Earl Russell (LD)
My Lords, I declare my interests as set out in the register and thank the Minister for this Statement updating the House on the launch of the independent water commission. There is much that we on these Benches welcome, most importantly that this Government, through the Water (Special Measures) Bill presently being considered by this House and the launch of the water commission, have given a clear signal that they are determined to try to fix our broken water system. The intent is a welcome step change, and I am thankful for it.
That said, there is a time for reviews and commissions and a time for calm, direct and decisive government action to fix systems that have been broken for far too long. The Government talk proudly about their longer-term approach, when the electorate is keen for more radical and immediate action. My friendly warning to the Labour Government is that the people who voted for them did so with the expectation that real action would be taken to resolve this mess, at scale and at pace. Labour has had many years in opposition; quite frankly, we expected the Government to be better prepared and to have come up with the necessary plans and answers by now that are urgently needed to fix these problems.
The water industry is a mess, and the sewage scandal was a critical issue at the last general election. The Liberal Democrats are determined to put the protection of our precious natural environment at the heart of everything we do. In 2023, water companies dumped 54% more sewage into our lakes, rivers and coastal areas than they did in the previous year. This amounts to 464,000 incidents and 3.6 million hours of untreated sewage discharges in England alone, damaging our freshwater ecosystems. Meanwhile, water bills are set to rise by some 40%. We are clear that we would abolish Ofwat, create a new, unified and far more powerful clean water authority and replace the failed private water companies with public benefit companies.
The Government have taken a different policy direction. My worry is that the magic trick of making Ofwat fit for purpose, securing investment while keeping consumer water bills low and protecting our environment lies way beyond the measures contained in the Water (Special Measures) Bill and that, when further legislation finally arrives, it will be too late. I welcome the Minister’s engagement, but I call on the Government to work with all sides to make the measures in the Water (Special Measures) Bill more radical and robust. Our environment cannot wait while Labour decides on the real systemic reforms that are the only solutions to this crisis.
Only 14% of our rivers and streams are in good ecological health. With the commission taking at least a year to consider evidence and report back to government, and with further legislation only then to be prepared and debated in Parliament, the radical change required appears unlikely to be implemented before 2028-29 at the earliest. I hope that the Minister can acknowledge a growing sense of concern on all sides of the House that the measures in the Water (Special Measures) Bill are not enough to fix the problem and that further legislation derived from the conclusions of the water commission will just not arrive in the urgent timescales required.
The 30% by 2030 target for protection of nature is coming up urgently. How will this review help support that process? My understanding is that the water review will not report until 2025, which leaves a short timeframe for making the necessary changes and requirements to meet our targets. Further, if we find after the Water (Special Measures) Bill is passed that problems in the water industry persist and we are still in the gap before the water commission finishes its work and is ready, are the Government prepared to put forward additional urgent legislation to help fix any remaining problems?
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, I thank both noble Lords for their questions on the Statement made in the other place recently. Both noble Lords mentioned the fact that we had been in Opposition for 14 years— I would suggest that is probably one of the reasons why the water industry is in such a mess. It is a little bit rich of the Opposition to say that we should have sorted it out when we were in Opposition.
In answer to a few questions, the review will be reporting in the first half of next year. It is not that long until next year; it is only a few months away. The idea is that the review will develop new legislation that will make water companies and our water infrastructure fit for purpose for the future.
I thank the noble Earl, Lord Russell, for his broad support. He talked about urgency. It is important to point out that we came into government at the beginning of July. On 11 July, my honourable friend the Secretary of State made a Statement to the House on the agreement he had already reached with water companies and Ofwat to ring-fence money earmarked for investment so it could not be diverted to shareholder payments. On 9 September, we introduced the Water (Special Measures) Bill that we are considering in the House. Yesterday, the review was announced—so we are pretty well cracking on with this as an urgent action going forward.
Lord Cromwell (CB)
Does the Minister agree with me that the failures in the UK water industry derive from extractive financial engineering, which in turn led to poor investment in infrastructure, which in turn led to the environmental failures that have become so publicly known? All these things should have been picked up by the regulators far sooner and acted on. Will the commission focus on that aspect?
Baroness Hayman of Ullock (Lab)
The commission will focus on regulation, among other things, and I urge noble Lords to input into that part. Clearly, regulation is an area of particular concern. We need to look at how it was possible for water companies to have managed to get into such appalling debt; the commission will want to look at that very carefully.
The Duke of Wellington (CB)
My Lords, I said yesterday in Committee on the Water Bill that I very much welcome this review and congratulate the Government on having instituted it. Perhaps I could probe the Minister on a particular point about the structure of regulation. In the other place last week, the Secretary of State said:
“The Commission will conduct a root-and-branch review of the water sector’s regulatory system”.—[Official Report, Commons, 23/10/24; col. 280.]
However, in the press release, among the listed objectives of the commission are:
“Better regulation: rationalising and clarifying requirements for companies … Empowered regulators: ensuring regulators are effective in holding water companies accountable”.
I hope that within the scope of the commission is the question of whether the structure of regulation is correct, in that it is divided principally between Ofwat and the Environment Agency, and whether it would not be more appropriate to have a single regulator for such an important group of monopoly companies.
Baroness Hayman of Ullock (Lab)
My understanding is that the whole structure of the regulator and anything around how effectively it has been working will be open for the commission to discuss. My understanding is also that we are not committed to any particular structure going forward and that the commission will look at the whole thing right across the board.
Baroness Young of Old Scone (Lab)
Can the Minister reassure the House on the scope and delivery of the commission? I very much appreciate that this commission is being established and that it has got such a wide remit. It very specifically says in the account of the scope and delivery that the commission will be asked to work within the framework of the UK carbon budgets and the targets of the Climate Change Act, but it does not give a concomitant assurance that it will also have to meet the requirements of the Environment Act, including the legally binding biodiversity targets in particular. Can the noble Baroness reassure us on that matter—that it will be part of the remit?
Baroness Hayman of Ullock (Lab)
The noble Baroness is right that it specifically refers to the UK carbon budget framework and the Climate Change Act. We discussed this very briefly in the Water (Special Measures) Bill yesterday during the environment amendments. The biodiversity targets set within the Environment Act are certainly ways to deliver the changes that we need and I suggest that anything that is currently in law is something that the commission would be discussing.
Baroness Parminter (LD)
My Lords, I will pick up the point that the noble Duke, the Duke of Wellington, made about regulators. While we welcome very much the independent water commission and what it will look at in its scope, last week the Secretary of State introduced another review by Dan Corry of the Defra regulatory framework, which will report before the independent water commission. I did not want to think that that might preclude any of the broader structural issues that we know need to be addressed in the water industry. Therefore, I ask the Minister: what relationship will there be between the Dan Corry review of Defra’s regulatory framework and the independent water commission?
Baroness Hayman of Ullock (Lab)
That is a really good question. I have met with Dan Corry and spoken with him about this. He is doing a very broad overview of everything; it is not limited to the water industry. His review is entirely separate from any work that the commission is doing. If there is any overlap on the effectiveness of the water industry regulators, I am sure that it will be fed into the commission as part of its discussions.
Lord Sikka (Lab)
My Lords, the water commission’s terms of reference are full of motherhood and apple pie statements. They promise to protect customers and the environment, but matters such as flooding, agriculture, waste, the pricing formula, profiteering and the failures of privatisation are beyond the scope of the inquiry. Such constraints mean that the review will not be comprehensive. Can the Minister explain why the Government have handicapped the commission from the outset?
Baroness Hayman of Ullock (Lab)
The Government have not handicapped the commission; they have given the commission a clear target, overview and scope. Where housing, planning, agriculture and drainage interlink with strategic planning for the water system, they are in scope. In some circumstances, that could include, for example, agricultural run-off or housing development—it just has to be within that scope. Having said that, just because the other areas that my noble friend referred to are not in scope of the commission, that does not mean that the Government are not taking them very seriously or not continuing to do further work on these issues.
Baroness Falkner of Margravine (CB)
My Lords, I welcome the review and, in particular, the appointment of Sir Jon Cunliffe, who, in his time regulating financial services at the Bank of England, proved his thorough understanding of regulatory frameworks. My point is about scope and timing. We are told that an advisory group will be established to inform him and that he will refer to, and consult with, expert stakeholders. After that, the commission will also publish a general call for evidence to bring in a broad range of other views, which I assume is the public part—I see the Minister nodding, so presumably there will be a public consultation. My question therefore is: does she sincerely believe that six months is adequate? This review is profoundly important and pulls together so many different strands, as others have mentioned, so it is more important to get it right than to get it on the record quick.
Baroness Hayman of Ullock (Lab)
As the noble Baroness said, Sir Jon Cunliffe is an excellent choice as chair, and we are very pleased to have him. He is already looking at who could be part of the advisory group—that is taking place—and who the broader advisers will be. We want to have it open to the public and consumers, because it is important that they too have their say. Now that we have the chair appointed, we are, as a matter of urgency, getting the other members of the advisory group in place and getting the other people involved who need to be involved, including the public, as quickly as possible.
Baroness Pinnock (LD)
My Lords, I am sure that the Minister will agree that the pollution through sewage overflows into our waterways is abhorrent and needs to be dealt with urgently. Here is the problem: the water companies have their price review—their five-year plan, if you like—to be agreed at the end of this year for the next five years. So, unless the Government are able to influence the scope and size of the agreement of investment in our wastewater pipes and treatment works, nothing will happen—well, not enough will happen —in the next five years. The danger is that the Government are putting this off until 2030. That is not acceptable. Can the Minister reassure me and many others that this will not be the case?
Baroness Hayman of Ullock (Lab)
As the noble Baroness is aware, the commission will not do anything that will impact on PR24—the price review that is due to report at the end of this year. I point out that this price review is £88 billion, as Ofwat has proposed. That is the largest investment that we have ever seen going into infrastructure. The Government were very keen that we had a really good infrastructure deal for PR24 so that we can start putting right some of the things that so badly need attention at this very early stage.
Baroness Boycott (CB)
My Lords, like everybody, I very much welcome this report. However, point 12 says that the Government are specifically ruling out looking at agriculture at the moment. Given that the public really worry about pollution and, particularly in the west of England, that so much pollution in our rivers and reservoirs comes from agriculture, when will the Government look at this? Will any further legislation come through separately from Defra to look at the waste that comes from chicken farms that affects the River Wye?
Baroness Hayman of Ullock (Lab)
The situation in the River Wye is the most dreadful example of what can happen when you get too much run-off from agriculture. We are looking at what needs to be done around the River Wye in particular, but we are looking more broadly at how we manage pollution from agriculture. I met my colleague Daniel Zeichner, the Minister for Farming, only earlier today, and we discuss these issues on a regular basis. Although agriculture is in scope only where it interacts with water regulation, that does not mean that we are not serious about tackling the problem. It is a huge part of this; I think that over 40% of pollution in our rivers comes from agriculture. It is very much high on the Government’s agenda.
Lord Cromwell (CB)
I urge that the commission takes a serious and practical look at resourcing. The Environment Agency has had its budget halved in the last decade, and it is pointless producing complicated recommendations if they are not going to be resourced—something which we as legislators do far too often.
Baroness Hayman of Ullock (Lab)
The noble Lord makes an extremely good point. Resources and enforcement are a crucial part of ensuring that any legislation is delivered.
The Earl of Devon (CB)
My Lords, the Minister has indicated how quickly the Government have sought to address this issue, but they very quickly announced the intention to develop 1.5 million new homes across the country. We are all aware that there are development deserts across the country, particularly catchments affected by the nutrient neutrality rules on phosphates and nitrates. I have also heard that the Environment Agency has declined a number of major developments, including around Oxford and Cambridge, due to lack of available water to supply those new developments, as well as lack of suitable sewerage to remove waste. Will the commission focus, and how quickly will it be able to do so, on the limitations that the poor performance of our water companies is placing on the Government’s ambitious agenda for economic and housing development?
Baroness Hayman of Ullock (Lab)
As the noble Earl heard, the commission has a very wide remit. I ask him to feed in anything like this that he feels it should be giving attention to. On housing and nutrient neutrality, we have ambitious housing targets, and Defra and the MHCLG are working together on how we can protect the environment and look at what needs to be done in the area of drainage. On water shortages, one of our manifesto pledges, and something we are very keen to work on, is the introduction of new reservoirs. We have not had new reservoirs for over 40 years in this country, and it is absolutely critical that we move forward on that.