Thames Tideway Project: Contingent Guarantees

Tuesday 14th October 2014 Lords Chamber

Question

14:37

Asked by

[Lord Berkeley]

To ask Her Majesty’s Government why they have indicated the availability of contingent guarantees in support of Thames Water; and whether this complies with their policies on offshore financial instruments, governance and taxation.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, to be clear, the Government are not providing a contingent guarantee to Thames Water. The Thames tideway tunnel project will be financed and delivered by a competitively tendered infrastructure provider which is an entirely separate entity to Thames Water. Details of a contingent government support package for this entity, which complies with all relevant government policies, were announced in a Written Ministerial Statement on 5 June.

[Lord Berkeley (Lab)]

My Lords, I am grateful to the Minister for that reply. Every week the Government tell us that they intend to outlaw aggressive taxation and leverage policies. The Minister says that Thames Water is not going to be in receipt of these funds but the Thames tideway tunnel project will be. Why are they allowing that to be financed in a tax haven while also promising it a government guarantee? Is there not a conflict of interest here somewhere?

[Lord De Mauley]

My Lords, I have comprehensively answered the noble Lord’s point about tax in earlier short debates on this subject. Perhaps we will come back to that later, but I will address his point about the appropriateness of offering a government support package. The contingencies covered by it are set out in the Written Ministerial Statement. It is common for Government to provide support of some kind to major infrastructure projects—for example, the PFI projects under the previous Government. The government support package here will cover low probability but high impact risks that the market could not take on at a reasonable cost to customers. The infrastructure provider will be incentivised not to call on it and it will exist only during the construction phase. The important thing to bear in mind is that the infrastructure provider will pay for the cover. Furthermore, the financing for the project is sought competitively to help minimise the cost—and that means the cost to customers.

[Baroness Parminter (LD)]

My Lords, given the Government’s work with Infrastructure UK, Thames Water and Ofwat to identify the exceptional risks for which the contingent financial support has been offered, what measures have the Government asked to be put in place to minimise the likelihood of those risks and the resulting cost to the taxpayer?

[Lord De Mauley]

My Lords, the latter half of my noble friend’s question is quite difficult to answer at this stage. The Written Ministerial Statement referred to the contingencies covered by the support package. There are, for example, measures to deal with situations where claims exceed insurance cover, where economic or political events affect access to debt finance, where there are exceptional cost overruns and where the IP goes into special administration. It allows for discontinuation in certain circumstances and deals with how value for money for taxpayers is to be achieved. I can assure noble Lords that we have kept this to an absolute minimum to ensure a competitive process.

[Lord West of Spithead (Lab)]

My Lords, will the Minister confirm that Thames Water has now put in place all the security measures that were required to ensure that water supplies cannot be easily contaminated or poisoned by terrorists?

[Lord De Mauley]

I cannot answer that specific question. I can say that it is Ofwat’s job to oversee exactly what each water company does, particularly Thames Water.

[Lord Brooke of Sutton Mandeville (Con)]

Pursuant to the question asked by the noble Lord, Lord West, is my noble friend aware that on the Thursday of the occupation of the Iranian embassy rather more than 30 years ago, the chairman of Thames Water was rung up by an anonymous caller on that morning and asked whether, if he received instructions to cut off the water to any of his customers, he would accept that order implicitly? The chairman replied, “If it was the Iranian embassy, yes; if it was any other customer of ours, no”. In my view, he demonstrated considerable knowledge of the international scene.

[Lord De Mauley]

I know that we are always grateful to my noble friend for his grasp of history. He was there. On the question asked by the noble Lord, Lord West, it is important enough that I will write to him.

[Lord Grantchester (Lab)]

My Lords, we have heard growing anxieties around certain facets of the water industry. Further to the specification and preparatory works notice regarding the Thames tideway tunnel recently published, will the Government look again at the value-for-money condition to provide better clarity concerning financial commitments for customers before agreeing contingent government support?

[Lord De Mauley]

My Lords, I agree 100% with the noble Lord that value for money for customers is absolutely key and is an absolute focus of the Government.