergency overflow. My Amendment 45 would add a requirement that such monitoring and reporting should include whether what are known as “emerging contaminants” are present, including but not limited to per-fluoroalkyl and poly-fluoroalkyl substances—PFAS—and microplastics.
Let me explain why this is important. The noble Earl, Lord Russell, expressed worries about these sorts of chemicals in discharges in national parks, but it not just national parks; these discharges are happening everywhere. PFAS are serious pollutants and occur in entirely innocent-looking products and processes. They accumulate in our rivers and seas, they are persistent and cannot be extracted, and they harm both human and animal health. These PFAS are used in over 200 applications, and I felt pretty guilty when I was briefed on these applications by the Marine Stewardship Council, as I—and probably other noble Lords—use these harmful applications, day in, day out. PFAS are used in anything with Teflon, for example, including non-stick pots, in waterproof clothing, in stain-resisting products, in cosmetics, in firefighting foams, and even in Apple watchstraps. My daily slow-release pills that keep me alive in the face of ulcerative colitis send PFAS into the water environment straight from my gut. So I and all noble Lords are responsible for all of this.
PFAS are tricky to manage: they reach the water environment as particulates through storm or emergency overflows from sewage treatment works, but also from sewage sludge spread on the land or from being sprayed directly into the environment, as with firefighting foams. Once in our waters, they cause damage to wildlife and human health. Although some PFAS can be removed at sewage treatment works, the only secure way to deal with them is to ban those PFAS for which there is a viable alternative—there are a number of viable alternatives for many PFAS—and then seek to develop alternatives for those for which there are not yet alternatives.
Baroness McIntosh of Pickering (Con)
My Lords, I have two amendments in this group. The first opposes Clause 3 standing part of the Bill, and the second is Amendment 75. I am grateful to the Minister and the Bill team for the meeting we had. The earlier amendment in the name of the noble Duke, the Duke of Wellington, and those in my name and others, possibly reflected the fact that the meaning of “emergency overflow” in Clause 3 is not quite as clear as it should be. This is simply an attempt to ask the Minister and, through her, the department, whether they are entirely convinced that the Bill is as clear as it might be in this regard.
I shall focus my remarks on Amendment 75. I am grateful that it has been included in this group, where it is most relevant. Doing so saves a separate debate on it at a later stage, where I felt it did not fit in. Subsection (2)(d), under the heading “meaning of ‘emergency overflow’”, concerns
“blockage of a sewer downstream of sewerage disposal works.”
That brought to mind the typical problem we encounter: fatbergs associated with restaurants and intense food production, which is very regrettable indeed. Are the Minister and the department minded to foresee an exemption from the provision for an emergency overflow and the conditions flowing therefrom? For example, such an issue is not within the power and authority of a sewerage undertaker or water company, which cannot be held responsible for fatbergs from cooking fat, wet wipes, et cetera. I welcome the fact that we have now banned wet wipes. That is a great development, but I do not know what the solution is to fatbergs entering downstream, causing these blockages and potentially leading to an emergency overflow. Does the Minister agree that it is very difficult to link that to the responsibility of a sewerage undertaker or water company, given that it really is not within their power to prevent it?
Lord Cameron of Dillington (CB)
My Lords, my Amendment 59 follows on very neatly from those put forward by the noble Baroness, Lady Young. It too is very much a probing amendment and is largely designed to expose an issue or problem, and to alert the proposed industry review to possible solutions. It arises from a worry that I have had for many years: that we do not really know what is going on in our rivers. A decade or so ago, I remember hearing about a farmer who reportedly said that the chance of his small river being inspected by the Environment Agency was roughly one in 200 years, and thus he was not worried about what he or others might be doing to that river. This may have been an exaggeration, but the point he was making has a ring of truth to it even now, some 10 years later.
Then, the problem was that the Environment Agency had been starved of funds and, in many respects, chained to its desk. The number of staff deployed on the actual rivers had dropped away to the point of insignificance. However, the agency has always monitored our rivers, and certainly does nowadays. Specifically, it monitors downstream of major sewage works and CSOs, but it does so on a random basis. I should say at this point that it is a very skilled job taking a water sample and ensuring that it is a true sample and not contaminated either by the sampler—disturbing the river bed, for instance—or by some very localised issue in or near that point of the river.
Let us say that, in your sampling programme, you aim to take a sample once a month where it matters. That does not sound very much, but if noble Lords think about the hundreds of rivers in England and the literally thousands of sewage works and other licensed discharge points, even that would be a mammoth task for a whole regiment of inspectors. As a result, there is probably only a one in 100 chance of any sample being taken in any river which would coincide with the sort of event we need to know about.
The science of river quality shows—I am sure we all know this—that rivers are constantly changing. We all know the Chinese proverb: you can step into the same river only once. When we get a wet weather downpour, not only do we get overflows from sewers and CSOs, which can be very damaging to the aquatic environment; we also get discharges from urban run-off, often containing severe chemical pollution, including the possibility of persistent chemicals, mentioned by the noble Baroness, Lady Young, in her amendment. Of course, during this same wet weather incident we also get agricultural run-off and pollution, which I know, as a farmer, is as damaging as anything else to our biodiversity, particularly when it involves excess phosphate or silage effluent.
On the subject of biodiversity, I should say at this point that the UK Centre for Ecology and Hydrology— I declare an interest, as I am about to retire as its chair—reckons that since 1970 there has been an 83% decline in our freshwater populations, which is a pretty devastating figure.
As I say, the chances are in excess of one in 100 of any random river sample being taken immediately after one of these wet weather incidents, especially when it happens to be a night-time storm or incident, so we never really know the true condition of any of our rivers; nor can we calculate the short-term or long- term ecological consequences of all those wet weather discharges—except that there has been an 83% decline in our freshwater populations. But there is a solution: continuous monitoring using telemetry. Install a monitor in a river and it can record the state of that river every hour, or even every half hour. Before noble Lords think that hundreds of monitors reporting every half hour would provide an excessive amount of information that would overwhelm the watchers, I should say that these machines can be preset to produce an alarm only when a particular parameter is broken. In other words, you are woken up in the middle of the night only when, for example, there is a shortage of oxygen in the river or an excess of E. coli.
The real point is that we can find out more about the long-term state of our rivers from continuous monitoring in, say, two weeks than we would probably find out in many years of random sampling. But—and this is a big “but”, which is why this is very much a probing amendment—although this technology is developing fast, I am afraid it is still very expensive. The price goes up according to the number of pollutants being monitored. Each pollutant needs a different way of measuring, and each sensor, for each pollutant, can cost an average of about £10,000. If you want a machine that monitors and reports on just five key pollutants, it would currently cost about £50,000, while a machine that monitors almost everything would cost around £100,000.
That is an awful lot of money, especially if you think about our desperate need for hundreds of these machines. There is no doubt that, if we were to develop and order hundreds of them, the price would fall dramatically. I put the amendment out there largely for the new independent water review commission to consider. Bearing in mind
“The water sector needs a complete reset”,—[Official Report, Commons, 23/10/24; col. 279.]
it has to ask itself what price we put on the cleanliness of our rivers and our ability to truly monitor them.
Lord Deben (Con)
My Lords, I declare an interest as a riparian owner and as the chairman of a company which helps businesses, including water businesses, to improve their environment and their safety. Normally I am very questioning of additional requirements for information from companies, because it can be very expensive and divert people’s attention. But in this case I support the general run of these amendments, which ask for the public to know what is happening.
First, a series of them ask the water companies to tell the public only what they have to know, because, if they do not know it, they cannot do what they have by law to do. Secondly, the noble Lord, Lord Cromwell, is right that the information has to be presented in a way that is easy to find. The comparison with the Modern Slavery Act—again, we debated modern slavery, so I know how it works—is that it is so easy to find it difficult to discover the facts. The whole idea of the Modern Slavery Act was that the public and the campaigners would be able to see how people were behaving, and check against it. This is an extremely important thing.
I also want to refer to a comment by the noble Baroness who spoke on the subject of fat. I do not know whether the Minister has had the pleasure of going down a sewer, but it is one of the most important acts of any Minister. I did it when I was, in some part, doing what she is doing, and you learn a great deal.
My worry about the Bill is that, if we are not careful, we will take away from some of the things that ought to happen—not in this Bill about water companies—to make the way in which we deal with sewage much more sensible. You can go down a sewer and tell exactly where the fast-food restaurants are, and you can tell which are the good ones and which are the bad ones. I would recommend to the Minister that she looks at what happens in Canada, where they insist that you measure the oil that comes in and then show how much oil has been taken away by an approved waste collector. We have to look at a number of things of that sort if we are going to make this legislation work. Do not expect the Minister to add to this legislation, but I think she will find that, unless we do some of these things, we are not going to deliver what is needed.
My last point is about telemetry. One of the things I think government is very poor at—and that is all Governments—is recognising how much they can change costs by insisting on necessary machinery. If this Government said, “We are going to monitor every river and we want the telemetry to do it”, the price would fall very considerably, as the noble Lord rightly said. Unless we do something like that, this Bill is frankly time-limited, because it will not deliver what we need, which is a constant measurement of our rivers and for that information to be provided, where we have suggested, to the public. If we do those things, we can both recover support for what is happening and do what my noble friends have put forward, which is to make it possible for water companies to say honestly that things that have happened were nothing to do with them. That is also important because, otherwise, we are laying a burden on them which, even with their current reputation, is an unfair one, and I would much prefer to be tough but fair.
Baroness Boycott (CB)
I rise to speak to Amendment 87 in this group, and I am very grateful to the noble Baronesses, Lady Parminter and Lady Browning, and the noble Lord, Lord Whitty, for their support. I agree with all that has been said, in particular what the noble Lords, Lord Cameron and Lord Deben, said. We do need a step change here, rather than just trying to fix the system—although I do want to talk about fixing the system.
The water companies are completely uninterested in transparency. It echoes so much of what we talked about: who is winning in this game, nature or money? Rather too often, the money seems to win out. According to the Observer at the weekend, they have been passing pollution tests that were not even carried out. The system is so clearly not working that it seems an obvious one for the Government to reset.
Amendment 87 would require the proactive publication of both regulatory and what the water companies call “non-regulatory” or “operational” data about their sewage works and their associated discharges of sewage effluent. Specifically, it defines water companies as “public authorities” for the purposes of the Environmental Information Regulations, amends the regulations to make clear that public authorities must make the information they hold on effluent or wastewater monitoring data completely public to anybody. It amends the appeal and enforcement provisions in the 2004 regulations to allow members of the public to complain to the Information Commissioner where such info is not proactively published.
This will cut through all the delaying tactics and refusals by water companies, by ensuring that data is proactively published, so that the public and campaigners will not have to keep asking for information and be endlessly given the runaround. Water companies will be required by law to publish it up front, without anyone having to ask. I support my noble friend’s amendment that this must all be in one place and easy to find. I feel that this is complementary to Clause 3 of the Bill, which requires discharges from emergency overflows to be published accessibly and immediately, so that action can be taken.
It is important to outline a little history of the context. Despite the success of the leading Fish Legal case, which went to the European Court of Justice a few years ago, in securing a decision that water companies are “public authorities” for the purposes of the Environmental Information Regulations, over the last few years the water companies have tried many different tactics, under the Environmental Information Regulations, to try to avoid disclosing data to those requesting access that shows how poorly performing their sewage works or CSOs have been. They have been extremely successful. The ICO has, in the past, supported various water companies in their refusal to provide data to a range of campaigners, due to the long-running investigations into them by the regulators themselves. The ICO’s mind seemed to change on this after the CEO of Ofwat announced that they did not consider the investigation by Ofwat and the Environment Agency as a reason to not publish. So now we are in a weird situation where the water companies, specifically United Utilities, are currently appealing against an ICO decision that went the other way, in which the ICO decided that information, specifically about how poorly a sewage works in Cumbria was operating, should be disclosed to the public. This case is ongoing, but we have an opportunity to send a parliamentary reminder that we are in no doubt that this information should be made publicly accessible.
This has highlighted to me not only the clear lack of transparency but the real lack of willingness. Despite several years of this very public scandal, companies continue to obstruct. This is what the Bill is really about: forcing them to change where they will not. We are well past simply asking them to do this.
Baroness Browning (Con)
My Lords, I am very pleased to have added my name to the amendment that the noble Baroness, Lady Boycott, has just spoken to, and the amendment in this group tabled by the noble Baroness, Lady McIntosh of Pickering, both of whom have outlined very clearly their concerns.
Amendment 89, in my name, is really about abstraction. I mentioned the over-abstraction in chalk streams, which is genuinely a real problem. It is claimed that the Environment Agency rarely inspects water company abstraction monitoring records.
There is also no requirement for continuous volumetric monitoring and publication of real-time or up-to-date data. It is not surprising, therefore, that there has been no effective enforcement where there have been breaches of abstraction licences. Spot-check results indicate neither the duration of the breach nor the seriousness of such breaches, either as against the licence condition or for the rivers or groundwaters from which the abstraction has occurred unlawfully.
Therefore, this amendment proposes that the Water Resources Act 1991 be amended so that all licences for abstraction held by water undertakers should include a condition that real-time abstraction volumetric data is recorded and made publicly available in as close to real time as is practicable. This is very straightforward. The Minister must have a view as to whether she thinks the Environment Agency carries out rigorous checks, and if it does not, I believe my amendment is the answer to it.
Lord Blencathra (Con)
My Lords, I first declare my interest as on the register. Since it seems to be de rigueur in the Committee tonight, I declare my wholehearted support for the controlled reintroduction of beavers into appropriate locations.
I thank the noble Earl, Lord Russell, for leading this group of amendments on improved monitoring and publication of data and I rise to speak to Amendment 48 in my name. First, I was rather impressed by the points on telemetry made by the noble Lord, Lord Cameron of Dillington. We find in Natural England that the use of modern technology can replace hundreds of people on the ground trying to carry out inspections, and this sort of technology has to be the way to proceed.
It is important that the nature of emergency discharges is collected by water companies and is made available to the public and Parliament in an easily accessible format and location, as has been said by every noble Lord tonight. The damage of pollution caused by emergency overflows has become an issue of increasing concern to the public in recent years, and they deserve more information on how water companies are performing. It is sensible to require water companies to publish the extent of emergency discharges, as this data is indicative of the strain on our water sector and will provide valuable information as to what kind of infrastructure development is necessary to prevent overflows in the future.
We support the Government’s intention in this part of the Bill, but we feel the Government can go slightly further to ensure that the monitoring data is available to the public on the water company’s website. My Amendment 48 is a modest little amendment that would deliver that change. We on these Benches feel that this relatively small amendment would do a great deal of good in ensuring that consumers can access this information easily on the website of their own provider.
A number of noble Lords have moved amendments on monitoring and reporting. We are broadly satisfied with the Government’s measures to improve monitoring and reporting in the Bill, but we are also keen to see some movement from the Government in the direction of making this information more readily accessible to the public and have taken on board many of the points raised by other noble Lords tonight.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all noble Lords for the interest they have taken in this debate. I turn first to Amendment 43, tabled by the noble Earl, Lord Russell, Amendments 44 and 46, tabled by the noble Lord, Lord Cromwell, and Amendment 59, tabled by the noble Lord, Lord Cameron of Dillington. The Government agree that it is vital to understand the causes and impact of sewage discharges, and agree with the noble Lord, Lord Cromwell, that this needs to be timely and accessible.
Clause 3 requires water companies to provide information on the frequency and duration of discharges from emergency overflows. This information will enable regulators and the public to see, in near real time, when a discharge from an emergency overflow has occurred, and how long it lasted for. This will enable resource to be directed to investigate the cause as well as the impact of a discharge, with a view to resolving any issues.
While the Government agree with the intention behind the amendments seeking to require companies to specify the volume of discharges in their publications, we do not see the value in doing so, as this would not provide the meaningful insights that we need about the actual impact a discharge has had. Monitors required to measure volume as well as concentration are also very costly to install and could delay the rollout of other monitors.
The volume from sewage discharges is measured through flow monitoring, and the installation of flow monitors would likely require construction projects to install them at the majority of emergency overflows, hence the large cost. This is because the pipework in emergency overflows would require modification for flow monitors to be able to record accurate measures of volume. Therefore, the Government do not believe the expected high costs are proportionate to the information we would get. With respect to the cause of discharges, it is not possible for companies to provide this information in near real time. This is because an investigation and site visit are often required to validate the cause.
Lord Cromwell (CB)
I would like clarification on a point. The Minister mentioned that there will be a map of overflows across the country. How near to real time will it be? She said that it will be accessible to the regulator. Will it be accessible to the public?
Baroness Hayman of Ullock (Lab)
I do not have that detailed information. I will write to the noble Lord and place a copy of the letter in the Library so it is available to everybody ahead of Report.
Amendment 50 was tabled by my noble friend Lady Young of Old Scone. The Government fully agree that emergency overflows should be monitored. However, we do not support the removal of the delegated power for Ministers to make exceptions to the Clause 3 duty. We believe that this power is necessary to allow for scenarios where it is not feasible to monitor emergency overflows, such as where an overflow is due to be decommissioned. Removing this power may inadvertently lead to delays in commencing this duty, if issues arose that we could not resolve without this power. Any exception to the monitoring duty would need to be agreed by Parliament using the affirmative statutory instrument procedure.
On Amendment 58, tabled by my noble friend Lady Young of Old Scone, water companies should bear the cost of understanding the impact of their discharges on water quality. Installing and maintaining continuous water quality monitors requires regular access to water company sites. Water companies can do this much more easily than can the Environment Agency. Defra has issued guidance on the expected standards of these monitors, and in future all monitors will be expected to become independently certified under the Environment Agency’s certification scheme. Water quality data that will be made available will then be scrutinised by the independent regulator. Regulators will continue to work with water companies to ensure that the data is of high quality. I hope that this reassures my noble friend and that she feels able not to press her amendments.
Amendment 75 was tabled by the noble Baroness, Lady McIntosh of Pickering, and I thank her for raising this issue. Misusing sewers to dispose of materials such as wet wipes and cooking oils contributes to major issues, such as blockages in the sewerage system. The noble Lord, Lord Deben, asked whether I have gone down a sewer. I have, and it is just disgusting; it is quite extraordinary what can happen there. Sewer blockages cost the water industry £200 million a year to fix and are responsible for 40% of pollution incidents.
Many people are not aware that the actions they take in their own homes can have such damaging impacts. Small but significant steps, such as not pouring fats and oils down the plug hole, can prevent blockages. The Government work to encourage all householders and businesses to play their part, and fully support water industry campaigns to address this issue, including Water UK’s “Bin the Wipe” campaign. I completely understand where the noble Baroness, Lady McIntosh of Pickering, is coming from. I will take this away and look at whether there is any more we can do to draw attention to this fact.
Having said that, we do not believe that water companies should be exempt from sanctions when using emergency overflows following blockages caused by sewer misuse. Water companies should take every reasonable measure to prevent the use of emergency overflows, including measures to prevent blockages. Some blockages caused by sewer misuse can often be mitigated by good maintenance; for example, by detecting blockages before they become significant issues and with preventive cleaning. The intent of this Bill is to strengthen water companies’ accountability for pollution incidents and not to diminish it. That is why Clause 2 will require water companies to publish the pollution incident reduction plans that we debated earlier.
I was interested in the suggestion from the noble Lord, Lord Deben, to look at how Canda deals with this issue. My brother-in-law lives in Canada, so my family and I go there. It is a really interesting suggestion.
I turn to Amendment 87, tabled by the noble Baroness, Lady Boycott. Proactive data publication is vital for transparency and to enable the public to scrutinise water companies. While we support the principle of transparency and are taking action to increase transparency through Clauses 2 and 3, we are concerned that the noble Baroness’s specific proposals duplicate pre-existing provisions and would create practical difficulties. Case law and the Information Commissioner’s Office have been clear: water companies are public bodies for the purpose of the Environmental Information Regulations, and water companies already provide information under these regulations.
The Information Commissioner’s Office is clear that water companies must be transparent, and it is taking several actions to enforce that. In May of this year, the ICO released decision notices for six water companies, instructing them to disclose the start and stop times of sewage discharges. In July, it wrote to water companies to encourage them to proactively publish information on sewage monthly. In October, it published a practice recommendation to United Utilities to address the specific issues that it had identified.
I turn to Amendment 89, tabled by the noble Baroness, Lady Browning. The Government acknowledge that it is important that there is more transparency about the abstraction of water by water companies. However, any new requirements must be both practical and proportionate. Clause 7 already provides the necessary flexibility for the Secretary of State and Welsh Ministers to impose conditions or general rules for abstraction licences. We believe that secondary legislation is the more appropriate vehicle to address these technical matters effectively. However, having listened to the noble Baroness carefully, we will consult on the use of Clause 7 powers to ensure that the conditions introduced are appropriate and achievable.
Finally—I am sure we all want our dinner—I turn to Amendment 94, tabled by the noble Earl, Lord Russell. I am supportive of greater involvement of the public in this sector. He made the very important point that bringing in the public is vital, including through citizen science. However, this amendment is not needed, as we believe that the provisions in the Bill will already increase transparency and the provision of data in this sector, which are critical to informing and engaging the public going forward.
I hope that I have set out sufficient detail on Clause 3 to reassure all noble Lords of its intended purpose and effect. I sent out a fact sheet on the definition of emergency overflows and storm overflows to try to make sure that everybody is clear on the difference, but I am sure that we will come back to these issues in future. I hope that noble Lords will not press their amendments and enjoy their dinner break.
Earl Russell (LD)
My Lords, I thank the Minister for her detailed response; that was a lot of amendments to respond to in one go.
I take the point about volumetric flow monitoring. I will go away and think about that but I am aware that there might have been costs associated with it. It is welcome that that has been confirmed.
I take the point also about a number of amendments on the website, access to data and one data point. I hear what the Government say—that one does not want to pin that down, limit it and find that what is written in the Bill is yesterday’s technology, or that there are other, better ways of making sure that it is accessible. I welcome the response there as well.
I also welcome the response of the Minister about the plans of the Government to publish live maps in one place. That seems sensible.
In relation to my amendment on citizen science, I welcome what the Minister said. Let us go away, think about it and explore it. I am pleased that the Government acknowledge the importance of that matter, the work that has been done and the work going forward.
This has been an interesting group of amendments. I thank the noble Baroness, Lady Young of Old Scone, for what she said, and the Minister’s response on the emerging threats was important. I am particularly concerned about microplastics because we do not know what those are doing. They are in our brains and various parts of our body where they should not be. I encourage the Government, outside the Bill, to do more research and work on that.
I thank also the noble Lord, Lord Cromwell, for his interesting comments on telemetry monitoring, and the noble Lord, Lord Deben, for his contribution.
This was an interesting debate. I am getting in the way of everyone’s dinner, so I thank noble Lords. I beg leave to withdraw my amendment.
Water (Special Measures) Bill [HL]
Wednesday 30th October 2024
(1 month, 3 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 17-II Second marshalled list for Committee - (29 Oct 2024)
Lord Blencathra
“141H Monitoring of river health after emergency overflows(1) Where there is a discharge from an emergency overflow of a sewerage undertaker into inland waters, the undertaker must regularly assess the environmental health of that inland water within 500 metres downstream of the overflow.(2) The methods used to make assessments under subsection (1) must include the use of fish counters or other methods of accurately monitoring the fish population.(3) The undertaker must prepare a report on the results of these assessments on a quarterly basis and submit this report to the Authority.(4) The undertaker must publish this report within 30 days after it has submitted it to the Authority.(5) The information must—(a) be in a form which allows the public to readily understand it,(b) be published in a way which makes it readily accessible to the public, and(c) be published on the undertaker’s website.”
Lord Blencathra (Con)
My Lords, on behalf of my noble friend Lord Bethell, I am pleased to move Amendment 52 in his place. This amendment seeks to increase and improve the monitoring undertaken by water companies after an emergency overflow.
The amendment is quite straightforward. It makes the case that, where there is a discharge from an emergency overflow, the undertaker must regularly assess the environmental health of that inland water within 500 metres downstream of the overflow. My noble friend then suggests that the methods used to make assessments under that subsection must include the use of fish counters or other methods of accurately monitoring the fish population. I accept that there may be a weakness here because, unless one knows what the fish count was before the overflow happened, it may be difficult to come to a conclusion as to the number of fish which should be in the river after the overflow has taken place. The undertaker must also prepare a report on the results of these assessments on a quarterly basis and submit it to the authority, and, after having done so, the undertaker must publish the report within 30 days. In addition, in accordance with everything else which has been said in debates tonight, the information must be in a form which helps the public to readily understand it, be published in a way which makes it readily accessible to the public, and be published in the undertaker’s name.
For those reasons, we on these Benches want to protect our rivers and restore the health of those rivers that have been seriously affected by pollution. Thanks to our efforts in government to drive up monitoring, 100% of emergency overflows are now monitored, and as such, we are able to access information about all emergency overflows that occur. This was a seriously transformative step forward compared with the situation we inherited in 2010 but we accept the need to go further, and we support better monitoring of both overflows and of the overall health of rivers themselves.
With the level of monitoring achieved under the Conservatives, it is now possible to learn far more about these incidents and therefore to take action to prevent them happening again. However, this does not mean that water companies are now taking enough responsibility to publish the results of this monitoring and to report their findings so that they can be held to account.
This amendment focuses on an area that the Bill does not address and ensures that the health of our rivers, not just the extent of pollution incidents, is a central component of the Bill. The inclusion of monitoring 500 metres down the river will give a real insight into the impact that an overflow is having on the overall health of a river over time. This monitoring will ensure that water companies cannot downplay the damage and leave the natural area to be ruined; instead, they will have to take a responsibility for a wider area that these emergency overflows can impact.
We on these Benches support this amendment in its intention to ensure that regular reporting is done so that the public are able to access up-to-date information on the overall health of our rivers beyond the immediate aftermath of any emergency overflow.
I know that many amendments in the previous group were related to monitoring of emergency overflows, and, although this amendment specifically relates to river health, I am sure there will be cross-party support for much of the previous group and for this amendment to ensure that water companies can be held publicly accountable for their action after emergency overflows.
I hope the Minister will take the concerns of my noble friend Lord Bethell as expressed in this amendment seriously and will consider it. Once again, we feel this is a timely opportunity to deliver a positive reform in the Bill today rather than waiting for the wider reform which the Government have proposed. I beg to move.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank the noble Lord, Lord Bethell, for raising this important issue and tabling Amendment 52, and the noble Lord, Lord Blencathra, for moving it in his absence. I start by reassuring him that I always take the concerns expressed in this House very seriously. I think that we agree that understanding the impact of sewage discharges on the environmental health of rivers is vital.
Clause 3 requires water companies to provide information on the frequency and duration of discharges from emergency overflows. These measurements will enable regulators and the public to see, in near real time, when a discharge from an emergency overflow has occurred, and how long it lasted for. This will, in turn, enable resource to be directed to investigate the cause as well as the impact of a discharge, and will enable the regulators to take enforcement action if it is required.
However, this is just one measure that the Government will use to better understand the impact of sewage entering our waterways. New continuous water quality monitors will be installed at storm overflows from 2025 to continuously measure the impact of sewage discharges on the receiving watercourse. The information gathered from these monitors will be key in supporting fish populations. Requiring the installation of additional fish counters downstream of emergency overflows may require additional structures in the watercourse and may impose additional costs on water companies and their customers.
This does not appear to be proportionate, given that emergency overflows should be used on only very limited occasions. The Government will therefore not accept this amendment. However, I hope that I have been able to reassure the noble Lord that the Government are using this Bill to enable quicker action to be taken to investigate discharges from emergency overflows.
Lord Blencathra (Con)
I thank the Minister for that response. I regret that she is not accepting the amendment but, if we accept her assurances that the monitoring of overflows will be thorough, that may negate the need for further monitoring downstream. I like to think that we will check the water further downstream than just within a short distance of the storm overflows, because what happens downstream is terribly important. I recall when the creamery at Appleby burst and flooded the River Eden. The damage was considerable for a couple of miles downstream. Checking what happens right beside the factory or the storm overflow is one thing, but it is important that we check downstream when the money allows. I beg leave to withdraw the amendment.
Lord Roborough
“Reporting of impact on pollution(1) The Secretary of State must publish an assessment of the expected impact of the Act on the overall level of pollution caused by the activities of sewerage undertakers within 3 months of the Act coming into force.(2) The Secretary of State must publish an assessment of the actual impact of the Act on the overall level of pollution caused by the activities of sewerage undertakers within 3 years of the Act coming into force.”Member's explanatory statement
This amendment requires the Government to publish their expectations of the impact of the Act on pollution and the actual impact of the Act 3 years after it comes into force.
Lord Roborough (Con)
My Lords, I rise to move Amendment 57 and speak to Amendments 105 and 106 in the name of my noble friend Lord Sandhurst.
I thank His Majesty’s Government for publishing the impact assessment for this Bill. This is certainly helpful in giving the Committee a clear view of what the Government expect to achieve with these measures, but there is still no provision in the Bill for an assessment of the actual impact of the Act. Our proposal is that in three years’ time the Government should produce a report on the effects of the Bill, so that Parliament can reassess the effectiveness of these measures. Can the Minister give an assurance today that the Government are willing to undertake such an assessment, to give Parliament the opportunity to discuss the impact of this Bill once its measures have been in place long enough for their effects to be measured?
The impact assessment released highlights the need to continue with these amendments. On overall impact, it reveals that there will likely be a negative monetised impact on businesses, including the cost of regulator enforcement recovery, improved monitoring and adjusted penalty systems. These impacts may be acceptable if they drive up water company performance and result in reduced pollution, but Parliament should be given the opportunity to debate this.
I will speak briefly to Amendments 105 and 106. We welcome the assessment of the impact of the justice measures that has been published in the Government’s impact assessment but share my noble friend Lord Sandhurst’s concerns about these measures, given the pressure that our prison system is currently under.
We have seen that the Bill could impose a custodial sentence on water company executives. Given the overcrowding of prisons and the recent release of thousands of violent offenders, it seems to us that the Government have got their priorities wrong. Surely the Government should seek to ensure that violent offenders, including domestic abusers, are serving their full custodial sentences before Ministers consider imprisoning water company executives. Polluting a river is of course a serious offence, but we must ensure that our prisons, which are already under strain, are not further challenged by the introduction of new custodial sentences for water company executives. I beg to move.
Lord Sandhurst (Con)
My Lords, my Amendments 105 and 106 were commencement blocks when laid that sought to ensure that the Government published an assessment of the justice impact of the Bill before it could come into effect. I thank the Government for publishing their impact assessment, which makes it clear that there will be a small additional burden on our already strained prison estate as a result of the custodial sentences included in the Bill. I am satisfied that the Government’s impact assessment covers the justice impacts of the Bill, so I will not press my amendments.
That said, this is a good opportunity to raise the question of the Government’s priorities. We know the burden on our prisons will be small but is it not the wrong priority to sentence water executives to up to two years’ imprisonment at a time when the Government are releasing violent criminals early? Equally, there is the question of necessity. The Government’s own impact assessment states:
“Defra assumes there could be one case every two years with the maximum sentence of a two-year imprisonment based on the fact there has been four historic cases”.
So is this provision truly necessary? I hope that the Minister will be able to respond to these concerns in her reply.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Lord, Lord Roborough, for introducing this small group of amendments, and the noble Lord, Lord Sandhurst, for his amendments on the issue of justice. I thank both noble Lords for their interest in ensuring that the Government are fully considering all the impacts of the Bill, on both the environment and the justice system.
Amendment 57, tabled by the noble Lord, Lord Roborough, relates to the reporting of impacts on environmental pollution. This Government share the noble Lord’s concerns that the number of water company pollution incidents has not reduced in the last few years. It remains unacceptably high. That is why the Bill seeks to increase accountability for water companies and their executives where they pollute the environment.
The Bill will enable automatic and severe fines for certain pollution offences, making it possible for the regulators to take swift action where it is clear that an offence has been committed. The Bill will increase transparency around pollution incidents by enabling the public and regulators to see where and how often emergency overflows are discharging and, as discussed in previous groups, by requiring water companies to publish pollution incident reduction plans on an annual basis. As I set out on our first day in Committee, the Bill provides Ofwat with legal powers to ban bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability. Collectively, these measures will strengthen enforcement and disincentivise pollution incidents.
Lord Roborough (Con)
My Lords, I am grateful to the Minister for her constructive response to this debate, and I am most encouraged by her commitment to future assessment of the impact of the Bill. I beg leave to withdraw the amendment.
Lord Sandhurst
Member's explanatory statement
This amendment will prevent those convicted of an offence under this section from being sentenced to a custodial sentence of more than 12 months.
Lord Sandhurst (Con)
My Lords, this is a group of five amendments. Amendment 60 would reduce the maximum custodial sentence to 12 months. Amendment 61 would remove the word “connivance” in respect of a possible offence. Amendment 62 would prevent liability for those purporting to be officers of water companies. Amendment 65 would prevent individuals who impede investigations receiving custodial sentences, and Amendment 66 would reduce the maximum custodial sentence to 12 months.
We on these Benches have been clear that we support tougher measures in order to hold water companies to account. However, to put water executives in prison during a time that the Government have admitted is a time of crisis for prisons because of overcrowding is to us the wrong priority. I am concerned, as I am sure so many are across the Committee, that dangerous individuals are being released from prison having served less than half their sentence. I draw attention to the fact that this Government appear more focused on putting water executives in prison than on keeping violent offenders in, and that seems to be a wrong priority.
In the latest release, 1,100 prisoners were released, and although the scheme claims that none of those offenders are guilty of serious violence, sex crimes or terrorism, this is true only of their primary conviction. An additional 1,800 were released earlier in September. Some mistakes were made, as offenders were released who were not supposed to be. That is the context.
Amendments 60 and 66 in my name seek to reduce the maximum custodial sentence that a water executive can receive from two years down to 12 months. As it stands, prison resources are seriously overstretched, and it seems to be the case that the Government in this Bill are wrongly prioritising those resources. While I do not think that custodial sentences are the right way forward, if the Government insist upon them then can they at least reduce the maximum custodial sentence to 12 months to prevent further overstretching? That would have the added advantage of ensuring that these cases would not need to be heard in the Crown Court under the new provisions, which would prevent further strain on our court backlogs.
The Government’s own impact assessment admits that this measure will put a further burden on our prison services. While it is certainly necessary to hold water executives to account, I believe my other amendments address more appropriate penalties. There is no doubt that the pollution of our rivers is a serious issue. Measures to ensure that those who break the rules are dealt with, and that those who work for water companies do so properly, are necessary. However, these measures appear to be too severe at a time when prisons cannot handle further pressure. Can the Minister set out the Government’s position on releasing domestic abusers, only to put individuals who work on the boards of water companies into the same cells?
In the same vein, Amendment 65 seeks to prevent a custodial sentence from being placed on an individual who has impeded an investigation. While that is indeed a serious issue, our prisons cannot handle further pressure.
Amendment 61 in my name seeks to remove “connivance” as an offence in the Bill. We have tabled the amendment to probe the use of the word “connivance” in this Bill specifically. We understand the use of that word, which exists in other legislation, such as the Theft Act 1968 and, more recently, the Bribery Act 2010. However, we pose the question to the Government as to why they have used it in this scenario. Under what circumstances do they envisage using it? Can they provide the Committee with real-world examples of situations where it will be used?
Amendment 62 seeks to remove the offence in respect of individuals who purport to be executives. This simple amendment would ensure that only those who were actually acting in executive roles could be held responsible for the mistakes of the water company.
Baroness Hayman of Ullock (Lab)
I thank the noble Lord, Lord Sandhurst, for his interest in sentencing powers for obstruction investigations and for all the suggested amendments covered in this group.
Amendments 60 and 66, tabled by the noble Lord, both look to reduce the maximum custodial sentence available for those convicted. The obstruction of investigations by the regulators is already an offence, but that has not stopped companies from blocking the regulators’ investigations. For example, in 2019 the Environment Agency prosecuted a number of individuals at Southern Water for removing evidence from the possession of officers. I am sure the noble Lord will agree that such behaviour is unacceptable.
The aim of the two-year maximum custodial sentence is to deter future obstruction. That should support more effective investigations, which should ultimately enable stronger enforcement action against both companies and individuals. I am pleased to confirm for the noble Lord that this sentence is consistent with other provisions in the Environment Act 1995 and the Environmental Permitting (England and Wales) Regulations 2016.
I highlight to the noble Lord that the two-year sentence is the maximum limit. Sentencing will ultimately be decided by the courts, factoring in the specifics of each case and the relevant sentencing guidelines. While I cannot comment on Home Office procedure on prisoner release, I would be interested if the noble Lord could provide some information as to why our prisons became so overcrowded in the first place.
Amendments 61 and 62, also in the name of the noble Lord, Lord Sandhurst, speak to senior leader liability. I hope the noble Lord will agree it is unacceptable under current law that, if water company senior leaders encourage or allow obstruction of Environment Agency or Natural Resources Wales investigations, they cannot be held liable for this wrongdoing. In contrast, senior leaders can be held liable for other environmental offences, as well as obstruction offences in other sectors: for example, the Building Safety Act 2022.
This clause will remedy this gap by bringing the offence of obstructing the Environment Agency and Natural Resources Wales in line with other environmental offences, as well as offences in other sectors. I hope the noble Lord will agree that, in doing so, it should mirror the conventions and language of existing “consent, connivance and neglect” clauses. These make connivance by senior leaders a potential ground for liability and ensure that, where a person “purports to be” a relevant officer, they should also be held liable for wrongdoing. I hope the noble Lord is therefore content that these amendments are unnecessary.
Finally, I turn to Amendment 65, also in the name of the noble Lord, Lord Sandhurst, which proposes to remove increasing the sentence for offences of impeding Drinking Water Inspectorate investigations from the scope of the Bill. As I mentioned earlier, the Yale Environmental Performance Index ranks the drinking water in England and Wales as the best in the world, alongside just 10 other countries. This is in part thanks to the effectiveness of the Drinking Water Inspectorate. To accept this amendment would be to imply that the regulations enforced by the Drinking Water Inspectorate are not as serious as those enforced by the Environment Agency and Natural Resources Wales.
This cannot be right. There are grave public health risks if the DWI does not have the power or the authority to ensure that water supplies in England and Wales are safe and of the right quality. While I accept that this may not be the intention behind the noble Lord’s amendment, it would certainly be its effect. The quality of our drinking water is one of the enduring strengths of the current model and one that the Government want to protect. I once again thank the noble Lord for his contributions and hope my response has reassured him.
Lord Sandhurst (Con)
I thank the Minister for her response and for the care with which she delivered it. My amendments were there to ensure that the already overburdened prison sector is not put under further pressure. I hope the Government will bear them in mind and take them on board before Report. We will seek to work with the Government to ensure that the Bill ensures appropriate punishment for water executives. I beg leave to withdraw the amendment.
Lord Roborough
“(5K) The water undertaker or sewerage undertaker must provide relevant officers under subsection (5J) with mandatory training on subsection (3E) and how it relates to their powers and duties described in subsection (3D).”Member’s explanatory statement
This amendment seeks to ensure that relevant officers receive training from the undertaker on the penalties for offences related to impeding investigation by environmental regulators, as well as how these offences relate to their powers and duties as undertakers.
Lord Roborough (Con)
My Lords, in moving Amendment 63 in the name of my noble friend Lord Bethell I will speak also to Amendment 64. As we have discussed in the previous group, many within the water industry will now be captured by statutory responsibilities and be subject to custodial sentences if they make wrong decisions. This is a considerable liability and the goal of this Bill must be in part that no one goes to jail or is fined because no criminal or civil act has been performed.
There are similar responsibilities on all investment professionals within the financial services industry and for that reason annual training on anti-money laundering law and market manipulation and insider trading law is compulsory. Having left the industry over two and a half years ago, I am still completely aware of that law and my responsibilities under it. The main reason for this is to prevent a breach of the law, but subsidiary reasons are to rule out that non-compliance with this law is due to ignorance and is either negligence or criminality. That helps to protect both individuals and firms.
The amendments in the name of my noble friend Lord Bethell are intended to ensure that this annual training must take place to avoid or minimise any impedance of investigations by the regulators. It should also make clear the powers that the regulators and authority have to those employees to avoid any doubt. If we are to ensure that this remains an industry that the 100,000 employed within it want to build their careers and advance in, it is unhelpful if those towards the top of the organisation are locked up while claiming they had no knowledge of the law.
The Minister may offer that, rather than putting this into legislation, it can be dealt with by rules from the authority or the regulator. As we have discussed in earlier groups, confidence in those bodies is not as high as desired. I believe it is critically important that we also offer what protection we can to employees within this legislation. I beg to move.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Lord, Lord Roborough, for speaking to the amendments proposed by the noble Lord, Lord Bethell, in his absence. Amendments 63 and 64 relate to guidance and mandatory training for water company employees on obstruction offences.
One thing that it is important to emphasise on this matter is that Clause 4 amends only existing offences. It does not create any new obligations on companies, so employees should already have some understanding of that in the first place. To be clear, the existing offences are obstruction of investigations of the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate. Prosecutions have already been brought against companies and individuals under Section 110 of the Environment Act 1995. On that basis, we believe that companies should already be very well aware of their obligations under that section of the 1995 Act, and of the obligations to their staff to ensure that they are properly trained to engage in this area.
I reassure the noble Lord that the obligations of companies are set out as well in the Environment Agency’s enforcement and sanctions policy, so it should be very clear. I hope he understands why we do not think it proportionate to put this into legislation.
Lord Roborough (Con)
My Lords, I am most grateful for the reply from the Minister. I am not sure that I am necessarily entirely satisfied with it, but—as I have not yet had a chance to say it today—I am most grateful to the Minister for the constructive engagement that she has had with us, as well as all parties in this House. That will continue and perhaps we can discuss it then. I beg leave to withdraw the amendment.
Lord Sandhurst
“(4A) Where the relevant offence is—(a) triable summarily (whether or not it is also triable on indictment), and(b) punishable on summary conviction by a fine (whether or not it is also punishable by a term of imprisonment),the amount of the variable monetary penalty may not exceed the maximum amount of that fine.”Member's explanatory statement
This amendment would limit the level of any fine under this section to the levels set out in the 2008 Act.
Lord Sandhurst (Con)
My Lords, in moving Amendment 67 I will speak against the question that Clause 5 stand part of the Bill. I will also speak to Amendment 72.
My Amendment 67 would limit the maximum fine under the Bill to the level set out in the Regulatory Enforcement and Sanctions Act 2008. This Bill seeks to amend the 2008 Act to impose fines that will be set by regulations. The Government are asking Parliament to grant them these powers without clarity or definition on the level at which the fines will be set. All we know is that the Government’s impact assessment states that this penalty cap will be consulted on during the Bill’s passage, before it is set out in secondary legislation. I am pleased that the Government have committed to consultation but, regardless of any consultation, under the Bill as drafted the Government may vary the cap by statutory instrument. I respect and trust the Minister, who has acted in good faith throughout the passage of the Bill, but what is to stop a future Government misusing this power?
I propose to set the maximum cap at the level established in the Regulatory Enforcement and Sanctions Act 2008, which was passed under the previous Labour Government. When what became the 2008 Act was being debated, the Minister who took it through the other place was the now Chancellor of the Duchy of Lancaster, the right honourable Pat McFadden MP. He wisely argued then that the 2008 Bill would
“guarantee more consistent regulatory treatment of businesses”.—[Official Report, Commons, 21/5/08; col. 329]
Indeed, the 2008 Act built on the Hampton report, which recommended
“a comprehensive review of regulators’ penalty regimes, with the aim of making them more consistent”—
and I stress the word “consistent”.
Does the Minister agree with her colleague that we need more consistent regulatory treatment of business? If she does not, can she explain why the Government are seeking in this Bill to depart from the Labour Party’s previous reforms by giving the Executive the power to set variable monetary penalties by statutory instrument in this case? Is this the first of many reversals of Labour’s previous policy? Can I mark this down as yet another entry on my list of Labour U-turns?
I will now speak against Clause 5 standing part of the Bill. My concern is that the modification of the standard of proof in this case is dangerous and unjust. Water companies, no matter how poorly they may perform, deserve to be treated equally under the law with other regulated companies. When preparing for this debate, I once again found myself reading the Chancellor of the Duchy of Lancaster’s words from May 2008, when the 2008 Act was going through the other place. On the issue of the criminal burden of proof, Mr McFadden said:
“The Bill contains a number of essential safeguards. It makes it clear that a Minister can confer powers on regulators only if the Minister is satisfied that they are capable of exercising those powers in compliance with better regulation principles. Before regulators can impose monetary penalties or discretionary requirements, they must be satisfied beyond reasonable doubt that an offence has been committed. Businesses can make representations and objections before sanctions can be imposed, and, most importantly, there is a right of appeal to an independent and expert tribunal.”—[Official Report, Commons, 21/5/08; col. 332.]
This was an essential safeguard in 2008. I ask the Minister: have our standards of justice changed since then?
Amendment 72 speaks to the need for wider reform within the water industry. While His Majesty’s Government may not see fit to introduce a water restoration fund in this Bill, on these Benches we would welcome the Government taking the opportunity to implement wider reforms sooner rather than later. Can the Minister explain why the Government are resisting opportunities to deliver further positive reforms to the water sector in this Bill while we still have the chance?
The previous Conservative Government implemented the water restoration fund. That means that all environmental fines and penalties imposed since April 2022 have been ring-fenced to directly improve the water environment. Does the Minister agree that a water restoration fund for spending on freshwater recovery would improve the quality of water in the United Kingdom, and therefore would she welcome the introduction of one?
Earl Russell (LD)
My Lords, I will speak to Amendment 72 in the name of my noble friend Lady Bakewell and signed by myself. I am grateful for the support of the noble Baroness, Lady Jones, although I note that she is not in her place.
This amendment would require all funds from the fining of water companies for environmental offences to be ring-fenced for the water restoration fund and spent on freshwater recovery. We on these Benches have tabled Amendment 72 because it is unclear that fines imposed on water companies for breaches of their licences will bring any improvement to the water industry itself.
At Second Reading, a number of noble Lords suggested that the Bill could be used to bolster the water restitution fund—the pot set up by the previous Administration to channel environmental fines and penalties into projects that improve the water environment. The idea of this amendment is to achieve just that.
The Government have indicated that the Environment Agency will act as an enforcer to ensure that water companies adhere to the terms of their licences, monitor sewage overflows effectively, take steps to prevent this from happening in the future and make sewage reduction plans work. As has been raised many times during debates on the environment and water quality, the Environment Agency is chronically underfunded. Indeed, it has lost almost half of its funding in recent years. This lack of investment in the Environment Agency has led to what was once an effective organisation that could be relied on becoming weakened and less able to fulfil its statutory obligations effectively.
The case for this regulation is strong, as the water restoration fund is without legal foundation. The fund is not receiving all the fines. This is a direct consequence of the fund’s non-statutory character. In the continual absence of a legal imperative, revenue from fines can continue ending up in alternate destinations. The Government’s answer to make the regulator effective is for it to have the power to levy fines on operators that breach their licence conditions and break the law in other ways. These fines will then go back to the Environment Agency to recompense it for its work. As this is retrospective, it begs a question about what section of its current work programme the Environment Agency will have to put to one side while it is dealing with bringing the water industry into line.
There is also an issue around transparency. Customers know their bills will be going up—Ofwat agreed this in the latest review. They also know that the water companies have received fines in the past, but customers are unclear about what happens to those fines. Is it to be assumed that they have just gone towards the funding of Ofwat? In future, if the Bill is enacted, a lot more fines will be imposed. Bill-paying customers and the public in general expect to be able to trace what has happened to those fines.
Amendment 72 introduces new clauses to establish a water restoration fund. This fund will receive and hold all the fines and monetary penalties that are imposed on water companies for illegal activities and breaches of their licence conditions. The fund will then use the money recovered to invest in schemes to promote fresh-water recovery. It is only by improving the quality of fresh-water resources that we can begin to see an increase in the biodiversity of species that rely on the water they live in and around being fresh, unpolluted and free of sewage. As sewage discharges reduce, the quality of our fresh water will increase, and customers’ bills will need to be increased to deal with the chronic underfunding of the past. We will ideally reach a stage where the polluter does indeed pay for the damage they have done, as set out in the Environment Act.
We realise that this amendment leaves the Government with a conundrum as to how to fund the Environment Agency to carry out its work as a regulator, imposing fines and penalties on retrograde water companies. Our solution, of course, is to implement Amendment 80 and set up the clean water authority—but I do not want to rerun arguments that we have already heard. By accepting this amendment, the Government can future-proof the water restoration fund and ensure that one of the legacies of the Bill is a legally secure guarantee that sanctions for water pollution will always be used to help repair the damage caused and begin to restore the natural environment. I look forward to the Minister’s response.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for their contributions on this aspect of the Bill on fines and penalties. Amendment 67 was tabled by the noble Lord, Lord Sandhurst, whom I thank for his points on variable monetary penalties. Currently, there is no limit on the maximum variable penalty for water industry offences, whether the case is tried summarily in the magistrates’ courts or in the Crown Court. This amendment would not provide additional protection or assurance. However, we recognise that there are concerns about ensuring that there are robust protections for civil sanctions. So the Government will consult on the offences for which the civil standard of proof may be used and on the cap for new civil standard variable monetary penalties. This cap will not be limited to offences triable only in a particular court—we believe this is a proportionate safeguard. The House will also have the opportunity to debate and vote on secondary legislation containing the cap before any changes are finally made.
I reiterate that unlimited penalties issued to the criminal standard will still be available to the Environment Agency, along with all its other existing enforcement tools. Existing legal protections, including the right to appeal, will also be maintained. There are proportionate safeguards and legal protections for the use of those penalties, which will strengthen the enforcement of minor to moderate offences. Therefore, we do not believe this amendment to be necessary, and I hope that the noble Lord agrees.
Lord Sandhurst (Con)
I thank the Minister for her reply. I am grateful to the Government for the consideration they have given to these amendments. I shall continue to make the case for changes to the Bill along the lines I proposed. It is important to note that the Bill as drafted may result in companies being treated unfairly, and that it is a departure from the Labour Party’s previously stated policy. I am grateful that there will be consultation on offences and penalties and that we are apparently to have the opportunity to debate and vote on the regulations, but we would like to see all that in the Bill. However, I beg leave to withdraw the amendment.
Baroness Hayman of Ullock
“(6) But an offence is to be regarded for the purposes of this section as committed by a water supply licensee or sewerage licensee only if it is committed by such a licensee in the course of the activities to which its licence relates.”Member’s explanatory statement
This amendment provides that Clause 5 applies to water supply and sewerage licensees only in relation to their licensed activities.
Baroness Hayman of Ullock (Lab)
My Lords, I turn now to the amendments that we are making to Clauses 5 to 8. Government Amendments 68, 71, 76, 77 and 83 are minor and technical amendments to clarify who is within scope of the measures in Clauses 5 to 8. The inclusion of water and sewerage undertakers remains unchanged by these amendments.
Ofwat issues water supply and sewerage licences, which give the holder rights to provide water or sewerage retail services—for example, billing—or certain services using the public water and wastewater networks. In this remit, businesses are operating as water companies. The amendments make it clear that the measures relating to penalties and the recovery of enforcement costs apply to licensees only in relation to their water supply and sewerage licensed activities. This clarification means that companies can be subject to these measures where this is relevant to their licensed activity.
As businesses with these licences often operate in other sectors alongside the water industry, wider business activities unrelated to the licensing regime should not be brought within scope of Clauses 5 to 8. These amendments ensure that this is the case. For example, a food manufacturer may hold a water supply licence that is issued by Ofwat and permits them to provide billing and metering water services only. Unrelated permitted or licensed activity, regulated by the Environment Agency and undertaken by this business, such as abstraction of water for food manufacturing, would not be in scope of the Bill measures. This is because these activities, which are already regulated and enforced, are not relevant to the company’s operations as a water company.
These amendments minimise impacts on wider businesses and their regulation and ensure that enforcement regimes are consistent within sectors, while still ensuring that water companies are better held to account where they have failed to deliver for the environment. I commend these amendments to the House.
Lord Roborough (Con)
My Lords, I thank the Minister for introducing this group. It is essential that the way that this Bill applies to the activities of licensees is clearly laid out, and we are satisfied that the amendments brought by the Minister are necessary to achieve this.
Baroness Hayman of Ullock (Lab)
I thank the noble Lord for his support.
Water (Special Measures) Bill [HL]
Monday 4th November 2024
(1 month, 2 weeks ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 17-III Third marshalled list for Committee - (31 Oct 2024)
Lord Roborough
“(8A) All fines imposed on the undertaker or its employees under this section by—(a) the Secretary of State,(b) the Welsh Ministers, or(c) another relevant authoritymust be gathered together and once per annum be used to reduce all customers’ bills by an equal amount per customer.(8B) Any reduction applied under subsection (8A) must be separately disclosed within the customer’s statement of account.”
Lord Roborough (Con)
My Lords, I welcome the noble Baroness, Lady Bakewell of Hardington Mandeville, back to her place. Her contributions have been missed on earlier days in Committee.
The main focus of the Bill is on improving the health of our rivers, and that aim will likely lead to a larger number of punishable offences. In its manifesto, Labour set out its plans to impose severe fines on water companies that failed to meet the expected standards, but it did not establish what would be done with that additional income. Amendment 70 seeks to put in place a system whereby the fines imposed on water companies and their employees—by this Government, the devolved Governments or, in fact, any other relevant authorities—are collected. Then, once a year, the income from these fines could be used to reduce customer bills.
In government we created the water restoration fund, which sees the money collected by the Treasury from fines and penalties and then channelled into improving the water environment. However, we sit here today with consumers facing pressure on their water bills as part of the inflationary environment that has created the cost of living crisis, as well as the cost of investing to improve water quality. It seems appropriate that fines and penalties should be returned to those consumers and identified by a separate line in their bills, making it clear that the regulator is taking action to punish wrongdoing and that money is returned to the consumer as a consequence.
An amendment such as this would benefit so many individuals and resolve how additional income from stricter fines is applied. It is not a subject that the Bill adequately addresses, as the noble Baroness, Lady Bakewell of Hardington Mandeville, has recognised in other amendments. Does the Minister agree that the money from the fines should be used to benefit the consumer through mechanisms such as the water restoration fund that we implemented when in government or by using the sum to reduce customer Bills, as this amendment suggests? As such, will the Minister confirm that the penalties will not return to the Treasury under this Government? I beg to move.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I apologise to the Committee and the Minister for my absence on the first and second days in Committee. I regret that an attack of Covid meant that I was confined to quarters and unable to travel to London. I did, however, watch the debate on both days on parliamentlive.tv and was therefore able to hear the nuances of the contributions, which you do not always get by reading Hansard. I thank the noble Lord, Lord Roborough, for his comments.
A seminar of all the devolved Administrations once a year, to discuss how to return all fines to the relevant customers, will do nothing to fix the problems of inadequate investment in crumbling and inadequate infrastructure. I am sympathetic to the need to keep customers’ bills to an acceptable level. Consumers should not have to pay for the inadequacies of the water boards to ensure that problems are fixed. I do not see why an annual gathering of the devolved Administrations or other authorities will be sufficient to refund bill payers in a timely fashion.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank the noble Lord, Lord Roborough, for raising this important issue and tabling Amendment 70, which speaks to the administration of fines. I too welcome the noble Baroness, Lady Bakewell of Hardington Mandeville, back to her rightful place. I hope that she is now completely recovered, but I also congratulate the noble Earl, Lord Russell, on doing such a sterling job in her absence.
I emphasise that the money from civil penalties imposed by the Environment Agency and fines issued by the court go to the Government’s Consolidated Fund. This is in line with other enforcement regimes under the Regulatory Enforcement and Sanctions Act 2008. On the use of penalty funds, the water restoration fund, which launched in April this year, is reinvesting water companies’ environmental fines and penalties into projects to improve the water environment. Up to £11 million of funding from fines and penalties accrued since 2022 was made available on a competitive basis to support a range of water restoration projects. Defra is continuing to work with His Majesty’s Treasury regarding the reinvestment of water company penalties and fines, because while the Budget has of course now been announced, decisions have not yet been taken on all departmental spending.
I assure noble Lords that there are existing procedures in place to ensure that customers are reimbursed for poor performance. As the economic regulator, Ofwat sets specific performance targets for water companies and, where these are not met, companies must reimburse customers through lower water bills in the next financial year. I will give an example: as a result of Ofwat’s annual performance assessment process, it is requiring 13 companies to return £157 million to customers for underperformance in the financial year 2023-24.
Ofwat also has powers which ensure that companies return money to customers for failings related to specific breaches. For example, in 2019 Southern Water returned £123 million to its customers as a result of an Ofwat enforcement case. I hope that the noble Lord is therefore content that this amendment is not necessary, as we believe it would duplicate existing protections.
Lord Roborough (Con)
My Lords, I am grateful for the comments from the Minister. It is perhaps not the fullest reassurance that I was looking for about the future destination for fines and penalties. Amendment 70 is, by its nature, a probing amendment and I look forward to further discussions with the Minister.
Baroness Hayman of Ullock
“(11) Section 5(6) also applies for the purposes of this section.”Member’s explanatory statement
This amendment provides that Clause 6 applies to water supply and sewerage licensees only in relation to their licensed activities.
Earl Russell
“Power to revoke licencesAfter section 17R of the Water Industry Act 1991 insert—“17S Power to revoke licencesThe Authority may revoke a water supply and sewerage licence (WSSL) with six months’ notice.””Member’s explanatory statement
This amendment provides Ofwat with the power to remove a water supply and or sewerage licence with six months’ notice.
Earl Russell (LD)
My Lords, this group of amendments is on water company ownership. In preparing for this Bill, my Whips’ Office briefing note said that, in some circumstances, Ofwat could take no fewer than 25 years to revoke a water licence. When I read this, I found it hard to believe that this was the case, so I had to go away and have a look at it myself.
I note that different conditions apply to household water companies and retail or business suppliers, as retail suppliers operate within a different market, and that this is an extremely complex area of legislation. I understand that Ofwat can take up to 25 years to revoke the licence of a water company in some cases where it is in breach of its licence conditions. My amendment is a probing one. I want to be certain that it is possible for licences to be revoked much earlier than 25 years for matters such as sewage spills and failures to invest in infrastructure. I am also interested in looking at whether six months is a feasible timeframe for revoking licences in the cases of the worst sewage spill offenders.
It is unacceptable that, in 2023, for example, water companies dumped 54% more sewage in our lakes, rivers and coastal areas than they did in the previous year. This amounted to some 464,000 incidents and some 3.6 million hours of untreated sewage discharges in England alone, yet few water and sewage discharge licences have been revoked as a direct result of sewage spills.
The Government have given a clear commitment to make improvements, and this Bill contains many measures that we welcome. The framework for these proposed improvements is one where the Government are passing this Bill to bring in more immediate measures in order to hold the water companies to account and to strengthen the powers of the regulators. This is being done now while the water commission undertakes deeper, more fundamental thinking to make further recommendations in due course.
The Government’s argument is based on the belief that Ofwat can be supported, strengthened and remade to be an effective regulator. The arguments I want to discuss relate to the ultimate sanction of revoking water and sewage discharge licences. If Ofwat is to be effective, the ultimate sanction must act as a real deterrent against illegal and improper behaviour. I fully recognise that my suggestion of changing this to six months may not work and may need a rethink; I would be more than happy to discuss this with the Minister if it is of interest. I recognise that there is a need to balance the needs of water companies, their investors and customers, as well as to ensure continuity of supply.
I will be honest: I know that there are many different licences and conditions for revoking them, and that this is a complex area. The conditions for a quick termination, applying to the issues of a special administrator and bankruptcy, are welcome. My concerns relate more to the broader, far from general, form of deterrence for water companies doing what they have been doing up to now with no real comeback, such as siphoning funds off to shareholders while failing to meet the required levels of investments, falsifying self-reporting of sewage discharges and failing to prevent sewage spills.
I want this amendment to lead to a brief discussion on the licence conditions in place now. I seek reassurance from the Government that they will have a look at these powers, look at how they are used in practice and consider whether any changes are required as part of this Bill. I do this as there are no real changes to any of the licence termination conditions; I wondered whether this was a mistake or oversight. The imposition of tougher prison sentences and higher fines are welcome measures, but what happens if these measures alone failed to regulate companies’ behaviour?
For comparison, the revocation of licences in other regulated sectors appears generally to happen on a much quicker timescale. Can the Minister give the rationale behind leaving the 25 years in statute, and can she give examples of Ofwat acting much earlier in relation to lack of investment or pollution incidents? What is the average time for revoking a water and sewage licence?
I beg to move.
Baroness Jones of Moulsecoomb (GP)
My Lords, I will speak to three amendments in this group: Amendments 97, 98 and 99. This weekend saw tens of thousands of people marching for clean water in London. It was the most amazing event. It was a chance for me to speak to people who agree with me—as opposed to being here in your Lordships’ House, where not many people agree with me.
Baroness Jones of Moulsecoomb (GP)
I am sorry. Thank you; it is lovely to see the noble Baroness, Lady Bakewell, back in her place.
All three of my amendments are intended to be helpful—that is, to help the Government regulate the water industry properly and end the 30 years of fleecing bill payers while dumping sewage into our waterways. It is an absolutely unforgivable three decades of abuse of the system.
Amendment 97 would prohibit the Government bailing out shareholders and creditors of water companies in the event of special administration. Amendment 98 would allow the Government to take back control with public ownership of water companies, but it is only an option. It is an option that I believe the Government could use as a lever in their negotiations with the water companies, so I think it is worth putting it back in the Bill. Amendment 99 would allow water companies to be put into special administration for failing on environmental issues, such as leaks and sewage spills.
What strikes me about these issues is that the public are demanding that this is sorted, but the Government are giving us half measures. I am concerned that that will not bring the sort of change we need. There is a democratic shortfall here because polls tell us that 82% of the public want to end privatised water, but only a few of us in Parliament are willing to consider it. To me, this suggests that the Government are out of step with the public, which is very concerning for me; I would like the Labour Government to last longer than one term because I really do not want to see another Conservative Government in my lifetime. There is, of course, a fear among many campaigners that this Bill will raise their water bills by enabling the Government to bail out and reward the people who got us into this mess in the first place.
I thank the noble Baroness, Lady Parminter, and the noble Lord, Lord Sikka, for signing Amendment 97. It is essential that the Government do not bail out the water companies in such a way that they simply hand money to shareholders and creditors and let them start afresh, behaving in the same way but perhaps with a little more regulation. Amendment 97 would prohibit this so that the public purse does not underwrite the casino capitalism and financial engineering that has been going on in the water sector. We have a ridiculous situation where the debt is being traded by hedge funds, which are gambling on water bills going up in future to finance a bailout. If these companies fail, let us instead bring them into public ownership and democratic control. The shareholders and creditors took a gamble on greed when the companies used £75 billion since privatisation to pay dividends rather than invest. Let them take the hit.
Amendment 98 would allow the Government to set out how they will bring water companies into public ownership. The Greens are deeply disappointed that the Government have ruled this out. I do not understand any sort of ideological addiction to private ownership of a public service such as this, particularly when it is not even a competitive market. It is a monopoly, and it is time it stopped.
I have heard the Government say that private investment is essential, but it is simple maths that, if we stop paying dividends and debt payments, that frees up 40% of people’s water bills to be invested in fixing the sewerage system and building more reservoirs. The Government have been using overinflated estimates from the water industry—a figure of some £90 billion—to claim that public ownership would be too expensive, but actually, it is the complete opposite: it is privatised water that is too expensive to continue. Water company shareholders have spent decades sucking out the profits while loading debt on to the balance sheets and hiking people’s bills. That is inevitable, as free market economics simply does not work without competition. Thatcher turned a public monopoly into a cash cow for people who are greedy. Unless amended, this legislation does nothing to stop that continuing for another decade. I want the Government to at least have the power to bring the companies into public ownership. If they rule out that option, the Government will make any taxpayer bailout a lot more expensive, as a potential buyer has the upper hand in all negotiations.
Lord Sikka (Lab)
My Lords, I will speak to Amendments 97, 99 and 102. I congratulate the noble Baroness, Lady Jones of Moulsecoomb, on her speech. I fully support Amendment 97.
It is interesting that, following an article in the Telegraph, on 19 September, the Government issued a press release in which they said:
“These powers would never be used to pay bondholders, shareholders or creditors … we do not expect customers to pay the price for water companies’ mismanagement … The new measures in the Water Bill will protect taxpayers”.
At the same time, the Explanatory Notes state, on Clause 10, that the Secretary of State “may provide financial assistance” to companies. It is hard to see how these statements can be reconciled. I hope the Minister will tell us what kind of financial assistance the Government envisage providing to water companies while they are being restructured. Their being restructured means that they are already financially, environmentally and morally bankrupt, so why provide financial assistance?
In the debate last week, the Minister said that water companies are “private companies”. If they are, they should be fully exposed to the laws of capitalism, with absolutely no bailout of any kind. Why are we making these special provisions to indulge them and, presumably, write down some of the debt? This was a key assumption made by the last Government in what was code-named Project Timber. Information leaked out that it was talking about how the Government, presumably, may write the debt of Thames Water down to merely 40% of the amount owed.
Whenever we talk about not bailing out shareholders and bondholders, or refer to public ownership, the Government’s immediate response is to say that it will cost billions of pounds. I once again invite the Minister to show me the Government’s calculations—I will happily critique them for free and talk about whether those numbers make any sense. Will the Minister accept my challenge and please publish the numbers?
The Government also say that it would be hard to reintegrate the companies. We are doing it for railway companies, so why can we not do it for water companies? What exactly would be the hardship? Every day, there are numerous mergers and takeovers in the corporate sector, and they are easily integrated and rewired. I hope that the Minister will explain this. I would particularly like to see the calculations of what the cost of public ownership would be, so that we can then start looking at this and talking about the optimum solution.
I hope the Minister will not refer me, as she did previously, to the 2018 Social Market Foundation report. It fetched a number out of thin air and said it was worth about £90 billion—the following year, this was contradicted by Moody’s, which said it was only £14.5 billion. Since then, as we know, a lot of shares of water companies have become worthless and the debt has junk status, so it is easy to let the normal rules of capitalism apply.
I support the noble Baroness, Lady Jones, on Amendment 99. I will say a little more about Amendment 102. Currently, water companies can violate rules and legal limits on sewage dumping ad infinitum. They can easily do cost-benefit analyses and see that it is cheaper to pay fines for illegal practices than to invest in infrastructure and act responsibly. This boosts profits, dividends and executive pay, while the public picks up the cost of unplugged leaks, sewage dumping, health hazards, and the destruction of biodiversity and marine life. To some, such costs are just externalities, but the public sees this as abuse, as clearly shown by yesterday’s mass demonstration in London.
The puny financial penalties have not curbed the predatory practices. The Minister promises us that there will be more and says that the executives may be prosecuted—that is, if they can wait another 20 years to have their cases heard, as there is already a backlog of 60,000 cases in the Crown Court. The result is that the whole industry is now under the control of entities that have criminal convictions. Wastewater companies in England and Wales have been convicted 1,109 times since 1989. The dismal roll-call is as follows: United Utilities has 205 convictions, Thames Water has 187, South West Water has 174, Anglia Water has 128, Yorkshire Water has 125 and Southern Water has 119. Perhaps the Minister would care to name a pristine water company—never mind pristine water, just a pristine water company. That would be helpful.
There are no pristine, honourable, responsible or ethical water companies, but successive Governments continue to indulge them and give them monopolies in an essential public good. What would happen if 10 major food or medicine companies were convicted of 1,109 crimes that they knowingly committed? They would be shut down and consumers would sue them, but regulators in the water industry do no such thing. Indeed, Ministers make excuses, and successive Ministers have done nothing.
My amendment requires that habitual offenders be placed into special administration, if two or more criminal convictions are secured in a five-year period. This is akin to yellow and red cards in football. The first yellow card is a warning, effectively saying, “Don’t do it again. Mend your ways. Clean up your act”. If no heed is taken, the second yellow card, which is effectively a red card, would follow, and the companies would be placed into special administration.
It is often claimed that shareholders are passive. The threat of special administration for abusive practices would encourage them to actively invigilate companies and their boards and take an interest in their governance. For far too long, companies have got away with abuses; my amendment would ensure that there were serious consequences for them. If the Minister does not accept my amendment, can she say how many convictions water companies need before they are considered unfit and improper to own crucial infrastructure?
Lord Roborough (Con)
My Lords, I shall speak to Amendment 73, moved by the noble Earl, Lord Russell. I thank the noble Earl, the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones of Moulsecoomb, for their contributions.
On these Benches, we have grave concerns about these amendments. While it is important that the water sector operates with integrity, we fear the amendments may have unintended consequences that could destabilise the industry and ultimately be detrimental to the public and the environment.
On Amendment 73, the power to revoke a water company’s licence is one of great consequence and must be exercised judiciously. An abrupt removal of a licence, without sufficient consideration of the ramifications for infrastructure and service continuity, could leave customers vulnerable and lead to service interruptions. It would also be a very substantial barrier to private sector investment. Investors must be able to have confidence that they will be able to enjoy returns on their investments without elevated risk of loss of licence. Should such an amendment be included in this Bill, it would lead to a much higher cost of capital for the industry and higher consumer bills as a consequence. While we appreciate the intent to hold companies accountable, we suggest exploring whether there are more balanced approaches to achieving compliance, without risking instability.
Amendment 97 raises further concerns. The possibility of cancelling debt in the event of special administration proceedings could create moral hazard. This amendment, while aiming to protect consumers from the fallout of financial mismanagement, might inadvertently incentivise risky financial behaviour by companies under the impression that their debts could be forgiven in times of crisis. The bankruptcy route already allows debt to be repaid in part or renegotiated in an orderly manner, respecting the contractual rights of all creditors. This would not be desirable.
As for Amendment 98, this is a matter of significant complexity. We must not overlook the potential costs and operational challenges associated with such transfers. The water industry requires immense resources, infrastructure investment and technical expertise. A shift to public ownership would strain government resources and create operational challenges. We support the Government in not wishing to see a return to public ownership of the industry.
I wish to address Amendments 99 and 102. These amendments would empower the Government to put companies into special administration if they breached certain environmental conditions or held criminal convictions. While we wholeheartedly support stringent environmental standards and rigorous compliance, it is essential that these mechanisms do not inadvertently undermine the ability of water companies to continue their core operations. The amendments could place companies in special administration for relatively minor infractions, which may not warrant such a severe response.
We must be careful not to adopt measures that could disproportionately impact employees, customers and investors who depend on the water industry. I thank noble Lords for tabling these amendments and regret that we cannot support them—and could not even before the noble Baroness, Lady Jones, gave her views on my party.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for the suggested amendment in relation to water company ownership.
I come first to Amendment 73, in the name of the noble Earl, Lord Russell. The intention of the amendment is to provide Ofwat with the power to remove a water supply or sewerage licence with six months’ notice. I want to emphasise that the Government’s priority is to ensure that customers have a safe and stable supply of water. We are concerned that the proposed amendment could jeopardise this.
There are already established measures to replace an existing sewerage undertaker, by way of licence removal, under certain scenarios. For example, while it is true that an undertaker’s appointment is made for a period of at least 25 years, I can reassure noble Lords that it is not true that appointments cannot be terminated until 25 years have passed. If an undertaker cannot carry out its functions, Ofwat has powers to terminate the appointment, provided that a replacement can be identified and that the undertaker consents.
Baroness Jones of Moulsecoomb (GP)
Before the Minister sits down, I had better clarify: I want another Labour Government only if I cannot have a Green Government. On the issue about having monopolies where market forces do not operate, can she see that there are inherent problems in having monopolies on something such as water—or any public service that we all need?
Baroness Hayman of Ullock (Lab)
I completely get the noble Baroness’s point. I would hope that, when we do the review, we look completely across all the issues to do with a water company, including the way it behaves because of the way it is set up, and that that should be part of any consideration. By the time we have reported, I am sure the noble Baroness will be very happy to have another Labour Government.
Earl Russell (LD)
I thank the Minister for her responses on this group. Mine was a probing amendment and I appreciate her response. I fully recognise that there would be issues with six months as a period, but I think it is important that we have a discussion about the power of revoking licences. I appreciate that the Government are keeping that under review. On Amendment 97, I appreciate what she says about the courts and their powers in all this: that was a welcome response. On Amendment 98 on the public ownership of water companies, I think her response to the noble Lord, Lord Sikka, giving those figures and calculations, was useful in moving that debate forward. Obviously, there are costs involved in that and in the Government supporting failing water companies as well. I know that these are difficult matters. Of course, on our Benches we want to have public ownership of water companies, and we will continue to support that, but I thank the Minister for her inclusive responses and I beg leave to withdraw the amendment.
Baroness Hayman of Ullock
(a) it is held by a water undertaker or sewerage undertaker, or(b) it is held by a water supply licensee or sewerage licensee, within the meaning of the Water Industry Act 1991, for the purposes of the activities to which its water supply licence or sewerage licence relates;”Member's explanatory statement
This amendment provides that Clause 7 applies to water supply and sewerage licensees only in relation to their licensed activities.
Member's explanatory statement
This amendment is consequential on the Minister’s previous amendment.
Baroness Hayman of Ullock
“but, in relation to water supply licensees and sewerage licensees, includes those functions only so far as performed in respect of the activities to which their licences relate.””Member’s explanatory statement
This amendment provides that Clause 8 applies to water supply and sewerage licensees only in relation to their licensed activities.
Lord Roborough (Con)
My Lords, Clause 10 risks unfairly burdening consumers with costs likely stemming from earlier regulatory and management failures. Involving consumers to compensate for governmental losses would turn customers into de facto guarantors for companies, which contradicts consumer protection principles. As my noble friend Lord Remnant argued earlier in Committee:
“Clause 10 gives the Secretary of State the power to modify a water company licence in order to recover any shortfall in costs for the Government from its consumers. New subsection (4) extends this recourse to all other companies in the sector”.—[Official Report, 28/10/24; col. 1000.]
My noble friend addressed his comments to concerns over the impact on other companies in the sector, with which we agree. My concerns today are with the impact on consumers.
The clause provides no substantial safeguards to prevent excessive or unjustified charge increases. It grants broad powers to the Secretary of State to implement
“such amounts as may be determined”,
without clearly defined criteria or caps on those amounts. This vagueness opens the door to unlimited increases in bills for consumers at a time when cost of living pressures are high. Consumers rely on water services as a fundamental utility and trust is paramount in sectors with limited provider choice. By involving consumers in recovering losses associated with government interventions, the clause risks eroding public trust in the water industry. Why should the Government be able to depart from a consumer pricing model that the regulator has determined to be adequate for providing the service? Why should the consumer face surcharges due to the fault of others?
Clause 10 lacks clarity on how funds raised from consumers will be used or justified beyond the broad purpose of offsetting special administration order loss. Consumers have a right to transparency in any additional costs that they face, particularly when those costs arise from governmental action rather than direct service improvements. Without a clear, transparent breakdown of how these funds will be applied, consumers may view these measures as an arbitrary tax rather than a justified expense.
Permitting the Secretary of State to intervene in pricing to recoup government-incurred costs sets a disturbing precedent. It also highlights the importance of this debate in that the Government feel able to set themselves undefined and unaccountable pricing powers that are not available to the private sector. Is this not why the sector must remain privately owned and accountable rather than in the hands of government or some mysterious public benefit structure?
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, it is a while since I have taken part in proceedings where a stand part debate has been used to try to remove clauses of a Bill. On our Benches, our departed colleague Lord Greaves was very fond of this measure to enable him to make detailed speeches railing against the Government of the day’s proposed legislation.
The noble Lord, Lord Roborough, has set out his case eloquently for why he believes that Clauses 10 and 11 should be removed from the Bill. Clause 10 refers to England, and Clause 11 offers the same powers to Welsh Ministers. Both clauses are complex and deal with the recovery of losses. I respect the motives of the noble Lord, who appears to be on the side of the water industry and the bill payers at the same time. However, when 15,000 people from around the country are prepared to give up their Sunday to come to London to join a protest against the action of the water companies, I fear that he may have misjudged the mood of the water company bill payers. The public are rightly furious that, while their water and sewage bills have increased, the infrastructure has not been improved, but directors’ bonuses and shareholders’ dividends have not reflected the poor service that some water companies have given. I say “some” water companies, because some are performing well and do meet their targets; unfortunately, it is the ones that do not do so that we hear about on a continual basis.
Removing from the Bill the two clauses, which would have seen some balance being provided to enable costs to be recovered from those water companies that have failed to deliver on their Ofwat targets, is to give a signal to bill payers that the poor service that they have received is acceptable. If Clauses 10 and 11 are removed from the Bill, there would be no clarity on what is happening or how recompense would be achieved. I am therefore afraid that, on the Lib Dem Benches, we are unable to oppose these clauses standing part of the Bill.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Lord, Lord Roborough, for his interest in Clauses 10 and 11 and also thank the noble Baroness, Lady Bakewell, for her support for them standing part. A special administration regime—or SAR—enables a company that provides vital public services to be put into administration in certain circumstances to ensure that the public service will continue to be provided pending rescue or transfer to new owners. An SAR would be required only when there is evidence that a company is insolvent or in serious breach of its statutory duties. It is the ultimate enforcement tool in Ofwat’s regulatory toolkit and, as such, as I said in the last debate, the bar is set high.
Although government has had the powers to place water companies into special administration for over three decades, it is important that we regularly update legislation to reflect modernisation of law and experiences in other sectors. If a SAR occurs, government funding would be required to cover the costs of a special administration, including both operational and capital expenditure—for example, ensuring that statutory environmental obligations were met, as well as for paying the cost of the special administrator.
In the unlikely event that the proceeds of a sale or the repayments agreed as part of a rescue at the end of a SAR are insufficient to cover repaying government funding, there is a risk of a funding shortfall. Clauses 10 and 11 introduce a flexible power, allowing the Secretary of State and Welsh Ministers to recover any shortfall in funding in a manner that is appropriate to the circumstances. They allow for modification of water company licences to recover any shortfall in financial assistance provided in a water industry SAR. These clauses will align the water industry SAR regime with the energy sector. Without this power, there is a risk that taxpayers will foot the bill for the water industry SAR.
The Secretary of State and Welsh Ministers will be able to decide whether or not they should use this power and the rate at which the shortfall should be recovered from customers. This will include which group of customers it should be recovered from—for example, all water company customers, a subset of the sector, or only customers whose water company went into a SAR.
Although the power is flexible, the design of a recovery mechanism will be subject to consultation with all relevant sector stakeholders. The Government must consider these views and explain our approach accordingly. If a SAR occurs and this power is ever required, this will allow a decision to be made, and be consulted upon, on what the fairest cost recovery option is, based on the evidence and circumstances at the time.
I reiterate that the shortfall recovery mechanism does not mean that customers end up paying for water companies’ failures. Any intervention that would increase customer bills would be considered very seriously and as a last resort. In the first instance, the Government would seek to recoup all the funds spent on financing the SAR through the sale or rescue of the water company after the administrators’ conclusion. This new power would be utilised only if it were not possible to recover what the Government spent funding the administration. If there was a shortfall, Ministers would then decide whether they felt that it was appropriate to exercise this power.
This power would allow the Secretary of State to decide, subject to consultation, the rate at which the shortfall should be recovered from customers and which group of customers it should be recovered from, as I just mentioned. This will ensure that the shortfall recovery mechanism is always implemented in a way that ensures that costs are recovered fairly. I hope that noble Lords agree that this power is essential to protect taxpayers’ money in the event of a SAR, and that these clauses should stand part of the Bill.
Lord Roborough (Con)
My Lords, the noble Baroness, Lady Bakewell of Hardington Mandeville, may have misunderstood me. Far from speaking in favour of the water industry, I am seeking additional protection for the consumer and companies that have not fallen into a SAR.
The Minister has not fully reassured me that the powers in this clause are necessary. The Government perhaps should stand as guarantor, not the innocent. That this measure is very unlikely to be used is not in itself reassuring to me, but at this stage I will not press my opposition to the clauses standing part.
Water (Special Measures) Bill [HL]
Wednesday 20th November 2024
(1 month ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 45-I(a) Amendment for Report (Supplementary to the Marshalled List) - (19 Nov 2024)
18:09 - Division on Amendment 2 - Ayes: 279 / Noes: 136 - Amendment 2 agreed.
18:50 - Division on Amendment 10 - Ayes: 82 / Noes: 172 - Amendment 10 disagreed.
19:03 - Division on Amendment 11 - Ayes: 140 / Noes: 117 - Amendment 11 agreed.
21:20 - Division on Amendment 51 - Ayes: 36 / Noes: 89 - Amendment 51 disagreed.
The Duke of Wellington
Member’s explanatory statement
This amendment, in conjunction with another amendment in the Duke of Wellington’s name to clause 1, seeks to ensure that undertakers take into consideration the views of environmental groups alongside the views of consumers.
The Duke of Wellington (CB)
My Lords, I am honoured to be the first person to speak at the Report stage of this very good Bill. As I have said, I realise that this is not Second Reading, but I repeat my support for the Bill. I have already indicated to the Minister that I wish only to try to improve it in certain small respects.
In this group I have four amendments—Amendments 1, 5, and 6—and I have added my name to Amendment 7. I have tabled Amendment 1 because the history of the last 35 years shows that the environmental voice in decision-making has been insufficient. One has to admit that considerable damage has been done, at least to the aquatic environment, in the 35 years since the water companies were privatised. Mrs Thatcher, Prime Minister at the time, believed that privatising the water companies would in fact help the environment because there would be more investment from the private sector than if they had remained in public ownership. But I have to say that in that respect, she was wrong.
It was difficult at the time to imagine quite how the water companies would structure themselves financially in order to take out of the industry much in way of high interest payments and dividends. All I seek to do in Amendment 1 is to balance the consumer voice with a stronger environmental voice. I am grateful to the Minister for the several meetings I have had with her on this matter. I think that Ministers are broadly sympathetic to what I am trying to achieve in this amendment, but as is so often the case with Ministers, they prefer their own wording to any amendment that is proposed. I would like, however, to continue this theme because it is important. Amendments 1 and 5 in effect go together. We should ensure that the environmental voice is stronger in all future decision-making.
It is worth reminding the House what the Bill says. It requires relevant undertakers—the water companies—to
“have arrangements in place for involving consumers in decisions”.
Fine, although I think it should be consumers “and environmentalists”. On the same page, at line 41, the Bill refers to
“a requirement for persons representing the views of consumers”—
I have added “and environmentalists”—
“to be members of a board, committee or a panel”,
or whatever the body may be. That is basically my point, and I hope that Members will consider it very carefully and agree that it is important to increase that voice.
Amendment 6, which is mine, and Amendment 7, in the name of the noble Lord, Lord Remnant, to which I have added my name, make a completely different point. I have served on a number of boards where sectional interests have been represented, and in my experience, it almost always leads to difficulties in decision-making and therefore reduces the effectiveness of the board.
I am very much in favour of a sectional interest, such as consumers or environmentalists, being strongly represented in a panel or similar body. In Committee, I tabled an amendment suggesting that it should also be a requirement that the chief executive of the company in question be required to meet regularly with such panels. That would be a very much better way for consumer and environmental interests to be heard strongly, and they would be more likely to have influence over the recommendations of the chief executive to the board.
Lord Remnant (Con)
My Lords, I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years between 2014 and 2022. I chaired the board’s remuneration committee for that time.
I thank the Minister for taking the time to meet me last week to discuss my concerns about key aspects of this Bill. I am only sorry that her apparent sympathy for at least some of my arguments has not translated into accepting any of my amendments. I have three amendments in this first group. I will be as brief as I can, but each addresses a completely separate issue.
I will take them in order. My first is Amendment 4. New Section 35B(2)(a) addresses performance-related pay. The rules will set standards that companies will have to meet in a financial year in order to be able to make awards of performance-related pay to chief executives and directors for that year. However, the Bill extends the scope of this section, in new subsection (5)(c), to holders of such other description of role with the water company as Ofwat may specify.
My Amendment 4 would remove this extended application to individuals below board level. This extension will be difficult to implement in practice, as different water companies will have individuals described differently by title and role. Nor would such an extension be consistent with general remuneration under the corporate governance rules for listed companies, which do not extend to individuals below board level. If we wish to attract and support the next generation of leaders in this vital industry from middle management, this will not be achieved by extending these restrictive remuneration practices to them.
As the noble Duke, the Duke of Wellington, has just said, those in this House are better qualified than Ofwat in certain aspects, and this is one of them: to decide on how far down the management chain these rules should apply. My amendment draws the appropriate and proportionate line in balancing the objectives of the Bill with the interests of those most directly impacted by it.
I appreciate that Ofwat is consulting on the scope of the Bill and its application to individuals. It asserts that it is minded to apply the rule to any executive director who is a member of the regulated company board in receipt of performance-related pay, because that is where ultimate accountability and leadership responsibilities lie. I look forward to the Minister’s response to my concerns in tabling this amendment. In particular, I would be interested to know whether she agrees with Ofwat’s current stance that only executive directors should be brought within the scope of the performance-related pay prohibition, and, if so, whether she will communicate that view to Ofwat.
Amendment 7 is my second amendment and very much relates to what the noble Duke, the Duke of Wellington, has just been talking about: the duty for water companies to have arrangements in place to involve consumers in decisions. New subsection (6) in Clause 1 allows this in regard for
“persons representing the views of consumers to be members of a board, committee or panel”,
as we have heard. My amendment adds a sentence which ensures that it is for the boards of water companies, not Ofwat—for very much the reasons that the noble Duke raised—to decide on which of those three forums best suits their own requirements. I am grateful to him for adding his name to this amendment, and I agree with all his arguments in support of it and his own amendment. The Minister commented at Second Reading that it always pains her to disagree with him on anything, so I am working on the assumption that she will wish to spare herself further agony by accepting this amendment. I fully support strengthening the voice of consumers. This can be achieved in a number of different ways, as the Bill accepts, but each company in the sector is best placed to judge what is most appropriate for its own circumstances.
I was surprised to read in the Explanatory Notes to the Bill, in the overview prepared by Defra, that one of its provisions is to
“ensure consumer representation on water company boards”.
I should be grateful, when the Minister responds, if she could confirm that this is not indeed the position of the Government, irrespective of the choices which this Bill purports to give and the consultation exercise to be conducted by Ofwat.
There should be no highly prescriptive one-size-fits-all approach. Those best equipped to represent consumer interest may not wish to, or be equipped to, sit on corporate boards, with all the responsibilities and liabilities that entails. For Ofwat even to be given the option of this route risks alienating such experts and losing completely their valuable contribution. Nowhere in its consultation document does Ofwat point to the disadvantages of consumers sitting on boards, to which I have drawn your Lordships’ attention. I am therefore concerned that prospective respondents to the consultation may be being given an unbalanced view of the options.
We should not give Ofwat the power to require companies to appoint representatives of the consumer interest to their boards. Maybe some companies would opt for this route, but equally they may feel that stakeholder interest would be better served through the mechanism of panels or committees. My amendment would ensure that it was the boards of water companies which made that decision, not Ofwat. It would be helpful if the Minister, in her reply, could confirm not only that all identified options are, in reality, properly on the table, but that she recognises the disadvantages of board representation in this regard, which would represent a very suboptimal solution.
My final amendment in this group is Amendment 10. Clause 1(4) provides that the rules about performance-related pay can be applied in respect of the financial year beginning 1 April 2024 and for subsequent years. In effect, they can be applied retroactively. My amendment would change that date from 2024 to 2025 so that they would first be applied from the financial year beginning 1 April 2025. If we do something today, we believe that the law applying to it should be the law enforced today, not tomorrow’s backward adjustment of it. I would argue that the application of these rules retroactively is even more egregious.
One might at least expect your Lordships to know precisely what it is that they are passing and the resultant retrospective impact, but that is not the case. We are delegating the power to make such rules under this legislation to a third party, Ofwat, and I have already expressed severe reservations about its expertise in doing so, given that this is outside the core competence of an economic regulator. We know not what the rules will be, how they will be applied and what impact they will have. Further, it is not intended that they be subject to further scrutiny by this House before being brought into force, as I say, with retrospective effect.
The retroactive application of rules yet to be drafted will undermine investment and increase the cost of capital, raising prices for consumers. Over the next five years, the sector needs to raise £20 billion of new finance, much of it equity, to deliver the largest investment programme in the sector’s history. Investors are already nervous and can earn better returns in other sectors and in other countries. We need to provide confidence that the UK is open for business. Retrospective action destroys that by creating uncertainty about how their investments will be treated.
It will undermine new talent and the sector clearly needs talented individuals to deliver the amount of improvement we all want. Retroactive changes of this sort will undermine employees’ trust in a career. Why choose water when other sectors do not face this risk? If we cannot attract the best people into the water sector, we will not see best performance.
This Water (Special Measures) Bill is designed to drive better future performance. It is too late to change performance by applying rules to a year when two-thirds of it is already over. The water sector is characterised by assets, with 100-year asset lives and performance challenges that require multiyear investment programmes. That is what we should be concentrating on and incentivising management to achieve, not changing the rules of the game retrospectively as punishment for perceived failings. Many noble Lords, including the Minister herself, have made the point that not all water companies are the same—there are good ones and bad ones. I am concerned that the effect of these rules, when drawn up, will draw no such distinction.
Amendment 10 is about as simple as it gets. It requires the replacement of the number 4 with the number 5 so that the performance-related pay provisions come into effect for the beginning of the next financial year, 1 April 2025, and not the beginning of the current financial year, 1 April 2024. Can the noble Baroness confirm whether these rules are intended to apply to three-year LTIPs, not only those beginning in 2024 but also those beginning as far back as 2022 and 2023, of which 2024 is a part? Her reply on this will be important to me. I urge the Minister to accept this amendment. If she does not, I am minded to test the opinion of the House.
Lord Cromwell (CB)
I will speak to Amendment 2 in my name, and I am most grateful to the noble Baroness, Lady Jones of Moulsecoomb, and the noble Lords, Lord Roborough and Lord Sikka, for adding their names to it. I will speak also to Amendment 8 in my name, and again I am most grateful to the noble Baroness, Lady Jones of Moulsecoomb, for adding her name to this amendment. Finally, I am sincerely thankful to the Minister and her officials for discussing with me these amendments and the two other amendments in my name, which will come up later.
Probably the most fundamental failure in our water industry is that the regulator either did not understand or was unwilling to investigate sufficiently the financial structuring of the water companies: how these structures and indebtedness were altered over time beyond all recognition from the original enterprises, and what the risks and impacts would be. If anyone is in any doubt about the results, they need only look at Thames Water, which is now all but drowning in fetid pools of ever more expensive debt, adding to its existing £16 billion of net debt so as to limp along from day to day and racking up huge future interest liabilities in addition to the principal £3 billion it is seeking.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank the Minister for her time over the period between Committee and now. I shall speak first to my Amendment 9, which deals with performance-related pay and, more specifically, with bonuses paid to CEOs and directors of water companies. Performance-related pay should be related specifically to how well the water company has carried out its functions, having regard to the environmental targets it has been set. These are likely to relate to the number of illegal sewage spills that have occurred in the preceding 12 months.
During the last year—and especially during the general election campaign—the issue of sewage overflows was in the news almost daily. We saw the outrage of local residents at the state of their streams, rivers and lakes due to sewage spills—many occurred when there had not been any heavy rain. I will not go through the arguments, which have been well rehearsed in this Chamber. What I and my colleagues on these Benches are looking for is a reassurance from the Minister that where a category 1 and/or a category 2 pollution incident has occurred, the management of the offending water company—including the CEO, directors and senior officers involved in decisions in respect of controlling pollution—will be prevented from receiving any bonus or other performance-related pay enhancement to their basic salaries. It is unacceptable to the public for those in a very senior position in sewage and water companies to be rewarded over and above their normal salary for allowing sewage and other pollution to take place and not to have taken any steps to rectify the situation in a reasonable timeframe.
On Amendments 1 and 5 in the name of the noble Duke, the Duke of Wellington, environment groups have expertise to give to the water industry, but they should sit on boards. Consumers would also have a voice on boards. On our Benches are Peers who have in the past sat on water boards and contributed positively to their debates. This is a good and positive way forward. We support environmental groups and consumers being on boards and not being sidelined.
Amendments 2 and 8 from the noble Lord, Lord Cromwell, are about reporting. Amendment 2 would set up annual reporting on financial restructuring, including debt levels. This would seem a sensible way to ensure that the sewage and water company was aware of its business. However, Amendment 8 would involve others in the work of the authority, which is likely to become a bureaucratic nightmare. I have in a previous life sat on such bodies and found them to be unproductive and ineffective—I am sorry. Expectations of the civil society representatives will be high, sometimes with little understanding or knowledge of just how long it can take to implement what may often seem like a trivial matter.
Amendments 4, 7 and 10, from the noble Lord, Lord Remnant, do not align with our Amendment 9 and therefore we do not support them. However, I am conscious that whatever penalties the Bill hands out to directors and CEOs of water companies, they have to be proportionate, or it will be difficult to recruit people with the necessary expertise to sit on the boards of sewage and water companies.
Amendments 11 and 58 from the noble Lord, Lord Roborough, would introduce an SI into the legal framework. SIs are a favourite tool of Governments to get the detail of legislation in place. They tend to get somewhat divorced from the original Act that they refer to, but the timeline proposed here should mean that the original Act will still be fresh in peoples’ minds.
Amendment 57 from the noble Lord, Lord Sikka, is, I fear, unworkable. I know from previous debates that he and the noble Baroness, Lady Jones of Moulsecoomb, would prefer to be debating the renationalisation of water and sewage companies.
Baroness Bakewell of Hardington Mandeville (LD)
The Government have indicated that this is not going to happen. The amendment is an attempt to bring forward a different model of governance. The proposal is for 25% of board members to be chosen by local authorities. Local authorities are struggling with social care, looked-after children, education and people with learning disabilities. They certainly do not need this added to their “to do” list.
I look forward to the Minister’s response to this group of amendments, particularly Amendment 9.
Lord Sikka (Lab)
My Lords, Amendment 57 is highly workable, because it advances democracy and public accountability of the regulatory bodies. As we have it now, the regulators of the water industry have failed the people, mainly because they are too close to the very interests that they need to regulate and far removed from the welfare of employees, customers and citizens, who bear the ultimate cost of regulatory failure. I am pretty sure that the Government will soon be asking customers to chip in more money to restructure water companies and taxpayers to pay more to reconstruct them. That is just one part of the cost which people will bear.
All regulatory bodies need to be guided by effective watchdogs and guide dogs, but Ofwat has neither any watchdog nor any guide dog; it just seems to be running loose and doing whatever it wishes. There is no mechanism for preventing capture of water regulators. The executives of Ofwat pass through revolving doors and join the water companies with dizzying speed and great regularity, undermining the independence of the regulatory bodies. Regulatory bodies must be seen to be independent rather than just claim that they are independent. At the moment, a director of Ofwat, a former Conservative Minister, is spearheading a campaign that would make it harder for consumers to sue water companies that breach legal sewage limits. Should a regulator be doing that—or should it be more even-handed between the regulated and consumers?
Baroness Jones of Moulsecoomb (GP)
My Lords, I thank the Minister for having listened not just to Members of your Lordships’ House but to the thousands of campaigners, because the amendments tabled in her name are actually of great value. However, I feel they do not go far enough, and a lot of people—though probably not those here—might agree with me.
I have co-signed two amendments in the name of the noble Lord, Lord Cromwell, and one in the name of the noble Lord, Lord Sikka. I will vote for them if any of them are put to the vote. There are lots of other helpful amendments, but those three are the most useful.
I cannot help but feel that, if we were talking about benefit claimants who had behaved in the way that water companies have, we would not just slap them on the wrist in the way that we have the water companies; we would crack down on them, claw back the money and take them to court. The water companies have got off so lightly in this whole process. That really does not seem fair to bill payers or to taxpayers.
Amendment 2 goes to the heart of the issue. Water companies have been ripping us off with financial engineering, and I do not think that the Government’s action plan will resolve this. The water companies have been saying that they invest all the bill payers’ money in infrastructure, but they then take out loans and pay themselves dividends. With this legislation—even with the amendments—the Government are missing the opportunity to crack down on predatory capitalism.
Lord Roborough (Con)
My Lords, I thank the Minister yet again for her engagement at every stage of the Bill’s progress and for the significant improvements that have been made to it as a result. I will speak to my Amendments 11 and 58, to Amendments 4, 7 and 10 in the name of my noble friend Lord Remnant, and to Amendment 2 in the name of the noble Lord, Lord Cromwell.
Amendment 11 is a simple amendment that would give the Secretary of State greater influence over the drafting of the rules on remuneration and governance. We all know that it is the Government who will be held to account in this House and across the country for their record on water quality and pollution reduction. It seems only right that Ministers should have the ability to shape these rules. Indeed, given the importance of getting them right, Amendment 11 would make the regulations subject to the affirmative procedure for statutory instruments, giving Parliament its own role in approving these rules. I intend to test the opinion of the House on this, depending on the Minister’s answer.
Amendment 58 relates to limits on water company borrowing. I will not reiterate the arguments I made in Committee and, having listened to the Government’s concerns about the possible impact of a hard statutory limit on current negotiations between the sector and prospective investors, I have tabled an altered amendment here on Report.
It is clear to His Majesty’s Opposition that water companies have failed to take a sustainable approach to borrowing, and the current safeguards are insufficient. The amendment simply gives the Secretary of State the power to make regulations under the affirmative procedure for secondary legislation, limiting water company flexibility and returns to shareholders when leverage becomes excessive. I am most grateful to the noble Lord, Lord Sikka, for stating the current leverage ratios of the industry, and I agree with many of his comments, if not his amendment.
Nothing in the amendment forces the Government to do anything; we are merely seeking to give them the tools they need to deliver an effective limit on water company borrowing, given the inability of the regulator to do so historically. The Minister will no doubt tell us that borrowing will be considered in the wider review of the water sector, and we welcome this. However, in the meantime, Ministers need tools to take appropriate action now. If the Government do not feel that a borrowing limit is necessary, nothing in the clause requires them to act, but we on these Benches feel that it would be a missed opportunity to let the Bill pass without giving Ministers powers that they may need to ensure that water company borrowing is at sustainable levels while we await the conclusion of the Government’s review. Subject to the response of the Minister, I am also minded to test the opinion of the House on Amendment 58.
The amendments in the name of my noble friend Lord Remnant, which we spoke positively of in Committee, have a great deal of merit. They would ensure that board members are the individuals subject to the rules on remuneration and governance, as well as preventing consumers being inadvertently subject to these rules and other penalties as members of a water company’s board. This can be left to the company to decide.
Amendment 2 in the name of the noble Lord, Lord Cromwell, to which I am also a signatory, complements my Amendment 58 on water company borrowing. Greater clarity on water companies’ financial engineering is important. Should he seek to test the opinion of the House, we would support his amendment.
Finally, following the Minister’s constructive response, I did not bring back an amendment on the requirement to provide training to employees on their specific legal obligations within the water industry both before and after the implementation of the Bill. I would be most grateful if she could confirm that the Environment Agency will give guidance to the industry on how employees will be informed of these legal obligations.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I am very pleased to be back in the Chamber, continuing to debate a very important piece of legislation. I once again thank all noble Lords for their interest in the Bill and their constructive engagement. We may not always agree— I may not always be able to accept amendments—but it has been very useful to have good, constructive discussions, which have helped to inform the amendments. Before I start my response, and before I forget, I confirm what the noble Lord, Lord Roborough, asked in his last question.
Amendments 1 and 5 in the name of the noble Duke, the Duke of Wellington, consider the views of environmental groups. I fully support his intention to increase the voice of environmental experts and company decision-making processes. However, we do not feel that these are necessary amendments to the Bill, and I shall explain why.
Environmental issues are already a key consideration in company decision-making. Water companies have a range of environmental obligations that they are required to meet, from ammonia limits to phosphorus reductions, and actions related to those obligations. If they break the law, regulators must enforce against them. Ensuring that these obligations are properly met is why we are giving the commission the opportunity to do a full review of regulation.
I agree that we need a step change from water companies. I remind noble Lords that, after only seven days in office, the Government called in all water companies to negotiate and require them to update their articles of association—the fundamental rules that govern each company—in order to make the interests of customers and the environment a primary and fundamental objective. These updates will place customers and the environment at the heart of business decisions, and we expect the majority of companies to have updated their articles of association by the end of the year.
Lord Remnant (Con)
I apologise for interrupting the Minister; I do not mean any discourtesy. I thank her for clarifying that the provisions relate to the time from 1 April 2024. Despite what she has said, I am still concerned about the retrospective element. My understanding is that that would affect the bonus arrangements for the year from 1 April 2024 to 1 April 2025 and would also impact the three-year LTIP arrangements entered into on 1 April 2024 for the following three years. But it will not impact LTIP arrangements entered into as long ago as 2022 or 2023 but which still have the financial year beginning in 2024 as part of those three years. From what the Minister has said, my understanding is that the retrospective element will not go so far back as to apply to LTIP arrangements entered into in 2022 and 2023. If she could confirm that, I would be much happier.
Baroness Hayman of Ullock (Lab)
Just to reiterate, Ofwat will look closely at the impact this will have on long-term incentive plans. I cannot give the noble Lord any firm detail on the specific question he asks, because Ofwat is currently looking at this. Perhaps this is something we could pick up so that I can understand his specific concerns in more detail, and we can feed those into Ofwat’s current discussions. At the moment I cannot give him any more firm information than I have already given. If the noble Lord wants to continue this discussion so that I can feed it back to Ofwat, I shall be happy to do so. I do not know what else I can offer at the moment, because I cannot give the noble Lord a firm answer.
I am going over time, but I shall look quickly at what else I need to say. Amendment 11, in the name of the noble Lord, Lord Roborough, would ensure that Ofwat’s rules on remuneration and governance came into force within six months of Royal Assent. Ofwat will be responsible for developing and implementing those rules but, as the Secretary of State will already be consulted through the process, we do not believe there is a need for a statutory instrument to be laid to bring the rules into effect.
We think that allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended where it is appropriate to do so in the future. I hope that that reassures the noble Lord. Ofwat does intend to implement the first set of rules following its statutory consultation, so this is not something that is going to drag on. We are keen for the rules to be in place as soon as possible after Royal Assent.
Amendment 57, in the name of my noble friend Lord Sikka, is about involvement in Ofwat’s board. We believe that it is the responsibility of Ofwat to determine who is on its board and who has voting rights for board meetings. There are already a number of ways in which consumers can feed into Ofwat’s regulatory work.
Finally, Amendment 58, in the name of the noble Lord, Lord Roborough, is about water company borrowing. At sensible levels, debt can be an appropriate way to fund investment for essential infrastructure in the longer term. Ofwat is already taking steps to monitor debt levels as part of its report on financial resilience. Companies will need to access additional debt and equity to support the price review 2024 investment programme. I do, however, agree with the noble Lord that more can be done to ensure that debt levels are more closely monitored in future, and I would like to reassure him that, as he expected, that the independent commission will look at this.
Following our meeting, I also know that the noble Lord understands that this is a critical point in time for the water industry and its investors, and we have previously discussed the importance of ensuring that we do not jeopardise water companies’ ability to secure investment before Ofwat’s final determinations are made at the end of this year. Today, Barclays reported in the Times on the deterioration in investor sentiment following the publication of the draft determinations.
I therefore trust that the noble Lord, Lord Roborough, is reassured that the Government take this issue very seriously, and that he and other noble Lords understand that introducing further rules on borrowing through this Bill is not appropriate for the water industry at this time. That is what I want to stress—“at this time”.
I have run out of time, but I thank noble Lords. This has been a long group and a lot has been discussed. I hope that they will feel able not to press their amendments.
The Duke of Wellington (CB)
My Lords, I am still certain in my own mind that the environmental voice needs to be louder in decision-making in this industry in future. I was considerably reassured by the Minister explaining how environmental considerations are central to so much of the current structure; however, one has to admit that, in practice, that has not been very evident.
I must admit that I became a bit concerned when the Minister was commenting on Amendments 6 and 7 and board representation. She emphasised more than once the importance of the consumer voice on boards, panels and committees, and she never mentioned the environmental voice. I must say that I then slightly worried about the reassurances I had previously received from her. However, one has to be pragmatic about these things. I think that my amendment is important, and I am grateful to the Liberal Democrats for apparently being prepared to support it. I noticed that the Conservatives, the Official Opposition, did not comment on it and therefore, with great regret, I beg leave to withdraw the amendment.
Lord Cromwell
“(d) requiring a relevant undertaker to report not less than annually to the Authority on actual or planned financial structuring or restructuring of the undertaker, including debt levels, commercial strategy and any associated risks, including to the long-term sustainability of the undertaking.”Member’s explanatory statement
The amendment requires that financial engineering becomes a regular focus area for timely reporting in order to assist in regulators’ understanding and alert them in good time to risks or distortions in a water company.
Lord Cromwell (CB)
I very much appreciate the Minister’s comments, but as she will expect, I am unable to agree. She said that Ofwat is closely monitoring water company finances. Well, we are nearing panto season and all I can say is, “Oh no it isn’t!” I have had numerous meetings with Ofwat in committee and frankly, I do not think it even really understood them. What is required by this amendment is a potentially very short report that simply outlines what financial restructuring has happened and what new debt has been taken on. It is a modest but vital amendment to make transparent the financial engineering and prevent the shenanigans of the past. I therefore wish to test the opinion of the House.
“(iia) meeting relevant standards issued under the Flood and Water Management Act 2010, in particular the standards in Schedule 3 (sustainable drainage),”
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to have the opportunity to return to these amendments and to thank the Minister and the Bill team, and indeed the noble Baroness, Lady Taylor of Stevenage, for the very useful, albeit inconclusive, meeting that we had,
Amendment 3 is really a prelude to setting out the basis of Amendment 43, on which, depending on the response I get from the Minister, I may be tempted seriously to test the opinion of the House. Amendment 3 sets out that the relevant standards in the Flood and Water Management Act 2010, particularly as set out in Schedule 3, “Sustainable Drainage”, be part of this Bill. In her summing up when this was debated in Committee, she thought that these standards were contained not in the 2010 Act but in a different Act. I beg to disagree. I think she has tabled an amendment, which we will come to later, asking for Ofwat to have regard to climate change. If it is going to have regard to that, I firmly believe that it should have regard to other environmental standards.
The reason I would like to return to Schedule 3 and the important question of sustainable drains is that the Bill, in its current form, is seriously flawed in this one respect. While rightfully holding companies to account on aspects of finance and other responsibilities, it fails to address the fundamental issue that leads to flooding from new developments. If the Bill remains drafted, it will allow rainwater to continue entering public sewers and mix with sewage at times of excessive flooding. This sewage and rainwater will enter existing developments, causing a public health hazard with raw sewage coming into people’s homes. I believe— I know others across your Lordships’ House agree—that it is totally unacceptable to continue to have rainwater mixing with sewage in the public sewers in this way.
There is general contentment that the Government seem to have met their manifesto commitment in this Bill, but sadly they are not focusing—they are reneging —on their responsibilities as regards parts of wastewater. Without my Amendments 3 and 43, the Bill remains defective. Amendment 43 is totally benign. It simply asks what progress there will have been in six months’ time towards implementing Schedule 3 to the Flood and Water Management Act 2010, calling for an end to the automatic right to connect, and adapting sustainable drains to be built as a mandatory requirement for all new developments. In Committee, I was delighted that my noble friend Lord Blencathra from the Front Bench supported this amendment and asked the Minister to consider bringing tougher flood mitigation duties forward for water companies on Report.
These amendments, and Amendment 43 in particular, provide vital flood mitigation measures that received cross-party support during the passage of the Flood and Water Management Act 2010. I am grateful to my noble friend from the Front Bench for lending his support to this amendment yesterday, and I request that the House give it fair wind. As I say, it is not asking for implementation, which would not be in keeping with this Bill, and I know the Minister will respond to this little debate by saying that the Government are looking at a future piece of legislation that will flow from the commission, which I think all noble Lords are grateful that they are setting up.
I would like to press the Minister on one point that she raised in her response to the debate that we had on these amendments in Committee. She said:
“The issue we have is that it also impacts directly on development and developers, which is why the Government are currently working with the Ministry of Housing, Communities and Local Government to assess how best to implement their ambitions on sustainable drainage, while also being mindful of the cumulative impact of the new regulatory burdens on the development sector. At this stage, I do not want to pre-empt the outcome of that process”.—[Official Report, 28/10/24; col. 1009.]
When the Minister and her colleagues sat on this side of the House, she was in favour of Schedule 3 and the immediate implementation of mandatory sustainable drains on all major new developments. I ask her in the most positive spirit: what has changed? Why now are they reneging on their duty, as a new Government with a big majority, to allow households to be free from the fear of having rainwater mixing with raw sewage and entering combined sewers with the potential of coming into their homes? I am not alone in calling for this to come into effect; both the Climate Change Committee and the National Infrastructure Commission have recommended that significant progress be made in addressing surface water flood risk, with the latter recommending that Schedule 3 be implemented.
Managing water both around and from new developments is central to reducing flood risk and the amount of water entering sewers. The Bill is also flawed in not addressing the issue of surface water run-off from highways, which we also discussed in that meeting, and I agree with the Minister and her colleague the noble Baroness, Lady Taylor, that this should take place in the planning Bill coming forward. But this Bill is the right place in which to ask the Minister to report in six months’ time on what progress has been made as a consequence of the Bill towards implementing that vital measure of Schedule 3, which is an integral part of the Flood and Water Management Act 2010.
I look forward to hearing a debate from other noble Lords, but I will listen very carefully to what the Minister says, particularly what she meant by “cumulative impact”. I may well test the opinion of the House.
Baroness Browning (Con)
My Lords, I rise briefly to support my noble friend Lady McIntosh of Pickering. The Minister will be aware that, both at Second Reading and in Committee, I raised matters of capacity where sewage and rainwater mix—run-off from roofs, roads or wherever. In Committee, I quoted some case law that shows that the capacity of the sewers to cope with both should already be taken into consideration. I hope that, when she responds, she will assure us that she has asked for that case law to be investigated, because it may well be helpful in this case.
Earl Russell (LD)
My Lords, I will briefly speak to this group of two amendments on the implementation of Schedule 3 to the Flood and Water Management Act 2010 to promote sustainable urban drainage systems, tabled by the noble Baroness, Lady McIntosh. Amendment 3 seeks to include the standards issued under that schedule in the guidance produced by Ofwat in relation to performance pay. Amendment 43 requires the Secretary of State to lay a report on the effect of the Bill on the implementation of Schedule 3 to that Act within six months of the passing of the Bill before us. I will speak to both amendments together, as, in the main, they are about the same issue: the implementation of Schedule 3.
We on these Benches are broadly in support of the noble Baroness, Lady McIntosh, and we welcome her continued commitment to this particular area of policy. Of course, if we could roll back the clock and start again, we would all ensure that all housing had sustainable drainage designed in and built as standard. That option is obviously not available to us, but these amendments seek to ensure that all housing developments are built with sustainable drainage methods going forward.
We should all use grey water to flush our toilets and water our gardens, and, as a society, we need to make sure that surface water and rainwater are collected, stored and used, so that they do not mix with the foul water from toilets and overflows and overfill our antiquated sewerage systems.
In the face of climate change and even more extreme forms of weather, we need to do more to reduce the use of water and to slow any unessential abstraction of it from our rivers and streams. Planning authorities should not grant new housing planning permission unless proper systems are in place to reuse rainwater, separate it from the foul water and build attenuation ponds to collect surplus rainwater. There are two ends to this problem, and it seems like 99% of what we do is dealing with the bad end rather than with the preventive stuff at the other end. Of course, nature solutions are one option for dealing with these issues. Is anything in the Minister’s Amendment 42 on nature-based solutions helpful to the noble Baroness, Lady McIntosh, and her amendment? Perhaps there is nothing, but perhaps there are some connections between the two.
Do the Government still intend to push on in the new year on a consultation on how we could revise these regulations, with the aim of increasing water reuse?
As this is the only contribution I will make to this debate, I will take a moment to thank the Minister and her team for the constructive way she has engaged with all of us across the House on the Bill, and for bringing forward many government amendments that have sought to address concerns raised across the Chamber.
Baroness Altmann (Non-Afl)
I apologise to the House for not having been able to participate in previous stages. I will briefly support the noble Baroness, Lady McIntosh, and these amendments. How come the Government, when in opposition, supported introducing mandatory sustainable drains in major new developments but now seem not to wish to do so? If no drains, soakaways or culverts are constructed to take the excess, flood-water will go into combined sewers, potentially then bubbling up and leaving sewage in housing developments. This causes a health hazard by flooding homes with sewage.
The amendment asks simply for a report on how developers have implemented Schedule 3 to the Flood and Water Management Act 2010. There was cross-party support for that in this House, and I hope the Minister can reassure us or find a way to meet the concern of the noble Baroness, Lady McIntosh.
Lord Roborough (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for moving this amendment. In Committee, we discussed the implementation of the provisions of Schedule 3 to the Flood and Water Management Act 2010. As my noble friend has said previously, the last Government accepted the recommendation of a sustainable drainage systems review to implement Schedule 3. We share my noble friend’s concerns about the impact of additional run-off from developments. If the Government seek to deliver the homes we need for the next generation and to drive the economic growth they promised, we need to get sustainable drainage right.
Although I understand that the Government have concerns about whether these amendments should be in the Bill and which department should be responsible for this policy area, I hope they will listen carefully to my noble friend Lady McIntosh’s concerns and be able to reassure her. However, I am sorry to disappoint my noble friend, but we will not be able to support Amendment 43.
Baroness Hayman of Ullock (Lab)
I thank the noble Baroness, Lady McIntosh of Pickering, for continuing to raise this important issue, and for tabling her Amendments 3 and 43, which speak to the implementation of Schedule 3. I thank her for her passion and persistence on this matter—she has never let it drop, which is important because this stalled 14 years ago. I also thank her for taking the time to meet me and my noble friend Lady Taylor of Stevenage, the Minister in MHCLG, to discuss this matter in some detail and to look at how we can improve delivery.
On Amendment 3, the standards introduced under Schedule 3 would be designed specifically for relevant approval bodies to use when determining applications for sustainable drainage. As I am sure the noble Baroness is aware, such applications would be submitted mainly by developers, not water companies—obviously, for SUDS, that is who implements the developments. Because of that, the Government do not consider Schedule 3 standards to be appropriate to use when we are establishing the rules on remuneration of pay prohibitions. That is why we cannot accept the noble Baroness’s amendment.
Amendment 43 is the important, indeed critical amendment in this group. As I have previously said, the Government are strongly committed to requiring standardised SUDS in new developments. We are not looking to renege or backtrack in any way. We are committed to this; it is about the most effective method of delivery.
There are specific outcomes that the Government want to achieve. We want to see an increase in quantity, with more SUDS being built, but we need to see better design qualities that do what we want them to do. We need effective adoption and maintenance, to ensure the new SUDS being built are long-term and keep their quality for the long-term. We need an increase in sustainable drainage in more developments. We need to ensure that, when we are improving the design, they are designed to cope with our changing climate; that is critical, as we are seeing more and more water, often followed by drought, which compounds a lot of the problems. We need to make sure that anything we bring in delivers wider water infrastructure benefits by reducing the levels of rainwater entering sewers, which noble Baronesses have mentioned, and helps improve water quality, while enabling economic growth and delivering the biodiversity and amenity benefits that we need.
Surface water run-off was mentioned by a number of noble Lords. It is important that we look at how we tackle all aspects of drainage and surface water. The noble Baroness, Lady Browning, mentioned her house in Devon. We live in a very old stone-built house in Cumbria. Our house has also flooded in the past. There is much that we need to work on in this area. I am also very aware that there are occasions when new build, if not done properly, can have a knock-on effect on houses that have never flooded before. There is a big picture question in the planning system around how we approach this and tackle it most effectively.
While I am on the subject of surface water, the noble Earl asked about the amendments coming up on nature-based solutions. That is absolutely part of the package of how we tackle this going forward. He asked whether all the areas that we are looking at will continue to be input into the review. Anything we have discussed here that is still outstanding or of concern will absolutely be looked at and will be within the scope of the review going forward.
Having said all of this—the noble Baroness knows this because we discussed it with the noble Baroness, Lady Taylor of Stevenage—we believe that our ambition for SUDS delivery can be achieved in different ways. It can be achieved through improving the current planning-led approach, and using powers through that route, or by commencing Schedule 3 to the Flood and Water Management Act 2010, as the noble Baroness requested. If we are going to get this to work in the most effective way possible, and get the kinds of results that we need, we need to work hand-in-glove with the MHCLG. Ultimately, this is about development and developers, and getting them to make the right kind of connections and drainage decisions in new developments.
As we discussed, we are looking at planning reforms that can deliver improved sustainable drainage. The National Planning Policy Framework is out for consultation at the moment, until the end of the year. We have asked specific questions around SUDS, from Defra, in that consultation. If noble Lords are interested in inputting to that, it is currently open for consultation.
The MHCLG is looking at the best approach to this, through the NPPF consultation, and there is going to be planning and infrastructure legislation coming up. That is why we cannot accept the amendment at the moment. There are a number of delivery paths. We want to deliver this and we want to deliver it well, so we need to get the delivery path correct. That is why we are unable to accept the amendment of the noble Baroness.
Baroness McIntosh of Pickering (Con)
Before the Minister sits down, she failed to respond on the case study on capacity and on the cumulative impact. I am afraid that in this Bill the Minister is making water companies liable and responsible for something that the developers are responsible for by not putting SUDS in place. That is just not acceptable.
Baroness Hayman of Ullock
I do not quite understand the last point of the noble Baroness. On the basis that it comes through planning, the whole point is that it then becomes the developers’ responsibility and not that of the water companies.
On the case study, I will definitely take that back to the Department. I am very happy to do that—I am sorry that I forgot to answer that question. Obviously it was picked up from the previous debate, but I will raise it and see where we are with that. I am very happy to write to the noble Baroness about what is happening, if that helps.
Baroness Browning (Con)
I am very grateful to the Minister, but without labouring the point, the case law showed that there is sufficient legislation now for capacity to be an important key point of planning decisions. It could save an awful lot of work going down the track if that were there, but it is simply unused. If that is the case, it is simply a matter of ensuring that it is enforced or that local authorities and planning departments can use it. That could save an awful lot of time.
Baroness Hayman of Ullock (Lab)
The noble Baroness makes an extremely important point. I am more than happy to pick this up, look at it and write to her on how we propose to move forward. I am so sorry: the noble Baroness, Lady McIntosh, asked another question, but I cannot remember what it was.
Baroness McIntosh of Pickering (Con)
It was on cumulative impact. I quoted what the noble Baroness had said about the cumulative impact on development, and I am trying to understand why we are delaying implementing Schedule 3. What is the cumulative impact and regulatory burden that the noble Baroness is so concerned about?
Baroness Hayman of Ullock (Lab)
The main issue, for me, is to look at how we get developers to implement what we need them to be implementing as far as sustainable drainage is concerned. We know that that is the right way forward and we have said that we want to increase it. When we are working with developers, we need to get them to want to do this, to be part of moving forward in the planning system and to improve drainage systems on the basis that, ultimately, it helps everybody when it comes to flooding and sewage overflows.
Clearly, there is a cumulative impact if you are developing in an area that already has a lot of development. We already know that there are issues around this. We need to get it right, so we need to consider the cumulative impact when SUDS are being designed. I have said that we want to improve design, to make sure that it is effective and works for the long term. As part of that, we also need to look at how it is managed. It is all part of that.
Developments do not just get built and then that is it, they are on their own. As I said, there are areas—certainly near where I live—where development has taken place and the cumulative impact on the other developments nearby has been negative; it has not been good. We need to ensure that we consider that, so we make sure that any systems we bring in will work properly.
Baroness McIntosh of Pickering (Con)
From the Minister’s last remarks, we are in fact saying the same thing. All I am asking the noble Baroness to put into this Bill is the requirement to report in six months’ time on where we are on the implementation of SUDS. So, if the Government have decided that they do not want to go down the SUDS path and want to go down the planning path, she will know that within six months. I do not intend to press Amendment 3 to a vote, but I would like to test the opinion of the House on Amendment 43, which will come later.
Lord Remnant
Member’s explanatory statement
This amendment ensures that the provisions about performance-related pay do not have retroactive effect.
Lord Remnant (Con)
My Lords, I heard what the Minister had to say, but I have to say that I believe that the retrospective effect of this legislation is not appropriate —all the more so if it is going to impact on remuneration arrangements that were put in place as long ago as 2022-23. I would like to test the House’s opinion.
Lord Roborough
“(5) The first rules issued under section 35B of the Water Industry Act 1991 (as inserted by subsection (3)) must be published by the Authority within six months of this Act coming into force and provided to the Secretary of State and do not take effect until the Secretary of State has made regulations made by statutory instrument to bring them into effect.(6) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
Lord Roborough (Con)
My Lords, as I said previously in Committee, consultation with the Secretary of State, as described in the Bill and again by the Minister today, is simply not enough to ensure accountability of this rule-making power, so I would like to test the opinion of the House on my amendment.
Baroness Hayman of Ullock
Member's explanatory statement
This amendment moves the provisions about pollution incident reduction plans to a different part of the Water Industry Act 1991, in consequence of the Minister’s subsequent amendments extending Clause 2 to the water supply network.
Baroness Hayman of Ullock (Lab)
My Lords, in Committee noble Lords across the House made it clear that, although they were supportive of the new requirement for water companies to produce annual pollution incident reduction plans, they wanted further assurances that the measures in the plans would be duly implemented. I have listened carefully to the points raised in Committee and to the views shared on this issue during a number of very constructive meetings with several noble Lords, including the noble Lord, Lord Roborough, the noble Duke, the Duke of Wellington, and the noble Baronesses, Lady Jones of Moulsecoomb and Lady Bakewell, among others, and I thank them for their time and consideration.
The noble Lord, Lord Roborough, asked for further explanation as to why we believe annual reporting is more appropriate than more regular reporting for pollution incident reduction plans. The measures in these plans are typically programmes of ongoing maintenance that will need to continue on an ongoing basis. Examples include regular cleaning of wet wells at sewage pumping stations to remove detritus that could lead to blockages or replacing rising main sewage pipes. We want companies’ focus to be on delivering the measures they have set out in their plans rather than on preparing reports for publication to talk about delivery. More regular reports also may lead to a focus on the wrong metrics to show progress for progress’s sake rather than the work necessary to reduce pollution incidents.
In response to the noble Lord, Lord Roborough, and other noble Lords, I am pleased to propose a group of amendments to enhance and strengthen Clause 2 of the Bill. I turn first to Amendments 12, 13, 14, 16, 17, 18, 22, 25, 27 and 31, all tabled in my name, which will expand the scope of pollution incident reduction plans to encompass water supply system-related incidents. The noble Baroness, Lady Bakewell of Hardington Mandeville, specifically raised this in Committee when she tabled an amendment which would require that water-only companies as well as water and sewerage companies produce pollution incident reduction plans. She made very persuasive points which we listened to carefully and, on reflection, we agree that including water supply incidents in scope would strengthen these plans. While pollution incidents attributable to the water supply system are less frequent than incidents attributable to the sewerage system, they have the potential to be equally serious. I thank the noble Baroness for drawing our attention to this in Committee. Such incidents could include a burst clean-water main leading to erosion and then silt pollution in the watercourse or the addition of chlorinated or fluorinated water into the watercourse.
The amendments tabled in my name will mean that water companies will have a duty to develop and publish measures to reduce pollution incidents attributable to the water supply system as well as the sewerage system. This duty will apply to all relevant companies, including water-only companies as well as water and sewerage undertakers. We believe this will support the overall intent of Clause 2 in further reducing the frequency and impact of pollution incidents from the water sector. I once again thank the noble Baroness, Lady Bakewell of Hardington Mandeville, and all who spoke in support of this topic in Committee for their constructive approach.
I now move to Amendments 29, 34 and 35, also tabled in my name. These amendments create personal liability for chief executives to ensure that pollution incident reduction plans are published and implemented in line with the requirements set out in the Bill. A key aim of this Bill has been to hold water company executives to account for pollution caused by the water industry. As a core part of their role, water company executives should be acting to minimise pollution incidents and ensuring that their infrastructure is fit for purpose and resilient to pressure, including from climate change and population growth.
This is why Clause 1 of the Bill will enable Ofwat to ban bonuses for executives when water companies fail to meet environmental standards. But we want to build on this by making chief executives personally liable for the production of pollution incident reduction plans. This will mirror the personal liability which accompanies the duty for directors of a company to publish accounts and a company report under the Companies Act 2006. This will emphasise that minimising pollution incidents is a central aspect of a water company chief executive’s role. Under this group of amendments, the chief executive must personally ensure that the company produces a plan each year which meets all legal requirements. The chief executive must also personally approve the plan before it is published.
If the company fails to publish a compliant plan by the deadline each year, the chief executive—as well as the company—will have committed an offence. The regulator will be able to prosecute against this offence and, if the courts find the chief executive guilty, they will issue a fine.
To ensure that this measure is proportionate, imprisonment will not be available as a sanction. Furthermore, we have provided a defence to ensure that chief executives are not penalised if non-compliance arises due to circumstances that are—I emphasise—genuinely out of their control.
Through bringing forward these amendments, we will ensure that the production and publication of pollution incident reduction plans is overseen at the highest level, reflecting the importance of water companies bringing forward measures to meaningfully reduce pollution incidents.
I turn now to Amendments 19, 32 and 37, tabled in my name. In Committee, noble Lords made it clear that they wanted to see a clearer mechanism to ensure that water companies implemented their pollution incident reduction plans. We have listened very carefully and now propose a group of amendments to further ensure that companies implement the measures in their plans.
However, before I describe these amendments, I would like to recap why we do not think imposing a direct duty for water companies to implement the plans—as is proposed in Amendment 15A, tabled by the noble Lord, Lord Roborough—is helpful. First, at present, it is rightly the responsibility of companies to produce these plans and to decide the steps they will take to reduce pollution incidents. A direct duty to implement the measures in the plans could therefore result in companies setting enforceable duties for themselves. This would create a confused regulatory system, which could ultimately make it more challenging for the regulators to enforce legal requirements for pollution reduction.
For example, regulators would need to disentangle measures that water companies have put in their plans from pre-existing regulatory duties. This could make investigations and enforcement action more challenging and add complexity and confusion to the regulatory system.
Secondly, a direct duty may inadvertently reduce companies’ ambition. To manage the risk of enforcement, companies might be persuaded to make a commitment only when highly confident they could deliver.
Thirdly, this direct duty may force companies to continue implementing measures, even when they have realised it is not the most effective way to reduce pollution incidents. Companies should have the flexibility to learn and iteratively improve their approach. Sometimes, this may mean companies ceasing implementation of a specific measure and taking a different approach. Therefore, we do not think it is appropriate to create a legal duty for water companies to implement the measures they have set out in their plans.
I will now turn to the government amendments themselves and explain how they will ensure that water companies reduce pollution incidents and are held to account for delivery of their plans. First, this group of amendments introduces a duty for companies to produce an implementation report alongside their annual plans. Companies will be required to set out where they have and have not implemented the measures they planned to implement in the preceding year. Companies must then set out the reasons for any failure to implement their plans and the steps they are taking to avoid similar failures in the future.
This will create a high level of transparency, enabling the public and regulators to scrutinise the extent to which companies have implemented their plans. Requiring companies to set out the steps they are taking to avoid similar failures in the future will ensure that companies cannot continue to make the same excuse year after year.
Secondly, we are also amending the Bill to ensure that the environmental regulators take into account companies’ track records in implementing their plans when undertaking regulatory activities. This means that the regulator will consider the extent to which the company has implemented its plan when considering its enforcement response to a pollution incident, or when planning its schedule of investigations. This may well mean that a company will face more severe enforcement action for a pollution incident if it has failed to sufficiently implement those plans.
I hope the House will agree that, collectively, these amendments represent a significant strengthening of the Bill, and will ensure that companies are firmly held to account for implementing the measures outlined in their pollution incident reduction plans.
I will conclude by speaking to Amendments 15, 20, 21, 23, 24, 28, 30, 33, 36, 38, 60 and 63. I am delighted to move this suite of amendments to extend the application of the provisions introduced by Clause 2 of the Bill to Wales. Upon reviewing the requirements imposed by Clause 2 of the Bill, the Welsh Government and Natural Resources Wales have requested that Clause 2 be extended to apply in Wales. This was announced by the Deputy First Minister on 16 October and these amendments seek to deliver on that request.
I look forward to continuing to work collaboratively with our counterparts in Wales, and indeed with all of the devolved Governments, to tackle shared problems relating to the water industry and water quality more broadly.
I once again thank all noble Lords for their thoughtful contributions and input to discussions around the new requirement to produce pollution incident reduction plans, and hope that noble Lords agree that these amendments will significantly improve and strengthen this new requirement. I move that these amendments form part of the Bill.
Baroness Parminter (LD)
On behalf of these Benches, I thank the Minister for listening to the cross-House comments made on the pollution incident reduction plans in Committee. The whole House welcomes the fact that the Government are bringing forward these plans. They can be an important contribution to dealing with the sewage crisis which we have seen for too long; water companies have let the public down.
On that point, it was a disgrace in the last week to see that United Utilities—which has been so responsible for all the sewage pollution that has gone into Windermere, as we referred to in Committee—has increased its dividend to shareholders. It is an absolute disgrace, so these measures cannot come soon enough.
We thank the Minister for listening to the very real concerns we had on two fronts: first, that water companies were excluded from the provisions in the way that water and sewerage companies were not. Although they are a smaller number of the 16 and may be proportionally less important, they are still very important. We thank the Minister for that.
On a slightly broader point, we hear what the Government said on not accepting the amendment proposed in Committee, about adding “and implement” into the Bill, which I see that the noble Lord, Lord Roborough, has brought back today. We are satisfied with the numerous amendments the Government have brought forward to address the two main points: first, that the plans will have to be annually and publicly reported, so we can see what the companies are doing. As the Minister made very clear, it is not just what they have done; they have to make absolutely clear what they have not done and what they are going to do about it, so that we the public—and indeed the regulators—can hold them to account.
The second point, which the Government have moved on significantly—which we very much welcome—is that the chief executives have become personally liable for the production of both the plans and the reports and have some legally binding responsibility which can translate into sanctions, which we believe are strong enough. We thank the Government for bringing forward these pollution incident reduction plans and for listening so constructively to the comments which were made. This is a major improvement to the Bill.
Lord Roborough (Con)
My Lords, I fully echo the noble Baroness, Lady Parminter, in thanking the Minister both for her engagement during the Bill’s progress and also, specifically, for listening to the House on the implementation of the pollution incident reduction plans. We also welcome these government amendments.
I tabled Amendment 15A simply as a reminder of how understanding and accommodating the Government have been. This was originally tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, in Committee. As I said then, we would have tabled it ourselves had she not been so swift with her pen. It is crucial that pollution incident reduction plans are more than a wish list, and actually have real obligations for implementation.
We are most grateful to the Minister for listening to this House and creating a structure for making water companies responsible for implementing these plans and reporting on that implementation. The Minister explained clearly the issues around that responsibility, relating to interference with the other statutory obligations of those companies, and we are very pleased that she and her officials were able to design a methodology that would work.
We agree that making the CEO of the relevant undertaker responsible for signing off the plan and liable for its implementation creates significant incentives to ensure that these pollution incident reduction plans will be implemented. I thank the Minister, yet again, for her further explanation of why annual reporting is appropriate in this instance, and I accept that. We on these Benches are supportive of these government amendments and I will not press my amendment.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all noble Lords who contributed to this group, and in particular I thank the noble Baroness, Lady Parminter, and the noble Lord, Lord Roborough, for their support for the government amendments. Our amendments will ensure that water companies develop robust and comprehensive pollution incident reduction plans and will also guarantee that they are held accountable for delivering the measures outlined in the plans. Once again, I thank noble Lords for helping the Government to improve the Bill in this respect, and I look forward to working with them as the Bill progresses. I beg to move.
Baroness Hayman of Ullock
““Pollution incident reduction plans
205A Duty to prepare and publish plans”Member's explanatory statement
This amendment is consequential on the Minister’s previous amendment.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
Baroness Hayman of Ullock
Member's explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
Member's explanatory statement
This amendment removes provision superseded by the Minister’s amendment at page 5, line 38.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
Member's explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
“(7A) A pollution incident reduction plan must include, or be published with, a statement by the chief executive of the undertaker that the chief executive has personally approved the plan.”Member's explanatory statement
This amendment requires a pollution incident reduction plan to be approved by the chief executive of the undertaker in question.
“(7A) Before preparing a pollution incident reduction plan, a sewerage undertaker must consult with farmers, local authorities, developers and others to identify natural flood prevention solutions to prevent pollution incidents.”Member's explanatory statement
This amendment would require consideration of opportunities to retain water through natural solutions to prevent sewage mixing in combined sewers with excess rainfall, causing pollution incidents.
Baroness McIntosh of Pickering (Con)
My Lords, I am delighted to have the opportunity to open on this very interesting group of amendments, and to speak to my Amendment 26. At the risk of having a love-in with the Minister and the Government, following on from the last group, I would like to commend her and her Bill team for listening to the debate we had on similar amendments in Committee. To be honest, the reason I tabled this amendment is that we discussed this issue very briefly when we met with the Minister and the noble Baroness, Lady Taylor, but I did not realise that I had not seen the text of the amendments the Government were submitting. I applaud and commend her Amendment 42 and others in this group; I will leave those who are moving those amendments to speak to them.
I have just a few words to say on Amendment 26 and the Pickering pilot scheme, with which I was associated in its latter stages and the success of which I still monitor very closely. Since we have had the Pickering scheme, the dam and the planting of the trees, Yorkshire Water and the Duchy of Lancaster have put some money in, and Pickering Town Council has agreed to maintain some of the work that has been done. I take the noble Baroness’s point, made at the conclusion of the second group, about the importance of the maintenance of sustainable systems going forward. I would like to think that that was a role model.
The one defect of that scheme was that there was no private finance, apart from Yorkshire Water, and I hope that other models will look to retain that going forward. It also had money from the Environment Agency, North Yorkshire Council and Ryedale District Council, as was. As I said, it is a role model that I hope other projects will follow. It has meant that Pickering Beck has not flooded Pickering or downstream since that time. I therefore commend the amendment to the House, although I shall not be pressing it because I favour the Government’s Amendment 42 in this regard. It would allow an opportunity to retain water through natural solutions in order to prevent sewage mixing and combining with excess rainfall, causing pollution incidents.
I hope that when the Minister responds, she will highlight how, as I have set out in Amendment 26, she would expect a sewerage undertaker to consult with Parliament, local authorities, developers and others to identify such natural flood-prevention solutions. If all the parties work together going forward, this will be very important work of the water commission, looking at a catchment management system that someone has to take control of. I commend Amendment 26 and I look forward to listening to others speak to their amendments. I beg to move.
Baroness Willis of Summertown (CB)
My Lords, I will speak to government Amendment 48. I am extremely grateful to the Government for bringing forward this amendment, which reflects the substance of the amendment that I and others brought forward in Committee, and I am happy to support it by putting my name to it. That debate showed that there was a clear case for Ofwat doing more on environmental issues, and I thank the Minister and her officials for their extremely productive approach, openness in meetings and willingness to work together to address these concerns. I am really pleased that we now have on the face of the Bill a new duty for Ofwat to have regard to the need to contribute to our climate change and environmental targets when exercising its functions. It is so critical that this is factored into decision-making, so that opportunities to contribute to these targets are not missed or deprioritised.
While I am grateful for the progress we have made in seeking to redress the imbalance, it would have been preferable to have a stronger duty than “have regard to”. I know the reasons for using this language, but my previous wording, which would have obligated Ofwat to
“take all reasonable steps to contribute to”
our climate and nature targets, would have provided a stronger obligation without caveats. Therefore, I very much hope that the progress we have made today is just the start of wider changes to ensure better environmental outcomes in our water industry. Perhaps the Minister can confirm that the question of how Ofwat will balance environmental duties and deal with the related trade-offs with other economic and consumer objectives will be looked at in detail as part of the water commission’s work.
I also want to raise the important issue of adaptation. My original amendment contained an additional limb which was intended to ensure that adapting to the current or predicted impacts of climate change, as identified in the most recent report of the Climate Change Committee, would also be part of Ofwat’s remit when exercising its functions. In discussions, the Minister said that adaptation is covered by the resilience strategic priority. However, this does not directly link back to current Adaptation Committee reports. I hope this too will be examined by the water commission, because in spite of having the resilience objective, this has not so far led to the new reservoirs we urgently need for housing and drought resilience. More clearly does need to happen, and I would be grateful for any assurances the Minister can give regarding adaptation.
I also welcome government Amendment 42. I hope that this will be a step forward in increasing the use of and spend on nature-based solutions, and lead to their greater and more systematic use to address adaptation issues such as flooding and drought.
Amendment 44, in the name of my noble friend Lady Boycott—who sends her apologies—is the same as the one tabled in Committee. It addresses the very real issue of water companies not being transparent with environmental data, and specifically does three things. First, subsection (1) would provide statutory underpinning to the Fish Legal case, making it beyond challenge that water companies are, and will remain, public authorities for the purposes of the Environmental Information Regulations 2004. This is necessary because, if it is not in legislation, its overturning by a future ruling remains a distinct possibility.
Secondly, proposed new subsection (2) would cut through the delaying tactics and refusals by water companies to make it clear that effluent and wastewater treatment data must, as a minimum, be proactively published by water companies. The water companies will be required by law to publish it up front, without anyone having to ask. This would be consistent with the expectation of transparency that we are setting though the Bill.
Thirdly, proposed new subsection (3) would amend the appeal and enforcement provisions in the 2004 regulations to allow members of the public to complain directly to the Information Commissioner about data not being proactively published—which they cannot at present.
In Committee, in response to this amendment, the Minister said that, while the Government supported the principle of transparency, these
“specific proposals duplicate pre-existing provisions and would create practical difficulties”.—[Official Report, 30/10/24; col. 1186.]
However, we have looked, we cannot find these pre-existing provisions and we do not understand what the practical difficulties would be. All we are asking is for sewerage undertakers to publish data that they hold and which, under the Environmental Information Regulations 2004, they are meant to publish but do not because the regulations are effectively unenforceable.
Noble Lords and the Minister may have seen over the weekend an article in the Observer, which has already been mentioned, about precisely this issue. United Utilities has been fighting a legal challenge that has been brought upon it to not give the public access to environmental data on its—to be generous—“potential” pollution of Lake Windermere. First, it claimed that the phosphorus data was not environmental information, then that it was internal communication. Obviously, this is environmental. ICO agrees and has said that it should be published—but still it has not been.
In this example, we can see that some sewerage companies will not behave in the public interest unless forced to do so. In this amendment, we have an opportunity to address these refusals to be transparent. It would go some way to removing their supposed legal defence, forcing them to co-operate. I really hope that the Minister can get behind this today, as the only thing that will help here is words in statute. If there are specific concerns with the drafting, we would welcome her amending it at Third Reading.
In conclusion, I reiterate my thanks to the Minister and her team. We have made important progress for climate and nature in this Bill and we will start to see delivery of better outcomes for our precious river and coastal ecosystems.
Baroness Jones of Moulsecoomb (GP)
My Lords, my Amendment 49 puts a clear and unambiguous environmental duty on Ofwat. It gives the authority a primary duty to protect the environment. I am well aware that the Government probably will come round to the Greens’ way of thinking in 10 or 15 years and that perhaps this side of the Chamber might come round to our way of thinking in 25 or 30 years, but we have to care now about our environment and our planet. What we have passed so far, although very welcome, is just not enough.
As the noble Baroness, Lady Willis, said, natural flood management is proving to be a cost-effective way of reducing flood risk, far cheaper than traditional construction involving lots of concrete. Water companies should be investing in these nature-based solutions to reduce the infrastructure cost of handling service water run-off, because every litre of water that soaks into the ground is a litre of water that does not flood into the water treatment system.
I have two requests of the Minister. Will the government amendments now provide a baseline so the Minister can take forward a piece of work to expand the use of natural flood management, especially where it is significantly cheaper than other methods? Secondly, will the Government please put these climate and nature amendments on the face of their Bills at drafting stage, rather than having to amend them down the line?
Lord Gascoigne (Con)
My Lords, it is always an absolute pleasure to follow the noble Baroness. I was going to call her “my noble friend”—but not quite yet. I am delighted to speak to my Amendment 55. I am grateful to my noble friend Lord Roborough, who has also signed the amendment, and I thank all noble Lords who spoke to this in Committee.
Like so many other noble Lords today, I join in the great “love-in” for the Minister. All I will say, speaking from experience, is “Enjoy it while it lasts”. I pay tribute to the Minister and the officials who have engaged with me over the last few days since we last met. Echoing words that have already been said, looking back to where we were in Committee on this amendment, and on nature and the environment as a whole, the Government have listened and moved quite a lot. Collectively, we pushed, and the Government have listened. I think a lot of this comes down to the Minister, who cares about it and gets it.
Baroness Parminter (LD)
My Lords, as the noble Baroness, Lady McIntosh of Pickering said, this is an interesting group of amendments and we on these Benches welcome them. I do not wish to replicate what has been said but I have a few reflections.
Government Amendment 48, so ably spoken to by the noble Baroness, Lady Willis of Summertown, is extremely welcome. It could go further, but we on these Benches welcome it. We accept that the Bill is an interim measure and that the independent water commission is just that: independent. Nevertheless, it is important that the Government at this point in time are making a marker in the sand that the regulator should have greater regard for climate and environmental targets. That is extremely important and is the additional reason why on these Benches we welcome it.
Amendment 44 was introduced by the noble Baroness, Lady Willis of Summertown, on behalf of the noble Baroness, Lady Boycott. You would expect that we on these Benches, as Liberal Democrats and liberals, would welcome anything that enables local people to have more say on decisions that affect their lives, particularly the environment and climate decisions, because we know that, if they get involved and are caring about their environment, they will help protect it better. So we think that this is an extremely welcome amendment and we look forward to hearing what the Minister has to say in her response.
On the final group of amendments, on nature-based solutions, which we participated in in Committee, I think there is broad agreement. Everybody understands that we need water companies to look less at concrete and far more at green solutions. Government Amendment 42 is extremely welcome. The only point that I would make echoes that made by the noble Lord, Lord Gascoigne, when introducing his Amendment 55: there is an area where it could have gone a bit further. The noble Lord’s amendment talks powerfully about water storage and flood prevention; the Government’s amendment is welcome, but it excludes that. We on these Benches would like to hear a little more about how the Government see themselves taking that forward —mindful that it is not in their amendment. Having said that, we welcome these amendments.
Lord Roborough (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for moving the first amendment in this group. I shall speak to my noble friend Lord Gascoigne’s Amendment 55 as well as government Amendments 42 and 48.
Amendment 55 is a powerful, concise amendment, and I congratulate my noble friend Lord Gascoigne on his commitment to, and passion for, making the case for nature-based solutions within the water industry. My noble friend’s amendment has two parts— both are important for the future of nature-based solutions in the water sector. The first would require water companies to give due consideration to nature-based solutions for meeting their statutory obligations. The second would prevent the regulator blocking the use of nature-based solutions.
The Minister has two amendments in this group that make significant additions to the Bill around the use of nature-based solutions. Amendment 42 requires undertakers to explain the contribution from nature-based solutions. Amendment 48 is a broad amendment that could also contribute towards nature-based solutions being used for their wider benefit to nature restoration. I am most grateful to the Minister for her constructive engagement on my noble friend Lord Gascoigne’s amendment, and for these government amendments. It is clear from these discussions that the Minister cares deeply about nature recovery.
However, I ask the Minister to clarify the approach taken by Ofwat to the use of nature-based solutions within the water and sewage industry. I am aware that £2 billion of investment is included within the draft determinations. However, we on these Benches wish to be reassured that, where suitable and at no additional cost to consumers, further nature-based investment is possible within this determination and beyond. To echo my noble friend Lord Gascoigne and the noble Baroness, Lady Parminter, we would also like reassurance that nature-based solutions will be used not just in drainage and sewerage but throughout the water supply and treatment network, including catchment restoration for flood prevention, drought mitigation and water quality.
I am sympathetic to the intentions of Amendment 26 in the name of my noble friend Lady McIntosh of Pickering. This would appear to be captured within our Amendment 55 as a specific case but also potentially within the government amendments. The water companies are perfectly positioned to stimulate nature restoration at scale and without using the public purse. We welcome these government amendments and look forward to the Minister explaining how impactful she believes they will be.
Baroness Hayman of Ullock (Lab)
My Lords, I again thank noble Lords for the discussion on this group, for their amendments and for the thoughtful consideration that we have had since Committee on these issues regarding the environmental duties of water companies and the regulators.
Amendment 26 tabled by the noble Baroness, Lady McIntosh of Pickering, and Amendment 55 by the noble Lord, Lord Gascoigne, would require water companies to consider further opportunities to use nature-based solutions. I thank noble Lords for meeting me to discuss these amendments and nature-based solutions more broadly.
One thing the Government are clear about on these amendments is that water companies need to be encouraged to increase their use of nature-based solutions. In line with that, I am very pleased to see that Ofwat has proposed an allowance of over £2 billion for investment in nature-based solutions in the draft determinations at price review 2024. Alongside this, Ofwat has been clear, publicly, that it remains open to companies to identify where additional nature-based solutions can be delivered. We very much support this approach.
The noble Baroness, Lady McIntosh, and the noble Lord, Lord Roborough, mentioned the catchment approach. Again, that is something we are very supportive of. If we are to make a real difference in our water quality, and our approaches to our waterways, we need a whole-catchment approach.
Ofwat’s £200 million innovation fund aims to grow the water sector’s capacity to innovate. Since 2020, the fund has awarded funding to 93 collaborative projects where water companies work with different sectors to solve the water sector’s biggest challenges. The main- streaming nature-based solutions to deliver greater value project is one example that is working to overcome barriers to the adoption of nature-based solutions.
What I am trying to get across is that the nature-based solutions the Government are supporting are not just about what is in the Bill; it goes much broader than that. That is important, because we need to look at this approach right across the board. I hope that helps to reassure noble Lords and answer some of their questions.
The regulators have, for example, recently approved several new and innovative nature-based solutions. One example is the use of sustainable drainage systems in Mansfield to manage flood risk. That is a £76 million scheme and includes over 20,000 sustainable additions to the built environment in the area, including rain gardens, planters and permeable paving, creating the equivalent of 23 Olympic-size swimming pools of storage and protecting 90,000 people from flood risk. Again, this is about much more than just what is in the Bill. There is further funding proposed for nature-based solutions alongside this—for example, reed beds and wetlands—and the Government are also supporting water companies trialling nature-based solutions for groundwater-induced storm overflows. There is a lot of work going on in this area.
Having said that, we recognise the strong support in this House for the Government to do more to ensure greater use of nature-based solutions across drainage and sewerage systems specifically. I am therefore pleased to table Amendments 42, 61 and 64, which require sewerage undertakers in England and Wales to address how nature-based solutions have, or will, contribute to the resilience and development of their network within their drainage and sewerage management plans. I thank noble Lords who have expressed their support for these amendments today.
Drainage and sewerage management plans are the key planning mechanism for the entirety of the sewerage undertakers’ wastewater network. This new requirement will ensure that water companies consider the use of nature-based solutions at the very start of the investment planning process. In this way, they embed solutions into delivery.
We intend to commence this new requirement very quickly—two months after Royal Assent—and it will apply also in respect of the next round of drainage and sewerage management plans, which will be published ahead of the 2029 water price review. Sewerage undertakers will need to demonstrate that they have addressed the use of nature-based solutions in their draft, and final, drainage and sewage management plans and will be held to account if they fail to do so, because there is no point in bringing forward amendments if they are not going to be delivered as swiftly and as effectively as possible.
The noble Baroness, Lady Willis, asked whether the review would look at things such as adaptation and further environmental matters around reservoirs. Absolutely: the review has a very broad scope in these areas. I remind the House that in our manifesto we pledged to build new reservoirs, because we know how critical they are.
I hope that noble Lords agree that these government amendments will support the future exploration, development and delivery of nature-based solutions by adding this requirement into existing planning frameworks.
I turn to Amendment 44, in the name of the noble Baroness, Lady Boycott. I thank the noble Baroness, Lady Willis, for introducing it on her behalf. It looks to improve public access to real time and operational water company data. I will explain why the Government do not support the amendment; I had a discussion with the noble Baroness, Lady Boycott, about this. I know that the noble Baroness has questioned this, but we believe the amendment would duplicate existing requirements for transparency from water companies.
Baroness McIntosh of Pickering (Con)
My Lords, I thank the Minister for summing up what has been an excellent debate and I thank all those who spoke. The noble Baroness, Lady Willis of Summertown, spoke not only to her own amendment but to that of the noble Baroness, Lady Boycott, very eloquently indeed. The noble Baroness, Lady Jones of Moulsecoomb— I call her my noble friend—spoke to her amendment with familiar passion, as did my noble friend Lord Gascoigne, following the excellent work he did in Committee. The noble Baroness, Lady Parminter, speaks with great authority on these issues. I also thank my noble friend Lord Roborough for his contribution.
The mood of the House is very much to support the government amendments. I congratulate the Minister and the Bill team on the work they have done in this regard, and on being in listening mode to those around the House. I have just a couple of thoughts. I think we are all committed to storage, which has been the success of the Pickering pilot scheme. It is not far from Cumbria; I hope those who live further afield, across the border in Lancashire, might come to see the excellent work we did. There is an outstanding problem on storage, with the Reservoirs Act 1975, as to when it becomes a reservoir. The de minimis rules need to be addressed. If the water commission can look at that, it would be very welcome indeed. With the greatest will in the world, it is difficult to have storage if it is then said to be a reservoir, but the farmers, golf clubs or whatever do not have the means to maintain it.
In addition to all the funds the Minister mentioned, I urge her and her department to look at how ELMS can work with water companies—I know that United Utilities and Yorkshire Water have a good record in this regard—to come up with nature-based water solutions on farmland. That would be very welcome indeed. With those few remarks, I beg leave to withdraw Amendment 26.
Baroness Hayman of Ullock
Member’s explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
““appropriate agency” means—(a) the Environment Agency, in relation to relevant undertakers whose areas are wholly or mainly in England, and(b) the NRBW, in relation to relevant undertakers whose areas are wholly or mainly in Wales;”Member’s explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
““chief executive” , in relation to an undertaker, means an employee of the undertaker who, alone or jointly with one or more others, is responsible under the immediate authority of the board of directors for the conduct of the whole of the business of the undertaker;”Member’s explanatory statement
This amendment defines “chief executive” for the purpose of the Minister’s amendments at page 5, line 29 and page 6, line 1.
““the Minister” means—(a) the Secretary of State, in relation to relevant undertakers whose areas are wholly or mainly in England, and(b) the Welsh Ministers, in relation to relevant undertakers whose areas are wholly or mainly in Wales;”Member’s explanatory statement
This is one of a group of amendments extending Clause 2 to Wales.
““system” , in relation to a relevant undertaker, means—(a) in the case of a water undertaker, its supply system within the meaning of Chapter 1A of Part 2 (see section 17B); (b) in the case of a sewerage undertaker, its sewerage system within the meaning of that Chapter (see section 17BA(7)).(10) In the case of a relevant undertaker that is both a water undertaker and a sewerage undertaker, the duty in subsection (1) is to be discharged in respect of both of its systems in a single plan.”Member’s explanatory statement
This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.
“94EAA Implementation reports(1) A relevant undertaker must, together with each pollution incident reduction plan that it publishes (except the first), publish an implementation report.(2) An implementation report is a report containing the undertaker’s assessment of—(a) the extent to which it succeeded in implementing the planned measures during the preceding calendar year, and(b) to the extent that it failed to implement those measures during that year—(i) the reasons for that failure, and(ii) how the undertaker intends to avoid repeating that failure in respect of any measures in its current plan that are the same as, or similar to, those in respect of which the failure occurred.(3) In subsection (2), “the planned measures”, in relation to an undertaker and a calendar year, means the measures set out in its previous pollution incident reduction plans so far as they were (according to those plans) likely to be implemented in that year.(4) Subsections (6), (7) and (7A) of section 94EA apply in relation to implementation reports as they apply in relation to pollution incident reduction plans.”Member’s explanatory statement
This amendment requires water and sewerage undertakers to publish annual reports on their implementation of previous pollution incident reduction plans.
“(1) The duties of a relevant undertaker under sections 94EA(1) and 94EAA(1) are enforceable by the appropriate agency.”Member’s explanatory statement
This amendment is consequential on the Minister’s amendments extending Clause so that it covers the water supply network, the Minister’s amendment at page 5, line 38, and the Minister’s amendments extending Clause 2 to Wales.
“(2) If a relevant undertaker fails to comply with its duty under section 94EA(1) or 94EAA(1)—(a) the undertaker commits an offence, and(b) the chief executive of the undertaker commits an offence, subject to subsection (2A).(2A) It is a defence for the chief executive to prove that they took all reasonable steps to avoid the failure.(2B) A person who commits an offence under this section is liable, on summary conviction or conviction on indictment, to a fine.”Member’s explanatory statement
This amendment makes the chief executive of an undertaker liable if the undertaker fails to comply with the new duties about pollution incident reduction plans, unless the chief executive has taken all reasonable steps to ensure compliance.
Member’s explanatory statement
This amendment is consequential on the Minister’s previous amendment.
Member’s explanatory statement
This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.
“(4) Where, in deciding how to exercise its functions in relation to a relevant undertaker, the appropriate agency has regard to the record of the undertaker in complying with its legal obligations concerning pollution, it must also have regard to the record of the undertaker in implementing measures set out in its pollution incident reduction plans.”Member’s explanatory statement
This amendment requires the Environment Agency and the Natural Resources Body for Wales to have regard to the record of undertakers in implementing their pollution incident reduction plans when deciding how to exercise regulatory functions.
“(4) In this section, “appropriate agency” and “chief executive” have the meanings given by section 94EA(9).”Member’s explanatory statement
This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales and the Minister’s amendment at page 6, line 1.
Lord Cromwell
“(e) the date by which an explanation of reasons why the discharge occurred is expected to be made publicly available.”
Lord Cromwell (CB)
My Lords, I shall speak to both Amendments 39 and 40 in my name. I am grateful for the kind support of the noble Baroness, Lady Browning, on Amendment 39 and of the noble Baroness, Lady Jones of Moulsecoomb, on Amendments 39 and 40.
I am told that Amendment 39 is unwelcome because it is hard to determine when explanations can be expected. As the Minister knows, my catchphrase in Committee was “modest and proportionate”. I think that this very small amendment is modest and proportionate, but it is my further understanding from discussions that management plans will, once a year, give explanations of such discharges as part of their pollution plans. With numerous discharges happening across the year, that annual document will be a mighty task to compile and to read through. More importantly, it seems that people living with the discharges might have to wait 12 months or more simply to find out why a discharge has occurred and, presumably, what has been done to deal with it and prevent a recurrence. This invites not only discontent but accusations that nothing is being done and that people are being kept in the dark. Can the Minister take this away and see whether a government amendment can do better in addressing the concerns and rights to information of the public?
Amendment 40 in my name is essentially about trying to get information all in one place so that anybody from the public can access it. Since tabling this amendment, I have been advised by the Minister that Water UK, the body that represents the water companies, is to create a map of discharges that can be accessed by the public. That is very welcome, but unless the mapping is presented and run in a comprehensive and timely way, is sufficiently detailed to provide meaningful information and is periodically assessed for its quality of delivery, it will be of little use.
I have a number of questions which I would be very grateful if the Minister can address, either from the Dispatch Box or by letter. There are six of them—brace yourselves. Can the Minister clarify what information exactly this map will show? When will it be up and running? At that start date, will all future discharges be shown in close to real time? Who will have the responsibility for ensuring that Water UK receives the necessary information in real time? What will be the penalties for failure to supply the information and doing so in good time? Who will have the responsibility for auditing the online mapping performance of Water UK over time? Somebody needs to watch the watchers to ensure that this potentially rather colourful and enjoyable map is accurate, sufficiently detailed and up to date in real time.
Baroness Jones of Moulsecoomb (GP)
I support these amendments. It is obvious that the public have a right to know when sewage is being dumped. Would the noble Duke, the Duke of Wellington, like to speak to his amendment first? If not, I shall carry on.
The water companies have this as real-time data and there is no reason why they cannot publish it in real time so that the public know whether the waterways are clean enough to swim in, paddle in, kayak in or even let their dogs run in. I simply do not understand why the water companies cannot provide that information. Well, I do know why—they will fight this tooth and nail because the true level of leaks of sewage discharges is so ridiculously high.
Lord Cromwell (CB)
I thank the noble Baroness for supporting my amendment. To be clear, it requires an explanation of why the discharge has occurred, not that it has. The Minister pointed out that that might take quite a long time to establish.
Baroness Jones of Moulsecoomb
In that case, the noble Lord’s amendment is not radical enough for me, but I hope it passes anyway.
The Duke of Wellington (CB)
I speak to Amendment 41 in my name. It makes a simple point that I hope will find sympathy with the Minister and other Members.
I well remember, as other Members may, that during the passage of the Environment Act three years ago, there was a major spill by Thames Water somewhere in the London area. The excuse given at the time was a power failure. I remember thinking that that really was not a very good excuse. Those in charge of any infrastructure installation surely should have sufficient emergency generator capacity in place and maintained so that, should there be a power failure for an essential activity, it can be covered for a while. Clearly, if the power failure lasts for a day or two, the generator capacity will probably not have sufficient fuel to run that long—I understand that. Nevertheless, it seems too easy a let-out for a sewerage undertaker to be able to excuse an emergency discharge of any sort simply on account of a power failure.
I have therefore put down this amendment and hope that the Minister can assure me that water companies are required to have sufficient generator capacity in place and to keep it maintained so that they cannot simply say that there was a power failure and the generator did not work. That is just not good enough. I hope to get reassurance from the Minister about this; it is an important point, because otherwise we are giving too easy a let-out to the water companies.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, Amendments 39 and 40 in the name of the noble Lord, Lord Cromwell, relate to the publication of data on sewage overflows in a form that is readily accessible to the public. The public are concerned about sewage spills, and they want to know when and where they are occurring. They also want to know what is being done about preventing further spills in their area. The amendments help to redress the current balance on availability of information.
Amendment 41 in the name of the noble Duke, the Duke of Wellington, relates to the failure of electricity supply which affects a sewage overflow outlet. I agree completely with the noble Duke. If an overflow outlet is reliant on an inefficient electricity supply, it is up to the undertaker to work with the electricity company to ensure that it is fit for purpose. The electricity supplier, similarly, will know when there is going to be a planned outage and should notify the undertaker in advance so that alternative arrangements can be made. If the electricity supply which serves an overflow outlet is inclined to break down, the undertaker should plan to have a generator on standby, as the noble Duke said, to take over when the electricity supply is down. This is common sense, and I look forward to the Minister’s comments.
Lord Roborough (Con)
My Lords, first an apology: in my excitement in the last group on the government amendments, I forgot to refer to my register of interests, including as a landowner across a number of river catchments and an investor in several natural capital-related technology companies.
I thank the noble Lord, Lord Cromwell, for moving his amendment. I recognise how hard he has worked to improve the Bill, in consultation with the Government. We agree with the spirit of his Amendments 39 and 40 in that we also want more transparency from water companies on pollution incidents. This is an important principle that runs through the Bill, and I hope that the Government will listen to the noble Lord’s argument and seek to strengthen transparency in the water sector where this is appropriate.
I also thank the noble Duke, the Duke of Wellington, for his Amendment 41. While we do not agree with it, we do agree that water companies should take some and more responsibility for the resilience of their power supplies. I would be interested to hear what the Minister can offer in reassurance.
Baroness Hayman of Ullock (Lab)
I thank the noble Lord, Lord Cromwell, and the noble Duke, the Duke of Wellington, for tabling their Amendments 39, 40 and 41, which speak to the publication of data from monitoring networks and emergency outflow permits. I also thank the noble Lord and the noble Duke for the time they took to meet with me between Committee and Report to discuss these topics and the wider industry that they were concerned about.
Amendment 39 in the name of the noble Lord, Lord Cromwell, was supported by the noble Baronesses, Lady Browning and Lady Jones of Moulsecoomb. We agree that it is essential for companies and the regulators to have a clear understanding of the cause of discharges from emergency overflows. That information is important to ensure that the regulators can assess the compliance of emergency overflows and for companies to invest in the right improvements to prevent discharges from reoccurring.
It is important to note that all discharges from emergency overflows should be reported as pollution incidents. Once the Environment Agency has been notified of a pollution incident, it will request follow-up information as to the cause of the incident and any remedial action being taken.
For some discharges, establishing the cause may be straightforward. However, for more complex or more serious incidents it may take longer to identify the cause. When more serious incidents occur, the Environment Agency may need to complete on-site visits and investigations into the cause of the discharges. Since it will not necessarily be known at the time of the incident occurring how long these investigations will take, it is not practical to set a date by which the cause will be identified.
Furthermore, Clause 2 will also require companies to provide information on the causes of pollution incidents annually, as the noble Lord referred to from our discussions, as part of their pollution incident reduction plans. That is to ensure that water companies are transparent about the causes of pollution incidents and the measures they have taken to reduce the likelihood of further incidents.
Requiring water companies to publish a date by which they would inform the public of the cause of an individual discharge would likely result in water companies either rushing investigations to meet an arbitrary deadline or setting themselves lengthy timelines that they know would be achievable. Following our discussions and what I have said now, I hope that the noble Lord understands why we consider the amendment unnecessary and that he will be content to withdraw it. I am of course always happy to discuss matters with him further.
Lord Cromwell (CB)
I am sympathetic to the reasoning given, but will the Minister take on board that this means the citizenry may not know for a year why there was a spillage in their area?
Baroness Hayman of Ullock (Lab)
I am happy to take that on board and back to the team for further discussion.
I turn to Amendment 40, also in the name of the noble Lord, Lord Cromwell, and supported by the noble Baroness, Lady Jones of Moulsecoomb. I thank him for proposing it, as the Government agree that it is important that water companies make information about emergency overflow discharges as easy to access as possible.
Clause 3 explicitly states that information on discharges from emergency overflows will need to be both readily accessible and understandable to the public. That duty will be enforceable by Ofwat, which will be able to access the underpinning raw data from emergency overflows to inform its enforcement responsibilities under the Water Industry Act.
Water companies have already begun to publish information on storm overflow discharges in near real time, ahead of the Water Industry Act duty coming into force in January next year. Furthermore, Water UK, in collaboration with water companies, is shortly due to publish a new centralised map of storm overflows—as referred to by the noble Lord from our discussions—which is designed to present real-time discharge data from all storm overflows in England on one website. I am sure that he will be delighted to hear that we are making good progress on this. The Minister for Water received a demonstration of the website only yesterday, and the Government understand that it is due to be published shortly.
A similar approach is intended to be followed for monitoring data for emergency overflows to meet Clause 3 requirements. In addition, if needed, guidance could be issued from the Government or the regulator to the sector to further support the implementation of the emergency overflow publishing duty. Therefore, since the industry is already planning to centralise data on sewage discharges on one website, the Government do not believe that an amendment to mandate publication on a centralised website is necessary.
The noble Lord asked a number of very specific questions. If I have not answered any of them, I am happy to come back to him in writing with more detail.
Amendment 41 is in the name of the noble Duke, the Duke of Wellington. I thank him for raising this important issue. The Government are clear that emergency overflows should be used only as an absolute last resort. We are talking about emergency overflows here, not storm overflows. Emergency overflows are different from storm overflows. They operate in response to an emergency event at a sewage pumping station, whereas storm overflows are designed to operate in combined sewer systems during heavy storm events. Discharges from emergency overflows should therefore only occur in much more limited circumstances.
As previously explained, environmental permits for emergency overflows already require companies to put in place strict protection measures to prevent, as far as possible, discharges due to power failure. That can include back-up generators or duplicate power supplies.
The Environment Agency will consider enforcement action if a company operates an emergency overflow and it can be proven that the discharge could have been avoided if the company had complied with the protection measures set out in its permits. Electrical power failure is an acceptable reason to discharge only when it is fully—I repeat, fully—outside the water company’s control and not due to any failure on its part to maintain protection measures.
The unintended impact of the amendment could be that we fail to provide for discharges that are outside a company’s control and that are necessary to protect upstream homes from flooding—for example, if a back-up generator failed or did not last long enough. For these reasons, we do not believe this amendment is necessary and are concerned about the unintended consequences.
Having said that, I appreciate that the noble Duke feels strongly on this point, so I extend an invitation to him that I hope he will take me up on. I offer him to join me on a visit to see some of the overflows in person, to enable him to look at the varied scale and types of infrastructure and protections that are already in place, to help him understand and, I hope, to put his mind at rest. I am sure that the noble Duke has never had an invitation from a noble Baroness to look at a sewage plant before and that this is an exciting first for him.
I once again thank noble Lords for their constructive engagement on the important matters of data transparency across water industry monitoring networks and the permitting of emergency overflows.
Lord Cromwell (CB)
The Minister is right that I am delighted to hear about the centralised provision of information, and I eagerly anticipate her reply to my six questions. I am bitterly disappointed that I have not also been invited to go with her to a sewage farm. What has the noble Duke got that I have not? I do not know and I do not want to know. Anyway, I wish them joy. I thank the Minister, and I beg leave to withdraw the amendment.
Baroness Hayman of Ullock
“Nature-based solutionsIn section 94A(3) of the Water Industry Act 1991 (matters to be addressed in drainage and sewerage management plans), after paragraph (e) insert—“(ea) the use that is to be made of nature-based solutions, technologies and facilities within the undertaker’s drainage system and sewerage system,”.”Member's explanatory statement
This amendment requires a sewerage undertaker’s drainage and sewerage management plan to explain the intended contribution of nature-based solutions, technologies and facilities.
The Duke of Wellington
Member's explanatory statement
This amendment would add Ofwat as a relevant agency with the obligation to impose a fixed monetary penalty on a water company in respect of a specified offence.
The Duke of Wellington (CB)
My Lords, Amendment 45, the related Amendment 47 in my name and, in a sense, the intervening Amendment 46 from the noble Baroness, Lady Bakewell, all seek in essence the same purpose—namely, to ensure that any fines imposed on the water industry, either by the Environment Agency or by Ofwat, remain within the environmental protection regime and do not go to the Treasury.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, the noble Duke, the Duke of Wellington, has set out the case for this group of amendments with his usual clarity and passion for sorting out the obligations which Ofwat needs to impose.
The money collected from fines from sewerage and water companies needs more clarity over its destination. At the moment, it would appear that the money from fines imposed by Ofwat does not go back into ensuring that investment occurs to correct the defects which allowed sewage spills in the first place. Much of the money from fines goes into the Treasury coffers and supports other government departments. This is not what the public want. They want the money from fines to go into making good inadequate and out of date sewerage systems and helping to create new reservoirs. A transparent and obvious way to achieve this is to set up a water restoration fund. This group of amendments requires all fines for environmental offences to be ring-fenced for this fund.
I understand that the Treasury is not in favour of this as it is hypothecation. I understand where it is coming from. However, it is necessary, due to the appalling performance of the water industry, for the public to be able to see just where the money from fines is going and how it is being used to improve the service they are paying for in their water and sewerage bills. We are, therefore, very keen to see such a fund set up without delay. There are undoubtedly going to be large fines coming down the line which water companies will have to pay. These fines cannot just evaporate into the ether so that customers cannot see what is being done with the money. Restoring public confidence in the water and sewerage industry is key to moving forward and a water restoration fund is a vital element of achieving this.
Lord Roborough (Con)
My Lords, I thank the noble Duke, the Duke of Wellington, for introducing this group. I also take the opportunity to thank him for his tireless commitment to clearing up the water industry. I have no doubt that the fact that we are considering this Bill in this Chamber at this time owes much to his hard work.
In government, we made progress on work to ensure that fines charged to water companies would be reinvested into the infrastructure of the water sector to reduce pollution and tackle flood risks. Given the very clear concern of the public about the health of our rivers, lakes and beaches and the impact of pollution, it seems only right that the proceeds of fines levied on water companies should be invested in tackling pollution, so we support the spirit of Amendments 46 and 47 in principle.
While there is clearly disagreement on how best to achieve the goal of reinvesting the funds raised through fines on water companies, we hope the Minister will listen to the concerns of the noble Baroness, Lady Bakewell of Hardington Mandeville, and the noble Duke, the Duke of Wellington, and ensure that proceeds from water company fines are reinvested in the sector.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for their suggested amendments and the points raised in relation to penalties and the water restoration fund.
First, I will talk to Amendment 45, tabled by the noble Duke, the Duke of Wellington. While I acknowledge the intention behind this amendment, which seeks to strengthen Ofwat’s enforcement powers, we do not believe that automatic penalties are appropriate for the obligations which Ofwat is responsible for enforcing. Ofwat’s role as the economic regulator is distinct from the role of environmental regulators and from the permitting regime for environmental activities. Offences that may be subject to automatic penalties and outlined on the face of the Bill, such as pollution control, abstraction, impounding and drought, fall within the remit of the Environment Agency and Natural Resources Wales. Extending the enforcement of these areas to Ofwat would therefore duplicate the responsibilities of the regulators and create more complexity in the current system.
Furthermore, Ofwat’s investigation and enforcement activities relate largely to breaches of core licence conditions, which are highly complex matters that are not fixed to singular assets or permits but rather systemic failings right across the company’s operations. Investigations often require significant and detailed evidence to be gathered, potentially from a number of sites, to establish whether a breach has occurred. This can take months to conclude and does not lend itself to an automatic penalty.
Ofwat has existing appropriate powers to impose financial penalties. For example, the Water Industry Act 1991 enables Ofwat to take enforcement action, including imposing financial penalties on companies if they are in breach of their statutory duties or licence conditions.
Finally, I remind the House that the independent commission will consider the roles and responsibilities of the water industry regulators and how we can ensure our regulators operate as effectively as possible. This is something that may be discussed in some depth by the commission. The Government will therefore not accept this amendment, but I hope the noble Duke feels reassured on the points about automatic penalties.
I will take Amendments 46 and 47, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and by the noble Duke, the Duke of Wellington, together. I very much appreciate the intention behind the amendments, but we do not believe it is necessary to define a mechanism for spending the money received through fines in law. A water restoration fund was launched in April this year, and this arrangement does not require legislation. As we have heard, the water restoration fund serves as a mechanism to direct water company fines and penalties into water environment improvement projects. We feel that defining a water restoration fund in law would instil inflexibilities regarding the scope of the fines available to include within the fund and how the money gathered from fines could be spent. We believe that retaining flexibility is important to ensure funding programmes deliver value for money.
As for the devolved elements of the noble Duke’s amendment, water is a devolved policy area, so it is for the Welsh Government to determine the extent to which a water restoration fund should apply in Wales.
What has come across in the debate, and what came across strongly in Committee, is the recognition that investment in the water industry will be absolutely critical to improving the existing poor standards. The Government are continuing to work with His Majesty’s Treasury on the continued reinvestment of water company fines and penalties in water environment improvement. We are working with the Treasury on this specific issue because we recognise its importance. As this is ongoing work and discussion, we will not be able to accept the amendments today. I thank noble Lords for the debate, and hope that they have been reassured by my comments.
The Duke of Wellington (CB)
My Lords, I thank the Minister for that explanation. The point of Amendment 45 was only that I was advised by the Public Bill Office that I had to table it to make Amendment 47 make sense—parliamentary drafting not being one of my specialities. However, the underlying point, which I share completely with the noble Baroness, Lady Bakewell, is that we want to see all the fines levied on the water industry reinvested in ensuring improvements to the clean water environment. That is what we are all trying to do. I suspect that the Minister would support that, in theory, and I wish her well with her discussions with His Majesty’s Treasury. I therefore beg leave to withdraw the amendment.
Baroness Hayman of Ullock
“Requirement for Ofwat to have regard to climate change etcIn section 2 of the Water Industry Act 1991—(a) after subsection (4) insert—“(4A) In exercising or performing any such power or duty in accordance with those provisions, the Authority must also have regard to the need to contribute towards achieving compliance by the Secretary of State with the relevant environmental target duties, where the Authority considers that exercise or performance to be relevant to the making of such a contribution.(4B) The “relevant environmental target duties” means—(a) the duty in section 1 of the Climate Change Act 2008 (UK net zero emissions target), and(b) so far as the exercise or performance concerned relates to appointment areas wholly or mainly in England, the duty in section 5 of the Environment Act 2021 (other environmental targets);and for that purpose an “appointment area” is an area for which an appointment is held under Chapter 1 of Part 2.”;(b) in each of subsections (6A), (6B) and (7), for “(4)” substitute “(4A)”.”Member's explanatory statement
This new Clause requires Ofwat to have regard to the need to contribute to the achievement of Secretary of State’s targets on climate change and other environmental matters where relevant to its functions.
Lord Remnant
Member's explanatory statement
This amendment ensures that compliant companies in the sector are not required to render financial assistance to recover SAO losses caused by another company under special administration.
Lord Remnant (Con)
My Lords, under the special administration orders part of the Bill, relating to the insolvency of water companies, Clause 10 gives the Secretary of State the power to modify the licence of a water company in administration or solvency to recover from its customers any shortfall in costs incurred by the Government in such a situation.
My amendment addresses subsection (4) of the new section to be inserted by this clause, which allows the Government also to recover those costs not just from the company in administration but from any other compliant company, and its consumers, in the sector. My amendment would simply remove this extended unjustifiable right of recourse.
This subsection surely cannot be fair. It would force good companies and their blameless customers to bail out failed companies. Would anybody seriously suggest that, if Sainsbury’s got into financial difficulties, it should be bailed out by Tesco’s customers and shareholders? I think not.
To take a potential live example, were Thames Water to find itself in special administration, if you require customers of Northumbrian Water, at the other end of the country, and other companies to fund SAR losses, the Government are protecting hedge funds and other speculators who are now buying Thames debt at big discounts. It is the debt and equity investors in Thames who should pay for these losses in the form of lower proceeds from any eventual sale. Why should a retired police officer in Yorkshire or a hard-working nurse in Cornwall lose out to a hedge fund owner in New York trying to make a quick return?
I tabled the same amendment in Committee and felt it necessary to bring it forward again because the Minister did not address my concerns at that stage. She covered the circumstances surrounding the introduction of the special administration regime itself rather than justifying the extended right of recourse to other compliant companies in the sector. She said there was a high bar for the introduction of such a regime, that the Government do not expect to have to use this power and that any intervention would be considered very seriously and as a last resort.
As we speak, there are two companies in the sector renegotiating their debts: Thames Water and Southern Water. In theory, either could result in administration or insolvency, which may or may not involve the provision of financial assistance by the Secretary of State and the recovery of any shortfall under Clause 10. The Minister will be much better appraised of these situations than I am, so I derive some comfort from her assurance, armed with that knowledge, that the Government do not expect to have to use this power to recover losses from companies affected. Can she not, however, be more categorical than that, by saying that, even if the powers afforded to the Secretary of State under Clause 10 were to be invoked, they would not be used to recover cost shortfalls from other, blameless companies in the sector, and their customers?
Far more straightforward, however, would be for the Government to accept that any suggestion of collective punishment for the financial ways of others should be rejected, and for the Government to accept my amendment and remove this wide and, I argue, unjustified recourse across the sector. I look forward to listening to my noble friend Lord Roborough on his Amendment 51, which immediately follows. Clearly, if Clause 10 is removed in its entirety, that would satisfy my concerns. I beg to move.
Baroness Jones of Moulsecoomb (GP)
My Lords, I have three amendments of my own in this group and I have co-signed Amendment 56 in the name of the noble Lord, Lord Sikka.
I spoke earlier about the Government’s plans not being strong enough to get a grip on these out-of-control water companies. The amendments in this group, including my Amendments 53, 54 and 59, are illustrative of what could be put in place to really force the water companies to clean up their act. There does not seem to be any protection whatever at the moment against a water company simply going through the special administration process and then hiking bills up on the other side. The moral hazard is obvious.
I am going to take my amendments out of order, and noble Lords will see why. My Amendment 54 would create a special administration process for environmental failures, such as persistent sewage dumping. I do not understand why only financial failure should lead to special administration, when a much bigger failure is the sheer amount of sewage pumped into our rivers and on to our beaches. Thames Water, for example, will come out of special administration still in private hands, but with the bulk of the debt paid off by higher bills. My amendment would change this by giving the special administrator the power to write off the bulk of the debt where it has been used to pay for dividends and where the company has failed to deliver the investment to fix the sewage system. Those powers are not in the current rules and the Government have the chance to change that. Otherwise, we will reward the failures and greed of companies such as Thames Water and will be blamed for it.
I will take my Amendments 53 and 59 together only because I would actually have liked to press them to a vote. They are two amendments I care about very much, on issues that I think the general population cares about very much, and it staggered me that there has not been more support for them in your Lordships’ House. I thank the noble Lord, Lord Sikka, for supporting me: it is two Greens and him who have proposed this.
Essentially, my Amendment 53 would prevent water companies being bailed out by either the public purse or via consumers’ water bills. This is because I am quite suspicious that the whole Bill is a tactic to support the water companies, at vast expense to bill payers and eventually to taxpayers. I simply do not understand why profits are privatised but losses are not. We, the public, pay for the losses but do not get the profits.
My Amendment 59 would require the Government to conduct a full assessment of the costs of bringing water companies into public ownership. So much of the public ownership debate is dismissed based on dubious industry figures about how expensive it would be. These conveniently miss the fact that some of these companies are now distressed assets facing bankruptcy. I at least ask the Treasury to do a proper costings exercise which discounts the fact that water company valuations are based on expectations that taxpayers or bill payers will underwrite the future profits of the water companies. Given the total failure of water privatisation, the Government need to seriously plan to bring water back into public ownership. The public are crying out for it, and it would actually be good value for money. The first step towards that is to work out the real costs rather than regurgitating figures from a biased industry.
It will be a race against time whether we can pass this Bill before Thames Water fails. All the experts agree that Thames Water is going to collapse, so why are the Government not taking it into special administration immediately? My genuine fear is that this Government will find themselves in a political storm over the big rise in water bills to finance a new private company taking over. The Government would have three regrets: first, that they did not refuse a bailout; secondly, that they did not listen to the public and change the powers of the special administrator to write off shareholder-accredited debts; and thirdly, that they ruled out public ownership as an option and boxed themselves into a corner. I deeply regret this aspect of the Bill, and I wish there were support in your Lordships’ House for no bailout and public ownership.
Lord Sikka (Lab)
My Lords, I rise to speak in support of Amendments 53 and 56, with some trepidation. At 4 pm today my heart soared, because the Railway Minister said that government policy was to bring these monopolies into public ownership. But by 5 pm the Minister—the noble Baroness, Lady Hayman of Ullock—said no, and that water companies must remain in private hands. It is nearly 9 pm now, so I do not know whether the policy has changed again. It would be interesting to know.
Water companies and shareholders and lenders have extracted vast sums of money, and under no circumstances must they be bailed out. We are now almost reaching the endgame and maybe the beginning of a new chapter in water companies. Thames Water is an interesting case. All nine of its shareholders have declared the company to be a basket case and are refusing to invest, after extracting billions of pounds in dividends and inflicting massive, real-term price hikes on customers. The value of those shares has been written off; the value of debt has also taken a haircut in the marketplace.
The interesting thing is that Thames Water is now going to borrow more money, which does not make any sense; I do not know how the Government have made any sense of it. Thames Water already has a debt of about £18 billion, and its gearing, as I said earlier, is already over 80%, compared to Ofwat’s idealised ratio of 15%. Thames Water is now negotiating a £3.5 billion new loan at 9.75% for two and a half years. This new loan will require it to pay £800 million over two and a half years, with interest and various fees, to intermediaries, after which it will also have to repay the loan of £3 billion. That is £3.8 billion—which it will probably try to recover from customers. It has 16 million customers, so that works out at a charge of £95 per customer simply to service this debt. This simply is not viable. There would be riots in the streets if water companies went ahead and squeezed the customers even more. It is simply and utterly unacceptable.
The company will continue to discharge tonnes of sewage in the rivers. Water leaks will still go unplugged. We are talking about not just investment in infrastructure; Thames Water has also neglected other investments such as investment in IT. Some of its IT systems date back to the 1980s and are obsolete. According to whistleblowers, some of its essential systems still use Lotus Notes software from the 1980s and 1990s, which cannot be updated any more.
Thames Water will run out of cash soon and will inevitably pass to its lenders. But that will not solve the problem either, because the lenders, as the new equity holders, would still want a massive return on their investment, so we are back to the territory of massive new bill hikes. The Government’s delay and dithering are not helping to clarify the situation. They need to bring this company into public ownership. Private equity and hedge funds are lurking—they are the new hyenas ready to feed on the carcass of Thames Water and grab whatever assets it has left. I have been told that they are especially after land. They are counting on some kind of government bailout so that the value of their investment soars.
Thames Water is not alone. The same scenario is being repeated at Southern Water. The Minister said today that Ofwat’s approval is needed to pay dividends, so it is interesting that today Severn Water declared six-months profits, which have nearly tripled in six months, and has increased its dividends from 46.74p per share to 48.6p per share. It would be interesting to know when Ofwat approved this. Can we have some public evidence to show that Ofwat approved this higher rate of dividend?
It is a matter of concern to me and others that the Bill enables the Secretary of State to dip into the public purse and also levy massive charges on customers to restructure the companies. That is effectively a bailout by another name. Through this process, the Government may possibly write off the debts of these companies and possibly take on the liabilities and costs associated with cleaning rivers, seas and lakes. So there is nothing of any value in this for the customers at all, because they will end up paying more and the citizens will end up paying more as well. The bottom line is that public money should not be used to bail out any of these investors, whether they are lenders or shareholders. Hopefully, the Minister will give that commitment.
I tabled Amendment 56 previously, but I got some strange responses so I want to return to it. In any civilised society, a key requirement is that all businesses, especially those that control services essential for life, must be operated by organisations that are law-abiding, ethical and responsible. But none of that applies to water companies. The whole industry is controlled by organisations with criminal convictions galore. It is not one or two, and it is not that somebody forgot something or perhaps there was an innocent oversight. There are 1,109 criminal convictions, and there is not a single water company without a criminal conviction.
This is the result of deliberate planning in company boardrooms: the directors decided to violate laws, lie and cheat. The field of these convictions is led by United Utilities, with 205; Thames Water has 187 convictions; and South West Water has 174. None has shown any sign of mending their ways; if they had, these convictions would have stopped years ago, but they continue. Just last month, the BBC reported that United Utilities dumped more than 140 million litres of raw sewage into Windermere between 2021 and 2023—at that time, it was not permitted to do so. A BBC investigation found that illegal discharges had been taking place for more than three years—far longer than the discharges in the four months the company retrospectively reported. In other words, it lied.
There is no effective fit and proper person test in the UK to decide whether somebody ought to be allowed to run or control a water company or a wastewater disposal service. If there were, none of these companies would pass it. But, rather than punishing companies engaged in criminal activity, successive Governments have protected them. They ask people, year after year, to hand more money to these organisations, which obviously continue with their pattern of behaviour.
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord has reached the time limit.
Lord Sikka (Lab)
Sorry, I did not realise. I was just beginning to enjoy that.
Just to finish off—not long to go now—the question is: why should these criminals be allowed to remain in charge? These things are not minor infractions. Last time we debated this, the Minister said that there were
“significant consequences for a company’s investors. Investors would not have the confidence to invest money if the special administration regime could be triggered without allowing a company to rectify any performance issues”.—[Official Report, 4/11/24; col. 1373.]
That is, again, a very strange argument that we should allow criminals to continue because somehow it might upset the market. On that basis, it would open the doors to criminal activities everywhere—
Baroness Anderson of Stoke-on-Trent (Lab)
I am so sorry, but we have reached time. Thank you.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, this is the last group of amendments. The noble Lord, Lord Remnant, has introduced Amendment 50 on recovering costs from water companies. The noble Lord, Lord Roborough, has Amendments 51 and 52 to leave out Clauses 10 and 11. We did not support these amendments in Committee and have not reconsidered our view.
The noble Baroness, Lady Jones of Moulsecoomb, has spoken to Amendments 53, 54 and 59, dealing with water companies that have been taken into special administration. Under Amendment 53, 50% to 100% of the debts of the company would be cancelled. Under Amendment 54, the Secretary of State would place a water company into special measures for breach of environmental conditions. Amendment 59 requires an assessment of costs to bring water companies back into public ownership. Although the noble Baroness, Lady Jones, is very articulate and passionate, I am afraid we are not able to support these amendments.
Amendment 56 in the name of Lord Sikka, to which he has spoken very eloquently, seeks to prevent companies from operating where they have criminal convictions in a five-year period. I have listened to the noble Lord’s arguments on this amendment and will listen carefully to the Minister’s response, but at the moment I am not convinced of the efficacy of Amendment 56.
Lord Roborough (Con)
My Lords, I shall speak to my Amendments 51 and 52, which seek to leave out Clauses 10 and 11 from this Bill. These would also have the effect of rendering unnecessary Amendment 50 of my noble friend Lord Remnant.
Our concern on these Benches is that the consumers are left as the providers of funding of last resort to the water industry. In the event of a company going into special administration and there being losses incurred by the Government, these clauses allow the Secretary of State to recover those losses by putting consumer bills up above the levels that have been determined by Ofwat—not just customers of that undertaker but also of others.
This does not seem fair or just. Surely the ultimate responsibility resides with the Government who created the system of regulation that must have failed in this scenario. I intend to test the opinion of the House on my amendment; we do not believe that the Government should grant themselves this power.
I would also like to briefly address Amendment 53 in the name of the noble Baroness, Lady Jones of Moulsecoomb. We on these Benches agree with her that a bailout of creditors or shareholders by the Government would be completely wrong. It is not for the Government to make professional or retail investors whole when their investments have gone wrong. However, we are unconvinced that this amendment needs to be in the Bill, given that there does not appear to be any mechanism where the Government could be called on to bail out investors. Perhaps the Minister can reassure the House that this is the case.
Baroness Hayman of Ullock (Lab)
I thank all noble Lords for the constructive discussion on the important topic of ownership and management structures of water companies. I turn first to Amendment 50, tabled by the noble Lord, Lord Remnant. I understand his concern about the aspect of the clause that allows for socialisation of shortfall recovery. We had some discussion around that, as he mentioned. However, I reassure him again that this element is necessary for the shortfall recovery power to function effectively and safeguard the interests of taxpayers and water customers.
We do not expect to have to use this power—the noble Lord mentioned that we had talked about this—and I stress that it would be utilised only if it were not possible to recover all the funding provided by Government over the course of a special administration; that is, in the event of a shortfall. It is only at that point that Ministers would decide whether to exercise the shortfall recovery power. Water sector stakeholders, including the Consumer Council for Water, would be consulted about any decision to exercise the power. It is therefore not entered into lightly.
All water customers benefit from the use of a special administration regime, as it ensures that services continue in the event that a water company fails. This power already exists within special administration regime frameworks for other essential service sectors, such as energy, where there is a well-established principle of socialising these costs across the sector.
The noble Lord, Lord Remnant, asked specifically about why we think the powers are needed, so I will provide an example. There may be an occasion where government funding, provided during a special administration regime, contributes towards water sector infrastructure—such as a reservoir—that goes on to benefit several different water companies. In other cases, a particularly small water company, with a limited number of customers, may enter special administration. In this scenario, it is vital that a decision can be made about recovering a shortfall from more than one company, to ensure fair allocation of costs and to prevent customers of a single, small company facing unmanageably huge bill increases.
In all scenarios, a failure to deal with a shortfall fairly, or to prevent impacts unduly falling on a single company, risks increasing the cost of capital for the whole sector. This is because investors will price in the risks of excessive shortfall costs falling on a single company. The ability to recover a shortfall from multiple companies is therefore necessary both to ensure that it is possible to recover government funding in the event of a shortfall and to safeguard the sector from any wider cost impacts. I reiterate that we see it as very unlikely that this will ever happen. For this reason, the Government will not accept the amendment.
I turn next to Amendment 53 tabled by the noble Baroness, Lady Jones of Moulsecoomb. While I thank her for her engagement on this clause, the Government must reject this amendment because it would jeopardise the main purpose of the water special administration regime, which is to ensure the continuation of water and sewerage functions in the event of a water company insolvency or failure.
The role of the special administrator, once appointed, does not include a power to cancel debt, so does not serve to bail out water company creditors or shareholders. When a water company exits from special administration, via either a rescue or a transfer, the special administrator determines the level of repayment to creditors in accordance with the statutory order of priority. The level of repayment that creditors and shareholders may expect will be in accordance with the order of repayment clearly set out in statute. Any power to cancel debts outside of a restructuring plan agreed as part of a special administration, or a scheme where there is built-in court supervision, would be a material departure from long-established insolvency principles of fairness and treating creditors equally according to their rights. I hope that the noble Baroness understands why the Government must therefore reject this amendment.
I will turn next to Amendment 54, also tabled by the noble Baroness, and Amendment 56 tabled by my noble friend Lord Sikka. He mentioned dividends. I assure him that Ofwat is able to stop the payment of dividends if they would risk the company’s financial resilience, and can take enforcement action against water companies that do not link dividend payments to performance. I just wanted to make that point clear.
Amendments 54 and 56 are already covered by the existing legal framework for insolvency and special administration regimes. The noble Baroness, Lady Jones, specifically asked why a SAR can be used in only financial circumstances. However, that is not the case. A water company can already be placed in special administration on performance grounds where it is in such serious breach of its principal statutory duties, or an enforcement order, that it is inappropriate for the company to retain its licence. Both the amendments would limit the powers of the Secretary of State and Ofwat by forcing their hand to take specific action, thereby limiting their ability to respond appropriately to individual situations. As part of an application to the court for a special administration on performance grounds, the Secretary of State and Ofwat must consider all aspects of a company’s performance and enforcement record, including its record of criminal convictions. Under the current framework, a company must take actions to address performance issues, including those involved with poor performance. Any failure to do so would form part of any assessment by the Secretary of State, or Ofwat, of the appropriateness of that special administration in the first place. Special administration must be a last resort, and proportional and appropriate to the circumstances. An automatic threshold for special administration, such as outlined in these amendments, would limit the ability of the Government or regulators to act. It would also likely undermine the confidence of actual and potential investors, and bring instability to the wider sector.
The Government are already taking action to strengthen the regulatory system through the recently launched independent commission into the water sector and its regulation. The regulators’ roles and responsibilities, including on enforcement, will be reviewed as part of this. We expect that recommendations from this review will form the basis of future legislation. The rigid approach in these amendments would prevent the Secretary of State from exercising their powers to respond to the details of individual cases. For this reason, the Government will not accept these amendments. However, I hope that noble Lords are reassured by my explanation.
Regarding Amendment 59 tabled by the noble Lady, Baroness Jones of Moulsecoomb, I have already spoken at length about the costs of nationalising the water sector. It would require a fair price to be paid to shareholders and debt holders. This would come to over £90 billion. I know that noble Lords have disputed this figure, but it is based on Ofwat’s regulatory capital value figures for 2024. I have also spoken about the benefits—or lack thereof—of nationalisation.
Research commissioned by the Consumer Council for Water, an independent organisation that represents customer interests, found that a substantial change to the industry and company ownership would not address the main problems experienced. We also see a variety of ownership models in the UK and internationally, with clear mixed performance. For these reasons, the Government have been clear that nationalisation is not on the table.
Baroness Jones of Moulsecoomb (GP)
As the noble Lord, Lord Sikka, said, it is okay for the railways but not for water. If it were within the remit, at least we could get some accurate figures. At the moment we do not have accurate figures. Also, a recent poll said that 82% of the general public would like water out of private hands and in public ownership again. That means that this Government are going against the grain.
Baroness Hayman of Ullock (Lab)
I appreciate what the noble Baroness is saying, but the Government are clear: nationalisation is not going to be within the scope and we are not going to change our position on that. I think we are just going to have to agree to disagree on this matter.
Moving on, the noble Lord, Lord Roborough, tabled Amendments 51 and 52. The special administration regime is not new to the water sector and, as I have mentioned, it is normal practice in the provision of public services. SARs exist for a variety of other sectors, including energy, transport and financial services. Although Governments have had the power to place water companies into special administration for over three decades, it is important that we regularly update legislation to reflect the modernisation of law and experiences across other sectors. There is a high bar for the imposition of a special administration regime and we want to make it clear that the Government and Ofwat will always act to protect consumers as a priority.
However, if a SAR occurs, government funding would be required to cover the costs of a special administration, including both operational and capital expenditure—for example, for ensuring that statutory environmental obligations were met as well as paying the cost of the special administrator. I reiterate that we expect most of these costs to be recouped either through the proceeds of a sale or through the repayments agreed as part of a rescue at the end of a SAR. If there are insufficient funds to cover repaying government, there is a risk of a funding shortfall. The Defra Secretary of State does not currently have the power to require this shortfall to be repaid. This is unlike in other sectors, such as energy, where the relevant Secretary of State has flexible powers to recover a shortfall in funding.
The introduction of the mechanism is required to ensure that the costs of any water industry SAR could be recovered appropriately, in line with special administration regimes in other regulated sectors. Without this power there is a risk that, in the event of a shortfall, taxpayers’ money would be lost. The Government are clear that any intervention that would increase customer bills would always be considered very seriously and used only as a last resort. I hope noble Lords agree that this power is therefore essential to protect taxpayers’ money in the event of a SAR and I move that these clauses stand part of the Bill.
Lord Remnant (Con)
My Lords, the hour is late, so I will be brief. I thank everybody who has participated in our discussion of this group of amendments, and in particular my noble friend Lord Roborough for his support. There is clearly a lot of interest in the special administration regime and the costs arising from it, particularly in the allocation of those costs, and I compliment the noble Baroness, Lady Jones of Moulsecoomb, and the noble Lord, Lord Sikka, who have spoken with their normal passion and dogged determination on these issues.
I thank the Minister for her patience and considered response on all these issues. I do not necessarily agree with all the points she has made, particularly on the cost of capital. I am not sure that it would be raised more in instances that she is referring to, rather than the industry having this spectre of having costs allocated to the compliant companies in respect of losses incurred elsewhere. But I thank her anyhow. I am sorry that she has not been able to accept my amendment, but I beg leave to withdraw it.
Lord Roborough
Member’s explanatory statement
This amendment would prevent consumers in England from being charged higher water bills to cover any losses incurred by the Government as a result of the Secretary of State’s decision to make a special administration order.
Lord Roborough (Con)
My Lords, the Minister said that His Majesty’s Government do not expect to use these powers in Clause 10. I struggle to believe that any noble Lord listening to the noble Baroness describe socialising these losses across consumers can feel comfortable, however unlikely it is. If the clause is not to be used, I would like to test the opinion of the House on whether it should stand part.
Baroness Hayman of Ullock
Member's explanatory statement
This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.
“(d) section (Nature-based solutions), so far as relating to undertakers whose areas are wholly or mainly in England;”Member's explanatory statement
This amendment provides for the commencement by regulations in England of the Minister’s new Clause after Clause 3.
“(d) section (Requirement for Ofwat to have regard to climate change etc), so far as relating to powers or duties exercised or performed in relation to appointment areas (within the meaning of the subsection (4B) inserted by the section) wholly or mainly in England.”Member's explanatory statement
This amendment provides for the commencement by regulations in England of the Minister’s new Clause before Clause 8.
“(aa) section 2 (pollution incident reduction plans), so far as relating to undertakers whose areas are wholly or mainly in Wales;”Member's explanatory statement
This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.
“(c) section (Nature-based solutions), so far as relating to undertakers whose areas are wholly or mainly in Wales;”Member's explanatory statement
This amendment provides for the commencement by regulations in Wales of the Minister’s new Clause after Clause 3.
“(c) section (Requirement for Ofwat to have regard to climate change etc), so far as relating to powers or duties exercised or performed in relation to appointment areas (within the meaning of the subsection (4B) inserted by the section) wholly or mainly in Wales.”Member's explanatory statement
This amendment provides for the commencement by regulations in Wales of the Minister’s new Clause before Clause 8.
Water (Special Measures) Bill [HL]
Tuesday 26th November 2024
(3 weeks, 4 days ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 45-I(a) Amendment for Report (Supplementary to the Marshalled List) - (19 Nov 2024)
Baroness Hayman of Ullock
That the Bill be now read a third time.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, the Deputy First Minister for Wales and Cabinet Secretary for Climate Change and Rural Affairs has recommended that the provisions of the Bill extend to Wales. An initial legislative consent memorandum was laid in the Senedd on the Bill’s introduction. Supplementary legislative consent memorandums will be laid in parallel with any further Bill amendments. The Senedd will hold a vote on legislative consent before the end of the Bill’s passage through Parliament.
Baroness Hayman of Ullock (Lab)
My Lords, I would like to say that it has been a great privilege to be responsible for the passage of the Bill through this House. I thank all noble Lords for their careful scrutiny of its provisions and the constructive suggestions and contributions made at each stage. While we may not have ended up agreeing on everything, I know we agree on the importance of the Bill and the need to drive meaningful improvement in the performance of the water industry as an urgent priority.
The public expect and deserve transformative change across the water sector, and the Bill is a crucial first step towards meaningful reform. The new provisions brought forward by the Bill will strengthen the regulation of water and sewerage companies while giving our regulators the most significant increase in enforcement powers in a decade.
The Bill will ensure that water company executives are held to high standards, reflecting the importance of their role in overseeing the operation of vital water and sewerage services. Crucially, the Bill will increase transparency around water company operations and pollution incidents, ensuring that the public, as well as the regulators, are well equipped to hold water companies to account.
With the passage of the Bill in this House, we have made inroads into turning around the performance of the water industry, and made clear our expectations for water companies in advance of the most ambitious investment period that the water industry has seen.
This Government are committed to working closely with counterparts in Scotland, Wales and Northern Ireland to address the shared challenges facing our water environment. Our waterways and some of our water companies cross our shared borders, so the importance of working together to improve the water environment cannot be underestimated.
Of particular relevance to the Bill are the challenges faced across the privatised water sector in England and Wales. In line with this, my officials have worked constructively with Welsh counterparts throughout the passage of the Bill through this House, so I am also delighted that the UK Government and Welsh Government have together launched the independent commission to fundamentally transform how our water system works. The independent commission will provide the lasting change that England and Wales need to deliver much-needed reforms in the water sector, which I know all Members of this House are eager to see. We look forward to continued and long-term collaboration with the Welsh Government on the Bill and the independent commission.
In conclusion, I thank all noble Lords who have offered their expertise to enhance and strengthen the Bill in this House. The discussions have been truly collaborative. The Government carefully considered the important points raised during the Bill’s passage and, in consequence, tabled the amendments that we discussed on Report. I believe that the provisions of the Bill leave this House even stronger as a result.
Many of the wider points raised by noble Lords will be addressed by the independent commission, which, as we have discussed, will review the entire water sector regulatory system. I look forward to further collaboration with noble Lords during the course of the independent commission, and on future legislation, as we continue to work towards the shared goal of restoring and protecting our precious water environment.
Just before I finish, I record my special thanks to officials, particularly the wonderful Bill team, who worked so hard and gave me exemplary support throughout the passage of the Bill in this House.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank my noble friends Lord Russell, Lady Parminter and Lady Pinnock for standing in for me when I was off with Covid. I am very grateful to them.
The Bill is essential, and it was essential that it began its journey in this Chamber. It is only one piece of the jigsaw that the Government will bring forward to deal with the problems of the water industry, but it is a vital one.
I thank the Minister and her officials for their time in listening to those of us across the Chamber who were concerned about some aspects of the Bill. She was extremely patient and receptive to the arguments we put forward, and we are grateful for the movement that the Government were able to make on the pollution incident reduction plans and the performance-related pay issues. Ofwat has been strengthened by measures in the Bill and it is to be hoped that, overall, the discharges of sewage will reduce quickly and the quality of water in our streams, rivers and lakes will improve as a consequence.
It is now up to the other place to take on the Bill, which has been much improved by the debates and changes made in this Chamber. For our part, we welcome the review of the water industry as a whole and look forward to seeing how the Bill will fit into the overall picture. It has been a pleasure to work with the Minister and her Bill team on this essential piece of legislation.
Lord Roborough (Con)
My Lords, the core objectives of the Bill were, of course, supported by all sides of your Lordships’ House. The water and sewerage industry has betrayed consumers, and the regulators have consistently failed to bring these companies to book for many years. It is not so much to ask that we should all be able to enjoy clean and healthy rivers, lakes and beaches. On our Benches, we proposed tough action on the companies and executives responsible, and we are pleased that the Bill now places greater responsibility on the industry to clean itself up, while granting greater powers to regulators to enforce those rules.
This Bill is only a short-term move to impose special measures on the industry while we await the results of the commission, which will report next year. Special measures are, by definition, temporary, and the Government must bring forward the next stage of reform urgently. We look forward to reading and debating those reports and engaging fully with the Government to ensure that the right medium to longer-term reforms are put in place to ensure that all stakeholders’ interests are properly recognised and balanced.
I am most grateful to the Minister for listening to the concerns of the House in constructive engagements in this Chamber and in private meetings with her and her excellent officials. Those engagements were always courteous and helpful in airing the issues around each topic of discussion or debate. The best traditions of the House may be frequently mentioned, but this is a very good example, and, in this case, the Bill is much improved as a result.
The House owes thanks to the Minister for the excellent amendments that the Government brought forward. In particular, the pollution incident reporting plans now have teeth and will be a valuable tool in pushing the industry to do better. I also highlight amendments that place much more weight on using nature-based solutions as an alternative to more traditional investment in infrastructure. These amendments will have a measurable impact on nature recovery efforts in this country.
Although this House amended the Bill to improve accountability on debt levels and financial structuring, thanks in particular to the noble Lord, Lord Cromwell, as well as on the accountability of the Government on the rules being set, it was a little disappointing that the Government would not accept our amendments to protect the consumer in the event of an SAO, nor to enable the Secretary of State to limit water companies’ debt levels when necessary.
Finally, I thank all noble Lords from all Benches of this House who engaged in debates on the Bill and with whom I had many constructive discussions.
Baroness McIntosh of Pickering (Con)
My Lords, I add my congratulations to the Minister on securing her first Bill in this new Parliament, and through her I pass on my thanks to the Bill team for their solicitations throughout the procedure. I would like to tease her on one item if I may. We did not manage to carry the amendment on mandatory requirements for sustainable drains, nor the end to the automatic right to connect, but will she consider voluntarily bringing forward a report in six months’ time on where we are in introducing mandatory requirements for sustainable drains for major new developments?
Baroness Hayman of Ullock (Lab)
I am very happy to take that back to the department and to discuss whether that is possible.
Water (Special Measures) Bill [Lords]
Monday 16th December 2024
(5 days, 13 hours ago)
Commons ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 45-I(a) Amendment for Report (Supplementary to the Marshalled List) - (19 Nov 2024)
The Secretary of State for Environment, Food and Rural Affairs (Steve Reed)
I beg to move, That the Bill be now read a Second time.
I am delighted to open the Second Reading debate on the Water (Special Measures) Bill—something I hope the whole House will consider to be an early Christmas present. I thank the noble Baroness Hayman of Ullock for her outstanding leadership of the Bill during its passage through the House of Lords, where it quite rightly won support from all sides.
Our rivers, lakes and seas are part of our beautiful British landscape and have been enjoyed by generations. Our countryside is one of the things that makes us proudest to be British, but that pride too often turns to dismay because in too many parts of our country, the local river, lake or beach has been made filthy by pollution. People worry that the places they enjoyed when they were younger are no longer there for their own children or grandchildren. No parent should have to worry that their child might get sick from splashing around in the local sea or river. Our green and pleasant land is no longer quite so pleasant. Our rivers, lakes and seas are being choked by record levels of pollution from untreated sewage, as well as chemicals and run-off from agriculture and highways.
The Bill is not just about the desecration of water running through our countryside. Clean water is essential for every home and business up and down the country. It is one of the essential foundations of our economy, our communities and our national security. We use water to cool power stations, generate electricity, supply our leisure industries and grow the food that feeds us, but our water infrastructure is under increasing strain. It is outdated, inadequate and crumbling. The situation is made worse by our changing climate, with more frequent and severe rainfall, floods and droughts. Water supplies to homes and businesses are disrupted too frequently in some parts of the country. I have spoken to residents in Hastings and Rye who were rightly furious at the inadequate information, lack of alternative supply and little to no compensation when yet another outage happened in their locality.
Helena Dollimore (Hastings and Rye) (Lab/Co-op)
I thank the Secretary of State for the work he and his Department are doing to change the compensation rules so that when these incidents happen, my constituents get higher levels of compensation—something that the Conservatives had 14 years to do, but failed to do. Had they acted in that time, my residents would not be left without compensation for the incidents that have happened in Hastings, Rye and the villages.
Steve Reed
I pay huge credit to my hon. Friend. She has been such a champion for her communities in Hastings and Rye, demanding the better water services they deserve.
The failure to invest in our water infrastructure means that the demand for clean drinking water will start to outstrip supply as early as the mid-2030s. Without urgent action, some parts of the country would then face water rationing. The water system is broken but, instead of fixing it, the previous Conservative Government just stood back and watched as our water infrastructure crumbled into disrepair. Instead of strengthening regulation to ensure water companies invested sensibly and at the right time, the Conservatives hobbled the regulator and let water companies divert millions of pounds into wholly unjustified multimillion-pound bonuses and dividend payments.
Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)
Does the Secretary of State share my amazement that under the previous Conservative Government organisations had to campaign to have sewage-free rivers, lakes or seas, as if it were some kind of privilege rather than a right for everyone? Does he have any idea of the amount of money that was taken out of the sector, and out of the infrastructure we needed, in profits and bonuses under that Government?
Steve Reed
I agree that it is indeed amazing. I know that all of us on the Labour Benches, and perhaps on the Opposition Benches too, share the public’s anger at what happened to our rivers, lakes and seas.
The legacy of 14 years of Conservative Government is the highest level of sewage spills on record, economic growth held back by a lack of water supplies, and now potentially painful bill rises to fix the problems they left behind.
Jerome Mayhew (Broadland and Fakenham) (Con)
The Secretary of State says there was the highest level of spills on record. How does he know? When Labour was in power previously, only 7% of sewage outlets were even monitored.
Steve Reed
I have to say to the hon. Gentleman that there is very little point in monitoring sewage in the water if all you do is watch the sewage increase and keep on flowing into our rivers, lakes and seas. The Conservatives seem to be satisfied with the failure they presided over. The Labour party will fix the problem that they left behind.
If you find cracks in the wall of your house and ignore it for years, the problem gets worse and the cost of putting it right escalates. That is exactly what the Conservatives did to our water system. They refused to bring in the investment early enough, so ageing infrastructure crumbled even further and the cost to bill payers has rocketed.
Charlie Maynard (Witney) (LD)
We are about a month away from Thames Water signing up for another £3 billion of debt. If that happens, 46% of the bills of every customer in that catchment will be spent on interest expenses, and that is without even paying down the £20 billion of debt. How is that helping anyone?
Steve Reed
I thank the hon. Gentleman for his intervention. One of the reasons the Government commissioned a review into governance and regulation is because of the failure of the current system that the previous Government allowed to continue.
I share customers’ anger about the scale of water bill rises they seem likely to face. They are rightly furious at being left to pay the price of Conservative failure. I am grateful that the party opposite has indicated support for the Bill. It is just a shame its support has come so late. In December last year, while they were still in government, I called a vote on introducing a ban on unjustified bonuses for water bosses, but they refused to do it. They could have acted at any point over the past 14 years, but they would not do it. There have been many times in history when Labour has had to clean up the Tories’ mess, but rarely quite so literally as cleaning up the raw sewage polluting our country’s waterways.
Mr Richard Holden (Basildon and Billericay) (Con)
I thank the Secretary of State for giving way. Does he acknowledge, though, that under the previous Labour Government we saw none of the massive capital investment that we are seeing now with the Thames tideway tunnel, which was started under the Conservative Government in 2016? It will be completed next year and is one of the biggest changes to removing sewage from our waterways in history.
Steve Reed
The Conservatives had 14 years to fix the system and they chose to do absolutely nothing. They have left it to the incoming Labour Government to clear up the mess they left behind.
The truth is that the water sector needs a complete reset. It needs reform that puts customers and the environment first for once, and a new partnership with the Government to invest for the future and upgrade our water infrastructure.
Calum Miller (Bicester and Woodstock) (LD)
My constituents do not understand why they may be facing a 50% price increase from Thames Water, partly to service a £3 billion loan. The Secretary of State talks about resetting the water industry. Will he consider taking Thames Water into a special administrative regime, so it can be properly reset and the inappropriate debt built up under the previous Government written off to the benefit of taxpayers and consumers?
Steve Reed
There is a process by which any company would go into administration. That situation has not yet arisen with any company. The Government are, of course, closely monitoring the situation with Thames Water, but as things stand the company remains viable and I reassure consumers in that area that there is no threat, and would be no threat, to water supply in any circumstance.
The Government have a three-stage plan to deliver change and bring in the biggest ever investment in our water sector. That started with the initial reforms I announced in the week following the general election. It continues with the Bill before the House today. It will be completed with the water commission, led by Sir Jon Cunliffe, and further legislation that will follow on from that.
In my first week as Environment Secretary, I met water company chief executives and announced a set of immediate reforms to start the process of change. Money earmarked for investment to upgrade water infrastructure will now be ringfenced, so it cannot be diverted for other purposes, including paying bonuses or dividends. If it is not spent on what it was intended for, it will be refunded back to customers as discounts on their bills. Water companies agreed to formally change their company objectives to place customers and the environment at the heart of everything they do. They will set up powerful new customer panels to scrutinise key decisions. Customers who face frequent water outages—like the constituents my hon. Friend the Member for Hastings and Rye (Helena Dollimore) talked about—or contaminated tap water, as residents and businesses experienced in Brixham in Devon, will now receive more generous compensation and they will get it faster.
We promised in our manifesto to put water companies under special measures to clean up our water. The core provisions of the Bill do precisely that by strengthening the powers of the regulators and holding water companies to account for poor performance.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
The Secretary of State rightly talks about the role that regulators have to play, whether that is Ofwat or the Environment Agency. While the water companies were getting away with what they were doing, the Conservative party took huge amounts of money out of the EA. Independent figures from Unchecked UK suggest an 88% reduction in enforcement activities, and that a 50% reduction in the environmental protection budget led to a 60% reduction in activity. Will he set out more on how regulators will be key to clearing up our water industry?
Steve Reed
Absolutely. My hon. Friend makes some extremely important points. In my speech, I will be coming on to how we intend to ensure the regulator not only has additional powers but additional resources to enforce those powers.
Melanie Onn (Great Grimsby and Cleethorpes) (Lab)
On compensation, sewage discharges have a massive impact on the local economy in places like Cleethorpes in my constituency, which relies on holidaymakers to support our tourist and hospitality economy. Will the compensation extend to businesses, or will those companies which are put under special measures be required to support other local businesses that are hampered as a result of sewage discharges?
Steve Reed
That is an important point. Polluted water does not just damage people’s health; it damages the health of local economies as well, and the compensation will extend to businesses in a way that it previously did not.
The Bill gives Ofwat legal powers to ban bonuses if water company executives fail to meet high standards. It will introduce stricter penalties, including imprisonment, when senior executives in water companies obstruct investigations by environmental regulators, and it includes provisions to allow automatic and severe fines to be imposed for wrongdoing. When increased costs are a result of penalties being issued by the regulators, for instance under the new automatic penalties regime, penalties will come out of water company profits and not from customers.
Ms Polly Billington (East Thanet) (Lab)
In evidence given to the Environment, Food and Rural Affairs Committee, Ofwat confirmed that had the measures to ban bonuses been in place earlier, the boss of Southern Water—which covers my constituency—would not have received his most recent bonus. It was Tory inaction that allowed it.
Steve Reed
My hon. Friend is a doughty campaigner for cleaner water for her constituents, and she is quite right. If millions of pounds had not been diverted unnecessarily and unfairly into bonuses, that money could have been invested in improving the broken water infrastructure.
The Bill will go further by expanding the cost recovery powers for the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate. That means that water companies will bear the cost of enforcement activities, in line with the “polluter pays” principle, while also giving regulators the extra resources needed to hold water companies properly to account.
Munira Wilson (Twickenham) (LD)
As the Bill seeks to strengthen the regulation of our water companies, is this not an opportunity to finally regulate the existence of perfluoroalkyl and polyfluoroalkyl substances in our water? Those highly toxic chemicals can be linked to serious health conditions. Scotland, the European Union and United States have put guidance on a legal footing. Why is the Secretary of State not using this opportunity to regulate the presence of PFAS in our drinking water, and to protect our health and that of our children?
Steve Reed
I recognise the point that the hon. Lady is making, and the Water Minister, my hon. Friend the Member for Kingston upon Hull West and Haltemprice (Emma Hardy), will be pleased to meet her to discuss it further.
This Government will not let water companies get away with abuses that the last Government did nothing to stop. The Bill will open up the sector to greater scrutiny by ensuring that there is consistency and transparency in the reporting of pollution. It requires water companies to report in near real time on discharges from emergency overflows which at are present largely unmonitored. It requires water companies to consider the use of nature-based solutions such as reed beds, wetlands and tree planting when they develop their drainage and wastewater management plans. That will ensure that they consider all possible opportunities to use sustainable approaches that benefit the environment as well as managing water more effectively.
Ben Coleman (Chelsea and Fulham) (Lab)
I am extremely encouraged by what the Secretary of State is saying. In my constituency—I have been following this for well over two years—the amount of sewage discharge has been absolutely contemptible. In 2023 alone, Thames Water pumped sewage into the river 116 times, for 990 hours, even when it was not raining. I am heartened to hear that, unlike the last Government, our Government intend to take serious measures to ensure that bosses are forced to clear up the mess that they create, and stop them doing it. Can the Secretary of State reassure me that, unlike the last Government, he will ensure that the regulators use the powers they are given and do not behave as feebly as they have for the past 14 years?
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. Before the Secretary of State responds, may I point out that interventions must be short? More than 60 Back Benchers want to speak in the debate.
Steve Reed
My hon. Friend is right to make that point. We are not just giving the regulators more teeth; we are also giving them more resources to ensure that they can carry out enforcement against those responsible for wrongdoing.
The Bill requires Ofwat to consider how it can contribute to achieving targets set under the Environment Act 2021 and the Climate Change Act 2008 when carrying out its functions. Together, these measures will ensure that water companies serve customers and the environment far better in future.
Amanda Martin (Portsmouth North) (Lab)
Does the Secretary of State agree with me, and with my constituents, that sewage pumped 193 times for 404 hours, in the context of £41 million in bonuses, produces angry residents, un-swimmable seas and potential bill rises—in short, a real faeces show—and does he agree that it cannot happen again?
Steve Reed
I am grateful to my hon. Friend for explaining why her constituents are so angry about the situation, and why the Bill is so necessary as we start to turn the water industry around so that it serves customers and the environment better than it did previously.
I want to reassure the House that although water is a devolved matter, my Department has engaged with the devolved Governments of Wales, Scotland and Northern Ireland throughout the development of the Bill. All its provisions will apply to both England and Wales, and we will continue to work closely with our Welsh counterparts as it progresses.
Steve Reed
I hope that Members will allow me to make some progress. I am worried about how much time I am taking, given that so many other Members want to contribute to the debate.
The Bill is just one part of the Government’s ambitious and long-term approach to fundamentally transforming the water sector. Together with the Welsh Government, I have commissioned Sir Jon Cunliffe, the distinguished former deputy governor of the Bank of England, to lead an independent commission on the future of the water industry. It will be the most comprehensive review of the industry since its privatisation 35 years ago.
Several hon. Members rose—
Steve Reed
I will make some progress, if Members do not mind.
The commission will review regulation and governance from the bottom up to ensure that we have a robust framework that can attract the significant investment that is needed to clean up our waterways, while guaranteeing future water supplies, restoring public confidence and promoting economic growth. Sir Jon will be supported by an advisory group covering areas including the environment, public health, engineering, customers, investors and economics. The commission will seek advice from stakeholder groups, including environmental campaigners, consumer champions, water companies, regulators and the public, and it will make recommendations by June 2025. This is our opportunity to completely reset the water industry so that it is fit for the future and can finally move on from the failures of the past.
I want to thank my hon. Friend the Member for Hull West and Haltemprice, who will steer the Bill through this House. I know that she will lead this work with the expertise and passion for which she is well known across the House. No one is better suited to lead our Department’s first piece of primary legislation under the new Government.
This Bill is our chance to right the wrongs that have so angered members of the public up and down the country. Water pollution is not inevitable and it is not acceptable.
Our children and grandchildren deserve to make the same wonderful memories that we did, splashing about in clean rivers, swimming in the sea or playing on the shores of our beautiful lakes, without fear of getting sick. It is time to clean up our water once and for all, and the Bill is an important step in making that happen. Let us seize the opportunity to give this country back the clean rivers, lakes and seas that are our shared birthright.
Victoria Atkins (Louth and Horncastle) (Con)
I welcome the opportunity to debate the vital issue of water and how this Bill may be improved. The Secretary of State will be relieved to hear that I intend to focus on water quality tonight, rather than his selling of farmers, fishermen and family businesses down the river—we dealt with that this afternoon at the London Palladium summit.
Across the House, we agree that there are fundamental problems facing the water and sewerage industry that span decades. While we enjoy high-quality drinking water across the UK, there are, sadly, some streams, rivers and beaches where sewage is discharged with disgusting results, chiefly because our Victorian-era sewerage system cannot cope with a larger population and increasingly volatile weather. We Conservatives recognised that when we entered government in 2010 and started the enormous and decades-long task of turning things around.
Victoria Atkins
I will come on that, and the hon. Gentleman will regret asking that question.
I am going to set out our record on water, because it is important that this Government act on the facts rather than believing their own rhetoric—as was demonstrated, sadly, by the shameful betrayal of farming and family businesses in Labour’s Budget of broken promises.
Since 2010, the number of designated bathing waters has increased. We have seen a significant improvement in water quality ratings, with more waters rated as “excellent” or “good”, and an increase in blue flag beaches. I gently point out that England performs better than other parts of the UK when it comes to leaks, drinking water quality and bathing water quality. I understand why Labour Members—including the hon. Member for Newcastle upon Tyne Central and West (Chi Onwurah), who is no longer in her place—have raised the issue of dividends, but it is an inconvenient fact that over 65% of dividends were paid out during the New Labour Government era, with a decline over the 14 years that we were in government.
There is more to be done, which is precisely why we want to help the Government to improve their piece of legislation. It is also why the work of the last decade must be seen as part of this giant infrastructure project. We were the first Government in history to set out that storm overflows must be reduced. To do that, storm overflows had to be monitored and measured. I have to say that I was surprised that the Secretary of State was so dismissive of the need to monitor. As a Home Office Minister, I was painfully aware that we needed to monitor, for example, reports of sexual violence against women, because once it is measured, we can manage it.
It is surprising that the Secretary of State does not appear to think that monitoring storm overflows matters. The reason why is that the previous Labour Government monitored just 7% of storm overflows in 2010. He cannot say that there are more overflows than ever before, because the previous Labour Government did not measure them. The fact that we increased monitoring to 100% of storm overflows means that we know the frequency and have been able to build a body of work on top of that. [Interruption.] He asks what we have done as a result, and I am very happy to help him with that. The data has empowered enraged residents to demand that their local streams, rivers and beaches be cleaned up. It is a critical part of the decades-long work on our water systems that is required, but we were not content with maximising monitoring. The data must be used—
Several hon. Members rose—
Victoria Atkins
I will give way in a moment.
The data must be used to improve water quality, which is why our landmark Environment Act 2021 gave stronger powers to regulators and imposed stricter demands for tackling pollution. We set legally binding targets to improve water quality and availability, and to reduce nutrient pollution. We rolled out catchment-sensitive farming to 100% of farms in England. Presumably, the Labour Government support the Environment Act 2021, because they seem to be replicating some of it in this Bill.
We recognised that the ageing water infrastructure needs rebuilding. The Conservative Government stepped up the requirements for investment, including investment from water companies in storm overflow improvements and nationally significant infrastructure projects, such as the Thames tideway tunnel super-sewer—the Secretary of State need only walk out the back of this House to see that sewer. He is now taking credit for the last Government’s work and is not happy to accept that.
Ben Coleman
May I suggest that if the right hon. Lady wishes to see the situation in the Thames, she need only go three bridges downstream to my constituency of Chelsea and Fulham, where the people who live in the Chelsea Reach houseboats regularly send me photos of the dirt and sewage coming down the river after 14 years of absolute failure to regulate the industry?
Victoria Atkins
I imagine the hon. Gentleman presents himself as a fair-minded individual to his constituents. When the Thames tideway super-sewer is open and functioning, presumably he will say to his constituents that they will see a vast improvement in the terrible situation that he has just described, thanks to the previous Government securing investment in order to make it possible.
Clive Lewis (Norwich South) (Lab)
Listening to the right hon. Lady and the excuses that the previous Government have made for what they did, it seems that what you were doing was equivalent to polishing one of the many turds that you will find in the Thames. Perhaps you would like to listen to your main electoral competitor, Reform UK, which actually has a policy for public ownership—I was quite surprised to find that out myself. Perhaps you think that that could solve many of the problems in UK waters.
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. One solution would be not using the word “you”. As an experienced Member, he should know much better than that.
Victoria Atkins
Particularly as the hon. Gentleman was talking about effluent, which is not respectful. I know that he is capable of much greater advocacy than that. I am afraid that I will take no lessons from the Reform party, as he encourages, although I understand that Labour may face some threats from that party in the Welsh Senedd elections—but I digress.
We made it clear that the water industry must prioritise action to improve the environment, including protecting priority habitats such as chalk streams. I have the good fortune to have chalk streams in my constituency; they have carved their way through Lincolnshire’s wolds for the last 10,000 years. The dedicated chalk streams fund, announced by the Conservatives in 2022, has been put to good use in Lincolnshire. Will the Minister for Water and Flooding, whom I welcome to her place, confirm in her wind-up that the protection schemes for chalk streams will continue?
Following the pandemic, we launched our plan for water, which integrates water and food planning, tackles all sources of pollution and gives the Environment Agency the power to issue bigger penalties to water companies. We banned microbeads in rinse-off personal care products, reduced plastic bag usage by 95% and banned wet wipes containing plastic, which is a huge source of water pollution.
I understand why the Labour Government highlight the bonuses that water company bosses have received. Again, I gently point out to the Secretary of State—perhaps he has not done his homework—that the Environment Act 2021, which his Back Benchers do not seem to have read, gave regulators the power to ban water bosses from receiving bonuses if companies have committed serious criminal breaches. [Interruption.] Labour Members ask whether the regulators used it. They are independent, and it is for the regulators to justify why they have not used that power under the legislation that is available.
Victoria Atkins
I will do in a moment—I am not like the Secretary of State.
The truth is that Labour Members do not like hearing the facts. We brought forward measures to ensure that companies that pollute the environment can be hit with unlimited financial penalties. We also set up the water restoration fund, meaning that any fines or penalties levelled at water companies were ringfenced to support projects that improve the environment and keep pressure off bills, rather than being returned to the Treasury. The fact that Ministers appear to have stalled the fund reveals how little this Government understand the countryside or care about it. Indeed, it looks like they have held back £168 million in fines that were due to be paid into the fund.
Why on earth would this Labour Government not want polluters to pay? Why are they content for fines of many millions of pounds to be paid into the Treasury slush fund, rather than local environmental projects that have been damaged by storm overflows? Does the Treasury really need that money, or is it perhaps paying for the Deputy Prime Minister’s new, flash apartment? My colleagues and I will work to ensure that the water restoration fund is reinstated and that money goes to local environment projects to protect local environments, as was intended.
Most of the measures in this Bill, including monitoring, blocking bonuses and significant fines, were in fact brought it by the Conservative Government. Indeed, primary legislation is not necessary to put most of these measures into practice.
Josh Fenton-Glynn (Calder Valley) (Lab)
I am pleased to hear the right hon. Lady championing her party’s record on the environment. Her colleagues are somewhat less confident, given that only 12.5% of the parliamentary Conservative party have bothered to show up to the debate. Is that because they are ashamed or because they do not have the same confidence as she does in their record on the environment and pollution?
Victoria Atkins
No, it is because they know that we have already put most of these powers into place and that this is a PR exercise. None the less, it is an important topic, which is why we will ensure that the Government improve the Bill—there is much improvement to be done—and work constructively across the House to ensure that that happens. We understand that the hon. Gentleman’s constituents in Calder Valley want clean water as much as my residents in Lincolnshire do.
In Committee and beyond, we will be working to improve this Bill, and I want to join the Secretary of State in thanking the noble Lords in the other place for already starting this task of improvement. In particular, I congratulate Lord Cromwell, who amended the Bill to improve accountability on debt levels and the financial structuring of water companies. Will the Minister please confirm that the Government will keep those amendments in the Bill?
Mr Holden
On a fairly small technical point, the hon. Member for Calder Valley (Josh Fenton-Glynn) made the point that 12.5% of Conservative Members are here. Perhaps he should look at the statistics, because only 11% of Labour Members are here. I know that the last Labour Government were not interested in monitoring the outflows, but they could at least monitor their own Members.
Victoria Atkins
I thank my right hon. Friend. That shows that we on this side can count, unlike the cockeyed accounting of the Chancellor and her Ministers.
In Committee and beyond, the Conservatives will look to deliver an effective limit on water company borrowing. We will boost the way that nature-based solutions can be used in drainage and sewerage management plans, as well as in water storage and tackling pollution. We will also seek to bring back the water restoration fund as an absolute priority.
Rachel Taylor (North Warwickshire and Bedworth) (Lab)
Does the right hon. Member think it is acceptable that 90-year-old residents in Fillongley in my constituency go out in their wellington boots at night to deal with flooding in their village because her Government did not invest in local solutions for the last 14 years?
Victoria Atkins
Of course the constituents’ experience that the hon. Lady has described is not acceptable. I do not think anyone would say that it was. Sometimes the public are switched off by this back and forth, because the idea that anyone would be content with the experience that she has described is for the birds. The difference that we draw on—I hope we will have a much more constructive conversation about water than this—is that the investment that was made by the last Government in flooding has had many benefits across the country but, as I acknowledged at the beginning of my speech, there is more to be done. That is why we will support the Bill, but we will be looking to improve it.
I just want to make sure that the Minister got the point that I was making. The amendment that came from the Lords to improve accountability on debt levels and on the financial structuring of water companies is a critical one, and I very much hope that the Government will address this and set out their commitment to keep that amendment that the noble Lords saw fit to put in the Bill.
As I say, in Committee and beyond, the Conservatives will look to deliver effective and constructive amendments to this Bill, but I put down this marker. It is surprising—and, I have to say, disappointing—that the Government have failed to grasp that water companies and sewage are just two elements in managing, maintaining and improving our waterways and water quality. Where are the plans for investment in infrastructure? Where are the plans for nature-based solutions? Where are the plans for the roles of other businesses? As we face the likelihood of increased bills being announced this week, what guarantees and reassurances can the Government give to bill payers? And what plans do the Government have to separate foul water and surface water systems? That is a critical infrastructure question that I hope we will get some answers to in the coming weeks. How will the Government encourage investment, particularly given the depressive effects on growth that this Chancellor and her Budget are having on the economy?
Jim Shannon (Strangford) (DUP)
I thank the shadow Minister for her words of wisdom in the Chamber tonight. Does she share my concern over the excessive bonuses that the chief executives of these businesses get? Does she know how much that angers and annoys the ordinary person in the street, who wants to know why somebody is getting a six-figure sum for not doing their job right while they are just trying to make ends meet?
Victoria Atkins
Of course we understand that, and it is why we put the powers into the Environment Act 2021 that I am sure the hon. Gentleman and many others voted to support. I hope we can move away from this back and forth and understand the facts as they are and how we can improve on them, because that is what we all want.
We all care about the quality of our water. Let us not pretend or suggest otherwise. I would not suggest that Labour Members do not care about the quality of water, and I do not understand why they think we do not care about the quality of the water that we and our constituents use, drink and swim in—[Interruption.] It is interesting—the left do not like it when we point out that they use motivations rather than the facts. This is why the Conservatives set in train the measures needed to make a meaningful and long-term difference to water quality in this country. That task is not yet finished, and we will support thoughtful, sensible and cost-effective measures to further improve water quality.
Several hon. Members rose—
Madam Deputy Speaker (Ms Nusrat Ghani)
This is a heavily oversubscribed debate and I want to get as many Back Benchers in as I can, so Back-Bench speeches will be limited to a hard stop at four minutes. I call Matt Rodda, who is going to show us how it is done beautifully—
Madam Deputy Speaker
Mr. Holden, is this a crucial point of order related to the business taking place right now?
Mr Holden
Yes, Madam Deputy Speaker. The Secretary of State had the opportunity today to make a declaration of interest, in having had football tickets worth £1,800 donated to him by Hutchison 3G UK Ltd, a wholly owned subsidiary of Hong Kong-based CK Hutchison Holdings, which also owns three quarters of Northumbrian Water. I just wonder whether he would like to make a quick declaration on the record.
Madam Deputy Speaker
I am not sure that it is a matter for the Chair to regulate Members’ declarations of interest. It is on public record, which is why the hon. Gentleman has been able to make that point on the Floor of the House, and no doubt it has been noted. Now, Mr. Rodda, you have four minutes. The floor is yours.
Matt Rodda (Reading Central) (Lab)
It is a pleasure to speak in tonight’s debate, and I start by making my own declaration of interests, in that I have family members who work in hydrology and in environmental science, which is closely related to the water industry.
In support of the Bill, I want to make three points about the real experience of my constituents with water pollution, with water supply issues—which are very serious—and on the need for serious action to tackle those issues. I am lucky to represent Reading. It is a wonderful town at the confluence of two major rivers: the River Thames, one of the country’s biggest rivers, and the Kennet, a beautiful tributary of the Thames. It is a chalk stream that starts in the north Berkshire downs and flows into the River Thames at Reading.
Olivia Bailey (Reading West and Mid Berkshire) (Lab)
My hon. Friend’s constituency neighbours my constituency of Reading West and Mid Berkshire. In addition to the beautiful chalk stream, the Kennet, I also have the beautiful River Pang, which has unfortunately been decimated by the sewage outflows under the previous Government, with children walking to school through raw sewage in the streets—an absolute disgrace. Does he agree that the measures in this Bill will get tough on failing water companies such as Thames Water?
Matt Rodda
I wholeheartedly agree with my hon. Friend. That is exactly the problem, and I want to help Members to picture its seriousness.
In 2023, Foudry brook, which flows into the Kennet, was badly polluted. Next to well-established willow trees on the banks of that small river, which flows through local fields and past people’s terraced houses into Reading, I saw with my own eyes putrid green water—the stench was unbelievable—caused by a sewage outfall in Hampshire that flowed into Foudry brook and ultimately into the Kennet, then into the main River Thames. That is the sort of disgusting pollution that we are concerned about, which is why I am so pleased with the Government’s action on this important matter. It is also important to local residents who live next to rivers, who walk near rivers, who use canoes or boats in rivers, or who fish in rivers. Thousands of local residents in my area, across our county and in other similar parts of England, as well as those living near lakes and seas, are affected by this issue.
I have seen other appalling instances of pollution. In another case, I was walking with my wife next to the Thames in the middle of winter. It was a beautiful scene and, looking across the river, we could see trees, fields and hillsides in the distance. There was a heron on the water. Sadly, this view was blighted by the sight of dark brown-cream foam frothing on the river and gathering next to an island—the foam was caused by nitrate pollution from sewage.
This was in the River Thames, in a beautiful area just outside Reading, and it is the sort of disgusting pollution that we and our constituents are all having to face. That is why this Bill is so important, and I hope we can all agree to support it because such appalling pollution simply should not be taking place in England, or in any part of the United Kingdom.
I realise that time is pressing, but the measures in this Bill will also tackle some very serious issues with water supply. I have residents who had their water cut off for two days, nearly a year ago, and still have not been compensated. This affected hundreds of people living in east Reading, in the Newtown area near Reading University and the Royal Berkshire hospital. They were unable to shower or cook, and they had multiple other problems caused by the lack of water supply. I endorse the Government’s measures to toughen up the response to such failures of service.
We recently had another incident where residents were expected to drive 9 miles to Henley-on-Thames to collect water, which is simply unacceptable. Residents, including vulnerable residents, had to drive for a 45 or 50-minute round trip to collect bottled water from a Tesco supermarket on the outskirts of Henley, yet there were multiple sites in the north part of Reading from where emergency water supplies could have been delivered.
Both examples show why this important legislation is needed. I am grateful for the opportunity to speak tonight, and I look forward to hearing more from my hon. Friends.
Tim Farron (Westmorland and Lonsdale) (LD)
It is a great privilege to speak on this Bill on behalf of my party, and a still greater privilege, I dare say, to speak as the Member for Westmorland and Lonsdale, which includes Windermere, Ullswater, Coniston Water, Haweswater, Rydal Water, Grasmere, Elterwater, Esthwaitewater, Brotherswater, the River Kent, the River Eden and much of Morecambe bay. We are a stunningly beautiful part of the country, and also one of the wettest. For us, water is unavoidable and precious. It is precious to our biodiversity, our heritage and our tourism economy.
As the House may have noticed, the Liberal Democrats chose to make water the centrepiece of our election campaign. So much so that my right hon. Friend the Member for Kingston and Surbiton (Ed Davey) spent much of the campaign in the stuff. We continue to champion a radical restructuring of our water industry, because water is the most vital of resources and because we cannot allow a continuation of the poor regulation, wanton pollution and abuse of power that became hallmarks of the water industry under the Conservative Government.
There is much to welcome in this Bill, including criminal liability for chief executives who are responsible for severe environmental failure—a measure that I remind colleagues was proposed by the Liberal Democrats before the last election, and that Labour refused to support at the time because it believed the measure to be unnecessary. We are pleased that Labour now agrees with us.
We are also encouraged by the proposals to increase some of Ofwat’s powers, to introduce a fit-and-proper-person test for chief executives, to institute an automatic fining system that makes sense, to install real-time monitors, and to create greater data transparency. All these measures are welcome, and they will all help, but they do not yet amount to the radical structural transformation that is so obviously needed.
The recent announcement of Sir Jon Cunliffe’s review is welcome, but it is also kind of frustrating. It suggests that the Government might well be up for a more radical change, just not yet. The review will not conclude until next summer, of course, after which many people, including in the Treasury, will need to go over its proposals before it hopefully makes it into a King’s Speech, running the risk that the more ambitious part 2 might not find its way on to the legislative timetable in this Parliament.
Of course, fixing the entire water industry and sewerage system is not an overnight job, but this feels like an especially ponderous way to solve such an urgent and pressing issue.
Dave Robertson (Lichfield) (Lab)
The hon. Gentleman talks about the perils of acting too slowly, but given that a Liberal Democrat was in charge of the water industry when it was privatised, does he not think that we might all be paying the price for the error of acting too quickly in that instance?
Tim Farron
Unless, to my absolute surprise, the Liberal Democrats were in power in the 1980s and early 1990s, I do not think that could have been the case. I was at university with the hon. Member for Carlisle (Ms Minns) when it happened, and neither of us was in government at the time.
The British people rightly believe that they voted for a far more ambitious plan than the one in the Bill, and they believe that they voted for it to be delivered urgently. The biggest mistake that Labour Governments tend to make is not being ambitious enough, presumably under the impression that they will be in power for longer than they perhaps might be, so my friendly advice to the Government is to seize the day and seize the moment. The millions who voted Liberal Democrat at the election absolutely did vote for ambitious and urgent change.
Gideon Amos (Taunton and Wellington) (LD)
Does my hon. Friend agree that the water companies need to be regulated, to protect not profits but the environment? Does he also believe that bathing waters, like the wonderful Tone bathing water in which I was swimming the day before yesterday, should not automatically be de-designated?
Tim Farron
I commend my hon. Friend for his swimming activities, and I agree with him. The regulatory framework should be used to improve our waterways, not to strip them of their vital designations. We take the view that it is our job to campaign with energy and passion for a radical clean-up. We are determined to keep our word to the voters by fighting for that action.
I will take a quick moment to say something that I feel is most important. The people who work on the frontline in our water industry, and those who work for the Environment Agency and Ofwat, deserve our thanks and admiration—yet, because of the failings of the system, they end up taking the blame that ought to land here in this place. The legions of people running our water system do a vital job, so I want us to get the tone of this debate right. We can be rightly outraged about how our water industry is allowed to operate, and at the same time be hugely grateful to those who, despite the system, do outstanding work to serve our communities. I want those people to know, and to hear, that we really value them. They are a blessing to us. They are not the problem; the system is. We are determined to fight for a better system for all those people to work in.
Adam Jogee (Newcastle-under-Lyme) (Lab)
In a previous life, I drafted many of the amendments to the Environment Act 2021. I am sorry that the shadow Secretary of State would not let me intervene on her, and I am further sorry that she and most of her colleagues voted against every single one of those amendments. The hon. Gentleman was very kind and wisely voted for them. Although Conservative Members now talk about regulation, all the previous Government did was cut the regulator off at its knees, and we are now dealing with the consequences of their inaction and decisions.
Tim Farron
I thank the hon. Gentleman for his service in a previous life, as well as in this one. He makes a very important point, to which I will turn in a moment. There is no point having great regulatory powers if we do not have a regulator with the resources to do the job that it needs to do. Nevertheless, regulation could be made better.
Water industry regulation is split between the Environment Agency and Ofwat, and that plainly does not work. We have two inadequately resourced regulators, with inadequate powers, being played off against each other by very powerful water companies that are far better resourced and able to run rings around the very good, but very harassed people whose job it is to hold them to account. I welcome the concession made in the Bill requiring Ofwat to contribute towards meeting the targets of the Environment Act 2021 and the Climate Change Act 2008. That is a step in the right direction because I believe it will be the first time that Ofwat will have proper environmental obligations, alongside its business obligations.
We have received promises, as the Secretary of State set out from the Dispatch Box earlier, that this Government will strengthen Ofwat’s powers in ways that we do not see on the face of the Bill. For instance, Liberal Democrat peers asked the Minister to confirm that the Government would ban water company bosses getting bonuses when their company had had a major category 1 or category 2 sewage incident the year before, and the Minister in the other place said:
“These are the type of circumstances in which it would be highly inappropriate for a bonus to be awarded.”—[Official Report, House of Lords, 20 November 2024; Vol. 841, c. 247.]
That is very welcome, but it is not on the face of the Bill.
I pay tribute to my Liberal Democrat colleagues in the other place, who forensically engaged with the Bill to make it much better. I also pay tribute to the collegiate and constructive manner in which the Minister, Baroness Hayman, worked with them. To be clear, though, the Liberal Democrats would go even further and create a unified and much more powerful regulator, the clean water authority, absorbing the regulatory powers of Ofwat and the Environment Agency, but with many additional powers, including revoking the licence of poorly performing water companies swiftly, forcing water companies to publish the full scale of their sewage spills, reforming water companies to put local environmental experts on their boards, and putting robust, legally binding targets on sewage discharges.
On the issue of discharges, we welcome the change to require data from emergency overflows to be published within an hour of a discharge. That will require companies to monitor all emergency sewage overflows and to ensure that data is reported to the Environment Agency within the hour. To pursue the point made by the hon. Member for Newcastle-under-Lyme (Adam Jogee), my concern is that the Environment Agency is already massively overwhelmed. In my constituency, I see good people working very hard, but with Coniston, Windermere, the River Eden and the River Kent competing for time, attention and resource, as well as the ongoing work of building flood defences in Kendal, it is hard for them to be able to focus.
Anna Dixon (Shipley) (Lab)
The hon. Gentleman talks about the Environment Agency being under-powered and under-resourced. With rivers like the River Wharfe, it has clearly failed to address illegal discharges and to enforce the law. Does he, like me, welcome the fact that the Bill will introduce more support for enforcement by allowing the Environment Agency to recover the cost of any enforcement from the offending water companies?
Tim Farron
Yes, to a degree. I thank the hon. Lady for her intervention; it is very welcome, as is the investment that is promised and the way in which it will be provided, but—and I am happy to be put right on this—I think the figure used by the Government is an additional 500 members of staff for the Environment Agency. That is one per constituency in England and Wales. That will not make a noticeable difference. In practice, the Bill could well permit a continuation of the current situation, where water companies will be setting and marking their own homework, with an Environment Agency without the capacity to even manage its current workload, let alone the new duties the Bill will give it to monitor masses of important overflow data. The regulator must be much better funded to do that well. Even then, the regulation rules must be watertight for the Environment Agency to ensure that the water companies cannot pick and choose which information they release or retain.
The Minister indicated that the data will be made publicly available and easy to access. I look forward to hearing more detail about how that will be done. That could be a positive move, allowing citizen scientists and campaign groups—such as the wonderful Clean River Kent Campaign group, the Eden Rivers Trust, the South Cumbria Rivers Trust and the Save Windermere campaign, as well as many others from other communities —to be able to hold the water companies to account to a greater degree. After all, knowledge is power. We are keen to encourage the Government to move forward with that.
We would also like to see water companies publish the volume and concentration of discharge from all emergency overflows, not just their duration and frequency. Will the Minister consider including that duty? And should we really have water companies installing and maintaining their own monitoring equipment? We believe that the Environment Agency or its successor should be doing that, with the full cost of that work paid for by the water companies.
The Bill makes almost no attempt to address the structure of finances and ownership of the water industry. The Minister has indicated that the Bill will seek to change the culture of the industry, which would be welcome, but cultural change will only come with a change to the reckless profiteering that has been the norm. As right hon. and hon. Members on the Conservative Benches have said, Lord Cromwell in the other place tabled an amendment requiring annual updates from water companies on any financial restructuring that they have done or plan to do. It cannot go unacknowledged that financial stability and good governance seriously affect the environmental standards that any water company is able to reach. I am grateful to my hon. Friends the Members for Witney (Charlie Maynard) and for Bicester and Woodstock (Calum Miller) who made those points in relation to Thames Water.
I am grateful to my noble Friend Baroness Bakewell for tabling a Liberal Democrat amendment to the Bill in the Lords to create special status, with special protections, for Windermere as an exemplar of the standards we will expect in our waterways across the whole country. The Campaign for National Parks’ health check report, which was released earlier this year, found that only five out of the 880 bodies of water in the national parks of England and Wales met the highest ecological standards, and that every single one was polluted to some degree. Windermere itself received 140 million litres of pollution in the last two years. Amendments tabled in the Lords, which we will table here also, will seek to tackle that. Water industry leaders must be forced to take responsibility for the care of these world class lakes and waterways, and our amendments to the Bill would ensure that they do so.
Although the privatisation of the water industry was an incredibly bad decision and definitely did not happen on our watch, I am not convinced that renationalisation would be necessary or a good use of public money. I fear it would mean that we would have to buy the assets back, putting taxpayers’ money into the pockets of those who have already made so much money out of them, without a single penny of that money going into improving infrastructure. Instead, it seems wiser to move away from the current model and to ensure that water companies should be community benefit corporations, so that all revenue goes into keeping environmental standards higher and solving the long-term problems of our networks. None of our constituents should have to pay for company debt. These were business decisions, taken by those who took risks to make money, rather than to invest in our sewage systems; they should bear the consequences of those risks.
The current regulatory framework seems to leave water companies immune from the highest penalties, despite their repeated failure to meet their basic obligation to prevent sewage from being dumped in our lakes, rivers and coastal areas. The current rules mean that, under special administration procedures, to remove a water company’s licence to operator would mean the regulator serving a 25-year notice on them. That is why we are disappointed that the Bill does not go as far as we want, or as far as so many water campaigners have asked for it to go.
The Cunliffe review gives us hope of a more radical set of proposals to come later in this Parliament, but our communities are impatient for change—a change more radical than this Government are so far willing to offer us. Although we see nothing in the Bill to disagree with and much in it to commend, we are left frustrated that any radical transformation will be at best delayed until a second instalment, after Sir Jon Cunliffe’s review.
Robin Swann (South Antrim) (UUP)
The hon. Gentleman references Sir Jon Cunliffe, and I thank the Secretary of State for commissioning the review. Does the hon. Gentleman agree that Sir Jon’s review should look across the United Kingdom, because Northern Ireland Water is both a Government-owned company and a non-departmental public body and I assure the House that the water quality in Northern Ireland, especially in Lough Neagh, is nothing to be celebrated either. Should not Sir Jon Cunliffe’s review look at how all bodies regulate their water systems, so they serve the public?
Tim Farron
I think two things. I respect the devolution settlement and think it is important that we do not overstep what we are called to do today. I also, however, agree that the waterways of all corners of our United Kingdom are precious and must be protected. I thank the hon. Gentleman for raising that point.
To conclude, the job of the Liberal Democrats is to be the constructive opposition in this place, and to now use Committee stage to inject into the Bill the ambition and urgency that we feel is currently lacking. To millions of people out there who care deeply about our waterways, the problems are obvious and so are many of the solutions. We call on the Government to accept the amendments that we will table in Committee in good faith, to act ambitiously and comprehensively, and to do so without delay.
Madam Deputy Speaker (Ms Nusrat Ghani)
I call Helena Dollimore, a member of the Environment, Food and Rural Affairs Committee.
Helena Dollimore (Hastings and Rye) (Lab/Co-op)
I declare an interest as co-chair of the all-party parliamentary group on water pollution. Today, we will vote on a landmark piece of legislation to begin the clean-up of our water industry. The measures in the Bill ramp up regulation, ban bosses’ bonuses and ensure independent monitors on every sewage outlet, linked to a system of automatic severe fines. Make no mistake: these are the biggest increase in powers for a generation, and the changes cannot come soon enough for my constituency.
Before I come to the devastating impact that Southern Water has unleashed on my constituency, I pay tribute to the campaigners and community volunteers who exposed the scandal. It is only because of their determination and detective work that we have understood the scale of the problem. Volunteers from the clean water action group in Hastings go out testing the water three times a week. I also thank our local East Sussex Fire and Rescue Service, who time after time are the first on the scene when sewage is spilling out on to the street.
The community that I represent in Hastings and Rye is furious at the conduct of Southern Water. From Camber Sands to Old Roar Gill, sewage has poured on to our beaches and beauty spots. Our way of life as a seaside community has been compromised. Our appeal as a tourist destination has been tarnished and livelihoods have been ruined. Many people have got sick from swimming in the sea, or caught ear or eye infections. People have ended up in hospital with sickness, and one constituent even attributes her deafness in one ear to an infection that she caught swimming in the sea. Another constituent in Winchelsea beach told me that he cannot grow vegetables because for the last decade his back garden has been regularly flooded with sewage. A family in West St Leonards had to move out of their home for months and live in temporary accommodation after sewage flooded their home.
The town centre in Hastings was flooded twice in one year. Businesses and residents who had just moved back into redecorated homes saw their homes flooded all over again under a foot of sewage water. They then had to be rescued by firefighters. It was shameful. It has cost our community millions in damage, as well as the untold human cost of having possessions, property and livelihoods ruined. In the vast majority of cases, residents and businesses in my constituency have not been properly compensated by Southern Water. We have been left on our own to pick up the pieces, all while Southern Water’s boss has been allowed to collect a huge bonus. That money should be spent on fixing broken pipes, not rewarding failure.
Dr Al Pinkerton (Surrey Heath) (LD)
I commend the hon. Lady on her excellent speech, and her celebration of local campaigners. In my constituency, Thames Water is responsible for numerous sewage leaks and a great stink that lingered over our market town of Camberley last summer. Does she agree that the Bill needs to provide for tougher regulation, and greater transparency and accountability, to ensure that water companies put health and safety and water quality over shareholder dividends?
Helena Dollimore
I thank the hon. Member for his intervention. One of the things in the Bill that I really welcome is that it will stop water companies marking their own homework. The monitors on every outlet will report independently to the Government, so that we can issue automatic severe fines—a big change and step forward.
If huge amounts of sewage and major flooding in my constituency were not enough for one community to endure, we have also suffered major water outages at the hands of Southern Water. The taps have run dry twice in recent memory. In September 2023, 10,000 residents of Rye were left without water for up to nine days. In May this year, in Hastings, 30,000 people were left without water for five days. It caused huge disruption and had a major impact on local businesses. It has to stop. The Conservatives had 14 years to update the compensation guidelines for such incidents, and failed to act. Because of the action that this Labour Government are taking, if future incidents occur, my constituents will be eligible for greater compensation from Southern Water.
The Conservatives let the water companies off the hook for far too long. Instead of forcing the industry to invest in crumbling infrastructure, customers’ money was instead siphoned off into shareholder payouts and bonuses. My constituents now face record water bills because of that failure. We inherited a crumbling water system from the Conservative party, and this Labour Government are acting to clean up the mess. This Government are acting where the previous Conservative Government failed, to end the disgraceful behaviour of the water companies and their bosses with this Bill. This is just the start of the change. I thank the Government for announcing an independent commission on the water sector to see what more they can do to ensure that the water sector works for customers and the environment. I will work very hard to ensure that the voices of my residents in Hastings, Rye and the villages are heard as part of that process.
Joy Morrissey (Beaconsfield) (Con)
I welcome this Government’s continuation of the previous Government’s monitoring plans, and the fines that we had asked to be imposed upon water companies. I am the MP for Beaconsfield, Marlow and the south Bucks villages, which is a beautiful area along the Thames. We are also on a floodplain, and I have spent years working with the Farnham sewage action group, the Little Marlow sewage treatment works, the community and the Department for Environment, Food and Rural Affairs to ensure that we are monitoring our storm overflow discharge.
I welcome the Government’s commitment to increase the capital spend on sewage treatment works. That is a wonderful and welcome sign, particularly when two of my sewage treatment works were approved only in July, when Labour took over. That is great news, which I am very happy to see. The Farnham and Little Marlow treatment works are due to be completed in 2026 and 2028. It is a wonderful opportunity for the Government to put their money where their mouth is, and invest in the future of the Thames in Marlow and Farnham. Will the Minister confirm that that investment will be maintained and hold Thames Water to account on delivery to that timescale? I have heard Ministers speak from the Dispatch Box of the Government’s eagerness to commit to this, and I am presenting two wonderful examples that we can monitor in the months to come.
My constituency is home to not only beautiful Marlow but aquatic sports along the Thames, which many young people enjoy. We have the Marlow rowing club and the Borlase rowing club, as well as the Little Marlow treatment centre, which is one of the most heavily fined sewage overflow and treatment centres in the country. Aquatic sports are practised in that area. I would welcome the Minister’s consideration of an amendment that I will table in Committee and on Report to ensure that the statutory requirements for areas where aquatic sports are practised are the same as the requirements for bathing areas, so that when young people, particularly secondary school children, row along the Thames they can rest assured of the water quality. I hope that this will be at the centre of cross-party support for ensuring that places such as the Thames, Marlow, Beaconsfield, Farnham and Burnham are looked at in a holistic way, and that the capital spend needed to invest and upgrade our sewage system will be committed to from the Dispatch Box today. I would welcome any further information from the Minister.
Jon Pearce (High Peak) (Lab)
Today, we celebrate the 75th anniversary of the foundation of our national parks. The Peak District, where I live, the majority of which is in High Peak, is our original national park and still the best, but our beautiful nature-rich rivers that run through the Peak District and High Peak are being soiled by raw sewage. High Peak is one of the top 50 constituencies that have been worst affected by sewage being dumped into our rivers. In 2023, the River Derwent and the River Wye suffered thousands of sewage overflows, contributing to water pollution and ecological harm, yet the water company bosses responsible rewarded themselves with outrageous bonuses. In 2022, the United Utilities chief executive officer received £3.2 million of remuneration, including an annual bonus of nearly £1 million. Severn Trent, which was fined £2 million for reckless pollution, still lifted its bonuses to £3.36 million. We must stop rewarding failure.
At the general election, ending the pollution of High Peak’s rivers and waters was a top priority. It was raised in all six—yes, six—hustings I did, often more than once. In High Peak, the pumping of raw sewage into our precious rivers has become emblematic of the utter chaos and failure of the past 14 years, so I greatly welcome the measures in the Bill. The independent monitoring of all outlets will provide greater transparency for my constituents and will enable the regulators to hold United Utilities and Severn Trent to account. Combined with the increased ability of the Environment Agency to bring forward criminal charges against lawbreaking water executives with tougher penalties, including up to two years’ imprisonment, and new powers for Ofwat to ban bonuses unless water bosses meet higher standards of protecting our precious environment, that should concentrate the minds of executives at Severn Trent and United Utilities.
It was a Labour Government that created our national parks 75 years ago today, and it is a Labour Government that are taking the steps to protect the rivers that run through those parks for the next 75 years.
Blake Stephenson (Mid Bedfordshire) (Con)
I welcome many of the measures in the Bill and will focus in the time available on the real action our constituents need from Government to bring our sewage network up to date.
Too often and for too long, our constituents have paid the price for a failure of forward planning by the water industry. In September, my constituency was the victim of exceptional flooding. In the aftermath, as we sought to learn lessons, many stories involved raw sewage coming up into people’s homes and gardens and flowing down their streets in places such as Harlington, Barton-le-Clay and Greenfield, as excess surface water overwhelmed the sewage system. No one, be they in Mid Bedfordshire or anywhere else in our country, should see a storm cloud overhead and fear that they will end up ankle deep in sewage—not in the 21st century.
I say this is a problem of forward planning because a shocking example of industry neglect during the flooding came from new town Wixams. The town is still being built out, with construction beginning this century, and yet the flooding overwhelmed the wastewater and sewage infrastructure, which could not cope with the amount of water being discharged into it. Thousands more homes will be built in Wixams and across Mid Bedfordshire over the coming years. We must do more to force the water industry to ensure that those homes are served by infrastructure that is fit for purpose and climate resilient.
The previous Government recognised that we have a Victorian sewage network, and they stepped up requirements for water companies to invest in improving our infrastructure. This Government must be similarly ambitious. I welcome clause 4, which talks of the importance of nature-based solutions in drainage and sewage management plans, building on the previous Government’s work in their plan for water.
Jess Brown-Fuller (Chichester) (LD)
In 2023, Chichester experienced 990 spills lasting over 17,000 hours. It is an environmental scandal and a public health crisis. As the Secretary of State said in his opening comments, it is time to clean up our water once and for all, and I welcome the Bill. Does the hon. Member agree that nature-based solutions, such as wetlands, will play a vital role in reducing spills and can be brought in quickly, but only if the regulation allows?
Blake Stephenson
I absolutely agree on the importance of nature-based solutions, and those solutions are talked about frequently in my community and, I am sure, in communities across the country. They were not necessarily spoken about five or 10 years ago, but we have a real opportunity to make a difference if we focus and deliver on nature-based solutions.
We must go much further in this area to ensure that all our towns and cities are built to absorb water. On implementing sustainable urban drainage systems, I mentioned this previously to the Minister for Water, and I will keep banging on about it. We must bring into force schedule 3 of the Flood and Water Management Act 2010—I recognise that the Act is from 2010 and a lot has happened since then—and take much stronger action to ensure that drains do not become blocked.
One way we could tackle the problem of abstraction and, indeed, flooding is by backing projects like the Bedford to Milton Keynes waterway park, which would run through the Marston Vale in Mid Bedfordshire and help channel water to where it is most needed. I hope the Government will give that project the support it needs.
Jodie Gosling (Nuneaton) (Lab)
I am pleased to be called to speak on this crucial piece of legislation, which will directly benefit the people of Nuneaton. For far too long, water companies have operated with little accountability, prioritising profits and shareholder payouts instead of the wellbeing and community impact that is so important to my residents.
The people of Nuneaton are tired of our river being polluted with raw sewage, and they are tired of being ignored and seeing a lack of action from water companies such as Severn Trent. In 2023 there were 66 sewage dumps, totalling 464 hours of raw sewage flowing into our rivers. That is a staggering 38% increase in the number of dumps and a 60% increase in the duration compared with the year before. Now we are told that in Nuneaton we will be expected to take 60% additional sewage to accommodate for Hinckley. Rather than investment supporting the overflowing infrastructure we have, the infrastructure will only be used to accommodate our neighbours.
Despite Severn Trent failing to meet its compliance targets and risk factors increasing, we are seeing record-breaking profits of nearly £3 million, and there is no benefit to the people of Nuneaton. I have met Severn Trent, and I am interested in the positive narrative that we have heard, but that is incongruent with the experiences of my residents, especially those who live on Church Lane in Weddington, for whom sewage flowing down their streets and contaminated solids in their gardens have become all too commonplace.
I support the Bill to block bonuses for executives who oversee the environmental damage, and to bring criminal charges for those who persistently break environmental law.
Helen Maguire (Epsom and Ewell) (LD)
My constituency is home to two significant rivers: the Hogsmill, a pristine chalk stream; and the River Mole, which tragically ranks as one of the most polluted rivers in the country. The River Mole, stretching 50 miles from Sussex to the Thames, is more than a waterway; it is a much-loved amenity for families, walkers and wildlife. Yet it is fighting for its life. Sewage discharges surpassed 2023 levels by November this year, with over 12,500 hours of raw sewage polluting the river through storm overflows. That is unacceptable. The crisis has been caused by water companies’ mismanagement, enabled by Ofwat’s failure to hold them to account. Thames Water has prioritised shareholder dividends over infrastructure investment, and Ofwat has issued no fines for sewage treatment failures since 2021—an extraordinary regulatory failure.
The Water (Special Measures) Bill introduces vital provisions to block bonuses for water company executives and to impose fines. Although these measures are welcome, they do not go far enough. Ofwat is a regulator that does not work, and it must be replaced with a new regulator with powers to ban bonuses comprehensively, to revoke licences for poor performance and to set legally binding sewage targets. Bonuses must be blocked not just for pollution, but for persistent leaks, missed investment targets and failing infrastructure improvements. The Liberal Democrats would ensure that the companies are held accountable for all their failures, not just the most egregious ones.
We must also rethink water company ownership. Since privatisation, those companies have accumulated £68 billion of debt, while paying out £70 billion in dividends. Customers are now paying for that debt in their bills. In a public-benefit model operating as not for profit, debt-free mutuals would reinvest all profits into upgrading our water system. That model works. Denmark, whose not-for-profit utilities have some of the lowest water losses, ranks among the top EU countries for bathing water quality.
Closer to home, I commend the River Mole river watch group in my constituency. Those dedicated volunteers test water quality and report pollution online. Their work is extraordinary, but they should not have to do it alone. Water companies must publish detailed and transparent data on sewage spills so that the public understands the full extent of the problem. Such local groups deserve more than praise; they need a seat at the table. Those environmental champions should have representation on water company boards, bringing community-driven accountability to decision making.
My constituents and the rest of the public are sick of seeing their rivers turned into open sewers. They are sick of paying higher water bills to subsidise shareholder profits and executive bonuses while vital investment is neglected. The Government must go further by replacing Ofwat with a new regulator that has stronger powers, expanding the ban on bonuses, empowering local communities, and reorganising water companies into public benefit organisations. This is our chance to turn the tide on water mismanagement and restore our rivers to health. The people of Epsom and Ewell, and indeed of the whole country, deserve no less.
Alison Hume (Scarborough and Whitby) (Lab)
Last year, more than 100 people met at South bay in Scarborough to protest about the consistently poor water quality. Ironically, as they prepared to enter the water, they were approached by lifeguards who told them that it was not safe to do so because of the high levels of sewage. The event was organised by Surfers Against Sewage. One of its members, Steve, who is a constituent of mine, has had to close his surfing business because the water quality is so poor that he cannot guarantee the health and wellbeing of his surf students.
I also have the fantastic Wave Project in my constituency of Scarborough and Whitby. That charity is committed to improving children’s mental health and wellbeing through its award-winning surf therapy programme, which enables children and young people to build confidence and overcome anxiety barriers through surfing. However, it regularly has to cancel sessions at short notice because of the poor water quality, which causes immense upset for youngsters and their families.
Away from my beautiful beaches, the River Esk starts its 28-mile journey in Westerdale in the north York moors and flows eastward to Whitby. It is the only major river in Yorkshire that flows directly into the North sea, and it is both commercially and ecologically important. It supports Atlantic salmon, sea trout and the endangered freshwater pearl mussel. However, pollution is destroying the health of the River Esk. Eighteen storm overflows—17 of which are in my constituency—discharge into the river. In 2023 there were 637 sewage spills. The worst offender was Ruswarp sewage pumping station, which had 126 spills. Such discharges release pollutants, which reduce water quality and cause harm to aquatic life. That is particularly concerning during the salmon spawning season, as it can affect fish eggs and juvenile fish.
Yorkshire Water has stood back and let that happen. It is hardly surprising that, after Yorkshire Water was fined £47 million for historical sewage spills and poor customer service, campaign groups continue to call on its chief executive to repay the £371,000 bonus that she received last year. Where is the accountability? Official figures show that 87% of rivers in Yorkshire and the Humber fail to achieve a good ecological standard. It cannot be right that people’s health and livelihoods, as well as our precious environment, have been so severely impacted by privatised companies that put profit before people and the planet.
I welcome the measures in this ambitious Bill, especially the move to boost accountability, which will mean that the chief executive of Yorkshire Water will no longer receive her bonus unless she meets high standards in protecting the environment and customers. The new requirement on the water companies to report on the frequency and duration of all emergency storm overflows within an hour of a discharge taking place will tell us the real story for the first time. Only then can we draw a line under this disgraceful era of profit at any cost, and move towards fixing the broken water industry.
Sarah Bool (South Northamptonshire) (Con)
It is absolutely right and correct that we debate these measures to improve the water industry. In the light of continued concerns over Thames Water and Southern Water, action must be taken to protect our water service.
It is important to take a step back and put the debate into its proper context. We must appreciate that most of the UK has a combined sewerage system, meaning that both rainwater and wastewater are carried in the same pipes, before wastewater goes into a sewage treatment plant. If, as in recent weeks, we have exceedingly heavy rainfall, capacity can be exceeded and water companies are allowed to spill untreated wastewater into rivers and seas—otherwise, there is a risk of flooding people’s homes with waste. There has been an issue of companies doing that when there has been no rain—known as a dry spill—which is not acceptable.
Although it has been miscommunicated by other parties and by the Secretary of State, the previous Government took the vital step of requiring storm overflows to be monitored. As hon. Friends have said, that monitoring increased from 7% in 2010 to 100% in 2024. It has enabled discussions and plans to fix the poor behaviour of the water companies. The overflows were always happening, but the previous Government’s monitoring caught the poor behaviour and highlighted the action that was required.
Sarah Bool
Not just yet.
No monitoring does not mean that water is clean, as the Secretary of State seemed to suggest. One must be faithful to the facts.
We will support this Bill’s Second Reading because it includes many measures that the previous Government established—for example, companies that pollute the environment can be hit with unlimited fines, and water bosses can be banned from receiving bonuses if their companies commit serious criminal breaches. However, some measures need to be amended, including to maintain the previous Government’s water restoration fund. Why has that not been continued?
We must ensure that we focus on our water infrastructure, which is largely out of date. Poor maintenance causes leakages, and poor capacity leads to sewage overflows. Tackling those problems will require investment and innovation. Ofwat must use its powers more effectively to better monitor performance and enforce standards in a timely fashion. Although I acknowledge the Bill’s focus on penalties for water companies, we must ensure that incentives for investment and change are in place for the years to come.
Amanda Hack (North West Leicestershire) (Lab)
I welcome the Bill as a first step towards broader change across the water sector to ensure that it works for people. The number of complaints about water and the management of our waterways has been a key concern for people in North West Leicestershire for some time, but residents feel that water companies have not acted while bills have predictably continued to rise.
When I was a member of Leicestershire county council’s environment and climate change scrutiny committee, I pushed for the water companies in Leicestershire to attend our committee, which they did—eventually—in November 2022. They gave a great presentation with some glossy pictures, but their suggestions, which looked nice on paper, simply have not materialised. My impression was that there was a severe lack of transparency and accountability among those companies about the damage that they were doing to our water system, which followed the previous Conservative Government’s unwillingness to act and push them to clear up their mess. The long-term priorities for the water companies have been shareholder and executive pay. They have been taking bonuses while polluting our waterways, and increasing debt without increasing investment.
There are signs of recovery, however. The Bill has not yet become law, but there has been a shift in Severn Trent Water’s willingness to clear up its mess in North West Leicestershire, and its hard-working employees have appeared to start engaging with us. That must continue if we are to challenge the constant impact that poor water quality is having on our communities and our environment. Water issues are a constant in my casework files, as they are for so many hon. Members, and local people have been in touch to report dry weather outflows. They are asking, quite rightly, about the legitimacy of outflows in dry weather and of large-volume releases during wet conditions. What is clear is that those releases have been seriously damaging for our communities.
Let me bring home an example of the importance of this Bill. I have been working with a group of residents in Whitwick in my constituency who have a shared garden space next to the Grace Dieu brook, where they have a storm drain. That storm drain regularly releases effluent, and when I visited recently, despite having had a crew to clear up, it was clear that there was still debris. While the water in the brook had been tested immediately after the spill and found to be within a normal range, the residual smell remained—it just clung—meaning that those residents were unable to use their personal space.
There is another site in Donington le Heath, which is home to the most-used sewer outflow in my constituency. I was invited to see a resident who has a smallholding close by. They have a storm drain on their land alongside the River Sence, a particularly beautiful watercourse. When I visited earlier in the year, they had just had an effluent release, and despite 10 bags of rubbish having been cleared from the area, there was still a clear path of debris from the spill. This keeps happening, and it has to stop. Those are just two cases in which our local communities have borne the impact of poor decision making and a lack of investment in infrastructure. They should not have to manage untreated waste while the execs get their bonuses—communities should not have to continue to deal with this.
This Bill puts failing water companies under special measures and sends a clear message that this Government are ready to take the action necessary to fix our foundations. It is the start we need to deliver the transformational change that our water system desperately needs.
Alison Griffiths (Bognor Regis and Littlehampton) (Con)
It is an honour to speak on such an important issue, one that affects my coastal constituency daily. Sewage discharges, water quality, and the related issue of flooding are among the most pressing concerns for my constituents.
The Environment Agency’s bathing water classifications, updated on 26 November, reveal alarming declines in water quality. Bognor Regis East’s classification dropped from good to sufficient, while Aldwick’s remained poor for the third consecutive year. Abuses of our water system are having a serious impact on public health, our vital tourism industry and our natural environment. However, by focusing only on water companies and sewage, this Bill delivers an oversimplified approach. There is an urgent need for holistic and comprehensive solutions to protect our waters, prevent flooding and tackle sewage discharges. This issue is not simply about water companies and sewage, but the Bill falls into the trap of focusing solely on them.
In Bognor Regis and Littlehampton, the situation is compounded by recurring flooding, which affects businesses and homes from Shripney Road and Durban Road on the boundary of the constituency to Fish Lane and Rope Walk in Aldwick and Littlehampton respectively. That flooding is exacerbated by extensive house building on our flood plain and by the local topography. Without infrastructure improvements and an integrated action plan, sewage outflows will continue to blight our coastline. Combined, these issues are causing a decline in our tourism industry, devastation to homes and businesses, increases in insurance premiums and significant financial losses for affected local businesses and employers. This is not a mild inconvenience for a few sea swimmers—although I count myself among their number—but something that affects our entire area.
As such, the Water (Special Measures) Bill is a timely opportunity to accelerate essential environmental improvements. I am concerned, though, that the Government are not sufficiently grasping this opportunity. The absence of robust enforcement measures for proposed reporting is particularly concerning. Clause 2 requires water companies to “prepare and publish” annual pollution incident reduction plans. That is a step towards greater accountability, which I welcome. However, the clause lacks enforceability and thus any purpose, as it mandates only the preparation and publication of those plans, not their implementation. As such, will the Government amend the Bill to ensure the delivery of measures set out in those reports and provide the necessary enforcement powers? My constituents, and the public, are weary of empty promises on water quality. It is essential that this Bill mandates that water companies deliver measurable improvements, not meaningless promises.
Ms Billington
The hon. Lady and I share concerns about the safety and health of our seawater. I just want to clarify for her that we have accepted the Lords amendment in relation to the enforcement plans, and are ensuring that those plans will be on the face of the Bill.
Alison Griffiths
I thank the hon. Lady for clarifying that point. Letting the Bill pass without that amendment would have been a disservice, so I am delighted to hear it.
Dr Allison Gardner (Stoke-on-Trent South) (Lab)
In my constituency, we do not have a single unpolluted watercourse. Last year, on the Conservative Government’s watch, Severn Trent Water, the company that covers my constituency, was responsible for over 60,000 sewage overflows nationally. In Stoke-on-Trent South, we have had 24 sites polluted by 337 sewage dumps lasting a total of 1,570 hours.
I have spoken many times about the impact of flooding and sewage pollution in my constituency. I have highlighted the ongoing battle of the village of Upper Tean to combat frequent flooding and pollution of the River Tean. Upper Tean’s village recreation space, with a children’s playground, is frequently flooded with sewage-contaminated water. The people of Upper Tean are good people, and are willing to work with all agencies via the newly created Tean flood action group to positively rectify these problems. Indeed, the most recent meeting had a positive outcome, in that a particular outflow will have CCTV monitoring installed to address the issue of false sensor recordings and to address poor communication within Severn Trent regarding the reporting of incidents. Through local meetings with the people who are affected and with local water representatives who come in good faith, we can make change.
Following on from our experience in Upper Tean, I cannot stress enough the importance of listening to consumers and empowering the citizen voice, so I am pleased to note that new section 35B of the Water Industry Act 1991 will require that consumers be involved in the water companies’ decision-making processes, and I welcome the Secretary of State’s announcements regarding the requirement for customer panels. I want to ensure that guidelines are laid out so that such panels are not tick-box consultations that can be manipulated with clever questions. They must be truly participatory, with diverse input, offering constructive criticism and solutions that make a difference in real life. We must always put the people and their voice at the heart of decision making.
In Tean, after much prolonged pressure, we have seen that we can develop positive local relationships between representatives of water companies and citizens. However, the same cannot be said of the chief exec, who seems rather resistant to meeting or even replying personally to emails, but is quite happy to take her bonus. As such, I welcome the Bill and its focus on empowering regulators to hold the water companies and their chief executives to account, including by blocking bonuses, bringing criminal charges and being able to implement automatic, severe fines. People are fed up of being taken for mugs—cash cows to deliver paydays for shareholders. We bathe in sewage while shareholders and execs are showered with dividends and bonuses. This Bill is just the start of this Labour Government’s journey to hold those companies to account, bringing an end to the profiteering and the decay of our water infrastructure, and to turn the tide on pollution. It should be supported by Members on all sides of the House, and I hope it sails through today.
Madam Deputy Speaker
I call Ellie Chowns, a member of the Select Committee.
Ellie Chowns (North Herefordshire) (Green)
I declare an interest as a founding co-chair of the all-party parliamentary group on water pollution. As the Minister well knows, I have a deep and abiding interest in the theme of water pollution. I gently remind her that agricultural run-off is the primary source of water pollution in my constituency, and I welcome the constructive conversations we had on that topic last week. Today, I will talk about the broader topic of the Bill.
Water companies have extracted £85 billion of value from our water industry since privatisation—that is an extraordinary figure—and their flagrant abuse of our rivers, seas and lakes is a stain on our country, literally as well as figuratively. Some 30% of all water bills now go on debt servicing and dividends, and this is money that should be going towards maintaining and improving our water infrastructure and services. Thames Water, Southern Water and South East Water have all had their credit ratings downgraded, meaning that about a third of bill payers in England and Wales are now paying their bills to junk-rated companies, which again is extraordinary. As companies’ finances get worse, new debt gets more expensive to service, and where does the money come from? The money comes from bill payers.
It is clear for all to see that the interests of water company shareholders and the interests of the public are at odds. It is not possible to use our water as a vehicle for maximum short-term profit and at the same time to deliver safe, reliable, affordable drinking water and a clean environment. One comes at the expense of the other.
Ellie Chowns
I am really sorry, but I will not give way because I know so many Members want to come in.
In my view and that of my Green colleagues, the only way to run a water system in the interests of people and nature is to take away the profit motive entirely. It should never have been allowed near our water industry in the first place. Any steps to end this culture of impunity in the water industry are very welcome. Unfortunately, the measures in this Bill are, in my view, largely to look nice in headlines, and they are maybe a bit of an attempt to look busy. I say that gently, but I do think we need to go further. In fact, the majority of the British public agree with me: 82% of the British public believe that we should have water in public ownership. I challenge the Government to take up that mantle—that mandate—from the British public to do the right thing, and to take the profit motive out of water entirely.
I always believe in talking about areas of common ground, and I recognise that multiple elements of this Bill are positive steps. I will, with my colleagues, be supporting it. I welcome the extension of monitoring requirements for sewage overflows, and I welcome the requirement for more customer involvement in decision making, which I would like to see extended to worker representation as well. I welcome the encouragement for companies to consider much more use of nature-based solutions, and I would love to see this extended even further.
To be honest, however, what we have seen with the financial mess that the companies are in is the complete failure of the model of privatisation. We need to do more than just tinkering at the edges. The Government’s water commission will not even be allowed to consider the question of public ownership, so it will hunt high and low for solutions while continuing to kick the can down the road. Is it not time that the Minister faced the reality that profit in water has failed, and to do what the majority of the British public want, which is to bring our water and sewage utilities back into public ownership?
James Naish (Rushcliffe) (Lab)
Thank you, Madame Deputy Speaker, for inviting me to speak. Like many colleagues, I stood on the banks of my local river, the River Trent, during the general election campaign, and looking out over the murky waters, I promised residents that the next Government would change a broken system. This broken system has enabled our water quality to drop to the point where only 14% of rivers and lakes in England have a good ecological status, according to the Environment Agency. Since being elected, hundreds of residents of Rushcliffe have contacted me to say they are concerned about our broken water and sewerage system, describing it as symptomatic of a broken Britain. I am therefore pleased that today’s Bill marks the start of a significant turnaround process for the health of our nation’s water.
Local to Rushcliffe, the data has been consistently going in the wrong direction. There were 471 sewage dumps in my constituency in 2022, and this more than doubled to 958 sewage dumps in 2023. The absolute number of sewage dumps is of course a crude indicator, but, sadly, the cumulative impact has also grown from 3,733 hours in 2022 to 10,774 hours in 2023. The direct impact on Rushcliffe residents is palpable, especially in villages such as East Leake that are susceptible to flooding, which frequently includes rural sewage. I welcome the works that Severn Trent is starting to take by upgrading a nearby treatment works, doubling processing capacity by the end of March 2025. However, for many residents this investment is far too late and should have been made years ago, in an era when water companies were creaming off profits and failing to act as true and honest custodians of the national water network.
To that end, I encourage the Secretary of State and his team to think carefully about who we want to be the future custodians of our water network. If water and sewage companies go under, I believe we—the state—should always be prepared to step in to offer a genuine public alternative to hedge funds and the like. As with rail and energy, we should be prepared to start a process whereby the state once again offers to play a more active role in running basic universal services, challenging private sector organisations that have happily paid out dividends while allowing 3 billion litres of water every day to be lost through leaky pipes.
Fundamentally, I believe it is the right of each and every one of us to be able to enjoy our beautiful rivers, lakes and seas without the fear of getting sick. So on behalf of my constituents in Rushcliffe, I welcome the many positive measures in this Bill as it seeks to enhance enforcement powers and to start cleaning up our water for good. Moving forwards, there should be no more sticking plaster fixes, because, quite frankly, the very least that my constituents deserve is a water and sewage system fit for the 21st century.
David Reed (Exmouth and Exeter East) (Con)
I thank the Government for introducing this Bill and the Minister for Water for meeting me last week.
This is a vital issue, not least for my constituents in Exmouth and Exeter East. Across my constituency, from Cranbrook to Exmouth, we have felt the full force of South West Water’s neglectful and harmful behaviours. This year across the county of Devon, we have experienced the full gamut of the damaging effects of a water company that is crying out to be reformed, be it by legal or regulatory tightening. From cryptosporidium parasite outbreaks in the Brixham area to the closure of beaches in Exmouth, our county has had enough. Our local wellbeing, health and economy have been significantly impacted, and our beautiful home is starting to gain a national reputation for all the wrong reasons.
We have a responsibility to ensure that the Bill is as effective and strong as it can possibly be, and that means listening carefully to voices from all parts of the House. Most Members will be familiar with the long history of this issue, so I will not relitigate arguments that have been made already, but it is important to reiterate that this is not a problem that has emerged overnight. We have collectively dropped the ball on this issue—from the last Labour Government under Blair and Brown to the Lib Dem-Conservative coalition and the last Governments, we are all in part complicit—[Interruption.] I think that is a very fair point. This has happened over many decades, and I would very much like to reiterate that point to Labour Members.
Although it is absolutely right that we strive to end the unacceptable practice of sewage discharges, we must confront the hard truth that we cannot transform these crumbling systems overnight without disastrous consequences, such as sewage backing up into people’s homes, on to our streets and into our communities. That is why we must commit ourselves to the long haul. This will require sustained investment, careful planning and clear accountability, not short-term fixes or political point scoring.
Caroline Voaden
The hon. Member mentioned the cryptosporidium incident in May in Brixham in my constituency, where 17,000 houses were affected by contaminated water. A boil water notice was enforced for eight weeks, and many of my constituents are still suffering from that. I say to the Minister that, when the Drinking Water Inspectorate reports next year, I hope the water company will be forced to pay proper compensation, because it would appear that its negligence and not maintaining its facilities over the past decades was possibly one of the causes of the contamination.
David Reed
I thank the hon. Member for raising those points; this issue has affected our county, and I hope that members of the Environment, Food and Rural Affairs Committee raise it as fast as possible, to ensure that South West Water is held accountable and placed in front of them to answer questions about how that outbreak happened. I reiterate that our constituents deserve a solution that is ambitious but achievable. It was under the previous Government that the scale of the issue was truly identified—a point that has been raised repeatedly this evening.
Peter Swallow
The hon. Member is correct: many Conservative Members have raised the issue of monitoring, and they have repeatedly mentioned storm overflows. Will he put on record how many emergency overflows are currently being monitored?
David Reed
This is a major issue. We are talking about the sewage network for an entire country. The last Government pushed for storm overflows to be looked at, and I am glad that the Bill, which has been brought forward by this Government, will look at emergency overflows.
As we know, the landmark Environment Act 2021 gave regulators stronger powers to tackle pollution and ensure greater transparency, holding water companies and polluters accountable. The last Government also set legally binding targets to improve water quality, reduce pollution and enhance biodiversity, while the plan for water took a systematic, local, catchment-based approach, requiring significant investment in storm overflow improvements. That was decisive action to hold water companies to account, linking performance to shareholder payments, banning bonuses for water bosses responsible for serious breaches, and empowering regulators to impose unlimited financial penalties on polluters.
Josh Babarinde (Eastbourne) (LD)
In Eastbourne, we are blessed with 94 beaches, but our water quality has dropped from “excellent” in 2015, to a low of “satisfactory” under the last Government. At the same time, Southern Water has made significant amounts of money—with more than £2.9 billion in dividends, and the chief executive receiving £183,000 in bonuses this year and a salary of £765,000. Does the hon. Gentleman agree that the last Government allowed that to happen, and will he apologise for what they allowed to happen to our water industry?
David Reed
The hon. Gentleman mentioned 2015, so let me return to the point I just made: these problems did not happen overnight. He will know that the Liberal Democrats were in coalition with the Conservatives until 2015.
The previous Government took decisive action to hold water companies accountable, linking performance to shareholder payouts, banning bonuses for water bosses responsible for serious breaches, and empowering regulators to impose unlimited financial penalties on polluters. Those actions laid a solid foundation, and it is important to note that many elements of the Bill mirror work already undertaken by the last Government. For example, the confiscation of bonuses from water company executives responsible for pollution is already in motion under existing frameworks. Many measures outlined in the Bill were already being implemented and do not require primary legislation.
To make real, lasting improvements, we need a more wide-ranging strategy, and I hope the Government will listen carefully to constructive criticism, because my constituents in Exmouth and Exeter East, like so many others, deserve nothing less. As I have emphasised, we are committed to collaboration on this issue, to ensure that we make vital progress on limiting water pollution.
Tristan Osborne (Chatham and Aylesford) (Lab)
I rise to speak in support of a crucial and overdue piece of legislation: a Bill to regulate, govern, and establish special administration measures for water companies in the United Kingdom. This is not just a matter of environmental stewardship; it is a matter of public trust, local accountability, and the health of all our communities. This issue matters to all our constituents, including mine, who have expressed deep frustration with the way that water companies are managed. In 2023 alone, we witnessed 1,011 sewage dumps in the Medway catchment area—in a tidal area known for its sites of special scientific interest and RSPB nature reserves. Time and again we see news of raw sewage being discharged into our waterways, resulting in devastating pollution levels.
Watershed investigations have uncovered a cocktail of nearly 500 chemicals in our rivers, and found that the River Medway—a chalk aquifer, no less—is the joint worst most polluted river in the UK. According to the Angling Trust, chemicals detected include ketamine and fluoranthene—a very toxic compound used in pet flea repellent, which undiluted has been described as “Novichok for honeybees”, with one drop able to kill thousands and thousands of insects. I think of those who walk along the riverbanks, work on our rivers, enjoy our parks, or fish in our waters, unaware of the devastating pollution levels that were allowed under the previous Government. How can we explain to the people of Medway, or anywhere in the UK, that such practices were allowed to continue?
Over the last 14 years we have seen weakened regulation, a failure to invest in infrastructure, and the turning of a blind eye as water bosses pocketed millions of pounds in bonuses. It was a kind of perverse performance related pay where, it seemed to many, the higher the discharges, the greater the bonuses. Some may argue that privatised water companies are critical for investment and efficiency, that profit motives encourage innovation, and that regulation would stifle growth and deter private sector involvement. It is, however, welcome that there is some element of cross-party consensus that privatised, low-regulation industry has failed this nation.
The truth lies in responsible action. We need strong Government regulation to ensure that water companies meet their obligations, balanced with the empowerment of local governments and communities to oversee and protect their resources. The current state of our rivers is a disgrace and we need change. Let us introduce stricter penalties for water companies that fail to meet environmental standards, and push for greater investment in our infrastructure, including significant upgrades to waste water plants. The Bill is about more than just fixing a broken system; it is about creating a sustainable future for our children. Cleaner, greener rivers mean healthier communities, stronger governance means fairer water bills and better services, and a protected environment means that we can safeguard not just our wonderful wildlife, but also the quality of life for generations to come.
It is absurd to think that in 21st-century Britain, human waste is being dumped in major waterways, and that we have allowed that to be the status quo. To my colleagues in the Chamber tonight I say: support this Bill. To the people of Medway and beyond, who I represent, I say: demand better from those entrusted with your most vital resource. Together, we can build a system that works for everyone, not just for shareholders, but for families, businesses and the environment.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
As the MP for Brecon, Radnor and Cwm Tawe, I am in the honourable position of representing a constituency containing three mighty rivers: the River Usk, the River Tawe, and the world famous River Wye all rise in the hills and mountains of Mid Wales and pass through this giant constituency. All the water in the Wye ought to be considered a national treasure, stretching as it does across some of the most picturesque landscapes, providing habitats for an array of wildlife, and supporting multiple communities through tourism and recreation. Yet sadly, the Rive Wye is dying at an astonishing speed. That is why strengthening the regulation of our water companies is understandably a major priority for my constituents.
I know that my constituents are disgusted by the reality of sewage dumping, as many of them have told me so. Wild swimmers, anglers and kayakers are just three groups affected by sewage dumping and the knock-on impact that has on our local economy, yet in Wales, the environmental regulator—Natural Resources Wales—is chronically underfunded and has faced decades of budget and staffing cuts by the Welsh Labour Government. Those cuts have left it unable to fulfil its role, meaning that the current legislation is not being properly enforced. NRW requested a minimum of 50 extra staff members just to do its job properly, and 250 additional staff members to do it well.
The expansion of regulatory powers must be matched with the necessary resources to strengthen the regulator’s hand and to enable enforcement. Despite the River Wye being probably the most famous case of river pollution in the UK, it might surprise some to learn that the other two rivers in my constituency, the Usk and the Tawe, are in even worse health, with all three sadly placing in the top 30 most sewage-filled rivers in the UK. While I welcome the legislation strengthening the monitoring of emergency overflows, it is important to recognise that citizen scientists, such as the Friends of the Upper Wye and Save the River Usk, have been doing most of the legwork when it comes to telling us what exactly is in our rivers and where particular areas of concern are. That is why the Liberal Democrats are calling for community groups to have the right to representation on water company boards, so that we bring back that local expertise on board.
Lee Pitcher (Doncaster East and the Isle of Axholme) (Lab)
I refer to my declaration in the Register of Members’ Financial Interests. I am co-chair of the all-party parliamentary water group and chair of the all-party parliamentary group for sustainable flood and drought management.
If our forests are the lungs of the environment, then our rivers, streams and other watercourses are its veins and arteries. They carry vital nutrients and elements around their catchments, ensuring that our flora and fauna flourish and thrive. Globally, we know that all species are currently dying out at rates more than 100 times the normal evolutionary rates of extinction. Locally, the picture is just as bleak. According to the most recent Rivers Trust report, “The State of Our Rivers”, no single stretch of river in England or Northern Ireland is in good overall health, and toxic chemicals persist in every single stretch of English river.
Pollution in rivers comes from a variety of sources, including trade, agriculture, highways, riparian assets and sewage assets, among others. Whether we are tackling floods, drought or pollution, there is a need to bring all agencies with a responsibility for managing our water together to plan for and deliver a sustainable water future. There has never been so much public focus on the water industry. Recent years have seen: the renewed emergence of open-water swimming in a time where people explored their local environment much more during covid; the growth of citizen science increasing the available data on offer; campaign groups making a huge breakthrough in highlighting the challenges we face; and, increased data transparency showing there to be real problems. The public have lost faith in the industry and in the Government’s ability to regulate it, with widespread concerns about under-investment in infrastructure and unacceptable levels of pollution.
The measures in the Water (Special Measures) Bill are the start of fulfilling the Government’s ambition for the water sector as a whole. I am proud that within days of taking up Government, the Labour party started to work on this Bill. I am equally pleased that an independent commission led by Sir Jon Cunliffe has been announced to commence a full end-to-end review of the water sector regulation system. This Bill delivers on the Government’s promise to ensure that water companies are held to account in delivering service and environmental obligations, and in doing so begin to rebuild much-needed trust.
While there has been much discussion today on combined sewer overflows and other sewage discharges, I am keen to highlight the types of intervention that will be needed to clean up our rivers and seas, and the focus on nature-based solutions in the Bill as part of the drainage water management plans. Grey infrastructure, new pipes, pumps, sewers and additional treatment capacity will always be part of the equation, but as we look to become more sustainable, I am encouraged to see reference to nature-based solutions and their future role in the Bill.
Vikki Slade (Mid Dorset and North Poole) (LD)
I completely agree with the hon. Member about natural solutions. The urban wastewater treatment directive seems to be completely counterintuitive. In Wareham in my constituency, we have a chemical-based removal system that cost £10 million and delivered a 10 tonne a year saving, whereas a nature-based solution was calculated to deliver 90 tonnes a year, but at a fraction of the cost. Does he agree that that is definitely the way to go?
Lee Pitcher
I definitely agree that we require a whole range of different types of solution, including blue-green and the more traditional.
Blue-green infrastructure comes from working with the landscape and environment to create a new type of asset that can not only reduce flood risk or store water to be used later in times of drought, but attenuate pollutants before they go into watercourses and improve water quality at source. Such infrastructure includes the creation of ponds and rain gardens, rewilding, woodlands, mini-forests and wetlands, building in buffer strips, hedgerows and green roofs as part of new development, and engaging in smart soil management. Importantly, those have wider-reaching opportunities, too. They bring opportunities for new skills and new jobs, they facilitate nature recovery, and they provide a means of education for young adults.
The Government needed to respond fast with immediate action. They have done just that with the Bill. They needed to ensure that, in parallel, a sustainable view of the whole water sector regulatory regime was taken. They have done that with the announcement of the commission. That is the difference that a Labour Government make. On behalf of my constituents, I fully support the Bill.
Ann Davies (Caerfyrddin) (PC)
Diolch, Madam Dirprwy Lefarydd. With deteriorating water standards while customers pay higher and higher bills, the water sector’s overhaul is no doubt overdue. Tougher restrictions on water companies that have paid eye-watering bonuses as untreated sewage flows into our rivers are welcomed. We have heard numbers from various constituencies, but listen to this, bois: my constituency of Caerfyrddin saw the most sewage dumped in 2023, with over 11,000 dumps lasting over 115,000 hours. Good reporting may be a factor, but the track record of not-for-profit Dŵr Cymru is not fantastic: it was fined £40 million for misleading over poor performance, while Ofwat had to block £163,000 of undeserved customer-funded bonuses, so further regulation is necessary and overdue.
However, I have some concerns regarding the Bill. First, River Action and Surfers Against Sewage have highlighted Ofwat’s continued duty to make reasonable returns for water companies, prioritising profit over environmental and public health. Profit-wise, Storm Darragh clearly showed in west Wales that supply becomes an issue when power is lost. Therefore, infrastructure investment is sorely needed.
Secondly, the extension of storm overflow monitoring to cover emergency overflows is a good idea in principle, but to make a real difference we must move away from unreliable and limited event-duration monitors to a better monitoring model that provides more insightful data on volume and discharge type. Some of those are already in motion. The Teifi nutrient monitoring project uses high-frequency monitoring sensors and multi-sondes along the Teifi river. Supported by citizen science, data is collected four times a day, tracking pollution and identifying sources, which will guide action plans for the Teifi, Tywi and Cleddau rivers. When I was a county councillor on Carmarthenshire county council, I was delighted to be part of the nutrient management team putting those sonde monitors into the river and promoting nature-based solutions.
Plaid Cymru believes that Wales should have full control over its water resources. Much of the Bill’s provisions are already devolved matters, subject to Senedd consent. According to a recent statement, Labour Senedd Members believe that it is in the “best interest of Wales” for the UK Parliament sometimes to legislate in devolved areas, including where that enables policy objectives to be most effectively achieved. The sanctity of Welsh devolution should never be vulnerable to the whims of any London party politics, and that Labour policy does cause long-term concern.
The aims of the Bill are welcome, and the current scandal of water quality must be resolved. However, we need to ensure that the Bill adequately prioritises environmental and public health without undermining devolution.
Several hon. Members rose—
Madam Deputy Speaker (Caroline Nokes)
Order. I am going to reduce the time limit to three minutes, after the next speaker. I call Andrew Pakes.
Andrew Pakes (Peterborough) (Lab)
Phew! Thank you, Madam Deputy Speaker. [Laughter.] I am privileged to speak on Second Reading of a Bill that is of huge interest to my constituents and the country. After 14 years, the new Government have inherited record levels of illegal sewage dumping in our rivers, lakes and seas, an Environment Agency budget halved since 2010, crumbling infrastructure, with bursting pipes and record spills, and unaccountable water companies.
It is time to change that. It is time to hold our water companies to account and to start fixing the problem. That is why this Government have made the Water (Special Measures) Bill a priority. We need immediate action to end the disgraceful behaviour of water companies and their unruly bosses. We had more than 3,000 hours of sewage poured into our rivers in my constituency alone last year. A lot of sewage came out of the last Government, but certainly not the sewage we are talking about tonight.
After our sewage discharges, Anglian Water, which I know is many Members’ provider, belatedly had to pay £38 million to Ofwat. The year before, Anglian Water’s chief executive received a £1.3 million package in pay and bonuses, despite the company’s poor performance. Despite overseeing the catastrophic failure, water chief executives have paid themselves more than £41 million in bonuses and incentives since 2010. It gets worse: Thames Water’s boss took a £195,000 bonus at the end of March for just three months’ work. That is the unacceptable face of unaccountable privatisation.
Little wonder, then, that constituents writing to me are angry and that people have so little faith in the power of accountability and regulation, when so little was done by the last Government. I asked Ofwat these questions directly when it appeared before the Environment, Food and Rural Affairs Committee recently. The answers were wanting. That is why the Bill is so needed, and why Ministers have brought it forward so quickly. It sets out new powers to make water companies accountable, to ban bonuses for CEOs and senior leaders unless high standards are met, and criminal liability for water executives, and it sets out a new approach to ensuring that water companies live up to their environmental obligations and serve the public good. I want to put on record my thanks to those public servants who have been fighting hard against the water companies, despite the cuts of the last decade: those in the Environment Agency, the public servants in our water utilities, and members of GMB, Unison and Prospect who know what looking after our water and nature is really about.
The Bill treads where the last Government failed to go. Let us be clear about the Conservatives’ legacy: they failed to invest in broken infrastructure and let consumer money be spent irresponsibly on bonuses and shareholder payouts. The Bill rightly calls time on that unruly behaviour. It begins to restore trust in the management of our waterways and in public service and accountable regulation. I commend the Bill.
Jack Rankin (Windsor) (Con)
The role of Opposition is to scrutinise the Government, but as a Member of Parliament I will always be willing to support changes in the law that my constituents have been calling for. This legislation represents an opportunity to start rebuilding our water infrastructure and improve water security for future generations, and we need to get it right. I want to help make sure that it is not simply cosmetic, or contains measures that do not require primary legislation or things that were already being progressed by the previous Government. I wish to offer some constructive thoughts.
Like many Members, I have local issues. In the past week alone, I have been out with the Eton Wick Waterways Group to inspect the effluent overflow of Slough treatment works in the Boveney ditch, which I am working on with my hon. Friend the Member for Beaconsfield (Joy Morrissey), and with residents in the Boltons in Windsor to see the Bourne ditch filled with sewage in a residential area. The south-east has suffered disproportionately; in fact, 90% of serious pollution incidents were caused by four companies, with Thames Water—the main provider in my constituency—responsible for more than 17 last year. That is inexcusable.
I welcome that Thames Water has finally announced upgrades to Slough treatment works following sewage overflows in Berkshire. They will include new tanks, new technology and a new pipeline. It now needs to be made to guarantee the planned improvement project at Slough, which will reduce future sewage spills and provide cleaner effluent entering the waterways around Eton Wick. I hope for the Minister's support to hold Thames Water to account on that. However, as others in this House have raised, such a change is a drop in the ocean since the entire infrastructure system is outdated and creaking. It needs long-term and sustained investment of tens of billions of pounds over decades, and we must face the reality that that will come only with increases to consumer bills.
If we expect the public to tolerate price increases, we need a regulator that works. In my view, Ofwat’s determination to keep bills low for consumers has exposed short-term thinking that has led only to higher bills in future. With additional funding, water companies—particularly Thames Water—must show customers that the money is going directly to infrastructure upgrades.
I am aware of my lack of time, Madam Deputy Speaker. I join with Surfers Against Sewage and River Action, which have been working with Members across this House to encourage the Government to make clean water one of Ofwat’s legal duties, and to give it the teeth it needs. I welcome the fact that this issue is being considered in the Chamber, and I hope that everybody in this House will join me in scrutinising Ofwat’s implementation of the powers granted to it in the Bill, hoping the Government will make clean water one of Ofwat’s legal duties and looking for Ministers’ support in holding Thames Water to account at the Slough sewage treatment works.
Tom Hayes (Bournemouth East) (Lab)
The water is key to Bournemouth’s appeal as the most stunningly beautiful town in our country. [Interruption.] Contentious. Unsurprisingly, Bournemouth East residents are absolutely horrified by the untreated sewage that is forced on our town. Jacqueline from Boscombe has had to make her “Wild and Free” surf therapy sessions surf-free because of sewage in the sea, meaning children and young people whose mental health could be significantly improved are let down again. Sarah from Charminster, who is a regular sea swimmer to manage her long covid symptoms, is now worried about the impact of this pollution on her health and on the natural environment. Gareth in Muscliff is clear that:
“Something really must be done about this and soon for the sake of our health and future.”
Sarah in Southbourne told me that:
“This is not the only environmental crisis that we face, but focusing on it, and ensuring improvements, would be regarded as major successes.”
While the Conservatives may have let the water companies off the hook, the public did not let the Conservatives off the hook, and at the last election we saw change. We are seeing more of that change today with this Bill, which my constituents will warmly welcome. Last week I met the people who run Holdenhurst water recycling centre to see the significant upgrades that have received nearly £30 million of investment, which I support. I have also recently met the chief executive officer of Wessex Water to discuss the pollution that we are experiencing locally, and I am pleased to see significant investments that will improve Bournemouth’s ability to manage the automatic operation of storm overflows. However, we can do more. We can change how we see storm overflows so that we no longer see them as a sewage problem; we instead can see them as a rain management problem. If we reimagine rainwater as a resource to be captured where it lands, reused wherever possible and removed from foul water sewage heading to the water recycling centre, we can do a better job.
I welcome the Bill because it will give the Environment Agency and Ofwat, which are central to protecting our waterways, the powers and the support that they need. The EA will now have new powers to bring forward criminal charges against law-breaking water executives, and water companies will now bear the costs of enforcement action taken in response to their failings. The introduction of fixed and automatic penalties will make it quicker and easier for the EA to fine water companies that commit offences. Furthermore, for the first time there will be a requirement to publish real-time data on all emergency overflows, so that the public and regulators can see what is actually going on.
I close by paying tribute to the work of Surfers Against Sewage, and to Christchurch Harbour and Marine Society and Vanessa Ricketts, who have done so much locally to hold the hope while we waited for a new Government to bring forward this Bill. I am proud that this Labour Government are committed to cleaning up the mess that the Conservatives let our waterways become. The Bill is the first step towards doing that.
Clive Jones (Wokingham) (LD)
Rivers are the natural veins of Britain, with the lifeblood of our ecosystems flowing through them. No matter their width, depth or length, we derive so much from our rivers. Yet according to research from the Rivers Trust, not a single stretch of river in my constituency is in good overall health. It is a tragedy as much as it is a scandal—plain and simple. The Conservative party has left a legacy of unacceptable sewage outflows into our waterways, with a total failure to limit those who were responsible for it.
My constituency has the privilege of being the home of the Leander rowing club, which enters many teams in the Henley royal regatta. In June this year, the organisers of that prestigious international event had to issue guidance to participants on how to minimise the risk of illness due to “proximity to polluted water”. That should not be happening in 2024.
When I visited the Thames Water sewage treatment works at Wargrave, I met enthusiastic and knowledgeable employees, but the scale of the neglect of our sewage treatment capacity was very clear to see. Thames Water bosses have failed to keep pace with the storm overflow problem, exacerbated by housebuilding, a failing network of pipes and climate change. Now they want to increase bills by 59%. The regulator really must not let that happen. I was left with the distinct impression at Wargrave that, sadly, the company had little idea of how to fix the problem and no expectation of doing so within a reasonable timeframe. Thames Water is currently limping from cash crisis to cash crisis, accruing billions more in debt. It seems to be getting worse before it can get better.
I am aware that I am getting near to my three minutes. Can the Minister guarantee that my constituents will not be burdened by the potential failure of Thames Water? Can the Minister explain how he intends to ensure that investment in Wokingham’s sewerage system is guaranteed?
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
South West Water discharged sewage for nearly 540,000 hours in 2023, which is apparently an 83% rise compared with 2022. It is getting so much worse. I therefore welcome the measures in the Bill. They are desperately needed and cannot come soon enough for places such as Cornwall, which have suffered from sewage spills for far too long.
We all know how important our seas and rivers are for our health and wellbeing, and for our ecosystems and our economy. In rural and coastal areas, they touch on almost every aspect of our lives. In my constituency and across Cornwall we have an amazing community of sea swimmers and surfers who brave the water all year round, but who are frequently unable to go out due to sewage alerts, or who become infected and get illnesses if they do. They have been campaigning tirelessly on water quality for years.
Constituents write to me daily about sewage spills on our beaches. In the 2024 annual bathing water classifications released a few weeks ago, Porthluney in my constituency had its water quality designated as poor. During Storm Bert, sewage overflows were recorded in the River Carnon, River Penryn, Pill Creek, River Fal and many other rivers in my constituency. It affects not just our residents but our visitors too. Tourism is important to Cornwall. People come from all over the world to visit our coastline, but they are deterred when they see raw sewage on the beaches. Sewage dumping in the River Fal is part of what is destroying traditional industries such as the shellfish industry. In May 2023, 11 shellfish sites in Cornwall were forced to close due to dangerously high levels of E. coli. We have seen problems with our infrastructure this summer. A burst water main led to a loss of water pressure across a swathe of Cornwall and many people lost their water, including the hospital. Compensation was very limited and hard to obtain.
The Bill delivers on the Government’s manifesto commitments to hold the water companies to account. It gives the Environment Agency more resource to bring criminal charges and fines, and makes them quicker and easier to enforce. The standard of proof will change and be lower, and automatic penalties will be extended. Ofwat will have greater powers to halt performance-related pay bonuses. The Bill also introduces real-time monitoring of every sewage outlet and full transparency. Along with the announcements on investment in infrastructure made in July and the upcoming comprehensive water review, the Bill forms part of a plan for a long-term fundamental comprehensive restructuring of our water industry. We will go much further. I welcome the Bill.
Charlie Maynard (Witney) (LD)
I believe that this Bill is disappointing. It almost totally ignores the financials of the companies, and that is the root of the problem. Unless we fix the financials, we will not fix the problem. Thames Water, for example, has £17 billion of debt, and it is currently expected to have a further £3 billion of debt by the end of January. If that happens, it will cost Thames Water an extra £334 million a year, which means that 46% of the bill of every single one of the 15 million bill payers will be funding interest payments—before the £20 billion of debt that the company will have is paid down. How does that make sense? How do we get this working again? That is not the route to a solution.
The reason Thames Water is not in special administration is that, officially, it is unable, or unlikely to be able, to pay its debts. You do not need a GCSE in business to know that if a company currently has £16 billion of debt and £1.2 billion of cash flows, it is unlikely to be able to pay its debts. I believe that our Government are running scared. They are worried about being sued by big bad American vulture investors, and that is why they are not putting Thames Water into the special administration regime—a regime that was explicitly set up for exactly this purpose. I say to the Government, “Please, do not let Ofwat approve a price rise for Thames Water. Put the company into special administration and start to deal with the problems, because we will not be able to deal with them until we deal with the financials.”
I have one minute and 17 seconds in which to ask the Government to steal some of these ideas. Yes, they should reform the three regulators, by putting them all together. In respect of clauses 10 and 11, why should consumers pay for financial losses following Government financial assistance? Why should not creditors and shareholders pay for those losses? It seems pretty weird to me. Pollution baselines should be established for each catchment; we should get that straight. Environment Agency permits for individual sewage treatment works should be reset. The capacity for each STW should be established, and the agency’s Environment Agency 3.0 multiplier should be applied to every one of them. There should also be volumetric flow meters, for which clause 3 does not provide—we are not getting them. I invite Members to read clause 3 themselves. We are getting event duration monitors but not flow meters, and that means we are back in the same place where we have been for the last 14 years. We need flow meters, so please can we insist on that? Finally, we need to haircut the debt: we need to get that £20 billion down to £5 billion. That should be the key focus, because then we will be back on a stable footing and able to invest as we need to.
Darren Paffey (Southampton Itchen) (Lab)
It is a pleasure to welcome this much-needed legislation. A couple of weeks ago, I visited Bitterne Park primary school, which is just across the River Itchen from Southern Water’s treatment works. I met the school’s Eco Warriors, an inspiring group of schoolchildren who are passionate about improving their environment. They told me that the stench from the treatment works sometimes makes them feel so ill that they cannot play outside at lunchtime. That is what happens when there are more than 1,000 hours of sewage dumping, as there were last year alone—a 350% increase on the year before. Those children expressed their outrage, and their desire for change, in a way that grown-ups are often less good at. Let us be clear: this is not something that our children should have to accept as normal. That is why I am campaigning for bathing water status for the Itchen, and I would like to work with Ministers to see how we can clean up the river and achieve that.
This is a big local issue, and one that I am determined to try to help resolve, but—as has been made plain by the excellent contributions of other Members—there is no doubt that it is also a national issue, and that private water companies have been treating our rivers with utter contempt. Let us not forget how we got here: 14 years of Conservative failure have left us with crumbling water infrastructure and record levels of pollution. That is the legacy. Instead of addressing the crisis, Conservative Ministers buried the scale of the problem, hiding sewage data and shielding water companies from scrutiny. That is why I welcome the tough new penalties in the Bill, which will ban unjustifiable and undeserved bonuses.
We have seen and heard how water companies have piled up debt and demanded bail-outs from the taxpayer, all the while paying bumper bonuses—more than £41 million since 2020—to executives who fail to meet the most basic standards of competence. Meanwhile, it is my constituents and those of other colleagues here who have paid the price—in higher water bills, and in the frustration of seeing a river that they treasure polluted by negligence. The Bill draws a line under those wasted years. That is what we mean when we say we are a Government of service, because we are not afraid to stand up to corporate interests. We are here in service of the British people. That means long-term investment in our water networks and ensuring that every penny spent benefits customers and the environment, not just shareholders.
I am grateful to the groups that have campaigned to keep these issues on the agenda. Now it is over to this Government of service to finish the job and hold those responsible to account.
Manuela Perteghella (Stratford-on-Avon) (LD)
I declare an interest: my spouse is a water economist.
As we have heard from many hon. Members this evening, urgent action is needed to clean up our rivers and waterways, including the Avon, Alne, Arrow and Stour in my constituency of Stratford-on-Avon. Those rivers and brooks are central to our communities, our local environment and wildlife, and our sporting and recreational activities, yet they are being poisoned. Water is a common good, and the water companies, including Severn Trent Water, have shown utter disregard for our most precious natural resource. This Bill is a welcome step, but much more needs to be done.
Across the UK, untreated sewage was discharged more than 600,000 times last year. It is a national disgrace. In my constituency, spills happened for a total duration of nearly 16,700 hours in 2023. I thank the citizen science champions in my constituency and the many campaign groups, from Shipstone and Stratford to Bidford and Alcester, for shining a light on this crisis. Without their tireless work, much of the devastation would remain hidden. I also pay tribute to our many rural communities, who have experienced repeated sewage flooding and are literally left to clean up the mess.
Although residents stepped up, the previous Conservative Government failed to hold the water companies to account. Shareholder profits should not be prioritised over public health and environmental protection. I urge the Government to consider the Liberal Democrats’ proposal to abolish Ofwat and replace it with a clean water authority that has real teeth—a regulator that focuses on environmental performance, demands real-time sewage pollution data, and enforces legally binding targets to eliminate sewage spills by 2030. The Bill must also mandate investment in sewage and drainage infrastructure.
This Bill is a chance to take real, systemic action to clean up our waterways. However, the Government must strengthen the proposed legislation in more radical ways so that we can give our constituents the clean and thriving waterways they all deserve.
David Burton-Sampson (Southend West and Leigh) (Lab)
According to the latest Government figures, the number of sewage dumps along my constituency’s small coastline rose from 100 in 2022 to 206 last year—a more than 100% increase. Across the country, this is the legacy of the last Conservative Government. They failed to get to grips with holding our water companies to account, and we and our constituents have suffered, with polluted waterways causing swimmers and those taking part in water sports to become ill—never mind the impact it has had on the natural environment. I am told by Anglian Water that the sewage dumping figures will be significantly lower in 2024, but we will wait to see them published. An immediate positive move by this Labour Government has been to require real-time monitoring, so that the public and the regulators have full transparency on where water spills are happening within an hour of them happening. There will be nowhere to hide.
In Southend, both I and my hon. Friend the Member for Southend East and Rochford (Mr Alaba) have recommenced holding water quality summits. They are a means of bringing together stakeholders and interested members of the public to discuss current issues and challenges, from pollution and sewage dumps to regular flooding. I hope our water quality summits will serve as a good exemplar of how the proposed new customer panels could work across the country.
My Conservative predecessor, the former MP for Southend West, had the right intentions when she started the local water summits during her term. However, she was restricted by the failure of her own Government to put in place sufficient regulation and consequences for the water companies to really fix this issue. In October 2021, the Conservatives voted against a Lords amendment to the Environment Bill that would have placed a legal duty on water companies to reduce sewage discharges into our rivers. In January last year, 292 Conservatives—ironically including my predecessor—voted to give water companies 15 years to clean up their act as part of the environment targets regulations. Yes, 15 years!
Having run my own business and worked in senior roles in other businesses, I know the standards required to consider awarding bonuses. Underperforming on a key metric would not, and should not, be overlooked when considering the payment of bonuses. The same will now properly apply to the water industry, and so it should. I am proud of this Bill and I am proud to support it. The Labour Government have done more in our first few months to tackle this scourge than the Conservatives did in the last 14 years. This Government are serious about bringing the change that is so urgently needed to end the scandal of water pollution once and for all.
Gideon Amos (Taunton and Wellington) (LD)
Few of the natural features of the Taunton and Wellington constituency in Somerset are as valued as the River Tone, which goes through the constituency. Like my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron), I welcome this Bill but wish it would go further. In particular, we need a much stronger regulator. As long as Ofwat has a duty to protect profits and returns for shareholders but not to protect the environment, it will be more of a tame kitten than a watchdog. When it comes to managing the quality of our water and our waterways, profiteering surely has no place in the equation, which is why we want to see privatised water companies replaced with not-for-profit companies, which work very effectively in Denmark. Water companies also need to be held to account for longer when it comes to investing in the infrastructure that is needed.
From preparing and submitting its bathing water status application—with a lot of support from the hard-working volunteers of the Friends of French Weir Park—I know how much goes into designating a bathing water such as the Tone in Taunton. I therefore urge the Minister, in the context of the ongoing parallel bathing water consultation—to completely end automatic de-designation after five years. Wessex Water and the Environment Agency have made it clear that we can get improvements in water quality in the Tone in five years—and who would disagree with improving the tone, Madam Deputy Speaker?—but they are unlikely to be enough to protect its designation unless more time is available.
We in Taunton also strongly disagree with making new designations dependent on already having sufficiently clean bathing water quality. The whole reason that communities are seeking to get their designations is to stimulate that improvement. As Surfers Against Sewage has pointed out, making quality a prerequisite rather than the goal to be established would have prevented almost all the current inland bathing waters from being designated. Also, we would oppose allowing bathing seasons to be curtailed. I hope the Minister will also say something about bringing in water restoration grants, which would have the dual advantages of supporting the drive to eliminate phosphates from the Somerset levels and moors and improving river and bathing water quality.
Having canvassed the views of my fellow swimmers the other day, I know how much people want to see the river improved. We therefore need to give rural communities the support they need for water restoration. We need to establish a tough regulator bound by legal duties to protect the environment, not just profits, and give bathing waters enough time to be brought up to standard without the threat of de-designation and being pushed into the “too difficult” pile. Our rivers and our environment—
Ms Julie Minns (Carlisle) (Lab)
On the eve of this year’s general election, hundreds of Carlisle residents woke to find that brown water was coming out of their taps. Some might describe the stained water as a metaphor for 14 years of Conservative failure but, for most of my residents, it was just another reminder of the poor service they have had to endure from the local water company. Indeed, in the last two weeks alone, there have been 56 sewage discharges within a 5-mile radius of Carlisle, lasting a total of 152 hours.
This not only has the impact of harming local wildlife, as we have already heard this evening, but it also makes our rivers a no-go zone for locals. As someone who enjoys cold-water swimming, I find it a tragedy that our rivers, which have defined our great border city for centuries, have been reduced to the personal polluting pools of United Utilities.
Yet our system rewards this behaviour. Just last month, the company announced hundreds of millions in profit while seeking to further increase customer bills by an astounding 32%. Bonuses just shy of £1.5 million were doled out to two executives, on top of salaries already topping £1 million. This is the state of water regulation in this country—one where polluting, not the polluter, pays.
At least, that was the state of affairs under the previous Government, but not any more. I am delighted that this Bill is giving us the powers finally to hold the water companies to account, finally to block bonuses to underperforming water bosses, finally to levy fines that genuinely deter polluting our waterways, and finally to stop these companies marking their own homework by introducing proper independent monitoring of every outlet.
The water industry was a wild west under the last Government, and I for one am delighted that there is a new sheriff in town.
Josh Fenton-Glynn (Calder Valley) (Lab)
I welcome this legislation and this debate. Nothing typifies this Government’s job of cleaning up the mess left after 14 years of the last lot than the need to clean sewage out of our rivers.
The need in Yorkshire is greater than in many other places. Yorkshire Water holds one of the worst records for sewage discharges among water companies. Last year, it spilled sewage into rivers across our region 464,056 times. Of those, a staggering 4,125 discharges were into the River Calder, which runs through my Calder Valley constituency, making it one of the most dumped-in rivers in the country. Both numbers had increased since the previous year, yet Nicola Shaw, the chief executive of Yorkshire Water, took home just over £1 million in remuneration, £300,000 of which was a bonus. To put that in context, she earned £2.22 per sewage spill into a Yorkshire river last year. If that is a reward for good performance, one dreads to think what poor performance looks like.
In Calder Valley, and across the country, we have had enough, and this Bill rightly reflects that. This Bill gives us an opportunity to hold water bosses and their companies to account, not only through fines and clear regulations but through measures that will allow the criminal prosecution of irresponsible bosses.
I welcome this Bill, but I also recognise that it is just a start, an opening step to get our water system back on track. As we continue with our whole-system review, I hope Ministers will also look at the broader impact of water companies, including the cavalier way in which they dig up our roads for weeks on end. Indeed, a road in Hebden Bridge and Todmorden has been dug up to mend a sewer, but businesses are suffering while little work is done over the weekend. More pertinently, in Calder Valley early results from studies by Yorkshire Water into what it can do to alleviate flooding show that in areas like mine, water companies and their assets have a real impact on flooding, so I hope my hon. Friends on the Front Bench will consider looking at the broader role of water companies.
In closing, after 14 years of Tory failure polluting rivers across Calder Valley, I am proud to support the Bill and end the sewage scandal. We are serious about our environment, getting our country back on track and cleaning up the mess left by the Opposition.
Julia Buckley (Shrewsbury) (Lab)
In my rural constituency of Shrewsbury, we have England’s longest river, the magnificent Severn. It flows through our historic town centre and meanders through our outlying villages, but my constituents are running out of patience with the current privatised water company, Severn Trent Water. It is failing its customers, failing the environment and, according to last week’s “Panorama”, failing financially.
Under the last Government, the whole water industry became a haven for profiteering. In the last four years, the boss of Severn Trent Water has been paid £13 million for “performance related pay”, yet in 2023 there were over 2,000 incidents of sewage dumping in my constituency alone—an increase of 42% on the previous year. My residents have their own words for that kind of performance, and they are not pretty.
To top that off, we have now heard that customers’ bills are set to rise by 46% over the next five years. This is supposedly justified by investment in the long overdue infrastructure upgrades that we need in order to reduce the sewage pollution spills into our rivers. However, companies continue pay out dividends to their shareholders, while customers are aggrieved because they have been paying out for years while the pollution went ahead. Quite rightly, customers feel that they are paying twice to solve the problem. Has there ever been a worse case of paying more and getting less?
Although we in this House welcome today’s watershed Bill, our residents are much more concerned with a different bill: the average annual water bill for Severn Trent Water customers is set to rise from £439 to £580. That is not acceptable and will be unaffordable for many, but it is also terrible value for money, given the disgraceful pollution of our river that has seen not just public health problems from infections as serious as E. coli, but devastating impacts on our ecology, including depleted fish, birds and flora along the banks of our river, which is now strewn with wet wipes and sanitary products instead of wildlife.
In Shrewsbury we have a very large and active campaign group called Up Sewage Creek, which is ably led by Claire Kirby. Many of the group are citizen scientists who give up their time to test the water quality and highlight the deterioration of our most prized asset. On behalf of my frustrated residents and our otherwise beautiful river, I urge the Minister to not only bring forward the criminal sanctions and stronger regulation in the Water (Special Measures) Bill, but to ensure that the independent water commission into the water sector holds no bars in its examination of the privatised water industry, and explores all avenues to clean up our water and shake up the sector.
Dan Aldridge (Weston-super-Mare) (Lab)
The protection of our beaches, rivers and bathing waters is incredibly important to my constituency, as hon. Members may expect me to say, as I represent a coastal constituency. My friends, family and I are regular swimmers in Weston-super-Mare’s fantastic Marine Lake, so my interest is personal as well as professional.
Marine Lake is a 200-metre infinity lake, said to be the largest of its kind in the world. It is a phenomenal asset to our community and I am proud of the work of so many to restore it over recent years. Having Marine Lake in Weston means that despite us having the second highest tidal range in the world—finding the sea in Weston can sometimes be a bit tricky—we have access to bathing water whenever we need it. So many people from across the country have memories of spending summers on the beach, with ice cream, fish and chips and swimming in the sea, creating memories with family and friends; that is part of the very fabric of our town.
In recent years the decline in water quality has damaged that fabric, and compromised access and enjoyment. As the previous Government left office, the number of bathing waters classified as poor across the UK was at a record high. Distressingly, that still includes Weston, Uphill and Sand Bay beaches—that has a profound impact on our town. There is so much anxiety among local residents and businesses about something that we should have certainty about: that it is safe to swim in our bathing waters. Many have also experienced the negative impact that it has had on tourism and hospitality—a vital source of employment to so many in Weston. The degradation of water quality in recent years must be reversed. Towns like mine need this Government to deliver where the previous Government did not.
I am grateful for the investigations by the Environment Agency and the local bathing water steering group of the causes of the poor water quality, but there is still no smoking gun. I have been reassured that over the next 12 months those investigations will be ramped up to investigate sewage from Avonmouth as the possible cause, but time is critical, and the need of my constituents for answers and swift action cannot be overstated. I have written to the Minister to outline the urgency, and request the boldest action for Weston-super-Mare.
I pay tribute to the amazing work of volunteers in Weston—first, the legendary Debbie Apted of Cleaner Coastlines. Debbie has been a personal inspiration for years because of her tireless advocacy, evidence-led approach and ability to motivate a community to action. I also pay tribute to the fantastic Mudlarks community, who work so hard to maintain Marine Lake, and the litter pickers such as Sophie and Jules from Sophie’s Super Litter Picking, and the many individuals who walk our streets and coastline daily to prevent rubbish from ending up in our waterways.
The Bill is so welcome in Weston, and I am especially pleased to see how quickly the Government have acted on this issue. It is clear to me and many campaigners in my constituency that stronger powers to properly hold water companies to account is critical if we are to change behaviour and get them to do their job. I am hopeful that, along with cleaning up our bathing waters, the Bill will go a long way towards restoring the trust that has been so sadly lost.
Anna Dixon (Shipley) (Lab)
Anyone who has visited Shipley will know that the River Aire and the River Wharfe flow through the beautiful dales countryside of my Yorkshire constituency, and indeed that of my neighbour, the hon. Member for Keighley and Ilkley (Robbie Moore). I grew up paddling in the Wharfe, and as an adult I enjoy a regular dip. It was therefore a bit of a shock to learn that raw sewage was being regularly dumped in our rivers—some 1,753 times in 2023. I do not think that that is quite top of the poops, but it is not far off.
I pay tribute to the local activists who have done so much to expose this scandal and campaign to protect our environment. The Ilkley Clean River Group has been at the forefront of the campaign to end the sewage scandal. Formed in 2018, through citizen science it has shown that untreated sewage was being dumped in our rivers even at times of low rainfall. The group worked very hard to secure bathing status in 2020—the Wharfe was the first river to do so in the UK—and the group highlighted the public health risk to bathers, but it should not have needed brave local residents to challenge the water companies. The regulators have failed in their job. That is why I am so proud that the Bill will require more frequent and accurate monitoring, and introduce fixed monetary penalties so that companies do not get away with it any longer.
Under the last Government, our water was catastrophically mismanaged. Regulation was weakened, there was a failure to invest in infrastructure, and record levels of sewage were pumped into our rivers and seas. Meanwhile, bosses creamed off the profits and paid themselves in bonuses. Along with others, I call on the Yorkshire Water chief executive officer to hand back her £371,000 bonus. It is clear that change is needed, and change is coming with the Bill. It is long overdue that water companies are held to account and that we put in place the mechanisms to restrict executive bonuses. Many of my constituents, though, feel dismayed that it falls on them to pay the price, quite literally, for water companies’ failures. Customer bills are due to rise 18% next year in the Shipley constituency. Despite having no debt when privatised in 1990, Yorkshire Water has since accrued £6.5 billion of debt; today 19% of customer bills are spent just on servicing that debt.
Under-investment has left my constituency with creaking infrastructure, high bills and polluted rivers. I am pleased that the Government have set up an independent commission on water. To undertake fundamental reform, it is vital that that includes in-depth analysis of the finances and governance structures. Our once beautiful rivers, such as the Wharfe and Aire, are now awash with sewage, and our water infrastructure is leaking. I welcome the Bill, and the measures that it sets out to deal with the crisis in our water industry.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
I rise to support the Bill because we basically live in a monopoly. We live in a situation where a group of companies control an incredibly essential part of everyday life—a part that we need. As a consumer, if I do not like the service I receive, I can go somewhere else; I cannot do that with water. If I want to shop around for a better deal, I can do that; I cannot do that with water. The water companies know that—they know that they hold a monopoly on the service they provide—so they think they can get away with raising bills, failing to invest, and ploughing money into shares and dividends. Their time has come, and the Bill is apt. The new Government is providing new opportunities to change the way in which we look at water and consider it as a fundamental part of everyday life.
But as I have been listening to the debate this afternoon, I started to wonder whether the Bill is actually needed, because if we listen to the hon. Members for South Northamptonshire (Sarah Bool) or for Exmouth and Exeter East (David Reed), apparently everything in the Bill has already been done, and we are fine. I struggled to reconcile what the right hon. Member for Louth and Horncastle (Victoria Atkins) said in her opening speech—about this Government copying what the previous Government did in the Environment Act—with the rather gory descriptions of the effluence and other material found in waterways across the country.
I represent Stoke-on-Trent—the clue is in the name; it is the river on which we sit—and I know thousands of hours of sewage have been discharged into that river. Equivalent amounts of sewage are also being pumped into places like the Fowlea brook and the Lyme brook by a water company that is seemingly more worried about protecting its dividends than the health of the people I have been sent here to represent.
How did we get to this point, if everything the last Government did was apparently fine? The hon. Member for Westmorland and Lonsdale (Tim Farron) summed it up perfectly when he talked about the importance of regulation. Actually, we have gap when it comes to regulation—it is an enforcement gap. We have great regulation on paper that says, “You will do this, and this will happen” and “There will be penalties and fines”, but the previous Government systematically over time reduced the amount of funding available to the regulatory organisations, so that their enforcement became reactionary to events. According to the Conservatives, the reason why we have 100% monitoring of discharges is not because of some benevolent act by a party that cared about the environment; it is because the previous Government got bored and tired of the community groups around the country campaigning on the issue, and they thought, “We’ll do something about it.” I find it no coincidence that that happened this year—in an election year.
I hope that the Minister will talk more about how regulatory enforcement will happen, and about how we will provide the powers and the money that are needed.
Lizzi Collinge (Morecambe and Lunesdale) (Lab)
I represent Morecambe and Lunesdale, where beauty surrounds and health abounds. It is the home of Morecambe bay and the River Lune—just two of the fantastic waterways that contribute to the health and enjoyment of my constituents. However, under the last Conservative Government, those waterways have been filled with pollution. Earlier, the shadow Minister, the right hon. Member for Louth and Horncastle (Victoria Atkins), mentioned wanting some facts. Well, here’s a fact for her: in 2023 alone, Morecambe and Lunesdale saw 13,500 hours of sewage discharges. That this was allowed to happen is an absolute scandal. Water bosses were allowed to walk off with huge bonuses while people in Morecambe bay found themselves swimming in raw sewage. Again and again, the law has been flouted by water companies and not enforced by the Conservatives, but now we have a Labour Government who will not only enforce the law, but strengthen it.
Morecambe bay is an ecologically special place. It is a site of special scientific interest and a bird watcher’s paradise, as a sanctuary for over 240,000 birds each year. Unfortunately, we do not have time for all the interesting bird facts that I prepared. [Hon. Members: “Ah!”] In Arnside and Silverdale, we have—
Lizzi Collinge
I thank my hon. Friend for his intervention. Between March and July, rare and declining bird nesting species, such as the ringed plover, oystercatchers and the Arctic tern lay their eggs on Morecambe bay’s shores. Morecambe bay is also a vital stopover point for migrating birds, offering them a place to rest and refuel. Little terns, with their distinctive face-markings and beaks, will travel 20,000 miles on their migratory journeys so that they can breed in Morecambe bay. In Arnside and Silverdale, we have our beautiful natural landscape and wetlands, which are home to diverse wildlife. Those habitats rely on robust water quality standards to thrive, making the provisions in the Bill absolutely crucial for my constituency.
My constituents have made it clear to me that they expect the Government to take action where the Conservatives failed. The Bill’s key measures include blocking executive bonuses for companies that pollute our waterways, imposing automatic fines for offences, prosecuting company directors for negligence, and mandating the real-time monitoring of overflows. The Bill also requires companies to publish annual pollution reduction plans, and strengthens oversight by regulators. Only through those measures can we protect waterways and keep Morecambe bay and the River Lune clean for future generations. I urge colleagues across the Chamber to support the Bill.
Mr Bayo Alaba (Southend East and Rochford) (Lab)
I am so pleased to be here to discuss the Bill. Water quality is one of the biggest issues facing residents across my constituency, particularly in relation to pollution levels, and under-investment in infrastructure has reduced flood resilience in our residential areas. In Southend, our beaches have lost some of their blue flags in recent months, particularly in Thorpe bay, because of surface water drainage issues. Constituents experiencing significant flooding every time there is increased rainfall. Some constituents living around the Thorpe Hall Avenue area have tried to sell up, and have been forced to sell for up to 15% below the market value as a direct consequence of flooding. That is simply not good enough, and it is why I am so pleased to be here to support the most significant increase in enforcement and regulation of the water industry in a decade.
Since my election, I have co-chaired the Southend water quality summit with my good and hon. Friend the Member for Southend West and Leigh (David Burton-Sampson). We have been trying to bring all community stakeholders back together again to put additional pressure on Anglian Water. The summits are held quarterly, and are an opportunity for residents, water companies and campaign groups such as Southend Against Sewage to come together to raise issues and concerns. That model empowers communities, and I am proud that our city has been a pioneer in holding water companies to account.
After all, Southend is a coastal community, so water quality is completely intertwined with daily life. Our beautiful coastlines are a natural asset that needs to be protected—frankly, they are one of our superpowers—but, frustratingly, our water quality does not always meet the standards that residents, visitors and tourists deserve. However, the Bill means that we can look forward to clean rivers, lakes, seas and estuaries. Not only will it drive up performance by blocking bonuses for executives and imposing automatic and severe fines for those who pollute our waterways, but it will introduce criminal charges for persistent lawbreakers. In 2022, £9.7 million was paid out in executive bonuses—that is simply not good enough.
For too long, water quality and food resilience have been overlooked. Nowhere is that more apparent than in Southend-on-Sea. Suffice it to say that I wholeheartedly welcome the Bill as a first step in the transformation of the water industry.
Ms Polly Billington (East Thanet) (Lab)
On new year’s day, I will, like many people in Thanet, take part in a bracing dash into the sea to raise money for worthwhile causes. However, we should not take our health in our hands as we do so. Swimming should be good for you, not a risky adventure because of pollution. Good governance might seem a long way away from the delights of sea swimming, yet we cannot safely have one without the other.
Water plays such a huge role in the history and culture of East Thanet, not least because of our fantastic beaches. Margate can claim to be the first English seaside resort—I know there are others, but we are the first. For 250 years, people have come to all three of our towns in East Thanet to enjoy the stunning scenery, breathe the fabulous fresh air and swim in the sea, but as a very wise business owner in my constituency told me, “People don’t come here to paddle in poo.” That is why I and my constituents welcome this Bill, as a great starting point in cleaning up the mess that the Conservative party has left—not a figurative mess, but a literal one in our waterways. For years, the privatised water industry has been under-investing and over-polluting while paying itself millions of pounds in bonuses. That is why the action that the Government are taking through this Bill is extremely welcome and long needed.
Residents in Broadstairs have had to cope with their water being off during a red warning for extreme heat and in the middle of winter in the run-up to Christmas, managing on bottled water, because of infrastructure failures. Bills are up, the quality of service is down, the environment is in ruins, and big bonuses fuelled by gorging on debt are being paid. The water companies argue that they may need to pay more in salary bonuses to get the best people in—well, if this is the best they can get, I will be asking for my money back. We need a fundamental change in the way our water system is run, and critically, we need more accountability to bring that change about.
I know that the Secretary of State does not want to be spending his time running the water companies. I do not want him spending his time doing that either—that is not what I am suggesting. I recommend that this accountability should be local, rather than at the national level. The new independent water commission could look into how we fine water companies that break the rules by exploring the possibility of taking company stock from them instead of money. We could put any stock in a trust held on behalf of local billpayers, who would then benefit.
It may be some time before we can be confident about enjoying our waters again—some time before our rivers and seas are restored to full health—but I believe this Bill will start the process of cleaning up our water industry. It is crucial that we get the future governance right, so that our constituents can feel confident that paddling in poo is a thing of the past.
John Whitby (Derbyshire Dales) (Lab)
Last year, Derbyshire Dales had the 32nd highest number of sewage dumps out of our 650 constituencies. Shockingly, the number of sewage dumps increased by 26% between 2022 and 2023, with sewage spills in Derbyshire Dales lasting a staggering 28,488 hours. That is equivalent to 3.3 years of continuous pollution. It is clear that the previous Government failed to protect our water and, in doing so, endangered the environment, local industries and human health.
Much of Derbyshire Dales lies within the Peak District national park, which is renowned for its stunning scenery and landscapes. However, high levels of pollution are threatening the biodiversity of England’s national parks: as of today, only 39% of rivers and 15% of lakes within those parks remain in an ecologically healthy state. In Derbyshire Dales, that pollution is damaging some of our most scenic rivers; for example, just 6% of the surface water of the River Dove currently meets good ecological standards. Not only is that pollution a threat to biodiversity, but it is a danger to public health, as people who swim, canoe or enjoy recreational activities in these waters risk becoming ill if they are exposed to contaminated water. Recently, I witnessed this problem at first hand when I visited the River Derwent with Paddle UK.
The Water (Special Measures) Bill introduces long-overdue reforms to address this crisis. First, it bans bonuses for water company executives who fail to protect the environment and consumers. It is a disgrace that, since 2020, these executives have received £41 million in bonuses, benefits and incentives while water bills have soared and pollution levels have remained unacceptably high.
Secondly, the Bill strengthens the Environment Agency’s powers to hold lawbreaking water executives accountable —it is shocking that only five individuals have been prosecuted by the EA to date. I welcome the fact that the Bill is lowering the burden of proof required for the Environment Agency to impose fixed penalty notices from beyond reasonable doubt to the balance of probability. This will help to ensure that those who pollute our waters pay the price for doing so.
Thirdly, the Bill introduces automatic and severe fines for water companies that commit offences such as polluting or failing to meet reporting requirements. The message the Government are sending is clear: “If you pollute, expect to pay.” Alongside this Bill, I welcome the fact that the Government have established an independent commission into the water sector, and I look forward to seeing what further recommendations the commission brings forward to help ensure that our waters become clear, safe and healthy.
The people of Derbyshire Dales deserve better. They deserve rivers, lakes and waterways free from pollution. This Bill represents a critical step towards addressing these matters, and I urge all Members to support it.
Dr Neil Hudson (Epping Forest) (Con)
It is a pleasure to wind up for His Majesty’s loyal Opposition in what has been a comprehensive debate tonight. I want to thank all Members, who have made so many interesting points across the House about many different aspects of policy.
The hon. Members for Reading Central (Matt Rodda) and for Hastings and Rye (Helena Dollimore) talked about water supply issues and when companies fail to deliver on their duties. The hon. Member for Scarborough and Whitby (Alison Hume) talked about the fantastic Wave Project helping young people with their mental health in her constituency. The hon. Member for Shrewsbury (Julia Buckley) raved about the magnificent Severn, and the hon. Member for Morecambe and Lunesdale (Lizzi Collinge) waxed lyrical about her local birdlife.
My hon. Friend the Member for Beaconsfield (Joy Morrissey) talked about the importance of monitoring and of a holistic approach to water management, as was echoed by my hon. Friend the Member for Bognor Regis and Littlehampton (Alison Griffiths). My hon. Friend the Member for Mid Bedfordshire (Blake Stephenson) talked about the importance of fit-for-purpose water infrastructure for new developments. My hon. Friend the Member for South Northamptonshire (Sarah Bool) eloquently articulated the issues with our Victorian sewage network and about the importance of the water restoration fund. My hon. Friends the Members for Exmouth and Exeter East (David Reed) and for Windsor (Jack Rankin) are proud advocates for standing up for water quality for their constituents.
As for those in the party sitting to my left, the Lib Dems seem to airbrush themselves out of Government history and seem to forget that they were in coalition Government for some five years. May I gently remind the Liberal Democrats that they actually had a Water Minister in that coalition Government who did absolutely nothing on this issue when they were in power? They pivot and posture as the party of protest, jumping on their stand-up paddleboard bandwagon, but far from being concerned about water quality and safety, they appear more than happy to strap on their wetsuits and dive headfirst under the water.
The amendments to the Environment Bill in the last Parliament that Labour and the Liberal Democrats voted for would actually have cost in excess of £300 billion to rebuild the entire Victorian sewage and drainage systems. That was completely unaffordable, and it would have put up taxpayers’ water bills by hundreds of pounds each year. They did not tell the public that when they cast their smears on Conservative MPs and peers who voted for sensible, costed plans to realistically address the sewage situation, but they never let the truth get in the way of stand-up paddleboard bandwagons.
Water quality and how sewage is dealt with are of vital importance to all our constituents right across the House, and we on this side—the Conservatives—are proud that we were the party that began the process of addressing this while in government. What we can now see with this new Labour Government is an attempt to copy and paste many of our Conservative achievements and plans, rebadging them as their own. It is an interesting approach and a recurrent theme. They opposed and blocked all of our plans when in opposition, and now they are scrabbling around and trying to say that they agreed with our plans all along. In fact, just look what the Government have been saying this week about the Conservative-delivered comprehensive and progressive agreement for trans-Pacific partnership, which Labour now thinks is the best thing since sliced bread, having distanced themselves from it when they were in opposition. That is the theme of this new Government.
The Labour manifesto promised to put failing water companies under special measures to clean up water and clean up our rivers that have been polluted by illegal sewage dumping. Now it is Labour Members’ turn in government to deliver on these promises to ensure that these are not more broken promises, such as their heartless family farm tax, which they promised they would not do and then cruelly went on to do, or their promise not to raise national insurance.
I note that we would not be talking about this issue today, or we would be talking about a worse situation, had it not been for the previous Conservative Government being the first to investigate the problem, grasp the nettle and meet the ambitious pledge to ensure that 100% of storm overflows are monitored, so that we could get accurate data on what is being put into our waterways. Without that, we would need to do far more groundwork to start determining what we need to do. We must remember that the last time Labour was in charge of DEFRA in England, when it left office in 2010, only 7% of storm overflows were being monitored, compared with 100% when the Conservatives left office. It was left for us to sort and improve monitoring, so that we can have an accurate view of what is happening—an evidence base for policy making, rather than poking around in the dark under Labour.
I really hope that Labour does not break its promises to improve water quality in England, because the story in Labour-run Wales is sub-optimal to say the least. In 2022, the average number of spills from storm overflows was two thirds higher in Labour-run Wales than in England—not exactly the best blueprint for government that Labour at Westminster said it would emulate. Some 92% of English bathing waters meet water quality standards, but that still needs to be higher and we look forward to the new Government detailing their plans to achieve better results.
We have heard from many Members about Thames Water, which is a notable, critical issue at this moment, but so far Labour has failed to come up with a clear plan for how it will address that and protect both the bill payer and the broader taxpayer. The Labour Government are promising to review the water system, with more reviews and more reboots, but what they should be doing is rolling their sleeves up and continuing the progress that the Conservatives started. That progress includes our landmark Environment Act 2021, delivering our plan for cutting plastic pollution and holding water companies to account; our work on measuring storm overflows; our ambitious “Plan for Water”; and strong action on water companies that were illegally dumping sewage into our waters—we have heard a lot about that tonight. That has included quadrupling water company inspections, meaning a pathway to 4,000 inspections a year by April 2025, and 10,000 a year from April 2026. That was part of our plan to crack down on poor-performing water companies.
We banned bonuses for the bosses of water companies that have committed criminal breaches, so that polluting our waters is not rewarded—a Conservative measure that this Bill copies. We also fast-tracked £180 million of investment from water companies to prevent more than 8,000 sewage spills this year, and stepped up requirements on water companies to increase investment in water infrastructure, with a commitment upwards of £60 billion over the next 25 years. We put pressure on those companies. We also prosecuted water companies that illegally pollute our rivers, making it clear that polluters must pay for damage to our natural environment. We tried to give more teeth to the regulator, Ofwat, and to the enforcer, the Environment Agency.
Let me touch briefly on the Bill’s passage in the other place. Our colleagues there tabled amendments to the Bill that we are happy were accepted, but we were disappointed that amendment 51, tabled by Lord Roborough, did not pass. It would have stopped customers across the country having their bills increased in the event of a water company being put into special measures. Under the current Bill, if a company in one part of the country is placed in special measures and costs are incurred, consumers in the rest of the country may still be liable to pay for it, despite not using the company that has been placed in special measures. The amendment would have provided a significant improvement to the Bill, and in Committee we will be asking Labour to think carefully about amendments to improve the legislation. It was disappointing that when the Labour Minister in the other place was asked about amendment 51, she failed to commit to protecting consumers from higher bills if a water company goes under.
Our Conservative colleagues in the other place also worked hard to bolster important nature-based solutions, and we are glad that the Government listened to them. We will look to strengthen that, along with the important role of the Water Restoration Fund.
His Majesty’s loyal Opposition will support this Bill on Second Reading, and we will look to improve it in Committee, as our Conservative colleagues did in the other place. We will scrutinise the Bill as it goes through the rest of the legislative process, to ensure that it can be the best for all our constituents right across the House. This Bill must function in the way that the British public expect, to continue the work to clean up our British waters. The strong action that began under the Conservatives to improve our waters needs to be upheld by this new Labour Government.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I thank all Members who have participated in today’s debate; it has been a privilege to listen to the thoughtful and varied contributions made by colleagues across the House. I am sorry that, because there were just so many of them, I will be unable to refer to each one individually. However, I add my thanks to the citizen scientists in many constituencies who have been mentioned. I thank the school eco clubs, which have also had a mention, all the workers out there and the regulators. I state my recognition of the impact that sewage pollution has not just on the environment, but on tourism and local businesses. May I say how impressed I am by the number of Members who go wild swimming? I add my mum to the list of people who love doing that.
I must confess that, with nine days to Christmas, my love of Christmas may shine through in these closing remarks. I believe I might even have detected just a sprinkling of Christmas magic in the air, because what other explanation can there possibly be for all the unity we have heard across the Chamber? Nobody is telling us that they want the status quo, everybody thinks the situation has got worse, and through the many conversations I have had as Minister, I know that those opinions are shared by investors, environmental groups, the general public and even the water companies themselves.
I know, like all Members here, that all I want for Christmas are cleaner rivers, lakes and seas. In fact, as I think back to last Christmas, I believe that the public had almost given up hope. Our rivers, lakes and seas were polluted, bonuses were being awarded to polluting water bosses, wrongdoing was often going unpunished, and overseeing that failure were a tired Government who had run out of ideas. Then, something great happened: the wonderful people of our country elected a Labour Government. That Labour Government immediately got to work drafting this Water (Special Measures) Bill, along with a water commission to fundamentally transform our water sector for decades to come. It will prove that we did not need a Christmas miracle to clean up our rivers, lakes and seas; we just needed a Labour Government. The Bill will drive meaningful improvements in the performance and culture of the water industry as part of a wider effort to ensure that water companies deliver for customers and the environment.
During the debate, I have been making a list, checking it twice, and I would like to respond to some of the main points made. On the scope of the Bill, reform and wider issues, Members across the House have spoken about the need for more radical reform and raised concerns about wider quality issues. This Bill is intentionally narrow. We are focused on improving the performance and culture of the water industry as an urgent priority, ahead of the forthcoming £88 billion of investment in the 2024 price review. Many Members spoke about the need to hold companies to account, and the measures in the Bill do just that.
However, we know that this Bill alone will not be enough to fix our water system; we know that we need to go further. That is why we have launched the independent commission, which will look at the roles and responsibilities of the regulator among many other fundamental aspects of the water sector. All Members are invited to participate in the call for evidence in the new year. Many Members have also spoken about our precious chalk streams. The Government are committed to the protection and restoration of our cherished chalk streams, and the best way to achieve that is by fixing the framework for managing our water system, as we are doing through the commission.
Some Members expressed concerns about the timing of the commission. I reassure the House that the commission will publish a report in quarter 2 of 2025, with recommendations for actionable solutions to the sector’s problems, which will inform further legislation to transform our water industry.
A few hon. Members mentioned that nationalisation was not in the Bill’s scope. To give the short answer, that would be complex and time-consuming, would halt the investment needed—we would lose £88 billion of private investment—and would do nothing to stop sewage pollution.
Many hon. Members have spoken about the need for our regulator to be properly equipped to make use of the new powers in the Bill. As the hon. Member for Westmorland and Lonsdale (Tim Farron) mentioned, the Environment Agency is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation of the water industry, increasing compliance checks and quadrupling the number of water company inspections by March. However, the measures in the Bill go further and will better enable the regulators to ensure that companies are held to account. The new cost recovery power in the Bill will enable the Environment Agency to fully recover the costs of its water company enforcement activities.
In addition, new automatic penalties will allow the regulators to enforce minor to moderate offences more quickly and proportionately. Collectively, these measures will complement each other to enable the regulators to address widespread water industry underperformance. We are currently looking at the water restoration fund.
On protecting customers, many hon. Members rightly pointed out that companies have not delivered for their customers. I reassure all hon. Members that the Government are clear that customers should be placed at the heart of water company operations. That is why we will bring forward secondary legislation to introduce new and increased compensation—double the previous amount or more—which will be compulsory for water companies to pay customers for poor service, underscoring our commitment to hold companies to account and stand up for customers. That work, together with measures in the Bill that elevate the voices of consumers, will ensure that water companies deliver for their customers as a priority.
On the importance of transparency, we are better equipping customers to hold water companies to account. Clause 3 will close the current monitoring gap. However, monitoring volume and concentration is much more complex, leading to significant costs and a longer roll-out time. Such additional monitoring would not be proportionate for emergency overflows because they should be used only on very limited occasions.
Before we go—I have just a couple more—driving home for Christmas, I will conclude. The Bill will deliver the most significant increase in enforcement powers for water industry regulators in a decade, including strengthening regulation to ensure that water bosses face personal criminal liability for serious lawbreaking and new powers to ban bonuses from being paid if environmental standards are not met. The Bill is not just about policy; it is about protecting consumers, safeguarding our environment and ensuring that water companies operate transparently and responsibly.
I am confident that with the collective expertise and dedication of this House, we can pass this legislation and make a real impact. That is what we promised in our manifesto, and we know how important it is to keep our promises, especially at Christmas. So, in the spirit of Christmas and the season of good will to all, I thank everyone again for their contributions and welcome the opportunity to work collaboratively with all hon. Friends and Members across the House to ensure that we get the changes needed to give the gift of clean water to future generations. Finally, on behalf of the DEFRA Bill team, we wish you a merry Christmas and a happy new year. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Water (Special Measures) Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Water (Special Measures) Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be broughht to a conclusion on Thursday 16 January 2025.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and Third Reading .
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Christian Wakeford.)
Question agreed to.
Water (Special Measures) Bill [Lords] (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Water (Special Measures) Bill [Lords], it is expedient to authorise:
(1) any increase attributable to the Act in charges or fees payable under any other Act; and
(2) the payment of sums into the Consolidated Fund.—(Christian Wakeford.)
Question agreed to.