Water (Special Measures) Bill [HL]

Baroness Bakewell of Hardington Mandeville Excerpts

Report stage
Wednesday 20th November 2024 Lords Chamber

This amendment would not put civil society on the board of water companies; it is the authority that has to interact with them. They would not, therefore, interfere in any way with the running of the water companies themselves. It would simply ensure that there was regular and documented discussion between the authority and civil society. The lesson from the post-privatisation experience is that this was inadequate: it needs fixing. This amendment would do that. Although I have not given earlier notice of it, I must now add—in the light of what I have heard about other amendments, which may be voted on—that I may now also wish to test the opinion of the House in respect of Amendment 8.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I thank the Minister for her time over the period between Committee and now. I shall speak first to my Amendment 9, which deals with performance-related pay and, more specifically, with bonuses paid to CEOs and directors of water companies. Performance-related pay should be related specifically to how well the water company has carried out its functions, having regard to the environmental targets it has been set. These are likely to relate to the number of illegal sewage spills that have occurred in the preceding 12 months.

During the last year—and especially during the general election campaign—the issue of sewage overflows was in the news almost daily. We saw the outrage of local residents at the state of their streams, rivers and lakes due to sewage spills—many occurred when there had not been any heavy rain. I will not go through the arguments, which have been well rehearsed in this Chamber. What I and my colleagues on these Benches are looking for is a reassurance from the Minister that where a category 1 and/or a category 2 pollution incident has occurred, the management of the offending water company—including the CEO, directors and senior officers involved in decisions in respect of controlling pollution—will be prevented from receiving any bonus or other performance-related pay enhancement to their basic salaries. It is unacceptable to the public for those in a very senior position in sewage and water companies to be rewarded over and above their normal salary for allowing sewage and other pollution to take place and not to have taken any steps to rectify the situation in a reasonable timeframe.

On Amendments 1 and 5 in the name of the noble Duke, the Duke of Wellington, environment groups have expertise to give to the water industry, but they should sit on boards. Consumers would also have a voice on boards. On our Benches are Peers who have in the past sat on water boards and contributed positively to their debates. This is a good and positive way forward. We support environmental groups and consumers being on boards and not being sidelined.

Amendments 2 and 8 from the noble Lord, Lord Cromwell, are about reporting. Amendment 2 would set up annual reporting on financial restructuring, including debt levels. This would seem a sensible way to ensure that the sewage and water company was aware of its business. However, Amendment 8 would involve others in the work of the authority, which is likely to become a bureaucratic nightmare. I have in a previous life sat on such bodies and found them to be unproductive and ineffective—I am sorry. Expectations of the civil society representatives will be high, sometimes with little understanding or knowledge of just how long it can take to implement what may often seem like a trivial matter.

Amendments 4, 7 and 10, from the noble Lord, Lord Remnant, do not align with our Amendment 9 and therefore we do not support them. However, I am conscious that whatever penalties the Bill hands out to directors and CEOs of water companies, they have to be proportionate, or it will be difficult to recruit people with the necessary expertise to sit on the boards of sewage and water companies.

Amendments 11 and 58 from the noble Lord, Lord Roborough, would introduce an SI into the legal framework. SIs are a favourite tool of Governments to get the detail of legislation in place. They tend to get somewhat divorced from the original Act that they refer to, but the timeline proposed here should mean that the original Act will still be fresh in peoples’ minds.

Amendment 57 from the noble Lord, Lord Sikka, is, I fear, unworkable. I know from previous debates that he and the noble Baroness, Lady Jones of Moulsecoomb, would prefer to be debating the renationalisation of water and sewage companies.

[Baroness Jones of Moulsecoomb (GP)]

True.

[Baroness Bakewell of Hardington Mandeville (LD)]

The Government have indicated that this is not going to happen. The amendment is an attempt to bring forward a different model of governance. The proposal is for 25% of board members to be chosen by local authorities. Local authorities are struggling with social care, looked-after children, education and people with learning disabilities. They certainly do not need this added to their “to do” list.

I look forward to the Minister’s response to this group of amendments, particularly Amendment 9.

[Lord Sikka (Lab)]

My Lords, Amendment 57 is highly workable, because it advances democracy and public accountability of the regulatory bodies. As we have it now, the regulators of the water industry have failed the people, mainly because they are too close to the very interests that they need to regulate and far removed from the welfare of employees, customers and citizens, who bear the ultimate cost of regulatory failure. I am pretty sure that the Government will soon be asking customers to chip in more money to restructure water companies and taxpayers to pay more to reconstruct them. That is just one part of the cost which people will bear.

All regulatory bodies need to be guided by effective watchdogs and guide dogs, but Ofwat has neither any watchdog nor any guide dog; it just seems to be running loose and doing whatever it wishes. There is no mechanism for preventing capture of water regulators. The executives of Ofwat pass through revolving doors and join the water companies with dizzying speed and great regularity, undermining the independence of the regulatory bodies. Regulatory bodies must be seen to be independent rather than just claim that they are independent. At the moment, a director of Ofwat, a former Conservative Minister, is spearheading a campaign that would make it harder for consumers to sue water companies that breach legal sewage limits. Should a regulator be doing that—or should it be more even-handed between the regulated and consumers?

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[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, Amendments 39 and 40 in the name of the noble Lord, Lord Cromwell, relate to the publication of data on sewage overflows in a form that is readily accessible to the public. The public are concerned about sewage spills, and they want to know when and where they are occurring. They also want to know what is being done about preventing further spills in their area. The amendments help to redress the current balance on availability of information.

Amendment 41 in the name of the noble Duke, the Duke of Wellington, relates to the failure of electricity supply which affects a sewage overflow outlet. I agree completely with the noble Duke. If an overflow outlet is reliant on an inefficient electricity supply, it is up to the undertaker to work with the electricity company to ensure that it is fit for purpose. The electricity supplier, similarly, will know when there is going to be a planned outage and should notify the undertaker in advance so that alternative arrangements can be made. If the electricity supply which serves an overflow outlet is inclined to break down, the undertaker should plan to have a generator on standby, as the noble Duke said, to take over when the electricity supply is down. This is common sense, and I look forward to the Minister’s comments.

[Lord Roborough (Con)]

My Lords, first an apology: in my excitement in the last group on the government amendments, I forgot to refer to my register of interests, including as a landowner across a number of river catchments and an investor in several natural capital-related technology companies.

I thank the noble Lord, Lord Cromwell, for moving his amendment. I recognise how hard he has worked to improve the Bill, in consultation with the Government. We agree with the spirit of his Amendments 39 and 40 in that we also want more transparency from water companies on pollution incidents. This is an important principle that runs through the Bill, and I hope that the Government will listen to the noble Lord’s argument and seek to strengthen transparency in the water sector where this is appropriate.

I also thank the noble Duke, the Duke of Wellington, for his Amendment 41. While we do not agree with it, we do agree that water companies should take some and more responsibility for the resilience of their power supplies. I would be interested to hear what the Minister can offer in reassurance.

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I think the current rule is that fines levied by Ofwat go to the Treasury and fines levied by the Environment Agency stay within the Environment Agency. That is what I am seeking to change and I think the noble Baroness, Lady Bakewell, has a similar intent. I hope the Minister, although she will, of course, be told by the Treasury that it wants to keep the money—I am sure it will always do that—might be prepared to try to persuade the Treasury to allow these funds to be devoted, as both the noble Baroness, Lady Bakewell, and I have said in a slightly different way, to measures to improve the quality of the freshwater environment in England and Wales. I think that is obviously what most Members of this House would want and I hope the Minister might be able to make a move in that direction. That is the essence of the purpose of these two amendments which, as I said earlier, are similar to the intent of the noble Baroness, Lady Bakewell. I hope the Minister will consider very carefully these three amendments.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, the noble Duke, the Duke of Wellington, has set out the case for this group of amendments with his usual clarity and passion for sorting out the obligations which Ofwat needs to impose.

The money collected from fines from sewerage and water companies needs more clarity over its destination. At the moment, it would appear that the money from fines imposed by Ofwat does not go back into ensuring that investment occurs to correct the defects which allowed sewage spills in the first place. Much of the money from fines goes into the Treasury coffers and supports other government departments. This is not what the public want. They want the money from fines to go into making good inadequate and out of date sewerage systems and helping to create new reservoirs. A transparent and obvious way to achieve this is to set up a water restoration fund. This group of amendments requires all fines for environmental offences to be ring-fenced for this fund.

I understand that the Treasury is not in favour of this as it is hypothecation. I understand where it is coming from. However, it is necessary, due to the appalling performance of the water industry, for the public to be able to see just where the money from fines is going and how it is being used to improve the service they are paying for in their water and sewerage bills. We are, therefore, very keen to see such a fund set up without delay. There are undoubtedly going to be large fines coming down the line which water companies will have to pay. These fines cannot just evaporate into the ether so that customers cannot see what is being done with the money. Restoring public confidence in the water and sewerage industry is key to moving forward and a water restoration fund is a vital element of achieving this.

[Lord Roborough (Con)]

My Lords, I thank the noble Duke, the Duke of Wellington, for introducing this group. I also take the opportunity to thank him for his tireless commitment to clearing up the water industry. I have no doubt that the fact that we are considering this Bill in this Chamber at this time owes much to his hard work.

In government, we made progress on work to ensure that fines charged to water companies would be reinvested into the infrastructure of the water sector to reduce pollution and tackle flood risks. Given the very clear concern of the public about the health of our rivers, lakes and beaches and the impact of pollution, it seems only right that the proceeds of fines levied on water companies should be invested in tackling pollution, so we support the spirit of Amendments 46 and 47 in principle.

While there is clearly disagreement on how best to achieve the goal of reinvesting the funds raised through fines on water companies, we hope the Minister will listen to the concerns of the noble Baroness, Lady Bakewell of Hardington Mandeville, and the noble Duke, the Duke of Wellington, and ensure that proceeds from water company fines are reinvested in the sector.

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[Baroness Anderson of Stoke-on-Trent (Lab)]

I am so sorry, but we have reached time. Thank you.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, this is the last group of amendments. The noble Lord, Lord Remnant, has introduced Amendment 50 on recovering costs from water companies. The noble Lord, Lord Roborough, has Amendments 51 and 52 to leave out Clauses 10 and 11. We did not support these amendments in Committee and have not reconsidered our view.

The noble Baroness, Lady Jones of Moulsecoomb, has spoken to Amendments 53, 54 and 59, dealing with water companies that have been taken into special administration. Under Amendment 53, 50% to 100% of the debts of the company would be cancelled. Under Amendment 54, the Secretary of State would place a water company into special measures for breach of environmental conditions. Amendment 59 requires an assessment of costs to bring water companies back into public ownership. Although the noble Baroness, Lady Jones, is very articulate and passionate, I am afraid we are not able to support these amendments.

Amendment 56 in the name of Lord Sikka, to which he has spoken very eloquently, seeks to prevent companies from operating where they have criminal convictions in a five-year period. I have listened to the noble Lord’s arguments on this amendment and will listen carefully to the Minister’s response, but at the moment I am not convinced of the efficacy of Amendment 56.

[Lord Roborough (Con)]

My Lords, I shall speak to my Amendments 51 and 52, which seek to leave out Clauses 10 and 11 from this Bill. These would also have the effect of rendering unnecessary Amendment 50 of my noble friend Lord Remnant.

Our concern on these Benches is that the consumers are left as the providers of funding of last resort to the water industry. In the event of a company going into special administration and there being losses incurred by the Government, these clauses allow the Secretary of State to recover those losses by putting consumer bills up above the levels that have been determined by Ofwat—not just customers of that undertaker but also of others.

This does not seem fair or just. Surely the ultimate responsibility resides with the Government who created the system of regulation that must have failed in this scenario. I intend to test the opinion of the House on my amendment; we do not believe that the Government should grant themselves this power.

I would also like to briefly address Amendment 53 in the name of the noble Baroness, Lady Jones of Moulsecoomb. We on these Benches agree with her that a bailout of creditors or shareholders by the Government would be completely wrong. It is not for the Government to make professional or retail investors whole when their investments have gone wrong. However, we are unconvinced that this amendment needs to be in the Bill, given that there does not appear to be any mechanism where the Government could be called on to bail out investors. Perhaps the Minister can reassure the House that this is the case.