Water Bill

Debate between Baroness McIntosh of Pickering and Angela Smith

Wednesday 7th May 2014 Commons Chamber

[Angela Smith (Penistone and Stocksbridge) (Lab)]

May I start by thanking the Minister for his kind comments?

As it is some time since the Bill was debated on the Floor of the House, I want briefly to refresh the memories of Members on it. It includes many important reforms that attempt to build on three important reviews taken forward by the previous Government: the Pitt review on flooding, the Walker review on affordability, and the Cave review on competition.

Throughout the Bill’s long passage through Parliament the Opposition have been supportive. In the Commons we voted for it on Second Reading and on Third Reading. In the other place, although we raised legitimate concerns and challenged the Government, again we remained broadly supportive of the Bill. We have backed measures to increase competition. We have supported measures that will provide a statutory basis for agreement on flood reinsurance, providing affordable insurance to households who would have otherwise not been covered. However, as my hon. Friend the Member for Garston and Halewood (Maria Eagle) pointed out on Third Reading, there still remains even now a major hole at the heart of the Bill, and at the heart of the Government’s water policy: the absence of any serious attempt to tackle the impact of rising water bills on household budgets, which is adding to the cost of living crisis.

Unfortunately, the Government have failed to back a new national affordability scheme that would have ended the current postcode lottery in which companies choose whether to offer a social tariff and set the criteria for eligibility. Last year the industry made £1.9 billion in pre-tax profits, of which they returned £1.8 billion to shareholders, yet fewer than 25,000 people are eligible to benefit from social tariffs offered by just three water companies. In many ways, therefore, the Bill represents a missed opportunity and remains seriously flawed, despite its being improved by amendments made in the other place.

Although we will not vote against any of the first group of amendments, that does not mean that we believe that the Bill could not have been made stronger and more effective through the adoption of our amendments. We are where we are, as they say. While, as the Minister pointed out, most amendments in the group present a series of technical and drafting changes, amendments 32 and 33, amendments 49 to 52 and amendments 53 to 64 make significant changes to the Bill that was debated in the Commons.

Amendments 32 and 33, which were originally introduced in Committee by Lord Grantchester, give a new role to the Consumer Council for Water. They will require Ofwat to issue rules that will mean that the CCW must be consulted by water and sewerage undertakers on all charges schemes. That will allow the CCW to play a role at an early stage in the charges process and will enable it to flag up problems, before the relevant bills start arriving on customers’ doorsteps and further problems occur. For example, as Lord Grantchester pointed out in Committee, the CCW had previously challenged the charging plans of some companies that restricted half-yearly payment options for those on direct debit payments. Some customers prefer to pay on a half-yearly basis, as it better enables them to manage their money.

Although we welcome the amendments, which we promoted in the other place, it is a pity that the Government have not gone further by accepting our argument that we need to tackle the impact of rising water bills on household budgets. As I said, the Government could have backed our plans for a new national affordability scheme that would have ended the current postcode lottery in which companies choose whether or not to offer a social tariff, with no minimum standards in place to ensure fair and effective affordability measures.

Amendments 49 and 50 introduce parliamentary scrutiny for any regulations that the Secretary of State may deem fit to introduce under clauses 37 and 39. The amendments, which were introduced at a very late stage—I think on Third Reading in the Lords—mean that the affirmative procedure will now apply on the first exercise of those powers. That is quite right, especially given the importance of the regulations in question. It is a pity, however, that the Government have been forced into this position and have had to be pushed into introducing the amendments by Labour Members and the Delegated Powers and Regulatory Reform Committee in the other place. That Committee made firm recommendations in this regard, and has rightly argued that the Secretary of State would have enjoyed so-called Henry VIII powers over many parts of the Act if the Bill had remained unamended, so Parliament is right to assert its right to scrutinise the relevant regulations as and when they see the light of day.

Amendments 53 to 64 deal with retail exit. I want to put it on the record that we have also backed measures in the Bill that increase competition to support businesses that wish to enter the retail market for non-domestic consumers. The measures are similar to those that have been a success north of the border; Scotland became the first country in the world to introduce competition to the non-domestic water market in 2008. We find it odd, however, that the Government have repeatedly dragged their feet in relation to allowing such businesses to exit this market. Without our persistence, which was shared by peers on the Government Benches, the Government’s original proposals would not create a market at all.

Retail exit enjoys a great deal of support, including from Ofwat, the Environment, Food and Rural Affairs Committee and some of the major water companies. Indeed, in Committee, amendments introduced by the Chair of the Select Committee, the hon. Member for Thirsk and Malton (Miss McIntosh), were not supported by the Government. In the other place, Lord Whitty commented that there was bemusement in all parts of the House as to why the Government were so resistant to the concept of exit in the new retail market, and introduced an amendment that would have allowed it. His arguments were not, however, supported by the Government, who gave the lame reason that such a measure would cause investor insecurity. On Report, Lord Moynihan introduced an amendment that would have gained our support, but he withdrew it on advice that the Government would introduce an amendment on Third Reading. Although we welcome the Government’s late conversion, we have to wonder why they resisted such a measure during most of the Bill’s progress through this House and the other place. Surely it would have been more appropriate if the amendments had been brought forward earlier, to allow adequate parliamentary scrutiny. Once again, however, we are where we are.

It is also right that, when and if regulations are brought forward by the Secretary of State, they will be laid before both Houses under the super-affirmative procedure. I pay tribute again to the work of the Delegated Powers and Regulatory Reform Committee in highlighting the need for that even at the 11th hour of the Bill’s passage through Parliament.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

First, I welcome the hon. Member for Penistone and Stocksbridge (Angela Smith) to her new position, and pay tribute to her predecessor, the hon. Member for Dunfermline and West Fife (Thomas Docherty). I understand that they have performed a job swap. The hon. Gentleman has made a big contribution to this debate and, in the past, to the work of the Environment, Food and Rural Affairs Committee. I can only apologise to both Front-Bench teams that there are not more colleagues from the Committee here today. The reason for that is that we are undertaking a farm visit this afternoon. I had to give my excuses and will be joining colleagues later for the completion of the visit today and tomorrow. It would be churlish of me not to congratulate my hon. Friend the Minister and welcome both the outbreak of common sense in the other place and in the Department and a very welcome and worthwhile amendment.

I shall briefly go over the deliberations in the Select Committee and the earlier proceedings in this place. In our report on the draft Water Bill, the Committee strongly recommended that the Bill should include provisions to enable incumbent companies to exit the retail market voluntarily. Indeed, as the hon. Member for Penistone and Stocksbridge mentioned, the Committee tabled a new clause in my name on Report to provide for retail exit. Also, during the course of the inquiry both regulators—Ofwat and the Water Industry Commission for Scotland—the incumbent companies and new entrants were united in calling for the Bill to include an exit route. WICS provided a welcome and helpful explanatory note, and I hope the amendment it proposed during the Commons stages of the Bill will bear fruit today.

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[Angela Smith]

I thank the Minister for introducing the second group of amendments, which relate to some very important provisions in the Bill.

Lords amendments 1 to 14 are largely drafting amendments, but they include some important additions to the Bill. Lords amendments 1 to 3 detail the efficient use of water resources and take into account the effect on the environment of water use, with particular reference to what constitutes a bulk supply agreement with water undertakers, and the effect of such agreements on the environment. Lords amendments 1 to 14 and Lords amendment 31 give a greater role, as the Minister acknowledged, to the Environment Agency and Natural Resources Wales with regard to the effects on the environment of bulk supply agreements. We welcome the strengthening of the role of these two bodies to provide environmental expertise and to prevent bulk supply agreements from damaging the environment.

Amendments 34 to 42 relate to social and environmental safeguards more generally, and amendment 38 in particular requires that the Secretary of State and Welsh Ministers “must” have regard to social and environmental matters when compiling their statements to Ofwat, thereby strengthening the requirement in the Bill. The change from “may” to “must” have regard is a major concession by the Government. Given the importance of securing environmental safeguards at the heart of all aspects of water management, one can say only that it is surprising that the Government did not make that amendment of their own volition, rather than as a result of facing pressure from Members of both Houses on the point.

It is important to put on the record our deep disappointment that the Government have not gone further and recognised the need to make the Bill stronger and more effective by making sustainable development a primary duty for the regulator, as is the case with other regulators. We believe that resilience and the associated term that the Government use here—“the efficient use of water”—are not good enough. In the water White Paper, the Government said that they would carefully consider the case for that, and many environmental organisations are concerned that Ofwat does not have the necessary powers to prevent environmental damage and damaging water exploitation. That is particularly important in the light of greater competition, where companies will be looking to maximise efficiency however they can. Without a tough regulatory duty, that could come at the expense of the environment. My question to the Minister about the Government’s failure to grasp the opportunity presented by the Bill to strengthen regulation in this regard is this: why have they failed to respond to this vital issue in a robust manner and safeguard our environment?

On water abstraction, the Government’s White Paper, “Water for Life”, published in 2011, set out the case for a comprehensive reform of abstraction licences, suggesting that the current licensing system was outdated and in need of urgent reform to deal with increasing pressure on water resources—an issue with which we are all now familiar. Pressures develop because of population change and climate change. The Government tabled an amendment requiring the Secretary of State to publish a report on abstraction reform within five years. That is in the context, however, of the Government’s decision to allow the introduction of greater competition in the upstream market to take effect before reform of the abstraction regime.

We, along with leading environmental experts, are concerned that without comprehensive abstraction reform, upstream competition could incentivise existing abstraction licence holders to sell their water to water companies, even when the catchment is already over-abstracted or over-licensed. In response, the Government have said that the Environment Agency is adequately placed to review and/or change abstraction licences. We do not agree with that assessment.

In his response to their lordships’ amendments, Lord De Mauley said:

“The Environment Agency will soon use its powers to revoke or vary abstraction licences without compensation where they are causing serious damage to the environment.”—[Official Report, House of Lords, 4 February 2014; Vol. 752, c. 163.]

However, following budget cuts, the Environment Agency has cut 600 staff since 2010, so surely the Minister must concede that the Environment Agency will now have less capacity effectively to discharge its duties in that respect. What will be the priority for this smaller, rather emaciated, Environment Agency—flood defence schemes or attention to abstraction reform? Given its much reduced resource, is the Minister confident that the Environment Agency can manage all its duties effectively?

Under the new market conditions created by the upstream market reforms in the Bill, more water could be abstracted from water courses than is sustainable or suitable for local ecosystems. We support the amendment for upstream market reforms to allow new water undertakers into the market, but we still think it wise for the Government to deliver progress on abstraction reform, running concurrently.

We asked the Government to bring forward reformed abstraction licences on the same day as the upstream reform measures in the Water Bill come into effect, but they have unfortunately neglected to do so. Instead, under amendments 65 and 104, the Secretary of State is required to produce a report on progress made on water abstraction reform within five years of the Bill being passed, as the Minister indicated. We do not oppose that amendment because it is better than nothing, but it is unsatisfactory overall, because unsustainable water abstraction could continue for some time after the Bill has been passed—before DEFRA effectively addresses the issue.

In conclusion, why are the Government reluctant to commit to ensuring that the abstraction reforms run concurrently with the upstream marketing reforms? I look forward to hearing the Minister’s answer on that point.

[Miss McIntosh]

I shall make just a few comments. Over the last three years, events in Yorkshire have certainly shown the unpredictability of the weather, which can swing from a real flood to a virtual drought within a matter of weeks. The hon. Member for Brent North (Barry Gardiner), whom I see in his place on the Opposition Front Bench, and my hon. Friend the Minister sat in the Environment, Food and Rural Affairs Committee when we debated these issues—both at the pre-scrutiny stage and when the amendments to the Bill were tabled. It was a constant theme of the Select Committee to call for the implementation of abstraction reform—certainly by 2022. If I understand the Minister correctly, he is saying that this will happen within five years of the Act being passed, whereas we asked for it within seven years. It looks as if we are on course.

Personally, I would have made the case to include abstraction reform within the context of the Bill. I hope this does not come home to roost in the intervening five, six or seven-year period, but given the climatic changes and swings in weather patterns that we have seen, I hope we do not rue the day that we failed to include abstraction reform in the Bill. I understand that there was no appetite for it and that the Department felt, as I am sure the Minister will confirm, that doing so would have brought an inevitable delay to the Bill.

The reason abstraction reform should be included, and the reason I welcome this group of Lords amendments, is that the current system of managing abstraction of water from rivers and aquifers was introduced in the 1960s and is woefully out of date. It does not effectively address the severity of pressures on water resources due to increasing demands from a growing population and an increasingly varied climate. The Environment Agency has mentioned that in a number of areas, including my own, it cannot, for understandable reasons, afford the upkeep of existing flood defence banks. Farm land in those areas will be prone to future floods.

Water from rivers and aquifers has many uses, and there is a fine balance between industrial and non-industrial use. I visited the constituency of my hon. Friend the Member for Witham (Priti Patel), which I had the privilege of representing as an MEP for 10 years, to see the difficulties that many industrial users such as jam manufacturers and others experienced in a climate that they were not used to. Essex has on occasions been compared to Egypt in respect of the amount of water fall that it receives. The weakness in the current system means that it could start to constrain economic growth, reduce the resilience of the water supply and lead to environmental damage.

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[Angela Smith]

As the Minister has explained, this group of amendments relate, to the provisions in the Bill on flood reinsurance. Again, we will support the amendments, which we believe have materialised primarily because of pressure from a wide range of Members in the other place and from the official Opposition. However, we believe that more could have been done.

In many ways, this is yet another example of a missed opportunity to produce effective and robust legislation. We support the Flood Re scheme and believe that it is important that affordable cover is made available for those who are struggling and are at greatest risk from future floods. It is also important that the policy should be underpinned by the principle of minimal impact on wider bill payers, so it is important that the levy agreed between the Government and the industry remains equivalent to about £10.50 for each UK household with both buildings and contents insurance in place.

We also welcome the fact that Flood Re is designed to be progressive, with the benefits targeted on lower income households, but we are disappointed that the Government could not support Labour’s amendment in the other place, which would have at least enabled parliamentarians to shine a light on the potential problems created by the arrangements for leasehold and tenanted properties. As Lord Whitty pointed out, there are complicated qualifying or excluding conditions surrounding the ownership and occupation rules under the scheme.

The rules could also have an impact on the private rented market, as there is a fear that single property landlords, for instance, might find that their exclusion from the scheme means that the cost of insurance eats away at their capacity to invest in their properties. As Lord Whitty pointed out, the consequence could be increasing levels of dilapidated housing stock with potential impacts at a neighbourhood level. The only option that might be open to the landlord to raise funds for improvements could be to raise rents or the service charge, so tenants might suffer indirectly as a consequence of being excluded from the Flood Re scheme. The risk is clear: the number of new landlords prepared to invest and buy property will diminish in the areas that are affected. Given the housing crisis facing the country, that is not a welcome prospect.

Although we recognise that the actuarial calculations for Flood Re are delicate and depend on various assumptions, we feel it is important that Parliament understand, the position. Labour’s amendment would address that by ensuring that a report was made available so that Parliament could see for itself the consequences of including or excluding different combinations of property before taking the Flood Re scheme forward via statutory instrument.

We also feel that the Government have failed to grasp the importance of using reliable scientific evidence on the potential impact of climate change when making estimates of the current and projected number of properties eligible for inclusion in the Flood Re scheme. That is perhaps not surprising, given that the Secretary of State has been known before now to deny the reality of climate change, but the threat, as most of us agree, is real and we need to be sure that the scheme will operate effectively within its 25-year span and will be adaptable to weather conditions resulting from climate change. If they are to adapt effectively, it is crucial that households can access information that identifies current and projected estimates of the number of people eligible for the scheme.

It is entirely sensible that we should seek the advice of the Committee on Climate Change to inform as accurately as possible our calculations on the challenges that the Flood Re scheme will face over time. Only then can households truly take the necessary action to minimise risk. The Government have tabled amendments providing information on transitioning from Flood Re to risk-reflective pricing, which Labour has been arguing for throughout the passage of the Bill.

Flood Re cannot operate on a static basis. It needs to respond to changing weather patterns, and we continue to believe that the Secretary of State should take advice from a credible expert source. Lord Krebs, chair of the adaptation sub-committee, has indicated that he would be willing to take on that role. However, our amendments, along with others on access to the national database and the right to appeal, were not accepted by the Government. We think that is short-sighted, but we support the amendments in this group and will continue to engage positively on this important issue.

[Miss McIntosh]

When we took evidence on the insurance aspects of the Bill during the Select Committee’s scrutiny stages, we were told that the package on Flood Re stood as a whole and that we could not consider any exceptions—not small businesses or leaseholders, or anything else, and certainly not band H. I hope that my hon. Friend the Minister will permit me a wry smile as I see that some of those exceptions have been included.

I hope that my hon. Friend will clarify the position on leaseholders. I—like many others, I am sure—have been contacted by constituents asking me to consider the implications for an owner who buys a leasehold property, as my constituents did in their block of flats. Apparently, the cost under Flood Re of the flood insurance alone will run to thousands of pounds, which they cannot afford and which they believe will affect their ability to resell those properties. I would be grateful for an explanation of where we are on that.

I understand that my noble Friend Lord de Mauley confirmed in the other place that domestic contents policies will be available to all under Flood Re, regardless of whether the properties are leasehold or freehold, rented or owned-occupied, except for properties in band H and those built since 1 January 2009. I have seen on many of my flood visits around the country that tenants on low incomes are often the first not to take out an insurance policy for their contents. The cost is therefore greater when they have to replace many of their possessions, some of which are of course priceless and cannot be replaced. Will domestic contents policies indeed be available to all?

Will my hon. Friend the Minister confirm the intention behind the exception for band H properties? It seems bizarre. We are going to exclude from Flood Re leaseholders who are perhaps on lower incomes and often in smaller, more affordable properties, but people in band H tend to be wealthier and in a better position to afford insurance. I want to understand the situation so I can explain to my constituents why these exceptions have been considered.

I know that the date of 1 January 2009 was taken as the benchmark, but did the Department ever look closely at why that was a good date to choose? With hindsight, should it perhaps have been 1 January 2012 or 1 January 2013, when we first began closely to scrutinise these issues through the proposals from the Department and the work of the Select Committee and others in this place?

It would also be helpful to understand the position for small businesses, particularly farms. If the farmhouse itself has been flooded, will that be covered in the provisions of Flood Re?