(10 years, 10 months ago)
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Lord Moynihan
“Duty to facilitate competition
(1) Section 37 of the Water Industry Act 1991 (general duty to maintain water supply system etc.) is amended as follows.
(2) In the heading, after “system” insert “and facilitate competition”.
(3) After subsection (1) insert—
“(1A) It shall be the duty of every water undertaker—
(a) to fulfil its duties under Chapter 2A of Part 3 in a way which does not prevent, restrict or distort competition in the provision of water services; and(b) without prejudice to the generality of subsection (1A)(a), to ensure that no undue preference is shown (including for itself) and that there is no undue discrimination in the relationship between its monopoly business, its competitive business and a water supply licensee.(1B) For the purposes of subsection (1A) above—
(a) an undertaker’s monopoly business comprises all of the activities carried on by it within the scope of its appointment, with the exception of its competitive business;(b) an undertaker’s competitive business comprises those activities carried on by it within the scope of its appointment, but which, in the absence of such an appointment, could only be carried on by it with the benefit of a water supply licence and the business of any associated water supply licensee; and(c) a water supply licence is a licence granted under section 17A, water supply licensee shall be construed accordingly and associated shall have the meaning set out in paragraph 11 of Schedule 2A.”(4) In subsection (2) for “duty” there is inserted “duties”.”
Lord Moynihan (Con)
My Lords, in moving Amendment 115, I wish to speak also to Amendments 116, 138, 139, 140, 141, 142, 143, 144 and 145.
This set of amendments brings us back to the central issue of creating through this legislation a clear, unequivocal market framework for competition. The amendments would provide a duty to facilitate competition. All participants must have access to clear and accessible prices, clearly defined and common levels of service and standard terms and conditions. As I have mentioned before to your Lordships, the Bill is based on the premise that parties within the retail market should conclude bilateral relationships subject to industry codes that will be developed. This could require some negotiation between market participants on service and price. It is this element of negotiation which I believe, if not addressed by us, will lead to the inefficient operation of the marketplace with unintended consequences.
The Bill is about regulated access and should not be blurred by a heavy dose of negotiated access. Allowing parties to negotiate could open the door for a current incumbent to discriminate against new retailers by offering them less preferable terms or poorer service levels or simply by being slow to respond to requests. This would limit the effectiveness of the market and increase costs for new entrants and customers. In my view, the relatively minor clarifications that I propose could usefully be made to the Bill. These are designed to ensure that the market can be opened in a timely way and that, once open, customers will enjoy benefits that are the same as, or greater than, for example, those which have been achieved in Scotland.
Amendments 138, 139, 140, 141, 142, 143 and 144 would ensure that Ofwat’s implementation licence modification powers are fit for purpose. In Scotland, the Water Industry Commission had a power of direction to ensure that activities that needed to be done were completed in time for market opening. For example, WICS was able to say to Business Stream, Scottish Water’s retail subsidiary, that the market would open irrespective of whether it was ready and that its customers would be reallocated to new entrants. I propose that Ofwat’s licence modification powers are made available for at least three years after Royal Assent to ensure that the entire period up to market opening is covered. I also suggest that they are clarified and strengthened, including by referring explicitly to market opening, as proposed in the group of amendments I have mentioned.
Amendment 145 would allow Ofwat to make common licence amendments in a single process. The potential retail market in England is much bigger than in Scotland. There will be more wholesalers and more incumbent retailers. The difference principally relates to the handling of the interests of the incumbent companies. In Scotland, the relevant people now have significant experience of dealing with a large number of—there are 12—active retailers. In their view, it would be sensible to ensure that Ofwat can make licence amendments that cover all companies if that is, in its judgment, the best approach. That has certainly been helpful in Scotland. However, there may also be circumstances where a more targeted approach to an individual company or a small group of companies would be better.
Amendments 115 and 116 would place a clear duty of non-discrimination on the wholesale businesses of the incumbent water suppliers. Clause 23 obligations to ensure no undue preference or discrimination would be carefully extended by these amendments. It seems to me that profit maximisation could be put forward as a reason to discriminate between suppliers. It may be worth looking at placing duties to help facilitate competition directly on incumbent businesses, making them also subject to a duty to ensure no undue preference or discrimination. This would make it easier to enforce competition law provisions, including the prohibition on margin squeeze. That would help ensure that new entrants are generally able to count on there being a level playing field.
As I had the good fortune to be the Minister responsible for taking the original privatisation Bill through the Commons, along with my noble friend Lord Howard of Lympne, I anticipate that the Minister will respond to my amendments by saying that Ofwat already has a duty to promote competition and therefore we do not need another duty. He may also say that Ofwat is the relevant competition authority for the sector and therefore we need to ensure under another piece of legislation that there is no anti-competitive behaviour in the sector, so we do not need another duty. He may have in mind the Competition Act and the Enterprise Act in that regard.
The Earl of Selborne (Con)
My Lords, I support my noble friend Lord Moynihan. Although he described these proposals as modest, they are important in complementing the provisions in the Bill facilitating competition. After all, the Bill introduces a completely new concept of competition at both the wholesale and retail levels. We are right to be extremely suspicious of the attitude that companies will take to try to use their undoubted advantages as incumbents in order to secure their markets, which, at the moment, are unchallenged.
If noble Lords think that I am a bit paranoid about this, let me take an example from outside the water sector, in the field of communications. This morning, on a previous group of amendments, we prayed in aid Ofgem; I should also like to pray in aid Ofcom. Take the example of BT and broadband, which is an area that involves public funds but may perhaps not be an exact analogy with the water sector. BT is able to use public funds in order, as the Public Accounts Committee in another place has demonstrated, to see off new entrants. In a number of cases, a lot of work has been done to bring broadband to remote communities, but there has been a lack of transparency from incumbents until the last possible moment. They come into those areas—surprise, surprise—with a directly competitive service, having identified where the competition is going to come from. Of course, all other areas remain neglected until they attract competition, too. In other words, it is possible, in any number of insidious ways, for an incumbent to retain a competitive advantage. The company can sometimes just be bad at providing the data and not answering communications.
These amendments place a duty on an undertaker to facilitate competition and they strengthen Ofwat’s powers. In ways which we cannot entirely predict, but which we can assume will be used, companies will be rightly keen to retain their share of the market. We should assume that anything done to strengthen the ability of new entrants to operate without discrimination against them must be welcome. Without in any way casting aspersions on the existing undertakers, we should recognise that anything that can be done to demonstrate that they are required to facilitate competition would be well within the spirit of the Bill and complement the existing provisions. I cannot see how these proposals could do anything but help.
Lord Crickhowell (Con)
I rise to make a very brief comment, prompted by the remarks of my noble friend on the likely possibility of incumbents seeking to defend their positions. I seem to recall that, in reply to my noble friend Lord Moynihan in our previous debate, the Minister told us that the water companies had said that they were against what was proposed. I remember thinking, like Mandy Rice-Davies, “Well, they would, wouldn’t they?”. It was just an indication of the kind of attitude that one is likely to get from incumbents—perfectly naturally—in trying to defend their existing position.
Lord Whitty (Lab)
My Lords, last week’s de facto alliance between the noble Lord, Lord Moynihan, and me extends in part to these amendments, in that it would be sensible for the Government to contemplate positively some of the latter amendments in the group, particularly those that inhibit the degree to which incumbents can effectively square the market against new entrants. However, my agreement does not extend all the way, I am afraid, particularly to the earlier amendments in the group. We must remember that the Bill is not quite as radical as all that, and, if it were to be a bit more radical, a lot of other things should follow.
We are, actually, introducing competition immediately only in a narrow part of the market. It is an important part, and there may be subsequent lessons to be learnt, but it is going a bit far to say that Ofwat’s central duty should be extended to promote competition. It already has a duty to look after the interests of consumers, where appropriate through competition, and we are making sense of that in a way that has not been done in the past 20-plus years of privatisation. However, we are not in any way legislating in this Bill for residential properties to be subjected to competition. Some noble Lords may think that we should be doing so, and it may be that I could be persuaded of that, but the fact is that we are not doing so here. If we were, that would raise a whole range of other protections and issues that would have to be considered.
It is also true—the noble Lord, Lord Moynihan, referred to upstream competition—that a number of hesitations were expressed around the Committee last week about triggering the upstream aspect to this, particularly in relation to abstraction reform occurring first. I would not want the noble Lord’s Amendments 115 and 116 about promoting competition to give Ofwat the impression that their provisions would override the need to ensure that abstraction protection was in place before competition in the upstream area was triggered.
Therefore, I cannot support this group of amendments as a whole. The Government may wish to consider one or two of them but, at this point, many of them go too far beyond the scope of the Bill or could be interpreted as doing so.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, my noble friend Lord Moynihan’s Amendments 115 and 116 would introduce a new duty on incumbent water companies to “facilitate competition”. This would sit alongside their primary duties to supply water and provide sewerage services to their appointed areas. Amendments 138 to 145 would change Ofwat’s powers to amend licences to introduce the market reforms set out in the Bill.
One part of the proposed new duty on incumbents would require them to act in a manner that did not “prevent, restrict or distort” competition. I think we can all agree that it is essential that incumbent water companies play by the rules of the market so that customers benefit from competition. That is why the Competition Act 1998 already prohibits business from making agreements that involve the prevention, restriction or distortion of competition, or from abusing a dominant position in the market. Both incumbents and licensees are subject to an overarching competition law regime that deals with the concerns that the amendments seek to address. As my noble friend thought I would say, Ofwat is able to enforce the Competition Act 1998 in the water sector because it has concurrent powers with the Competition and Markets Authority.
In some of our debates on Tuesday, noble Lords made comparisons with Scotland, as did my noble friend today, but I note that a facilitating competition duty was not imposed on Scottish Water, although it, too, is subject to the aforementioned Competition Act. It is worth noting here that WICS does not have the same powers as Ofwat under the Competition Act, which may explain some of the differences in the way Scottish Water is regulated.
Incumbents will be subject to enforceable licence conditions, market codes and charging rules which will ensure that they operate fairly in the competitive markets. I question why the amendments do not require licensees to be under the same or a similar duty because both licensees and incumbents operate within the retail market and some licensees are associates of incumbents.
Lord Moynihan
My Lords, I am deeply grateful to the Minister for his comprehensive response. I have to say that this has been a very friendly Committee stage. Reference was made earlier today by my noble friend to the importance of policy formulation in the Bishops’ Bar. No doubt the noble Lord, Lord Redesdale, and I will continue that discussion in the same venue at a later stage. Then, to top it all, I have to say that I regret the passing of the special relationship with my temporary noble friend the noble Lord, Lord Whitty, and hope that it will return very strongly when it comes to revisiting the question of exit at a later stage in our proceedings.
On a more serious note, I am grateful to my noble friend for his support of my amendments, in particular the importance that he, like me, attaches to facilitating competition. It is absolutely critical that new entrants to the market do not come up against the misplaced use of economic power by the incumbents. That is what we were seeking in these amendments. I did not anticipate that my noble friend would respond quite so quickly to the additional points I raised in that context in the second part of my speech. There were one or two other items I proposed which I hope that he will reflect on, but I would not anticipate that he could do more than that. I hope that, between now and the Report stage, we will have an opportunity to consider them in somewhat greater detail. In the mean time, however, I beg leave to withdraw the amendment.
Baroness Parminter
Baroness Parminter (LD)
My Lords, I welcome the fact that the Water Bill places the Government’s strategic priorities and objectives on a clearer statutory footing and requires Ofwat to carry out its functions in accordance with it. New Section 2A(3) to be inserted by Clause 24 makes it clear that, “In formulating a statement” the Government “must have regard to” Ofwat’s duties, but only,
“may have regard to social and environmental matters”.
The government briefing note on sustainable development and the resilience duty that was issued last month confirms that the Government are strongly committed to sustainable development, balancing the equally important needs of society with those of economic growth and environmental protection. Before lunch we debated how this is articulated in the duties for Ofwat, but it is equally important that it is articulated clearly in the duties placed on future Governments. That is why I believe that the word “may” should be changed to “must”, so that Governments must take into account social and environmental matters when formulating future policy steers.
Statements of strategic priorities will replace the existing social and environmental guidance currently issued to Ofwat. In future, the Secretary of State will issue a single consolidated statement setting out social, environmental and economic policy priorities. My noble friend the Minister kindly confirmed in a letter to me on 17 January that the Government intend to continue to provide guidance on social and environmental matters within that single consolidated policy statement. Given that the Government have said that they will provide guidance on such matters, I feel that the use of the word “may” insufficiently reflects that commitment and the need for future Governments to take account of these matters when formulating the crucial strategic policy that will guide Ofwat. I beg to move.
Lord Whitty
My Lords, I support these amendments. New Section 2A(3) to be inserted by Clause 24 seems to differentiate between Ofwat’s duties regarding strategic priorities and social and environmental matters. We attach “must” to the former and “may” to the latter, but the Secretary of State ought to have regard to both. This is not the usual theological argument between “may” and “must”. Those of us who have been around the block on this legislation have come across that argument a number of times and have completely failed to understand parliamentary counsel’s advice. The provision clearly differentiates the status of the two duties. It does not differentiate and downgrade the social and environmental objectives for Ofwat, which some noble Lords might think would be sensible, as Ofwat is primarily an economic regulator. This is for the Secretary of State. It is the Secretary of State’s duty to balance all these issues out. He should therefore have regard to both duties and if it is “must” for the former it should be “must” for the latter. The provision does not say, “give priority to”; nor does it say, “If you have regard to these duties, you do not necessarily need to carry out exactly what they prescribe”. However, it is the duty of the Minister to balance all these things out. If the legislation gives less status to one than to the other, the outcome of the balancing seems to be predictive.
I do not think that is right. All parts of the policy need to be looked at. I think “must” is probably the appropriate modal verb but both duties need to be in the same form. They are both important and the Secretary of State, whoever that might be, needs to have regard to both. I therefore support the intention of the amendment.
Baroness Northover (LD)
My Lords, I thank my noble friend Lady Parminter for her amendment. She notes that Clause 24 on setting strategic priorities and objectives for Ofwat requires that the Secretary of State “must” have regard to Ofwat’s duties but “may” have regard to social and environmental matters. She would like to change “may” to “must”. I am also familiar with the debates to which the noble Lord, Lord Whitty refers, having delivered a “must” to the noble Lord, Lord Ramsbotham, yesterday at Third Reading of the Children and Families Bill.
The Government are keen to hear and understand my noble friend’s concerns. However, we think that the new power to set strategic priorities and objectives for Ofwat will ensure that social and environmental matters will continue to be addressed. The purpose of Clause 24 is to strengthen and clarify the existing guidance-giving powers. It enables the Secretary of State to issue a single consolidated statement setting out social, environmental and economic policy priorities in the round to help Ofwat to balance all the relevant considerations appropriately when making regulatory decisions.
The Government’s principles of economic regulation require that Ofwat regulates within a clear framework of policies and duties set by the Government. Under the new power, Ofwat must carry out its relevant functions in accordance with the statement. The new powers stipulate that, in issuing the guidance to Ofwat, the Secretary of State must have regard to all Ofwat’s duties. These are set out in Section 2 of the Water Industry Act 1991 and include protecting the interests of consumers, promoting economy and efficiency by companies in their work and, as we have already discussed, contributing to the achievement of sustainable development. These duties encompass the regulator’s essential purposes and it is right that, in giving a steer on policies and objectives, the Government should be bound by them. We note that the duties clearly embrace both social and environmental matters. In addition, the new powers under Clause 24 stipulate that when formulating a statement the Secretary of State may have regard to social and environmental matters. We hope that this serves to provide additional reassurance that such matters will continue to be addressed through the strategic priorities and objectives. As a further check, Clause 24 also requires that we consult widely on the statement of strategic priorities and objectives. Following this, the statement will be subject to parliamentary scrutiny. When we consulted on the existing strategic policy statement last year, the social and environmental content received a warm welcome from both environmental NGOs and consumer groups. I thank my noble friend Lady Parminter for her own tribute to this.
We have great sympathy with my noble friend’s objectives but we are not persuaded that such a change to the Bill is required. I therefore ask her to withdraw her amendment.
Baroness Parminter
I thank my noble friend for her detailed comments on my amendment and for the fact that she noticed that I commented on the consultation last year. I take this issue very seriously. I also thank the Opposition Front Bench for supporting the amendment. It is not a matter of semantics. It might seem to be that, but it is more fundamental to the direction of travel—what we want for the water industry in the future and how we can assist future Governments to deliver the commitments that we all agree on. I will reflect on what the Minister has said, but we may return to this matter in the future. I beg leave to withdraw the amendment.
Lord Grantchester
“Billing information: affordability
Any company providing water services to a residential household must include on its bills—(a) details of any tariffs provided by that company;(b) a recommendation of the lowest possible tariff for each residential household; and(c) information regarding eligibility criteria and how to make an application for assistance under Water Sure.”
Lord Grantchester
My Lords, Amendment 118 is a straightforward requirement on companies to meet what ought to be seen as a basic customer service in the household sector. The amendment would simply require a company to do three things: to give consumers information about tariffs, including any social tariffs; to fit the most appropriate tariff to a household using the information it holds on households; and to provide information where there is a broad social support scheme available—currently Water Sure—clearly setting out the eligibility criteria.
This is basic customer service. The information is useful to everyone but vital to those with affordability issues. Affordability is clearly a problem for many families. Ofwat estimates that 11% of households spend more than 5% of their income on water, which would amount to more than 2 million households in the UK struggling to pay their bills. As the Prime Minister has been heard to say, the Government have not done enough and must do better.
The Water Sure scheme mentioned in the amendment was set up to help in this respect. It applies to low-income, metered households with high water use. Examples include those in receipt of qualifying benefit or tax credit with three or more children under 18 or those who, due to medical conditions, have very high water usage. It takes the step of capping the amount that such a family would have to pay to the average for that operating area.
These households have to apply to be on the tariff. Unfortunately, take-up of this scheme is much lower than it might be. This means that many who may need help are paying more than they need to pay and perhaps find themselves in difficulty as a result. Only a third of households that could benefit are actually using the scheme. In many areas, only a few hundred homes are receiving Water Sure payments. This amendment would go a long way towards ensuring that the necessary help will be more explicitly available. A company will have to put the details of the Water Sure tariff on customers’ bills. That company would also need to provide information that would enable the bill payer to work out whether or not they are eligible and, if they are, clear instructions about how to apply.
This is a simple amendment that will be greatly beneficial to a large number of families struggling to cope with the cost of living crisis. I beg to move.
Viscount Hanworth (Lab)
My Lords, as I had occasion to remark at Second Reading, some water companies have been making exorbitant profits on the back of the rather generous tariffs that have been allowed by Ofwat. Whereas consumers were once able to disregard the cost of their water usage, it can now be a significant item in their budgets, to the extent that those in poverty may struggle to pay their bills. I have also indicated that the revenues of the water companies have often been used by the owners of those companies for purposes quite unrelated to those of the industry, when they should be used to cover operating costs and the costs of investing in capital infrastructure.
This amendment seeks to ensure that consumers will be adequately informed of the details of tariffs and that they will be properly alerted to any schemes that are available for mitigating the costs when they prove hard to bear. The amendment can also be seen in the context of the various schemes that have been proposed that would alert consumers to their current water usage. This amendment and the one that follows it seek to cast further light on the costs and revenues of the water companies, which continue to be opaque, to say the least.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Grantchester, for introducing Amendment 118, which, as he said, would insert a new clause into the Bill to place a legal requirement on water companies to include information on their bills about the Water Sure scheme. The scheme provides a mandatory safety net for low-income customers on a meter who, for reasons of ill health or because they have a large family, use larger than average amounts of water. It caps the bills of these households at the average for their company area.
The eligibility criteria for Water Sure are twofold: the household must be in receipt of a relevant low-income benefit and must have three or more dependent children living at home or someone with an illness that necessitates high water use. It is unfortunately a feature of all means-tested benefits of this sort that take-up, as the noble Lord mentioned, can fail to match eligibility. That is why promotion of the scheme is so important. I am pleased to be able to tell the noble Lord that all water companies already voluntarily provide information about Water Sure on their bills.
In addition, Amendment 118 would require all water companies to provide information about tariff structures and the lowest available tariff. This is not the energy sector—water companies do not have complex tariff structures. In fact, the situation is quite the reverse. The choice for the majority of household customers is between paying according to volume of water used—a metered tariff—or according to the rateable value of their home. All water companies provide information on household customer bills about how to get a meter fitted free of charge. Companies also provide advice to customers on whether or not they might benefit financially from the installation of a meter; a role also performed by the Consumer Council for Water. The cheapest option for each household will depend on the location of the property and the amount of water used by the household. Where a company offers a social tariff, information on whether a household may qualify is provided by the company alongside the customer bill. The Consumer Council for Water works closely with each water company on the information provided on household bills to ensure that customer interests are met. Its very practical advice is that customers are likely to be put off by too much information in their bills.
For these reasons, I cannot agree that customers will be best served by placing an increasing number of legal requirements on water companies to include additional information on customer bills. I believe that the current approach of working in partnership with the body responsible for representing the interests of customers is more likely to be effective. I therefore hope that I can persuade the noble Lord to withdraw his amendment.
Lord Grantchester
I thank the Minister for that reply. I had not heard that all companies were already providing this information. My information was that this was not the case and that only some were. I am encouraged that the reassurance has been provided but, nevertheless, feel that the promotion of the scheme could be improved if it was included in people’s bills when they had to pay them. I am sure we will want to return to this issue because, given that the uptake of Water Sure payments is at a rather low base at the moment, we want to be reassured about what more could be done to bring this to the attention of families.
Thanks largely to the Consumer Council for Water, customer service has been improving in the water industry, dominated as it is, as my noble friend behind me has said, by large regional monopolies. Nevertheless, it is regrettably necessary to spell out these requirements. In the mean time, I beg leave to withdraw the amendment.
Lord Whitty
“National Affordability Scheme
(1) The Secretary of State must, by order, introduce a National Affordability Scheme for water.
(2) The National Affordability Scheme must include an eligibility criteria, determined by the Secretary of State, in consultation with—
(a) the Water Services Regulation Authority; and(b) the Consumer Council for Water.(3) An order under this section—
(a) shall be made by statutory instrument, and(b) may not be made unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.”
Lord Whitty
My Lords, Amendment 119 deals with the affordability question. As my noble friend said on the last amendment, roughly 11% of household consumers of water have problems paying their water bill, amounting to 2 million households. As the Minister said, at present there are two fairly crude systems of pricing water for households. One is based on the seriously outdated—or putative—rateable value of your house and the other is metered by volume. The Minister drew comfort from the fact that this does not lead to complicated tariffs, as there are for the energy sector. To some extent I agree with him—we do not want to overcomplicate this—but in neither the metered nor the non-metered sector for residential consumers is any regard paid to the circumstances of the household or the affordability of the bill. The existing formulae do not allow for that.
Until very recently, and absolutely until the 2010 Act, Ofwat took the view that we should not have varied tariffs, social tariffs or any tariffs that departed from those two basic approaches. It has been very resistant to introducing social tariffs until recently. The 2010 Act provided the option for companies to make social tariffs available to consumers. The Water Sure scheme is a more broadly based scheme, available across companies, for those on benefits with large families and those who have medical needs. The take-up of the option to introduce social tariffs has been hitherto pretty limited—only three companies have so far introduced them. If the Minister has any more recent figures I would be grateful for them, but my understanding is that about 70,000 people have taken up Water Sure and rather fewer have taken up the social tariffs available from individual companies. That is, at best, fewer than 150,000 out of the 2 million potential beneficiaries of a social tariff approach. The Government of course have also recognised the very particular situation with South West Water, but that is based on government expenditure, not on the structure of tariffs.
The industry now tells us that in a couple of years’ time all companies will have social tariffs and that those social tariffs will benefit low-income, vulnerable households. I hope that by the date we stipulate here, 2015, there will be social tariffs right across the board. However, first Ofwat and then the companies have been very slow in pushing this option. The take-up indicates that its availability is not well known and that the ease with which people take up social tariffs is pretty limited. We need to provide an incentive, or a push, on this front over the next year or so in order that all companies take it up and that the take-up among consumers is wide, in order to provide, if you like, a safety net. We recognise the desirability of companies taking notice of the configuration of their own consumers and the particularities of their region, and therefore it is better that companies are left to decide their own schemes which will suit their own circumstances. But they must have widespread eligibility, and be easily taken up and understood. At the present rate of progress it looks unlikely that anything like the potential 2 million households that would be helped by social tariffs will be on them by 2015. We need a national approach to this that will set minimum standards.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Whitty, for Amendment 119, which would insert a new clause into the Bill to place a requirement on the Government to introduce by secondary legislation what is described as a national affordability scheme, with eligibility criteria set by government.
Keeping bills affordable while ensuring continued investment in essential water and sewerage services are the driving principles behind this Bill. I thank the noble Lord for giving us the opportunity to debate these important points. However, while I am in full agreement with him that we must consider the impacts of bills on hard-pressed households, I am not persuaded by his proposal.
First, the concept of a scheme with nationally mandated eligibility criteria simply ignores the reality of the water industry, which is structured on a regional basis. Different water company regions have different customer bases. Average incomes and the cost of living vary substantially from region to region, as do the costs of supplying water and sewerage services. A top-down, centralist approach could take no account of these regional variables. A centrally mandated set of eligibility criteria would have a completely different impact on households living in otherwise identical circumstances, depending on which region they happened to be in.
This is why the Government’s approach is focused on company social tariffs. We have issued statutory guidance that requires the companies to work with their customers to develop local solutions. These must be tailored to local circumstances and acceptable to customers who foot the bill. Companies have been able to introduce social tariffs since April 2013—for slightly less than a year. In the past year, three have done so. The noble Lord, Lord Whitty, feels that the pace of change is too slow, but by 2015-16 the majority of water companies will have a social tariff in place.
Legislating for this change will not make it happen any faster. Given the requirements to develop nationally mandated eligibility criteria, it could actually slow the pace at which social tariffs are rolled out. That could delay the point at which some hard- pressed households receive the help that they need. As the noble Lord said, I have mentioned before that all incumbent water and sewerage companies have already developed packages to help customers with affordability problems. These include customer assistance funds, support tariffs, debt advice and water efficiency measures. Social tariffs have provided a valuable additional tool.
The second important point in relation to this proposal is that it remains far from clear how it is intended to fund this scheme. This is not a minor point of detail; it is the key point, which needs to be addressed. In discussions in another place, there were two suggestions for how such a scheme could be funded. Broadly speaking, these can be characterised as either some form of cross-subsidy from ineligible customers, or some form of tax on profits. These are materially different approaches with very different implications, so it is right to seek to get to the bottom of what is being proposed.
A nationally mandated affordability scheme funded by cross-subsidy would be a tax on all water customers ineligible for help. This would be a very blunt instrument. We must not forget that a great many households that are ineligible for help with their water bills are nevertheless living on very modest incomes. It would be hard on them to argue that they should have to foot the bill without being properly engaged in the development of a locally appropriate scheme.
Alternatively, some have proposed that a national affordability scheme could be funded by some form of windfall tax on company profits. In a price-capped sector such as water, this would be an odd thing to do. The recent publication of water companies’ business plans has demonstrated how the price review can work to claw back benefits for customers. By taking account of lower financing costs, Ofwat estimates that the next price review could significantly reduce pressure on all customers’ bills by between £120 million and £750 million a year. Most water companies are proposing flat or declining customer bills from 2015 to 2020. This is in advance of Ofwat’s efficiency challenge. The spectre of a tax on profits would seriously undermine the regulatory stability on which this system is founded, unnerving investors and pushing up costs for all customers.
I agree with the noble Lord, Lord Whitty, that it is vital that those who are struggling to pay get help. However, I believe that the current approach of regional affordability measures meets the realities of the sector. I therefore ask the noble Lord to consider withdrawing his amendment.
Lord Whitty
My Lords, on this amendment, the noble Lord has misunderstood the nature of the proposition and downplayed the nature of the problem. He says that all companies will have social tariffs in a couple of years. I hope that that is true and that it means that the majority—even pretty well all—of the 2 million people who have affordability problems will have been helped by those schemes.
Lord De Mauley
I ought to interject. I did not say that all companies within a couple of years would have social tariffs. I said that the majority of water companies will have a social tariff in place by 2015-16. All incumbent water and sewerage companies have already developed packages to help customers with affordability problems. I went on to say that these include customer assistance funds, support tariffs, debt advice and water efficiency measures.
Lord Whitty
My Lords, that is even less reassuring than what I thought the Minister said in the first place.
The Minister’s criticisms fall into two categories. The first is that this is a top-down proposition. It is not: it is a framework for companies to introduce social tariffs and other measures that help affordability within their own structures, subject to some minimum standards. It is not an imposition from the centre of exactly how to do that. It is, however, a failsafe if they fail to do it. The reality is that both the regulator and the companies have hitherto been quite resistant to such propositions. The noble Lord is right to say that, strictly speaking, 2013 was the first point at which they could consider them, but that was because of the three-year delay since the 2010 Bill and, before the 2010 Bill, deep resistance within the industry to any such concept. Therefore, we have form here and it is not sensible to be complacent that in 18 months’ time the companies will have sorted all this out. I do not believe they will. That is why they need a push and a framework that sets minimum standards of eligibility and operation.
The Minister’s second criticism concerns the funding of this proposition. He said that it could be funded out of a tax on profits. I have not proposed a tax on profits and I think the noble Lord’s brief misunderstands what was said in another place about this. It is fairly evident to me—and my noble friend Lord Hanworth has pointed this out on many occasions—that actually most water companies could afford to be a bit more generous to their consumers in relation to profits, dividends and the tax that they currently pay, but that is not in any sense an advocacy of a windfall tax, so let us get that out of the way. The other funding proposal is by cross-subsidy. In one sense, social tariffs are by definition a cross-subsidy. Therefore, if the Minister hopes that all companies will come up with social tariffs or equivalent schemes, the objection is just as valid to his proposition as it is to mine. Therefore, there is no additional cross-subsidy compared with the preferred outcome of the Government on this.
Lord De Mauley
I thought I had made the point that we accepted that there will be some sort of cross-subsidy but that, in our view, it would be better if that was organised on a regional basis because one could take into account regional circumstances.
Lord Whitty
Yes, but my proposition allows for that. It gives a push to companies to develop their social tariff schemes on a regional basis provided they meet minimum standards. I am not precisely defining what the national affordability scheme should consist of; it is up to the Minister and his department to come up with the appropriate forms in discussion with the DWP and other government departments and agencies that work in this field with vulnerable and low-income households. I am not attempting to lay that down. Therefore, this is not a top-down approach. It allows for some diversity of delivery.
The Minister’s objections to this proposition really do not stand up on either count. I hear what he says. I suspect that the department is pretty immovable on this but it is certainly an issue to which I intend to return. For the moment, I withdraw my amendment.
Lord Whitty
“Provision of information to water companies
(1) The Water Industry Act 1991 is amended as follows.
(2) After section 207 (provision of false information) there is inserted—
“207A Provision of information to water companies: landlords
Where a water company does not have information about a resident in a property that is using water, if the occupants of that property are tenants, the landlord must, on request, provide to the water company contact details for the tenants.”.”
Lord Whitty
My Lords, Amendment 120 relates to a different issue, that of debt—I think I am on the right one. I am on the right one but I do not have the right notes. However, I know what I am talking about.
Uncollected debt is a serious problem in the water industry. Every water company has a problem with uncollected debt. This arises from two groups: families such as those we were just talking about, who really cannot afford to pay their bills; and individuals and families—and sometimes businesses—who, frankly, will not pay their bills, or cannot be found and made to pay their bills. Both these issues need to be tackled. My previous amendment relates to the former; Amendments 120 and 122 relate to the latter, and the lack of activity on the part of some companies to rectify this position.
There is a disproportionate number of unpaid bills in the private rented sector. Even so, it is noticeable that there is a differential performance by water companies in collecting that debt which is not directly correlated to the level of private rented accommodation in their areas of operation; in other words, some are much better at it than others.
Lord Spicer (Con)
My Lords, I ask the noble Lord whether his amendment covers the reverse—a situation where a customer is owed money through, for example, a standing order. If at the end of the year a customer has not accumulated the same amount of expenses as the standing order, is that covered by the amendment?
Lord Whitty
My Lords, this is an issue, particularly for metered customers who have an estimated bill, for both companies and the residential sector. However, my amendment does not cover that. If the noble Lord wishes to bring forward an amendment, I am sure that the Government would look on it with favour.
Lord Spicer
The noble Lord’s amendment covers the question of debt being carried through the regulatory system of prices. Therefore, does it not affect the reverse: namely, credit?
Baroness Parminter
I rise to support the intention of Amendment 120, if not the intention of Amendment 122, which is grouped with it. The issue of bad debt and the implications of what that means for the affordability of all our bills is an important one.
At Second Reading I asked the Minister why the Government, unlike the Welsh Government, are not implementing the bad debt provisions in the Flood and Water Management Act 2010, alluded to by the noble Lord, Lord Whitty. If they were to do so, it would help company debt recovery and bring down household bills. The response I received was that the Government were wedded to the idea of a voluntary scheme, with a database that the water companies were helping to fund, which would be brought in, probably via regulations, in the next month or so. I may be wrong, but I suspect that, with only an intervening 10 days between Second Reading and now, that is the answer that we will get again and that the Government will not wish to support these amendments.
Therefore I ask the Government, if they are determined to stick with the voluntary approach, whether they will set a reasonable review period to evaluate whether or not the voluntary scheme for landlords is effective. All the evidence to date, from the voluntary schemes of companies such as Northumbrian Water and others, shows that they do not work. It seems to be a reasonable request, if the Government are not prepared to move ahead with a mandatory scheme, for them to give an indication to the House of a reasonable review period, so that if the scheme is found to be ineffective—as most of your Lordships believe it will be—the regulations can be changed to make it compulsory.
The Earl of Selborne
My Lords, I have a lot of sympathy with the thrust behind the attempt of the noble Lord, Lord Whitty, to deal with those who will not pay as opposed to those who cannot pay. Some six or seven years ago I had the privilege of chairing a report of the Science and Technology Select Committee on water management. We were appalled by the number of affluent people in South East Water’s area who had worked out that they could never be deprived of their water supply as it is illegal to turn off the water, so they simply did not pay for it.
The cost of taking someone to a small claims court is a difficulty. Where there is a change in population, such as happens in some areas more than others, the cost of trying to trace defaulters can be more than the cost of the debt. The two amendments proposed by the noble Lord, Lord Whitty, seek to deal with this. I suspect that it would be better to deal with this in secondary rather than primary legislation, as was originally intended. Nevertheless, I believe that my noble friend on the Front Bench should encourage the thrust of these amendments, to make sure that those who can afford their water perfectly well should be induced to pay for it, and that the water companies should be assisted in this, particularly by those with information on who is responsible for paying the bill. Landlords are often in a position to provide that information. All assistance should be given in this case. It is galling to know that people who cannot manage their affairs but are living an affluent lifestyle are advised by debt managers, “Well, don’t bother about the water bill”.
Baroness Byford (Con)
My Lords, over the years that we have been debating water bills, this has been a constant theme. I think that all of us in the Chamber, on whichever side we may have been sitting at a particular time, have agreed that it is a problem that needs to be resolved. What I am not quite clear about is whether Ofwat with its new responsibilities has the power to tackle what is being proposed by the noble Lord, Lord Whitty, and whether that would then make his amendment unnecessary. However, I am still sympathetic to what the noble Lord said about those who can pay and will not pay. I rather gained the impression from Ofwat when it gave a presentation recently that it had the power to make adjustments to individual water companies. I might be wrong, but I would be glad of some clarification.
Lord De Mauley
I thank the noble Lord, Lord Whitty, for his amendments. Amendment 120 would add a new clause to the Bill requiring landlords to provide contact details for their tenants at the request of the water company. Section 45 of the Flood and Water Management Act 2010 already enables Ministers to bring forward secondary legislation that would require landlords to provide water companies with personal details about their tenants—or themselves become liable for paying the bill.
Following extensive consultation in January 2012 with the industry and with landlords’ organisations, the Government took the decision that a voluntary approach would be more suitable. During consultation, landlords argued that the additional regulatory burden on them would be disproportionate, as they are not the source of the problem that we are trying to tackle.
We seek to make decisions based on the evidence. One purpose of the consultation was to invite the water industry to provide evidence of the benefits of the regulatory approach. In particular, neither the companies nor Water UK were able to provide any facts about the proportion of bad debt in rented properties that results from a lack of information about the occupier. This evidence was essential to assessing the benefit of the measure. The evidence provided by the water sector to support the case for additional regulation of millions of small and micro businesses was weak. The Government do not believe that more regulation is always the answer.
The evidence shows that good practice in tackling bad debt is not applied consistently across the water sector—the noble Lord, Lord Whitty, referred to this; that is something that we can agree on. The significant variation in performance between companies tells me that the focus should be on driving better standards across the sector rather than on regulating landlords. I used to run my own business and I know that debt collection, which is a subject that I know quite a lot about, is a matter largely of application and hard work. One reason why we do not propose to bring forward the bad debt regulations on landlords is that we do not wish to endorse the argument that performance on bad debt is outwith the control of the water companies. There is more that the companies can do to collect their debts and we want them to focus on this rather than looking to government to solve the problem for them.
Of course, the real driver of company performance is the incentives and penalties set by the regulator, so I am pleased to be able to report that Ofwat has changed the approach that it takes to bad debt in the methodology that it is using for the 2014 price review. The new approach will enable it more effectively to bear down on the costs of bad debt. It is doing this by insisting that the companies demonstrate that any increase in bad debt is genuinely beyond their control and that they have taken all available steps to control it. Unless they can prove that this is the case, they will not be allowed to include it in customer charges.
We are already seeing our focus on the industry taking responsibility for tackling bad debt bearing fruit. The industry is working with landlords’ organisations to establish a new voluntary scheme—and this answers the point raised by my noble friend Lord Selborne—that will enable landlords to provide information about their tenants directly to water companies swiftly and easily. This approach has the support of both Water UK and the main landlords’ organisations. The new database will launch in March this year. For these reasons, I believe that Amendment 120 is unnecessary.
The new clause proposed by Amendment 122 would provide a new power for both Ministers and Ofwat to disallow companies from recovering the costs of unpaid bills from their paying customers. Ofwat has the power to decide which costs may be recovered through the price review. As I have explained, and I think this answers the point made by my noble friend Lady Byford, Ofwat is already using the price review process to bear down on the costs of bad debt. It is requiring companies to demonstrate high performance in debt collection and to show that any increase in bad debt is genuinely beyond their control before they will be allowed to include it in customer charges. The current price review will challenge the poor performers to raise their game.
Lord Whitty
My Lords, in relation to Amendment 122, the information the Minister has given us and his response to the question from the noble Baroness, Lady Byford, indicate that Ofwat thinks it has the powers already. The power was given to the Secretary of State to stipulate that Ofwat can do that; it was always going to be the regulator who did it, under my amendments. If the regulator thinks that, because of the flexibility provided by the move to totex control—rather than everything being bound up in capital propositions—it can effectively both incentivise and penalise companies with poor debt collection records, then clearly Amendment 122 would not be needed. I think we need to return to this a couple of years down the line. Therefore, I will certainly not press Amendment 122.
On Amendment 120, however, it seems to me that the Government cannot have it both ways. Either there is a problem or there is not. They say that the evidence was weak and they hope that a voluntary approach will work. Certainly informally the companies say that this is a serious problem in the private rented sector. Most literature on the subject says there is a particular problem in the private rented sector and—if memory serves me right—the evidence to the committee chaired by the noble Earl, Lord Selborne, said it was a real problem in the private rented sector. That was seven years ago, so we are not getting very far along the line.
I hope that the Government will at some point revisit the triggering of the powers that they already have to introduce secondary legislation. If they do that, then there is clearly no need for Amendment 120, but I hope they will check fairly quickly whether the voluntary registration in which they are engaged is yielding results, because they have the powers to act and I am still pretty bemused as to why they have not done so. In the mean time, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
“Duties of the Secretary of State
The Secretary of State shall take such steps as are necessary to—(a) ensure that bodies carrying out—(i) the provisions of this Act;(ii) water and associated environmental regulations under other Acts;(iii) regulations and codes made under sub-paragraphs (i) and (ii) above; and(iv) equivalent regulations and requirements made under European Union legislation,minimise bureaucratic burdens on affected undertakings and others; and(b) reduce bureaucracy, overlap and waste within the various bodies concerned with water and established by statute or by European Union legislation by defining their respective duties clearly and transparently in one place and on one website.”
Baroness Neville-Rolfe (Con)
My Lords, as a new peer—like a new entrant to the water industry—I have been trying to understand this important industry: who does what and where power lies. At Tesco, I was regulated by more than 30 bodies, so I have some experience, but I have found this sector very hard to get my head around. My last job in Whitehall, under my elegant and noble friend Lord Heseltine, was about minimising and improving regulation, occasionally with success. I also worked on land drainage and flood protection in what is now Defra when the Thames Barrier was still being built, so I have great sympathy with my noble friend the Minister today—and for the victims of the floods.
When I look at a regulated area, I always try to think of the impact on business, consumers and others affected, and take a long-term view. From all these perspectives, the scale and complexity of this Bill—all 230 pages of it—worry me. It introduces more competition, which I very much welcome in principle, but we also have a new administrative spoke in the wheel of water management—the market operator, whose role the noble Viscount, Lord Hanworth, sought on Tuesday to bring into the light of day. My amendment would introduce a new clause giving duties to the Secretary of State and seeks to do two things. I will address the second part first because I think no one can object to it. It is about transparency.
I want an explanation and/or map, not on several websites as exist at present, but in one special place that would enable a new entrant, an investor whether in water resources or stocks, to understand the system. I want everyone’s duties set out clearly and transparently in one place. How helpful it would be to find in one place not only the list of bodies that can regulate or affect water and every kind of regulation but also exactly what their powers are and where and when they will be exercised. For example, this explanatory map would explain when the Environment Agency is able to intervene—a concern my noble friend Lady Parminter expressed on Tuesday—or when we can expect the delayed reforms on abstraction to take effect. It would help with the confusion over debt-collection powers, which we have just discussed. That clarity would also reduce overlap and waste. I know from working in business that having clear responsibilities that are well documented and understood cuts waste and improves implementation and compliance. We should of course put the map on the web, perhaps in a special internet app that all of us could download. The web is where enterprising people and new entrants search. It is cheap and easy.
The first part of my amendment is more contentious because it is about changing the way regulators, public servants and their ministerial masters behave. It is a requirement to minimise bureaucracy in every aspect of water, sewerage and abstraction, from negotiating at the highest level in Brussels to creating the humblest code. If lots of agencies and departments operate a cornucopia of rules and regulations, they spend too much time asking undertakers, consumers and each other for the same information, talking to each other and sometimes rowing, writing submissions and guidance, correcting errors and even fighting judicial reviews. Much of that activity is created by confusion and sometimes by inconsistency, which the proposed process would help to prevent. The bureaucratic burdens created cost money. That is not only wasteful but has to be paid for. I suspect that in the water system, with its regulated system of returns through Ofwat, this money often comes from consumers without benefiting anyone else—or it consumes taxpayers’ money, which, with the legacy of the deficit, we cannot afford.
This amendment would require all organisations involved in the governance and administration of water to think in a clearer, simpler way and, I hope, avoid the need for future deregulation and simplification. It should have wide support. I beg to move.
Lord Crickhowell
My Lords, my noble friend made a formidable speech at Second Reading in which she launched her assault on overregulation. Already today, dealing with other amendments, a number of noble Lords spoke about the difficulty of following the details of this legislation. I have explained that despite my experience of trying to regulate part of the water industry, I find the Bill almost totally incomprehensible. At Second Reading, I said that it is the most incomprehensible Bill I have come across in 43 years in both Houses. This is partly because it amends two other major pieces of legislation. Indeed, when I struggled to draft some amendments and decided the task was beyond me, I got down from the shelves in the Library one of those earlier Acts and realised that it was not going to get me much further. We have also been debating a series of regulations, some of them not yet known.
Quite clearly, the subject my noble friend has raised is of great importance. It has already been suggested that following the completion of the passage of the Bill the Government must try to bring together in a simple, co-ordinated way the principal points, clauses and requirements of the Bill. That argument has been strengthened, reinforced and added to by my noble friend. Her idea that the principal matters be brought together on a single website is admirable. I do not know whether anything quite like that has ever been done in government before.
The trouble with government departments is that they tend to be very self-contained and self-sufficient. Getting them to work together in a co-ordinated way is sometimes extremely difficult. That makes the job even more difficult for the consumer because if you do not know what the legislation and regulations are and you do not even know the appropriate department dealing with it, you are likely to be lost. Following the passage of the Bill, the Government must give some very careful thought to how the public, small businesses and those who are being regulated are to be brought to understand exactly what they have to do, what benefits may accrue if they do it and what penalties may accrue if they fail to do it.
There is an urgent requirement here, and it should be a priority, but perhaps not of the Minister’s department. I think it goes wider than that. It is probably an issue for the heart of government to see how this should be done. I hope that even if the Minister cannot give an immediate, clear-cut answer—and I suspect he will not be able to—he will undertake to take this matter away to his colleagues and ask that it is looked at by those who have the authority to see that something is done on this matter.
The Earl of Selborne
My Lords, I want to give the Minister a little encouragement. We all recognise that this is a hopelessly complicated Bill that has been many years in gestation. On a number of occasions, we have complimented Defra, rightly so, on its briefing notes—yet another has come out today. Start putting those on a website, and you will have a work of reference that will be of enormous assistance.
One of the things in previous decades that has led to confusion has been the fact that the three different regulatory authorities—the Environment Agency, Ofwat and the Drinking Water Inspectorate—have different agendas and, before these new duties of resilience came in for Ofwat, there was no reason why Ofwat and the Environment Agency should ever agree. As I said at Second Reading, I never really felt that I was going to feel sorry for the water companies, but on that aspect I did because they were being dragged in two different directions.
If you really want to manage water in an appropriate way, you should do it by catchments, but unfortunately you cannot organise Great Britain, or even England and Wales, by catchments. That is, alas, not the way that local government, or any government, works. In the Bill, we are trying to promote sustainable management of water. That means starting at the estuary and working uphill, and if that can be done by catchment, so much the better. You try and get all the different bodies together, preferably with voluntary agreement—I agree with my noble friend who moved this amendment that, if you can do that without regulation, so much the better—but of course there must of course be a regulatory framework, and no one is disputing that.
The reason that I have some small words of comfort for my noble friend on the Front Bench is that I think that the Bill, complicated though it is, goes a long way towards bringing the two main regulatory authorities—the Environment Agency and Ofwat—to a common agenda. If we asked in Scotland, where there is yet another regulatory authority, I think they would say that their relationships with Ofwat—on roughly the same agenda, but with a completely different competitive background for the past five years—can now only improve. That is important as some catchments straddle the Scottish and English border. If ever there was a case for ensuring that we work to a common agenda, it must be for those people in the catchment area of the River Tweed.
Lord Spicer
My Lords, I am inspired by my noble friend Lord Crickhowell, who said that his worry was that there is a process of intervention, greater control and centralisation taking place on a wider scale, of which the water industry may be part. I do not know much about the water industry, but I do know about the electricity industry—I declare an interest as chair of the trade association for the electricity industry—as I was the Minister who took the electricity privatisation Bill through Parliament some 20 years ago. In that industry, there is certainly increasing intervention by Government and by the regulator. There is a definite trend. What happens eventually we will have to see, but I suspect the same thing is going on with water.
Therefore, my slight reservation with my noble friend’s amendment is whether it would make the process of regulation more efficient, more centralised and more bureaucratic or whether, in some way, it would do the reverse. I hope that it would do the reverse, because that is what we want to see. If she could address that point, it would be very helpful to me in judging what is going on.
Lord Moynihan
My Lords, briefly, I support the amendment proposed, although again I anticipate that the Minister is not going to be able to accept it. I would like to echo the comments made by my noble friend Lord Selborne about the briefing notes, which have been outstandingly helpful. In a latter edition, there was a very helpful road map which draws together some of these key issues. In the spirit of being helpful to my noble friend on the Front Bench, if the Minister is not in a position to accept the amendment on the face of the Bill, I hope that he will encourage his officials to give prominence to that road map on the website, and therefore in part meet the suggestion in my noble friend’s amendment.
My second point is that this is a matter of wider significance in Government. I hope that the Minister agrees that this is a subject that the Cabinet Office should look at carefully, not just in the context of water but in the wider context of the utilities. There is a necessity for clarity for those who do not spend many hours sitting on your Lordships’ Benches going through the detail of these Bills but who nevertheless have an equal, if not a greater, interest in the key elements of the legislation before Parliament.
Lord Whitty
My Lords, I congratulate the noble Baroness on producing such an important amendment. I suspect that it is beyond the Minister’s pay grade to agree that, in accepting the amendment, we would at one and the same time get Parliament to rationalise the way in which we legislate, get Ministers to ensure regulators co-ordinate with each other and get departments to make their activities comprehensible to the public. Nevertheless, these are welcome ambitions. The noble Earl, Lord Selborne, added some rationalisation of the quangos as well. I am afraid that all this is indicative of the way in which we do business. From listening to the noble Lord, Lord Crickhowell, both at an earlier stage and today, I understand that this is not a new problem—I have noticed that the Water Industry Act 1991 is seven pages longer than the Bill we are considering.
However, to be serious about this, one of the great failings of Parliament has been the failure to produce consolidated legislation in any field. After 15 or 16 years in this House, I still fail to understand why Parliament has not devised a procedure for pulling together consolidation of Acts in all areas, so the noble Baroness’s amendment has wider implications. Whether the amendment should sit in the Bill I will leave to the Minister but, much more narrowly, the proposition that for each subject matter there should be a single website address which links to all the different bits of regulation, authorities and other government interventions, is very good. It is one which has been talked about in Whitehall but hardly delivered at all. The one point where Defra could probably take this amendment on board in the context of water is regarding that single website. I think practitioners, companies and consumers would be very pleased to see such a development. I congratulate the noble Baroness, but we will see what the Minister says.
Lord De Mauley
My Lords, I thank my noble friend for her Amendment 122A, which would introduce a new statutory duty on the Secretary of State to ensure that the bodies involved in regulation of the water industry work to minimise bureaucracy. It would also require a definition of all the statutory bodies concerned with water to be published on a single website. I strongly support her in her desire to minimise bureaucracy, duplication of effort and waste. I am quite sure that I railed against it and for the consolidation of legislation when I was in opposition, as the noble Lord, Lord Whitty, is enjoying doing today. These issues are not exclusive to this sector. Indeed, this Government have an energetic and far-reaching programme of reform designed to slash red tape wherever possible. I would argue that we have made some considerable progress with that.
My department has been one of the trailblazers in Whitehall in transforming our approach to regulation. For example, through our Smarter Environmental Regulation Review, in which I have been closely involved, we are attacking unnecessary complexity, inconsistency and duplication of environmental regulation. We are also rationalising environmental guidance and data reporting to make it easier to comply with legal obligations. My department has also carried out a comprehensive assessment of the costs and benefits of all the regulations for which we are responsible. Through the Red Tape Challenge initiative, we have reviewed more than 1,200 regulations and by the end of this Parliament we expect to be delivering savings to business of more than £250 million each year. I hope that this provides my noble friend with some assurance that the Secretary of State already has bureaucracy squarely within his sights.
On the specific changes being made by the Bill, first and foremost I should emphasise that it does not create any new public bodies. The existing regulatory landscape remains unchanged in that regard. I am grateful for this opportunity to clarify the current framework for regulation in the water sector. In England, the water industry is regulated by three separate, independent bodies: Ofwat, the Drinking Water Inspectorate and the Environment Agency. Ofwat is the economic regulator responsible for ensuring that water and sewerage companies provide consumers with a good quality service and value for money. This includes setting price limits to ensure that customers receive a fair deal, while ensuring that the companies are able to attract low-cost investment in our essential services.
The Government commissioned an independent review of Ofwat and consumer representation in the water sector in 2011. Undertaken by experienced regulator David Gray, the review concluded that regulation in the water sector has worked well since privatisation and that major changes to the statutory and institutional framework were not required. The Ofwat review made a range of recommendations about the ways in which the regulator could reduce the regulatory burden it places on the industry. In response, Ofwat put in place a programme of internal reform and substantially reduced reporting and other burdens. It has since revised its approach to the price review—something we talked about earlier today—in order to ensure that companies focus on their customers’ priorities rather than looking to the regulator for guidance.
The Environment Agency regulates the impact of the water industry on our environment and promotes sustainable development. It regulates water abstraction as well as the treatment and discharge of wastewater back into the environment. It also helps water companies with their long-term water resource management and drought-planning functions. The Government have introduced a process whereby all public bodies are subject to triennial review to scrutinise how the Government deliver their objectives as effectively and efficiently as possible, achieving the best possible value for taxpayers and the public. The Environment Agency was reviewed under this process in 2013. The review looked at how it could work in leaner, smarter ways to enable and drive sustainable growth, making best use of the resources available to it.
The Drinking Water Inspectorate is responsible for ensuring that companies provide safe, wholesome drinking water that meets standards set down in law. Although not a regulatory body, the Consumer Council for Water also plays an important role by representing water and sewerage customers.
My noble friend referred to the market operator. In our debates on Tuesday, we clarified that this is neither a public body nor a regulator but a straightforward administrative entity that will be run by the industry for the industry, within the context of the regulations laid down by Ofwat. In fact, the market operator will serve to minimise bureaucracy by providing a single set of administrative systems for switching customers, which would otherwise need to be duplicated by every company operating in the market. In our debates on this matter on Tuesday my noble friend Lord Selborne noted that such bodies are a common feature of regulated utility industries.
I hope that I have gone some way to clarify the roles and responsibilities within the water sector. As with any sector, we are always looking for ways we can do things better and more efficiently. As I have said, we are active in challenging red tape and bureaucracy. We have the Red Tape Challenge process, which has already scrutinised all the regulations affecting the water industry. We have established the principles for economic regulation to guide the high-level institutional design of the regulatory frameworks by the Government. These reinforce the Government’s role in establishing the policy direction and appropriate guidance, leaving regulators to regulate independently. A new regulators’ code also takes effect in April that will apply to non-economic regulators such as the Environment Agency and the Drinking Water Inspectorate. It is the latest step in the Government’s drive to put businesses’ need for clarity, transparency and minimum bureaucracy at the heart of the regulatory system.
There are more examples of the provisions already in place to ensure the roles and responsibilities of regulators and other public bodies are clear, and that unnecessary bureaucratic burdens are identified and removed. One of the more relevant of these is the shared duty of the Secretary of State and Ofwat under Section 2 of the Water Industry Act 1991 to have regard to the principles of best regulatory practice. The Act already specifies that their respective regulatory activities should be undertaken in a way that is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed.
Lastly, I know that my noble friend is keen to see information about the various bodies concerned with water on a single website. I am therefore pleased to be able to confirm to her that all of Defra’s agencies will move across to the gov.uk website by the end of March this year. I also thank my noble friend Lord Moynihan for his welcome for the notes and the road map, which is indeed on the website. Although I fully concur with the spirit in which my noble friend’s amendment has been tabled, I ask her to withdraw it as it would effectively duplicate existing provisions.
Baroness Neville-Rolfe
My Lords, I am grateful for the trenchant support I have had from this side of the House for my efforts to reduce bureaucracy and promote clarity and transparency, especially from my noble friend Lord Crickhowell. My noble friend Lord Selborne talked about the possibility of the map I proposed being made on a catchment area basis. However, my experience of broadband, where there is a county-by-county map, is that it is not very effective. One of the things I was looking for was to have all the rules, regulations, agencies and requirements in one place on the one website. That can certainly be on the gov.uk website, as the Minister has kindly suggested, but they all need to come together so that a consumer, an investor, or a water undertaker who may be bringing in a new reservoir can see the whole piece. I would find that bottom-up approach hugely valuable. I feel that the documents that have already been made available are a start, but they do not—
Baroness Neville-Rolfe
They are, but I was suggesting that we have a website that brought all the different things together in one place, not just the helpful notes that the Minister has put forward, and which takes people through the rules.
I am extremely grateful for the Minister’s support in reducing bureaucracy and in outlining the different things that have been done to achieve that end. However, it is all the more important to bring the various requirements together to make it clear what is happening. We could bring about a quiet revolution of clarity and transparency and make entry into the industry much less forbidding if we could bring what is being set out in these different laws and by these different agencies into one place. Of course I welcome the idea of putting those on to one website, but I will study what the Minister has said and consider whether further thought needs to be given to how that might be done, to find a way forward. Perhaps we can also do some policy formation in the Bishops’ Bar. I thank my noble friend, and I beg leave to withdraw the amendment.
Lord Whitty
Lord Whitty
My Lords, I will speak also to Amendment 124. These amendments deal with the water resource management plans. Water resource management plans, to colleagues who are not familiar with them, are the 25-year plans which each water company is required to produce, which then have to be approved by the Environment Agency. Those plans are fairly strategic. A lot of thought and work goes into them and there is a lot of consultation on them—but it is not always clear what they are used for thereafter. One presumes that the companies follow them for their own strategic decisions. To a limited extent Ofwat follows them in terms of the allowance for capital expenditure that is required in the price review. However, that covers only five years, and Ofwat, try as it might, cannot always see 25 years ahead as regards the changing capital and management requirements that will be needed.
The legislation on this, which is marginally changed by Clause 27, refers only to those plans being authorised,
“for the supply of water to consumers”,
which is of course the key issue. However, it is also important that the plans allow various regulatory, environmental, water quality and resilience requirements to be met. For example, water framework directive timetables and objectives and various ecological requirements have to be met. Following the Government’s inclusion of resilience as a primary duty of Ofwat, companies will undoubtedly have to meet requirements under the resilience criteria by a certain date. The amendment seeks to broaden what the plans deliver in public policy terms and therefore includes a requirement to meet environmental, quality and resilience standards.
Amendment 124 deals with an issue at which I hinted earlier—namely, that once the relevant plans are in place, the environmental regulator and the economic regulator need to pay attention to them. At the moment, following a change of direction or policy on the part of either Ofwat or the Environment Agency, decisions can be taken which do not accord with the plans. Theoretically, the relevant company then has to change the plans but probably does not do so until it has to revise them in five or six years’ time. Amendment 124 suggests that the Bill requires the relevant regulator to have regard to those plans when conducting price reviews, and that the Environment Agency must do so when conducting its regulatory and enforcement activity. If that is not done, the plans will gather dust on the shelf, will be referred to occasionally by the companies themselves but will be used rarely by those who are supposed to be in charge of regulating the sector.
I may exaggerate the position slightly, in that these are important documents and are regarded as such, but they are not quite given the importance that they deserve at either the company or the regulator end. These amendments seek to change that position. I beg to move.
Baroness Northover
My Lords, I thank the noble Lord, Lord Whitty, for tabling these amendments. As noble Lords know, the noble Lord introduced the Water Act 2003 to Parliament, which made the planning processes a statutory requirement. We recognise that he seeks to ensure that the water resources management framework has greater bite and that the relevant plans will have the desired effect. I hope to show him that these plans are supported by other policy measures.
Water resources management plans must show how incumbent water companies intend to maintain a sustainable water supply demand balance over a period of at least 25 years, as the noble Lord, Lord Whitty, said. They must do this within the framework of environmental protection that is set out in legislation. The noble Lord seems to be concerned that they may not have that necessary effect.
Within this context, new Section 37A allows the Secretary of State to issue directions to the incumbent water companies on any relevant matter for which they must plan. In addition to this, water resources management planning guidance sets out the expectations of government and the regulators in relation to the water environment—for example, that the options chosen must not lead to any deterioration in the status of the water environment.
The companies have their own statutory environmental duties. For example, when exercising their functions, companies must have regard to the environmental sites protected by the habitats regulations. They must also have regard to the Environment Agency’s relevant river basin management plans. In addition, both the Environment Agency and Natural England are statutory consultees on the draft plans, and the Environment Agency provides the Secretary of State with technical advice on the plans. Following consultation on the plans, the Secretary of State has power to direct an incumbent water company to change its plan if he is not satisfied—
Lord Spicer
I am most grateful to my noble friend for giving way. Is she not a little concerned that all this is renationalisation by the back door? One is constantly finding additional powers being given to the regulator, and the current big excuse is the environment. Exactly the same thing is happening in electricity—carbon considerations are resulting in more and more powers being given to the regulator, and it is now happening in respect of all the companies’ plans. Is there not a slight worry, particularly if the Government can move in with policy insistence, that we are renationalising the industry by the back door?
Baroness Northover
I am sure that my noble friend shares everyone’s concern that the Government should take responsibility for ensuring that we do our very best to protect the environment. We need only to look at the challenges that we are facing at the moment to realise the importance of that, and it is in our common interest to do so. Here we have a semi-monopoly in an area that is vital to everyone. It is extremely important, therefore, that we balance all the necessary pressures. However, I am sure that my noble friend Lord De Mauley will be happy to talk further with my noble friend to explain the philosophy behind the Bill.
Coming back to my comments on the amendment of the noble Lord, Lord Whitty, I was setting out the other areas that help support his ultimate aims, which were, as I understood them, that these 25-year plans should have positive environmental effects. I was showing how other measures, too, help underpin and strengthen those plans.
As regards Amendment 124, both Ofwat and the Environment Agency already have general duties regarding incumbent water companies’ maintenance of their water supply systems. Ofwat and the Environment Agency consult extensively with incumbent water companies through the water resources management planning processes. For the current water resources management planning round, joint government, Ofwat and Environment Agency guidance was issued to companies to help them prepare their plans. This guidance also set out the role of each regulator in the process.
The Environment Agency, as well as having responsibilities to protect and improve the environment, and promote sustainable development, also has duties such as those set out in Section 15 of the Water Resources Act 1991 to have particular regard to incumbent water companies’ duties. Ofwat has primary duties to ensure that the companies can both finance and properly carry out their functions. The current round of water resources planning and business planning processes have seen much closer joint working between Ofwat and the Environment Agency than may have occurred in the past. I hope that that point is helpful to the noble Lord. To ensure that the outcomes of the water resources management planning process are reflected through the price review process, the Government have made it clear that they expect Ofwat to use its role as a statutory consultee to identify at an early stage any proposals within a water resource management plan that would be inconsistent with its approach to the price determination process.
I have set out a number of these other areas in order to reassure the noble Lord about how the 25-year plan fits into this issue. I heard his concern about whether these provisions had any effect, but all are consistent with what he has been saying about trying to ensure that the water companies operate within a sustainable framework. I hope that my exposition has reassured him and that he will be happy to withdraw his amendment.
Lord Whitty
My Lords, I am happy with those reassurances, in particular on underlining the need for the regulators to work more closely together and on the plans themselves. I think I am probably the only person alive—I am certainly the only person in this House—who has served on the boards of both Ofwat and the Environment Agency, albeit for only a very short time on the board of Ofwat. Although relations had thawed somewhat by that time, they are actually more constructive today, which is very important when looking at these long-term plans. I thank the noble Baroness for her reassurances.
In a sense, my amendments were provoked by new Section 37AA(2) which states that a direction about adjusting the plans or addressing them can be given,
“only where the Secretary of State considers it appropriate”,
in relation to the supply of water. However, there are other outcomes, and the noble Baroness has given me a reassurance that they will be dealt with elsewhere. I beg leave to withdraw the amendment.
Lord De Mauley
“(7) For the purposes of section 63AC, premises which are outside a water undertaker’s area are to be treated as being within that area if they are supplied with water using the undertaker’s supply system.
(8) In subsection (7), the reference to the undertaker’s supply system is to be construed in accordance with section 17B.”
Baroness Northover
Baroness Northover
My Lords, Amendments 126, 130 and 148 to 152 are minor and technical amendments to ensure consistency and to correct drafting errors, or provide consequential provisions to the Bill. For example, Amendments 126 and 130 change the wording in new Sections 63AF(3) and 110O(3) of the Water Industry Act 1991 so that they refer to “a code” rather than “the code”, as is currently the case. This corrects a drafting error and provides consistency in Clauses 31 and 32 respectively. Amendment 149 makes a consequential change in Schedule 7 by changing an incorrect reference to “any licensed water supplier” so that it refers to “any water supply licensee” instead. I beg to move.
Lord De Mauley
(iii) services are provided to the premises by another sewerage undertaker following the service of a notice by the owner or occupier of the premises on the undertaker providing services under subsection (2) specifying the time after which the undertaker will no longer be required to provide sewerage services to the premises (see section 110M(5)),”
“(3) For the purposes of section 110L, premises which are outside a sewerage undertaker’s area are to be treated as being within that area if they are provided with sewerage services using the undertaker’s sewerage system.
(4) In subsection (3), the reference to the undertaker’s sewerage system is to be construed in accordance with section 17BA(7).
(5) Section 110K(2) and (3) apply to a notice served under section 110L(6)(b)(iii) as they apply to a notice served under section 110K.”
Lord Whitty
Lord Whitty
My Lords, Amendment 134 and the other two amendments in this group deal with the issue of collective consumer rights. We are now into the consumer field. The water industry or service has pretty standard terms. Tariffs, whether by volume in the metered sector, or by rateable value in the non-metered sector, are pretty standard. Charging schemes and means of payment are also usually pretty standard. The nature of the service—the supply of water—is fairly straightforward. However, there are wider services in terms of advice, and emergency services when a customer is cut off or there are leakages. If something goes wrong on all these fronts, more than one consumer is likely to be affected.
The Bill introduces a degree of choice, but only in a relatively limited field. It leads to the possibility of switching, but in general people will be faced with standard terms and a standard service. Failure to provide the service or the misallocation of costs or mis-selling of prices is likely to affect a significant number of people. However, the consumer rights in this field and the procedures which are written into this and more general legislation are almost entirely written in terms of individuals.
Amendment 134 allows group complaints. If a whole village complains about the way its water has been cut off, the complaint would not need to be dealt with property by property. If a whole tranche of customers feels aggrieved by the prices they are being charged or the overcharging of prices, the amendment allows them all, either on an opt-in or opt-out basis, to bring complaints. The noble Lord, Lord Spicer, raised an example a few minutes ago in relation to the overcharging of people who have agreed to pay by direct debit in advance on a metered tariff.
The Government have recently introduced the Consumer Rights Bill in the other place. That legislation does something that I have been advocating for a considerable time—it introduces a degree of collective rights and collective redress generally across the consumer field. However, it only relates to abuse of competition law; it does not relate to mis-selling or unfair contract terms. But it is at least a start. I have argued on most Bills, whether on banking services, the energy industry or more generally, that we should have more collective provision in terms of enforcement rights. That should also be recognised in this legislation as regards water.
Amendments 134 and 135 provide the basis for dealing with such a complaint in the first instance and for redress to be granted on a collective basis. In other words, everybody who suffers from unfair treatment should be allowed to have equivalent redress, however many pounds that would be in compensation. Noble Lords will be aware of how this has got out of hand in another sector, where every PPI claim has had to be pursued by individuals or claims companies. We know the effects of that. Had the complainants woken up to this a lot earlier, they could have proposed a collective redress system. This is less likely to arise in water because it is a less complex industry, but, by definition, that means that where it does go wrong more people are likely to be involved. It is therefore important that this is written into the Bill.
My third amendment in this group deals with the Consumer Council for Water, whose role is written into various parts of the Bill and preceding legislation, but not in the context of being consulted on water charging systems. The 1991 Act preceded the creation of CCWater—which was created by the 2003 Act—and provided a number of consumer rights or protections. Most subsequent legislation has adjusted to the fact that CCWater now exists, but not in relation to the provisions on charging schemes. I am therefore suggesting, in Amendment 136, that CCW should be specifically consulted on charging schemes. The amendment would correct the omission.
It is important that we upgrade the ability of consumers in this field, which is still a regionally monopolistic one. Where there is monopoly, there is often abuse of consumers; the possibilities are there in this field, and sometimes they are a reality. I therefore think we should provide both for a role for CCWater and for consumers in general to be able to act on a collective basis. I beg to move.
Lord Spicer
My Lords, this is pretty standard stuff: first you legislate to weaken competition, which is the true protector of the consumer; then you legislate for consumer rights. That way lies socialism.
Baroness Neville-Rolfe
My Lords, perhaps I could seek clarification about the effect of the amendment, which it seems concerns individual complaints as well as collective ones. As I see it, having been in business, complaints are normally dealt with by the business or authority to which they come. You do not want to have special schemes unless there is something pretty serious and bad. I want to understand the purport of this amendment—if it is actually bringing in a whole load of new things that are going to be done by an authority or statute rather than by the company that is meant to be doing the right thing for the consumer, I am concerned.
Baroness Northover
My Lords, I thank the noble Lord, Lord Whitty, for his amendments, which, as he laid out, relate to the vital question of consumer protection. Most noble Lords, bar one, seemed to be supportive of his emphasis. We all wish to see an increasingly consumer-focused water industry and we welcome the opportunity to debate these matters.
The noble Lord thinks that, at the moment, this provision applies only to a single claimant. I will address whether the consumer redress scheme includes complaints made by groups of customers as well as complaints made by individual ones. I can clarify that the ability to address consumer complaints, whether they relate to a single customer or to a group of customers, is already reflected in this clause, which is drafted in such a way as to be inclusive rather than exclusive. To be clear, it covers complaints by both individual customers and groups of customers collectively—I want to put that very clearly on the record. The noble Lord might like to know that CCWater has already successfully taken up complaints on behalf of groups of customers, for example in a conurbation where a number of neighbours wished to challenge their surface water drainage charges. I hope, therefore, that he is reassured on the first area that he flagged up here.
On Amendment 136, we agree that consumer protection is an important matter in the context of the Bill. I also put on record and inform noble Lords that this is an area where action is already being taken. The industry, Ofwat and the Consumer Council for Water are working together to improve their collective approach to consumer redress. An independent dispute-resolution scheme is being established to give all customers an independent route for resolving their complaints without having to go to court. The new scheme aims to provide a transparent mechanism for resolving complaints that have reached a deadlock under current arrangements. Work on this scheme is already well advanced, with all the water companies having signalled their support, and I note what my noble friend Lady Neville-Rolfe said about the industry being central to this.
Lord Whitty
My Lords, I am grateful to the noble Baroness for spelling that out. I should explain to the noble Lord, Lord Spicer, that we are discussing a consumer redress scheme that is being proposed for the first time by this Government. I suspect that they did not have in mind that they were setting off down the road to socialism, but there we are.
I was suggesting that we need to make it explicit that there is collective ability here, because there are a lot of these schemes where there is no such collective ability. Certainly, the complaint goes first to the company. If there is a failure to resolve that at company level, there are systems involving CCWater for taking it further. Ultimately it could appear either through the new ADR system that the Government intend to develop, which is not yet a full ombudsman, or it could still end up in the courts. In the courts, it would still have to be an individual system.
I may not need to specify it in relation to the redress system, but there remains an issue in relation to potential collective claims. However, it was very helpful that the noble Baroness put on the record that under the scheme that is envisaged and being consulted on now, collective claims, collective complaints and collective redress could all apply; I am very grateful for that.
My second amendment concerns the role of CCWater. I should point out that we are not actually asking CCWater to be an adjudicator. The amendment is supported by CCWater, as I understand it. It is just that in this particular area of charging schemes, it is not written in as a consultee, whereas in other areas it is. It is true that in practice most companies—the noble Baroness says all; I will take her word for it—consult CCWater. It would have been quite useful for that to have been in the Bill. However, for the moment, I will withdraw the amendment.
Lord Whitty
“General duties with respect to water industry
In pursuit of its duty under section 2 of the Water Industry Act 1991 (general duties with respect to water industry) the Authority must take into account all information provided by section (Duties of undertakers to furnish the Secretary of State with information: annual review); and may consider such information when determining whether reopening a review of prices would further the consumer objective, set out in section 2(2A)(a) of the 1991 Act.”
Lord Whitty
My Lords, rather late in the day we are approaching a rather important issue, which concerns the powers of Ofwat to reopen a price review within five years if circumstances change or if information received from companies on their performance raises serious issues. Considering Ofwat’s role in a more dynamic market, this seems very important.
At present, we set the price maxima for five years. Companies can reopen the five-year settlement if circumstances change; for example, if they need to expend more capital than was allowed for in the price review, they can go back in. Thames Water went back in to see Ofwat about additional money for the super-sewer. It was knocked back by Ofwat but it had the right to ask. I imagine that companies do not do it more often because if the company reopens the price settlement, Ofwat has the right to reopen it as well. It is not a big feature but I am arguing that there should be an equivalence.
Ofwat does not have the power to initiate a reopening. It uses informal powers, and has been quite successful in negotiating with some companies over the current five-year period for reductions in prices because of changed circumstances—mainly reflecting the fact that the cost of capital was significantly less in practice than had been allowed for when the price review was concluded. In reality, as my noble friend Lord Hanworth has pointed out more than once, that allowance for capital has permitted a significant degree of profit enhancement and dividend enhancement by companies, and it is important that Ofwat keeps an eye on this.
Amendment 137 would allow Ofwat to reopen the settlement if it thought that the way in which it was operating was no long appropriate to the economic circumstances, or that the company’s own behaviour gave it cause to reopen it because the terms of the settlement were no longer appropriate. Amendment 146 would provide some background for this. It would require water undertakers to provide information to Ofwat on a regular, annual basis on their financial affairs. This could be dealt with separately from the other amendment, but we have grouped them together for these purposes and there is an interrelationship. If this is a different provision from the very detailed cost breakdown that Ofwat now requires from companies in advance of the price review every five years, and if we move to a more competitive market, the details of that form of regulation may not have to be so onerous over time.
This amendment looks at how companies perform during the price period. It will provide a big picture of how the financial operation as a whole is working out. As we have constantly reiterated, there is a problem in this industry of a vertically integrated regional monopoly, with higher levels of gearing, dividends—they have been at over 90% of income over the past few years—and rates of return on assets, in a relatively low-risk industry, paying relatively low levels of taxation. There are issues about the totality of the finances of the sector that a regulator ought to be free to query. It certainly should have information on it. Your Lordships may have heard a recent programme about this on the BBC’s “File on 4”. I did not agree with all of it, but it pointed out, for example, that some of these companies have at least seven levels of executive decisions before reaching the real decision-makers at ownership level. That applied to Thames Water in particular.
It is important that Ofwat can challenge the way in which these companies conduct their financial affairs. Amendment 146 would provide it with the information for doing so and Amendment 137 would allow it to reopen the price settlement if it saw that there were serious and endemic concerns about the way in which a company was operating, or about changes in the cost of capital or the level of corporate internal transfer pricing and so forth. It is important that Ofwat understands the total system and it is important that it has the ability to reopen the settlement. Of late, water companies have received fairly bad publicity because of their overall financial structure. At the moment, the regulatory system cannot really address that and does not have the information needed in order to address it. This is a gap in Ofwat’s powers that needs to be filled. I beg to move.
Baroness Neville-Rolfe
My Lords, we should look very carefully at this proposal for an increase in regulation. Water and sewerage are long-term matters and the great need is to have investment in resilience, with the right and proper regulatory framework. Ofwat seems to have got tougher in recent times. It is right to have a five-year timescale or we will not get the investment that is needed for resilience. The entrepreneurs involved will assume that if profits go up, perhaps because they have improved efficiency, they will immediately get a call from Ofwat reopening the five-year settlement, triggered perhaps by articles in tabloid newspapers—the sort of thing that will not be good for investment in this vital industry.
Lord Moynihan
I support that view. I completely understand where the noble Lord, Lord Whitty, is coming from, but there is a serious potential risk here to the confidence of the investment community in the water market. I hope that my noble friend takes that into account when considering extending the reasons for opening up price reviews.
Lord De Mauley
I thank the noble Lord, Lord Whitty, for his amendments. I shall deal with the amendments in reverse order, Amendment 146 followed by Amendment 137, as to some extent the latter builds on the former.
The new clause introduced by Amendment 146 would give water companies a duty to report every year to Ofwat and the Secretary of State about their performance, investment, tax, corporate structure and dividends. If obtaining these data is the noble Lord’s concern, I can confirm that all this information is already freely available in the public domain. The effect of the amendment would be simply to duplicate existing reporting requirements. The cost of the additional administrative burden on water companies would ultimately be met by customers. All companies—not just water companies—are already required to report on many of these matters in their annual reports and accounts. Any additional water sector-specific reporting requirements are a matter for the regulator, which is ardent in pursuing them.
The noble Lord raises some important issues about the way in which the sector is run, regulated and structured. I believe that the regulator is already taking action to address these issues. Let us be clear about the direction of regulation in the water sector. Ofwat is already taking vigorous action to improve standards of corporate governance across the sector. It is putting pressure on water companies to strengthen audit arrangements, board member appointments and governance generally. Ofwat recently published the outcome of a consultation on principles relating to board leadership, transparency and corporate governance. The principles set out clear standards for what the sector must do and set a clear timetable for their introduction across the sector. The response from water companies has been positive and I welcome that.
Ofwat has also launched a similar consultation relating to holding companies, seeking to apply basic principles to holding company boards across the sector on issues such as risk, transparency and long-term planning. I believe that the proposed annual review would place an additional burden on companies for very little gain, so I share the concerns about it expressed by my noble friends Lady Neville-Rolfe and Lord Moynihan.
Amendment 137 builds on the clause which would be inserted by Amendment 146. It would place a new duty on Ofwat to take into account the proposed annual report by water companies to the Secretary of State. It would then give Ofwat a further power to consider this information when determining whether to reopen a price review. Ofwat already has the power to reopen a price review under the substantial beneficial effects clause of the water company’s licence or by making an interim determination. If a water company is profiting from factors outside its immediate management control that were not anticipated at the time of the price determination, Ofwat can reopen its five-year price settlement. So Ofwat has the powers necessary to revisit price determinations. However, given the importance of regulatory stability in keeping prices down for customers, it rightly utilises these with caution and considers carefully whether there would be benefit to customers.
We are at risk of talking about things as they were, not things as they are or will be. Ofwat is changing the way in which it regulates. It is seeking to change the culture of the water sector and to facilitate companies taking greater ownership of and accountability for delivery to customers, now and in the long term. Therefore, I am not persuaded that these further powers and duties are necessary and I hope that I can persuade the noble Lord to withdraw his amendment.
Lord Whitty
My Lords, I would not disagree with the Minister and the noble Baroness that Ofwat is toughening up its stance, including on issues of governance within the sector. I think that I am at one with the Government in hoping that we move away from the detailed, costs-checking form of regulation of the industry towards a more broad-based one which will be helped by a degree of competition within the industry.
The Minister is right that Ofwat has emergency or overriding powers. The fact of the matter is that it has not used them and would have to meet some fairly stringent criteria so to do.
The Minister rightly admonishes me for looking backwards rather than forwards, but we have to look backwards to the immediate past. We have had two five-year price reviews. At the beginning of those reviews, the cost of capital, which is a huge part of the actual expenditure of the industry, was seriously overestimated over a period of 10 years, and prices set accordingly. During that period, the capital value of water companies went up substantially; the dividend payments went up substantially and a number of them were taken over, sometimes two or three times. Somebody made a significant amount of money out of that; it was not because of the increased efficiency of the industry, although the industry did make some efficiencies. It was a fortuitousness similar to when Ofwat, with what it thought was the best information at the time, set the allowance for capital; that allowed a much bigger profit than one had assumed at that time.
Under its existing powers, Ofwat did not judge, nor did successive Secretaries of State seek to nudge them to intervene. If the public knew that the system of regulation did not allow them to do so, they would be pretty appalled. I therefore think we need to do something. The Minister might not like my particular proposals—and they certainly are not perfect—but Ofwat needs to know what the unforeseen financial consequences are of the companies’ operations. It needs to have some ability to intervene on behalf of consumers—business as well as individual consumers—if it thinks that something has gone seriously wrong. At the moment, those powers are not sufficient.
I would like to see a measure like this on the statute book; I would not envisage that Ofwat would very often use it, but the experience of the past 10 years—it may well be exactly the opposite experience in the next 10 years as far as the cost of capital is concerned—leads me to think that there is a gap somewhere in Ofwat’s powers. We need to address that somewhere in this Bill and I am sorry that the Minister is not prepared to take it away and look at it in this context. I will withdraw the amendment, but this is something to which we might need to return in a slightly different form. I beg leave to withdraw the amendment.
Lord De Mauley
“3A In section 2A (strategic priorities and objectives: England) (inserted by section 24), in subsection (4)(d), for “licensed water suppliers” there is substituted “water supply licensees and sewerage licensees”.
3B In section 2B (strategic priorities and objectives: Wales) (inserted by section 24), in subsection (4)(d), for “licensed water suppliers” there is substituted “water supply licensees”.”
“4A (1) Section 10 (transitional provision with respect to replacement appointments) is amended as follows.
(2) In subsection (2), for “and (4)” there is substituted “to (4)”.
(3) After subsection (3) there is inserted—
“(3A) To the extent that charging rules issued under section 144ZA relate to charges imposed or security required by a relevant undertaker under section 185, those rules are to apply in relation to the new undertaker as if the appointment or variation had come into force.”.”
( ) in the opening words, for “the licensed water supplier” there is substituted “the water supply licensee”;”
Lord Whitty
Lord Whitty
My Lords, I will not detain the Committee too long on this one. When I saw this provision, it jumped out of the page at me because the Bill seems to delete the requirement to provide mapping of flood vulnerability. Having now checked the impact assessment and checked with the Environment Agency, I see that it is clear that the particular clause is not inappropriate in the circumstances, but I thought I would use this opportunity to ask the Minister to tell us, perhaps in writing, what maps are now statutorily required for flood risks.
This issue will arise significantly when we come to discuss, as we will do in the next day of Committee, Flood Re and the properties that are to be covered by that system. The issue also arises in terms of resilience and, for other bodies, in terms of planning decisions, as well as in issues for the insurance industry that go wider than the Flood Re system. While the section that is to be deleted may be redundant, it is important that we ensure that the resources that the Government give the Environment Agency and other bodies are sufficient to provide detailed, robust and accessible maps defining the flood risk around the country.
There is some urgency to the issue because I know that there are, to put it neutrally, constraints on the Environment Agency’s resources in this area. The agency is, probably rightly, trying to focus what resources it has on front-line services. However, if you focus on front-line services in a diminishing budget, you inevitably cut backroom services, some of which are in this area of mapping and prediction—which is done by the Environment Agency but often in conjunction with the Met Office—of where flood risk is likely to arise in future. As I said, I do not expect a detailed argument from tonight’s discussion, but I would like, before we proceed further with the Bill, an indication of what mapping is required and what resources are there to carry it out. I beg to move.
Lord Knight of Weymouth (Lab)
My Lords, briefly, I support my noble friend Lord Whitty in his challenge to the Government and, to some extent, the Environment Agency. At the moment, my home down in Dorset is technically under a flood alert. I can look at maps on the Environment Agency’s website and the detailed data on river levels at the station near to my home which, during this sort of scenario, are updated every few hours. In conjunction with looking at the Met Office website—because I am an experienced watcher of these things—I can predict pretty accurately whether we will flood. I am willing to put on record that I do not think we will flood over the next 24 hours. We put our floodgates up—some of them, but not all of them—but that is mostly because we could not be bothered to take them down from the last time.
This whole business is obviously very worrying for householders. I pay tribute to the Environment Agency for making all the data available so that people like me can, assuming we are online and confident enough to use those tools, make that judgment. However, it is really important that those resources are sustained and, as technology and resource allows, are improved as more and more householders, given climate change, worry more and more about their resilience for flooding.
Baroness Northover
My Lords, when I heard the earlier debate about consolidation and clarifying legislation, I thought that this was a case in point. The noble Lord, Lord Whitty, rightly spotted that, too. This amendment allows me to put something on record. The issue is about duplicate records. Our plan is to repeal Section 195 on the basis that a single record is all that is required. The Environment Agency is not aware of any request having been made for the inspection of the duplicate record required by Section 195. Of course, it will continue to maintain its primary and comprehensive sets of data, including maps. I can assure the noble Lord, Lord Knight, that public access to this information can be obtained under the Environmental Information Regulations 2004, or for that matter under the Freedom of Information Act 2000. This is a small efficiency and cost saving to the Environment Agency, without detriment to necessary data collection, maintenance or public access. I will write to the noble Lord, Lord Whitty, with details of the data held by the Environment Agency. On that basis, I hope he will be happy to withdraw his amendment.
Lord Whitty
I thank the noble Baroness for that and her determination to write to me setting it out. The importance of this is that these maps are there but will change. They will change as a result of development activities, because of climate change and our experience of floods that are supposed to happen once in every 200 years in the Somerset Levels—to return to that topic—but have happened in two years. It is vital that mapping resources are there and accessible to everybody, as they clearly already are to my noble friend Lord Knight. Not everybody has that level of accessibility. We need it, and we need to be assured that the resources can be updated and improved as information changes.
I thank the noble Baroness and the Minister for their patience this afternoon. We will meet again shortly, dealing with floods, in particular. I beg leave to withdraw the amendment.