Lord Sikka
To ask His Majesty’s Government what assessment they have made of water companies’ plans to increase customer bills to fund investment.
The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)
My Lords, it is Ofwat, the independent regulator, and not the Government that assesses water companies’ business plans and sets the overall price cap that each company may recover from its customers. As part of that process, Ofwat balances the interests of consumers with the ability of companies to fund their services. Companies are preparing their plans for 2025 to 2030, which will be submitted to Ofwat in October 2023. Ofwat will make final decisions on investment and bills by December 2024.
Lord Sikka (Lab)
My Lords, the Minister sidestepped the issues here, so let me lay down some facts for him. Since the water companies were privatised, water bills have soared by 40% in real terms, investment has declined by 17% and £72 billion has been paid in dividends, with another £15 billion possibly by the end this decade. Now, the companies are saying that they will make investment if they can increase water bills by another £100. I hope that the Minister will exercise his considerable powers of persuasion on the water industry and insist that shareholders fund the investment and not customers, who have already been fleeced for the last 34 years.
Lord Benyon (Con)
I fear the noble Lord and I are working off different facts. Capital investment by water companies is 84% higher than it was before the sector was privatised. I have seen independently assessed evidence that water bills would have been higher if we had not privatised the industry. Some £190 billion has been spent by water companies, paid for out of customers’ bills, for investment in water. My noble friend Lady Vere said earlier that nationalisation was a soundbite, not a solution. I could not agree more.
Lord Kirkhope of Harrogate (Con)
My Lords, I refer to my interests in the register. I want to ask my noble a bit more about Ofwat. The Government are getting criticised a lot in relation to water bills, but am I not right in saying that the regulator, looking at this matter in an independent fashion, has got pretty well the final say on who has to find the money for the developments that we are talking about?
Lord Benyon (Con)
My noble friend is right to a point. The Government give direction to Ofwat and have given it very clear direction in terms of resolving issues in relation to sewage overflows into rivers. We have a system where, like all utilities, it is extremely attractive, not least to pension companies—which are the recipients of dividend payments—that invest in our water industry. Having that balance between making sure we are being fair to bill payers, and how much they pay, and getting that investment is absolutely crucial. That is why we work regularly with Ofwat to achieve it.
The Duke of Wellington (CB)
My Lords, none of us underestimates the complexity and magnitude of this problem. We have had years of underinvestment in our sewage disposal and treatment systems. Such is the size of the problem today that I think we must all accept that the strain will have to be taken by a combination of higher bills for the consumer, shareholders receiving smaller dividends and—I know that it is difficult for politicians to even contemplate—general taxation, with the Treasury sharing part of this burden.
Lord Benyon (Con)
I thank the noble Duke for his continued interest in this issue. Undoubtedly, we could resolve the situation by spending somewhere between £120 billion and £600 billion separating clean water from dirty water, retrofitting an entirely new sewerage system and creating additional storage equivalent to 40,000 Olympic swimming pools, but that would add between £271 and £817 per annum to bills. It is important that we are honest with customers—with the people who get water into, and have sewage taken out of, their homes every day—that this comes at a price. Some of the promises being made that this is a simple solution are entirely fallacious. We have to be honest with the people who pay these bills.
Baroness Jones of Moulsecoomb (GP)
My Lords, for the past 30 years, we customers have paid the water companies all the money they needed to do their job properly. Their statutory duty was to build, operate and maintain sewerage systems capable of effectively dealing with the contents of sewers. We have paid the money for them to do that; the fact that they are not doing it means that we are surely owed a refund, rather than paying more bills.
Lord Benyon (Con)
First, the noble Baroness suggests that there was no sewage going into rivers before water companies came along. Underinvestment when they were nationalised businesses was at historic levels, and our bathing waters were much worse than they are today. I am not saying for a moment that there are not serious problems. This Government are—if I can steal a soundbite—tough on sewage in rivers and tough on the causes of sewage in rivers. We want to be absolutely clear that everything that happens comes at a price. We want companies to be able to pay out dividends, because that is what encourages investment in our water sector. It is about getting that balance right.
Viscount Hailsham (Con)
Would it not be appropriate for executive bonuses to be linked to challenging reductions in pollution?
Lord Benyon (Con)
My noble friend makes a very good point. Water is the only utility business where the regulator does link reward for company executives and dividend payments to performance. It is the only sector of privatised utilities where that link is made.
Baroness Hayman of Ullock (Lab)
My Lords, while we are on soundbites, can I just say that I think levelling up is a bit of a soundbite rather than a solution? The National Infrastructure Commission has warned that
“there does not appear to be a comprehensive and consistent understanding of asset condition across the sector and how this may change in the future”.
We know that asset replacement rates need to be significantly higher, so does the Minister agree with the commission that Ofwat should take a leadership role in developing consistent, forward-looking metrics for defining and measuring asset health across England? If not, what does he consider to be the alternative to achieve this?
Lord Benyon (Con)
I do not agree that levelling up is a soundbite—it is really happening. I do agree that we need to make sure that we are supporting water companies and, through the regulator, making sure that they are taking a longer-term view on this. Each price round is five years, and the investment decisions we want them to take look way into the future, ahead of that. We want to make sure that we are working with the industry to create a long-term solution and that we are doing that with customers in mind. Some of the promises being bandied around about ending all sewage outflows by 2030, and those making them, really need to be challenged, because that will have a very big impact on households that are struggling to pay other bills at the moment.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, the first three CEOs of water companies to waive this year’s bonus due to sewage pollution were from Yorkshire Water, South West Water and Thames Water, followed by those from Welsh Water and, lastly, Southern Water. The campaign waged both inside and outside this Chamber to influence water companies has begun to have an effect. Does the Minister believe that the measures which have recently been announced by water companies are sufficient to achieve the desired outcome?
Lord Benyon (Con)
The noble Baroness makes a good point, because the activities within Parliament and outside it on this issue have really struck home, and people are, rightly, demanding that we take into account the impact of development and growing populations on the health of our rivers. It is not just water companies; it is agriculture and the connections we all make from our sewers and septic tanks that are causing problems for our rivers. So she is absolutely right: we need to ensure that we are tackling those things, and it is right that the water companies are recognising that. Those four companies should be applauded for doing it, but we want to see much more investment from them, and that is what the Government are driving.
Baroness Blower (Lab)
My Lords, water companies have borrowed £56 billion, even though investment has declined in real terms. Water bills include about £80 to cover interest payments. However, much of the debt is actually intra-group and is used to shift profits and dodge corporate tax. That much was acknowledged by Michael Gove in a speech on 1 March 2018. Can the Minister explain why the Government have failed to curb customer and tax abuses by water companies?
Lord Benyon (Con)
I am concerned about making sure that water companies spend money on infrastructure that is needed to clean up our rivers and environment. We have to ask ourselves what the best model is of doing that, and one that encourages investment into this country from sovereign wealth funds and other countries around the world as well as pension funds and investments based here is surely a good way of doing it. The model is right. The alternative would mean that the water companies would have to sit outside the Chancellor of the Exchequer’s office in a queue behind the health service, the police and the Armed Forces. Does the noble Baroness honestly believe that there would be more investment through a system of public sector borrowing, rather than getting this kind of investment flowing into our infrastructure?