Water Industry (Financial Assistance) Bill
(12 years ago)
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The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Taylor of Holbeach)
My Lords, in December, the water White Paper, Water for Life, set out the many challenges facing the water sector: how much water we have available now and in the future; the impact on our natural environment from water and sewerage management; and the issue that this Bill is designed to address, which is keeping bills affordable.
We have seen in the south-west the long-term impact that investment in sewerage has had on customers’ bills. Ofwat’s price control regime balances the need for such investment with the impact on customers’ bills. However, we should remain alive to the arguments for different approaches when circumstances require, whether to address the exceptional consequences of past decisions, as with the south-west, or a case such as the Thames tunnel, where the sheer scale of such a project dwarfs the ongoing business of a water and sewerage company.
The Water Industry (Financial Assistance) Bill contains two simple spending powers, which will enable the Government to implement two policies that the Chancellor set out in the Autumn Statement, both of which are designed to reduce the costs of infrastructure investment falling on water and sewerage customers. The Bill will allow us to fund South West Water to keep its household customers’ bills down now and to provide contingent financial support for the proposed Thames tunnel in London.
Clause 1 is a general power to enable the Government to give assistance to water companies for the purpose of reducing charges payable by customers. The only purpose for which we currently plan to use the power is to reduce the bills of South West Water’s household customers by £50 a year until the end of the next spending review. We believe that the circumstances that they face are exceptional. For years they have faced the highest water bills in the country as they have paid the costs of the £2 billion invested in infrastructure post-privatisation. The benefits of this investment include improved water quality, reduced leakage, cleaner beaches and better bathing water, but the costs have been borne solely by South West Water customers and their bills have risen as a result. We believe that the Government should help to correct the historical inequity. We do not want another such inequity to arise.
London’s sewerage system is operating close to capacity —and the situation will only get worse with population growth, urbanisation and climate change. Even after construction of the Lee tunnel and improvements to sewage treatment works, around 20 million tonnes of untreated wastewater will still be discharged in a typical year from combined sewer overflows into the Thames. This is unacceptable on environmental and health grounds, and it needs addressing.
The proposed Thames tunnel offers the most timely, comprehensive and cost-effective solution for dealing with sewage discharges into the River Thames in London. Alternatives have been considered, including by the Thames Tunnel Commission, which is chaired by my noble friend Lord Selborne. However, none of the alternatives identified during the extensive studies carried out over the past decade has been found to swiftly and adequately address the environmental and health objectives for the Thames tideway while at the same time complying with our statutory obligations.
This includes alternatives such as a western tunnel combined with sustainable drainage systems. Implementing sustainable drainage on the scale required to address the combined sewer overflows east of a western tunnel would be hugely disruptive, expensive and unlikely to meet the environmental objectives. The existing sewerage system into which a western tunnel would discharge has limited spare capacity, so the western tunnel would spill more often and lead to significant odour problems, due to the amount of time sewage would be stuck in the tunnel. In-river treatment would not prevent untreated sewage from spilling into the Thames. I do not believe that the public want raw sewage to continue to spill into the Thames. Thames Water’s public consultations and complaints to the Environment Agency confirm this. However, we recognise that this is an expensive project.
Clause 2 will allow the Government to provide financial support for exceptionally large or complex works on water or sewerage infrastructure, such as the Thames tunnel. We are willing in principle to provide contingent financial support for exceptional project risks where this offers best value for money for Thames Water customers and taxpayers. However, as a Government, we will want to be assured that, when offering this contingent support, taxpayers’ interests remain a top priority. We are therefore working with Ofwat, Infrastructure UK and Thames Water to make sure that the financial structure for the proposed tunnel includes safeguards to minimise the likelihood of government support being called on. We believe that simply having the power available will help us to maximise private sector investment in the tunnel and keep the cost of its financing down.
I am aware that concerns were raised in another place about the breadth of powers in the Bill, and desire was expressed for greater parliamentary scrutiny ahead of government spending. The powers in this Bill are by no means unusual in their flexibility for future circumstance, nor do they remove the need or opportunity for proper parliamentary scrutiny of government spending plans in the usual way. Tough decisions always need to be made about the use of government money. I am sure that any future financial assistance under these powers would inevitably be the subject of much debate internally in the Government, in Parliament and with the public.
In the case of the south-west, there were years of campaigning and then the independent Walker review, which identified this as a set of exceptional circumstances. Financial assistance would never be given to water companies on a whim. However, exceptional circumstances do and will arise, as we have seen with South West Water and the Thames tunnel. As I said, we will need investment in infrastructure to keep our water supply resilient. We do not know what the future holds and we want future Secretaries of State to be able to use the power where genuinely necessary.
I reassure noble Lords that any public financial support for the Thames tunnel or similar projects will be tightly controlled. In fact, both clauses allow full terms and conditions to be attached to financial assistance. A £50 reduction to South West Water’s charges will be governed by a funding agreement to ensure that it is transparent on customers’ bills and that South West Water will not benefit from administering the payment.
Some noble Lords may be disappointed that we have only today—tonight—to scrutinise the Bill, although it is a small and, dare I say, perfectly formed Bill. The scope of the Bill is limited to financial assistance and, consequently, it has been certified as a money Bill. However, the department’s plans for a wider water Bill are well known and we aim to publish that bigger, more substantial draft Bill for Parliament to get its teeth into in the coming months. That Bill will contain the other legislative reforms promised in the water White Paper. I beg to move.
Lord Grantchester
My Lords, the business before your Lordships’ House tonight was flagged up as a Bill only last month, at the beginning of February. It is indicative of a poorly balanced legislative programme whereby the other place has completed its deliberations and is therefore largely inactive while your Lordships' House is kept busy night after night. Having this Bill designated a money Bill partially cures that imbalance. However, it is deeply unsatisfactory, and conducting a one-stage passage late at night in your Lordships’ House underlines the fact. It is regrettable that several noble Lords are unable to participate because of that.
This short, two-clause Bill belies the years of deliberation, reports, campaigns and research that have gone into the two areas that the Bill covers: South West Water and Thames tideway. Calling it a money Bill deprives your Lordships’ House the opportunity to scrutinise much of the background work and reduces parliamentary governance to a unicameral dimension. Avoiding the Bill being hybrid has resulted in it being unnecessarily wide ranging in its scope and the powers it grants to the Secretary of State. Set against the water White Paper, the national policy statement on waste water and the infrastructure planning changes, that is deeply unsatisfactory.
The Minister outlined the Bill and its purpose, although it cannot be stated in the Bill. But this is the wrong Bill. Your Lordships’ House cannot amend it. Rushing it out in the last weeks of the Session says something deeply troubling about the department and the coalition’s programme next Session. Has Defra missed the opportunity to put forward the right Bill, a new water Bill, in time to be included in legislation for next Session? The Minister has already said that he has secured a consolation prize of a draft Bill instead. How long does that put back the necessary measures that are badly needed?
Clause 1 is of benefit to South West Water householders and brings relief from the legacy of privatisation, as bills in the south-west have risen 43 per cent more than in other areas. Water bills are becoming a nationwide pressing anxiety, with rises set to be 5.7 per cent per household this year. As yet, there is no generally recognised definition of water poverty in the same way as applies to fuel poverty. Nevertheless, 11 per cent of all households spend more than 5 per cent of disposable income on water, with 23 per cent of households spending more than 3 per cent.
The Opposition support the Government in reducing the discrepancy in South West Water bills for consumers. Nevertheless, there are anxieties about the measure. With a cost of around £40 million per annum, South West Water will receive £50 per household. This is rather a blunt instrument. While happily confronting the universality of certain payments, such as universal child benefit, the coalition is introducing another such payment here. Has the Minister considered other options? He will know that for farmers and growers water use is a key factor of production. Has his department looked at whether visitors and holiday homes could contribute further or be denied the subsidy? With a new water Bill, the benefits of WaterSure, introduced by the previous Labour Administration, could be brought to a greater number of claimants for a more focused and targeted operation.
As the Bill is silent on how long the subsidy will be paid, can the Minister give the House more detail tonight? The Explanatory Notes quote the water White Paper, which states,
“until at least the end of the next spending review period”.
Indeed, the Minister stated that in his introduction. It would be helpful if he could confirm that date and say what his department has in mind after that period. We understand that it might be continued as part of Defra’s own budget. Can he say which part and for how long? In view of his department’s eagerness to introduce budget cuts, what other expenditure will need to be cut to fulfil this payment to the south-west? Will his department come forward with transparency through a statutory instrument so that Parliament can fulfil its role in scrutinising expenditure? There are grave concerns that the Bill is being used for election purposes.
Lastly, can the Minister inform the House whether his department has sought to see strings attached to the payment? South West Water is a company with a monopoly in the area. Many fund managers have water utilities in their portfolios because of the high dividend policy followed. Have the Government expressed any views regarding company bonuses or regarding any reduction in leakages or an abstraction review while this payment continues?
The opposition Benches support the Bill in relieving financial pressure on South West Water bills. However, we would like to see the introduction of social tariffs across the industry to help those on low incomes. We also call on the Minister to undertake reviews and to make reports to Parliament so that the situation can continue to be monitored. More importantly, we wish to see a sunset clause introduced, whereby the Government have to promote proactively any further payments and state where the payments will come from.
Clause 2 is intended to fund a vitally needed infrastructure project—the Thames tideway tunnel. London’s sewers carry both raw sewage and rain run-off. They were designed for a capacity of 4 million inhabitants but London now has in excess of 8 million inhabitants. Because rainwater is included, this means that there are 50 to 60 overflows every year straight into the Thames. Small amounts of rain—even 2 millimetres—can result in massive amounts of untreated sewage discharges. It is extremely unfortunate that past works included rainwater with the sewage. How to tackle the problems has been the subject of a decade of argument, proposals, options and reports. The cost has increased to £4.1 billion and the project could take until 2020 to complete.
I know that several noble Lords—most notably the noble Earl, Lord Selborne, who chaired a report on behalf of several local authorities—will speak further about the scheme details and their alternatives. I shall concentrate on some wider issues that need to be taken up. First, we need to understand in some depth the risks of infraction proceedings. It is deeply unsatisfactory that my noble friend Lord Berkeley cannot speak at this late hour, as he has specifically researched this position in Brussels. If the United Kingdom is at risk now, will this continue to be the position until works are complete? Will the Government seek some accommodation that proceedings will not be initiated, especially as construction may temporarily exacerbate the situation? While the Bill gives the go-ahead to finance the tunnel solution, it will still be subject to the planning process and no doubt be called in by the Secretary of State for Communities and Local Government. Can the Minister assure the House that while the decision-making process with DCLG is a legal one, the lead will continue to be taken by his department?
This is all the more interesting as the Explanatory Notes state:
“As the Bill is concerned solely with public expenditure, no Impact Assessment has been undertaken”.
That will be deeply worrying for many noble Lords as it means that there will be little parliamentary opportunity to monitor the progress of works, that environmental concerns are being properly addressed, and that innovation and technology advances will be promoted so that value-for-money outcomes can be achieved. Can the Minister say how effective scrutiny and governance of the scheme will be in the future? The scheme no doubt will be promoted by Thames Water in commercial circumstances.
The opposition Benches will support the scheme provided that it meets the EU directive and its standards. Does the Minister know that that can be the case? There are enough valid concerns and criticisms in much of the alternative options that an impact assessment of future complementary projects could be vital. There are the Deephams discharges and whether it is better to rebuild the plant on existing footprint or to rebuild on a new site. Can the Minister say whether that will be designated a nationally significant project as well?
Can the Minister also say whether measures complementary to large infrastructure projects such as SuDS—sustainable drainage systems—will also be given due weight so that the tunnel will be fit for purpose for generations to come? Rainwater and sewage should be separated on all new build. Climate change will necessitate many behavioural changes and much of England will be subject to water restrictions from 5 April this year. On this side of the House, we are worried about the lack of thought on how to reduce per capita water usage. In the UK, household water consumption has grown to around 150 litres or 35 gallons per person per day, which is double what many other western countries achieve. From these Benches, we call for more action, including the publishing of the so-called missing chapter of the water White Paper to ensure that water efficiency measures are taken more seriously.
We welcome the 4,200 new jobs and maybe a further 4,000 that will be created in the supply chain. We would wish to see the requirement to include apprenticeship programmes to level 5 and level 6 standard. At this late hour, I do not wish to detain the House long. The Bill gives the Minister wide powers. He must ensure that Thames Water can finance the project in the most cost-effective manner and report this to Parliament to reassure us that costs will not continue to increase. Can the Minister assure us that Ofwat has strengthened its capacity to focus on the tunnel? Lastly, can the Minister be confident that none of this expenditure will fall foul of state aid rules? Does he have confirmation from Brussels that the Thames tunnel will be fit for purpose?
Baroness Miller of Chilthorne Domer
My Lords, this is a slightly confusing situation when a money Bill has to be presented by a Defra Minister. I hope that that device, if I may call it that, or the process that this is going through, will not be one that our Government have to resort to very often. I do not want to detain the House at all. I want to give up the time that I would have used to my noble friend Lord Taylor of Goss Moor, who has worked on this issue for many years. Simply, I would say that having lived in the south-west myself for so many years, I am extremely happy to see this coming forward. I am also looking forward very much to hearing the contribution of the noble Earl, Lord Selborne, who worked so hard on this issue with the commission that he chaired.
I have one question. Presumably the infrastructure that was mentioned as being eligible for grant, loan or guarantee is hard rather than soft engineering or very different solutions such as fitting all houses with waterless lavatories, if that were an option in future. I would be grateful if the Minister would comment on that.
Lord Wigley
My Lords, I will speak briefly. I am sure that many noble Lords will be aware that water can be an inflammable substance in Wales. I realise that the immediate purpose of the Bill is fairly narrow, as the Minister described. Nevertheless, the Long Title states that this is a Bill:
“To make provision for the giving of financial assistance … in connection with the construction of, and the carrying out of works in respect of, water … infrastructure”.
That is a much broader purpose, as the Minister hinted. In the Second Reading debate in the other place, the Parliamentary Under-Secretary of State, Richard Benyon, stated that,
“the powers in the Bill are appropriately drafted. Although we currently have no plans to use those powers other than to assist South West Water customers and in relation to the Thames tunnel, we heard many calls today … for us to legislate … to invest in new infrastructure to help make the country more resilient to droughts in future”.—[Official Report, Commons, 6/3/12; col. 746.]
Clearly, that is part of the general strategy of the Bill, although it leads through to another piece of legislation, and no doubt we will cover other aspects of that. The wider considerations cannot be ignored.
Before considering these wider aspects, I note that the water rebate being facilitated by the Bill is, as currently envisaged, an England-only benefit. That is fair enough: no doubt the argument is that the National Assembly will handle any such question in Wales. If that is the line taken by the Government, the immediate question arises of whether the National Assembly will get a Barnett-consequential payment that will allow it to consider helping beleaguered Welsh Water ratepayers in similar circumstances.
In December, the Environment Secretary, Caroline Spelman MP, said that one idea that continued to be discussed was piping more water from Wales to England. That was at the launch of the Water for Life White Paper. I am very much aware that the Mayor of London, Mr Boris Johnson, also suggested—in 2010—moving water supplies from Wales and Scotland to areas of shortage in the south and east of England. Apparently he favours taking water from reservoirs in Wales, via the Severn and the Wye, to link to the Thames and the Trent. One has been made very much aware in recent weeks of the problems facing drought areas in southern and eastern England.
As I understand it, people in the parched east and south-east must look for new sources of water supply to meet domestic, agricultural and industrial needs. However, we in Wales had some very difficult experiences over the past half-century with such matters—in particular the manner in which the Tryweryn Valley was drowned and the village of Capel Celyn submerged to provide a source of water for Liverpool. There was immense hostility to the scheme. When Liverpool Corporation pressed the Bill to facilitate the drowning of the valley, every Welsh MP bar one voted against it, but it was passed. To make things worse, the price of water in Wales then became significantly higher than it was in cities like Liverpool and Birmingham that got their water from Wales. At one time, the price was three times higher. That puts into context what is now proposed for south-west England. I have every sympathy for people there because we, too, had these problems.
I raise the issue now to suggest that if there is any likelihood of English water companies looking again towards Wales—and one understands that they may need to because of their circumstances—there should be a firm undertaking from the start that fair recompense should come to Wales for the water abstracted directly or indirectly for such purposes. I will go further and suggest that the UK Minister should now open a dialogue with Welsh government Ministers with a view to establishing an understanding on any such water transfers that will be fair to everyone.
A leading Welsh economist, Professor Dylan Jones-Evans has stated:
“Wales has got the water. The issue now is who owns that resource and whether Wales is getting a fair price for it as if it was selling any other commodity, product or service”.
Of course, Professor Jones-Evans was a Conservative candidate in a recent election to the Welsh National Assembly. The Welsh Environment Minister, Labour AM John Griffiths, has also spoken in similar terms. He stated:
“Our view is that in Wales we have a very important resource in our water, and that it must be recognised as such. In any future negotiations or developments, we would obviously want to get full value for that very important water resource”.
Apparently, Severn Trent Water has set out proposals that will allow water companies to trade water from one region to another. Severn Trent Water operates in Wales, but I ask whether it is in any shape or form answerable to the Welsh public for its policies or activities of that sort.
I have a proposal for the Minister: before this issue becomes polarised and attitudes get antagonistic, the UK Government and Welsh Assembly government Ministers should get together to discuss a financial model that will make it worth while for Welsh authorities, local and national, to be partners in any such developments so that they take a positive attitude towards facilitating solutions that may be of mutual benefit. A modest scheme of payment for water abstracted from Wales could be really beneficial to communities in Wales that need to maximise their resources and very often do not have such resources at hand. This Bill may be modest, but it could foreshadow significant developments, and I appeal for a positive attitude from Her Majesty's Government.
Lord Jenkin of Roding
My Lords, it is part of the rules about money Bills that if we do not pass them within a month of their being introduced in the House of Lords, they can go forward for Royal Assent without our debating them. Although the hour is extremely awkward for many, including some who have not been able to stay, I am grateful to have this opportunity to make just one point about the Bill, about the Thames tunnel.
There has been a great deal of consultation on the tunnel with local communities up and down the river. I know that my noble friend Lord Fowler is going to talk about the area that he knows. I should declare an interest: I live in Vauxhall, and we are going to have one of the sites quite near there. Some of us have been putting some pressure on Thames Water to make sure that the absolute minimum of road transport is used for the purpose of the tunnel. It is a tunnel down the river, which should make it possible to move very large quantities of the spoil from the tunnel and the shafts by barge. There are also railway connections—one thinks of Battersea in particular—and it should be possible to take some of the spoil away by rail, and more importantly, to bring in by rail some of the components, some of which will be in very large quantities, such as the concrete for tunnel lining.
Will the Minister make it clear beyond peradventure to Thames Water that it must make every possible effort to reduce the amount of road transport necessary to construct this tunnel? In its briefing Thames Water states that its,
“current plans mean 50 per cent of all materials being transported directly from our sites by river. Over four million tonnes of material will be moved directly from our sites by river transport”.
Of course there is a cost element, and Thames Water has to balance that, but the evidence of a report by an acknowledged expert, Maurice Gooderham—a report called for by the noble Lord, Lord Berkeley, who is one of those who cannot be in his place this evening—made it clear that he thought that river transport for spoil and materials would be economic. It would, in fact, be more cost-effective to use as much barge traffic as possible for this purpose. He makes the point that Blackfriars station, which of course is built out over the railway bridge, was supplied entirely by river and virtually no lorry transport was necessary to construct it. Of course, many parts of Crossrail are a long way from the river and therefore there is not the same possibility, but the project is making the best use of the railways as it can in order to reduce the amount of road transport.
What concerns me about this, and why I raise this point, is that when one talks to Thames Water about rail, it will tell you that it is currently exploring,
“opportunities to use rail freight to move material to or from our sites”.
As has been made clear by both my noble friend and the noble Lord, Lord Grantchester, this project has been in the planning for years—indeed, it goes back decades. Why are we only just now starting to explore,
“opportunities to use rail freight”?
The noble Lord, Lord Berkeley, and I have had discussions with the senior management of Thames Water, and I was told by one of its senior officials that it has got the message loud and clear. Why has it not had it before? A letter I had from Thames tunnel earlier this week states:
“We have commissioned a transport strategy study, which brings together our transport assessment and environmental impact assessment work, to consider the benefits of increasing river transport and whether it is practical and economic to do so”.
Better late than never; but can my noble friend make sure that his department really brings as much pressure as it can on Thames Water to minimise the disruption to local communities from excessive use of road transport?
Of course, most of the work is going to be done by contractors. Contractors will bid at the lowest price they can and if they think it is cheaper to use lorries, that is what they will put in their contracts. There have to be very clear limits on what the contractors can do by road transport. That has got to be built into the tender so that they are all tendering on the same basis of the maximum use of river and rail and the minimum use of road transport. Can this be made a condition of planning permission? One needs to bring the maximum pressure possible on Thames Water and its contractors to make sure that there is the minimum disruption to local communities.
There has been a general acceptance—not universal—that this is the best way of dealing with these combined sewage outfalls, which cause the problems that have been described this evening, but it needs to be done with the minimum disruption to the local communities, who are going to have to put up with what will be quite a long construction period. If my noble friend can give me some reassurances on that, I shall feel that it has been worth staying until after midnight.
Lord Fowler
My Lords, I entirely agree with all the comments made by my noble friend Lord Jenkin, particularly about the use of barge traffic and the view that we should do our utmost to preserve the interests of local communities. This Bill covers very serious issues. I am not sure that I regard 12.30 am as the right time to do a Second Reading of a Bill of this kind. It is rather ironic that the House of Commons went down hours ago yet here we are still debating in the House of Lords—but let us leave that to one side.
Clause 2 gives the Government considerable powers. As the Explanatory Memorandum makes clear, it creates a power to give financial assistance in connection with the construction of water or sewerage infrastructure. Under this clause, the Secretary of State can provide assistance in any form, including by grants, loans, guarantees and indemnities, provision of insurance and acquiring shares or securities in a body corporate. The power is discretionary and may be exercised for such reasons as the Secretary of State feels desirable. That seems to me to encompass fairly wide powers as far as the Government are concerned.
We know that this considerable power is being taken to ensure the construction of the Thames tunnel. We also know that the estimated cost of this tunnel will be more than £4 billion, although it could be substantially more than that. We know in addition that work will take six years to complete from the start of construction, which is 2016, although the bill for ratepayers will be increased even before construction begins.
We have all received, I think, a briefing paper from Thames Water setting out how it sees the advantages to be had, which in essence is that London’s sewers can no longer cope with the problems, a point that the Minister made. It seems to me that Thames Water rather overstates its case when it says:
“It cannot be acceptable to allow the River Thames to be an open sewer”.
That is not the position at the moment. It is also guilty of very selective quotation, such as when it tried to knock down an argument of the leader of Hammersmith and Fulham Council by quoting the view of a 15 year- old youth rower. The difference is, of course, that the leader of the council is the elected leader of the community and, as such, deserves to have his views given proper weight.
Let me for the sake of this debate accept the argument that the tunnel is necessary and that the amount of money devoted to it is justified. What it does not dispose of is the argument on just how this tunnel is to be built and, in particular, where the construction points and the drive shafts will be situated. These will be massive sites. The classic case is what is now happening in south Fulham, where Thames Water has decided to put one of these sites. I declare an interest as a resident of Fulham, although I think that I am not directly affected by this.
Currently, the plan is to have the site near Wandsworth Bridge in Carnwath Road. That will bring substantial disadvantage to the people there. The site is a tiny urban wharf in the centre of a densely residential locality at the apex of a commuter traffic bottleneck, so it has about every disadvantage going. At least 180 homes directly border the site, with more than 800 residents plus a junior school for 320 children, all within a 100-metre radius. There is a business park and at least 150 full-time jobs are likely to be destroyed. It will completely kill off—this I think in many ways is most important—the imminent wharf regeneration and all new plans there. The site still is 50 per cent too small without two compulsory purchases that will have to be made.
There are substantial disadvantages, not least the development costs of up to £200 million higher than the alternative site. What was never satisfactorily explained is just why, very suddenly and without warning, this site was chosen when all the preparatory work had been carried out at another site further down the Thames at Barn Elms, which seems to have all the advantages. It is a small part of a huge available area of flat green recreational space, well away from homes and buildings. There are no houses at all within 200 metres and the site is screened from most nearby homes by a stand of tall trees. Not a single full-time job would be lost. Less than 2 per cent of the large area of ordinary, unlandscaped recreational land that is available would be taken up. It seems on the face of it that the area has every advantage for the planners to go that way, so why was this change made and what caused the change of mind? It is true that Barn Elms is green-belt land, but much of it could be put back to its original state. Everyone agrees that rectifying the changes made in south Fulham would be more difficult and certainly much more disruptive.
I agree totally with what my noble friend Lord Jenkin has said about transport. At present, it is estimated that lorry trips to the site will average 31 per day for two years, rising to 33 per day when the tunnel is being lined. When it comes to moving the plant and construction materials, the plan is to do that by road in order to reduce costs. I will simply echo what my noble friend has said. When one has the natural route of the Thames itself, advantage should be taken of it. That would be to the benefit of the local population. However, my most profound concern is the choice of the site itself. I would be grateful if the Minister could throw light on the issue in his reply.
My last word is this. The matter goes further than a local issue because it impinges on national policy. Only today we were told about the need to build houses on brownfield sites. The site in south Fulham is ideally situated to do that. It is a perfect site for social and low-cost housing, which is desperately needed in south-west London. That could be achieved, while equally it could not be achieved in Barn Elms, where permission would simply not be given. A water authority is making this choice for reasons that are unclear and obscure; we are choosing options on what could be achieved in terms of national housing policy. The Minister might therefore like to describe the planning process in this case and how the views of the local council and local residents can be overridden, although I hope that they can be taken into account. With respect, I am not sure that the Minister can walk away from this saying that it is simply a matter for the planning authorities. The whole purpose of Clause 2 of this Bill is to give authority for the spending of £4.1 billion of taxpayers’ money. If national money is to be used in this way, it must be justified.
The hour is late but this is an important issue. Again, I would underline to my noble friend that it is a matter that the residents of south Fulham—I am sure that it is not the only example, but it is the one that I know—take very seriously indeed and, more than that, so does the local authority. It would be more than a pity if those views were overridden and if other planning options in the area were rejected. I hope that the Minister, even at this late hour, can give us some guidance—guidance that both my noble friend Lord Jenkin and I are asking for—and that he can give some reassurance and hope to the people of that part of London.
The Earl of Selborne
My Lords, like others, I shall confine my remarks to Clause 2. As has been noted already in this short debate, I chaired the Thames Tunnel Commission, which was set up by five London boroughs, when it sat in July, August, September and October.
Although we have been discussing the Thames tunnel since the urban waste water treatment directive was brought into national law in the 1990s—indeed, we have been in breach of that directive since 2000—things have moved on since then. Many ideas had remained fixed as to what is the most up-to-date and appropriate technology and there were concerns, of course, about the escalating costs, so we were asked to review the previous studies; to reassess the assumptions of those studies in the light of subsequent research and data; to look at what other cities—not only in the European Union but elsewhere around the world—had done when faced with much the same situations; to hear from interested parties; and to reassess the requirements in order to meet the urban waste water directive in the light of subsequent directives, not least the water framework directive, and other national government policies such as the national ecosystem assessment. The concern was not only about the cost of £2.3 billion in 2006 going up to £4.1 billion. When we were doing the exercise the cost was £3.6 billion, but it went up to £4.1 billion within three days of us reporting.
It is not fair to say, as Thames Water tends to do, as has just been noted, that the Thames is an open sewer because there have been some successes. The Lee tunnel, which is under construction at the moment at a cost of £600 million, and the upgrade of the sewage treatment works, some of which have been heavily implicated in fish kills, have and will achieve, irrespective of the combined sewer overflows, considerable improvements in the quality of the river. However, it is undisputed that 20 million tonnes of sewage going into the river is unacceptable. The figure is roughly half if you include the sewage treatment works and the Lee tunnel CSOs but, nevertheless, it is common ground that 20 million tonnes is unacceptable.
It is worrying that when the cost was a mere £2.3 billion, which was to include the Lee tunnel, Ofwat’s review of the costs and benefits found that there was only a marginal benefit. The cost has now gone up to £4.1 billion —and this is after having spent £900 million, so you could say that the cost has actually gone up to somewhere nearer £5 billion—and, surprise, surprise, the cost-benefit analysis carried out by Defra in November 2011 once more establishes that there is just about a case to be made in terms of cost and benefit.
The way in which these figures have been adjusted in order to ensure that the answer comes out correctly is by altering the goalposts. The assumption in the first cost-benefit analysis was that it should be paid off over 60 years; now it is going to be paid off over 100 years, which makes it much easier. There is also now an assumption that because we are now richer we can afford more, so the ability and willingness to pay increases. I find these cost-benefit analyses extremely suspicious. Defra knows what the answer should be and has commissioned the cost-benefit analysis. I hope that the National Audit Office, or some other body, will look carefully at these figures, which I think are spurious.
A great deal of concern was expressed by the people who took the trouble to speak to us that the agenda was being driven by the infraction proceedings. That, of course, would concentrate the minds of Defra enormously, and the implications of the fine which could be accrued well before 2023, when the tunnel will eventually deliver, are horrendous. I have no doubt that if I were a Defra Minister I would do anything to try to ensure that that day of judgment was postponed in some way.
In the Bill before us today the taxpayer is being asked to underwrite part of the cost without any assurance that it will meet the requirements of the Commission or the interpretation of what the urban waste water treatment directive requires. It is certainly not the fastest solution. My noble friend on the Front Bench described it as timely and cost-effective but the onus is going to be on Defra, or on Thames Water or whichever company is going to eventually own the tunnel, to demonstrate just that. It certainly has not been demonstrated yet. We need to know whether it is the most cost-effective, the fastest and the most comprehensive solution. By comprehensive, I mean that it gives to society as a whole the benefits that we all look for from major water infrastructure proposals.
When Richard Benyon, the Defra Minister, announced in early November that the cost was going up to £4.1 billion from £3.6 billion and that a Bill such as this was to allow the taxpayer to underwrite part of the cost, he said:
“Financing a tunnel of this size at a cost that is value for money for customers is a challenge. The Government believe that the private sector can and should finance this project but accept that there are some risks that are not likely to be borne by the private sector at an acceptable cost. It is willing in principle to provide contingent financial support for exceptional project risks where this offers best value for money for customers and taxpayers”.—[Official Report, Commons, 3/11/11; col. 42WS.]
That is precisely the issue—what does offer best value for customers and taxpayers? Who will demonstrate that this provides best value for money? When this application comes before the planning authority, that is the information that Defra, the Environment Agency and Thames Water must surely be required to produce. It is not just the customers from Gloucestershire to Essex who will pay, all of whom will be paying up to £70 per household more than they are at the moment; it is of course now the taxpayer throughout the country.
If you say often enough that the tunnel is nearly full in dry weather and there is no other solution than a full-length tunnel, it becomes accepted wisdom and is unchallengeable; but this is exactly what we tried to determine. We do not dispute or doubt that parts of this Victorian tunnel system are indeed overloaded and running full even in dry weather. However, you have to assess the need for a full-length tunnel— 24 kilometres—against the alternatives, which would be dispersed water treatment plants, sustainable urban drainage systems, storm water disconnection, distributed storage of sewage waste in a storage tunnel for later release, and the enhancement of the existing sewerage network bottlenecks.
In other words, you have to ask the question of how you would cope with this problem without the tunnel. We agree that the problem is to have something in place as quickly as or more quickly than the tunnel, which will discharge no more than the 2.3 million tonnes that the tunnel is likely to discharge. However, if that is the criterion that you have to meet, you have to establish that these other options that I have mentioned cannot deliver that at less cost and more quickly. The Minister has said that the tunnel will do just that, but until someone demonstrates that these other options simply will not be able to deliver, then those people who question whether we have been given the information that we are entitled to have as customers of Thames Water and taxpayers are entitled to continue to complain.
All these hypotheses as to what will happen in different weather events in different combined sewer overflows ultimately depend on the efficacy of the modelling. However, we were very concerned that when we asked to see Thames Water’s computational models we could not verify that as the modelling reports and results were not provided despite repeated requests. The tunnel will reduce the discharges to about 2.6 million tonnes, and it would be perfectly reasonable to ask that that is the criterion that all other systems should meet.
The water White Paper that came out in December might never have been written, as far as this Thames water project is concerned. It is an excellent White Paper that talks about water for energy recovery, flood risk management schemes, surface water management plans, protection and enhancement of ecosystems and green infrastructure—and, of course, what local authorities and others could do to reduce storm flows with a green infrastructure. None of that in any way, shape or form is aided or abetted by the Thames tunnel, which is essentially a Victorian solution that worked well in Victorian times, when the method of transport was horses. The residue from horses was not very different from sewage, so you treated the two the same. Now when you separate storm water from sewage you reduce immediately the load in these tunnels. While we are always told that separation and SUDS are uneconomic, with regard specifically to the targeted areas—the CSOs with which we are particularly concerned—it may well be cost-effective to turn them off by such measures rather than connect them to a tunnel. It cannot be done with the big CSOs. There were 10, but one of them is being dealt with now by the Lee tunnel. There are still nine large pumped CSOs, and there is simply no doubt but that they have to be dealt with either by a treatment works or a shorter tunnel—or, indeed, by a full-length tunnel. It is no good thinking that they can be turned off by SUDS or by other measures.
The Environment Agency said in its paper, An Assessment of the Frequency of Operation and Environmental Impact of the Tideway CSOs, that if the load from those nine CSOs was removed there would not be a significant effect on dissolved oxygen from the remaining CSOs. That is an important point to bear in mind. We are worried about dissolved oxygen, because that is what is going to kill the fish. We are worried, too, about health and aesthetic impacts. But largely if you remove the big-pump CSOs and use a discrete system, what you have left are the intermittent CSOs, many of which are not going to be connected to the tunnel anyway but will be dealt with by internal adjustments. Of course, that does not remove the necessity for storage of the effluent, but they will not need to be connected nevertheless. Then you are dealing with a very different order of issues.
Of the nine CSOs, seven happen to be on the western extremities. I rather liked the idea in the Jacobs Babtie report of 2006, when Ofwat was concerned about the escalating costs, going up to £2.6 billion, and the shorter tunnel was thought to be a sensible solution. Of course, it would have to be complemented by separation, SUDS, storage, real-time control and the like. It was rejected because it was thought that it would not meet the infraction proceedings, and we have been on the rollercoaster ever since. The cost is now £4.1 billion and increasing. If the Minister of the day had had the courage and sense to look carefully at the data, which may not have been available in those days, as to what discharges were from the other 18 CSOs —not the nine that caused all the problems—we would be looking at a very different order of issues.
While we are criticised in the Thames Tunnel Commission for not coming up with an alternative plan, that was not what we were asked to do. We were asked to make sure that within the public domain there was the sort of information that could be expected to give the sort of background to making a sensible decision. I regret the complacency shown by Defra, the Environment Agency and others, which have repeated time and again that this is the only possible solution, as from their own point of view it is in many ways, because it gives the responsibility to Thames Water. It would not result in the messy business of local authorities being involved with producing the green infrastructure alternatives, which nevertheless in the long run simply have to be part of the mix for dealing with storm water and sewage. When the planning application is finally submitted, Defra has an obligation to ensure that Thames Water’s claims—which, as I say, are often less than helpful—are given impartial, independent assessment, with full transparency of the assumptions made and of the modelling. Now that we have a Bill in front of us and are expecting the taxpayer to underwrite this, that is the very least that the taxpayer is entitled to.
Lord Smith of Finsbury
My Lords, I declare an interest as chairman of the Environment Agency. It is a pleasure to follow the noble Earl, although I would not agree with the entirety of his analysis of the problem. I fully support the Bill and the most important reason for that support is that, through the contingent support and underwriting it puts in place, it will enable the Thames tunnel project to go ahead. The Thames tunnel is desperately needed. The problem has been mentioned on several occasions by other noble Lords. In an average year, at the moment, 39 million cubic metres of raw sewage, mixed with surface water run-off, discharges into the River Thames. That will reduce a bit with the Lee tunnel and with other work that is under way, but it will remain a hugely significant problem. The reason, of course, is the combined sewer overflows.
Most of London is served by a combined sewerage system that collects sewage from toilets, waste water from sinks and washing machines together with rainwater run-off from roads, roofs and pavements. The system was designed so that overflows would discharge into the River Thames to prevent the back-up of sewage flooding into people's homes and streets. The system does this through a network of combined sewer overflows, stretching along the River Thames. During the course of a normal year, these discharge into the river something like 60 times. This is simply unacceptable in the midst of our capital city, not to mention the potential dangers of infraction from Europe under the urban waste water treatment directive. The fundamental reason is that we have a modern city of 8 million people, and many more during the daytime, which has been heavily paved and concreted over during the past few decades and is sitting on top of a Victorian drainage and sewerage system.
The Thames tunnel, I firmly believe, is the only sensible solution to the problem. Doing bits and pieces with local solutions for particular spots of difficulty would get us some way towards a reduction of discharge into the Thames; it would not provide the overall solution to the problem. Yes, there will be issues about the precise location of work that has to be done in order to construct the tunnel, which needs to be carefully chosen in order to cause minimum disruption. The noble Lords, Lord Jenkin and Lord Fowler, are absolutely right to draw attention to the need to ensure that that disruption is kept to a minimum, but the tunnel itself has to go ahead.
The tunnel will not only stop most of the sewage pollution that we have at the moment but will also help the sewerage network to cope with future impacts that will come from increased population and from what climate change will bring. We know, for example, that climate change will bring more frequent, concentrated downpours of rain over a sustained period. That will cause the problem to magnify if we do not do something in order to address it.
The tunnel will help to reduce health risks to river users and it will help to bring the river up to the healthy condition that it can attain. One of the great success stories of the past 25 years has been the improvement of water quality in the River Thames. Twenty-five years ago the Thames was a dead river but it now supports over 100 different species of fish. We have made huge progress over the course of those 25 years but the one major remaining problem is the combined sewer overflows and the pollution problem that they bring.
There is another reason, as well as the Thames tunnel, why I support the Bill. Its provision to allow support for major water infrastructure work more generally, not just for the Thames tunnel, could be vital as we seek ways to cope better with drought in the years to come. Because of two exceptionally dry winters, south and east England at the moment are already in drought conditions. Some river flows and most levels of groundwater are perilously low. The period from October 2010 to February 2012—the past 16-month or 17-month period—has been the driest since 1922. Rainfall in the south-east for the month of February just past was only 40 per cent of the average for a February. We are going to have to work very hard over the course of the next six to eight months to balance the needs of public water supplies, agricultural irrigation, the industrial use of water and the ecology of rivers and fish stocks in order to ensure that all those needs can be properly met.
In the longer term, if we look forward to the prospect of more extremes of weather patterns as a result of climate change, there is a need for water companies to do more to sort out the problems of leakage—frequently another problem that they have inherited from Victorian pipework systems—but there is something else that is desperately needed. Water companies and water regions need to get better at sharing water between each other. Interconnections are already in place and in use in some instances, but more are needed and every support needs to be given to water companies to put them in place. I am not talking about a national grid for water, which would not make any sense at all, but we need to get water better shared region to region and water company to water company, in local places and particular locations—short interconnections that will make it possible for wetter areas to assist dryer ones. Crucially, this will need to be a high priority for the next Ofwat price review round. The sooner that the capital schemes to put greater interconnectivity in place can be prepared and put together, the better, and it may just be the case that in some instances the provisions of the Bill might help. I wish it good speed.
Lord Selsdon
My Lords, I have been up to my neck in water and sewage for most of my life, and if I speak for too long I know I will have some more thrown at me. I thought I would speak a bit about competence and a bit about history.
At this time in the morning many years ago I was in a hotel in Cairo and I felt rather ill. I picked up the phone because I felt so ill, but the phone did not work. I fell on the floor, and then I shrieked and someone came in. I had got something remarkably unusual: gippy tummy. A nice doctor turned up and I said, “What’s wrong with all this?”. He said, “Well, it’s the sewers, you know”. I said, “Really? I used to be in that world”. After a while, I went along to see the head man and said, “Why don’t we British, who built the sewers here for a million people in 1907, rebuild your sewers now that you have 10 million people?”.
I went out and formed a body called British Waste Water. It was a two-pound company. One pound was for me; the other person never turned up. We made a few proposals. The first thing that we had to do was bring the Egyptian swimming team back to swim across the channel that had been cancelled in 1956 when Butlins was organising it. We built a relationship.
The plan was to do a good job. We had not had much experience in the United Kingdom because there had been relatively little infrastructure spending. That project cost £2 billion. The Government provided £50 million of initial aid and another £500 million of export credit. We got all the British companies out there. They did not know what they were doing—they had not been near it. The problem was how to clean it all up. It took around eight years and, as I said, cost roughly £2 billion. The difference was made not only by the skills that were transplanted there but by Egypt suddenly being cleaned up. The tourism business could survive again because there were no problems.
To go down in Cairo, where the water table is only two feet below the ground, you have to open a hole and make a hatch like that of a submarine. Your building team go down as divers. You have to put compression in to keep the water out.
Finally, we needed to put in blue bricks. Only the British can build the best blue bricks. We wanted Egyptian bricklayers. One of them said to me, “We haven’t got the skills. Can you find some brickies?”. I was at Loughborough, where there was a pub called the Bricklayer’s Arms. We put some notices in the Bricklayer’s Arms and the brickies turned up. We then built a brick plant on the Nile, just like the pharaohs had, which was a great success. That project worked very well because the British got back their old technology. I know that whoever works on the Thames sewers will do a good job.
Out of all this comes an economic or cost-benefit analysis. I have dealt with the Thames for many years in relation to sport and recreation. I chair the Greater London and South East Council for Sport and Recreation. I have rowed up and down the Thames. I have listened to presentations which said that rowers might be poisoned. However, it is a very simple matter of collecting the right stuff and emptying it. It is not a big job.
However, what happened after Cairo? What did those same contractors do? They went off and built the Channel Tunnel. The noble Lord, Lord Berkeley, was involved in that as well. I am trying to say that our knowledge and experience in this country may have died in many things, but in water and sewerage we are still among the best in the world, if not the best. I have no worries about the problem of contractors. I would of course take them down the Thames in barges. It is just a question of organisation. Once upon a time, we were good at organising but this House is obviously not as good at organising its business as it ought to be.
Lord Taylor of Goss Moor
My Lords, I will keep my remarks brief. I start by declaring an interest: I am a member of the board of South West Water. However, it is not South West Water that is the beneficiary of the first part of the Bill; it is the customers of South West Water.
My interest in this issue dates all the way back to when I was first elected as a Member of Parliament and quickly became involved in debates on the privatisation of water. I raised concerns then about the impact on the south-west. There was a fundamental error in the calculation of the costs of the bathing water directive and how they would impact on customers in the south-west. It took far too long for Governments of various hues to recognise the severity of the impact of far and away the highest water bills on people who are among the lowest earners in the UK. This was driven by the simple geography of having 30 per cent of the beaches and just 3 per cent of the population, and the dispersed geography in which that population lives. That made it extremely expensive to deliver the kind of reliable clean water system and clean beaches that are now, quite rightly, being delivered.
I strongly welcome the Bill, as it finally recognises the need to take action to deliver justice to those individuals. It is hard to over-exaggerate how big those impacts are. Those not on a meter can easily pay bills of £800 or £1,000. These people do not live in large houses and are often elderly, and these bills constitute a huge proportion of their income. Therefore, although I welcome the Government’s action, I do not think that it is sufficient in itself. That is why I want to press the Minister on it.
First, the Government’s commitment is actually a short-term commitment. There is no real indication of what will happen in the longer term. The decision was taken not to provide a lump-sum dowry which would have created a permanent solution. Therefore, there is considerable uncertainty around this issue. I still hope that Ministers will indicate where they would like the direction of travel to be. I understand that commitments may not be given short of commenting on the spending review and where budgets will be in a few years’ time. However, I hope that the Government will indicate that they recognise that this is a long-term issue, not a short-term one.
We need to make it clear to customers that, although prices are regulated, there are continuing upward pressures on them. This measure is a £50 discount off what people would otherwise pay year after year; it is not a permanent reduction in the cash amount that they will pay. People will gain from this measure for as long as it is in place but they cannot look forward to a big cut in bills and then no further rises—that is not the basis on which we work.
The second issue on which I wish to press the Minister concerns the fact that the Government want this £50 to go to every single customer. There are some real issues to be overcome in delivering that, particularly for customers in park homes and mobile homes who may be served by a single meter to the site. The water is then distributed round the site and they are charged individually, but not by the water company. Therefore, the water company has no information on the individual householders. I hope that the Government will work constructively to use all the information that they have at their disposal to ensure that those customers, who are often among the poorest, get the benefit of the £50. I know that it is the Government’s intention to do that but it is by no means clear how the measure will be delivered.
Thirdly, I very much regret that the Bill does not put in place a national social tariff. The Government have taken the decision to go down the route of company-specific social tariffs. For those in the highest water bill area—South West Water—that means that there is a higher burden on customers, who will not receive the relevant benefit. The social tariff will not be so low as to take people down to average water bill prices that apply elsewhere in the country, so they cannot gain the same benefit that they would under a national scheme. I understand that the Government think that there are issues with creating a scheme that distributes the costs and benefits nationally but I believe that it is the only fair way of meeting the needs of these very low-income individuals.
Finally, we must remind all customers of South West Water that they will overwhelmingly benefit from going on a meter. Many low-income customers are frightened of metering. However, if they go on a meter, they can very quickly save themselves much of the cost.
Lord Knight of Weymouth
My Lords, this is a short Bill of three pages, so there is a chance that we will have read the whole thing. That is a good thing, as is the Bill’s brevity. It is difficult to oppose the Bill as it stands, as it does only two things and in principle I support both. Who would not want South West Water customers to have some relief from their extraordinarily high bills or for the River Thames to be relieved of unacceptable levels of sewage? The Bill is also difficult to oppose because, of course, it is a money Bill. That means that in this House, as we have heard, we cannot oppose it—even if we want to—because we do not have the power. We must therefore make all our comments this evening—even at this ridiculously late hour. The timetabling of the debate at this late hour is ridiculous and is yet another huge discourtesy to this House by the Government. That is becoming a habit.
My noble friend Lord Berkeley has had to catch a train to chair a conference in Glasgow in the morning. So seriously has he taken this issue that in order to prepare for this debate he even travelled to Brussels last week to discuss with the Commission the risk of infraction. It is deeply regrettable that he will not be heard. I have therefore agreed to pass on an edited version of his speech in my speech and we will therefore get two speeches for the price of one.
My noble friend asked why there was the urgency in having to pass this Bill tonight instead of waiting until next month when we have time. The answer is obvious and perhaps a little tawdry: the Government want to be able to give households in the south-west their promised £50 before the local elections in May. The urgency to pass this Bill tonight contrasts with Defra failing to fulfil its promises to Parliament to make announcements today on dangerous dogs and carbon reporting. It is a shambles.
I should move on to what is my main problem with the Bill. As my noble friend Lord Grantchester said, this is the wrong Bill. We need a proper water Bill, as promised by the Government, that is properly debated in both Houses and gets on to the statute book over the next year—not as a draft Bill with further delay until the year after—to do these and other important things, such as dealing with abstraction, which is essential if we are to reduce drought risk, and putting in place a proper water affordability scheme involving the social tariff that the noble Lord, Lord Taylor, talked about.
The two issues in the Bill are urgent and raise complex issues. As we have heard, noble Lords have carried out detailed work on the issues relating to the Thames tunnel and I pay tribute to noble Lords’ speeches on that subject. This short debate has yet again demonstrated this House’s expertise and why it is so important in improving legislation for Parliament. Yet, because Defra could not secure a slot in the Queen’s Speech for a proper Bill, that expertise is being sidelined. Frankly, it is an insult to your Lordships, but I suspect that the Government are finding us a little too tiresome and troublesome these days and are therefore keen to invoke financial privilege a lot more.
My other difficulty with the Bill relates to the extent of the powers that it confers on the Secretary of State. Again, this could have been properly debated in relation to a public Bill, but now we are victims of the need to avoid hybridity. I have no wish for the Bill to be hybrid—the parliamentary long grass is not a place for me. As Defra’s Explanatory Notes to the Bill make clear, this is a Bill to assist consumers on the south-west peninsula and the Thames Water area only, but the Bill cannot say so for fear of being hybrid. The consequence is that the Secretary of State will have the power to give financial assistance in any form to any English water company, with any conditions that she sees fit, as long as the assistance is used to reduce charges for customers for water supply and sewerage services. Similarly, she can assist any water or sewerage company with any large or complex infrastructure project in England if she,
“considers it desirable to do so”.
The Explanatory Notes, which do not form part of the Bill and are not endorsed by Parliament, clarify that the costs will be £40 million for the south-west and up to £4.1 billion for the Thames tunnel, but that clarification has no status. Unless the Minister can advise me otherwise, Her Majesty’s Government could, if they were to be persuaded of another scheme, perhaps as a pre-election giveaway in some area precious to the coalition parties, just go ahead with that scheme without coming back to Parliament. That is unacceptable.
In that regard, can the Minister tell me whether he has considered a sunset clause on the Bill’s provisions? Should we not have some mechanism that requires the Government to come back periodically to justify this expenditure? Is this approach a long-term solution? Does it really pressure water companies to maximise efficiencies in the interest of consumers? Can we be convinced that this is not a long-term subsidy to water company shareholders?
So I am not keen on the Bill because of its process and extent. It is effectively a blank cheque. However, let me briefly address the substance of South West Water bills and the Thames tunnel. As we have heard, the Bill will enable the Government to make a £50 annual payment to households in the South West Water area to reduce their water bills. South West Water is a classic case study of what happens when privatisation goes wrong.
When the previous Tory Government introduced what became the Water Act 1989, it was supposed to be a new start for the water industry, but in the south-west, as we have heard, it created a water company responsible for 30 per cent of England’s coastline, but with a customer base of just 3 per cent of the population. There had been no investment in sewerage infrastructure, so the £2 billion needed to clean up the coastline was paid by the unfortunate South West Water customers through their bills, leaving them with the highest average unmetered bill in the country. As a resident of the south-west, I am happy to say that I live just outside this area and am served by Wessex Water.
In some ways, Part 2 is intended to prevent the same thing happening to consumers in the Thames area as their sewage infrastructure is brought up to standard. We welcome the £50 a year for households in the South West area, but the Bill will do nothing for households in other areas. I repeat the question from my noble friend Lord Grantchester: will the scheme exclude second home owners? It would be very popular in the south-west were it to do so.
From April this year, water bills will rise on average by 5.7 per cent, or about £20 a year. The Government have taken a hands-off approach and are considering leaving it to water companies to decide whether to introduce social tariffs. Ofwat, the independent water regulator, estimates that one in 10 households currently spends more than 5 per cent of their income on water and sewerage. That is 2.26 million households across England and Wales: almost 1 million single adults, 73,000 pensioners and 540,000 families with children. The Government had promised a draft water Bill in the spring. As I said, we will have to wait until Defra finally gets its ducks in a row before we get that Bill.
On the Thames tunnel, I have read the various views on this huge project. No one denies that we need to do something, but I am struggling, despite the compelling speech by the noble Earl, Lord Selborne, to see what alternative there is to the combined sewage outflow tunnel. Bubbling appears discredited, separation of rainwater and sewage too expensive and lots of mini-schemes highly uncertain. I am therefore persuaded to support this scheme as well.
However, I would like the Minister to address the concerns of my noble friend Lord Berkeley. In the speech he would have delivered tonight he says that the Bill represents the failure of the industry and its regulator to get companies to perform efficiently and to reduce charges. He has grave concerns with regard to the Thames tunnel. He would have said that the costs are estimated at £4.5 billion plus EU fines, but the risk of cost overruns in such a major tunnelling scheme are not properly thought through and are also likely to be high. The cost to London’s consumers could be as much as £80 per household per year for 30 years.
My noble friend is worried about state aid. This looks like potential for massive state aids to one monopoly supplier company. What criteria are being used for choosing one company—or will all get help? Have the Government checked with the European Commission whether either of the state aids proposed are legal and what conditions are likely to be attached? This is a major project, now with government support and finance if things go wrong and therefore no incentive to save money or look at alternatives.
When my noble friend heard Ministers continue to repeat that the project was necessary to clean up the Thames as required by the European Commission to avoid infraction proceedings, he went to Brussels last week to meet officials dealing with the infraction and hear at first hand what they thought. It is important for the House to hear what they thought.
The European Court of Justice is currently considering the case and is likely to give its judgment this summer. The Commission expects to win, but can of course never be sure. Following the Court decision, if the EC wins, it will give the UK three to five years to complete whatever scheme is necessary to comply. Almost certainly, the UK will be fined, but it will be a little less the quicker a compliant scheme is completed.
Public statements by Ministers about intentions are not relevant. The Commission noted that this directive should have been complied with by 2000 and that, if this did not happen until 2022-23, a large fine was likely. Clars Environmental has estimated that the fine could be as high as £750 million. The amount can, we understand, be mitigated by completing any compliant scheme quickly, perhaps by a maximum of five years. The Commission’s case is that it has always required an output specification for the water quality but it has never given the UK Government any instruction or indication that a particular solution is required or desirable. It emphasised that the choice of solution was down to the member state as subsidiarity. The Commission was not of course certain whether the currently proposed tunnel scheme would meet the criteria, and of course it has to wait to see what is said in the ECJ judgment, expected this summer. It is then up to the Commission to enforce the judgment and, at that stage, to consider whether the tunnel solution or any other will comply with the judgment. So we have a Thames Water scheme costing £4.5 billion racing ahead without any up-to-date consideration of alternatives or, more importantly, whether that scheme as designed will meet the ECJ and EC requirements and therefore stop the fines continuing.
My noble friend Lord Berkeley would have gone on to talk about some of the alternatives put forward by the noble Earl and Chris Binnie. He thinks that many of these could be implemented sooner than the Thames tunnel scheme, with a consequent reduction in the infraction fine and in capital costs. Therefore, his second question to the Minister is: will the Government set in train an urgent review of alternatives by someone without a vested interest in the present scheme which will take into account the likely and actual decisions of the ECJ and EC enforcement people to achieve a more cost-effective and efficient solution more quickly, and one that is more environmentally friendly than the existing scheme? Is the massive potential fine of £750 million enough to persuade the Government to think again? Who knows? A series of smaller schemes might even get the job done quicker, he says, with a consequent reduction in infraction fines. I would ask: given that the fines could reach hundreds of millions of pounds, can the noble Lord tell us the department’s view on this? Can he also promise your Lordships that, if the Government lose their case in the European Court, a Minister will come back to this House with an urgent Oral Statement to tell us how the Government will fund the inevitable fines?
I have other concerns but I shall not delay the House further. I deeply regret that the expertise of this House has been sidelined and that we cannot debate more fully and amend to improve, but of course I look forward to the Minister’s response.
Lord Taylor of Holbeach
My Lords, I thank all noble Lords who are here and who have contributed to this debate at an unsociable hour, although that has not affected the quality of the contributions, nor the vigour with which they have been presented. I just say to the noble Lord, Lord Knight, that there seemed to be a bit of an inconsistency between the case that he presented and the case where he was listening to the judgment of the noble and absent Lord, Lord Berkeley, on this issue. I welcome his broad support for the Bill. Clearly, he recognises that the Government have to act. We are under pressure from the Commission to clean up our act, as were the previous Government. If that is time-sensitive, then the Government have done the right thing by bringing the Bill forward to enable this project to go ahead at the first available opportunity.
The quality of the debate has not been affected by the lateness of the hour. It reflects well on this House that it is capable of scrutinising legislation at any hour. I have here a fistful of sheaves from the Bill team and I shall do my best to answer all the points that have been raised. The noble Lord, Lord Grantchester, was in a particularly interrogative mood, as he often is. If I miss out any points, I hope that noble Lords will forgive me, and I shall certainly ask the Bill team to write to noble Lords on particular issues if I fail to address them.
The noble Lord, Lord Grantchester, mentioned the water White Paper and said that there was a missing chapter on water efficiency. I would not like him to think that that was the case because water conservation is covered in every chapter of the water White Paper. In particular, chapter 6 covers our plans for water efficiencies in homes and businesses. It is a very important part of our strategy for dealing with the ever increasing demands for water in this country. He asked questions about whether there could be some abuse of these financial powers in, say, an election year. Any financial assistance would inevitably be the cause of much debate. There can be no disposition of government money without Parliament being very much on the alert. We know in the case of the particular move to fund the south-west that there had been years of campaigning and an independent water review to address this matter. We consulted publicly and made an announcement in the Budget specifying who could benefit from financial assistance, the duration and the reason why the Government were making the payment.
Noble Lords have asked why there is no sunset clause. We made it clear that we should leave it open for the Government to have the flexibility to offer similar support to future projects, should the case be strong, but such support could not be given without proper scrutiny in Parliament. I can give that commitment. What about the rest of the commitments to legislate that the Government made in the water White Paper? We intend to publish a draft Bill, as I said in my opening remarks. We have made considerable progress in drafting the Bill. It is important to get the legislation right. The advantage of a draft Bill is that we have an opportunity for further scrutiny before the Bill comes before the House. This will be a strategic shift in the water industry, in which I think Parliament will want to be fully engaged. I make no apology for what has been suggested that there has been an unnecessary delay in the implementation of the water White Paper.
I turn to particular points that have been made about South West Water and the welcome by my noble friend Lady Miller of Chilthorne Domer and my noble friend and namesake Lord Taylor of Goss Moor. The independent Walker review examined the situation in the south-west and suggested a number of different models by which government should address the issue. We sought advice from Ofwat on the most effective way of dealing with it and considered all the other options in detail. The particular method has been chosen because it will be the most effective in dealing with the inequity that the whole measure is designed to address. My noble friend Lord Taylor asked again about how the funding might continue, which came up in a number of speeches. The Treasury has agreed that Defra can, if necessary, make a call on reserve to fund this policy through the current spending round. Defra will then need to bid for funding for the next spending review in the usual way.
Several noble Lords called on us to review social tariffs. As noble Lords will know, the matter is in the hands of individual water companies. The reasoning behind this is that companies know the most effective way to deliver a social tariff policy in their area. The noble Lord, Lord Grantchester, asked about this, and there were questions from my noble friend Lord Taylor on the same subject.
I turn to the question of the Thames tunnel, which is the second part of the issue. The noble Lord, Lord Grantchester, asked whether CLG or Defra would take the decision on planning. CLG is the planning authority under the Planning Act, but decisions on development consent for wastewater infrastructure of national significance may be taken jointly by the Secretaries of State for CLG and Defra, based on Planning Inspectorate recommendations. In this case that would seem the most likely process, but I cannot give a categorical assurance.
Questions were asked about state aid. Contingent financial support will need to be state aid compliant—and it is contingent finance to support investment that we are offering. Investors will want to know this before they invest. Our initial analysis of state aid rules is that this contingent support may require us to notify the European Commission. If appropriate, we will make the necessary state aid notification this summer.
There was much talk of the infraction risk, and of how much any fines were likely to be. The noble Lord, Lord Knight, speaking the words of the noble and absent Lord, Lord Berkeley, was very exercised about this. I understand that it is a serious matter, and that there is a case that we must be able to answer. We are working with the Commission. It is in our interest and that of the Commission to make sure that by building the Thames tunnel we will ensure that London’s river is clean and pollution-free. That is the purpose of the exercise. We are working with the Commission to make sure that it is aware of our commitment to achieve that.
The noble Lord, Lord Wigley, rightly wanted assurances about the devolved position of Wales. There have been no discussions about the construction or enlargement of any reservoirs in Wales. Indeed, none of the water companies, which all produce a 25-year outlook, includes any construction programme for a new reservoir in Wales. I do not suppose that the noble Lord is volunteering their construction; his questioning was not along those lines. However, I assure him that no English company at this stage anticipates this construction—and clearly any such arrangement would have to be approved by the Welsh devolved authorities. I hope that devolution will make these matters better between the two Governments, and between water companies and the Welsh Government.
I would hope that that is the future, and it must be one of the benefits of devolution which can protect the interests of the Welsh and the English in their relationships on this matter.
My noble friend Lord Jenkin talked about the transport of supplies for the construction of the Thames tunnel. I know that the noble Lord, Lord Berkeley, asked me a Question on this matter, so I know that he is also interested. This House may have been one of the instruments that has reinforced this view on Thames Water because it is considering how it can limit the impact of construction traffic. The company intends to use the river wherever practical. We should remember that not all the construction sites are on the river, but quite a large number of them are. Barges can be very efficient. It is certainly the Government’s view that the river should be used. My noble friend referred to Blackfriars Bridge. That is entirely a riverside construction. It is not just the 406 million tonnes of excavated material that have to be moved; it is also the construction materials that need to be brought on to site. The Thames tunnel briefing, which I hope my noble friend has had a chance to see, makes Thames Water’s intentions about the transport of freight quite clear.
My noble friend Lord Fowler expressed particular concern about the Carnwath Road site and the change from the Barn Elms site to Carnwath Road. It is a planning matter. As he will know, planning prefers brownfield sites, such as Carnwath Road, as opposed to Barn Elms, which is not a brownfield site, but it will be considered by the Planning Inspectorate. Thames Water will need to justify this choice of site and the route of the tunnel as part of its application. It will need to submit an environmental statement describing aspects of the environment significantly affected. I hope that helps my noble friend, although it does not give him a reversal of the decision.
My noble friend Lord Selborne has considerable experience on this matter and expressed a number of concerns. I would like to address particularly his concern about costs, which was echoed in what the noble Lord, Lord Knight, had to say. Inevitably, there will be some variation in cost. It is rare for projects to come in on price and on time. This is a complex and extremely large project. Ernst & Young is currently employed by the department to provide financial advice on the most suitable and appropriate financing mechanism to deliver the proposed Thames tunnel that is fair to customers of Thames Water and to UK taxpayers. Ernst & Young is advising on structuring incentives into the financial mechanisms that will help drive desirable behaviours by those delivering the project to help ensure the effective management of project costs.
My noble friend Lord Selborne asked how the Environment Agency decided which combined sewer overflows were unsatisfactory. The EA assessed all 57 CSOs that discharge into the River Thames to identify which were having an adverse environmental effect. It looked at the frequency and volume of discharges, whether they were close to recreational areas, the number of complaints and the reports from other organisations operating on the Thames. Thirty-six were classed as unsatisfactory and therefore need to be addressed, and 34 discharge directly into the middle and upper reaches of the Thames in London.
My noble friend Lord Selborne and the noble Lord, Lord Grantchester, asked what a tunnel would deliver. It would reduce the number of these spills from about 50 to 60 times a year to just three or four times a year, and the estimated volume of discharges from about 18 million cubic metres to just over 2 million cubic metres, improving water quality, with benefits for wildlife and river users. It would also ensure that we continue to meet the UK’s obligations under the urban waste water directive.
The noble Lord, Lord Smith of Finsbury—I nearly called him my noble friend—welcomed this project. The Environment Agency, with which he is very much engaged, is part and parcel of the team that is hoping to bring about the Thames tunnel project. I am very grateful for his support this evening, and for the contribution of my noble friend Lord Selsdon, whose experience in this matter I had not been aware of until he made his contribution to this debate.
There was some concern about the money getting to the right customers. South West Water is very much aware of the need to take account where metering and use are not necessarily directly connected because of multiple occupation or other situations. The money is designed to be per household and South West Water is intending to do that.
I have done my best to run through the questions asked. I hope noble Lords will understand if I did not pick them all up. I will do my best to address those that I have failed to do so by letter. Meanwhile, this may be an appropriate moment to thank all the staff and the Bill team for their support in seeing this debate through. We expect to have to work all hours. We have to share that expectation with a great many other people, and I am very grateful to them and I am sure the House will share in that regard.