Water Companies: Regulation and Financial Stability

Wednesday 23rd October 2024 Westminster Hall

[Mark Pritchard in the Chair]

14:30

[Tim Farron (Westmorland and Lonsdale) (LD)]

I beg to move,

That this House has considered the regulation and financial stability of water companies.

It is an absolute pleasure to serve under your guidance this afternoon, Mr Pritchard. It is a real honour and privilege to have secured this debate on a matter of enormous importance to my constituents in Westmorland and Lonsdale and, quite clearly, to many around the room and beyond.

I wonder whether, in the aftermath of the 2019 general election, many pundits or politicians would have predicted that by the 2024 election water quality would be one of the top three doorstep issues, and a subject of discussion here and in the main Chamber within an hour or two of each other, and indeed within the same week as in the other place. That is exactly what has happened, and there are a number of reasons why.

First, leaving the EU meant that we needed to introduce our own legislation to replace what went before. In doing so, people, including MPs, looked under the bonnet, so to speak, for the first time and were horrified to see what was there: the sewage outflows into our rivers, lakes and coastal areas that had been long permitted.

Secondly, the last Government failed to take effective action to limit those outflows, allowing excessive dividends and bonuses on the one hand and inadequate infrastructure investment on the other.

Thirdly, the situation is objectively getting worse. Climate change, higher rainfall, inadequate regulation and failure to invest in infrastructure renewal means that 2023 saw a 54% increase in sewage spills compared to the year before.

Fourthly, and just as importantly, this issue has emerged because community campaigners across the country have resolved that they will not accept this appalling situation and have led the way in holding water companies, regulators and the Government to account. Organisations in our Westmorland communities, such as the Clean River Kent Campaign, Save Windermere and the Eden Rivers Trust—and many more, both in my communities and around the whole UK—have engaged in citizen science, heightened awareness and galvanised public opinion.

The Liberal Democrats have made this issue a priority, too. Water is so important to us that my right hon. Friend the Member for Kingston and Surbiton (Ed Davey) spent most of the general election campaigning about it—and, indeed, spent quite a lot of time in it! Having led my party through a previous general election, I know exactly how it feels to spend one’s campaign in deep water, and even, on occasions, up to one’s neck in poop.

I have the immense privilege of serving Westmorland and Lonsdale and being MP for, among others, Windermere, Ullswater, Coniston Water, Haweswater, Rydal Water, Grasmere, Brothers Water, the River Kent, the River Eden, the River Lune, many other rivers, and much of Morecambe bay. For us, water is deeply personal; it is precious to our biodiversity, our heritage and our tourism economy.

Failure to tackle the issue rightly raises passions, but the fault lies in the system. We have an industry financing model and a regulatory framework that are simply not fit for purpose. However, I do not want to demonise the people who work for water companies. Good, competent and decent people work for United Utilities in my community and for other companies across the rest of the country, on the ground and indeed underground. The same applies for those who work for the Environment Agency and Ofwat. They are good, hard-working and professional people working within a system that is badly broken, and that broken system has an appalling impact on communities in the lakes and dales of Westmorland.

I have a few figures to demonstrate the situation, courtesy of the Rivers Trust. Last year in Appleby, combined sewer outflows into the River Eden saw 46 spills. At Kirkby Stephen on the River Eden, there were 135 spills. At Staveley on the River Kent, there were 283 spills. At Tebay on the River Lune, there were 124 spills.

[Sarah Dyke (Glastonbury and Somerton) (LD)]

Will my hon. Friend give way?

[Tim Farron]

In one second. At Greystoke on the River North Petteril, there were 146 spills. I could go on, but I will give way to my hon. Friend.

[Sarah Dyke]

I congratulate my hon. Friend on his excellent speech. Data from Thames Water shows that Glastonbury and Somerton was the 16th worst constituency in England and Wales for sewage overflows. Does my hon. Friend agree that the commission should consider establishing pollution baselines and reduction targets?

[Tim Farron]

I absolutely agree. That reminds us that, of the over 464,000-plus spills that took place in 2023, most were legal and permitted—and most of them should not have been. We juxtapose this failure with the reality of money leaking out of the sector in the form of dividends and bonuses. Since privatisation, £78 billion has been paid out in dividends and, in the last four years, we saw £62 million paid out to company executives in bonuses.

[Helena Dollimore (Hastings and Rye) (Lab/Co-op)]

I thank the right hon. Member for giving way. He has a very beautiful constituency in the Lake district and has campaigned strongly on this issue. Would he therefore welcome this Government’s commitment to cleaning up the water industry and that they called in the water bosses within the first week of the Labour Government to say that investment must be ringfenced for infrastructure and not spent on bonuses, and will he be supporting the Water (Special Measures) Bill?

[Tim Farron]

First of all, I am merely, and happily, an honourable Member, although it is very kind of the hon. Lady to call me “right honourable”. Secondly, we welcome many proposals in the Bill. We have already tabled many amendments in the House of Lords because although we think that the Bill is a step in the right direction, a lot more could be done. I will make more of that in a moment.

It is worth saying, as we are talking about bonuses, that although there was a 54% increase in spills between 2022 and 2023, it did not rain 54% more in 2023 than in 2022; there was no justification for that increase— and yet, the bonuses happen. I have never worked in an industry where bonuses were the norm, but my understanding is that they are paid for success, not as a commiseration for statistically proven and repeated failures.

It is easy to be angry about all this—I am, and maybe it is essential to be so—but it is just as important to be constructive and seek solutions. The depth, seriousness and complexity of this crisis means that the only answers that will work need to be radical and ambitious. Today’s announcement of a water commission, which will consider these things, is welcome, but also a little frustrating. Do we really need to spend the best part of a year stroking our chins and pondering, when what is needed is radical action now? With respect, most of us pretty much predicted the likelihood of a Labour Government two years ago. Did the victory strike them as a surprise? Why were they not ready with a plan to deliver much sooner than this?

I have a similar view, as I have just suggested, about the Water (Special Measures) Bill. It contains many positives, including criminal liability for CEOs responsible for severe environmental failure, but it does not amount to the radical structural transformation that is so obviously needed. The British people rightly believe that they voted for a far more ambitious plan to be urgently delivered. Indeed, those who voted Liberal Democrat absolutely did vote for that, so we are determined to keep our word and fight for that action.

It seems obvious how regulation could be made better. Water industry regulation is fragmented, with environmental regulation done by the Environment Agency and business regulation done by Ofwat. That just does not work.

[Edward Morello (West Dorset) (LD)]

To my hon. Friend’s point about the need for a regulator with teeth, West Dorset saw 45,000 hours of sewage released into our rivers and beaches last year. The River Lim last year was declared “ecologically dead”. Does my hon. Friend have a view on whether the regulator should be able to impose fines on the water companies that reflect the damage they are doing to our natural environment?

[Tim Farron]

I completely agree, and I will answer that point more fully in a moment.

[Alison Griffiths (Bognor Regis and Littlehampton) (Con)]

Does the hon. Gentleman agree that the conflicting regulatory directives, which sit across all the different agencies that he has just referred to, are part of the problem and should be urgently addressed, without necessarily waiting for the long-awaited review?

[Tim Farron]

I thank hon. Members for both interventions. First, I agree with my hon. Friend the Member for West Dorset (Edward Morello). One problem is that Ofwat has fined three—or maybe four—water companies in the last year or so to the tune of about £170 million, and has collected precisely zero pounds and zero pence of those fines.

Secondly, to answer the point made by the hon. Member for Bognor Regis and Littlehampton (Alison Griffiths): absolutely—having regulators with conflicting responsibilities and rules is part of the problem. We have two inadequately resourced regulators with inadequate powers being played off against each other by a water industry that is far better resourced and able to run rings around very good people—but very harassed people—with the job of holding them to account.

The Liberal Democrats propose a unified and much more powerful regulator that we would call the clean water authority. That new authority would end the practice of monitoring being done by the water companies themselves—in other words, setting and marking their own homework. Let us put that right. Water companies should be charged the full cost of monitoring, but the monitoring itself should be carried out by an independent regulator so we can be sure that we are seeing the whole picture. Successive Conservative Ministers committed to changing that, but none actually did, so will the Minister commit the new Government to making that necessary change?

[Calum Miller (Bicester and Woodstock) (LD)]

It is a pleasure to serve under your chairship, Mr Pritchard. My constituents in Bicester and Woodstock are deeply concerned that Thames Water wants to hike its prices by more than 50% over the next five years. Just a month ago, I stood in the front rooms of constituents whose homes had been flooded with sewage because of the backing up of foul water drainage. Does my hon. Friend agree that the regulator he proposes, and which the Liberal Democrats support, should insist on and compel water companies to put performance before profit in their operations?

[Tim Farron]

Absolutely. That would be exactly the case at the heart of our community benefit model, which would be governed by a clean water authority. Profit would not be the overriding motive, and having the right people on board, including environmental campaigners in each area we are talking about, would keep the water companies honest and prevent the outrageous things mentioned by my hon. Friend.

The issue with the lack of reliability of data is key. It leaves us suspicious that the scandal could be even worse than we think. Just last week the BBC reporter that between 2021 and 2023, United Utilities illegally dumped sewage into Windermere for 165 hours, of which 118 hours were not reported to the Environment Agency. According to Environment Agency figures, United Utilities was the best-performing water authority in England in 2022 and, as a reward, it was allowed to raise £5.1 million extra by increasing bills, but—as we saw have now seen from last week’s revelations—United Utilities did not report hours and hours of illegal spill decisions made on the basis of inaccurate information.

When water companies mark their own homework, there are consequences; indeed, there are deep consequences for my communities in Westmorland. Some 7 million people visit Windermere every year, alongside the other 20 million who go to the lakes as a whole. I will state for the record that I happily swim in Windermere and have confidence in its safety in most places and at most times, but on behalf of our local community and especially our local hospitality and tourism businesses, I am deeply angry that the failure of the water company and its regulators to identify and solve these problems is not only beginning to damage our environment, but doing damage to the precious brand of the Lake district. That is why we need urgent, comprehensive, tangible and ambitious action, and why I am very grateful to my noble Friend Baroness Bakewell, who has tabled a Liberal Democrat amendment to the Water (Special Measures) Bill in the Lords to create a special status, with special protections, for Windermere.

[Monica Harding (Esher and Walton) (LD)]

Esher and Walton is a river community. The Thames borders our constituency, and the River Mole, which is a chalk stream, runs through it. The River Mole is one of the most polluted rivers in the country, and a quarter of the sewage poured into is from my constituency. This amounts to a failure that impacts on our health, our environment and our democracy. Why our democracy? Because it means the public believe that our Government turn a blind eye to this outrage and the ransacking of our public utility, therefore neither representing them nor serving their interests. Does my hon. Friend agree that this must not be allowed to happen again, and that we—and the new Government in particular—must deliver clean rivers and get this right?

[Tim Farron]

I very much agree. Regulation is the key. Welsh Water is not for profit and Scottish Water is publicly owned, yet they both still face major problems with sewage discharges. As my hon. Friend is getting at, there is evidence that although ownership and finances matter, effective regulation is the key, and we simply do not have that at present.

[Sir Julian Smith (Skipton and Ripon) (Con)]

I thank my constituency neighbour for giving way. Does he agree that as well as regulation, commissions and the initiative proposed by his party, there is a massive breakdown of trust within the industry? I spoke to one of the major investors in Thames Water and asked them to tell me the last time that the regulator, the Government and the company’s investors were in a room together, and that had never happened. Among all these initiatives, does the hon. Gentleman agree that getting people together to talk about their different equities and priorities, and how they deliver for the consumer, is also key?

[Tim Farron]

I agree. Although I also think an urgency is needed that many people who own water companies do not demonstrate, and that is why the Government need to lead—but I do think it is right that we get people together to make things significantly better.

Over the past 33 years, for every pound that water companies have spent on infrastructure and doing their job, 80p has drained away to finance debt and pay dividends. That is an appalling waste of billpayers’ money and water company assets. The separation of operating companies from parent companies, where the regulated operating company racks up huge debts to allow the unregulated parent company to pay huge dividends, has been a disgraceful scam. I am sure that my hon. Friend the Member for Witney (Charlie Maynard) will say more about how that model has done such damage to the customers of Thames Water; suffice it for me to say that that model of ownership must cease. For the regulator to have stood idly by while that has happened is unacceptable, and for it not to step in as similar asset-stripping begins in other water companies is an abysmal dereliction of duty by it and the Government.

What is to be done? I just want our waterways to work and to be clean and safe. I am not convinced that renationalisation would be a good use of public money. It could mean putting taxpayers’ money into the pockets of those who have already made so much money out of them without a single extra penny going to improving infrastructure. We propose a radical move away from the current model: water companies should be community benefit corporations, ensuring that all revenue goes into keeping environmental standards higher and solving the long-term problems of our network. Given that 45% of all water company expenditure has gone on debt financing and dividends, that kind of ownership and governance reform should mean that there is more money available for infrastructure renewal.

[Mr Gideon Amos (Taunton and Wellington) (LD)]

Will my hon. Friend give way?

[Tim Farron]

I will give way one final time, because I am running out of time.

[Mr Amos]

Will my hon. Friend congratulate the Friends of French Weir Park in Taunton for helping to get bathing water status for the River Tone? Is it not a scandal that after £4.25 billion was paid by Wessex Water in dividends, the situation may arise whereby that status is removed because the Environment Agency and the water company will not have enough money to invest in improving river quality over the next few years?

[Tim Farron]

I absolutely endorse the work of the campaigners in my hon. Friend’s community. Those on the banks of Coniston Water have done the same in our area, raising the bar and the standards under the current regulatory framework, inadequate though that is.

It is clear that Thames Water has more than met the threshold to be taken into special administration, and I suspect that we will hear more about that later. As for the other water companies, the current regulatory framework seems to leave them immune, despite their repeated failure to meet basic obligations to prevent sewage from being dumped in our lakes, rivers and coastal areas, and even on the streets of many of the villages in my communities.

Under the current rules, to remove the licences to operate of the other companies, the regulator would need to serve a 25-year notice. I am grateful to my noble Friend the Earl Russell for proposing a Liberal Democrat amendment in the Lords that would take that ludicrous notice period down to just six months for an environmental failure. I hope the Government will accept that amendment; if they do not, I will table it in the Commons. Our vision is that the new, more powerful clean water authority would have the power to strip all water companies of their licence to operate within six months and then migrate them to the community benefit model. We believe that it is time for the British people to get a clean water system under which they get what they paid for, their hard-earned money is not siphoned off by overseas merchant banks, and their precious waterways are not infected, outrageously, with untreated sewage.

I represent what I would argue is the most beautiful part of England. One of the reasons it is beautiful is that it is also the wettest bit of England. The failure of Governments of different kinds, and the regulators and water companies, to tackle storm overflows was always going to hit hardest in the places with the most storms. That is why we are frustrated that the Conservative Government, who denied that the problem existed, seem to have been replaced by a Government who have acknowledged the problem but have announced that they are going to ponder it very hard for a bit. It seems to me that the problem is very obvious, and therefore so are the solutions. I call on the Government to act ambitiously and comprehensively, and to do so now, without delay.

[Several hon. Members rose—]

[Mark Pritchard (in the Chair)]

Order. Let me make a few housekeeping points. We will have an informal three-minute limit, but if colleagues intervene a lot and we are running out of time, I may have to make a formal ruling from the Chair, which will mean that any interventions add a minute to the time of the Member who is speaking.

Can I just say that when colleagues attend debates in this Chamber, or any other debate, they really should wait for the end of at least the first speech, having intervened, before leaving? The person who left the Chamber is not here to hear that ruling, but I offer it as a gentle reminder for other colleagues. Also, when Members make a speech, they should remain in the Chamber until they have heard two other speakers before leaving.

My final observation from this debate is that if colleagues come in—[Interruption.] Order. Forgive me, but the hon. Member for Taunton and Wellington (Mr Amos) might want to hear this. If an hon. Member comes in halfway through the opening speech, they should not expect to intervene, having not heard at least the introduction and some of the preamble to the substantive points.

I hope that is helpful. I share it from a point of weakness, having myself made all of those mistakes and many more over many years. We will have an informal limit of three minutes to start. I call Grahame Morris.

14:50

[Grahame Morris (Easington) (Lab)]

Thank you for calling me, Mr Pritchard. It is always a pleasure to serve under your chairmanship.

I congratulate the hon. Member for Westmorland and Lonsdale (Tim Farron) on securing this important debate. There is no doubt about it: his constituency is blessed with some of the most stunning natural beauty in the world, never mind the country, from the fells and woodlands to the Lake district, a UNESCO world heritage site. The illegal sewage dumping at Windermere by United Utilities does not just shame our nation; it should be considered an ecological crime, and those responsible must be held accountable and face the full force of the law.

Although the Lake district is world renowned, I am equally proud to represent a hidden gem: the Durham heritage coast—or, to be precise, the east Durham heritage coast. Our magnificent magnesian limestone cliffs offer spectacular views of the North sea and in the summer the coastal grasslands are alive with rare wildflowers, creating a habitat for the Durham brown argus butterfly and other wildlife. That coastline, once scarred by industrial waste from coal, has been reclaimed by nature, yet now it faces a new threat: sewage.

Sewage overflows, far from being a rare event, have become routine in the water industry. In 2023, Northumbrian Water discharged raw sewage for over 280,000 hours in 46,492 incidents, including into the bathing waters off Seaham and Crimdon in my constituency. The environmental disaster is compounded by the economic abuse by water companies. Since privatisation in 1989, companies such as Northumbrian Water have neglected infrastructure while accumulating staggering debts to pay out dividends.

[Richard Burgon (Leeds East) (Ind)]

My hon. Friend mentions his local water company. People in Leeds and Yorkshire feel ripped off, and it is no wonder, as Yorkshire Water has just announced its intention to increase prices by 35% by 2030. Does he agree that that is a compelling reason why the water companies should be brought into public ownership, so that they can put public service, the public good and environmental good ahead of the accumulation of profits for shareholders?

[Grahame Morris]

I thank my hon. Friend for that intervention. Indeed, Northumbrian Water is not alone. Across the industry, financial mismanagement has gone hand in hand with environmental failure. Northumbrian Water alone has built up £3.5 billion in debt while paying out £4.1 billion in dividends to shareholders. That means that 19% of consumers’ bills in my region go towards servicing debt.

I welcome the Government’s Water (Special Measures) Bill. Its provisions to block bonus payments for executives, require annual pollution reduction plans, and improve transparency on sewage discharges are crucial. The tougher penalties, including the threat of imprisonment for those impeding investigations, are a necessary step. But while we are moving in the right direction, I fear that will not be enough to address the scale of the problem. Yes, the Bill strengthens regulation, and it is certainly more robust than anything proposed by the Opposition now or when they were in government, but will it solve the underlying issues? I suspect that the answer to that one is no.

We cannot ignore the fact that the public are already paying the price for this industry’s failure. We pay through higher bills, polluted waters and an industry debt that now exceeds £60 billion. When the sector finally collapses under the weight of its own excesses, it will be the taxpayer who is left to pick up the pieces. I support the public ownership proposals. I think the costs are vastly exaggerated in the context of the scale of the challenge and the liability.

We must take steps now to fix the debt, pollution and infrastructure crises in the water industry, so we need to go further than is being proposed. Blocking executive bonuses is not enough. Without determined measures, the consequences will be higher bills for consumers, more money lost to debt repayment, and an industry that continues to prioritise profit over public good.

14:55

[Jeremy Corbyn (Islington North) (Ind)]

It is a pleasure to serve under your chairpersonship, Mr Pritchard.

Water is fundamentally a human right; everyone needs to use water at some point. The water companies, all now in private ownership, are responsible not just for the supply of water but, jointly with the Environment Agency, for river basin management, flooding and many other things. The private ownership of water since 1989 has resulted in £78 billion paid in dividends, mostly to foreign-owned companies, many of which do not pay tax in this country. It has resulted in a £60 billion debt collectively and £9.1 million has been paid to chief executives in utterly excessive salaries.

The argument for privatisation was that there would be more investment, and the water would be cheaper and the service more efficient. Well, that has worked out well, hasn’t it? We have massive levels of sewage discharged into rivers and the sea, lower-quality water all over, and less and less investment in many areas.

[Rosie Duffield (Canterbury) (Ind)]

Does the right hon. Gentleman agree that the 285,000 people who signed the petition about renationalisation that I helped to present to Downing Street a couple of years ago, particularly those in the beautiful coastal town of Whitstable, have been badly let down by Southern Water on a daily basis?

[Jeremy Corbyn]

I thank the hon. Member for that intervention. She put forward an excellent initiative at that time, calling for public ownership of the water industry. I will conclude my short remarks in a couple of minutes by addressing the question of public ownership.

I now want to refer to Thames Water, which covers my constituency and much of London and the south-east. It is one of the biggest water companies, the most indebted and the most inefficient, and it would be interesting to know how it survives. Two years ago, when even the Financial Times called for public ownership of the water industry and said that it was the norm around the world, I am sure it was Thames Water it had in mind.

Thames Water on its own has racked up £14 billion of debt. In 1989, on privatisation, its debt was zero. It has paid out £2.7 billion in dividends and £37 million in what it euphemistically calls internal dividends to its parent companies. The company could require as much as £10 billion to get its infrastructure up to regulatory standards. That would be compounded by the interest payments on its massive debt pile. My constituents suffer flooding and endless traffic disruption because of the lack of maintenance over many years. There have to be endless replacements of short sections of pipework, because there has been no proper planned investment programme.

My call is simply this. I am sure that the Government’s proposed regulatory regime would be better than what we have at present, and it is good that the Secretary of State acknowledges the issues facing the water companies and all of us as consumers around the country. However, I simply say that once more we are into a debate between a regulator and the water companies, who this morning claimed they could not invest because of the regulatory framework.

I think we should go back to the issue of public ownership. I have no idea where the figures given by the Secretary of State today came from; perhaps he can explain that. The reality is that under public ownership Parliament would decide the share value and the amount of compensation paid, which would have to take into account the inefficiency and waste of the companies, and people would be compensated with Government bonds at a fixed rate of interest. That would give us public ownership and control. I do not want an old-style nationalisation; I want community nationalisation.

I will finish by saying that were local authorities, the workers in the industry, local communities and the Environment Agency jointly involved in how the water companies are run, their performance would be a lot better than it is with distant shareholders raking in massive profits from our water supply.

15:00

[Mr Luke Charters (York Outer) (Lab)]

It is a pleasure to speak under your chairship today, Mr Pritchard.

I genuinely thank the hon. Member for Westmorland and Lonsdale (Tim Farron) for securing this debate. The previous Conservative Government weakened water regulation, let our rivers fill with toxic pollution and allowed companies to pay themselves with huge bonuses while household bills soared, which was shameful.

Many constituents in York Outer are disgusted by that situation. We have the beautiful Rivers Foss and Ouse flowing through our constituency. To watch both of those rivers being degraded is not only unforgivable but bewildering. The mismanagement and lack of regulation by the previous Conservative Government have created a plethora of issues.

I have had constituents writing to me since I was elected about the stench of sewage seeping into Rawcliffe, water pump failures near Haxby and concerns about flood alleviation in Fulford. Although the Tories are no longer in power, those issues are not water under a bridge; they still need to be fixed.

That is why today’s statement by the Secretary of State on the independent water commission is a great first step, and I am also delighted that my hon. Friend the Minister is tackling these issues at pace. At this early stage, my main suggestion is that we must take lessons from other regulated industries and regulatory failures within them when designing the future water regulation system.

When I was at the Bank of England, Sir Jon Cunliffe was highly regarded, so I warmly encourage him to look at the areas where there has been disjoin in the financial services regulator, and we should move to a centralised, smart regulator. For me, that involves looking at scrapping and replacing Ofwat. Perhaps Sir Jon could publish an interim view on that suggestion.

Although it is great to see so many people engaged in today’s debate, it is still frustrating to see that we are here. It is clear to me that the Government are turning the tide against chronic underinvestment in our water industries. Water companies must be regulated properly and the regulators must have the power to regulate the sector adequately, which must be the goal. If we can make that happen after 14 years of Tory failure, we will soon be sailing in smooth waters.

15:03

[Jess Brown-Fuller (Chichester) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard.

I thank my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) for securing today’s timely debate, on a day when the Secretary of State has made a statement in the House to announce an independent water commission. As I said during his statement earlier, the promise to fundamentally transform our water industry and clean up our waterways for good is welcomed and celebrated across the House. Our lakes and rivers are national treasures, yet water company executives have been degrading these resources to protect their own profits and shareholders, even while the companies themselves are drowning in debt.

The water system in England is at breaking point and water companies are not being held accountable for one of the worst environmental crises in the UK—the dumping of sewage into our rivers and lakes, and along our coastline. My hon. Friend said in his opening remarks that Ofwat has fined four or five water companies billions of pounds, but currently it has not collected a penny.

The damage done by these water companies is nowhere more apparent than in Chichester harbour, which is a site of special scientific interest and a national landscape but it is in unfavourable and declining condition, and desperately needs ambition to protect it.

The British public pay those companies not only to provide us with clean water but to ensure that there are safe and clean processes for waste water and sewage, while protecting our environment. Storm overflows are supposed to be exceptional, not the norm. During my election campaign, on the doorsteps I saw a real passion among constituents for addressing the problem of water pollution and sewage dumping. It has been a pleasure to meet passionate environmental campaigners across the constituency, such as Friends of the Ems and the group carrying out citizen science on the River Lavant. The Ems and the Lavant are both precious chalk streams. The UK is lagging far behind other European countries in water quality and the safety of our waterways, and our polluted rivers and lakes are becoming an anomaly.

At the time of privatisation, water companies were debt-free. However, over the past 35 years, as inflation and interest rates have risen, the debt burden on UK water companies, including Southern Water which serves my constituency, has grown significantly, in particular because much of that debt is linked to the retail price index. Borrowings across the sector now total about £68 billion and yet, during the same period, water companies have paid at least £78 billion in dividends to shareholders.

Earlier this month, an investor presentation posted on Southern Water’s website revealed that the company is seeking to borrow up to £4 billion from investors to offset £3.8 billion in debt over the next five years. In addition, the company has proposed a staggering 73% increase in household bills over the same period. To mitigate its debt, Southern Water is planning large-scale investment in the Havant Thicket reservoir, which would introduce recycled waste water into a spring-fed drinking water supply through a process called reverse osmosis. The process has never been used for drinking water in the UK before, and is typically found in severely water-stressed landlocked countries. Although the south-east has been designated officially as water-stressed, and we need to see reform to reduce abstraction on rivers such as the Ems, smaller and more environmentally sustainable solutions are available, but they are not being explored, because they cannot be offset against the company’s debt.

[Dr Danny Chambers (Winchester) (LD)]

On the water-stress levels in Southern Water—our constituencies share the same water provider—it is worth acknowledging that a fifth of water is lost to leaks. We have just heard that Southern Water is in discussions with a company in Norway potentially to provide water to be tanked over here from Norwegian fjords to deal with future droughts and water shortages. Over a long period, that is an absolute failure to plan, to invest in infrastructure and to provide reservoirs such as the one we are speaking about. It is clearly a failure of regulation as well.

[Jess Brown-Fuller]

I absolutely agree with my hon. Friend that we should invest in fixing our existing infrastructure, rather than shipping over large quantities of water, which I am sure is not financially stable.

A company outside the water industry operating in that manner would not be able to get away with it, so why can Southern Water and other water companies? The development of the Havant Thicket would affect not only my constituency, but 18 constituencies across the south of England. Furthermore, it will create a national blueprint for all water companies. The project will cost a staggering £1.2 billion, without any comparable investment in waste-water management, which is sorely needed.

To be clear, I am not opposed to new reservoirs. Portsmouth Water is bringing forward the first reservoir that this country has delivered in 30 years. While public confidence in water companies and the methodology of investment is at an all-time low, however, it is hard to have faith that that company will deliver the project without an impact on residents’ water bills in future. Southern Water’s plan to invest in a huge experimental project as a way to offset its debt is not a sustainable financial model.

Few scandals illustrate the failure of the previous Government as clearly as the state of our rivers and seas. With 3.6 million hours of sewage dumping recorded last year, the system is rigged. It is time to transform this irresponsible industry into an accountable service that truly delivers for the public and the environment.

15:09

[Dr Danny Chambers (Winchester) (LD)]

We have talked about how disgusting, and what a public health issue it is to have sewage and other pollution pouring into our rivers, but I want to touch on the ecological damage. In Winchester, a chalk stream, the River Itchen, goes right through the heart of the city. Chalk streams are very rare, with fewer than 210 of them in the entire world, and 85% of them are in southern England. Many of them are designated sites of special scientific interest because their ecosystems and biodiversity are unique. I found out recently that the type of Atlantic salmon found in southern chalk streams are genetically distinct from Atlantic salmon in the rest of the world. Chalk streams have taken millions of years to form, and they can be destroyed in just a few decades by companies that are either breaking the law or working within the law but, because there is such a lack of regulation, causing great environmental damage. That is bad for public health, consumers, prices and the environment.

In my constituency, it is frustratingly clear that Southern Water, which is 82% owned by an Australian investment firm, has been prioritising profit over pollution prevention. It is that simple.

[Jeremy Corbyn]

Is the hon. Gentleman aware that the problem is exacerbated by over-abstraction upstream, particularly in chalk streams, which to survive environmentally need water flowing through them throughout the year? Many chalk streams are completely dry for some summer months, and that destroys all fish and all ecological sustainability.

[Dr Chambers]

The right hon. Gentleman makes a very important point: it is not simply pollution, but the over-extraction of those environments that is horrendously damaging to chalk streams.

The Liberal Democrats have long been calling for reform to water companies so that they have environmental experts on their boards to ensure they meet their minimum environmental standards before they are allowed to make profits. Putting social and environmental good at the heart of what they do is absolutely necessary to ensure that we are not still talking about how we are struggling with pollution, leaks and a lack of investment in 30 years’ time.

Thank you for calling me to speak in this debate, Mr Pritchard. Protecting our natural environment is one of the top priorities for probably all our constituents.

15:12

[Clive Jones (Wokingham) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) on securing this debate.

My constituency of Wokingham contains the Thames, the Loddon, the Emm brook and the Ashridge stream—rivers of varying size but equal beauty. The basic role of a Government is to keep their citizens safe and healthy, and protect the environment for future generations, yet the previous Government’s deference to corporate greed ahead of our waterways will remain a stain on their legacy for a long time.

The Rivers Trust put it clearly in its research:

“No single stretch of river”

in Wokingham

“is in good overall health.”

That is a real scandal.

The Conservatives utterly failed: they were unable to get a grip of this issue and allowed the scandal to persist. They provided no accountability or scrutiny to Ofwat—a regulator that has simply not held the worst polluters to account. Meanwhile, as my hon. Friend said, the water companies have paid out dividends of £78 billion, and yet our rivers are in the worst state they have been in for many years.

I welcome the announcement earlier today of a review of water companies, but I remind the Minister that voters in Wokingham and across the country voted for change on 4 July. The review must reflect that; it cannot be business as usual for water companies. My constituents and many others across the country will not accept massively increased bills to bail out water companies that are paying massive dividends to their shareholders.

15:14

[Sarah Green (Chesham and Amersham) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I begin by thanking my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) for securing this debate on something I know matters to a great many of my own constituents in Chesham and Amersham. The appalling examples of sewage-filled floodwater blighting lives in my constituency are part of a much bigger picture: a water industry that is not held to account by a regulatory system that is not fit for purpose. I therefore welcome today’s announcement of the independent water commission.

As a report published last year by Surfers Against Sewage states, part of the problem is the “severe budget cuts” that regulators have experienced, which have meant that even reported pollution events go uninvestigated and unpunished. Indeed, in 2022, the Environment Agency instructed its staff to ignore reports of low-impact pollution events as it did not have sufficient resources to investigate them. To the extent that that is the case, we get the environment we pay for—but that is only part of the problem. A report published by the previous Government in May this year makes clear that regulators must avoid drifting into unnecessary risk aversion. Internal culture should challenge excessive risk aversion, not promote it. One former employee of the Environment Agency described to me how some of those the agency regulates see it as a toothless tiger.

I suggest to the Minister that fixing the regulatory framework is not the only area worth looking at. There is also a need to make sure we are not creating more problems with our sewage system in the future. At present, our water companies are not statutory consultees on planning applications. Instead of asking whether the existing sewage infrastructure can support new developments, the right to connect means that water companies are required to make it work after the fact. That is surely nonsensical and something the Government can address as part of the work they are currently doing on the national planning policy framework.

I will close by thanking the many campaigners in Chesham and Amersham, including the River Chess Association, the Chiltern Society, Misbourne River Action and others, that have worked tirelessly on this issue. I pay particular tribute to local parish councillors who have found themselves at the forefront of these issues, becoming citizen scientists and experts in a way they never expected. I have been so impressed by their diligence and their dedication to doing their best to help their residents. However, they are volunteers committed to their environment and their communities; they should not be responsible for holding the water industry to account. That is what our regulators are for.

15:17

[Olly Glover (Didcot and Wantage) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) on securing this critically important debate. In my Oxfordshire constituency of Didcot and Wantage, over 90% of water infrastructure is managed by Thames Water—a de facto monopoly. The constituency impacts of the current arrangements are stark. In south Oxfordshire, sewage from storm overflows into water bodies exceeded 11,000 hours in 2023 during 810 spills. Recently, in East Hanney and Didcot, overwhelmed sewage pumps have led to flooding, including with contaminated water.

Thames Water was the worst performer in the country for leaks, leaking 570.4 megalitres a day last year, or more than 200 billion litres in total, equivalent to just under a quarter of its entire water supply. Analysts estimate that Thames Water’s current debt amounts to about 80% of the value of its business, making it the most heavily indebted of the water companies in England and Wales. At the same time, Thames Water has said that its bills need to rise by 59% between 2025 and 2030 or it will not be able to recover from its financial crisis.

It is in that context that proposals for a reservoir in my constituency are causing concern to local residents. Even putting to one side the fact that many are sceptical of the case for the reservoir, there is concern about whether Thames Water can be trusted to competently programme, manage and deliver what would be the second largest reservoir in the country and one of the largest civil engineering projects in the land.

[Mr Charters]

Since 2020, £41 million in executive bonuses has been paid out by companies such as Thames Water. That is a disgrace that the Conservatives allowed to happen. Does the hon. Gentleman agree that change is needed to stop companies such as Thames Water paying such ridiculous bonuses when their house is clearly not in order?

[Olly Glover]

The hon. Member has anticipated the next line of my remarks: that it is time for change on bonuses and many other aspects of the current workings of the water industry.

I am pleased to see the Government initiating today an independent review of the water sector, including the question of regulation, but I hope that they will also consider some bold Liberal Democrat ideas, such as setting legally binding targets to prevent sewage dumping in bathing waters and highly sensitive nature sites by 2030, giving local environmental groups a place on water company boards, and introducing a single social tariff for water bills to help to eliminate water poverty in the course of this and future Parliaments.

Thank you, Mr Pritchard, for the opportunity to speak. I look forward to hearing the Minister’s response.

15:20

[Dr Roz Savage (South Cotswolds) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. Clean water is a fundamental human right, so the exploitation by our water companies at the expense of the British taxpayer is deeply offensive to me and to my South Cotswolds constituents. It adds insult to injury that the same companies now expect taxpayers to foot the bill for improvements they should have prioritised over CEO bonuses and shareholder dividends. Since privatisation, shareholders have extracted a staggering £85 billion from the water and sewerage system in England and Wales. In my constituency, where the River Thames rises, Thames Water pumped sewage into the River Coln in Fairford for 3,391 hours—the equivalent of four and a half months—in 2022. Incidents that are meant to be exceptional happen on average more than three times a week. Dog walkers no longer feel comfortable walking their dogs along the riverbanks after one dog jumped into the water, got sick and died two days later. Across the constituency, sewage is flooding into houses and gardens and schools. That is simply unacceptable.

We need an ambitious, long-term, financially and environmentally responsible vision for our water industry as an essential—literally vital—public good, and that vision must be orientated towards good, clean water. Back in 2013, I was campaigning for the London super-sewer, paddling around under Putney bridge and looking appalled at the tampons and other solid waste coming out of an overflow under the bridge. It has taken more than 11 years to open even the first section of the London super-sewer. The best time to fix this crisis would have been 30 years ago, but the second-best time is now.

I am not letting water companies off the hook for a moment, but I would like to say that the vision must embody a holistic approach to water management. Housing developers can capture rainwater to reduce run-off. Farmers have a key role to play in keeping agricultural contaminants out of our rivers. We need action to stop forever chemicals from plastics and pharmaceuticals getting into our rivers and streams.

In short, we need to stop the incessant pollution of our natural world. Water connects everything. Clean water nourishes all life, while dirty water pollutes everything it touches—from otters, kingfishers and crayfish to our pets and ourselves. We need to put nature back at the heart of our decision making, as called for in my Climate and Nature Bill. The Liberal Democrats propose transforming water companies into public benefit companies—no more excessive bonuses and no more prioritising shareholders over customers. We would also like to see local environmental groups given a voice on water company boards. Some countries have even granted legal personhood to rivers, including the Whanganui river in New Zealand, the Atrato river in Colombia and the Magpie river in Canada. Potentially, we could have a person representing the river itself sitting on a corporate board.

The time is now to take bold steps to improve water company governance, invest in our infrastructure and protect our precious water resources for generations to come.

15:24

[Jim Shannon (Strangford) (DUP)]

It is a real pleasure to serve under your chairship, Mr Pritchard. First, I thank my friend the hon. Member for Westmorland and Lonsdale (Tim Farron) for tabling this debate. I think it is fair to start my contribution by also welcoming the Labour Government’s statement today in the House. It is certainly a step in the right direction, and we should welcome it and the objectives behind it. The Minister will be glad to know that I am going to give a Northern Ireland perspective. She has no responsibility for Northern Ireland, so I require no response from her, but I make the point anyway, because what has happened in Northern Ireland is very similar to what is happening to the hon. Member for Westmorland and Lonsdale, and I want to make that comment for Hansard.

In Northern Ireland, we have a very different system. Northern Ireland Water is actually a Government-owned company. Though we have a different system, we have the same issues. The Government-owned company says it does not have enough funding and needs a massive uplift to function. Measuring the funding needed to bring things up to scratch feels like turning a tap on—it just seems to run forever and we are never sure we can get to the end of it.

Where are we with this issue in Northern Ireland, and why is it important that we in Northern Ireland unfortunately share the problems that have been identified in this debate? The water and sewerage network in Northern Ireland needs some £1.2 billion in capital investment; that cannot be achieved in the short term. We have approached the Government—though that is a debate for a different day—on Barnett consequentials to ensure that we get the same funding equation as they do in Wales, for example, which would give us extra money to identify the issues. The Department for Infrastructure has indicated that some half a billion pounds has to be found for 2024-25. That is a big target.

The hon. Member for Westmorland and Lonsdale underlined the issues. Northern Ireland Water reported a £185 million shortfall in funding. Some 19,000 new properties, or nearly 50% of all applications, have not been connected to the main sewer system, which means that development companies and housing associations have to find the money to do that themselves.

What really annoys me is the large bonuses and the dividends for shareholders. I believe them to be obscene and immoral. The failures of water companies to deliver a reasonable service must be highlighted in this debate. It is important that we understand the nature of this debate and how it affects devolved matters, for different reasons and with different accountability.

The news that United Utilities repeatedly dumped millions of litres of raw sewage into Lake Windermere illegally is shocking, yet we are not really surprised. Only 31% of surface waters in Northern Ireland are classed as having good ecological status. That may be better than in some parts of England, but it is still not good enough.

We must tighten controls, but we must also try to ensure better value for money, as it is clear that the way things are in our water services throughout this great nation cannot continue much longer. When the Minister responds, I ask her for cognisance of the need for a UK-wide solution that includes the devolved nations. When there is crisis and that crisis is developing, it is important to find a solution. We take our clean water for granted in the UK, but we may not be able to do so for much longer unless we give this issue the priority it deserves. That must start today, in this House.

[Mark Pritchard (in the Chair)]

As the Opposition Front Benchers will know, the Liberal Democrat spokesperson and shadow Minister will get five minutes each and the Minister will get 10 minutes. The debate is due to finish at 4 pm; we were going to put a time limit on speeches, but some Members have left this debate early and some did not speak as long as expected. If Members who have not spoken want to make a brief intervention, you can do so over the next few minutes, but I ask you to please be brief. I think that is fair, given that I hinted at a voluntary time limit and that the debate has been well attended.

15:29

[Charlie Maynard (Witney) (LD)]

I am honoured to serve under your chairmanship, Mr Pritchard. I thank my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) for letting me wrap up this debate, and I thank all the speakers who spoke so well and eloquently about the places they represent and love.

I am the Liberal Democrat MP for Witney and a West Oxfordshire district councillor. Our area is a ground zero for pollution. The Windrush flows through Witney, the Evenlode flows through to the north, and Shill brook flows to the south. All flow into the Thames. All are repeatedly and heavily polluted. I work closely with Windrush Against Sewage Pollution, one of the best advocacy groups in the country, to get to grips with this problem. I have learned a lot from that group and from many of the other parish councils and community groups that work so hard locally, and I am grateful for everything they have taught me.

I will focus on financial stability, or the lack thereof, and on Thames Water, as it is the largest and the most unstable of the water companies. First, I will give some context. Thames Water has six holding companies stacked one on top of the other. Some of them are offshore; some are onshore. The top holding company, Kemble, has £1.2 billion of operating cash flows—that is, money coming in—and £18 billion of debt. Roughly £13 billion of the £18 billion is held by class-A bondholders, and Members will hear a bit more about them. This debt is expensive, and more than a third of all our customers’ bills are being spent on servicing the debt.

In July, S&P and Moody’s cut the credit ratings of the class-A bonds to junk and two notches below that. That action put the company in breach of its operating licence. Ofwat waved some limp celery at Thames Water and did very little. That opens up moral hazard because it means that other water companies and other companies in regulated sectors can do the same. On 5 August, the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for Kingston upon Hull West and Haltemprice (Emma Hardy), stated in reply to my written question that Thames Water’s financial position “remains stable”.

In early September, it became public that various funds, including the notorious Elliott Management, which pillaged Argentina and Peru, had bought large amounts of class-A debt at very discounted prices. On 13 September, the Under-Secretary of State replied to me again, saying that Thames Water “remains stable”. She noted that special administration was an option if any of three conditions were met, with one of the conditions being if

“the company is or is likely to be unable to pay its debts”

—pretty simple. On 26 September, both S&P and Moody’s slashed Thames Water’s class-A debt again. It was already two notches below junk; this time it went down a further five and six notches respectively. The words “death spiral” spring to mind.

A week ago, it was reported that Ofwat is meeting a creditor group representing the class-A shareholders to discuss restructuring the company’s debt. The condition that

“the company is or is likely to be unable to pay its debts”

has most definitely been met. The company’s cash burn is faster than previously forecast, and the company as is will likely run out of cash by December. Its class-A bondholders are desperate to avoid special administration as that would crystallise their loss and result in much of their debt being written off. However, the creditors are now negotiating with Ofwat to inject a relatively small amount of new capital in, cram down the other debt classes, resulting in perhaps a 20% to 30% debt write-down, flip some of their debt into equity, and then sell the company on to another buyer within 12 months, making a huge profit.

If the Government allow such a restructuring, they are effectively rescuing a group of lenders, including vulture funds, not the company. Instead of the bondholders having to write off billions of pounds of worthless debts, the Government will be giving ownership of the company to the vulture funds, which will then flip it at a profit. Such a route is neither sensible nor equitable for the company, the Government or our country. It is a lazy, short-term fix from which the Government can repent at leisure over the course of the parliamentary term. No one will be fooled by the Government claiming that in the short-term the market has fixed it, and no one should be panicked by bankers claiming Armageddon but, in reality, just driving their own agenda.

The special administration regime was set up for exactly this scenario. The Government should make use of it and place Thames Water into special administration, allowing for an orderly restructuring and reorganisation resulting in the sale of a clean company on the open market; whether that is nationally, mutually or privately is, of course, up to the Government, but that will allow a clean company to be in place. To be investable again as a sector, we need a clear regulatory framework that is transparent and enforceable against, where companies that make bad decisions know they will have to take the consequences. That will allow investors to fund water companies’ balance sheets so they can handle the very substantial investment spend that will be required over the next 10 years.

15:34

[Robbie Moore (Keighley and Ilkley) (Con)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Westmorland and Lonsdale (Tim Farron) on securing this important debate.

As has been acknowledged by all hon. Members, the UK’s waterways are the country’s lifeblood. When they are in a good condition, it is beneficial not only for the environment, but for public health. It is also crucial for biodiversity and local communities that rely on the waterways—not only for recreational purposes, but for tourism.

The last Government were determined to take a positive stance on improving water quality. To do that, however, we needed to understand the situation that water companies were in. That is why we specifically focused on increasing the monitoring of outfalls from the start, taking a monitoring rate for storm overflows from 7% in 2010 under the last Labour Administration to 100% at the end of 2023. In March 2024, we fast-tracked £180 million of investment that had to be allocated within the last financial year by water companies, with an expected reduction of 8,000 sewage spills in English waterways. We also linked shareholder dividends to environmental performance, quadrupled water company inspections and launched a whistleblowing portal for water company workers to report breaches.

[Joe Morris (Hexham) (Lab)]

Does the shadow Minister not feel embarrassed that it was his Government who beggared the Environment Agency and weakened regulators to the point where we had sewage flowing into rivers such as the Tyne and the Coquet in Northumberland? Does he not feel a little bit of guilt about trumpeting his Government’s apparently positive record?

[Robbie Moore]

I thank the hon. Gentleman for joining the debate; I see that he came in right at the last minute just to make that contribution.

My answer is no. When we were in Government, we absolutely wanted to embolden the regulators with as much power as they required, which is why we specifically linked dividends to environmental performance so that Ofwat had more power to hold water companies to account. Not only that: we increased the amount of funding allocated to the Environment Agency and empowered the whistleblowing portal so that employees within water companies, or indeed within the EA or any of the other regulators, could make their concerns known. In that way, we as the Government—and now the incoming Government—could make proper progress and ensure that proper, positive change was implemented to improve water quality.

The financial stability of the water companies is, of course, a serious issue, and that affects our constituents through not only potential price increases, but performance-related issues. Sensibly, Ofwat expects water companies to maintain a level of financial headroom to manage short-term volatility and shocks to their financial structures, and to meet their obligations and commitments, which are set both by Government and internally by the regulator. Above all else, however, consumers must be protected so I welcome the fact that Ofwat strengthened its powers to improve financial resilience. That includes stopping water companies from paying dividends when financial resilience is also at risk.

The new Government have said that cleaning up England’s rivers, lakes and seas is a priority and to achieve that the Water (Special Measures) Bill has been introduced through the House of Lords into Parliament. Perhaps I should not have been so surprised that that is effectively a reworked version of the policies introduced under the last Government. In the Bill, the Government pledge to introduce new powers to block bonuses for executives of water companies that pollute our waterways —something announced by the last Conservative Government. However, the powers are not quite the promises constantly regurgitated by the Labour party when they were out on the doorstep— they were telling many of their voters that water company bosses would end up “in the dock” if their water company had been falling foul of environmental permitting obligations. The Water (Special Measures) Bill simply does not achieve that. By introducing the Bill, the new Government have frustrated not only campaigners but investors who want to invest in the sector.

Opposition Members spent many a day out on the doorstep also promising that they would take swift and bold action, but as we have seen from today’s announcement of a new commission, a new review and a new taskforce, the Government are just throwing the hard decisions into the long grass and simply kicking the can down the road.

[Mr Charters]

Does the hon. Member not welcome the Government’s appointment of former deputy governor of the Bank of England Jon Cunliffe? He had that expertise as deputy governor in financial stability. Does the hon. Gentleman not think that we need to look again at the whole system when it comes to the financial instability of water companies that he and his colleagues left behind?

[Robbie Moore]

I thank the hon. Gentleman for his intervention. I absolutely welcome anything that will improve the water sector. When I was a Minister in the Department, many issues needed to be addressed. I noticed that the hon. Gentleman commented in his speech that the Minister was working at pace, but the review will take at least a year to implement. I want to ask the Minister, as I did the Secretary of State in the House earlier: when will the positive recommendations from the review be implemented? We know that we are entering price review 2024, which exists from 2025 to 2030, but when is the industry likely to see any positive implications of the results of the commission that has been instigated today?

The Government have also confirmed that they will work with farmers to reduce agricultural pollution. I understand that Ministers have said that that will be through a series of

“proportionate and effective regulations, advice and incentives to deliver improvements”.

Can the Minister clarify how that will roll out? What new regulations does the Department anticipate bringing in? The farming budget is rumoured to be slashed by at least £100 million, so how will the Government incentivise farmers through public money to do the right thing in reducing run-off from fields and from their agricultural activities?

Will the Minister also outline whether any regulatory easement will be applied to water companies going forward? Many Members have raised concerns to do with Thames Water and the like, but I would like to specifically understand whether the Minister, her colleagues or the Secretary of State are looking at implementing a regulatory easement, as the Opposition would not want to see lower standards, the relaxation of environmental permits or a reduction in agreed levels of investment by any water company, irrespective of their financial circumstances.

Sound management of water companies is vital if customers are to receive the high level of service that they expect, and better environmental performance must be driven forward.

[Mark Pritchard (in the Chair)]

Order. Before I call the Minister, I should say that I allowed the Front Benchers to speak a little longer given that we have some time. If the Minister wishes to take interventions, she can, although she does not have to. I remind her that if she so chooses she can give time at the end—just a couple of minutes—to the mover of the motion Tim Farron.

Before I call the Minister, I hope that the hon. Member for Hexham will forgive my mentioning that it is a procedure of the House—a courtesy—to be in the whole debate and not come in after 65 minutes of a 90-minute debate and then make an intervention. It is not really the way to add to a debate or get the most out of it. I am sure he will take note of that. I call the Minister.

15:43

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I thank the hon. Member for Westmorland and Lonsdale (Tim Farron) for securing this debate. I will make sure he has time to sum up at the end.

In response to the shadow Minister, I think the Government’s record speaks for itself. Although he might wish to rewrite history, he cannot actually change history. If people want to see what his Government achieved, they just need to look at a storm overflow pipe or perhaps the level of pollution in every river, lake and sea. The public outrage and outcry over this issue is felt by everybody. It is certainly felt by this Government.

The level of pollution in our iconic lakes such as Windermere and in our beautiful chalk streams—we have had debates on this before—is outrageous. It is right that that has become more of an issue as time has gone on. That is a positive thing. We need to value our nature to a far higher level than we ever did before, and change is needed. Indeed, we were elected on a mandate to bring about that change. I am pleased that climate change was mentioned in the debate as well. Our problems will only increase because of our changing climate. Everywhere will perhaps not be quite as wet as the constituency of the hon. Member for Westmorland and Lonsdale, but places will certainly be getting to those kinds of levels.

I pay tribute to all the campaign groups and organisations that have come to meet me since I became the Minister with this responsibility. Those people are incredibly passionate and dedicated, often citizen scientists giving their spare time to work on this issue, because they passionately believe in it.

I must mention the wonderful speech of my hon. Friend the Member for Easington (Grahame Morris), the quietly spoken radical. I welcome his support for the Water (Special Measures) Bill. Never let his quiet ways lead to underestimating the secret radicalness within him. I hope that he will contribute to the water review and the consultation. We will welcome his expertise.

I pay tribute to a fantastic new Member, my hon. Friend the Member for York Outer (Mr Charters), who is a brilliant local champion. I value his contribution and I share his outrage at the levels of sewage he has seen in his constituency. I agree with the very good point he made: when we look at the consultation, we should look at other regulatory systems to see what works well and at what lessons can be learned, so that we create a system that is effective for the future. I hope that that is something that he, too, feeds into the consultation.

The Water (Special Measures) Bill has been mentioned a number of times. Before it comes to this House, I will organise drop-in sessions for Members of Parliament, who are welcome to talk to me about possible amendments and things that they would like to see in the Bill. I am happy to discuss that. I will of course make time for all the Front-Bench spokespeople to talk to me about it, too.

I have to say, however, that I was rather surprised to hear criticism by Members of Parliament of the idea of inclusion, of consultation with our commission. This Government believe in doing things with people and not to people. I will go so far as to say that the Government are not arrogant enough to believe themselves to have all the answers and expertise, especially with so many experts out there. The Government want to reset our water industry for decades to come and—this is in my DNA and is stated on the back of my Labour party membership card—we believe

“that by the strength of our common endeavour we achieve more than we achieve alone”.

This is my philosophy of working with other people—looking at systems of co-production, at how we can create consensus, and at bringing together different ideas and expertise. I was therefore a bit surprised to hear that the idea of consultation and including others should be ignored. In fact, the previous Government had many examples of being arrogant enough to presume that they knew all the answers. Indeed, that Government created systems and policies that have been found to be utterly failing, because they did not listen to what the general public or campaigners were saying.

There is little point to different Members of Parliament talking about how they value the contribution of campaigners and organisations—how welcome those are and how well they have worked with them—when they also say that the ideas and expertise of those campaigners and other people should not contribute to Government policy. Deeds, not words—if we value people’s expertise and contribution, we must let them work with us to shape legislation for the future.

This commission will work with those experts, will value their contributions and listen to them, and will shape something that is fit for the future. It will conclude in June and, after a couple of months of looking at the consultation and Government response, further legislation will be brought forward. Some things will need primary legislation to change, as the shadow Minister, the hon. Member for Keighley and Ilkley (Robbie Moore), understands, but some things can be done more quickly. That very much depends on the recommendations. If primary legislation is required, obviously such things will take longer.

An important point to make is that the Government want to do things in a different and inclusive way. I reach out to each and every one of the people in this Chamber to say: “We want to do this with you.” Yes, there will be different points of view across the Chamber and there will be different ideas about what the right answer is, but let us act collectively on this, not just as Members of Parliament across the House, but as campaigners, organisations and members of all groups, even my mum’s wild swimming group—I am sure they have many an opinion on what the right policy should be. Let us come together to create something meaningful that will command cross-party support and make a difference. That is what we want from this consultation. I will be honest: I am a bit disappointed that people think consulting and working with others is a bad idea.

While I am having a slight moan about things that are slightly disappointing, there seems to be a confused message coming from the Chamber. Members have highlighted that some of the drought plans for water companies are rather, shall we say, extreme, as they involve shipping water over from other countries to deal with droughts, but they also criticised building reservoirs. They cannot do both. If we are going to plan for droughts, we need to talk about building reservoirs and ensure we have the infrastructure we need for the future.

What have the Government been doing? In week one, we got all the CEOs together in a room and talked to them about how we fix the industry. From that meeting, we secured a change to the articles of association, ringfenced funding for vital infrastructure, and new customer panels, and strengthened the protection and compensation for householders. In the week after the summer recess, we introduced the Water (Special Measures) Bill, so in our first 100 days we have hardly been resting on our laurels.

A lot has been said about the independent commission. It is really important that it is independent, and I am pleased that my hon. Friend the Member for York Outer paid tribute to Sir Jon Cunliffe, whose expertise and financial record are second to none, so is somebody we can work with collectively to produce something really effective.

[Robbie Moore]

On the commission, would the Minister be kind enough to outline to the House the timings? The PR24 process, which Ofwat is looking at, comes into effect next year and will be in place until 2029-30. Will any positive recommendations from the commission take effect within that price review period?

[Emma Hardy]

The shadow Minister is pointing out the way we plan and look at our five-year cycle. Whether that is the best way of doing things is a whole other question. The answer is the one I gave earlier: it very much depends on whether things need primary legislation. Some things that change the regulator will not affect the price review framework. The price review framework is based on the amount of money that people will invest in infrastructure, and changes needed for the next five years. That does not mean that things relating to regulation and the rules cannot be changed. I am sure he understands that.

I reiterate the Government’s commitment to driving meaningful, long-term improvements in the performance and culture of the water industry. We want to deliver on our ambition to clean up our rivers, lakes and seas, and the actions I have outlined today are only the beginning. I am passionate about this issue, and am very pleased to be leading on it. In fact, I asked to become the Minister for it, and we do not always get what we ask for in politics. I reiterate my invitation to work with each and every Member here. I think consultation and collaboration are good things, and I hope all hon. Members will embrace that. I look forward to working with them to achieve the goal that we all share: cleaner rivers, lakes and seas.

15:53

[Tim Farron]

I see I have seven minutes—I will do my best not to use them all.

I first want to reiterate something I said at the very beginning of my opening remarks: I genuinely pay tribute to the people who work on the ground for the water companies—it is United Utilities in my neck of the woods—Ofwat and the EA. I think these debates can sometimes sound quite toxic to them. They work hard doing an important job, and they are victims of a system that it is vital we change. I am delighted that others have said the same thing today. I just want to put that on the record—particularly in relation to my local community.

I thank colleagues from all sides for their excellent contributions. They are people who are passionate about their own communities, the waterways in their communities and the voluntary groups working within their communities that are helping to highlight these issues.

I also thank the Front-Bench speakers—the Minister and the Conservative spokesman, the hon. Member for Keighley and Ilkley (Robbie Moore), but especially my hon. Friend the Member for Witney (Charlie Maynard), who made an absolutely fantastic contribution. His expertise is something we very much value; the people of Witney are lucky to have him and we are lucky to have him, too.

I will just reflect briefly on the Minister’s comments. I count her as a friend and respect her very much indeed. What she said about collaboration is absolutely right. However, I will make the observation—a relatively neutral observation—that the Labour manifesto was pretty thin across the board. I understand why that was. Maybe for the last two or three years they felt it was their election to lose and therefore the more information they put out there, the more chance they had of maybe throwing it all away. I do understand the politics. However, that does not really justify waiting several months to begin the process of taking action. So, a Government can be collaborative and consult, and take radical action early on. Nevertheless, I took her point and she defended the Government’s position and process on this issue very well.

Our view is simply that we will be and should be a constructive Opposition; we will challenge and we will seek to be constructive as we do so. But I will also say that we are encouraged—at least cautiously—by what we have heard today from both the Secretary of State for Environment, Food and Rural Affairs and the Minister herself.

Since I have time left, I will ask one extra thing. It is important that we tackle this issue from a national perspective, but there is also an issue in my local area that I think we can fix. Windermere receives an awful lot of coverage and rightly so. A fifth of the pollution in Windermere comes from septic tanks, including 89 package treatment works around the lakes, all of which could be relatively easily connected to the mains. I wonder whether the Minister would agree to meet me, United Utilities and representatives of the tourism and hospitality industry to see whether we could make that migration, up the standards and do something genuinely useful at the bottom level to improve the water quality of Windermere.

[Emma Hardy]

rose—

[Tim Farron]

If the Minister wants to say, “Yes”, she will meet me, I will be delighted to give way to her.

[Emma Hardy]

In the spirit of collaboration, which I have just spoken so much about, of course I will meet the hon. Member.

[Tim Farron]

Mr Pritchard, she’s a good ‘un. I thank the Minister very much indeed; I appreciate that.

Finally, I thank everyone who has contributed to the debate, but I also thank you, Mr Pritchard. That might sound a bit smarmy, but you and I go back a long way. I wish that when I first started here I had a Chair of Westminster Hall debates who talked us through the process as well as you have today. I am very grateful to you, and indeed to everybody else who has been here for this debate.

[Mark Pritchard (in the Chair)]

You will definitely be called first in the next debate, that’s for sure. [Laughter.] You have been here a long time; you know how to work the system. So, there we are. No—there is no system to work; we are neutral in the Chair. But thank you for your kind comments.

Question put and agreed to.

Resolved,

That this House has considered the regulation and financial stability of water companies.

15:56

Sitting suspended.