Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
My Lords, in the event of a Division in the Chamber, this Grand Committee will be adjourned for 10 minutes—but, let us face it, that is vanishingly unlikely.
Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024
(1 day, 4 hours ago)
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Lord Hunt of Kings Heath
That the Grand Committee do consider the Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, these draft regulations were laid before the House on 30 July 2024. This instrument forms an important part of the Government’s commitment to accelerate the deployment of carbon capture, usage and storage—CCUS. We believe this to be critical to deliver clean energy and accelerate our net-zero journey. As the Government recently announced, CCUS is vital as we enter a new era of clean energy, investment and jobs. By boosting this tried and tested technology, the UK has the potential to become a global leader in CCUS, delivering good jobs and economic growth for decades to come.
A critical element of the CCUS mix is the successful deployment of power CCUS—gas-powered electricity generators fitted with carbon capture technology. Power CCUS will complement the rollout of renewable energy, providing secure, flexible, non-weather-dependent low-carbon electricity, critical for a reliable energy system and achieving our mission of clean power by 2030.
The Government are committed to incentivising the deployment of power CCUS and this instrument will enable future payments to power CCUS plants under the business model known as the dispatchable power agreement. This agreement—the DPA—is the contractual framework to support power CCUS. It has been designed specifically to incentivise the investment and deployment of power CCUS in the UK. The DPA is a type of contract for difference and, like a contract for difference, uses the electricity supplier obligation to fund support payments. This levy is calculated and managed by the CfD counterparty—the Low Carbon Contracts Company—and collected from electricity suppliers, who are able to pass the costs on to their customers if they choose to do so.
In addition to the existing renewable contract for difference contract design, the DPA business model will provide an alternative payment based on a power CCUS generator’s availability. This availability payment is based on a generator’s availability of electricity generation and carbon capture, and associated carbon dioxide transport and storage network costs. Under the DPA terms, payments will reduce proportionally to reflect any reduction in a generator’s capture rate or generation.
The payment is made whether a generator dispatches power or not. This ensures that a CCUS power plant will run in response to market signals, ahead of unabated gas plants, but will not surpass cheaper renewables. This arrangement will strengthen security of supply, ensuring that a source of reliable low-carbon energy is available when the wind does not blow and the sun does not shine.
Let me be clear: this proposed instrument enables only certain types of payments under the renewable CfD and DPA contracts to be funded by the supplier levy. Any future support offer to a project will be subject to rigorous negotiation with partners. Any decision to award support will be subject to value-for-money and subsidy control tests to ensure best value for money for consumers.
In effect, this statutory instrument amends the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014. The amendments will allow the payments made under the DPA to be funded by the supplier levy, by changing how the supplier levy rate calculation works in the regulations.
First, Regulation 4 relates to the way an electricity supplier’s daily contributions paid to the CfD counterparty is calculated. This instrument amends Regulation 4 to enable the definition of generation payments such that the supplier obligation can be charged for payments related to the activities of a dispatchable power plant fitted with CCUS technology. This includes amendments to take into account: the electricity generation capacity made available by a generating station on a given day; a generating station’s achieved carbon dioxide capture rate or capture capacity on a given day; the incurred CO2 transport and storage capital costs incurred for transporting such captured carbon dioxide and if required, associated carbon dioxide; transport and storage network revenue shortfalls proportionate to a DPA-supported generating station which arose on that day.
Secondly, Regulation 7 of the 2014 regulations sets out how the CfD counterparty estimates the quarterly obligation payment that electricity suppliers will be required to provide to the counterparty. This instrument amends Regulation 7 to ensure a consideration of matters related to a dispatchable power agreement-supported generating station are taken into account, including the carbon dioxide transport and storage network capital costs and, if required, revenue shortfalls, and the amount of carbon captured.
Together, these amendments allow a CfD counterparty to estimate, raise funds and ultimately pay a DPA-supported CCUS-enabled power plant. The existing payment calculation, based on the amount of electricity generated by renewable CfD-supported generating stations is retained and unaffected.
These proposals have been long considered as the power CCUS business model has been updated. This has included update publications in December 2020, May 2021, October 2021 and April 2022. The instrument was formally consulted on from December 2023 and received a range of responses from electricity suppliers, power operators, a trade body and a consumer-focused charity. Respondents were broadly in agreement with the principles laid out. My department continues to engage closely with industry in the development of the CCUS sector.
In summary, this instrument represents a positive step forward in the delivery of the Government’s ambitious CCUS programme and 2030 clean power mission. It will lay the regulatory groundwork to encourage the deployment of power CCUS and begin to unlock the great economic and jobs opportunities that we see coming from this important development. I beg to move.
The Earl of Effingham (Con)
My Lords, His Majesty’s Official Opposition welcome the Government’s Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024. These regulations will enable licensed electricity suppliers to make payments to natural gas power plants fitted with carbon capture, usage and storage—also known as CCUS—technology. In 2023, we introduced funding for CCUS with the plan to make up to £20 billion available to support the early development of CCUS, so we welcome this step as an essential part of reaching the net-zero target, and we are pleased to see that the current Government are continuing our work in this area.
On these Benches, we both aspire to and understand the need to reach net zero, and there is indeed consensus from all on the 2050 target. The use of carbon capture technology will play an important role in achieving that goal, and this amendment introduces incentives for suppliers to produce low-carbon electricity—an objective with which we agree.
However, we seek clarification from the Minister. When in government, we committed to deploying CCUS technology in four industrial clusters by 2030. Can he please inform the Committee as to whether his Government will also commit to working towards and reaching that same target?
Lord Hunt of Kings Heath (Lab)
My Lords, I welcome the noble Earl’s welcome for the statutory instrument. He is right that a lot of the original work was undertaken by the previous Government. I think I said in my opening speech that most of the consultations took place under the auspices of the previous Government, so there is clearly consensus about the key role of CCUS.
I had expected greater attendance and that we might have debated the principles of CCUS. For me, it is an essential part of the transition. We will need gas-powered electricity generators for years to come. They give the flexibility we need in relation to renewables and having nuclear as a baseload. If we can have it abated then that would clearly decarbonise our energy structure, but it can also play a key role in the industrial use of energy.
On the noble Earl’s question, I say gently to him that, in a sense, the previous Government’s £20 billion seemed rather a theoretical figure. We have had to work hard with our colleagues across government to get to the almost £22 billion that we have announced. Clearly, that money is to be spent on building the foundations for the industry. Basically, the funding we have announced is being invested in our first projects. These include the underpinning CO2 transport and storage networks and three CO2 capture projects. Other projects will join later, but these are subject to agreement across government. Of course, the noble Earl will know that we will have the Budget and spending review decisions very shortly. I will have to wait till those decisions are made before I respond on where we will go next.
I thank the noble Earl for his general support for this instrument. I believe we need as much political consensus as possible in relation to net zero, and the general support for CCUS is very welcome.
Carbon Dioxide Transport and Storage (Determination of Turnover for Penalties) Regulations 2024
(1 day, 4 hours ago)
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Lord Hunt of Kings Heath
That the Grand Committee do consider the Carbon Dioxide Transport and Storage (Determination of Turnover for Penalties) Regulations 2024.
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, these regulations, which were laid before the House on 30 July, are technical but, we believe, necessary. They are part of the implementation of the economic regulation framework for carbon dioxide transport and storage established in the Energy Act 2023.
I do not need to repeat what I said earlier about the potential of CCUS, but one of the key points here is the potentially monopolistic characteristics of carbon dioxide pipeline transportation and storage infrastructure. A framework of economic licensing and regulation is necessary to prevent anti-competitive behaviours by infrastructure operators and ensure protections for users and consumers.
Under this framework, an operator of a carbon dioxide transport and storage network requires a licence that permits charging users of the network a fee for delivering and operating the network. The licence will determine the “allowed revenue” for a transport and storage operator, reflecting its efficient costs and a reasonable return on its capital investment. The economic regulator, Ofgem, will oversee charges and determine whether costs can be passed on to users in accordance with the agreed economic framework.
To ensure that the economic regulation framework operates as intended, Ofgem has enforcement powers to ensure compliance with licence conditions and provide appropriate redress for any regulatory breaches. Such redress includes the ability for Ofgem to impose financial penalties on licence holders for contraventions of the licence, up to a maximum amount of 10% of company turnover. That the maximum amount of penalty cannot exceed 10% of company turnover is established in the primary legislation; the regulations that we are discussing today specify how a company’s turnover is to be determined for the purpose of calculating the maximum amount of penalty that could be imposed.
The amount of financial penalty imposed will not automatically be set at the maximum; the maximum penalty of 10% of turnover is a cap, not a target. Any penalty imposed should be reasonable and appropriate, considering all the circumstances of the case. The regulations before us today set out that turnover is to be calculated based on the revenue from the company’s ordinary activities, excluding trade discounts, VAT and other taxes. This includes revenue from goods and services provided by the company, whether authorised by the licence or not.
The turnover is usually based on the company’s revenue for the business year preceding the date of notice of the penalty. However, if the business year is not 12 months long, the turnover is adjusted proportionally. This is consistent with general accounting practices. Any financial assistance from public bodies or publicly owned companies that is directly linked to the company’s ordinary activities, or is provided under a carbon dioxide transport and storage revenue support contract, is included in the turnover calculation.
Ofgem is required by the primary legislation to prepare and publish a statement of policy outlining its policy and approach to enforcement and penalties in the carbon dioxide transport and storage sector. This statement of policy should include the factors and circumstances considered in decisions on whether to impose a financial penalty and in determining the amount of any financial penalty. Ofgem has consulted on documents explaining how it will conduct its enforcement activities and issue penalties in its role as the economic regulator of the CCUS sector. The consultation closed in early July; Ofgem has now considered and published its response.
To conclude, these regulations are technical but necessary, providing clarity on what is meant by “turnover” when determining the maximum amount of a financial penalty that can be imposed by Ofgem. We see these regulations as an essential part of the economic regulation framework for carbon dioxide transport and storage, designed to overcome market barriers to deploying CCUS infrastructure in the UK and achieving net zero while protecting the interests of users and consumers of this infrastructure. I beg to move.
The Earl of Effingham (Con)
My Lords, these regulations are made using the powers created in the Energy Act 2023. They form part of the implementation of the economic regulation framework for CO2 transport and storage involved with carbon capture, usage and storage—CCUS—which we have just debated.
This measure will introduce a framework of economic licensing and regulation to prevent anti-competitive behaviour and to avoid the potential monopolistic characteristics of CO2 pipelines. Operators of carbon dioxide transport and storage networks will operate with licences that allow them to charge gas plants for using their CCUS services. This licence will determine the revenue that the CO2 transport and storage operators can receive. Ofgem will oversee the charges and determine whether the costs can be passed on to users.
As we have heard, Ofgem will have the power to address any regulatory breaches with a financial penalty of up to 10% of company turnover. However, it will not automatically be set that high; the 10% is a cap, not a target, and Ofgem will have to publish a statement of policy to explain any penalties.
His Majesty’s Official Opposition support this regulation. I will use the words of my colleague in the other place, as he put it so well:
“The regulations address a technical point arising from the Energy Act 2023 and follow on from the ambitions of the previous Government. This is a necessary measure to clarify the technical detail of how big the maximum fine can be, and we are 100% behind it”.—[Official Report, Commons, Fourth Delegated Legislation Committee, 9/10/24; col. 4.]
Lord Hunt of Kings Heath (Lab)
I am very grateful to the noble Earl. I emphasise two points. First, the 10% is a cap, not a target, as he rightly said. Secondly, Ofgem has now published its statement of policy, so we have the clarity that industry needs. Having said that, I am most grateful to him for his support. I beg to move.
Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024
Baroness Blake of Leeds
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
Baroness Blake of Leeds (Lab)
My Lords, these regulations are made under the powers in the Financial Services and Markets Act 2023. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest in its second report, published on 5 September. This statutory instrument will enable the Financial Ombudsman Service —also known as the FOS—to charge case fees to claims management companies and relevant legal professionals when they bring cases to it on behalf of complainants.
The Financial Ombudsman Service provides a proportionate, prompt and informal service to resolve disputes between consumers and financial services firms. It is designed as an alternative to resolving cases through the courts, which can be expensive for both firms and consumers and is a lengthy process that can delay redress. The Financial Ombudsman Service is cost-free to consumers and funded by a combination of an annual levy on firms and case fees charged to firms that are subject to complaints.
The FOS is designed to be an accessible service, and indeed the majority of consumers raise complaints directly with it. However, some consumers choose to use claims management companies or law firms to bring claims to the Financial Ombudsman Service on their behalf. Collectively, these are known as professional representatives. These professional representatives normally take a proportion of any compensation awarded as payment for their services. This can reduce a consumer’s redress by as much as 30%.
Currently, these professional representatives cannot be charged for bringing cases to the FOS, despite the fact that they gain an economic benefit from doing so. Although many of these professional representatives act responsibly, there is evidence that some firms are exploiting the cost-free service provided by the FOS to consumers by flooding it with templated and poorly evidenced complaints. This behaviour negatively impacts the ability of the FOS to resolve other consumer complaints promptly. It also has a significant cost to industry, as firms are required to pay a case fee of £650, regardless of whether a complaint is upheld against them.
The Government have also noted concerns that firms experiencing this treatment may feel pressured into settling claims early by offering an amount below the £650 case fee in order to reduce the overall cost to the firm, even where they feel the claim is without merit.
To address these exploitative practices, this instrument will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will provide a financial incentive for those professional representatives to consider carefully the merits of any cases they are bringing on behalf of complainants and to avoid flooding the Financial Ombudsman Service with templated complaints. Charities bringing complaints on behalf of consumers are not included in this instrument and therefore will not be charged by the FOS and, of course, the FOS will remain completely free for consumers to access directly.
As it is already for financial services firms subject to complaints, the Financial Ombudsman Service will be responsible for determining exactly who is charged and the level of any fees. The FOS has consulted on its proposed detailed approach to charging fees to professional representatives in anticipation of this instrument. This proposed a fee of £250 to professional representatives for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, it has proposed that the fee will be reduced to just £75. In this way, it has sought to disincentivise bad behaviour, while minimising the impact of the changes on professional representatives bringing cases with merit. If this SI is approved, the Financial Ombudsman Service will confirm its final plans, having considered the responses to its consultation.
The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints promptly. I hope noble Lords will join me in supporting these regulations, I commend them to the Committee, and I beg to move.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I take this opportunity to thank my noble friend the Minister for explaining clearly what this statutory instrument is about. I declare an interest as a member of the Secondary Legislation Scrutiny Committee. I have some questions, about which I have already alerted the Minister. I actually alerted my noble friend Lord Livermore, thinking he would be answering on this, but I think he has passed them on.
There is a concern that, while it is laudable that no charges will be involved for claimants who make direct contact with the Financial Ombudsman Service, which has proven to be an excellent service for people who have particular issues in the financial world, notwithstanding that, some people like the services of professional representatives. A recent survey found that 43% of people were likely to be vulnerable prior to financial scams—we are all beset by them—and 85% became vulnerable in the aftermath as the reality of the situation hits them and their mental health may deteriorate. Will the Minister outline the real reason for eradicating, in many instances, the middle person, the professional representative? That would be very useful.
As we know, all professional representatives are regulated either by the Financial Conduct Authority or the SRA. Claims management companies are explicitly forbidden by regulations from bringing cases that do not have “a good arguable case”, or that are “frivolous or vexatious”. Therefore, firms are required to learn from the FOS approach to ensure that they do not continue to submit cases with an unrealistic chance of success. So why is the FOS not pushing regulators to enforce this more? The FOS would be better highlighting this to the regulators, which have the power to take heavy action against these firms. The ombudsman has the power to reject poor-quality submissions. Why is it not using this to a greater extent against the 10 firms that are particularly clogging up the system?
Finally, could my noble friend the Minister advise, or come back by way of writing, on whether the Government intend to ameliorate the situation? Sometimes, people like the services of professional agents, notwithstanding their level of financial security, and would appreciate that, and they do not think that it is fair that the cost that has been levied on the professional claims person should be passed on to them.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and appreciate the very full description of them that the Minister gave. As she said, they enable the Financial Ombudsman Service to amend its rules to charge case fees to claims management companies and legal professionals on behalf of complainants when a customer launches a complaint against a financial services firm.
On these Benches, we believe in the importance of fair and justified financial regulation and the ability for customers to issue a complaint against financial services firms when necessary. We recognise the benefit of this legislation, which seeks to address the economic benefit gained by intermediaries from bringing a case and the large volumes of poorly evidenced complaints submitted to the FOS.
We welcome the Government’s continuation of our work in which we introduced the Financial Services and Markets Act 2023, which enabled the Government to add to the list of persons to whom the FOS can charge fees. I would like answers to a couple of questions, but the Minister can write to me if need be. What measures are His Majesty’s Government taking to ensure that genuine and well-evidenced complaints continue to be submitted to, and heard by, the Financial Ombudsman Service? Can the Government confirm that this legislation will not result in increases in fees paid by consumers who have submitted a complaint?
I was interested in the points raised by the noble Baroness, Lady Ritchie, and look forward to hearing the Minister’s responses to them. As I said, we support these regulations, and I look forward to the response from the Minister.
Baroness Blake of Leeds (Lab)
I thank both my noble friend Lady Ritchie and the noble Earl, Lord Courtown, for their comments, in particular their close consideration of these draft regulations. It is important that everyone in the Committee has an opportunity to raise important points. I re-emphasise that this SI will play an important role in ensuring that the Financial Ombudsman Service can focus on promptly resolving consumer complaints and reduce the impact of spurious complaints on financial services firms.
I thank my noble friend Lady Ritchie for her detailed questions. I know from her comments earlier, before we came into this Committee, that her primary concern is for the consumer and to make sure that the necessary protection is in place. By way of reassurance, we are looking at the needs of vulnerable people, in particular, to make sure that they will not be disadvantaged by this amendment; that is the crux of what we need to address today.
I re-emphasise that the Government are clear that all consumers should be able to access the FOS without the need for professional representative support. Serious consideration has been given to that while developing this policy. The final outcome, as I mentioned earlier, is that charities, family members and advisory organisations will not be charged for this service; that is an important consideration. Another aspect here—it is reassuring, I hope—is that the FOS has a dedicated accessibility team as well as the additional support team, working specifically to ensure that complaints with additional needs are added. I hope that that goes some way to providing the reassurance sought.
The other question is: should the Financial Conduct Authority not be doing more to regulate professional representatives effectively in the first place? It is a very reasonable question. The Financial Conduct Authority and the Solicitors Regulation Authority play an important role in regulating, respectively, claims management companies and law firms. The Government strongly support the relevant regulators in taking robust action to tackle poor claims management behaviour wherever it arises.
There is an important point here that needs to be firmly pointed out. We re-emphasise: all consumers can access the service free of charge and without the need for any professional representative support. Where consumers choose to use a professional representative, there are rules in place to limit the amounts that these firms can charge. The FCA, which regulates claims management companies and professional representatives, and the Solicitors Regulation Authority, which regulates legal professionals, already restrict the fees that a professional representative can charge to consumers through their fee cap rules. The FCA has agreed that any fee paid by professional representatives to the Financial Ombudsman Service will be included in this cap; this will prevent fees being passed on to consumers in cases where the representative is charging at the maximum level, which the FOS understands to be the case already for most professional representatives.
If there is a feeling that I need to follow up in writing, I will of course do so, but, with those closing comments, I hope that we can move forward.
Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024
Baroness Blake of Leeds
That the Grand Committee do consider the Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024.
Baroness Blake of Leeds (Lab)
My Lords, as reported to the other place, this Government are determined to reinvigorate the UK’s capital markets to drive growth and investment. These regulations form part of that commitment by implementing a smooth transition to the reformed Solvency II regime, which governs the rules that maintain the safety and soundness of UK insurance firms.
This updated regime utilises the approach to regulation in the Financial Services and Markets Act 2000 to empower our regulator—the Prudential Regulation Authority—while addressing demand-side barriers by reducing insurers’ regulatory capital requirements, reducing pressuring on insurers’ balance sheets and incentivising them to invest in the UK. The regulations make necessary provision to maintain these reforms and the wider regulatory regime on the revocation of the relevant assimilated EU law on 31 December 2024.
In summary, this instrument preserves a significant cut in the regulatory capital buffer known as the risk margin, which came into force at the start of this year; it maintains the regulatory requirements on insurance groups and undertakings in Gibraltar; and it makes further amendments required as a result of changes to the Financial Services and Markets Act 2000 and other legislation. But I should reiterate in more detail what these regulations do, as laid out in the other place.
The regulations restate provisions on the calculation of the capital buffer known as the risk margin, which would otherwise be repealed at the end of this year. They also affirm the Prudential Regulation Authority’s power to make rules permitting insurers to adopt proportionate approaches in determining the risk margin. The regulations also provide that UK supervisory arrangements for Gibraltarian firms will continue unchanged until the broader Gibraltar authorisation regime, legislated for in the Financial Services Act 2021, comes into force.
The regulations empower the PRA to publish results for individual firms within scope of its life insurance stress tests—generally, the largest firms in the life sector. This is in addition to the sector-level results that the PRA has been publishing since 2019. This safeguard provides additional transparency to the market around the resilience of life insurers. It mirrors the approach taken for the results of stress tests for banks.
Finally, the regulations make a number of technical amendments to existing legislation, including the Financial Services and Markets Act 2000, to support implementation of the Government’s package of Solvency II reforms. For example, the regulations amend the definition of both insurance and reinsurance undertaking to remove references to assimilated EU law. They also remove the definitions of “third-country insurance undertaking” and “third-country reinsurance undertaking”, which are not relevant now that the UK is no longer part of the EU.
Other parts of the regulations make changes that are consequential to the proper functioning of the reformed regime, including for the necessary retention of the risk margin and the Gibraltar regulations, as already noted.
As I said in opening, these regulations are a vital aspect of ensuring a smooth transition to the reformed Solvency II regime by the end of this year. I hope that the Committee will follow the other place and endorse these technical but highly necessary reforms. I beg to move.
Lord Davies of Brixton (Lab)
My Lords, I recognise the circumstances in which these regulations have been brought forward. They are part of the Brexit dividend that we end up discussing—this carrying forward of regulations as a consequence of leaving the single European regime. I will use them as an opportunity to raise an issue of concern about the reassurance provided for people’s pensions.
As noble Lords will know, the benefits held by occupational pension schemes—specifically defined benefit schemes—are increasingly being shifted away from those schemes; they are being wound up. The benefits are being protected in one way or another. An increasingly popular way of protecting members’ benefits following the winding up of a scheme is bringing them out in the form of annuities. The annuity market is commercial, and I think people who hold annuities are often surprised at the way their futures are treated as a form of commodity to be bought and sold on markets and—relevant to these regulations—to be reinsured in ways that leaves them concerned about the security afforded for their future pensions. The particular concern, and these regulations are directly relevant, is those annuities where the reinsurance arrangements are dealt with by overseas entities. The distance between people’s expected future pensions and where the ultimate security for their pension rights lies is giving rise to increasing concerns.
There were suggestions earlier this year that the Bank of England would tighten supervision of life insurance—the annuity offices’ use of what are called funded reinsurance markets—and the extent to which this approach to securing people’s pensions will lead to riskier benefits securing members’ rights and riskier securities holding members’ rights, and the extent to which the ultimate protection is achieved not under UK provisions but by the provisions placed on overseas reinsurance facilitators. I raise that in the context of these regulations. It is an issue on which I have not given notice to my noble friend so I am not expecting an immediate response, but perhaps she could commit to giving some attention to the concerns held by ordinary policyholders about where, ultimately, the security for their benefits ends up when they are bought out of their occupational pension schemes. If necessary, perhaps we could have a meeting to discuss this in greater depth and with greater notice.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and thank the Minister for her very clear description of their use and how they will be put into practice. We on these Benches recognise the importance of this legislation in ensuring that insurance firms act safely and responsibly. The legislation also seeks to minimise the likelihood that insurance firms will come into financial difficulty. This instrument will allow for this by making a series of amendments to legislation—that is, to make certain that the UK’s insurance regulatory regime functions as planned following the implementation of the Solvency II reforms and the revocation of assimilated EU law at the end of this year.
The previous Government, following engagement with industry, created detailed plans to reform Solvency II, and we welcome this Government’s decision to continue our plans. These reforms were designed to allow for a prosperous insurance industry, while ensuring the soundness of firms by demanding that insurers hold enough capital to withstand. I have just one question for the Minister: can His Majesty’s Government confirm what conversations they are having with the insurance industry to ensure that these reforms are implemented properly? I again confirm that His Majesty’s Opposition welcome these regulations, and I look forward to the Minister’s response.
Baroness Blake of Leeds (Lab)
My Lords, I thank noble Lords for their interest in this area, which is exceptionally important to putting ourselves in the best possible position to take advantage of the different agendas that the Government are moving on.
My noble friend Lord Davies was absolutely correct that I am unable to answer his specific questions today —they are outside the scope of this SI. However, HMT officials would be pleased to write to him. I am sure that, if there is a need for meetings, we can move forward.
I welcome the comments of the noble Earl, Lord Courtown. I absolutely assure him that there is continued engagement with the industry at ministerial level. There is a recognition that it has taken a significant time for the process to get to this point. We are almost at the last hurdle, and it is crucial that we keep everybody informed and successfully move forward towards its conclusion at the end of the year.
I am sure the Grand Committee will join me in supporting these amendments to ensure a smooth transition to the reformed Solvency II regime.
Communications Act 2003 (Disclosure of Information) Order 2024
(1 day, 4 hours ago)
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Baroness Jones of Whitchurch
That the Grand Committee do consider the Communications Act 2003 (Disclosure of Information) Order 2024.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)
My Lords, this order was laid before the House on 9 September this year. The Online Safety Act lays the foundations of strong protection for children and adults online. I am grateful to noble Lords for their continued interest in the Online Safety Act and its implementation. It is critical that the Act is made fully operational as soon as possible, and the Government are committed to ensuring that its protections are delivered as soon as possible. This statutory instrument will further support the implementation of the Act by Ofcom.
This statutory instrument concerns Ofcom’s ability to share business information with Ministers for the purpose of fulfilling functions under the Online Safety Act 2023, under Section 393 of the Communications Act 2003. This corrects an oversight in the original Online Safety Act that was identified following its passage.
Section 393 of the Communications Act 2003 contains a general restriction on Ofcom disclosing information about particular businesses without consent from the affected businesses, but with exemptions, including where this facilitates Ofcom in carrying out its regulatory functions and facilitates other specified persons in carrying out specific functions. However, this section does not currently enable Ofcom to share information with Ministers for the purpose of fulfilling functions under the Online Safety Act. This means that, were Ofcom to disclose information about businesses to the Secretary of State, it may be in breach of the law.
It is important that a gateway exists for sharing information for these purposes so that the Secretary of State can carry out functions under the Online Safety Act, such as setting the fee threshold for the online safety regime in 2025 or carrying out post-implementation reviews of the Act required under Section 178. This statutory instrument will therefore amend the Communications Act 2003 to allow Ofcom to share information with the Secretary of State and other Ministers, strictly for the purpose of fulfilling functions under the Online Safety Act 2023.
There are strong legislative safeguards and limitations on the disclosure of this information, and Ofcom is experienced in handling confidential and sensitive information obtained from the services it regulates. Ofcom must comply with UK data protection law and would need to show that the processing of any personal data was necessary for a lawful purpose. As a public body, Ofcom is also required to act compatibly with the Article 8 right of privacy under the European Convention on Human Rights.
We will therefore continue to review the Online Safety Act, so that Ofcom is able to support the delivery of functions under the Act where it is appropriate. That is a brief but detailed summary of why this instrument is necessary. I should stress that it contains a technical amendment to deal with a very small legal aspect. Nevertheless, I will be interested to hear noble Lords’ comments on the SI. I beg to move.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for her introduction and for explaining the essence of the SI. We all have a bit of pride of creation in the Online Safety Act; there are one or two of us around today who clearly have a continuing interest in it. This is one of the smaller outcomes of the Act and, as the Minister says, it is an essentially an oversight. I would say that a tidying-up operation is involved here. It is rather gratifying to see that the Communications Act still has such importance, 21 years after it was passed. It is somewhat extraordinary for legislation to be invoked after that period of time in an area such as communications, which is so fast-moving.
My question for the Minister is whether the examples that she gave or which were contained in the Explanatory Memorandum, regarding the need for information to be obtained by the Secretary of State in respect of Section 178, on reviewing the regulatory framework, and Section 86, on the threshold for payment of fees, are exclusive. Are there other aspects of the Online Safety Act where the Secretary of State requires that legislation?
We are always wary of the powers given to Secretaries of State, as the noble Viscount, Lord Camrose, will probably remember to his cost. But at every point, the tyres on legislation need to be kicked to make sure that the Secretary of State has just the powers that they need—and that we do not go further than we need to or have a skeleton Bill, et cetera—so the usual mantra will apply: we want to make sure that the Secretary of State’s powers are proportionate.
It would be very useful to hear from the Minister what other powers are involved. Is it quite a number, were these two just the most plausible or are there six other sets of powers which might not be so attractive? That is the only caveat I would make in this respect.
Lord Stevenson of Balmacara (Lab)
My Lords, I begin with a comment that I hope will not be taken badly by either my noble friend the Minister or the large number of civil servants who have been involved in this Bill over the years. Colleagues may recall that the Bill took seven years to pass through the various processes and procedures of Parliament, including initial Green Papers and White Papers and then scrutiny by the Joint Select Committee, of which my noble friend opposite was also a member, and it seems slightly surprising and a bit odd that we are dealing with what seems to be an administrative oversight so late in the process. I do not expect a serious response from the Minister on that, but I wanted to put on the record that we are still very much aware of the fact that legislation has its faults and sometimes needs to be corrected, and we should perhaps be humble in expecting that the material we finally agree in Parliament is indeed the last word on things.
Having said that, I think I follow the noble Lord, Lord Clement-Jones, on this point: the subsequent legal analysis, which has identified a potential gap in provision on this instrument, tries to tidy it up but, in doing so, has left me a bit confused. I simply ask the Minister to make it clear to me when she responds that I am reading it correctly. The worry that has been exposed by this subsequent legal analysis is about the sharing of information when Ofcom is using its powers to address issues with the companies with which it has an engagement. Indeed, the whole purpose of the Bill is to ensure that companies are taking their burden of making sure that the Bill works in practice. There may be a deficiency in terms of what the Secretary of State has separate powers to do, but my confusion is that the Explanatory Memorandum says:
“The Secretary of State has several key functions relating to the implementation of the framework under the”
Online Safety Act. It is obviously sensible, therefore, that the sharing of information that Ofcom gathers is available for that. But is that all the powers of the Secretary of State or only the powers of the Secretary of State in relation to the Online Safety Act? The Explanatory Memorandum says:
“If Ofcom were not able to share business information relating to these areas”—
that is, the areas directly affected by the Online Safety Act—
“there is a risk that implementation and review of the framework could be delayed or ineffective”.
I accept the general point, but, to pull up the point made by the noble Lord, Lord Clement-Jones, is this an open invitation for Ofcom to share information that does not relate to its powers in relation to the Online Safety Act with the Secretary of State and, therefore, something for the Secretary of State to take on as a result of a slightly uncertain way of doing it? Are there are any restrictions to this power as set out in that paper? I could mention other points where it comes up, but I think my point is made.
The noble Lord, Lord Clement-Jones, also touched on the point that this is a power for Ofcom to share with the Secretary of State responsible for Ofcom, which is fair enough, but, as the Explanatory Memorandum points out:
“There are also certain functions relating to definitions conferred on Scottish and Welsh Ministers and Northern Ireland departments”—
presumably now Ministers—which may also be “relevant persons” of the Act, but we are not given much on that, except that
“these are unlikely to require business information for their exercise”.
I would like a bit more assurance on that. Again, that might be something for which the department is not prepared and I am quite happy to receive a letter on it, but my recollection from the discussions on the Online Safety Bill in this area, particularly in relation to Gaelic, was that there were quite a lot of powers that only Scottish Ministers would be able to exercise, and therefore it is quite possible that business activities which would not be UK-wide in their generality and therefore apropos of the Secretary of State might well be available to Ofcom to share with Scottish Ministers. If it is possible to get some generic points about where that is actually expected to fall, rather than simply saying that it is unlikely to require business information, I would be more satisfied with that.
Viscount Camrose (Con)
My Lords, I thank the Minister for setting out this instrument so clearly. It certainly seems to make the necessary relatively simple adjustments to fill an important gap that has been identified. Although I have some questions, I will keep my remarks fairly brief.
I will reflect on the growing importance of both the Online Safety Act and the duty we have placed on Ofcom’s shoulders. The points made by the noble Lord, Lord Clement-Jones, about the long-standing consequential nature of the creation of Ofcom and the Communications Act were well made in this respect. The necessary complexity and scope of the work of Ofcom, as our online regulator, has far outgrown what I imagine was foreseeable at the time of its creation. We have given it the tasks of developing and enforcing safety standards, as well as issuing guidance and codes of practice that digital services must follow to comply with the Act. Its role includes risk assessment, compliance, monitoring and enforcement, which can of course include issuing fines or mandating changes to how services operate. Its regulatory powers now allow it to respond to emerging online risks, helping to ensure that user-protection measures keep pace with changes in the digital landscape.
In recognising the daily growing risk of online dangers and the consequent burdens on Ofcom, we of course support any measures that bring clarity and simplicity. If left unaddressed, the identified gap here clearly could lead to regulatory inefficiencies and delays in crucial processes that depend on accurate and up-to-date information. For example, setting appropriate fee thresholds for regulated entities requires detailed knowledge of platform compliance and associated risks, which would be challenging to achieve without full data access. During post-implementation reviews, a lack of access to necessary business information could hamper the ability to assess whether the Act is effectively achieving its safety objectives or whether adjustments are needed.
That said, I have some questions, and I hope that, when she rises, the Minister will set out the Government’s thinking on them. My first question very much picks up on the point made—much better than I did—by the noble Lord, Lord Stevenson of Balmacara. It is important to ensure that this instrument does not grant unrestricted access to business information but, rather, limits sharing to specific instances where it is genuinely necessary for the Secretary of State to fulfil their duties under the Act. How will the Government ensure this?
Secondly, safeguards, such as data protection laws and confidentiality obligations under the Communications Act 2003, must be in place to guarantee that any shared information is handled responsibly and securely. Do the Government believe that sufficient safeguards are already in place?
Thirdly, in an environment of rapid technology change, how do the Government plan to keep online safety regulation resilient and adaptive? I look forward to hearing the Government’s views on these questions, but, as I say, we completely welcome any measure that increases clarity and simplicity and makes it easier for Ofcom to be effective.
Baroness Jones of Whitchurch (Lab)
I thank noble Lords for their valuable contributions to this debate. It goes without saying that the Government are committed to the effective implementation of the Online Safety Act. It is critical that we remove any barriers to that, as we are doing with this statutory instrument.
As noble Lords said—the noble Viscount, Lord Camrose, stressed this—the Online Safety Act has taken on a growing significance in the breadth and depth of its reach. It is very much seen as an important vehicle for delivering the change that the whole of society wants now. It is important that we get this piece of legislation right. For that purpose, this statutory instrument will ensure that Ofcom can co-operate and share online safety information with the Secretary of State where it is appropriate to do so, as was intended during the Act’s development.
On specific questions, all three noble Lords who spoke asked whether the examples given were exclusive or whether there are other areas where powers might be given to the Secretary of State. The examples given are the two areas that are integral to implementation. We have not at this stage identified any further areas. The instrument would change to allow sharing only for the purposes of fulfilling the Secretary of State’s functions under the Online Safety Act—it does not go any broader than that. I think that answers the question asked by the noble Viscount, Lord Camrose, about whether this meant unlimited access—I assure him that that is not the purpose of this SI.
My noble friend Lord Stevenson asked whether this relates only to the powers under the OSA. Yes, the instrument allows Ofcom to share information it has collected from businesses only for the purposes of fulfilling the Secretary of State’s functions under the Act.
On the question of devolution, the powers of Scottish, Northern Ireland and Welsh Ministers primarily relate to the power to define the educational establishments for the purpose of Schedule 1 exemptions. There are also some consultation provisions where these Ministers must be consulted, but that is the limit of the powers that those Ministers would have.
I am conscious that I have not answered all the questions asked by the noble Viscount, Lord Camrose, because I could not write that quickly—but I assure him that my officials have made a note of them and, if I have not covered those issues, I will write to him.
I hope that noble Lords agree with me on the importance of implementing the Online Safety Act and ensuring that it can become fully operational as soon as possible. I commend these regulations to the Committee.
Online Safety Act 2023 (Priority Offences) (Amendment) Regulations 2024
(1 day, 4 hours ago)
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Baroness Jones of Whitchurch
That the Grand Committee do consider the Online Safety Act 2023 (Priority Offences) (Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)
My Lords, these regulations were laid before the House on 12 September this year. The Government stated in their manifesto that they would
“use every government tool available to target perpetrators and address the root causes of abuse and violence”
in order to achieve their
“landmark mission to halve violence against women and girls in a decade”.
Through this statutory instrument, we are broadening online platforms’ and search engines’ responsibilities for tackling intimate image abuse under the Online Safety Act. More than one in three women have experienced abuse online. The rise in intimate image abuse is not only devastating for victims but also spreads misogyny on social media that can develop into potentially dangerous relationships offline. One in 14 adults in England and Wales has experienced threats to share intimate images, rising to one in seven young women aged 18 to 34.
It is crucial that we tackle these crimes from every angle, including online, and ensure that tech companies step up and play their part. That is why we are laying this statutory instrument. Through it, we will widen online platforms’ and search engines’ obligations to tackle intimate image abuse under the Online Safety Act. As noble Lords will know, the Act received Royal Assent on 26 October 2023. It places strong new duties on online user-to-user platforms and search services to protect their users from harm.
As part of this, the Act gives service providers new “illegal content duties”. Under these duties, online platforms need to assess the risk that their services will allow users to encounter illegal content or be
“used for the commission or facilitation of a priority offence”.
They then need to take steps to mitigate identified risks. These will include implementing safety-by-design measures to reduce risks and content moderation systems to remove illegal content where it appears.
The Online Safety Act sets out a list of priority offences for the purposes of providers’ illegal content duties. These offences reflect the most serious and prevalent online illegal content and activity. They are set out in schedules to the Act. Platforms will need to take additional steps to tackle these kinds of illegal activities under their illegal content duties.
The priority offences list currently includes certain intimate image abuse offences. Through this statutory instrument, we are adding new intimate image abuse offences to the priority list. This replaces an old intimate image abuse offence, which has now been repealed. These new offences are in the Sexual Offences Act 2003. They took effect earlier this year. The older offence was in the Criminal Justice and Courts Act 2015. The repealed offence covered sharing intimate images where the intent was to cause distress. The new offences are broader; they criminalise sharing intimate images without having a reasonable belief that the subject would consent to sharing the images. These offences include the sharing of manufactured or manipulated images, including so-called deepfakes.
Since these new offences are more expansive, adding them as priority offences means online platforms will be required to tackle more intimate image abuse on their services. This means that we are broadening the scope of what constitutes illegal intimate image content in the Online Safety Act. It also makes it clear that platforms’ priority illegal content duties extend to AI-generated deepfakes and other manufactured intimate images. This is because the new offences that we are adding explicitly cover this content.
As I have set out above, these changes affect the illegal content duties in the Online Safety Act. They will ensure that tech companies play their part in kicking this content off social media. These are just part of a range of wider protections coming into force next spring through the Online Safety Act that will mean that social media companies have to remove the most harmful illegal content, a lot of which disproportionately affects women and girls, such as through harassment and controlling or coercive behaviour.
Ofcom will set out the specific steps that providers can take to fulfil their illegal content duties for intimate image abuse and other illegal content in codes of practice and guidance documentation. It is currently producing this documentation. We anticipate that the new duties will start to be enforced from spring next year once Ofcom has issued these codes of practice and they have come into force. Providers will also need to have done their risk assessment for illegal content by then. We anticipate that Ofcom will recommend that providers should take action in a number of areas. These include content moderation, reporting and complaints procedures, and safety-by-design steps, such as testing their algorithm systems to see whether illegal content is being recommended to users. We are committed to working with Ofcom to get these protections in place as quickly as possible. We are focused on delivering.
Where companies are not removing and proactively stopping this vile material appearing on their platforms, Ofcom will have robust powers to take enforcement action against them. This includes imposing fines of up to £18 million or 10% of qualifying worldwide revenue, whichever is highest.
In conclusion, through this statutory instrument we are broadening providers’ duties for intimate image abuse content. Service providers will need to take proactive steps to search for, remove and limit people’s exposure to this harmful kind of illegal content, including where it has been manufactured or manipulated. I hope noble Lords will commend these further steps that we have taken that take the provisions in the Online Safety Act a useful further step forward. I commend these regulations to the Committee, and I beg to move.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for her introduction. I endorse everything she said about intimate image abuse and the importance of legislation to make sure that the perpetrators are penalised and that social media outlets have additional duties under Schedule 7 for priority offences. I am absolutely on the same page as the Minister on this, and I very much welcome what she said. It is interesting that we are dealing with another 2003 Act that, again, is showing itself fit for purpose and able to be amended; perhaps there is some cause to take comfort from our legislative process.
I was interested to hear what the Minister said about the coverage of the offences introduced by the Online Safety Act. She considered that the sharing of sexually explicit material included deepfakes. There was a promise—the noble Viscount will remember it—that the Criminal Justice Bill, which was not passed in the end, would cover that element. It included intent, like the current offence—the one that has been incorporated into Schedule 7. The Private Member’s Bill of the noble Baroness, Lady Owen—I have it in my hand—explicitly introduces an offence that does not require intent, and I very much support that.
I do not believe that this is the last word to be said on the kinds of IIA offence that need to be incorporated as priority offences under Schedule 7. I would very much like to hear what the noble Baroness has to say about why we require intent when, quite frankly, the creation of these deepfakes requires activity that is clearly harmful. We clearly should make sure that the perpetrators are caught. Given the history of this, I am slightly surprised that the Government’s current interpretation of the new offence in the Online Safety Act includes deepfakes. It is gratifying, but the Government nevertheless need to go further.
Baroness Owen of Alderley Edge (Con)
My Lords, I welcome the Minister’s remarks and the Government’s step to introduce this SI. I have concerns that it misses the wider problems. The powers given to Ofcom in the Online Safety Act require a lengthy process to implement and are not able to respond quickly. They also do not provide individuals with any redress. Therefore, this SI adding to the list of priority offences, while necessary, does not give victims the recourse they need.
My concern is that Ofcom is approaching this digital problem in an analogue way. It has the power to fine and even disrupt business but, in a digital space—where, when one website is blocked, another can open immediately—Ofcom would, in this scenario, have to restart its process all over again. These powers are not nimble or rapid enough, and they do not reflect the nature of the online space. They leave victims open and exposed to continuing distress. I would be grateful if the Government offered some assurances in this area.
The changes miss the wider problem of non-compliance by host websites outside the UK. As I have previously discussed in your Lordships’ House, the Revenge Porn Helpline has a removal rate of 90% of reported non-consensual sexually explicit content, both real and deepfake. However, in 10% of cases, the host website will not comply with the removal of the content. These sites are often hosted in countries such as Russia or those in Latin America. In cases of non-compliance by host websites, the victims continue to suffer, even where there has been a successful conviction.
If we take the example of a man who was convicted in the UK of blackmailing 200 women, the Revenge Porn Helpline successfully removed 161,000 images but 4,000 still remain online three years later, with platforms continuing to ignore the take-down requests. I would be grateful if the Government could outline how they are seeking to tackle the removal of this content, featuring British citizens, hosted in jurisdictions where host sites are not complying with removal.
Lord Stevenson of Balmacara (Lab)
My Lords, I started my discussion on the previous instrument on a slightly negative note. I want to change gear completely now and say how nice it is to see the first of the SIs relating to the Online Safety Act come forward. I welcome that.
Having said that, may I inquire what the Government’s intention is in relation to the Parkinson rule? I think I am correct in saying that we wish to see in place an informal but constant process by the Government when they bring forward legislation under the Online Safety Act, which would be offered to the standing committees so that they could comment and make advice available to Ministers before the Secretary of State finally approved any such legislation. This would primarily be concerned with the codes of practice, but this is exactly the sort of issue, well exemplified by the noble Baroness, Lady Owen, where there is still some concern about the previous Government’s approach to this Bill.
If I recall, this rule was in one of the later amendments brought in towards the end of the process. Rather unlike the earlier stuff, which was seven years in the making, this was rushed through in rather less than seven weeks as we got to the end of discussions on the Online Safety Bill. To get the deal that we all, across the political parties, hoped would happen, and so that the country would benefit from the best possible Act we could get out of the process, there were a number of quite late changes, including the question about deepfake issues, which was not given quite the scrutiny that it could have had. Of course, we are now receiving discussion and debate on those issues, and it is important that we understand them and the process that the Government will take to try to resolve them.
This question of having consent was hotly debated by those who led on it during the time the Bill was before your Lordships’ House. I felt the arguments very clearly came out in favour of those who argued that the question of consent, as mentioned by the noble Lord, Lord Clement-Jones, really is not relevant to this. The offence is caused by the circulation of material, and the Act should contain powers sufficient for the Secretary of State to be satisfied that Ofcom, in exercising its regulatory functions, has the powers to take down this material where it is illegal.
There are two issues tied up in that. I think all of us who have spoken in this debate are concerned that we have not really got to the end of the discussion on this, and we need to have more. Whether through the Private Member’s Bill that we will hear about in December or not, the Government need to get action on that. They need to consult widely with the committees, both in the Commons and here, to get the best advice. It may well be that we need further debate and discussion in this House to do so.
Having said that, the intention to clarify what exactly is legal lies at the heart of the Online Safety Act. The Act will not work and benefit the country if we go back to the question of legal but harmful. The acid test for how the material is to be treated by those who provide services to this country has to be whether it is legal. If it is illegal, it must be taken down, and there must be powers and action specifically for that to happen. It is unfortunate that, if material is not illegal, it is a matter not for the Government or Parliament but for the companies to ensure that their terms of service allow people to make judgments about whether they put material on their platforms. I hope that still remains the Government’s position. I look forward to hearing the Minister’s response.
Viscount Camrose (Con)
My Lords, I shall also start on a positive note and welcome the ongoing focus on online safety. We all aim to make this the safest country in the world in which to be online. The Online Safety Act is the cornerstone of how all of us will continue to pursue this crucial goal. The Act imposed clear legal responsibilities on social media platforms and tech companies, requiring them actively to monitor and manage the content they host. They are required swiftly to remove illegal content and to take proactive measures to prevent harmful material reaching minors. This reflects the deep commitment that we all share to safeguarding children from the dangers of cyberbullying, explicit content and other online threats.
We must also take particular account of the disproportionate harm that women and girls face online. The trends regarding the online abuse and exploitation that disproportionately affect female users are deeply concerning. Addressing these specific challenges is essential if we are to create a truly safe online environment for everyone.
With respect to the Government’s proposed approach to making sharing intimate images without consent a priority offence under the Online Safety Act, this initiative will require social media companies promptly to remove such content from their platforms. This aims to curb the rise in abuse that has been described as “intolerable”—I think rightly—by the Secretary of State. The intent behind this measure is to prevent generations becoming “desensitised” to the devastating effects of online abuse.
Although this appears to signal a strong stance against online harm, it raises the question of what this designation truly accomplishes in practical terms. I am grateful to the Minister for setting this out so clearly. I am not entirely sure that I altogether followed the differences between the old offences and the new ones. Sharing intimate images without consent is already illegal under current laws. Therefore, can we not say that the real issue lies in the absence not of legal provision but of effective enforcement of existing regulation? We have to ensure that any changes we make do not merely add layers of complexity but genuinely strengthen the protections available to victims and improve the responsiveness of platforms in removing harmful content.
With these thoughts in mind, I offer five questions. I apologise; the Minister is welcome to write as necessary, but I welcome her views whether now or in writing. First, why is it necessary to add the sharing of intimate images to the list of priority offences if such acts are already illegal under existing legislation and, specifically, what additional protections or outcomes are expected? The Minister gave some explanation of this, but I would welcome digging a little deeper into that.
Secondly, where consent is used as a defence against the charge of sharing intimate images, what are the Government’s thoughts on how to protect victims from intrusive cross-examination over details of their sexual history?
Thirdly, with respect to nudification technology, the previous Government argued that any photoreal image was covered by “intimate image abuse”—the noble Lord, Lord Clement-Jones, touched on this issue well. Is there any merit in looking at that again?
Fourthly, I am keen to hear the Government’s views on my noble friend Lady Owen’s Private Member’s Bill on nudification. We look forward to debating that in December.
Fifthly, and lastly, what role can or should parents and educators play in supporting the Act’s objectives? How will the Government engage these groups to promote online safety awareness?
Baroness Jones of Whitchurch (Lab)
My Lords, I thank noble Lords for their contributions to this debate. This is, as I think all noble Lords who have spoken recognise, a really important issue. It is important that we get this legislation right. We believe that updating the priority offences list with a new intimate image abuse offence is the correct, proportionate and evidence-led approach to tackle this type of content, and that it will provide stronger protections for online users. This update will bring us closer to achieving the commitment made in the Government’s manifesto to strengthening the protection for women and girls online.
I will try to cover all the questions asked. My noble friend Lord Stevenson and the noble Baroness, Lady Owen, asked whether we will review the Act and whether the Act is enough. Our immediate focus is on getting the Online Safety Act implemented quickly and effectively. It was designed to tackle illegal content and protect children; we want those protections in place as soon as possible. Having said that, it is right that the Government continually assess the law’s ability to keep up, especially when technology is moving so fast. We will of course look at how effective the protections are and build on the Online Safety Act, based on the evidence. However, our message to social media companies remains clear: “There is no need to wait. You can and should take immediate action to protect your users from these harms”.
The noble Baroness, Lady Owen, asked what further action we are taking against intimate abuse and about the taking, rather than sharing, of intimate images. We are committed to tackling the threat of violence against women and girls in all forms. We are considering what further legislative measures may be needed to strengthen the law on taking intimate images without consent and image abuse. This matter is very much on the Government’s agenda at the moment; I hope that we will be able to report some progress to the noble Baroness soon.
The noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Owen, asked whether creating and making intimate image deepfakes will be an offence. The Government’s manifesto included a commitment to banning the creation of sexually explicit deepfakes. This is a priority for the Government. DSIT is working with the Home Office and the Ministry of Justice to identify the most appropriate legislative vehicle for ensuring that those who create these images without consent face the appropriate punishment. The Government are considering options in this space to protect women and girls from malicious uses of these technologies. The new sharing intimate images offence, which will be added to the OSA priority list through this SI, explicitly includes—for the first time—wholly synthetic manufactured images, such as deepfakes, so they will be tackled under the Online Safety Act.
The noble Baroness, Lady Owen, asked about the material that is already there and the ability to have a hash database to prevent those intimate images continually being circulated. We are aware that the technology exists. Strengthening the intimate image abuse priorities under the Act is a necessary first step to tackling this, but we expect Ofcom to consider this in its final draft illegal content codes and guidance and to give more information about both the codes of practice and the further measures that would need to be developed to address this issue.
Several noble Lords—the noble Viscount, Lord Camrose, the noble Lord, Lord Clement-Jones, and my noble friend Lord Stevenson—asked for more details on the new offences. As I tried to set out in my opening statement, the Online Safety Act repeals the offence of disclosing private sexual photographs and films with the intent to cause distress—this comes under Section 33 of the Criminal Justice and Courts Act 2015 and is commonly known as the revenge porn offence—and replaces it with four new offences.
First, there is a base offence of sharing an intimate image without consent, which carries a maximum penalty of six months’ imprisonment. Secondly, there are two specific-intent offences—the first is sharing an intimate image with intent to cause alarm, humiliation or distress; the second is sharing an intimate image for the purpose of obtaining sexual gratification—each of which carries a maximum penalty of two years’ imprisonment to reflect the more serious culpability of someone who acts without consent and with an additional malign intent. Lastly, there is an offence of threatening to share an intimate image, with a maximum penalty of two years’ imprisonment. This offence applies regardless of whether the image is shared.
These offences capture images that show, or appear to show, a person who is nude, partially nude, engaged in toileting or doing something sexual. These offences include the sharing of manufactured or manipulated images, which are referred to as deepfakes. This recognises that sharing intimate images without the consent of the person they show or appear to show is sufficiently wrongful or harmful to warrant criminalisation.
The noble Viscount, Lord Camrose, asked what is so different about these new offences compared to those in the Act. I stress that it is because they are being given priority status, which does not sound much but gives considerable extra powers under the Act. There will be new powers and new obligations on platforms. The key thing is that all those offences that already exist are being given priority status under the Online Safety Act. There are thousands of things that Ofcom could address, but this is now in the much smaller list of things that will place very specific obligations on the platforms. Ofcom will monitor this and, as I said earlier, companies can be fined huge sums of money if they do not act, so there is a huge obligation on them to follow through on the priority list.
I hope that I have answered all the questions and that noble Lords agree with me on the importance of updating the priority offences in the Online Safety Act. The noble Viscount, Lord Camrose, asked about parents and made an important point. This is not just about an Act, it is about everybody highlighting the fact that these activities are intolerable and offensive not just to the individuals concerned but to everybody in society, and parents have a responsibility, as we all do, to ensure that media literacy is at the height of the education we carry out formally in schools and informally within the home. The noble Viscount is absolutely right on that, and there is more that we could all do. I commend these regulations to the Committee.
House of Lords
Unregistered Children’s Homes: Fees
(1 day, 4 hours ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Tyler of Enfield
To ask His Majesty’s Government what steps, if any, they are taking to lower fees being charged by unregistered children’s homes.
The Minister of State, Department for Education (Baroness Smith of Malvern) (Lab)
My Lords, profiteering from vulnerable children in care is unacceptable. Children must live in safe, high-quality homes, which is why it is a legal requirement for children’s homes to register with Ofsted. This means that they can be inspected and children are safe, and that where there are failings, they are addressed. We will strengthen regulation through the children’s well-being Bill so that children’s social care delivers high-quality outcomes for looked-after children at a sustainable cost to the taxpayer.
Baroness Tyler of Enfield (LD)
I thank the Minister for her Answer, but there remains a real concern about the number of children still living in unregistered children’s homes. Is the Minister aware of the recent BBC investigation, which highlighted that some unregistered children’s homes are charging up to a staggering £20,000 a week and still failing to keep very vulnerable children safe, which a senior family court judge has described as breathtaking? What immediate steps are the Government taking to address this issue? Does the Minister also agree that the key aim of addressing excessive costs, which I fully support, should not lead to the eradication of children’s homes, and that we need a mix of high-quality, registered provision to meet all children’s needs?
Baroness Smith of Malvern (Lab)
The noble Baroness is right that some extraordinary amounts of money are being charged by placement providers. The Local Government Association found, for example, that in 2022-23, 91% of respondent councils paid at least £10,000 per week or more for one placement, compared to 23% in 2018-19. That is why, as the noble Baroness says, we need to ensure that a range of safe, regulated, high-quality placements are available for children, and to ensure that where there is excessive profit, we take action against that as well.
Lord Laming (CB)
My Lords, does the Minister agree that local authorities rushed into outsourcing their services some years ago, and now there is insufficient provision but they are paying these huge fees? Could she give some thought to the number of children who are being placed, time after time, in different places, sometimes many miles away from their home base? That is not good for these very vulnerable children.
Baroness Smith of Malvern (Lab)
The noble Lord is right, in that in the children’s home market, 83% of provision is now private. To be clear, there is high-quality private children’s home provision, just as there is in the local authority and voluntary sectors. What is important, as the noble Lord says, is that children can be placed securely in those homes—that they are not being constantly moved from one to another—and that they get the care they need. It is absolutely true that moving children frequently and taking them far away from friends and perhaps other family members is not in their best interests. That is why we need to tackle this, and we will take further action on regulating the sector in the children’s well-being Bill.
Baroness Thornton (Lab)
My Lords, I welcome my noble friend’s announcement today. Surely, the promised reform of public services must prioritise the provision of residential care for our most vulnerable looked-after children, and we have to deal with inadequate care and profit gouging. There are some great examples of good provision, particularly in the voluntary sector and social enterprises. Can my noble friend assure me that this issue is being addressed across government, given that the Cabinet Office is involved regarding procurement, and the MHCLG and Department for Education are also involved? Will my noble friend meet with me so that I can share some of the good practice I have seen and heard about in recent months?
Baroness Smith of Malvern (Lab)
My noble friend is absolutely right. Because of the disproportionate costs being placed on local authorities and the findings that Ofsted sometimes makes in unregulated homes, if we are not careful, we can forget that some brilliant work is being done, as my noble friend says, in the voluntary sector, in social enterprises and in private and local government-provided facilities. We should celebrate that, and that should be our aspiration for all children. My right honourable friend the Commons Minister and I will be very pleased to hear about those examples. They will inspire us to take forward the provisions we are planning in the children’s well- being Bill.
Lord Hayward (Con)
My Lords, the Minister will recognise that a disproportionately high number of the prison population comes from children’s homes; it is a very sad figure indeed. While she is looking at the issue of unregistered children’s homes, can she also look at the broader issue of the number of children from children’s homes who finish up in prison?
Baroness Smith of Malvern (Lab)
The noble Lord is right. Across a whole range of measures, care leavers do worse than those who have not been in care. Whether or not they end up in prison, they are more likely to be not in employment, education or training and are more likely to be homeless. That is why we must ensure that the care and concern we have for children while they are in care continues after they leave care, and that we set those children up for life as well as possible while we, as the state, have responsibility for looking after them.
Lord Patel of Bradford (Non-Afl)
My Lords, although there is clearly good practice in many children’s homes, there are also examples of really bad practice. Do the Minister and the Government have any plans to formally and professionally regulate some of the senior staff, at least, in children’s homes? A number of staff are from very diverse backgrounds and are not necessarily professionally qualified social workers.
Baroness Smith of Malvern (Lab)
The noble Lord is right that the leadership of these homes is very important in ensuring that they are providing the quality of care we want to see. In thinking about the provisions in the children’s well-being Bill, we are working with the sector, with local authorities, on where we need to improve regulation. In considering that, I will certainly feed back the point the noble Lord makes about staff.
The Lord Bishop of Newcastle
My Lords, at the last count in March 2023, 41% of children’s homes in England were located in the north of England. What steps are the Government taking to provide additional support to areas of the country where there is a disproportionately higher number of children in the care home and care system?
Baroness Smith of Malvern (Lab)
The right reverend Prelate raises an important point. In the development of private children’s homes, we have seen a growth: for example, it is possible to get hold of accommodation more cheaply, but that does not necessarily mean that such homes are where children need them. Some 25% of all homes nationally are in the north-west, despite only 16% of children who need to be looked after in residential care coming from the north-west. That is why there has been investment to support local authorities to improve existing provision and to create additional placements; and it is why, through the children’s well-being Bill and in other ways, we will work to ensure that, wherever a child needs care, there is high-quality care that does not involve them having to travel or the local authority facing excessive costs.
Baroness Barran (Con)
My Lords, the noble Baroness, Lady Tyler, raised the issue of the costs associated with some unregistered children’s homes, but I want to ask the Minister a more basic question. We know from Ofsted’s 2023 guidance that it is illegal to send a child, even a child with a deprivation of liberty order, to an unregistered children’s home, yet the case to which the noble Baroness referred, as I understand it, was about a year later. What are the Government doing to make sure that children do not go to unregistered homes at all, whatever they cost?
Baroness Smith of Malvern (Lab)
The noble Baroness identifies the absolute difficulty and the challenging circumstances that directors of children’s services and others find themselves in. For example, on a Friday afternoon, when faced with having to find a placement for a child urgently, they have no other option, because of a failure to provide sufficient places, than to place a child in an unregulated home. This is so unsatisfactory for everybody, and that is why, through the provisions we will bring forward in the children’s well-being Bill and through appropriate investment in increasing the number of places, we will try to ensure that that happens far less in the future.
Specialised Research Units: Closures
(1 day, 4 hours ago)
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Lord Winston
To ask His Majesty’s Government what assessment they have made of the Medical Research Council’s plans to close certain specialised research units; and of the implications of those plans for affected scientists.
The Minister of State, Department for Science, Innovation and Technology (Lord Vallance of Balham) (Lab)
The Medical Research Council is changing how it supports research across its units and centres following a review of its funding models. The new MRC centres of research excellence model will improve how we bring together the best science, skills and leadership to focus on key challenges in medical research. All existing units can apply for funding through this new model, or transition to other models of MRC grant funding.
Lord Winston (Lab)
I am very grateful to the Minister for answering my Question and I am pleased to hear that he supports the notion of these specialised units. Does he agree, too, that these units are particularly important in the study of relatively uncommon diseases, often with a very high profile, and are extremely unique? They all have an international reputation and have produced a number of Nobel Prize winners. Is it not possible that the current review, having received successful grant money from the MRC, might destabilise these units, and we would end up losing scientists who may be forced to go to other places? Does he feel there is something we can do about that?
Lord Vallance of Balham (Lab)
The noble Lord makes a very important point. In the transition to this new model, all the existing units will be able to apply to the new model and there will be transition arrangements for those staff who do not become part of the new model and return to funding from the host institution or through grant funding. He is right that there will be specific centres with some role in global resilience, or another bespoke reason to keep them going, that will be looked at as special cases as part of this process.
Lord Patel (CB)
My Lords, I declare an interest as professor emeritus of the University of Dundee and its previous chancellor. The MRC unit in Dundee on protein phosphorylation and ubiquitylation has spawned many other sub-sections in cell signalling. I know the Minister is aware of the number of drug molecules developed using reversible phosphorylation. One of the aspects of the new system will be that it will limit the number of postgraduate trainees. I was always amazed how many postgraduates were graduating with a doctorate—20 to 30 at any one time. The new system will limit the ability to recruit that number of PhD students. That will be damaging to the reputation of the unit and our global recognition. Does he agree?
Lord Vallance of Balham (Lab)
The noble Lord knows that I know that unit extremely well. It is a very important unit globally and it was given an award of £30 million recently. The new model will allow for a longer period of funding—seven years plus seven years’ funding, so a total of 14 years—with a different process of evaluation, which is a lighter-touch, less bureaucratic process. There is no reason why there cannot be a similar number of trainees going through the new system.
Lord Clement-Jones (LD)
My Lords, I declare an interest as chair of a university governing council. To some extent the Minister’s responses are reassuring, but is this part of a wider trend towards centralising decisions on research funding through UKRI? Are we moving towards a situation where the Government will fund research only within particular sectors set out in their industrial strategy? If that is the case, will that not stifle new research talent and innovation?
Lord Vallance of Balham (Lab)
As the noble Lord may be aware, I have been very clear about the need for supporting basic curiosity-driven, investigator-led research, and I will remain resolute in that determination. Some of these new centres have specified areas, such as mental health and multi-morbidity, but there is a whole round which is unspecified, allowing for people to put forward ideas of their own for units of the future, which I believe will be important for the very reason the noble Lord says.
Lord Kakkar (CB)
My Lords, I draw noble Lords’ attention to my registered interests. The funding base to support science in some of our leading universities, including those that may host these centres in the future, has become dependent on cross-subsidy from overseas student income. Is the Minister content that, with the obligation for universities to play a greater role in supporting those centres that receive MRC status, the funding base for scientific research in our universities is sufficiently secure to make that possible?
Lord Vallance of Balham (Lab)
Universities have been under pressure, as the noble Lord knows, for a number of reasons, including student fees, overseas student numbers and questions about the full economic costs of research in addition to inflation. These are all important areas that will need to be looked at. It is worth remembering that, over the years, roughly one MRC unit per year has closed and a new one has started. This process is part of that continuing change, which I believe is important to make sure that we stay at the cutting edge. As part of that, the staff on the new wards will be fully paid. The principal investigator salary is the one that will have to be picked up in part by a host institution or by other grants coming in to provide support.
Lord Markham (Con)
Given the well-known fact that every £1 of government investment generates a return of £3 to £4 to the UK economy, does the Minister agree that any move to reduce government R&D spend or to close specialist research centres would be an act of economic self-harm, in direct contradiction to the Government’s claim to prioritise economic growth?
Lord Vallance of Balham (Lab)
The noble Lord will be unsurprised that I am a strong supporter of R&D funding and know the importance of its links to economic growth. It is crucial that we look at the spread of R&D funding. It is the case that it will be necessary, from time to time, to shut some things and open new things—that has always been the case—otherwise things become ossified and you never end up with new programmes. I fully expect there to be a continued pattern of renewed support for some areas and a closing down of others. What is important in the context of this particular scheme is that the same proportion of MRC funding will be spent on these new centres as was spent on the old units and centres.
Lord Fox (LD)
My Lords, the Minister will be aware that there has been both veiled and explicit criticism of the way in which UKRI conducts its work, particularly work of a bureaucratic nature. Will the Minister tell your Lordships’ House what conversations are being had between UKRI and his department, and indeed himself, to clear up those issues?
Lord Vallance of Balham (Lab)
I will speak about these particular schemes first. These are seven years plus seven, with one review at the beginning and one review at six years. The whole idea is to reduce bureaucracy and make this simpler. UKRI is undergoing a full review of all its activities, with the aim to reduce bureaucracy, following the Grant review. I have discussed this with the CEO of UKRI and will keep a very close eye on it. I believe it is important that scientists get as much time as they can to do science.
Baroness Morgan of Drefelin (Lab)
My Lords, does the Minister agree that, in the new set-up, the role of the charity sector, particularly the medical research charities and the support that they give for what are often MRC-funded or underpinned research projects, will be key going forward? Is he sure that we have the right kind of environment and that the ecosystem is working well enough to support this charity contribution?
Lord Vallance of Balham (Lab)
As my noble friend says, the charity sector has been incredibly important for medical research in the UK, ranging from large charities such as the Wellcome Trust through to smaller ones. This new scheme will allow centres to have funded technical and other support, which are the things that need great constancy, and will allow the principal investigators to seek research funding from others, including the charitable sector. The charitable sector will remain an incredibly important part of our system for funding scientific research in the UK.
Lord Harlech (Con)
My Lords, I declare my interest as a serving Army reservist. With all departments facing intense budgetary pressure, can the Minister give any assurances about safeguarding budgets for military research and development and, in particular, the Minerva project?
Lord Vallance of Balham (Lab)
I am obviously unable to comment on the upcoming Budget, but I recognise the importance of military spending and of the DSTL within that. I will continue to be a strong advocate for the need for that as part of a successful resilience and defence strategy.
Whistleblowers
(1 day, 4 hours ago)
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Baroness Kramer
To ask His Majesty’s Government what assessment they have made of the current capacity and efficacy of the law to provide confidentiality for whistleblowers and to protect them from retaliation.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)
My Lords, whistleblowers play an important role in shining a light on wrongdoing in public life. They need confidence that they will be taken seriously and will have legal recourse if subjected to detriment or dismissal for making a protected disclosure. There are already day-one rights for workers, but we intend to strengthen whistleblowers’ protections.
Baroness Kramer (LD)
My Lords, whistleblowers who are defined as workers, and therefore protected by the existing law, still fail to win 96% of their cases in employment tribunals because of evidentiary requirements. They are financially ruined by cases that can drag on for years and, even if they win, their careers are destroyed because the tribunal does not acknowledge blacklisting. Will the Minister commit to an office of the whistleblower to ensure genuine protection for whistleblowers and proper investigation of tip-offs—to avoid a repeat of Horizon Post Office, Grenfell, financial mis-selling, Letby and Al Fayed, to name but a few?
Baroness Jones of Whitchurch (Lab)
The noble Baroness is absolutely right to raise those cases. We all take those issues very seriously, and we have debated them here in the Chamber on many occasions. There should not be a need for anybody to whistleblow; people should have their concerns taken seriously in the first place. This Government are absolutely determined, from the top, to make sure that people who have concerns at the workplace are able to raise them without the detriment to which the noble Baroness refers. With regard to an office for the whistleblower, there are a number of ideas around this. We are looking at the role and remit that such a body could have. There will be a need to look at the cost, role and function of a potential new body, but we are looking at all the ways we can ensure that whistleblowers are protected at the workplace, as they should be.
Lord Browne of Ladyton (Lab)
My Lords, alongside the essential statutory protection of whistleblowers, the current director of the Serious Fraud Office has repeatedly emphasised the importance of offering incentives to the whistleblowers. My noble friend will be aware that my right honourable friend the Foreign Secretary, in May, when he was talking about a crackdown on money laundering and corruption, stated that a Labour Government would
“launch a new whistleblower reward scheme to incentivise and encourage sources to step forward”.
Can my noble friend the Minister outline where the Government’s thinking is on balancing the need for these incentives, as well as the existing legal protection?
Baroness Jones of Whitchurch (Lab)
My Lords, we are continuing to look at the whistleblowing regulations. We understand that there may be a need to review them further; a review was carried out by the previous Government. But I reiterate the point I made earlier: there should not be a need for whistleblowers to come forward; they should be protected in the workplace to come forward with their concerns. This requires leadership from the top in every department to make sure that those concerns are heard and acted upon properly. That is what we intend to do across government—make sure that people do not have to resort to whistleblowing to make sure the terrible incidents they are shining a light on finally come to light.
Lord Cromwell (CB)
My Lords, non-disclosure agreements are protective of the confidentiality of wrongdoers. They are frequently employed against whistleblowers. Is the Minister confident that non-disclosure agreements that are not consistent with the public interest, including those concealing criminal activity, are and will be non-enforceable in our courts? If she is not confident of that, will the Government bring forward appropriate legislation?
Baroness Jones of Whitchurch (Lab)
The noble Lord is right, but we have already noted the concerns about the misuse of non-disclosure agreements. We share his concern, because they are being used to silence whistleblowers and cover up sexual harassment and discrimination. I stress that there are existing legal limits to how NDAs can be used in an employment context, which means they are void and unenforceable in certain circumstances. The use of NDAs is not something we would support and, if there were ways of limiting it, we would do so.
Baroness Jones of Moulsecoomb (GP)
My Lords, is it possible to ensure with legislation that any company that victimises whistleblowers or trade union members could be banned from taking any public sector work in future?
Baroness Jones of Whitchurch (Lab)
We are looking at the way we give future government contracts; that is a huge piece of work that is taking place. I will certainly take the noble Baroness’s point on board and see whether that has a role. We want to make sure that the allocation of public funding to organisations is done on a fair and transparent basis.
Lord Johnson of Lainston (Con)
My Lords, this is not just a situation facing the private sector; the public sector also has significant issues of whistleblowing. This year the Secretary of State for Health and Social Care pledged before the election—I am aware that plenty of pledges were made before the election, so the Minister may be confused about this—that NHS managers who silence and scapegoat
“will never work in the NHS again”.
Has that goal been achieved? If not, when do the Government intend to achieve it?
Baroness Jones of Whitchurch (Lab)
As I say, we are absolutely committed to lead from the top on this issue. That includes in the health service where, as the noble Lord said, there have been some terrible examples of professional staff being discriminated against and losing their jobs. I am sure that the Secretary of State for Health is working on this issue, and I hope to be able to come back to the House in due course and update noble Lords on the progress being made.
Lord Berkeley (Lab)
My Lords, last week I chaired a meeting upstairs with about two dozen whistleblowers, who each spoke about their experiences in the public sector and the private sector and their appalling treatment from their employers. Many of them lost their homes, partners and jobs, and there was no fair trial or hearing. Does my noble friend not agree that more needs to be done? Will she look carefully at the Bill promoted by the noble Baroness, Lady Kramer, to set up a whistleblowing office so that everybody knows where to go? Otherwise, we are never going to have a one-stop shop that is safe for whistleblowers, which is surely what we need.
Baroness Jones of Whitchurch (Lab)
As I say, we are looking at the calls for an office for the whistleblower. It is a proposal that I know attracts a great deal of support. We are considering other ideas as well, but we want to make sure that all the individuals my noble friend talks about have somewhere they can go and have their complaints taken seriously. We understand that. That requires changes in process and in procedure, but ultimately in culture so that these individuals are taken seriously. We will drive that forward and we will require employers to take these issues seriously, but for the moment we are still working on whether we need a specific office for the whistleblower.
Lord Shipley (LD)
My Lords, on 29 July I submitted a Written Question to His Majesty’s Government to ask
“what payments they have made to whistleblowers in the NHS in each of the last five years (1) as part of non-disclosure agreements reached through out-of-court settlements, and (2) as the result of a decision by an employment tribunal”.
I was very surprised by this part of the reply on 6 August:
“The Department does not hold the information requested. National Health Service organisations are independent employers and have their own policies and procedures in resolving workplace disputes, which should be aligned to current employment law and good human resources practice”.
Does the Minister agree that such an approach does not meet the need for public accountability and public audit, and that the Government and the public should know what sums are being spent, including legal costs?
Baroness Jones of Whitchurch (Lab)
The noble Lord makes an interesting point. I will take that back to the Secretary of State and discuss it with him further.
Lord Patel of Bradford (Non-Afl)
My Lords, if we go down the road of an office of the whistleblower, which is an excellent idea, could the Minister take back that we need to put something in legislation to protect whistleblowers who are attacked in a vile way on social media, to the point of almost committing suicide? We need really strong protections.
Baroness Jones of Whitchurch (Lab)
My noble friend makes an important point. I cannot emphasise enough how important these things are. We need to protect whistleblowers and make sure that their concerns are taken seriously, and we need to create a culture in which their views are respected rather than denigrated.
Women’s State Pension Age: PHSO Report
(1 day, 4 hours ago)
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Lord Sikka
To ask His Majesty’s Government, further to the report Women’s State Pension age: our findings on injustice and associated issues, published by the Parliamentary and Health Service Ombudsman on 21 March, how much compensation they plan to pay to affected women, or to the families of affected women who have died; and on what timescale.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, the issues outlined in the ombudsman’s report are significant and complex. As such, they require serious deliberation, and we need time to review and consider the report alongside the evidence and the views expressed. As part of that work, the Government recently met WASPI representatives to hear their experiences directly. Once we have undertaken that work, the Government will be able to outline their approach.
Lord Sikka (Lab)
My Lords, paragraph 19 of the parliamentary ombudsman’s report clearly states that
“complainants have suffered injustice as a result of maladministration”,
and the report recommends compensation. Thousands of women have died while awaiting compensation, but all that successive Ministers have done is kick the can down the road, saying, “We are still consulting”. There has already been an inquiry. Can the Minister specify the date by which this injustice will actually be addressed and compensation paid? In addition, will she agree to meet another delegation of the affected women?
Baroness Sherlock (Lab)
My Lords, we understand the human impact felt behind the issues raised in this report. Retirement is a significant milestone that should, one hopes, be greeted with excitement rather than surprise. But I say to my noble friend that I do not think this Government could be accused of kicking the can down the road; the ombudsman published its report in March, we became the Government only in July and it is now October. Although I fully understand that he would like me to articulate a response here, I am sorry that I am not able to do so. However, I assure him that the Minister for Pensions met WASPI representatives recently—the first Minister to do that since 2016.
Baroness Janke (LD)
My Lords, by the time they reach 65, women will typically have £69,000 in their pension pots compared with the £205,000 the average man will have by the same age. What practical measures will the Government take to address the injustice of the pensions gender gap and enable proper security for women in retirement and old age?
Baroness Sherlock (Lab)
I am grateful to the noble Baroness for raising a really important point. The gender pensions gap starts with the gender pay gap. Therefore, the first thing the Government need to do is address the gender pay gap and we are committed to doing that. The national pay gap still stands at over 14%, which is really shocking. We know that most employers understand that, when women succeed, so does their business. We are committed to making sure reports are given. For example, gender pay gap action plans will be mandatory and will reflect the hard work of outsourced workers as well as employees.
The kinds of reforms that have taken place under successive Governments are beginning to change at least the way the state pension addresses the gap between men and women. In the new state pension, there is less of a difference because the old state pension was much more dependent on national insurance contributions and pay-related additional pensions, whereas the new one does not have that. The gap is closing, but in private pensions it is still significant, and we need to do more about that.
Viscount Younger of Leckie (Con)
My Lords, the final PHSO report in March cited maladministration, as the noble Lord, Lord Sikka, said. This is regarding communications by the DWP for 28 months from August 2005. But a ministerial submission in 2009 admitted that, despite steps taken to disseminate leaflets with pension forecasts and the rest, all this had failed to raise awareness among those directly impacted. What assurances can the noble Baroness give that the department has learned its lessons on how best to target its audience and to do it rapidly and in large volume?
Baroness Sherlock (Lab)
My Lords, the department is carefully considering the findings of the report. Since 1995, successive Governments have used a range of methods to communicate changes to the state pension age, from leaflets to advertising campaigns and direct mailings. We are making sure that the department is looking more closely at this. For example, we have written letters to people at different stages. Women who were affected by the Pensions Act 1995 were written to between April 2009 and March 2011. People impacted by the 1995 and 2011 Acts were written to between 2012 and 2013, and so on. People in the transitional group—those whose pension age is rising from 66 to 67, in which I count myself—got letters from the department between 2016 and 2018.
I think we are getting better. In the 2021 Planning and Preparing for Later Life survey, people whose state pension age falls between 66 and 67 were surveyed and 94% of respondents either got their state pension age right or underestimated it. Hopefully, this work is paying off.
Baroness Butler-Sloss (CB)
My Lords, I do not take a state pension, but about seven or eight years ago I got an email telling me that I was entitled to a pension for being over 80. I replied and filled out everything. So far, I have not heard a word. I wonder whether, in fact, the DWP is doing better.
Baroness Sherlock (Lab)
My Lords, if I could persuade—with some trepidation—the noble and learned Baroness to share the details with me, I would be very happy to look into that.
Lord Davies of Brixton (Lab)
My Lords, the ombudsman made it clear that these women suffered from maladministration and that they are entitled to redress. I ask my noble friend to recognise the case for urgency, particularly because the delay is leaving the people affected prey to scammers, who are offering to assist them in making claims. This issue needs to be resolved as quickly as practical.
Baroness Sherlock (Lab)
My Lords, I am grateful to my noble friend for raising that last point. To be absolutely clear, because there has been no response to the report, there is no compensation scheme. Anyone claiming to offer it is scamming and nobody should touch it—please can that message go out loud and clear. I understand my noble friend’s general point, and I know he will understand the position that this Government are in. At the risk of boring myself, never mind the House, all I can do is repeat that the Government are looking very closely at the findings of the ombudsman and will respond as soon as is practicable.
Baroness Berridge (Con)
My Lords, the Minister has outlined that she cannot currently give a date, but is she certain that this group of women is clearly defined in the department? There are representative groups, but when a decision is made, does the DWP know exactly whom they need to communicate with?
Baroness Sherlock (Lab)
My Lords, just to be clear, I am not making any assumptions about anything. In a sense, this is about when people were born. For example, we know that around 3.5 million 1950s-born women were impacted by state pension changes, as were a group of men. Most of those people have now reached state pension age, but I think there are 790,000 people born in the 1950s who have not yet reached that age. I am not saying that anything in this area is straightforward—it is not—but I understand the noble Baroness’s warning that any attempt to communicate with groups of people will need to be done carefully and with precision.
Lord Wallace of Saltaire (LD)
My Lords, when I reached my 80th birthday, I received a letter from the DWP telling me that in view of my advanced age my pension would be increased by 25p a week—I was overwhelmed by the generosity. That measure is no doubt 40 or 50 years old, and it would probably save the DWP considerable money if that aspect of the old age pension were discontinued.
Baroness Sherlock (Lab)
My Lords, I am shocked to find that the noble Lord is 80, but I commend him on his recent milestone. It is rarity that anyone in the House offers a way to save money, so I will take his point back.
Schools (Mental Health Professionals) Bill [HL]
Police Accountability
(1 day, 4 hours ago)
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Lord Sharpe of Epsom (Con)
My Lords, I thank the Minister for this Statement and I join my right honourable friend the shadow Home Secretary in welcoming its contents. It is true that, for the British consent-based policing model to work, the trust must be mutual. The people must trust the police and the police must trust the system in order to perform their duties effectively. But too often lately both sides have been let down.
I therefore welcome that this Government are continuing the work of the previous Government on accountability. I particularly welcome the work of Dame Elish Angiolini on police culture; having worked with her, I have no doubt at all that her final report will make very sensible recommendations. I am also pleased that previously agreed measures to ensure that officers convicted of certain criminal offences are automatically found to have committed gross misconduct, and the empowering of chief constables to dismiss them, will be beefed up and taken forward. On these Benches we welcome these moves.
However, we are here because of the acquittal of Sergeant Martyn Blake in his trial for the murder of Chris Kaba. This raises several questions, which I would like to put to the Minister. First, I welcome that in future there will be a presumption of anonymity for accused officers. I can only imagine the struggles that Sergeant Blake and his family have been through, and they are still probably living in fear. It was appalling to read that Mr Kaba’s alleged gang associates had put a bounty on Sergeant Blake’s head. Could the Minister update the House on whether there are police investigations to find those responsible for this threat to Sergeant Blake’s life?
I also welcome that reviews will be held of the thresholds for criminal misconduct and inquest investigations, which, as the Statement notes, add
“complexity, confusion and delay to the system”.
But I would go further. Since 2010, British police have shot dead 30 people, an average of 2.1 per year. In the past decade, there have been only 66 incidents where the police have discharged a weapon at all, even though armed police are deployed to around 18,000 incidents every year. In terms of police killings per 10 million people, the only countries with a lower death rate than the UK are Japan and Iceland. Britain does not have a police brutality problem. The stats prove this and campaigners need to acknowledge it. The armed police show great restraint in the face of danger and should be commended as such. Does the Minister agree?
As my right honourable friend James Cleverly noted, training for these roles should form a legitimate part of the defence when criminal prosecutions are brought forward. This is not to argue that officers are above the law. If there are any doubts, they must of course be investigated, but we owe it to them not to create a situation in which, as James Cleverly stated, they are disincentivised from acting decisively. That puts us all at risk. Does the Minister agree?
This is a difficult and sensitive subject. Community cohesion and tensions will inevitably be mentioned in this and subsequent debates, which is right and proper. We have had a summer in which the fabric of our society has been stretched to breaking point in many cases. We in these Houses must therefore be very careful what we say to avoid stoking tensions and exacerbating problems. So I ask the Minister to condemn the comments of his honourable friend the Member for Liverpool, Riverside, who said that the media were using racist tropes to justify Chris Kaba’s killing. They are not.
Any death at the hands of the police is a tragedy, but in this case an officer doing his duty has also had his life ruined. Of course, my thoughts are with the relatives of Chris Kaba, but also with Sergeant Blake’s family. I again place on record my thanks to all the police, armed and unarmed, who put themselves in harm’s way. They are heroes who would rather walk towards dangerous criminals than run away from them. As I said in my opening remarks, I welcome this Statement, but we need answers to the more difficult questions if we are truly to learn anything at all from this tragic case.
Baroness Doocey (LD)
My Lords, we welcome the Home Secretary’s emphasis on speeding up proceedings in cases involving police using lethal force. Protracted investigations cause additional trauma to bereaved families, prolong the stress for officers involved and damage wider police morale. We also welcome the equalisation of thresholds for criminal charges to ensure that the police and public are held to the same standards.
These measures are long overdue, because we have now reached a point where police officers feel deeply undervalued, both by the public at large and by many politicians. Low public confidence has led police to believe that the work they do is not always appreciated. Assaults and attacks on police are now a daily occurrence. A recent review found that more than half had been physically attacked in the previous year, with a significant number requiring medical attention.
A police officer’s every move is now captured both on their bodycam and, increasingly, by members of the public, ensuring that their every action and split-second decision is recorded, criticised and documented for posterity on social media. Trial by media raises the real risk that, when things go wrong, the focus is on blaming individual officers, even when the reality points to wider systemic failings. I hope that these measures around the presumption of anonymity and the need to take account of officers’ training and guidance will help alleviate some of these problems.
I admit that I am slightly uneasy about the timing of this announcement, given the danger that it could be taken by some to signal the lowering of police accountability. I am therefore relieved to hear that the Government have made an urgent commitment to toughen up procedures around police misconduct and vetting. By putting national vetting standards on a statutory footing, we can make concrete progress in restoring public confidence. We particularly want to see the rules around officers accused of domestic abuse or sexual offences tightened significantly.
We must remember that the Kaba case is not taking place in a vacuum. Last year, the noble Baroness, Lady Casey, highlighted the continuing presence of racism within policing almost 25 years after a similar conclusion was reached by Macpherson. Data from the National Police Chiefs’ Council shows that black people are five times more likely than white people to have force used against them. It is therefore critical that this accountability review strikes the right balance. It must be accompanied by a clear timetable to implement the existing Angiolini and Casey review recommendations. The public need to be assured that bad officers will always be held to account, that guilty officers will always be punished and that this will be done fairly and transparently. But, at the same time, it is imperative that our police are reassured that if they do the right thing and follow their training, the system will protect them and not be stacked against them.
I ask the Minister whether this review will be open to contributions from all sides. We know that the police have already made submissions, but what opportunity will there be for representatives of, for example, the black community, who are of course particularly invested in the outcome, to contribute?
I have two final points. Polls suggest that more than a third of the public lack confidence in the Independent Office for Police Conduct—IOPC—while barely one in five black people think that it is impartial. This is not good enough, nor is the fact that IOPC recommendations are almost always out of date by the time they are published because it can take years for individual case proceedings to conclude. The proposal for a lessons-learned database is extremely welcome in this context. Nevertheless, a recent independent review made 93 recommendations to improve the IOPC. What steps are the Government taking to implement these recommendations?
Finally, reports as far back as Scarman in 1981 point to the need to urgently address the lack of diversity in policing, to better reflect the communities the police serve. The Home Secretary said in her Statement that she wants to introduce neighbourhood policing, so will the Government commit to ensuring that such reform is used as a platform to address this lack of diversity, so that people in all communities believe that the police are on their side?
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
I am grateful to both Front-Bench speakers for their constructive comments and their broad welcome for my right honourable friend the Home Secretary’s Statement in the House of Commons last week. In particular, the point made by the noble Lord, Lord Sharpe, about trust being extremely important is very valid. The whole purpose of the response to the trial last week and to the wider cases, the reviews by Dame Elish and the noble Baroness, Lady Casey, and our general review of accountability, is to make sure that we build that trust in communities. The noble Baroness mentioned that point also.
There was a welcome from both Front Benches for the provisions around anonymity in the legislation, and that is perfectly right. I cannot comment on the court case because the lifting of anonymity was a matter for the court at that time, but it is really important that we review that, and one of the proposals that my right honourable friend has brought forward is to ensure that anonymity is the norm in future.
With regard to the points made by the noble Lord, Lord Sharpe, about the officer himself, the Metropolitan Police, as the employing authority, has a duty of care to the officer. If there are leads regarding any threat to any individual in society the police will follow those up. I think it is best to leave it at that. The noble Lord is right that deaths from police shootings are extremely rare in the United Kingdom but it is still important that we have the accountability mechanism in place. What we are trying to do with the proposals that my right honourable friend has brought forward is to ensure that accountability is balanced. That is why we have lifted the threshold to put it in line with that for ordinary civilians involved in similar incidents. That is part of the rebalancing to make sure that we give support accordingly. That is why we are having a review of the threshold for prosecution as well, which will report to the Government in due course.
The noble Lord, Lord Sharpe, raised the important issue of training. He will be aware that the College of Policing will review training requirements based on this incident following the comments and the Statement from my right honourable friend the Home Secretary. Before I turn to the noble Baroness’s comments, it is important that we reflect again on the key issue that the police deserve our full support on this. Officers who carry firearms do so voluntarily. They put their own lives at risk, potentially, and they take split-second decisions which could result in saving life and preventing incidents and, indeed, threats to their own life. We need to bear that in mind and pay tribute to them because it is a noble task that they undertake on our behalf.
My honourable friend the Member for Liverpool Riverside was mentioned by the noble Lord. It is for her to make her comments and she is accountable for them as a Back-Bencher. What she has articulated is not the Government’s position. She is entitled to her views, as is any Member of Parliament or, indeed, Member of this House. I will leave it at that, if I may.
I hope I have covered the points. We have received part 1 of the Angiolini review. I have met the review chair, Dame Elish Angiolini, and we are encouraging her to bring forward the second part of the review in an appropriate timescale so we can consider the recommendations in due course.
I am grateful again for the broad support on anonymity and threshold changes from the noble Baroness, Lady Doocey. She made the important point about attacks on police. She will know that legislation has been put in place to ensure that attacks on emergency workers are aggravated offences. The police should not only not be attacked but they should be recognised as a having a special role in our society when attacks such as she mentioned take place. She also mentioned training. I emphasise to her that the College of Policing is reflecting on what has happened. I hope that we can have some guidance shortly to bolster the support for police officers in general terms.
I will refer in turn to three particular points that the noble Baroness mentioned. The first point is the accountability review and the possibility of individuals contributing to it. We have had a report from the review; it is a complete document now. Although the review was commissioned by the previous Government, the report has been presented to this Government. We have concluded and have included in the Statements from my right honourable friend the Home Secretary the response we wish to make.
Obviously, we want to have engagement with a range of stakeholders now that the review is completed. The noble Baroness mentioned not just the police but members of the community. I welcome evidence for the accountability review being given to the Government in whichever form individuals or groups want so that that broad spectrum of views can inform the conclusions and the implementation of what my right honourable friend the Home Secretary has said.
The noble Baroness mentioned the IOPC and the review of it that took place. She is right to say that there were 93 recommendations for improvements under the Fairfield report, which was commissioned by and delivered to the last Government. There was a response from the last Government in March 2024. I am keen to ensure, as are Police Ministers and the Home Secretary in the House of Commons, that the recommendations are undertaken and delivered. Work is under way to implement the majority of the recommendations and obviously I will report back to this House. If the noble Baroness wishes to table a Question in a couple of months’ time, we can certainly give an update on the implementation of the recommendations that have been accepted.
The noble Baroness also mentioned the Home Secretary and police diversity. It is certainly extremely important, for the reasons that the noble Lord, Lord Sharpe, mentioned, that the police reflect the community they serve. That means not just people of colour but people with a range of sexual preferences, backgrounds and other things. It is really important that the police have the confidence of the community they serve. That is why, particularly as we go forward with the new model of neighbourhood policing that my right honourable friend wishes to introduce, we should involve people from all backgrounds to reflect the community they serve. Without that confidence, information will not be forthcoming to police officers and they will not understand the communities they operate within. We share the joint enterprise of ensuring that people outside the law are held to account by the forces of law and order through the Crown Prosecution Service, the courts and, ultimately, if convicted, the justice system. That requires genuine partnership between the community and the police.
I hope I have answered all the points mentioned by the noble Lord and the noble Baroness. If so, I will take comments from other Members of the House.
Viscount Hailsham (Con)
My Lords, does the noble Lord agree that, given the very difficult circumstances in which armed police have to operate, those who make the decision to prosecute should do so only when the evidence of illegality is very robust, and that such decisions should not be made simply and solely to address expressions of concern, however aggrieved and distressed those expressions may be?
Lord Hanson of Flint (Lab)
It is important that there are grounds for the police to recommend to the CPS and for the CPS to take action on prosecution. That could happen in any number of circumstances. In the circumstances that generated this Statement, the decision to take forward the prosecution was taken by the CPS and others. The court considered it and agreed that the police officer should be acquitted. That is a perfectly legitimate decision.
We have tried to put in a mechanism whereby there is a higher threshold for prosecution of police officers than there is currently, in line with what would happen to ordinary citizens involved in that type of activity elsewhere. That is right and proper, but we have also commissioned the wider review led by Tim Godwin and Sir Adrian Fulford, who will look at the legal test for the use of force and the threshold for determining the short-form conclusion of an unlawful killing in inquests. It is important that we rebalance slightly because, on reflection, that rebalancing is needed.
Lord Hogan-Howe (CB)
My Lords, I broadly support the Government’s response to this review, but I will make a few comments about the case of Chris Kaba, Sergeant Blake and firearms officers. I am not sure that the review goes far enough in two clear areas.
I repeat that it is a tragedy that Chris Kaba lost his life—and for his family. It has also been a terrible time for the officer and his family over the last two years. But the review says nothing about reviewing what happened in Sergeant Blake’s case—the decision-making by the IOPC and the CPS in the court. We hear that the jury wrote a note; it was not published, but someone might want to review what it said. That is probably not best done in public, but the whole process may leave everybody a little confused about why Sergeant Blake was prosecuted when the jury took so short a time to reach its unanimous verdict.
Secondly, there is a more general issue about whether firearms officers, who, as we have heard, are few in number and deal with these very difficult cases on our behalf, have any comfort in law at all. When the criminal and the officer—who is only doing their job—arrive at the same location, why are they treated in exactly the same way? The criminal knew what they were doing when they arrived; the officer responded to society’s request—demand, almost—that they stand up for us and challenge this person, but the law gives them no comfort at all. This case highlights that, but it is not the only one.
So there are two questions for the Minister: a review, perhaps, of this case and the more general requirement in criminal law to treat firearms officers in a better way than they are treated now.
Lord Hanson of Flint (Lab)
The noble Lord, Lord Hogan-Howe, obviously brings great experience to this question and this discussion, and I appreciate the discussions I have had with him—not just in the Chamber of this House but also outside the Chamber.
The noble Lord will know, and understand, why I cannot comment in too much detail on what happened in relation to this case. He will also know, however, that the decision to charge was made within the Code for Crown Prosecutors and the DPP guidance to prosecutors, particularly in relation to death in custody guidance, which covers any deaths following contact with the police. That was the procedure; I am not the CPS and nor should I be. It made the determination to prosecute in this case and the result was a very speedy acquittal by the jury. There was a two-year hangover, which caused great distress to the family of both the victim and the police officer. I understand that, and we are trying to speed up as part of the response to that case.
The important thing, which I hope I can guide the noble Lord to focus on, is the issue of the future, because we are trying to rebalance the prosecution threshold, which is key for the future. I fully accept the noble Lord’s point that we ask a lot of officers to, on our behalf, arrive at a scene, make split-second judgments and put their lives at risk. One of the things we are trying to do in the review’s response is to more effectively balance that balance between the response of an officer and the individual they may face. That is part of the working through of the code of practice that will be developed by the DPP, the review by the Attorney-General of guidance on charging police officers and the review by his former colleague Tim Godwin and Sir Adrian Fulford.
We can revisit this again in a few months’ time, but I hope, when we finalise the reviews, that will refocus how we best support officers dealing with extremely difficult situations.
Lord Carter of Haslemere (CB)
My Lords, 30 years ago, the House of Lords sitting judicially in the criminal appeal of Lee Clegg expressed concern that only a charge of murder was available in these cases, instead of an offence of, for example, using excessive force. The Law Lords pointed out—as the noble Lord, Lord Hogan-Howe, has—that law enforcement officers do not go out intending to kill or cause grievous bodily harm: they go to protect the public. The two cases are very different.
Therefore, would the Government consider looking at the substantive law that applies in these cases and possibly introducing a change to strengthen the position of law enforcement officers? It would be not dissimilar to the way in which the position of householders was strengthened in 2013 by giving them additional defences when they used force to defend themselves and their property.
Lord Hanson of Flint (Lab)
I am grateful to the noble Lord for that suggestion. We are in the process of reviewing the legislation and I do not want to pre-empt the reviews that are being undertaken by the Attorney-General and the individuals commissioned by the Home Secretary. It is clear, however, that we need to give clarity and support to officers. The key element that has come out of this case is that an officer found themselves prosecuted through the decision of the CPS, which rightly was its independent decision. However, in light of that decision, we have to review whether the threshold for the prosecution was right and whether we need to examine the issues the noble Lord has mentioned. Those are things we will do, but I cannot give a commitment today to finalise it.
Lord Paddick (Non-Afl)
My Lords, I declare my interests as set out in the register. I accept that there is going to be a review, so perhaps I could ask the Minister to ask the review to consider the following. Surely, a lawfully armed police officer on duty, acting in accordance with their training, who volunteers to carry a gun to protect the public and who tragically kills someone should not be subject to exactly the same process as an illegally armed criminal who goes out to murder someone? It is not just about the court; it is about the decision of the IOPC and the decision of the CPS. Why did that happen in this case, and what will the Government do to make sure it does not happen again? Of course, there needs to be accountability, but surely not parity.
Lord Hanson of Flint (Lab)
The noble Lord brings extensive experience to this debate and these questions from his policing background. I understand the points he has made, but I hope he will understand when I say to him first and foremost that I cannot second-guess the decisions that were taken by the CPS and/or the IOPC about this case. Those decisions were taken—that is their right to do so—and ultimately those charges were brought in a proper way under the legislation and framework that was in place. They have been put before a jury and the jury has determined that there is no case to answer for those charges. That is the history of this matter, difficult though it is.
As well as the anonymity issue, which is important, the Home Secretary has brought forward three measures in the Statement to improve the timeliness and fairness of investigations: aligning the threshold of IOPC referrals of officers to the CPS so that we can examine that in detail; speeding up the process whereby the IOPC sends cases to the CPS and putting the IOPC victims’ right to review policy on a statutory footing; and reviewing the DPP guidance on the existing legal framework, which will conclude by the end of 2024. Those things are in train. While the noble Lord might want me to opine about the decision that was taken, I cannot, but I am sure this House will hold me to account in future as to the outcome of those reviews downstream.
Baroness O'Loan (CB)
My Lords, having served as Police Ombudsman and having had the awesome responsibility of investigating a fatal police shooting, I know that these incidents are very, very rare. I know how difficult this is for all concerned—the family of Chris Kaba, but most particularly now, Sergeant Blake and his family, given what they must have suffered over these last two years. I want to express my gratitude here in this House to the firearms officers who protect us here in Westminster, day in, day out, in a situation in which one of their number lost his life not too long ago. That is very important.
I welcome the decision to introduce anonymity prior to conviction for a police officer if they are put on trial. It is reassuring to see the equalisation of the threshold for prosecution, because trust is fundamental to this, and there will not be trust in the prosecution service or the prosecution process unless the public can believe that there is equality before the law.
Can the Minister assure us that the review of these cases will consider the necessity for extensive forensic investigation, which on many occasions takes quite a long time? That has to be factored in; we do not serve officers well if we rush these cases. Secondly, can the Minister assure us that funding of the IOPC will be looked at in terms of the number of cases it has to carry? Increasingly frequently, it has to return cases to the police to investigate, which leads to distrust in the process. People go to the IOPC thinking they are getting an independent investigation of police complaints, and they end up back with the police force investigating the complaint. May I ask that those matters be considered? Funding the IOPC is actually cheaper than the cost of police officers investigating.
Lord Hanson of Flint (Lab)
I am grateful to the noble Baroness, who brings her experience to this debate. We both spent time in Northern Ireland some time ago, when I was a Minister and she was the police ombudsperson responsible for those areas. I welcome her welcome for the anonymity clause; it is vital that it be put in place. The decision was taken in this court case not by me, this House or the Government, but by a judge at that time. There is no criticism of that; it was entirely their decision to make. However, we have reflected on that and determined that anonymity in this case will prevent the type of difficulty and challenges that Officer Blake has had post acquittal, even though he was acquitted. That is a really important issue.
The noble Baroness mentioned forensic investigations. Self-evidently, these matters are beyond my remit, but it is important that the case presented includes all the information. If it takes time to bring forensic information forward, so be it, and we need to factor that in as part of our review. In Budget week, I cannot comment too much on funding for the IOPC, but I am sure we will revisit that in due course. If the noble Baroness wishes to question that post-Wednesday, we can discuss then the adequacy or otherwise of the budget for the IOPC.
Earl Attlee (Con)
My Lords, I strongly support the Statement and everything the Minister has said. However, he will be aware of my report of the harassment of the heavy haulage industry by West Midlands Police. As I stated in that report, I have personally observed West Midlands Police officers harass drivers of a highly respected heavy haulage company. Ministers keep telling me that this is an operational matter for the police. How egregious and widespread does this police harassment have to be before Ministers will do something about it?
Lord Hanson of Flint (Lab)
I am grateful to the noble Earl for his welcome for the Statement. On the West Midlands Police, he will know that there are mechanisms in place to make reports to tackle any poor behaviour. Most police officers follow a code that is appropriate and proper, and they can be held to account. I am not aware of the case, having been in post for just four months, but if there are areas of concern, the noble Earl should follow the mechanisms of complaint. If he is unhappy with that, he can seek redress in other ways.
Lord Woolley of Woodford (CB)
My Lords, I do not want to add to the debate on the Chris Kaba incident, as a lot has been said in this House; however, I pay tribute to all officers who put their lives on the line for us on a daily basis. I want to talk about a more fundamental point that this House must not ignore. In Britain’s black communities, there is an all-time distrust in our policing. It is no surprise that people are outraged when they see, for example, the stop and search of the black middle-class couple Bianca Williams and Ricardo Dos Santos, who were wrenched from their car with a baby in the back, and after which the police officers had no charge to answer in many respects. If we are to police by consent, we must build trust, and that will take a lot of time and effort from everybody involved.
Lord Hanson of Flint (Lab)
The noble Lord is absolutely right that policing is undertaken by consent. To have that consent, policing needs both to reflect and to understand the community. I have no problem with police officers stopping and searching individuals—that is part of the prevention of criminal activity—but they need to do so in a way that is conducive to consent and to community relations, while having full accountability and explaining why and how those activities have taken place. The noble Lord’s point about the disregard between members of the black community and the police is a source of deep sadness. Many of the people who were involved in, and have been killed by, some of this concerning behaviour were innocent people from the black community. Therefore, trust is a long-term measure. My right honourable friend the Home Secretary is trying to build a stronger mechanism of community policing, but I will certainly take on board the points the noble Lord mentioned, and we will reflect on how we can build that confidence in the community to ensure effective, proper policing.
Lord Jackson of Peterborough (Con)
My Lords, I declare my interests as set out in the register. I welcome the Minister’s typically sensible and pragmatic approach to this issue. Does he agree that we have to strike a balance in the bulwark of our system, which is judicial independence, notwithstanding the sui generis nature of the Kaba case, but that part of the review should also include the not quite unprecedented but unusual decision by the judge to release the name of Sergeant Blake, which had massive ramifications? That should be part of the review, because there has to be a robust evidential basis for a decision to plunge that officer potentially into a very difficult situation by removing anonymity.
Lord Hanson of Flint (Lab)
My response to the noble Lord will not be critical of the judge. I simply say that, having seen the implications of that decision, my right honourable friend and I have taken the view that anonymity is the best way to protect the safety of anybody charged with these offences who is a police officer. I hope that Members of this House who have a judicial background will not take that as a criticism. It is a way in which we can review what has happened in this case, and the consequences of what happened after naming the individual, and try to put in a framework that in due course will potentially have legal backing from this House and the House of Commons.
Baroness Deech (CB)
My Lords, the attention of the House today is rightly turned on relationships between the police and the black community, but there is another sector of the community that feels completely abandoned by the police. Week after week there are marches through the centre of London: pro-Palestinian, anti-Israel, with anti-Semitic slogans and violence. On Sunday the police did nothing while a violent mob gathered outside the leading Jewish community centre in London, to the great distress of those attending a meeting there. When someone pushes back against that, they get arrested rather than the anti-Israel demonstrators in a way that I do not think would happen if there was a right-wing demonstration. I am saying not that there is two-tier policing but that the police are turning a blind eye to a very dangerous and difficult situation. For example, the blockade of Tower Bridge only nine days ago was hardly reported. Will the Minister remind the police that a great deal of anti-Semitism and violence is demonstrating itself on the streets of London? It must be stopped if trust is to be rebuilt.
Lord Hanson of Flint (Lab)
I am grateful to the noble Baroness for raising that issue. I do not believe there is two-tier policing. I believe the police act impartially against anybody who is committing an offence, and the police will act in that way against anybody who is perceived to be committing an offence. If the noble Baroness has concerns over that, maybe she should raise them with the Metropolitan Police Commissioner, who at least can be aware of her concerns. Ultimately, I believe that police officers will act against criminality and that no judgmental decision is made by the police one way or the other. If criminality occurs, the police should act and arrest; if that arrest is taken forward, the CPS should prosecute, and the court under a jury system should determine.
Water (Special Measures) Bill [HL]
(1 day, 4 hours ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
“Purpose(1) The purpose of this Act is to put in place measures to address river pollution by water companies and water and sewerage companies.(2) The Secretary of State and, as the case may be, the Water Services Regulation Authority must have regard to the purpose set out in subsection (1) in implementing the provisions of this Act, and in doing so must also have regard to—(a) the need to meet the biodiversity targets set under sections 1 (environmental targets) and 3 (environmental targets: species abundance) of the Environment Act 2021, and(b) the current or predicted impacts of climate change identified in the most recent report under section 56 of the Climate Change Act 2008 (report on impact of climate change).”
Baroness Willis of Summertown (CB)
My Lords, in moving Amendment 1, I will also speak to Amendment 91 in my name. These amendments seek to set a strategic direction for the Bill and, crucially, to apply a new duty on the water regulator to take account of—and take all reasonable steps to ensure that Ofwat and, by extension, the water companies that it regulates, contribute to—our targets under the Climate Change Act and the Environment Act. It would have immediate effect outside the price review process by applying climate and nature considerations into yearly in-period determinations. I am grateful to the noble Baronesses, Lady Parminter and Lady Young of Old Scone, and the noble Lord, Lord Randall of Uxbridge, as well as the Blueprint Coalition, for their support.
As the first speaker in Committee, and conscious that I was not here at Second Reading, I will quickly say that I fully support the general intent of the Bill and note that this is just one stage of the Government’s wider plans for tackling water pollution. While I do not have major issues with what is in the Bill, it presents us with a legislative opportunity to strengthen the regulator to ensure that Ofwat has the duty to contribute to the delivery of our climate change and nature targets. This is a key chance to modernise Ofwat’s remit and ensure that it is fit for purpose.
As we all know and hear daily, the water industry has a huge impact on our natural environment. Its shortcomings and their effects are well documented—I will not repeat them here—but it is not just the shortcomings of the water industry. It is hard to imagine that these shortcomings would have been possible with a regulator which had a remit that also ensured it took these issues seriously. But the fault, or reason, does not lie simply with Ofwat. It lies with the duties it has—or, more importantly, does not have—which have been legislated by this Parliament over the past three decades. In short, there is a misbalance between what Ofwat currently does and prioritises and what the Government and the public would like us to do: ensure that industry cleans up its act.
In Ofwat’s duties there is no mention of climate change—which is going to make its job harder as we experience more erratic weather events—or biodiversity, on which we have binding targets that will be impossible to achieve without putting an end to sewage pollution in our rivers. We can all acknowledge that the regulators are busy and, without these targets on their list of things to do, this will continue to fall by the wayside or be deprioritised, as it so obviously has been in recent years. That is why I have tabled Amendment 91, which would help the Government and the public to ensure that a greater contribution is made by the sector. With a clear duty, it would mean that the regulator has to further two of the Government’s core aims.
Amendment 91 would amend the Water Industry Act 1991, which established Ofwat, to require it to take all reasonable steps, in exercising its powers, to contribute to the achievement of our biodiversity targets under the Environment Act and our net-zero targets under the Climate Change Act, and to adapt to the impacts of climate change. Such a duty is currently missing from Ofwat’s governance.
Ofwat’s current primary duty, set under Section 2 of the Water Industry Act in 1991, is
“to further the consumer objective … to protect the interests of consumers, wherever appropriate by promoting effective competition”.
Section 3 goes on to state that Ofwat’s work to further the conservation of flora and fauna should be undertaken only as far as is consistent with the primary consumer objective. This clear subordination of environmental considerations to economic ones was not corrected by the introduction of a rather muddled resilience objective in 2014 and was actively exacerbated by the 2024 imposition of a new statutory growth duty on Ofwat
“to have regard to the desirability of promoting economic growth”.
In a speech in the other place last Wednesday, the Secretary of State announced an independent water commission that
“will ensure that we have the robust regulatory framework that we need to attract the significant investment that is required to clean up our waterways”.—[Official Report, Commons, 23/10/24; col. 279.]
That is good and welcome, as is the text in the notes that it must consider alignment with net-zero objectives. However, I went back through it and did a word search. Nature is mentioned once in the notes and there is no mention at all of biodiversity or of consideration of alignment with our mandatory targets for biodiversity, as outlined in the Environment Act and associated secondary legislation.
Is it relevant that we are asking Ofwat and, through it, our water companies to look at the biodiversity and water targets? Over the weekend, I went back and looked at the 2030 species abundance target, which was one of the biodiversity targets that was published as a statutory instrument in January 2023. I counted the list of species that will contribute to this target; included are 244 freshwater invertebrate species, which absolutely require clean water; 40 species of birds that forage and nest in riverine environments—that is 25% of the total list of bird species; and 48 plant species associated with, or growing in, rivers, streams or marshy freshwater environments, which is 22% of the plant list. By the most basic calculation, almost a quarter of the plants and birds on our species abundance list—the list that will be used to check whether we meet those targets—and 100% of our freshwater invertebrates rely on clean, unpolluted rivers to thrive, yet we have no statutory purpose or duty for Ofwat to look at this. Many of those species will not recover unless we improve the quality of our rivers, so this is a fundamental part of what we should be looking at. We urgently need every water company to acknowledge the Environment Act targets and for Ofwat to measure their performance against them.
It may well be argued that this would be covered by the independent water commission review, but there is an issue of timing as well. Even if these biodiversity targets are included as part of the consultation outlined by the Secretary of State last week in the other place, it will not, as stated, have any findings until the first half of 2025; and because of the current price review processes, changes will likely not come into effect until 2029 to 2030, which, if I have understood correctly, means they would be implemented after the biodiversity target to halt species decline in 2030 has come and gone. Perhaps the Minister can clarify on this.
A review is not legislation—I do not need to remind people in this Committee of that. Legislating for a climate and nature duty for Ofwat early in this Parliament would allow benefits to accrue ahead of the looming environmental deadlines falling at the end of Parliament, including the previously stated 2030 biodiversity targets. If we do this now, with a duty that will come into force in 2025, we can build these environmental objectives into work on the next price review from the start, as well as applying climate and nature considerations into yearly in-period determinations and everyday decision-making.
In summary, it would be counterproductive not to take this opportunity to give Ofwat a new duty to help ensure that we meet our climate and, crucially, Environment Act habitat and species targets. I hope we can find some agreement there.
The public were clear at the election that they expected change and that protecting and restoring our environment, including biodiversity, is a priority. This amendment would be a simple, proportionate, pragmatic and positive change that we could make today. I beg to move.
Baroness Parminter (LD)
My Lords, I will be brief because the noble Baroness, Lady Willis, has set out clearly the case for a duty for Ofwat to deliver on the Government’s biodiversity and climate change objectives. I just want to pick up on the point about the review, because I think the Minister will say, “This is a fantastic amendment, but we just need to wait for the review”, and there are three reasons why this Committee will find that response unsatisfactory.
The first point is that made by the noble Baroness, Lady Willis, which is around the timing of the review, which we all welcome, but we do not know when exactly it is going to finish. Of course, by the time it is in legislation, and we do not know when there is going to be a slot, we could have missed our biodiversity targets, let alone our climate target.
Secondly, there is nothing in this amendment which is not already Government-stated policy. It is Government-stated policy to deliver on our biodiversity objectives, to move towards our climate change objectives, and to adapt to respond to those. So why do we need to wait for the review? There is nothing about putting this in legislation now which is counter to the Government’s position and therefore there is no barrier.
Thirdly, the wording is rather clever. It does not say “Ofwat”; it talks about “the Authority”. So, whatever the review decides, it is relevant. It is also clever because it says that it must “take all reasonable steps”. Again, it is not precluding or being prescriptive about that future authority; it is just setting the parameters.
It is a very well-crafted amendment and I think the Committee will be deeply disappointed if the Minister comes back and just says we should wait for the review. It would also make us question what the point of the review is, and we would not wish to do that because we have the highest regard for the Minister. If the Government are not prepared at this stage to put in the Bill that part of the review is to ensure that we deliver on our environmental and climate targets, then how can we be sure the review is going off on the right foot?
Baroness Young of Old Scone (Lab)
My Lords, I add my support to these two amendments, to which I have put my name. I was pondering why Ofwat lost the plot on the environment around 2010. In a way, it is not surprising, because the reality is that it was getting a strong steer from government that the important thing was to keep bills down and that everything else should take second place. It was eminently possible to say that to Ofwat because the number of objectives and duties that it had been given was quite a large, disparate and often conflicting set and was growing yearly.
Ofwat currently has a primary duty under Section 2 of the Water Industry Act 1991 to
“further the consumer objective … to protect the interests of consumers, wherever appropriate, by promoting effective competition”.
That really became the sole mission of Ofwat in the 2010s.
Section 3 says that Ofwat’s work to further the conservation of flora and fauna should be undertaken only as far as it is consistent with the primary consumer objective. So, there is a “get out of jail free” card for Ofwat about environmental improvement and biodiversity decline and they take a very second-class seat. Ofwat also has a duty for pursuing sustainable development and a whole suite of environmental and recreational duties.
In 2014, a very muddled objective was added to Ofwat’s increasing list relating to resilience. In 2024, Ofwat got a statutory duty to promote growth. If one was being benign towards Ofwat, one could say that perhaps it was a bit confused by a number of directions which were mutually inconsistent, but the primary one was that Ofwat was told very firmly to keep prices down, and it pretty well did that in terms of the environmental elements of successive price rounds since then. Had Ofwat been challenged at any point as to whether it was meeting these duties, many of which are about contributing to or furthering or having regard to, it would have been very easy for it simply to construct arguments that demonstrated that it had a limited compliance with almost anything and to deliver nothing that it did not want to deliver.
The Minister will no doubt say that the broader review which has been referred to will consider how to streamline and focus Ofwat’s duties, and I agree that that is important and that the review should do it, but I share the views expressed that we cannot wait that long. The review will report eventually and there will be a delay while legislation comes forward. This amendment, which gives equal prominence to environmental duties and consumer duties, is fundamental if Ofwat is going to immediately play its full part in meeting the legally binding targets of the Environment Act and the Climate Change Act. At the end of the day, though I gather the debate on climate change last Thursday tried to deny it, these are in fact existential issues, which is why there are legally binding targets on both climate change and biodiversity.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate the Minister on bringing forward the first Defra Bill to Committee stage; I congratulate the noble Baroness and those who supported the amendments moved.
I wish to add a note of caution and I declare my interests in the register: not least, I am an officer of the All-Party Parliamentary Water Group, and I worked for five years with the water regulator for Scotland, the Water Industry Commission for Scotland. The degree of caution I would like to urge in this regard is that I believe we are already committed in law. The Water Industry Act 1991 reflects that very carefully, as do the Environment Act and the Agriculture Act and others, not least the Flood and Water Implementation Act 2010, which is built on that.
I urge the Minister to be cautious in trying to reach a balance both in the Bill before us in Committee today and, more especially, the review to which other noble Lords have spoken, which we will go on to consider. I believe that the balance is currently right but falls heavily on the side of environmental benefits. I do not think that it is entirely clear what the costs will be.
I will issue a note of regret that I have not had the chance to go through the 87 pages of the impact assessment, which was released only on Thursday when I was due to speak in a debate on the Friday—literally, the first working day before Committee. One thing I have picked up that the impact assessment looks at is what the cost of natural capital and decarbonisation, for example, would be. I would certainly like more information on this, if possible. In relation to natural capital and decarbonisation, it says:
“This measure will help to protect the Water Environment and improve the state of the UK’s natural capital. The measure will ensure Water Companies take steps to protect the environment”.
It goes on to say:
“The measure is not expected to significantly impact greenhouse gas emissions”.
That is possibly debatable.
We will go on to discuss my main concern in greater depth in relation to amendments in my name in later groups, so I will not argue this at length now. However, I was absolutely astounded to learn this week that water companies are prevented from encouraging customers to take water efficiency measures. This addresses the point raised by the noble Baroness, Lady Young of Old Scone—a very pertinent point in this regard—about keeping customers’ bills down, which has been the concern of successive Governments as well as of the Consumer Council for Water, Citizens Advice and many MPs, as I found when I was next door, along with other noble Peers.
I am concerned that the definition of “wholesome water” is focused entirely on environmental matters and does not allow for measures to introduce water efficiencies, which I think all noble Lords would sign up to, such as recycling grey water to wash vehicles and, possibly, even dishes. I am a firm believer that clean drinking water coming into the home should be kept precisely for that purpose. It is extremely expensive to produce. We should keep drinking water for the purposes of drinking water. We should seek at every opportunity to encourage water companies to encourage their customers, in whichever area they live. In an area of hard water, for example, it is more difficult to work up a lather. Water companies are best placed to know the water quality in that area and I believe they should be allowed to address it.
The second thing that astounded me this week was that Ofwat had taken away some of the powers for water companies to introduce water efficiency schemes. It took some of those moneys away for better use—to give back as grants for water efficiency. I have no truck with Ofwat in this regard, but I would argue that water companies are better placed to know what water efficiency measures will work in each region in which they operate.
I conclude by saying that, while I listened very closely and admire the eloquence and knowledge with which the noble Baroness, Lady Willis of Summertown, moved the amendment, I think we have to err on the side of caution and make sure we are allowing the water companies the tools they need to do the job, to ensure that we preserve as far as possible drinking water for drinking water purposes, and allowing them to roll out measures to ensure that water efficiency going forward will encourage us all to use water differently. They are currently prevented from doing that by the definition as I understand it of “wholesome water”. We will go on to discuss that at a later stage, but one has to be cautious with the best intentions that are sometimes expressed in these amendments.
Lord Cromwell (CB)
My Lords, I also add my support for these amendments, and I agree with much of what has been said already. On the matter of water usage, I have lived in deserts and I find the idea of people power-washing their cars with pure drinking water in this country extraordinary. But that is where we are today, I guess.
Why do I support these amendments? It is simply because it is vital that this Bill is consistent with existing policy and legislation to which it naturally links. The only reservation I have, which may be something that comes out of the review, is that it brings us back to the question of whether Ofwat and the Environment Agency should be a single agency or two separate ones with a division of responsibilities.
Lord Blencathra (Con)
My Lords, I declare my interests as on the register. I thank the noble Baroness, Lady Willis of Summertown, for moving the amendment and for the interesting points she makes regarding the importance of clarifying the intention of this Bill. As we said at Second Reading, we are committed to cracking down on pollution by water companies and we support the Government’s intention to deliver effective measures that bring polluters to justice. While government can always do better, we are proud of our record in the past: we increased the number of storm overflows monitored across the network from 7% in 2010 to 100% today; and the Thames Tideway Tunnel is now complete.
So we on these Benches share the Government’s concerns about the many instances of water and sewerage companies discharging pollution in recent years. This poses a risk to those who use and enjoy our waterways and is causing serious damage to the environment. It is imperative that the Government continue to build on the progress the previous Conservative Government made on improvement, monitoring and tougher action to tackle sewage overflow incidents.
The Government are right to prioritise this issue, but we have serious concerns about the impact of this Bill on the water industry that we expect to explore as we go through Committee. I reiterate my thanks to the Minister, who has continued to engage constructively with us. I am grateful for the time she has given us in the lead-up to Committee. I hope we will continue to make constructive progress and improve this Bill for the benefit of all stakeholders—cost-effective water for consumers and security for the 100,000 employed in the water industry—while protecting the Government from financial risk and restoring our natural environment and incentivising investment.
Amendment 1 would make the purpose of the Bill clear and place a duty on the Secretary of State to have regard to that purpose, as well as the need to meet certain biodiversity targets and the current unpredicted impacts of climate change. The noble Baroness, Lady Willis, is right that we should take every opportunity to improve biodiversity, and there is an opportunity in the Bill to deliver transformative change for our rivers. We have amendments coming up in later groups that would help to incentivise the industry to invest in catchment restoration. That would not only improve water quality and flood management but contribute to nature restoration, biodiversity protection and, more importantly, the recovery of our biodiversity.
The Government want to keep the Bill narrowly focused on the regulation of water companies and their manifesto commitments on penalties for water companies, with the promise of further reform soon. We on these Benches are disappointed that the Government have not brought forward more comprehensive reforms in the Bill. If the promised water Bill does not materialise next year, it would not be the first time that a Government had delivered just partial reform.
We want to see a more ambitious approach from the Government, focused on the whole water sector and not just penalties for water companies—or for executives of water companies. For that reason, we believe there are areas beyond the Government’s fairly narrow focus in the Bill that ought to be included and should not be put at risk by the unclear timing of the future water Bill. The Minister has previously spoken about the need for incentives to attract talent to the sector, as well as an effective penalties regime. We need whole-sector reform if we are to deliver the clean rivers and healthy environment that people across the country are calling for. We support the spirit of the amendment by the noble Baroness, Lady Willis. We on these Benches agree that the Government must go further than the measures included in the Bill, and must do so urgently.
Amendment 91 similarly seeks to place duties on the Secretary of State to take reasonable steps to contribute to the achievement of our biodiversity targets and our climate change targets and to adapting to the impacts of climate change. The Minister will know that, in 2023, the last Government published the first ever comprehensive Environmental Improvement Plan, setting out targets and indicators for water-quality improvement.
Over 25 pages of the plan are devoted to water and targets. There were targets to reduce nitrogen, phosphorus and sediments; a target to halve the length of rivers polluted by abandoned mines; an interim target to construct eight water treatment works; targets on reducing water waste, reducing leakage by a further 20% by 2027; a target to restore 75% of our water bodies to good ecological status; a target to require water companies to have eliminated all adverse ecological impact from sewage discharges at all sensitive sites by 2035 and all other overflows by 2050; a target to create a level of resistance to drought so that emergency measures are needed only once in every 500 years; a target to direct water companies’ fines relating to environmental breaches to improving the water environment; a target to crack down on sewage pollution by holding water companies to account for delivering the targets set out in the Storm Overflows Discharge Reduction Plan; a target to require water companies to upgrade 160 of the wastewater treatment works to meet the strictest phosphorus limits by 2028, with a further upgrade of 400 of them by 2038, which would reduce nutrient pollution from treated wastewater; and—of great concern to me—a target to protect our chalk streams by supporting the chalk stream strategy. Lastly, there was a target to make sustainable drainage systems mandatory in new developments, subject to final decisions following consultation on scope, threshold and process.
I mention those targets to show that the Opposition are not coming here to say that we have just discovered some good ideas and actions for the future. We have a track record of setting tough targets, and they are in the EIP. These targets are specific to water quality and will greatly increase biodiversity. They are not just reasonable steps but specific, measurable targets.
The Government have said that they are urgently reviewing the latest EIP, which is about to be published. I do not expect the Minister to say what the tweaks will be, but can we expect any changes to the water EIP targets when the Government publish them? We share the ambition of the noble Baroness, Lady Willis, for water sector reform, and we hope that the Government will listen to the concerns of noble Lords, who are calling from all sides of the Committee for a more ambitious approach.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank the noble Baroness, Lady Willis of Summertown, for her interest in and general support for the Bill. I am sure that, despite missing Second Reading, she will make a very valuable contribution to Committee.
As I set out at Second Reading, the purpose of this Bill is deliberately narrow in order to improve water industry performance as an urgent priority. On her Amendment 1, I agree with the noble Baroness that addressing the wider issue of river pollution arising from water and sewerage companies’ operations is of critical importance, as of course is meeting our biodiversity targets. The noble Baroness, Lady Parminter, said that she hoped I was not going to just refer to the review, and I am sure she will be delighted to know that I am not.
The noble Baroness, Lady McIntosh of Pickering, made the important point that we already have commitments in law on this; we already have targets that we need to be meeting on biodiversity and the wider environment. It is important to stress that we must have regard to the Climate Change Act in this space. The Government are already required to meet the legally binding targets under the Environment Act 2021 and the Climate Change Act 2008, and to set out their plans to adapt to the impacts of the changing climate.
As the noble Lord, Lord Blencathra, just mentioned, we are doing a rapid review of the environmental improvement plan. This is because we are serious about meeting the Environment Act’s biodiversity targets. We did not feel that it was fit for purpose to meet those targets, which is why we are doing this review—to protect and restore our natural environment and come up with a delivery focus to help meet very ambitious targets.
Ofwat—I think the noble Baroness, Lady McIntosh, mentioned this—has a core duty under Section 2A of the Water Industry Act 1991 to work towards strengthening resilience. This duty ensures that Ofwat is already required to promote long-term planning for water companies to adapt to environmental pressures, including climate change. I take on board the comments of my noble friend Lady Young of Old Scone, who felt that Ofwat at some point lost the plot. This is why we need to look at the role of regulators through the review—I am afraid I will be mentioning the review from time to time today.
I hope that the noble Baroness, Lady Willis, is reassured that the Government share her ambition to tackle the wider issues of river pollution, biodiversity and climate change. I hope she understands that, because we feel we are already acting in this space through legislation that is in place, we will not accept Amendment 1.
Amendment 91 was also tabled by the noble Baroness, Lady Willis. In addition to the duty under Section 2A, Ofwat has a core duty under the Water Industry Act to work to ensure the long-term resilience of water companies’ supply and sewerage systems. Furthermore, on 23 October the Government announced the independent commission into the water sector and its regulation. This is intended to be the largest review of the industry since it was privatised, and part of the development of further legislation, not just a review. We want it to have a positive end in tackling the problems we see in our water industry. The objectives of this independent commission will include ensuring that the water industry regulatory framework delivers long-term stability to restore our rivers, lakes and seas to good health, to meet the challenges of the future and drive economic growth.
I hope the disappointment of the noble Lord, Lord Blencathra, will be replaced with excitement when he sees that these will form the basis of this further legislation to attract long-term investment and set out recommendations to deliver a collaborative, strategic and, importantly, catchment approach to managing water, tackling pollution and restoring nature.
The noble Baroness, Lady McIntosh, made a specific point about the impact assessment. I do not have the assessment in front of me, so I am not entirely sure what section she was referring to. I hope she and I can catch up following Committee and discuss this, so I can answer her questions in more detail.
The commission’s terms of reference do include environmental aspects. The commission’s objectives include to “support best value delivery” of environmental outcomes, and to:
“Rationalise and clarify requirements on water companies”
to achieve better environmental outcomes. Furthermore, under “approach and deliverables”, it says that the chair
“will invite views from an advisory group of nominated experts, covering areas including the environment”,
and
“will also seek views from wider groups of stakeholders, including environmental campaigners”.
Therefore, we are trying to make sure that, as well as meeting the targets already in legislation, we put the environment at the heart of what we are doing.
I hope that the noble Baroness, Lady Willis, is reassured that these two new Clauses are unnecessary as they overlap with existing government requirements, Ofwat’s core duties and our ambitions for the future. I hope she will take an active part in what we are trying to achieve with the commission, and I thank noble Lords for their engagement on these important matters.
Baroness Willis of Summertown (CB)
I thank the Minister and everybody else who has contributed to this discussion on my amendment. I am not going to repeat the valid and important points that have been made, but I will respond to the noble Baroness, Lady McIntosh, on the term “caution on costs”. There is a lot of debate about costs, and nature-based solutions can often be much cheaper while also elevating biodiversity. For the last 20 years we have been told to be cautious about costs and on-costs, and as a result our species targets have gone down and down. The time has come to redress that balance, and I look forward to debating this another time.
On the commission, I appreciate the Minister’s comment that we already have commitments to the environment in the Environment Act and the Climate Change Act. However, I was shocked when I discovered over the weekend that, according to the list of protected species that we want to stop the decline of by 2030—not 2035—25% of plants and birds and 100% of freshwater invertebrate species rely on clean rivers. Therefore, while I am delighted about the commission and will absolutely get behind it and join in, it is going to be too slow and too late to achieve the biodiversity targets we set out in the Environment Act. I look forward to picking up this issue on Report, but for now I beg leave to withdraw the amendment.
Earl Russell
Member’s explanatory statement
This amendment requires Ofwat to issue rules about remuneration and governance.
Earl Russell (LD)
My Lords, in rising to speak to this amendment, I declare my interests as set out in the register. I wish to inform the Committee that my noble friend Lady Bakewell is unwell and unable to attend today, so I will be speaking to many of her amendments as well as my own. This second group of amendments concerns the rules for renumeration and governance, and Amendment 2, tabled by my noble friend Baroness Bakewell, requires Ofwat to issue such rules.
This Government are seeking to strengthen the measures in this Bill by making them firm commitments with due weight in law, and not merely the vague assumptions as currently written into the Bill. We on these Benches have little faith that, without this amendment, the water companies will keep to the spirit of the law on these matters. I have a very similar “must” to “may” amendment, Amendment 24, in group 6, and I shall make general points on both in this speech. We have strong grounds for taking such a position, based on the past performance of the water companies themselves, especially in relation to awarding pay and bonuses and returns to shareholders, which have always come first. Meanwhile, investment in infrastructure and the protection of our environment from the harm these companies have caused and continue to cause have always come a very distant second, if at all.
By way of a very brief introduction, we would of course prefer it if this Government had a more comprehensive and clearer set of plans in place to make more rapid progress on these matters. We on these Benches are clear that we would abolish Ofwat and replace it with a new, unified and far more powerful clean water authority, and we would make water companies public interest companies. This Government have taken a different route and are of a different opinion, believing that the shopping list of measures in this Bill can bring improvements that will hold while a full review is undertaken, before fuller and more fundamental reforms are implemented later on.
We welcome the announcement of the review, but I share the concerns expressed by the noble Baroness, Lady Willis, particularly about our commitment to 30 by 30 and further delay on these matters. The trick for the Government is to make sure that they can make the rapid change required and make Ofwat fit for purpose, since that is their stated intention, and to put in place all our environmental regulations and protections in the timeframes available. That is a bit of a magic trick, and I remain to be convinced that the Government will be able to pull it off, so that is a key concern for us.
We will work to support the Bill where we feel that it brings improvements, and there are many measures that we welcome and will support. We thank the Government for bringing them forward and signalling the future direction of travel and intention to take these matters very seriously. But the measures are really a list of stopgaps and quick fixes, intended to make the system work somewhat better than it has until the full review is finished and implemented. These measures come first and will need to work alongside any further actions. That is something we will need to think about in Committee—how the measures and amendments we are bringing forward and discussing today might work with potential outcomes from the review that is yet to come.
For the measures in the Bill to work, even the stopgap measures, the clauses need to be strong and effective. If they are not firm or binding, or can be easily ignored or circumvented without clear consequences, they simply will not work or do what they are intended to do. This is one area of the Bill that we think can easily and should be strengthened, so that it has the intended and required effect. The wording here as it stands is simply not strong enough. We cannot allow weak and ineffective measures to stand while the country waits for the Government to consider making further legislative changes post the review, and these then to pass through Parliament, to be enacted at a much later stage, which, as we have heard, could be by 2030. I seek clarification from the Minister as to when those measures will go through that process and come into force.
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 our rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours-worth of untreated sewage discharges in England alone. 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, yet they were privatised debt free. The levels of executive pay and remuneration have rightly caused outrage across the country, as water bosses have got even richer as our bills have got even higher and we face more and more pollution in our rivers and streams.
Clause 1 amends the Water Industry Act 1991 to insert new Section 35B, which links the remuneration of water company directors to the meeting of a single set of specified standards, which include environmental standards. This is a welcome and long overdue measure. Performance-related pay and profits must be linked to the outputs achieved, and investment and environmental standards must be the benchmarks. While the intention is clear, the determination of the proposed legislation is weak. As drafted, it simply says that the authority “may” issue such rules. That is neither clear nor well-defined enough as it stands. The Bill must ensure that Ofwat issues clear and well-defined guidance, in a defined timeframe. What is written is not enough and brings no guarantee that Ofwat will issue such guidance, with no means of holding it to account if it decides that it is simply not minded or does not see any need to issue any guidance.
The Duke of Wellington (CB)
My Lords, first, I congratulate the Government on having set up, last week, the review under Sir Jon Cunliffe. That is an excellent move by the Government; a very respected individual will carry out the review, and a number of us have been asking for this for a while. I really think the Government have made a wise decision.
I want to comment on Amendment 2. I have sympathy with “must” rather than “may”, but I have a reservation about the then wording, “must issue rules”. It seems to me that it is necessary for the authority to issue what I would prefer to call “guidance” rather than “rules”. That would give a certain flexibility to individual companies—no two companies will ever have the same set of circumstances, either among their executive management or in the environment in which they are operating. I ask the Government to consider changing the wording of the clause, so that it reads: “The Authority must issue guidance about the arrangements made by relevant undertakers”.
There is no doubt that the water companies have abused the total independence they have had to date around setting remuneration and everything associated with it. They are monopolies, and I think they have gone too far. Many people have been rather dismayed to see the levels of executive remuneration. I ask the Minister to consider changing “rules” to “guidance”. That would be a great improvement.
On Amendment 3, in a light-hearted manner I point out to the noble Lord, Lord Remnant, a misprint, where his amendment refers to “renumeration” rather than “remuneration”. I am sure that that is an oversight which he will have already noticed.
There is a good point in the amendment from the noble Lord, Lord Remnant, in his proposed new Section 35B(1B)(b), about the importance of attracting, motivating and retaining persons of sufficient quality to work in the industry. We must all remember that what we all want is better-run water companies. I do not think we should be tying too tightly the hands of remuneration committees and the board in general in how they attract and retain executives. I am very persuaded by that particular aspect of the noble Lord’s amendment, but I worry about seeking to define too closely exactly how water companies should make their remuneration arrangements.
Lord Remnant (Con)
My Lords, I will speak to Amendment 3 in my name and I apologise for the typo. I had noticed it, but only recently, and only a moment or two before the noble Duke, the Duke of Wellington, brought it to the Committee’s notice.
As we know, Clause 1 contains rules about remuneration and governance. Most importantly, it contains provisions giving Ofwat the power to block the payment of bonuses to senior executives of water companies. My amendment clarifies that Ofwat’s powers under this clause cannot be exercised in a way which conflicts with its general duties with respect to the water industry and emphasises that the industry’s capital and human resources needs are of critical importance. 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.
Why is it that these clarifications are required? Essentially, it is because we are giving extremely wide powers to Ofwat to draft rules in a very complex area, seemingly at its discretion and without further scrutiny by this House, which may have many unintended and harmful consequences. There is no clarity in the Bill on the appropriate targets and performance standards, how they will be measured, when relevant triggers occur and which remuneration, in which year, will be affected. This will all be for Ofwat to determine—yes, Ofwat.
I have huge sympathy for regulators—I was one myself for a period, running the Takeover Panel—and know that they attract only criticism and never praise. Having said that, I thought the mood of your Lordships at Second Reading was especially stark in expressing views about Ofwat’s past performance, and some of those views have already been reiterated in the short time we have had today. That was as regards its role as an economic regulator—its core competence. We are now effectively extending Ofwat’s remit into difficult areas of fine judgment best left to company boards and for which Ofwat is totally unsuited. Can we be so reassured by the integrity of the ensuing process and the safeguards built in that my concerns can be assuaged by leaving this clause unamended? I fear not.
First, it offends the principles of natural justice, as there is no distinction between the legislative process and the judicial one. The powers will lie with one body, Ofwat. It will make the rules and then judge companies and individuals under them. Secondly, the Minister may refer me to the consultation process which Ofwat will undertake, to which she drew the attention of your Lordships in her helpful letter dated 25 October. I welcome that, although it would be a heroic achievement for Ofwat to decide definitively on such a wide range of questions and responsibilities that this Bill, if enacted, will impose on it. Yet we all know that consultation is no panacea. The responses will contain many conflicting views and the conclusions that Ofwat will reach will be influenced by the weight it gives to particular views and to some preconceived ideas that it will inevitably hold.
Thirdly, there will be no opportunity for your Lordships to scrutinise the rules promulgated by Ofwat. For this reason, I support the thrust of Amendment 27 in the names of my noble friends Lord Roborough and Lord Blencathra and Amendment 25 from the noble Lord, Lord Sikka, which are designed to achieve such scrutiny. I will leave those noble Lords to talk to them in more detail.
But is this enough? I suggest not, because the scrutiny so achieved would be after the rules had been made by Ofwat. There is a need to influence Ofwat’s thinking much earlier in the process. That is what my amendment is designed to achieve. It is drafted with an eye to the wider objectives to which this Bill should aim: the need for more innovation, the recruitment of new talent and, above all else, the greater investment required to raise standards.
The amendment is in two parts. First, it is designed to ensure that Ofwat does not exercise its powers in a way that conflicts with its general duties under Section 2 of the Water Industry Act 1991. Such duties include a consumer objective, a duty to have regard to principles of best regulatory practice and a growth duty. Indeed, Ofwat refers to such duties in its consultation document when it says that one of its desired outcomes is that the rules should be proportionate. That is to be welcomed.
The Minister may be tempted to say that existing duties in the Water Industry Act and Ofwat’s acknowledgement of them should satisfy me and render this part of my amendment redundant. Were she to do so, I would say that that might hold good if the Bill imposed some constraints on Ofwat rather than adopting a blanket “Over to you, Ofwat” line. In the same section of its consultation document, it appears to qualify its commitment to proportionality by saying that
“we will be bound by statute”—
presumably as a result of this Bill—
“to introduce rules with the requisite effect”.
It is therefore critical that there is not just implicit recognition of Ofwat’s duties under the Water Industry Act of over 30 years ago but explicit recognition of those obligations on the face of the Bill, linked directly to this new and additional power that we will be giving to the regulator.
The second part of my amendment requires Ofwat to have regard to two further considerations in exercising its powers under this clause: namely,
“the need for a relevant undertaker”—
the water company—
“to … attract the investment required for its capital programme, and … attract, motivate and retain persons holding senior roles”.
I can find no reference to these considerations in Ofwat’s consultation document generally, nor in the specific questions it proposes, yet the scale of the investment in the industry that is required is such that we cannot afford to deter that investment, or experienced executives from working in it. Unlike in the past, much of that investment will have to come from equity investors, who assume a higher level of risk than debt investors and have more of a vested interest in, and so take a more critical attitude to, the prospects of a company, its financial plans and, importantly, the quality of the management tasked with delivery.
There is a limited number of appropriately qualified and skilled candidates to take on the most senior roles in water companies, and one of the successes of privatisation has been the ability of such companies to attract successful individuals from outside the utilities sector. In a competitive world for talent, Ofwat should not introduce rules that put water companies at a significant disadvantage when recruiting and seeking to retain such staff.
When launching the independent review of the water sector last week, the Secretary of State was at pains to stress the importance of attracting the investment needed to clean up our waterways and rebuild our broken water infrastructure—and, specifically, facilitating a regulatory environment that attracts investment. The least we can do is play our part in supporting the Secretary of State in this noble endeavour. I should have thought that this amendment would be music to the Minister’s ears, so I look forward to her response with a great deal of hope and expectation, and indeed no little optimism.
Lord Sikka (Lab)
I will speak to Amendment 25. This amendment seeks to strengthen Parliament’s role in crafting and approving regulations for the water industry. The Bill as it stands asks people and Parliament to trust regulators, which the Bill calls “authority”—currently they include Ofwat and the Environment Agency—to make rules. Well, that trust has already been severely eroded.
Lord Roborough (Con)
My Lords, I thank the noble Earl, Lord Russell, for moving the lead amendment in this group. I will speak to Amendment 27 in my name.
Amendment 27 seeks to set a timeframe of six months within which the authority must publish rules regarding remuneration and governance, and it ensures that these rules are scrutinised by both Houses of Parliament through the affirmative procedure for secondary legislation. This amendment is necessary to ensure that water companies are able to review the rules that Ofwat intends to implement within six months of the Act coming into effect. The amendment will also ensure that there are mechanisms for raising any concerns within which Ministers and Parliament can scrutinise them fully.
Baroness Hayman of Ullock (Lab)
My Lords, clearly, public trust in the water sector has been severely damaged and the number of serious pollution incidents is increasing, as we heard very clearly from my noble friend Lord Sikka when he introduced his amendments. At the same time, companies have been paying out millions in bonuses. To rebuild public trust, the Bill enables Ofwat to issue new rules on remuneration and governance to ensure that companies and executives are subject to robust oversight and held accountable for failure. I thank the noble Lords who have tabled amendments relating to the application of these rules.
I will start with Amendment 2, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville. I thank the noble Earl, Lord Russell, for introducing it on the noble Baroness’s behalf and wish her all the best from these Benches. I also listened with interest to the suggestions made by the noble Duke, the Duke of Wellington. Clearly, he and the noble Earl, Lord Russell, had different opinions on the wording. Our approach is intended to strike a balance between the approaches suggested by the noble Lords, to give Ofwat some flexibility while ensuring that it issues rules in relation to our priority areas.
However, I emphasise that the provisions in the Bill state that Ofwat must exercise its power to set rules in relation to performance-related pay, fitness and propriety, and customer representation. Ofwat may also make rules about other remuneration and governance arrangements at its discretion, but it must take action regarding the specific matters referred to in the Bill. We are pleased that Ofwat is already taking action to implement these rules through the publication of its consultation announced on 22 October. This was referred to by number of noble Lords, including the noble Lord, Lord Remnant. I hope the noble Earl will tell the noble Baroness that we hope that this has reassured her that her amendment is unnecessary.
I turn to Amendment 3, tabled by the noble Lord, Lord Remnant. Ofwat has a range of primary duties, including acting to protect the interests of consumers, ensuring that companies properly carry out their functions, and securing that companies are able to finance the delivery of their statutory obligations. I assure the noble Lord that Defra has worked to assure agreement with companies to update their articles of association to place customers and the environment at the heart of business decisions which impact on consumers.
The noble Lord is correct that I am going to say that Ofwat’s existing duties are already consistent with the outcomes that this amendment aims to ensure. This includes ensuring due consideration of the human and capital needs of the sector. He also raised concerns about influencing Ofwat. The current consultation that I have referred to is an initial policy consultation which has been launched with the express purpose of inviting views early. This will be followed up with further statutory consultations, which will also take into account the views shared through this initial policy consultation.
I thank the noble Lord for bringing his knowledge and experience to the development of this legislation. It is very valuable to hear his contributions. However, I hope that he is reassured that, in setting the rules about remuneration and governance, Ofwat will continue to act in accordance with its core duties and understands that it is for this reason that the Government will not accept the amendment.
Amendment 25, tabled by my noble friend Lord Sikka, and Amendment 27, tabled by the noble Lord, Lord Roborough, relate to the timing and process for setting the rules for remuneration and governance. My noble friend took the opportunity to lay out clearly the many concerns around the behaviour of water companies and the ability of regulators to hold them to account. Ofwat is required to undertake statutory consultation with the relevant persons, which includes the Secretary of State, before any rules are finalised. Allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended, subject to the relevant procedural requirements, where it is appropriate to do so in the future. The Government and Ofwat agree that the rules should be in place as soon as possible after Royal Assent, and Ofwat intends to implement them following its statutory consultation, which, as I previously mentioned, has already been launched. I hope the noble Lords are therefore reassured their amendments are not necessary.
Finally, Amendment 101, tabled by my noble friend Lord Sikka, relates to dividend payments. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. Ofwat already has the power to stop the payment of dividends if they would risk the company’s financial resilience and to take enforcement action if companies do not link dividends to performance for consumers and the environment. The amendment risks deterring much needed investment in the sector. I highlight that the Government’s new independent water commission will look at how we can improve the regulatory framework to attract investment and support financial resilience for water companies. I hope this is helpful in explaining to my noble friend why the Government will not accept his amendment.
A few noble Lords talked about the importance of investor confidence and the impact that we could have on this and talent in the water industry. While we believe it is right that companies and their executives are held to account for basic and fundamental performance requirements, it is important that, should companies meet their performance expectations, executives can still be rewarded. The proposed £88 billion in investment under PR24 is the largest ever in the water sector and has the potential to create up to 30,000 new jobs. It is crucial that the sector can recruit the talent it needs to deliver the PR24 proposals, because improving the performance of the water industry will help the industry attract and retain talent. Private sector investment is also at the core of how we grow the economy, and the Bill is designed to deliver a clear and consistent regulatory framework for the water industry and its investors. Noble Lords may be interested to know that 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 of pounds in private sector investment that are desperately needed if we are going to clean up Britain’s rivers, lakes and seas.
Finally, I assure the noble Lord, Lord Roborough, that I always try to get on well and work constructively with everybody, including Ofwat. I once again thank the noble Lords for their suggestions and input to this discussion on the general application of the rules for remuneration and governance.
Earl Russell (LD)
My Lords, I thank the Minister for her comments. The noble Duke, the Duke of Wellington, put forward an interesting idea on issuing guidance, and it is one that I will take back to my noble friend for further consideration. The noble Lord, Lord Remnant, talked about the lack of ability to scrutinise the rules, the need to attract talent and the carrot and stick approach. The noble Lord, Lord Sikka, talked about broken trust, the poverty of regulations and the level of convictions in the water industry. His Amendment 101 would curb excessive dividends, financial engineering practices and practices inflating the worth of companies. The noble Lord, Lord Roborough, n his amendment said that rules must be published within six months and he talked about the powers of Ofwat being unchecked.
Lord Sikka (Lab)
Member's explanatory statement
This amendment seeks to confirm that all members of the board are held to account, in a way consistent with company law, and to remove any ambiguity in the Bill about what constitutes a senior role.
Lord Sikka (Lab)
My Lords, Amendment 4 seeks clarity as to what the Bill is getting at. The Bill’s intention appears to apply penalties to only selected directors and not the entire board of directors, even though decisions are made collectively. The Explanatory Notes say it commits to
“ban bonuses for persons holding senior roles”,
and the Bill defines a “senior role” as a person who
“is a chief executive of the undertaker”—
a somewhat unfortunate phrase—
“is a director of the undertaker, or … holds such other description of role with the undertaker”.
The tone of the Bill suggests that references may all be to executive directors, but we know that water companies also have non-executive directors, and under the Companies Act non-executive directors have exactly the same liability and responsibility as executive directors. The Bill does not mention non-executive directors.
Amendment 4 seeks clarity and asks the Minister to confirm that the prohibitions and penalties will apply to not only non-executive directors but legal persons who may be acting as directors, because natural persons can be directors as well as legal persons. I beg to move.
Lord Remnant (Con)
My Lords, I must admit to having experienced a degree of trepidation on discovering that I was to share a group of amendments with the noble Lord, Lord Sikka, and with him alone. Having listened to his views on the Bill in general, so eloquently expressed at Second Reading, I feared that we would find little common ground when debating particular aspects of it. Imagine my surprise, therefore, when I compared his Amendment 4, to which he has just spoken, with my Amendment 18, to which I am about to speak, to discover that we might have more in common than I had thought.
I think that some of the rationale behind Amendment 4 is misplaced. While I agree with the noble Lord that all members of the board under company law are held to account, performance-related pay is in practice paid only to executives, while non-executives are remunerated by way of fixed fee. Given that the provision to which Amendment 4 relates is in respect of performance-related pay, the inclusion of non-executive directors is of no practical importance. Notwithstanding this, Amendments 4 and 18 effectively would achieve the same practical impact in respect of the individuals to whom these remuneration rules apply. Amendment 4 would remove the reference to senior roles and replace it with a reference to directors of the company, while Amendment 18 would retain the concept of senior roles but effectively define them as directors of the company.
I do not believe that it is right for Ofwat to 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 Section 35A 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. Nor would such an extension be consistent with the general remuneration and corporate governance rules for listed companies, which do not extend to individuals below board level.
I hope the Minister agrees that, through the adoption of my amendment, this additional power conferred on Ofwat by the Bill should 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.
Baroness Pinnock (LD)
My Lords, I start by reminding the Committee that I have an experience, rather than an interest, as I was a non-executive director for a number of years on the board of Yorkshire Water. I reassure the noble Lord, Lord Sikka, that I never had a bonus during that time, for the reasons that the noble Lord, Lord Remnant, has explained.
This group of amendments follows on neatly from the previous discussion about performance-related pay and the remuneration of senior directors of water and wastewater companies, so I thought it was worthwhile to draw out a bit more of the debate around this issue. The fundamental problem lies in the fact that water and wastewater companies are regulated by a number of different institutions. Ofwat is the economic regulator and, because of the way that the water Act was written, is primarily looking at the financial performance of the water companies. That inevitably leads to a disregard for the environmental outcomes of water companies as a priority. Consumers, who see that their rivers, lakes and coasts are being heavily polluted by these water companies, are astounded to see the same water companies giving huge bonuses to their directors. That is because the two issues are not related in the mind of Ofwat. That is why my party wants a single regulator for water companies, so that all the issues that are the responsibility of water and wastewater companies are taken into account. Part of that debate was reflected in the first group of amendments, discussed earlier.
We need to remind ourselves that remuneration in companies is decided by boards of directors. They will look at the financial objectives of the company and the outcome of the price review agreed by Ofwat and come to conclusions, whether or not objectives have been achieved or considerable benefit to the company accrued by the actions of directors.
That is part of the problem. As the noble Lord, Lord Sikka, has attempted to describe, the price review is a tussle of words and figures between the companies on the one hand and Ofwat on the other. I remember the discussions. If you are in a company and you want to make sure there is a good outcome for your owners and shareholders, you make sure that the submissions you make in a price review to Ofwat enable profits to be made. That is the whole purpose of a private company. It is at the heart of all the discussions we are having about water companies, their performance and their remuneration and bonuses. The 1991 Act was designed for them to be private companies with shareholders, who were going to receive dividends as a consequence. If that is the prime duty, and the main regulator oversees that prime duty, the other issues that water companies ought to be taking into account—the environmental issues in particular, as we heard earlier—become less important.
I hope that, when we come to Report and discuss these issues more closely, the Minister will think about a government amendment that strengthens the duties of water companies, and of Ofwat as the regulator, to take into account these other issues. For me, that is at the heart of the discussions we have had on this group and the previous group. I agree with the amendment from the noble Lord, Lord Remnant. You cannot try to control pay awards further down the company; those often very talented people need to be attracted into water companies if we are to improve what is a sad state of affairs.
The Duke of Wellington (CB)
My Lords, I support Amendment 18 in the name of the noble Lord, Lord Remnant, which simply deletes new subsection (5)(c) on page 2. It seems to me that we cannot allow the authority—whatever it may be in the future, after the review, or even from now on—to start getting involved in the remuneration of those below board level. That really becomes too much intrusion into the way a company is run.
The noble Lord, Lord Sikka, is entirely correct that, in the end, a director of a company is a director, whether executive or non-executive, as covered by the Bill; it mentions “a director” of the company. It seems to me that, while senior role remuneration should have some guidance from the authority, that should be restricted to the chief executive and other executive board members. There is no point entering into a discussion about non-executive directors, who clearly do not participate in performance-related pay or bonuses or anything like that. I think the noble Lord, Lord Remnant, is right; it would be appropriate to delete new subsection (5)(c) and include in this clause only the chief executive and any other executive director.
Lord Roborough (Con)
My Lords, I thank the noble Lord, Lord Sikka, for moving Amendment 4. It is right that the Government should take steps to put appropriate pressure on water and sewage companies to reduce the frequency and scale of water pollution incidents, and imposing financial penalties on board-level executives is a powerful way of disincentivising unwanted behaviours in the sector. But if we are to have financial penalties targeted at water executives who do not meet the standards expected of them, we must ensure that these are appropriate. As we discussed in the last debate, it is crucial that Parliament gets the opportunity to scrutinise the rules that Ofwat will be implementing.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for their interest in the rules relating to performance-related pay. The public have been clear that they expect to see change in the performance of the water industry and, where performance is poor, that executives should not receive bonuses.
I turn to the amendments in this group: Amendment 4 from my noble friend Lord Sikka and Amendment 18 from the noble Lord, Lord Remnant. I thank them for their introductions and their unexpected agreement. I also thank the noble Baroness, Lady Pinnock, for sharing her experience of working with Yorkshire Water; these shared experiences are important as we develop the legislation going forward.
In line with the general principles of regulatory independence, Ofwat will rightly be responsible for developing and enforcing the rules on remuneration in governance, including determining the individuals in scope. As I mentioned in the previous group, Ofwat published its policy consultation on 22 October, and this will run through to 19 November. This consultation is to design the rules that are outlined in the Bill.
In response to the noble Lord, Lord Roborough, I will say that the consultation sets out Ofwat’s intention to apply rules on performance-related pay only to executive directors who are members of the regulated company board and receive performance-related pay. Ofwat has also stated in its policy consultation that it intends for the rules relating to fitness and propriety to apply in the first instance to chief executives and individuals appointed as directors to the board, and that would include both executive and non-executive directors. But Ofwat may consider extending the rules to other senior management roles in the future.
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, where or when it is appropriate to do so in the future. Ofwat will of course need to consult with the relevant persons, and this will include the Secretary of State, Welsh Ministers, the Consumer Council for Water and other stakeholders, before these rules are finalised.
In conclusion, the Government will therefore not be accepting these amendments, because we need to ensure that Ofwat can retain the flexibility to expand the group of persons covered by the rules in future if appropriate.
Lord Sikka (Lab)
My Lords, I thank all noble Lords for their contributions to this debate and I am sure that some of the issues will return. Perhaps I may just clarify a point. The Bill also holds out the possibility of criminal sanctions against directors. Are we to assume that non-executive directors will never be charged with anything? The Post Office scandal shows that non-executive directors were culpable, so there appears to be a case for including them in some of these considerations. I am sure I will read Hansard with considerable interest and possibly return next time. For the time being, I beg leave to withdraw the amendment.
Lord Sikka
Member’s explanatory statement
The amendment seeks to strengthen the Bill by focusing on total remuneration, regardless of the form.
Lord Sikka (Lab)
Gosh—my turn again. This amendment seeks to replace the words “performance-related pay” with “total remuneration”. At Second Reading, I raised the question of how the ban on bonus payments was actually to be implemented. At the time, the Minister did not reply and, to my mind, the question still stands. Over the years, I have written many executive remuneration contracts and seen many others; some of them contain many odd bits. For example, so-called performance-related pay may come in the form of cash, shares, share options, chauffeur-driven cars, even gardeners, rent-free accommodation, children’s school fees and much more.
Published company accounts never really make it clear what the complete components are and the executive remuneration contracts are never filed at Companies House for anyone to see what exactly they are getting paid for. The value of some of these payments may not be known until some time in the future. For example, the value of a share option granted today and exercisable after a certain number of months or years would not be known until the date of the exercise. So how will the regulator decide whether any bonus payment is materially significant and deserving of a possible ban? Somebody might simply say, “This does not appear to be significant at the moment, but it could be significant by the time it is exercised”.
Companies can also shift the basis of bonus plans to retain or attract executives. If Ofwat or any other regulator were to impose a ban, it might change the weight attached to the part of the performance that may be considered by the regulator, and thereby defeat the whole objective of imposing any ban. The company can also easily bypass any restriction on bonus payments by adjusting the bonus pay. It can simply say to directors, “Your basic pay will increase and your bonus pay is down”. As many water companies are part of giant conglomerates, directors can be offered seats on other company boards so that their total remuneration is no less, even if a bonus is banned.
So it is not clear to me how this ban is going to be implemented. It looks good on paper, but in practice I have yet to hear the details, so what I am suggesting is that the attention needs to focus on total pay, not just bonuses, because bonuses can easily be bypassed. That is why this amendment seeks to substitute “performance-related pay” with “total remuneration”. I beg to move.
Earl Russell (LD)
My Lords, I have two amendments in this group. Amendment 6, tabled in the name of my noble friend Lady Bakewell, to which I have added my name, would mean a water company could not give performance-related pay to persons holding a senior role if the company had failed to prevent all sewage discharges, spills or leaks. This definition also includes legal spills. We have included legal spills as this practice also needs to stop, and the only way to ensure that it does is by working to put pressure on private water companies to apply the appropriate and necessary levels of investment in infrastructure. Only then will these companies be operating as intended, and only then should they potentially be free to think about remuneration above and beyond basic salaries to their top executives.
I have also added my name to Amendment 28, also in the name of my noble friend Lady Bakewell. This amendment creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills or leaks. Taken together, these amendments seek to help tackle head-on one of the main issues that I am sure many of your Lordships had raised with them, with passion, on the doorsteps at the last general election: the sheer hypocrisy of water companies continuously and seemingly endlessly failing to protect our environment. It is outrageous that they are continuing to get away with unabated sewage spills in our much-loved rivers and lakes, all the while paying themselves massive bonuses and dividends and racking up huge amounts of debt.
We are not able to go to the beach or to wild swim, while they get rich off the back of failure after failure. All of this has been done while failing to adequately invest in the infrastructure that is so desperately needed to end this seemingly endless cycle of scandal. My party has tirelessly campaigned on this issue and we will continue to do so. No other issue has cut through to the electorate on such a scale and with such a level of arguable clarity as this one has. Indeed, the promise to scrap CEO bonuses was a core manifesto pledge we stood on at the last general election. The electorate are outraged and rightly so. No one feels good when they are overcharged for the privilege of receiving an appalling service. To be clear, this is exactly what bill payers are getting with a proposed 40% increase in bills and no end in sight to the pollution of our environment. Our rivers, streams and lakes have been polluted to the point of collapse. My party has led a campaign on these issues that cut through on all sides of the political spectrum.
The broken system has seen those who have a duty to protect polluting with no consequences, and time and again they have rewarded themselves lavishly for the privilege. Instead of the “polluter pays” principle ever being applied, we have the “polluter awards themselves a pay increase” principle applied every time. In 2023 alone there were some 3.6 million hours of untreated sewage discharges in England, up a staggering 105% on the year before. How many fines have been levelled against water companies in the previous few years? I have really struggled to find that information. Meanwhile, water companies have paid at least £78 billion in dividends while failing to invest.
Lord Cromwell (CB)
My Lords, I will speak to Amendment 13 in my name. As this is my first contribution on an amendment of my own, I thank the Minister for meeting me, for the fact sheets and the letter, and for the good news that the commission and the review are taking place. We all appreciate that. I support the Bill and welcome the commission review to come.
I turn to the amendment. As touched on by other speakers, including the noble Baroness, Lady Pinnock, in the debates on the second and third groups of amendments, company employees require appropriate remuneration, just as investors need a return. But the financial engineering introduced previously by investors and company directors—for example, debt levels, transfers to parent companies and other practices that were forensically set out earlier by the noble Lord, Lord Sikka —has enabled opaque enrichment, and has subsequently brought some water companies close to bankruptcy. That is not what monopoly water companies are for, and I believe it lies at the very heart of the current problems of the water companies.
The amendment enables the authority to include rules or guidance, as we may decide, with regard to a company’s structuring and its transparent reporting. It is deliberately left as “may” rather than “must” because the authority may want some flexibility here. Nevertheless, the amendment would act as an overt reference to the responsibility of the authority and water company employees to evaluate clearly the company’s financial structures and changes to them, and how those would impact on the distribution of financial benefits across investors, employees, directors and, indeed, consumers.
Lord Roborough (Con)
My Lords, I will speak to Amendment 17 in my name. I thank the noble Lord, Lord Sikka, yet again for introducing this group and raising these matters for consideration when the Government are establishing the regulations surrounding performance, pay and bonuses.
Amendment 17 seeks to clarify the definition of what constitutes performance-related pay. There are many ways in which companies can create performance-based incentive schemes. That can include multiyear programmes containing cash bonuses, share awards, restricted stock units, share options and pension contributions. In answer to the noble Lord, Lord Sikka, it rarely includes chauffeur-driven cars, private schooling or any other benefits in kind, which tend to be part of the base package.
Is the intention to capture all forms of performance-based rewards within the powers of the Bill? If so, would it not be better to be exhaustive in defining them in the Bill? It is vital that such a definition be as clear as possible to ensure that the Bill achieves its intent to punish senior executives who are not fulfilling their obligations to us all in cleaning up our rivers, lakes and beaches.
In the Bill as drafted, the rules are not clear enough as to what financial components could make up the bonus of a senior water company employee in a given financial year. The amendment is therefore necessary to prevent water companies redesigning performance-based awards to take them outside the scope of the Bill. This is not to suggest any nefarious activity, but anyone currently captured by the Bill would choose not to be if they were able. It would then become impossible for a water company not to offer schemes outside the scope of the Bill if they wanted to attract the best talent.
I understand the intention of Amendment 5 from the noble Lord, Lord Sikka. It is indeed important that we ensure that water companies have no incentives to continue polluting our rivers. We have looked at this issue in our own amendments. Amendment 27 would ensure that any rules relating to pay and governance will be suitably scrutinised, so I believe the issue could be solved without the inclusion of Amendment 5.
Additionally, I ask the noble Lord, Lord Sikka, whether he has considered the impact that this amendment would have on the hiring process of water companies. I think it unlikely that many people would respond to a job advert indicating that you may have a salary but that there is a chance that by the end of the year it could be taken away from you. If the total remuneration of senior roles is included in the Bill, it is inevitable that water companies will lose people with relevant skills and experience in the sector. That will worsen the leadership and perhaps lead to more serious issues within the sector.
It is also possible that the water companies would be forced to delegate their own management to third-party consultants outside the scope of the Bill entirely, in order to find the necessary expertise to run the companies. Have the Government given thought to how to cope with the possibility of such third-party consultants not captured by the Bill?
On Amendment 6 in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, I agree that both legal and illegal dumping of sewage lead to undesirable outcomes. As such, I agree with the sentiment of the amendment. In 2022 we published the Storm Overflows Discharge Reduction Plan, which put in place targets to reduce the release of the overflow of sewage and in fact to stop it, except in situations with unusually heavy rainfall, by 2050. So we recognise that the issue is a pressing one and that action must be taken to ensure our rivers are kept clean. However, in order to stop the legal release of sewage, a substantial investment of money and time is necessary, and the amendment does not allow for such provision of time.
Our sewerage systems are a result of Victorian infrastructure design, and the increasing population and heavier, more frequent storms have led to increased pressure on this system. The suggested penalty will make it even less desirable to hold a senior role in a water company. As such, it will further decrease the number of people with skills and expertise at senior levels. This is unlikely to lead to an improvement in the water system for consumers, which is ultimately the aim we share across these Benches. I fail to see how we can support the noble Baroness’s amendment, despite the case put forward by the noble Earl, Lord Russell.
The amendments tabled by the noble Lord, Lord Cromwell, would require executives to take personal liability through their performance-related pay for unspecified structuring or restructuring that may put companies at financial risk. This would appear to us to be too vague to have much bite. It also potentially means that executives’ performance-related pay would be contingent on issues over which they might not have responsibility because they could be overridden by shareholders.
As I mentioned earlier, in response to an amendment put forward by the noble Lord, Lord Sikka, I encourage noble Lords to support Amendment 92 in my name in a later group, which would be a clear-cut prevention of payments to shareholders where there are potential issues of financial distress.
I look forward to the Minister’s response and hope that the Government will tighten up the definition of performance-related pay in line with our amendment.
Baroness Hayman of Ullock (Lab)
My Lords, I am grateful to noble Lords for their suggestions regarding matters we need to be considering in the rules for performance-related pay. As I previously noted, to rebuild public trust we are creating a new framework for supporting accountability. As part of this, Ofwat will be issuing new rules on bonuses, including standards relating to environmental performance.
I turn to Amendment 5, tabled by my noble friend Lord Sikka. In recent years, public concern has been focused on water company bonuses, particularly in the instances where performance has been poor. Companies must work to regain their customers’ trust, including by holding those in senior roles accountable so that their remuneration better reflects the service that customers rightly expect. We are giving Ofwat new powers to issue rules on remuneration and governance to ensure that companies and executives are held accountable for failure and to drive improvements in performance. We are requiring Ofwat to exercise these powers to prioritise making rules to prohibit bonuses for underperforming companies.
Ofwat already sets expectations on executives’ performance-related pay. This measure will strengthen its existing powers to ensure that bonuses are not paid in any financial year in which standards are not met. Ofwat’s rules on remuneration will cover both financial bonuses and bonuses in kind, limiting any potential loopholes in the policy. We believe that performance-related pay can be an effective tool within the overall remuneration package and will incentivise leaders to focus on improvements that can transform performance. Remuneration committees for each water company independently determine the appropriate level of remuneration for their executives. We therefore do not propose to amend the requirement on Ofwat to make rules to cover total remuneration.
Amendments 6 and 28 were tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and ably introduced by the noble Earl, Lord Russell. These relate to the consideration of environmental standards in the rules for remuneration and governance. In line with the general principles of regulatory independence, Ofwat will rightly be responsible for developing and enforcing these rules. However, the Government are clear that environmental standards are a vital component. Ofwat must, following consultation, provide that environmental standards have to be met by companies if performance-related pay is to be given to persons holding senior roles. Ofwat’s policy consultation, which we have previously discussed, proposes that bonuses will be prohibited if a company has had a serious category 1 or 2 pollution incident in the preceding calendar year.
The noble Lord, Earl Russell, asked for some figures. I can tell him that, since 2015, enforcement action by the EA and Ofwat has resulted in over £400 million in fines to water companies or money back for customers. I hope that noble Earl is therefore reassured that this new clause is unnecessary, noting that Ofwat must already include environmental criteria when designing the rules in relation to performance-related pay.
Lord Sikka (Lab)
My Lords, I thank all noble Lords who participated in this debate, giving us much food for thought. I thank the Minister for her response and I withdraw my amendment for the time being.
Baroness McIntosh of Pickering (Con)
My Lords, I will speak also to Amendment 8 in my name. These amendments are in a group looking at exemptions from the rules under Clause 1. My particular concern relates to the obligations being imposed by Clause 1, and indeed the rest of the Bill, on water companies where they may not and could not possibly be held responsible for the activities they are undertaking because the fault lies with others who are not currently within the remit of the Bill.
The purpose of these amendments is to reflect the fact that water companies should be held responsible under the terms of the Bill, in particular Clause 1, only for those activities within their specific responsibility. Clearly, for example, where there are missed connections between wastewater pipes and major developments, water companies should not be held responsible if they are obliged to fit these new connections into inadequate, antiquated pipes that simply cannot take the amount of waste coming.
The background to this very simple measure follows from the Pitt review—the noble Baroness will recall that I raised this at Second Reading—following the severe floods of 2007. I think it is worthy of note that Sir Michael Pitt is from East Yorkshire, which is more vulnerable to coastal flooding than just about any other part of the country. His 2007 review identified, for the first time, surface water flooding as well.
In connection with surface water flooding, the two most consequential amendments set out that mandatory construction of sustainable drainage systems in major developments should take place so as to contain floodwater and prevent it mixing with sewage through overflows into the combined sewers.
Further, and this is where the developers should have a responsibility and not the water companies, I ask the Minister to look favourably at ending the automatic right to connect, which has so far never happened. That one measure alone would mean that misconnections—whereby the existing infrastructure is deemed to fit the amount of wastewater coming from major new developments—would simply not happen in the future. Most of these developments are made up of four or five-bedroom homes with, dare I say, four or five times the amount of sewage coming out of them into inadequate Victorian pipes. Currently, under the planning rules, developers and local authorities deem those connections to be safe and refuse to put in appropriate infrastructure to ensure that a safe connection can be made. Were the water companies to be recognised in the planning application process as statutory consultees, on the same basis as the Environment Agency comparatively recently has been, those misconnections could be averted. The simple measure of making water companies statutory consultees, on the same basis as the Environment Agency, would help in that regard.
When she looks at these amendments in summing up, would the Minister agree to obliging developers to have sustainable drains fitted to take excess rainwater into a soakaway, pond or culvert to prevent it mixing with sewage water in combined sewers, which is currently leading to sewage overflows? It is not fair to make the water companies responsible for that. Were they to be statutory consultees, they would probably argue that the wastewater will not fit the pipes currently in place.
This has led to some very perverse sewage spills. I remember when I was in the other place there was a school in Filey that suffered £1 million-worth of damage to its swimming pool and, I think, the maths department. Existing developments had to be evacuated for six to nine months because of the public health aspect of sewage coming in. Precisely because a small development of only 30 houses was pumping out so much sewage, the rainwater when mixed with it had nowhere else to go and it went into the school and the existing developments. I am sure noble Lords could give other examples of this.
I ask the Minister to review the way in which highways currently contribute to pollution through rainwater running off the road surface, taking with it oil, brake fluid and other pollutants. When this combines with floodwater, it enters the combined sewers and then often goes into homes, causing huge damage and a public health disaster.
I hope the Minister will agree that water companies should be held responsible for those activities within their control but cannot be held responsible for circumstances which are outwith their control. These two small, tightly-drawn amendments would fit that purpose.
I conclude by asking the Minister this. If these amendments are not added to the Bill, what mechanism do the Government intend to use to ensure that water companies will be held responsible under the Bill only for activities under their direct control and not those under the control of others, such as developers and highways authorities, which are currently excluded from the remit of the Bill? I beg to move.
Baroness Pinnock (LD)
My Lords, I broadly agree with the amendments in the name of the noble Baroness, Lady McIntosh. She raised some important issues, about, first of all, the way that surface water drainage is treated. As the Minister will know, surface water is combined with sewage water in the same pipes in many of our towns and cities, and increasing rainfall and development is putting pressure on that combined drainage system.
The other issue to consider, which the noble Baroness raised, is the pressure put on local authority planning services to agree to housing developments where the existing infrastructure is not appropriate to support them, with developers reluctant to fork out huge sums of money to pay for the additional drainage systems needed. The answer lies in empowering local authorities’ planning services to put conditions on planning consent which specifically require developers to build the appropriate infrastructure to support the development that they wish to build.
There is a related point. I am a local councillor; in my experience, where there is an issue of surface water, the planning services require underwater attenuation tanks to be built to hold that water until it can be released to the natural drainage systems, such as streams. However, the developers are very reluctant to do that, and are seeking to get around it in other ways. Surface water drainage issues and local authorities’ inability to enforce this is something that the Minister may wish to raise with her colleagues in local government when it comes to reforms of the planning system, as it will affect the Minister’s environment responsibilities. I agree with the amendments tabled by the noble Baroness, Lady McIntosh.
Lord Whitty (Lab)
My Lords, I was not planning to speak this evening, and indeed I have to go shortly, but this debate raises broader issues.
I agree with the noble Baroness, Lady McIntosh, that water companies should not be pursued by the authority for things which are not their fault and which they are unable to do anything about. However, this underlines the need to ensure that the new authority, whatever it is, is a very powerful authority.
As noble Lords may recall, the noble Duke, the Duke of Wellington, and I suggested that we should have a combined regulator. That has been rejected so far, but we need a regulator that can take steps against not only the water companies but other bodies which make the water companies’ tasks impossible or extremely difficult, and which are themselves primarily responsible for the pollution, flooding or other damage caused by the water.
That applies not only to developers, although I think that developers are probably explicitly the worst in this context, but, as the noble Baroness has just said, to highways authorities and to discharges from agriculture. If there is a water authority that has to deal with the far end of the effects of these discharges or the inadequacy of the piping, that authority should have the ability to take such steps. At the moment, it is either the local authority that does that in terms of planning permission, or it is the highways authority, which pays no attention whatever to water run-off, frankly, or it is the various bits of agriculture regulation. But if we are concerned about making sure that we have less sullied water and no threat of flooding, which may well be caused by people other than the water companies, I would argue that at some stage the Government will have to consider giving powers to the new authority that cover those companies, or particular actions by those companies, as well as the water companies.
Lord Cromwell (CB)
My Lords, I support the amendments, but I want to make one comment on the discussion, which has possibly strayed a little from the Bill. Dealing with surface run-off and, in particular, developers’ right to connect are outdated. I hope that the Minister will urge those involved with the review to have a serious look at this, because it is completely outdated, and with increasing development, not to mention climate change, it will only get worse. It needs tackling properly.
Lord Blencathra (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for moving this important amendment, which has caused a little bit of welcome excitement in the Committee. Both Amendments 7 and 8 seek to ensure that senior executives do not receive a financial penalty for failures that were not their fault or within their control, and we on these Benches feel that the noble Baroness’s amendments merit consideration by Ministers. The intervention by the noble Lord, Lord Cromwell, at the end also merits some consideration.
It is right that the Government should take steps to ensure that, when a water company fails to meet the standards set by Ofwat, the responsible executive is held to account. While it is right that company directors take responsibility for the successes and failures of a business, under the Bill, other senior officers, who may not be members of the board of directors, could be penalised under these rules. The argument that the relevant senior executive is held responsible, rather than an officer of the company who was not responsible for the decision, is a simple one. Rather than applying financial penalties to all senior executives, including those below board level, these rules should penalise only those who are responsible for the company’s conduct.
It is quite a long time since I last worked in industry, but I do not think that much has changed to this day. Who is responsible depends on the level of direct supervision by a more senior officer. At lower levels of a company, it is quite straightforward: the supervisor or the foreman has minute-by-minute relationships with the team under him or her, so they could be held responsible for faulty work or bad behaviour by their workers. But that is at the lower level. As you get higher up a company, the whole ethos changes. Executives are supposed to set objectives and delegate to their other officers how it is done. The CEO, or directors, tell officers under their command, “Here are your legal duties and these are the company objectives. Here are your own personal targets and objectives—report to me weekly, monthly or whatever on how you are progressing. Now, just get on with it”.
There is no direct day-to-day supervision, and the CEO has to trust that the senior officers below him or her obey the law, behave properly and do not cause the breaches that we are concerned about. It would be wrong to blame and reduce the pay of CEOs or directors based on a mistake by a person under him or her where they have no direct control. Of course, the exception would be in the extraordinary circumstances in which the CEO or executive director gave instructions to the worker to break the law or not to care about the rules. That would be a different matter.
Without these amendments, we are concerned that it may prove difficult to find professionals willing to take on senior roles at water companies if there is a risk they will suffer an unfair loss of performance-related earnings through no fault of their own. It is a basic principle of performance-based pay for employees below board level that it should be tied to their performance as an employee within a team. It would not be an effective incentive scheme if one individual or team were deprived of their performance-related benefits because of the behaviours of failures of another individual below board level. As we discussed at Second Reading, arbitrary punishment will not improve performance; it will only encourage people to seek employment outside the water sector.
If we are to deliver the improvements to the water sector that the British people rightly expect, we must attract more talent to the sector through a fair incentives and penalties regime. The Bill is a bit too broad and could permit rules to be applied to the sector by Ofwat that are unfair and ineffective. Furthermore, when a current bonus scheme, or contractual bonus, provides for the bonus to be payable on the achievement of certain performance conditions, and the performance conditions have been met, an employer is, in effect, obliged to award the bonus. In cases where an employer may grant discretionary bonuses, employers are required to exercise this discretion honestly and in good faith, not to exercise it in an arbitrary, capricious or irrational way, and not to breach the implied term of trust and confidence.
It concerns me that, should the Government choose not to include these amendments in the Bill, and individuals’ performance-related pay was docked for actions or responsibilities beyond their control or remit, it would put the employer in a position of complying with the requirements of rules created by Ofwat under this Bill but then acting contrary to these common-law and contractual requirements. That leads to a concern that this scenario could result in costly and time-consuming litigation, thus diverting funds which would otherwise be better spent improving our water and sewage systems. Therefore, I encourage the Government to accept these amendments so that, should a water company fail to meet the standards set by Ofwat, only the relevant executives are held responsible. However, if the Government are unwilling to put this on a statutory footing, we hope that Ofwat would be willing to enact these principles under its rules, which could be overseen by the House under Amendment 27 as an affirmative instrument.
I want to comment on the points made by my noble friend Lady McIntosh of Pickering on surface water. I put it this way: if we were starting again from scratch a couple of hundred years ago, we would have designed a system whereby we never had rainwater from gutters or car parks running off into Mr Bazalgette’s sewage system—but we are where we are now. In an ideal world, two pipes would come into every house and, as the noble Lord suggested earlier, one would have clean water for drinking and the other water for flushing the toilet or for hose pipes. We cannot go back and do that now—but what we can do is look at new developments, and I hope that the Government will consider the suggestion from the noble Lord, Lord Cromwell, in that regard.
I understood that it is possible if one is building a car park, before one puts in the hardcore, to lay a whole series of ooze pipes and then collect all the rainwater run-off, so it replenishes the underground stream by putting the water back into the subsoil. That should be possible. Whatever it is, we need to look at new developments to ensure that surface water is not unnecessarily going into our sewage system. I hope that the Minister will carefully consider what my noble friend Lady McIntosh of Pickering has said.
Baroness Hayman of Ullock (Lab)
My Lords, through provisions introduced by Clause 1, Ofwat will be able to issue new rules on remuneration and governance to ensure that companies and executives are subject to robust oversight and held accountable for failure. Among other things, these rules will ensure that executives will no longer be able to take bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability.
Amendments 7 and 8, introduced by the noble Baroness, Lady McIntosh of Pickering, seek to ensure that these rules apply only in instances where the failure to meet the required standards is due to a failing by that individual and not another person. I start by reassuring the noble Baroness that, should companies meet their performance expectations, executives will rightly be rewarded. However, the changes proposed through Amendment 7, in particular, would make it more difficult for Ofwat to implement the rules on remuneration and governance in a meaningful way. This is because it would introduce an additional test to be met before the bonus ban could be applied, where a link between the specific actions of an individual senior leader and the performance failings of a company as a whole might be difficult to demonstrate.
Senior executives are also collectively responsible for the actions of the company and therefore should be held responsible for poor performance. However, having said that, Ofwat has stated, in the policy consultation it published last week, that, while it intends for the rules to apply to most performance-related pay decisions by water companies,
“there may be … exceptional circumstances where a payment should not be prohibited”.
For example, if an incident leading to a rule breach was clearly and demonstrably beyond the control of the company, this could be grounds for an exemption from the ban.
Considering the changes proposed by Amendment 8, we also consider it unlikely that individuals in senior roles will fail to meet Ofwat’s future standards of “fitness and propriety” due to a failing on the part of another person. The potential criteria proposed by Ofwat in its consultation to measure “fitness and propriety” include character, previous conduct, and knowledge. These criteria are specific to the individual, rather than the performance of the company, and do not obviously relate to acts by other persons.
I just want to mention an issue that the debate moved on to, around drainage and SUDS. We are going to be discussing SUDS further in group 8, so we shall talk about that then, but I want to assure the noble Baroness that we are engaging with officials in MHCLG, because it is really important that we have a proper discussion around planning and drainage as we move forward with development. I am very aware of the problems that surface water can cause in new development if it is not thought through properly.
The noble Lord, Lord Cromwell, drew the Committee’s notice to the commission and asked whether it would be discussed there. I will draw the Committee’s attention, for interest, to part of the scope of the commission:
“Where housing, planning, agriculture and drainage interlink with strategic planning for the water system, these are in scope. ... The commission should have regard to how the water sector regulatory system provides the certainty around the provision of water infrastructure needed to underpin development plans, housing growth and sustainable development, while strategically protecting and enhancing the environment. This should include how regulation and planning for water infrastructure and for residential and commercial development can work together more effectively to anticipate and invest to provide for future growth, to quickly resolve and prevent issues where water and wastewater capacity constraints may otherwise inhibit necessary development (such as through their impact on requirements for water and nutrient neutrality)”.
So, although it is not entirely dealing with the issue around SUDS, I think it is something we need to explore further with the housing department, for example, and with local government. There is an opportunity to look at development and water within the scope of the commission. I hope that is helpful for noble Lords to understand.
I hope I have reassured the noble Baroness that the rules will be applied to individuals in a proportionate manner, and made clear why the Government consider these amendments to be unnecessary.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful for the opportunity to debate in some depth these two amendments. I just clarify that the automatic right to connect is very different from SUDS and I do not think the noble Baroness addressed that point. I still have reservations, because I believe it is inappropriate in terms of Clause 2 to speak about pollution incident reduction plans when so many of the sewage discharges can self-evidently be found not to be the responsibility of water companies at all. As the noble Lord, Lord Cromwell, so eloquently and appropriately recorded, these incidents are only going to increase as we see the number of major new developments of four-bedroom and five-bedroom houses increase.
Earl Russell
“(d) requiring a relevant undertaker to have arrangements in place for environmental experts to be members of a board, committee or panel of a relevant undertaker.”Member’s explanatory statement
This amendment would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee, or panel.
Earl Russell (LD)
My Lords, the amendments in this group all relate to representation on water company boards. This is the third-largest of the 24 groups we are scrutinising in Committee, so it is clear that many noble Lords are concerned about these matters and have a number of ideas for discussion about how representation can be broadened, made more representative and more fit for purpose, and used as part of the wider toolkit to help ensure that water companies act appropriately and are held to account at all levels.
I have three amendments in this group. Amendment 9 in my name would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee or panel. I find it extraordinary that water companies can be allowed to operate, selling a natural resource, where their actions are having such devastating impacts on our environment, yet they are still not required to have environmental experts at the highest levels of their corporate governance structures. To date, it is hard to avoid the conclusion that many non-executive directors on many water company boards have failed to bring significant added benefits for their presence. How do we expect senior leadership teams and the chief executive officers to have the necessary knowledge, senior accountability and the ability to have due regard in fulfilling their functions if environmental knowledge, expertise and challenge are not mandated at the most senior executive governance and decision-making levels? We have various rules and guidance in place for lots of other types of make-up, backgrounds and skills in other board structures, so why do we not have the environment as a condition? Is it simply that we do not value the environment in our decision-making at senior levels? I think this is something we should not allow to stand.
The environment and environmental decisions need to be at the very heart of water companies’ plans, decisions and actions. We must work to ensure that corporate governance is not able to use ignorance as an excuse for causing environmental damage or for failing to adequately prepare for the impacts of rapid global climate change. Our water companies need to have environmental concerns at the very forefront of their long-term thinking, plans and strategies, from issues such as drought and the impacts of extreme rain events and floods, to the projections and limits on abstraction and the need for new reservoirs. All these matters require environmental knowledge and challenge at the heart of water company boardrooms.
We also need community environmental experts sitting on water company boards—an idea my party included in our last election manifesto. As non-executive directors they could help improve accountability, transparency and community relationships, and provide an important interface that could help ensure that water companies take sewage spills seriously by ensuring that community concerns are raised at board level and that water companies take appropriate action and communicate it effectively with local communities. As environmental experts, they could hold community meetings and report back on action being taken by companies, improving information flows and accountability. Environmental governance concerns are at the very heart of the water companies’ business, and the case for requiring environmental experts to be included on their boards along with consumer representation is, in my opinion, very strong. I kindly ask the Minister to lend government support to this amendment and to give a response from the Government Benches to these ideas.
I have added my name to Amendment 20 in the name of my noble friend Lady Bakewell. This is another simple “may” to “must” amendment and would require Ofwat, as part of its rules on consumer representation, to require water companies to place consumers on their board, committee or panel. It would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. New Section 35B(2) sets out that Ofwat must exercise this power to issue rules that achieve specific effects, but the power in new Section 35B(1) provides only that the authority “may” issue such rules. As the Bill is written now, it is not at all clear that it is incumbent on the authority to use the power specified in the Bill to lay such rules. In our opinion, it is necessary that the Bill clearly states that the authorities have a duty to lay out such rules. I call on the Minister to support this amendment to make certain that the Government’s own intentions are clear and well defined so that they can be enforced as they should. What is the Government’s thinking on when the initial rules might be published?
Finally, Amendment 24 would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. The Bill says:
“If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction”.
All these clauses concern rules on remuneration and governance, including performance-related pay. If the authority does find that a relevant undertaking is contravened, the rules in the Bill do not say that the authority must give a direction. As written, it is not at all clear that it is incumbent on the authority to use the powers specified in the Bill. Why do we have the rules in the Bill if there is not also a clear requirement for breaches to be enforced? Left as it is, the clause leaves a get-out-of-jail-free card for the authority to not give a direction, even where the evidence of a contravention is clear.
Other amendments in this group include one from the noble Lord, Lord Cromwell, which requires the regulator to engage formally with civil society; one from the noble Duke, the Duke of Wellington, which requires CEOs of relevant undertakers to have regular meetings with relevant consumer and environmental panels; and one from the noble Lord, Lord Sikka, on the governance structures of the authority. I beg to move.
Lord Cromwell (CB)
My Lords, I will speak to Amendment 16 in my name. I underline at the outset that this is not about putting people on the board; if that is a misapprehension, I want to dispel it. Civil society has been at the forefront of raising issues around water pollution, including monitoring pollution incidents, and, frankly, it has done a better job than the regulators, which have been playing catch-up ever since.
There is an unbalanced and sometimes adversarial power relationship between civil society, water companies and the regulator, and this has given rise to numerous complaints about a lack of transparency—for example, companies deliberately adopting a very narrow definition of “environmental” in order to reject and bat away inquiries from civil society and others. This amendment would require the regulator and water companies to engage with civil society on a regular and formalised basis to agree actions and to record these actions publicly.
This achieves two things. It addresses the disbalance between civil society, the water companies and the regulators and will be an important means to increase transparency, including detailed public transparency as to what is going on, what the regulators and water companies are being challenged on and what actions are planned. It is very easy to underestimate the importance of this. In a previous role I had, we were handing over large sums of money to organisations and one of the stipulations was that they had to publish on their own website exactly what actions they had committed to. This made life very easy for us, because the media then held them to account against those actions. I suggest that a formal process where these things are recorded properly and publicly will be of great assistance to keep the water companies and the regulators up to the mark. Without a formal process of that sort, the relationship will remain distant and most likely adversarial. Therefore, I hope the Minister will look favourably on this amendment or produce one of her own from the government side.
The Duke of Wellington (CB)
My Lords, I will speak to Amendments 21 and 23 in my name. In effect, they both seek to amend new subsection (6) on page 2. The main point of my amendment is that I believe it does not lead to effective governance of a board of directors if sectional interests are represented directly on the board. It is much more effective and likely to have more influence if a specialist panel is created to advise and meet the chief executive. I cannot understand why the Government’s clause refers only to the views of consumers. It seems essential—I agree in various ways with the noble Earl, Lord Russell—that environmental interests are similarly represented on a panel. It could be a separate panel or one representing both consumer and environmental interests; I think it would be better to have two panels.
The real point is that I have never seen a board work effectively where there is a sectional interest represented directly on the board, with one or two members of the board speaking only for that particular interest. It makes it very difficult to reach a consensus on a board. Most boards work by consensus, and there has to be a collegiate atmosphere on any board. Where a particular interest is represented, be it environmental or consumer, that is less likely to lead to effective management of the board of that company.
I would like to persuade the Minister to delete from new subsection (6) “board” and “committee” but leave in “panel”, to include consumers and environmentalists on those panels and, importantly, that those panels should have regular meetings with the chief executive to exercise real influence over the conclusions of the board when it next meets on that subject.
Lord Remnant (Con)
My Lords, as the noble Earl, Lord Russell, indicated, this group of amendments deals with a common theme of representation on water company boards but has several different facets.
Amendment 22 in my name would ensure that it is for the boards of water companies, rather than Ofwat, to decide in which forum—board, committee or panel—the views of consumers should be represented. As we have heard, Clause 1 includes provisions intended to establish consumer involvement in corporate decision-making. New subsection (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.
In this country we do not have different categories of director, as the noble Lord, Lord Sikka, reminded us earlier. Non-executive directors may have specialisations, but they are chosen for their wider skills and ability to make a comprehensive contribution. The noble Duke, the Duke of Wellington, just made a similar point. 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 water companies but should be left to the companies to decide which forum best suits their requirements, whether that be board, committee or panel.
Providing similar flexibility was effective when companies enacted the workforce engagement mechanism under the UK Corporate Governance Code’s requirements. A very small number of companies appointed a director from the workforce, largely for the considerations I have mentioned. Some established a formal workforce advisory panel, and a greater number appointed a designated non-executive director for workforce engagement. Each company chose the mechanism best suited to its circumstances, and the system has worked well.
Amendment 9 in the name of the noble Earl, Lord Russell, and Amendment 21 in the name of the noble Duke, the Duke of Wellington, extend the provisions of this clause to environmental experts. It will be for your Lordships to decide how widely to draw the categories of relevant interest, however represented, but the principle in the latter amendment of representation other than at board level is very much in line with the rationale behind my amendment. I shall listen with interest to the arguments put by the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones of Moulsecoomb, for their Amendments 82 and 100 respectively. However, they would represent a radical departure from accepted standards of corporate governance and company law, so I would hesitate to support them.
My earlier dose of optimism is becoming somewhat jaded. A recurring theme seems to be emerging in the Minister’s replies: everything is for Ofwat to decide. That displays a touching and, if I may venture, possibly naive belief in Ofwat deciding wisely on many matters that are not within its competence as an economic regulator. Concerns have been expressed on all sides about its past record. Surely it should be the role of this House to take more responsibility on itself and give much more direction and guidance to Ofwat on how it should exercise the significant additional powers this Bill gives it—or, as in this case, remove the key choice from Ofwat and give it to the companies, within a defined framework imposed by us.
Lord Sikka (Lab)
My Lords, my Amendment 82 addresses a major question that the Bill does not address: why do water regulators fail? After all, they have been at it for many years—at least 35 years, some of them—yet they continue to fail. No proposal in the Bill addresses that. They continue to fail because they are isolated from the lives of the people affected by sewage spills, high customer bills, low investment and water simply leaking away.
The regulatory bodies are generally made up of former Ministers and executives. Someone who has done a stint at a water company disappears to Ofwat; Ofwat’s former chief executive is now director of a water company. There is a revolving door. These people have a world of their own which does not connect with that of the people directly affected by their activities. For any regulatory system to be effective, it must represent a plurality of interests, but our regulatory system and bodies are closely aligned with corporate interests. They are, in essence, captured. If this capture is not there—and is not the reason for their failures—then someone will have to explain why the water industry is in a mess and why the guiding hand of regulators has not been able to put it on a path to recovery, good practices or good behaviour.
The Bill seems to propose consumer panels, which are, in essence, toothless: they have no social constituency to report to because they are not really elected by anyone but simply co-opted on the basis that someone knows somebody and brings them in; they are not required to report to any constituencies; they cannot easily object to the practices of the regulatory bodies; and they can simply be bludgeoned into silence and just go along because that is the norm. We have heard that these amendments somehow propose something unusual and therefore we have to be bludgeoned into silence and simply go along, because tradition is oppressive and that is what we have to do.
My amendment calls for direct representation of elected representatives of employees and stakeholders on the board of the regulatory authority and to give them power to vote on executive remuneration. That would be the ultimate sanction when they disapprove of how the regulatory body is safeguarding or protecting the public interest. If they cannot vote on executive remuneration, they will simply be a shadow. The amendment seeks, in essence, to democratise regulation. I know that democracy is not very fashionable these days, so if the Minister opposes this democratisation of regulation, it would be helpful to know how the Government will check cognitive capture of regulatory bodies, because no other solution is being offered by anybody. If we were to expand on this, in the next group I could lay out a complete framework of what else needs to be done, but this is simply to test and, I hope, elicit a response from the Government.
Baroness Jones of Moulsecoomb (GP)
My Lords, I will speak to my Amendment 100. The issues of water pollution and the supply of clean water to everybody are ones I clearly care a lot about. But this Bill is just papering over the cracks. If we are going to paper over cracks, we could at least try a radical departure; perhaps we could try to bring some democracy into the regime.
I take issue with the noble Duke, the Duke of Wellington, and the noble Lord, Lord Remnant. I have chaired a board and it was extremely successful. Part of that was because I invited people who thought very differently on to the board. We had 20 members or so. It was called London Food and we were tasked with writing a report for the Mayor of London on a sustainable food strategy for the city. It was successful, I would argue, partly because of my charm—obviously —but also because we had extremely good reports from every single aspect of food and food supply for London. We had a member from the City who was obviously a Conservative, we had an organic farmer and so on. We had a huge range of people, but we agreed on the strategy and we came to some very useful conclusions. This is what we need: we need some democracy in the systems that try to keep us safe.
Honestly, given the scale of the challenge that the water industry faces at the moment, in trying to make a system work that has proved not to work, we need to ensure that there are some new voices that can represent other parts of society that use the water system and care very deeply about it. We should also involve the people who actually do the work. My amendment brings in people from the workforce.
At the moment, the CEOs and senior staff are more focused on delivering dividends than they are on delivering a quality service, so having worker representatives on the board would provide a constant voice for those whose job it is to provide a service. The regulators have been captured by the industry they are meant to be keeping an eye on, so they are almost useless. This system should not be a national scheme but one based on the geography of the water systems themselves.
I am a believer in democracy and this would be an extremely useful way of making sure that a crucial industry for our society has some resonance with people out there. I am sure that this would be welcomed by the majority of people, just as I am sure that the Minister is aware that polls suggest a majority of people would prefer public ownership. Failing that, however, let us get the public in there, talking and being listened to.
Lord Deben (Con)
My Lords, I rise to support the amendments, particularly those placed before us by the noble Duke, the Duke of Wellington. To the last speaker I have to say that there is a fundamental difference between chairing a committee to produce a report and running a business, which is what the water company has to be. She is absolutely right, however, that this Bill does not properly address the fundamental problem that we have two regulators and they have failed to produce a co-ordinated programme for the water industry.
I speak as somebody who knows a bit about it because, until 10 or 11 years ago, I was chairman of a water-only water company—so do not blame me about sewage as I never had anything to do with that. However, I do therefore know a bit about water companies. It was always impossible to meet the requirements of both the Environment Agency and Ofwat. Ofwat was under pressure from the Government to keep bills down and the Environment Agency, perfectly rightly, was saying that we should do more for the environment. As chairman of a water-only company, I was interested in doing something about the pollution of the water sources right from the beginning instead of having to clean them up, which is a very stupid way of dealing with it. Ofwat, however, would never allow one to do those things, whereas the Environment Agency was much more sympathetic.
Lord Cromwell (CB)
My Lords, we spoke earlier about the issue of two regulators and I will not go back over that. However, I will talk a little more about the presence of people on boards. I think there is a middle ground here—obviously beautifully set out in my amendment. To extrapolate a little from that, I agree that directors in a company have specific responsibilities which would not sit comfortably with having a consumer representative as a member of the board. That is clear and right.
These companies, however, are not just profit-making companies which represent shareholder interests; they are monopolies providing a service to the public for which they achieve a reward. That is an important distinction to make. For that reason, I agree with the noble Baroness, Lady Jones of Moulsecoomb, that avoiding groupthink and having challenge on a board is a very useful thing. However, I would not go so far as to make them directors, for all sorts of legal reasons that others have already expounded.
It pains me to disagree marginally with the noble Duke, the Duke of Wellington. I do not like panels, because they become ghettos that the unfortunate member of board who has to interact with them dreads going to—but they go anyway, they go through the motions and then they come back. I far prefer something more formal: a regular cycle of meetings with representatives of civil society, which are going to be challenging and sometimes uncomfortable but which end with recorded actions that are made public. Otherwise, it becomes just a token exercise and a ghettoisation into panels. I will not try to emulate the tone of the noble Lord, Lord Deben, but the representatives of consumers or environmentalists can be listened to but not heard.
Earl Russell (LD)
My Lords, this has been one of the really interesting groups in the Bill. I am not certain that any of us—from any party, in any amendment—has the complete solution. There are questions about whether a one-size solution fits all. In any case, there is a lot for all of us to go away and think about. These are crucial issues that go to the heart of what we do, how water companies operate, how they are accountable and how people who are impacted by them can feed in to and influence what they do and how they operate.
I thank the noble Lord, Lord Cromwell, for his contribution. I fully support him on the role of civil society. It is particularly important that we all acknowledge, as he did, that we would not be here without the role of civil society. I have an amendment in a later group to encourage the Government to work more with civil society in monitoring the environment.
I also thank the noble Duke, the Duke of Wellington, for his comments on the need for environmental representation. I am not quite certain where I agree on that debate; I will go away and think about it some more. I have also been on a board, and to be honest, it was one of the most difficult things I have done in my life. That was even on a good, well-functioning board. Sometimes, if you are in a difficult situation, even with good people who work together, things can be very difficult.
I also thank the noble Lord, Lord Remnant, for tabling his amendment. The board should decide on its own make-up and we should not dictate to it. Perhaps there is some kind of compromise here between the Government setting guidelines for what needs to happen, while perhaps allowing some freedom within the way that it is organised and monitoring the outputs that come from it. Maybe there is something we can all work on there.
I also thank the noble Lord, Lord Sikka, for his contribution. It is a bold move, indeed, and I am not entirely certain that I agree with that kind of prescriptive democracy. I think that it is better to allow things to be inclusive, as opposed to dictating that they must be in their make-up, but again, I will think about that.
The noble Baroness, Lady Jones, spoke about bringing some democracy into the regime. I certainly think we need that, and that the environment needs a proper, formal voice. I take up the point from the noble Lord, Lord Deben, about the need to watch the environment. If we do not do that, and if nobody has that responsibility or role, then that protective piece that needs to happen will not be there.
I think our areas of agreement were the need to broaden representation to include the environment and community, the need for diversity, the need for boards to work well, the need for constructive challenge to operate and to be brought to these companies at the highest level, and the view what we have now is not working, so we need to go away and find something else.
Lord Sikka (Lab)
My Lords, I have added my name to Amendment 100. The water authorities in Berlin and Paris are publicly owned and have stakeholder-elected directors. In most European countries, large companies have stakeholder-elected directors in them, as either a substantial proportion of the unitary board or a German-style two-tier board where one board is supervisory, and the other is executive. On the supervisory board, directors are directly elected. There are plenty of precedents for stakeholder-elected directors on company boards, and in many ways the UK is an outlier.
Lord Roborough (Con)
My Lords, I thank the noble Earl, Lord Russell, for moving the amendment. I want to speak in support of Amendment 22, from my noble friend Lord Remnant, as well as Amendments 21 and 23 tabled by the noble Duke, the Duke of Wellington.
My noble friend is right to note that the decision whether to be on a board, panel or committee is the job of the company rather than any kind of external regulator. By allowing the company to make that decision, it can decide based on its own business needs. If this was left to Ofwat, not only could it lead to a situation where the board, panel or committee did not fit well into the company structure but it might harm relationships between those forums and the board of the company.
It seems unlikely that a regulator would ever have access to all the information needed to make decisions on how a company’s decision-making systems should be structured, and it is surely the responsibility of the company itself to ensure that it has the right processes in place to make the correct decisions according to its needs. Indeed, as we have heard from many noble Lords, it is clear that the regulator has failed to get important decisions right in the past, to the detriment not only of companies but of the environment. Yes, of course, the regulator should have its role in holding companies to account for their decisions, but the moment regulators are involved in decision-making, it surely takes some responsibility for those choices too.
We are concerned that having consumer representatives on the board or their being involved in any decision-making within the company creates a blurring of responsibility. There is already the risk of some confusion, given the role of regulators, but they are at least experts in the industry and well informed about their roles, acting within well-defined parameters.
I agree with the noble Duke, the Duke of Wellington, on sectional interests and the effective working of a board. Consumer representatives on a board lay themselves open to the responsibilities of being a company director and in some cases a director of a listed company. Do the Government really want such consumer directors to be open to fines or prosecution for failing to deliver accounts on time, trading while insolvent or even insider dealing? It is not clear to me as the Bill is drafted that those consumer representatives could not also be subject to fines or prosecution by the regulator. If a consumer representative proposed an action that led to penalties from the regulator, how could they not be responsible?
Turning this around to the perspective of the existing board and management, if consumers are part of decision-making, then it is conceivable that they could cause or prevent an action by the company that created regulatory breaches and punitive action. How would this coexist with the responsibilities and liabilities of professional managers and board directors? How could this not create liability for the consumer representative?
My comments about consumer representation apply equally, if not more, to the environmental experts proposed in Amendment 9 by the noble Earl, Lord Russell. I understand and applaud the sentiment behind the amendment, of environmental representatives representing the stakeholder that has no natural voice, the environment. However, environmental campaigners already have a strong voice. There are obligations already present for companies, and others may be imposed through amendments to the Bill. I also agree with the noble Duke, the Duke of Wellington, that environmental representatives, alongside consumer representatives, should be limited to panels.
Allowing the company to decide the forum in which such representatives take part would benefit both sides of the agreement. If the company has taken this decision, then it becomes clear that the company, its managers and employees remain jointly responsible for decisions. I am not clear from the Bill exactly how the Government intend that its proposals should work. Both my noble friend Lord Remnant’s Amendment 22 and Amendments 21 and 23 from the noble Duke, the Duke of Wellington, have considerable merit. While there is a contradiction inherent between them, both are good solutions to creating the involvement of consumers that the Government want.
I thank all noble Lords for their involvement in this spirited debate. I ask the Minister to explain exactly how she sees consumer involvement working in practice under the Bill. I also ask that she give serious thought before Report to the amendments that I have addressed.
Baroness Hayman of Ullock (Lab)
My Lords, I thank noble Lords who have taken part in this debate. It has come across clearly that there is no agreement about who should sit on the boards. We want to rebuild trust in the water sector, and to do that we are giving Ofwat new powers to issue new rules on remuneration and governance.
I turn first to Amendment 9 in the name of the noble Earl, Lord Russell, and Amendment 21 in the name of the noble Duke, the Duke of Wellington. The powers on remuneration and governance outline a requirement for Ofwat to set rules on companies for including consumers in decision-making. We feel that it is appropriate for Ofwat, as the independent regulator, to determine how this is implemented. Water companies have a range of legal environmental obligations that they are required to meet, and actions related to these obligations will already be informed by specialists in the company.
We believe that introducing requirements to include environmental experts on company boards would take the focus away from involving consumers in water company decisions, which do not have the same level of legal requirements as the environment does. Environmental issues should already be a key consideration in water company decision-making. Importantly, my officials in Defra have worked to secure agreement with companies to update their articles of association, to place both customers and the environment at the heart of business decisions. I hope that this clarifies to noble Lords that the Bill ensures the prioritisation of consumer representation on company boards and that they feel able not to press their amendments.
Earl Russell (LD)
I thank the Minister for her response. This has been an interesting debate. There is more for us all to think about on these matters. I share a slight concern with the noble Lord, Lord Remnant, that the Government are looking back to Ofwat for a big, expanded role, even though there have been failures in the past. We will come back to the idea of expanding representation in further debates on the Bill.
For us, and I think for others around the Committee, the environmental aspect is important. I hear the Minister’s reassurances that there are new powers on Ofwat. I will go away and look at that, and I thank her for her response. I beg leave to withdraw my amendment.
South Asia: Minority Faith Communities
(1 day, 4 hours ago)
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Lord Ahmad of Wimbledon
To ask His Majesty’s Government what assessment they have made of the situation of minority faith communities across South Asia, and the role of the United Kingdom in safeguarding the freedom of religion and belief in that area.
Lord Ahmad of Wimbledon (Con)
My Lords, I rise to bring to the House’s attention the extremely pressing issue of the treatment of religious minorities across south Asia. I am grateful to all noble Lords who are speaking in this important debate this evening.
Despite the region’s rich diversity, tapestry of faiths and historical commitment to pluralism, religious minorities often face discrimination, persecution and unequal treatment, and are regarded by many as marginalised citizens. The challenges they face are immense, from social exclusion and legal inequalities to violent attacks and, tragically, murder. This threatens not only individuals’ rights but the very fabric of these societies and their ability to go about their daily lives.
I recall the words of the founder of Pakistan, Quaid-e-Azam, as he was known, Muhammad Ali Jinnah, in his historic speech on 11 August 1947. As Pakistan was established, a new dawn was heralded, and he said:
“You are free; you are free to go to your temples, you are free to go to your mosques or to any other place of worship in this State of Pakistan … we are all … equal citizens”.
These powerful words embody the founding vision for a state where freedom of religion and equal citizenship were seen as fundamental principles. Mr Jinnah’s message highlights the ideal of an inclusive society where freedom is not merely a privilege but a guaranteed right for all. Indeed, in the early days after Pakistan’s birth, we saw the esteemed jurist Sir Chaudry Zafarullah Khan, an Ahmadi Muslim, appointed as the first Foreign Minister of the county. Indeed, in 1960 Justice Cornelius—a Christian by faith—served as the Chief Justice of Pakistan for almost eight years.
Yet, despite these noble intentions laid down at the birth of the nation, the reality for many minority faiths, not just in Pakistan but across south Asia, tells a tragically different story.
First, on Pakistan, women and girls from religious minority communities, including Christians, Hindus and Hazaras, are disproportionately likely to experience gender-based violence. Indeed, the Human Rights Commission of Pakistan itself reported around 1,000 cases of forced marriages and abductions of religious minority girls in the province of Sindh in 2018.
I also draw to the particular attention of the House the plight of the Ahmadi Muslim community in Pakistan, of which I myself am a member, whose situation starkly illustrates the discrimination faced by religious minorities in the region. Ahmadis are effectively excluded from the democratic process. They are not permitted to vote or stand for Parliament unless they self-declare that they are not Muslim—what kind of constitutional choice is that for any citizen? The denial of political representation leaves them without any voice in the very system that is meant to protect their rights, and they are the only minority, unlike other minorities in Pakistan, who cannot vote for mainstream parties as part of the general electorate.
Since the introduction of discriminatory laws in 1984 under the then leader, General Zia, 277 Ahmadi Muslims have been murdered simply for their beliefs, and 220 mosques have been destroyed. Saying the simple greeting “Assalamo alaikum”, or “Peace be upon you”, used by one Muslim to another, results in a three-year prison sentence.
These actions against Ahmadis and the environment being created embolden extremists, who also target Christians and Hindus. The mob attacks on Christians in Punjab’s Jaranwala district in August 2023 were particularly vile, resulting in the torching of 25 churches. I was grateful to the then caretaker Foreign Minister of Pakistan, who acted to set up a compensation and support scheme for those targeted. Can the Minister say what the current situation is on compensation and accountability?
The previous Government took action on the egregious abuse of human rights—I was involved, and indeed acted on this—but this needs to be stepped up further. The human rights sanctions regime, which was set up in 2019, is there to ensure that we stop such extremists, stopping them from travel and freezing their bank accounts. This sends a very strong message to those who seek to discriminate against minority communities. Can the Minister update and confirm that the Government will continue to work with Members of your Lordships’ House and the other place to take this forward?
Briefly, on Bangladesh, the recent removal of former Prime Minister Sheikh Hasina from power has further exacerbated the ongoing violence and unrest in the country. Like the Tehreek-e-Labbaik in Pakistan, an extremist organisation being emboldened through the political system, we now see the rise of groups such as the Hefazat-e-Islam—which, ironically, means “The Protection of Islam”; its actions far from demonstrate that noble principle—which sees the deposing of the former Prime Minister, who, to her credit, resisted the call of extremist right religious groups, as free season to attack minorities. The political instability has led to an increase in targeted violence against religious minorities, who are often the first to suffer in times of upheaval.
The Hindu population in Bangladesh, a significant religious minority, has been facing an alarming rise in violence. It is worth noting that of course a majority of the Hindu population supported the former Prime Minister, whose removal has left them even more vulnerable to attacks. Other communities, including Ahmadis, are seeing their places of worship and mosques being targeted and calls from Hefazat-e-Islam for them to be banned.
Briefly on India, during my time in office as the Minister for Human Rights and South Asia, I regularly raised issues of the rights of minority faiths and communities, and we had a constructive dialogue with India. Let us not forget that the rights of minorities are safeguarded under law in India’s own constitution. Can the Minister update the House about the current situation, particularly in Manipur, following the communal tensions early this year, when tribal tensions manifested themselves in extremists trying again to use the religious divide?
Finally, I turn to the United Kingdom’s leadership on freedom of religion and belief. A brief bit of history: it was in 2018 that, working with many Members across your Lordships’ House and the other place, I presented a proposal for a Prime Minister’s envoy on freedom of religion or belief. Starting something from scratch in government is difficult, and I am grateful to the then DfID Secretary, Penny Mordaunt, for providing financial backing, for the strong support of Boris Johnson, the Foreign Secretary at that time, and to the then Prime Minister, now the noble Baroness, Lady May of Maidenhead. Indeed, the UK was recognised for its leadership in this regard. I was honoured to be appointed the first envoy in this respect in 2018, and more recently we have seen Fiona Bruce, the former MP for Congleton, so ably lead this agenda with immense passion and principle, as well as leading on the International FoRB Alliance. The United Kingdom also hosted the international FoRB conference in London in 2022.
I also highlight the significance of the global report of Bishop Philip of Truro, set up in 2019—he is now the right reverend Prelate the Bishop of Winchester—and I praise the efforts of the then Foreign Secretary, now shadow Chancellor, Jeremy Hunt, which address specifically the issue of persecution of Christians and other minorities around the world.
In south Asian countries, Christians continue to experience widespread discrimination, legal restrictions, social marginalisation and violence. The rise of nationalist ambitions in south Asia has contributed to the perception of Christians and other minorities as a threat to societal cohesion, further marginalising these communities. I say again to the Minister that I hope that this issue is being prioritised in our engagements across south Asia.
In Sri Lanka, we witnessed a rise in attacks on both Christians and Muslims in 2017, including assaults on churches and acts of intimidation. Through the previous Government’s position of the special envoy, along with the valuable support of communities, parliamentarians—most notably the noble Lord, Lord Alton, who cannot join us this evening, and the honourable Member for Strangford, Jim Shannon MP—and diplomats from across the FCDO we led on this agenda. The UK took a strong position, working with the United States, our European neighbours and other nations. Ensuring the continuity of this important agenda under Prime Minister Starmer would not only expand the UK’s influence but provide much-needed relief to those seeking protection.
The Truro review highlighted the necessity of placing the special envoy’s role on a permanent footing. I hope that the Minister will update this House. There was a Private Member’s Bill in this respect, which passed all stages in the other place but, because of the election being called, could not be taken forward here.
I will finish—I recognise that cough very well, as I was a Whip once. I implore the Government: this is an important agenda, so please do not lose time in which to act. I have said repeatedly that, when we stand up for others, it is the greatest test of our own faith and belief.
Lord Sahota (Lab)
My Lords, I thank the noble Lord, Lord Ahmad, for bringing this short debate to the House.
I want to bring to your Lordships’ attention the plight of the Sikh community in Pakistan. As we all know, after the partition of India in 1947, most of the Sikhs living on the Pakistani side moved to the Indian side, but a very small number of them decided to stay in Pakistan. It is estimated that there are around 50,000 to 60,000 Sikhs living in Pakistan at this moment. The Pakistani constitution is very firm that every minority faith should be treated equally and is entitled to the protection of the law.
After the 1947 partition, most of the Sikh historical places of worship, the gurdwara—such as the birthplace of Guru Nanak Dev Ji, the founder of the Sikh religion —ended up on the Pakistani side. As your Lordships can imagine, there is always a steady stream of Sikh religious pilgrims making their way to Pakistan from the UK, North America and other countries. The Pakistani Government very kindly always issue visas for these religious pilgrims. Last February, my wife and about 50 others, in a group from UK, had the honour of making this pilgrimage. It was something that she had always wanted to do, and she found the experience most fulfilling.
At every gurdwara, my wife stopped to talk to the female workers about their lives and experience of living in Pakistan. I have to say that she was upset and disappointed to hear some of their answers. They said that they were treated by the locals as second-class citizens, and that at school, their children were taunted as non-believers. They are an easy target of local religious fanatics. They are constantly under pressure to convert to Islam, with forced marriages and the conversion of underage girls. Quite recently, in the Peshawar area, 12 Sikhs were killed. There is a controversial blasphemy law which affects most of the minority communities. There is a general feeling of lack of security for them. Like I said, the Pakistani constitution is quite firm on equality for all faiths, but sometimes what happens on the ground and in the small villages is quite different from what the law says.
Sikhs mostly keep a low profile in this monolithic Muslim country. There have been reports of Muslim mobs attacking gurdwaras. The UK Government describe Pakistan as an
“important regional and strategic partner”,
with a relationship based on
“culture, shared history, diplomacy, development, security, trade, and the economy”.
In 2023-24, the UK provided about £42 million to Pakistan for development. Given our close relationship with Pakistan, it would not be unfair to ask it to provide extra security for its minority Sikh community, given that our new Labour Government’s policy states that they will champion the freedom of religion and belief for all.
Lord Harries of Pentregarth (CB)
My Lords, I pay tribute to the noble Lord, Lord Ahmad of Wimbledon, for his stalwart work in this area, his deep commitment to religious freedom and what he has achieved. It is very good that he will continue his commitment to this cause. It is also very good to have the Minister in her place, as I know that she will be equally committed to this.
I have a concern for all minority faith communities in south Asia. I also have a concern about freedom in its wider aspect and not just freedom of religion, for there is serious anxiety about academic freedom in India and the pressure being applied to those who do not support the Government.
However, my main concern in this debate will be with the Dalits, the former untouchables, a great number of whom are Christians or Buddhists. These Dalits suffer not just as members of a minority faith community but as those who are regarded as ritually unclean and to be shunned. This remains the ugliest form of discrimination in the world today and continues to blight India’s life. I couple the Dalits with the Adivasi, the ancient tribal people of India, who also suffer badly, not least in the loss of their ancient lands. Dalits suffer all over south Asia but, because of the shortage of time, I will focus on India.
There are multiple ways in which Dalits suffer, and one is their vulnerability to human trafficking. Multiple studies have found that Dalits in India have a significantly increased risk of ending up in modern slavery, including in forced and bonded labour and child labour. This is particularly true in the textile and brick-making industries, in which a large number of Dalits are employed, very many of whom are children.
Multiple studies show that Dalits experience discrimination in the area of employment. There are very few Dalits in senior positions in the professions; the vast majority are employed in servile positions, including manual scavenging, where it still exists.
The Government of India have a policy of positive discrimination for minority groups, but Christian and Muslim minorities are excluded from this. This is a clear example of how being a religious minority and a Dalit reinforces oppression, especially when you realise that some 76% of Christians belong to a disadvantaged group.
The most egregious harm to the Dalit community is in the criminal justice system. In recent years, a number of Christian Dalit villages have been attacked by mobs. There has been a failure by the police to prevent this, and then great difficulty bringing charges against the perpetrators, followed by long delays in bringing them to trial.
As many as 422,799 crimes against Dalits and 81,332 crimes against Adivasis were reported between 2006 and 2016. Over that decade, the crime rate against Dalits rose by 25%. Cases pending police investigation for both marginalised groups rose by 99% and 55% respectively, while the waiting time in courts rose by 50% and 28%. At the same time, conviction rates for crimes against scheduled castes and scheduled tribes fell by two percentage points and seven percentage points.
The recent gruesome report of the beheading of a Dalit minor girl in Tamil Nadu for rejecting the advances of an upper-caste male once again throws the issue of caste discrimination into sharp focus. Women from scheduled castes and scheduled tribes are particularly vulnerable to discrimination and violence due to the intersection of caste and gender.
This violence has become increasingly common across India over the last years and the audacity with which it is conducted suggests a complete absence of fear of consequences. Following on from this, human rights defenders advocating against caste-based discrimination and violence are at risk for defending the rights of Dalits and adivasi communities. They are often charged with a whole series of matters that have nothing to do with breaking the law. They face a diverse range of attacks and harassment from state and non-state actors, and police officials are very often those most at blame and seem to think that they can carry this out with impunity. Will the Government press the Indian Government to overhaul the criminal justice system so that Dalits and religious minorities can have proper access to justice? At the moment, it is failing minority communities very badly.
I will end by referring to something outside India, and that is the blasphemy law in Pakistan—which has already been mentioned. It has been used to terrify totally harmless Christian and Sikh villagers. As a result, some people have been on death row for years. Too often what happens is that there is a village dispute over something, and, as part of this, a perfectly innocent Christian or Sikh is accused of denigrating the Koran; they are charged with blasphemy, locked up and have to wait for years on death row. What steps are the Government taking to persuade the Pakistan Government to abolish this truly abhorrent law?
The Lord Bishop of Newcastle
My Lords, I thank the noble Lord, Lord Ahmad, for securing this important debate. I also commend the work of my right reverend friend the Bishop of Winchester, who works tirelessly on the issue of freedom of religion or belief. He expresses his regret that he could not be here to contribute to today’s debate. It is an honour to follow the noble and right reverend Lord, Lord Harries, who ordained me as a deacon in Oxford nearly 20 years ago.
As outlined in the Universal Declaration of Human Rights, freedom of religion or belief is a foundational right. A denial of FORB is often a warning sign for challenges and human rights troubles to come. The UK must therefore continue to reaffirm its commitment to FORB, particularly concerning regions where increasing threats to this foundational right are present. South Asia is home to a rich mosaic of religions. However, the religious diversity in this region is being undermined, and I draw your Lordships’ attention to just two countries by way of illustration.
The first is Pakistan. I am particularly concerned about the misuse of Pakistan’s blasphemy laws that continue to target minority religions, often resulting in mob violence and extrajudicial killings. Ahmadi Muslims are a major target for prosecutions under Pakistan’s blasphemy laws, as the noble Lord has already pointed out; I want to acknowledge the repression and persecution that his own community has suffered and still suffers from inception.
Second is Sri Lanka, a country I have visited and where the previous diocese I held episcopal office in, the Diocese of Leeds, has a formal link with the Anglican church. I wish to highlight the targeting of minority-religious groups, particularly by state authorities. Government policies reflect the Buddhist nationalist movements present within the country through the limitation of the ability to freely worship by creating discriminatory registration processes for places of worship. For 40 years, the prevention of terrorism Act has been used to arrest without charge, detain for indefinite periods of time, and torture Muslims and Tamils. Human Rights Watch expressed its concerns earlier this year regarding the proposed anti-terrorism Bill that is currently being considered to replace the prevention of terrorism Act. Instead of repealing the Act, that Bill would further weaken the legal grounds needed for security forces to arrest individuals without warrants and continue to permit lengthy pretrial detention.
I stress that while today’s debate focuses on the region of south Asia, safeguarding freedom of religion or belief is not a regional issue but a global responsibility. This debate shows the need for the UK to have a permanent Special Envoy on Freedom of Religion or Belief, as the noble Lord pointed out in his opening speech, ensuring that the UK’s commitment to this issue is turned into action. The appointment of a special envoy must be seen as a matter of urgency. The UK has already missed a significant opportunity to maintain its leading international role in this area by not having a special envoy in place to attend the international ministerial conference on this issue in Berlin earlier this month. I add my voice to those asking the Minister when such an appointment will be made.
Only through tangible action will the UK maintain its reputation and critical role in ensuring the protection of human rights across the globe. This is an opportunity for the UK to regain lost ground in its capacity to command respect and hold a voice in the international sphere. In a global context where many minority groups are under threat, this should be seen as a matter of urgent concern.
Baroness Sugg (Con)
My Lords, like other noble Lords, I thank my noble friend Lord Ahmad for tabling this debate and for his many years of work on freedom of religion or belief while he was a long-serving and tireless Minister. I had the good fortune of working with him while he was Minister in various guises: as a special adviser, a Back-Bencher and as a fellow FCDO Minister. I have seen first hand over those years his work in the area and witnessed his significant efforts in his time as Special Envoy on Freedom of Religion or Belief and his years as Minister for Human Rights and South Asia. He has been a great advocate for the UK at international forums and a strong supporter and promoter of policies aimed at protecting the rights of individuals to practise their faith without fear of persecution. My noble friend is greatly respected across your Lordships’ House, and indeed internationally, and rightly so. I agree with him on the importance of the special envoy role and the implementation of the Truro recommendations, and I look forward to the Minister’s response on those points.
Noble Lords before me have set out many of the concerning issues facing minority-faith communities across south Asia, and my remarks will have a particular focus on the vulnerabilities faced by women and girls. South Asia is home to over a billion people and has a rich mix of cultures and faiths; sadly, that diversity can also lead to tensions and minority-faith communities, whether they are Christians, Sikhs, Buddhists, Muslims or adherents of indigenous beliefs, often find themselves at risk and face discrimination, violence and marginalisation. As my noble friend set out, these challenges are exacerbated for women and girls, who bear a disproportionate burden in general, and particularly in times of conflict and social upheaval.
Religious-minority women can often face dual discrimination not only due to their faith but because of their gender, and UN experts have expressed concerns about the rise in abductions, forced marriage, and conversions of underage girls and young women. This highlights the precariousness of women’s rights within minority communities. We have seen some attempts to pass legislation to stop those abhorrent acts, but sometimes, in the view of religious opposition, the proposed legislation has been shelved.
In countries that have experienced a rise in nationalism, we have seen that minority women often face and experience heightened vulnerability. They can face violence, harassment and social ostracism, and that intersection of gender and religious identity complicates their struggles, making it essential that their specific experiences and needs are acknowledged in discussions about rights and protections.
We also see instances of religion-based rape and sexual violence in south Asia, and such acts often occur within the context of communal violence, political tensions or societal discrimination. These incidents can be used as tools of oppression, particularly among marginalised groups during conflicts or riots. Even in countries where there have been efforts towards gender equality, religious-minority women continue to face challenges such as property disputes and limited access to education. The United Kingdom has an important role to play in addressing these injustices, and that aligns well with the new Government’s focus on partnerships.
With its historical commitment to human rights, the UK can leverage its influence to promote policies that specifically protect women and girls from minority faith communities. That includes advocating for the repeal of discriminatory laws and practices as well as supporting initiatives that empower these women to become advocates for their own rights. Our impressive programmes on girls’ education can be targeted to those who do not have the same opportunities as the rest of the population.
Another effective approach would be to enhance support for organisations that focus on women’s rights within minority communities and, by funding programmes that provide legal assistance, education and vocational training, the UK can really help empower women and girls to challenge the discrimination and build more secure futures for themselves and their families. There was previously an FCDO programme specifically looking to support women’s rights organisations. Can the Minister say whether that work will continue to be supported by the new Government?
The UK is also well positioned to facilitate dialogue among faith leaders and communities, emphasising the importance of gender equality within religious contexts. By promoting interfaith discussions on women’s rights, the UK can help foster environments where diverse beliefs coexist and the voices of women are heard and respected. An ideal place to have these discussions is at the various international ministerial freedom of religion and belief conferences that have been hosted by the UK and others. As we have heard, the last meeting was held in Berlin earlier this month, but, sadly, like the recent G7 Development Ministers meeting, for the first time since these meetings started, the Government were not able to send a Minister to attend and officials represented the UK instead. I fully appreciate there has been a plethora of international summits and meetings recently, but, as the right reverend Prelate said, that is another good reason to appoint a freedom of religion and belief envoy.
Finally, the UK should lead by example at all relevant international forums, advocating for the inclusion of gender and religious freedom as priorities in foreign policy discussions. That involves not only highlighting violations but recognising and supporting countries and organisations that promote both gender equality and religious tolerance.
Before I end, as I think I have time, I must specifically raise Afghanistan and the yet more deeply distressing restrictions for women in that country. On top of everything else, we hear this week that adult women are now forbidden from allowing their voices to be heard by other women. In announcing this, the Taliban emphasised that women must refrain from performing Islamic prayer or reciting the Koran aloud when in the presence of other women. There is sadly no freedom for women there—of religion, of belief or at all. I appreciate the complexities and the difficulties of getting any assistance to the women of Afghanistan, but can the Minister offer any hope of how the Government will approach the challenge of making a difference for women there?
Lord Jackson of Peterborough (Con)
My Lords, I commend the noble Lord, Lord Ahmad, for securing this debate on such an important subject. I also acknowledge my noble friend’s background and experience as a long-serving Minister, most recently as a Minister of State at the FCDO.
International religious freedom continues to be a serious concern in a global landscape in which authoritarianism is increasing and polarisation and extremism are proliferating. I pay tribute also to the work of the Religious Freedom Institute, based in Washington DC, which has led the way in supporting legislators across the globe in their work on raising awareness of the importance of freedom of religion and belief. It is challenging to know where to focus attention during a debate on safeguarding religious freedom in south Asia. There is a litany of concerns and abuses in Pakistan, Sri Lanka, Bangladesh and India, but I will focus on India, where Mahendra Modi’s Hindu nationalist BJP has presided over a severe decline in the nation’s record on human rights and religious freedom.
Anti-conversion laws are a major blight in the south Asian context. By their very nature, they undermine the essence of religious freedom. Half of the anti-conversion laws in India were enacted under the Modi regime, prohibiting religious conversion by force, allurement or fraudulent means. Some states require either prior permission or an advance declaration to be obtained before conversion. The broad prohibitions also cover proselytism, though the sharing of one’s faith is an integral aspect of religious practice in Islam and Christianity, among other religions. Furthermore, five states have enacted anti-conversion laws that include provisions prohibiting conversion for the purpose of marriage. The ambiguity found in these laws enables their misuse against people from minority faith communities.
Police data shows that, within nine months of Uttar Pradesh’s ordinance criminalising unlawful religious conversion in November 2020, hundreds of people had been arrested in connection with conversion cases. In addition to the structural violations of religious freedom, India has witnessed extraordinary societal persecution, exacerbated by woefully insufficient responses from the Government. The situation in the Indian state of Manipur is distinctive and devastating in its scale and levels of violence, and the ongoing injustice suffered by the Kuki-Zo people. In May 2023, the violence instigated by Hindu nationalist factions from the Meitei tribe, fuelled by hateful propaganda and misinformation, resulted in hundreds of people being murdered, hundreds of places of worship being destroyed and tens of thousands of people losing their homes and livelihoods. There were reports of lynchings, beheadings, people being burned alive, torture, mutilations, abductions and the rest. Although multiple factors underpinned the violence, including long-standing ethnic and tribal tensions, without doubt Christians have been targeted. There is also evidence of violence against Christians within the Meitei tribal community itself, with a number of churches being destroyed.
The Indian Government have failed to provide the levels of support needed and to respond appropriately to these tribal tensions. The number of internally displaced people who are residing in around 320 relief camps is horrendous. There is a lack of medical support and people are sick and dying. With these troubling issues and incidents in view, the UK Government must use the full range of diplomatic tools at their disposal to challenge the serious shortcomings of the Indian authorities and encourage timely, comprehensive support for all those who have suffered persecution.
My noble friend Lord Cameron of Chipping Norton, while Foreign Secretary, stressed the need for a focused international response. However, to engage with confidence and efficacy on these and other issues around the world that fall into the same category, the Labour Government must develop a deep knowledge and understanding of religious freedom, going beyond unsophisticated assumptions. They need to recognise and respond to the gravity of the problem and its implications. This will mean restoring freedom of religion or belief as a foreign policy priority, sufficiently resourcing the FCDO’s engagement, and establishing a special envoy on a statutory footing.
It is very disappointing that the latter has not been done. I was extremely disappointed, personally, to receive that reply to my Question on that issue from the noble Lord, Lord Collins, last week. As has been mentioned, just this month, the German Government hosted the annual International Ministerial Conference on Freedom of Religion or Belief without a British Minister being present.
The British Government, using their pre-eminent reputation for soft power, are at their best on the world stage, speaking up for the world’s disenfranchised, vulnerable, oppressed and persecuted, working with skill and determination to resolve injustices and improve conditions for human dignity and flourishing. For the Christians of Manipur, the Ahmadis of Pakistan, or the adherents of so many other faiths who suffer because of their beliefs and religious identities in south Asia, and throughout the world, this UK Government need to be more committed and more resolute to act.
Lord Callanan (Con)
My Lords, first, I thank my noble friend Lord Ahmad for bringing this important subject forward for debate. It has been an excellent, albeit brief, discussion by noble Lords. My noble friend Lord Ahmad was always a champion on this issue in the Government, during his time as a Minister in the FCDO. I want—like the rest of the House, I am sure—to commend him on the excellent work he did on this and in other areas, particularly as the Prime Minister’s Special Representative on Preventing Sexual Violence in Conflict.
South Asia is home to a rich tapestry of cultures, languages and faiths. Yet, sadly, as my noble friend said, recent trends across the region indicate an alarming rise in discrimination, persecution and violence against many religious minorities. From the discrimination faced by Hindu, Sikh and Christian minorities in Pakistan to the ongoing challenges for Muslims and Christians in India and the persecution of Buddhists and Hindus in Bangladesh, these communities are under increasing pressure. They are often denied their fundamental rights to worship freely, to practise their traditions and, fundamentally, to live in peace. For decades, the UK has promoted the principles of tolerance, inclusivity and religious freedom. I will be interested to hear from the Minister how the Government intend to continue that excellent work.
In the latest of a series of detailed reports on the state of global religious freedom, the non-partisan Pew Research Center found that six of the seven countries in the region of south Asia enforce “high” or “very high” governmental restrictions on religion. The sole exception, Sri Lanka, is also, sadly, now moving to higher levels of government restriction. Six of those seven countries also experience “high” or “very high” social hostilities involving religion, including terrorism and other forms of faith-based violence. Worldwide, only in the Middle East can higher levels of religious persecution be found. We have seen the level of conflict now happening in the Middle East, and these signs from south Asia are extremely concerning.
On these Benches, we believe wholeheartedly in individual liberty, and an essential part of freedom is freedom of belief. Can the Minister inform us what steps are being taken by His Majesty’s Government to ensure that people of different faiths, or indeed none, are continuing to be protected in south Asia?
In Sri Lanka, Sinhala Buddhist nationalists perceive religious minorities to be a threat to the religious identity of the state. Extremist Buddhist organisations such as Bodu Bala Sena have launched massive campaigns calling for the restriction of minority rights, particularly those of Muslims. Pakistan too features an alliance between religion and the state. The most obvious way the Pakistani state, in collaboration with religious extremists, attempts to quash religious pluralism is through its draconian blasphemy code, which bans defamation against Islam. The noble and right reverend Lord, Lord Harries, and the right reverend Prelate the Bishop of Newcastle outlined some of the dreadful consequences of that law. In India, the Citizenship (Amendment) Act 2019, which uses religious identity as a basis for citizenship, has also led to increased religious hostility and sectarian conflict. Arguably, interreligious tensions have never been higher in India than they are today.
Some may say that these issues are of no consequence to the United Kingdom, but they would be wrong. We are delighted to live in a pluralist society but, as the events of this summer have shown, the societal fabric on which Britain is built can sometimes tear.
In conclusion, I call on His Majesty’s Government to do all they can to ensure that the rights of minority faith communities continue to be protected and that freedom of religion and belief remains a cornerstone of our foreign policy efforts in south Asia. We know that none of these issues is easy, but the lives and dignity of millions depend on it.
The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
My Lords, I thank the noble Lord, Lord Ahmad of Wimbledon, for securing this debate on such an important topic. In the light of his heartfelt introduction, I pay tribute to his previous leadership and activism on this agenda, including but not only when he was a Minister at the Foreign, Commonwealth and Development Office.
I thank all noble Lords for their insightful and heartfelt contributions. This is a topic unlike any other in the portfolio of any Minister; it is something that I think we all feel to our fingertips. Freedom of religion or belief is something that, as the noble Lord, Lord Callanan, closed with, we enjoy in this country, and we are grateful for that. It is a right that we wish to see extended across the globe, but, sadly, the situation—and not just in south Asia, as the noble Lord pointed out—is not a good one.
The Pew Research Center’s latest study revealed that global government restrictions on religion hit a new high two years ago. This is why we must continue to champion freedom of religion or belief—or FoRB, as we call it—for all, and challenge threats to it wherever they occur, including in south Asia.
Given the devastating ongoing conflicts around the world today, respecting freedom of religion or belief and promoting interreligious dialogue can build trust between communities and contribute to securing sustainable peace. That is the work that we wish to see extended everywhere we can. However, as noble Lords have made clear through their contributions, sadly that is lacking in too many places today.
Across south Asia, many countries have seen a rise in incidents of violence and discrimination directed towards minority communities. This is deeply concerning. We have heard today examples and stories of hideous abuses. In Pakistan, in addition to the accounts we have heard from noble Lords, there have been at least four targeted killings of Ahmadi Muslims this year alone. I thank the noble Lord, Lord Sahota, for sharing his family’s experience of Sikh communities in Pakistan; his insights are of great value to this House.
In September, in Pakistan, two men were killed by law enforcement officers in separate incidents of violence relating to allegations of blasphemy. The right reverend Prelate the Bishop of Newcastle and the noble and right reverend Lord, Lord Harries, raised the blasphemy laws, and we are grateful to them for bringing them to our attention. As noble Lords may know, in May, a large mob violently assaulted a Christian man and his family in Punjab, on accusations of blasphemy. An elderly man died in hospital a week later as a result of his injuries. Elsewhere in south Asia, recently enacted and proposed legislation in Sri Lanka risks limiting fundamental freedoms too. Sadly, the list of examples is far too long.
The situation is troubling, to say the least. The noble Lord, Lord Callanan, pointed us in the direction of data from the Pew Research Center. He told us that three of the 19 countries that scored very high on the Government Restrictions Index are in south Asia: Afghanistan, Pakistan and the Maldives. He also told us that three of the seven countries that scored very high on the Social Hostilities Index are in south Asia: India, Afghanistan and Pakistan. We can see that Pakistan and Afghanistan are among the four countries globally classified as having among the highest levels of both government restriction and social hostilities involving religion.
The noble Baroness, Lady Sugg, asked me to offer her some hope on Afghanistan. I am not sure that I am able to do that this evening, and she will understand why, but I am grateful to her, as I am sure all noble Lords are, for bringing her concerns to the debate this evening. She rightly asked me about women and girls. We know that in conflict and religious persecution it is often women and girls who bear the brunt. I reassure her that the programmes we have on gender-based violence and raising awareness of the harms of early and forced marriage are continuing. I hope that we can continue to have her support for those.
The noble Baroness, Lady Sugg, asked about the Bishop of Truro and his work. The Bishop of Truro’s 2019 review provided recommendations for FCDO support for freedom of religion or belief. In 2022, as she will know, an independent review assessing the department’s implementation of the recommendations was largely positive. I think some of the credit for that may go to the noble Baroness—I am not sure—and certainly to the noble Lord. With this concluded, we are going to look ahead to build on it and on the work that the previous Government did in this area.
Recognising that human rights are universal, indivisible, interdependent and interrelated, this Government continue to champion freedom of religion or belief for all, across the world. It is our firm belief that no one should live in fear because of what they do or do not believe in. Across south Asia, the UK is taking action. The Government regularly raise the importance of religious tolerance and freedom of religion or belief, including at the highest levels. To give just one example, Minister Falconer recently underlined its importance when he met Pakistan’s human rights Minister in September.
Through our programmes, we are directly supporting communities and affected populations and addressing drivers. In Sri Lanka, the UK Integrated Security Fund is working to strengthen social cohesion, countering hate speech and, which is also important, documenting cases of intimidation and attacks against religious minorities. In Pakistan, our accountability, inclusion and reducing modern slavery programme supports policy development and community empowerment to protect marginalised groups. Bringing together community and faith leaders, it promotes interfaith harmony and has reached over 35 million people with information and awareness about rights and government services. The John Bunyan Fund continues to support projects around the world that specifically aim to protect and promote freedom of religion or belief.
Listening to and, when we can, championing the voices of affected communities remains for this Government, as for the last, of the utmost importance. In India, the British High Commission in New Delhi and our network of deputy high commissioners across the country regularly meet religious representatives and have run projects supporting human rights. We have hosted ministerial level round-table discussions with various religious representatives.
I was asked by the noble Lords, Lord Ahmad and Lord Jackson, about Manipur. The situation is incredibly serious, as the noble Lord, Lord Jackson said; it is complex, and we understand that. We are going to continue to monitor it very closely through our deputy high commissioner in Kolkata. It is appropriate to say that we send our deepest condolences to all those affected. I commit that we will continue to raise our concerns directly with the Government there, including at ministerial level.
I take this opportunity to reference Nepal. We regularly interact with an interfaith group of different leaders, including representatives of believers in Hinduism, Islam, Christianity, Sikhism, Jainism and Om Shanti religions. We support the Tibetan Buddhist community, who face discrimination, and ensure that that is visible and impactful.
Noble Lords referenced Bangladesh. As the noble Lord, Lord Ahmad, and others said, there has been a great deal of political upheaval in recent months in Bangladesh. The UK will continue to engage with a wide range of civil society and other stakeholders to understand fully what is happening and their concerns. We will continue to support freedom of religion or belief through our development programmes there.
As noble Lords will know, we also work multilaterally. We are an active member of several alliances working to promote and protect freedom of religion or belief, including the Article 18 alliance. These coalitions of member states work to advance this cause around the world. Just this month we have taken several measures. FCDO officials participated—I take the point that it was not a Minister; I believe it was when the noble Lord, Lord Collins, who has ministerial responsibility for this, was at CHOGM, but ordinarily he would very much have wanted to be there—in the international ministerial conference in Berlin, which was focused on freedom of religion or belief and AI.
We also delivered a statement at the Organization for Security and Co-operation in Europe conference on freedom of religion or belief and fundamental freedoms, given how crucial human rights are to the organisation’s comprehensive view of security. Last week the UK was pleased to participate in an interactive dialogue with the UN special rapporteur in New York, discussing connections between freedom of religion or belief and peace, which is the focus of her recent report. Earlier this month we co-sponsored a Human Rights Council resolution that extended the mandate of UN special rapporteur Richard Bennett to monitor and report on the human rights situation in Afghanistan, including the situation of minority groups, for another year.
The Whip is coughing at me, but I do not want to sit down without answering the point about the special envoy. Noble Lords will probably notice what I have said the last few times I have been asked about this. Their support for the position is noted. I do not have anything new to add today, but I am sure it will not be long before I have something more to say. I assure noble Lords that the torch from the previous Government has been received and we will continue to carry it forward because it is such an important issue.
Water (Special Measures) Bill [HL]
(1 day, 4 hours ago)
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Lord Cromwell
“(d) requiring a relevant undertaker to assess and report regularly to the Authority on actual or planned financial structuring of the undertaker, including debt levels, coverage of the associated commercial strategy and any associated risks.” Member’s explanatory statement
The amendment requires that financial engineering becomes a regular focus area for timely reporting in order to assist in regulators’ understanding and alert them in good time to risks or distortions.
Lord Cromwell (CB)
Amendment 10 in my name and Amendment 13, which we discussed earlier, seek to address the problem that lies at the heart of what went wrong with our water industry; the regulators were simply outsmarted by PE financial engineering, either because they were not paying sufficient attention to what was going on or because they just did not understand it. Regulators have either lacked or failed to deploy the skills needed to assess the impact and purposes of financial engineering introduced by corporate investors.
Amendment 10 addresses that shortcoming directly by requiring water companies to report regularly, not only on any financial restructuring or structuring but on the strategy lying behind it and any associated risks. This will ensure that such activities have to be made overt rather than, as hitherto, taking place under the regulators’ noses but apparently below their radar. I beg to move.
Lord Remnant (Con)
My Lords, I am delighted that Clause 10 does not appear to envisage a role for Ofwat. The amendments in this group are not really related to each other. As such, I shall confine my remarks to Amendment 86 in my name and I shall be brief.
Under the “Special administration orders” section of the Bill relating 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. New subsection (4) extends this recourse to all other companies in the sector.
I hope the Minister will tell me that I am mistaken in my interpretation of what this new subsection is designed to achieve. Does it not force good companies and their blameless customers to bail out failed companies? Can this possibly be justified? It has been a recurring theme of this debate, supported by the comments of many noble Lords, that the sector is in critical need of substantial investment to raise standards across the board and deliver the service that consumers and the general public so rightly expect. Any suggestion of collective punishment for the financial woes of others is to be resisted.
The consequence of imposing an unquantified and unquantifiable potential liability on the sector will at best push up the returns required by investors to inject capital into the water companies, inevitably increasing costs to consumers. At worst, it risks making the sector uninvestable. That is surely not the intention of new subsection (4), but it may be the consequence. My amendment would remove that risk, and I hope the Minister will support it.
Baroness Pinnock (LD)
My Lords, I will address my comments to the amendment in the name of the noble Lord, Lord Cromwell. I agree with him that financial restructuring of companies has led us to where we are now, with Thames Water potentially on the brink of collapse—who knows who is going to have to fund the huge injection of capital that has apparently now been agreed. Other water companies are heavily indebted. Ofwat, which is after all the economic regulator, did not query, question or challenge those decisions made in the early years of water company privatisation.
The consequence is that anything the Government now attempt to do is basically closing the stable door after the horse has bolted—and raced to the other side of the world—because the companies are where they are. Although I agree with the noble Lord, Lord Cromwell, that any future restructuring ought to be put under the microscope of the economic regulator, the current situation is leading us to a potentially very grave position, which the Government are trying to address with the other financial clauses in the Bill. I read the clause referenced by the noble Lord, Lord Remnant, as being directed pointedly at a particular water company.
I support the amendment moved by the noble Lord, Lord Cromwell. I suppose it is better to change the situation now than leave it as it is, but what has happened already is unfortunate.
Lord Roborough (Con)
My Lords, Amendment 92 is very simple. Had it been in place when the water companies were privatised, it would have prevented the aggressive financial engineering that has led to the financial distress we see regularly reported in the press, which has provoked much anger in this House and elsewhere over the years.
Before I address Amendment 92, I will briefly comment on Amendment 10 moved by the noble Lord, Lord Cromwell. It coexists neatly with my amendment, allowing regulators to be better informed on issues with the financial structures of the companies they regulate, and to be aware of future problems. I am pleased that the noble Lord has moved this amendment, and I broadly agree that the regulator should have better information about the financial structuring of water companies in the interests of protecting their viability and preventing circumstances in which they become overleveraged.
I will speak to the dangers of overleveraging and the problems we have as a result of the weakness of the regulator, but we on this side of the Committee are interested in the amendment moved by the noble Lord, Lord Cromwell, which takes a fairly moderate step towards having a better-informed regulator. That said, it may be possible to go further, either by reforming the way the regulator works in the water sector or, as I propose in Amendment 92, by implementing statutory rules on borrowing for water companies and taking effective steps to prevent capital being taken out of companies that are overleveraged. We need to make the water sector attractive to investors so that they bring more capital into it to fund investment in cleaner and better water infrastructure.
I add my whole-hearted support to the amendment proposed by my noble friend Lord Remnant. It seems grossly unfair that a company that has behaved responsibly should be penalised by the actions of another in the sector. I am aware of precedent in the financial services sector, but that is to protect the integrity of the financial system, which is in all participants’ interests. In this case, each water company is a unique entity whose actions have little or no impact on others. Without this amendment, one bad actor could contaminate the industry.
I add my concerns about the wording that my noble friend Lord Remnant seeks to remove from the Bill. This new subsection as drafted applies the duty to render “relevant financial assistance” to any other company that holds, or held, an appointment under this chapter. This seems to me yet another example of retroactive effects that are littered throughout the Bill and which we will discuss in later groups. Could the Minister explain to the Committee what the Government’s intention is with this retroactive element in the Bill? Will there be a maximum period of time since the relevant company held an appointment for this duty to apply to it? This seems to us to be a concerning power, and we would seek clarifications from the Minister on both the unfairness at the core of this subsection and its retroactive element. I thank my noble friend Lord Remnant for introducing his amendment, and hope that he continues to make progress on this unfairness which exists in the Bill as drafted.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank all noble Lords who have put forward amendments relating to the financial management of water companies. I will start with Amendment 10, tabled by the noble Lord, Lord Cromwell.
Ofwat has a core duty under Section 2 of the Water Industry Act 1991 to ensure that companies can finance the proper carrying out of their statutory obligations. Ofwat already monitors the financial position of water companies and can take action when companies need to strengthen their long-term financial resilience. However, we recognise that some companies will need to take further steps to strengthen that financial resilience. Ofwat has required further assurance from these companies about their financial resilience into 2025 to 2030 and beyond, and the annual monitoring financial resilience report is due to be published this autumn and will provide a publicly available assessment of the financial resilience of each water company. I say to the noble Lord, Lord Cromwell, that we met and discussed these concerns previously. Clearly, the commission that we have talked about a lot today will look at performance and resilience, but I am very happy to discuss this with him further as we move forward through the Bill.
Turning to Amendment 86, tabled by the noble Lord, Lord Remnant, I emphasise that there is a high bar for the introduction of a special administration regime and the Government do not expect to have to use this power. A special administration regime will be required only when there is evidence that a company is insolvent or in serious breach of its statutory duties. The noble Lord’s amendment is to Clause 10, and Clauses 10 and 11 are designed to introduce new powers for the Secretary of State and Welsh Ministers to modify water company licences to cover any shortfall that results from a SAR. Government funding may of course be required to cover the costs of a special administration, and these clauses mean that the Government will be able to recoup any taxpayer money spent during a SAR that cannot be covered upon exit from the SAR, either by rescue or by transfer. I wanted to make that clear. Of course, in the unlikely event that the power in the Bill is used, it allows the Secretary of State or Welsh Ministers to decide, subject to consultation, the rate at which the shortfall is recovered. I hope the noble Lord is therefore reassured that any intervention would be considered very seriously and as a last resort.
I turn now to Amendment 92, tabled by the noble Lord, Lord Roborough. Water companies are allowed to raise debt to fund the delivery of their services and it is for companies to decide their financial structure. At sensible levels—that is the key point—debt can be an appropriate way to fund essential investment. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. This amendment may therefore threaten the ability of companies to attract investment if limits on borrowing are imposed.
I reassure the noble Lord that Ofwat already has appropriate powers to prevent dividends where they would threaten financial resilience. I appreciate that the noble Lord has extensive experience in this area, but I hope he understands why we cannot accept this amendment, because it is vital that we ensure companies are able to finance their functions. If he would like to send in more information about this, I would be very happy to receive it and have a look.
Finally, I once again highlight that the new independent water commission, led by Sir Jon Cunliffe, the former Deputy Governor of the Bank of England, will review the current water industry regulatory framework to ensure that it attracts investment and supports financial resilience for water companies. I once again thank noble Lords for their suggestions and input into this discussion on the financial management of water companies.
Lord Cromwell (CB)
I thank everyone who has participated in this. I think we are all concerned about financial engineering of one sort or another. It is not only borrowing, but that is clearly an important part of it. I am sorry that the amendments have not passed muster, but I look forward very much to further discussions with the Minister, as she offered. I beg leave to withdraw the amendment.
“(iia) meeting relevant standards issued under Schedule 3 of the Flood and Water Management Act 2010 (Sustainable Drainage),”
Baroness McIntosh of Pickering (Con)
My Lords, I welcome the opportunity to debate Amendments 11 and 12 in my name in this group, on flood and water management. The amendments relate to Clause 1 and, in particular, tie the environmental standards which the department has set out in the Bill to those specifically meeting relevant standards issued under Schedule 3 to the Flood and Water Management Act. So it is the same provision to come in two separate places.
I am very grateful to the Minister and members of the Bill team for meeting me prior to Committee to discuss this. I invite the noble Baroness to accept that this amendment and the provisions in Schedule 3 to the Flood and Water Management Act 2010 are Defra legislation, so I would like her department to take ownership of this. She is aware of my desire and passion that we implement the provisions of Schedule 3 to the 2010 Act as a matter of urgency. Defra itself has explained that Schedule 3 provides a framework for the approval and adoption of drainage systems, a sustainable drainage system approving body within unitary and county councils and national standards on the design, construction, operation and maintenance of sustainable drainage systems for the lifetime of the development. Schedule 3 also makes the right to connect surface water run-off to public sewers conditional on the drainage system being approved before any construction work can start. That goes to the point of ending the automatic right to connect that we discussed in a previous group.
Wales has already applied Schedule 3 and has done a report on how it has been implemented. It is not entirely perfect and there are ways in which it could be improved, but we have been yo-yoing on this under successive Governments and it now falls to her Government and her department to really run with this.
Baroness Pinnock (LD)
My Lords, I do not know whether the noble Baroness, Lady McIntosh, is right to try to urge the adoption of Schedule 3 to the Flood and Water Management Act through this Bill, but she is right that there was an expectation that it would be implemented this year. Given the new Government’s determination to expand the construction of housing as quickly as possible across the country, this schedule is pertinent and relates to the water services Act. We ought to try to address it, through this Act or not. The Minister’s heart is in the right place on this one, so now she has the levers of power I am sure that she will pull the right one.
Lord Blencathra (Con)
My Lords, I thank my noble friend Lady McIntosh of Pickering for tabling these amendments, which rightly seek to tackle the issues of flooding and drainage. The Flood and Water Management Act 2010 set out standards for water companies regarding the reduction of flood risks and created more power for local authorities to be able to take action to protect their local areas.
When in government, we tightened restrictions on water companies to protect our countryside, and we are pleased that this work is being continued. Since 2010, under the Conservatives, government investment has better protected more than 600,000 properties from flooding and coastal erosion. Since 2015, Conservative investment has protected over 900,000 acres of farmland, rightly putting the needs of rural communities first.
In 2020, we built on this further and announced a doubling of capital funding into flood defences in England, to a record £5.6 billion from 2021 to 2027. As the Committee will understand from these steps, we had a strong record of investment in flood defences and water management. It would be helpful to hear from the Minister what plans the Government have to improve on those Conservative measures to protect communities across the UK from the harms of flooding.
Much of our debate on the Bill has so far focused on the corporate structures and financial management of companies in our water industry. It is right that we consider these issues in depth and seek to put the right incentives in place to deliver better outcomes for the key groups and interests that we should be aiming to protect under the Bill; namely, consumers, employees of water companies and the protection of our environment.
While the majority of the public debate around our water sector focuses on the damage that sewage overflows do to our waterways, my noble friend Lady McIntosh is absolutely right to take this opportunity to consider the dangers of flooding and to seek to ensure that water companies put this issue front and centre. We on these Benches certainly understand the issues of sewage contamination in our rivers across the country and would like to solve this issue to preserve the nature and wildlife that this has serious impacts on. We also recognise the horrendous impact that floods have on many communities because those water companies have not done enough in terms of flood management.
The first impact most people experience when water management is poor is flooding on roads and on other key transport links. However, in serious cases—such as the 2007 summer floods and the floods of 2015-16—this can result in threats to lives and livelihoods, enormous costs to the economy and massive devastation for the people affected. I am not sure if the Minister is politically old enough to remember the terrible Carlisle floods a few years ago, but it was horrendous to drive through Carlisle and see thousands of homes with abandoned furniture outside, which was soaked through. In my own constituency, just south of Penrith, at Eamont Bridge, houses had been flooded to a depth of about three inches, but with osmosis, the water had been sucked right up the walls and everything had been destroyed. So, flooding seriously impacts people’s lives.
Reporting on those two exceptional examples together, the Office for Budget Responsibility estimated that the 2007 summer floods cost the UK economy £3.2 billion, while the 2015-16 winter floods cost the economy roughly half of that, at £1.6 billion. These examples alone demonstrate the importance of improving water management to protect our communities from flooding.
That said, it is not only the extreme examples that demonstrate the importance of managing flood risks. As anyone who is involved in farming or other rural affairs will tell you, 2024 has been a very wet year, with many communities facing difficult challenges with flooding. In April 2024, England as a whole received 150% of the long-term average rainfall for the time of year and the north-west was particularly wet—as the noble Baroness and I will testify—with, as my notes say, the wettest April since records began in 1871. I can also tell noble Lords that it was also the wettest August, with one dry day this year.
This is a good opportunity to remind ourselves that it is not just people’s homes that rely on a good water system but our food supply—people’s livelihoods rely on it too. That is why my noble friend Lady McIntosh of Pickering is right to bring this point forward for debate as the Bill makes progress.
When flooding and poor water management affect our rural communities, invariably this has a knock-on effect on agriculture and, in turn, consumer costs. Earlier this month, the Guardian reported that fresh food inflation increased to 1.5% from 1% just in August as the wet weather affected British production of salads and soft fruits, while storms in the Atlantic delayed imports of more exotic fruits, driving up prices.
No Government can control the weather—thank goodness; farmers would like to control it of course, but each would want to control it differently—and no water company can entirely mitigate the impacts of wet periods on our agricultural output. However, good water management is very important when we are faced with unusually poor conditions.
I am grateful to my noble friend Lady McIntosh of Pickering for tabling these amendments to the Bill. I know many farmers will be pleased to hear their concerns about the impacts of poor water management are being discussed in your Lordships’ House tonight. While the Government may not be inclined to accept these amendments, we on this side of the House see this as an important opportunity to ask the Government to please keep the issue of flooding and water management high on the agenda, in light of the very serious impacts it has on people across the country, in both direct damage to their homes and communities and the secondary impact it can have on food prices for all of us.
I would therefore be interested to hear whether the Minister might consider bringing tougher flood mitigation duties for water companies into the Bill. As we have heard constantly, the Government intend to bring forward much wider reforms in the coming year, but, as we approach winter, many families up and down the country will have concerns in the backs of their minds about the risks of flood, in light of the continued failures in our water sector.
Will the Minister take this forward and look at possible improvements that can be made to the Bill now? I hope the Government will listen to the important points raised by my noble friend tonight and consider these carefully before Report.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Baroness, Lady McIntosh of Pickering, for her amendments relating to Ofwat’s duties. I will take Amendments 11 and 12 together.
As I have previously noted, public trust in the water sector has been severely damaged, and the number of serious pollution incidents is increasing, yet companies are still paying out millions in bonuses. To rebuild public trust, we are creating a new framework to support accountability, including the new rules relating to remuneration and governance. As the independent economic regulator of the water industry, Ofwat will be responsible for developing these rules.
However, the Government are clear that environmental standards are a vital component of performance. As such, the Bill requires the forthcoming rules to include standards that relate to the environment. The noble Lord, Lord Blencathra, has mentioned the devastation that flooding can bring; I reassure him and other noble Lords that I completely understand why it is so important for us to tackle flooding. I live in a house that has been flooded—living in Cumbria, you are always aware of these issues.
With regard to the Flood and Water Management Act 2010 specifically, while the Act includes provisions relating to sustainable drainage, it does not prescribe or define any environmental standards capable of being applied in this context. It would therefore not be appropriate to include reference to standards in this legislation within Ofwat’s rules, as Ofwat does not have any functions or expertise in relation to the technical requirements prescribed under the Flood and Water Management Act 2010.
The noble Baroness, Lady McIntosh, suggested that Defra should take ownership of delivering this. The issue we have is that it also impacts directly on development and developers, which is why the Government are currently working with the Ministry of Housing, Communities and Local Government to assess how best to implement their ambitions on sustainable drainage, while also being mindful of the cumulative impact of the new regulatory burdens on the development sector. At this stage, I do not want to pre-empt the outcome of that process.
On this basis, the Government do not accept either of the amendments from the noble Baroness. However, I would like to say that the noble Baroness knows that I am very sympathetic to her concerns. As she said, we have discussed this previously. If she is willing, I suggest that we look to arrange a meeting between herself, myself and MHCLG, in order to discuss this further, where she can clearly explain her concerns to both departments—Defra and MHCLG—that have responsibility for moving forward on this.
Baroness McIntosh of Pickering (Con)
My Lords, I am most grateful to all who have spoken, and in particular for the support of the noble Baroness, Lady Pinnock, and, from a sedentary position, the noble Baroness, Lady Parminter, as well as my noble friend Lord Blencathra. He referred to the flooding. I was actually a candidate—at a very early age—for Workington in 1987. I went back and visited as a shadow Minister during the severe floods of 2007 and 2009, so I am well acquainted with the pressures faced by Carlisle, Keswick and Cockermouth. It was very sad to see that many of the residents felt that they could not afford to take out insurance in those floods.
I will add that it is not just flooding that concerns me; it is the surface water going into the combined sewers taking the sewage from the new developments that do not have mandatory SUDS that is causing the problem.
I would like to take up the Minister’s offer. It would be good to have the meeting before Report, because I would be prepared to come back with these amendments then. Alternatively, if the department wish to come forward with even better amendments that achieve the same end, that would be very welcome.
Lord Roborough
Member’s explanatory statement
This amendment prevents the new rules from overriding existing employment contracts.
Lord Roborough (Con)
My Lords, in moving Amendment 14, I will speak also to my Amendment 15.
As I mentioned in an earlier debate this evening, there are a number of areas in this Bill where its effects are retroactive on existing agreements, but the Bill fails to set out the exact limits of these powers. On these Benches, we have been clear at every stage in the passage of the Bill that we want to see tougher measures to hold water companies to account and to ensure that we have better outcomes for consumers and our environment. However, it would not be right for us to approve this Bill because it has a worthy goal, without scrutinising those areas where it is deficient. We have already spoken about Ofwat’s failures, and noble Lords across the Committee will surely admit that there are improvements to be made to the way that Ofwat itself works. Giving unclear levels of retroactive powers to the regulator is not something that should be accepted by Parliament, and we will scrutinise the Bill very closely on its retroactive impacts.
My Amendment 14 seeks to remove the lines from Clause 1 that seek to empower Ofwat to void existing agreements, including employment contracts. The Bill gives Ofwat the power to issue these rules without proper scrutiny, and in this part of the Bill we see how powerful those rules can be. Retroactively overriding employment contracts may be necessary for the Government’s objective to implement a blanket set of rules on remuneration for senior officers of water companies, but it is surely not an acceptable way to go about regulating the sector. I ask the Minister: what message does it send to a talented person working in the water sector today, as they build their career, to see measures such as this retroactively changing the rules of the game? We on these Benches fear that many talented people may choose to pursue a career outside the sector, for fear that the Government may yet again move the goalposts retrospectively.
I have intentionally tabled my related Amendment 15 separately, to probe whether the Government are willing to move at all on the retroactive impacts of the Bill. Amendment 15 seeks to remove the part of Clause 1 that enables the retroactive deprivation of performance-related pay under the rules. It is surely not right to implement rules now that have effect from the beginning of the year. Our concern is that the lines in the Bill that we seek to remove allow the Government to renegotiate unilaterally an employment contract that has been freely entered into between a third-party employer and a third-party employee. While it is customary that employment legislation often does just such a thing, there is very limited precedent for picking on one class of employees in one particular sector.
This is a very unfortunate precedent to set, which opens the door to a Government inserting themselves into employment contracts across other sectors to achieve the outcomes they want. That smacks of overreach. Should we seek to remove performance-related pay from software company managers if their software crashes; from insurance industry executives if we do not like their handling of claims; or from airline executives if their flights are late? I am sure that there may be some noble Lords across the Chamber nodding their heads that the Government should be doing just that; however, that is completely against the Government’s claims of being business-friendly. No competent executive would ever want to work for a UK-based company were these kinds of rules to be brought in.
Our amendment does not suggest a better alternative but simply suggests that the current method is unacceptable, and that the employed and the employer also need to be cognisant of the law and agree that these contracts be amended or replaced with agreement to reflect the intent of the Bill.
There is also the issue, which my noble friend Lord Remnant may address in greater detail in his comments, of interference in multiyear contracts, where portions of that payment may already have been earned and yet could potentially be prohibited under the Bill. I draw the Committee’s attention to the Explanatory Notes provided to the House by the Department for Environment, Food and Rural Affairs. Paragraph 79, under “Compatibility with the European Convention on Human Rights”, says:
“Provision relating to remuneration of water company executives is also not considered to result in ‘deprivation’ within the meaning of Article 1 of Protocol 1 to the Convention, as the provision relates to future income. Such income will only constitute a possession once it has been earned”.
I suggest that income in prior years in multiyear contracts has already been earned, just not yet paid. Therefore, I question the Minister on how compliance with the ECHR can be guaranteed in this case.
My amendments are, by their nature, probing. Given that they address an election manifesto commitment, they are designed to produce convincing answers from the Government on how these issues can be addressed. I look forward to the Minister’s reply. I beg to move.
Lord Remnant (Con)
My Lords, I am delighted that Amendment 26 in my name falls into the same grouping as those in the name of my noble friends Lord Roborough and Lord Blencathra. Although I very much regret that your Lordships’ time is having to be spent on potentially amending proposed legislation that has retrospective effect, it gives me the opportunity very much to support the arguments advanced by my noble friend Lord Roborough in support of Amendments 14 and 15.
It cannot be right retrospectively to override contract law with respect to employment contracts freely entered into by company and individual in line with relevant legislation and regulations in force at the time. Similarly, to the extent that, today, pay can be recovered from senior individuals under malus and clawback provisions in listed companies’ remuneration policies, such a draconian power can rightly be exercised only in extremely limited circumstances known in advance by the individual. The proposed exercise of the pay prohibition in the Bill retroactively goes way beyond accepted remuneration practice, and unacceptably so.
On my own amendment, I will not repeat the general arguments made by my noble friend against the principle of retroactive or retrospective legislation. I am no lawyer, so I hope that your Lordships will forgive me if I perhaps erroneously use the terms interchangeably. The offending principle, though, remains the same. The general rule in this country, and indeed in most modern legal systems, is that legislative changes apply prospectively. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow’s backward adjustment of it.
The Bill proposes that the provisions about performance-related pay apply from the financial year beginning 1 April 2024. We are currently some seven months into that financial year, and the Bill will not be enacted for some months hence. In effect we are talking about backdating the provisions for the best part of a year. The remuneration arrangements entered into between senior individuals and their employer will have been agreed under remuneration policies agreed by shareholders well before April for them to take effect from 1 April 2024. It surely cannot be right, whatever the merits of the Bill, for its provisions subsequently to alter those arrangements and the remuneration paid, or to be paid, under them.
Few things concern investors more than retrospective legislation, and listed companies will need to consult with and seek approval from shareholders on changes to remuneration policies at their AGM. Requiring retrospective changes risks companies breaching shareholder-approved remuneration policies. More fundamentally, it will undermine investor confidence at a time when they are being asked to fund a record investment programme.
My amendment would simply change the date from which the performance-related pay provisions come into effect from a historic 1 April 2024 to a mildly prospective 1 April 2025. Is that really too much to ask, to avoid breaching a fundamental legal principle? I do not think so and I hope that the Minister will agree with me.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all noble Lords who have stuck with us this evening and carried on the debate. We know that the public have been clear that they want to see change and that where performance is poor, executives should not receive large salaries or bonuses.
I will start with Amendments 14 and 15, tabled by the noble Lord, Lord Roborough. The conditions of existing employment contracts may not align with Ofwat’s new rules. Our concern is that Amendment 14 may prevent Ofwat being able to apply its rules even when performance has not met the required standards. On Amendment 15, it is also right that where companies breach Ofwat’s rules on performance-related pay, Ofwat should be able, if it considers it appropriate, to require the company to recover any payment made in breach of the rules. Linking pay to performance should incentivise decision-making, resulting in improved outcomes for customers in the environment. I reiterate what I said earlier: should companies meet their performance expectations, executives can still be rewarded. So I hope that the noble Lord will understand why we will not accept his amendments.
I turn to Amendment 26, tabled by the noble Lord, Lord Remnant. This legislation will ensure that Ofwat is able to implement rules on performance-related pay in the current financial year. However, I listened really carefully to the speech that the noble Lord just made introducing his amendment. I would really like to understand his concerns better, so I wonder whether he would welcome further discussion on this matter so that we can look at it in more detail. I would very much appreciate it if the noble Lord was prepared to do that. But currently we are not going to accept the amendments as we feel that they would prevent meaningful implementation of the rules.
Lord Roborough (Con)
My Lords, I am grateful for the Minister’s reply. We respect that this is an election manifesto commitment and therefore needs to be in the Bill in some form, but my noble friend Lord Remnant and I would both like to discuss further with the Minister, if possible, how we can help to improve this part of the Bill. In the meantime, I beg leave to withdraw my amendment.
Lord Roborough
“(5A) Rules made for the purposes of determining standards of fitness and propriety mentioned in subsection (2)(b) must include criteria that help the undertaker to assess—(a) whether persons have the knowledge, skills and experience to perform the specific role that they are intended to perform;(b) whether, in assessing a candidate for a position within the management body of the undertaker, the management body as a collective possesses adequate knowledge, skills and experience to understand the undertaker’s activities;(c) how relevant and important any matters which suggest a person might not be fit and proper are;(d) whether appointed persons on temporary absence continue to meet the standards of fitness and propriety.(5B) The criteria in subsection (5A) are to be treated as guidance and may be applied in general terms when the undertaker is determining a person’s fitness and propriety.”
Lord Roborough (Con)
My Lords, I will attempt to be brief, in view of the hour.
Amendment 19 provides a clear definition of the criteria that will be used in determining whether someone is fit and proper to hold a responsible role in the water industry. As currently drafted, there is no definition and, as such, it is likely that everyone consulted would have their own different definition of what “fit and proper” might look like. There is precedent in another industry for such a test, which was undoubtedly in the back of the drafter of the Bill’s mind, in the financial services industry. My amendment is an edited version of the Financial Conduct Authority’s definition of a “fit and proper person”. As I was previously a senior manager in an investment management business under the FCA’s senior manager regime, I have first-hand experience of this test.
Even as laid out by the FCA, there was considerable debate about the application of the tests. I also question whether Ofwat is really the right place for such an assessment to be made. In the financial services sector, it is for the member firm to make its own determination and express its view to the FCA when seeking to register a new employee. The FCA could then query that view and potentially overturn it. Should Ofwat be required to do this, it is likely to use less professional help and real-world experience in forming that view and will require dedicated infrastructure to process applications. If the undertakers are responsible, overseeing those applications becomes relatively straightforward.
This may not be a long debate, with only one amendment, but it is an important amendment to consider when giving effect to the Government’s intentions in this Bill. In providing clarity to the undertakers, what is intended by this provision? I am most interested in the Minister’s response and hope that, if she is not happy with my amendment, she might set out who she considers a fit and proper person and how that will be communicated to Ofwat and the industry. I am also most interested to hear why the Bill’s proposal for how to implement this is different from the financial services industry, despite a reasonably long and moderately successful record within that industry. I beg to move.
Baroness Hayman of Ullock (Lab)
My Lords, how nice to have a quick last group. I thank the noble Lord, Lord Roborough, for introducing the last group of today with his Amendment 19, which seeks to specify the criteria to be covered by the rules on fitness and propriety, ensuring that senior leaders meet the public’s expectations.
I have mentioned Ofwat’s consultation on remuneration and governance before, and I would just like to confirm to the noble Lord that this consultation references similar criteria to those proposed by his amendment. Ofwat’s consultation seeks views on whether it would be appropriate to include a concept of “ability” in the new test, defined as an individual having adequate knowledge and understanding of the duties of the undertaker. Ofwat has stated its intention to design a fit and proper person test with criteria that will improve public trust and company culture in the water sector, having considered how other sectors are regulated around these same principles. I hope this captures the noble Lord’s concern that standards of fitness and propriety will need to be relevant and encompass concepts of knowledge and understanding. Of course, we feel that Ofwat’s independence is an important part of the trust that companies have in the regulatory regime.
The noble Lord asked why we felt Ofwat should be setting these criteria. We think it is right that Ofwat has the opportunity to consult on these criteria and that companies then have the opportunity to respond and perhaps propose different criteria. It needs to be a situation where Ofwat can then tailor these fitness and propriety standards to the water industry, rather than having prescriptive standards set out within the primary legislation. It is important that Ofwat’s independence is clearly upheld, because it will support its ability to hold senior officials to account for their actions.
Ofwat also notes in its consultation that the 16 largest water companies have a licence condition that requires them to meet the four objectives of its board, which are leadership, transparency and the governance principles. These objectives include the requirement for boards and board committees to have the appropriate balance of skills, experience, independence and knowledge. I hope the noble Lord is content that this is already being looked at; I hope that he will look at the consultation and therefore see that his amendment is no longer necessary.
Lord Roborough (Con)
My Lords, I am grateful for the Minister’s reply, and it is certainly very helpful. Perhaps something I could have brought out more in my initial comments were the concerns over accountability. When I look at the FCA’s senior manager regime, and the fit and proper tests, none of that is here—nowhere is there any accountability to Parliament. We will take the Minister’s comments away and give this further thought. I beg leave to withdraw the amendment.