Water (Special Measures) Bill [HL]

Debate between Baroness Jones of Moulsecoomb and Lord Sikka

Report stage
Wednesday 20th November 2024 Lords Chamber

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I have three amendments of my own in this group and I have co-signed Amendment 56 in the name of the noble Lord, Lord Sikka.

I spoke earlier about the Government’s plans not being strong enough to get a grip on these out-of-control water companies. The amendments in this group, including my Amendments 53, 54 and 59, are illustrative of what could be put in place to really force the water companies to clean up their act. There does not seem to be any protection whatever at the moment against a water company simply going through the special administration process and then hiking bills up on the other side. The moral hazard is obvious.

I am going to take my amendments out of order, and noble Lords will see why. My Amendment 54 would create a special administration process for environmental failures, such as persistent sewage dumping. I do not understand why only financial failure should lead to special administration, when a much bigger failure is the sheer amount of sewage pumped into our rivers and on to our beaches. Thames Water, for example, will come out of special administration still in private hands, but with the bulk of the debt paid off by higher bills. My amendment would change this by giving the special administrator the power to write off the bulk of the debt where it has been used to pay for dividends and where the company has failed to deliver the investment to fix the sewage system. Those powers are not in the current rules and the Government have the chance to change that. Otherwise, we will reward the failures and greed of companies such as Thames Water and will be blamed for it.

I will take my Amendments 53 and 59 together only because I would actually have liked to press them to a vote. They are two amendments I care about very much, on issues that I think the general population cares about very much, and it staggered me that there has not been more support for them in your Lordships’ House. I thank the noble Lord, Lord Sikka, for supporting me: it is two Greens and him who have proposed this.

Essentially, my Amendment 53 would prevent water companies being bailed out by either the public purse or via consumers’ water bills. This is because I am quite suspicious that the whole Bill is a tactic to support the water companies, at vast expense to bill payers and eventually to taxpayers. I simply do not understand why profits are privatised but losses are not. We, the public, pay for the losses but do not get the profits.

My Amendment 59 would require the Government to conduct a full assessment of the costs of bringing water companies into public ownership. So much of the public ownership debate is dismissed based on dubious industry figures about how expensive it would be. These conveniently miss the fact that some of these companies are now distressed assets facing bankruptcy. I at least ask the Treasury to do a proper costings exercise which discounts the fact that water company valuations are based on expectations that taxpayers or bill payers will underwrite the future profits of the water companies. Given the total failure of water privatisation, the Government need to seriously plan to bring water back into public ownership. The public are crying out for it, and it would actually be good value for money. The first step towards that is to work out the real costs rather than regurgitating figures from a biased industry.

It will be a race against time whether we can pass this Bill before Thames Water fails. All the experts agree that Thames Water is going to collapse, so why are the Government not taking it into special administration immediately? My genuine fear is that this Government will find themselves in a political storm over the big rise in water bills to finance a new private company taking over. The Government would have three regrets: first, that they did not refuse a bailout; secondly, that they did not listen to the public and change the powers of the special administrator to write off shareholder-accredited debts; and thirdly, that they ruled out public ownership as an option and boxed themselves into a corner. I deeply regret this aspect of the Bill, and I wish there were support in your Lordships’ House for no bailout and public ownership.

[Lord Sikka (Lab)]

My Lords, I rise to speak in support of Amendments 53 and 56, with some trepidation. At 4 pm today my heart soared, because the Railway Minister said that government policy was to bring these monopolies into public ownership. But by 5 pm the Minister—the noble Baroness, Lady Hayman of Ullock—said no, and that water companies must remain in private hands. It is nearly 9 pm now, so I do not know whether the policy has changed again. It would be interesting to know.

Water companies and shareholders and lenders have extracted vast sums of money, and under no circumstances must they be bailed out. We are now almost reaching the endgame and maybe the beginning of a new chapter in water companies. Thames Water is an interesting case. All nine of its shareholders have declared the company to be a basket case and are refusing to invest, after extracting billions of pounds in dividends and inflicting massive, real-term price hikes on customers. The value of those shares has been written off; the value of debt has also taken a haircut in the marketplace.

The interesting thing is that Thames Water is now going to borrow more money, which does not make any sense; I do not know how the Government have made any sense of it. Thames Water already has a debt of about £18 billion, and its gearing, as I said earlier, is already over 80%, compared to Ofwat’s idealised ratio of 15%. Thames Water is now negotiating a £3.5 billion new loan at 9.75% for two and a half years. This new loan will require it to pay £800 million over two and a half years, with interest and various fees, to intermediaries, after which it will also have to repay the loan of £3 billion. That is £3.8 billion—which it will probably try to recover from customers. It has 16 million customers, so that works out at a charge of £95 per customer simply to service this debt. This simply is not viable. There would be riots in the streets if water companies went ahead and squeezed the customers even more. It is simply and utterly unacceptable.

The company will continue to discharge tonnes of sewage in the rivers. Water leaks will still go unplugged. We are talking about not just investment in infrastructure; Thames Water has also neglected other investments such as investment in IT. Some of its IT systems date back to the 1980s and are obsolete. According to whistleblowers, some of its essential systems still use Lotus Notes software from the 1980s and 1990s, which cannot be updated any more.

Thames Water will run out of cash soon and will inevitably pass to its lenders. But that will not solve the problem either, because the lenders, as the new equity holders, would still want a massive return on their investment, so we are back to the territory of massive new bill hikes. The Government’s delay and dithering are not helping to clarify the situation. They need to bring this company into public ownership. Private equity and hedge funds are lurking—they are the new hyenas ready to feed on the carcass of Thames Water and grab whatever assets it has left. I have been told that they are especially after land. They are counting on some kind of government bailout so that the value of their investment soars.

Thames Water is not alone. The same scenario is being repeated at Southern Water. The Minister said today that Ofwat’s approval is needed to pay dividends, so it is interesting that today Severn Water declared six-months profits, which have nearly tripled in six months, and has increased its dividends from 46.74p per share to 48.6p per share. It would be interesting to know when Ofwat approved this. Can we have some public evidence to show that Ofwat approved this higher rate of dividend?

It is a matter of concern to me and others that the Bill enables the Secretary of State to dip into the public purse and also levy massive charges on customers to restructure the companies. That is effectively a bailout by another name. Through this process, the Government may possibly write off the debts of these companies and possibly take on the liabilities and costs associated with cleaning rivers, seas and lakes. So there is nothing of any value in this for the customers at all, because they will end up paying more and the citizens will end up paying more as well. The bottom line is that public money should not be used to bail out any of these investors, whether they are lenders or shareholders. Hopefully, the Minister will give that commitment.

I tabled Amendment 56 previously, but I got some strange responses so I want to return to it. In any civilised society, a key requirement is that all businesses, especially those that control services essential for life, must be operated by organisations that are law-abiding, ethical and responsible. But none of that applies to water companies. The whole industry is controlled by organisations with criminal convictions galore. It is not one or two, and it is not that somebody forgot something or perhaps there was an innocent oversight. There are 1,109 criminal convictions, and there is not a single water company without a criminal conviction.

This is the result of deliberate planning in company boardrooms: the directors decided to violate laws, lie and cheat. The field of these convictions is led by United Utilities, with 205; Thames Water has 187 convictions; and South West Water has 174. None has shown any sign of mending their ways; if they had, these convictions would have stopped years ago, but they continue. Just last month, the BBC reported that United Utilities dumped more than 140 million litres of raw sewage into Windermere between 2021 and 2023—at that time, it was not permitted to do so. A BBC investigation found that illegal discharges had been taking place for more than three years—far longer than the discharges in the four months the company retrospectively reported. In other words, it lied.

There is no effective fit and proper person test in the UK to decide whether somebody ought to be allowed to run or control a water company or a wastewater disposal service. If there were, none of these companies would pass it. But, rather than punishing companies engaged in criminal activity, successive Governments have protected them. They ask people, year after year, to hand more money to these organisations, which obviously continue with their pattern of behaviour.

Water (Special Measures) Bill [HL]

Debate between Baroness Jones of Moulsecoomb and Lord Sikka

Committee stage
Monday 28th October 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, my Amendment 82 addresses a major question that the Bill does not address: why do water regulators fail? After all, they have been at it for many years—at least 35 years, some of them—yet they continue to fail. No proposal in the Bill addresses that. They continue to fail because they are isolated from the lives of the people affected by sewage spills, high customer bills, low investment and water simply leaking away.

The regulatory bodies are generally made up of former Ministers and executives. Someone who has done a stint at a water company disappears to Ofwat; Ofwat’s former chief executive is now director of a water company. There is a revolving door. These people have a world of their own which does not connect with that of the people directly affected by their activities. For any regulatory system to be effective, it must represent a plurality of interests, but our regulatory system and bodies are closely aligned with corporate interests. They are, in essence, captured. If this capture is not there—and is not the reason for their failures—then someone will have to explain why the water industry is in a mess and why the guiding hand of regulators has not been able to put it on a path to recovery, good practices or good behaviour.

The Bill seems to propose consumer panels, which are, in essence, toothless: they have no social constituency to report to because they are not really elected by anyone but simply co-opted on the basis that someone knows somebody and brings them in; they are not required to report to any constituencies; they cannot easily object to the practices of the regulatory bodies; and they can simply be bludgeoned into silence and just go along because that is the norm. We have heard that these amendments somehow propose something unusual and therefore we have to be bludgeoned into silence and simply go along, because tradition is oppressive and that is what we have to do.

My amendment calls for direct representation of elected representatives of employees and stakeholders on the board of the regulatory authority and to give them power to vote on executive remuneration. That would be the ultimate sanction when they disapprove of how the regulatory body is safeguarding or protecting the public interest. If they cannot vote on executive remuneration, they will simply be a shadow. The amendment seeks, in essence, to democratise regulation. I know that democracy is not very fashionable these days, so if the Minister opposes this democratisation of regulation, it would be helpful to know how the Government will check cognitive capture of regulatory bodies, because no other solution is being offered by anybody. If we were to expand on this, in the next group I could lay out a complete framework of what else needs to be done, but this is simply to test and, I hope, elicit a response from the Government.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I will speak to my Amendment 100. The issues of water pollution and the supply of clean water to everybody are ones I clearly care a lot about. But this Bill is just papering over the cracks. If we are going to paper over cracks, we could at least try a radical departure; perhaps we could try to bring some democracy into the regime.

I take issue with the noble Duke, the Duke of Wellington, and the noble Lord, Lord Remnant. I have chaired a board and it was extremely successful. Part of that was because I invited people who thought very differently on to the board. We had 20 members or so. It was called London Food and we were tasked with writing a report for the Mayor of London on a sustainable food strategy for the city. It was successful, I would argue, partly because of my charm—obviously —but also because we had extremely good reports from every single aspect of food and food supply for London. We had a member from the City who was obviously a Conservative, we had an organic farmer and so on. We had a huge range of people, but we agreed on the strategy and we came to some very useful conclusions. This is what we need: we need some democracy in the systems that try to keep us safe.

Honestly, given the scale of the challenge that the water industry faces at the moment, in trying to make a system work that has proved not to work, we need to ensure that there are some new voices that can represent other parts of society that use the water system and care very deeply about it. We should also involve the people who actually do the work. My amendment brings in people from the workforce.

At the moment, the CEOs and senior staff are more focused on delivering dividends than they are on delivering a quality service, so having worker representatives on the board would provide a constant voice for those whose job it is to provide a service. The regulators have been captured by the industry they are meant to be keeping an eye on, so they are almost useless. This system should not be a national scheme but one based on the geography of the water systems themselves.

I am a believer in democracy and this would be an extremely useful way of making sure that a crucial industry for our society has some resonance with people out there. I am sure that this would be welcomed by the majority of people, just as I am sure that the Minister is aware that polls suggest a majority of people would prefer public ownership. Failing that, however, let us get the public in there, talking and being listened to.