(10 years, 6 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Mr Speaker
I must draw the attention of the House to the fact that financial privilege is involved in Lords amendment 142. If the House agrees to it, I will cause an appropriate entry to be made in the Journal.
Clause 10
Agreements by water undertakers to adopt infrastructure
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Dan Rogerson)
I beg to move, That this House agrees with Lords amendment 15.
Mr Speaker
With this it will be convenient to discuss Lords amendments 16 to 30, 32, 33, 43 to 64, 101 to 103, and 107 to 147.
Dan Rogerson
The Lords amendments relate to the subject of market reform, and in particular to retail exits. By that I mean allowing an incumbent water company to exit from the market for retail services to non-household customers.
Lords amendments 15 to 30, 43 to 48, 101 to 103 and 107 to 147 are minor technical or consequential amendments to the market reform provisions in the Bill—for example, changing wording from “a code” to “the code”. Some are minor and technical amendments relating to cross-border pipes. Lords amendments 32 and 33 ensure that the Consumer Council for Water is consulted on water company charges schemes. The Government are keen to ensure that customers are protected, and are grateful to Opposition Members for highlighting the important work done by the council on behalf of customers. We expect it to contribute to all discussions about the future of the industry, and we are pleased to have been able to enhance that in the Bill.
Lords amendments 49 to 52 would implement recommendations made by the Delegated Powers and Regulatory Reform Committee in another place. We are very grateful for the Committee’s scrutiny of the Bill. I do not propose to refer to the amendments in detail, but I shall be happy to respond to any specific queries.
Lords amendments 53 to 64 deal with the issue of retail exits, which we have discussed previously in the House. The Bill seeks to introduce a range of reforms that will enhance and extend competition in the water sector. The Government believe that the development of competition in the sector will bring real benefits to customers. They listened to, and acted on, well-argued contributions to the debate on market reform, especially the calls for incumbent water companies to be able to choose to exit from the non-household retail market.
I think it would be appropriate for me to expand on the retail exit amendments, as the House is not familiar with the clauses involved. The amendments differ in some crucial ways from amendments on the subject that Members have seen before. When drafting the amendments, we were particularly careful to ensure that customers were protected, both the non-household customers who will be transferred to a different retailer and the household customers who will remain with the incumbent. Non-Government amendments tabled by Members here and in another place have not reflected those safeguards fully.
The Lords amendments relating to retail exits contain three core principles. Exits must involve non-household customers only, they must be undertaken voluntarily, and they must ensure the ongoing protection of customers. Any exit will be possible only with the consent of the Secretary of State. Other amendments that the House has considered did not grapple with those key issues. These amendments create broad, permissive powers in what will be a very complex area. Further work will be required to consider the practical implications of exits, and to develop the detailed policies that will underpin the use of the powers. We will therefore be consulting widely with all interested parties as we develop our approach and produce exit regulations.
Angela Smith (Penistone and Stocksbridge) (Lab)
May I start by thanking the Minister for his kind comments?
As it is some time since the Bill was debated on the Floor of the House, I want briefly to refresh the memories of Members on it. It includes many important reforms that attempt to build on three important reviews taken forward by the previous Government: the Pitt review on flooding, the Walker review on affordability, and the Cave review on competition.
Throughout the Bill’s long passage through Parliament the Opposition have been supportive. In the Commons we voted for it on Second Reading and on Third Reading. In the other place, although we raised legitimate concerns and challenged the Government, again we remained broadly supportive of the Bill. We have backed measures to increase competition. We have supported measures that will provide a statutory basis for agreement on flood reinsurance, providing affordable insurance to households who would have otherwise not been covered. However, as my hon. Friend the Member for Garston and Halewood (Maria Eagle) pointed out on Third Reading, there still remains even now a major hole at the heart of the Bill, and at the heart of the Government’s water policy: the absence of any serious attempt to tackle the impact of rising water bills on household budgets, which is adding to the cost of living crisis.
Unfortunately, the Government have failed to back a new national affordability scheme that would have ended the current postcode lottery in which companies choose whether to offer a social tariff and set the criteria for eligibility. Last year the industry made £1.9 billion in pre-tax profits, of which they returned £1.8 billion to shareholders, yet fewer than 25,000 people are eligible to benefit from social tariffs offered by just three water companies. In many ways, therefore, the Bill represents a missed opportunity and remains seriously flawed, despite its being improved by amendments made in the other place.
Although we will not vote against any of the first group of amendments, that does not mean that we believe that the Bill could not have been made stronger and more effective through the adoption of our amendments. We are where we are, as they say. While, as the Minister pointed out, most amendments in the group present a series of technical and drafting changes, amendments 32 and 33, amendments 49 to 52 and amendments 53 to 64 make significant changes to the Bill that was debated in the Commons.
Amendments 32 and 33, which were originally introduced in Committee by Lord Grantchester, give a new role to the Consumer Council for Water. They will require Ofwat to issue rules that will mean that the CCW must be consulted by water and sewerage undertakers on all charges schemes. That will allow the CCW to play a role at an early stage in the charges process and will enable it to flag up problems, before the relevant bills start arriving on customers’ doorsteps and further problems occur. For example, as Lord Grantchester pointed out in Committee, the CCW had previously challenged the charging plans of some companies that restricted half-yearly payment options for those on direct debit payments. Some customers prefer to pay on a half-yearly basis, as it better enables them to manage their money.
Although we welcome the amendments, which we promoted in the other place, it is a pity that the Government have not gone further by accepting our argument that we need to tackle the impact of rising water bills on household budgets. As I said, the Government could have backed our plans for a new national affordability scheme that would have ended the current postcode lottery in which companies choose whether or not to offer a social tariff, with no minimum standards in place to ensure fair and effective affordability measures.
Amendments 49 and 50 introduce parliamentary scrutiny for any regulations that the Secretary of State may deem fit to introduce under clauses 37 and 39. The amendments, which were introduced at a very late stage—I think on Third Reading in the Lords—mean that the affirmative procedure will now apply on the first exercise of those powers. That is quite right, especially given the importance of the regulations in question. It is a pity, however, that the Government have been forced into this position and have had to be pushed into introducing the amendments by Labour Members and the Delegated Powers and Regulatory Reform Committee in the other place. That Committee made firm recommendations in this regard, and has rightly argued that the Secretary of State would have enjoyed so-called Henry VIII powers over many parts of the Act if the Bill had remained unamended, so Parliament is right to assert its right to scrutinise the relevant regulations as and when they see the light of day.
Amendments 53 to 64 deal with retail exit. I want to put it on the record that we have also backed measures in the Bill that increase competition to support businesses that wish to enter the retail market for non-domestic consumers. The measures are similar to those that have been a success north of the border; Scotland became the first country in the world to introduce competition to the non-domestic water market in 2008. We find it odd, however, that the Government have repeatedly dragged their feet in relation to allowing such businesses to exit this market. Without our persistence, which was shared by peers on the Government Benches, the Government’s original proposals would not create a market at all.
Retail exit enjoys a great deal of support, including from Ofwat, the Environment, Food and Rural Affairs Committee and some of the major water companies. Indeed, in Committee, amendments introduced by the Chair of the Select Committee, the hon. Member for Thirsk and Malton (Miss McIntosh), were not supported by the Government. In the other place, Lord Whitty commented that there was bemusement in all parts of the House as to why the Government were so resistant to the concept of exit in the new retail market, and introduced an amendment that would have allowed it. His arguments were not, however, supported by the Government, who gave the lame reason that such a measure would cause investor insecurity. On Report, Lord Moynihan introduced an amendment that would have gained our support, but he withdrew it on advice that the Government would introduce an amendment on Third Reading. Although we welcome the Government’s late conversion, we have to wonder why they resisted such a measure during most of the Bill’s progress through this House and the other place. Surely it would have been more appropriate if the amendments had been brought forward earlier, to allow adequate parliamentary scrutiny. Once again, however, we are where we are.
It is also right that, when and if regulations are brought forward by the Secretary of State, they will be laid before both Houses under the super-affirmative procedure. I pay tribute again to the work of the Delegated Powers and Regulatory Reform Committee in highlighting the need for that even at the 11th hour of the Bill’s passage through Parliament.
Miss Anne McIntosh (Thirsk and Malton) (Con)
First, I welcome the hon. Member for Penistone and Stocksbridge (Angela Smith) to her new position, and pay tribute to her predecessor, the hon. Member for Dunfermline and West Fife (Thomas Docherty). I understand that they have performed a job swap. The hon. Gentleman has made a big contribution to this debate and, in the past, to the work of the Environment, Food and Rural Affairs Committee. I can only apologise to both Front-Bench teams that there are not more colleagues from the Committee here today. The reason for that is that we are undertaking a farm visit this afternoon. I had to give my excuses and will be joining colleagues later for the completion of the visit today and tomorrow. It would be churlish of me not to congratulate my hon. Friend the Minister and welcome both the outbreak of common sense in the other place and in the Department and a very welcome and worthwhile amendment.
I shall briefly go over the deliberations in the Select Committee and the earlier proceedings in this place. In our report on the draft Water Bill, the Committee strongly recommended that the Bill should include provisions to enable incumbent companies to exit the retail market voluntarily. Indeed, as the hon. Member for Penistone and Stocksbridge mentioned, the Committee tabled a new clause in my name on Report to provide for retail exit. Also, during the course of the inquiry both regulators—Ofwat and the Water Industry Commission for Scotland—the incumbent companies and new entrants were united in calling for the Bill to include an exit route. WICS provided a welcome and helpful explanatory note, and I hope the amendment it proposed during the Commons stages of the Bill will bear fruit today.
Dan Rogerson
First, may I welcome you to the Chair, Ms Primarolo? I thank the hon. Member for Penistone and Stocksbridge (Angela Smith) and my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) for their contributions today, and the latter for the contribution she has made as Chair of the Select Committee, both throughout this process and long before any Bill was formally considered in both Houses.
The hon. Member for Penistone and Stocksbridge raised a number of issues and returned to the issue of affordability. The Government have made it clear that the best thing we can do on affordability is keep bills low for everybody by having a robust regulator and setting out to that regulator the policy framework to which we aspire in order for things to happen. The regulator has taken good action to explore with companies what they can do to keep bills lower; that is the trend we are seeing into the next price review period, with some companies bringing it forward into the current period as well, to the benefit of all consumers. Of course, this Government took action to deal with the acute situation in the south-west, where bills were much higher than everywhere else in the country. The hon. Lady rightly points out the contribution that social tariffs can make and the fact that three companies have introduced them. Other companies are bringing them forward in the next year or so, following consultation with their customer base. It is important that that consultation takes place, because introducing social tariffs involves a funding mechanism.
The Opposition have talked of a national scheme, but they did not introduce one when they were in government. We can continue to debate that, but my concerns with such a scheme, and those of the Government, are that the situation in each water company area is different. Therefore, one scheme mandated across the whole area will have different impacts on different customer groups across those water company areas and may have perverse impacts on the bills of some, given the different demographics and mix of bill payers. We are not convinced of that approach, but I welcome the Opposition’s support for social tariffs where they have been introduced.
The hon. Member for Penistone and Stocksbridge raised the issue of parliamentary scrutiny, as did the Chair of the Select Committee. We have listened to concerns and examined the use of the affirmative procedure where necessary. When we get into the realms of the super-affirmative procedure I bow to those with more experience of the range of options at the House’s disposal and how such a procedure might be used. We feel that the affirmative procedure is the correct one to take things forward, but we very much welcome the work done by the relevant Committee in another place to make suggestions on how to ensure that Members of both Houses, and those observing our deliberations externally, will have confidence that we have got things right.
I spoke earlier about the position on retail exits, but there are a couple of further things to say in response to the two speeches we have just heard. First, the Government’s position has never been that such exits should never happen and that we would never make proposals for them. We said at earlier stages that we had concerns, given the range of opinions held across the industry. Both regulators have supported such provisions throughout, whereas the Consumer Council for Water had a much more nuanced position. Some companies were very concerned about it, as were some investors, particularly with regard to pressure for the forced separation of companies. We know that investors would be concerned about that, and we want to see continuing investment in improving resilience, which is a key feature of where we are going with our programme. We are very concerned about the position of household customers, who will not have the options under this Bill that non-household customers have.
With that in mind, we have introduced amendments that take heed of arguments made by Opposition and Government Members, as well as people outside the House, and which put in place safeguards that make sure that all customers are protected throughout any process of change. There will be further consultation, as my hon. Friend the Member for Thirsk and Malton has said, which is crucial, and the question of forced separation, for example, can be addressed. On that basis, the amendments introduced by the Government allow us to move forward on the potential for retail exit in a measured way. That is the difference between the earlier debates on the Bill and where we are now. I thank the hon. Member for Penistone and Stocksbridge for her contribution, and I thank my hon. Friend the Member for Thirsk and Malton and the Committee for the work that they have done.
Miss McIntosh
I am most grateful for what my hon. Friend has said, but would he clarify the enhanced affirmative procedure?
Dan Rogerson
When the House considers options on the enhanced affirmative procedure there is a range of processes that can be used, but we believe that the affirmative procedure is the correct one with regard to most of the changes that we have discussed this afternoon. I thank hon. Members for their contributions to the discussion on this group of amendments. I hope that the House approves the amendments and that we can agree the changes made in another place.
Lords amendment 15 agreed to.
Lords amendments 16 to 30, 32, 33, 43 to 64, 101 to 103, 107 to 147 agreed to, with Commons financial privileges waived in respect of Lords amendment 142.
Clause 8
Bulk supply of water by water undertakers
Madam Deputy Speaker (Dawn Primarolo)
The Minister will move Lords amendment 1 formally. [Interruption.] I am sorry, Minister, I did not intend to cut you off. I meant to say that the Minister will move Lords amendment 1.
Dan Rogerson
I am grateful, Madam Deputy Speaker. I am delighted that the Chair has such confidence in what happened in another place that she does not need to hear anything further.
I beg to move, That this House agrees with Lords amendment 1.
Madam Deputy Speaker
With this it will be convenient to consider Lords amendments 2 to 14, 31, 34 to 42, 65, 66 and 104.
Dan Rogerson
As you have shown, Madam Deputy Speaker, there are many amendments in this group, so I shall try to make my explanation as brief as possible, as I sense that that will be popular.
This group of amendments was tabled in the other place to build on and strengthen further the existing environmental protections under the Bill and to provide reassurance regarding the timetable for abstraction reform and its relationship to the upstream reforms in the Bill. In particular, this group of amendments reinforces environmental protections under the bulk supply and private water storage regimes, improves the resilience duty and the strategic policy statement, and places a new duty on the Secretary of State to provide Parliament with a progress report on abstraction reform.
This group also contains a number of minor and technical amendments. As before, I will not dwell on them, but I am happy to consider any points that hon. Members wish to make. The Government welcome the scrutiny that the Bill has received, and we have listened carefully to all the speeches made in this House and another place. Protection of the environment is close to my heart, and it is important to the Government too. Indeed, one of the Bill’s main objectives is to increase the resilience of our water supplies to ensure a future in which water is always available to supply households and businesses without damaging the environment. I am therefore delighted to bring back a number of important amendments that will ensure the continued protection of the environment.
First, the Government have strengthened environmental protections under the bulk supply regime under clause 8. There are already several bulk supply agreements in the current system and there is a number of environmental protections in place. However, we have listened to the concerns raised on this issue during the passage of the Bill and have enhanced those protections accordingly. Ofwat can only order, vary or terminate a bulk supply agreement at the request of one of the parties, and after consulting the Environment Agency or Natural Resources Wales. Our amendments strengthen the consultation requirement by clarifying the fact that Ofwat can take environmental considerations into account before ordering, varying or terminating a bulk supply agreement. The amendments add a requirement for Ofwat to consult the Environment Agency and Natural Resources Wales before it issues the codes in this area.
Angela Smith
I thank the Minister for introducing the second group of amendments, which relate to some very important provisions in the Bill.
Lords amendments 1 to 14 are largely drafting amendments, but they include some important additions to the Bill. Lords amendments 1 to 3 detail the efficient use of water resources and take into account the effect on the environment of water use, with particular reference to what constitutes a bulk supply agreement with water undertakers, and the effect of such agreements on the environment. Lords amendments 1 to 14 and Lords amendment 31 give a greater role, as the Minister acknowledged, to the Environment Agency and Natural Resources Wales with regard to the effects on the environment of bulk supply agreements. We welcome the strengthening of the role of these two bodies to provide environmental expertise and to prevent bulk supply agreements from damaging the environment.
Amendments 34 to 42 relate to social and environmental safeguards more generally, and amendment 38 in particular requires that the Secretary of State and Welsh Ministers “must” have regard to social and environmental matters when compiling their statements to Ofwat, thereby strengthening the requirement in the Bill. The change from “may” to “must” have regard is a major concession by the Government. Given the importance of securing environmental safeguards at the heart of all aspects of water management, one can say only that it is surprising that the Government did not make that amendment of their own volition, rather than as a result of facing pressure from Members of both Houses on the point.
It is important to put on the record our deep disappointment that the Government have not gone further and recognised the need to make the Bill stronger and more effective by making sustainable development a primary duty for the regulator, as is the case with other regulators. We believe that resilience and the associated term that the Government use here—“the efficient use of water”—are not good enough. In the water White Paper, the Government said that they would carefully consider the case for that, and many environmental organisations are concerned that Ofwat does not have the necessary powers to prevent environmental damage and damaging water exploitation. That is particularly important in the light of greater competition, where companies will be looking to maximise efficiency however they can. Without a tough regulatory duty, that could come at the expense of the environment. My question to the Minister about the Government’s failure to grasp the opportunity presented by the Bill to strengthen regulation in this regard is this: why have they failed to respond to this vital issue in a robust manner and safeguard our environment?
On water abstraction, the Government’s White Paper, “Water for Life”, published in 2011, set out the case for a comprehensive reform of abstraction licences, suggesting that the current licensing system was outdated and in need of urgent reform to deal with increasing pressure on water resources—an issue with which we are all now familiar. Pressures develop because of population change and climate change. The Government tabled an amendment requiring the Secretary of State to publish a report on abstraction reform within five years. That is in the context, however, of the Government’s decision to allow the introduction of greater competition in the upstream market to take effect before reform of the abstraction regime.
We, along with leading environmental experts, are concerned that without comprehensive abstraction reform, upstream competition could incentivise existing abstraction licence holders to sell their water to water companies, even when the catchment is already over-abstracted or over-licensed. In response, the Government have said that the Environment Agency is adequately placed to review and/or change abstraction licences. We do not agree with that assessment.
In his response to their lordships’ amendments, Lord De Mauley said:
“The Environment Agency will soon use its powers to revoke or vary abstraction licences without compensation where they are causing serious damage to the environment.”—[Official Report, House of Lords, 4 February 2014; Vol. 752, c. 163.]
However, following budget cuts, the Environment Agency has cut 600 staff since 2010, so surely the Minister must concede that the Environment Agency will now have less capacity effectively to discharge its duties in that respect. What will be the priority for this smaller, rather emaciated, Environment Agency—flood defence schemes or attention to abstraction reform? Given its much reduced resource, is the Minister confident that the Environment Agency can manage all its duties effectively?
Under the new market conditions created by the upstream market reforms in the Bill, more water could be abstracted from water courses than is sustainable or suitable for local ecosystems. We support the amendment for upstream market reforms to allow new water undertakers into the market, but we still think it wise for the Government to deliver progress on abstraction reform, running concurrently.
We asked the Government to bring forward reformed abstraction licences on the same day as the upstream reform measures in the Water Bill come into effect, but they have unfortunately neglected to do so. Instead, under amendments 65 and 104, the Secretary of State is required to produce a report on progress made on water abstraction reform within five years of the Bill being passed, as the Minister indicated. We do not oppose that amendment because it is better than nothing, but it is unsatisfactory overall, because unsustainable water abstraction could continue for some time after the Bill has been passed—before DEFRA effectively addresses the issue.
In conclusion, why are the Government reluctant to commit to ensuring that the abstraction reforms run concurrently with the upstream marketing reforms? I look forward to hearing the Minister’s answer on that point.
Miss McIntosh
I shall make just a few comments. Over the last three years, events in Yorkshire have certainly shown the unpredictability of the weather, which can swing from a real flood to a virtual drought within a matter of weeks. The hon. Member for Brent North (Barry Gardiner), whom I see in his place on the Opposition Front Bench, and my hon. Friend the Minister sat in the Environment, Food and Rural Affairs Committee when we debated these issues—both at the pre-scrutiny stage and when the amendments to the Bill were tabled. It was a constant theme of the Select Committee to call for the implementation of abstraction reform—certainly by 2022. If I understand the Minister correctly, he is saying that this will happen within five years of the Act being passed, whereas we asked for it within seven years. It looks as if we are on course.
Personally, I would have made the case to include abstraction reform within the context of the Bill. I hope this does not come home to roost in the intervening five, six or seven-year period, but given the climatic changes and swings in weather patterns that we have seen, I hope we do not rue the day that we failed to include abstraction reform in the Bill. I understand that there was no appetite for it and that the Department felt, as I am sure the Minister will confirm, that doing so would have brought an inevitable delay to the Bill.
The reason abstraction reform should be included, and the reason I welcome this group of Lords amendments, is that the current system of managing abstraction of water from rivers and aquifers was introduced in the 1960s and is woefully out of date. It does not effectively address the severity of pressures on water resources due to increasing demands from a growing population and an increasingly varied climate. The Environment Agency has mentioned that in a number of areas, including my own, it cannot, for understandable reasons, afford the upkeep of existing flood defence banks. Farm land in those areas will be prone to future floods.
Water from rivers and aquifers has many uses, and there is a fine balance between industrial and non-industrial use. I visited the constituency of my hon. Friend the Member for Witham (Priti Patel), which I had the privilege of representing as an MEP for 10 years, to see the difficulties that many industrial users such as jam manufacturers and others experienced in a climate that they were not used to. Essex has on occasions been compared to Egypt in respect of the amount of water fall that it receives. The weakness in the current system means that it could start to constrain economic growth, reduce the resilience of the water supply and lead to environmental damage.
Dan Rogerson
Once again, I thank hon. Members for their contributions. It is fair to say that we have a great deal in common, although with slightly different emphases in aspects of debate both today and during previous outings. The crucial issues concern the interaction between what is in the Bill and what is not with regard to abstraction reform and the parallel process, so I take this opportunity to reassure the House that the Government are fully committed to abstraction reform, as our amendment tabled in the other place demonstrates.
Further illustrating that commitment, the Government’s consultation on our proposals for reform of the abstraction regime closed on 28 March. We are analysing the responses, a summary of which we will publish later this year. The proposals in our consultation document demonstrate how seriously we take abstraction reform, as well as the complexity of reforming such a long-established regime. As has been said, it is crucial that we get that right and give people an adequate chance to express their opinions and for those to be taken into account. Our proposals reflect how important abstraction reform is for people, as well as for the environment, and the fact that organisations and individuals throughout the country need access to water to run their businesses.
The Government want to see a real improvement in the quality of water bodies throughout the country, and that means that we must take action to reduce over-abstraction that damages the environment now, while continuing to protect the environment and ensuring access to water in the more challenging conditions that we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. The intention is for them to be entirely complementary, both in design and in implementation. Both are part of the Government’s wider agenda for securing the long-term resilience of our water supplies and the water environment, as set out in the water White Paper. The upstream reforms in the Bill are important because they will build resilience in the sector, bringing in new thinking and innovation to drive efficiency. Upstream reform will help to keep bills affordable and benefit the environment. We estimate that these reforms will bring benefits of up to £1.8 billion over 30 years.
As I have said, the report to Parliament on progress with abstraction reform will provide the opportunity to update Parliament on the preparations for the implementation of both abstraction reform and upstream reform, and how the two are being closely aligned. There is therefore no question about our commitment to abstraction reform, and no case for delaying implementation of our upstream reforms.
On the points made by the hon. Member for Penistone and Stocksbridge (Angela Smith), we are carrying on the process begun by the previous Government of looking at the reform issues, and we seek to demonstrate that this is an ongoing commitment. There is much support across the House for taking these matters forward, so we can have confidence that the two processes can be aligned.
We considered the sustainable development duty in depth. The Ofwat review recommended that that not be included because it was not necessary. I have sought throughout to make the point that we can integrate the desire for sustainability in the resilience duty, and that is what we did during the Bill’s passage through this place. That move was welcomed by the non-governmental organisations that originally called for the sustainable development duty. In another place we have further drawn out the emphasis on water efficiency. Water efficiency is important not just for environmental reasons—although they are crucial and we want to see the responsibility to improve environmental quality returned to water bodies—but to ensure that we have the water resources that we need to deliver the growth in the economy, allow businesses to grow and to prosper, and deal with the challenges that we face in the future.
Another issue that was raised was the capacity of the Environment Agency to use the powers that it has now and to take forward the regime without compensation. The hon. Member for Penistone and Stocksbridge rightly said that that capacity is now at its disposal. Indeed, the Environment Agency gave evidence to the Public Bill Committee and was quite clear that it has the resources to undertake such duties. It has been undertaking work to return water to the environment to bear down on unsustainable abstraction, and it will continue to do that. It is something on which it will remain focused. This is crucial in respect of our consideration of sustainable development in that, unlike other regulatory regimes, there are multiple regulators of the water sector. We have the Environment Agency, which has a great focus on that particular activity, Ofwat and the Drinking Water Inspectorate. The regime is slightly different from that in other utilities.
My hon. Friend the Chair of the Select Committee was right to make it clear that we need careful consideration of the abstraction reform process, and it is very much the Government’s position that we will provide the opportunity for such work. Were we simply to have put in the Bill some sort of broad enabling power, it arguably would not have had the consideration that it will get as primary legislation in a future Bill, and that is absolutely right in terms of taking forward that process. On that basis, I hope the House will support the amendments made in another place.
Lords amendment 1 agreed to.
Lords amendments 2 to 14, 31, 34 to 42, 65, 66 and 104 agreed to.
Clause 51
The Flood Reinsurance Scheme
Dan Rogerson
I beg to move, That this House agrees with Lords amendment 67.
Madam Deputy Speaker (Dawn Primarolo)
With this we may take Lords amendments 68 to 100, 105 and 106.
Dan Rogerson
This group of amendments is mainly to do with flood insurance measures, and includes the Government’s response to the recommendations on flood insurance from the Delegated Powers and Regulatory Reform Committee. It also includes a small number of minor changes.
Lords amendments 70, 75, 81 to 83 and 91 to 95 are in response to the Delegated Powers Committee’s recommendations on the flood insurance measures. The amendments include changing the scrutiny procedures so that the affirmative resolution procedure is used for all regulations—in certain cases on first use only—and placing some definitions in the Bill.
We agree with the Delegated Powers Committee that the definitions are important. However, it was not possible to include all of them in the Bill as they require further consultation and, in the case of “relevant insurer”, have separate meanings for Flood Re and for the flood insurance obligation—the alternative proposal. By defining those terms in regulations that will be subject to the affirmative procedure, Parliament will be able fully to scrutinise these definitions in due course.
The Delegated Powers Committee also recommended that the powers to make regulations to provide for the sharing of council tax data should be subject to the affirmative procedure. However, to meet the commitment to establish Flood Re in 2015, we need to release the council tax information as soon as possible after Royal Assent to ensure that IT systems can be put in place. Lords amendments 77 to 79 place that data-sharing power in the Bill. I hope that hon. Members will see that that is necessary owing to the challenging timetable to deliver Flood Re. Lords amendments 74, paragraph (ab) to amendment 93 and amendment 100 make consequential changes based on the new power. Although that power does not mandate the release of data, the Government are committed to doing so. They also give a power to add to the list of data releasable in the future. If we do that, the powers also allow for the application of a criminal sanction—for example, where the additional information is of a particularly sensitive nature warranting the protection of a criminal sanction for misuse. It is right that we have powers to protect the release of public information, but the sanction is not automatic and we will consider whether one is necessary following consultation.
Andrew Percy (Brigg and Goole) (Con)
I am intrigued by and interested in this amendment, not least because so many of my constituents—perhaps the majority of them—live in flood-risk areas. Will the Minister say a little bit more about what he envisages the Secretary of State will require to be provided to residents in terms of mitigating risk? This is an interesting idea, but my question is about the breadth of that information and whether it will include particular providers of certain solutions.
Dan Rogerson
The first thing that will be taken forward is information that a policy has been ceded to Flood Re. It is important that people should know that, as the scheme has a life span and the whole direction of policy is to protect more homes and to move to a post Flood Re period in due course. What exactly that information will take forward is a matter for discussion with the industry. When it comes to particular technologies or particular things that may help in certain circumstances, there are experts out there who offer that advice to policyholders. The Government’s current repair and renew scheme is in operation. There is also a body of work out there involving local authorities, which is giving people confidence in what might be done to support them. It is not our intention to be too specific as we consider this measure in the Bill.
I am sure that, like my hon. Friend, other Members will welcome this amendment, because it reflects our belief that it is important that policyholders whose buildings, contents or combined insurance policy are ceded to Flood Re know about their flood risk so that they can take simple steps to manage it. I am talking about signing up to free flood warnings as well as investigating other longer-term options.
To plan for the future, households also need to understand the likely impact of the transitional nature of the Flood Re scheme which is subsidising their premiums. Members should note that it is expected that standardised information will be sent to the customer by the relevant insurer that is ceding the policy to Flood Re, as that maintains the relationship between insurers and their customers.
Lords amendments 84 and 85 provide the power to define in regulations the meaning of “flood” and “flood risk” and are as a consequence of the amendment that I have just described.
Lords amendment 96 addresses the risk that secondary legislation made at the end of the life of Flood Re could be classed as hybrid. I can assure Members that, in any event, we have every intention of carrying out a full consultation before making that secondary legislation to ensure that any private interests are properly considered.
There are also a small number of technical changes made by the Lords amendments to the Bill. They cover the definition of the “eligibility threshold” and are intended to ensure the flood insurance measure is legally enforceable, as the risks relating to flooding are not calculated consistently across the various insurers.
On another matter, the Lords amendments to clauses 56 and 71 on the period of operation of Flood Re ensure that employment contracts within the scheme are transferrable.
Turning finally to the subject of sustainable drainage systems, we have also corrected an error to schedule 3 to the Flood and Water Management Act 2010 to ensure that unused bond funds, called in by a SUDS approving body, can be returned to the right person.
Angela Smith
As the Minister has explained, this group of amendments relate, to the provisions in the Bill on flood reinsurance. Again, we will support the amendments, which we believe have materialised primarily because of pressure from a wide range of Members in the other place and from the official Opposition. However, we believe that more could have been done.
In many ways, this is yet another example of a missed opportunity to produce effective and robust legislation. We support the Flood Re scheme and believe that it is important that affordable cover is made available for those who are struggling and are at greatest risk from future floods. It is also important that the policy should be underpinned by the principle of minimal impact on wider bill payers, so it is important that the levy agreed between the Government and the industry remains equivalent to about £10.50 for each UK household with both buildings and contents insurance in place.
We also welcome the fact that Flood Re is designed to be progressive, with the benefits targeted on lower income households, but we are disappointed that the Government could not support Labour’s amendment in the other place, which would have at least enabled parliamentarians to shine a light on the potential problems created by the arrangements for leasehold and tenanted properties. As Lord Whitty pointed out, there are complicated qualifying or excluding conditions surrounding the ownership and occupation rules under the scheme.
The rules could also have an impact on the private rented market, as there is a fear that single property landlords, for instance, might find that their exclusion from the scheme means that the cost of insurance eats away at their capacity to invest in their properties. As Lord Whitty pointed out, the consequence could be increasing levels of dilapidated housing stock with potential impacts at a neighbourhood level. The only option that might be open to the landlord to raise funds for improvements could be to raise rents or the service charge, so tenants might suffer indirectly as a consequence of being excluded from the Flood Re scheme. The risk is clear: the number of new landlords prepared to invest and buy property will diminish in the areas that are affected. Given the housing crisis facing the country, that is not a welcome prospect.
Although we recognise that the actuarial calculations for Flood Re are delicate and depend on various assumptions, we feel it is important that Parliament understand, the position. Labour’s amendment would address that by ensuring that a report was made available so that Parliament could see for itself the consequences of including or excluding different combinations of property before taking the Flood Re scheme forward via statutory instrument.
We also feel that the Government have failed to grasp the importance of using reliable scientific evidence on the potential impact of climate change when making estimates of the current and projected number of properties eligible for inclusion in the Flood Re scheme. That is perhaps not surprising, given that the Secretary of State has been known before now to deny the reality of climate change, but the threat, as most of us agree, is real and we need to be sure that the scheme will operate effectively within its 25-year span and will be adaptable to weather conditions resulting from climate change. If they are to adapt effectively, it is crucial that households can access information that identifies current and projected estimates of the number of people eligible for the scheme.
It is entirely sensible that we should seek the advice of the Committee on Climate Change to inform as accurately as possible our calculations on the challenges that the Flood Re scheme will face over time. Only then can households truly take the necessary action to minimise risk. The Government have tabled amendments providing information on transitioning from Flood Re to risk-reflective pricing, which Labour has been arguing for throughout the passage of the Bill.
Flood Re cannot operate on a static basis. It needs to respond to changing weather patterns, and we continue to believe that the Secretary of State should take advice from a credible expert source. Lord Krebs, chair of the adaptation sub-committee, has indicated that he would be willing to take on that role. However, our amendments, along with others on access to the national database and the right to appeal, were not accepted by the Government. We think that is short-sighted, but we support the amendments in this group and will continue to engage positively on this important issue.
Miss McIntosh
When we took evidence on the insurance aspects of the Bill during the Select Committee’s scrutiny stages, we were told that the package on Flood Re stood as a whole and that we could not consider any exceptions—not small businesses or leaseholders, or anything else, and certainly not band H. I hope that my hon. Friend the Minister will permit me a wry smile as I see that some of those exceptions have been included.
I hope that my hon. Friend will clarify the position on leaseholders. I—like many others, I am sure—have been contacted by constituents asking me to consider the implications for an owner who buys a leasehold property, as my constituents did in their block of flats. Apparently, the cost under Flood Re of the flood insurance alone will run to thousands of pounds, which they cannot afford and which they believe will affect their ability to resell those properties. I would be grateful for an explanation of where we are on that.
I understand that my noble Friend Lord de Mauley confirmed in the other place that domestic contents policies will be available to all under Flood Re, regardless of whether the properties are leasehold or freehold, rented or owned-occupied, except for properties in band H and those built since 1 January 2009. I have seen on many of my flood visits around the country that tenants on low incomes are often the first not to take out an insurance policy for their contents. The cost is therefore greater when they have to replace many of their possessions, some of which are of course priceless and cannot be replaced. Will domestic contents policies indeed be available to all?
Will my hon. Friend the Minister confirm the intention behind the exception for band H properties? It seems bizarre. We are going to exclude from Flood Re leaseholders who are perhaps on lower incomes and often in smaller, more affordable properties, but people in band H tend to be wealthier and in a better position to afford insurance. I want to understand the situation so I can explain to my constituents why these exceptions have been considered.
I know that the date of 1 January 2009 was taken as the benchmark, but did the Department ever look closely at why that was a good date to choose? With hindsight, should it perhaps have been 1 January 2012 or 1 January 2013, when we first began closely to scrutinise these issues through the proposals from the Department and the work of the Select Committee and others in this place?
It would also be helpful to understand the position for small businesses, particularly farms. If the farmhouse itself has been flooded, will that be covered in the provisions of Flood Re?
Andrew Percy
I intend to make only a short contribution. The Minister probably heard most of what I said in Committee, but if something is worth saying once, it is worth saying three times, so I will do so.
I begin, as I did in Committee, by welcoming Flood Re, which is important. I pay tribute to the Government for getting us here eventually. It is incredibly important for my constituents and those of my near neighbour, my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who is here for this important debate. I am grateful and delighted that we have a scheme up and running to ensure that insurance cover will continue.
I am still concerned about the scheme’s limitation to properties built before 2009—a point that is often made by my constituency near neighbour, the hon. Member for Kingston upon Hull North (Diana Johnson). Many people in my constituency and constituencies nearby who bought their properties in good faith post-2009 have struggled to obtain insurance. I am still concerned that major developments on flood plains are continuing, including the Lincolnshire Lakes project near the River Trent in my constituency, where the proposal is to provide up to 10,000 properties in a major flood risk area on the River Trent’s natural flood plain. I have called on the developers to put a hold on that until we know where we are with flood defence funding for the Humber catchment area, but unfortunately that has not enjoyed the support of local Labour councillors, who accused us of scaremongering in trying to prevent that building on a flood plain. That is a concern because I am worried that the properties will be built but will not be covered by Flood Re and that there will be a whole set of other problems.
When I was in my constituency on Friday, visiting Hook church, which was launching its new heritage boards, I was approached by a single-property leaseholder who is concerned about whether he will qualify for Flood Re. He is not a major investor, but an individual who is using the property as a pension pot. He has been rejected for flood insurance yet again because of the flooding in Goole two years ago, and he is worried that he will not come within Flood Re. I echo the words of my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) about the need for clarity.
I welcomed amendment 72 when I intervened on the Minister. Informing residents that they are indeed part of Flood Re and providing practical advice on their exact flood risk and how they can deal with it are important. The Minister mentioned the renewal and repair grant, which is an excellent proposal. Providing people with the means and advice on how to protect their properties is important, and funding is required. Whether or not there is funding, there is a big job to be undertaken to ensure that residents are properly informed about their flood risk and how they can protect their properties.
Many residents have it in mind that the only way to protect their property is through every-increasing defensive banks in our area, and that may be true, but it is not the answer to everything, particularly as my constituency is so low-lying. Much of it is below high-tide level, so it is impacted not only by tidal and river flooding, but by surface water flooding. Getting information to residents to ensure that they know how to protect their property is vital. I welcome amendment 72 and look forward to establishing in more depth what information will be provided on flood mitigation measures.
The Minister mentioned the renewal and repair grant. I hope that it is in order, Madam Deputy Speaker, to raise that while I am on my feet. Many of my constituents are trying to use the grant, but there seems to be confusion about whether they will be able to access it if the Environment Agency has come up with community improvement schemes. That is a particular issue for one of my communities because the Environment Agency, after pressure from many of us, has come forth with a scheme that will be in place next year to raise defensive banks at Reedness in North Yorkshire. It is not now clear whether those properties will be eligible for a renewal and repair grant. They will still be at risk of flooding and, in the spirit of amendment 72, which is about providing people with more information on how to protect their properties, it is important that they still have access to the grant. It is not their fault that their improvement scheme will come forward more quickly than other schemes. I hope, Madam Deputy Speaker, that I am in order by linking the matter to amendment 72. I can see from that near-thumbs up that I am straying, so I shall move on.
Right of appeal is another issue that I spoke about in Committee. We need a mechanism of appeal for residents who are judged to be outside Flood Re. We know from the debates in Committee and elsewhere that that will be a very small number of people, but they are an important group all the same. It is important to have a mechanism that allows people to understand why they have been drawn outside the scheme, and they should have a right of appeal. Like my hon. Friend the Member for Thirsk and Malton, I ask Ministers to consider this.
I do not want to say much more. [Interruption.] I hear some chuntering from Opposition Front Benchers—in support of my last comment, I hope. If the hon. Member for Penistone and Stocksbridge (Angela Smith) wants to intervene, I will gladly give way. No? Okay.
Andrew Percy
The hon. Lady tells me to sit down; that is a good way to work cross-party, if ever there was one. I will heed her advice, however.
I hope that the Minister will be able to respond to those few comments, particularly on leaseholders. This is an important issue for residents who have made small investments for their pension pots, or in lieu of a pension pot, and who may now be drawn outside the scheme. Other than that, I support the scheme and the amendments outlined by the Minister.
Dan Rogerson
I thank all hon. Members who have contributed to this debate, across a broad range of issues, and welcome their questions.
All three Members who spoke mentioned leaseholders. Let me put on record again the point alluded to by my hon. Friend the Member for Thirsk and Malton (Miss McIntosh). All contents policies would be eligible for Flood Re, whether leasehold, freehold, rented or owner-occupied, provided that the properties were built before 1 January 2009 and are in council tax bands A to G. Leasehold houses will also be within the scope of Flood Re in terms of buildings insurance, provided that the leaseholder lives in the property and purchased the buildings insurance in their own name. Flats will be eligible provided that there are no more than three flats in the building and that the freeholder, or one of those with a share of the freehold, lives in the building and takes out the cover.
Miss McIntosh
My hon. Friend says that the scheme applies if there are no more than three flats in the building. Where we lived—the current residents now have the problem—there could be 12, 16 or 20 properties. These are small properties that tend to be more affordable and occupied by those with a mortgage. Residents have put it to me that the increases are unaffordable already. Insurance companies are extracting those increases from them when they renew their insurance policies in an area that they know has already been flooded at ground-floor level because of the properties’ proximity to the river. I urge the Government to revisit this, because it is not acceptable. I do not want to pander to the Opposition’s argument about the standard cost of living, because that would be inappropriate, but I do believe that the Government should make the insurance affordable by reducing the cost. They should take out the below-three number because they have to reflect what working families are living in.
Dan Rogerson
We believe that a significant proportion of the leasehold sector will fall within the scope of Flood Re if the properties are at the highest levels of flood risk. I should emphasise, however, that we expect that most properties will not need to be in Flood Re and will find better prices through normal routes. We have been assured that there is no evidence of a systemic problem with freeholders being unable to obtain insurance for their leasehold properties. Specifically, feedback from members of the Association of British Insurers, representing over 60% of the market, including specialist commercial property insurers, showed no expectation of a widespread issue in an open market. As for the small businesses that are outside the scope of Flood Re, we and the ABI will monitor the market over time.
Miss McIntosh
Will my hon. Friend hark back to the evidence the Select Committee heard from the insurance industry during pre-legislative scrutiny? We were told categorically that, if there is a one-in-200-year event, the pot into which the subsidy will be paid, on which we all agree, will not be sufficient to pay out the resources, and it is generally accepted by the insurance industry that the Government will step in. Perhaps that is a different phrase from the one that my hon. Friend might use, but it means that the buck stops with the Government.
Dan Rogerson
We have been absolutely clear that, in such an event, the resources from the Flood Re pot would be significant and the Government would be involved in discussions about how that money would be used to help the people affected.
Although we have been focusing on Flood Re, my hon. Friend also asked about de-averaging. I want to use this opportunity to put on the record the fact that the Government’s charging principles on de-averaging are unambiguous. Ofwat must not allow de-averaging that is harmful to customers, particularly rural customers. Our charging guidance will follow soon. I am happy to commit, as I have before, to making it plain in that document that there must be strong, definitive boundaries for the scope of any de-averaging and that households in particular must be protected.
We should not, however, be over-simplistic. There is no doubt that there are areas where better cost reflectivity could have substantial benefits for the environment and the resilience of our water supplies. It must be right that the new upstream markets should reflect the environmental costs of supply and that there are economic incentives for business users that use large volumes of water.
My hon. Friend the Member for Brigg and Goole asked about the operation of current Government grant schemes. It might not be appropriate to go into that in detail now, but I would be happy to respond to correspondence from him on the specifics of how the scheme in his area is working.
I thank hon. Members for their contributions to our debates on the Bill today and at various other stages in this and another place. I hope that the House will agree with their lordships’ amendments.
Lords amendment 67 agreed to.
Lords amendments 68 to 100 and 105 and 106 agreed to.
Immigration Bill (Money) (No. 2)
Queen’s recommendation signified.
Resolved,
That, for the purposes of any Act resulting from the Immigration Bill, it is expedient to authorise the payment out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by a statutory body or recognised charitable organisation.—(James Brokenshire.)
Immigration Bill (Programme) (No. 2.)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Immigration Bill for the purpose of supplementing the Order of 22 October 2013 (Immigration Bill (Programme)):
Consideration of Lords Amendments
(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement at today’s sitting.
(2) The proceedings shall be taken in the order shown in the first column of the following Table.
(3) The proceedings shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table.
Lords Amendments | Time for conclusion of proceedings |
|---|---|
No. 18 | 90 minutes after the commencement of proceedings on consideration of Lords amendments |
Nos. 16, 24, 1 to 15, 17, 19 to 23 and 25 to 36 | Three hours after the commencement of those proceedings |
Subsequent stages
(4) Any further Message from the Lords may be considered forthwith without any Question being put.
(5) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement. —(James Brokenshire.)
Question agreed to.