Water (Special Measures) Bill [HL]

Baroness Bakewell of Hardington Mandeville Excerpts

Committee stage
Monday 4th November 2024 Lords Chamber

[Lord Roborough (Con)]

My Lords, I welcome the noble Baroness, Lady Bakewell of Hardington Mandeville, back to her place. Her contributions have been missed on earlier days in Committee.

The main focus of the Bill is on improving the health of our rivers, and that aim will likely lead to a larger number of punishable offences. In its manifesto, Labour set out its plans to impose severe fines on water companies that failed to meet the expected standards, but it did not establish what would be done with that additional income. Amendment 70 seeks to put in place a system whereby the fines imposed on water companies and their employees—by this Government, the devolved Governments or, in fact, any other relevant authorities—are collected. Then, once a year, the income from these fines could be used to reduce customer bills.

In government we created the water restoration fund, which sees the money collected by the Treasury from fines and penalties and then channelled into improving the water environment. However, we sit here today with consumers facing pressure on their water bills as part of the inflationary environment that has created the cost of living crisis, as well as the cost of investing to improve water quality. It seems appropriate that fines and penalties should be returned to those consumers and identified by a separate line in their bills, making it clear that the regulator is taking action to punish wrongdoing and that money is returned to the consumer as a consequence.

An amendment such as this would benefit so many individuals and resolve how additional income from stricter fines is applied. It is not a subject that the Bill adequately addresses, as the noble Baroness, Lady Bakewell of Hardington Mandeville, has recognised in other amendments. Does the Minister agree that the money from the fines should be used to benefit the consumer through mechanisms such as the water restoration fund that we implemented when in government or by using the sum to reduce customer Bills, as this amendment suggests? As such, will the Minister confirm that the penalties will not return to the Treasury under this Government? I beg to move.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I apologise to the Committee and the Minister for my absence on the first and second days in Committee. I regret that an attack of Covid meant that I was confined to quarters and unable to travel to London. I did, however, watch the debate on both days on parliamentlive.tv and was therefore able to hear the nuances of the contributions, which you do not always get by reading Hansard. I thank the noble Lord, Lord Roborough, for his comments.

A seminar of all the devolved Administrations once a year, to discuss how to return all fines to the relevant customers, will do nothing to fix the problems of inadequate investment in crumbling and inadequate infrastructure. I am sympathetic to the need to keep customers’ bills to an acceptable level. Consumers should not have to pay for the inadequacies of the water boards to ensure that problems are fixed. I do not see why an annual gathering of the devolved Administrations or other authorities will be sufficient to refund bill payers in a timely fashion.

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[Baroness Jones of Moulsecoomb (GP)]

My Lords, I will speak to three amendments in this group: Amendments 97, 98 and 99. This weekend saw tens of thousands of people marching for clean water in London. It was the most amazing event. It was a chance for me to speak to people who agree with me—as opposed to being here in your Lordships’ House, where not many people agree with me.

[Baroness Bakewell of Hardington Mandeville (LD)]

Oh!

[Baroness Parminter (LD)]

That is not true.

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[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, it is a while since I have taken part in proceedings where a stand part debate has been used to try to remove clauses of a Bill. On our Benches, our departed colleague Lord Greaves was very fond of this measure to enable him to make detailed speeches railing against the Government of the day’s proposed legislation.

The noble Lord, Lord Roborough, has set out his case eloquently for why he believes that Clauses 10 and 11 should be removed from the Bill. Clause 10 refers to England, and Clause 11 offers the same powers to Welsh Ministers. Both clauses are complex and deal with the recovery of losses. I respect the motives of the noble Lord, who appears to be on the side of the water industry and the bill payers at the same time. However, when 15,000 people from around the country are prepared to give up their Sunday to come to London to join a protest against the action of the water companies, I fear that he may have misjudged the mood of the water company bill payers. The public are rightly furious that, while their water and sewage bills have increased, the infrastructure has not been improved, but directors’ bonuses and shareholders’ dividends have not reflected the poor service that some water companies have given. I say “some” water companies, because some are performing well and do meet their targets; unfortunately, it is the ones that do not do so that we hear about on a continual basis.

Removing from the Bill the two clauses, which would have seen some balance being provided to enable costs to be recovered from those water companies that have failed to deliver on their Ofwat targets, is to give a signal to bill payers that the poor service that they have received is acceptable. If Clauses 10 and 11 are removed from the Bill, there would be no clarity on what is happening or how recompense would be achieved. I am therefore afraid that, on the Lib Dem Benches, we are unable to oppose these clauses standing part of the Bill.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Lord, Lord Roborough, for his interest in Clauses 10 and 11 and also thank the noble Baroness, Lady Bakewell, for her support for them standing part. A special administration regime—or SAR—enables a company that provides vital public services to be put into administration in certain circumstances to ensure that the public service will continue to be provided pending rescue or transfer to new owners. An SAR would be required only when there is evidence that a company is insolvent or in serious breach of its statutory duties. It is the ultimate enforcement tool in Ofwat’s regulatory toolkit and, as such, as I said in the last debate, the bar is set high.

Although government has had the powers to place water companies into special administration for over three decades, it is important that we regularly update legislation to reflect modernisation of law and experiences in other sectors. If a SAR occurs, government funding would be required to cover the costs of a special administration, including both operational and capital expenditure—for example, ensuring that statutory environmental obligations were met, as well as for paying the cost of the special administrator.

In the unlikely event that the proceeds of a sale or the repayments agreed as part of a rescue at the end of a SAR are insufficient to cover repaying government funding, there is a risk of a funding shortfall. Clauses 10 and 11 introduce a flexible power, allowing the Secretary of State and Welsh Ministers to recover any shortfall in funding in a manner that is appropriate to the circumstances. They allow for modification of water company licences to recover any shortfall in financial assistance provided in a water industry SAR. These clauses will align the water industry SAR regime with the energy sector. Without this power, there is a risk that taxpayers will foot the bill for the water industry SAR.

The Secretary of State and Welsh Ministers will be able to decide whether or not they should use this power and the rate at which the shortfall should be recovered from customers. This will include which group of customers it should be recovered from—for example, all water company customers, a subset of the sector, or only customers whose water company went into a SAR.

Although the power is flexible, the design of a recovery mechanism will be subject to consultation with all relevant sector stakeholders. The Government must consider these views and explain our approach accordingly. If a SAR occurs and this power is ever required, this will allow a decision to be made, and be consulted upon, on what the fairest cost recovery option is, based on the evidence and circumstances at the time.

I reiterate that the shortfall recovery mechanism does not mean that customers end up paying for water companies’ failures. Any intervention that would increase customer bills would be considered very seriously and as a last resort. In the first instance, the Government would seek to recoup all the funds spent on financing the SAR through the sale or rescue of the water company after the administrators’ conclusion. This new power would be utilised only if it were not possible to recover what the Government spent funding the administration. If there was a shortfall, Ministers would then decide whether they felt that it was appropriate to exercise this power.

This power would allow the Secretary of State to decide, subject to consultation, the rate at which the shortfall should be recovered from customers and which group of customers it should be recovered from, as I just mentioned. This will ensure that the shortfall recovery mechanism is always implemented in a way that ensures that costs are recovered fairly. I hope that noble Lords agree that this power is essential to protect taxpayers’ money in the event of a SAR, and that these clauses should stand part of the Bill.