16:58 - Division on Amendment 41 - Ayes: 192 / Noes: 271 - Amendment 41 disagreed.
17:51 - Division on Amendment 55 - Ayes: 181 / Noes: 261 - Amendment 55 disagreed.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, I start by reiterating the interests that I declared in Committee. I am the owner of a farm, through which a tributary of the River Thames runs; I have a bore-hole, which supplies farm and tenanted properties; and I have a property that flooded in 2007.
I thank the noble Lord, Lord Whitty, for moving his Amendment 1 on the important issue of protecting householders. The Government take this issue very seriously. We are very keen to ensure that household customers remain fully protected following our reforms to the non-household market. I am confident that we have achieved this. The Water Bill introduces reforms that will enable us to manage future pressures as efficiently as possible while ensuring that customer bills are kept fair for the long term.
Mechanisms are already in place to prevent business customers’ bills being subsidised by household bills. Ofwat’s policy of setting different retail price caps for household and non-household customers in the current price review means that households will not subsidise the competitive market. We also expect household customers to benefit from the efficiencies and innovations that competition will foster.
It is also important to remember that the Secretary of State, Ofwat and the Consumer Council for Water have a shared duty to protect customers. They must have special regard to people who are unable to switch suppliers—that is, household customers—when carrying out their statutory functions. I am therefore confident that household customers will be protected against any negative outcomes resulting from the expansion of the competitive market.
This brings me to government Amendments 57 and 58. I was grateful to the noble Lords, Lord Whitty and Lord Grantchester, for highlighting in Committee the important work that is done by the Consumer Council for Water. The noble Lords tabled an amendment to require incumbent water companies to consult the Consumer Council for Water on their draft charging schemes. In Committee, I explained that the Consumer Council for Water already does this, but I agree that it is a good idea to place into legislation the central role of the Consumer Council for Water, ensuring that the consumer voice is heard. That is why I am bringing forward Amendments 57 and 58 today. The Consumer Council for Water already plays a fundamental role in working with the companies to ensure that their charges schemes meet stringent, research-informed safeguards on behalf of customers. We want to see this continue.
I hope that our amendments illustrate that the Government are listening. I am grateful that we have continued to collaborate in a positive way throughout this process and am delighted to see real improvements coming forward. I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I think that the Government have gone slightly further than previously in referring to there being no disadvantage in relation to the cost of water. Indeed, we will return to the affordability issue later today. The Minister did not deal completely with the issue of non-price disadvantage. The servicing of consumers could suffer from the introduction of a degree of competition if too much of a company’s effort was focused on the business end and led to a diminution in service as well as a disadvantage in price. The Minister has probably said enough for me not to press this point today or in this Bill, but the department and Ofwat will need to be quite clear as to their intentions in that and in their beefing-up of existing mechanisms designed to protect household consumers. I therefore welcome the Government’s amendments and will support them when we reach that point. I shall withdraw this amendment with some slight regret, but the Minister has been relatively helpful. It has been a good start.
Lord De Mauley
My Lords, I thank my noble friend Lord Selborne for explaining once again his concerns to your Lordships. I laid out the government position on this matter clearly during Committee, and I confirm to my noble friend Lord Deben that I do indeed take this matter very seriously. I am happy to clarify the position for your Lordships again this afternoon.
My noble friend’s Amendments 2 to 29 and 31 to 36 would break the link between upstream and retail. While I know that this is not my noble friend’s intention, it would have the practical effect of derailing the reforms which this Bill seeks to introduce. The amendments would introduce a market where incumbents would tender for new water resources under the so-called single-buyer model. That is extremely incumbent-friendly, and would seriously undermine the competition that we are seeking to extend in the Bill.
The single-buyer approach, with decisions resting with the incumbent, will provide fewer rights and less flexibility for new entrants. These amendments would allow incumbents to dictate the future direction of upstream markets. This would, I suggest, present a considerable barrier to entry for new entrants. Only licensees who were able to bid for and win contracts under the terms set by the incumbent would be able to enter the market. Most importantly, it would not lead, I suggest, to a better outcome for customers. For example, there would be an increase in charges if incumbents introduced overly burdensome standards in tenders or made poor decisions over which bids to accept.
As I have said, I know that my noble friend’s intention was certainly not to undermine the market reform provisions of the Water Bill. I have heard his argument that this approach would mirror arrangements being introduced in Scotland, but this is not Scotland. The Scottish Government have taken a policy decision not to introduce upstream competition in Scotland, and that is their prerogative, but that does not mean that is the right approach for England. We face a more challenging water resource situation than our friends north of the border, and we are legislating here for a regime in England. Reducing the scope for innovation and entry into the market is not going to help deliver the change we need. I hope I have explained why I cannot accept the tabled amendments.
I know that my noble friend’s concern is about de-averaging in a more general sense, so perhaps I can take this opportunity to provide some comfort on that issue. The averaging or de-averaging of charges refers to the extent to which an individual customer’s bill reflects the direct costs associated with serving that customer. Some would suggest that a de-averaging of charges will somehow be a direct result of increasing levels of competition in this sector. However, there is no evidence to support this view. Averaged charges are a common feature across the networked utilities and, indeed, in all sorts of industries that are subject to market pressures. We think it is right that network charges should continue to be averaged, and the regulator has stated, repeatedly, that it has all the tools necessary to control the effect of de-averaging on customer charges.
The Government’s charging principles are unambiguous on this. Ofwat must not allow de-averaging that is harmful to customers, and that includes rural customers, to which my noble friend specifically referred. Our charging guidance will follow soon. I am happy to commit, as I have done before, to making it plain in that document that there must be strong, definitive boundaries on the scope of any de-averaging and that households, in particular, must be protected. There are powers in this Bill which the Government will not be afraid to use if Ofwat’s charging rules are not consistent with our charging guidance. I thank my noble friend Lady Parminter for her words.
However, we should not be simplistic. There is no doubt that there are areas where better cost-reflectivity could have substantial benefits for the environment and for the resilience of our water supplies. It must be right that the new upstream markets should reflect the environmental costs of supply. It must also be right that there are economic incentives for business users that use large volumes of water, and it must be right that water companies should seek to identify the most environmentally efficient sources of water. The Bill is all about opening the market, encouraging new entrants and increasing the resilience of our supplies. Better cost-reflectivity in the competitive part of the non-household market is a crucial part of this.
My noble friend suggested that new entrants will not focus on value-added services. He may not have put it like that, but that was the intent behind one of the points he made. New entrants already in the market, such as Business Stream, are very clear that they see value-added services as the best way to maximise profit, so I cannot accept that the way the Bill is designed makes that less likely.
My noble friend raised an important point about fears that the Government’s charging guidance and Ofwat’s charging rules might be overridden by competition law. I draw your Lordships’ attention to paragraph 5 of Schedule 3 to the Competition Act 1998. This provides for an exemption from competition law where an agreement is made in order to comply with a legal requirement imposed by or under any enactment in force in the United Kingdom. Ofwat’s statutory charging rules will take the form of a legal requirement imposed under such an enactment. The Bill provides the Secretary of State with the power of veto over the charging rules in order to ensure that regulatory practice remains well aligned with government policy. I can also confirm that there is no general prohibition in EU law against average pricing.
My noble friend raised the case of Shotton and Albion Water as a legal precedent to support the case that de-averaging is a real risk. This was a complex and long-running case. However, it is a misunderstanding to describe it as a case of de-averaging. Shotton was a very unusual case from which it is not useful to extrapolate more widely. For example, it concerned a discrete system that serves only two customers, one of which was served by Albion Water. This is very rare. To give some context, the case represented 0.01% of Welsh Water’s turnover. At the time of the dispute, this agreement was not subject to regulation by Ofwat. The Bill includes measures that would bring all such transfers within the scope of the regulatory regime. Ministerial guidance and Ofwat’s charging rules will therefore set out how charges between water companies and inset appointees such as Albion Water should be determined in the future.
Lord Cameron of Dillington (CB)
My Lords, I declare an interest for the purposes of Report, in that I am a farmer with abstraction licences on my farm. I support Amendments 59 and 60, which ensure that de-averaging on the basis of geographic location is outlawed in the Bill.
The delivery of water in a civilised, developed country should be a universal right. That is not to say that it comes free for anyone, but that all the costs of the necessary infrastructure, such as large pipes running across farms and small pipes running to farms, should be shared between all the parties. In the same way as Royal Mail has a universal service obligation, so should water.
The Minister said in Committee that Ofwat has the powers to prevent this sort of de-averaging, and he repeated that in response to the previous group of amendments. However, he also said that the Government’s charging guidance will say that any de-averaging must occur only where it is in the best interests of customers; but which customers—urban or rural? It is important to set out firm rules here against de-averaging on the grounds of location in the Bill. That is because there is no doubt in my mind that the Bill is merely the first step in a more comprehensive reform of the water industry, which will happen in due course. Like John the Baptist, the Bill is not the light but the precursor of the light to come.
The next Bill will undoubtedly bring in a comprehensive and sustainable abstraction reform—we know that that has been virtually admitted by Defra—while at the same time it will herald a sustainable consumption reform in the form of introduction of universal metering. I know we are coming to that; everybody knows that that is essential and only political games seem to be preventing it happening this time around. Moreover, as a result of these reforms at either end of the supply chain, I envisage a gradual move to the introduction of competition in the water industry in both the commercial and domestic water supply marketplace. At this stage the important principle of preventing de-averaging for different locations, which these amendments achieve, is absolutely paramount.
I am slightly suspicious of the Government’s reluctance to endorse these amendments in Committee, but I get a hint that they might move a bit further at this stage. If they do not, frankly, the writing will be on the wall for remote rural customers. To use the Minister’s words, it will undoubtedly be in the interests of customers —that is, urban customers, who are in the majority—if the minority of remote customers can be charged more. If that were to happen, it would be a major betrayal of the rural consumer. I say that as the person who has been asked by Defra itself to rural-proof government policies.
Lord De Mauley
My Lords, my noble friend Lord Selborne has tabled Amendments 30 and 37, which would amend provisions in Schedules 2 and 4 allowing Ofwat to produce the charging rules that enable licensees to apply for discounts, where the licensee, its customer or anyone else, takes action to reduce pressure on water or sewerage networks. These amendments would restrict such discounts to situations where the incumbent water company’s costs are also reduced.
I agree with the sentiment behind the two amendments, but let me explain why they are not necessary. Ofwat’s powers to make rules on discounts are wide-ranging and can take into account impacts on an incumbent’s costs. They must also be consistent with ministerial guidance. It goes without saying that a discount should not result in an increase in costs for the incumbent or its customers. The sorts of things that we are looking for are agreements where customers commit to take positive actions, such as investing in water recycling facilities or agreeing not to take water during peak periods or during a drought. It might also involve a discount in wholesale charges, where a customer or licensee agrees to invest in an upgrade of a network where the incumbent is also making an investment. But my strong concern is that making a reduction in an incumbent’s costs a condition of such discounts protects the competitive position of the incumbent and risks stifling innovation in the sector if a proposal results in a one-off increase in an incumbent’s costs or if a small investment is needed by the incumbent to help the licensee.
I note that the amendment is similar to a provision in Scottish legislation, which also allows licensees to apply for discounts against charges made by Scottish Water. As far as I can determine, no details have been published of any discounts being applied in Scotland, and I do not wish to place such constraints on the system in England. I am confident that ministerial charging guidance and Ofwat’s charging rules can address issues relating to an increase in incumbent’s costs and what may or may not be passed on to other customers not benefiting from a discount.
Amendments 59 and 60 would prevent an incumbent making any charges within its area based on a location of premises. I know that my noble friend seeks to address issues relating to de-averaging, which we have just debated, but these two amendments could result in a significant impact on charges for all customers across England and Wales. It is sometimes necessary for an incumbent to set different charges within its area of appointment, particularly when it is merged with another incumbent. It may be necessary to maintain separate charges for different parts of a merged incumbent’s areas, even after the merger is complete. For example, Affinity Water provides services in three different parts of the country. The charges are different in each of those three areas to reflect the local costs of supplying water.
We are hoping to stimulate more merger activity through Clause 14—for example, to take advantage of economies of scale for the benefit of customers, who could lose out if the merged incumbent had to average its charges across a merged area. There will be winners and losers, but it will mean that the true costs of providing water and sewerage services may no longer be reflected in customers’ charges. Ofwat and the Secretary of State share a statutory duty to protect the interests of customers. The Water Industry Act 1991 provides that this duty should be discharged when appropriate by promoting effective competition. The Government are clear that the purpose of introducing competition into this sector must be to benefit consumers.
I know that noble Lords will be concerned about the potential for impact on rural and vulnerable customers. The noble Lord, Lord Cameron, referred to that. I share those concerns, and I know that noble Lords will be concerned about household customers who cannot switch suppliers. The Secretary of State, Ofwat and the Consumer Council for Water all have specific duties to have regard to the interests of rural customers and those who are unable to switch their suppliers, such as household customers. These duties are already clearly reflected in the charging principles which we have produced to inform these debates and will flow through directly into our charging guidance and Ofwat’s charging rules.
My noble friend referred to discounts for direct debits. To be clear, the discounts covered by the Bill are not discounts offered by incumbents, such as direct debit discounts for charging payment methods, but discounts for novel or innovative proposals which help all customers.
My noble friend was also concerned that charging rules could be different for different localities. This will allow Ofwat to provide extra protection—for example, for rural customers—as supported by its duty to have particular regard to certain classes of customers, such as, indeed, rural customers. Given these comments, I hope that my noble friend will be prepared to withdraw the amendment.
Baroness Northover
“ In section 158 (powers to lay pipes in streets), in subsection (7)(a), the following words are repealed—
(a) “or (b)(i)”;(b) “or laid in pursuance of section 66B(4)(b)(ii)”.”
Baroness Northover (LD)
My Lords, I beg to move government Amendment 38 and will speak also to Amendments 39, 73, 75 to 77, 79 to 86, 88, 92, 94 and 95 to 97. This group of amendments consists of changes to Clauses 37 and 39, following the recommendations of the Delegated Powers and Regulatory Reform Committee, as well as various minor and technical amendments to correct drafting errors in Clauses 49 and 80 and Schedule 12, and consequential amendments to Schedules 5 and 7.
We welcome the scrutiny of the Bill by the Delegated Powers and Regulatory Reform Committee. Following its recommendations, the Government have decided to amend Clause 37 on appeals relating to revision of codes so that the power to make regulations under this clause will be subject to the affirmative resolution procedure. This will apply to the first exercise of these powers only. On reflection, we agree with the committee that it is important for Parliament to have a further opportunity to scrutinise these regulations, and we have therefore tabled Amendment 73.
We have also followed the recommendations of the committee for amending Clause 39 on the exercise of adjudication functions in routine cases. The Government have left the choice of adjudicator open as we have not yet decided whether the relevant functions should be taken on by an existing body. However, we are grateful for the committee’s suggestion that this relatively wide power should be subject to the affirmative resolution procedure, and we have tabled Amendments 75 to 77 accordingly.
I would be happy to explain any of the minor and technical amendments to the House if there is anything that needs clarification. I beg to move.
Baroness Northover
“ In section 213 (powers to make regulations), subsection (1ZA) (inserted by Schedule 7) is repealed (if not previously repealed by an order under section 3).”
Lord De Mauley
I think I might be able to help the House. When it is my turn to speak, I will explain that the Government have recognised the strength of feeling in the House and are carefully considering the difficult issue of retail exits. I plan, as the noble Lord, Lord Whitty, suggested, to return to this issue at Third Reading. I will expand on that in a moment.
Lord Hope of Craighead
I am grateful. I intervene as a domestic consumer of the services of Scottish Water in Scotland merely to confirm that the passage the noble Lord, Lord Moynihan, read out at the end of his speech—from, I think, Scottish Water—conforms entirely to my own experience. Scottish Water has become much more visible in the past two or three years and, in my experience, provides an interesting and active service, not only in supplying water but in considering ways in which householders might be benefited by the services it can offer in support of that supply. I merely wish to make it clear that it is not only Scottish Water which says these things. Some of its consumers are very satisfied with its performance as well.
Lord De Mauley
My Lords, that is a helpful intervention.
I thank my noble friend Lord Moynihan and the noble Lord, Lord Whitty, for their amendments. We once again have two amendments seeking to allow retail exits but with slightly different approaches. Both amendments would allow the Secretary of State to make regulations that would allow an incumbent water company to transfer its customers to a person holding a licence. Amendment 40, tabled by my noble friend Lord Moynihan, would allow for transfers to a licensed associate of the incumbent, while Amendment 54, tabled by the noble Lord, Lord Whitty, would allow for transfers to any company that holds a water supply licence. Amendment 54 does not allow for the exit of the retail sewerage market but I assume that the intention is to allow incumbent companies that provide both water and sewerage retail services to exit those markets. As with other amendments we have seen, both these amendments allow for non-household customers to be transferred through powers laid out in regulations, but do not allow us to fill in any gaps relating to who will provide retail services to new customers following a transfer or how we would treat transferred customers, including those who wish to return to the incumbent.
Allowing customers to be transferred does not mean that the incumbent has completely exited the retail market. The incumbent will still have certain responsibilities to non-household customers in its area of appointment and will therefore remain very much within that market unless certain duties are removed from it or transferred to the licensee which takes over the customers. It is a halfway house that does not benefit anyone, least of all the incumbent which wants to avoid dealing with non-household customers completely. The value of exits to incumbents would be limited unless the ultimate duty of supply is also removed. Household customers who remain with the incumbent may even end up funding this residual capacity of the incumbent to serve the remaining non-household customers.
But, as I hinted earlier, I have listened carefully to the thoughtful and well informed contributions to the debate on retail exits both today and in Committee. It is clearly an issue on which many noble Lords hold strong views. There is widespread support for enabling voluntary exit from the non-household market, subject to the approval of the Secretary of State. We remain convinced that such approval would be critical to avoid any perception that this will permit forced separation, given the impact that that could have on investment in the sector. I therefore propose to take this issue away and consider it very carefully before Third Reading. I will aim to table an amendment that will build on the objectives of Amendments 40 and 54 in the names of my noble friend Lord Moynihan and the noble Lord, Lord Whitty, respectively, which seek to provide a means for voluntary non-household exit.
I should like to put on the record now that the only practical way of delivering what the noble Lords are seeking would be to take a very wide-ranging power. Extensive changes to the Water Industry Act 1991 would be needed, not least to address issues relating to the incumbent’s duties to supply and its other statutory obligations to customers. Given this commitment to respond to the mood of the House on this important matter, I ask my noble friend to withdraw his amendment.
Lord Moynihan
My Lords, I thank the noble Lord, Lord Whitty, and his colleagues for their support for the series of amendments we have debated on this issue as the Bill has progressed through your Lordships’ House. I also thank very much indeed the officials at Defra who have worked on this Bill. It is highly complex and it has gained far more prominence than I believe they expected at the outset. Not the least of that is because of the appalling weather we have had over the past three months and the focus now on the Flood Re insurance proposals, which have understandably generated a huge amount of interest across the country and have resulted in a greatly increased workload for the officials. They have been responsive, helpful, polite and informative at all stages, and I am grateful for that.
I thank my noble friend the Minister for his comments. I am pleased and not a little surprised to hear that he intends to come back at Third Reading with a government amendment along lines that I would strongly support. I thank him for his consideration of the importance of exit. I hear the relevance of the consequential amendments that will be forthcoming if we do not give a fairly broad-based power to the Secretary of State, but it remains my view that in order to have a competitive and effective market, we need exit. In the circumstances, I believe that it is appropriate to grant that power through this Bill. Again, I express my thanks to the Minister and to all noble Lords who have supported me on this issue. I beg leave to withdraw the amendment.
Lord Crickhowell
My Lords, I want to probe a little on the timing. I agree with everything that the noble Baroness has just said. For eight years, as chairman of the National Rivers Authority, I had to try to deal with this problem with rather less adequate weapons than the Environment Agency now has, so I welcome the steps that the Government are taking and have taken. I also want to see rapid progress made on the competitive regime, but there seems to be a very difficult timetable. We will have a report five years out on how abstraction is going, yet there will be legislation in the next Parliament which takes us a year further forward. I do not quite see exactly how the Government envisage progress being made on these two important priorities. I confess that I have been away abroad since Committee—I have been enjoying myself in the Galapagos—so my mind has not been on this matter, but I would be grateful if my noble friend could give us a little greater clarity on the timing of these two interlocking steps, on the way in which they are likely to relate and on how the legislative timetable is likely to fit in.
Lord De Mauley
My Lords, this has been another important debate on abstraction reform. It gives me an opportunity to declare another interest: that of a holder of an abstraction licence. Noble Lords have once again emphasised the importance of rapid progress in reforming the abstraction regime and expressed concern about the linkage to implementation of the upstream reforms in the Bill. I thank noble Lords for the knowledge, experience and constructive challenge that they have brought to the debate on this important matter. I have listened carefully to what they have said and I am left in no doubt as to the strength of feeling.
First, I assure noble Lords that the Government are fully committed to abstraction reform. The proposals in our consultation document on abstraction reform demonstrate just how seriously we are taking this, as well as the complexity of reforming such a long-established regime. Our proposals reflect the importance of abstraction reform for people and the environment and the fact that organisations and individuals across the country are dependent on access to water to live their lives and run their businesses.
I want to see a real improvement in the quality of water bodies in all parts of the country. That means we must take action to reduce overabstraction that damages the environment now and ensure we can continue to protect the environment and ensure access to water in the more challenging conditions we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. While some fear that these could be conflicting mechanisms, I can assure noble Lords that the intention is for them to be entirely complementary in both design and implementation. I hope I can provide further reassurance on this, not least through the further amendments that we have tabled to Clauses 8 and 12 and a new clause before Clause 45.
Lord Oxburgh (CB)
My Lords, I have to confess that this is a part of the Bill that I have not followed particularly closely, but I have listened to the government and opposition arguments with great interest today and, indeed, have sympathy with both. I would just like to ask the Minister—
Baroness Northover (LD)
I think the noble Lord is out of order. We are on Report, the Minister has spoken, and we are waiting for the noble Lord, Lord Whitty, to respond. The noble Lord can ask a quick question for clarification.
Lord Oxburgh
Thank you. The clarification that I seek is whether the Minister would be willing, when he brings back these amendments at Third Reading, to strengthen some of the words relating to consultation to something rather stronger and relating to an obligation.
Lord De Mauley
My Lords, it is difficult for me to respond to that point without knowing the strengthening that the noble Lord has in mind. I am, of course, perfectly prepared to meet him and discuss that between now and Third Reading.
Lord Whitty
My Lords, I thank the Minister for his very comprehensive description of the position and I reiterate that I support the government amendments as a significant move in the right direction. However, they are flawed in one serious respect which I will come on to.
The Minister referred to complementarity between the abstraction reform regime and the new competition regime. I am absolutely in favour of complementarity and I think that both are very important for environmental reasons and for reasons of preservation and effective delivery of our water resources. Therefore, in principle, we are not divided. However, the provisions in this Bill are asymmetrical. We have quite detailed provisions on upstream competition. Nothing I have said affects retail competition. Upstream competition is provided with all the legislative framework that you will need—there will need to be some more regulation, but in effect it is there. The abstraction reform has only just started on its consultative phase. Both the noble Baroness, Lady Parminter, and the Minister have said that they intend to legislate in the next Parliament, which is nice to hear but we do not quite know who will run the next Parliament and it is not normal to pre-empt the Queen’s Speeches of the next Government, even if they happen to be the same one. In any case, the timescale is out of kilter.
The essential flaw in the Minister’s position is that all he is referring to is a report in five years’ time after the passage of this Bill, whereas my amendment says that legislation should be introduced in roughly that time and before we trigger upstream competition. That means that they are complementary; that means that the timescales are in line. The danger is that if we miss that early in the next Parliament commitment, they will be seriously out of line; and if we wait for the parliamentary report before we legislate, they will also be seriously out of line. Therefore, that essential commitment to wait until legislation is there is missing from the otherwise admirable amendment that he is proposing today.
This is so important that all parties need to be reassured that we have complementarity as an objective but complementarity along both tracks in the way in which we proceed. It is therefore with some regret that I would like to test the opinion of the House on this matter.
Lord De Mauley
Lord De Mauley
“(aa) provision requiring the Authority to consult the Environment Agency, the NRBW or both of them before making an order;”
Baroness Parminter
My Lords, affordability is clearly a key issue and I thank the noble Lord, Lord Whitty, for raising it this afternoon, although I do not share his faith in a national affordability scheme. I use the word “faith” advisedly because, like the noble Baroness, Lady Byford, I think that the amendment is a little light on the details of what a national affordability scheme might comprise.
My understanding is that eight of the water companies already have social tariffs, or will have by the time we get to Third Reading. Perhaps the Minister will be able to comment on that in his concluding remarks. However, there are one or two laggards, including Yorkshire Water, which has undertaken research into a social tariff but says that the results do not justify it proceeding. This is not good enough; it should be working with the Consumer Council for Water, as 11 water companies are, quickly to identify a way forward.
You would expect water companies to try hard to do this as, in addition to being the right thing to do, social tariffs are, as the noble Earl, Lord Selborne, rightly pointed out, one way to help to tackle the bad debts, which put £15 on all our water bills. Where there has been some reluctance to introduce them, it appears that that has had more to do with limited customer support for the company’s initial proposals, because crucially water company customers have to buy in to the social tariffs as they are cross-subsidising them.
Like my noble friend Lady Bakewell, I welcome the new social tariff guidance from this Government and the Welsh Government. It means that more companies can now introduce social tariffs, but of course these schemes must be tailored to local circumstances. The cost of living, average incomes and the cost of supplying water and sewerage systems vary substantially from region to region. In Committee, my noble friend Lord Whitty acknowledged the importance of taking account of regional variations, saying:
“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”.—[Official Report, 6/2/14; col. 326.]
Like my noble friend Lady Byford, I believe that the Front Bench opposite has not quite spelt out what the national affordability scheme would comprise, saying that it is up to the department to come up with something appropriate which equally allows for regional diversity of delivery.
The issue is not that the majority of companies are not taking this forward; the issue is fundamentally about who pays for the scheme. The Consumer Council for Water has done research which consistently shows that customers are reluctant to pay above £2 as a cross-subsidy. Does the Front Bench opposite think that its national affordability scheme should top up that sum from general taxation? Should schemes be imposed on people unwillingly or from a levy on water companies? That begs the question of whom it would be levied on, given that the overwhelming majority of companies will have agreed to a scheme by next year.
In addition to concerns about a lack of clarity as to what a national affordability scheme would comprise, I am not persuaded by arguments from the Benches opposite about affordability when it will not support further moves to encourage water metering. The independent Walker review, commissioned by the previous Government, recommended a widespread switchover to metered charging, considering it the “fairest way” to address the affordability problems inherent in the current system. Therefore, it is disappointing that the party opposite—I exclude the noble Lord, Lord Whitty, from my condemnation—is opposed to even minor amendments which I raised in Committee and which the noble Lord, Lord Oxburgh, will be raising again later to help to encourage metering. Such a move could help people to take control of their household bills. On that basis, I do not support these amendments.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Whitty, for explaining his amendments and I thank all noble Lords who have contributed to this debate. It will not surprise those of your Lordships who sat through Committee on this Bill to learn that I will not be supporting the noble Lord’s amendments.
I shall deal, first, with the Opposition’s national affordability scheme. The Government take the view that companies are best placed to work with their customers to develop local solutions concerning affordability. After all, it is those customers who foot the bill. That is why the Government’s approach is focused on company social tariffs. The companies’ own business plans show us that by 2015-16 most will have put a social tariff in place voluntarily following a process of engagement with their customers. I am struggling to see the advantage of a national affordability scheme in comparison with the guidance and framework for social tariffs which is already in place and which has, as my noble friend Lady Bakewell said, now been in place for a year.
The Government’s social tariff guidance sets minimum standards in a light-touch way. It does so taking into account the reality of diverse regional circumstances. The minimum standards set in the guidance allow water companies to talk to their customers—the ones, as I said, footing the Bill—and to innovate. Imposing more specific minimum standards on water companies would limit their scope to address the unique circumstances of their respective areas. It would disincentivise companies from coming up with something more creative and more targeted. We should not ignore how different the affordability issues facing the water sector are in different parts of the country.
Our social tariff guidance provides a clear steer on the factors that must be taken into account in the development of a social tariff. However, it leaves final decisions for companies to take in the light of local views and local circumstances, rather than seeking to impose schemes from the top down. The most important requirement of our guidance is for effective customer engagement in the development of a social tariff. The Government believe that some customers should not have to subsidise others without being properly consulted.
All the companies have begun that process of consulting with their customers on whether a social tariff is right for their area and, if so, what form it should take to address local needs. The guidance requires that the companies must work closely with the CCW to ensure that their proposals align with customers’ views of what is acceptable. Undertakers will need to be able to demonstrate that they have listened to customers and organisations representing customers. The social tariff guidance applies to both the companies and Ofwat. Where a company brings forward a social tariff that complies with this guidance, there is a clear presumption in favour of approval by Ofwat.
It is crucial that those who are struggling to pay their water bills get assistance, but the difference between what is suggested and what we have in place is our recognition that local people should have a say. Local factors should be, and are being, taken into account.
I turn now to Amendment 56, which concerns billing information. First, I thank noble Lords for raising a very important point about the WaterSure scheme As noble Lords are by now aware—but sadly many customers are not—the scheme is a mandatory safety net for low-income customers. It is available for customers who have a meter and, for reasons of ill health or because they have a large family, use greater than average amounts of water. I have said before that it is unfortunately a feature of all such means-tested benefits that take-up fails to match eligibility. People who are eligible simply do not sign up. Through informing people that WaterSure exists, I am confident that we can increase uptake. That is why it is important that billing information includes details about WaterSure.
However, that is already happening, and it has been happening for years. The Consumer Council for Water has confirmed to me that information on WaterSure and other similar schemes operated by companies is included with bills. CCWater 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 additional information on the face of the bill. Taking the other suggestions in the amendment, such as requiring all water companies to provide information about tariff structures and the lowest available tariff, I must confess that I find this requirement rather bizarre. What tariffs are we talking about? This is not the energy sector. Water companies simply do not have complex tariffs. In fact, as I pointed out in Committee, the situation is quite the reverse. There are just two tariffs: charging by a meter, or by the rateable value of a customer’s home.
Water companies provide advice to customers on whether or not they might benefit financially from the installation of a meter. They have to fit one free of charge, if asked. The recent publication of water companies’ business plans has demonstrated how this system can work to claw back benefits for customers using the price review process. By taking account of lower financing costs, Ofwat estimates that the next price review could significantly reduce pressure on bills from 2015 by between £120 million and £750 million a year. Most water companies are proposing flat or declining customer bills from 2015 to 2020.
The amendments are well intentioned and raise important questions about the water sector and help for those who are struggling to pay. I thank the noble Lord for bringing the issues again before the House, but I believe the amendments will not help. I have explained my reasons The Government are absolutely committed to helping hard-pressed customers where we can, and I hope that I have demonstrated that adequately today. On that basis I ask that the noble Lord withdraw his amendment.
Lord Whitty
My Lords, I thank the Minister for that, and I thank everybody else who has taken part in this debate, even though there was a marked lack of enthusiasm for the exact proposition that I put before the House. I think that there was also some degree of misunderstanding, but I shall clear up one or two points.
The noble Earl, Lord Selborne, rightly raised the issue of the impact on bills because of people who will not pay their debt, as well as those who cannot pay their debt. In some water companies, the level of debt is horrendous. We are bringing before the House later tonight—probably, if we make it—a couple of amendments that will address precisely that problem. On the one hand, a lot of the unpaid bills arise in private rented property. There was a provision in the 2010 Bill that would have allowed the Government to introduce secondary legislation to require landlords to indicate who was responsible for those bills. In areas such as the Thames Water area, this is a huge part of the company’s unpaid debt. The present Government, however, declined to implement that part of the Bill on the ground that it was too much of a burden on landlords. The alternative is that landlords themselves should be responsible for the bill and recover it through the rent, which is another way of approaching it. We are attempting to address that problem and the costs of debt which get transferred on to the rest of the consumers.
To put it at its mildest, some companies are rather more aggressive than others in chasing the debt among the “won’t pay” element. We have another later amendment referring to Ofwat. If a company was clearly at a higher debt level than the average due to its own failure to pursue the debt, Ofwat could, in the next price review, refuse to cover it in the price settlement. Therefore, there would be pressure at the company end and pressure on landlords to produce the names of the people they regard as being responsible for their bills. There are things that we will do. My noble friend Lord Grantchester will be pursuing this later for those who can stay. We are addressing that dimension as it has an impact on bills. The noble Earl, Lord Selborne, is absolutely right, as he was in his report six years ago.
The proposition for a national affordability scheme is to push along the developments that people are saying, again, are already happening. The noble Baroness, Lady Bakewell, spoke eloquently about the range of social tariffs and similar schemes being provided by Wessex Water. I am also a customer of Wessex Water and I am pretty satisfied with it in that regard, as in others. Not many companies are as advanced on that front as Wessex Water, and some are well behind. Even in Wessex, if there are only 14,000 on the various tariffs—in, effectively, most of Somerset, Dorset, Hampshire, what was Avon and parts of Wiltshire—those who are eligible to be covered by the scheme are not taking it up.
It is true that with all quasi-means-tested benefits there is a lower take-up than the optimum, but this is far worse than in other fields. It is important to give a kick not only to the introduction of schemes but to companies to ensure that those who are eligible know about them and apply for them. My proposition is not that the companies should not be innovative and creative and relate the schemes they operate within their own areas to the kind of demography and costs they face.
In reply to the noble Baroness, Lady Byford, I would say that you cannot specify a national figure because the average charges differ company by company. So you would probably have a minimum level, which was a proportion of the average scheme, company area by company area. We have deliberately left that for the Minister to pursue in defining the minimum standards of a national affordability scheme. It would allow for the maximum flexibility, both geographically and creatively, of the schemes the companies could go for.
The record of the companies so far, and the failure of Ofwat to pursue them, is the reason why we need a push at national level to get them all involved. There could be a variety of schemes, from a discount to a particular tariff based on a proportion of the average or, in the metered sector, to the level of usage required, as the WaterSure scheme does. There is all the scope in the world in my proposition for different schemes to apply in different areas as long as they meet the minimum requirement. At the moment, however one defines the minimum requirement, eight companies are not, as of today, offering such schemes, and those that do have attracted to them only a small proportion of those who are potentially eligible. That is why we need a kick-start to this, and the national affordability scheme would allow for that kick-start.
I hope that the House will recognise that some of the criticism of what I am proposing is misplaced. Obviously, I have failed at successive stages of the Bill to carry across the argument, but I hope that I have now spelled out clearly what the position is.
On the information scheme, I recognise that most companies provide some information on tariffs and that there will be more tariffs. The exposition of the noble Baroness, Lady Bakewell, of the position in Wessex shows that many schemes are particularly geared to classes of consumer. If all consumers were told about those, that would be useful. We do not have the 2,000 or so tariffs which exist in the energy sector, so I was a little surprised when the Minister described as bizarre our proposition that we should inform consumers of what tariffs are available and what is most likely to suit their needs. That is exactly what has recently been put into the energy regulations at the behest of the Prime Minister. I am therefore surprised that the Minister takes a different view on water. It would be simpler and easier to do than in energy and I see no reason why water companies should not take on the obligation of informing their consumers, via their bills, of what options are available.
I am sorry that the Government seem unable to take up this scheme, even though it gives them maximum flexibility in how they implement it. The issue is so important, and there is such a huge lacuna in the totality of what is covered by the Bill, that it would be remiss of me not to attempt to take the opinion of the House. I think the Government are in the wrong place. If they had come up with an alternative proposition, I would obviously have considered it. However, there is not even that on the table, and I therefore wish to test the opinion of the House.
Lord De Mauley
“(6ZA) The Authority must issue rules (and, if it revises rules it has issued, must issue revised rules) about consulting the Council about proposed charges schemes.
(6ZB) The rules must require a relevant undertaker that proposes to make a charges scheme to consult the Council about its proposed scheme.
(6ZC) If the Authority considers that a relevant undertaker has not complied with those rules, it may give the undertaker a direction to do, or not to do, a thing specified in the direction.”
Baroness Northover
(i) ”
Baroness Northover (LD)
My Lords, in moving government Amendment 61 I shall also speak to the other amendments in this group. I shall address Amendments 61 to 63 first. I am grateful for the support of my noble friends Lord Redesdale and Lady Parminter, who have added their names to these amendments. During scrutiny of the Water Bill we have debated the important question of how to ensure sustainable outcomes in the context of regulation of the sector. As part of that debate, we have returned repeatedly to the need to promote the efficient use of water so that all parties—Ofwat, the water companies and their customers—are encouraged to use water as efficiently as possible.
There is already a duty on undertakers to promote the efficient use of water by their customers, and Ofwat has a role in enforcing this duty. As noble Lords will know, we consider water efficiency to be an important priority. A compelling case for additional clarity on this issue has been put forward by noble Lords in Committee and in subsequent discussions. We therefore propose to make a further alteration to the resilience duty to make it absolutely clear that Ofwat is expected to promote the efficient use of water by water companies. We want to avoid any doubt on that score. This ensures that the resilience duty embraces all relevant action, such as the capture and retention of water by investing in new water storage or by tackling leakage. It will ensure that Ofwat promotes action to ensure that water is managed by the companies as efficiently as possible and encourages them to take action to encourage customers to use water efficiently. All such activity will support the overall objective of reducing pressure on water resources.
I also wish to speak to Amendments 65 to 70. I hope that it will be clear how seriously we take the crucial matter of getting the right balance between social, environmental and economic considerations in the regulation of this sector. We know that noble Lords across the House share this concern. It is with the intention of further strengthening that balance that we are bringing forward these amendments today. They require that when setting strategic priorities and objectives for Ofwat, the Secretary of State and Welsh Ministers must have regard to Ofwat’s duties and must have regard to social and environmental matters as well.
My noble friend Lady Parminter tabled a similar amendment in Committee and, supported by the noble Lord, Lord Whitty, made her case forcefully. I thank both noble Lords for rightly flagging this issue. Briefly, Clause 24 clarifies and strengthens 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. The purpose of this is to help Ofwat weigh all of the relevant considerations appropriately when making regulatory decisions, and Welsh Ministers will have an equivalent power. We agree that the consolidated guidance must include social and environmental considerations. That is why we made it clear in the drafting of the Bill that social and environmental matters should stay. However, we share the concerns of noble Lords on the issue of the status of that guidance, and for that reason we are bringing forward an amendment to resolve the issue.
I thank noble Lords for their constructive and well informed engagement, and I hope that they will welcome these amendments. I beg to move.
Lord Redesdale (LD)
My Lords, I thank the Government, after some considerable debate about the issue, for the alacrity with which they have taken steps to introduce water efficiency. At the previous stage I raised the issue of sustainability, and I see that the noble Lord, Lord Whitty, has tabled an amendment covering it as part of this group. However, what I am most concerned about is the issue of water efficiency.
The resilience amendment talks about demand management. In the parlance of the water industry, demand management is very much about the reduction of leaks, whereas I believe that water efficiency is much more about the use of water and how it is a partnership between the water companies and water users on how water is to be used. We still have to bring about a massive behaviour change in customer use to make sure that the biggest leak we have in any system is the tap that is not turned off or used inefficiently. That is a movement which we have to take forward.
I hope that these provisions will bring about a degree of behaviour change within Ofwat itself, as happened as a result of the changes made to its core duties in the 2003 Act. I believe that Ofwat is seeking to change the way that it looks at such a scarce resource. With climate change, we are going to have to look at a very different system of determining how much water is available and how we use it. Indeed, in a few minutes Ofwat will be holding a reception just down the road to discuss these issues with stakeholders. I am glad that the Government have brought forward these amendments, which I am sure will help the regulator in its duties.
Lord Whitty
I am not sure whether the leave of the House is divisible business. With the leave of the House, I will explain to the noble Baroness, Lady Byford, that the sustainable development duty under the current Ofwat remit is a secondary duty. For several other regulators, including Ofgem, it is now a primary duty. That is what my amendment seeks, and it would cover social, environmental and economic matters, not simply resilience and water efficiency.
Baroness Northover
My Lords, I thank my noble friends Lord Redesdale, Lady Parminter and Lord Shipley and the noble Lord, Lord Whitty, for their thanks for the government amendments. I hope that noble Lords around the House are pleased that there has been so much positive engagement between Committee and Report. The noble Lords who have spoken are right to emphasise the importance of the environmental context of everything we are doing here. I am very glad that my noble friend Lord Redesdale can go from here to a meeting to celebrate what has been achieved.
Turning to Amendment 64, tabled by the noble Lord, Lord Whitty, I make it absolutely clear that we agree that sustainable development must be at the heart of all that the regulator does. I hope that that reassures him and is also of interest to my noble friend Lady Byford. That belief is at the heart of the Government’s statutory guidance to Ofwat, the strategic policy statement. That guidance requires the regulator to report on an annual basis on its contribution to the Government’s sustainability objectives. I am pleased to be able to say that Ofwat is making such a contribution.
Much of the broader debate about Ofwat’s sustainable development duty dates from the 2009 price review. Much has changed over the past five years. Ofwat has made good progress; for example, it has taken active steps to correct the perceived bias towards capital investment. The current price review is very different from previous price reviews. For the first time, there is a balance between capital and operational solutions as a result of Ofwat’s new approach, which now looks at total expenditure rather than at capital expenditure and operational expenditure in silos.
Ofwat has been working with water companies and Infrastructure UK to halt the up-and-down cyclical investment that has affected the sector for many years. This change in approach has had tangible outcomes; for example, Ofwat has recently given permission to water companies to bring forward £100 million of investment into 2014 to smooth the investment profile and benefit the water-supply chain.
All of this is reinforced by what we have been doing to move the horizon from the short-term view of the next five years to a sustainable long-term focus. That is why the Bill will introduce a new duty of resilience that deals directly with the long-term pressures facing the water industry. The new resilience duty encourages investment in additional water storage. It pushes the sector to tackle unsustainable abstraction. It places the focus squarely on the responsible management of water resources. Importantly, it promotes the reduction of pressure on water resources, and reducing demand for water.
Noble Lords will also be aware that the new duty was amended in another place to be absolutely clear and unambiguous about what that means. It is about managing water resources sustainably. We have now made further amendments to be absolutely clear that the resilience duty means that Ofwat is expected to promote efficient water use by companies. I thank my noble friends again for their welcome of this.
We recognise the importance of preparing the water sector for the future. We recognise the need for a strategic response to climate change. We recognise the demand on resources that future population growth will cause. It is because we agree with the aims of the noble Lord, Lord Whitty, that we have addressed this at all these levels. The changes that the Bill introduces, and the changes we are already seeing in the regulation of the sector, show how much this debate has moved forward. I hope, therefore, that noble Lords will accept the Government’s further amendments—it sounds as if everybody welcomes those—and that the noble Lord opposite will be willing not to move his amendment.
Baroness Northover
Baroness Northover
Baroness Northover
My Lords, we all agree that bad debt in this sector must be tackled effectively. However, we believe that the best ways to do this are through the sector-led voluntary approach to information-sharing and by Ofwat getting the regulatory penalties and incentives right.
While we strongly support the aim of the amendment, we cannot agree that it is necessary because, as noble Lords will be aware—the noble Lord, Lord Grantchester, made reference to this—very similar provision already exists in primary legislation. Without anything changing in the Bill before us, the power exists for the Government to bring forward regulations to require landlords to provide water companies with details of their tenants. This could happen if it seemed appropriate.
However, after consulting widely with all those who would be affected by this measure, we decided that a voluntary approach would be more suitable than imposing those regulations. Landlords felt that it would not be fair to penalise them financially for the debts of others. Having looked carefully at all the evidence, we took the view that there was much more that the water sector could do to address the issue, and there is evidence that some companies are already doing it. It is important that we make decisions based on the evidence; and the evidence showed us that good practice in tackling bad debt is not applied consistently across the water sector.
On earlier amendments on affordability, the noble Earl, Lord Selborne, and others suggested that water companies’ hands were perhaps tied on bad debt. Several companies have excellent performance in the recovery of bad debt—there are many things that they can do—but many others do not. Water companies can, and many already do, use the courts to pursue debtors. However, too many companies still fail to use all the debt collection tools at their disposal and we want improvements in performance in this area.
By way of illustration, perhaps I might give noble Lords some examples of what we identify as good practice. Yorkshire Water is an outstanding example of good work on bad debt. It partners with Experian’s credit account information-sharing service. Yorkshire Water assesses all new customers’ credit histories, which enables it to tailor services to each individual, supporting those in financial difficulty and providing sanctions for those who avoid payment. Another effective scheme is the arrears allowance scheme run by United Utilities, which supports 8,300 customers. For the first six months, the company matches customers’ repayments pound for pound; then the company matches every £1 paid with a £2 allowance until arrears are cleared.
However, at the moment, by no means all companies use these approaches. We wish to see such approaches become much more widespread, and the regulator wants to promote this, too. The methodology for the current price review places a much stronger focus on the responsibility of the company to collect its debts.
The sector as a whole is now starting to respond to this challenge. It is working with landlords’ organisations to establish a new voluntary scheme. Soon, it will launch a database that enables landlords to provide tenant information voluntarily. Crucially, this scheme is supported by the industry through Water UK and the main landlords’ organisations. We wish to give this new system a chance to work and we hope that noble Lords opposite will do so, too.
Ofwat decides which costs may be recovered through the price review; it is absolutely central to what it does. It is clear that Ofwat is using the current price review process to bear down on the costs of bad debt, which is clearly very important. The regulator has been very clear to companies about how bad debt is viewed. Companies must demonstrate high performance in debt collection. They are obliged to show that any increase in bad debt is genuinely beyond their control.
I shall refer to a point made by the noble Lord, Lord Whitty, again in relation to the earlier group of amendments on affordability—the noble Lord, Lord Grantchester, may have referred to it just now as well. The noble Lord suggested that bad debt was mostly in the private rented sector. There is no evidence that bad debt is disproportionately in the private sector; nor does provision in the Flood and Water Management Act, which the noble Lord wishes to see implemented, focus on private rented properties. It would make all landlords, both private sector and social landlords, financially liable for their tenants’ debts. We may have misheard or misunderstood the noble Lord, but we wanted to put that clarification on the record in case that that was how the noble Lords opposite viewed the situation.
Intervention in the setting and recovery of charges is a job for the independent economic regulator. Ofwat has all the tools necessary to enable it to do this job, and it is absolutely right that it is allowed to do so independently. Although we share the view of the noble Lord opposite that those who seek to avoid paying for the water provided when they can pay should not push those costs on to others, I hope that he will accept that progress is being made in the way that I have described and will therefore be content to withdraw his amendment.
Lord Grantchester
I thank the Minister for her comments. We were perhaps talking at cross purposes on the amount of bad debt in the private rented sector. The point here is that local authorities and housing associations are much keener on water companies chasing up tenants and therefore reveal to them the details of those tenants far more readily than do landlords in the private rented sector. That could explain the preponderance of bad debt in the private rented sector.
Nevertheless, I contend that the voluntary approach is simply not working fast enough. It is evident that things are going on in this respect—I pay tribute to what is being done—but I am concerned that not all companies are working as assiduously as they could to reduce this problem.
Given that provision already exists in primary legislation, I urge the Government to press forward a little more keenly than they appear to be doing. I beg leave to withdraw the amendment.
Lord Harrison (Lab)
My Lords, I must apologise to the House and to my own Front Bench for bringing this matter before them not in Committee but on Report, and for not having had the opportunity fully to brief them. However, as my head hurts trying to understand the amendment that I am about to move, perhaps I may explain why I am in this current state.
The issue is this. As I understand it, water connections made through fire suppression systems—which, in the form of sprinklers, have become the new kid on the block, as it were, in recent years—are now classified as non-domestic supply. That in turn means that the water companies, which are exercising discretion on the matter, can attach conditions which are deleterious to our objective of promoting access to water supplies for the purpose of firefighting.
Indeed, there is a patchwork of reactions from water companies across the land. I understand that some companies, because they charge the connection out to some other supplier, charge as much as £3,000 a time, whereas in Scotland, for instance, where we are told that it is a matter of very few coppers to attach the system to the water sprinkler system, no such charges are made.
The problem has been growing over the years and was in part dealt with by a protocol signed off by the then Minister, my noble friend Lord Knight who, unfortunately, is not in his place this evening. That protocol tried to get a balance between the water companies and ensuring the water supply for the purposes of fire suppression. Time has passed since that 2004 protocol, which is why I seek to change Section 57 to ensure that the legitimate use of water to fight fires is clarified and made absolutely apparent.
In doing so, I must thank the noble Lord, Lord De Mauley, and the noble Baroness, Lady Northover, for agreeing to meet me and some of my colleagues recently to get their advice. I should be very grateful if, in response to this probing amendment, we could have a reply that gives some hope that this matter, which we had hoped to have dealt with in the House of Commons by Dan Rogerson, can be dealt with here—albeit that it is a matter that has been brought late into the games.
I should also say that the cost of hydrants, which are available outside buildings to be accessed to suppress fires, are not apparent in the same way as some water companies are now charging those who want access to a sprinkler system. We now have a body of evidence that shows that the fixing of sprinkler systems has been successful in suppressing fires. The problem that we now have is that sometimes people resile from fitting sprinkler systems. I would be very grateful for any hope that the Minister can give me that this could be dealt with sympathetically, and how.
Lord De Mauley
My Lords, I am so grateful to the noble Lord, Lord Harrison, for tabling the amendment and bringing this important matter to the attention of your Lordships. I well know that the noble Lord is an active member of the All-Party Parliamentary Group on Fire Safety & Rescue. He kindly brought the honorary secretary of the group, Ronnie King, to see me last week so that I could hear more about this matter, and I am very grateful for that opportunity. Mr King was a senior firefighter and has now dedicated himself to trying to save even more lives by campaigning on issues of fire safety. He wants more people to install sprinklers. He wants the barriers that might stand in the way of the installation of more sprinklers to be knocked down. The amendment would result in fire suppression systems, known to most of us as fire sprinklers, being referred to explicitly in legislation as water for firefighting.
I understand that a key driver behind the amendment is the problems that can arise between fire sprinkler installers and water undertakers when connections for fire sprinkler systems are required. Those problems include undertakers requiring meters to be installed on the connections, smaller connection sizes than would be ideal for the fire sprinkler system and requirements for internal storage.
Lord De Mauley
“( ) In section 213 (powers to make regulations), in subsection (1A) (affirmative resolution procedure to apply on first exercise of power), for “each of sections 89 and 90 above, the instrument” there is substituted “—
(a) each of sections 89 and 90, and(b) each of sections 207A and 207C and Schedule 16;the instrument””
The Earl of Selborne
My Lords, I think those on the Conservative Benches should support the noble Lord, Lord Oxburgh, as well—as indeed I am sure many of us do. I agree very much with the noble Lord, Lord Cameron, who says that we simply have to value our natural resources. We in this country are totally out of step with the whole movement towards valuing natural capital and understanding the extent to which our natural resources underpin our economy and our quality of life. It makes obvious sense, therefore, that we should all be aware of our footprint, and if we think that we have the right to buy water at a rate that reflects some old rateable value as opposed to our actual consumption, we are simply denying our responsibility to understand our long-term impact.
As I understand it, this amendment is tabled more in order to demonstrate that the water companies can already do what the amendment seeks that they do, so I expect that the Minister will say that it is unnecessary, but it is certainly not unnecessary if it demonstrates what is obvious. I cannot understand why anyone should say that it is against the tide of the day; it is my understanding that every party supports the idea that we should value our natural resources properly, and who could say, therefore, that water should be exempt from that process?
Baroness Northover
My Lords, I thank the noble Lord, Lord Oxburgh, for laying this amendment, and I think I thank the noble Lord, Lord Cameron, for his contribution, with all his liquid metaphors. I was pleased to speak at the WaterAid reception last night, which he attended, so I assure him—I think he knows it—that we recognise the importance of water, whether it is in developing countries or in the United Kingdom.
We have thought carefully about metering in bringing this Bill through Parliament. Our position on metering seeks to strike a balance between the benefits that metering brings and the consequences that it can have for customers and their bills. We agree that metering is a fair basis for charging, but we are also concerned about the potential impacts on struggling customers. As the noble Lord, Lord Oxburgh, has observed, any customer can request a meter. The company must then fit a meter for free. That customer has a year to decide whether to revert to paying according to the rateable value if it turns out that they are worse off.
We are already seeing increasing levels of metering across the country. Next year will see the number of metered households reach 50%, with a trajectory towards 80% by 2040. Where there is a credible economic case, any company may install meters across all or part of their area. The only restriction is on imposing metered charges on customers without their consent. Companies could, as the noble Lord, Lord Oxburgh, suggests, install a complete street or neighbourhood at the same time; and to answer my noble friend Lady Parminter, companies can put in meters throughout.
The evidence shows that the case for imposing metered charges on all customers in an area can be made in water-stressed areas where there is an insufficient supply of water to meet projected demand. The amount of available water varies around the country. When it makes social, environmental and economic sense to do so, charging all customers according to a meter is already a possibility, but in areas where water resources are not under pressure, imposing meter charges is restricted because of our concerns about affordability.
There are two sets of costs that must be considered here. First, the investment cost of installing meters across an area can put up bills for all the customers in that area. Secondly, imposing metered charges across an area can increase the bills of some of the worst off in society. This is not something that anyone wishes to do in areas that have sufficient water to meet demand.
The balance will doubtless change over time. With climate change and population growth, the case for universal metering in particular areas will no doubt shift. That is why we revised the water stress designation last year: to take better account of long-term climate projections and information about environmental pressures. We wanted to ensure that the designation of serious water stress is forward looking. It is also updated on a regular basis, and we will continue to keep the situation across the country under review. I hope that that does something to reassure noble Lords.
The noble Lord, Lord Oxburgh, asked me to clarify the circumstances in which companies can install meters, and he made the point that a number of organisations were not clear about the situation. I hope I have answered his question, but for the avoidance of doubt let me do so again for the record. Water companies are able to install meters wherever there is a good case for doing so. There is a variety of reasons why they may choose to do this, including to improve leakage detection and enhance their understanding of consumer behaviour. A number of companies already do this. What the companies are not allowed to do is to impose charges by reference to that meter without the householder’s agreement. The exception to this rule is in areas of serious water stress, for the reasons that I have mentioned. It is not the installation of meters, therefore, that is restricted; it is making people pay a metered charge without their consent in other areas. I hope that answers the noble Lord’s question.
The noble Lord also mentioned the complexity of the legislation in this area. We agree that the prescribed conditions regulations, which govern the restrictions around metering, are complex and hard to follow. I am glad to be able to confirm that under the Government’s Red Tape Challenge, we have a commitment to consolidate these regulations by April 2015.
Water companies can install meters wherever it makes sense to do so, but it is the householder who decides whether they wish to be charged by reference to it in the areas where that is permitted. There is flexibility to allow universal metering in the wider interest of water efficiency in areas of serious water stress. This is a careful balance. I hope that the noble Lord will be willing to withdraw his amendment, although I am sure he will do so with great reluctance.
Lord Oxburgh
My Lords, I thank the Government for their constructive response, and indeed for the clarification, which I think will be welcomed by many of the water undertakings that have expressed their concern about the present legislation and its lack of clarity. I would just comment that there is some concern, in so far as the noble Baroness referred to it, about the recent reclassification of areas of water stress. There is some disagreement that it is sufficiently forward looking. I am delighted to hear that the legislation is being looked at under the Red Tape Challenge. May we encourage the department in its efforts in that direction?
One disappointment is that, given the progress that has been made, the Government do not feel able to take the last step and say that there does not have be water stress if there is general agreement in an area that this would be the most cost-effective and generally acceptable way of charging. However, under the circumstances, I beg leave to withdraw the amendment.
Lord De Mauley
Viscount Hanworth (Lab)
My Lords, I support the amendment of my noble friend Lord Whitty. The privatisation of the UK water industry occurred as long ago as the late 1980s, and it was accomplished in a fashion and manner that paid scant attention to the need for an attentive regulation of the industry.
A provision for the public regulation of privatised industries was an integral part of the concept of privatisation but, in many cases, only lip service has been paid to this aspect. The light-touch regulation of the water industry has provided a case in point. It is arguable that, had there been a more active regulation of the industry, it would be in far better shape than it is at present. An active regulator might have prevented the firms of the industry from becoming the pawns in financial manipulations of foreign owners that have had the motive solely of private enrichment.
The firms have been used as tools in strategies of leveraged corporate acquisitions and takeovers that have borne no relation to the ostensible purposes of the industry. The investments in the water industry have fallen short of what they might have been if the profits had been ploughed back. Instead, they have been used to pay large dividends to the owners and to the shareholders.
Finally, it is questionable whether the majority of the firms in the water industry have any clear concept of their social responsibilities. A full provision of information is required to enable interested parties, including the Secretary of State, to assess the performance of the industry. Then steps could be taken to redress the abuses that have occurred in the past and that are liable to occur when there is insufficient regulation. That is what the amendment calls for.
I hope that the Government will be able to accept the amendment. There used to be the so-called “June review” which was assembled by the regulator, Ofwat, but it has since fallen into abeyance, as we have heard. The amendment would reinstate that review, but it would give it more force and it would ensure that it could not fall into abeyance in the future.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Whitty, for moving his amendment. We have heard about asking water companies for information, much if not all of which is already freely available in their annual reports and accounts. I have said before that the amendment would, to that extent, simply duplicate existing powers.
What we are really talking about is Ofwat’s ability to examine what companies are doing to ensure that they are not profiteering at the expense of their customers. Although I disagree with the amendment before us, I most certainly agree with the principle that water companies must be effectively regulated. I believe that the regulator is doing its job robustly.
The focus of the amendment is, in particular, on reopening a price review. In fact, Ofwat already has the power to reopen the price review in two ways. It can do this under the “substantial effects” clause of a water company’s licence or by making an interim determination. It is clear that Ofwat has the power to revisit price determinations, if it so wishes. In fact, in October last year, Ofwat consulted on whether or not it would be right to utilise this power with respect to Thames Water. However, given the fundamental importance of regulatory stability in the water sector, it rightly utilises these powers with caution. Ofwat considers carefully whether any intervention it might make would be in the overall interests of customers.
Of course, it must be right that Ofwat does this with the bigger picture of stable economic regulation firmly in mind. The objective of setting prices for a five-year cycle is to create a period of stability during which companies are able to invest and deliver the outcomes that they have agreed with the regulator. They have a period during which they are allowed to receive the benefits of that settlement and then, at the end of the period, prices are adjusted to capture those benefits for customers.
That is what is currently taking place through the price review process. Ofwat believes that by taking account of the current low cost of borrowing it will be able to limit price increases from 2015 to 2020 by between £4 and £25 a year. Accordingly, I am unable to see what purpose the proposed annual returns will fulfil. We should look to the future and look at what Ofwat is doing. Let us be clear about the direction of regulation in the water sector. Ofwat is already taking 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. Ofwat recently published new principles relating to board leadership, transparency and corporate governance. These set out clear standards for the sector and a clear timetable for their introduction. The response from the water companies has been positive and I welcome this. Ofwat is also consulting on principles for holding companies covering risk, transparency and long-term planning. It has made it clear that the companies’ licences may need to be brought up to date to reflect these reforms and it is already discussing this with the companies. Further reporting burdens will not contribute positively to this process. I hope that the noble Lord will agree to withdraw his amendment.
Lord Whitty
My Lords, I did not really expect the Government to fall over themselves to accept this amendment today. However, I am glad that I have raised the issue because I think that the Minister is right that Ofwat is now taking greater cognisance of the broader picture. The early years of Ofwat regulation were undoubtedly seriously light touch, even though it required an enormous amount of information from the companies. My aim here is not to duplicate the provision of information but to allow Ofwat to use that information and, if it was inadequate, to require more from the companies. The overall picture is very difficult to justify. The level of borrowing, the level of dividends and the level of taxation, taken as a whole, is very difficult to justify to the British people over a set of companies which is supposedly regulated tightly, and which plays such an important part in their lives. I therefore think that we need to find some mechanism which does not transgress the lines that the Minister set down about regulatory stability and Ofwat acting primarily in the interests of customers; I do not wish to upset either of those objectives.
However, there is an oddity about the structure of this industry that, at some point, some Government or regulator is going to tackle. I am very appreciative of Ofwat’s latest moves in the general direction of tightening up and looking after consumers better. The reason for me saying that is not that when we finish here I am going to the Ofwat reception over the road. I think that it is improving and broadening its role without imposing pernickety regulation. In fact, it is getting rid of some regulation in terms of provision of detailed information.
Ofwat is moving in the right direction, but it is a big problem. I would have hoped that the Government could have recognised it a little more explicitly, because I think it may come up at some point and bite whichever Government are in power when something goes seriously wrong with one of these companies. We have been close to that once or twice in the past 30 years, and I do not think that current Ofwat powers, and certainly past Ofwat practice, were up to dealing with that.
I thank the Minister for his reply. I will not return to this issue, but I suspect that somebody else will at some point in the next few years. I beg leave to withdraw the amendment.
Lord De Mauley
“( ) In subsection (1), for the words from “the following” to the end there is substituted “the powers and duties conferred or imposed on the Secretary of State or the Authority by virtue of any of the relevant provisions.””
Lord De Mauley
“Report on water abstraction reform
(1) The Secretary of State must prepare a report setting out progress made in reforming the arrangements for managing water abstraction in England.
(2) The Secretary of State must lay before Parliament a copy of the report.
(3) The report must be prepared and laid before the end of the period of five years beginning with the day on which this Act is passed.”
Lord De Mauley
“(12) If the statutory instrument contains any regulations which, on their own, would make the instrument subject to the affirmative resolution procedure, the instrument is subject to that procedure.”