Grand Committee
Strategic Defence Review
(1 week ago)
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Lord Robertson of Port Ellen
That the Grand Committee takes note of the Strategic Defence Review.
Lord Robertson of Port Ellen (Lab)
My Lords, after the election in July, I was asked by the Secretary of State for Defence and the Prime Minister to lead a team of three to do a unique strategic defence review, working with, but not to, the Ministry of Defence. I was delighted—I think that is the word—to accept this task. I am here today to give Members of this House the opportunity to offer a view on what should be in that review and how Members of the House might want it to conclude.
This debate today will add to and contribute to the 14,500 submissions made so far to the secretariat of the review. They have come from the services themselves, from other government departments, from academia, from think tanks, from industry, from our allies and from the public. It is, quite frankly, an unprecedented exercise in participation in one of the most important issues of our time. I am working on this historic endeavour, as reviewer, with General Sir Richard Barrons, who was the chief of Joint Forces and previously deputy Chief of the Defence Staff, and we have been joined by Dr Fiona Hill, formerly a senior official with the United States National Security Council and presently chancellor of the University of Durham.
We are the three reviewers, but we have been assisted in this exercise by a defence review team of six experts, including an assistant Secretary-General of NATO, and by Sir Jeremy Quin, the well-regarded and well-respected former Conservative Defence Minister and former chair of the Commons Defence Select Committee. This is, therefore, emphatically not a Labour defence review; it is the British effort to ensure that the United Kingdom is secure at home and strong abroad. Its terms of reference and the instructions to the review have been publicised and are on the GOV.UK website. I am sure that all Members of the House have carefully consulted them all before the session this afternoon.
As noble Lords will know, this is not the first strategic defence review that I have led. I did it in 1997 and 1998, which was, after all, only 26 years ago. It is worth reflecting that at that time we had 20,000 troops either in Northern Ireland or preparing to be in Northern Ireland. We had just signed the NATO-Russia Founding Act—I still have the cufflinks that were made to commemorate that—China was in the shadows and globalisation was hailed as a prosperity machine. There was no perceived danger to the British homeland at that point. That world has gone and it has gone for ever. So too have the subsequent worlds that were looked at and examined by reviews since then.
I have been reminding people that, when I concluded the review, I said that if it was a success it would be known as the SDR 1998, but that if it was a failure it would be known as the Robertson review. I am delighted to announce that it is commonly—universally—known as the SDR 1998.
This country now has to contend with a volatile and complex world of great power competition, with a war in Europe initiated unprovoked against a peaceful neighbour by a permanent member of the UN Security Council, with a horrific conflict ongoing in the Middle East and with enduring challenges to do with climate, grey zone attacks, nuclear proliferation, global inequality and greater mineral competition—and from the same failed and fragile states. It is a formidable cocktail for us to contend with.
This review must therefore chart the reset of defence, dictated by these factors, if we are going to keep our country safe and secure. There will, of course, inevitably be choices in any review. Some of them will be hard choices indeed, but they will have to be made, and denial of the problems is not among the choices that we have today. The purpose of the review is clearly set out: to make sure UK defence has not only the capabilities required but the new roles and reforms in place to meet the challenges faced by the nation and the world.
NATO is the bedrock for the review. As the first and, as yet, maybe the only person to invoke Article 5 of the North Atlantic Treaty myself, I know the value and importance of our NATO allies and their strength. They, too, like our adversaries, acknowledge and value our independent nuclear deterrent, which will remain a central feature of UK defence.
As I told the 300 top officials in the Ministry of Defence just two weeks ago, there can be no business as usual in defence. There is no business as usual among our adversaries and our potential adversaries, and there can be no business as usual for us. We dare not do it. Therefore, we are interested in the views of Members of the House, as distinguished people with expertise and background. I look forward to listening to those views today and I give your Lordships the promise that they will be taken account of in the review and its challenge process, which is being undertaken at the moment, involving some distinguished Members of this House. That process will make a contribution to the recommendations that the review will ultimately make to both the Defence Secretary and the Prime Minister, in the interests of a strong and enduring defence policy for this country. I look forward to listening to this debate.
Lord Howell of Guildford (Con)
My Lords, it is a first-class idea that we should have this opportunity for import from your Lordships, with all the enormous experience here, into the review before it happens, rather than waiting until it has happened and then moaning that they left out this or that bit that they should have put in. We may still moan at the end, because some of us moan all the time, but this is a very good way of approaching it and I congratulate the Government on doing it this way. I congratulate them on choosing the noble Lord, Lord Robertson, to chair it; he has assembled an extremely impressive team around him. This is a very good set of minds applying to a very difficult, disorganised and expanding concept of what on earth “defence” is and what we are trying to defend in a constantly changing world.
As the noble Lord said, it is the fifth strategic defence review this century if you include the 1998 review, which was modified in 2002. If you add in the integrated reviews we have had in recent years—there was one in 2021 and then the refresh review, and I have no doubt that another refresh review is being prepared now—we get the picture that there is a continuously changing platform. Technology is racing ahead at such an intense speed in the matter of defence and the conduct of war and battle, so we need to be almost constantly on the train. I have no doubt at all that, in a year or two, we will need to come back to this again—and then again—to keep up with the enormous technological advances taking place. We read about one almost every week. Last week it was explosives in pagers and exploding telephones; next week it will be something else in that region.
I take this as an opportunity for us all not so much to go over the obvious, central points—which the noble Lord, Lord Robertson, quite rightly touched on, with NATO as a bedrock—but to put in our own thoughts and hopes about particular issues that we would like to focus on and that might just be overlooked if we did not give them a little nudge. That is all I will do in my few minutes.
First, I will talk about China’s and Russia’s vast intrusion in the developing world, which is taking place almost behind the scenes while our eyes are on Ukraine, the Middle East, Afghanistan, Syria and the Pacific dangers around Taiwan. That is the front line but, behind it, the autocratic powers are moving very fast in a variety of ways—China mostly with bribes, insidious involvements, the belt and road initiative and so on; Russia in a more crude and violent way with the Wagner Group, which is still very active throughout Africa and Asia, although its leader came to a rather abrupt end after he was unwise enough to try to invade Moscow. That is what is happening before our eyes, and I hope that the review will concentrate on all that is going on there. As one expert put it, China is hoovering up the Commonwealth and the developing world, and we need to watch that, because we may find that it is too late if we do not act.
Then there are the neo-non-aligned countries—which, after all, are most countries—that are watching very carefully. I am glad to say that many are members of the Commonwealth, and I think they are all saying, “Look, we believe in independence. We are watching. We want support and advice from and a good relationship with the United Kingdom, but we don’t want to see Britain become too much a puppet of Washington. We don’t want to be under the hegemony of the Chinese either; we are trying to avoid being sucked into their nexus and network. But nor do we want to be necessarily lined up with a Manichaean view of the world, which comes particularly from the United States, that the world is just divided between good and evil, or the West and the East, and that that is the way it must be fought out”. Therefore, I hope that, in addition to the China and Russia scene, we use this review to get our own relationship straight with a changing United States. It is not 1945—it is not the heroic days of the Second World War or the Cold War. It is an entirely different situation. That is my first point.
Secondly, I hope we recognise that the fight is now on to kill civilians—to demoralise, undermine, frighten and terrorise civilians—and every kind of AI and other technology will be used by our opponents to do that. I saw that the director of MI5 said yesterday that we are now at the greatest level of threat in decades and that Russia and Iran, to take two, are determined to generate “sustained … mayhem” in this country. I hope that will be a matter of focus.
Thirdly, the whole industry and defence relationship has changed. A Ukraine expert was here yesterday and talked about battlefield co-ordination and management in Ukraine. That has been largely organised by private enterprise or by enterprises that are semi-private—some in uniform, some not. That expert pointed out that on the Ukraine side there is the question of managing 1 million drones, either in production—maybe in remote garages that no one knows about, or in unofficial factories—or being deployed and sent in various directions. No single military authority, no single Government, can co-ordinate all the movements of that sort of thing. His firm is called Aerorozvidka and he is deeply involved, as a civilian, in battlefield deployment and in new ways of industry co-ordinating with the military not only in supply chains—we know about all that—but in the organisation and deployment of strategy on the battlefield.
Finally, we have signed the NATO industrial capacity expansion pledge, which brings industry and technology even closer to the military. We are signing up to AUKUS, which is another opportunity, and to the Tempest programme with Japan and Italy. All these will involve huge new types of involvement between industry and the military, and that will require a considerable amount of time from the review team. Beyond its cellular internet of things, the Chinese Communist Party seem to have taken a dominant role there. We have Russia’s dark fleet sailing around the world undermining all the traditional areas of marine control. These are the frightening technologies of next month, probably, or certainly of the next year or two. These are the things that I hope will be concentrated on.
That is a start from me, but I am sure there will be many other better-informed, deeper and more important views to be uttered by your Lordships. That is my contribution.
Lord Alderdice (LD)
My Lords, one of the early and welcome announcements by Prime Minister Sir Keir Starmer was that we were to have a new strategic defence review, and we are all gratified that the SDR is being led by the noble Lord, Lord Robertson of Port Ellen, to whom we are indebted for the debate today and for his wonderful introduction to it. He brings a great range of experience, as we all know.
I have previously appealed to the noble Lord in your Lordships’ House to see this review of defence in its widest sense, and I do so again today. There will, necessarily, be a focus on matériel, men and money, and this is right. We need to look at our military resources to see what we have and what we need in a world where the character of war is changing rapidly, as we see in the conduct of the war in Ukraine. I refer noble Lords to the International Relations and Defence Committee’s recently published report Ukraine: A Wake-up Call. It is a very good report. I will not repeat a lot of what it says because I know it has already been sent to the noble Lord, and indeed he played his own part in the earlier drafts of the report, so I know he is familiar with it.
Contrary to a lot of the writing from 10 or 15 years ago about new wars, the old forms of warfare have not disappeared—they are still there. It is rather the case that new ones have sprung into significance in addition to the old ones. Drone warfare, to which the noble Lord, Lord Howell of Guildford, just referred, has taken a dramatically increased significance, and our procurement must take this into account. However, as in some areas, bigger and more sophisticated is not always better. Our US allies, for example, have been using $2 million missiles to take out drones sent by the Houthis in Yemen at $2,000 a time. That is just not an economically viable strategy.
Our Ukrainian friends, too, have used ingenious tactics to make up for limited resources, not just in converting off-the-shelf drones for military use but, for example, in packing an old Cessna plane with explosives and flying it into Russia to explode in an oil terminal. They were aided by the low radar profile of this old plane, as the Russians designed their defences to deal with the more sophisticated, long-range, high-tech US missiles that they had been expecting. We need to be creative and imaginative—in a different way, of course—as well as to become more efficient and effective in our procurement.
I want to elaborate a little on the question of defence in its widest sense. One of the downsides of having a fully professional Army with a high reputation is that our population has come to feel that it can be safely left to the professionals to do all our defence for us. There is little appreciation not only of the level of danger, which we speak about in our report, but also that the population at large needs to play its part in national defence. That involves encouraging young people to join up and exploring recruitment, training and retention of part-timers, but it is also crucial that our people realise that the dangers that our country and our wider world face require all of us to be engaged.
The dangers against which we must develop our defences are not only military in nature. They include epidemic diseases and climate catastrophes, and some of them can be used and abused by our enemies. We were reminded of the need for more personnel to be trained and ready and available for service during the recent pandemic and widespread flooding. We needed people who could go out and do things, not just the best brains and the most advanced research technology. We needed people on the ground to manage the situation. That is why I seek some reassurance from the noble Lord and his colleagues that they will take seriously the need for more personnel.
It is not that I do not appreciate the technological requirements. I am particularly concerned that, with hypersonic weapons making their appearance and the terrifying prospect that they could soon carry nuclear warheads, to which human operatives cannot respond sufficiently quickly, there will be pressure to give over decision-making to artificial intelligence, as has already been done in the Middle East, for example, in identifying, tracking, targeting and killing human subjects. I cannot see how we can address this issue without a serious effort to achieve international limitations and regulations, however difficult that is. That means collaboration between the five permanent members of the UN Security Council. I know that, despite the current hostilities, there have been some lower-level conversations among scientists, but I ask the noble Lord to consider recommending that our Government engage directly with Russia and China, as well as with our allies. We did it during the Cold War to try to achieve limitations on nuclear weapons. AI and nuclear weapons as a combination make this an urgent initiative, especially for nuclear weapon systems.
Perhaps the most urgent request that I would make at this moment is that the noble Lord includes de-escalation as an essential feature of our approach to defence planning. If our only response to acts of aggression is to engage in ever higher levels of aggression, which then provoke a similar reaction, as we are currently seeing in the Middle East, the consequences can only end up being catastrophic. We need to think, work and plan for how we use diplomatic and other relations with our enemies, as well as our friends, in order to be able to de-escalate dangerous situations. That requires the deployment of appropriate resources to defend our country.
Finally, on resources more generally, our people, pundits, political leaders and perhaps even some on the military side have lived for some years with the illusion that our world was becoming a safer place, or at least a less dangerous environment. This is manifestly not the case. At the same time, we cannot draw on the imperial resources that were available during the last two global conflicts. Surely we need to consider seriously whether we must review the territory that we can realistically defend. The defence of our own people, our own country and our region, western Europe, is our greatest responsibility. Although we can also play some role in the wider world and some of our historical areas of responsibility, it may now be time to trim our ambitions to what we can actually do. Illusions about our capacities will not serve us well in protecting our people in a real war. We must focus on addressing the world, especially the world that is closest to home, as it is, not as we wish it was. I wish the noble Lord and his colleagues well as they do their best to help us with that challenging task.
Lord Stirrup (CB)
My Lords, I, too, am grateful for the opportunity to debate the strategic defence review that the noble Lord, Lord Robertson of Port Ellen, is leading for the Government. I will start by raising a point that is formally outwith his remit but is fundamental to the issues that he is addressing—the defence budget. NATO has calculated that for its members to contribute military capabilities adequate to the challenges that the alliance now faces, they will need to spend around 3.7% of GDP on defence. Even if NATO has overdone things a bit—it is not at all clear that it has—it is certainly the case that investment in defence needs to be above 3% of GDP, not the 2.5% that the Government say that they aspire to but for which they have not so far set out a firm plan. It is worth saying that 3% of GDP for the UK, allowing for all the accounting changes that have taken place in recent years, would not be much more than we were spending in 2010, when Europe was not facing a severe threat from Russia. It is important to make this point today because, if the issue is not addressed, the current defence review would be like someone deciding whether to buy two or three fire extinguishers while the building is burning around their ears.
This dichotomy is thrown into stark relief when one looks at the substantive issues that the review will need to address. A good starting point is the recent report from your Lordships’ International Relations and Defence Committee on the implications of the Ukraine war for UK defence, to which the noble Lord, Lord Alderdice, has referred. It is a good analysis and my only real criticism is that the compelling chapter on the importance of building mass focuses almost exclusively on the British Army, whereas the shortcomings in this area are being felt across all three armed services. On current plans, for example, the UK will have only three combat air squadrons by 2040—that would not even have filled one main operating base in my day. Given the lessons from Ukraine about the importance of air power, can anyone really think that this is acceptable? Numbers of airborne early warning and control aircraft are also woefully inadequate. In the case of the Royal Navy, the operational availability of nuclear attack submarines verges on the derisory. Even before our donations to Ukraine, stocks of weapons came nowhere near what even the most optimistic observer could regard as satisfactory. I could cite many other examples.
If we wish NATO to exercise a powerful deterrent effect on Russia, these issues must be addressed. The platforms in all three environments need the trained people, the weapons stocks, the logistics support and the defence industrial base to sustain them through the draining effects of protracted combat. Then there is the vulnerability of the home base. The necessity for significantly improved deterrent capability within NATO reaffirms the importance of the north Atlantic link, but that will be of little avail if the UK end of that link is not secure. At the moment, we could not counter the kind of missile attacks that Iran has launched against Israel. The requirement for a robust integrated air defence system can be ignored no longer. Effective defence requires an integrated system, which cannot be had on the cheap. It requires sensors, information management technology, surface-to-air weapons and air-to-air platforms and weapons.
Control of UK airspace will not of itself be sufficient, though. Again, the experience of Ukraine shows that trying to fight a land campaign without air superiority is a recipe for, at best, a long and bloody struggle and, at worst, defeat. There is nothing new in this. Neither El Alamein in 1942 nor Normandy in 1944 would have been successes without air superiority. The precise means of achieving that superiority will of course change over time, as technology offers new ways of doing old things, but the suppression and destruction of enemy air defences will continue to be a keystone of that effort. This is a complex and challenging role that involves cutting-edge and constantly evolving systems and technologies. It will also require the ability to operate effectively in the face of a hostile electronic and cyber environment, which of course will be true of the Armed Forces and their capabilities more widely.
The electronic warfare challenge that has emerged in Ukraine is well beyond anything we have ever seen before and we must expect that kind of challenge, or even greater, to be a feature of future battle spaces. This will require a response that goes beyond the purchase of certain kinds of equipment. It will need the fusion of experts and technology in an organisation with the agility, and the requisite industrial capacity, to respond to constantly evolving threats and the ability to adapt front-line platforms and tactics accordingly. Such agility and adaptability will be needed more widely across the entirety of our defence capabilities.
I could cite many other examples of the kind of improvements that will be required to defence in the years ahead, improvements across all three environments, and I have not even touched on the crucial issues of people—their recruitment, training and retention—that will be fundamental to our capabilities, let alone the question of wider national resilience. Time does not permit me this afternoon to do much more than to scratch the surface. Suffice to say that we face a double challenge: we have to make good the shrinking and hollowing out of our Armed Forces that has been the handiwork of successive, delinquent Governments. At the same time, we have to adapt those forces to meet the stark and pressing challenges of the future.
There will of course be debates about precisely how those future capabilities are to be provided, but two things seem beyond doubt. The first is that those capabilities will be essential. The second is that they are well beyond the financial guidelines under which this review is operating, so I end where I began: with the Budget. The mantra seems to be that no more money is available for defence. Of course the money is available; it is a question of choices and priorities. If the Government say that they cannot afford more than 2.5% when the need is so apparent, what they are really saying is that the safety and security of this country and its people are not their top priority. Looking back at our history, they would not be the first Government to say this, nor would they be the first to reap a frightful harvest if the current severe risks were to materialise.
Lord West of Spithead (Lab)
My Lords, we are all aware that threats to global stability are greater and more unpredictable than at any time for several decades, and the SDR will, I am sure, lay them out very clearly and starkly. That is of course much easier to do than to articulate what it means for the UK, and what action we should take, to ensure the survival, safety, security and wealth of our nation and people into the future. How should we position ourselves?
The SDR has to identify how we see our position in the world and what we should be doing. We are presently a medium-sized world power: the sixth-richest nation in the world, with nuclear weapons and 14 overseas territories, and a permanent member of the UN Security Council. We still run global merchant shipping from London. We are the major European investor in south Asia, south-east Asia and the Pacific Rim, with consequent benefits for our balance of payments. All this needs protection and looking after. Successive Prime Ministers have been able to walk the world stage, being listened to and courted for alliance membership et cetera, because of our military power and not our considerable soft power. This is no longer the case; defence has been systematically underfunded for many years. Everyone recognises that our forces are hollowed out.
The 1998 SDR produced by my noble friend Lord Robertson was the best of the many produced since the end of the Cold War. It identified a force structure and the alliances required to fulfil what was seen as needed to counter the threats that our nation faced at the time, and it did that very well. It very quickly ceased being fully funded. I was successively Chief of Defence Intelligence, Commander-in-Chief Fleet and First Sea Lord from 1998 to 2006, and I had to wrestle with the problems that caused. I got a bollocking, in fact, from my political masters because I said to the media that a ship could be in only one place at one time. This was in reaction to the fact that our order of 12 45s was reduced to six and we were not going to order any more frigates. My goodness me, how we would love to have them now, with events in the Red Sea and around the world. Decisions made in defence, of course, have a long-term effect and we always need to be aware of that. Numbers have strength in themselves.
Similarly, the design of the Type 45s—this was identified in the SDR—allowed for the fitting of land attack missiles and the ability to shoot down ballistic missiles. Again, when I went to the Secretary of State for Defence at the time to say that this had to be done and fitted, he said, “No, this money is not there now”. I do not know quite where it had gone but it was not there. Again, money was the elephant in the room.
Many have argued that cyber, AI, quantum, satellites, digitisation, drones and so on mean that platforms are unimportant. All I can say is that if you are 500 miles south of Hormuz or in the middle of the Arctic and you have not got a platform, you are swimming. I have done that in the past; it is not much fun. Yes, technology has changed and is changing war, but that has always been the case. It does not actually make things cheaper; if anything, it adds to the cost. Again, I reiterate that money is the elephant in the room.
The nuclear deterrent is extremely expensive. The maintenance of CASD, which is running on old boats as the new boats are introduced into service and new warheads are produced, needs to be seen as a national endeavour. It is very important for our nation but, as it stands, the defence budget cannot support the deterrent without growing damage to our conventional capability.
I am sure that the SDR team will go into resilience; preparedness; sovereign capability; the need for defence firms to be able to ramp up production and ensure supply in times of tension and war; the need for national repair and upgrade facilities; and the need for trained, qualified staff to operate them. I am sure that procurement will be looked at again. It needs to be, not least to address the anachronistic contracting and acquisition system, which is much better suited to the leisurely pace of peacetime than urgency in wartime. Manpower is a mess. We must ensure that we have sufficient, highly trained men and women, in particular computer-literate, digitally aware engineering specialists. A slight surplus of manpower is not that efficient, I know, but it is better than too little. Alliances are crucial as we often do not have the strength to act unilaterally. It is important to ensure that we bring to an alliance the key capabilities it does not really have enough of.
My key question for those conducting the review is: what, in military strategic terms, is most important for our nation? What do our allies value most? What is the most critical environment, bearing in mind that all the environments work together and intermesh, as we do not have sufficient money to focus on all of them? As noble Lords might imagine, to my mind, it is the maritime environment. We are an island. We depend on the sea for our survival and wealth. I can tell noble Lords from my time in the intelligence world that our enemies know that only too well. Maritime capability is what our allies expect of us. The growing strength of the European NATO allies on land and the limits of their strengths at sea reinforce that. For example, the accession of Sweden and Finland to NATO and Poland’s army expansion programme alone have added 20 army brigades to NATO’s terrestrial strength, as well as a plethora of fast jets. There is no such naval growth.
I wish the noble Lord, Lord Robertson, well with this huge task ahead of him.
Lord Houghton of Richmond (CB)
My Lords, when I spoke in the foreign policy and defence debate on the gracious Speech a few weeks ago, I welcomed the Government’s intention to hold a strategic defence review and to do so quickly. I remarked on the nature of the three defence reviews of which I had the most intimate knowledge—those of 2010, 2015 and 2020—and offered that those three reviews had three things in common.
First, they all had a superficially compelling narrative, one that gave a fairly sobering analysis of the increasing risks to the stability of the world order and the growing diversity of both the defence and security challenges to that order. The second thing was the reality of government austerity. All three reviews were ultimately the product of financial, rather than geostrategic, reality. The third thing, therefore, was that all three reviews delivered a delusion that various alchemies—modernisation, efficiency, technological superiority and fusion doctrine—somehow facilitated an ability to take acceptable risk because, in the end, everything would turn out all right and be okay.
The result of these serial delusions has now been exposed. The International Relations and Defence Committee’s recent report on the lessons for UK defence from Ukraine, brutally but fairly, lays bare the somewhat alarming state of not just our Armed Forces but the machinery of government, the defence industry and wider society’s ability to deter or sustain a conventional war at scale.
The defence review currently under way cannot, therefore, come quickly enough, but it needs to be a review quite unlike its most recent forerunners. It cannot be a cost-capped exercise in public and self-delusion; rather, it must be an honest exercise in self-scrutiny and geopolitical reality. I realise that, ultimately, money will have to be a factor. As long as the review has integrity, it does not necessarily lead to an uncomfortable outcome. Indeed, it might be quite a liberating exercise. To me, the outcome of the review should be a justified choice from which all else flows.
The choice is the strategic one of what role we, the United Kingdom, want to play in the world over the next 10 to 20 years. I do not think that this is a simplistic choice between doing everything or nothing. The nation would not understand or tolerate a wholly extreme departure from our current aspirations. Rather, it is a more nuanced choice between two more subtle options—but it is a very distinct choice.
The context is the increasingly darkening world in which we no longer have a monopoly on the ownership of truth. It is a world in which China, Russia, North Korea and Iran are increasingly mutually self-supporting and in which many of the countries of the poorly defined global South are, at best, undecided as to whom they favour.
One choice is to double down on what we have traditionally aspired to be as a nation—a global leader. It would involve us in a meaningful leadership role in NATO, necessitate a significant investment in restoring conventional deterrence in Europe, require a significant investment in resilience, necessitate the recreation of the mechanisms for generating reserves, involve continued or even greater investment in cyberspace and emerging technologies, and involve us in some more demanding global roles of which AUKUS and GCAP are perhaps the capability forerunners. This would be the more expensive option and would bring its own forms of risk and benefit on the global stage.
A second option is more modest but, some may argue, more rational. It would involve coming to terms with a reduced global ambition and accepting that there are limits to where we envisage projecting force. It would focus on the regional threat from Russia and, more specifically, it might choose to exploit the mutual synergies and interests we enjoy with the nations of the Joint Expeditionary Force. Our maritime and air forces could form the core of a meaningful contribution to the security of the north Atlantic and northern Europe. It might recognise that expeditionary land forces, at scale, looks a highly questionable ambition for a nation that cannot man an army of 72,000 and that has no current mechanisms to mobilise a reserve.
But we do have the ability to exploit space and cyber special force operations, and we retain a practised understanding of high-level command and control. This more modest option would also need to recognise our deficiencies in layered anti-missile defence and offensive missile capability. The latter may provide the necessary escalatory gearing to restore credibility to our strategic deterrent.
I do not want to give the impression that this second option necessarily generates any savings against the current or anticipated budget. It would, however, demand some markedly different capability choices. My point is that the capability choices would be the result of the decisions about our strategic ambition. I fear that, in the past, capability choices have predetermined the policy aspiration, which must be the wrong way around.
My plea is for a review of integrity, not one based on hope, boosterism or doctrinal alchemy. I would certainly be cautious of an alchemy based on the idea of an integrated force fighting an unfair war on the presumption of perpetual technological advantage. To me, such an outcome has some of the hallmarks of a delusion in waiting.
Lord De Mauley (Con)
My Lords, I thank the noble Lord, Lord Robertson of Port Ellen, for bringing this important debate today. I thank him particularly as a former member of the International Relations and Defence Committee—which I now have the honour of chairing—for his contributions to the committee’s work. I also declare my interest as chairman of the Council of the Reserve Forces and Cadets Association.
The strategic defence review provides a welcome opportunity for the Government to rethink their approach to defence. I will focus my remarks largely on the role that Reserve Forces could play in that.
Over the last couple of years, the global security environment has changed dramatically. As other noble Lords have said, we are witnessing a period of growing instability. Russia’s illegal and unprovoked invasion of Ukraine has been a turning point for European security and has raised serious concerns about Russian intentions elsewhere in Europe. In the Middle East, the conflict between Israel, Hamas and Hezbollah threatens to escalate into a wider regional war, potentially drawing in Iran. Tensions in the South China Sea are escalating, and a wave of coups in the Sahel is plunging millions into physical and economic insecurity. This raises the question as to whether our Armed Forces are equipped to deal with this new reality.
The International Relations and Defence Committee recently published a report, which the noble Lord, Lord Alderdice, and the noble and gallant Lord, Lord Houghton, referred to, and which we have submitted to the SDR team, on the implications of the war in Ukraine for UK defence. We found that years of strategic neglect have left our forces stretched thin and limited in size. We are underprepared to respond to the worsening global threat environment, and in particular to meet the very real and growing threat from Russia.
Our Armed Forces lack the necessary mass, resilience and coherence to sustain prolonged, high-intensity conflict at scale. This of course also weakens their deterrent effect. If we are to prevent conflict with Russia, deterrence is our best insurance. After all, Russia’s invasion of Ukraine itself represented a failure of NATO’s deterrence posture. We must therefore restore the credibility of our deterrence posture, which has to include, as other noble Lords have said, increasing troop numbers.
Yet even apart from the well-documented challenges of recruitment and retention, increasing troop numbers comes at a significant cost. This is where my own submission to the SDR comes in; the noble and gallant Lord, Lord Stirrup, and the noble Lord, Lord West, may be glad to hear that it is a tri-service proposition. Ukraine has shown that recruitment of the rank and file of a second or third echelon force need not be the problem. It recruited half a million from a population about two-thirds the size of ours in six months in 2022. What it could not do was provide the experienced people to train them. We, and other nations, had to step in and help.
My concept, in simple terms, is based loosely on the very successful Home Service Force of the early 1990s. It is that we should utilise some of the quite large number of experienced people who have recently left the regular and Reserve Forces to form cadres of about 50, as the nucleus each of a battalion-sized unit, 500 strong, the bulk—the other 450—of which would be recruited only at a time chosen by the Government when the threat level warranted it. I hope the noble and gallant Lord, Lord Stirrup, and the noble Lord, Lord West, will forgive me for using army language, but I do it for simplicity. The cadres would need, say, 10 to 15 days of training a year to maintain and update their skills. I ask only that this concept—the submission goes into considerably more detail—is given thorough consideration, and I would of course be delighted to discuss the detail with the SDR team and/or the Minister.
I turn to our Reserve Forces as they are currently constituted. As my committee’s inquiry into Ukraine revealed, their capability has been eroded over recent years. Successive Governments have failed to articulate a clear vision for how the reserves can effectively supplement and support our Armed Forces. It is time to reverse this. Our report says that the Reserve Forces, whose numbers have declined over recent years—largely because of reduced funding and a broken recruiting system—need a co-ordinated approach, including addressing clarity of purpose, demanding training, appropriate logistical and administrative support, equipment and proper funding. I know that the Reserve Forces and cadets associations have specific attributes that are able to help, and they stand ready to help.
I ask the Minister for his assurance that the Government will give due consideration to enhancing the role of the reserves. What plans are there, if any, to respond to the recommendations made by General Sir Nick Carter in his Reserve Forces review?
This is not just about troop numbers; the whole of society has a role to play in defence. We need to move beyond the idea that defence is solely the military’s responsibility, become better at conveying the significance of national security to the wider public and set out how they can contribute to a more resilient society. The volunteer reserves are part of the answer, but the Government must also draw the wider public into a conversation about defence—including the potential for higher, and especially better and cleverer, defence spending—as well as greater civic responsibility.
One useful lever available would be to involve the signatories to the Armed Forces covenant, especially the gold award holders, who ought to have a predisposition to help. There needs to be a greater sense of urgency and awareness about the risks facing the UK. An honest dialogue about the country’s vulnerabilities and what is required to keep it safe is essential. The Government must develop a compelling value proposition that resonates with citizens, emphasising the importance of national security in their daily lives and moving beyond the notion that defence is solely the military’s responsibility. There is much we can learn from our Scandinavian partners and their concept of total defence, which integrates civilians into national security. The Government should build on this framework to create a similarly compelling vision for the UK.
We are at a crossroads. The choices we make now will determine whether we can restore our nation’s credibility and remain an influential player on the global stage. Alternatively, we risk the fate of being relegated to reactive crisis management rather than playing a proactive role in preventing conflicts. The war in Ukraine has moved this debate from theoretical speculation to urgent reality. Complacency in defence is no longer an option.
Lord Kerr of Kinlochard (CB)
It is a great reassurance to the House that the noble Lord, Lord Robertson of Port Ellen, is associated with this review. I thank him for securing this debate and for the skill with which he introduced it. I hope that his review will tell it like it is.
We need to invest more and to invest better. The world is much more dangerous than when Labour last took office and the noble Lord set up his defence review. In the Middle East, the South China Sea and the Sahel and the sub-Sahara, we see higher tension and terror. In Ukraine, we see an existential threat to Europe’s liberties. There is nothing new in that—from the Moscow embassy, I watched the sack of Dubček’s Prague—but what is new is a NATO too long disarmed by a naive faith in the peace dividend and a US whose NATO commitment can no longer be taken for granted. The most chilling moment for me in the Trump-Harris Philadelphia debate was when Trump could not bring himself to say that he would support Ukraine. Putin would not stop at Kyiv—we face a 1938 moment. Ukraine’s war is our war, and keeping the alliance shield requires investment to deter and to insure against American retreat.
As the terms of reference for the defence review say, the first task of the state is to protect the citizen. That means that defence expenditure is not discretionary expenditure. When I worked in defence for Secretary of State Carington and Chancellors Healey and Howe, we had a commitment to maintain 55,000 troops on the mainland of Europe, and we always honoured it. We were spending 5% of GDP on defence, and the nation was not balking at that. When the noble Lord, Lord Robertson, ran his review, we were spending 2.5% or 2.3%—although the task has clearly grown. Russia spends 6% and is planning a 25% increase next year.
Of course it is misleading to think in terms of GDP comparisons and proportions, but it is absolutely clear that we need greater capability because the threat has got greater. We are not investing enough. I believe that if it was explained to the country why we were not investing enough and if the threat was spelled out, the country would not balk at it. I hope the defence review will tell it like it is.
We certainly need to invest much better. We must get recruitment right. Too many honourable Ministers have stood at the Dispatch Box admitting that there have been shortfalls but asserting that the corner has been turned. I am unconvinced. Outsourcing was always a mistake and it should now be corrected, but the much bigger problem is procurement, where the flaws are systemic. I recognise most of them from the 5% days when I knew a bit about defence, but they are still much more damaging now, with resources so much more constrained.
These flaws are not unique to us. In Washington, a bipartisan congressional commission reported this summer that:
“Fundamental shifts in threats and technology require fundamental change”
in how the Department of Defense functions, that the country must
“spend more effectively and more efficiently to build the future force, not perpetuate the existing one”,
and that the Defense Secretary and central staff
“should be more empowered to cancel programs, determine needs for the future, and invest accordingly”,
particularly in cyber, space and software. It said that the R&D paradigm needs to shift to adopting technological innovations from outside the department, and that 11 of the 14 technologies deemed critical for national security are “primarily non-defense specific”. That is what Congress is saying in Washington. Of course the US-UK analogy is not exact, but I believe all the elements I have mentioned are advice that we too should heed.
Investing better means a major update of the MoD’s procurement systems. The compact with the taxpayer has to be that, although we have to take more of his money, we will promise to spend it better. There must be no more sacred cows, interservice “You scratch my back, I’ll scratch yours” deals, or continually changing specifications to add gold plate. We need longer production runs and more emphasis on simplicity, serviceability—the secret of, for example, the Hawk aircraft programme’s success—and specialisation. We do not need, and we certainly cannot afford, industrial capabilities across the board. We need to invest where we lead in Europe, and where others lead we need to go for the reciprocal procurement deals that generate the export sales and hence longer production runs, which drive down costs. This means having the self-discipline to stop tinkering with specifications and avoid the delusions of autarky—no more Nimrods or Sting Rays. In-house solutions and UK-only programmes are very rarely best.
Two great Defence Secretaries, Denis Healey and Peter Carington, had no doubt that economies of scale and the foreign sales that would generate the jobs meant collaboration with the Germans to build tanks and with the Dutch to build frigates. Their German and Dutch colleagues agreed. Memoranda of understanding were signed, but the tanks and frigates were never built. Both programmes were sabotaged by folie de grandeur in Whitehall. The Germans went off and built their Leopard tanks and the Dutch built their frigates—also, as it happens, called Leopards—both of which cost much less than ours and so greatly outsold ours.
Can the new Healey Defence Secretary do better? I hope so, with support from the noble Lord, Lord Robertson. It is a bit presumptuous to offer the noble Lord advice because he knows the issues so much better than most of us, and it is probably unnecessary to urge him to tell it like it is because he usually does, but I hope he will press for the systemic procurement reform that the Ministry of Defence, like Washington’s Department of Defense, so badly needs. We need to invest much more, but we need to invest it much better.
Baroness Helic (Con)
My Lords, I welcome this debate and congratulate the noble Lord, Lord Robertson, on leading the SDR and its excellent team of experts and practitioners. I declare my interests as set out in the register.
I will dare to repeat a few assumptions that have been made because they are important in the context of what I will try to contribute to this debate. There are more simultaneous conflicts today than in any period since the Second World War. We see autocracies acting in a more power-hungry and aggressive way than at any time in recent history. We are witnessing widespread disregard for human rights and international law that, far from coincidentally, overlaps with a rise in mass killings, atrocities and disasters. We are seeing the accelerating development and deployment of new technology on the battlefield, including the reported use of autonomous weapons systems in the conflict in Gaza, in ways that are contributing to the perception of the unravelling of decades of norms and conventions regarding the protection of civilians. In this environment, a focus on new technology and armaments is necessary, but at the same time, we must not lose sight of certain essential principles that remain unchanged.
I welcome the Government’s stated “total commitment” to the UK’s nuclear deterrent and their reaffirming that NATO remains the cornerstone of our defence. I also welcome the Prime Minister’s “serious commitment” to spending 2.5% of GDP on defence. I hope this remains the case, since the Defence Secretary recently said in an interview that the Government will make “tough choices”, including on defence. I hope the noble Lord does not feel that the freedom to make necessary recommendations will be curtailed by this uncertainty.
The SDR has many questions to address to ensure that Britain is secure at home and strong abroad, and I know that the noble Lord will be inundated with advice. I will focus my remarks on three areas which may not necessarily make it into the briefing folder, given the 14,500 submissions. First, in our unstable and highly contested global environment, it is essential that we uphold human rights standards and push against those who challenge the international order and disregard international law. The Government’s manifesto states clearly that international law is essential
“because of the security it brings”.
Yesterday, I was encouraged to hear four government Ministers and three officials say in no uncertain terms, “We are committed to international law”. While that is welcome, there is a perception that the United Kingdom practises this selectively and condemns human rights violations committed by adversaries but not those carried out by our friends. We need to answer the question of what we stand for. Such double standards will not bring us security; they will undermine it. An SDR built on such inconsistent foundations will struggle to deliver the strengthened defences that the UK needs and I know the noble Lord wishes to see.
Secondly, it is vastly preferable to deter wars than to have to fight them or rebuild after them. With that in mind, while our military power must be backed by a strong and capable Foreign, Commonwealth and Development Office, or vice versa, the FCDO is our lead department in engaging with the world. It must be properly funded and supported, as war begins where diplomacy fails. A robust and capable diplomatic presence is not a luxury but a necessity. The former Foreign Secretary, the noble Lord, Lord Hague, made strengthening the Foreign Office as an institution a central priority during his tenure. I hope that the new SDR recommendations will build on this example and be prepared to go further still, since the threats to our security today are much tougher than at that time.
Closely related to this, I was dismayed to learn yesterday that, after the BBC World Service ceased to broadcast in Lebanon, the radio frequency was immediately replaced by a Russian state propaganda station. In a world where we rely on soft power to achieve and support our goals, we should be expanding the reach of the BBC World Service, not watching it wither and be replaced, as in the case of Lebanon, by Russian state propaganda.
Finally, we must back our statements of commitment to human rights with action. I urge the noble Lord not to overlook the persistence of sexual and gender-based violence as a feature of nearly all contemporary conflicts and its role as a tactic of warfare and cause of human displacement and suffering. I hope that the SDR will include recommendations on how to strengthen UK and international action to counter the use of rape as a weapon of war, including incorporating that action into all our relevant military training, particularly when we are training up allied armed forces. As is often pointed out, the United Kingdom Armed Forces are second to none and the power of this example cannot be overstated.
The SDR comes at a time when the challenges we face are immense, but not insurmountable. As well as ensuring that our Armed Forces have the tools that they need to do their work, we must uphold human rights and international law, oppose violations wherever they occur, avoid damaging double standards and invest in diplomacy and soft power. I believe that the noble Lord attaches importance to these principles, and I look forward to the 2025 review.
Lord Craig of Radley (CB)
My Lords, as the noble Lord, Lord Robertson, mentioned, his team has already received much guidance and many suggestions on force size and mix. I am sure that the first-responder contribution of the Royal Air Force front line, which gives the Government choice and strength in facing and dealing promptly with crises worldwide, will have been mentioned. It will be of key importance to sustain and enhance this capability in years ahead. As mentioned by the noble and gallant Lord, Lord Stirrup, front-line fighter strength is too low to sustain even moderate attrition in war.
Above all, the review must concentrate on the men and women who, either in uniform or civilian appointments, are essential to the strength and capabilities of each service. The comprehensive Agency and Agility Haythornthwaite report, published last year with considerable fanfare and senior leadership approval, ran to 67 recommendations. Considerable time and effort will be required to get even some of them, let alone all, into decision and implementation, and many are not cost free. I expect that some progress has been achieved, although it has not been widely publicised.
One would have hoped already to see some positive response within the services themselves, but the most recent continuous attitude survey shows no indication that morale, recruitment or retention has improved. The year-on-year failure to recruit and retain front-line personnel strength is cumulative and now extremely alarming. It will take at least five years of fully successful and increased annual intakes to correct these growing imbalances. This is a most serious issue. It must be grasped or the services will fail and fall short.
Those with long memories of attempts to improve working and living conditions at officer and other rank levels have seen them inadequately funded and suffer from short-term savings or other issues. Plans, let alone aspirations, have not lived up to expectations. This is a major reason given for premature retirements. The defence review must treat this aspect of its work with maximum attention and seriousness. Funding must be met. A further aspect causing difficulty with retention applies to pensions. Surely, special consideration should be given to the Armed Forces to reflect their distinct career patterns, and to others employed by government.
Fundamental to this review is the definition of what the Armed Forces may be required to do. In simple terms, they contribute to the defence of the nation. One glaring and widely acknowledged weakness is the air defence of the UK base itself. For far too long, this has taken second place to the demands of operations overseas. As more modern threats emerge, it is essential that our home base is more adequately protected. A Wedgetail fleet with only three airborne radar airframes is surely not enough.
But can the review meet its objectives without further top-level political guidance on our national defence strategy? How much of a global capability force is there to be, and with what reach? What sustainability is it to be equipped and manned for? How long will it be able to sustain such operations? A nuclear deterrent seems to be a given, but will the submarine force sustain the four boats and warheads required for continuous at-sea patrol? What other givens are there, or should there be? We know that 2.5% of GDP has been promised, but when? We should know that for planning assumptions at least. Would it be reasonable to presume that NATO’s operational strength, both conventional and nuclear, will effectively deter any possible Russian aggression while Russia is fighting Ukraine?
Such scene-setting assumptions will need to be examined and spelled out. Or is it, for all the depth of this review and guidance, that the outcome will once again be entirely financially governed and limited? My experience of reviews goes back to Denis Healey’s in 1966. All fell short of full funding—will this SDR prove to be the exception?
Lord Hogan-Howe (CB)
My Lords, I rise with some humility, not having the background of the noble and gallant Lord, Lord Craig, or many of the experts we have heard today—I am sure will hear from more. I rise as, I hope, a reasonably well-informed Member of this House—just a layman—who has growing concerns about the defence of this country as we see the threat grow, as has been described, and, frankly, our ability to respond to it decrease.
I will not set out the threat because other noble Lords have described the various international threats incredibly well. I want to concentrate my comments in three areas. First, have we explained to the public in simple language why we will need to spend more on defence, recruit more personnel and probably pay higher taxes? Or do we imagine that the people of this country can calculate this for themselves, or that it is self-evident?
Secondly, are we moving quickly enough to put our defence strategies into action to confront and—most importantly, as other speakers have said—deter our potential enemies? Do we rely too much at times on the support of our friends to make ourselves more credible?
Thirdly, it is said that wars are won by those with the best logistics. So have we engaged industry at the right level to deliver equipment and other resources at scale, speed and the flexibility to pivot or respond to new threats generated, as they will be, by any new conflict? Procurement has been mentioned a few times, but I argue that Covid showed why our procurement systems at state level can rarely be relied on. Although they delivered vaccines, it showed that the system as a whole was not fit for purpose. Would it be fit for purpose for any war or conflict we became involved in?
I want to make clear that I support this and the previous Government’s broad strategy. In particular, we have been at the forefront of the international community’s bid to support Ukraine and we must carry on in that relentless and ruthless endeavour to defeat Russia and the enemies of Israel, and to deter any further aggression across the world. The bullies in this world must know that we will face them down and that they will lose.
My answer to the three rhetorical questions I posed is that I am not persuaded that we have done anywhere near enough in these three hugely important areas. First, do the public understand why we will need to spend more? Well, they see the war in Ukraine on the news. They know that we have taken in Ukrainian families and given them safe haven here. We have trained many Ukrainian forces here in the UK. They see what is happening in the Middle East, but do they know what is happening in the Balkans and the obvious tensions there? Do they understand that if Russia succeeds in Ukraine, there are many smaller countries immediately in its path in the Baltic and northern Europe that will have a bear at their door—a potential standing army of 1.5 million that will be standing around waiting for something else to do? Do they need to be reminded of the immense achievements of Poland, which is raising an army of 350,000, provides logistical support to Ukraine and is the next country to the west should Ukraine be overrun?
As mentioned previously, apart from our commitments through NATO, perhaps this generation should be reminded of the catalyst for the conflagration in 1939 when Poland was invaded from another direction. Perhaps we have all become complacent that land war in Europe is a thing of the past, when Ukraine and the Balkans show that that is not the case.
There are two reasons to make this case more clearly. The first is the cost—everybody has talked about this—because someone is going to have to pay, and people need to be persuaded to put their hands in their pockets. It may also cost UK lives. If we want people to make such a sacrifice, they will need to be persuaded. Lord Kitchener found a simple way of doing this in the First World War, but I do not think that will work any more. With this generation, asking people to support a country without explaining why would be properly challenged and questioned. I do not think they are any less courageous than we have all hoped we were, but I do think they will need better explanations.
The answer to the second question, on whether our Armed Forces are large enough, must be no because we have said that we will spend more on them—up to 2.5% of GDP—although, as has been remarked already, we have not said by when. That seems a real challenge, because otherwise it is just a vague promise. If we do not set a date, how can anybody know when it has been achieved? It is not just about the previous Government; this Government will face the same challenge.
Is it not true that, with all the context we have described and threats getting bigger, our Armed Forces have in fact got smaller? Over the past two years, our Armed Forces have dropped by 18,000 when everybody has been saying that the threats have been getting bigger. Ukraine was invaded in February 2022; it was actually invaded for the first time in 2014. Yet, over the past two years, while these things have been happening, our Armed Forces have got far smaller. As has been said, the Russian army is increasing to around 1.5 million, despite the fact that it has lost 650,000 casualties—either dead or injured—over the past two and a half years. This is a massive number that every country will have to consider. In this country, not only have we lost 18,000 since 2022 but we have lost a further 4,000 over the past two years. So it is hard to say that we are pursuing the priority that we say we have set.
The noble Lord, Lord West, reminds us constantly of how few frigates we have. It has almost become a parody. People laugh when it is mentioned.
Lord Hogan-Howe (CB)
It is an incredibly serious issue, yet we all half laugh. The noble Lord has been the necessary grit in the oyster to remind everybody about the importance of what we are addressing. It is important that we all confront that reality.
I want to talk about industry. I wonder whether industry has been primed; this will be part of procurement but will depend on money because industry cannot tool up and train up unless there is a stream of money coming in the following years. Industry will have to be persuaded to invest, and the Government will have to find a way to encourage, promote and persist to make sure that this is delivered. Look at what is happening with the steel industry in south Wales: there is an inability to deliver core, ordinary steel, let alone the specialised steel that we need for military aircraft, tanks and all the other things required by the military. It makes me wonder whether we have the strategic reserve.
My final point concerns things at home. We have seen in Ukraine attacks on the capacity to provide electricity generation. Are we certain that we have the reserves? If we were attacked from the air, would we be able to stop it, or would we really struggle?
My answer to all three of the questions I have posed is that I do not feel we are doing enough, nor doing things quickly enough. I also do not think we are explaining things well enough. We want the public to support this, not just with their lives at times but through their taxes—generally, of course, we want them to support what our Armed Forces are doing in a way that only they can—but I do not think we have found that voice yet. I do not think we have roared. Poland has made a statement. I do not know what ours is, and I do not know when we will make it.
Lord Bew (CB)
My Lords, I thank the noble Lord, Lord Robertson of Port Ellen, for securing this debate at this dangerous and difficult moment in our nation’s defence history. As he rightly said in his introductory remarks, there can be no business as usual. I wish him good luck for the review.
He reminded us that this is not his first rodeo. A quarter of a century ago, he was at the heart of these matters. What I will do is just remind him, although I am sure he does not need reminding, of some of the ways in which he approached his agenda at that time in the late 1990s. In particular, I draw attention to the commitment that was made to the regions of the United Kingdom and the part that they played in our defence industry. Part of that, for example, is the Thales factory in Belfast, founded around 2000, which was a major development. Every NLAW that is now fired in Ukraine has come from that Thales factory. In part, I draw attention to the disproportionate role that, for example, Belfast and Belfast factories are now playing in that major conflict, which goes back to the approach that the Labour Government had in the late 1990s and the beginning of this century, to make sure that defence and defence industries had to be looked at in a properly regional and fair way.
To take this up to the present, earlier this year, in January, the then Government produced their Safeguarding the Union document, which was part of the process, welcomed by the then Labour Opposition, by which the power-sharing institutions of the Good Friday agreement were restored in Belfast. That document was a very important part of the context for that achievement. Paragraph 34, on page 75, touches on the issues we are concerned with today:
“Recognising the untapped resources available to the defence industry in Northern Ireland, the Government”—
the then Sunak Government—
“is committed to incorporating Northern Ireland into the UK defence network, showcasing the skills, industry expertise and infrastructure that are thriving in Northern Ireland”.
The King’s Speech renewed that commitment to the regions of the United Kingdom. The Labour Party, in opposition, welcomed Safeguarding the Union as part of a process by which the institutions were restored in Northern Ireland. I am simply anxious that, during the work of this review, these commitments are not forgotten and, to repeat my point, that the first time around the noble Lord, Lord Robertson, got this right. I just hope that, the second time around, he also gets it right.
I strongly welcome the Government’s commitment to raise defence spending up to 2.5%—although I know that there are many in this Room who think that it is not enough. I also welcome—this point has come up already in the debate—the renewed intensity of the Government’s commitment to international law. I want to add a coda, particularly in the light of recent days, that this correct concern about double standards should not lead to a neglect of our vital interests.
The noble Lord, Lord Kerr of Kinlochard, said that we were in a 1938 moment—and we are in a double sense. The second sense is about the Anglo-Irish treaty of 1938. All civilised opinion in London welcomed that as a wonderful moment in which we healed our relations with the Irish people, with whom we had not been getting on well—legendarily. It was advertised by the then Chamberlain Government that we were telling Mr Hitler, “This is how you deal with problems: you make concessions, you are very civilised, you talk”. Indeed, at times, we had a leader saying that this would even help solve problems in the Middle East—which is a big ask, I have to say—immediately after this event.
In fact, the key moment was the surrendering of our ports that existed under the treaty in the south and west of Ireland. The Admiralty just made a miscalculation. It did not concede that the Germans would be operating out of French ports in 1940 so rapidly. It therefore thought that it did not really need those expensive ports in Ireland. At the end of the war, the Admiralty calculated that we had lost 5,000 to 7,000 sailors because we had given up those ports in the south and west. So while we think of international law and international civilised standards, there is always a need to remember, above all, the hard-headed and perhaps cynical assessment of what our own national interests are in a world in which not every country is equally committed to liberal values. Like other noble Lords, including the noble Lord, Lord West, I wish everyone good luck in this project.
Baroness Miller of Chilthorne Domer (LD)
My Lords, I welcome this early consultation of Parliament and I thank the noble Lord, Lord Robertson, for bringing this debate today. He will not be surprised that I want to talk about the first of the parameters that the Government have declared fixed: the independent nuclear deterrent. I accept that it is the settled view of this Government, the previous Government and my party, the Liberal Democrats, that the British nuclear deterrent is here for the short and medium term. In the long term, all three parties have declared that their goal is global nuclear disarmament. So as one of the nuclear weapons states, it is incumbent upon us to do all we can, while possessing nuclear weapons, to make their possession as risk-free as possible.
I attended part of the preparatory conference for the nuclear non-proliferation treaty in Geneva this summer and listened to the delegations from many of the 94 countries that signed the UN Treaty on the Prohibition of Nuclear Weapons. That treaty really came into being, and those 94 countries felt it was necessary, because the nuclear non-proliferation treaty itself has failed to make any progress. That makes the next round of the nuclear non-proliferation treaty all the more important. In the last decade, there has really been no constructive progress towards either disarmament —rather, nuclear weapons states are ignoring their Article 6 obligation, while modernising and updating their nuclear weapons—or making possession of nuclear weapons safer.
I have three hopes. I hope that this strategic defence review will think about how the UK’s nuclear doctrine and posture accords with the stated aims of the NPT. I hope that when the Government think about their priorities for this NPT round they can give a lead, among the nuclear weapons states, to move further with some of the positive things such as verification—the sort of work that the previous Labour Government initiated and were so good at driving forward. I also hope that this review will consider at some point at what moment substantial investment in cyber capability will be considered far more appropriate for efficient defence, and far more usable, than a nuclear deterrent.
As the UK ambassador on disarmament, Mr David Riley, said in Geneva,
“the UK takes its responsibilities seriously. We remain committed to working with others—including those who may threaten our interests and security—to build stability, transparency, and better mutual understanding, and to identify and implement effective measures which will ultimately shape the conditions for achieving a world free of nuclear weapons”.
These are all sentiments I thoroughly agree with but, as far as transparency and trust go, I have to mention the matter of nuclear weapons and Israel. Israel neither admits nor denies that it has nuclear weapons, and the USA and the UK have colluded in this ambiguity, but that moment has passed its sell-by date. As much as we may condemn Iran for trying to develop a nuclear capability, we must surely take the same stance towards Israel now. It is almost 40 years since Mordechai Vanunu bravely warned us of Israel’s capability.
I wish the Government well at next year’s nuclear non-proliferation treaty conference. As I mentioned, when they were last in power, they had the will, insight and people to give good leadership in an effort to diminish the nuclear threat. I have just one question for the Minister when he comes to close. In the light of a strategic defence review being done now, why did the Government choose on 25 July to suggest amendments to the mutual defence agreement with the States, one of which is to extend it for infinity? At the moment, it has to be reviewed regularly. As the noble Lord, Lord Howell, said, we do not know what is going to happen with the States; I think he was suggesting that we have to keep our bets hedged. Why is this the moment to extend that agreement indefinitely?
Lord Verdirame (Non-Afl)
My Lords, I am grateful to the noble Lord, Lord Robertson, for securing this debate. The starting point of the review will be the changes in the threat picture. A number of noble Lords, including the noble Lords, Lord Robertson and Lord Kerr, have already eloquently explained how that threat picture has changed, so I will not repeat that. To appreciate how fundamental this change has been in a short period of time, it is useful to recall that the 2021 integrated review, which provided a very thoughtful analysis of the main trends in the international security environment, said:
“The realistic optimum scenario is an international order in which these trends can be managed effectively”.
It is fair to say that this optimum scenario is no longer realistic and now seems implausible.
This fundamental change of circumstances gives rise to at least four challenges, which I hope will be addressed in the review. First, the most pressing question is whether we are adjusting to this new reality fast enough; it seems to me that we are not. It would be important for the review to provide an assessment of the strategic cost of delay, including further delaying a decision to increase defence spending.
The second challenge concerns our posture towards the international order. Quite rightly, British defence reviews have historically emphasised our commitment to the rules-based international order and its importance for our security. As an international lawyer, I very much welcome that, and am sure we will maintain that commitment, but in light of the changes in the threat picture, we also need to be alive to the risk of the international order, its rules and its still-fragile institutions, being instrumentalised and in some cases perverted.
Russia or Iran do not sit outside the rules-based order; they are part of it and they use it, sometimes quite effectively, to advance their interests and undermine ours. The UN Human Rights Council is a lamentable example of an international institution that has been quite successfully perverted. Beyond restating our commitment, we need a degree of clear-headed, strategic thinking—and perhaps hard-nosed realpolitik, to echo what the noble Lord, Lord Bew, said—to find ways of defending these institutions from autocratic capture and sometimes to stand up to them.
Thirdly, there is the issue, on which I touched in the debate on the Loyal Address in July, of differential treaty obligations within NATO but also between us and our potential adversaries. In essence, since the end of the Cold War, a split has emerged between the US and European allies. There are a number of treaties that are very relevant to the conduct of hostilities, to which we have chosen to become parties and the Americans have not. In the days of the war on terror—the noble Lord, Lord Robertson, will remember these discussions—it was generally assessed that we could maintain adequate interoperability within NATO, notwithstanding these differential treaty obligations. We are now dealing with a very different situation: one where the British and Europeans may do much more of the heavy lifting and the fighting than was the case before.
In addition to that, we may soon also face a split within Europe. Lithuania is withdrawing from the Convention on Cluster Munitions, and other states in the Baltic region are considering their position under both that treaty and the Ottawa treaty. These are new challenges that we need to consider. We may also soon be faced with pressure to enter into new treaties on artificial intelligence. I very much agree that this is an area where we will need international legal regulation, but decoupling from the United States on that regulation in particular, as concerns the defence and security applications of AI, would be a very serious error and one which I hope the review will warn against.
The fourth challenge concerns the industrial base, which is part of the review’s terms of reference. Our share of the world’s arms exports has declined considerably. For most of the post-war period, we were the third-largest arms exporter, and 15 years ago we had about a 5% share of the world’s arms exports—now, I think we have just above 3%. There are many reasons for this. One may be our regulatory approach to arms exports.
In the last five years alone, there have been at least three situations where we stopped arms sales to countries with which we have important strategic partnerships. In 2019, we temporarily stopped arms sales to Saudi Arabia as a result of a Court of Appeal judgment. After that, we had an arms embargo, alongside other European countries, against Turkey; it is well known that that embargo, which has now been lifted, posed a serious obstacle to securing Turkish support for Ukraine and for Finland and Sweden joining NATO.
More recently, we had the decision to suspend the 30 arms licences to Israel. The Government presented that decision as one required by law and published an assessment of their reasons for the decision. A very concerning aspect of that assessment is that they said that not a single instance of violation of the IHL rules on the conduct of hostilities was established, with or without British weapons. I think the noble Baroness, Lady Goldie, commented that it seems no longer to be the case that there should be concrete and specific evidence of a nexus between British weapons and violations. A legal arms embargo is different from a political one. Legal risk, unlike political risk, will eventually apply equally to everyone.
A key question for the review to consider is whether we are still a reliable arms exporter in the eyes of our strategic partners. Countries considering buying British weapons may conclude that, if they are at war, they are unlikely to receive essential components of those weapons, as a result of our approach to policy, and may therefore decide to buy elsewhere. If we lose these contracts, we lose business; we weaken our industrial base; and, crucially, we lose influence. These are strategic costs that I hope the review will address.
Lord Walney (CB)
My Lords, I commend the remarks of the noble Lord, Lord Verdirame, and associate myself with them. I draw the attention of the Committee to my interests in the register. I will add two brief points to the very many erudite contributions that have already been made in the debate.
The first is on the importance of the AUKUS alliance to our future strategic defence. The deal signed in 2021 between the UK, Australia and America was genuinely ground-breaking and historic. In the coming period, coinciding with this parliamentary term, we must realise the ambitions of both pillars of the agreement: to deliver a conventionally armed but nuclear-powered submarine to Australia through the joint industrial and technological endeavour of the UK and Australia, aided, as ever, by the Americans; and to have increased co-operation on a range of advanced capabilities, currently listed as undersea capabilities, quantum, artificial intelligence and autonomy, advanced cyber, hypersonic and counter-hypersonic system capabilities, electronic warfare, innovation and information sharing.
Incoming Labour Ministers commendably focused on the AUKUS agreement while in opposition and have given unequivocal backing to its continuation. The risk is that in this highly congested matrix of threats in the middle of which we, in the United Kingdom, find ourselves—amid ongoing questions about funding, the question mark over the US election hanging over the country, the continued threat in Ukraine, the risk of instability in the Middle East and the understandable question of whether the UK can feasibly make a sufficient contribution within the north Atlantic—AUKUS is seen as part of an Indo-Pacific tilt which takes the UK beyond its capabilities. Even if the Government’s stated intention remains, their focus may drift.
All those things are understandable, but have to be placed in the context of the fundamental importance of the strategic threat that a rising China poses to us. It should be a point of great pride for our nation that we can assist in this significant advance for the West by increasing our deterrent capabilities towards a strategic opponent or adversary—however you want to call it—which has been growing remorselessly, which is not fazed by much of what the UK and its western allies have done recently, but which has really noticed the change that AUKUS provides.
Much of the AUKUS agreement rests on embedding a consensus between Governments and within parliaments. That must be supported by an increased understanding of the threats that we face. That is the challenge that the Government, and all of us as parliamentarians, have to prosecute over the coming years.
The second of the points that I want to make is on the importance of a whole-government, whole-society approach. There have been a number of important contributions on this already.
Look at the example of the nuclear deterrent programme, which has been described many times as a national endeavour. Look at the focus that each incoming Prime Minister has placed on it and their understanding of the funding needed to drive it through. That stacks up, but is the whole of government really focused on delivering the deterrent programme in the way that is needed? That is an open question. The long-term funding that has been provided for Barrow and the wider economy to unlock issues with the programme’s delivery is hugely welcome and the commitment to that must remain under the new Government. This goes beyond the strategic defence review, and I am not saying that simply as a former MP for the area. It is hugely important to unlock the delivery of the programme, without which one would struggle to do it and certainly to do it to cost. It is a cost saving of £200 million, if the Treasury can believe that, which is sometimes a struggle.
The earlier contributions about the delinquency of former Governments were powerfully made, but we must look at ourselves and at the political debate in this country. Look, for example, at the level of controversy over the restriction and means testing of winter fuel payments or over the child benefit cap. There is nothing like the same level of controversy and focus on the gap that clearly exists in the country between present defence spending and what is needed to restore a level of deterrence and give us greater security to maintain our ways of life and values in future years. Until we can change that, which requires leadership from the top and across the political spectrum, and until we can talk more seriously about the defence and security issues that we face—not simply within this erudite Room but more widely and in a way that is more often heard by the public—we will never move to the funding levels and hard choices needed to give ourselves the strategic deterrence that we need.
Earl Attlee (Con)
My Lords, I am grateful to the noble Lord, Lord Robertson of Port Ellen, for introducing this debate. I agree with almost everything that every noble Lord has said and I see no reason to repeat or amplify what they said. The noble Lord, Lord Robertson, was the architect of SDR 98, which we have talked about. I took part at a very junior level in Exercise Saif Sareea 2 in Oman, in which exercise we used the laydown from SDR 98. We went on to Operation Telic, but it was so important for us to learn the lessons from the mistakes we made on Exercise Saif Sareea and avoid them on Telic.
Like many noble Lords, I have confidence in the process, apart from the financial constraints that many noble Lords have talked about. My worry is that events may overtake the review. My fear is that a drastic change in the international situation may make full rearmament unavoidable, and if we were to do that I think the howls of pain from the population will be very great indeed. I entirely agree with some of the points made by the noble Lord, Lord Walney, on that.
Another challenge, if we have to rearm, will be to do it quickly. Perhaps the review might look, if we do need to rearm, at how we would do it. I also think it is important to consider what the United States wants from us. Whenever I talk to anyone from the United States, they always say they want a full-spectrum capability. I am not clear that we can actually do that, but we should make sure that we can support the United States because it is an absolutely key ally.
All noble Lords know that the land component is seriously neglected. Many noble Lords referred to the situation in 1938. It is interesting that, in 1935, the cavalry was still seen as an important land component. The future of land warfare is uncertain. For instance, at the moment there is no dead ground, so you cannot form up an armoured battle group to attack without the enemy knowing where you are and what you are likely to do. That situation might change with changes in technology—there may be some way of defeating mass drone surveillance or satellite surveillance—but we simply do not know what the outcome in the conflict in Ukraine will be. Therefore, it will be extremely difficult for the review to work out what to do about the land component.
What is clear, and I have banged on about this many times, is that we need large-scale overseas exercises at divisional level, so that commanders can exercise moving whole brigades round the area of operations. We need to do that to test our capabilities so that we can find out what our weaknesses are when they have been covered up, with some junior officers from SO2 jumping up and down saying, “We’ve got this weakness but no one will listen”. When you do an exercise, you find out what your weaknesses are, but you also demonstrate to an opponent that you have a capability. My comments about weaknesses apply particularly to combat service support—the logistics. I would say that because I am a logistician.
We know that our armoured fleet is inadequate—that is no secret—but, recently, the Daily Mail published an article about the Bulldog armoured vehicle, descended from the FV430 range. The previous Labour Government took the precaution of re-engineering the vehicle with a completely new power train, so I do not recognise the article at all.
We must make sure that the capabilities we do have work and are deployable. For instance, at the moment—this is down to the previous Government, not the current one—our LPDs, or landing platform docks, are not available for operations, simply because we do not have the ratings to man them. We must make sure that we have the terms and conditions of service so that we do not have important platforms unavailable to go to sea, because, if they cannot go to sea and our opponents know that, there is no deterrent. The deterrent relies on the fact that we have significant conventional forces. Some time ago, the noble and gallant Lord, Lord Craig, made the point that, if your conventional deterrent is too weak, your nuclear trip-wire is too low.
I also make the point that, in several military headquarters, there are too many gapped posts, especially at SO2 level. This puts unfair pressure on the other staff officers.
The aircraft carrier was a controversial part of the strategic defence review in 1998. I will not comment on whether it was a good decision or a bad one; the facts of the matter are that we built them and that they have strategic utility. The United States has only 10 or 11 aircraft carriers, while we have two, so that is a significant contribution to the Americans’ effort and enables the UK to mount a significant operation while the US is either doing something slightly different in the area of operations or is otherwise engaged. I think that the review will have to think very carefully about aircraft carriers but, in my view, they have significant strategic effect and leverage.
My final point concerns nuclear, recently touched on in the debate. I say, “Thank God for the deterrent”, because, although we do not ignore Putin’s sabre-rattling, we are not terrified into submission, because we know that we have the nuclear deterrent.
Baroness Bennett of Manor Castle (GP)
My Lords, I begin by welcoming the wider participation in the preparation of this defence review reported by the noble Lord, Lord Robertson of Port Ellen. We clearly need far more democratic input to fix our broken politics. There is a need for participation and public empowerment—and, of course, a need for Governments to listen.
I begin by focusing on one element of the strategic defence review’s terms of reference, explicitly stated as background: the instability caused by climate change. Right now, as we speak, Florida is hunkered down. The National Hurricane Center in the US expects Hurricane Milton to make landfall as an extremely dangerous major hurricane tonight, our time, with coastal areas already feeling the effects. One official said that the storm is going to be like nothing they have seen before.
Of course, that could be a metaphor for the entire defence environment that we are debating today. This comes after devastating flooding in western central Africa, which displaced hundreds of thousands of people. Last month, Poland, Romania, Slovakia, Austria, the Czech Republic, Italy and Germany were hit by deadly and torrential rain. In May, there were catastrophic floods in southern Brazil and Uruguay. At the same time, Brazil is having to resort to unprecedented dredging of the once mighty Amazon to keep its travelways open after unprecedented drought. So I ask the noble Lord, Lord Robertson, an explicit question: can he assure us that climate will be central to this review, as it obviously needs to be, in terms of the threat to the security of this planet? Is there enough expertise in the team to make that possible?
Another side of the climate issue, from a defence perspective, is the damaging and destabilising role of fossil fuel companies, and mining companies in general, with human rights abuses that spread instability, hostility and rightful anger at the global North. I give just one example, the events in the summer of 2021 at a gas plant in Mozambique owned by Total Energies. Security at this gas plant was provided by a unit of the Mozambique army deployed in the gatehouse at the entrance to this western oil company project. The local villagers were rounded up—this has all been recently reported by Politico—and the men were separated from the women and children and crammed into shipping containers. The estimates range from 180 to 250 men crammed into those shipping containers. They were subjected to beatings and starvation. Only 26 survived.
The officer in charge of this mission said that its project was to protect Total, a fossil fuel project. This is not just an issue for across the channel from us, because in summer 2020 Britain put $1.15 billion of taxpayer money into supporting this project, investing in what was already a site of active conflict. This is a current issue, because the Government are now considering whether to continue taxpayer-funded direct loans and guarantees to this project. The point I am making is that we have to consider this holistically—not just defence on its own, but the entire issue of rights and security within which our defence forces, our country, operate.
Regarding other mining companies, I will just mention Glencore, about which there is a database of many scores of credible allegations of significant human rights abuses since 2010. Recently in Peru and Colombia, it has threatened indigenous communities and caused enormous environmental damage. There was also a toxic spill in Chad. The noble Lord, Lord Alderdice, spoke about the responsibilities of civil society, beyond those serving in the armed forces, for security. We have to focus not just on individuals but on the behaviour of our companies and I would also say the behaviour of our financial sector. Under the former Government, a Minister acknowledged that 40% of the world’s dirty, corrupt money goes through the City of London and the Crown dependencies. There are all the issues around supply chains, deforestation, human rights abuses and environmental damage, which brings me to one of my main points: why is this only a defence review?
That is perhaps a question particularly directed towards the noble Lord, Lord Coaker. What is the relationship between this work and the document Global Britain in a Competitive Age: The Integrated Review of Security, Defence, Development and Foreign Policy, published in 2021 and refreshed in 2023? That document was criticised for not making strategic choices—for setting out lots of problems and things that needed to be done, but not making choices—but we have to make choices about where resources go. We can have a secure stable world, with its people equipped to tackle the polycrisis of environment, economy and geopolitics in which we are entrapped, only with support for education, healthcare, funding for democratic Governments and official development assistance. No one is safe until everyone is safe. Healthcare could not be more crucial. We have just had a German train station locked down because of the threat of the Marburg virus, which can have a fatality rate of up to 88%. Why are we not looking holistically at ODA, health spending and action against corruption?
I want to pick up very briefly the points raised by the noble Baroness, Lady Miller. The Green Party does not agree with the total commitment to the independent UK nuclear deterrent. We believe—we know—that the majority of the world’s countries back a global ban on nuclear weapons, and that we will have global security only when we have co-operation around the world. Why does it start from this point? You might hold this position, but why not ask the question? Surely, that has to be a responsibility in this unstable, dangerous age.
Finally, since AUKUS has been mentioned, I would not bet on long-term backing for AUKUS from Australian society. I note the opposition of two former Australian Prime Ministers and a former Australian Foreign Minister to AUKUS.
Lord Bilimoria (CB)
My Lords, the Government launched the strategic defence review on 16 July 2024. It is expected to report in the first half of 2025, which is an important date to note. The SDR has been described as a root and branch review of the whole of the UK defence enterprise, pointing the way to a new era for defence, but can a different approach taken this time around produce significantly better results than the other recent reviews? The worst one in history was SDSR 2010, under the leadership of Defence Minister Fox; it was hopeless, and it decimated our Armed Forces. This time, we are very lucky that the SDR is being led by my friend, the noble Lord, Lord Robertson —chair of Ditchley, where I was a governor—and General Sir Richard Barrons. He and I were fellow commissioners at Royal Hospital Chelsea together.
With the ongoing war in Europe, the conflicts in the Middle East and global and regional instability, this review is all about the values and interests of the United Kingdom, including the threats posed by terrorist groups, hybrid warfare, the instabilities intensified by climate change, the UK’s defence structure, recruitment, training, the modernisation of the defence systems and the trajectory to reach 2.5% of GDP. In 2019, in the debate on NATO’s 70th anniversary, I said that we should spend 3% of GDP on defence, and I have been like a stuck record ever since. The MoD faces funding challenges. Our budget today is £54.2 billion for defence, and I will come back to that. We know the inefficiencies in our MoD procurement processes, evidenced by the delays in programmes such as Ajax and the Type 26. They will undermine our capability to respond to emerging and unexpected threats.
We are meant to be investing more in innovative technologies such as AI and cyber, and maintaining a competitive edge, and we are also meant to prioritise effective recruitment. I plead with the noble Lord, Lord Robertson, to make sure that this review gets rids of outsourcing recruitment. How can we outsource the esprit de corps of the finest Armed Forces in the world to recruiters who are not part of the defence forces themselves? That is a stupid idea—we have to stop it right now.
Other factors are our commitment to the UK’s nuclear deterrence, reinforcing NATO as a foundation of the UK’s defence strategy and a comprehensive approach to modernisation. The terms of reference have clear parameters: a commitment to the UK nuclear deterrent, a NATO-first approach, reinforcing homeland security, continuing support for Ukraine, maintaining defence ties with the Indo-Pacific region, the Gulf and the Middle East, and delivering AUKUS. But RUSI has said that the scale and immediacy of the threats and risks to UK national security grow. We will need to consider both pressing threats in Europe and longer-term challenges—for example, from China. The conflict and instability in the Middle East could escalate into a major war. The contingencies with respect to Taiwan and the Korean peninsula; the growing risk of hybrid attacks; the challenges in the new domains of space and cyberspace; and the potential and recurrence of international terrorism—all need to be on the menu of the SDR.
This is an important point: the post-Cold War reviews have focused on threats and risks that are immediate, occupying our minds and devising headline policies right now. But then things change quickly. Look at the example of the refreshment of the integrated review and defence Command Paper—within two years of publication—which happened after Russia’s full-scale invasion of Ukraine. We have to bear in mind that we need long-term thinking but also to be ready to adapt.
The UK and other western Governments have struggled to find the right balance of co-operation, competition and confrontation with regard to China. Then you have the balance between the Euro-Atlantic and the Indo-Pacific sides of things, as well as striking the right balance between short term and long term. Space is a strong candidate; we need additional expenditure on space in the SDR. We need collaboration with India, which is doing great initiatives in space. There is the scope of the Global Combat Air Programme, given that Typhoon should serve well, perhaps for another two decades, as long it has the latest weapons and sensors. The lessons learned from Ukraine and the Middle East should inform the judgment for our wider capabilities.
I am a proud member, as an honorary group captain, of the RAF 601 Squadron. I am co-chair of the All-Party Parliamentary Group on India. It is very important that the SDR looks at how we are to work more closely with India, the fastest-growing major economy in the world. I predict that it will be the largest economy in the world by 2060. Are we doing enough joint exercises? Last year I was delighted that the RAF and the IAF had Exercise Cobra Warrior, a very good joint exercise.
My late father, General Bilimoria, was commandant of the staff college in India. There was exchange of officers, and exchanges through the RCDS and the NDC in India. We used to have an Indian Army liaison officer posted in the UK within the British Army. My father held that post as a lieutenant colonel; that post no longer exists. That trust needs to be rebuilt.
The UK should join the Quad, the Indo-Pacific alliance between the USA, Japan, Australia and India, to make it Quad Plus. We are at the top table of the world. We are a permanent member of the UN Security Council, the second-biggest power in NATO, and a member of AUKUS, Five Eyes, the G7 and the G8, though sadly not the EU any more. We have the finest, most respected Armed Forces in the world, something that we as a nation should be immensely proud of.
But here is the “but”: as has been pointed out earlier, our spending on defence was higher in real terms in 2010 at £57 billion than it is today at £54 billion. Then, in 2010, there was a golden era with China, no threat in Ukraine, and not the confrontation in the Middle East that we have today. We are spending too little. Our full-time Armed Forces number 192,760 in total, Army, Navy and Air Force combined. My father’s army, the central army in India, was 350,000. There are 29,000 reserves. This is not good enough.
My final point is that the trajectory of this review should not be assumed. We are going to have a Budget in October, and a new American President soon after. What is the new American President’s approach to Ukraine or NATO going to be? What is the central planning scenario? What if the war in Ukraine continues and we need to spend substantially more? We need to be flexible and think of that; it will be too late by the time we report in spring next year.
Finally, the noble and gallant Lord, Lord Stirrup, said that we have a shrinking and hollowing out of our Armed Forces. The noble Lord, Lord West, said that money is the elephant in the room. The price of freedom is not free.
Lord Balfe (Con)
My Lords, I thank the noble Lord, Lord Robertson, for initiating this debate. I had a conversation with him before Christmas and suggested that this might be a good idea.
I would first like to look at the threat picture. We know roughly what it is, but the biggest threat picture is of the division of the world into two very heavily armed camps, with one, the Russians, getting increasingly close to the Chinese. We are in danger of ending up with Chinese bases in the Arctic if we cannot manage to get some sort of peace talks going—read the recent report of this House. Then we will be in even more difficulty.
The defence review says that we take as granted our membership of NATO, so why do we not start off with that? The war in Ukraine is in a non-NATO country. It is undoubtedly illegal, but it was not unprovoked. Noble Lords can shake their heads, but while this war carries on and until we can manage to get it under control, we are not going to get anything that resembles a peaceful solution in Europe. Our first aim should be to secure the defence of our NATO allies. In particular, that means to look at how we can work with the new NATO partners to guarantee the security of the Baltic states. They have a right to expect us to help with their security, and that should be our number one priority.
Beyond that, we can debate and discuss, but we have to realise that we are dealing with a number of countries that are fundamentally unstable and have internal conflicts which, by definition, rule them out of being members of NATO. I would hope that we can concentrate on the Baltics and make it possible for the Baltic states to feel more comfortable than they clearly do; that we will look at how we police effectively the Suwałki Gap; and look at how we relate to the countries that are already in NATO.
Looking at another of these headings, I note the point about our support and the need for proper and efficient defence forces. I really hope that this review will look at the outsourcing of recruitment. I have what is supposedly an Army recruiting office at the top of the road in which I live. Most of the time it is closed; I have never actually seen anyone in it. I wonder whether this scheme is delivering any value for money. Overall, philosophically, I am opposed to outsourcing. It is generally done for the wrong reasons—to try to save money—and not for the reasons of promoting better efficiency and the like. I hope that we will look at that and at the way in which we can get people into the Armed Forces.
I live in the city of Cambridge: we have a very large Russian and Ukrainian population there. They get on very well together. They are basically the sons of the rich of those two countries who have all managed to get out, thanks to daddy’s money. They have got themselves to Cambridge where they have set up both a Russian society—the secretary lives a few doors up from me—and a Ukrainian society. The interesting thing is that the two societies get on very well together. We are becoming a sort of base. It is rather like when I was at university: we were flooded with Americans who were dodging the Vietnam War. Now Cambridge has plenty of Russians and Ukrainians who are, let us say, making themselves scarce, so we have a challenge in that direction.
I know that I have made my final point before and that it is not popular, but Russia is a European country and we somehow have to work out how to bring it back. I say to the noble Lord, Lord Bilimoria, that the Russians and the Indians are getting closer and closer together. Far from India coming our way, Russia is building up a dependence on its energy within India. The energy is starting to go south instead of west. Mr Modi is playing a very clever game in many ways, but he is not playing a game of being particularly friendly to us, because he sees the advantage to India in being friendly to Russia and getting closer to the stans and the former southern Soviet republics. We need to remember that.
Politics, after all, is about self-interest. People often tell me that the United States is our great ally and that we are its favourite child. They never say that in Washington; this is a myth that we pursue. Countries have foreign policies to better their own self-interests. I hope that this review will look at how we can better the self-interests of this country, rather than pretending that we are doing it for other people.
Lord Mountevans (CB)
My Lords, we all agree that the noble Lord, Lord Robertson of Port Ellen, is a highly suitable chairman for this review. He is also a man with knowledge of commercial shipping and strategic industry, so I begin on a wider note.
Yesterday, I attended a major commercial shipping conference organised by the UK Chamber of Shipping at the Westminster conference centre. It is significant to report that among commercial shipping people there is, of course, much heightened awareness of the threat internationally to ships, crews and cargoes. British fleets, and other what might be called rules-based order fleets, are increasingly aware of the extent to which they may have to rely on the potential protection and general support of the Royal Navy and associated NATO fleets, as well as the Royal Navy’s partners around the world. I believe that it is important that this sentiment is reported back to your Lordships’ House, particularly in this debate.
International trade is the lifeblood of the UK economy and nation. There is great appreciation for the men and women of the Royal Navy and all that they do to protect trade and what we commonly refer to as the rules-based order. There is likely to be an increasing need for this support, but my principal intention in speaking is to highlight the vulnerabilities and risks that exist for the United Kingdom’s economy in what might be termed coastal infrastructure.
The UK’s coastline exceeds 7,700 miles and embraces some 120 ports. These are vital for the supply of food, medicines, raw materials and more to the nation, as well as for facilitating exports. However, the nation’s exclusive economic zone—an area of almost 300,000 square miles—contains a hotchpotch of marine infra- structure, which is also critical to the nation. I begin with the underwater cables that connect the City of London and the nation’s financial services with New York. This is Britain’s most successful industry and vital to the economy. The volume of daily data and digital traffic is too great to be communicated via satellite, so it is carried by around 60 undersea cables. If only a few of these were damaged, the impact would be enormous: around $10 trillion of business a day is reckoned to be transacted through them.
All this represents a profound vulnerability at a time of increasing and overt actions by malign actors, some of them state actors, including Russia. There is growing awareness of this vulnerability in the City of London, where I served as Lord Mayor in 2016. After a long career in shipping in the City, I now regard myself as more of a West End boy, contributing where I can in your Lordships’ House. As may be imagined, however, I retain close connection with the City of London Corporation and certain sectors. There is growing awareness in certain quarters of the risks that are posed to the nation’s marine infrastructure. In this House, we very properly declare our interests. Perhaps I can say at this stage that a group of senior City practitioners and others with highly relevant experience and expertise are forming a group to look at these and other vulnerabilities to ensure that they are noted, understood and, wherever possible, addressed. I have been invited to chair the group, which I am honoured to do unless I can find some other unfortunate.
The underwater cables are just a part of this highly developed and extensive network of infrastructure systems that benefit and protect our nation. Energy is critical for the nation’s success and security. There is the web of pipelines that connect oil and gas fields to the mainland, and there are gas and electricity interconnectors that link the UK with other countries, notably Norway, Belgium, the Netherlands, France and Denmark. Most visibly, there is the growing number of offshore wind turbines around our coasts. They are much in evidence already, but my understanding is that what can be seen now is a mere 10% of what will be in place when the current programme of installations is complete.
At a time when a major land war is being fought in Europe and there is increasing grey zone activity, including from state actors, it is vital that this critical and extensive marine infrastructure is protected in all ways possible. The nation’s resilience becomes ever more important, not least given the moves to just-in-time delivery of so many materials and products. It is valid to ask which entities have ownership and control of the assets and infrastructure and have responsibility for their maintenance and servicing. The cables are fundamental to the operation of the City of London and one of the world’s leading financial centres, while the energy-related assets are equally fundamental to the functioning of industry, the economy and society. Can the noble Lord, Lord Robertson, confirm that this vital national infrastructure, with all the vulnerabilities that it carries, including, but not limited to, physical damage and cyberattack, is prominent in his priorities?
We should not forget that the UK’s EEZ, if the Crown dependencies and overseas territories are included, amounts to some 2.62 million square miles. Can the noble Lord confirm that they will also be within the scope of the review?
I turn to other key considerations. We need to develop and grow a skilled labour supply capable of staffing our industries and energy base, and indeed our shipyards and Armed Forces. There is a need to go beyond the simple contract price when awarding government contracts and look instead at whole-of-life costs and the multiplier impacts of contracts awarded in the UK. Defence is everybody’s business. As the noble Lord, Lord Alderdice, noted earlier, we require a national effort on this and need to develop a strategy for engaging with the general public.
Viscount Trenchard (Con)
My Lords, I congratulate the Government on their wise decision to place the strategic defence review in the most capable hands of the noble Lord, Lord Robertson of Port Ellen, who is universally well regarded on all Benches; I too thank him for introducing this timely debate. I declare my interests as a consultant to Mitsubishi Heavy Industries Ltd, the lead industrial partner for Japan in the JICA project, and as the honorary Air Commodore of 600 (City of London) Squadron, Royal Auxiliary Air Force.
Under the previous Government, we saw two reviews: the integrated review of security, defence, development and foreign policy in 2021 and the integrated review refresh in 2023. Since then, the global security landscape has progressively deteriorated. It is in a more turbulent and unpredictable state than it has ever been since the end of the Second World War. The noble Lord, Lord Robertson, described China, Russia, Iran and North Korea as “the deadly quartet”, and many defence experts consider that the global community is on the path to a third world war.
The national defence strategy of the United States, as adopted in 2022, named China as a pacing challenge and identified it as the only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military and technological power to advance that objective. Against this background, it is essential that His Majesty’s Government—as well as the Governments of all friendly nations that believe in the international rules-based order—remember that the defence of the realm and the safety of the public is the first duty of a Government.
Can the Minister confirm that the fact that the review is to be reported to not only the Prime Minister and the Secretary of State for Defence, but the Chancellor of the Exchequer, is not significant? I worry that the Treasury may exert undue pressure on the review’s findings to prevent the Government setting out a clear pathway to increasing defence spending to at least 2.5% by 2030. I agree with the view of the noble and gallant Lord, Lord Stirrup, that the figure should be increased to 3% as soon as possible. As the previous Government’s paper, Defending Britain: Leading in a More Dangerous World, published in April this year, explained, any delay in setting out a pathway to reaching 2.5% is likely to lead to front-line cuts at the worst possible time for our Armed Forces. Spending more will not in itself be enough; reform of the Ministry of Defence, to build a less risk-averse department and improve its procurement process, is also essential.
My involvement with an RAF reserve squadron has taught me that the Reserve Forces have a major part to play in increasing total military output for less money. Today, 50% of the RAF reserves routine output is in support of the front line and operations. Against the background of today’s more flexible employment culture and the integration of the Reserve Forces into the regular forces, could we not aim to achieve a ratio of regulars to reserves of 1:1? The United States achieved that long ago, and other NATO allies such as France, Germany and Sweden are set on a pathway to the exponential growth of their reserve forces.
Can the Minister and the noble Lord, Lord Robertson, confirm that the Government’s declared intention to reset our relationship with the EU does not mean that we will pull back at all from the tilt to the Indo-Pacific, which recognises our ability to punch above our weight in hard and soft power, working with our allies across the world? Japan remembers with affection the Anglo-Japanese alliance of 1902-22. The UK’s bilateral relationship with Japan has grown progressively closer in recent years. In particular, defence and security initiatives have strengthened the relationship, forming part of a more integrated defence approach across the Euro-Atlantic and Indo-Pacific regions. This strengthening has been especially appreciated by Japan against the background of growing uncertainty over the reliability of the United States’ security umbrella and the deteriorating geostrategic situation in east Asia.
The Japan-UK reciprocal access agreement of January 2023 and the Hiroshima accord of May 2023 committed both nations to the global combat air programme—GCAP—together with Italy as the third partner. Japan and the UK have therefore joined forces and pooled their technologies, together with Italy’s, to develop a sixth-generation fighter jet—in the nick of time as far as Japan is concerned, because the life of its existing F-2 fighter aircraft cannot be extended beyond 2035. Mutual expectations among the three industrial partners are very high. The failure of any of the three of them to honour commitments to complete this project on time would have serious consequences for the other partners.
For the UK, the role envisaged in the GCAP could create 21,000 jobs each year and contribute £26.2 billion to the economy by 2050, but GCAP is not mentioned at all in the terms of reference for the SDR; nor is Japan. The UK, US and Australian Defence Ministers said in May 2024 that they would consider expanding AUKUS pillar 2 to include Japan and other countries. The parameters of the SDR merely note that it will
“identify ways to maintain the UK’s defence ties to the Indo Pacific region, the Gulf and the Middle East”.
That statement falls short of the expectations of our Japanese friends. I believe also that other friendly nations in the Indo-Pacific region, including Australia, South Korea, and New Zealand, now share Japan’s concerns. Many of our Japanese friends think and believe that we have entered the age of the second Anglo-Japanese alliance. I look forward to the Minister’s speech, which I hope will provide some reassurance.
Baroness Stuart of Edgbaston (CB)
My Lords, I refer to my register of interests as chair of Wilton Park and as an honorary captain in the Royal Navy.
Yesterday I attended part of the future defence, deterrence and resilience conference, at which the noble Lord, Lord Robertson, delivered a keynote speech on Monday, which I sadly missed. I note that his speech led to some very interesting conversations around strategy. I confess that the presence of the noble and gallant Lord, Lord Richards, and Julian Lindley-French may have also contributed to strategy being a topic of the conversation. The two published a book last month called The Retreat from Strategy: Britain’s Dangerous Confusion of Interests with Values. They argue that we not only continuously confuse interests with values, but fall into the habit of assessing risks against what we can afford to deal with.
No one can be blind or indifferent to financial constraints in any sphere of government, but I would urge that our current defence review is strategic and that we balance ends, ways and means. Similarly, we cannot ignore the vital link between policy and planning, which I sometimes fear we may have lost sight of. The noble and gallant Lord, Lord Richards, and Julian Lindley-French made a forceful and well-argued case, and I would recommend The Retreat from Strategy as a book—not as a policy.
If I may, I will return to an area which I feel strongly about and hope that the review will take into account: maritime security in the polar regions. The Arctic and Antarctic are very different, geographically, legally and politically, but both are areas of growing strategic competition, including resource exploitation, access, and strategic control.
The prevailing geopolitics of the Arctic have worsened. One big shift, even in the last 12 months, is the ever-closer relationship between China and Russia across the Euro-Asian-Russian Arctic north. It is worth remembering that our relationships with South Korea and Japan matter as much as those with our European and NATO partners. In the Arctic, the UK is the nearest non-Arctic state with a long-standing interest in working closely with NATO countries, such as Norway, as well as with international business and scientific partners across the region. More generally, the British Armed Forces are active participants in training exercises, secondments and mutual domain awareness.
I turn quickly to the Antarctic. China and Russia are disruptive players, while the BRICS countries and others are marshalling their interests—especially around resources. The EU is considering developing its own Antarctic strategy and will look to countries such as New Zealand as potential partners. The UK should be involved in those negotiations and look to scale up our collective scientific/infrastructural presence in the region. Having an active presence matters.
These things are important for the defence review because they have an impact on the Royal Navy. We have limited platforms that could be described as “ice class”, and we are asking a lot of HMS “Protector”. This is the Royal Navy’s only ice patrol ship; it replaced HMS “Endurance”. I am very clear that it would be a big mistake to think that a melting Arctic and Antarctic is a safer operating environment. It is more unpredictable, more dangerous and still ice-filled. We need trained personnel, including mountain leaders; that requires extensive training and support for the Royal Marines. We need to continue to support and invest in training and military exercises with our Joint Expeditionary Force partners, as well as with NATO.
At the risk of being accused of special pleading on behalf of the Royal Navy, I simply suggest that any strategic defence review ought to start with this sentence: “We are an island and the Navy is existential”. It must emphasise that shifting geopolitical tensions, combined with global warming and the ever-increasing need for natural resources, make our engagement in the Arctic and the Antarctic a vital national interest.
Baroness Smith of Newnham (LD)
My Lords, as other noble Lords have done, I thank the noble Lord, Lord Robertson, for securing this debate and the Government Whips for allowing us government time to debate such an important topic. The fact that we have been relegated to a Grand Committee means that this has a slightly different feel from a debate on the Floor of the House but, as we found before the general election, it is clear that there is virtual unanimity across the Government and the Opposition on defence. On so many occasions, I and the noble Lord, Lord Coaker, now the Minister, stood up and said how much we supported His Majesty’s Armed Forces, how vital the defence of the realm was and how we stood virtually shoulder to shoulder with the noble Baroness, Lady Goldie —and, later, the noble Earl, Lord Minto.
In many ways, the debate this afternoon has demonstrated the degree to which noble and gallant Lords and those who, like me, are merely noble and not gallant because we do not have service experience—but nevertheless have an interest in defence and the security of the realm—think as one. Speaking on behalf of the Liberal Democrat Benches, there were very few contributions about which we would say, “I do not think we quite agree”, because so much that was said was about the security of the realm and the questions we all need to be thinking about. We may disagree on negotiating a settlement between Ukraine and Russia because we want to secure the Baltic states, which will clearly say that Ukraine needs to be secured.
However, in thinking about the wider security and defence review, rather than specific policies for particular areas, there were a number of questions that the Lib Dem defence spokespeople raised in their submission to the review, which I reread earlier today, with very much fit the themes that we have been talking about. One of them picks up on the contributions about values: what are our visions and values? What are the Government standing for? What do we stand for as a country? I would like the Minister to say something about—and the noble Lord, Lord Robertson, to think about—how the SDR is very narrowly defined, and intentionally so. It is very much on defence rather than wider security questions. I can see the noble Lord, Lord Robertson, looking slightly worried, but there are very clearly points in the review that say it is specifically about defence, rather than some of the wider security questions that would bring in other departments. If I have misunderstood that, I would be very grateful to be corrected, but that is how I read it: that it is a narrower review than some reviews in recent years.
However, there is very little that says what His Majesty’s Government think about the UK’s place in the world. This has come up in various contributions this evening. What is the view of His Majesty’s Government about the role that the UK should be playing? We may be looking at the threats, but the threats to the United Kingdom are somewhat different from the threats globally. If we are thinking of ourselves as a regional player, what we want to do and the proposals we would make might look very different from a policy that still aspires to go global, as we had when Boris Johnson was Prime Minister. Is there a choice, as the noble and gallant Lord, Lord Houghton, suggested, between full spectrum and making narrower choices?
As so many noble Lords have raised, are we constrained by the budgetary package? There is a real concern here. In its campaign for government, the Labour Party talked about raising defence expenditure to 2.5% without any indication of when that expenditure might come about. The Conservatives’ proposal was by the end of the decade. At the moment, we have a commitment to 2.5% and the review seems to assume a trajectory, but what is the timeframe for that trajectory? As the noble Viscount, Lord Trenchard, just reminded the Grand Committee, this report is going not just to the Prime Minister or to the Secretary of State for Defence but to the Chancellor of the Exchequer. She may have a passionate interest in defence. She may, for all I know, have particular defence interests and expertise that mean sending this review to her is entirely appropriate from a defence of the realm perspective. But it seems to send a signal that one of the key issues will be keeping to the cap, limit or trajectory of 2.5%. Could the Minister reassure the Grand Committee that 2.5% is not a vague aspiration to come about when the economy has somehow been transformed and when the Government have created growth, but something for which we can have a clear timeline?
Why does that matter? It is because, if we believe that we need to look at the size of our Armed Forces, as so many noble Lords have pointed out, at the size of our reserves, as the noble Lord, Lord De Mauley, pointed out, or at the size of our Army—the Liberal Democrats have repeatedly said that we need to increase its size again—we must improve our recruitment, ideally by bringing it back in-house.
My neighbour—geographically, both this evening and in Cambridge—the noble Lord, Lord Balfe, pointed out that there are questions about recruitment which really need to be looked at. Whether we have outsourced it or are seeking to recruit directly through the services, people need to know what the training budget is. They need to know that we have the accommodation in the right place to bring in additional recruits. Do we have that?
There are clearly questions and propositions in the review which talk about the size of the defence estate and refer to forces accommodation but, without some certainty about expenditure, will His Majesty’s Government be able to make the commitments that we need to improve forces accommodation and the conditions for service personnel? Then, recruiters will genuinely be able to say to people, “Come and work for us. You’re not just doing it because it’s important for your country—we will actually be good employers as well”. That is hugely important to recruiting our service personnel.
In terms of industry, one of the suggestions is that the defence review should be looking to the British economy and to growth. Clearly, the defence industrial base is hugely important but, if we are going to let defence contracts for the security of the realm or need to procure for increasing interoperability with our allies, industry needs certainty. The idea that, at some future date, we will be spending more of our GDP on defence is not sufficient. Businesses need to know that the contracts are coming and that His Majesty’s Government will actually pay.
Defence expenditure needs to be particularly secure in terms not of the primes as much as the sub-primes of the small and medium-sized enterprises. Can we really be reassured that 2.5% is going to happen, whether or not we think that 3%—as some noble Lords think—is necessary? That is not my party’s policy, and is clearly a question for another day, but some degree of certainty is hugely important.
Finally on how the United Kingdom works, whether we are going to be a regional or global player has clearly got to be with our allies. In the north Atlantic area, are we also saying that we should play a role in the High North with our NATO partners? Picking up on the points raised by the noble Baroness, Lady Stuart of Edgbaston, about the polar regions, the High North is hugely important, but we are technically a neighbour. We have a role with the Antarctic. Are His Majesty’s Government concerned about the polar regions?
Finally, language, words and commitments matter. Just as your Lordships’ House is almost unanimous on supporting Ukraine, because Ukraine’s war is our war, so too are we certain about the importance of supporting our overseas territories. The Foreign Secretary made reassurances to Gibraltar and the Falkland Islands a couple of days ago, but the fact remains that there could again be speculation about the future of the Falklands. What went wrong in the 1980s was that John Nott suggested to the Argentinians that, actually, the Falklands did not matter. Not only do we need a strategic review, but we need to be sure where our commitments are. We need to ensure that everyone—Ministers included—is singing from the same hymn sheet and making clear our commitments to our overseas territories, as well as on our domestic security, and working with our allies to deliver as far as possible.
Baroness Goldie (Con)
My Lords, I too thank the noble Lord, Lord Robertson of Port Ellen, for facilitating this debate. I know he is committed to a viable, lethal and effective defence capability to protect the UK and to contribute to global security. Equally, I am in no doubt that he wishes to benefit from a full spectrum of opinion to inform his review. With the experience in your Lordships’ House on defence issues across all Benches so impressively evident this afternoon, I hope this debate will be regarded as an authoritative source of ideas and suggestions: many excellent ones have been advanced. I echo the important point from the noble Baroness, Lady Smith, about the extent, within this House, of consensus on defence matters.
My honourable colleague James Cartlidge, on behalf of the Official Opposition, has responded to the SDR in a manner which I hope the noble Lord has found constructive and helpful. I do not propose to read out that response ad longum, but rather to shape a perspective around it to explain why my party has focused on the particular issues which we have identified. For those interested, the response can be found online and I shall provide Hansard with the link.
My starting point is defence spend. Whatever the back office number crunchers may think, defence spend is not some financial fair-weather option, where you spend when you can and deliver biting financial cuts when you cannot. A defence capability of the magnitude of the United Kingdom’s requires core funding to ensure both maintenance of that capability and an ability to plan strategically. If the Government cannot guarantee that, they might as well walk away from having any meaningful capability at all. It will not have escaped the attention of the noble Lord, Lord Robertson, that resource has been a recurring feature of this afternoon’s debate, notably and powerfully from the noble and gallant Lord, Lord Stirrup, and my noble friend Lord Trenchard.
The previous Government set out a clear and fully funded pathway to reach 2.5% of GDP on defence by 2030. This Government have said repeatedly that they are committed to 2.5%, but not when. So why am I and so many others concerned? There has been an implied understanding that we could anticipate clarification of the “when” in the imminent Budget Statement. Regrettably, just this week, the Prime Minister has created a new doubt. In response to a question from my right honourable friend the leader of the Opposition in the other place, who, reminding the PM of his previous indication that a trajectory would be set out in the coming fiscal event, asked if he would commit to that timetable. He got the following answer:
“In relation to defence spending, let me recommit to increasing it to 2.5%. We will set out our plans in due course”.—[Official Report, Commons, 7/10/24; col. 26.]
This ambiguity and uncertainty at this late stage is unacceptable and dangerous. As the noble Lord, Lord Robertson, himself acknowledged, this is a British effort. We are actually controlling this show, so my plea to the noble Lord is this: if he has any apprehension or doubt at all that, with a Budget Statement imminent, either No. 10, the Treasury or both have been nobbled by the number crunchers and the “when” is to remain hanging in the air then he needs to get on his Islay walking boots, get round to the Treasury, get round to No. 10 and deliver a kicking.
Why is this so important? It is because it begins and ends with threat. Threat is multifaceted, but the primary threat right now is pure adversary European warfare, as the noble Lord, Lord Kerr, cogently described. That demands a shift to an urgent and immediate preparedness disposition. That is why we must deliver certainty now on the resource that defence requires. The strategic defence review must be threat-based. The threat is there now: it is all around us, it is dynamic and our resource response has to match that. Of course I accept that the defence budget is not the noble Lord’s responsibility, but there can be no more powerful an advocate than him. I entreat him to use his influence with the Government, as I entreat the noble Lord, Lord Coaker, to use his, to ensure that this uncertainty is dispelled.
The 2.5% by 2030 set out by the previous Government would have enabled an initial mobilisation of the war-ready approach and ensured stability for major existing programmes, such as GCAP and nuclear, while providing funding to enhance the lethality and survivability of our existing and imminent forces. However, coming good on the 2.5% is not enough to achieve a greater war readiness without also urgent reform within the MoD to create a less risk-averse department, able to procure at pace.
Some may greet this observation with a yawn and say, “Oh, we have heard all that before. Successive Governments have all talked about reform and what changes?”. I credit the noble Lord, Lord Robertson, with much greater discernment and acuity, because he knows, as he said, that the MoD of 2024 is unrecognisable from the MoD of the 1990s, and he knows why. The changing face of threat has transformed dramatically, as my noble friend Lord Howell described. We have seen the advances in technology. With the war in Ukraine, we know what a land-based conflict looks like in the 21st century, as the noble Lord, Lord Alderdice, described. Lastly, and arguably most importantly, it is because the MoD itself has begun that reform. On acquisition and procurement, the MoD had become subsumed in a stifling culture of risk aversion, and that atrophy feeds into strategic outlook and is inimical to a culture of war readiness—the noble Lord, Lord West, made that point well.
There needed to be a distinction between military risk and peacetime risks, which predominantly exist in the civil domain. That process had already begun under the last Government, and the noble Lord does not need me to tell him that there is an open door in the MoD for building on what has been achieved and rolling out that change in culture. If resource cannot deliver without reform, reform is limp without resource. Of course, I wish the noble Lord well with the review—he knows that—and I hope that what he has heard today will help him to shape it, but I urge him to put on these walking boots.
The Minister of State, Ministry of Defence (Lord Coaker) (Lab)
My Lords, it is a great pleasure for me to try to sum up all the incredible contributions that have been made. I am sure my noble friend Lord Robertson will have found the debate and discussion today helpful to his review. I will do my best to respond to the comments—and many of them were comments as much as questions. Obviously, I will review what was said and if there is a particular question or point that somebody has made that I have not answered, of course I will respond to that by letter and put a copy of that into the Library.
I start by saying to my noble friend, good luck. I speak now as an independent contributor to the review that he is undertaking, and it is important to note that it is an independent review. It is something that is particularly important to him and his fellow reviewers. I emphasise the point made by my noble friend, and indeed by the noble Baronesses, Lady Goldie and Lady Smith, and others, that it is an all-party review. It is a UK review, and that is why we have been especially keen to ensure that the support that my noble friend has had, and the different people who are advising him, represent a wide range of political opinion. It is in all our interests that this review is done correctly and comes to the right conclusions, for the benefit of our country and the benefit of the wider alliances that we support.
I also need to address the point made by the noble Baroness, Lady Smith. This is slightly out of context, but it is really important for the people who read these deliberations. His Majesty’s Government have no intention whatever of relinquishing the sovereignty of the Falkland Islands, Gibraltar or the other overseas bases to which she referred. I put that firmly on the record, so there is no confusion about the position or policy of His Majesty’s Government. I want to emphasise it, because it is extremely important to have it on the record.
Let us address the issue of money. Numerous noble Lords have, quite rightly, made contributions about money, including the noble and gallant Lords, Lord Stirrup and Lord Houghton, the noble Lords, Lord Bilimoria and Lord Alderdice, my noble friend Lord West, the noble Viscount, Lord Trenchard, and the noble Baronesses, Lady Stuart, Lady Goldie and Lady Smith. The Government have an absolute commitment to 2.5%. I know that that is not what some people want to hear and that there is no timeline given to it, but there is an absolute commitment to 2.5%. It is not an aspiration. I know that the noble Baroness cited that and she will know that, at the recent NATO summit in Washington, the Prime Minister reiterated that commitment to 2.5%.
I know that, in the end, my noble friend Lord Robertson will wrestle with how to spend that, what the threats are and what capabilities are needed to address it. That is something that his review will have to address. That is the absolute commitment that the Government have made. People have made their views known on that and they will no doubt be considered.
I turn to some of the points on context, which was mentioned by a number of noble Lords, starting with the noble Lord, Lord Howell. In his introductory remarks, he talked about the increasing threats from Russia and China—as did other noble Lords, including the noble Lord, Lord Walney, and the noble Viscount, Lord Trenchard. Let us be absolutely clear about this. The NATO-first policy of the Government does not mean a retrenchment from the Indo-Pacific. Why would you sign up to AUKUS? Why would you see AUKUS as a completely important strategic part of what the UK is about if you are to retrench from the Indo-Pacific? Again, that will be in the context of an overall budget and the conclusions that the review comes to, but AUKUS is really important. Other noble Lords made the point—including the noble Lord, Lord Walney, very effectively—that not only pillar 1 but pillar 2 are important, as well as all the other things that the noble Lord mentioned. My noble friend Lord West knows this: why would we send a carrier strike group to the Indo-Pacific next year—2025—if we are going to withdraw from the Indo-Pacific and if it was not still important to us?
The noble Viscount, Lord Trenchard, made a very powerful comment about the Indo-Pacific and that context. I say to him: all our allies and friends in that region, having been consulted and discussed this, know what that carrier strike group should do and where it should go. We will do that with our allies. That is a really important statement about where we are. Of course Ukraine and NATO are a priority for us, but the Indo-Pacific and other areas of the world remain important.
I say to the noble Baroness, Lady Stuart, we had a meeting and conference with Norway at RUSI, where I spoke, about the very issues that she quite rightly referred to on the High North—although not the Antarctic—and the way in which climate change is opening it up and increasing the threats from Russia and China. I say to the noble Baroness, Lady Bennett, that if she reads the terms of reference for the strategic defence review, it has climate change in paragraph 1, so give credit where credit is due. It may not give the answers that the noble Baroness wants, but in the first paragraph it recognises that climate change may impact on security.
Again, as the noble Baroness, Lady Stuart, said, climate change opens up the world. As I was reminded when I looked at a map, the reason it opens up the world—not only to Russia but to China—is because you have to think of the world as round. So that means that they can come over the top. I know it sounds ridiculous, but I thought that China was 7,000 or 8,000 miles away, because I was thinking of the world as flat. We have to think of the earth as round. The serious point is that climate change makes China thousands of miles nearer to the Arctic in a way that it was not before. That is a really important consideration. The strategic interests that my noble friend Lord Robertson’s review will have to reflect on are not only in the Indo- Pacific but in the High North.
The noble Lord, Lord Howell, and others were right to point out that, of course, this means: what do we do about the global South? What do we do about the issues with respect to non-aligned countries, many of which are in the global South? We like to think that everyone supports us with respect to Ukraine—that is of course important when we consider the international rules-based order and all the other things about the rule of law and so on—but, actually, there is work to be done with respect to non-aligned nations; the noble Lord, Lord Howell, was quite right to mention that. Again, we will have to consider how we influence those nations alongside our long-standing ally, the United States, as the noble Baroness, Lady Miller, said. I am proud to say that there is a special relationship between us; it is a very important relationship, and one that includes the nuclear deterrent, which is absolutely fundamental to the posture of this Government.
In answer to the noble Baroness’s specific question, there will be a debate on the UK-US treaty on Wednesday 23 October. I look forward to explaining fully the reasons why we have decided to make it an indefinite arrangement rather than the particular arrangement that we have at present. I am not sure of the noble Baroness’s diary but maybe she will be able to find time to be with us there.
The noble and gallant Lord, Lord Houghton, made some really good points about the strategic objectives that we want. He said that the necessity for the review to deliver on what we decide strategically is really important; I could not agree more.
A number of noble Lords—the noble Lords, Lord Alderdice, Lord Howell, Lord De Mauley and Lord Mountevans—mentioned homeland security and civil defence. They will notice that, in terms of what the review will cover, homeland security is specifically mentioned. I mention my declared interest to the noble Lord, Lord De Mauley: my son-in-law is an active member of the reserves in 4 Mercian, so I recognise the importance of the reserves. We need to consider how to deal with them.
A number of noble Lords mentioned defence. One of the reasons why the Government will have a national armaments director is that we clearly need to look at how we can build our defence industrial capability to meet the threats of the future. That means not only what we do but how we work with allies in order to achieve this.
A number of other points were made but I just want to say something about the new threats we will face; these were mentioned by the noble Lords, Lord Alderdice, Lord Howell, Lord De Mauley and Lord Kerr, among others. They are really important and will be part of this. Where do we go with artificial intelligence? Where do we go to with automated air systems and drones? It is about all these sorts of things. How new warfare and the lessons that we are having to learn from Ukraine will impact on what our defence posture should be are really important things for all of us to consider.
A number of noble Lords—including, I think, the noble and gallant Lord, Lord Craig—mentioned recruitment and the retention of personnel. A review of those issues and how we can improve on them is going on.
In conclusion, the first duty of the Government is to keep our country safe. We all agree with that. The discussion, debate and challenge for us all concerns how we do that in the most effective way. Let us make no mistake: the UK is a proud country, and we stand with our allies—those in Europe, obviously, but across the globe as well—in standing up for the principles of freedom, democracy, the rule of law and the international rules-based order, as we always have done. At the moment, there is a challenge to those principles. I think we should be proud of the fact that our country, alongside our allies—including those new and fresh allies to be made—is standing up to that challenge. We are looking at how we can achieve that, standing, as I say, with our friends. We will require the review from the noble Lord, Lord Robertson, to help us to deliver that, but we can be proud of the fact that we can do it and proud that, as a democracy, we are openly debating how to develop the Armed Forces we need in order to achieve it.
Lord Robertson of Port Ellen (Lab)
My Lords, tempted as I am to intervene in this debate to answer some of the points that have been made—or even to endorse the concept of me putting on my Islay boots and doing something violent to the Chancellor of the Exchequer—I am going to restrain myself, because this was designed as a listening exercise. It was an opportunity for Members of the House of Lords to have a say and to have those views then incorporated into the process that we are undertaking at present. As I said, 14,500 submissions have already been made, some of them very substantial and a lot of them coming from organisations with different views. They will be considered properly and so will the outcome of this Grand Committee.
During the last review that I did, as part of the consultations that took place we had a dinner in Admiralty House for former Defence Ministers. I had the privilege of sitting around the table with Denis Healey, Peter Carington, George Younger and a number of other Ministers who had served in the Ministry of Defence in order to hear their views about defence. It was a very rich experience and a very entertaining evening, which largely involved anecdotes about gifts that people had received—always an entertaining subject for Ministers and former Ministers, it has to be said.
At the end of it, Lord Carrington got up and said: “We thank you very much for the opportunity of coming along this evening. We’ve all enjoyed the dinner and the conversations about it but frankly, in terms of the defence review, you’re much closer to the subject than we are, so we’re going to leave it to you—and once you’ve reported, we’ll attack it”. To avoid that fate, I thought it would be useful to have this debate in the Grand Committee. Much has been gained from it and members of the review will certainly be reading the debate with enormous interest. I beg to move.
House of Lords
NHS Hospitals: Apheresis
(1 week ago)
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Baroness Ritchie of Downpatrick
To ask His Majesty’s Government what steps they are taking to support increasing apheresis capacity in NHS hospitals in England.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
The Government are aware of the issues around apheresis capacity within the National Health Service impacting patient services, including stem cell donations. A departmentally led working group met for the first time last month to examine existing apheresis capacity and to develop solutions, and it will report in the spring. This working group includes members of the UK stem cell register, health professionals and service providers, and it aims to develop an evidence base by which strategic decisions around capacity can be established.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I thank my noble friend Lady Merron for her very helpful reply. Only last month I chaired a round table in your Lordships’ House on apheresis capacity. Therefore, given the rapid developments in cell and gene therapies and related international regulation over the last few years, what plans do the Government have to update legislation governing the use of substance of human origin and the development of advanced therapeutical medicinal products to better utilise modern technologies such as apheresis platforms?
Baroness Merron (Lab)
I am grateful to my noble friend for her work in this regard. I certainly share the view that there have been very rapid developments in cell and gene therapies over the past few years, and there is tremendous potential for these therapies to address the root cause of diseases and to offer life-changing outcomes for patients. So, we are working with devolved Governments and with key stakeholders to review the EU standards and requirements, and to consider our approach in light of the changes introduced by the EU SoHO regulations, which will take account of innovation within the sector.
Baroness Manzoor (Con)
My Lords, can the Minister say what the waiting times are for patients and clinicians who wish to use the eight therapeutic centres we have in England? Are the Government committed to providing investment in addition to the £1.5 million that NHS England announced back in February?
Baroness Merron (Lab)
NHS Blood and Transplant provides the biggest apheresis service in Europe. It has been growing by 10% to 20% year on year, and that includes the workforce and increasing provision to patients. I will be pleased to write to the noble Baroness with the most up-to-date waiting list figures. However, in addition to the existing units, satellite services have been set up in Plymouth, Cardiff, Birmingham and London. I am glad to say that, over the next six months, NHS Blood and Transplant will also open new services in East Anglia and the south-west, and it is aiming to provide over 2,000 additional collection slots per year within the next 12 months. I hope the noble Baroness will welcome that development, which we want to continue to really harness the benefits of life sciences.
Baroness Ludford (LD)
My Lords, does the government review that the Minster mentioned encompass sickle cell patients? As a member of the All-Party Group on Sickle Cell and Thalassaemia, I am aware that apheresis is one of the few treatment options for sickle cell patients. It is crucial in reducing the chances of sickle cell patients suffering a sickle crisis whereby oxygen is prevented from travelling around the body, resulting in intense pain and potentially life-threatening complications. However, the lack of adequate apheresis capacity means that many sickle cell patients are unable to access this essential care. A number of APPG reports have shown that they often get under-prioritised and bounced out by other patients. Is the department factoring in sickle cell patients?
Baroness Merron (Lab)
I assure the noble Baroness that we are more than factoring it in. We are totally committed to working to support those with sickle cell, and thalassaemia. There is ongoing work to provide the very best possible care, including boosting the number of blood donors, which is vital in improving clinical pathways and delivering treatments. There is a treatment, as I am sure the noble Baroness is aware, called Casgevy, which requires apheresis as part of the process. It is being evaluated by NICE for the treatment of thalassaemia and it is also being evaluated for sickle cell. I hope all those things will bring great benefits.
Baroness Finlay of Llandaff (CB)
My Lords, I am grateful to the Minister for highlighting that we are a leader across Europe with our services, but only 50% of the country is covered. Can she assure us that in all reviews of the NHS, consideration will be given to centrally commissioned, highly specialised services such as this, rather than relying on local commissioning, that the workforce plan will recognise that highly skilled nurses are needed to undertake this treatment, and that that needs to be factored in? The numbers are small but the skills are enormous.
Baroness Merron (Lab)
What the noble Baroness says is very true and I certainly can give the assurances she seeks.
Lord Winston (Lab)
My Lords, I have scanned the literature because I looked at this Question on the Order Paper, and I noticed that there seem to be very few completed trials showing clear efficacy of stem cell transplantation, except in the case of blood dyscrasias such as cystic fibrosis. Would the Minister be kind enough to let me know how many trials are being conducted in this country? If she does not know, maybe she could tell me in due course.
Baroness Merron (Lab)
I thank my noble friend for raising that important point. I will be very pleased to look into this further, so I can answer him in full.
Lord Evans of Rainow (Con)
My Lords, I pay tribute to the noble Baroness, Lady Ritchie, for her work in this area. In England, leukapheresis can be performed only by the NHS Manchester apheresis unit, and the Birmingham unit can carry out only three of the apheresis services. Are His Majesty’s Government committed to expanding the range of apheresis services available at each unit?
Baroness Merron (Lab)
Further to my answer to the noble Baroness, NHS Blood and Transplant is seeking to expand capacity in the way I outlined. It is probably worth going back to the point about the apheresis working group. It met for the first time last month to determine the extent of the capacity issues which we know exist. It will also be looking at who delivers what, how and for what uses. It will identify the issues in respect of workforce, machinery, finance and efficiency, and seek to come up with a recommendation. It will report in spring of next year, so we have a route forward.
Baroness Chisholm of Owlpen (Non-Afl)
Have the NHS and the Department of Health and Social Care had any discussions with independent health providers to see whether they have any free capacity that therapeutic apheresis could perhaps utilise?
Baroness Merron (Lab)
I thank the noble Baroness for raising that issue. I am sure it will be part of the working group’s investigations as it seeks to expand capacity to meet existing demand.
Lord Kakkar (CB)
I draw noble Lords’ attention to my registered interests. The Minister has identified the importance of having a framework for the adoption and standard incorporation of innovative technologies into routine care. In this regard, the long-term plan for the NHS that His Majesty’s Government are preparing is a vital element of what will happen over the next five years. Can the Minister confirm that that plan will look specifically at commissioning these innovations in such a way that life sciences innovation in our country is protected, and they get to patients quickly?
Baroness Merron (Lab)
Yes, I can confirm that we will be drawing on the parts of the report of the noble Lord, Lord Darzi, that refer to that. He refers to the need for innovation, to expand the use we make of life sciences and to develop that still further. That will very much form part of not just our thinking, but our doing.
Baroness Nicholson of Winterbourne (Con)
Given the welcome switch of the National Health Service from being just restorative to preventive, might the Minister consider discussing the World Health Organization system of women health volunteers and visitors? Then, these discussions can start at a much lower level and people will be much less fearful of the treatment they may eventually have to have in hospital.
Baroness Merron (Lab)
Certainly, we want to look at all the ways we can support patients to get the services they need, and that includes providing reassurance and the information they need. I will look at the Baroness’s suggestion.
UK Economy: Capital Gains Tax
(1 week ago)
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Lord Leigh of Hurley
To ask His Majesty’s Government what assessment they have made of the impact on the UK economy caused by speculation about rises in Capital Gains Tax and other taxes.
Lord Leigh of Hurley (Con)
I beg leave to ask the Question standing in my name on the Order Paper and in doing so draw your Lordships’ attention to my registered interests in this area.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, there is speculation ahead of every Budget, but the Government’s priorities for the economy are clear. We are committed to restoring growth to our economy after years of stagnation by fixing the foundations and securing investment in our country’s future; we are committed to keeping the promises we set out in our manifesto; and we are committed to rebuilding the public finances, including by addressing the £22 billion black hole we inherited from the previous Government.
Lord Leigh of Hurley (Con)
Well, the Government have managed to unite Alastair Campbell, the British Chambers of Commerce and me in identifying the damage that this delay is doing to the UK economy. If evidence is needed, entrepreneurs are leaving not in their droves but in their thousands because they are so worried about the potential impact of a rise in capital gains tax. The Chancellor has specifically ruled out certain increases. Could the Government not rule out specifically, for example, the rumoured demise of business property relief on inheritance tax, because that is hanging over the market at the moment, causing great anxiety to family companies and is an enormous cloud on the ability of companies to raise money on the AIM market?
Lord Livermore (Lab)
As set out in our manifesto, we are committed to not increase taxes on working people. This is why we will not increase their national insurance, the basic higher or additional rates of income tax or VAT. I know the noble Lord would not expect me to comment on speculation about any other specific taxes, but we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole—
Lord Livermore (Lab)
The £22 billion black hole that was concealed by the previous Government. That will involve difficult decisions on spending, welfare and tax.
Lord Harris of Haringey (Lab)
My Lords, there seems to be hilarity on the Benches opposite every time my noble friend refers to the £22 billion black hole. Could he perhaps remind the House of the grotesque irresponsibility of the way in which the previous Government made spending announcements without making sure that the funding was there? What will the Government do about it?
Lord Livermore (Lab)
I am grateful to my noble friend for reminding the House of that fact. Members of the party opposite appear to have forgotten who was in power for the past 14 years. They appear to have forgotten who created the mess that this Government now need to clear up. They appear to have forgotten who created the £22 billion black hole in the public finances in the first place. They appear to have forgotten about the £6 billion overspend on the asylum system, the £3 billion of uncosted commitments on road and rail projects, and the fact that they overspent the reserve three times over just three months into the financial year.
Baroness Kramer (LD)
My Lords, during the Conservative years, capital gains tax was held in the mid range of developed economies, but having an attractive rate, frankly, did nothing to stimulate either business investment or productivity growth. Could the Minister assure us that any increase in capital gains tax will be in the context of a credible and powerful strategy for economic growth, including both an industrial strategy and an ambitious plan for infrastructure?
Lord Livermore (Lab)
Obviously, I am happy to confirm that growth is our number one priority. That is exactly what the forthcoming Budget will be about: fixing the foundations of our economy so we can deliver on our mandate for better public services and higher living standards. Investment is absolutely crucial to that, which is why we are committed to removing the barriers to private investment and also to measures such as the industrial strategy that the noble Baroness mentions.
The Earl of Effingham (Con)
My Lords, it is critical that we help first-time home buyers for a multitude of reasons. Please can the Minister confirm that stamp duty for these buyers will remain at current levels?
Lord Livermore (Lab)
The noble Lord knows full well that I am not able to comment on speculation about any specific tax. What I will say is that we must rebuild our public finances, including by addressing the £22 billion black hole inherited from the previous Government.
Lord Cromwell (CB)
It is tempting to suggest a tax on black holes. I am aware that a large number of people are pulling out the 25% tax-free cash from their pension for fear that will be reduced or made difficult. How do we square that with encouraging pension funds to invest in British industry?
Lord Livermore (Lab)
The noble Lord is right to say that investment is absolutely crucial to our plans for the economy—which is why we are absolutely committed to removing the barriers to private sector investment—but he knows I cannot comment on speculation about any other specific taxes.
Lord Sikka (Lab)
My Lords, research shows that taxing capital gains at lower rates than wages does not boost investment in productive assets. It fuels unfairness and tax abuse, as the well-off seek to convert income to capital gains. Is the Minister aware that taxing capital gains at the same rate as wages can raise between £12 billion and £15 billion a year and also reduce tax abuse? If so, when can we expect to see the policy change?
Lord Livermore (Lab)
I am grateful to my noble friend for his expertise on this matter. At the risk of repeating myself, he knows I would not be able to comment on speculation about other specific taxes, but we must rebuild our public finances, including by addressing the £22 billion black hole inherited from the previous Government.
Baroness Vere of Norbiton (Con)
My Lords, can the Minister define a “working person”?
Lord Livermore (Lab)
A working person is someone who goes out to work.
Lord Markham (Con)
My Lords, given that HMRC’s own analysis shows that a 10% increase in capital gains tax is likely to lead to a £2 billion reduction in the amount it raises, can the noble Lord confirm that he will not look to increase any taxes where the net result is further costs to the public purse?
Lord Livermore (Lab)
As set out in our manifesto, we are committed to not increasing taxes on working people, which is why we will not increase national insurance, basic, higher or additional rates of income tax, or VAT. I know the noble Lord would not expect me to comment on speculation about other specific taxes.
Lord Wrigglesworth (LD)
My Lords, does the Minister agree that uncertainty has grown in recent years as a result of us having two Budgets every year, in effect. Will he give an assurance that in future we will have only one Budget a year?
Lord Livermore (Lab)
Yes, we have given that commitment. There will be one autumn Budget every year.
Baroness Foster of Oxton (Con)
My Lords, the Financial Times with a freedom of information request asked for details of the so-called £22 billion black hole. The Chancellor and the Treasury have declined to reply. Can the Minister please share with us the details of this £22 billion black hole?
Lord Livermore (Lab)
I am very grateful to the noble Baroness for giving me another opportunity to remind the House of the £22 billion black hole that was concealed by the previous Government. I am grateful to her for letting me remind the House whose mess this was in the first place that this Government now need to clear up. I am sure all noble Lords will be interested to hear that the £22 billion black hole consists of a £6 billion overspend on the asylum system that the previous Government concealed from the Office for Budget Responsibility and from this Parliament. It consists of £3 billion of uncosted commitments on road and rail projects. They overspent the reserve three times over just three months into the financial year and at no point did they tell any Member of this House or the other House or the Office for Budget Responsibility. The Office for Budget Responsibility has confirmed that and has established a reviewed to ensure that it cannot happen again.
Lord Foulkes of Cumnock (Lab Co-op)
Did the Minister hear the “Today” programme this morning, where the BBC had somehow obtained information that millionaires in this country were threatening to leave if they were asked to pay fair taxation? Will he ignore them completely and instead take account of the millionaires who gathered at Davos and said they were willing to pay more so that the poor people in this country could become better off? Those are the millionaires we should pay attention to, not the ones who are threatening to leave the country.
Lord Livermore (Lab)
I am grateful to my noble friend for his insight. He knows that we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole. He knows too that that will involve difficult decisions on spending, welfare and tax.
Computer Science Applications to English Universities
(1 week ago)
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Lord Mackenzie of Framwellgate
To ask His Majesty’s Government what assessment they have made of the respective success of (1) UK applicants, and (2) international applicants including in the EU, to study computer science at English universities.
The Minister of State, Department for Education (Baroness Smith of Malvern) (Lab)
My Lords, UCAS data for the 2023 admissions cycle shows that of those applications to full-time undergraduate computer science courses made via the UCAS main scheme, around 70% of domestic student applications and around 52% of international applications resulted in an offer from a UK higher education provider. Our higher education sector is one of the best in the world and is a critical part of the system to deliver the skills that we need.
Lord Mackenzie of Framwellgate (Non-Afl)
I thank the Minister for her Answer. Following representations by an English A-Level student with three straight As, I looked at the UCAS site for courses on computer science and saw the following notice:
“This course has limited vacancies, and is no longer accepting applications from some students. See the list below for where you normally live, to check if you’re eligible to apply”.
The list of which applicants are eligible is enlightening: EU, yes; Wales, no; England, no; international, yes; Scotland, no; Northern Ireland, no; Republic of Ireland, no. Does the Minister agree that this amounts to selection on the basis not of the applicant’s exam results but of where the applicant lives, and that this is therefore manifestly unfair and discriminates against hard-working UK students and clearly benefits our international competitors?
Baroness Smith of Malvern (Lab)
The details of admissions arrangements are for individual universities to determine. However, as I outlined in my initial Answer, a higher proportion of UK undergraduates than international applicants received offers. Although the circumstances that the noble Lord outlined, where people do not get the places that they want, are obviously disappointing, I do not think we can put that down to discrimination on the basis of country. Many noble Lords will recognise that the international popularity and status of our higher education system in this country, and the financial, cultural and social contribution made by international students, directly financially benefit UK students, and the country more broadly.
Lord Addington (LD)
My Lords, does the Minister agree that this Question, and the Answer to it she has just given, point to the fact that the fee structure is not allowing the universities to function properly? When will the Government change it?
Baroness Smith of Malvern (Lab)
From the very moment we came into government we have been considering how to deliver our objective of a funding system for higher education which provides stability and sustainability for institutions, that is fair for students and recognises the challenges they face, and which enables our higher education sector to continue providing its contribution to economic growth. We are looking at a whole range of options, and we will provide further information about those as soon as possible.
Lord Tarassenko (CB)
My Lords, for the UK to remain a leading AI nation we need a reasonable proportion of UK-domiciled computer science graduates to study for a PhD in computer science or AI in a UK university. The Higher Education Statistics Agency’s Graduate Outcomes survey revealed a staggering 39% decrease—in just four years, from 2019 to 2022—in the percentage of UK-domiciled computer science graduates undertaking doctoral studies 15 months after graduation. Does the Minister agree that this is a worrying trend, and will the Government consider introducing measures to reverse it and again make PhDs in computer science more attractive to home students?
Baroness Smith of Malvern (Lab)
The noble Lord has identified that we need people to be accessing computer science at undergraduate level; we also need people to be accessing the wide variety of other routes into computer science and digital skills. I agree with the noble Lord that the development of homegrown postgraduate study and the expertise that comes with it is also important. This requirement for skills is why Skills England, in its first published assessment of where there are particular gaps in our skills environment, identified digital skills among the top four areas of concern. That is why we are determined to ensure, through Skills England and the policies of this Government, that the country has the skills it needs to grow and succeed.
Baroness Uddin (Non-Afl)
My Lords, I declare an interest as a member of the APPG for International Students. Is the Minister aware that there is a significant decrease in the number of applications from international students? Are the Government worried and concerned about that? We have had lots of representations about the fact that many applicants are having to face a cumbersome system of dealing with call centres. In the Government’s review of how to service international students, will she consider this aspect as a barrier and try to address it?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right that international students bring an enormous amount of benefit to the UK higher education system. For that reason, it is a shame that the previous Government decided to use the issue of international students more for political ends than for the good of the country. We know that international students generate over £20 billion of export revenue and that 58 leaders across the world were educated at top universities in the UK. We know the benefits for students of working and studying alongside people from around the world. Therefore, we should do everything we can to welcome international students and to look outward. Unlike the previous Government, that is what this Government are committed to doing.
Lord West of Spithead (Lab)
My Lords, until quite recently, a large number of students doing quantum computing courses, of which we probably have the best in the world, were Chinese students. On analysis of those, we discovered that many were members of the PLA—the People’s Liberation Army. Is this now being monitored more closely and are there any restrictions?
Baroness Smith of Malvern (Lab)
The noble Lord is right to identify that where we have world-leading technology, we also need—while encouraging international students—to protect it and ensure that we have the necessary security in place. For example, the academic technology approval scheme is a vetting tool designed to prevent the UK’s academic and research sector being exploited. That applies to individuals who wish to come to the UK to study or research sensitive subjects. Alongside that, the National Protective Security Authority and the National Cyber Security Centre have developed trusted research guidance to ensure that universities can properly assess and develop their research security maturity level to avoid precisely the concerns that my noble friend outlined.
Baroness Barran (Con)
My Lords, over the past five years, the number of students studying computer sciences increased by 55% compared with a 20% increase in the total student population. The Minister said that the Government are committed to making sure that we have the skills we need for better economic growth in future. Could she try to justify to the House the Government’s decision to withdraw funding from the national academy for mathematical sciences if they genuinely want to boost growth in this country and encourage cutting-edge research?
Baroness Smith of Malvern (Lab)
The noble Baroness is right that we have seen an increase in those studying computer science at A-level and we have seen an increase in those going into higher education. However, having listened carefully to my noble friend, I have to say that we are a Government who have inherited the challenge of a £22 billion black hole and therefore we are having to make some extremely difficult decisions in government.
Lord Fox (LD)
My Lords, further to the point made by the noble Lord, Lord West, I was speaking to a Congressional delegation earlier this week. They told me that in the United States they have a dedicated FBI unit that is touring universities and colleges across the United States warning them about the issues that have arisen from their relationship with China, both in students and in research arrangements. Would it not be a good idea if in the United Kingdom we had a similar unit doing a similar job?
Baroness Smith of Malvern (Lab)
The noble Lord makes an important point, as did my noble friend. That is why I emphasised that through the Protect work we do, alongside our higher education providers, we already use the expertise of, for example, the National Protective Security Authority and the National Cyber Security Centre to work with our academic sector to make sure that we safeguard crucial intelligence and methods, even while we welcome international research collaborations, as well as the benefit that comes from international students. Any student who wanted to study, in this country, an area that could be exploited to support military programmes of concern would have to go through the vetting process outlined in the academic technology approval scheme. That does not mean that there is not more we can do, but we take this seriously, and we will continue to do that, to safeguard this country’s interests.
Illegal Migrants
(1 week ago)
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Baroness McIntosh of Pickering
To ask His Majesty’s Government what assessment they have made of the numbers of illegal migrants entering Britain since early July, and what steps they are taking to end the illegal movement of migrants across the Channel.
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
Small boat arrivals since 5 July are currently 6% below what they were this time last year, and are the lowest for this period since 2021. We are determined to end the dangerous and unnecessary crossings by smashing criminal gangs that profit from them. We have launched the border security command with up to £75 million in new investment to build capability, taking that fight to criminals in Europe and beyond.
Baroness McIntosh of Pickering (Con)
I welcome the noble Lord to his position. On one day this week more than 970 migrants crossed the channel. Up to 745,000 illegal migrants are currently in the UK. One in 100 of the population—more than in any other European country—is a migrant in this country. Against that background, and with an alleged £6 billion overspend on asylum seekers, is it the Government’s policy to continue to house migrants in hotels for another three years?
Lord Hanson of Flint (Lab)
I am grateful to the noble Baroness for her welcome. She will know that it is in everybody’s interests to ensure both that we reduce crossings, which is why we have the border command in place, and that if people are here illegally and are caught they face the consequences; that is a prime government responsibility. As for asylum support, hotel accommodation is down 14% over this year. One of this Government’s objectives is to ensure that we reduce hotel accommodation, because it is an expensive way of housing people and a difficult way of tackling this problem. Maybe the noble Baroness would like to ask some former Ministers from her party why the figure went up in the first place to that level of asylum accommodation.
Lord Alton of Liverpool (CB)
Has the Minister seen the 12th increase in consecutive years to a staggering 120 million people displaced worldwide? In Sudan alone, since the start of the war in 2023, another 7.5 million people, now 10 million, have become displaced. Does he not agree that if we are ever going to tackle this problem seriously, we have to get to the root causes? Can we in the United Kingdom use our convening power to bring together the great nations to find solutions to this terrible tragedy?
Lord Hanson of Flint (Lab)
The noble Lord hits a very strong button on that issue. He will know, I hope, that my right honourable friend the Home Secretary visited Italy only this week—or maybe at the end of last week—for a meeting of the G7 that looked at the whole issue of tackling criminal gangs, but also at some of the long-term underlying causes and why those movements are taking place. It is in all our interests to ensure that we tackle that, and stop the flow that then falls prey to those criminal gangs that exploit very vulnerable people from countries such as the one he mentioned. Those gangs take money from them for a visit that is futile because, if they are in this country illegally and do not have asylum claims, they will be returned to their home nation.
Lord Dubs (Lab)
My Lords, I welcome the thrust of what my noble friend said, but I ask him to confirm that we must be careful about the use of “illegal” as applied to people who have crossed the channel. The traffickers are reprehensible people, but that does not mean that anybody who comes across the channel is an illegal person. They are still entitled to claim asylum.
Lord Hanson of Flint (Lab)
Absolutely—my noble friend makes a valid point. My concern is that criminal gangs exploit people who either wish to come here illegally or are being duped when they potentially have legal asylum routes. We need to tackle those gangs at source, which is why we have put £75 million into border control, why we are working with international partners to deal with those issues, and why, slow though progress is initially, we will make an indent in that criminal gang activity.
Lord German (LD)
My Lords, the Minister referred to people who are duped and who are entitled to come to this country if they are fleeing for their lives. Although it is absolutely right that the Government should smash the gangs and reduce their opportunities, surely if we offer people a safe route to this country—when they are entitled because they are fleeing for their lives —that would reduce the demand that is met by these criminal gangs. Therefore, what consideration have the Government given to developing a pilot for a capped refugee travel permit for high grant-rate countries? I draw attention to my interests in the register: I am supported by the RAMP Project.
Lord Hanson of Flint (Lab)
The noble Lord will know that there are a range of legal migration routes into this country and a range of ways in which individuals can claim asylum in this country. We have a number of schemes to bring to this country people who face terror at home; I note the Ukraine scheme. However, he needs to know that it is the absolute priority of the Government to ensure that we have managed and controlled migration. That involves tackling criminal gangs that exploit vulnerable people who potentially have legal routes and, in some cases, those who do not. We need to look at this in the round with our international partners, and that is what this Government will do.
Lord Sharpe of Epsom (Con)
My Lords, the newly appointed head of border command, Martin Hewitt—we wish him well—said that deterrence is
“always going to be part of the … picture”.
The Irish Government said that the previous Government’s Rwanda plan was an effective deterrent, which, of course, was an aim stated in the Bill. Given this summer’s ongoing arrivals, the apparent lack of any returns or new agreements, the frequent tragic events in the channel, and the obvious lack of any deterrence at all, will the Minister agree that ripping up the Rwanda Act and the treaty was perhaps a tad rash?
Lord Hanson of Flint (Lab)
I hate to disappoint the noble Lord, but no, I do not think it was a tad rash. The Rwanda scheme cost £700 million, four people went to Rwanda as a result of it—voluntarily—and boat arrivals increased in the period between January and July this year, when the Rwanda scheme was operating. The noble Lord is wrong. It is smoke and mirrors to think that Rwanda was helpful to this situation: it was not. In his job in the Home Office, he should have secured action on criminal gangs, but his Government failed to do so.
Lord Green of Deddington (CB)
My Lords, will the Minister confirm that the amount of legal net migration is 10 or more times that of illegal migration? When will the present Government take action to deal with the legacy of the previous Government?
Lord Hanson of Flint (Lab)
As my noble friend Lady Smith of Malvern said, legal migration is people who come to university, who come to create jobs and who bring skills to this country. We need that managed migration, and to ensure that illegal migration is cracked down on. That is the objective of the Government: to ensure that we have a sensible net migration target that we can control, at the same time as making sure that illegal migration and the criminal gangs that exploit people are tackled. This will be a difficult process—nobody said it is easy—but border control and border command have focused us on doing that. We will take action to ensure that we use migration for the benefit of the UK economy.
Baroness Lister of Burtersett (Lab)
Further to what my noble friend Lord Dubs said, can my noble friend the Minister confirm that asylum seekers are not illegal migrants and that the adjective “irregular” better recognises the humanity of migrants than “illegal” does?
Lord Hanson of Flint (Lab)
I say again to my noble friend that the Government accept that we have an international obligation to continue to examine and approve legitimate asylum claims. It is a core part of this Government’s task to make sure that we do that, but in a much quicker, more efficient and more productive way than the previous Government did over the last 14 years. We have had backlogs of asylum claims that my right honourable friend the Home Secretary has now pledged to tackle. At the same time, yes, there will be people who wish to enter the United Kingdom illegally, and that is not acceptable. There are legal routes for migration and asylum that should be encouraged and adopted. Proper decisions should be taken. I cannot stand by and allow criminal gangs to exploit vulnerable people and to bring them across the channel. That is why we have established border command and will continue to focus on that as a matter of priority.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, we will hear from the noble Baroness.
Baroness Hoey (Non-Afl)
I thank the noble Lord. I ask the Minister, in all seriousness, whether anybody in the Government has talked to the French authorities about the conditions that many of those migrants are living in just across the sea. Anyone in this House would realise that, if they are living in those kinds of conditions and they know what is going to happen in terms of their living conditions if they manage to get to the United Kingdom, that is a huge pull factor. Surely the French Government have to take into consideration the human rights of those migrants, as we do in this country.
Lord Hanson of Flint (Lab)
I first visited camps in Calais when I was shadow Immigration Minister in November 2014. The route then was via lorries and Eurostar trains, rather than small boats. The conditions were terrible then and they are terrible now. We need discussions with our colleagues in France. There is no current bilateral agreement with France on this issue following the decisions of Brexit, but we are engaged. The noble Baroness will know that my right honourable friend the Prime Minister has met the French authorities, as my right honourable friend the Home Secretary has the G7 nations. We are pledged to work to end this crisis, and we will.
Institute for Apprenticeships and Technical Education (Transfer of Functions etc) Bill [HL]
Wednesday 9th October 2024
(1 week ago)
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British Indian Ocean Territory: Negotiations
(1 week ago)
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Lord Callanan (Con)
My Lords, the transfer of the British Indian Ocean Territory to Mauritius is a shameful day for our country. My noble friend Lord Blencathra, president of the Conservative Friends of Overseas Territories, wrote in the Daily Telegraph that this deal is “shoddy and short-sighted”,
“ignores the interests and wishes of the Chagossian people”,
has caused concern among the other overseas territories, and has
“learnt none of the lessons from Hong Kong”.
I could put it no better than my noble friend, and I echo his sentiments. Moreover, this transfer will cost the British taxpayer money and will threaten our national security. It is essential that Parliament has a vote on this matter.
On Monday, the Foreign Secretary said in the House of Commons that a Bill will be put to Parliament on this matter. However, later, in questioning, the Foreign Secretary seemed to suggest that this was a matter which did not need to be scrutinised by Parliament. After that, the noble Baroness said yesterday, during responses to an Oral Question, that there would be a treaty and amendable primary legislation on this deal. Therefore, does the noble Baroness agree that this is a matter for parliamentarians to debate? Can she confirm that noble Lords will have the opportunity to scrutinise and vote on such legislation before any final decision is made?
Given that the Government have stated that they will pay money to Mauritius under the deal, this is a matter that also concerns the British taxpayer. Yesterday, in response to a question from my noble friend Lady Sugg, the Minister stated that His Majesty’s Government never disclose the cost of sovereign military bases. A little scrutiny via a well-known internet search engine proves this statement not to be entirely accurate. For example, the Ministry of Defence has disclosed that for the sovereign military bases in Cyprus it costs £256 million a year to manage those facilities. Can the Minister give us some indication as to whether this deal will cost the taxpayer an equivalent sum of money?
In addition, yesterday, in the Daily Telegraph, an FCDO spokesman said that there would be
“UK funding to support Chagossian communities in Mauritius”.
If that statement is correct, surely the Minister should be able to disclose the cost, as presumably that money would be international aid and not under the Ministry of Defence’s remit. Can the Minister clarify this point, tell us who is correct, and perhaps tell the House how much that part of the deal will cost the British taxpayer?
This is the second great betrayal of the Chagossian people under a Labour Government. In 1967, Harold Wilson’s Government forcibly evicted the Chagossian people from their homes. Now, in 2024, the Chagossians, who have had no say in these negotiations, have been handed over to a foreign power that is in many ways very different from their culture and lifestyles. The Minister said yesterday that the Chagossian people would have
“the right to visit Diego Garcia”—[Official Report, 8/10/24; col. 1909.]
under this agreement. Can she confirm exactly how this would take place without compromising the military base and whether our allies in the US are aware of the commitment that she gave?
Chagossian Voices, which represents the Chagossian community in the UK and elsewhere, has said that Chagossians have been “consistently and deliberately ignored” and now feel “powerless and voiceless”. Peter Lamb, the Labour MP for Crawley, said that the decision was “very disappointing”, as Chagossians had been “let down again”. He said that, in the past 16 years, he had not heard “a single voice” in his local community saying that they wanted the islands to go to Mauritius. Can the Minister explain on what grounds this decision has been taken? Can she also explain whether this was a decision taken under international law and in what respect it reflects the self-determination of the Chagossian people?
We live in a world that is more dangerous than ever. There is war in Europe and the situation in the Middle East is escalating. This House knows all too well what threats the Chinese state poses to British democracy. Can the Minister tell us why this important and strategic British territory has been handed over to an ally of China? I am sure the House will agree that the noble Lord, Lord West of Spithead, who I am pleased to see in his place, is one of the most respected Labour voices on defence in this place. He wrote for Policy Exchange that
“the Chinese are pushing Mauritius to claim Diego Garcia and that China wants access to and control of the port and airfield facilities”.
This would be clearly unacceptable and would violate British interests.
Given that there was no pressing need to conclude this deal, why was it suddenly rushed through? The Government have said that there will be a 99-year lease on the base in Diego Garcia, with a right of renewal. Is this an absolute right to renew the lease or a right to request a renewal of the lease? Those are two very different things.
In summary, this agreement damages our national security, it does not fulfil the wishes of the Chagossian people and it will come at potentially great cost to the taxpayer. The Government still have many questions to answer on this shoddy deal and the Minister can be assured that we will return to it.
Lord Purvis of Tweed (LD)
My Lords, these Benches believe that the UK has a very special responsibility for the overseas territories and the people who live within them. There should be a fundamental principle that nothing should be decided about them without them. Their participation, and ultimately their consent, is of the greatest importance. I hope that the Minister will agree with that.
It has been interesting to see this suddenly becoming a highly party-political issue. The overseas territories and their sovereignty were not part of a negotiating mandate with the European Union after Brexit, for example. The noble Lord, Lord Callanan, was the Minister at the time. When it came to consideration for the overseas territories and their sovereignty in our key relationship with the European Union, the Falkland Islands were excluded. That has meant that they have been paying £15 million in tariffs to land fishing, critical for not only the economy but the sustainability and the sovereignty of the islands. Therefore, some vessels from the Falkland Islands have to be flagged as Spanish in order to access the single market, something that my party leader, Sir Ed Davey, challenged the Prime Minister on. I hope that we can correct this as a result of the previous Government’s omission with the OTs.
On Gibraltar, the prospect of the EU frontier force, FRONTEX, being at the border entry point into the United Kingdom is a result of the previous Government not including sovereignty of the OTs as part of a negotiation mandate. Both the Falkland Islands Government and the Gibraltar Government warned the previous Government of the consequences, and now this Government have to correct those errors.
The noble Baroness, Lady Sugg, said yesterday that the issue of the Chagos Islands’ sovereignty was a non-starter. It apparently took 11 rounds of negotiations for the previous Government to decide that it was a non-starter before the general election. A cynic might think that the previous Government knew that there would have to be some tough decisions on the Falklands for fishing, Gibraltar for EU security and Chagos for international law and thought that this was probably best left to their successors in government.
The Minister said yesterday in response to my question that there was not one Chagossian voice. If that were the case, the need for their participation and consent in the process going forward is critical. The House is well aware of my views on the deficiencies of the Constitutional Reform and Governance Act on treaty ratification in previous times. Labour, in opposition, had supported calls for resolutions on potential treaty areas which were of concern for human rights. The previous Government resisted this; I welcome the U-turn of the Conservative Party in now calling for a resolution on a treaty. I tried 17 times to call for Motions on treaties, which were resisted by the previous Government, so I hope that there will be consensus on this.
Perhaps the Minister will respond to some specific points. First, how will the financing with regard to the Chagossians’ relocation work, and what will be the timetable? How will location and relocation mechanisms be put in place and over what timeframe? Finally, regarding the Minister’s reply to me yesterday on primary legislation, what is the extent of that legislation, and will the Government commit to ensuring that the Long Title is sufficiently flexible for there to be scrutiny of the wider impacts? Of course there are geopolitical impacts; therefore, the timing of this decision, the treaty and the legislation, linked with the strategic defence review, are critical, as well as the ability for Parliament to resolve that the voice of the Chagossians will be heard and that consent will be a critical part of it.
The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
My Lords, I am grateful to the noble Lords, Lord Purvis of Tweed and Lord Callanan, for their remarks. The noble Lord, Lord Callanan, asked me to clarify who is right—me or the Foreign Secretary. All I can say is that it certainly is not the noble Lord. I am surprised at the lack of background work that he has been able to do on this topic between yesterday and today, because a few things in his contribution were factually incorrect.
On the reaction of the Americans, President Biden has applauded the statement that we made; he calls the agreement “historic” and says that it
“secures the effective operation of the joint facility on Diego Garcia into the next century”.
I would rather take his assessment of the deal that we have just done than that of the noble Lord, Lord Callanan —with all respect.
On parliamentary scrutiny, as I tried to outline yesterday, but obviously in the context of a Question I perhaps could have gone further, there will be the CRaG process to which the noble Lord, Lord Purvis, referred. There will also be primary legislation, and this will be implementing legislation. I do not know what the Long Title of that legislation will be, but I take on board the comments from the noble Lord, Lord Purvis—but that will be to amend other legislation, which we need to do to implement the treaty. There will be an opportunity between signing and ratifying the treaty for both Houses to debate it.
On funding, we do not disclose the costs of bases overseas. One of the researchers of the noble Lord, Lord Callanan, has found that there are some costings from the MoD on the sovereign base in Cyprus. There are many costs of running a base, but we do not pay for the privilege of running the base in Cyprus—the noble Lord ought to know this. There are additional costs around facilities and other things that we will be able to share, including on the base in Diego Garcia, but the basing costs that we will pay to Mauritius are completely separate. We do not disclose them, and we will not be disclosing them.
The issue of China came up yesterday. I am very sad about this, because when we were in opposition, we took great pride in how we approached issues of foreign policy. There were opportunities to make mischief, but we stood shoulder to shoulder with the Government whenever we could, and it saddens me that in the context of a Conservative leadership contest the opportunity is taken to play fast and loose, to play political games, on some of these issues. Not every concern that is raised falls into that category, but unfortunately some of them have.
Mauritius is not, as some in the Conservative Party have suggested, in hoc to China. It is not part of the belt and road initiative; it is one of only two African countries not to be. It is an ally of India, and India too, as well as the African Union, has welcomed the clarity that this deal provides. The Foreign Secretary will make further announcements on the financial support for Chagossians, which noble Lords were quite right to ask about, when the treaty is signed. That is an important element; it is not about the treaty—it is something that the UK is deciding to do, because they have been shockingly treated for many decades. The sad truth—and this is not something that any of us in this Chamber will be pleased to know—is that those islands are uninhabited but for the military personnel, and in that situation the right to self-determination enjoyed by the Falkland Islanders and Gibraltarians is very different. The circumstances that have led to this are sad and shameful, but that is the situation in which we find ourselves today.
I am very happy to take any questions on this matter, but it is important that we stay focused on the primary purpose of this negotiation—that is, the same thing that drove the last Government to have 11 rounds of negotiation—which is to secure this base, which is really important for security in the Indian Ocean. That is the motivation; it is why we wanted to get the deal done, and it is why the Americans are so pleased that it has been done.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, we now have 20 minutes of Back-Bench questions. To get as many Back-Bench Members in as possible, we need short, succinct and to-the-point questions and not speeches.
Lord Jay of Ewelme (CB)
My Lords, I congratulate the Government on reaching this agreement, and I congratulate the last Government on initiating the negotiations for it. They right a long-standing wrong. As the Minister has said, we await the details of the agreement, but can she assure us that the Government will continue discussions and negotiations with the Government of Mauritius about the implementation of the agreement, including the risk of any entryism by China?
Baroness Chapman of Darlington (Lab)
That is an important question from the noble Lord. Yes, the agreement will mean that it will not be possible for other foreign states to operate from the other islands, which has been raised as a concern.
Lord Reid of Cardowan (Lab)
My Lords, to cut to the chase, the Government took the only sensible strategic path as regards this decision. To do otherwise, especially in view of the covetous eyes referred to by my noble friend Lord West, would have been to put at risk our control of Diego Garcia and, with that, our national security and defence. It is about time that the previous Government faced up to the reality in opposition —which they faced up to when they were in government, to be fair—and that reality is that the International Court of Justice, by a majority of 13 to one, found that the 1965 secession of these islands from Mauritius was unlawful. Certainly, that was advisory, but it was followed by a decision at the United Nations General Assembly of 116 to six welcoming that judgment, making it extremely likely there would be a further judgment far more stringent than the previous one. So the Government have taken the decision—in my view, a right one—to put the national security and interests of this country before everything else.
Baroness Chapman of Darlington (Lab)
My noble friend is completely right. On this issue of the legalities, which I am sure will come up, we had a choice. We could wait for the legal tide to come in still further and have rulings that were binding made against us. In that situation, we would be negotiating from a position of particular weakness, we felt, so it was much better to get ahead and get this deal done before we reached that circumstance.
Lord Sandhurst (Con)
My Lords, the noble Baroness has not answered an important question which my noble friend asked. Does the agreement give the United Kingdom an absolute right to extend the lease at the end of the 99 years, or is it just a right to ask for renewal? That is very different. Which is it?
Baroness Chapman of Darlington (Lab)
My Lords, the treaty will be published very soon, and we will have a chance to properly test it according to the things that are of concern to the noble Lord. I suggest that we wait for the treaty to be scrubbed and printed so that we can all satisfy ourselves about the precise nature of what has been agreed.
Baroness Butler-Sloss (CB)
My Lords, it is very important that this House remembers that both major parties were seriously guilty of the most appalling behaviour towards the Chagossians. When I was a member of the Court of Appeal, under the then Conservative Government, we were not able to help the Chagossians, but we gave a judgment that absolutely excoriated them, quite correctly. But, equally, a Labour Government behaved in exactly the same way. But my question to the Minister is: are the Government satisfied that China is not a real danger?
Baroness Chapman of Darlington (Lab)
We are watchful; of course we are. But there is nothing in this treaty, however, that leads us to have the kind of concern that has been alluded to. As I have said, the treaty would prevent not just China but any other foreign nation from undertaking activities on the other islands other than Diego Garcia.
Lord Anderson of Swansea (Lab)
My Lords, the expulsions were a major blot on our latter colonial history. But those expelled are now living in exile, and many of them are settled and have got used to the countries where they are. Are the Government concerned that there is a certain romanticism about the idea of returning to these islands—particularly for the children and grandchildren who have never seen them and have got used to the good life elsewhere—and that many of those with that romantic view might return only for a brief period before returning to their places of exile?
Baroness Chapman of Darlington (Lab)
I think it is very important that we allow Chagossians, whether they are first generation or grandchildren, to decide for themselves how they feel about that. They will have the ability to return and they will also have the ability to visit Diego Garcia. I am reminded of a question from the noble Lord, Lord Callanan, about visits. He probably does not realise, but visits to Diego Garcia were taking place before Covid. There was then a pause and they have not restarted since then, so this is not the first time this has happened. The intention is for visits to Diego Garcia to be able to take place in the future.
Lord Kennedy of Southwark (Lab Co-op)
We will hear from the Lib Dem Benches now.
Baroness Ludford (LD)
My Lords, I join others in the congratulations on the partial addressing of this gross humanitarian injustice. I congratulate the previous Government for initiating and the present Government for concluding the treaty. Has the Minister had to deal with completely unnecessary alarm, created in Gibraltar and the Falkland Islands, by the hypocritical noises that have come out of the Opposition Benches? Have the Government been able to completely address those unnecessary concerns?
Baroness Chapman of Darlington (Lab)
I have been disappointed, as I said in my earlier remarks. We would not have played political games with the sovereignty of our overseas territories, but we have been able to offer the reassurances that were needed. We have been in close contact with the Governments in both Gibraltar and the Falklands, and I think they understand what is really going on here. I hope we have been able to offer the assurances that the noble Baroness refers to.
Lord Naseby (Con)
My Lords, in relation to the lease, will His Majesty’s Government bear in mind that Gan, in the Maldives, is a vital defence dimension, as is Hambantota, in Sri Lanka? Those are both owned, in a sense, by the Chinese, and it is a very dangerous situation if the lease can be broken at any point.
Baroness Chapman of Darlington (Lab)
One of the reasons that it took so long to get this deal over the line was because of concerns such as that, and wanting to make sure that the 99 years are fixed and firm, and it is never up for question in the way that the noble Lord describes. He is quite right to raise those concerns.
Lord Kerr of Kinlochard (CB)
On the security question and the Chinese issue, does the Minister agree that the United States Administration are in quite a good place to assess the security of the base in Diego Garcia? Will she again confirm that they have warmly welcomed the agreement? I was always less diplomatic than the noble Lord, Lord Jay. Would the Minister like to confirm that it takes chutzpah verging on hypocrisy for the Opposition Front Bench, populated by the luminaries of the last Government, to criticise an agreement negotiated with the support and under the supervision of the last two Conservative Foreign Secretaries and approved by the last Conservative Foreign Secretary? For them to criticise it now seems to me to be—well, I will settle for chutzpah.
Baroness Chapman of Darlington (Lab)
I have said my piece on what I think of the way the Opposition has been handling this. It is true that President Biden, Secretary Blinken and Secretary Austin have all welcomed this agreement in terms that they really did not need to use if they were not so concerned to see the security of the base at Diego Garcia. I am glad that we have managed to secure the base; it is important for regional, and indeed global, security. I will leave others to reach their own conclusions about the way that the Conservative Party is approaching this.
Baroness Lister of Burtersett (Lab)
My Lords, leaving aside, as I noted yesterday, the fact that the whole of Diego Garcia will remain out of bounds to Chagossians, the Statement says that Mauritius will now be free to implement a resettlement programme to the other islands. It does not say explicitly that Chagossians will have a right to resettlement. Can my noble friend the Minister now confirm that they will have such a right?
Baroness Chapman of Darlington (Lab)
There will be a right to visit Diego Garcia, and it is important that we recognise that. The details of what Mauritius will agree on the rest of the islands will be included in the treaty. However, at this stage, it is the intention that those islands will be able to be reinhabited by Chagossians if that is what they wish to do.
Baroness Bennett of Manor Castle (GP)
The Green Party welcomes the ending, finally, of UK colonialism in Africa, although it regrets deeply that the Chagossian people, who were so shamefully and secretively dispossessed as late as the early 1970s, were not involved in the talks with Mauritius. The UK has benefited over decades from holding on to this colonial possession. Can the Minister assure me that the UK will continue to provide support and resources to Mauritius to protect the magnificent, unique and irreplaceable marine and coastal habitats of the Chagos archipelago after the handover?
Baroness Chapman of Darlington (Lab)
The security of the marine conservation area is very important; I think it was Foreign Secretary Miliband who instigated it. We will see it continue, and Mauritius has agreed to that.
Lord Hannan of Kingsclere (Con)
My Lords, Mauritius was paid the then immense sum of £3 million in exchange for this agreement in 1965, and treated it as a final settlement. In 1972 it was then paid again, if memory serves, £620,000 for the resettlement of the Chagossians—moneys which I am afraid it hung on to until their value had been eroded by inflation, which may explain why Chagossians are not enthusiastic about Mauritian sovereignty. It does seem extraordinary that we have given away this prime strategic location, the so-called Malta of the Indian Ocean, not only for nothing but somehow managing to pay for the privilege. I think I have heard three or four Ministers today talk about this black hole. Is it really credible, when we are hearing about that, that the Government will not disclose either what we are paying to the Mauritians or what we are putting in the fund for Chagossian resettlement?
Baroness Chapman of Darlington (Lab)
I did not say that we would not disclose what we are putting in the fund for Chagossian resettlement; I said that the Foreign Secretary will make a more detailed statement at the time that the treaty is signed. We do not disclose the costs of basing overseas. We do not, and I do not think other nations do, either. We are very clear about that. We do disclose some of the associated costs; the noble Lord, Lord Callanan, mistakenly tried to make an equivalence between the two, but we will not be disclosing the costs of basing.
Baroness Whitaker (Lab)
When James Cleverly announced the Conservative Government’s policy of negotiations with Mauritius, one outlying MP, who has since lost his seat, under the banner of the anxiety of a small group among all other Chagossians, asserted that colonial ownership of the so-called British Indian Ocean Territory was better than the decision of concerted international and much British opinion on the rights of this long-running injustice. The agreement preserves the long-standing UK/US base on Diego Garcia. Do the Opposition not want that to be funded? It is mysterious to me why, all of a sudden, this furore has erupted.
Baroness Chapman of Darlington (Lab)
The noble Baroness puts it very well and I think she does know why this furore may have erupted. I have said all I need to say about my views on that.
Lord McDonald of Salford (CB)
Like other noble Lords, I congratulate the Labour Government on finishing what the Conservative Government started. I will ask the Minister two questions. Would the Mauritian Government pay for any repatriation scheme to the islands, and can the Minister confirm that this treaty is compatible with existing other relevant treaties, such as the Treaty of Pelindaba?
Baroness Chapman of Darlington (Lab)
Yes; we are not party to that particular treaty, as the noble Lord probably knows, but we are party to some of its annexes. And I can confirm that this treaty is compatible with all our other international obligations.
Lord Bellingham (Con)
My Lords, the Minister mentioned the Cyprus sovereign bases. Surely the reason why we do not pay rent to Cyprus is that those bases were granted in perpetuity as sovereign base areas. If you lease a base, you pay rent, presumably. Can she tell the House why the Government did not hold out for a similar arrangement with Diego Garcia? Can she also tell the House what will happen if the Government of Mauritius under Pravind Jugnauth fall and they want to reopen the discussions?
Baroness Chapman of Darlington (Lab)
The treaty will be legally binding and that is the basis on which we proceed. As to why we did not hold out to get a better deal, there had been quite a lot of holding out and we needed to get this resolved. The noble Lord outlined quite well the difference between Cyprus and the circumstances on Diego Garcia. As he explained— I think he answered his own question—these are very different circumstances.
Baroness Young of Old Scone (Lab)
My Lords, can I press the Minister further on the response she gave on the Chagos marine protected area? It is one of the world’s largest and richest officially designated areas and my understanding is that its status will be transferred to that of a Mauritius marine protected area, which is not a serious conservation status. The Mauritius Government have got neither the resources nor the expertise—nor indeed the political clout—to protect that area adequately against the adverse fishing impacts that nearly destroyed it until Foreign Secretary Miliband got the protection arrangements for it. Indeed, one of the reasons Mauritius wants access to the Chagos archipelago is in order to recommence fishing. Can the Minister tell us what safeguards are going to be put in place so that we are not regarded by future generations as having handed childcare over to Herod?
Baroness Chapman of Darlington (Lab)
I should probably have been clear about this earlier, but the detail will be in the treaty for noble Lords to see for themselves. The UK will be co-operating alongside Mauritius to make sure that the marine protected area is secure.
Lord Ahmad of Wimbledon (Con)
My Lords, on rushing ministerial decisions, when I was first appointed to the Foreign Office in 2017, as the noble Lord, Lord McDonald, will recall, my first meeting was on BIOT, and what the previous Government did was careful consideration in negotiations with Mauritius about what was possible and what was not. And repeatedly it was concluded that the issue of sovereignty was a sticking point for security. My question is a simple one. We engaged at the very top at prime ministerial level on negotiations, so I ask the Minister, what level of negotiation took place before this key decision was taken?
Baroness Chapman of Darlington (Lab)
A fair point. Discussions did take place between our Prime Minister and the Prime Minister in Mauritius.
Baroness Fox of Buckley (Non-Afl)
My Lords, it has been refreshing to hear the Minister be quite pragmatic in her explanation about what has occurred. Does she agree that it is unhelpful when some Ministers pose this as some kind of heroic anti-colonial victory? And how does she feel about the fact that Chagossian voices feel as though they have been treated with contempt, especially when their aspirations for self-determination are written off as romantic and naive? There is a sense of betrayal. How will she tackle that?
Baroness Chapman of Darlington (Lab)
My feelings are neither here nor there. No Government or political party, including my party, have covered themselves in glory on this issue in recent decades and there is no point pretending otherwise—but find a solution and get a deal we must, and that is what we have done. We have prioritised security and the base, and we have done the best we can to get the right to return for some Chagossians and the right to visit Diego Garcia. This is not a situation that is going to please everybody—that option was not open to us—but we have managed to get the security outcome that we wanted.
Lord Vaux of Harrowden (CB)
My Lords, the Minister earlier explained that the reason why the Chagossians did not have the right to self-determination was that the islands are uninhabited. That seems to rather ignore the reason for the islands being uninhabited. Surely it is right that the Chagossians should have a meaningful say in their own future in this respect.
Baroness Chapman of Darlington (Lab)
I was talking about where we stand legally in that regard, but morally the noble Lord is completely right. The forced removal of the Chagossians at that time was shameful, but we are where we are and we cannot pretend otherwise. But for military personnel, these islands have been uninhabited for a very long time. That does not mean that we should not respect and listen and do the very best we can by the Chagossian communities, whether they are here, in Mauritius or elsewhere—many are in the Seychelles. It is not the outcome that every Chagossian would have wanted, but it is better than the situation that they currently have.
Water (Special Measures) Bill [HL]
Wednesday 9th October 2024
(1 week ago)
Lords ChamberRead Full debate Water (Special Measures) Bill [HL] 2024-26 View all Water (Special Measures) Bill [HL] 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Hayman of Ullock
That the Bill be now read a second time.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I am delighted to begin the Second Reading of the Water (Special Measures) Bill. Improving water quality is a priority for this Government, and we have taken rapid action to ensure that water companies put customers and the environment at the centre of what they do. The Water (Special Measures) Bill is being introduced to drive rapid and meaningful improvements in the performance and culture of the water industry. The Bill not only delivers on the Government’s commitment to put water companies under special measures but is an important first step in enabling wider, transformative change across the water sector.
I am sure noble Lords will agree that there is a lack of public trust in the water industry, and widespread concerns about underinvestment in infrastructure, levels of pollution and failures to address spills of sewage. Between 2020 and 2023, water company executives paid themselves more than £41 million in bonuses, benefits and incentives, despite poor performance in the water sector, and only one-quarter of water company customers think that companies act in the interests of people and the environment. At the same time, the number of serious pollution incidents remains unacceptably high.
That is why this Government are taking swift action to turn around the performance of the water industry as a first step towards enabling long-term change. In his first week in post, the Secretary of State announced a set of immediate steps to improve the performance of the water industry. They include ring-fencing vital funding for infrastructure investment, placing customers and the environment at the heart of water company objectives, and working with Ofwat to strengthen protection for households and businesses when their basic water services are affected. However, this Government know that this is not enough to address the fundamental changes needed to the water system and that targeted legislative action is needed. This brings us to our consideration today of the Water (Special Measures) Bill.
Concerns about the performance of the water industry have risen right to the top of the public and political agenda in recent years. The water industry was privatised under the Water Act 1989. That Act was followed by the Water Industry Act 1991, which largely sets out the regulatory regime for the industry. The industry is regulated principally by the Environment Agency in England and Natural Resources Wales in Wales, along with the Water Services Regulation Authority—Ofwat—and the Drinking Water Inspectorate. The Bill makes new provisions to improve the regulation of water and sewerage companies and gives new and extended powers to these regulators.
I turn to the detail of the provisions. As I have noted, the core provisions of the Bill serve to strengthen the powers of the regulators to hold water companies to account for poor performance. The measures it introduces are intended to complement each other in a way that will ensure that the regulators are better equipped to identify and respond to water company failings. It will encourage behaviour change to ensure that water companies are delivering for their customers and the environment, from the start of the next water industry investment period that is due to begin in April 2025. Accordingly, the Bill provides Ofwat with a new power to establish rules for the water industry relating to governance and remuneration. This power will allow Ofwat to make rules around performance-related pay and the introduction of a fit and proper person test to ensure that water company bosses are not rewarded where performance is not up to scratch.
The Bill also includes provision to make obstruction of the general investigatory powers of the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate punishable by imprisonment and allows for executives to be held personally liable for obstruction where the offence has been committed with their consent, connivance or neglect. This will help the water industry regulators to carry out effective investigations and will bring criminal charges against persistent lawbreakers.
To further ensure that non-compliance is tackled, the Bill includes provisions to enable the Environment Agency and Natural Resources Wales to issue automatic and severe penalties for certain offences, as well as provisions to strengthen environmental civil sanctioning powers so that regulators can impose a penalty on the civil standard of proof for water industry offences. This will ensure that water companies face rapid repercussions where it is immediately clear that they have acted unlawfully, and that rapid enforcement action is taken against minor to moderate offences before they can become a more serious matter.
To ensure that the regulators are able to make full use of their expanded and new powers, the Bill also provides for enhanced cost-recovery powers for the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate to ensure that water companies bear the cost of non-compliance, in line with the “polluter pays” principle. In addition, the Bill contains provisions to ensure the independent monitoring of all water company outlets. These provisions place a requirement on water companies to publish discharge data at 100% of emergency overflows and publish data on discharges from emergency overflows in near-real time. The Bill also places annual pollution incident reduction plans on a statutory footing, increasing transparency around water company operations. The Bill will also bring forward provision to modernise the existing special administration regime for the water industry, to bring it in line with special administration regimes for other regulated sectors and to ensure that taxpayer money is protected in the event of a water industry special administration regime.
Collectively, these measures represent the most significant increase in enforcement powers in a decade. This will help to ensure that water companies are delivering for customers and the environment as we move towards the largest-ever investment period for the water industry, with an £88 billion spending package proposed for the next price review period.
I turn to delegated powers and devolution. The Government are committed to working closely with the devolved Governments to tackle shared problems, including the issues facing the privatised water industry. My officials have worked closely with Welsh counterparts during the development of the Bill, and I am delighted that most provisions in the Bill are expected to apply to both England and, at the request of Welsh Ministers, Wales. Although the Bill does not apply to Scotland or Northern Ireland, my officials have also engaged with these devolved Governments during the Bill’s development.
With regard to the Bill’s powers, it contains provisions both to amend primary legislation and to confer a limited number of delegated powers on regulators and the Secretary of State. To reflect the evolving nature of the issues facing the water industry and the changing expectations of customers, the Bill contains eight legislative and three non-legislative delegated powers. These provisions contain a mix of powers conferred directly on regulators—for example, the power to set rules in relation to remuneration and governance—and powers that will be enacted via the affirmative resolution procedure, such as the power to amend relevant environmental regulations. These delegated powers will enable government to keep pace with and react to developments in the water industry. I assure noble Lords that these powers will be subject to all appropriate scrutiny and safeguards.
Since the Bill’s introduction there has been some inaccurate reporting on the effects of its provisions. I would like to take the opportunity to correct some of these misconceptions, to ensure that we can have a fully informed and helpful debate.
First, it has been reported that some of the Bill’s measures—for example, those that will enable the banning of bonus payments and those that enable imprisonment for obstruction offences—already exist in law. Let me explain why this is not the case. Although it is possible for Ofwat to set expectations with regards to executive remuneration, it does not have the power to set legally binding rules. The Bill introduces such a power, meaning that Ofwat will be able to stop the payment of bonuses to executives where performance has not been up to scratch—for example, in the areas of consumer matters, environmental performance, financial resilience and criminal liability. Similarly, although the obstruction of regulators can be punished by imprisonment, that is currently possible only in extremely limited, emergency circumstances. The Bill strengthens the maximum penalty for all cases of obstruction to imprisonment for up to two years. It also makes that offence triable in the Crown Court and, importantly, ensures that executives can be held liable for wrongdoing, which is not currently the case.
Secondly, there have been reports around the use of special administration regimes to nationalise water companies and on the impact of the special administration regime clauses on customer bills. I want to be clear. Special administration is not a form of renationalisation. It is a tool to ensure that vital public services continue to be provided after a company fails. The Government would take no ownership or management of the company during a special administration regime. It would cost billions of pounds and take years to unpick the current ownership model; it would slow down our reforms, leave sewage pollution to get only worse and stall much- needed investment. There is a very high bar for the imposition of a special administration regime. The Government and Ofwat will always act to protect consumers as a priority, and any intervention that would increase customer bills would be considered very seriously and as a last resort.
Having spoken about what the Bill will do, it is important to note as well what it does not cover. This Bill focuses specifically on measures relating to the regulation of water companies, taking immediate action in response to the poor performance of the water industry in recent years. However, the Government are clear that the Bill alone will not be enough to fix our water system. It is an immediate down payment on the wider reform that is needed after years of failure and environmental damage. It is for this reason that the Government have also announced a review to fundamentally transform how our water system works and clean up our rivers, lakes and seas for good.
Through this review, we will examine holistically the framework that underpins our water sector; we will invite views from a range of experts and stakeholders; and we will hold a public consultation to ensure the proposals are robust and radical enough to meet the public’s appetite to clean up our polluted waterways. I am sure that many noble Lords here today will take a keen interest in the work of this review, and I have already had discussions with many in this House about wider issues facing the water sector. I look forward to working with noble Lords closely as the review progresses, and further detail on this will come forward later this autumn.
To conclude, I know that there is considerable support, both within Parliament and among the public, for this Bill. I hope that Members of your Lordship’s House will agree on the importance of working together to reset and transform the water sector through these first crucial steps and the work to come. I look forward to what I am sure is going to be a passionate debate; I would expect nothing less for a Bill of this importance and I am greatly looking forward to hearing noble Lords’ contributions. I hope that your Lordships will support the Bill and ensure that we work together to strengthen our regulators and hold water companies to account.
Lord Blencathra (Con)
My Lords, I declare my interest as set out in the register.
This is an interesting little Bill. Among the first bits of advice I had from my illustrious predecessor, the great Willie Whitelaw, when I became an MP in his place, was, “Remember, David, in Parliament always distinguish between activity and achievement because there are those who run around being highly active but achieve nothing”.
I understand where the Government are coming from with this Bill. There are problems in the water industry—that is not the fault of privatisation, which has been successful, but of inadequate regulation by Ofwat. Those problems were addressed by the previous Government in the extensive Plan for Water, and the new Secretary of State, in his speech to the water industry on 5 September, seemed to repeat most of the items in that plan. He ruled out nationalisation and said that water companies need to attract private investment. He said he wanted to address catchment-level water solutions, and to that end intends to run a full review and seek a reset of the industry and a new partnership. He also wanted nine more reservoirs built, along with pipelines and peatlands, to help store water. These are very important issues. If that could be delivered then that would be a major reset and a real achievement. We all want to see that review conducted as speedily as possible, especially since the Plan for Water, published by the previous Government in 2023, set out most of what seems to be on the Secretary of State’s agenda.
Then we come to the Bill and what it will achieve. In launching the Bill and the proposal to double compensation for water cut-offs, the Secretary of State used phrases such as “crack down” and “toughen up” as he outlined measures to send executives to prison, automatic fines by the regulator, changing the burden of proof and a whole new range of unspecified powers for the Secretary of State and the Environment Agency. To me, it sounded very much like a remake of Tony Blair’s
“Tough on crime, tough on the causes of crime”—
which did not work then, despite the rhetoric. That is a lot of activity, but where is the impact assessment by the Government to show what it will achieve? The Government hope that automatic fines and the changed burden of proof will free up the Environment Agency to pursue the larger and more complex cases. If that is the case then we should see the calculations leading to that belief.
Will the measures in this Bill improve water quality? Charles Watson, the chair of River Action, said that while it was a “relief” to see the new Government acknowledge problems in the water sector, only a “comprehensive and holistic review” of regulation would fix matters. James Wallace, the chief executive, said:
“Talking about CEO bonuses is not going to sort things out. What we really need to see is a regulator, the Environment Agency, with its teeth given back and its funding given back”.
The Chartered Institution of Water and Environmental Management, while welcoming the review, said it is of paramount importance
“that this review cuts right across the activities of all government departments. From Defra, through housing, transport, energy, health and more. It mustn’t be kept in a Defra-sized box, or it will fail to match Reed’s ambitious pitch”.
I hope the Minister will confirm that the review will cut across all those different government departments and agencies.
Those I have just quoted welcome the Bill as a little step forward, but the real achievement would be if the Government could deliver on the Secretary of State’s vision in the review. That is why I conclude that the Bill is good political talking tough, but it might achieve little; it is possibly activity over achievement. However, we shall examine it fairly and seek to improve it, while asking some key questions.
First, I want to look at new Section 35B of the Water Industry Act 1991, which introduces the concept of “specified standards”. The existing Section 35A already deals with remuneration. The company has to base it on meeting “standards of performance,” in the wording of Section 35A of the 1991 Act. The water services regulation authority, Ofwat, will be given the power to draft rules on what these specified standards are, including whether someone is a fit and proper person to be a senior officer,
“or in respect of other matters”.
That is quite a wide-ranging power. How will it interface with the Company Directors Disqualification Act 1986, which provides extensive powers to disqualify a director? The Financial Conduct Authority also has rules on what is a fit and proper person.
In future, we could see water company executives who will have satisfied all the company law criteria to be a director, but their remuneration will be subject to new so-called “specified standards”. Those standards will include
“consumer matters, … the environment, … the financial resilience of undertakers, and … the criminal liability of undertakers”,
and
“any other matters that the Authority considers appropriate”.
Who on earth will ever want to be a director of any water company with those potentially onerous conditions? We have no idea yet what those conditions will be, and it is essential that we have some indication of that before we get to Report. The Secretary of State has to be consulted under new Section 35C. Since the Government have specifically made a big fuss about these new rules, the Government must have some idea of what they want in them and cannot say, “Oh it is not up to us; it is entirely up to the authority in due course to invent the rules”.
Punishing directors for carrying out the wishes of the shareholders is surely the wrong approach. When Macquarie had 48% of the shares in Thames Water, jacked up the debt by £2.8 billion and took out £1.1 billion in dividends, do we really think that the managing director and directors could have stopped that? The majority shareholder, I submit, was in the driving seat. Macquarie and other shareholders would have rapidly replaced those directors and executives if they tried to limit dividends and spend more of the profits on infra- structure. There is no question on these Benches of us seeking to let water companies off the hook. Where they have failed to deliver, they should suffer sanctions and penalties. However, penalising the management is targeting the wrong group; it is the shareholders who should lose out financially for company wrongdoing, however that may be defined. The description of a person in a “senior role” includes
“such other description of role with the undertaker as may be specified”.
We need to know a little more about who those people might be. That is something we shall need to explore in Committee.
I turn to Clause 4, which amends Section 110 of the Environment Act 1995 with a new imprisonment provision, of which the Government have made a big thing. Sections 110(1) and (2) of the Act sets out the offences of knowingly obstructing “an authorised person” from carrying out lawful duties, of failing
“to comply with any requirement”,
of preventing
“any other person from appearing before an authorised person”
or of failing to “provide facilities” for an investigation. That person shall be guilty of an offence. The penalty is a summary fine or imprisonment to the maximum of the magistrates’ court levels. On indictment, it could be a fine and/or up to two years in prison.
That is the current law, so how does Clause 4 change it? It makes not a single change to the offences in Sections 110(1) and (2). It makes not a single change to the fines and imprisonment. I am very happy to be corrected by the Minister, and I hear what she said about there being a difference. I am happy to be educated on that in Committee, but it seems that the Government here are dancing on the head of a pin—making a big thing about a tiny little change. I think these offences were included in the past. This clause seems to replicate existing provisions to let the Government boast that they are taking tough action against water undertakers, to make a political point.
I instinctively dislike civil penalties imposed by government or arm’s-length bodies or other organisations, whether it is the Inland Revenue or a parking fine company. It avoids due process. I leave it to the noble and learned Lords in this place to give their opinions on the dangers of changing the burden of proof from “beyond reasonable doubt” to just “the balance of probabilities”. I have no problems if a company has genuinely committed the offences and deserves the penalties, but changing the balance of proof could mean that some were unjustly penalised. That could result in large fines and damage to the company’s reputation.
I have similar concerns with Clause 6, on automatic penalties for specified offences that will be created by the Secretary of State. At least those have to be laid before Parliament under the affirmative procedure, and we will have a chance to debate them. As the noble Baroness pointed out on the delegated powers, the Bill gives enormous powers to government agencies. I look forward to reading the Delegated Powers Committee’s report to see what it says about the powers in the Bill and whether it agrees with the Government that the scrutiny they propose is adequate. I also want to see more of the Government’s thinking on the regulations they propose. They cannot say that it will be up to Ofwat and the Environment Agency to invent the rules, and that it is nothing to do with them. They have clear ideas about what they want in the regulations, and we need a steer.
We will also want to explore the Government’s thinking on the involvement of consumers in board decision-making. The Bill is exceptionally vague on that. Clause 1(3) requires a water company to involve consumers in any decisions
“likely to have a material impact”
on consumers. I suggest that any decision made is likely to have an impact on consumers, so what is the Government’s definition of “material”? Clause 1(3) also says that consumer views may be represented by someone being on a “board, committee or panel”. These are radically different concepts, from executive decision-making to an advisory panel. Again, we would like to hear more of the Government’s thinking.
The Secretary of State made a major speech to the water industry on 5 September, and committed the Government to building nine new reservoirs, multiple large-scale water transfer schemes and 8,000 kilometres of water mains pipes, and to upgrading 2,500 storm overflows. As the noble Baroness said, Ofwat costed that at £88 billion. The Secretary of State, in his interview last Sunday, was adamant that every penny of that money would be raised in the private sector and invested within the next five years. As the Secretary of State is clear that these things need to be done—a lot of them were set out in the Plan for Water of 2023 —and it would be a real achievement to do them, why are they being kicked into a long-term review? That is what we should be discussing in this House as soon as possible—the balance between investment and increasing water bills.
The Secretary of State’s endorsement of privatisation and bringing in private investment was interesting. He said that his plans would
“unlock the biggest ever investment in our water sector, and the second biggest private sector investment into any part of the economy for the entirety of this Parliament”.
In other words, he was saying that privatisation worked, but proper regulation was inadequate.
Those are the big issues that will actually deliver a better water industry, not the presentational matters in the Bill. Nevertheless, we will explore it constructively, support it where it is right, and seek to amend it where necessary to ensure due process and clarity. We look forward to addressing all that in Committee.
Earl Russell (LD)
My Lords, I declare my interests as set out in the register. There is much to welcome in the Bill. There is much that we on these Benches will support. Equally, we call on Labour to be braver and bolder and to act with greater urgency. The environment cannot wait while Labour decides on the real systemic reforms that are the only solutions to this crisis.
The most positive thing in the Bill is the acknowledgment of the scale of the problem and the signal from Government that further, more fundamental measures, beyond this Bill, will be tabled in this Parliament. I give Labour my thanks for this. With this we finally have a potential starting point for change. The Bill is a welcome first step, but the Bill alone is far from a comprehensive solution. It is a list of useful measures, but if the Government think that simply blocking the payment of bonuses to poorly performing water company executives and a few other measures will resolve the sewerage crisis, there are real grounds for further thought.
Since privatisation 35 years ago, we have witnessed one of the worst environmental crises in the UK, with unabated and unprecedented pollution. Just 14% of England’s rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours of untreated sewage discharges in England alone. Water, water everywhere, and not a drop of it unpolluted.
Meanwhile, water companies have paid at least £78 billion in dividends, while failing to invest adequately in the infrastructure required. At the same time, they have piled on £64 billion net in debt, when the water companies had been debt-free at the point of privatisation. The regulatory system is broken and has failed to hold companies to account. When researching this speech, I was astonished to find that Ofwat has to give 25 years’ notice to revoke a water licence.
Measures such as monitoring outflows, banning bonuses, automatic fines, lowering the burden of proof, and possible jail terms for obstruction of investigations are all welcome. The reality is that the Bill is just a list of useful, but ultimately nothing more than stopgap, measures. The real change needed is a radical and complete systematic overhaul of the whole system. Feargal Sharkey called the Bill inadequate. He rightly said:
“We want an end to pollution, clean rivers and seas. We wanted transformative action and these small steps do not satisfy that goal”.
Similarly, Charles Watson of River Action said:
“What we’ve got today is a long list of measures that will cost the government nothing and is really not going to fix anything because it’s the system that’s broken”.
The review of water health is welcome. Is the Minister able to confirm that the review will be independent of government, with an independent chair? When will it start work, and when is it expected to complete? Steve Reed has said that a “full review” of the water sector will take place over the course of this Parliament. I hope that Labour has the courage to be brave. It also needs to find its own policies and grasp the reform nettle. Why is more comprehensive legislation not yet ready, after some 100 days, on such a fundamental issue?
The broken system and the consequences of light-touch regulation were all issues at the general election. Our rivers, streams and lakes have been polluted to the point of ecosystem collapse in some cases. I am proud that my party has led the campaign on these issues, which cut through to people on all sides of the political spectrum. The broken system saw the polluter paid time and again, instead of the “polluter pays” principle ever being applied.
My warning to Labour is that the people who voted for it did so with an expectation that real action would be taken to resolve this mess, and that it would be undertaken at scale and pace. The Liberal Democrat position is clear: out-of-control water companies must be forced to put the interests of the environment before profits. They must be held to account for their corporate failings. Our policies include plans to abolish Ofwat and install a clean water authority—a regulator with real powers. We would turn private water firms into public benefit companies—the quickest and least costly method of resolving this mess. England remains the only country in the world to have privatised its entire water system, and for good reason.
The hard part about scrutinising the Bill is that the important parts of the puzzle are not in it at all. They are yet to come, and we do not know exactly when they will arrive and what they will say. I remain to be convinced that, even with further legislation, Labour can keep private water companies and the existing regulation architecture, including Ofwat, in place, and pull off the magic trick of protecting the environment, making regulation fit for purpose, securing the billions of investment and protecting bill payers in the midst of a cost of living crisis.
Can the Minister reaffirm that, where water companies systematically use overflows to dispose of untreated sewage in dry conditions, it is the Government’s intention to swiftly prosecute them? Enforcement powers exist already—water industry bosses can be sent to prison under certain circumstances—but these powers have hardly ever been used. Since 2001, the DWI has brought only three prosecutions and given two cautions. Are the Government clear that the regulators will have a firm touch and prosecute breaches?
It is welcome that the Environment Agency will be able to levy automatic fines and recover costs, but cost recovery is retrospective and does not pay for the enforcement today. The Environment Agency had its budget cut almost in half between 2009 and 2019. Will this Government properly fund enforcement? Laws cannot be enforced without effective regulators. We need fundamental regulatory reform. The Bill could be strengthened through the inclusion of environmental and clean-water duties on Ofwat. Companies that persistently breach obligations should face the prospect of special administration. We need much larger fines that are a real deterrent. We need legislation which ensures that funds from fines will be invested in environmental projects through the water restoration fund. Enforcement is still based solely on ecological impact, with no requirement to restore areas that have been severely polluted in the past. We need more investment in mechanisms and processes that work with nature—so-called nature-based solutions. All water companies should be required to implement pollution reduction plans. Ofwat should have a statutory duty applied to contribute to meeting our climate and nature targets.
The Bill has many measures coming in at different times and subject to different consultation processes by associated regulators and the need for many measures to be approved by statutory instruments. When does the Minister envisage that all the measures contained in the Bill will be enacted? Will the Minister agree to work with your Lordships’ House to ensure that measures in statutory instruments are able to be debated on the Floor of the Chamber as far as is possible? Finally, I worry that the villain of the piece is the lack of funding for enforcement measures. Only real reform, determination and hard cash will ever change this.
The Duke of Wellington (CB)
My Lords, I welcome the Bill. It demonstrates a much greater determination by the new Government to tackle the continuing and barely reducing problem of pollution of our rivers, lakes and beaches. Since we debated these matters three years ago during the passage of the Environment Bill—now the Act—the position has hardly improved. It has needed new Ministers with greater focus to force the water companies to take the matter more seriously. It has been a national disgrace that water companies have in many cases become financial structures to provide investors with an above-average return, through not only dividends but high-yielding bonds and executive management rewards.
We should all remember, as any player of Monopoly knows, that water companies used to be boring utilities providing a secure but not very exciting return. Some 35 years after privatisation, the companies are, on the whole, not owned by the original retail investors, who in many cases had been the consumers of water services in a particular area, but are now owned largely by institutional investors through private equity structures with high leverage. Such structures are not suitable for a regional monopoly utility. Water is essential for all residential and business premises.
I commend the Government for increasing accountability and transparency for the water industry. Yesterday, I heard the chief executive of Ofwat say on the “Today” programme that there needs to be a cultural change in the water companies. I believe that the Bill is likely to help that process as directors of the different companies come to realise their personal accountability. However, I must again suggest to Ministers that they should set up, within the independent review that they have already announced, a review of the current regulatory structure. The Minister has said that there will be a review of the whole industry, and I quite understand that it cannot be part of this Bill, but I hope that when she replies to this debate, she will undertake that a review will definitely include a look at the structure of regulation.
I and other noble Lords have received a suggestion that the growth duty placed on the Environment Agency and Ofwat should be disapplied, but this was added only recently by a statutory instrument. I spoke against that statutory instrument—the then Minister was here a few moments ago but unfortunately is now not in his place—but, as there is no ability by either House of Parliament to amend a statutory instrument, it was passed. I cannot imagine that this new Government would wish to be seen to disapply a growth duty on any public body.
Throughout this Bill, there are frequent references—sometimes slightly confusingly—to new powers for the regulators. Dividing regulation between Ofwat as the financial regulator and the Environment Agency as the environmental regulator has, with hindsight, allowed the industry to evolve in a way that has damaged the aquatic environment and offended the public’s perception of our green and pleasant land. The state of our rivers, lakes and beaches is a national disgrace—we must surely all admit that. At last, this Government are trying to overcome this stain on our reputation and our sense of well-being. I have a concern, however, that unless we improve the way we regulate the polluters we will not in the long term arrive where we want and need to be in terms of the ecological state of our inland and coastal waterways.
A number of us yesterday received emails suggesting that Ofwat should be given an additional duty to protect the environment. Whereas this is a laudable intent and something that all businesses and indeed individuals should aspire to, I am not sure that, in the current regulatory structure, it would be sensible to add this statutory duty to the other regulator while it is principally the duty of the Environment Agency.
I turn now to some specific ways in which I think the Bill could be improved. I am very grateful to the Minister for a meeting that a number of us had with her on Monday. It is, I think, significant that the Bill has been tabled in this House, thus enabling it to be better scrutinised—and improved—before it goes to the other place where, as we know, very few amendments will ever be properly considered, let alone voted on.
I am a bit concerned at the idea of consumer representatives on boards. In my experience, such defined interests on a board are not likely to improve the effectiveness of the board. New Section 35B(6), inserted by Clause 1, on page 2 of the Bill, does refer to a “committee or panel”—as the Opposition spokesman has already said. I believe that one of these would be much more effective and appropriate, particularly if the chief executive was required to have regular meetings with such a panel. If consumer interests are to be represented, why not also environmental interests, which I would have thought are, in this circumstance, equally important?
In new Section 94EA, inserted by Clause 2, the requirement for water and sewerage undertakers to prepare and publish a pollution incident reduction plan should, I suggest to the Minister, be extended to include a legal requirement to implement the plan. There are too many cases of plans being announced and then not being delivered.
The Bill introduces the concept of “emergency overflows” in addition to the permitted combined sewage overflows, or CSOs. I understand the department’s wish to have another category of overflows, but it surely cannot be justified that the water companies can claim that an emergency overflow is legal if it is caused by an electrical power failure, as detailed in new Section 141G(2)(a), inserted by Clause 3. Any other public service provider, such as a hospital or a school, would be required to have in place sufficient electricity generator capacity to cope with power failures. I suggest to the Minister that this is too easy an escape clause for the water companies.
In conclusion, I support this Bill but I hope that, in Committee, we can help the Minister to make this an even better Bill before it goes to the other place.
Lord Lipsey (Lab)
My Lords, my wife and I have had the privilege of living in the Wye valley in Wales for nearly 30 years. We go swimming at Glasbury most mornings in summer, some mornings in winter, and my wife even took the plunge once on Boxing Day, for which she should certainly have a medal. We still do this, but it is a deteriorating experience. Part of the river near us was closed this summer to wild swimmers such as us on the grounds of pollution.
I still think back to the days soon after we moved in when the noble Lord, Lord Birt, took us down to the local village of Erwood to a salmon leap to see those magnificent creatures, 20 pounds and more in weight, swimming up the stream to breed. I am afraid that there are no salmon leaping today—indeed, there are only about 2,000 salmon left in the Wye, and the species is officially regarded as on the verge of disappearing. If we were the generation that allowed the salmon to disappear, I think posterity would have some very nasty things to say about us.
Why has this happened? There are various causes, but overwhelmingly the most important is—I use the word, whatever the risk of offending your Lordships—chicken shit. Something like 80% of the pollution in the Wye is caused by chicken shit that is not moved off the farms, lies on the fields and is driven by water into the stream, where it does untold harm. Residents such as us complain about children who are sick after swimming, rotten egg odours, opaque green pea-soup blooms and brown slime on the bottom. It is not the Wye that we moved next to 30 years ago. This beautiful river is being turned into a sewage dump.
Whose fault is this? It would be nice to find a single person to blame, but there are quite a lot. For example, the Environment Agency was sued recently by Leigh Day, an admirable firm of solicitors acting on a no-win, no-fee basis. The judge said no, because the Environment Agency was getting its act together. That seemed to me to be progress.
As for other culprits, the previous Government produced a Wye action plan in April. It was quite ambitious and quite a good read; the only trouble was that the amount of money they were putting in was totally inadequate for what was needed. There is also a problem of governance, as the river flows through both Wales and England.
There is also a problem with local councils. First, if a council has an application for planning permission for a chicken farm, it cannot look at the total number of chicken farms in the area but has to look at the case for that individual farm—and that causes it, naturally, to have to say yes. That is especially so in areas such as ours, where small farming is so important for employment.
Should we blame the farmers, because after all this substance comes out of the backsides of their chickens? They should not cop the whole rap—small farming is a religion where we live, and quite rightly so. Farmers have been overwhelmed with advice from the Government and their agencies as to what they should be doing, but doing it can be costly, as there is a shortage of government funds and some advice is not taken, however wise it may be.
At the end of the day, the culprits that I prefer to finger are big agra—and in this case Avara in particular. It was formed in 2018 by a joint venture with Cargill, a UK company; it is one of the UK’s biggest food businesses, with £1.5 billion-worth of turkey and chicken. The heart rather misses a beat at the thought of all those chickens and turkeys. Its directors are paid on a scale that would make even water company directors envious, at £438,000 each per year for doing their job. It would do no harm if there was proper scrutiny of their pay, in the way that the water industry itself is to be controlled.
However, in fairness, Avara is not coining it in; it made an operating loss of some £11 million according to its latest annual report. It is certainly not indifferent to the damage that can be caused by its activities; it has to retain a social licence to operate and, if it goes on messing up the environment for everybody, it will not be allowed to stay in business. That means expensive shipping of the stuff to places where it is more used as a fertilizer and less harmful.
I imagine that some of those directors on £438,000 a year are shaking in their boots at the arrival on the scene of the noble Baroness, Lady Hayman. When she wants action, in my experience action is what she normally gets. If this Bill does not provide sufficient solution to the problems, she will find something that does—I promise you that. She repeated today the Government’s pledge of wider scrutiny of water, which could lead to some huge changes.
I also, in a House that is not an elected House, pay tribute to the local citizens who put their backs into campaigning against this stuff, including scientists who provided 200 samples a month of water from the Cambrian mountain source to where the Wye comes out in Monmouth. There is no doubt whatever that they have had had an effect. Natural Resources Wales at one stage claimed that chicken poo had nothing to do with what was going on, but even it has had to concede that now.
We can make some progress through amending this Bill. As noble Lords know, those possibilities are being explored. At the very least, the Bill and the debates on it present a matchless opportunity to promote the cause of this iconic river and stop it dying before our eyes.
Baroness Browning (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Lipsey, and I congratulate him on the work that he has undertaken to protect the beautiful River Wye. I declare that I am a member of the APPG on Water.
I welcome this short but focused Bill to address the water system, which we know is broken on many levels. The tests of its success will be if the measures outlined will be statutory standards rather than guidelines, the real power of regulators, and timely enforcement rather than missed targets.
Clause 1 requires regulators to be able to block payment of bonuses to executives of water companies that fail to protect the environment by allowing UK waterways to be polluted by sewage. Do those penalties include directors’ shares and dividends?
Ofwat’s Water Company Performance Report 2023-24 talks about there being a need for urgent action to drive lasting improvement within the sector, as it is disappointed that water companies have fallen
“further behind on key targets for pollution and internal sewer flooding”.
For a regulator, the choice of that word “disappointed” rather smacks of the benign schoolteacher writing an end-of-term report. I hope that the measures in this Bill will turn it into a real regulator and not just a group of disappointed people.
While we are talking of individual penalties, I ask the Minister what the Government’s position is on regulators not being stuffed with ex-water company employees. Do they have a view on this? Is it pertinent to what the Government are trying to achieve?
Clause 2, which has been mentioned already—on the pollution incident reduction plans to reduce the frequency, seriousness and causes of pollution—is particularly important for the shocking state of our rivers, from the Wye to the Thames, not forgetting those very important chalk streams. I notice here that the power of the Secretary of State, in consultation with the Environment Agency, will be subject to guidance under secondary legislation, which the Minister mentioned. The Minister will be aware that Members of both Houses have interests in particular water courses, as of course do the public. I hope that she will look again and confirm that this secondary legislation will be subject to the affirmative resolution of the House so that we have an opportunity to discuss it—not just some statutory instrument laid without proper scrutiny.
I notice that the document that appeared only late this morning—the memorandum from the Department for Environment, Food and Rural Affairs about delegated legislation—states that, in particular in this part of the Bill:
“This power is intended to be used exceptionally, and only in circumstances where the Secretary of State considers water companies to have failed to include material relevant to the function and purpose of a Pollution Incident Reduction Plan … There is no parliamentary procedure required for giving directions under the WIA 91”—
the original Act—
“and the Department does not consider that the nature of the direction proposed would require a departure from that position”.
I have to ask the Minister to look again at that because it is important in this section of the Bill that Parliament, in both Houses, is aware of it.
Clause 3, which of course is new Chapter 5 of the Water Industry Act 1991, requires water companies to report on discharges within very narrow timeframes. That is all well and good, but I am disappointed that the Government are not also seeking, even if it is in a different Bill coming forward, to reduce the volume of wastewater entering the sewerage system in the first place.
Something which I have raised several times on the Floor of the House is the use of grey water, from rainwater run-off and domestic appliances, which adds to the volume of the sewerage system. I have asked several questions about the need for both domestic and commercial changes to building regulations; I have always been told by the Front Bench that it is too expensive. Surely, with the Government’s ambitious housebuilding programme, now is the time to incorporate it in new builds, where the need for immediate connection to the existing system may end up being in conflict with the measures in this Bill. I hope that the Minister will, if necessary, discuss this with the appropriate department with those responsibilities.
There are a few other things that I would like to raise. Will there be a review of existing licences, some of which go back many years?
When I lived in Devon, my home was subject to three feet of flooding throughout the ground floor on two occasions, eight years apart. When a house floods like that, I know to my personal cost that it is not just a matter of waiting for the water to go down. We were out of our home for six months each time. I would have liked to have heard more about the need for flood prevention in critical areas. We all know this is going to get worse due to climate change.
Have the Government anticipated that higher corporate financial penalties, as promised in the Bill, may be scapegoated in future to explain the lack of infrastructure capital investment? How can this be avoided? I hope the Government have reflected on that.
I hope to participate in Committee, when we shall of course deal with the detail. Will the Minister publish an impact assessment before Committee? Can she confirm the timetable after Royal Assent and say when she anticipates the measures in the Bill will be enacted?
Baroness Parminter (LD)
My Lords, yesterday we learned that water companies failed, for the fourth year in a row, to meet critical pollution reduction targets and that last year over 3 million hours-worth of sewage was flowing through our waterways in England. And yet, like the noble Duke, the Duke of Westminster—
Baroness Parminter (LD)
I heard on Radio 4’s “Today” programme that the response from the regulator was that what was needed was a change in culture. Now, putting aside that it seemed strange that the regulator would say culture change was the answer, the issue is that these companies have had the chance over decades to show that they can change, and they have not. Now is the time for the Government to intervene.
Like others, I welcome the strong manifesto commitment by the new Labour Government to clean up our waters, rivers and beaches, and I welcome this first step. It is not going to do it on its own, as indeed the Minister said in her opening remarks, but it is a welcome first step which will do something to help regulate these failing companies and extend the remit of this sadly ineffective regulator. At the same time, it will hopefully allow the Government to undertake a broader review where they can identify a way forward for this broken model of managing our precious water resources.
The special measures Bill is welcome, but there are a number of areas I would like to see strengthened. I find it very concerning that there is not a public interest remit for the regulator Ofwat. I think the general public would find it very surprising that the regulator for our water companies does not have any need to look at issues of ensuring clean water or improving the environment. However, it does have binding, legal duties to improve the economic performance of companies. Over time, this has allowed them to sweat assets and put profit before public interest. That must change. Again, as the noble Duke, the Duke of Westminster—
Baroness Parminter (LD)
I am so sorry: the noble Duke, the Duke of Wellington—it is not easy to muddle the two, so apologies for that. He rightly made the point that this situation was actually made worse by the last Government when they introduced the legislation that made Ofwat have regard to the desirability of promoting economic growth when it was undertaking its duties. We have to redress that balance. Of course, water companies have to make a profit—we cannot have companies that do not make profits; they would not be in existence—but there is an imbalance between focusing on the bottom line and ensuring that public interest in our water is delivered by these companies. That must be redressed. The special measures Bill, by changing the remit of Ofwat remit to have a public interest duty, is a way to do that.
I very much welcome, in a spirit of hope rather than expectation, the pollution incident reduction plans that will do what they can to ensure that we see less pollution in our rivers and waters in the future. Like other colleagues, I feel very strongly that it should be a duty not just to produce and publish them; there must also be a duty to implement them. It must also be a duty on all water companies, both straight water companies and water sewerage companies. We would like to see some amendments on that.
We need to make sure that those pollution incident reduction plans do not just end up being stuffed full of the cheapest and quickest options to tackle combined sewer overflows. If we allow that, all we will end up with is downstream proposals for end-of-pipe storage, such as concrete storm tanks, at water recovery centres, rather than looking upstream to find sustainable—admittedly more expensive—options that will deliver sustainable drainage and other nature-based solutions. These will not only deal with the combined sewer overflows but will offer other benefits to society more broadly, in terms of flood alleviation and liveability for communities, if we are talking about sustainable urban drainage systems, for example.
So I hope that, in Committee, we will have the chance to ensure that those pollution incident reduction plans are not just stuffed with the quickest and the cheapest but actually move companies towards looking towards the sustainable and the best.
Like other noble Lords, including the noble Earl, Lord Russell, who spoke so well earlier, I want to add my voice to say that I hope that, in summing up, the Minister today will be able to say a bit more about the review on which we are all pinning such high hopes. Like others, I would very much like to see a very clear and firm look taken at the operating and financing models of companies. My party has long and strongly argued for social and environmental purposes to be incorporated in water company corporate articles of association. I very much hope to see that sort of aspect looked at.
We need to make sure that all areas across government are included, because there are so many areas which impinge on how we manage our water, including talking about planning rules for new homes and the right to connect for developers, or incentivising sustainable agriculture so that we help farmers to do what we need them to do and not contribute to some of the run-off that the noble Lord, Lord Lipsey spoke so powerfully about, and really starting to prioritise catchment-scale planning for water. We need to look at all the areas in that review and ensure that we have an enforcement regime that is worthy of the name. Without that, it is not worth the paper it is written on.
I will add one thing that no other Member has yet mentioned this afternoon. I hope that the review will look at the role of consumers, of us as individuals, in paying for all the new infrastructure that will be required to deliver the water services we want and need and also at our responsibility to save water, which for too long has not been articulated strongly enough. I remember that 10 years ago, during the passage of what became the Water Act 2014, I made the case for compulsory water metering and better standards for installations in homes. The case for compulsory water metering with social tariffs has not gone away; it is still here. However, I hope that the Government will at least look at the role of what consumers are expected to do and pay for in this whole review, because they must be an integral part.
I was very pleased to hear the Minister say that there will be public consultation on this, because it is our water system. It is a problem that all of us know about, wherever we live, whether it is on the Wye or me by the River Wey in Surrey. We have all had our water stopped and have all seen slurry in the rivers. All of us have a say in this and the public will want us to do the best we can to help the Government make this special measures Bill and the review what they need to be.
Baroness Jones of Moulsecoomb (GP)
It is always a pleasure to follow the noble Baroness, Lady Parminter, but it is also daunting, because she can speak without notes for eight minutes. I cannot do that because I have so many complaints about the Bill, so excuse me for reading notes.
We have heard about the organisation River Action a couple of times; I am on its board and it will be playing a role in giving advice to the Government on how the Bill can be improved.
I know that the Minister knows how much I admire her and trust her as a Minister and in her role today. But, at the same time, the Bill is deeply disappointing. It is disappointing to the point of being almost a joke, because it does not do what the majority of people would like it to do. It is about the regulation of a capitalist monopoly and the good management of a privatised cash machine that water bill payers subsidise. The money just goes straight out and we do not get a benefit. The Bill tries to regulate by using the same people and organisations that have failed for the past 30 years. How can that change? I do not see that that is possible.
The Bill also tries to threaten the top people with jail time using the same tools that have been failing to work for 20 years. What it does not do is get back the billions of pounds that these company shareholders have pocketed for decades, or even stop those same shareholders from pocketing billions of pounds of our money in the future. Nor does it stop the water companies dumping sewage in the waterways. Instead, we hear about Ofwat making backroom deals that will keep the private companies in business by weakening the enforcement of regulations. I do not understand how that can be happening.
We should enforce the regulations—if the businesses fail, they fail—and let the companies know that this Government want the work done. Ofwat has made clear that the water companies have had the money they need, so they must either get the job done or give us a refund. What the Government should not do is allow these companies to run up more debts in order to pay out more dividends. Those debts and dividend payments have already cost us four months-worth of water bill payments. In what other area of life are consumers paying out four months-worth of bills each year but getting nothing back in return?
We are not even being offered a guarantee of clean water or that the leaks will be fixed. In fact, we have the insanity of a country soaked in record rainfall arranging a deal that would use tankers to import Norwegian water in the event of drought. That is so lunatic that I cannot even finish my sentence about it. As other noble Lords have said, water is a basic of life. We need water—all life needs water—so why is it in private hands and subject to profiteering?
Much of this Bill is about what happens when a water company fails and goes into a special administrative regime. Ministers have said on several occasions that they will not bring water companies into public ownership because of the cost. They have been quoting a six year-old Social Market Foundation report, but they ignore the very recent calculations by Moody’s and the S&P credit rating agency that these shares are junk. Their estimate of how much it would cost is very different.
Professor Ewan McGaughey of King’s College London said:
“Special administration would not cost the Treasury or taxpayers anything ... special administration enables the Minister to put a plan before”
the High Court to cancel a company’s debt
“if continued payments to banks would interfere with properly carrying out the water company’s sewage or clean water functions”.
So why does the Minister not just do that? Special administration sounds great and very cheap. As Professor McGaughey said:
“The best way to clean our water is with more investment. Forty percent more investment would be possible if we stop bailing out banks and shareholders with billpayer rises. It will cost us over £12.5 billion this Parliament to keep paying shareholders and banks. … The right way to close this black hole is to make failed companies lose their licences, cancel the debt and transition to public water … This is all possible under the existing law”.
As for the debt that was accumulated to pay shareholder dividends, I understand that the Thames Water debt is now being traded by hedge funds. They are buying this debt on the cheap because they think this Government are stupid enough, or corrupt enough, to compensate them at a higher level. As much as I hate the idea of rewarding the parasites in our water industry with compensation for worthless shares, I dislike even more the idea of hedge-fund managers making a profit from a Labour Government’s ideological rejection of public ownership, so will the Minister give me an assurance that minimal compensation will be paid to the creditors of failed water companies and that our water bills will not be used to line the pockets of the hedge funds?
The Minister mentioned in her opening statement that this Bill had public support. I knocked on a lot of doors during the general election—I spoke to a lot of people in their homes and on the streets—and I think that a huge number of people, if not the majority, would support the following criteria for a more radical water Bill: no compensation for shareholders, minimal compensation for creditors, and public ownership being one of the options for these failed companies.
I will bring forward amendments to ensure that this Bill does not simply allow these failed zombie companies to continue extracting bill payers’ cash while loading huge amounts of debt on to the balance sheet. The Government need a serious look at the opportunity to bring these companies into public ownership, and this Bill should give Ministers the option to nationalise these companies where it makes sense.
Lord Sikka (Lab)
My Lords, it is always a great pleasure to follow the noble Baroness, Lady Jones of Moulsecoomb. This Bill has more holes than Swiss cheese. I shall give noble Lords some examples. It promises to ban bonuses for senior executives but is silent on how the ban is to be implemented. Water companies can bump up basic executive pay and thereby eliminate the need for any bonus at all. Most water companies are part of large groups of companies and can offer multiple directorships to individuals, so no bonuses are necessary whatever. I hope that in her reply the Minister will tell us how this bonus ban will operate in practice.
The Explanatory Notes refer to a bonus ban for degradation of “financial resilience”. I know a thing or two about financial resilience, but there is no definition in the Bill and I have no idea whatever of what the Government mean by that. Again, I hope that the Minister will give us some ideas. How is this assumed financial resilience to be secured? Shareholders are already reluctant to invest. More debt will not increase resilience. Currently some 28% of the gross revenue of water companies is used to service debt payments. With higher debt that percentage would rise, which would destabilise companies. That leaves higher customer bills as the only option. After 35 years of abuse, that is simply not viable. Again, I look forward to some clarity.
The Bill promises to bring criminal prosecutions against some water company bosses but provides absolutely no criteria. How much sewage and how often does it have to be dumped to trigger an event for prosecution? There is no clue in the Bill. In any case, there is a backlog of 60,000 Crown Court cases, so the chance of any timely prosecution is slim. Perhaps the Minister has in mind some additional investment in the legal system. It would be good to hear that.
The Bill does not curb the payment of dividends. In March 2023, Ofwat said that it would
“stop the payment of dividends if they would risk the company’s financial resilience”.
To date, there have been no restrictions on dividend payments. Not a single water company discloses its distributable reserves, so we have no idea of their dividend- paying capacity anyway.
The Government are pinning their hopes on Ofwat, but Ofwat is not really up to the job. It has presided over the entire mess. It has not curbed financial engineering. Water companies continue to inflate their level of investment by capitalising interest and repair and maintenance payments. That is permitted by Ofwat. Ofwat systematically favours companies over customers. Anyone has only to look at how the pricing formula PR24 operates. Ofwat uses fictitious gearing ratios to enable companies to receive real excess returns. That should really be a criminal offence.
Ofwat cannot be trusted. It is too cosy with the water industry. Two-thirds of England’s biggest water companies employ key executives who have previously worked at Ofwat. Executives of water companies and regulators regularly meet in hotels and expensive private clubs to discuss their common position and how to quell public anger about bill rises and sewage dumping. This Bill does absolutely nothing to check collusion with and the cognitive capture of the entire regulatory apparatus.
On 5 September, the Environment Secretary said that
“customers will have the power to summon board members and hold water executives to account through new customer panels with teeth”.
Without a statutory base, customer panels will achieve absolutely nothing. In my view, at least 50% of the board of directors of any regulatory body and the regulated entity need to be directly elected by customers. Customers must also vote on executive pay. If they think executives deserve higher pay and bonuses, then they can award them. Let there be a bit of democracy. At least give people the power to check abuses. If the Minister has any objections to the democratisation of the water industry, it would be good to hear them.
The main aim of the Bill seems to be to prevent public ownership of the industry. It enables Ministers to restructure water companies and return the monopoly to the private sector, with the cost borne by customers and the public purse. Clause 10 empowers the Government to provide financial assistance that they may or may not ultimately be able to recover. This strategy cannot address the cause of the crisis, which is profiteering and cash extraction by water companies.
If the water industry had been in public ownership for the last 35 years, £85 billion would have gone into infrastructure instead of dividends. Interest payments on debt would have been much lower as the cost of government-backed debt is always lower than that borne by companies; that would have freed billions more for investment. But the Government oppose public ownership.
In response to an Oral Question from me on 23 July 2024, the Minister said that public ownership
“would cost billions of pounds”.—[Official Report, 23/7/24; col. 364.]
That seemed to imply that the Government had actually done some calculation. So I quickly followed it up with a Written Question seeking details of that calculation. All I got in response was a reference to the Social Market Foundation report of 2018. If any of my master’s students had written that as a dissertation, they would have been guaranteed a fail. It is a dismal piece of work commissioned by water companies. A former government adviser has said that that report has “virtually no intellectual substance”. The £90 billion quoted in that report is utterly incorrect. When taking over an industry, one buys only the equity, not the debt—and that is what it included.
In 2019, Moody’s said that the equity value of water companies was only £14.5 billion. Since then, lots of changes have occurred: most water company shares are junk or worthless. Debt is junk: some of the Thames Water debt is trading at less than 6p in the pound. The Government should let the companies collapse and bring them into public ownership at low price. That is how capitalism operates: if a company collapses, it does not get bailed out. Only public ownership can provide long-term stability and it ought to be done through a not-for-profit organisation. The cost of this can be loaded on to the acquired companies, as the private equity model does, or it can be recouped by issuing public bonds, ensuring that people actually own essential industries.
The Bill is delaying the inevitable and, naturally, I will help the Minister by tabling some amendments.
Lord Remnant (Con)
My Lords, I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years between 2014 and 2022, chairing the board’s remuneration committee for that time.
Last month, the Secretary of State said that the Government planned to carry out a full review of the way in which the water industry is regulated and that this would shape future legislation. It is a shame, then, that this piecemeal Bill cannot be assessed in the context of more fundamental reforms to the way in which the water industry operates. Worthy of debate would be the plethora of sector regulators and the frequency of Ofwat’s periodic price reviews. Successive Governments and regulatory price reviews have prioritised lower customer bills over the industry’s investment needs. Now, however, in addition to greater accountability, we should be focusing on the need for more innovation, the recruitment of new talent and, above all else, greater investment to raise standards. My concern is that there are aspects of the Bill that run contrary to these objectives and where scrutiny of the rules set by Ofwat under the Bill’s general provisions, and of the powers exercisable by statutory instruments, will be limited.
I turn to the specific provisions of the Bill. Although I would normally view the stiffening of penalties in the form of automatic penalties, lowering the standard of proof and imposing custodial sentences as less of an effective deterrent than the consequence of a failure of the underlying regulations themselves and/or their oversight, it will be underperforming companies which have the most to fear from this. Clarification on the scope of offences to be covered and the potential value and proportionality of fines will be required, and I leave it to others to comment on whether imprisonment for impeding regulatory investigations is really the most effective utilisation of our apparently scarce prison capacity.
My principal area of concern relates to the rules for remuneration and governance. Clause 1 contains provisions giving Ofwat the power to block the payment of bonuses to the chief executives and directors of water companies. While sensible in principle, the devil will be in the detail, which may lead to unintended consequences. How best to remunerate senior individuals is complex. It involves alignment with the business’s strategic goals, balancing short- and long-term considerations, fixed versus variable pay, and attracting and motivating talent. Decisions are best made by the boards of companies, which take account of the views of all stakeholders, particularly shareholders and regulators, in assessing matters requiring fine judgments. This is not within the core competence of an economic regulator.
It is perhaps overoptimistic of me to expect the Minister to excise Clause 1 from the Bill in its entirety. There may, however, be areas of common ground on which I would welcome her thoughts. The Bill is too widely drawn. It states that the rules will apply only to pay which is linked to
“the meeting of any targets or performance standards”
by the water company or the individual. There is no clarity on how the relevant standards will be measured, which will fall to Ofwat to determine, nor on when the relevant trigger occurs and which remuneration will be affected. For example, will the relevant remuneration be that payable in respect of the year in which the failure occurs or when the penalty is imposed? Where remuneration is based on multi-year performance and there is a failure in only one of the years, would the whole award be impacted or only a proportion?
The key elements will be the metrics which Ofwat applies to determine whether the standards have been met. A properly constructed system of metrics linked to objective measures, which seeks to eliminate reward for failure but which aligns with the company’s own key performance indicators and does not penalise those in the industry who are meeting or outperforming stringent targets, should be the aim. Should the rules, however, be punitive and have the effect of discouraging the best people from working in the industry and restrict water companies from rewarding performance when appropriate, the consequence will be damaging.
Do we really want companies to move away from bonuses and long-term incentive schemes linked to performance to compensating increases in fixed pay? There is a precedent within the financial services industry when mandatory bonus caps were imposed—since removed by the last Government, a move endorsed by the current Government. The experience was not a happy one because it removed incentivisation and increased fixed costs, to the detriment of consumers.
In terms of employees within the scope of these rules, they apply to the chief executive and other directors of the regulated water company. The Bill provides that Ofwat may extend the rules to
“such other description of role”
as it specifies. Not only would such an extension be wider in scope than the current disclosure requirements of the Water Industry Act 1991, but it would be difficult to implement in practice as different water companies will have individuals described differently by title and role. This additional power conferred on Ofwat by the Bill should surely be removed if we wish to attract and support the next generation of leaders in this vital industry from middle management. This will not be achieved by extending these restrictive remuneration practices to them.
Clause 1 also includes provisions intended to establish consumer involvement in corporate decision-making. Clause 1(6) provides that this may include a requirement for persons representing the views of consumers to be
“members of a board, committee or panel”
of the water company. While I support the principle of strengthening the voice of consumers, this should not be through a highly prescriptive, one-size-fits-all approach.
We do not have different categories of director in this country. Non-executive directors may have particular specialisations, but they are chosen for their wider skills and ability to make a comprehensive contribution. Those representing consumer interests may not wish, or be equipped, to sit on corporate boards, with all the responsibilities and liabilities that entails. It should not be for Ofwat to require that such people sit on the boards of the water companies; it should be left to the companies to decide which forum best suits their own requirements, whether it be board, committee or panel. Providing such flexibility was effective when companies enacted the workforce engagement mechanism for the purposes of the UK Corporate Governance Code.
Finally, I turn to the section on special administration orders, which relates to the insolvency of water companies. Clause 10 gives the Secretary of State the power to modify a water company licence in order to recover any shortfall in costs for the Government from its consumers, and new Section 12J(4) extends this recourse to all other companies in the sector. Forcing good companies and their blameless customers to bail out failed companies cannot be justified. This unquantifiable potential liability will serve only to deter much-needed external investment in the sector.
There are provisions of this Bill which will deter the investment that the industry so badly needs, and experienced executives from working in it. Let us not return to a pre-privatisation environment. In particular, the discretion given to Ofwat is too broad, but I look forward to the next stages of the Bill, which will give us opportunities to improve it.
Baroness Pinnock (LD)
My Lords, as many have said, this Bill makes the first tentative steps in the right direction toward reforming the water industry, and it was good to hear the Minister recognise that this is just a start. There are many challenges facing the water industry such as the impact of climate change, which is expected to result in serious water shortages in some parts of the country; the requirement to meet the needs of a growing population, and the consequences for our environment. One of the strategic questions facing the industry and the Government is whether those challenges are better met by requiring the 11 water and wastewater companies, along with the further five water-only companies, to work more closely together in the interests of all of us as customers.
So far in this debate there has been a danger of treating water companies as if they are all behaving in the same way—something we ought to resist. Some companies are efficient and effective both in their operations and in their wider concern for the environment, but some are far from fulfilling the needs of their customers, let alone the needs of the environment. The thrust of this Bill is to force significant improvement of those companies in the latter category. I support what the Government are attempting to do; I am not saying that it is perfect, but it is in the right direction.
Privatised water companies provide an essential public service, which means that there is a delicate balance of responsibilities for each of them to achieve. On the one hand are the shareholders and investors wanting a return, rightly, on their investment, and on the other are customers wanting affordable bills and the environment to be protected and enhanced. It is this balance that, in some cases, has got considerably out of control. As many noble Lords have remarked, the righteous national outrage at the flagrant breaches of the use of storm overflows is just one indicator of an industry that has lost sight of its fundamental purpose.
The rot for some, but not all, companies started with the financial models adopted in the years following privatisation, where owners were able to extract value from the assets but leave the water company with a significant debt ratio—the total debt of the water companies currently exceeds £68 billion. Latterly, Ofwat has recognised that water companies have been too debt-laden and has forced a reduction of the debt ratio at each price review. However, that has been at the margins and has left companies—notably Thames Water—forced to concentrate their business on paying debt interest, perhaps paying down debt, at the expense of the basic public service of the company. This fundamental failure of governance and regulation has resulted in the various unacceptable behaviours that many noble Lords have cited. Clause 1 seeks to address some of those issues.
At this point, I declare that I was a non-executive member of Yorkshire Water for 10 years, fulfilling the role which the Bill identifies as being a voice for communities and customers. That this is a role which all boards should include is welcome, although I accept the argument made by the noble Lord, Lord Remnant, that it is not one we should define as is indicated in the Bill—that will not work.
Aside from the financial models, the problem is Ofwat. As the prime regulator—though not the only regulator—it needs to be abolished and replaced with a body that has more powers. Some of those powers are set out in the Bill, but fundamentally there needs to be a different regulator. As was previously said, we have a revolving-door syndrome whereby executives of water companies become executives of Ofwat, and sometimes back again. That is a malaise that has to be stopped; it reinforces bad behaviours and no new thinking comes into the sector. Perhaps as a result, Ofwat has failed to regulate the sometimes overly high profits to shareholders and bonuses to executives. Furthermore, as other noble Lords have mentioned, Ofwat has no powers to force water companies to improve environmental water quality, which includes preventing storm overflows being used as a cost-saving measure.
One of the inherent challenges in reforming wastewater treatment is that the public sewer system also takes the flows of surface water from the road network—something that the noble Baroness, Lady Browning, spoke about. The Government in their drive for more housing need to ensure that sustainable urban drainage is a part of any new housing development, and that, if need be, surface water attenuation tanks or ponds are part of preventing water surge into the public sewer system.
Finally, I urge the Government to consider ownership as well as financial models of water companies in developing a better approach to this essential public service. As part of that thinking, I urge them to develop the concept of a national water grid. It is surprising that areas where there is perhaps too much water are not used to push water down the systems of various companies to help those who are increasingly going to be short of water.
The system, as it is, is not doing its best; some say it is failing the customers and failing the environment. Some companies, in the drive for profits and investment, have lost sight of their sole purpose, which is to provide an absolutely essential public service. This Bill makes small steps in the right direction, but fundamental changes in approach are still needed, and I look forward to the Minister solving all those problems.
The Earl of Devon (CB)
My Lords, it is a pleasure to follow the noble Baroness. As explained, this is one step in a multistage water industry reform aimed at fixing, once and for all, the parlous state of our rivers and fresh water supply, which is damaging the environment and our well-being, and which acts as a significant drag on our national development ambitions, particularly for housing.
This step is aimed at giving teeth to the regulators to control water company conduct, enforce regulation and punish bad behaviour. It is to be followed by a full review of water industry regulation, which is yet to come, but by which the Minister promises transformative change. Let us hope so. I ask at the outset for the noble Baroness to provide more detail on the timing and the parameters of that full review. As the noble Earl, Lord Russell, noted, it is urgently needed.
I am concerned that the punishment and shackling of water companies inherent in this Bill will not provide the solutions that are required and may only encourage a talent and capital flight from the industry. We would all benefit from a better understanding of the long-term solutions to this decades-old problem. This Bill has an unfortunate hint of short-term tarring and feathering of the water industry management for past sins. Perhaps it is His Majesty’s Government proving that they are not chicken faeces.
I note my interest as a farmer and land manager in rural Devon, with fundus interests in the River Exe estuary, which is blighted by sewage leaks. Areas of the estuary are unsafe for commercial shellfish due to human faecal contamination, and a local swimmer in Exmouth has launched a civil lawsuit against the local water company for her inability to swim off the shore. I am, as we all are, a water company customer. I also work at a law firm that has a number of major water companies as clients, albeit that I do not work for them directly. I therefore see this issue from all sides.
I am minded that water companies have long been wrestling with ageing infrastructure, considerable increases in demand and the need to be competitive in the international marketplace for capital. Moreover, they serve one regulator, Ofwat, which is keen to control consumer prices, and another, the EA, which has suffered a rollercoaster of funding and target changes over the last 20 years. While they have indeed paid excessive bonuses and dividends, it is too simple a narrative to blame corporate greed for the state of our waters.
Given that this Bill is only part of a broader water industry reform, it is obviously not a panacea, and it will not address many of the egregious issues we face. It focuses mostly on the stick, without providing carrots to encourage and support the investment and good behaviour needed. For example, take the provisions regulating executive pay, which we have heard so much about, and sentencing and liability. The pay provisions take power from shareholders and put it in the hands of Ofwat, while the liability and sentencing provisions increase dramatically the jeopardy and peril associated with working for a water company.
To echo the noble Lord, Lord Blencathra, with these provisions in place, how on earth will water companies recruit the expertise needed to implement the fundamental changes that will be required once the full review is complete? Who on earth would want to become a water company director if they will become subject to punitive sanctions and strict limits on performance-related bonuses? Surely, as the noble Lord, Lord Sikka, noted, this will result in considerable increases in basic salaries to attract the necessary talent. This will impact profitability, increase prices paid by customers and limit the funds available to invest in essential infrastructure.
I am grateful for all the briefings we have received, which accept that the industry’s principal challenge is infrastructure investment. Since privatisation in 1989, and doubtless long before that, the water industry has simply not invested at the rate required to keep up with population growth. This Government are determined to put a rocket under housing development, with their promise of 1.5 million new homes, and yet I see no provisions within this Bill to improve long-term infra- structure investment. I understand that the Environment Agency is already rejecting substantial housing developments across the country on the basis that the provision of water and sewerage cannot be guaranteed. We are all aware of the impact of the nutrient neutrality rules blocking development in sensitive catchments. Could the Minister expand upon the Government’s plans to enable the much-needed increase in capital spending to free these constraints?
As for the provisions on special administration regimes, they are clearly designed with the perilous state of Thames Water in mind. I note that no impact assessment has been published. Is there any risk that the introduction of these provisions may encourage water companies to seek the solace of insolvency sooner than they might otherwise do and thus hasten their collapse?
With respect to environmental matters, I am grateful for the briefing on water industry impacts on national parks, including in the Lake District and Lake Windermere. These provide a good case study of the water industry’s travails. It is noticeable that some of the issues identified, including the heightened nutrient run-off in the summer months when fresh water is scarce, are the product of the popularity of the lakes for visitors and not necessarily due to inadequate provision of services to the resident population. Is this, therefore, not necessarily a problem of the water company’s making but rather due to the popularity and success of the national parks in encouraging the huge influx of visitors into these very sensitive ecosystems? Noble Lords who followed our debates on agriculture and the environment will know that I am passionate about access to the countryside. But that needs to be access that is funded and supported by investment in infrastructure, so as not to damage the vulnerable ecosystems that we so cherish.
I have heard similar issues raised in discussions regarding the River Exe, in which concerned communities bemoan the terrible state of the once abundant river, named “Isca” by the Romans due to its surfeit of fish, which is no longer. These communities blame the farmers for their run-off and the water companies for their sewage leaks, without ever truly reflecting upon the mass of population who consume the food that the farmers produce and then produce the waste that the water companies remove—while insisting on ever-lower prices for both services. Ultimately, it is we who are the polluters. We need to invest properly in both our agriculture and in our water companies if we are to care for ourselves, our land and rivers.
Finally, I note the considerable environmental investments that have been undertaken by various water companies over the years, such as the south-west peatlands project, which has re-established over 1,000 hectares of peat on Dartmoor since 2020. Could the Minister explain how the Government intend to build such upon excellent pilot projects to seek nature-based solutions to the infrastructure challenges that the water industry faces?
Lord Inglewood (Non-Afl)
My Lords, I begin by declaring my interests in the register and by saying how much I enjoyed the preceding speech from the noble Earl, Lord Devon.
Nearly 40 years ago, I spent about a couple years as a non-executive director of North West Water, the pre-privatisation predecessor of the United Utilities water section. In my initial briefing, I was absolutely gobsmacked by the revelation of the extent of the problems thrown up by dirty water and its treatment. It was explained to me that, over possibly three or four previous generations, the dominant de facto control over these things had been in the hands of the local authority. In practice, vastly insufficient resources have been put into the underground infrastructure. The Alderman Foodbothams, to use Peter Simple’s graphic phrase, thought there were no votes in burying ratepayers’ money. Of course, they were right then.
Since those days, as we have heard from a number of speakers, there are now more people, more houses and more pollution, coupled with a genuine recognition that pollution really matters and needs addressing effectively. At the time I was involved, privatisation was in the wind. The rationale was that it would help deal with these issues. My experience suggests that the problems that I discovered then were, if anything, underestimated. They are turning out to be more difficult to deal with than was anticipated, not least because a certain amount of the low-hanging fruit has been plucked.
I believe that privatisation as taken forward has brought a number of benefits, but not universal benefits—we should remember that. The question we should ask ourselves is: what are water companies for? Their essential purpose is supplying clean water, then treating dirty water and returning it to the natural environment clean. The combination of corporate structures, with their extensive legal implications, and the regulatory framework was intended to provide a better vehicle for doing that—and, as I said, it has brought benefits. But—this is the important thing—while most directors of responsible companies are decent people who behave responsibly and are law-abiding by instinct, a certain number of people are dazzled by the financial services sector and become disciples of Gordon Gekko, in that “Greed is good”. Dazzled by the gold, they lose a proper sense of proportion. Some of the abuse that has taken place in the water sector is the result of that.
What matters is what is happening on the ground—or perhaps I ought to say what is happening in the water. The noble Earl, Lord Devon, referred to Lake Windermere, where, as we all know, there has been a well-publicised campaign about pollution problems. As he said, those are urban not rural in origin. It is true that the water in the lake is not up to the best target standards, but for years considerable sums have been spent, progress has been made and measures put in hand to improve matters.
The problem is that the way in which that campaign has been promoted has had a damaging impact on the tourist industry there. As your Lordships will know, the tourist industry was very badly hit by Covid and has not properly recovered. The message that has been received in many places is clearly—wearing my hat as the chairman of the Cumbria LEP, I have been told this by a number of angry people in the visitor economy —that, if you go on holiday to Windermere, you will be having your holiday on the Costa del Septic Tank. As can be imagined, that is not something that positively encourages people.
This is a very real and serious concern, which we must bear in mind in parallel with the overriding long-term objective of improving water standards. The scale of the problem is such that we cannot solve it all immediately—and if resources are transferred from one place to another place, somebody else is going to suffer. There has to be progress over time, which will inevitably involve a degree of political direction. We do not want to duck that.
Finally, I turn to a similar but much smaller-scale matter, which I hope I will be allowed—having been given my pass to the political tumbril—to illustrate from my own personal circumstances. It is a good graphic example of something that has a much wider application. The Minister, as a noble Cumbrian, knows that my home is too big, and is situated in the Petteril catchment area, which is part of the Eden catchment area—one of the problem catchments in this country. It has been designated as a place of national importance, which, both by statute and by contract, I am obliged to look after properly—and that is what I am trying to do.
Some of the adjacent cottages, which are an integral part of the whole, are served by a United Utilities septic tank subject to a grandfathered discharge licence dating back between 50 and 100 years. Nobody would get a discharge licence on those terms now, but it is valid. The result is that, from time to time, horrifyingly disgusting discharges go straight into a stream that is part of what I might describe as a water feature—part of the garden, which is of national significance. Visitors pay good money to see that and there is absolutely nothing I can do about it.
I have talked to United Utilities about this, and the people there they explain that there is a licence to discharge, albeit that it is below contemporary standards. It is not a priority for them. I can understand their point, and where their thinking is coming from. Across rural Britain, and England in particular, there are many similar arrangements, which for practical purposes are equivalent to the well-recognised and understood private small-scale systems that exist.
I suggest that the best way of dealing with the kinds of problems that such arrangements bring about is to transfer the responsibility for dealing with those discharges from the utility company to the private landowners affected, together with a dowry to enable them to carry out the work. The companies would be relinquishing their responsibilities and taking them off their balance sheet. Speaking for myself—and, I dare say, for a lot of other people—I would much rather be subject directly to the rules and the law, and be able to take responsibility and gain control over my own immediate environment, than have no choice but passively to endure the noxious consequence of the inactivity of the utility.
I raise that as a thought, and in conclusion I simply join others in saying that I am looking forward to considering the Bill, and also the promised review in due course. This manifesto Bill is targeted at a real abuse, but we need to examine it and ensure that it meets its purpose well and avoids collateral damage. After all, that is what the House of Lords is for.
Lord Whitty (Lab)
My Lords, I do not wish to repeat the statements that have been made on various sides so far, so I will start again and review some of the history. I do so from a number of different perspectives. First, I was once an official of the trade union that organises most of the workers in the water industry, which would strongly prefer a return to public ownership. I have to tell my noble friend the Minister that we are in a strange week. We are reviewing the two most unpopular privatisations, rail and water—unpopular, that is, with their individual consumers. With one it is clear what the second stage will bring—a return to public ownership, in a form that still requires some determination and definition. However, here we are unclear about what the second stage will be.
Having said that, I strongly support what is in this Bill. To those who represent, directly or indirectly, the interests of the directors of water companies, I say that the more stringent measures to be taken against directors and boards of water companies will be triggered where they have broken the regulations, broken the law, and failed to run their company in line with the commitments given at the previous price review and the strategic plan agreed with Ofwat.
Those are egregious offences and they require those draconian powers—as some see them—to ensure that the behaviour of the management of the companies complies with the intention of the law both on the regulation of the industry and on the environmental regulations. When the regulatory restructuring was first established, it was assumed that water was like any other natural monopoly, which required strong regulation as there was no pressure of competition. Indeed, the only competition in this industry has been through takeovers and consolidation, and that has not benefited consumers of water.
I speak from various perspectives. I was a Minister in Defra at a time when water regulation did not seem too bad. Indeed, I acknowledge that, in the first 10 years or so of water privatisation, there was an increase in investment—certainly over and above what the state had done previously—and there were some major improvements. These were financed both by investment within the industry and the sell off by water companies of their non-water assets, including substantial amounts of land, which has made the environmental benefits of the previous water companies and the environmental regulations we have sought from them less easy to deliver. I was subsequently briefly a member of the board of Ofwat and, for quite a long time—mainly under the tutelage of the noble Baroness, Lady Young—a member of the board of the Environment Agency.
My experience in Ofwat was terrible. It was the weakest possible regulator. I remember one major company failed to meet its commitments on leakage, for example. The tariff would have enabled us to fine it £250,000 for its breach of its commitments, but we actually fined it £12,000. It has always been a weak operator.
I then moved across to the Environment Agency. At the time, I consulted with the Ministers of the then Labour Government on whether I could sit on two boards. I subsequently found that that would have been a good idea—naturally, I would have taken only one fee. That is why, if I cannot have the outcome for the longer term—as the noble Baroness, Lady Jones of Moulsecoomb, was advocating—my second choice would be that of the noble Duke, the Duke of Wellington. That is, to have a single regulator that covers a lot, or all, of the three major regulators—four if you include the Welsh board—in one place, with one strategic plan and one strategic outcome at the price review, whose timing and scope need to be reviewed as well. That would make it a much more powerful regulator than it currently is. That is my second choice, and I hope that the review the Minister promised us comes up with that solution fairly fast.
Another problem with the present situation is that Ofwat and the Environment Agency do not properly talk to one another. This has improved a bit, but the coincidence of their objectives, on both timescale and the way they deal with the companies, is not the best example of co-operation I have found in state bodies. Again, that is a reason I support the noble Duke, the Duke of Wellington.
When I stopped being a regulator, I became a consumer champion. I agree with the doubts people have expressed about putting consumers on the board—that may or may not suit a particular company—but the Consumer Council for Water, which has managed to sustain its lack of resources and still perform a useful role, needs to be seriously strengthened. I ask my noble friend the Minister whether, even in this short-term Bill, we could give extra powers and resources to the Consumer Council for Water. It can represent the interests of both household consumers and small companies, which are crucial users of the water industry’s output. Like farmers and others, they are affected by the environmental regulations that are required to clean up our waterways. The role of regulation of the water sector is not simply about the price and cleanliness of the water that comes through our taps—which has, for the first time in my lifetime, been questioned in one or two areas; it is about the environmental effects on our streams, rivers, seas and beaches. Consumers come in many forms, and the consumer role in this sector needs to be strengthened, not weakened.
I hope my noble friend the Minister can take that point on board and that all these considerations are taken into account in the second stage of this and the review. I also hope that that review is concluded fairly fast, because the companies, consumers and the environment need to know. The rivers, lakes and seas mentioned in this debate need a future different from the one that faces them at the moment.
Lord Douglas-Miller (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Whitty. I congratulate the Government and the Minister on making such a prompt start in addressing some of the long-standing issues associated with pollution emanating from the water sector. However, for a sector that is in dire need of significant long-term investment, strong management and increased financial stability, the overall impression the Bill gives is that the Government are anti-business, with far too much stick and not nearly enough carrot.
I completely agree that the water companies collectively need to improve both their performance and their financial resilience—areas in which they have let themselves down over the last years. The level of financial gymnastics that has so exercised the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones, over the years has left the industry in a poor state to invest in the necessary infrastructure improvements and to reduce pollution incidents. Regrettably, the vast majority of those associated with this have long since departed the scene, and this Government’s desire to punish the sector through increased regulation and interference with market forces risks pushing the water companies further down the wrong road and making them less able to respond to the investment that is so desperately required.
It is not, as is often portrayed, a universally poor picture across all fronts in the water sector. In fact, on value, what customers get at the moment is really pretty good. Most get all the clean water that they can consume, and all their wastewater taken away, for little over £1 a day. What they do not get, and what they want to see, is their wastewater being managed responsibly and not illegally poured into our rivers and seas without due process. Crucially, customers do not want to see—although I fear the Bill will deliver it—increased costs and volatility in the sector.
One of the great challenges in this space is that the illegal dumping of sewage is often conflated with the legal process of sewage being released in high-rainfall events, which has been a feature of our system since it was designed by our Victorian forebears. Of course, both these outcomes are highly undesirable. Illegal dumping of sewage should rightly be penalised by strong measures, such as significant fines and bonus reductions, to prevent this happening. However, the reality is that the infrastructure requirements needed to reduce the legal release of sewage in high-rainfall events will take significant investment of time and resources.
Care should be taken by this Government to ensure that we do not create an environment where no good, top-quality executives want to go near this industry because of the draconian penalties and the random way in which government and its agencies run roughshod over the sector. Moving from where we are now to where we want to get to is a far from simple task. It will require capable and hard-working individuals to drive change through. In essence, I am saying: do not frighten the horses in a mad rush to punish an industry where those who have created the problems have long gone and those who are needed to sort it out are in short supply.
This begs the question: how was it allowed to get into this state? The answer, I am afraid, comes back to the inadequacies of the regulators. This is a serious cause for concern, as the Bill gives a whole range of new powers to the regulators, which have not shown a high level of competence to date. I ask the Minister to reflect on whether it is appropriate to give the regulators additional powers that interfere with the running of a large-scale business that they clearly do not understand.
In conclusion—to avoid repetition and in the interests of time—I support the comments made by my noble friends Lord Blencathra and Lord Remnant. In particular, I question the fit-and-proper-person test and the need to have consumer representation on water company boards. This, in my experience, will lead to conflict and paralysis in the boardroom, the inevitable slowing-down of decision-making, increased volatility and, worst of all, increased costs for the consumer.
Lord Cromwell (CB)
My Lords, I support the intention of this Bill in its pre-Committee stage. I know that the Minister will be looking forward to the flow—possibly even the flood—of useful and constructive amendments that will be coming her way from all across the House and beyond.
Water is our most precious resource, yet we have allowed it to be managed for short-term financial gain and with inadequate regulatory intervention. The saying goes, “Don’t excrete where you eat”—or words to that effect—and yet mixing sewage and water, initially excused as an occasional force majeure, is now standard practice. Turning around the decades of infrastructural neglect and creating a resilient water and sewerage system will take a generation and need consistency through multiple electoral cycles. The last Government talked about 25 years and more than £50 billion. Taking water companies into public ownership, as some advocate, would apparently—and I look toward the noble Lord, Lord Sikka, on this—cost an estimated £90 billion and take a long time to implement. Either way, the investment cost is going to be enormous, but not meeting it in the past is how we have got into this mess in the first place.
Meanwhile, climate change, rising population—to which the noble Baroness, Lady Pinnock, referred—and new types of high demand for water, such as data centres, are adding further challenges to the existing infrastructure. I therefore welcome, as others have, the full review of the water system announced by this Government. I hope that the Minister will be able today, to some extent, to share with us what the scope, the format, the timetable and the level of independence are going to be of that review.
The Bill sets out a range of punitive measures for water companies, both personal and corporate, including imprisonment, which many others have spoken about, so I will not detain the House further on those. It also includes consumer representation at board level, and I am with the noble Lord, Lord Whitty, on this. I welcome that challenge being brought to board level rather than being ghettoised in some panel on the second floor. I would much rather it was a board-level issuing challenge. However, while these things may reflect the public mood, the fact is that, as the last speaker mentioned, many of the guilty horses have long ago bolted, heading for the hills with their saddlebags full of treasure. Debt-free companies have been loaded with debt, now at 70% to 80% debt to equity. Despite the failure to invest sufficiently in the infrastructure, substantial transfers of value have been made by water companies to their parent companies across the globe while, in some cases, piously claiming that they had not paid shareholders a dividend for years. This is something that the regulator repeated to us when giving evidence to the committee I was on.
While some water companies—and here again I agree with the noble Baroness, Lady Pinnock—have performed better than others, it is going to be a long, hard and expensive slog to put things right. It will be a thankless task of trying not to succeed but just to make things less bad for a long time, while at the same time under personal risk of financial and/or criminal penalties, compounded by public resentment that the cost will ultimately fall on the consumer. This makes me ponder, as others have: who would now want to take on such a role, with such possible outcomes and high levels of public hostility?
My two questions to the Minister, therefore, are as follows. First, do the Government accept that a very attractive—but no doubt therefore criticised—employment package will be needed to secure, retain and hold to account managers of water companies and of regulators with the necessary skills and robustness? Secondly, do the Government also recognise that, for earlier investors, the party is largely over? They are decreasingly willing to provide capital to UK water companies, and that is a very big challenge for a Government who are seeking private finance to right the wrongs of the past.
Turning now to the regulators tasked with enforcing this Bill, Ofwat has been, so long as water was plentiful and cheap to the consumer, light-touch—and, frankly, outsmarted by private equity financial engineering. The Environment Agency, which will have a vital role in monitoring performance against the stipulations in the Bill, has been drained of resources and morale. I agree again with the noble Lord, Lord Whitty, on the disconnect from Ofwat. Defra, as a supervising department, was found by a committee of this House—of which I had the privilege to be a member—to have been overly complacent about both the water companies and the regulators.
Will the Minister explain how all these issues— the lack of skills, of resources and, above all, of incisiveness—will now change as part of achieving the purpose of this Bill? Simply putting up water bills, as the companies propose, will not create enough money. Hedge funds know this and are reportedly buying up discounted Thames Water paper, to which other speakers referred. Financial restructuring and swapping debt for equity are likely to follow. Will the Minister therefore explain on what grounds the Government think that the regulators—or, indeed, government departments—will be any better at understanding and supervising hedge fund strategies than they were with private equity financial engineering?
Finally, there have been significant issues around the lack of monitoring data and I am glad to see that the Bill starts to address this. Let us remember that it was civil society, not the regulators, that persistently highlighted the sewage pollution issues and it will be an important monitoring ally in keeping both the water companies and the regulators up to the mark. Otherwise, there a risk here of the regulators marking their own homework and blame-shifting between organisations. New Section 141F set out in the Bill is helpful on this, and this is reflected in the positive comments of the Information Commissioner’s Office. Nevertheless, an amendment is going to be needed that expands it to include requirements that monitoring data must be automatically available, online and in real time, including the volume and type of discharge and an explanation of why it happened and what is being done to mitigate and prevent a recurrence.
To conclude, I support the Bill as far as it goes. It is a first and belated step to address one aspect of the problems of the UK water and sewerage system. The systems we inherited from the Victorians reached their capacity in 1960. To build a resilient water and sewerage system fit for the future, we will need a long-term strategy, cross-party co-operation and consistent long-term resourcing. All of these are very, very substantial challenges.
Baroness McIntosh of Pickering (Con)
I am delighted to follow the noble Lord. I congratulate the Government on bringing forward this Bill so early in the Session and on the ongoing work that the noble Baroness set out in the water sector. I welcome her to her place as she guides her first Bill through this House. I declare my interests as an officer of the APPG on water, as co-author of Bricks and Water reports on various aspects of flooding and water management and as having worked with WICS, the Water Industry Commission for Scotland, for some four or five years to 2015.
The Bill examines the role and powers of the water industry regulators and the responsibility of water companies. The Explanatory Memorandum sets out the legal background to the Bill and refers to a number of previous Acts that are referenced or amended by the Bill. However, there was one glaring omission, that of the Flood and Water Management Act 2010, which set out many of the standards referred to in the Bill—for example, on page 2 of the Bill, standards that relate to the environment.
There are clearly, as my noble friend Lady Browning set out, related issues between the flooding and pollution aspects of the Bill. Others—the noble Baroness, Lady Parminter, in particular—have referenced the need for natural and sustainable solutions and to involve farmers in a constructive way to prevent flooding.
The Pitt review, following the severe floods of 2007, set out a number of recommendations, many of which were included in the 2010 Act, following on from the recognition—for the first time ever—of surface water flooding. Yet two of Pitt’s most consequential amendments were never adopted: first, the mandatory construction of sustainable drainage systems in major developments so as to contain flood water and prevent it mixing with sewage through overflows into the combined sewers; and, secondly, ending the automatic right to connect, which has never happened. This simple measure in and of itself would prevent misconnections, whereby the existing infrastructure simply cannot take the volume of sewage from major new developments, often of four- or five-bedroom homes, with four or five times the amount of sewage coming out of them into inadequate Victorian pipes. The developers and local authorities therefore deem the connections to be safe and refuse to put in appropriate infrastructure to ensure that a safe connection can be made. Were water companies also to have the status of statutory consultees in the planning application process, these misconnections could also be averted.
I therefore urge the Minister to use the passage of this Bill to complete the unfinished business from the Pitt review of 2007 by ending the automatic right to connect, ensuring that developers pay for new connections and mandating developers to construct sustainable drainage systems at the time that a development is built. I shall seek to press the Minister to implement Schedule 3 to the Flood and Water Management Act 2010 without delay, to end the automatic right to connect and to insist on mandatory use of SUDS; otherwise, as the noble Baroness, Lady Parminter, so eloquently pointed out, we will just load more sewage into the watercourses, rivers and seas for the foreseeable future, which is not acceptable.
I would also like the Bill to reflect the impact that the housebuilding programme is having on the ability of water companies to perform their duties under the Bill. The Bill gives the House the opportunity to end the gap in responsibilities between planners, investors and housebuilders and to recognise the responsibility of others, such as highways authorities, which contribute to road surface water run-off entering the combined sewers and storm drains without currently having any responsibility to prevent this form of pollution. That is very costly indeed and is a gap that must be plugged—to coin a phrase.
On Clause 2 and the pollution incident reduction plans, can the Minister say how onerous she expects it will be, in terms of both time and resources, for the water companies to implement them? Will allowance be made through either the existing price review or, more likely, subsequent price reviews for this time and resource factor to be taken into account?
During the passage of the Bill, I hope that we will have the opportunity to consider the role of regulators and comparisons between Ofwat and others such as WICS—the Water Industry Commission for Scotland—particularly as regards customer engagement. I also take note of the fact that Ofwat has only comparatively recently allowed prices to be fixed as part of the quin- quennial review to take account of innovation. Actually, innovation lies at the heart of what the Government are proposing to do in this Bill and the future work that they have set out this afternoon.
Two of the areas in which I believe WICS is very strong in the statutory duties that it performs are promoting the interests of Scottish Water’s customers, including having regard to the interests of current and future customers, and ensuring that customer charges reflect the lowest reasonable overall cost for Scottish Water to deliver Scottish Ministers’ objectives for the water sector. That has in no way compromised the independence of WICS in the way that it operates.
In looking at the level of penalties, I urge the Government to make them proportionate to the offence and the scope and means by which it is actually within the power of the water companies to prevent pollution in the manner in which the Government intend them to be held to account.
Regarding the proposal from the noble Duke, the Duke of Wellington, and others, such as the noble Lord, Lord Cromwell, in support of the idea of establishing one regulator, I remember, in a previous life as a shadow Minister, under the good offices of my noble friend Lord Blencathra, looking at this matter prior to one of the elections—probably the 2005 election. We were going to have “blue water thinking” on scrapping the existing regulators and coming up with one new regulator. So that is the challenge that lies at the door of the current Minister and I wish her extremely well in that regard. We stepped back from that commitment at that time.
There is plenty more to say, and I look forward to saying it in Committee.
Baroness Young of Old Scone (Lab)
My Lords, I declare my interests as a former chief executive of the Environment Agency and, briefly, a non-executive director of Anglian Water—I did not gallop over the horizon with bags full of money.
Before I turn to the particulars of the Bill, I will comment on the importance of the wider review of water issues that the Government have promised, because the poor state of our water bodies and rivers is not just about how water companies and others have dealt with sewage. There are other major sources of pollution in agriculture—including, indeed, chicken shit, which the noble Lord, Lord Lipsey, promoted with vigour. There are also other pressures that have caused diminution in the quality of our rivers and water bodies. Surface water run-off is a major aspect, particularly from roads but also from other surfaces, including all urban surfaces, and there are pressures from novel and persistent chemicals.
The state of our water bodies is therefore not just about the sewerage issue, so we need to put the Bill in a much wider context. The state of our water bodies is also about the record and effectiveness of the regulators, Ofwat and the Environment Agency, as many noble Lords have pointed out. It is also about the ineffectiveness of the current arrangements for water pricing. I therefore urge the Minister to publish for consultation the framework for the review and ask that it includes the following four issues.
The first is what action would be needed to reduce overall pollution of the water environment from the whole range of sources, particularly agriculture, and not just sewage pollution. The second is what is needed to get both regulators back to the point where they can regulate effectively. In the case of the Environment Agency, this means resources to enable effective, real-time monitoring; reduce reliance on self-monitoring by operators, particularly the dodgier operators; and fund effective enforcement.
In the case of Ofwat. I believe that it seriously lost the plot from around 2010. It was focusing very much at that stage on the promotion of rather spurious competition in a business which is naturally monopolistic. It was not helped by strong direction from the Government that keeping bills flat was more important than environmental programmes. For those reasons and many others, I would be very cautious about giving more powers to Ofwat until we can be assured that it will operate more effectively in the public interest. After all, Ofwat has been responsible for overseeing the financial shambles that the current water companies have become.
The review should therefore cover the appropriate powers and approaches of the regulators. I do not support the creation of a single regulator for the water industry. I think it would be disastrous to combine economic and environmental interests in one regulator. It would hide the environmental and economic trade-offs. As long as there are two regulators, both robustly defending their part of the equation, either economic or environmental, it is a very transparent system.
In addition, if you think about it, regulating the water companies because of their impact on rivers is a rather crazy thing to do when what we should be doing is regulating rivers and water bodies in an integrated way to take account of all the pressures on them. After all, farmers, planners, builders, water companies, fisheries, forestry and a whole range of other economic activities impact on rivers. If we have one regulator which is talking simply about water company impacts and another regulator which is talking about all other impacts—or if, even worse, the regulators are fragmented even further—I think that we would lose sight completely of integrated management of our water environment. I am surprised that the noble Lord, Lord Whitty, was keen on the single regulator solution. I thought that we had trained him rather better at the Environment Agency—he is off my Christmas card list.
The third thing I would like is a review of the culture in water companies. There is a totally different culture in the parts of water companies that deal with drinking water. There is an absolute prohibition on falling from grace in that part of the water industry because drinking water standards are regarded as inviolable, and it is not good for business to poison people. There is not that culture on the other side of the water industry, which deals with sewage. That is very visible considering the prosecutions against and fines on water companies in the recent past. Many of them are not just negligent, but also carried on for far too long and caused even more damage than was necessary, had they been dealt with promptly. We need a radical look to make sure that the high-quality culture in the drinking water supply is merged in the case of pollution reduction measures. That culture really has to change.
The fourth thing I would like in the review is the need, at long last, for an open public debate about the options, trade-offs and costs of cleaning up the water environment. It is not as simple as punishing the water companies and controlling them, and the water environment then recovering. It will not, and it is unfair to wind the public up to expect that, which is what much of the public debate is about at the moment. People think: “It’s all these rotten water companies and if we sort them out we will have a clean environment”. That is simply not the case. There needs to be a properly informed, understandable public debate about how much the public can pay, what they think it is most important for them to pay for and over what period of time. At the moment we have more heat and steam than illumination.
Can my noble friend the Minister tell the House more about the timescale of this review and whether the scope will be consulted on? I have gone on rather long about the review and have very little to say about the Bill itself. It is a bit performative—kicking the water companies, which have lost the confidence of the public and the Government. It is not a substitute for more fundamental action on water policy and the water environment. However, as the Bill is here, I would like to support several of the amendments to it that have already been mentioned, and raise a few of my own. It is important to give an environmental duty to Ofwat to ensure that it cannot be guided, or by default, soft-pedal the environment, as has happened since 2010. I would like the earmarking of all water company fines to an environmental fund such as the Water Restoration Fund. I would like measures to ensure the commencement of Schedule 3 to the Flood and Water Management Act, as the noble Baroness, Lady McIntosh, mentioned. It is outrageous that 14 years have passed since Parliament endorsed SUDS and soft drainage measures to try to reduce the amount of run-off into the sewerage system and therefore the cause of more overflows. Why on earth are we here creating legislation if it is never commenced? I would also like measures to strengthen the examination and sign-off of the pollution incident reduction plans by regulators and by Ministers to make sure that they are fit for purpose and can be properly implemented and monitored.
There are other amendments to come forward, but I make one last plea to the Minister. It is a more general point about legislation, but this is a good place to make it. She very kindly summarised the number of delegated powers in the Bill. I remember the days when I first came into this House when it was regarded as outrageous if we did not have, in draft, guidance and secondary legislation that flowed from a piece of primary legislation before we finally pressed the button on it at Report and Third Reading. I would like to think that a new Labour Government would bring back a commitment to making sure that this House sees in draft form what the contents of guidance and secondary legislation will look like, so that when we debate the Bill we are not debating a pig in a poke.
Lord Sandhurst (Con)
My Lords, I welcome the Minister to her place.
It is interesting that this Bill should have its Second Reading just the day after we debated the Product Regulation and Metrology Bill. This Bill is not so remarkable as was that Bill for the unbridled power given to Ministers, but it is still noteworthy. As my noble friend Lord Blencathra explained in his important and dispassionate analysis, it has a number of problems. Like other noble Lords, I agree that the water industry needs sorting out. We need increased investment as well as straightforward and conscientious management, but I am anxious about aspects of the methodology embodied in the Bill. I am also anxious that we have no draft guidance and secondary legislation, as the noble Baroness, Lady Young of Old Scone, has just pointed out. We do not know where exactly the Bill is going. We have a general direction of travel, but we really need more detail, and that was my complaint yesterday. We cannot have more Bills like this coming forward, please.
If we are to take this draconian approach, which is embodied, as my noble friend Lord Blencathra said, in the proposal to change the burden of proof and the powers to impose automatic fines, it should be only because there is plain evidence that this should be effective. Why is there no impact assessment? Others have asked for that too. We do not have one; we did not have one yesterday either. These are big Bills in practice, on big topics, where there is so much unknown. A lot of people know a lot about the topic, but it is the detail that matters when drafting legislation.
Why should we take it on trust that what is proposed will have the intended outcome? Has any assessment been carried out? If it has, why has it not been transformed into a proper measured impact assessment to assist all those with an interest in getting things right? Long experience—I have been a lawyer of far too long experience—has shown that this is the wrong way to make legislation, because it results in unintended and unhelpful consequences. I agree with other noble Lords that we should look at this carefully. As my noble friend Lord Blencathra and others have pointed out, we have the proposed powers to set rules about fit and proper persons, we have their interaction with the Company Directors Disqualification Act, and there will also be the Financial Conduct Authority’s rules. This risks a minefield in which the only winners will be the lawyers.
I turn to two or three specific points, the first being the modification of the standard of proof in Clause 5. I acknowledge that this lower standard of proof is used elsewhere, but it is important to note that the original intention of the legislation that we are amending in this clause was to deliver a more consistent penalty regime across sectors. That was following recommendation 8 of the Hampton report. This change, on the face of things, undermines the original function of the 2008 Act. Again, we lack an impact assessment. We do not know the rationale so, before we debate the Bill in Committee, the Government should set out a proper detailed case showing why specifically the standard of proof needs changing in this sector but not in other sectors. How many times is it anticipated that this power will be used?
I turn to the companies’ right to appeal fines imposed by the regulator. This is covered by Clause 6(7), in particular the right of appeal. This provision appears to create the possibility of the regulator imposing an automatic penalty. The company that is the subject of the penalty will not be able to appeal a decision by the regulator to the effect that there were no exceptional circumstances to mitigate the culpability of the company for what is otherwise a strict offence.
In other words, an event has happened which the company rightly or wrongly says made it impossible or very difficult to take reasonable steps to prevent an otherwise unlawful discharge. That discharge will on its face be unlawful but, as matters stand at the moment, the company can escape or mitigate that penalty if, but only if, it can show there are exceptional circumstances.
This Bill would give that decision simply to the regulator, but those words “exceptional circumstances” are important. The courts understand them well; as they have said repeatedly, they do not admit of detailed exegesis—they mean what they say. It is the context that matters. The burden is on the person who asserts exceptional circumstances to make his case. In practice, that is a heavy burden, because it has to be exceptional. If it is not made out, an appeal to the courts is dismissed with costs. What is wrong with that? Where is the evidence that this provision has been misapplied by the courts?
If there is an extraordinarily heavy rainfall or other event that may or may not be an exceptional circumstance, the water company would still have to show that it could not have anticipated that event—and we know that rain does fall in this country—and could not reasonably have taken suitable preventive measures. But why, if the company believes that exceptional circumstances have obtained and is prepared to risk the costs of an appeal, should it be deprived of challenging the regulators’ decision to the contrary? Where is the evidence that this provision is not working appropriately at present? The Government, through the regulator, surely have the details of cases, and the number of cases, where decisions on exceptional circumstances have been appealed, and details of the outcomes. They are all there—the regulator must know. They can point then to the misuse of the provision and failure by the courts. I suggest that may be hard to establish.
Generally, let us have proper information and an impact assessment, then we can make a fair and sensible decision. At present, it does not look right. Adopting a clumsy and over-penal approach will drive up costs and put at risk the very investment that we all want.
I have a final point on legal advice on compatibility with the European Convention on Human Rights. I have highlighted two provisions in particular, Clause 5 and 6, although I do not limit it to that. The Minister has declared on the face of the Bill that the provisions in the Bill are compatible with convention rights. In respect to those two provisions, and others, I am not sure that that is right. We would be greatly assisted if the Minister would provide a copy of the advice. If she is minded to fall back on the argument that the advice is privileged, there is another route. Will she set out in writing, without reference to the advice itself, the legal reasoning that underlies that conclusion in respect of those two clauses? If she does not cite the advice itself, what she sets out is not privileged, and she has not opened up disclosure of the advice. What could be the problem with that? It would put my concerns, and I suspect those of others, to rest.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I congratulate the Minister on her introduction to this Bill. The issue of continual sewage overflows and the failure of water companies to deal with this effectively has been the subject of many debates in this Chamber. It is also a subject of great concern to the public, who have to suffer the consequences of raw sewage in their waterways and lakes, and often in their back gardens. The noble Lord, Lord Lipsey, and others have referred to public involvement in this issue.
This is a hot political issue, which featured in manifestos during the recent general election. I know that the Minister is keen to deal with this problem, and I am pleased that this Bill is one of the first pieces of legislation that the new Government have decided to start in this Chamber—especially since we have had so many debates and Questions on the subject. Every noble Lord this afternoon has welcomed this Bill. The performance of the water companies and their regulators is an especially important part of our everyday lives. Industry through to domestic householders rely on an efficient water system and have been badly let down in the past. I concur completely with the comments of the noble Duke, the Duke of Wellington.
The Bill is only part of an overall programme of reform needed for the water industry. The Government are promising a review. This is urgently needed, and we all look forward to it being holistic and in-depth, and setting out a clear programme of action to provide the country with an efficient water and sewage industry that will be fit for purpose. My noble friend Lord Russell has referred to this.
The Bill itself has 13 clauses and three main sections: remuneration and governance; pollution incident reduction plans; and sanctions. Remuneration and governance are in desperate need of reform. Since privatisation, CEOs, directors and shareholders have enjoyed payouts that do not reflect the appalling performance of the industry. At privatisation, the water companies were debt free. Since then, they have borrowed money on a large scale, not to invest in infrastructure but to reward themselves. No new reservoirs have been built since 1992, and sewage works are crumbling and out of date. Infrastructure needs addressing urgently.
Solutions so far have been concrete construction-based, which has a high carbon footprint. Nature-based solutions, which are more carbon friendly, have been rejected. Only 2% of Ofwat’s budget is allocated to nature recovery solutions. Bill payers have had an extremely poor deal, while the shareholders and directors have been rewarded. It is time that this trend was reversed. There will be amendments in Committee to ensure that this happens efficiently—and we have heard a lot about the amendments that may be coming forward.
It is absurd that Ofwat is unable to rescind the licence of a poorly performing company without giving 25 years’ notice. My noble friend Lord Russell referred to that. I wonder what planet those who drafted that legislation were living on when they drew up that guidance.
Pollution incident reduction plans should help to concentrate the minds of those managers running the sewerage systems. The plans should include reporting on the state of the sewerage infrastructure, alongside the action being proposed to remedy this within a reasonable time limit. Monitoring each sewage discharge within the hour of occurrence is to be welcomed but, once the spillages have been recorded, are they to be published in a way that can be readily accessible to the public and those directly affected? Transparency is strongly recommended by the Information Commissioner’s Office.
I note that the regulations under this section will be made only after the Minister has consulted such persons as the Minister considers fit. That could be anyone—the CEO of the water company concerned, Ofwat, the Environment Agency or some other person. I am sure that this is something that will come forward in Committee. If the regulations are to be meaningful and effective, the regulator has to have teeth and be up for the job. Currently, there is little confidence in the ability of either Ofwat or the Environment Agency to deal with the scale of the problem, which is endemic within the water industry.
This leads me on to sanctions. It is going to be extremely difficult to identify who is the guilty party responsible for a breach of the regulations regarding sewage discharges, as well as dealing with water leakages. The noble Baroness, Lady Jones of Moulsecoomb, raised the issue of leakages. I welcome that the sanctions are to be stricter and toughened up. The Bill gives the job of monitoring and implementing this section to the Environment Agency.
During the passage of both the Agriculture Act and the Environment Act, the woeful reduction in funding for the Environment Agency was a cause for concern to your Lordships across all sections of the Chamber. This funding situation has not improved. It seems unlikely that the Environment Agency will be able to conduct its role in this Bill effectively.
The system of fines laid out in the Bill may be levied and go into a consolidation fund. Those fines will recompense the EA for the cost of the work that it has conducted in imposing fines, but it will be retrospective. Surely any fines levied should go into a fund for remedial action to ensure that a problem does not occur again and be returned to bill payers, who have, after all, suffered as a result of loss of water supply and incursions of sewage into their homes and business premises.
One of the Environment Act’s tenets is that the polluter pays. That has to happen. The noble Lord, Lord Lipsey, gave a graphic description of pollution in the River Wye—and we have heard that before. My noble friend Lady Parminter referred to yesterday’s news that Ofwat had fined water companies £158 million, with Thames Water having the largest share. I received an email from David Black, CEO of Ofwat, yesterday morning informing me of this, and giving me some detail. Later, I listened on the radio to David Henderson, the CEO of the water industry’s union, Water UK, saying the problem was lack of investment due to Ofwat preventing the industry raising consumers’ bills and preventing borrowing for investment. There was no mention that the water companies were set up debt free; nor that some of their assets had been sold off to increase shareholders’ dividends; nor that salaries and bonuses of CEOs and directors had been increased to what an ordinary bill payer would consider an obscene level.
The water industry as a whole is in a dire state. The regulators are ineffective and too close to those they are supposed to be bringing to book. My noble friend Lady Pinnock and the noble Baroness, Lady Browning, raised the issue of ex-water board members being on the regulatory boards—hardly impartial. The noble Lord, Lord Sikka, gave detail of Ofwat’s poor performance. Neither Ofwat nor the Environment Agency are going to change their modus operandi in the way in which the Government envisage. The EA has been chronically underfunded for years. Ofwat already has powers which, if they had been exercised continually since inauguration, would have prevented some of the excesses and failure of service from which the country is suffering. It is no secret that on these Liberal Democrat Benches we would have abandoned the current system and replaced it with a clean water authority to take on the relevant environmental and regulatory powers, including river health, as my noble friend Lord Russell indicated.
We have heard some excellent contributions from all sides of the Chamber. Many have suggested how they would improve the Bill. My noble friend Lady Parminter referred to public interest being essential for Ofwat. The noble Lords, Lord Remnant and Lord Douglas-Miller, and my noble friend Lady Pinnock warned about a broad-brush approach that lumps all water companies together. Your Lordships are exercised about the state of the water and sewage industry, quite rightly so. I am grateful to all those organisations which have provided briefings for this debate, many of which have suggested amendments for Committee. I agree completely with the need for impact assessments and statutory instruments to be prepared.
I look forward to the Minister’s response to the debate and to working with her during future stages of the Bill to ensure that we have a Bill that is effective into the future and dovetails into subsequent legislation which the Government intend to bring forward following the review of the water industry. As all noble Lords have said, this is not going to be an easy task—quite the opposite.
Lord Roborough (Con)
My Lords, I am delighted to speak at Second Reading of this important Bill, which is being followed closely by concerned members of the public across our country. I thank the Minister for her exemplary engagement with me and all Peers with an interest in this area. I am sure that we can continue to have these conversations to make the Bill as effective as possible.
We on this side of the House are committed to cracking down on pollution by water companies and we will support the Government to deliver effective measures that bring polluters to justice. While government can always do better, we are proud of our record. We increased the number of storm overflows monitored across the network from 7% in 2010 to 100% today. The Thames Tideway tunnel is now complete. This is a £4 billion project that happened because our Government faced down opposition from Ofwat and others, including Members of this House, in guaranteeing the scheme by Act of Parliament. Aided by improved monitoring, we took firm action against persistent polluters, delivering the strictest targets ever on water companies to reduce pollution from storm overflows. The Environment Agency can now use new powers to impose unlimited penalties for a wider range of offences. The effectiveness of these measures was shown this week when water companies in England and Wales were told to pay £158 million in penalties to customers, having failed to meet their targets.
In this Bill, we intend to work with the Government and the House to create the right balance of stakeholders’ interests. While the Government may not be willing to accept all our proposals for the current Bill, we hope they will get further attention in the promised further legislation.
Consumers have a right to expect affordable, clean drinking water and clean rivers, lakes and beaches. Our overall concern for consumers in this Bill is that it will add significant compliance costs to the industry that will then need to be passed on to those consumers. There is not enough clarity in the Bill on the potential fees that regulators and the Drinking Water Inspectorate will be able to charge, and we would like to understand what those fees will be and how they will impact consumer bills.
The measures on special administration orders appear to give the Government the power to change a water company’s charges paid by consumers to whatever level they wish to recover costs. It will be important to understand what work the Government have done to establish the impact these measures might have on consumer bills. The Minister mentioned that increases would be taken very seriously, but we may need more reassurance than that.
It is also relevant to raise the question of to whom water companies should pay their fines. We on this side of the House would be interested to hear whether Ministers agree that when water companies fail to deliver a service to customers that is safe and does not pollute our rivers, they are failing their customers and should compensate them accordingly. Ofwat already acts on behalf of the consumer, so can the Minister explain what assessment the Government have made of the impact of consumer involvement on decision-making? What responsibility will those consumer representatives take for such involvement given the dire consequences of failure laid out in this Bill? The noble Duke, the Duke of Wellington, made a number of suggestions which we are likely to be interested in supporting.
Our natural environment deserves to be treated better than it has been for many decades and the industry must continue to clean up its act. It is clear that those who focus on protecting our natural environment are not wholly impressed by this Bill. There have been a number of representations from River Action, Surfers Against Sewage and, as the noble Lord, Lord Lipsey, eloquently pointed out in respect of the River Wye, among others on how the Bill could be improved. We will monitor those and other suggestions with interest.
On pollution incident reduction plans, we agree that water companies need a clear plan of action to deliver positive change. However, it would be useful to know what assessment the Government have made of the practical benefits of the plans to ensure those documents have the desired effect.
We will also be looking at the measures to increase reporting of overflow events. Do the Government intend to make any distinction between events caused by third parties, such as run-off from roads, and those that are a result of failure within a water company?
I turn to employees. This sector creates livelihoods for 100,000 of our fellow countrymen and women, and we must ensure that this remains an industry that is an attractive place to build a career, while we also root out offenders. We support tough sentences for those who break the law but, to slightly repeat my noble friend Lord Remnant’s point, can the Minister explain why sending water executives to prison, under the measures in Clause 4, is really the best use of our prison capacity when current pressure on our prison estate has led to the Government implementing a prisoner early-release scheme? I ask the Minister to publish the Government’s justice impact assessment to understand the impact of this clause.
Clause 2(4) places a serious obligation on those qualifying as being authorised by the agency, and in turn will require a significant compliance effort to ensure that all those impacted are aware of the law and what their obligations are. My noble friend Lord Sandhurst has spoken about a number of other measures that touch on justice-related matters, and it is important we get this right in the Bill. I will not repeat his arguments, but we will certainly be looking to improve the Bill in those areas as it passes through your Lordships’ House.
I would also be grateful if the Minister could confirm that the measures in this Bill on remuneration and performance-related pay are designed to be retroactive, to take effect from the beginning of the financial year prior to the Bill becoming law. In addition, how will this interference in existing employment contracts work in practice? I would also agree with my noble friend Lord Remnant’s points— echoed by other noble Lords, including the noble Lord, Lord Sikka—about unintended consequences, as seen in the financial services industry, that this may simply mean that basic salaries increase dramatically.
The Bill also lacks clarity on the fit and proper person test for senior water executives. I am very familiar with how this works in the financial services industry but, in relation to this industry, I ask the Government to publish exactly how it will work, before the Bill reaches Committee. It is crucial we have more clarity on these issues, as water companies may now need compliance departments to comply with additional regulations. This will also have an impact on customer bills. What assessment have the Government made of the impact of introducing a fit and proper test and these other regulatory requirements on consumer bills? As other noble Lords have pointed out, shareholders and debt holders are essential to providing the long-term investment the industry needs, with £88 billion targeted. Returns must be sufficiently attractive and predictable to attract that capital.
We are concerned that the offences specified under Clause 6 are not listed in the Bill. The Government need to include these in the Bill rather than setting them down later in secondary legislation which noble Lords cannot amend. We would very much like to see a draft of these offences prior to Committee. As other noble Lords have pointed out, there are significant delegated powers provided in this Bill, and I echo all the comments for “More disclosure, please”.
As the noble Duke, the Duke of Wellington, and my noble friend Lord Douglas-Miller and many others mentioned, Ofwat and the Environment Agency may not be the right bodies to deliver the additional monitoring, penalties and enhanced regulatory regime required by this Bill. We would be very grateful to know what assessment Ministers have made of the performance of Ofwat and the Environment Agency before pressing ahead with a Bill that grants those regulators more powers. I particularly take note of the comments made by the noble Lord, Lord Whitty, on this subject.
We are concerned that, under the recovery of costs provisions in a special administration regime, the Government may be able to recover costs incurred in action on one company from the wider industry. That represents a risk that shareholders should not be exposed to, and I would welcome clarification from the Minister on this point.
While the Bill makes significant provisions to increase the accountability of directors, companies and employees to the Government, we would really prefer to give this accountability of management, and performance-related pay, to shareholders, by adding more clarity to the impact of regulatory actions on shareholder returns. That is likely to lead to more coherent and efficient thinking throughout these businesses and less onus on government enforcement. It is also far more likely to achieve the change in culture that many noble Lords have demanded.
The Government should not be placed in a position where they may be forced to step in and correct market failures. Given the failures of regulation to protect the industry from aggressive financial structures, we think it is appropriate to introduce a cap on the leverage that a regulated water company can have within its operating company. Should shareholders and debt investors choose to put additional leverage on these companies above the operating company level, it will be at their own risk as we cannot allow these regulated monopolies providing essential services to be threatened in that delivery. Contributions from many Members suggest this might be a welcome move.
While not within the scope of the Bill, we would also like to see water companies incentivised to work with land and waterway managers on ecosystem restoration, bringing cleaner water and better flood resilience. I very much support the comments and questions on this area from the noble Earl, Lord Devon. Within that context, I also draw the House’s attention to my interest as a land and river owner.
In conclusion, we on these Benches firmly support the Government’s ambition to deliver the cleaner rivers, lakes and beaches we all want, but we will be holding Ministers to account on the measures in the Bill in Committee, to ensure there is more clarity both for noble Lords and for the sector before the Bill goes for scrutiny in the other place. Once again, I thank the Minister for her engagement to date and I look forward to much constructive discussion about the Bill in the coming weeks.
Baroness Hayman of Ullock (Lab)
My Lords, this has been a very interesting and worthwhile debate. I thank all noble Lords who have spoken for their thoughtful, informative and constructive comments.
As we have heard, the Bill is going to be used to drive meaningful improvements in the performance and culture of the water industry, as part of our wider efforts to ensure water companies deliver both for customers and for the environment. Many campaign groups, as well as parliamentarians, have called for measures to hold water companies to account. We also know that there is huge public support for the Government to do something. There is clear and broad recognition of the need for action. Let me now take the opportunity to address some of the points and questions raised during the debate.
First, I would like to stress that the Bill goes beyond the previous Government’s ambition. It is not true that the Bill does not contain anything further than measures put in place by the previous Government. For example, the Bill will go beyond the current regulatory framework. To give a couple of examples, it will provide legal powers to ban bonuses—currently, you can only set expectations—and it will also require water companies to report in near real time on discharges from emergency overflows, which are at present largely unmonitored.
The noble Duke, the Duke of Wellington, the noble Earl, Lord Russell, the noble Lord, Lord Blencathra, my noble friend Lady Young of Old Scone, the noble Earl, Lord Devon, and many other noble Lords were particularly interested in what exactly the review is going to do. As I said, the Bill alone is not enough to fix our water system; it is only an immediate down payment on the wider reform that is needed after many years of failure and environmental damage. As I mentioned, the review is going to be carried out to fundamentally transform how our water system works so that we clean up our rivers, lakes and seas for good. We will invite views from a range of experts, covering areas such as the environment, public health, consumers, investors, engineering and economics. We will have a public consultation to test that any proposals are robust and ambitious enough to clean up the pollution from our waterways. Through our review, we will look at long-term wider reform of the water sector as a whole, including considering and clarifying the roles of regulators. We expect this work to culminate in shaping further legislation and intend to set up further details about the review later this autumn. It is also really important that specific measures are consulted on during the passage of the Bill, and we will be looking to do so.
The noble Baroness, Lady Jones, and my noble friend Lord Sikka particularly asked about nationalising water companies. As I have said previously, the Government have no intention to nationalise the water companies. We are focusing on improving the performance of the water industry as an urgent priority. The measures in the Bill are designed to do exactly that.
As we have said, it will cost billions of pounds and take years to unpick the current ownership model, during which time underinvestment in infrastructure and sewage pollution will only get worse. Research that has been commissioned by the Consumer Council for Water, which we have heard about—
Lord Sikka (Lab)
First, can the Minister say how many billions of pounds, and can she publish that calculation? Secondly, she says it will take a long time, but the Government are going to integrate the newly created companies to manage the railways, and there are numerous mergers and takeovers everywhere where new entities are accommodated. Could the Government publish a paper to see what the complications would be? Although I recognise some of the complications, I do not think that any of this is insurmountable.
Baroness Hayman of Ullock (Lab)
Rather than get into a discussion around this, as I have a lot of questions to answer, I suggest that perhaps the noble Lord and I—and the noble Baroness, if she so wishes—take this away into another meeting and discuss it further when we have more time.
The noble Baroness, Lady Jones of Moulsecoomb, asked about the special administration regime, as did other noble Lords, and she asked particularly about profits for shareholders and creditors. The special administration regime is there to enable a seriously underperforming or insolvent water company to be put into special administration, with the requirement that vital public services—that is, water and wastewater—are continued to be provided pending a rescue package and transfer to new owners. This contrasts with normal administrations, where the appointed administrator is focused on the creditors’ interests only.
A number of noble Lords—the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Parminter, Lady Pinnock and Lady Bakewell, and my noble friend Lady Young of Old Scone, in particular—asked why the Bill is not being used to reform Ofwat or the Environment Agency. The Bill introduces the most significant increase in enforcement powers for the water industry regulators in a decade and is designed to give them the teeth they need to take tougher action against water companies in the next investment period. However, we want to go further. Through the review, as I mentioned, we will look at the regulators in order to carefully consider their roles and responsibilities and how we can ensure that they operate as effectively as possible. So that will be part of the review.
The noble Lord, Lord Douglas-Miller, asked whether the regulators were adequately resourced to implement all the new provisions in the Bill. Through the new cost recovery power in the Bill, we will enable the Environment Agency to fully recover costs for the full extent of its water company enforcement activities. That will include prosecutions and civil sanctions, revocation notices of permits, and pollution incidents. In addition, the EA is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation, increasing compliance checks and quadrupling the number of water company inspections by March next year. This will be fully funded by around £55 million per year through increased grant in aid funding from Defra and additional funding from water quality permit charges levied on water companies. I hope that helps to answer the noble Lord’s question.
There were also questions around the detail of Ofwat’s rules. The noble Lords, Lord Blencathra and Lord Remnant, mentioned this. We feel that it is more appropriate for Ofwat, as the independent regulator, to determine the specific performance metrics that should be considered when setting the rules. Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended—subject to the relevant procedural requirements, of course—where or when it is appropriate to do so in the future. Ofwat would need to consult with relevant persons, including the Secretary of State, Welsh Ministers, the Consumer Council for Water and others, before such rules were finalised. I also reassure noble Lords that Ofwat will issue a policy consultation in October on the scope of the rules.
Consumers were mentioned a number of times. First, on representation on boards, as we go through the Bill, we will look at this in more detail, but the idea behind the Bill is that Ofwat will be required to issue rules on consumer representation. Customers largely foot the bills for water company decisions, so we believe it is right that they have a say where their interests are at stake. Ofwat will need to consult with relevant persons, including the Consumer Council for Water, before finalising the rules on performance-related pay, and fitness and propriety and customer representation. I think my noble friend Lord Whitty asked about some of those issues.
The noble Lord, Lord Roborough, asked in his speech just now about further increases to customer bills. Where increased costs are a result of penalties being issued by the regulators—for example, under the new automatic penalties regime—the penalties will come out of water company profits and not from customers. Where costs are unrelated to penalties—for example, where they will fund new and improved infrastructure—we are working closely with the water industry regulators to see how we can best minimise the impact of measures introduced by the new legislation on customer bills. We do not want to see the customers bearing the brunt of these new actions.
A number of noble Lords, including the noble Lords, Lord Remnant, Lord Douglas-Miller and Lord Cromwell, and the noble Earl, Lord Devon, asked about investor confidence. Private sector investment is at the core of how we grow our economy. The Government are committed to establishing a strategic framework in order to deliver long-term stability, and which is conducive to attracting the sustained investment in the sector that we need. The Bill will deliver a clear and consistent regulatory framework for the water industry and its investors. I do not think anyone would think that investors have a lot of confidence in much of the water industry as it stands. On 10 September, Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions in private sector investment that we desperately need to be able to clean up our rivers, lakes and seas.
On that issue, there was also discussion around attracting talent. A number of noble Lords talked about the fact that it is more stick than carrot and asked how we are going to attract people into this. We believe it is right that companies and their executives are held to account for basic and fundamental performance requirements. Should companies meet their performance expectations, we believe that executives should rightly be rewarded, and there are also previous and existing examples of similar rules in other sectors. I will give a couple of examples. The financial services sector previously had a set cap on the level of bonuses—somebody mentioned that; I am sorry but I cannot remember who it was—and fit and proper person tests are also conducted by the Financial Conduct Authority and the Prudential Regulation Authority in that sector. Those sectors have continued to attract talent.
The noble Earl, Lord Devon, asked about ensuring that water companies invest sufficiently when considering pressures such as climate change and population growth, and about ring-fencing money for improvements. In July, Ofwat announced in its draft determinations a proposed £88 billion worth of expenditure between 2025 and 2030, which will be the largest investment in infrastructure that has ever been made by the water industry. We hope that that investment will deliver much of the work needed to achieve the issues that the noble Earl referred to.
The pollution incident reduction plans were discussed by many noble Lords during the debate. One question was: why have we not included a duty to implement the plans rather than just publish them? I think the noble Baroness, Lady Parminter, in particular talked about this. We say that these plans should be seen as part of the broader package of powers for regulators which exist and which are strengthened through the Bill to reduce pollution incidents.
The Environment Agency already has access to a range of tools to enforce against pollution incidents and this Bill is designed to supplement this with its provisions for automatic penalties and for Ofwat to ban bonuses when water companies have not met environmental standards. Water companies will also be required to report on overall progress on the actions that were set out in the previous plans. A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction.
The noble Baronesses, Lady McIntosh, Lady Browning and Lady Pinnock, all talked about sustainable drainage systems—SUDS. This is a complex issue. Existing planning policy requires that SUDS are included in all new major developments unless there is clear evidence that that would be inappropriate. This is in addition to requirements that SUDS should be given priority in new developments in flood-risk areas. However, I am aware of the issue around the previous legislation that has been sitting in front of us for 14 years, so I want to assure noble Lords that the Government are currently assessing how best to implement their ambitions on SUDS, while also being mindful of the cumulative impact of new regulatory burdens on the development sector. We are having regular discussions and trying to co-ordinate joint work with MHCLG officials on this issue. We want to move this forward.
The impact assessment was mentioned. There is an impact assessment for the Bill—I am sure noble Lords will be delighted to hear that—but it is currently with the Regulatory Policy Committee. We will publish it as soon as it has concluded its review. We are hoping that will be fairly soon.
The timeline for implementation was mentioned. Our ambition is to implement the provisions to give the regulators the powers they need to take tougher action against water companies for the next investment period, which is due to start in April next year.
The use of delegated powers was mentioned by the noble Duke, the Duke of Wellington, the noble Lord, Lord Sandhurst, and my noble friend Lady Young of Old Scone. I want to reiterate the reassurances I made in my opening speech that the provision of delegated powers will be subject to appropriate scrutiny and safeguards. We believe the powers are necessary to ensure that the provisions in the Bill keep pace with the changing requirements on the water industry and the changing expectations of customers. A full justification for the inclusion of delegated powers in the Bill is available through the delegated powers memorandum which has just been published.
On the statutory instruments for new penalties, we will be consulting on whether new automatic penalties can be used. Parliament will debate and vote on secondary legislation before any changes are made, so we intend to bring that before the House.
A few noble Lords mentioned local issues. The noble Earl, Lord Devon, talked about Devon, not unexpectedly, and my noble friend Lord Lipsey talked about the River Wye. I was impressed that he got away with that word. When I was in the other place and we had a similar debate, I got ticked off and had to change what I had said. But we are concerned about the issue of poo in the River Wye and he is right to raise it. There are also issues in Cumbria, where I live, around Lake Windermere and the other lakes, as mentioned by the noble Lord, Lord Inglewood. This is something that I personally feel we need to sort out. Our national parks are hugely important. They should be peaceful, beautiful places, not places that have been damaged by sewage overspills and other pollution. I reassure noble Lords that cleaning up iconic sites such as the River Wye and Lake Windermere is a top government priority. We want to get this sorted. The 2024 price review package that I mentioned earlier will include funding for improvement projects at priority sites and we are also working closely with the Welsh Government, particularly on the issues around the River Wye.
I am just about out of time. If I have missed anything that I should have answered, we will of course check Hansard and I will get back to people in writing, but once again I thank all noble Lords who have spoken today for their valuable contributions. It is clear that we agree on the importance of addressing issues in the water sector swiftly and decisively and that there is a consensus on the core aims of the Bill. The water industry really does need an overhaul, so I look forward to continuing constructive engagement with noble Lords. My door is always open. I commend the Water (Special Measures) Bill to the House and beg to move.
Bill read a second time and committed to a Committee of the Whole House.
Public Sector Productivity
(1 week ago)
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Baroness Neville-Rolfe
To ask His Majesty’s Government what steps they are taking to improve productivity across the public sector.
Baroness Neville-Rolfe (Con)
My Lords, you might say that securing growth in productivity is the most important issue we face—it is certainly the most important economic issue. This is because in the long run the overall rate of growth in productivity is reflected in the rate of growth in the economy, and from economic growth virtually everything else flows. We are debating public sector productivity today, but many of the same problems are found in the private sector.
I acknowledge that there are a few utopians who might think that this is a mercenary view of life, but a very large majority of us want to be better off personally and to benefit from improvements in the provision of public services—education, transport, healthcare and defence, for example. Better services need money, and a bigger economy provides more money via taxes. The best measure of our economic prosperity is probably GDP per head, and on this the recent history is disquieting. GDP per head in the UK has scarcely risen since the start of the financial crisis in 2007 and it is among the worst in the OECD.
It reflects the fact that productivity suffered a huge hit during the financial crisis, partly because of the importance of financial services to the UK economy. After a modest recovery, matters deteriorated again during Covid. As the IMF said in May:
“Although the UK has done better than peers in terms of total hours worked, the drop in labor productivity growth, the key driver of living standards—from around 2 percent pre-GFC to around ½ percent thereafter—has been noticeably bigger than in other advanced economies”.
Although the IMF refers to labour productivity rather than productivity, the two measures are closely related.
Part of our problem is cultural. Many—probably most—of us do not think of efficiency much of the time. In particular, there is a wilful disregard in the body politic for the costs of bureaucracy and monitoring. Like other noble Lords, I take part in the debates in this House on legislation. I have taken careful note in recent years and I regret to say that virtually every amendment to a Bill that we discuss would, if accepted, have the effect of increasing the cost of doing things, reduce efficiency and/or hit growth and dynamism. SIs and guidance can be even worse. Do noble Lords pause to consider whether the cost of the amendments they advocate is proportionate to the benefit hoped for? I fear the answer is often no.
The truth is that much of what government does affects the private sector, so the public sector contributes in two ways to the productivity problem: in what it does to others, such as in the huge build-up of financial, energy and environmental legislation in recent years, and in what it does in the way it organises itself.
We need to limit our interventions to matters where it is really needed, such as safety. We have too big a rulebook and that means a bigger, less efficient state. We need to change the culture. If I were put in charge, I would require a new productivity and growth assessment, like the equality assessment, on every proposal for a new policy, an SI or a Bill. Indeed, it should replace the equality assessment, which has had its day. Productivity assessments could be short, but a requirement for them would make our civil servants and lawmakers view changes through productivity spectacles. I would be interested in the Minister’s thoughts on this. It could make her and her Treasury colleagues new allies in the pursuit of value for money.
I am afraid that the figures for public sector productivity are even less positive than those for overall productivity. As the graph in the excellent Library Note makes clear, public sector productivity is significantly lower than in 1997, with the modest increase in the 2010s entirely eliminated by Covid and with the NHS a particular concern. I look forward to hearing from the noble Lord, Lord Patel, on what can be done. I believe working from home has also been a productivity sapper, with almost comic inefficiencies. As we heard from Guy Adams of the Mail recently, only 17% of the Business and Trade civil servants were coming in to work in their glorious Old Admiralty Building.
What else can be done? I am leaving to one side the obvious points, such as improved skills and education and the timely application of capital, so that I can make less obvious points from my own experience in business, the Civil Service and as a Minister in four departments, including the Treasury.
The first change needed is better management. The public sector needs fewer layers with simpler, flatter structures and wider spans of control. In the Cabinet Office when I was a Minister, one-third of staff were one on one. Government is also top-heavy. When I was at Tesco, I noticed that our considerable success was achieved without the CEO having a large private office staffed by people with their own agendas. This helped with clear focus and direction and a deep understanding of the business. It also limited the office politics. The contrast with Downing Street could hardly be greater.
I come back to the management of the public sector. There is a need for focus, which I think the Government are seeking with their new missions, but also for more delegation. For example, the Institute for Government has found that allowing nurses to self-roster reduces turnover. Other key areas where the public sector could learn from commerce are to mandate more comprehensive induction training for outsiders, who often fail in the Civil Service but bring vital skills, and training on easing out poor performers fairly. This seems likely to be even harder under Labour’s new employment rights Bill.
We also need a culture and working methods that help us to avoid mistakes. This includes both big things, such as HS2, the failings of the Post Office, and infected blood, and smaller things, such as letting some of the wrong people out of prison last month or setting the heating systems incorrectly in public buildings. We need to learn how to get things right first time because it avoids waste and mistakes. AI is making that easier—for example, on diagnostics from hospital scans. Equally, in my book it is okay to take risks and fail, but only if you learn from the experience. At the top of Tesco, we spent a lot of time in stores modestly carrying out routine tasks, observing what went wrong and seeing how policies and retail productivity could be improved.
We have a very big canvas for improvement. A recent paper by the University of Exeter Business School discusses the fact that virtually the same services were and are provided in similar NHS organisations and how this duplication allowed substantial efficiency improvements to be identified and made, amounting to £1 billion. The authors argue persuasively that the same approach could be used elsewhere in the thousands of organisations in the public sector. It is a great pity that, in awarding £9.4 billion to the public sector in above-inflation pay rises, the Government failed to impose productivity requirements on public sector workers. I know from experience that restrictive practices are hard to tackle and easier to remove with the warmth of a pay rise.
Public policy also effects productivity in the private sector. I said earlier that legislation often includes measures which reduce productivity unnecessarily. I turn to another current example: net zero. A lot can be done with small steps that have wide application, such as the transition to LED bulbs and putting porches on to retail stores, which quickly pay for themselves in lower energy bills. However, some of the measures to counter global warming now being taken by this Government—in particular, shutting the North Sea early—will hasten net zero neither in the UK nor globally. It will, however, ensure that the UK’s net exports are reduced, and it will reduce overall UK productivity, thereby making us all poorer, most notably the workers on oil rigs, as their trade union has pointed out. This is all for no rational reason. Public regulation will have reduced the productivity of the private sector and made it more difficult to deliver the growth and wealth we need for the future.
Improving productivity is a subject I feel passionate about because it can unlock great benefits. To be honest, it is rather a big subject for a short debate, but I am very keen to hear other ideas, build up alliances and ensure that the need to increase productivity is properly considered in all public sector decisions. I thank all those who are kind enough to speak and especially look forward to hearing from our new Minister.
Lord Teverson (LD)
My Lords, I congratulate the noble Baroness on getting this debate because it is an important subject, as she said, and one that affects all services and the way that the state works for individuals, although I have to say that her speech sounded a bit like a post-mortem on Tory government for the past nine years. Never mind—we will leave that aside for the moment.
I was a corporate economist in the transport and freight sector, but it did not need that level of economist —more like GCSE and A-level—to understand that one of the most important areas for productivity is consistent investment. I will concentrate on that. As we know, the United Kingdom has one of the lowest rates of investment in the economy as a whole in the G7. In fact, I think it was bottom of that league for 27 of the past 30 years. When we come to public investment it is slightly better in that, in the past couple of years, Germany and Italy have been worse than us, but we still have a very bad track record there indeed.
One of the areas that particularly struck me when I prepared for this debate was the rollercoaster nature of public sector investment. The reason is that investment, which should be long term, as it is for us as individuals in our household expenditure, is decided by the Treasury year to year, effectively, so we have these big swings. In 1988-99 public investment was almost zero, in 2020 it got up to 3.5%, and currently it is about 1.6% of GDP. Those ups and downs were because of short-term decision-making. We can see some of those examples. I worked for a short period in a public corporation. It was small enough that it was not affected by Treasury decisions, but other nationalised industries at that time could not predict their own investment to meet their corporate planning because of week-to-week and year-to-year Treasury decisions.
We have seen some of that in the public investment in HS2. Good or bad, the fact that we are now left with a high-speed railway going from north London to Birmingham is clearly not good public investment. In school buildings and hospitals we have seen high maintenance costs because we have not regularly invested in time-expired buildings. Indeed, in public housing, which has more or less stopped since the Thatcher Government, we again are in a situation where we have a negative effect downstream on family life, schooling, health and all those areas because of a lack of public investment. As I understand them at the moment, through the work of the Institute for Fiscal Studies, under the plans public investment will go down by 7% per annum over the next five years—unless the Minister would like to tell us at the conclusion of this debate that the fiscal rules are going to change, and how they will change.
I have little more to say except that, as I said, there seems to me, from my GCSE economics, to be a simple solution here. We should have consistent levels of public investment, year-to-year, so that the economy can move forward and the private sector can understand what the Government will invest and what they will do, and then crowd in private investment as well. We need, through our planning, to make sure that we have the skills and the capacity to actually meet those investment areas. We need to decouple the Office for Budget Responsibility from investment decisions. Clearly, we also have to make sure that we critique public investment very strongly and invest in the right areas. Lastly, I am one of those people who reads the National Infrastructure Commission report quite regularly, and I see absolute sanity in that report. I would like to see a much closer relationship between government and that commission, to make sure that investment is right and moves forward effectively over a longer time period.
Lord Patel (CB)
My Lords, if the noble Baroness, Lady Neville-Rolfe, is looking for any answers that I might have about how to increase productivity in the NHS, she might be a bit disappointed. However, I will give my views.
NHS productivity has long been a focus of politicians and policymakers. Any debate about challenges facing the NHS ends up with a discussion about productivity—mostly about how to increase it. Several recent reports from official organisations and think tanks demonstrate the wide interest in the subject. I will refer to one or two of them, particularly one detailed report from the King’s Fund
In my view there are four key issues when looking at productivity in the NHS. The first is how productivity in the healthcare sector has changed over time. Secondly, what has driven the recent fall in productivity? The third is the limitations of official productivity data. Fourthly, and lastly, is productivity going to increase and what needs to be done for it to do so?
Looking at how productivity has changed, the ONS data shows that over the past few decades NHS productivity increased faster than that of other public sector services, such as education and social care, and even the wider economy. However, in 2021, health sector productivity fell by 23%. In 2021-22, it had a slight recovery but was still down 7% from pre-pandemic levels. The recent NHS England data, which focuses mostly on the acute sector, shows that it is still down by 11% compared to pre-pandemic.
A number of different factors have driven this recent fall. Investment has already been mentioned—capital investment in buildings and technology, as well as outdated equipment and buildings not fit for purpose. There is a low ratio of managers with the competency to manage the flow of patients to administrators, who end up increasing bureaucracy and waste. NHS staff sickness has led to experienced staff leaving the service and new staff replacing them—and we have had a considerable increase in staffing. Less experienced staff are not fully trained, hence the process slows down. Industrial action and more sick patients with multi- morbidity, requiring more complex care, requires greater resources. Compared to my day, today’s complex cancer surgeries, for instance, could take as long as 10 to 14 hours per patient. That requires a lot of resources.
There are limitations to official data. Not all data is captured on the new way of delivering care, particularly in the community. Different organisations use different metrics. Data is collected for the acute sector but not for community settings, which skews the numbers. There needs to be consensus on what data should be collected to measure productivity across the whole healthcare sector.
Is productivity going to increase? There are several initiatives, including the financial package of £3.4 billion announced in the last spring Budget, to build capacity in technology. The NHS productivity plan aims to save £35 billion by 2029, with yearly increases in productivity of 1.9% to 2.2%, and one hopes that that will happen. However, without addressing the capital funding backlog of £11.9 billion for more investment in social care, to improve patient care and to provide better support for hard-pressed staff, none of this will happen. It will be challenging to increase productivity to that level. Post-Covid, for reasons that are not obvious, productivity continues to decline. For example, out-patient appointments per consultant are down 7%, and surgical activity is down 12%, as has been identified in the Darzi report.
It is right that politicians focus on the productivity of the health sector but, as experience has shown, there needs to be some realism about how easily and quickly it can be achieved. We need also to recognise that, in healthcare, quality matters more than quantity. We need high-quality care delivered with the resources available and not more quantity, as some may think. I look forward to the Minister’s answers.
Baroness Wheatcroft (CB)
My Lords, I am grateful to the noble Baroness, Lady Neville-Rolfe, for securing this debate and introducing it so effectively. With her experience of both the public and private sectors, she is well-qualified to point to where there might be scope for improvement. The figures she quoted for public sector productivity are indeed dire, but as the noble Lord, Lord Patel, has pointed out, it is not simple to measure public sector productivity.
I will not dwell on how notoriously difficult this task can be in the diverse sectors that we are looking at this evening—even within the health service, as we have heard, it is very difficult, and in the private sector, where the profit motive is a simple one in relative terms, there is still dispute over how effectively productivity can best be measured. Instead, I want to highlight two areas in which I think relatively simple changes could secure significant improvements in productivity for this country.
The first area is education, where I feel that an emphasis on traditional outputs—exam results in particular—is not producing the workforce that we require. That is not simply because the system is not producing enough computer scientists or engineers. The dramatic cutback in arts education, and particularly music, fails to acknowledge the need for a modern workforce to be creative and flexible in its thinking. We know of the close link between mathematics and music, for instance, and playing in an orchestra or band is a great education in being a team player, which is what is required in the modern workplace.
It is physical flexibility which causes me even more concern, however. A report from NHS England published late last month showed that 19% of 11 to 15 year-olds were obese. The problem, like the children, grows as they progress through school. Between two and 10, the average for obesity is 12% but by the final year in primary school it hits a horrifying 22.7%. These figures are based on 2022 research and had barely changed since 2019.
Childhood obesity leads to adult obesity and, as we know, obesity is a massive cause of ill health and thus a major contributor to keeping people either out of the workplace or not at their most effective. It seems to me that an important measure of productivity for the education system should be its effectiveness in producing healthy children—those who are physically fit and ready to join the workforce. This does not mean every child having to do dreaded cross-country runs or team sports, but maybe being physically active by dancing, swimming or doing yoga would be an important start. Physically healthy pupils will be more receptive to education. Does the Minister agree that schools would improve their productivity and the eventual ability of the workforce if they provided more exercise for pupils?
Also, I want to suggest a way in which productivity might be enhanced across much of the public sector, empowering individuals within it. Only today, I was talking to a staff nurse at a major London hospital. He was struggling to cope with an appointments system which had changed for the umpteenth time. “They are always changing things and we are always the last to find out,” he said. It is a refrain that I have heard repeatedly, particularly in dealings with the NHS but also from local council employees and civil servants.
The private sector acknowledges the importance of empowering employees—although sometimes more in theory than in practice. Nevertheless, empowerment is a proven way of motivating a workforce, and a motivated workforce is inherently a more effective one. The “us and them” of British culture persists far more in the public sector than in the private sector. There is undoubtedly a need for investment in technology but, as we heard repeatedly this afternoon, there is not a great deal of cash to be handed out. I am hopeful that the fiscal rules will be changed for investment purposes but, even without that, empowering the staff in the public sector would deliver cheaply and effectively.
Lord Patten (Con)
One aspect of the great productivity mystery and great productivity debate that I want to draw to the attention of the House is the relationship between productivity and the growing practice of working from home, which I think deserves close scrutiny. There is no divine right which says you can work from home. That does not exist in the public sector or in the private sector. I am personally—it is a personal not a political view—greatly concerned that there is a newly forming class divide, and I choose my words carefully, between people who can work from home and people who just cannot. It seems to me not particularly socially desirable and certainly not always necessarily for the economic best, helping productivity, in the private sector, let alone the public sector. I know of no evidence yet on this.
This is not some sort of Adullamite cave-dwelling view of someone who does not like the great technological leaps forward that spur our social and working interactions for the good. They are vital to all of us, and distance stuff can help all of us. But looking at the Civil Service or the health service, for example, which I value, it is clear that many do not have the opportunity to work from home. Cleaners, security and caterers just have to be there. Hospitals could not function without them. They could not work without support staff, nor could the nurses or physicians, nor could the surgeons operating away.
My question is: is the working from home by an increasing number of managers and policymakers in NHS England and Whitehall departments always a good thing? I do not believe it necessarily is. Does it help, hinder or is it neutral in its effects on productivity, which seems to be lagging behind the undoubted leaps forward in technology that I applaud? This is fertile ground for the Office for National Statistics to get on and have a good look at the economic effects on productivity of working from home.
I believe very much in face-to-face contact—it is a good productivity driver where I work. Those chance meetings in corridors and over coffee spark ideas which are so hard to choreograph, let us say, on one of those rather wooden Teams meetings; I am also terribly worried that I am going to say something daft and it will be recorded and played back to me later. It is very good for new entrants to have lots of personal contacts, but it is also good for people who have been around for a bit to be knocked around by some of those new entrants and to be challenged.
Only this week, we have news that Lloyd’s of London is a bit panicky about so few people being there not just on Fridays but on Mondays, and the Lloyd’s market is one of the gems in our economic panoply around the world; I have no interest in that. More and more people in the private sector are like Sir Jim Ratcliffe of Ineos, that great engineer and businessman, who has now blown the whistle and is getting his people back to the office, particularly in the regions, which are very important to us all. I wish him luck with that— and when the whistle blows for Manchester United, in which he is an investor, which may be more challenging than getting his workforce back.
This needs a good, long look by the Government. Again, it is not a party-political thing. The Government have four or five years, I believe, in which they will have to get productivity up. I know of no evidence of serious government study on the effects of working from home. We do not want it to be embedded so that, by the end of five years, people just think there really is a divine right to do what they want and work how they want.
Baroness Bennett of Manor Castle (GP)
My Lords, in following the noble Lord, Lord Patten, I have to reflect on the experience of commuting, whether that is stuck behind the wheel of a car in a traffic jam or having your face stuck in someone else’s armpit on an overcrowded, delayed train. I really could not think of anything less productive than those experiences, which of course not allowing working from home forces people into every day.
I thank the noble Baroness, Lady Neville-Rolfe, for securing this debate and both your Lordships’ Chambers for timing perfectly the finish of the previous two debates, which has allowed me to run between the Moses Room and the defence review and this debate—an extremely efficient use of my time this evening.
I want to begin with a very quick overview of the state of public services in the UK. They have had 14 years of austerity and I am going to draw on an Institute for Government report from October 2022, ‘Austerity’ in Public Services: Lessons from the 2010s. It points out that our public services are fragile because of austerity. Austerity meant that the pay of workers was pushed down and the number of staff slashed so that people had to work harder. That was not a viable position, this report and I conclude. Very many people are now simply worn out. They are overtired. Many people have left. Huge amounts of experience, knowledge and skills have been lost. There were very few easy and genuinely effective efficiency savings to be found, and what there were have been found.
We saw situations, as happened with policing in prisons, where there were slashing efficiency cuts, but then money had to be put back in because the institutions had fallen apart. That meant that experienced staff left, and new, little-trained, inexperienced people came in, and that was really bad for productivity. Austerity is wildly inefficient. Of course, that is not the fault of the public sector but of politics. If we are talking about the productivity of the public sector, maybe we have to look very close to home for reasons why there might be issues.
A second issue that has been driven by ideology and politics is privatisation, financialisaton and marketisation. I recall marching in 2014 with the 999 Call for the NHS campaign on part of its Jarrow march against the privatisation of the NHS. Many of the people on that march were NHS staff, and they could tell the story of the past couple of years where they had had three or four different job titles, three or four different bosses, and had worked for three or four different organisations, and yet they had been seeing the same kind of patients in the same office every day. All of those things take vast amounts of time, energy and stress and lead to people getting frustrated, giving up and leaving, and all of it was driven by political decisions and political ideology. Why do we have a productivity problem? Let us look closer to home. We need a better quality of governance and politics.
Finally, on health, we have a terrible quality of public health. In the working-age population, we have a huge number of people suffering from long Covid and all sorts of chronic conditions who struggle into work every day and do their best. We need to find ways to get a healthier society, as the noble Baroness, Lady Wheatcroft, just mentioned; this is about taking a systemic approach to our society.
I want to devote my final minute to one simple idea. No one idea is a panacea, but here is one way forward: a four-day working week as standard with no loss of pay. The noble Baroness, Lady Neville-Rolfe, who secured this debate, might like to know of an article published by the World Economic Forum which states—with invisible but clear exclamation marks—that a four-day working week as standard, with no loss of pay or extension of hours each day, “actually increases productivity”. The article also notes:
“Work smarter not harder has been the mantra of management consultants”.
I do not want to suggest a Stakhanovite, Amazon-warehouse type arrangement where everyone comes into the office, puts their heads down and is forced to act like a robot. Ultimately, however, we need to think about not just the productivity of our public services but the productivity of our society. A healthy society that cares for people and has time for family and community, which a four-day week would provide, would be a highly productive society.
Baroness Noakes (Con)
My Lords, I join other noble Lords in congratulating my noble friend Lady Neville-Rolfe on securing this debate and for her masterly introduction. Public sector productivity, or the lack of it, is holding back the UK’s overall productivity growth and thereby putting a damper on our economic growth. In the time available, I will not concentrate on the soaring numbers of civil servants, the clear issues with working from home—which was addressed by my noble friend Lord Patten—or the inflationary public sector pay deals which have shockingly been awarded in return for zero productivity. Instead, I want to focus on two areas: state-owned economic activity and the NHS.
We are only a hundred days into this new Government, but there is one clear direction of travel—we can expect more state-controlled economic activity. The Government are already laying the foundations for renationalising the railways, the energy system operator has just been brought into the public sector and GB Energy is being set up with £8 billion in order to take an active role in energy generation. I doubt that the Government’s ambitions will stop there, but they need to learn the lessons from history.
Before 1979, we had a lot of nationalised industries and, the record shows, third-rate productivity at best; they were a real drag on the UK economy. There were several attempts to impose economic and financial frameworks to solve this problem, but they failed. The one thing that did eventually work was privatisation, which unlocked considerable efficiency gains, and I am especially proud of what we achieved in the 1980s and 1990s. Now, the Government are heading in the other direction with little apparent regard for efficiency. I was struck when the noble Baroness, Lady Blake of Leeds, who is the Minister here today, introduced the Second Reading of the Passenger Railway Services (Public Ownership) Bill two days ago and, in her opening speech, did not even mention productivity or efficiency. As the activities of the state increase, the greater will be the impact of low or negative efficiency on the whole economy, and the Government cannot afford to rest on hopes that it will all be different this time.
My other topic is the NHS. Because the NHS gobbles up about 40% of public expenditure, overall public sector productivity will be a problem if the NHS is not fixed. Measuring productivity in the NHS is very difficult, as the noble Baroness, Lady Wheatcroft, has already said, but it seems generally agreed that the NHS has not even returned to pre-pandemic levels of productivity; it is treating fewer patients but has far higher staff numbers. Before the pandemic, the ONS measure, which includes a flattering quality adjustment, had the NHS as the best performing bit of the public sector, but not anymore. It is vital that the Government grasp this issue.
The last Government’s productivity plan for the NHS involved £4 billion being spent on technology transformation. The current Secretary of State has talked about creating a digital NHS. Another lesson from history is that all previous attempts at large scale technology-led transformation in the NHS have failed. There are lots of reasons for this, including the complexity of the NHS and insufficient management skills and capabilities.
More importantly, transformation will not happen unless the whole of the NHS buys in; it cannot be optional. The NHS has to want to change, not just in the upper echelons of NHS England, but in every GP surgery, every ward and every support service. If that does not happen, it is not worth investing a single pound in a grandiose transformation plan.
In my view, the NHS has to stop finding excuses for low productivity—lack of investment, burnout in the workforce, strikes and so on—and turn its attention to the basics of delivering world-class efficiency. I wish that I had confidence that this will happen.
Lord Hannan of Kingsclere (Con)
My Lords, I am very grateful to my noble friend Lady Neville-Rolfe for introducing the debate and I am acutely conscious of the expertise and experience that others have brought to bear.
I will begin with a point raised by the noble Lord, Lord Patel, and the noble Baroness, Lady Wheatcroft, about the difficulty of measuring productivity. Of course, that is absolutely true, but as a rough guide for a ballpark figure I looked at what the OBR had to say. It produced a report in 2022, which found that in the private sector productivity was back to 1.6% above where it had been on the eve of the pandemic, but in the public sector it was still down by 7.4%. If we carry on losing productivity in the public sector at this rate, we will suffer a further 20% decline within a decade, which the Centre for Economics and Business Research says would be the equivalent of £73 billion per year of extra spending. Think for a second about that: £73 billion per year. Think of the rows we have in this Chamber about the relatively trivial sums involved in the winter fuel payments or VAT on school fees.
Why is that happening? There are structural reasons why there is greater productivity when there is a profit motive; I think we all accept that. But why is the gap widening? What has changed recently? I think my noble friend Lord Patten was exactly on the button. About a year after the pandemic, when everything was supposed to have got back to normal and when my right honourable friend Jacob Rees-Mogg was a Minister, he was presented with a fait accompli by his officials. They said that he absolutely had to sign the lease on a building for a government agency or an arm’s-length agency in central London. He said, “Why do they need to be in this expensive place?” and they said, “Oh it is absolutely vital, Minister. It is actually walking distance from here: let’s go and have a look”. Of course, he found that there was nobody there. Hence, he began the campaign of dropping his—I thought rather polite—calling cards saying, “Sorry you weren’t at work”, which of course created a furious backlash from the Civil Service trade unions. But there are jobs that require you to be there.
Like the noble Baroness, Lady Wheatcroft, I used to work in newspapers. In fact, for a while I worked for the noble Baroness. I am sure she will agree that there were jobs, even then, long before the pandemic, that obviously could have been done from home. If you are doing the sudoku or writing the pets column or something, there is absolutely no reason to come into the office. It struck me even 20 years ago as slightly wasteful that people were doing that. But, equally, there were an awful lot of jobs, particularly the editorial jobs, where you really had to be there talking to people. How many of the civil servants absent from their desks are in the second category? I think there are rather a lot.
I think we can all see the impact on productivity. I was certainly struck by it when I walked around the cavernous, echoing and rather beautiful corridors of the Old Admiralty Building when I was involved with the Department for Business and Trade. It is extraordinary how immediately the impact is felt of people not being there for meetings, not talking about things and not sparking ideas off each other in the fallow times.
The point I really want to make—I will make it very briefly in deference to the Minister’s throat—is that this is a choice. There are problems the Government cannot avoid, such as the ageing population and the changing ratio of workers to pensioners, but this is a choice. You can give large pay rises to public sector workers, but you are then left with less money to grow the rest of the economy. What you cannot do is keep giving these pay rises at the same time as increasing their numbers.
There were two very large increases in the Civil Service that both had a temporary and contingent cause. One was the repatriations of powers after Brexit, which required people to do them at home because they were no longer being done in Brussels. The other was the pandemic, which required more people to be brought in for testing and for vaccination and so on. Both of those bumps are now in the rear-view mirror. Under the plans of the previous Government, numbers were supposed to fall back towards where they had been and there was a scheduled loss of 66,000 personnel. That was quietly reversed as almost the first thing the new Government did.
There was a time when the arguments were about economics and taking from the haves to give to the have-nots. What we cannot have is simply an argument about taking from the private sector to give to the public. Private sector workers already have worse pension deals. They are already required to be in the office more and they already work longer hours. We cannot keep squeezing the revenue-generating bits of the economy to fund increases in the revenue-consuming bit.
Lord Addington (LD)
My Lords, I will probably be talking on the micro-scale here. What brought me to this debate about efficiency in the public sector was the role that the public sector has in getting the best out of disabled workers. In raising that, I have to declare a couple of interests. I am dyslexic, and I am president of the British Dyslexia Association. Much more importantly, I am chairman of Microlink PC, an assistive technology company, and it is my experience in that role that I will try to bring to the debate.
The one big thing we have found about getting the best out of workers with disabilities or long-term sickness is that people have to intervene fast. In the modern world, if you do not intervene fast you will have an inefficient worker—or somebody who is inefficient in their current role—possibly being promoted into a role that they cannot cope with, due to their disability. The manager of that worker will ask, “Why aren’t you performing?”, and they will reply, “Because I’ve got this role here”. The manager will then say, “Prove it, or I don’t know what to do”. That is a conflict situation, which can ultimately end up in court, or in losing that worker, who will then have to be replaced. In the banking sector, where we have worked with clients such as HSBC and Lloyds, it costs about £80,000 to replace someone. We had a system of providing quick intervention, at the cost of about £1,000 per head, to make sure that such a person was working properly. About 2% to 3% of areas presented with this problem, and we could achieve results by having an expert go down and deal with them.
We may wonder why everybody is not doing that. It goes back to the line manager who does not have the support or knowledge to deal with the disabled worker. I have had a look at some of the Civil Service information. It says that line managers should know about this, and talks about a disability awareness passport, or something like that. It talks about glasses—the one technical adjustment that more or less all of us use here, which means I will not dig out the piece of paper. Line managers are being asked to understand all the disabilities: dyslexia, back pain, rheumatoid arthritis, ADHD, you name it—all of them; it is a combination. How can we expect a line manager to do all that, and to do it efficiently? We cannot. It is asking the impossible.
Get the experts in, and get them in fast, to make sure that the disabled worker is supported and recognised. If they are, they will then start to tell people what is needed, and there can be an interaction. If that does not happen, and they are just told to work hard or else action will be taken against them, there will be conflict. Conflict ends up in costs and inefficiency. And remember the people around this conflict: how can they function properly with that going on?
If the public sector is to manage and help disabled workers, and if line managers are expected have the information I mentioned and was worried about—people are saying that it should be done, so there is an acceptance that doing something helps—please let there be a structure in which people can go to an expert. If they can get to an expert who can tell them what to do, they can have a solution, and fast. That is what is required here. At the moment we have a situation that invites litigation and delay. I am sure everybody would agree that we should be looking for the quickest and easiest solution. That is also the cheapest solution, and we get a productive worker out of it.
Lord Elliott of Mickle Fell (Con)
My Lords, I thank my noble friend Lady Neville-Rolfe for securing this ever-topical debate ahead of the Budget. Public sector productivity has long been a special interest of mine. I published my first book on that topic back in 2006, and I am pleased to say it can still be bought second-hand on Amazon for a very modest £3.29.
Being interested in this subject, I was pleased to hear the Chancellor announce in the public spending statement in July that she would launch a drive to boost public sector productivity. This is not a novel idea. ln the 2000s, we had the Gershon efficiency review; in the 2010s, my noble friend Lord Cameron of Chipping Norton launched the productivity plan; and last year the previous Government announced plans to save billions of pounds through greater use of data and AI. Public sector productivity is, therefore, a perennial issue, which Governments of all stripes have tried, and largely failed, to improve in recent decades.
Because time is limited, I will focus my remarks on one specific area: the impact of compressed hours and a four-day working week on public sector productivity. In recent months, we have heard Ministers mention four-day working weeks as part of the broader debate around flexible working. The noble Baroness, Lady Smith of Malvern, stated that
“flexible working is actually good for productivity”,
including the kind of flexible working that involves compressed hours.
I think we can all agree that, if a four-day working week were demonstrated to improve efficiency across the public sector and save taxpayers money, we should all support it, but the evidence for this is thin. Take, for example, South Cambridgeshire District Council, whose flagship trial of a four-day working week concluded earlier this year. The original report analysing the trial suggested that 22 of 24 key performance indicators had either improved or remained the same and that cost savings had been achieved by having to recruit fewer agency workers. This all sounded very encouraging. However, when the correspondence between the council and the consultancy evaluating the scheme was released following a freedom of information request, a very different picture emerged. It suggested that senior council officials had edited the review of the scheme to make it sound more positive. For example, a section that detailed how over half of employees had struggled to access council offices during this period was deleted, and the actual cost savings were significantly less than the ones published.
Equally, there is no evidence from the private sector to suggest that a four-day working week can help to improve productivity. Bigger businesses—the ones most organisationally comparable to government departments and local authorities—are certainly not rushing to embrace compressed hours or the four-day working week. If these changes were so beneficial to productivity, surely businesses, driven by profit maximisation and shareholder value, would have seen the light and taken this up for their employees. If we are to proceed further down this route of compressed hours and a four-day working week, we must have more concrete evidence that they will improve productivity.
I look forward to hearing the concluding remarks of the noble Baroness, Lady Blake of Leeds. Having been born and brought up in Gledhow, an area of Leeds that I know is close to her heart, I know first hand from my regular visits there—still—that, under her leadership, she ran an efficient and effective council. I would be grateful if the Minister could explain the evidence on which the Government are basing their assumptions that compressed hours or a four-day working week would lead to greater public sector productivity. If there is no evidence base, why are the Government encouraging this course of action? I hope we can all agree that improving public sector productivity and ensuring that taxpayers get good value for money should be at the forefront of our minds when considering this important question.
Lord Londesborough (CB)
My Lords, I salute the noble Baroness, Lady Neville-Rolfe, for securing this debate. It is a huge and complex subject to cover in five minutes but, in the spirit of productivity, I will do my best. As we have heard, measuring public sector productivity is challenging—it has a range of qualitative aspects, not simply outputs or revenues. That said, UK public sector productivity has barely moved since 1997, while our private sector productivity, which lags many other countries, has advanced by 30%. That is some gap.
I will focus on the workforce and management. For 30 years, I ran a publishing business with numerous teams across the world, with similar targets, pay scales and incentives. They shared the same technology and infrastructure, yet team productivity varied wildly. There turned out to be two key factors: first, rigorous and smart recruitment and, secondly, effective management. Middle and senior management was absolutely key— the difference between being 20% over target and 20% under.
However, here in the UK, we struggle with management. Across our 32 million workforce, 8 million have a managerial role. Of those, 6 million are deemed to be “accidental managers”, with little or no formal training, learning as they go. As the Policy Exchange points out in its excellent report on NHS productivity, it is not about the volume of managers but about their competencies, how their roles are defined and where they are placed.
Rigidity in our public sector means that promotion to management is too often correlated to the number of years worked rather than aptitude or, indeed, attitude, and management itself is often resistant to change. We struggle to incentivise public sector workers on productivity. It is not in the culture, but it should be. Productive organisations set ambitious targets, engage their workforce and reward performance. But Governments, when they talk about productivity, tend to focus on cost savings, efficiency and value for money—not very inspiring.
Chancellor Rachel Reeves says that she has “fired the starting gun” to drive greater productivity in the public sector. She said:
“I expect all levels of government to be run effectively and efficiently … a civil service delivering good value for the British taxpayer and reform of our political institutions, including the House of Lords, to keep costs as low as possible”.—[Official Report, Commons, 29/7/24; col. 1039.]
Yes, we in Parliament should set a better example, but it turns out that House of Lords reform means removing one of the most productive groups in this House: the 90 elected hereditary peers—I declare an interest—and leaving in place well over 100 life Peers who barely ever attend, vote or contribute in any way. I am looking at some rather deserted Benches. That is politics, not productivity.
There is a wider problem. If we do not recognise and reward performance, productivity suffers. The latest round of public sector pay increases for doctors, teachers and train drivers did not just add £9 billion to that infernal black hole, they were rewarded without any commitment to a plan to improve productivity.
We need a fundamental reset: setting up a non-partisan productivity council on a statutory footing would be a start. I have suggested this three times before and never got any response. This body would inform, co-ordinate and evaluate policies that impact productivity across all departments, including the excellent idea of the noble Baroness, Lady Neville-Rolfe, of productivity assessments, which I wholeheartedly endorse. I look forward to hearing the Minister’s thoughts.
Lord Kempsell (Con)
My Lords, I join in the thanks expressed to my noble friend Lady Neville-Rolfe for securing this important and timely debate, especially before the Budget. I will also, in the spirit expressed by the noble Lord, Lord Londesborough, keep my remarks productive, efficient and brief, even as a humble life Peer.
A significant essay was circulated recently online among the policy nerd community. It was entitled Foundations: Why Britain Has Stagnated. The piece was co-authored by Sam Bowman, Ben Southwood and Samuel Hughes. The essay highlights the difficulties that the UK is experiencing with productivity in general— a significant component of which is, of course, our sluggish public sector productivity. The authors note that, according to OECD figures, productivity growth between 2019 and 2023 was 7.6% in the United States and just 1.5% in Britain. They go on to explain:
“This is not a general Western European problem: the French and Germans are 15 percent and 18 percent more productive than us respectively”.
Of course, that is productivity across the whole economy. The point about infrastructure investment, capital investment and public investment was made by the noble Lord, Lord Teverson.
Although the essay highlights the litany of infrastructure failures and lack of capital investment, we must also acknowledge the particular productivity issues which we all know are specific to the culture in the public sector. For example, I was recently amazed to discover that, while the private sector and business do everything they can to embrace the AI revolution, a recent National Audit Office study found that just 37% of government bodies had deployed any artificial intelligence at all. Across the entire scope of government, it had identified in its study just 74 individual AI use cases.
I remember being similarly horrified to discover a few years ago when I was a special adviser trying to tackle a failing programme in the Department for Work and Pensions that an entire satellite office was employed outside London just to process paperwork manually, with the most basic online solutions and digital efficiencies not yet deployed. We should be unashamed to call this out for what it is: the UK public sector is behind the curve. There is a cultural issue that is preventing the public sector using the tools or deploying the technology and structures that underpin productivity. Those points were ably made by my noble friends Lord Patten, Lord Hannan and Lord Elliott.
It is no surprise that public sector productivity is failing to return to pre-pandemic levels. Since we are in the realm of suggesting ideas to the Minister, might I touch on a piece of work that I tried to set in train in government, focusing particularly on gathering better and more scientifically based evidence for productivity and more scientific evaluation of government programmes? Unless we have the evidence, we will not be able to judge productivity improvement successfully. In establishing the Evaluation Task Force, I put together a team across the Cabinet Office and the Treasury to keep that eye on public sector productivity and to ask whether government interventions are bringing about the outcomes that they are intended to achieve and how we know. Do we have the evidence to confidently say that effort and public expenditure are productive?
We cannot get to the roots of our public sector productivity problem without good data and that significant store of evidence. I therefore urge Ministers, as they are rightly keen to drive public sector productivity, to take that radical approach, starting with so many lessons heard in the debate this evening.
Lord Wallace of Saltaire (LD)
My Lords, I want to talk about morale as an important part of improving the productivity of the Civil Service, about digital transformation and, above all, about training.
The noble Baroness, Lady Neville-Rolfe, talked about culture as important. One thing that I saw when I was in the coalition Government was the cultural problem of the relationship between Ministers and officials and the cultural assumption that some Ministers had—quite a lot of Ministers in the Conservative Party—that civil servants were lazy and inefficient and therefore were to be insulted. I recall vividly a meeting at which there were several Permanent Secretaries and a senior Conservative Minister who started by saying what he thought of the Civil Service and how useless they were. Then, afterwards, he was rather surprised that the Permanent Secretaries had not been particularly sympathetic to the criticisms and proposals that he was making.
When we have one of the two candidates left fighting for the leadership of the Conservative Party talking about 10% of the Civil Service needing to be put in prison, we are dealing with a culture in which you are unlikely to motivate civil servants to do things that you would like. I hope that this Government will treat the Civil Service with a great deal more respect.
I also hope that Ministers will stay in office for longer. The most depressing thing that I have heard in this context in the past few days is the suggestion that the Government might push through a ministerial reshuffle after six months. Civil servants whom I know— I used to teach people who then went into the Civil Service—spoke to me about how awful it is when you have a new Minister and then, nine months later, he or she is gone and another one comes in who is either too arrogant to bother to learn about the subject or too slow to want to learn. A number of the best officials whom I worked with in government have since left. Of course, another reason why they have left is that the gap between Civil Service pay and outside pay has grown too wide. That is one reason why it was right to increase the pay of senior civil servants. I speak with passion on this because a member of my family left the Civil Service two years ago and is now earning about 40% more than what she was earning as a senior civil servant. If you have that gap, as with teachers and with junior doctors, retention becomes a problem.
On the digital dimension, we have fallen a long way behind. That is, again, partly a failure of government. I was very sorry to see in the Times this morning the attack on Mike Bracken after he was appointed as a director at HMRC. I worked with him when he was head of the Government Digital Service and was attempting to drive a digital transformation earlier in Whitehall. That failed partly because he did not get the support of senior Ministers and because each department fought its own territory. We need people like him who will push forward a digital transformation in Whitehall—the sort of thing that gets rid of those who have to work with paper—and make databases link across Whitehall. It is not an area in which I am expert, but it is clear that there are substantial productivity gains to be made.
However, I really want to talk about training and the failure that we have seen on training in the last seven to 15 years. I declare an interest in that my wife trained civil servants in the early years of the Civil Service College. I too worked some 25 years ago on the top management course, which was a wonderful team-building course for senior civil servants. One of the things that happened in 2010—I regret that the Liberal Democrats failed to stop it—was that the National School of Government was abolished and Sunningdale sold off. Civil Service Learning was left online—indeed, an online campus was developed. I heard very critical remarks from my former students about how useless this was. Of course, it was outsourced, first to Capita and then to KPMG and EY. The Government have just extended the KPMG contract for another £223 million, on the assumption that KPMG in turn will subcontract, having taken on others for delivery. This is waste and inefficiency. If one is serious about training civil servants, one needs to rebuild the capacity within government which can help to give a sense of corporate responsibility, team-building and the professional skills that we need. If we restore morale, sustain ministerial leadership, drive forward investment in digital transformation and rebuild training, we will have a much more productive Civil Service.
Baroness Blake of Leeds (Lab)
I thank the noble Baroness, Lady Neville-Rolfe, for securing this important debate and for her opening remarks. I thank all noble Lords for their contributions. I could clearly spend at least 12 of my minutes on each contribution, so I apologise in advance for the fact that I will not be able to get to everyone. However, there will be many opportunities going forward to discuss this important area.
It is clear that we all agree there are substantial opportunities to improve public health sector productivity and efficiency and that we want the Government to do as much as possible to harness it. This is a complex and cross-cutting challenge involving major culture changes, as the noble Baroness, Lady Neville-Rolfe, indicated at the start, and has the potential to significantly reform the way in which we deliver our public services and improve value for the taxpayer.
In response to the noble Lord, Lord Patten, I think the jury is out concerning working from home. It is clear that there is no one-size-fits-all approach; there is an expectation of a minimum of 60% of office workers working in the workplace, but there are so many aspects to consider.
The Government have been quite clear and open about the grave challenges facing our public finances. Our public services are facing immense pressures, with prisons overflowing, the NHS in a critical state and local government under huge financial pressure. We have also said that we will need to make some tough choices to overcome these challenges.
Alongside those grave pressures, the Government are also aware of the inherited challenge of improving public sector productivity. As we have heard, public service productivity, as at quarter 1 2024, remains 6.4% below pre-pandemic levels. I have to be honest: there was not a plan from the previous Government, and we need to put one in place. We know that the ONS will have a vital role to play in tracking public service productivity. The IFS says that the direct impact of the pandemic cannot explain the continued failure of productivity in these areas.
The Government have already taken decisive action to protect our public services and tackle waste. As an immediate first step in her first month, the Chancellor announced a decisive set of measures to eliminate waste in the public sector and move the agenda forward. The Government accepted the recommendations of the independent pay review bodies to resolve long-standing industrial action across a number of sectors, which obviously brought their own significant economic cost. I do not think that we need to make any apology for taking that swift action, stopping chaos for the public and ensuring that public services get back to operating as efficiently as possible.
Thirdly, the Government commissioned reviews of key public services, including the NHS, to ensure that we fully understand the scale of the challenges that the Government have inherited. However, it will take a long time to truly recover our public services, and it requires a relentless focus on eliminating waste, delivering reform and improving public sector productivity.
A more productive public sector means that we can deliver higher-quality public services, achieving greater value for money, and move towards improving our economy—a win-win for everyone. This is why, in launching the spending review, the Chancellor set out her approach to reforming public services. The first idea is around the mission-led approach to government, changing the way in which government works and allowing different departments to come together and work together to tackle issues of common concern. Most importantly, it is about putting citizens at the heart of the Government’s work and delivering long-term ambitious outcomes that make a meaningful difference to people’s lives. We so often forget that sense of purpose in what we are here to do.
I understand the comments that the noble Lord, Lord Teverson, made about investment. We will allow for separate treatment of investment spending, with investment being recognised as vital to our growth strategy. I thank the noble Lord, Lord Addington, for his very moving speech, as always. This debate, as I said, is about better outcomes for people and making sure that their considerations are brought in at every opportunity.
The next area covered by the Chancellor is around prevention. Preventive public services are obviously better for the public. Early intervention in the life cycle of any problem can be life-changing or indeed even life-saving. That is why the Government will focus on prevention and early intervention to support better outcomes across our public services, reducing the long-term spending pressures facing services such as the NHS, as the noble Lord, Lord Patel, so eloquently outlined, referencing the recent report from the noble Lord, Lord Darzi. It is about intervening early and detecting health problems, resolving them more easily and stopping them from deteriorating and causing more suffering as well as being more expensive to treat. We have a terrible situation while we are not investing in our communities and young people, which is leading to an increased risk of criminality later in life, at incredible cost to the public purse.
We have to acknowledge the comments from the noble Lord, Lord Patel, around capital spend and quality of services, which is absolutely fundamental. How could I not reference the noble Lord, Lord Elliott, a fellow Leeds loiner? I am very pleased to welcome him into the Chamber. I do not have time to address all the questions that he asked, but I steer him towards our “make work pay” commitments and how we will bring partnership work in to deliver on the issues that he so eloquently raised.
The third way in which the Government intend to reform public services is by harnessing the power of digital data and technology across the public sector. Our vision is for a modern, digital and tech-enabled Government who give citizens a more satisfying experience and help to turbocharge economic growth. To do this we have already started conducting rapid pieces of work to identify the greatest opportunity areas in the public sector for digital and AI. This work will help to inform the decisions that we are making at the spending review.
The noble Baroness, Lady Wheatcroft, raised some incredibly important issues around skills, the change in the modern workplace and what we need to bring in to address that, working right through the education system—starting now with children through early years, primary and secondary, and into their college choices. She raised a fundamental point about the damage that—I am afraid—the party opposite did in government with the narrowing of the education curriculum. I can only reference the really important work that has been done by bringing music into schools and the direct relationship with maths skills, for example. Partly because of my background, of course, I stress that we already have many examples of service reform from across local government.
I know first-hand from my time leading Leeds City Council the powerful impact that targeted prevention can have. I am talking about pre-Covid days here. For example, in Leeds, we took the proactive decision to focus on early intervention and support. By doing this, in the area of children’s services, the council not only safely reduced the number of children going into care but made significant financial savings. This is proof of the benefits a prevention-first approach can have for individuals, communities, the taxpayer and, particularly in this case, children and families and the futures they bring together. There are so many other examples of this. We need to look and learn.
In conclusion, a more productive public sector means that we can deliver high-quality public services, achieve greater value for money, and move towards improving people’s lives—a win-win for everyone. It is through targeted action across all of these areas that we will make a lasting improvement to public sector productivity. Of course, the growth mission will be at the heart of everything that we do in this area.
I refer noble Members to the fact that we have an upcoming Budget at the end of this month. We need to look at this carefully. Most importantly, we have the promise of a multi-year spending review early next year. For too long, I am afraid, under the previous Government, all the public sector organisations had to rely on annual projections budgets. It is not a sustainable way to deliver good-quality public services. Value for money is important. Improving quality of life has to be absolutely paramount and needs to be central to the drive for change and improvement that we are striving to achieve.
There will be opportunity for more debate, but the Government are already putting things in place: establishing a new office of value for money; bringing in planning reforms; developing Skills England and, importantly, our industrial strategy; and, as I have said, the importance of the mission approach, particularly in this case the growth mission.