Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020
(4 years, 6 months ago)
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Lord Goldsmith of Richmond Park
That the draft Regulations laid before the House on 28 April be approved.
The Minister of State, Department for the Environment, Food and Rural Affairs, Foreign and Commonwealth Office and Department for International Development (Lord Goldsmith of Richmond Park) (Con) [V]
My Lords, the instrument before you is a simple amendment to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to remove their sunsetting provision. This would allow the 2013 regulations to continue in force and be available as part of the regulatory framework of the water industry. Without this SI, the 2013 regulations would expire on 27 June 2020. As such, before I talk a little further about the Government’s reasons for bringing forward this amending SI, I will outline the purpose of the 2013 regulations.
As noble Lords will know, water and sewerage services in England are provided by companies also known as undertakers. The 2013 regulations were designed to help contain and minimise the risks associated with large or complex water or sewerage infrastructure projects, therefore helping to protect undertakers, their customers and UK taxpayers. Containing and minimising risks is likely to reduce the overall cost of borrowing for a given water undertaker and so ensure better value for money for that undertaker’s customers. It also makes sure that delivery of such infrastructure projects will not adversely impact on the existing water or sewerage services provided by undertakers.
The 2013 regulations enable the Secretary of State or Ofwat to specify by notice an infrastructure project where either is satisfied that two conditions have been met: first, that the infrastructure project is of a size or complexity that threatens an undertaker’s ability to provide services to its customers; and secondly, that specifying the project would likely result in better value for money than if the project was not so specified, taking into account charges to customers and any government financial assistance.
Once specified, an undertaker is required to put the infrastructure project out to tender and a separate Ofwat-regulated infrastructure provider is then designated to finance and deliver the project. Such infrastructure projects raise many complex issues, particularly around determining the cost of their financing, coupled with a construction risk that is far greater than that normally associated with an undertaker’s typical capital investment. Requiring an undertaker to tender competitively for an infrastructure provider for a large or complex project provides an objective means of testing whether the financing costs of such a project are appropriate and reasonable. Without that tendering process, competitively determining the cost of capital for this type of infrastructure project would not be possible. The ability to create Ofwat-regulated infrastructure providers also helps to ringfence their associated higher risks and should result in more effective risk management for these projects. Creating designated infrastructure providers in this way ensures that a large or complex infrastructure project will not affect the ability of an undertaker to provide its day-to-day services for customers and avoids any resultant extra costs that would ultimately be borne by those customers.
The amending SI was laid in Parliament following a post-implementation review of the 2013 regulations carried out in 2018. Eight key stakeholders were consulted, five of which—Ofwat, Thames Water, Bazalgette Tunnel Ltd, Bazalgette Tunnel Ltd investors and the Consumer Council for Water—submitted responses. The review found that the 2013 regulations had successfully fulfilled their policy objectives. Accordingly, the review recommended that the 2013 regulations’ sunsetting provision be removed.
In March 2020 we undertook a further, targeted consultation on our proposal to remove the sunsetting provision. Views were sought from Ofwat, Water UK, Thames Water, Bazalgette Tunnel Ltd, the Environment Agency, the Drinking Water Inspectorate and the Consumer Council for Water. Water companies were consulted via Water UK, and Bazalgette Tunnel Ltd was given the option to consult its investors. Four written responses were received from Ofwat, the Environment Agency, Thames Water and Affinity Water. All indicated that they were in favour of the amendment.
Currently the only project regulated under the 2013 regulations is the Thames tideway tunnel. However, Ofwat has identified four large or complex water infrastructure projects currently in development that may benefit from being specified in accordance with the 2013 regulations over the next 10 years. These are the south-east strategic reservoir at Abingdon, a joint project proposed by Thames Water and Affinity Water; the London effluent reuse scheme, a project proposed by Thames Water; south Lincolnshire reservoir, a joint project proposed by Anglian Water and Affinity Water; and the River Severn to River Thames transfer, a joint project proposed by Thames Water, Severn Trent Water and United Utilities. A decision would be made on a case-by-case basis at an appropriate time when schemes are brought forward as to whether the infrastructure projects could come within scope of the 2013 regulations.
The Government are committed to improving water supply resilience, as set out in our strategic policy statement to Ofwat and our 25-year environment plan. This ambition is made more challenging because of a growing population, increased water demand from agriculture and industry, and climate change. We also want to ensure that there is sufficient water left for the natural environment. Without any action, many areas of England will face water shortages by 2050.
The starting point for action is to reduce water use by reducing leakage from the water distribution networks and reducing our personal consumption. However, even if leaks and personal consumption are reduced, we will continue to need new water resource infrastructure. In our Water Conservation Report, published in December 2018, we set out our progress to promote water conservation from 2015 onwards. We endorsed the industry’s existing commitment to a 50% reduction in leakage by 2050 and announced a consultation to enable us to set an ambitious target for personal water consumption. We consulted on measures to reduce personal water consumption, including supporting measures on amending building regulations, water efficiency labelling and smart metering. Most of these measures can be taken forward without the need for new primary legislation. We will publish a government position in late 2020. As I have said, alongside reducing leakage and reducing personal water consumption, new water resources infrastructure, including reservoirs and water transfers, is needed to provide a secure supply of water for future generations. In the current price review period, Ofwat has made £469 million available to nine water companies, to investigate and develop integrated strategic regional water resource solutions in order to be construction-ready by 2025. This work will be supported by the Environment Agency’s national framework for water resources, which was published in March 2020.
In summary, the instrument before noble Lords enables the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to continue in force so that they can continue to be used in the future delivery of large or complex water or sewerage infrastructure projects. Such projects play an essential role in strengthening the future resilience of water resources in England. Retaining the 2013 regulations will help to reduce the associated financial risks of such projects and ensure that water undertakers can continue to deliver their existing water or sewerage services to customers and provide greater value for money. I beg to move.
Lord Adonis (Lab)
My Lords, this is my first opportunity in the House to congratulate the Minister on his appointment and I do so very warmly. I welcome these regulations, but I will ask two questions and raise one wider concern about them. First, as the Minister said, the Thames tideway tunnel—which predates these regulations—is the model on which the new system is based. Will the Minister update the House on what is happening with the tunnel? The record of the structuring and letting of the contract for it was a success. It got a lower cost of capital because it was a self-contained project with the risks clearly enumerated, separating it from Thames Water.
My second question is about the Abingdon reservoir, to which the Minister referred. As noble Lords will be aware, this not only is the first reservoir that has been proposed in the last generation but has a long history of great controversy. In particular, when it was last proposed 20 years ago, Ofwat essentially—if I can mix my metaphors—pulled the plug on it by ruling that it did not meet its own planning requirements for water supply. All the work that had gone in to preparing the case for the reservoir therefore came to nought. What is Ofwat’s attitude to the new proposal for the Abingdon reservoir? Is it likely to go ahead?
Speaking as a former chairman of the National Infrastructure Commission, which did a lot of work on water resilience, I have one broader comment to make. The Minister did not refer to the commission’s 2018 report, Preparing for a Drier Future, which set out the background to these wider plans. It called on the Government to put in place additional supply and demand reduction measures, equivalent to at least 4,000 million litres a day, and to have plans in place by the end of 2019—last year—for at least 1,300 million litres a day provided through a national natural water network and additional supply infrastructure, as well as measures to halve leakages and progressing further with compulsory metering, to which the Minister referred. How far have the Government gone towards meeting the target of at least 1,300 million litres a day of additional supply being commissioned through a natural water network and additional supply infrastructure? If we have not yet got those proposals sufficiently in place, what measures will the Government take to meet that target, over and above the ones that the Minister has just announced?
Baroness Scott of Needham Market (LD) [V]
My Lords, it is a mark of the new arrangements that in recent weeks I have spoken in debates on food security, the charity sector and heritage and had between one and two minutes in which to do so. With the luxury of five, I will start with the usual courtesy of thanking the Minister for his comprehensive and useful introduction, and his officials for producing an extremely readable and useful set of accompanying documents.
Although narrow in its scope, this SI gives us a very useful chance to carry out some post-legislative scrutiny. I am not clear why a sunset clause was introduced in the first place. It might be because it was only ever envisaged for one project, but it would be useful to understand that better. I would rather know precisely what it was intended to do and what the risks are in removing it. The regulations as they stand have certainly done an extremely good job for the Thames tideway tunnel project. It will remain to be seen whether it is suitable for projects going forward. I am interested in the Minister’s thoughts about why this might not be a suitable framework for the four projects which he outlined, because it seems to have been successful.
It would also be helpful if he could give a bit more detail on the timetable for the proposed major new projects, as I did not quite hear what it was. In recent years, the emphasis seems to have been on improvements —particularly environmental improvements—to existing assets, and I welcome that. I am old enough to remember the 1970s, when the UK was known as “the dirty man of Europe”. UK standards have played a huge part in driving improvements in water quality across the piece. I am sure that all noble Lords would welcome an assurance that the UK will not, in any way, be slipping back once it is removed from EU standards.
Managing those assets, getting better value and using water more efficiently is an interesting challenge for the industry. Can the Minister say a little more about the limits? How much more water efficiency can we get out of existing infrastructure before we have to start thinking about new infrastructure, especially given the combination of climate change, increased population and differences in the way we lead our lives? It is good to hear that this model has worked so well for Tideway. It has suggested that the regulatory and contractual arrangements have given it a framework which has incentivised delivery on time and on budget—I would like to hear an update on that—as well as lower expected costs of capital.
The Consumer Council for Water has observed that customer handling in this project was not effectively done, because it was not sufficiently financed. Is that inherent in the regulatory structure or just an oversight that we can learn from and change next time? I look forward to the Minister’s reply.
Lord Moynihan (Con)
My Lords, I also welcome the Minister to this hybrid House, and I welcome these regulations. I had the good fortune to be one of the Ministers responsible for water privatisation in the Department of the Environment, working with my noble friend Lord Howard of Lympne, back in the late 1980s when the water authorities finally concluded their annual struggles to make forlorn cases in Whitehall for much-needed capital investment for large infrastructure projects. After privatisation, they moved into a world where they could access market-driven capital investment regimes. That long-term access to capital markets was critical to funding the much-needed investment programmes that have subsequently served the country well.
In answer to the noble Baroness, Lady Scott of Needham Market, I recall that, prior to privatisation, the annual battles in Whitehall were depressing times, as Ministers and officials from the Department of the Environment sought to make the case to the Treasury to fund water and sewerage treatment works in the face of competing cases being made to the Chancellor for better roads, hospitals and politically popular priorities. It was a very difficult task.
The 2013 regulations, which the Government are rightly seeking to extend through a release of the sunset clause, relate back to those days and the implementation of Part 2A of the Water Industry Act 1991 in relation to water and sewerage undertakers in England. Now, with the water industry in the private sector, it is right that the Secretary of State should seek and gain support from Parliament to continue the 2013 regulations, ensuring that infrastructure providers work within the proven framework that now exists. The delivery of large, complex projects under the current arrangements needs to work well, and it does. The infrastructure provider is well regulated by Ofwat to finance and deliver such contracts.
In the case of London, we have the first: we have the pioneering and far-sighted genius of Sir Joseph Bazalgette back in the 19th century to thank. His foresight enabled London, with a population confronted by reeking, unhealthy open sewers, to be transformed by a remarkable civil engineering project which projected scale into his design work on the diameter of the sewers. He worked on the basis of the densest population and what has best been described as,
“the most generous allowance of per capita sewage production”,
before coming up with the diameter of pipe needed. Apocryphally, and probably literally, he added:
“Well, we are only going to do this once and there is always the unforeseen”—
and he doubled the diameter to be used. His genius allowed London to cater for the subsequent increase in population density, with the introduction of office tower blocks, when with the original, smaller pipe diameter would have overflowed in the 1960s, rather than coping until the present day.
However, investment is now needed and has come in the form of the only project currently to meet the criteria of the 2013 regulations: the Thames tideway tunnel. My noble friend the Minister has made it clear that the regulations have created a parallel regulatory regime to help financially de-risk the Thames tideway tunnel project. This is a project of which Bazalgette would have been proud. It will capture, store and convey almost all the raw sewage and rainwater that currently overflow into the River Thames. The Thames and London will be the cleaner for it. Bazalgette Tunnel Limited, which carries his name, is the infrastructure provider. On completion, there will be a 16-mile long tunnel running mostly under the tidal section of the River Thames.
Does my noble friend the Minister know what effect the Covid-19 pandemic has had on the project’s timing and construction costs, which were nearly £5 billion? In recognising that this is the only project which is covered by the regulations, I congratulate Defra officials on delivering a framework which has kept the cost of procuring the tunnel as low as possible, with remarkably little evidence to date of the cost escalation so common in other infrastructure projects. In doing so, the department has also provided a dispute resolution framework and shown a sensitivity to community disturbance in a usually overcrowded city which to date has been commendable.
The Earl of Caithness (Con) [V]
My Lords, I, too, congratulate my noble friend Lord Goldsmith on his position and his promotion to the upper House. This is the first time I have been able to take part in a debate which he has been answering. Like my noble friend Lord Moynihan, I declare an interest as I, too, was heavily involved in water privatisation as Minister for Water back in the 1980s when it happened. I congratulate my noble friend on introducing this SI. He covered it very comprehensively, which will save a lot of questions. It is interesting to note that the post-implementation review was very clear that this statutory instrument should not have a sunset clause but should continue, so I am glad that my noble friend has not reinstituted a sunset clause for seven years’ time but has got rid of it altogether.
My noble friend talked about future projects. Before I come on to them, I want to ask about leaks. Does he really think that a 50% reduction in leaks by 2050 is good enough? My noble friend Lord Moynihan and I recall that leaks were a problem back in the 1980s; they are a problem now and it will be nearly 70 years before the water authorities get a grip on this problem. Is there nothing that can be done to speed up that part of their work?
I turn to future projects. My noble friend the Minister mentioned two reservoirs in particular. When I was a land agent, I was very involved in the Severn Trent water scheme in the Midlands close to Lichfield. I was struck then that more could have been done for nature, and I have thought about that a lot since, particularly with the recent focus on biodiversity, nature and the environment. Is there anything that Ofwat or my noble friend can do to ensure that when these reservoirs are built, if they are built, more account is taken of nature, with the schemes being adapted so there is more natural use of water and sewage disposal rather than using infrastructure? It would be much kinder for the environment and better for nature. There are great opportunities for un-straightening bits of river that were straightened some time ago, building water meadows and flood plains, and planting trees by riverbanks. If those things could be included in the schemes, even though the water authorities might not want them, it would be very beneficial for the environment and for the cost-benefit of the schemes.
The Earl of Erroll (CB) [V]
My Lords, there are various points I thought I would make, but other speakers have already made them much more competently that I would, so all I want to say is that I think the same way as the noble Baroness, Lady Scott of Needham Market, does about why there is no new sunset clause. I can see that the original regulations are probably so workable that I now understand that there is probably no need for one. My gut feeling is usually that if Parliament has decided that a sunset clause is needed, one should continue it.
I notice that a lot of the thoughts around the original regulations were about resilience and the need for conservation projects. It is essential to use water more efficiently. Smart metering keeps being mentioned. Looking at the experience of the electricity industry, I wonder whether smart meters have the desired effect. Meters do because you can see the overall consumption, particularly when bills hit people, but rather than spending an awful lot of money on technology, such as smart meters which are likely to go wrong or be outdated, we would do better to spend the money on upgrading our broadband provision so that you can hook anything into it.
The Thames tideway tunnel is a wonderful example of how to do things right, how to think ahead and how to carry forward the prescient thinking of Bazalgette all those years ago. I now entirely agree with these regulations.
Lord Blencathra (Con) [V]
My Lords, I, too, thank my noble friend the Minister for his detailed but concise and eloquent introduction to these regulations and congratulate him on his excellent promotion to this House, where he is advancing our green and biodiversity agenda, which is very important to all of us.
I am not opposed to this these regulations. However, I have a couple of queries. First, the post-implementation review states that the regulations
“were introduced to help the delivery of necessary, large or complex water or sewerage infrastructure projects within England. They were designed to help contain, minimise and isolate the risks associated with the delivery of these projects from customers, undertakers and UK taxpayers, while also providing value for money and keeping customer bills as low as possible.”
So far, so good, but only one project has been approved: the Thames tideway tunnel. My noble friend the Minister said that four others may be in the pipeline, but what is the timescale for them? If they happen, I strongly support my noble friend Lord Caithness, who urged that these reservoirs must do a great deal for nature.
The post-implementation review states:
“This legislation has facilitated one infrastructure project to date which is due for completion in 2023. As such evidence of outcomes remains limited.”
In the absence of real evidence, the Government asked stakeholders for their opinion. Is the that the right way to do it? Everyone agrees that this legislation should be changed, but should we be changing legislation based not on solid evidence but on the opinion of stakeholders?
My second point may be more controversial and I understand if my noble friend the Minister cannot or does not want to respond to it. Thames Water is now owned by a holding group called Kemble Water Holdings, consisting mainly of Macquarie bank and eight other private equity holders. They have done the usual private equity thing. They have loaded the business with £10 billion of debt so that they pay no UK corporation tax; have ripped off water payers by taking out £1.2 billion in dividends over the past few years; and have had to pay record fines for leakage. Okay, there is has a temporary freeze on dividend payouts at the moment, but that is no big deal considering the way they have plundered the business over the past 14 years. One justification in the PIR is that the Thames tideway tunnel has been able to borrow at very low interest rates, but any fool has been able to do that for the past few years. Despite the lower than expected costs, the users of Thames Water will still have to pay for this big sewerage pipeline. Does my noble friend the Minister think that that is fair considering the amount of profits Macquarie and others have taken out of the company?
My final point is this. If the first Bazalgette were starting out now, he would certainly separate sewage from rainwater run-off, but that is difficult to re-engineer entirely now, so the tideway tunnel is the solution. However, does my noble friend agree that all new buildings and car parks must not put rainwater into the sewerage system but use seepage systems instead? Does he agree that we need more permeable surfaces, underground soakaways, rain gardens, attenuation cells and all the other technologies that let rainwater soak into the soil rather than flood the sewerage system?
Lord Naseby (Con) [V]
My Lords, I too welcome the Minister to the Dispatch Box. In my judgment, this is a very important subject. I happened to sit on the Joint Committee on Statutory Instruments and I noticed, on reading the regulations and the material behind them, that it was thought that, while a vital instrument, there was no need for it to be looked at it in any detail by the Joint Committee, shared by the Commons and the Lords. I am a little surprised at that, considering the scale of what we have been talking about this afternoon, but I shall move on.
Secondly, the point was made that there may be instances of border challenges, specifically with Severn Trent in relation to Wales. I notice that the Minister did not say anything about the project involving the River Severn. I am not sure where it rises. Nevertheless, can we be reassured that, although it might not be seen by the water companies or Ofwat as important to consult our neighbours, there has been, and will always be, consultation with the devolved Parliaments?
Frankly, I am not in favour of removing sunset clauses. I had the privilege of sitting on the Public Accounts Committee for 12 years. It seems to me that when it comes to public expenditure, it is very important to have a point in time to review a situation. I am not suggesting that seven years is adequate for the scale of the infrastructure projects we have noted this afternoon. Nevertheless, I believe, and a number of my colleagues who have sat on the Public Accounts Committee would agree, that the normal time to review is quite often after 10 years. Maybe 12 years would be more appropriate —that is a matter of judgment. But I am very surprised that there is not a sunset clause and, while the tideway project is going brilliantly, there may be one that goes, or seems to go, badly wrong. A looming sunset clause is a wonderful means of focusing people’s attention.
I have two particular observations, one on reservoirs. I live in Bedfordshire, and I was a little involved in Grafham Water. My former constituency was Northampton, and I was particularly involved there with the Rutland reservoir. I am sorry to say to my colleagues who believe that the water companies do not appear to be taking nature seriously that I think the job done at Rutland was first class. Certainly, the only one I can comment on in detail is Rutland Water, and there is a huge amount being done there in relation to the impact on nature. I believe that is unjustified in relation to that project, and I support the new reservoir in Lincolnshire that is coming along.
Secondly, I question metering. I have had a water meter for years, simply because I believe it is a better way of controlling my expenditure, rather than having it done on the rateable value. Could the Minister bring noble Lords up to date on what percentage of households currently have a water meter?
Finally, for this Minister in particular, I am slightly surprised that there was no mention of the impact of climate change. All of us who are in the countryside at the moment have had incredible weather in May, and it looks as if it will return in June. We all expect climate change to have an impact, particularly on water consumption, so I am a little surprised that there has been no comment on that yet.
Nevertheless, I wish this renewal all speed, and hope very much that we might have a few answers on the questions raised, if not this afternoon then in writing afterwards.
Lord Mann (Non-Afl)
My Lords, I too welcome the noble Lord, Lord Goldsmith, to his position. Having been in another place for the last seven years, he cannot be held to account for anything that has gone wrong. But I am surprised that there appear to be no value for money reports on the one project that has come forward to demonstrate that these regulations have been successful. That appears rather lacking, or certainly not visible. I trust that there is one, and that it could be made more publicly available.
The consultation and debate around the 2013 regulations seem to concentrate an awful lot on the powers and the potential for Ofwat to refer disputes over price determinations to the Competition and Markets Authority. The Minister did not mention any such referrals—have there been any? That appeared a key facet of the argument for bringing in these regulations. My biggest concern is whether they are doing the job they are meant to be doing.
The Palace of Westminster is a good example of a building underneath which sits a sewerage system that is defunct, not fit for purpose and extraordinarily expensive to put right. One could take London, Manchester and many other big cities, particularly those that expanded rapidly in the Victorian era, underneath which we have sewerage systems not fit for purpose. Yet no proposals at all have come forward for projects impacting this critical issue. That is not a reason to reject the Minister’s proposals, but it seems to me that it is not succeeding in terms of those major projects. The finance is not coming forward, so a rethink about where it will come from is a top priority. Does the Minister not agree with me, that he should tease this out from officials, from industry and from wherever else he is capable of doing so?
Every time it floods, one sees how the seepage of the system implodes into devastation for communities. Old systems, built 100 or 150 years ago, were added to by new developments—major tower blocks and new estates—all over the country. These were tacked on because nobody at any level, not least in local government, was at all concerned about what was underground and could not be seen—until it flooded and until the sewage, rainwater and surface water combined, causing devastating damage. This has to be a top priority.
These regulations relate to major projects—for example, in Manchester and London, where underground work will be extensive—and to more modest projects in towns or villages, where expansion has taken place. In some places, the underground sewerage systems are not fit for purpose but more consumers have been tapped into them, often willy-nilly. I hope that, in responding, the Minister can say a word about his wider vision of his remit, perhaps going beyond this measure. On that basis, I have no objection to his proposal.
The Deputy Speaker (Lord Alderdice) (LD)
I call the next speaker on the list, the noble Baroness, Lady McIntosh of Pickering. There is a problem with the noble Baroness unmuting her microphone. I am afraid that we are not hearing her, so we will have to move on to the next speaker on the list. I call the noble Baroness, Lady Altmann. We cannot hear her either, so I call the next speaker, the noble Baroness, Lady Bakewell. We are unable to hear her either.
Baroness Bakewell of Hardington Mandeville (LD) [V]
I am here. Can noble Lords hear me?
Baroness Bakewell of Hardington Mandeville [V]
Thank you. My Lords, I too am grateful to the Minister for his extensive introduction to this statutory instrument. It is a great pity that we have not been able to hear from the noble Baronesses, Lady McIntosh and Lady Altmann.
I feel certain that in 2013, when this instrument was first introduced and approved, it was envisaged that all relevant infrastructure projects would have been completed by the time we reached the sunset clause date. However, as we all know, an awful lot has gone on in the intervening years and infrastructure projects are not the fastest to be delivered.
Like my noble friend Lady Scott of Needham Market and the noble Earl, Lord Erroll, I would like to know why the sunset clause was introduced in the first place. As the Minister said, the SI introduced in 2013 was due to expire after seven years, on 27 June this year, with a five-year review period. It was to operate across the English/Welsh border, with customers in Wales being provided for by an English undertaker. I accept entirely that the devolved Administrations are able to deal with their own water infrastructure projects, but that was not always the case. There are large reservoirs in Wales—Lake Vyrnwy for one—which provide water to English authorities, and I know that Birmingham is grateful to Wales for providing its water.
In 2013, large and complex water projects were overseen by Ofwat, and that will be the case be in the future. I note that in future there will be no sunset clause, and I ask the Minister whether that is wise. As others have said, during the period since 2013, only one large and complex high-risk water or sewerage infrastructure project has been delivered—the Thames Tideway Tunnel project, referred to by the noble Lord, Lord Adonis—and this has not been without its problems.
As the Minister stated, during the five-year review in 2018, eight stakeholders were consulted and five responded: Ofwat, Thames Water, Bazalgette Tunnel Limited, BTL investors and the Consumer Council for Water. As a result of their positive responses, Defra decided to extend the 2013 regulations. The five-year review found that the legislation was effective and should continue. The protection of the capital investment of the undertakers has been seen to be effective and has reduced risk and costs, as mentioned by the noble Lord, Lord Moynihan.
The March 2020 consultation again included Ofwat, Thomas Water, BTL and the Consumer Council for Water, and, in addition, Water UK, the Environment Agency and the Drinking Water Inspectorate, plus sewerage and water companies informed via Water UK. This time, four responded: Ofwat, the Environment Agency, Thames Water and Affinity Water.
Future decisions will be made on a case-by-case basis. I am grateful to the Minister for listing the locations of the four major schemes likely to be considered in the coming years under this SI. That is extremely helpful, but it would also be helpful to know the timeframe for each scheme. Is he able to give us that information?
Water conservation is extremely important and reducing leakages is key to it. Like the noble Earl, Lord Caithness, I am not sure that a 50% target for leakages is sufficiently ambitious. Likewise, I am unclear whether water meters help to save water. I am not convinced that the one I have does that for me. I agree with the noble Lord, Lord Blencathra, that in future schemes rainwater run-off should be separated from sewerage and that better use should be made of this valuable resource. Avoiding some of the unpleasant aspects of the horrendous flooding that many areas have experienced is absolutely key.
Given that the last five-year review took place in 2018, when will the next review be? Will it be in 2023 or will it be five years from today’s date? Given that the SI consists of two lines, I congratulate the Minister and all speakers on their comments in this debate—I have been impressed by the level of detail. I am happy to support the removal of the sunset clause and to support this SI. I look forward to the Minister’s comments.
Baroness Jones of Whitchurch (Lab) [V]
My Lords, I thank the Minister for his introduction to these amended regulations, and I thank all noble Lords who have spoken.
As the Minister said, this is a fairly straightforward change, removing the sunset clause from the original regulations agreed in 2013. We should welcome the approach taken back then, as it seems a model of good government, and the inclusion of the sunset clause has given us the opportunity to debate the issues today. At the time, it was an innovative approach to funding large infrastructure projects. It provided for a timely review and an end date, which would force us to consider whether the approach was working. That is exactly what we are doing today, and we should not take this responsibility lightly. I agree with noble Lords who queried whether a further sunset clause might be appropriate. I shall be interested to hear the answer to the question from the noble Baroness, Lady Bakewell, about whether there will be further reviews. We do not want the response to this to be open-ended when the sunset clause comes to an end.
Clearly, the fact that other funding options were considered at the time is an indication that the Government saw this as an experimental approach which might not be successful. However, the one model that we have before us today—the Thames Tideway Tunnel project—seems to have made a success of the powers enabled by the regulations. As noble Lords have said, this is a huge and impressive engineering project. It has generated thousands of jobs and is bringing significant environmental benefits by protecting the Thames from sewage overflows. Like many noble Lords, I have had a chance to visit the construction site along the Thames and have been hugely impressed by it. I am very pleased to report that it appears to be on target for completion by 2024 and largely on budget.
In this case, the creation of an infrastructure provider separate from Thames Water, which was allocated to Bazalgette Tunnel Ltd after a competitive process, seems to have worked well. Of course, there continue to be risks with both the funding and timescale. Can the Minister explain what continued monitoring and regulation of the project will be in place to ensure that customers will be protected from footing the bill if the private funding falls short in future? He will be all too aware that the privatised water industry does not have a good record of putting customers’ interests first. Recently, we have seen customers left without water for days and trillions of litres of water lost through leakages, while those at the very top have been rewarding themselves with huge bonuses. It remains important that we have robust oversight of multi-million-pound projects such as this.
In addition, the post-implementation review, which took place in 2018, mainly received responses from stakeholders with a financial interest in the project. Not surprisingly, they said that everything was going really well. However, as noble Lords have pointed out, the Consumer Council for Water’s response was more circumspect. It said that the arrangements for
“the handling of customer complaints and queries presented greater challenges … a significant amount of proactive communications was required to educate and inform customers … This activity … was not originally accurately priced”.
Meanwhile, Ofwat reported that the “initial delivery” of the regulatory
“framework was significantly more complex and time consuming than originally anticipated”.
What steps have now been put in place to ensure that these concerns are addressed and not replicated in future projects that would operate under these regulations?
Finally, the removal of the sunset clause opens the door to other complex water infrastructure projects to be funded via this route. So far, it has applied only to Thames tideway, but the Explanatory Notes make reference to a number of new high-risk infrastructure projects that might benefit from these regulations in future. I am grateful to the Minister for his outlining the four projects being considered under that reference. How will the Government ensure that this funding model is appropriate for each of those four new projects? How will they ensure that lessons are learned from the Thames tideway experience so that a more responsive and accountable system of oversight and delivery is applied in future?
I look forward to the Minister’s response to my noble friend Lord Adonis’s question on whether a future national natural water network is being considered. That certainly seems a hugely sensible option for a country that suffers both flooding and drought. I also agree very much with the point made by the noble Lord, Lord Blencathra, about separating rainwater from sewerage. Again, I would be grateful if the Minister could address that point. Other than that, I welcome the proposals and look forward to his response.
The Deputy Speaker
Unfortunately, the noble Baroness, Lady McIntosh of Pickering, ran into a technical problem earlier. I think that we have time so I would like to see whether we can bring her in now.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I am most grateful. I welcome the regulations and congratulate my noble friend the Minister both on introducing them and on the wide and full consultation on their implementation.
I will focus my brief remarks on my noble friend’s references to new reservoirs and water transfer. In particular, I draw his attention to the work and investment of Yorkshire Water. It set up and invested heavily in a regional grid, enabling water to be transferred into one of the largest areas of water supply, and from areas of plenty to areas that are under more stress. Perhaps that could be rolled out across regions in future. I also draw his attention to the Slowing the Flow at Pickering project, which includes not just a reservoir but other soft natural water defences and which could also be used as a pilot scheme elsewhere.
I was particularly taken by my noble friend’s remarks referring to building regulations and labelling, which do not require primary legislation. I firmly support him in that regard—that is, being able to roll out more, with a particular ability to make houses more resilient to floods, encourage more water metering and reduce leakage.
I also draw my noble friend’s attention to the Government’s current review. The current Defra and Environment Agency guidance refers to reservoir owner and operator requirements, which were updated on 15 April this year. It states:
“You must meet certain requirements if you own or operate a reservoir, or intend to build one.”
Currently, there are different requirements for large reservoirs above ground level of more than 25,000 cubic metres and those holding less. Further, in a letter from Parliamentary Under-Secretary Rebecca Pow in response to a colleague on 1 May, the Government asked the expert Professor Balmforth to lead a second-stage review with a wider assessment of reservoirs, including their safety legislation and its implementation. This begs the question—I hope that my noble friend will be able to answer it this afternoon as I gave him prior notice of it—of how water storage will be regulated under the environmental land management scheme, which pays and rewards farmers and landowners for possibly storing water on their land. Currently, the Flood and Water Management Act 2010 allows for this monitoring and control to be reduced to reservoirs of 10,000 cubic metres or more. I urge my noble friend not to implement that part of the Act for the moment to ensure that more small-scale reservoirs can be built—that is, reservoirs not on the scale of the Thames tideway tunnel before the House today but smaller-scale ones that will prevent downstream communities flooding.
I, for one, welcome the fact that the sunset clause is being removed in the instrument before us. I wish my noble friend’s Motion speedy passage.
Lord Goldsmith of Richmond Park [V]
I thank noble Lords for their points. They made a lot of them; I will try my hardest to answer all the key questions. I apologise in advance if I am not able to do so.
The noble Lord, Lord Adonis, made a number of points. He asked for an update on the Thames tideway tunnel. It is on track. It is currently in construction and will be operational in 2023, and the project as a whole is due for completion in 2024. He also asked about a number of other issues, which were echoed by other noble Lords, including the impact of Covid-19 on the tunnel. I am afraid that the only answer I can provide at the moment is that we are still assessing any possible impact; I cannot go further at this point.
The noble Lord asked about the reservoir at Abingdon. The Government recognise the need for more water resources in the south-east, but at this stage we are not able and it would not be appropriate for us to support a specific recommendation. We are waiting for further evidence on the most appropriate and best solution to be drawn together by Thames Water, Affinity Water and the wider water resources in the south-east group. We will come to that shortly.
The noble Lord also asked why reference was not made to the National Infrastructure Commission’s 2018 report, Preparing for a Drier Future. I apologise if I did not mention it. The report outlined clearly the need for new water supply infrastructure. It estimates that a combination of changing rainfall patterns, brought about by climate change, and an increased population—while leaving enough water to protect and sustain the environment—will require an additional 4,000 megalitres a day for longer-term drought resilience. It says that, without action, many parts of England will face water shortages by 2050, especially in the drier south and east. We as a Government are committed to a dual approach of reducing demand and increasing supply. However, even if we are successful in reducing demand significantly, some new infrastructure will still be needed.
The noble Baroness, Lady Scott, asked why the sunset clause was introduced, and the same question was asked by my noble friend Lord Naseby. The answer is simply that it coincided with a moment of government where there was a renewed effort to cut unnecessary regulations and try to prevent the pile-up of future unnecessary regulations. A number of sunset clauses was used at the time for that reason.
The noble Baroness also asked what happens to water quality standards once EU legislation no longer applies. We are committed to future environmental standards that either equal or improve on those of the EU. The European Union (Withdrawal) Act 2018 ensures that the body of existing EU law, including the water framework directive regulations, continue to take effect in English law after the transition period.
A number of noble Lords put questions to me about timescales. The evidence in the case of the four projects that I mentioned in my introductory remarks is still being worked up by the water companies in the RAPID framework established by Ofwat and decisions on details will be taken over the next few years, so I am not in a position to set out a complete timetable. However, further details can be found in water companies’ water resource management plans.
The noble Earl, Lord Erroll, raised the issue of smart metering, which was also raised by the noble Baroness, Lady Bakewell of Hardington Mandeville. Smart metering has the advantage of being able to detect leaks, which is hugely important, as a number of noble Lords said. It also has the advantages of energy reduction, demand forecasting, enhanced awareness campaigns, the promotion of efficient appliances and performance indicators. Thames Water announced last week that smart metering helped to achieve a 15% reduction in leaks last year.
My noble friend Lord Caithness also raised the issue of leaks, as did a number of other noble Lords. The Government are completely committed to reducing demand for water; we know that we have to do that. We have challenged the water companies to halve leaks from distribution systems by 2015. He asked whether that is ambitious enough, and I can only say that I hope we will be able to go much further.
There is no doubt that we need to use less water, in addition to dealing with leaks. We undertook a consultation on measures to reduce personal water consumption, including measures such as amended building regulations, water efficiency labelling and metering. As part of the latest price review, PR19, Ofwat is incentivising all water companies to help customers to reduce their personal consumption.
A number of noble Lords raised the issue of nature-based solutions to the problems that we are discussing. That is high up in the Government’s and my own agenda. We already expect water companies to consider them when evaluating a range of solutions to meet their water resource needs. Nature-based solutions can be enormously effective in reducing run-off and increasing infiltration. They can slow the flow of surface water in the wet season and help to prevent flooding, and can help to reduce the impacts of flooding. They can also improve the ability of land to hold on to water for use during the drier seasons. That is why the Government are keen to support tree planting along watercourses where appropriate. Tree planting helps to regulate water flow and reduce flood risk as well as stabilising river banks and reducing pollutants that might otherwise drain into watercourses. This is a big part of the Government’s flood strategy, and noble Lords will be hearing more about that as the Government publish it in due course.
My noble friend Lord Blencathra raised a number of issues. He asked whether, given that only one project has been ascribed to this regulation, that means the evidence is limited. He is of course right: on the basis of one project, the evidence is limited. However, we sought the views of those already operating under the regulations, including the regulator, who are best placed to advise whether, and the extent to which, the 2013 regulations have achieved their aims. The view across the board was that there are many tangible benefits, including contributing to lower water bills for customers.
My noble friend claimed that Thames Water is now owned by a holding group called Kemble Water Holdings, consisting of mainly Macquarie Bank and eight other private equity holders. I want to put on the record that Macquarie sold its stake in 2017. The largest shareholder owner now is OMERS, a pension fund for local government employees in Canada.
My noble friend also raised the hugely important point about building regulations, particularly around new buildings and car parks, and the issue of rainwater rushing off into sewerage systems. I strongly agree with him about the importance of sustainable drainage systems; as well as reducing the risk of surface water flooding, such systems can deliver water quality, biodiversity and amenity benefits. So we have plenty of benefits from such a scheme, and planning policy makes sure that they are provided in all new major developments unless there is very clear evidence that that would be inappropriate.
I am conscious that I may run out of time so I shall try to speed up a bit—apologies. My noble friend Lord Naseby referred to the devolved Administrations. Water is a devolved matter and these regulations will not change that. It is possible that some of the water projects that I have described and which will be specified under these regulations might impact on Wales, but we are told that any impact is likely to be very limited and obviously the Welsh Government will be consulted as appropriate. There is a very good relationship between the UK and Welsh Governments on this issue, and that is underpinned by a memorandum of understanding between Ministers.
Briefly, in response to the noble Lord, Lord Mann, the Thames Tideway Tunnel has not been referred to the CMA. However, in the current price review four companies have appealed to the CMA, showing Ofwat’s push to ensure value for money.
My noble friend Lady McIntosh raised a number of issues. The first related to rewarding farmers for public good. That is the very heart and essence of the Government’s environmental land management scheme, which will replace the common agricultural policy. It will specifically pay farmers, foresters and other land managers public money for providing public goods through the management of land and water.
A number of other issues were raised. The noble Baroness, Lady Jones of Whitchurch, referred to privatisation. The Government’s view, although no doubt she and I will disagree, continues to be that we believe that the privatisation model, so long as it is underpinned by strong independent economic regulation, provides multiple benefits. Today privatisation has unlocked around £150 billion of investment, the equivalent to around £5 billion annually—investment that is almost double the pre-privatisation level. Privatisation has delivered a range of benefits to customers and the environment, including the fact that the UK now has world-class drinking water and consumers are five times less likely to suffer from interruptions to their supply, eight times less likely to suffer from sewer flooding and 100 times less likely to have low pressure. Two-thirds of our beaches are classed as excellent compared to just one-third pre-privatisation. Customer satisfaction levels have risen to around 90%.
There is of course much more to be done, of course, and this Government remain absolutely committed to doing so. I apologise to noble Lords if I have not answered all their questions but I will do so in follow-up letters as appropriate.