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Lord Berkeley
Lord Berkeley (Lab)
My Lords, I am pleased to have the opportunity to debate this important project. It is not the most popular time in the House of Lords weekly calendar, but it is still good to have the opportunity. We have had a number of Questions in short debates over the months and years, but I think it is timely to put some markers down because the Tideway tunnel is at the IPPC for determination. There is a new report from the Environment Agency on SDS—it is interesting, the delay in publishing; I know it has been around for several months. Perhaps this debate has hastened its publication. There is a call by Thamesbank, the Environmental Law Foundation, supported by Sir Ian Byatt, the former director general of Ofwat, and many others for a review of the national policy statement for waste water. It seems a good time to have a debate.
I think the project of the Thames tunnel has become a kind of rollercoaster with its own momentum, but it is based on some seriously flawed and out-of-date data and the failure to properly consult or to consider alternatives which could put £70 to £80 a year on Thames Water’s customers’ bills for perhaps 100 years. It could also possibly incur a large amount of taxpayers’ money because Thames Water’s finances are in a pretty unhealthy state. Before the Government commit to such an expensive project, I believe it is essential that an independent and wide-ranging assessment be made of the alternatives using the latest data—and I mean the latest data. It should take into account the contribution that can be made by better sewer maintenance, the combinations of engineering solutions that can achieve the desired environmental objectives without involving excessive costs, the financial options available to pay for these solutions, the interaction between the choice of scheme and the method of financing, and of course the insertion of conditions that would prevent the recurrence of the payment of excessive dividends by Thames Water.
What are the issues? The first issue is that the data on which all these studies have been based are out of date, and I would suggest they are inaccurate. The baseline goes back to the Thames Tideway Strategic Study group, which worked between 2000 and 2005, when the chair was Professor Chris Binnie. On the basis of this information the Government in 2007 announced that they were going to promote this project and the national policy statement was based on the Thames Water 2010 needs report.
There are a number of serious errors in these reports. It is extraordinary that the Thames Tideway Tunnel website says there are going to be 39 million tonnes of untreated sewage flushed into the Thames in a typical year. Professor Binnie, in his latest report—which I think the Minister now has—points out that, after the various upgrades already in hand, and when the lead tunnel is complete, this will fall to 17 million tonnes. That is less than half. The problem has halved. So why is Thames Water still saying it is 39 million?
Mogden sewage works has been upgraded. It originally had about 110 CSO spills a year. It now has about nine. That is quite surprising because the European Commission has suggested a maximum of 20 spills a year as acceptable, so Mogden passes the test. Binnie also states that Thames Water assumes that sewer flows will increase by about 13% up to 2021. This of course depends on the water delivered to customers which then go to sewage flows, and there is the issue of leakage in the sewer systems. The Thames Water Resources Management Plan says that, despite the population rising in 2021, the water delivered—hence, the discharge to the sewers—will go down, as will the leakage and, presumably, the sewer infiltration. This is another 23% reduction.
Professor Binnie states:
“In my view … the sewer system model should be looked at again to see what would be needed to meet the EC criterion, particularly with the water delivered to households and non-households, and water pipe leakage reducing, and hence sewer flows, reducing in the years ahead. This would provide more sewer capacity available to cater for storm flows, hence spill frequency would reduce further”.
The problem is that Thames Water seems to be in denial about the volume of leakage and the effect of meter installation. It is also failing to maintain the sewers properly to maintain the necessary storage capacity. I recently met Dr Jean Venables, former president of the Institute of Civil Engineers, who commented about the Kingston “fatberg”—noble Lords might like to know was made of wrongly flushed festering food fat mixed with wet wipes—which reduced the capacity of the sewer to 5%. Is Kingston special or is this a common occurrence? We do not know but perhaps we should.
I am convinced that Thames Water and the Government have failed to look at alternatives. The only study of alternatives relied upon was the SuDS Evaluation for Example Areas by Professor Richard Ashley, which is included in the planning application but is not for comment. Professor Ashley recently stated very clearly that the terms of reference were too narrow and the time and resources dedicated to it were inadequate. I could go through the terms of reference but I think that in the time available I should not. He said they were really too narrow and the results could not be relied upon.
Now we have this Environment Agency report, published just yesterday. It needs careful study, but it appears to repeat many of the errors that have made since 2005. Most importantly, it presents SuDS as the only solution. I do not think anybody has really said that SuDS is the only solution; it is a contribution to the solution but there are other things, some of which I have mentioned and some of which Professor Binnie has mentioned, which could also be used. The report does not really help in either way. Before embarking on a £4 billion-plus project, there should be an obligation on government to provide up-to-date and independently verified data, along with an objective comparison with alternatives. We do not have that at the moment.
So what is to be done? I have outlined the strongly expressed views of a number of experts who believe that the problem is much smaller than was originally believed. It is possible to start SuDS in a way that would work in this country. It is a pity that the Environment Agency did not talk to the people in the US—maybe it did but it is not in the report—about the successes in Philadelphia: technical, engineering, and of course the legal and property issues as well. I have talked to the Americans and I think it could be done in this country. Thames Water could lead, fund and organise it, overseen by Ofwat, using separate arrangements for domestic properties, commercial properties and local authorities, with incentives built in through their sewerage charges. I suspect that Thames Water would be highly unenthusiastic about this but it is a regulated industry.
This leads to me to Thames Water the company, and what Ofwat is doing to ensure that the company is fit for purpose. We have discussed its financial situation in this House several times before, but it is odd that there is a problem over who will actually do the work, who will fund it and what the risks are. Martin Blaiklock, an independent consultant who has worked on this, believes that the Government and Ofwat will face an uphill task in financing such an expensive and long drawn-out project with a very high construction/completion risk. Of course, there is also the revenue risk and one has to ask: who is the customer? How much will the tunnel be used? Where is the revenue stream? Should there be a separate tunnel company? If so, what should be its relationship with Thames Water? What happens if the customers do not pay?
I think there is a question of whether such claimants, if they did or did not happen, would be seen as a contingent liability for Thames Water? That could have an indirect negative impact on its financial strength and threaten its investment grade status. Mr Blaiklock even suggests that because the tunnel option is a Thames Water concept derived out of its licence, many will say that the liabilities for this, as an independent company, should reside with Thames anyway. Any proposed structure as set out above may have echoes of Enron economics, which I am sure we do not want to see.
Perhaps it is not surprising that the Government, Thames Water, Ofwat and the others are taking so long to decide how this should be done. Martin Blaiklock concludes that given the alternatives to the tunnel option, which are gaining reality daily, for example SUDS variants, a prudent Government should forget the tunnel and choose the course of lowest financial risk and cost to Thames' customers and the taxpayer. I cannot but agree with him. It really is time for a wide-ranging study of the alternatives.
Lord Stoddart of Swindon (Ind Lab)
My Lords, I support the noble Lord, Lord Berkeley, who has been one of the parliamentary leaders against this particular tideway scheme, and indeed the sole leader of the campaign in the House of Lords. He needs to be thanked for his efforts, so I have come along, not as an expert in any way and not as a Londoner, but to give him moral support. I represented Swindon in the House of Commons and I live in Reading. Although I have no interest as a Londoner, I have some interest as the former representative of the people of Swindon and as a resident in Reading who will be expected to pay an extra £80 to £90 in perpetuity for a scheme which will only benefit Londoners. That might sound parochial, and of course it is, but nevertheless people living outside London have an interest and really need to have their position considered.
I know a little about the water industry because I was elected to Reading Borough Council and served there for 18 years. One of the first committees I served on was the water committee. In those days the water industry was largely owned by the local authorities and they made a reasonable success of it. I was later the chairman of the land and works committee of the Thames Valley water board. We produced a very efficient and cheap water service for the people of the Thames Valley area and south Oxfordshire. My boast was always that we provided water at sixpence a ton. It is of course a lot more now but prices have gone up. Therefore I have a little knowledge of the water industry.
Talking about London, we had a quarrel with the Metropolitan Water Board. London is an important place and we understand that, but what they wanted to do, and what they did do through a parliamentary Bill, was to extract water from the Thames Valley area—our water, as we put it. It came along and stole it and put it into the Thames for the benefit of the people of London. It was not to the benefit of rivers in the Thames Valley area because a lot of them dried up. We have to careful about the needs and demands of London. However, that is just a little bit of history.
As has been explained, there are many aspects to this proposal. It involves people who live outside London having to pay for a project from which they will receive no benefit. All the benefits will go to London. They will be forced to pay the same increase in bills as Londoners, who will be the sole beneficiaries. The population of London is set to increase to more than 9 million over the next few years, so Thames Water will be receiving extra profitable revenue from all those people, part of which I believe should be used to finance this scheme. Also, when the shareholders bought the company, they knew that there was a problem of disposal in London. They knew exactly what the commitment might be and that it would be very expensive, yet they still bought the shares. Having acquired those shares, they should take responsibility for the proposals which, by buying the shares, they actually agreed to. I have said this before and I will repeat it now: this project should be largely paid for by the suspension of dividends for the shareholders. After all, a precedent has been set for this. Lloyds Bank shareholders, for example, have not received a dividend for three or four years because of the intervention by the Government in the bank’s management. I believe that the shareholders should pay.
The noble Lord, Lord Berkeley, has outlined some of the much cheaper and more effective alternatives. I believe that they should be examined more thoroughly than has been the case so far. He has also referred to the Government’s intervention into this privatised industry. It may be proposed that there is to be a government subsidy, but that would be intolerable. This is a privatised industry, and the Government have no business paying a subsidy. I have to tell the Committee that I disagreed profoundly with the privatisation of water, and I blame both parties for it. When the Labour Party had the opportunity to renationalise it and give it back to the local authorities where it properly belongs, it did not do so. It would therefore be outrageous if, having sold the water industry off in order to get rid of any debt and responsibility, they should now expect the public to subsidise a project which the shareholders knew about when they bought the shareholdings. I am completely at one with the noble Lord, Lord Berkeley, and I hope sincerely that the Government will not subsidise this project. It is not their business to do so. They should ensure that the cheaper alternatives are put in place and that if they are not put in place, the shareholders of Thames Water should pay the whole bill.
Lord Grantchester (Lab)
I am so glad that my noble friend Lord Berkeley has secured this debate today on the proposals for the Thames tideway tunnel. Coming as it does after our previous debate, it allows our discussion to transcend from the sublime to the slime. I pay tribute to my noble friend’s persistent challenges to the project, which have meant that it has been critically examined in all its aspects.
We are in familiar waters. To reiterate: London’s sewers carry both raw sewage and rain run-off. They were designed for a capacity of 4 million inhabitants, but London now has in excess of 8 million inhabitants. As much of London’s infrastructure dates back to horse-and-carriage days and therefore rainwater is included, there are 50 or 60 overflows each year straight into the Thames. In a typical year, 18 million tonnes of untreated sewage enter the river through the combined sewage overflows that the Thames tideway tunnel needs to intercept.
The tunnel will remove and treat a total of 39 million tonnes of untreated sewage from the tidal River Thames. These discharges breach the urban waste water treatment directive. Years of independent studies and assessments working up a solution cannot shield the UK and the taxpayer from the prospect of substantial fines if the proposed timetable does not proceed. Delays have already led to an increase in the cost estimate in excess of £4 billion.
Your Lordships’ House last examined the proposals during the passage of the Water Industry (Financial Assistance) Bill in March 2012, when the Government took enabling powers to provide contingent financial support for exceptional project risks, guaranteeing the project even though we still do not know who will finance and build a tunnel. Since then, my noble friend Lord Berkeley has updated the House through his continual questioning, to which the Minister has positively responded.
Labour supports this project. We remain unconvinced by alternative solutions to the problem of London’s sewage discharge. We have examined the Environment Agency’s An Assessment of Evidence on Sustainable Drainage Systems and the Thames Tideway Standards, published this month, which concludes that sustainable urban drainage systems—or SUDS—alone would not be enough to combat the sewage issues facing the Thames and meet the environmental standards for the Thames established by the Thames Tideway Strategic Study in 2006. In 2012, Sheffield University published a further independent study examining the potential to retrofit SUDS on the tideway catchment areas. It concluded that retrofitting SUDS, while technically possible, is not feasible due to the very high costs and disruption that would be likely to be involved. Retrofitting could well complement conventional sewage infrastructure and be instrumental over time in separating rainwater from sewage as development projects slowly rebuild and modernise buildings and areas throughout the capital. SUDS will also play a key role in ensuring that new developments extending London’s footprint do not add to existing problems.
Labour also recognises that the Government have designated the project a nationally significant infrastructure project and that Defra is now in the formal planning process. The Planning Inspectorate will review the plans before they come back to the two departments, Defra and DCLG, for their respective approvals. As the Minister has already had discussions in DCLG, perhaps I might tempt him to say whether he foresees any problems in this joint approval process that might amount to any sense of a battle or veto between the two departments.
Labour will continue to support the proposals for the Thames tideway tunnel, subject to some overall tests being met. Obviously, the plans must be effectual, the expected state of the Thames at the project’s completion must comply with all EU directives on water standards and the Government should select the most appropriate delivery vehicle. Most critically, we want to be able to substantiate that the scheme satisfies value-for-money tests and that costs are assiduously examined. We will continue to challenge the Government about customers’ bills being added to. Labour does not want customers being disproportionately penalised for cleaning up the river when balanced against prices, executive pay packages and dividends to shareholders—in this case, a largely private equity group.
There has been widespread concern that Thames Water has paid out more than £2 billion in dividends in the past six years—more than £650 million in the past two years alone—as well as £1 million in management fees. What discussions have the Government had with Thames Water on this issue? It is a matter of some concern that large amounts need to be set aside for the tideway tunnel.
The Minister has given clear explanations at the Dispatch Box about why the company has not paid any tax. All UK companies are allowed to claim capital allowances when they spend on capital investment programmes. That is understood, but can the Minister categorically confirm that in Thames Water’s case these allowances apply to past capital projects and state whether he has appreciated that it seems that Thames Water can add to customers’ bills? The consumer suffers, as we are now considering social tariffs, the taxpayer in the form of the Treasury will offset capital costs and have no receipts, yet profits continue to support private equity returns.
We will continue to press the Government for more innovative financial schemes that are more environmentally sensible. There was an interesting report in the press this week that Ofwat plans to block Thames Water’s request for a further price rise of up to 8% in customers’ bills next year to cover some of the costs it has picked up from bad debts and buying land for the tunnel—the so-called super sewer. Ofwat’s response was forthright and noted. It stated that this request was in addition to the already assured price hike of 1.5% above inflation for 2014-15. Water bills and the cost of living are critical issues. We will continue to monitor the situation closely and take a keen interest in the outcome regarding the Government’s guarantee for the project.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, this has been a most interesting and informative debate, with a good exchange of views on many aspects of the Thames tunnel project. I thank the noble Lord, Lord Berkeley, for his assiduousness in pressing the Government on this subject. I will try to address as many of the issues raised as I can, but before I do that, I also thank the noble Lord, Lord Stoddart, for his thoughtful contribution, but no one do I thank more than the noble Lord, Lord Grantchester, for confirming that the Opposition support the project.
I believe that there is widespread acceptance that it is unacceptable for a leading European city in the 21st century to have a major river flowing through it that is increasingly taking on some of the characteristics of an open sewer. However, this situation in London is not new. We have known about it for well over 10 years. In that time, there has been much consideration and study of possible solutions to the problem, from all angles by a range of experts.
The noble Lord, Lord Berkeley, asked what assessment the Government have made of the proposals for the Thames tideway tunnel. A tunnel-based solution first emerged from the Thames tideway strategic study. That group, which was established in 2001 and reported in 2005, comprised the Greater London Authority, Defra, Thames Water, the Environment Agency and Ofwat, in an observer capacity, with an independent chairman. The group considered a range of alternative solutions, drawing on the technical expertise of numerous bodies and professional advisers, before arriving at its conclusion that a full-length tunnel was the preferred solution for reducing the number of combined sewer overflow spills and meeting the environmental objectives for the river.
In 2007, the then Government published a regulatory impact assessment of sewage collection and treatment for London which examined these and a range of other proposed options. The overall conclusion was that only a full-length tunnel would provide a cost-effective solution that met the tideway environmental objectives for the river within a reasonable timescale. Accordingly, the then Government asked Thames Water to proceed with developing detailed proposals for a tunnel. Since then, Thames Water has refined its proposals and consulted extensively on them.
Defra officials are working closely with Ofwat and Thames Water to ensure that the costs are tightly controlled, so that customer bill increases over time to pay for the financing of the tunnel are kept as low as possible and provide value for money. In addition, in November 2011 Defra published an updated assessment of the proposed options to address sewage in the Thames and an updated cost-benefit assessment. These were entitled Creating a River Thames Fit for our Future—A Strategic and Economic Case for the Thames Tunnel and Costs and Benefits of the Thames Tunnel.
In 2012, Parliament considered and approved the Government’s National Policy Statement for Waste Water, with debates in both Houses. This set out the need for major wastewater infrastructure, compared the alternative solutions for the Thames, and concluded that a tunnel was the preferred solution. The National Policy Statement for Waste Water will be used by the Planning Inspectorate in considering Thames Water’s current application for a development consent order for the tunnel. In 2012, my department also published its Thames Tunnel evidence assessment, to ensure that due consideration had been given to the full range of evidence available on all the proposed options to address the problem of sewage pollution in the River Thames. This included an annex listing all 36 of the relevant supporting studies and reports.
Earlier this year, in view of representations being made by the noble Lord, Lord Berkeley, among others, that some US cities were implementing sustainable urban drainage systems, or SUDS, and green infrastructure to address their overflow problems, we asked the Environment Agency to carry out an assessment of the evidence on whether SUDS could deliver the environmental standards set for the River Thames. The review, published last week, concluded that all the available evidence, comprising more than 70 relevant studies, shows that SUDS alone could not achieve this.
The noble Lord, Lord Berkeley, referred to Philadelphia. If I may, I will dwell for a moment on what some major US cities are doing, because the US has federal standards which are not dissimilar to those set by EU law. Washington DC has just started boring a deep five-mile tunnel of similar dimensions to the Thames tideway tunnel. This is part of a 12-mile tunnel system that aims to reduce combined sewer overflows by 96%, a similar standard to that proposed for the Thames tideway tunnel.
Major storage and transplant tunnels are also a key feature of solutions put in place to tackle combined sewer overflows in Milwaukee and Wisconsin. Pittsburgh is attempting to achieve a similar standard through the 25-year implementation of sustainable drainage systems. In Portland, Oregon, SUDS have been used to remove approximately 8 million cubic metres of storm water a year. This is 35% of its total sewer overflow volume, but tunnels still prove necessary to meet the required levels of control. Philadelphia aims to tackle 85% of its sewer overflow discharges using SUDS over a 25-year period. The work has been going on for five years now, but a tunnel solution may still be necessary to meet the required environmental standards.
Unlike London, Philadelphia and Portland have a geology which is suitable for SUDS. The soils underlying the cities’ SUDS areas are more porous and more able to soak up excess rainwater. The main point is that each solution reflects the particular building density, geology, rainfall patterns and existing sewer system of that city.
There does not therefore appear to be any case to revisit the case for the tunnel as it is set out in the national policy statement. I have also seen compelling recent evidence of the scale of the problem with wastewater discharges into the Thames, and I am advised that the serious rainfall event last weekend resulted in more than 1 million tonnes of wastewater being discharged into the river over a very short period of time. A tunnel would have captured these discharges, and transferred them for treatment in time to handle any subsequent heavy rainfall events. I do not believe that supporters of SUDS as an alternative to the tunnel have demonstrated how they would handle events of this type.
The noble Lord, Lord Berkeley, also referred to the work of Professor Binnie. We believe that the environmental criteria set in 2007 remain robust, are not gold-plated, and should not be downgraded. Alternatives such as a shorter western tunnel combined with SUDS would not meet the environmental objectives for the Thames tideway in an acceptable timeframe or at lower cost than the full-length tunnel.
A further important factor is the 2012 European Court of Justice ruling that the UK was in breach of the urban waste water treatment directive in London, which means that there is an increased likelihood of very significant infraction fines if we do not comply within a reasonable period of time. The risk of fines has been reinforced by the very recent fines ruling against Belgium for not complying quickly enough with a previous adverse court judgment with regard to waste water collection and treatment.
The noble Lord, Lord Berkeley, asked what the tunnel solution will deliver. The Thames tideway tunnel would reduce the frequency of spills from the 34 combined sewer overflows in London intended to be caught by the proposed tunnel from around 50 to 60 to just three or four times a year during extreme rainfall events, with the estimated overflow volume falling from around 18 million to 2.5 million tonnes. That would improve water quality, with benefits for wildlife and river users. It will also ensure that we continue to meet the UK’s obligations under the urban waste water treatment directive and the water framework directive. We are clear that the overflow volume to be addressed by the tunnel is 18 million tonnes, not the 39 million stated by the noble Lord, Lord Berkeley, as quoted by Thames.
The noble Lord, Lord Berkeley, also asked about the financing of the project. The Government believe that the private sector can and should finance this project. Although the Government can provide financial assistance in any form in relation to the tunnel, we have stated that this will be contingent financial support for exceptional project risks, to help ensure the cost of financing the project is kept to a minimum and offers best value for money for customers and taxpayers. However, we will want to be assured, when offering this contingent support, that the taxpayer is appropriately protected by measures that minimise the likelihood of these exceptional risks materialising.
The noble Lord, Lord Stoddart, asked about customers outside London paying for the tunnel. It is worth saying that London customers have helped to finance major sewerage investments outside the capital that serve a much smaller population. When improvements are needed, for example, in rural Oxfordshire, the cost is spread among all customers of sewerage services, including those living in London. This approach, which is supported by Ofwat, is standard across England and Wales and is the fairest way of apportioning the costs of investment in water and sewerage services.
The noble Lord, Lord Stoddart, suggested that Thames Water should pay for the tunnel from existing funds. Paying for the project from any accumulated reserves would neither reduce the cost to customers nor remove the requirement for some type of government support. This is a major tunnelling project and has a risk profile significantly beyond that typically expected of a water and sewerage company. That is why the tunnel is expected to be financed and delivered by an independent infrastructure provider with its own licence from Ofwat and backed by some form of government support related to exceptional project risks.
The Government believe that the private sector can and should finance the project but accept that there are some risks that are not likely to be borne by the private sector at an acceptable cost. The Government are therefore willing, in principle, to provide contingent financial support for exceptional project risks where that offers best value for money for customers and taxpayers.
Lord De Mauley
My Lords, I am sure I will in a minute. We will want to be assured that when offering contingent support, taxpayers’ interests remain a top priority. The taxpayer must be appropriately protected by measures that minimise the likelihood of these exceptional risks. We are working on the detail with Ofwat, Infrastructure UK, Her Majesty’s Treasury and Thames Water to ensure that there is a minimal likelihood of contingent government support ever being called on.
The noble Lord, Lord Grantchester, asked about the status of planning. Given that Ministers have a quasi-judicial role in the planning process, I hope the noble Lord does not expect me to go into detail at the moment.
The noble Lord, Lord Stoddart, asked about bill increases. We have always made it clear that the estimate of £70 to £80 is, indeed, only an estimate and should not be used, as it was in a recent paper, to reverse engineer a notional investor return. If the project is delivered through an infrastructure provider, the actual figure that appears on Thames bills will be set following the competition for the financing of the project. That will ensure best value for money for customers and keep bill increases as small as possible.
The noble Lord, Lord Berkeley, asked just now what contingent financial support really means. The support will occur in the case of unlikely events such as severe debt market disruption, significant cost overruns due to extreme tunnelling conditions and any caps on commercially available insurance.
Over the past 10 years, the Government have undertaken lengthy and thorough assessments of the Thames tideway tunnel project and alternatives. They have concluded that the tunnel represents the most cost-effective, timely and comprehensive solution to the problem of sewage pollution in the River Thames in London.