Thames Tideway Tunnel
Baroness Parminter Excerpts(10 years, 5 months ago)
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Lord De Mauley
My Lords, yes. I am grateful to the noble Lord, not only for his question but for the very valuable work that he does, which we all know about. We are required to have a collecting and treatment system for London. Exceptions on grounds of cost have to be truly exceptional, and this project does not qualify as exceptional. The environmental standards that have been set are equivalent to those in other tidal estuaries. I am therefore confident that the tunnel is the right solution for London, and the only solution compliant with the urban wastewater treatment directive. However, I assure noble Lords that we remain completely focused on keeping costs to a minimum.
Baroness Parminter (LD)
My Lords, the Government have offered contingent financial support for exceptional risks on this project. Following discussions with Infrastructure UK, Thames Water and Ofwat, is the Minister in a position to say what those exceptional risks and the potential cost to the taxpayer are?
Lord De Mauley
My Lords, we are still working on that, but I thank my noble friend for the opportunity to say that independent financial advisers have confirmed that no water company—whatever its financial structure—would have been able to access sufficient finance at an acceptable cost for such an exceptionally large and complex project without some contingent support from government. It is important that, when offering contingent support, taxpayers’ interests remain a top priority and that the taxpayer is appropriately protected by measures that minimise the likelihood of these exceptional risks.
Water Bill
Baroness Parminter Excerpts(10 years, 7 months ago)
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Baroness Parminter (LD)
I rise to speak to Amendment 13, which is in this group. It is tabled in my name and that of my noble friends Lady Bakewell of Hardington Mandeville and Lord Marks of Henley-on-Thames.
I think my views on retail exit are well known in this House. I am not in principle against it, but I have concerns that it is a complex issue and therefore one should not legislate in haste. The amendments the Government have introduced today, at this late stage, give broad-ranging powers to the Secretary of State to implement changes to allow voluntary retail exit from the non-household market. Given the nature of these powers and the need to get the details of retail exit right, I believe the fullest consultation and parliamentary scrutiny are required. Only this will ensure that retail exit is introduced in a way which delivers improvements in services to all customers.
The Delegated Powers and Regulatory Reform Committee argued yesterday that,
“the opportunity for discussion in Parliament of the extent of the powers and the manner in which they are likely to be exercised has been seriously curtailed”.
It went on to argue that,
“the powers to make exit regulations should require a strengthened affirmative procedure on their first exercise”,
and outlined what procedure it had in mind for that. I agree with the committee. My amendment does what it called for yesterday, which the Government sadly chose not to table.
Why is this important? It is because we need wide stakeholder engagement and strong parliamentary scrutiny to ensure that the real concerns about retail exit can be addressed and taken into account. It is because we need to make sure that retail exit proposals protect the rights of customers, both affected non-household customers and household customers who remain with incumbent providers who cannot divest them. Given that the retail exit is for business customers only, householders could be left with a water company that has signalled a lack of interest in providing customer services. We must ensure a good level of service for effectively stranded customers. As it stands, water companies take ownership of the provision of clean drinking water from source to tap and plan with their customers to deliver that efficiently and safely. Aggregating water retail apart from water provision means we will not necessarily have water providers working with retailers to help customers manage water efficiently. Major water-saving initiatives have been driven by robust planning by water companies which know the supply constraints and want to work with customers through their retail operation to manage that supply for the long term. We need to ensure retail exit is not done in such a way as to hinder that incredibly valuable objective.
Let us also not forget that there is no consensus in the water industry that retail exit is the best way forward, as Water UK makes clear. Indeed, the only vocal advocate among water companies is Thames Water, or more precisely Macquarie, which is one of Thames Water’s major investors. The paper it produced is about selling off customers to extract maximum value for its investors. That blatant self-interest is in stark contrast to the needs of those investing in the industry for the long term. They want stability in the sense of predictability, no surprises and carefully thought-through, outcome-based, long-term logic. We need to ensure that retail exit is done in such a way as not to unsettle the wider investment community whose investment we need to deliver long-term water resilience.
The Government’s amendments show that they are alive to these concerns. For example, they propose a requirement to consult customers prior to an application to exit, and an application can be refused on the grounds that it is not in the interest of household or non-household customers. Equally, the Government are proposing further dialogue with the industry, regulators, customers and others in advance of laying a proposed regulatory framework before Parliament, and a consultation is proposed later this year. This is all welcome, but it does not go far enough. We need a process with full consultation and then the opportunity for Parliament to scrutinise any draft proposals before regulations are put to the House, at which point they cannot be amended.
My amendment would deliver what the Delegated Powers Committee asked for and ensure that any proposed framework for non-household retail exit receives the widest consultation and full parliamentary scrutiny. That way we can be sure that retail exit improves customer service, gives investors confidence and delivers the long-term water resilience we need.
Lord Marks of Henley-on-Thames (LD)
My Lords, I support Amendment 13, which was spoken to by my noble friend Lady Parminter and to which I have added my name. I do so as a member of the Delegated Powers and Regulatory Reform Committee of which the noble Lord, Lord Haskel, who has already spoken, is also a member—other members are in their places today—to explain why that committee takes the strong view that a strengthened procedure, often called the super-affirmative resolution procedure, is important, at least on first exercise in the case of these regulations.
The context in which these amendments fall to be considered is that they are a wide-ranging set of amendments which represent a radical change of direction in the Bill. The Bill itself introduces considerable change in the way that the water industry operates, that industry being of great importance to the UK economy as a whole and to individuals. Although these amendments on retail exit are concerned with non-household supplies, as my noble friend has already stated, they are nevertheless of wide public importance.
The noble Lords, Lord De Mauley and Lord Moynihan, and my noble friend Lady Parminter have all explained the political context and impact of these amendments. I will confine what I say to the three reasons why a strengthened procedure is so important. First, there has been very limited time for the consideration of this scheme as a whole, as the noble Lord, Lord De Mauley, frankly recognised. The amendments are introduced in this House at Third Reading in response to amendments introduced earlier, notably by the noble Lords, Lord Moynihan, Lord Whitty and Lord Grantchester. However, in legislative terms, the amendments come, in this House at least, not even at the 11th hour: it is a minute to midnight. It is not, I suggest, satisfactory, and it is certainly not desirable, for nearly 11 pages of amendments to be introduced at such a late stage in the passage of the Bill without the time for lengthy and informed scrutiny of the detail of the proposed scheme. The amendments are complex and demand detailed scrutiny after all interested parties have had ample opportunity to consider them and to comment on them. The timing of their introduction has simply not permitted this to happen and the use of a simple affirmative procedure, as is proposed, would be likely to lead to a draft set of exit regulations being laid before Parliament for approval in unamendable form.
Secondly, quite regardless of the issue of timing, this is, I suggest, a case for a super-affirmative procedure in any event. The amendments would introduce into the Bill the power to make regulations which would effectively amount to an entire new legal framework to enable relevant undertakers to withdraw from the new market arrangements. If those provisions become part of the Bill without a super-affirmative procedure, then Parliament will have, as your Lordships well know, no opportunity to consider and report on the individual details of the proposed regulations and, in practical terms, no opportunity to invite detailed revision of their provisions. With the super-affirmative procedure set out in our amendment, there will be an opportunity for a committee of either House to consider the draft regulations in detail and to recommend changes to the draft for the Secretary of State to consider. The procedure proposed is similar to that in Section 102 of the Local Transport Act 2008, which the Delegated Powers and Regulatory Reform Committee recommended as a model. There is no rush to introduce these exit regulations, particularly not when they are potentially of such importance. They should not be the subject of delegated legislation without a full opportunity for Parliament to consider their detail.
Thirdly—this was touched on by the noble Lord, Lord Haskel—our committee was extremely concerned by the degree to which the amendments establish, not a list of requirements to which the Secretary of State must adhere in presenting the regulations, but a menu from which he can largely pick and choose at will. I have no objection to the fact that the power to make regulations in the first place, in subsection (1)(a) of the new clause proposed in Amendment 1, is permissive and not mandatory. It may be that the Secretary of State decides against exercising the power to make such regulations at all, although that is of course unlikely. However, if he makes such regulations, it is surely right that he should be required to incorporate all the safeguards of which the noble Lord, Lord De Mauley, spoke, which are essential to protect customers, to ensure proper consultation with interested parties, to safeguard the public interest and to secure appropriate parliamentary scrutiny. Yet the amendments as drafted are almost entirely permissive in respect of such matters.
I will trespass on your Lordships’ time for a moment or two to look at a couple of examples. Amendment 1 provides that exit regulations,
“may include provision for protecting customers”,
affected by a relevant undertaker’s withdrawal. Amendment 2 provides that:
“Provision under subsection (1)(a) may require a relevant undertaker … to consult”.
Amendment 4 states that:
“Exit regulations about the transfer of a part of a relevant undertaker’s undertaking may include provision for the making of a scheme to transfer property”.
These are all matters on which this House would wish to be given the opportunity for detailed consideration.
General directions are of general application. I will address two points on Amendment 9. Subsection (1) states:
“Exit regulations may make provision for the Secretary of State to publish … a statement setting out general directions for the”,
regulators. Subsection (4) states:
“Exit regulations may make provision for the Secretary of State, before publishing a statement under the regulations, to consult”.
These are all matters which I would expect, and I suggest your Lordships would expect, to be requirements. They are matters which concerned the Delegated Powers and Regulatory Reform Committee. The list goes on. The central point is that it is vital for Parliament to have the opportunity to consider the proposed exit regulations individually and to recommend changes to particular regulations before they become law without being restricted by the limitation inherent in a simple affirmative resolution procedure.
Baroness Parminter
Baroness Parminter
My Lords, the noble Lord, Lord Krebs, and I return again to the issue of the use of any surplus reserves for Flood Re. I will not repeat the arguments we advanced in Committee and on Report. I feel that the House is clear that our aim is to ensure that any significant surplus funds can be used by Flood Re to encourage householders to adapt to the impacts of climate change and flooding, and so manage down risk.
I am grateful to the Minister for meeting the noble Lord, Lords Krebs, and me last week to discuss the matter again. We accept that decisions cannot be made now—pinning down in legislation what level of reserves should be built up and what should happen to them. However, we need clarity about the decision-making process that will condition what happens to surplus funds. Will the Minister confirm that Flood Re will have to draw up a strategy to manage surplus funds and that it will be published? Equally, we seek confirmation that the approach of “invest to save” is not ruled out if significant surpluses are built up. By this I mean spending on property-level protection where the economics of that approach show that it delivers the best value for money in managing down risk. Given that it has been shown that such an approach delivers a benefit of at least £5 for each £1 invested, it is too important an approach to discount. It could make a decisive difference to individual householders and their protection. It will also benefit the insurance industry by reducing the level of overall claims. It is, therefore, in the interests of a smooth transition at the end of the process of Flood Re. To that end, I beg to move.
Lord Krebs (CB)
My Lords, I, too, thank the Minister for meeting the noble Baroness, Lady Parminter, and me to discuss this amendment. I do not wish to say anything at length but I shall make a couple of simple points. If we accept that Flood Re, according to the Government’s own figures, will build up a reserve, we can ask what this surplus might be used for. It could be used for future discounting of policy charges; it could be saved up for—excuse the pun—a rainy day when the call on insurance may be greater than anticipated; or, as our amendment suggests, it could be used to manage down future risk. As the noble Baroness, Lady Parminter, said, this is in effect a proposal that Flood Re should invest to save, to reduce both its own future costs by encouraging household-level protection measures and to help those householders to exit at the end of the period of operation of Flood Re.
According to the work of the Adaptation Sub-Committee of the Committee on Climate Change, which I chair, about 190,000 properties could benefit from property-level protection. It would seem reasonable that some of the money that accrues as a surplus in Flood Re should, given the returns on investment to which the noble Baroness has already alluded, be used to help some or, I hope, eventually, all of these 190,000 properties to become more resilient.
Baroness Parminter
I thank all noble Lords who have joined in this short but important debate as we seek to ensure that Flood Re achieves what we all want it to achieve, which is to help individual households move towards risk-reflective pricing and make them more able to cope with the challenges of climate change, as most clearly reflected in the flooding situations that we have seen. I listened carefully to what the Minister had to say and was pleased to see that he again articulated that “spend to save” is not ruled out in the administration of Flood Re and, secondly, that any secondary legislation will set out that it is open to Flood Re to spend any surplus helping households invest in more resilience measures. Those are both important steps which needed putting on the record. I think both I and the noble Lord, Lord Krebs, will be very grateful and thankful for that comment.
On that basis, we have probably pushed this issue as far as we can. We have sought throughout the process to be helpful to the Government in their ongoing discussions with the ABI, and I hope they feel that we have achieved that. We look forward, once the Bill has completed its parliamentary stages and secured state aid clearance, to looking at the secondary legislation, where I am sure this matter will be touched on again. Finally, as this will probably be the last time I speak on this matter in the House, I would very much like to put on record my thanks to the Minister and the Bill team for all the constructive discussions and dialogues they have had with me and my colleagues on these Benches. It has been an extremely technical and complex Bill and we are grateful to them for the time that they have given to help us in our job of making sure that the Bill leaves this House in better shape than that in which it came to us.
Water Bill
Baroness Parminter Excerpts(10 years, 7 months ago)
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Lord Shipley (LD)
My Lords, on the face of it this seems a reasonable amendment and I agree with much of what has been said in the two contributions so far. The issue is actually a very specific one around the financial resilience of companies engaged in fracking. Some of these companies may be small and as a consequence of that it is very important that their financial resilience is clearly demonstrated. We already have onshore drilling in the United Kingdom so the question is whether existing regulations impacting on those operations suffice in the case of the introduction of horizontal fracturing or shale gas.
I seek the Minister’s confirmation that the Department of Energy and Climate Change already requires operators to have the financial resources to meet any liabilities, including prevention of contamination. I think that in Committee we were informed that a fund was to be created to guarantee financial sufficiency and long-term cover in the event that a company ceases trading. We have to be clear what problem this amendment seeks to solve, partly because the UK regulatory system seems to be much stronger than the regulatory system in the United States, although the US environment has been made much more robust in recent years.
I understand that our regulations are already very tough and the use of hazardous chemicals is not permitted. Can the Minister confirm this and that the statement made in Committee that the regulatory framework would be further enhanced would meet any concern that this amendment addresses?
There are three issues around water. First, there is the composition of the fracturing liquid. I understand that it already requires the approval of the Environment Agency. Can the Minister confirm that? Secondly, there are ways in which water can be contaminated. There is ground-water contamination by hydraulic fracturing, not least from poor-quality well casing. Anything that leaks out might contaminate ground-water if it can rise to the point where the ground-water is. Methane might rise into ground-water from lower down as a consequence of hydraulic fracturing. Thirdly, there is wastewater. I understand that even at the high end of shale gas extraction, it would amount to only 3% of the annual wastewater rate because extraction industries and others produce wastewater. Are the existing regulatory requirements around the handling of wastewater sufficient?
The critical element this amendment relates to is the financial resilience of the companies. Almost certainly, a number of companies that undertake shale gas fracking in the foreseeable future might not be in existence in, say, 30 years. What will be done to create a fund through pooling to enable that financial resilience to be demonstrated?
Baroness Parminter (LD)
My Lords, ensuring we have the right regulatory framework and the financial means to deal with the potential environmental impacts of fracking are important issues and therefore I most sincerely thank the noble Lord, Lord Whitty, for raising this matter again.
In Committee, the Minister outlined the steps being taken to address the low-probability, but high-risk, scenario of a pollution incident. My noble friend Lord Shipley referred to the Minister’s response, which was that the Government and the industry are looking to put a scheme in place, and I am sure that we all look forward to hearing further news about that in the Minister’s remarks this afternoon.
We need tight regulation of fracking by the Environment Agency, the HSE and local planning authorities, but of all the impacts of fracking, not just the impacts resulting from increased pressure on water supplies or their potential contamination. In Committee, the Minister confirmed that the regulatory framework will be,
“reviewed and refined as appropriate as we move towards the production phase”.—[Official Report, 11/2/14; col. 543.]
We need a holistic view of the environmental impacts of fracking, not just of its impacts on water supplies, important though they are, and I therefore cannot support this amendment. I certainly hope the Minister will give assurances that there will be full parliamentary scrutiny of any proposed changes to the existing regulatory framework for fracking.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, Amendment 88ZA, which was moved by the noble Lord, Lord Whitty, would require onshore oil and gas operators to provide financial security when applying for an environmental permit so that funds would be available to deal with any water pollution incidents caused by the operator. The amendment relates to both the conventional and so-called unconventional, or alternative, oil and gas sectors. It would address any pollution that an operator might cause to the water environment but not, I stress, any other damage that might be caused by their activities. The same amendment was raised in Committee by the noble Lord, Lord Whitty, and was withdrawn in the light of information that I provided on our plans to address any wider environmental risks by developing a scheme to ensure that the polluter will be liable in the event of a pollution incident and that there will be sufficient funds available to cover the costs.
I reiterate that the proposed amendment would also apply to, and have implications for, our well established UK conventional onshore oil and gas industry, an industry which, over many years, has maintained a good record of environmental responsibility and competence that has enabled it to co-exist with, and provide employment for, many. Our existing regulatory framework and the application of good operational practice have served us well to prevent pollution from onshore oil and gas activities and to tackle any problems that emerge in an appropriate way. These same controls will provide the basis for the regulatory framework for any new developments in the oil and gas sector to ensure that the environment continues to be appropriately protected. I shall come back to that in a moment.
As part of the licensing process, and prior to awarding a licence, the Department of Energy and Climate Change assesses whether a company has sufficient funding for its planned operations. DECC also checks at the drilling and, where relevant, production stage that the company has appropriate insurance. Similar financial competence checks are carried out by the Environment Agency as part of the permitting process. In this way, we ensure that the companies have the necessary resources needed to back their operations.
Our regulatory framework is underpinned by a robust range of enforcement powers, which are available to the Environment Agency. This includes powers under the Environmental Damage (Prevention and Remediation) Regulations 2009, which in the event of serious damage to surface waters or ground-water will enable it to require the polluter to pay to clear up the pollution. Ultimately, if a significant environmental risk becomes apparent, the Environment Agency has the authority to stop the activity. These powers apply to a wide range of activities undertaken by different industries, so I do not think that it would be justified to create any specific provisions for the onshore oil and gas industry.
However, the Government are very aware of the public’s concerns about the capacity of companies exploring for shale gas to address any liabilities that may arise. As I mentioned in Committee, this issue is being looked at as part of a wider review. DECC and the shale gas industry are working together to put in place a robust scheme that would cover environmental liabilities, even if the relevant operator is no longer in business. They are discussing with leading insurers to build expertise and capacity in the insurance market. The aim is to facilitate the development of products appropriate for shale gas and similar operations, which, in turn, could facilitate the development of an industry-wide scheme. As I explained, these discussions will take time, as we need to ensure that we get this right first time.
The amendment proposed by the noble Lord, Lord Whitty, is quite specific, but perhaps I could just talk more broadly for a moment. As I have just mentioned, and noble Lords have mentioned in their speeches, there are understandable concerns about this whole area of exploration and production. The noble Lord, Lord Cameron, referred to the need to bring the public with us—and he is absolutely right. The Government are clear that we must take all appropriate measures to ensure human safety and protection of the environment. The United Kingdom has more than 50 years’ experience of regulating the onshore oil and gas industry, and we have a robust regulatory system in place to ensure that operations are carried out to high standards of safety and environmental protection.
I can assure noble Lords that the Government will allow production of shale gas to proceed only where it can be done without compromising human health or the environment. We are therefore undertaking a very careful assessment of our existing policy and regulatory framework to ensure that it is fit for purpose, as we move towards the production phase. It is not just about fracking—a process used to extract oil and gas from rock—which has been safely employed in the United Kingdom and elsewhere for many years.
Any changes to regulations that we believe are necessary following this consideration would of course be subject to parliamentary scrutiny. Parliament is also using its other mechanisms of scrutiny, including the significant inquiry into the potential impacts of shale gas being conducted by your Lordships’ Committee on Economic Affairs, which I understand is due to report soon and whose conclusions we will of course consider carefully. A couple of weeks ago, on 17 March, my noble friend Lady Verma spoke for the Government in a short debate on shale gas initiated by my noble friend Lord Borwick. Noble Lords may wish to note also that this debate is occurring simultaneously at EU level, as the noble Lord, Lord Cameron, said, and that debate will reach its own conclusions in due course.
Lord Campbell-Savours (Lab)
My Lords, as in Committee, I need to declare an interest in that I have a leasehold interest, with my wife, in a band G home on the Thames built on the flood plain. My flat is not threatened by flooding, has never been flooded and can never flood because it is on the second floor, and the whole of the south of England would have to be flooded before we were. Nevertheless, I have to report that a car park area that serves our block of flats was recently subjected to some flooding, and it is with that in mind that I feel that I should restrict my comments today and limit what I have to say, and I will not be voting on the issue.
All I want to do today, without commenting on the issue in the light of what has happened, is to read a letter which has been sent to my noble friend Lord Whitty, the noble Earl, Lord Lytton, the noble Baroness, Lady Bakewell of Hardington Mandeville, Mr Owen Paterson MP and Ms Anne McIntosh MP, who I understand is the chairman of the Select Committee in the House of Commons. I simply want to read the letter, which the Minister has seen, because I think that it should be on the record so that all those in the industry outside can read what it says.
The letter is from a Mrs Beverley Morris of Topcliffe Mill, Topcliffe, Thirsk in North Yorkshire, and she has given me permission to read it. Part of it states:
“If I may give a brief summary of our current situation to further expand upon our current predicament.
This building, known as Topcliffe Mill (Mews), and built as a water powered corn mill circa 1800, was subject to a ‘once in 100 hundred year’ flood on 26th September 2012. Apartments 1, 2 and 3 on the ground floor were flooded along with 2 communal areas. Three houses in the same location behind the Mill were also flooded”.
Here we are talking about a leasehold property.
“Much of the North East was flooded during this period and Topcliffe Mill was ‘sandwiched’ between the swollen River Swale to the front of the building and the saturation of the fields to the rear.
Topcliffe Mill building insurance policy is purchased by a small management company, Town & County Properties (Wharfedale) Ltd and the premium (pre flood) was just shy of £5,000 for the year 2012, divided between the 12 homes. Post flood and following the claim, the renewal premium was and continues this year at £23,750 divided between the 12 homes, an increase of almost 500% per home. My husband and I are now paying £2,000 per year for a Band C, 4th floor”—
fourth-floor—
“domestic flat that we have made our home for the past 10 years. As we are not in a position to pay this amount up front and on demand, arrangements have been made to pay by instalment, which in itself incurs extra charges.
The ABI are offering assurances that ‘there is no systematic problem with freeholders being able to obtain insurance for their leasehold properties’. Our management company, have indeed secured building insurance, as I understand they are legally required to do, but at what price? The insurance companies, who know this, have our management company and us over a barrel it seems.
T & C Properties Ltd had their agent, J M Glendinning of Guisley in Leeds thoroughly search the insurance market for a better deal and it was to no avail. As owners, we took on the challenge of checking out the markets ourselves and if required we can supply documentary evidence of refusals, although many refused point bank on the telephone to even consider it. Our management company and their agents are also prepared to lend their testament to the situation we find ourselves in. I am at a loss to see how this scenario fits with the ABI’s explanation either now or in the future if leaseholders are excluded.
Referring again to the Food and Rural Affairs Committee meeting 11th March 2014, Ms McIntosh discussed with Aiden Kerr the issue of SME exclusion from Flood Re. He gave his explanation stating that Flood Re ‘is limited to households’. As we are not an SME but a collection of households, it begs the question, does being a leasehold define us as not a household?
During the session 11 February 2014 you drew attention to the services of the Financial Ombudsman Service. We, however, have no recourse to them to make any complaint into the risk assessment that led to our mighty high renewal premium and nor will we in the future, because the policy is not in the name of the domestic leaseholder. Would the management company complain on our behalf? Doubtful, since they are not financially affected, transferring all the associated charges directly on to the leaseholder …
The notion that one might sell up and move on, being unable to meet the management fees is something of a forlorn hope. Everyone is aware of how property values have fallen and the North East of England is not experiencing the same improvement to values as the south. Add to this a history of flood— albeit the first in 100 years. The financial security of our household stands to be jeopardised, in terms of our ability to meet mortgage payments due to over stretched resources and/or the ability to secure reasonable flood insurance.
The opportunity to afford us the same level of assistance being offered to freeholders is likely to slip by if we are not included in the Flood Re scheme. Given that the decision to have a cap in place in the medium term has been taken, I feel it only fair and just that leaseholder homes are included”.
As I said, my position has changed since the last time I debated these matters, but that testimony is from someone who is directly affected, and a five-times premium increase in the north of England on a band C flat on the fourth floor of a block of flats is something that Ministers should seriously think about. Indeed, I would have thought that Parliament would have addressed that problem.
Baroness Parminter
My Lords, the aim of Flood Re is to support people at the highest risk of flooding who would struggle to find affordable insurance on the open market. The way in which it is funded, as the noble Earl, Lord Lytton, has reminded us, is via a levy to provide a funding pool to use for the purposes of the scheme. Many contributors are likely to be at a low or no risk of flooding, but this approach spreads the risks across a large population to make it more affordable.
The question that we are trying to address here is whether it is fair to include specifically band H council-tax and post-2009-built homes—I am not going to address leaseholders because, as other noble Lords have mentioned, we are going to come back to this with an amendment from the noble Lords, Lord Whitty and Lord Grantchester. There will be a small number of asset-rich but income-poor in band H houses. In Committee in this House, the Minister confirmed that 0.5% of such households are in the five lowest-income deciles, or 45 properties in flood risk areas.
A letter to the Committee in the other place from the Parliamentary Under-Secretary Dan Rogerson on 10 December 2013 confirmed that the cost to add band H houses to the scheme would be between about £1.4 million to £5.4 million, funded by an increase of up to 3% in the levy paid by all householders. Given that small number of asset-rich but income-poor, and the high cost to add these to the scheme, I do not support their inclusion in Flood Re—indeed, it would be a regressive measure—but I would certainly hope that lead local flood authorities will target some of their funding to address the impacts on vulnerable elderly people in their areas. Targeted mitigation of the impacts of this exclusion would be a far better approach and, as the noble Lord, Lord Campbell-Savours, said, is supported by the National Flood Forum.
Houses built post-2009 were excluded by the previous Administration from the statement of principles, which preceded Flood Re—the reason being that, with strong planning policies in place, such homes should have been properly assessed for flood risk. Equally, the date as set was important to avoid incentivising development in areas of flood risk. I accept that that is not perfect, but the exclusion of post-2009 from the band H properties was widely consulted on by the Government last year in advance of drawing up these proposals and was broadly supported. Hundreds of thousands of homes will benefit from Flood Re and, frankly, we need to get on with it. I am satisfied that this approach is fair and targeted at those most in need, and with regret I therefore will not be supporting the amendment.
Baroness Parminter
Baroness Parminter (LD)
My Lords, the aim of Flood Re is to provide affordable insurance for flooding and to transition to risk-reflective pricing. If a surplus of funds were built up, that could help to manage flood risk down by encouraging householders to adapt to the impacts of climate change and flooding.
Funding for Flood Re will be via a levy, set as part of the five-yearly review by government. The Bill makes clear what would happen if there was a deficit—namely, a further levy on the insurance companies—but it does not make clear what would happen if a significant surplus built up. In Committee I outlined the potential, on the basis of the Government’s own figures, that at the end of year 1 it could have at least £100 million in reserves. In the early years, the aim would be to build this figure up to meet potential claims. The maximum reserves that Flood Re should need in any one year, after paying for reinsurance and administration, is an amount equal to the reinsurance policy threshold. This is due to be £250 million. If there is a sizeable flood during the lifetime of Flood Re it will need to pay the first £250 million, with the rest paid for by a claim on the reinsurance policy. It will then need to build up the reserve again the following year.
Ministers and insurers may well want to build up a slightly higher reserve in order to protect against a possible deficit if there are two bad years in a row, so there may be no surplus, as my noble friend Lord Cathcart rightly pointed out in Committee. Over the lifetime of the scheme, though, there may be a build-up of reserves if there are fewer claims than anticipated. Given that the ABI is now saying that the number of households it expects to be underwritten by Flood Re is 350,000 rather than the original figure of 500,000, which was the basis of the Government’s impact assessment, that is certainly possible. The ABI made it quite clear to me that its intention was for any surplus to be returned to ABI members. We need to ensure that Flood Re does not inadvertently lead to insurers profiteering from excess levy income being returned to them. It may not be passed back to customers automatically but could lead to a reduction in the future levy on bills. It would be better for the levy to be reduced in advance if a reasonable reserve has already been built up or, better still, for the excess to be spent on managing down the flood risk. I am envisaging paying not for flood defences but for things like grants to low-income households for home flood protection measures. I would not want to pin down in detail in this legislation what levels of surplus of reserves Flood Re should be able to build up or what will happen in those circumstances but a marker needs to be put down that, if significant reserves are secured, such reserves may be used to incentivise Flood Re policyholders to fund household resilience measures.
This amendment, which I am glad to say has the support of the noble Lord, Lord Krebs, allows this issue to be explored by the Government and Flood Re administrators during their five-yearly review of the scheme. It gives flexibility but encourages managing down flood risk if, and only if, significant surpluses are built up. I beg to move.
Lord Krebs
My Lords, as the noble Baroness, Lady Parminter, has said, this amendment is concerned with the possible surplus or cash reserves that Flood Re might build up. We have to recognise that although Flood Re is being designed as an integral part of the insurance industry it will be a public body spending public money and will operate on a not-for-profit basis. The noble Baroness, Lady Parminter, has indicated and the Government’s own figures suggest that there might be reserves of more than £100 million after one year. If that surplus exceeds the amount that is required to cover claims in any one year—again, the noble Baroness indicated a figure of £250 million—it would seem perfectly reasonable for that money to be used to manage down Flood Re’s own exposure to future claims and it could do so in a highly cost-effective way. This is about value for money. One estimate is that £4,000 spent on a property could prevent a number of claims on Flood Re averaging £45,000 a time, so the return on investment is going to be enormous.
The adaptation sub-committee which I chair has estimated that there are 190,000 properties in England where fitting flood-protection measures would be cost-effective, but progress in fitting them at household level has been very slow. In fact, the rate of uptake would need to increase by a factor of 20 to fit all such measures within the lifetime of Flood Re. This amendment recognises the potential to do more to protect high-risk households and the opportunity that the surplus reserves might represent. Investing in resilience now would leave high-risk households better able to afford flood insurance once Flood Re has withdrawn and, rather than adding to the cost of the levy, investing in this way promises to help minimise the costs of Flood Re over the lifetime of the policy.
Lord De Mauley
My Lords, I thank my noble friend Lady Parminter for her amendment, which deals with a very important subject. I thank all other noble Lords who spoke to it.
Actions taken by government, communities, individuals and businesses to reduce levels of flood risk are indeed the best and most cost-effective way to secure affordable insurance and value for money from Flood Re in the long term. In addition to the substantial levels of investment in flood defences that I referred to in an earlier debate today, we are also taking action to ensure that households are supported to improve their property-level resilience. For example, grants of up to £5,000 are available for households and businesses that have flooded this winter, and applications open tomorrow. In addition, there are community projects in which we are investing more than £4 million over two years in order to learn about the most effective strategies to drive community resilience to flooding. Nevertheless, I recognise my noble friend’s intention to see Flood Re’s role reflected in the Bill.
Reserves that build up during the lifetime of Flood Re will primarily be used to pay flood claims in the bad years. Flood events are by their nature unpredictable, so while it may be possible that Flood Re would have a number of good years in which it built up reserves, it is equally possible that a run of bad years with heavy flooding could wipe out any reserves built up within Flood Re. As such, it is not easy to identify surplus funds, and any decision about Flood Re’s reserves will need to involve judgment about the level of cover needed for the unpredictable risks it bears.
Added to this, as an authorised re-insurer, Flood Re will be required by the Prudential Regulation Authority to hold certain minimum levels of capital. Any commitment by Flood Re to spend a certain portion of reserves in a certain way—for example, on betterment or resilience—would necessarily increase the amount of capital it is required to hold on an ongoing basis, having an impact on the cost of the scheme and ultimately the levy.
It may well be that, in due course, the Flood Re administrator decides that investments of the sort my noble friend would like to see present the best way of Flood Re fulfilling its obligations to manage the transition and act in the public interest. However, these are choices that are difficult to make before the scheme is established or has any sort of track record. Nothing in the Bill precludes this.
Alternatively, in due course, Flood Re may decide, in consultation with government, that the best use of any surplus is to reduce the level of the levy, thereby helping to deliver affordability for all policyholders, not just those in Flood Re. We would not, at this stage, wish to see Flood Re’s hands tied in legislation that could have an unpredictable and undesirable effect.
We have always been clear that there should be a gradual transition to more risk-reflective prices. We expect the transition plan to set out how Flood Re intends to support households to adapt to the withdrawal of support from Flood Re over time. We will not designate Flood Re unless we are satisfied with the industry’s proposals for the scheme, including the transition plan.
It is important for Flood Re to retain flexibility in the way it discharges its public interest duty and plans for transition in order to ensure that it is in a position to balance these requirements against its core financial obligations. However, my noble friend’s amendment draws attention to the need to offer more clarity about what might happen in the event that a surplus is accumulated, particularly in relation to managing the transition.
I should say that I have considerable sympathy for the points made by the noble Lord, Lord Campbell-Savours. I have first-hand experience of where exactly the type of sensible resilience measures he has suggested cost no more than putting things back exactly as they were before the flood so the insurance claim could cover them. He also referred to advice, which is clearly an important part of that. A number of sources of independent advice are available today. The National Flood Forum can direct flood victims to appropriate measures. Furthermore, we are continuing to discuss with the industry whether any of the reserves could be used to fund surveys.
As I have said, I am very grateful to my noble friend and the noble Lord, Lord Krebs, for bringing this to my attention. I would like to take the opportunity to discuss their proposals with them further before Third Reading. Although I cannot of course guarantee that I shall be able to bring something back, I may be able to clarify the Government’s position further. I hope that I can persuade my noble friend to withdraw her amendment.
Baroness Parminter
I thank the noble Lord, Lord Krebs, the noble Lord, Lord Campbell-Savours, and my noble friend Lord Shipley, for their support for this amendment. My noble friend Lord Cathcart suggested that I may have misunderstood the insurance industry. We all have our dirty secrets, and many noble Lords may think of me as a squeaky-clean campaigner, but I have to say that I have been employed in the City by Lloyd’s of London, so I do know a thing or two about insurance.
I accept the point made by the noble Lord, Lord Whitty, that the wording of the amendment may not be as clear as we would all hope to achieve to ensure that any surplus funds are used to manage down flood risk and help people to transition to a better place at the end of this temporary scheme. I hoped that it would be seen to be not prescriptive and unhelpful and I am very grateful again for the comments of my noble friend the Minister and for his kind offer of discussions with myself and the noble Lord, Lord Krebs, which we are both delighted to accept. We will return to this matter at Third Reading. On that basis, I beg leave to withdraw the amendment.
Water Bill
Baroness Parminter Excerpts(10 years, 7 months ago)
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Lord Grantchester (Lab)
My Lords, I declare my interests as a farmer, thereby living in a rural area. Like the noble Earl, Lord Selborne, I am concerned with the effects generally on rural areas. While there are risks, I am not sure that this is the case here. We support the introduction of competition into the non-domestic market and take the issue of de-averaging very seriously. The noble Lord, Lord Deben, has spoken about how we must, indeed, be assiduous in making sure that price averaging is maintained as far as possible. However, we are satisfied that Ofwat has all the necessary regulatory tools to enable it to limit the effects of de-averaging.
Competition can also be about bringing innovation to the market in services and introducing efficiencies. However, we remain concerned that these amendments, which have been tabled by the noble Earl, Lord Selborne, might allow incumbent suppliers to constrain the development of future markets, thereby reducing the benefits that competition could bring.
Baroness Parminter (LD)
My Lords, in welcoming the proposals to open up retail competition in the business sector, on Second Reading I, too, raised my concern, like other noble Lords, about the potential for the de-averaging of prices. Ensuring that rural or remote businesses do not pay more than their urban counterparts is vital. We need to share costs for water fairly, regardless of location.
In Committee, the Minister reassured the House that the regulator had the necessary tools to limit the effects of de-averaging on customer charges. Having talked to Ofwat myself, I know that it confirms that this is its belief. Equally, the Consumer Council for Water, which has the interests of water customers at its core, commissioned Martin Cave to review the issue, and he has confirmed that Ofwat can facilitate upstream competition without de-averaging.
The Government will be producing charging guidance to Ofwat, which the Minister confirmed will explicitly say that de-averaging can occur only where it is in the best interests of customers. This Bill provides Parliament with the opportunity to debate and vote on that charging guidance, following a consultation process, so that we have the necessary safeguards to ensure that it does. Not only will Ofwat have to act in accordance with such guidance, but the Consumer Council for Water will be a statutory consultee in the preparation of Ofwat’s charging rules. This seems to me to be a reasonable defence against the potential for de-averaging of water bills, particularly given that as a final resort the Government can veto Ofwat’s charging rules if they do not reflect the guidance given.
On that basis, I am satisfied with the assurances given by my noble friend the Minister, and I will not support the amendments tabled by my noble friend Lord Selborne.
Lord Whitty
My Lords, in moving Amendment 41 I will also comment on the government amendments in this group. I am pleased to see that the Government have at last recognised the importance of this issue and brought forward some amendments of their own. I will listen carefully to what the Minister says, but my first take on them is that, although they are very welcome, they are unclear in certain respects and do not yet go far enough.
This issue is one where economic and environmental regulation overlap. One of the central provisions of the Bill will allow and indeed encourage the eventual development of competitive markets, including in upstream water bulk supplies. That will not happen instantaneously—the Government have indicated that it will probably not happen until after 2020—but the legislation which will govern it happening is already the legal basis for that extension of competition into upstream areas. I am not opposed in principle to that, but there is a very basic problem. All competition, at least in the early stages, requires a surfeit of supply. However, difficult though it has been to believe over the past few weeks, there is a serious shortage of upstream water, in particular at key points in the summer. The level of water abstractions in the majority of our rivers in England—it rains rather more in Wales so I will confine this to England—is such that they have been overabstracted and at times are running dangerously low. This is the result in large part of overabstraction in the upstream areas and a shortage of water in the summer months. The reform of the abstraction regime has been talked about for a long time. Some limitation of abstraction rights is an essential prerequisite to introducing multiple suppliers with competition upstream.
Past legislation has given some powers to the Environment Agency and to the Welsh authorities in this respect, but most of the abstraction rights were embedded in the 1960s—so they are already 50 years old—at a point when there was much less concern about there being a limited supply of water. When the EA is carrying out its functions and rationalising, restricting and, in some cases, possibly taking away abstraction rights, that legislation requires compensation to be paid. That is paid out of the Environment Agency’s grant in aid and, in effect, out of Defra’s budget, so it has been very careful in using its powers. This Bill, rightly, makes one major step forward in removing from the water companies—which are the biggest, although not the only, abstracters—the right to such compensation. Although we note that the companies can, subject to Ofwat approval, recoup any loss from attenuation of abstraction rights by charging the consumer, this is a very welcome change as it means that the Environment Agency can be more aggressive in pursuing the restriction of abstraction rights in general, including those of water companies.
A further distortion and danger is that in many of the catchment areas, current abstraction rights are at a much higher level than the actual level of abstraction. Indeed, on average, 40% of the theoretical abstraction levels are actually drawn in most years. However, even with people taking up under half of their abstraction rights, several of our catchment areas are under severe pressure. If we have new entrants into the upstream area, some of that unused abstraction will undoubtedly, one way or another, be transferred to those new entrants. The logic is that we need a reformed abstraction regime, putting a cap on abstractions and allowing the restriction of or attaching conditions of time or place to the abstractions that are relevant to individual catchment areas. We need to do that before we introduce upstream competition.
It is clear from the amendments the Government have tabled that they recognise that. Indeed, the earlier Defra White Paper recognised that. Yet the Bill does not provide for any future legislation on abstraction reform as it does for upstream competition. The consequence of that is that if the Bill stays as it stands, even if the government amendments are adopted, we will be able to move to competition upstream, which would almost certainly have the consequence of greater use of dormant and underused abstraction rights and therefore more pressure on our catchments. It is true that in the very long run effective competition will lead to greater efficiency upstream, but the immediate effect of introducing competition would be more drawing-down and more abstractions, and there is no adequate limit on the totality of those in the abstraction regime as it stands.
Of course, Defra is currently consulting on changes to the abstraction regime. It is quite a good consultative paper, I have to say, although it was issued well after the Bill entered the parliamentary process. What I am trying to guard against is the possibility that down the line abstraction reform has not happened and yet the number of people using water upstream for commercial purposes has increased. The government amendments give some greater powers to the Environment Agency and the NRBW to check on this, and they institute a five-year delay, but the provisions are fairly weak.
It is not enough to consult with the regulators without giving them effective legislative backing for intervening and for restricting or putting qualifications on abstraction rights. That is why we say that reform should be in place and enforced before we move to introduce upstream competition. The government amendments and the five-year gap do not mean that abstraction legislation will be in place. They call for a report to Parliament. I do not want to be too cynical in your Lordships’ House but we know that plenty of reports to Parliament never actually see their way through to explicit legislation or regulation.
The department clearly recognises the problem and has been prepared to move a bit with the amendments in this group, all of which I can support, but they are necessary but not sufficient. The Government could say to me today that they will strengthen their approach and include a requirement to have legislation in place before the upstream competition provisions are triggered. They could still bring that forward at Third Reading. Indeed, that is probably the best way of proceeding. I hope the Minister will say that but in the mean time this is such a serious issue that I have to ask your Lordships to seriously consider my amendment. I beg to move.
Baroness Parminter
My Lords, along with a number of colleagues around the House, I raised serious concerns in Committee about the potential for environmental damage resulting from the upstream competition proposals being agreed in advance of reforming the water abstraction regime. I will not repeat those this afternoon. However, I am very pleased to say that the Government have clearly listened to our concerns and are proposing a number of significant amendments to address them.
First, the Government propose to report in 2019 on progress in reforming the water abstraction regime. The Government’s stated aim, following the publication of their consultation on abstraction reform last December —which the noble Lord, Lord Whitty, welcomed—is to legislate early in the next Parliament and implement abstraction reform in the early 2020s. The report will therefore give Parliament an opportunity to scrutinise the management of the interface between what should be by then the two pieces of legislation and their implementation. We can then seek to ensure that their implementation delivers the desired outcomes for both customers and the environment.
I am also grateful that specific concerns that I raised about sleeper licences and bulk trading were heard. The Government have introduced amendments to require Ofwat to consult the Environment Agency or Natural Resources Wales before they issue the codes on bulk supply agreements and before allowing a water supply agreement between relevant parties and incumbent water companies. Equally, relevant parties will be required to consult before entering into bulk supply agreements, and Ofwat will have to take into account any response from the Environment Agency or Natural Resources Wales. In that regard, I do not agree with the noble Lord on the Front Bench opposite that these government amendments are weak. I know from my conversations with Ofwat, which did not want the amendments to be tabled, that it most assuredly does not see them as weak.
In advance of the abstraction regime being reformed, the Environment Agency is already seeking to vary and remove unsustainable existing licences. It will be helped in that by the Government’s removal in this Bill of a statutory right to compensation for a water company resulting from such modifications or the revoking of a licence. The Government have therefore gone a long way towards addressing concerns that noble friends and colleagues expressed in Committee. These proposals satisfy my concern that legislating now for upstream reform in advance of reform of the water abstraction regime could lead to an unsustainable increase in abstraction. Therefore, I would not support any further amendments being tabled by the Opposition Front Bench.
Lord Crickhowell
My Lords, I want to probe a little on the timing. I agree with everything that the noble Baroness has just said. For eight years, as chairman of the National Rivers Authority, I had to try to deal with this problem with rather less adequate weapons than the Environment Agency now has, so I welcome the steps that the Government are taking and have taken. I also want to see rapid progress made on the competitive regime, but there seems to be a very difficult timetable. We will have a report five years out on how abstraction is going, yet there will be legislation in the next Parliament which takes us a year further forward. I do not quite see exactly how the Government envisage progress being made on these two important priorities. I confess that I have been away abroad since Committee—I have been enjoying myself in the Galapagos—so my mind has not been on this matter, but I would be grateful if my noble friend could give us a little greater clarity on the timing of these two interlocking steps, on the way in which they are likely to relate and on how the legislative timetable is likely to fit in.
Baroness Parminter
My Lords, affordability is clearly a key issue and I thank the noble Lord, Lord Whitty, for raising it this afternoon, although I do not share his faith in a national affordability scheme. I use the word “faith” advisedly because, like the noble Baroness, Lady Byford, I think that the amendment is a little light on the details of what a national affordability scheme might comprise.
My understanding is that eight of the water companies already have social tariffs, or will have by the time we get to Third Reading. Perhaps the Minister will be able to comment on that in his concluding remarks. However, there are one or two laggards, including Yorkshire Water, which has undertaken research into a social tariff but says that the results do not justify it proceeding. This is not good enough; it should be working with the Consumer Council for Water, as 11 water companies are, quickly to identify a way forward.
You would expect water companies to try hard to do this as, in addition to being the right thing to do, social tariffs are, as the noble Earl, Lord Selborne, rightly pointed out, one way to help to tackle the bad debts, which put £15 on all our water bills. Where there has been some reluctance to introduce them, it appears that that has had more to do with limited customer support for the company’s initial proposals, because crucially water company customers have to buy in to the social tariffs as they are cross-subsidising them.
Like my noble friend Lady Bakewell, I welcome the new social tariff guidance from this Government and the Welsh Government. It means that more companies can now introduce social tariffs, but of course these schemes must be tailored to local circumstances. The cost of living, average incomes and the cost of supplying water and sewerage systems vary substantially from region to region. In Committee, my noble friend Lord Whitty acknowledged the importance of taking account of regional variations, saying:
“We recognise the desirability of companies taking notice of the configuration of their own consumers and the particularities of their region, and therefore it is better that companies are left to decide their own schemes which will suit their own circumstances”.—[Official Report, 6/2/14; col. 326.]
Like my noble friend Lady Byford, I believe that the Front Bench opposite has not quite spelt out what the national affordability scheme would comprise, saying that it is up to the department to come up with something appropriate which equally allows for regional diversity of delivery.
The issue is not that the majority of companies are not taking this forward; the issue is fundamentally about who pays for the scheme. The Consumer Council for Water has done research which consistently shows that customers are reluctant to pay above £2 as a cross-subsidy. Does the Front Bench opposite think that its national affordability scheme should top up that sum from general taxation? Should schemes be imposed on people unwillingly or from a levy on water companies? That begs the question of whom it would be levied on, given that the overwhelming majority of companies will have agreed to a scheme by next year.
In addition to concerns about a lack of clarity as to what a national affordability scheme would comprise, I am not persuaded by arguments from the Benches opposite about affordability when it will not support further moves to encourage water metering. The independent Walker review, commissioned by the previous Government, recommended a widespread switchover to metered charging, considering it the “fairest way” to address the affordability problems inherent in the current system. Therefore, it is disappointing that the party opposite—I exclude the noble Lord, Lord Whitty, from my condemnation—is opposed to even minor amendments which I raised in Committee and which the noble Lord, Lord Oxburgh, will be raising again later to help to encourage metering. Such a move could help people to take control of their household bills. On that basis, I do not support these amendments.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Whitty, for explaining his amendments and I thank all noble Lords who have contributed to this debate. It will not surprise those of your Lordships who sat through Committee on this Bill to learn that I will not be supporting the noble Lord’s amendments.
I shall deal, first, with the Opposition’s national affordability scheme. The Government take the view that companies are best placed to work with their customers to develop local solutions concerning affordability. After all, it is those customers who foot the bill. That is why the Government’s approach is focused on company social tariffs. The companies’ own business plans show us that by 2015-16 most will have put a social tariff in place voluntarily following a process of engagement with their customers. I am struggling to see the advantage of a national affordability scheme in comparison with the guidance and framework for social tariffs which is already in place and which has, as my noble friend Lady Bakewell said, now been in place for a year.
The Government’s social tariff guidance sets minimum standards in a light-touch way. It does so taking into account the reality of diverse regional circumstances. The minimum standards set in the guidance allow water companies to talk to their customers—the ones, as I said, footing the Bill—and to innovate. Imposing more specific minimum standards on water companies would limit their scope to address the unique circumstances of their respective areas. It would disincentivise companies from coming up with something more creative and more targeted. We should not ignore how different the affordability issues facing the water sector are in different parts of the country.
Our social tariff guidance provides a clear steer on the factors that must be taken into account in the development of a social tariff. However, it leaves final decisions for companies to take in the light of local views and local circumstances, rather than seeking to impose schemes from the top down. The most important requirement of our guidance is for effective customer engagement in the development of a social tariff. The Government believe that some customers should not have to subsidise others without being properly consulted.
All the companies have begun that process of consulting with their customers on whether a social tariff is right for their area and, if so, what form it should take to address local needs. The guidance requires that the companies must work closely with the CCW to ensure that their proposals align with customers’ views of what is acceptable. Undertakers will need to be able to demonstrate that they have listened to customers and organisations representing customers. The social tariff guidance applies to both the companies and Ofwat. Where a company brings forward a social tariff that complies with this guidance, there is a clear presumption in favour of approval by Ofwat.
It is crucial that those who are struggling to pay their water bills get assistance, but the difference between what is suggested and what we have in place is our recognition that local people should have a say. Local factors should be, and are being, taken into account.
I turn now to Amendment 56, which concerns billing information. First, I thank noble Lords for raising a very important point about the WaterSure scheme As noble Lords are by now aware—but sadly many customers are not—the scheme is a mandatory safety net for low-income customers. It is available for customers who have a meter and, for reasons of ill health or because they have a large family, use greater than average amounts of water. I have said before that it is unfortunately a feature of all such means-tested benefits that take-up fails to match eligibility. People who are eligible simply do not sign up. Through informing people that WaterSure exists, I am confident that we can increase uptake. That is why it is important that billing information includes details about WaterSure.
However, that is already happening, and it has been happening for years. The Consumer Council for Water has confirmed to me that information on WaterSure and other similar schemes operated by companies is included with bills. CCWater works closely with each water company on the information provided on household bills to ensure that customer interests are met. Its very practical advice is that customers are likely to be put off by too much additional information on the face of the bill. Taking the other suggestions in the amendment, such as requiring all water companies to provide information about tariff structures and the lowest available tariff, I must confess that I find this requirement rather bizarre. What tariffs are we talking about? This is not the energy sector. Water companies simply do not have complex tariffs. In fact, as I pointed out in Committee, the situation is quite the reverse. There are just two tariffs: charging by a meter, or by the rateable value of a customer’s home.
Water companies provide advice to customers on whether or not they might benefit financially from the installation of a meter. They have to fit one free of charge, if asked. The recent publication of water companies’ business plans has demonstrated how this system can work to claw back benefits for customers using the price review process. By taking account of lower financing costs, Ofwat estimates that the next price review could significantly reduce pressure on bills from 2015 by between £120 million and £750 million a year. Most water companies are proposing flat or declining customer bills from 2015 to 2020.
The amendments are well intentioned and raise important questions about the water sector and help for those who are struggling to pay. I thank the noble Lord for bringing the issues again before the House, but I believe the amendments will not help. I have explained my reasons The Government are absolutely committed to helping hard-pressed customers where we can, and I hope that I have demonstrated that adequately today. On that basis I ask that the noble Lord withdraw his amendment.
Lord Redesdale (LD)
My Lords, I thank the Government, after some considerable debate about the issue, for the alacrity with which they have taken steps to introduce water efficiency. At the previous stage I raised the issue of sustainability, and I see that the noble Lord, Lord Whitty, has tabled an amendment covering it as part of this group. However, what I am most concerned about is the issue of water efficiency.
The resilience amendment talks about demand management. In the parlance of the water industry, demand management is very much about the reduction of leaks, whereas I believe that water efficiency is much more about the use of water and how it is a partnership between the water companies and water users on how water is to be used. We still have to bring about a massive behaviour change in customer use to make sure that the biggest leak we have in any system is the tap that is not turned off or used inefficiently. That is a movement which we have to take forward.
I hope that these provisions will bring about a degree of behaviour change within Ofwat itself, as happened as a result of the changes made to its core duties in the 2003 Act. I believe that Ofwat is seeking to change the way that it looks at such a scarce resource. With climate change, we are going to have to look at a very different system of determining how much water is available and how we use it. Indeed, in a few minutes Ofwat will be holding a reception just down the road to discuss these issues with stakeholders. I am glad that the Government have brought forward these amendments, which I am sure will help the regulator in its duties.
Baroness Parminter
My Lords, I, too, thank the Government for listening so assiduously to the concerns that I and colleagues around the House raised in Committee. The Government have listened very carefully to those concerns, and I particularly welcome the new amendment which outlines that the resilience duty includes promoting the efficient use of water. This powerful commitment to water efficiency is testament to the tenacity of my noble friend Lord Redesdale. It also delivers the Liberal Democrat party policy agreed five years ago to reform Ofwat’s remit to put water resource efficiency at the heart of water company plans.
I also sincerely thank the Minister and the Bill team for accepting my genuinely strongly felt concerns about the necessity of the Government taking account of social and environmental matters when formulating the strategic guidance with which the regulator has to conform. Their amendment to Clause 24 reflects that and I am extremely grateful.
Lord Whitty
My Lords, I, too, welcome all the government amendments in this group. However, I do not understand why they have not gone the full hog towards what the noble Lord, Lord Redesdale, the noble Baroness, Lady Parminter, and I were arguing to begin with, which is that if you give Ofwat a responsibility or a primary duty for sustainable development, these things would naturally flow from that. These are criteria that are applied to other regulators. Everything that has been said in this debate and in the White Paper, including everything said just now by the noble Baroness, shows that you need to have a holistic approach to the management of water. This is not about just one dimension or aspect, but about the cost to consumers and to business, about providing infrastructure for the country, about water quality for consumers, about whole ecosystems and catchment areas, about maintaining water resources against climate change pressures, about resilience and about efficiency.
Resilience and efficiency have now been written into this, but not very much of the rest. I, too, admire the noble Lord, Lord Redesdale, for the pressure that he has brought to bear regarding water efficiency—he has won a notable victory here—but this still baffles me, and my amendment reiterates the need to provide a broader primary duty. The Government have obviously recognised some aspects of upgrading that responsibility because they have, rightly, taken up the earlier amendment tabled by the noble Baroness, Lady Parminter, that changed,
“may have regard to social and environmental matters”,
to “must” in respect of the Minister’s statement. They recognise sustainability in general and that it is an important part of how we manage in the context and framework within which Ofwat works.
As there are multiple regulators in this system, it has traditionally been assumed that Ofwat is primarily an economic regulator, the Environment Agency primarily an environmental regulator and the Drinking Water Inspectorate primarily a quality regulator. However, they actually overlap: the Environment Agency has serious economic responsibilities in its remit, very specifically about water resources, while Ofwat has a secondary sustainability duty and now, as a result of the amendments on resilience, broader aspects of its responsibilities relate to sustainability. I appreciate the references to resilience. When sustainability was being pushed in the Commons, the Government came up with the resilience criteria, and when it was being pushed in the Lords, they pleased the noble Lord, Lord Redesdale, with the water efficiency criteria.
Baroness Parminter
I thank the noble Lord, Lord Oxburgh, for raising this issue, which I, along with other colleagues around the House, moved an amendment on in Committee. I am not going to repeat the argument that I and others made at that time, but there has been new information since then. In preparation for Report, Water UK contacted all water companies, asking for their views on this issue. They all saw the requirement to seek permission from the Secretary of State for metering as an unnecessary constraint. They think that the water stress status should not be a requirement for metering; rather, they should be able to decide what to put in their water resources planning framework on the merits of the case, including what customers want.
Wessex Water and Northumbrian Water have gone on the record separately on this issue, Wessex Water saying:
“In our WRMP we considered the pros and cons of compulsory metering, even though being in a non-water-stressed area we couldn’t introduce it. Our analysis showed that metering on change of occupancy was a better approach as it gave greater long-term water savings whilst retaining customer acceptability. Metering on this basis will be put in our WRMP and business plans, even though we can’t introduce it”.
This seems to me to be a reasonable amendment. All it does is give companies the right to speak to their customers and manage their businesses to their benefit and that of increasingly scarce water resources. I respond to the noble Lord, Lord Cameron, by saying that it is not just Cross-Benchers who are prepared to swim against the tide; the Liberal Democrats are well used to being out of step with the other two main political parties, and on this occasion I am happy to join fellow Cross-Benchers to support them on this important issue.
The Earl of Selborne
My Lords, I think those on the Conservative Benches should support the noble Lord, Lord Oxburgh, as well—as indeed I am sure many of us do. I agree very much with the noble Lord, Lord Cameron, who says that we simply have to value our natural resources. We in this country are totally out of step with the whole movement towards valuing natural capital and understanding the extent to which our natural resources underpin our economy and our quality of life. It makes obvious sense, therefore, that we should all be aware of our footprint, and if we think that we have the right to buy water at a rate that reflects some old rateable value as opposed to our actual consumption, we are simply denying our responsibility to understand our long-term impact.
As I understand it, this amendment is tabled more in order to demonstrate that the water companies can already do what the amendment seeks that they do, so I expect that the Minister will say that it is unnecessary, but it is certainly not unnecessary if it demonstrates what is obvious. I cannot understand why anyone should say that it is against the tide of the day; it is my understanding that every party supports the idea that we should value our natural resources properly, and who could say, therefore, that water should be exempt from that process?
Food Banks
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Lord De Mauley
I think I have just answered that, my Lords. Britain has a great tradition of charitable giving, and it would be a great mistake to interfere with that.
Baroness Parminter (LD)
Can my noble friend say whether the Government have any plans to commission any of the research indentified in the conclusions of his own department’s recent review of food aid in order to inform and support the voluntary groups providing food aid?
Lord De Mauley
My Lords, we are not proposing to record the number of food banks or the potential number of people using them or other types of food aid. To do so would place unnecessary burdens on the wonderful volunteers trying to help their communities. The report is a useful summary of evidence from providers and charities. The provision of food aid ranges from small, local provision through to regional and national schemes. The landscape is mostly community-led provision responding to local needs. It is not the Government’s role to tell them how to run the services they provide.
Japan: Dolphins
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Baroness Parminter
To ask Her Majesty’s Government what discussions they have had with the government of Japan about the practice of capturing and slaughtering dolphins in Taiji.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, my honourable friend George Eustice, the Minister responsible, wrote to the Japanese Fisheries Minister on 9 February to reiterate our opposition to hunting all cetaceans, except for limited activities by indigenous people for defined subsistence needs. Our ambassador had written to the Japanese Foreign Affairs Minister on 24 January to set out our position. The Japanese Government are in no doubt as to the strength of feeling here, nor about our policy against these hunts.
Baroness Parminter (LD)
I thank my noble friend for that Answer. Are the Government seeking to co-operate with other countries and civil society organisations to evaluate what measures can be taken using international conventions to which we are signatories, in order to end the unnecessary suffering of this trade?
Lord De Mauley
My Lords, I agree strongly with my noble friend that working within international agreements such as CMS and CITES, and with the IWC, is the way to achieve our conservation goals. We already work closely with other like-minded Governments and civil society organisations, including on whale and dolphin conservation, in these fora and we continue to press for enhanced co-ordination and communication between them to ensure that they co-operate to provide an effective and long-term framework for the protection of cetaceans globally.
Forestry: Independent Panel Report
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Baroness Parminter (LD)
I add my thanks to those of my noble friend to the noble Baroness, Lady Royall, for securing this debate today and for being such a formidable champion on behalf of our precious trees.
The noble Baroness said that there was strong support for the Government’s forestry and woodlands policy statement in January last year, which set out a clear vision for expanding England’s woodland cover while protecting our trees from the ever-increasing range and scale of threats, recognising that woodland assets would deliver benefits for society and the environment as well as contributing to economic growth. A commitment to legislate for a new forestry body was a central plank in the delivery of that vision.
The stakeholder consultation closed on the funding, governance and purposes of our new body. The presentation to the National Forestry Stakeholder Forum on 29 January outlined, as the noble Baroness, Lady Royall, said, the 10 core principles underpinning Defra’s plans. While they were broadly welcomed, they left much unsaid. Big questions remain about the contractual relationship of the body with Defra, and the body’s remit, scope and duties. I add my voice to hers in asking when the Government intend to bring forward a draft Bill to allow for necessary pre-legislative scrutiny.
It is clear that woodland and forests offer good opportunities to deliver manifold environmental and public goods, from carbon capture to providing habitats for wildlife and flora, and places that people want to share. They want to go out and explore our glorious countryside. At a time like this, we should not forget how afforestation can help to reduce the risk of flooding.
I want to pick up on one of those 10 principles outlined to stakeholders on 29 January—that the new public forestry body should be a pioneer in natural capital accounting and payment for ecosystem services. As the Woodland Trust said, this is an opportunity for the forestry sector to,
“demonstrate its value to society”.
One way to ensure that development does not lead to erosion of natural capital assets is a well designed biodiversity offsetting scheme. The Government’s Green Paper consultation on biodiversity offsetting is now concluded. Liberal Democrats are clear that the guiding principle for any offsetting scheme should be that there is a net environmental and biodiversity gain. Equally, and in contrast to the views of the Secretary of State, habitats such as ancient woodlands are irreplaceable, and as such should not be included in any scheme.
Decisions about biodiversity offsetting are important for the future of the public forest estate, given that it has huge potential to provide offset sites for any market-based scheme. It is ideally placed to deliver landscape-scale projects and the wider benefits that they can deliver. The Lawton report in 2010 made clear that nature areas that are linked together have a greater ecological value than similar areas of natural environment that are broken up and separated. This view was endorsed in the Government’s 2011 environment White Paper. Given its importance to the future of the public forest estate, can the Minister say when the Government will make clear their intentions about introducing a biodiversity offsetting scheme?
All three legislatures in England, Scotland and Wales are keen to see substantial levels of new woodland planting over a substantial period. It is important that non-market values are taken into account in decisions about the future locations of Britain’s new woodlands, thereby ensuring that we maximise the value for agriculture and timber outputs, climate change mitigation and recreational opportunities. This would make a reality of the threefold mandate, as outlined in the core principles for the new public forestry estate of enhancing the estate for the benefit of people, nature and the economy.
If we do not do that, we face the danger of locating new forests in areas that do not deliver all the benefits that society and the economy need. We could pick locations, for example, that maximise value of timber production but do not help tackle flooding in key catchments, or maximise greenhouse gas capture but do not help to increase recreational opportunities near our major urban conurbations. Such decisions need to be looked at using the right decision-making framework, and I therefore look forward this spring to the annual update from the Natural Capital Committee, set up by this Government, on its work in ensuring that natural capital accounting is embedded in decision-making. The successful completion of that work could be as important in delivering the future we all want for our British forests and woodland as the legislation necessary to put the public forest estate on a more sustainable footing.
Water Bill
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Baroness Parminter (LD)
My Lords, in the face of the desperate flooding challenges that many in our country are now facing and look set to face in the future, I strongly welcome the proposals for Flood Re, which we are now coming on to debate and which will provide affordable flood cover for all households. My Amendments 154A, 154B, 156A and 156B give Flood Re, which will be a private company in receipt of public money, a duty to act in the public interest and extend its remit to help deliver a more resilient future in the face of flooding, working with other bodies to achieve that where appropriate.
The Flood Re scheme will benefit householders at risk of flooding. However, if flood risk management is not significantly improved over the lifetime of the scheme, we will be in no better a place after 25 years than we are now. The adaptation sub-committee of the Committee on Climate Change—and I am glad to see the noble Lord, Lord Krebs, in his place today—in its policy note to the Government last month makes it clear that significant increased investment in flood-risk management is required, as well as in flood defences, if the levels of risk are to be maintained, let alone reduced.
Flood Re could raise awareness of flood risk, direct policy holders to advice and support and, crucially, if sufficient reserves are generated, it could support measures that individuals or groups can take to reduce flood risk. Surplus funds could, for example, pay for property-level measures, such as flood gates and air brick covers, which typically cost £5,000 per property. Government grants of between £2,000 and £4,500 are available, so Flood Re could, for example, meet the difference. It would be a sound investment, given that every £1 invested in property-level protection typically achieves a benefit of £5 or more; or it could contribute towards the cost of Environment Agency schemes that do not justify full government grants under the partnership funding approach. Funding from Flood Re could make the difference between a flood defence scheme going ahead or not, which would be worthwhile if it were to protect some of Flood Re’s highest-risk customers.
To determine what Flood Re could do, it is critical to know how any surplus funds will be defined and what will happen to them. The evidence of a Defra stakeholder presentation on Flood Re, in a slide entitled “Flood Re’s exposure to claims”, gives a median-loss scenario of £65 million in claims per year. That means that it could have at least £100 million in reserves at the end of the first year. Defra’s final impact assessment for Flood Re, in table 5 on page 20, states that, over the life of the scheme, it should on average make an annual surplus of £27 million. This calculation is based on Flood Re’s expected loss scenario which takes account of the low-probability/high-cost flooding that could take place during the 25 years for which the scheme is operational.
Either way, Flood Re is likely to hold significant sums of public money that could be used to help manage down flood risk. This would help save everyone money: high-risk households, other policyholders and Flood Re itself. This could be achieved without the main £180 million levy needing to be increased because it could just be pursued if Flood Re were in surplus. Over the 25-year lifetime, this would make a material difference to the number of homes at significant risk while helping those households secure affordable flood insurance on an ongoing basis once Flood Re is withdrawn. It is therefore important to know how the Government expect any surplus to be defined, in order that it might support such an approach. I look forward to hearing more from the Minister on that in his response.
We need legislation that expresses how Flood Re can help to deliver social objectives without claiming that Flood Re can or should solve all flood risk management issues. I hope that I have made clear what I am seeking for Flood Re to achieve, and the wording of these amendments is an attempt to do just that. I beg to move.
Lord De Mauley
My Lords, I am grateful to my noble friend Lady Parminter for her amendments regarding flood resilience and Flood Re’s role in that matter, and to all noble Lords who have spoken. Regarding Amendments 154A and 154B, I agree with my noble friend Lord Shipley that we need to tackle the root cause of the difficulties with the availability and affordability of flood insurance—the flood risk that households face. The coverage of the tragic events of the past couple of months, which my noble friend Lady Parminter mentioned, have brought the full impact of this home to us all. I thought that the letter read out by the noble Lord, Lord Campbell-Savours, set out the problem very well.
Households benefiting from Flood Re need to understand both their flood risk and the likely impact of the withdrawal, over time, of the subsidy on their future premiums. I hope that noble Lords will be reassured to hear that we have agreed with the Association of British Insurers the principle that insurers will be required to provide such information to customers when a property is ceded to Flood Re and at the point of a claim. I hope that the statutory requirement for the Flood Re scheme to manage, over the period of the operation of the scheme, the transition to risk-reflective pricing of flood insurance for household premises also offers some reassurance.
The ABI has now come forward with draft proposals for ensuring that the correct incentives are in place to drive uptake of resilient repairs after a flood, particularly for those properties subject to repeat flooding. We are still agreeing the detail of this approach and I hope to have more to say on Report. Encouraging households to become more resilient over the period of the scheme will help to reduce the impacts of subsequent flooding.
Turning to Amendment 156A, the subsection that my noble friends seek to amend has been drafted in such a way to provide firm pointers as to what the Flood Re scheme administrator would need to have regard but is also intended to allow for a degree of flexibility that may be needed as the scheme is finalised. I assure noble Lords, in the strongest terms, that the Government are absolutely committed to taking forward Flood Re, together with the insurance industry, and that both parties are working very hard to achieve this.
We expect the administrator to act responsibly in its management of the scheme throughout its life and we have every intention of ensuring that it discharges its functions in a proper manner, supported by the duties we will place in secondary legislation. The regulations made under Clause 54 will be subject to public consultation and we are currently considering carefully the Delegated Powers Committee’s recommendation that regulations made under this clause should be subject to the affirmative procedure. I trust that this assurance puts on the record our intentions in this regard.
As regards Amendment 156B, my noble friends are right that co-operation between Flood Re and flood risk management authorities will be important, in particular should Flood Re wish in the future to commit any of its resources to supporting flood risk mitigation measures. Clause 54 provides for Flood Re to share information held by it with the Environment Agency, its equivalents in devolved Administrations and any other bodies specified in regulations. It also provides for Flood Re to have a duty to act in the public interest, so where it is in the public interest for Flood Re to co-operate with other risk management authorities, it would be expected to do so.
Under the Flood and Water Management Act 2010, flood risk management authorities have a duty to co-operate with each other in the exercise of their flood and coastal erosion risk management functions. This is because the causes of flooding can cross organisational boundaries and responsibilities. For example, flood risk management schemes to protect one area may make the problem worse elsewhere if there is not a partnership approach to developing solutions. Flood Re will not have an operational role in designing or implementing flood risk management schemes. As I think the noble Lord, Lord Whitty, suggested, that would be beyond the scope of Flood Re and would require different skill sets. Flood Re will therefore not have the same degree of interaction with the risk management authorities that they will have with each other. I am not convinced that there is a need to extend the requirements based upon the Flood Re body.
Perhaps I may say to my noble friend Lord Cathcart that while directly managing flood risk is not the purpose of Flood Re, it is nevertheless vital that Flood Re does not just deliver affordable flood insurance. It should also contain the right incentives for householders and insurers to put in place the necessary measures to become more resilient, since otherwise the effective price limits in Flood Re may remove some of the financial incentive to take such action. He has suggested—the noble Earl, Lord Lytton, also asked about this—that Flood Re will need to build up its reserves, which is of course right, but it will have access to the proceeds of the levy and be able itself to take out reinsurance. Can I offer to meet noble Lords before Report, on which occasion I shall of course be happy to provide an update? Perhaps I could also address the point made by my noble friend Lord Crickhowell at this stage. I shall come back on Report to noble Lords with more details of how those who flood repeatedly might be treated. For the reasons I have outlined, I hope that I can persuade my noble friend to withdraw her amendment.
Baroness Parminter
I thank the Minister for that helpful response and I thank Members around the Committee who have contributed to this debate. It has helped to spell out in more detail what we are all hoping to achieve for Flood Re. We do not expect it to be able to answer all the social objectives in terms of flood risk management, but we should accept that it is not just a flood insurance vehicle, important and critical though that is. It will also need to provide the necessary incentives to transition to a stronger place in the future. The wording of the amendment may not be ideal, but at least it has facilitated this debate. I hope that noble Lords are not disappointed in my having brought it forward in that light.
I thank the Minister for agreeing to meet noble Lords between now and Report. That will be helpful because there are still questions about the surplus and how it will be defined. The comments made by my noble friend Lord Cathcart and others remind me that we are not guaranteed surpluses with Flood Re; this is only what we are saying if those surpluses are achieved. I am happy to learn that the Minister intends to say more on this issue at the next stage. On that basis, I beg leave to withdraw the amendment.
Baroness Parminter (LD)
My Lords, I put my name to my noble friend Lord Moynihan’s amendment and I shall speak briefly in support of it.
The Government’s impact assessment on managing the future financial risk of flooding states that there is insufficient evidence of a problem for businesses to get insurance and that there are other market mechanisms for them to get cover. However, the impact assessment focuses on the national impact, whereas flooding affects localities, so it is perhaps no surprise that it did not find that much evidence.
Further, the Government’s position is driven by their recent consultation on the issue, which asked for evidence of a need for a mechanism for small businesses and received a few responses from small businesses, which may well have had other priorities. The ABI has given the Government assurances that the broker community is doing,
“a good job working directly with business customers in getting a good deal for them”.
I contend that it is the Government’s job to insist that there be firm evidence of that, which is what the amendment is intended to deliver.
There are few studies of the impact of flooding incidents in general on business, apart from some by AXA, and they focus on the impact on individual businesses rather than the broader economic resilience of communities in the face of flooding. I could not find any research which looks at the significant impact of flooding on small businesses, which often make up the backbone of the rural economy. It is here that flooding has a huge impact not just on individual families and their businesses but on the complex web of supply and demand chains in the local economy. Ensuring adequate flood cover for small businesses, including farm businesses, is as important as supporting households if we are to protect the overall community resilience of rural areas.
As my noble friend Lord Moynihan said, small businesses were covered by the statement of principles and they were able to get flood risk insurance in the same way as households. Given that Flood Re does not guarantee them that insurance, we certainly need reassurance from the Government that they are mindful of the need for cover for businesses, particularly small businesses, and of their important role in rural communities.
Lord Ashton of Hyde (Con)
My Lords, I should declare an interest that I declared on Second Reading, which is that, until June, I was the chief executive of two insurance companies, and I still labour under some residual contract limitations.
There is an overriding need to put in place a workable solution that will, first, solve the most pressing need, which is to address the availability and cost of flood insurance and, secondly, do so in a way that is timely, affordable to the insurance industry, secured in co-operation with it and that does not allow government subsidy to create a huge deficit in the scheme over time.
Addressing the issue of small businesses raised by the amendment of the noble Lord, Lord Moynihan, we ought to remind ourselves that the statement of principles only covers the availability, not the affordability, of insurance for those small businesses. It covers only renewal policies, so the policyholder at risk of flooding cannot change insurer, and it does not cover the cost of the policy.
There is also the question of practicality. The introduction of businesses into Flood Re would dramatically complicate the pricing of the scheme, the availability of Flood Re as crucial reinsurance—on which the scheme depends—and, by no means least, the complexity of the internal model, which will have to be approved by the PRA. All the different coverage afforded by business policies, such as business interruption, contingent business interruption and loss of profits, will make the internal model much more complicated compared to what are fairly homogenous homeowners’ policies.
To address the most pressing need as soon as possible in a way that is acceptable to as many people as possible, we should concentrate on the most important issues and leave the Flood Re design as it is.
Baroness Parminter
My Lords, briefly, I support my noble friend Lord Shipley on this important amendment. We are rightly spending the majority of our time today discussing a financial vehicle to deliver affordable flood insurance, but the planning system has a vital role in making our country more resilient for the future. On the potential effects of cuts in local authority budgets on their ability to undertake their important planning functions, which my noble friend mentioned, I add that a review in 24 months’ time is sensible, given that in the intervening 24 months there will be further significant cuts to the Environment Agency’s budget, with an expected cut of more than 550 staff.
Given the scenes we have seen in recent days, it would be only too easy for people, rightly, to make the case that we must protect front-line staff in the Environment Agency. However, it is equally important to look appropriately at people in the back room who are working hard on the consultations on significant planning applications for developments of more than 10 houses or one hectare. Equally, it is important that the national flood management strategy, which the EA devised in 2011, is carried forward.
I add my support. The timeline that my noble friend Lord Shipley has suggested of 24 months is apposite given the need to review some of the resource constraints that both local authorities and the Environment Agency will face in the forthcoming months.
Lord Krebs
My Lords, I too support the amendment of the noble Lord, Lord Shipley. I have already declared an interest as the chairman of the adaptation sub-committee of the Committee on Climate Change. The sub-committee has a useful data set that could be brought to bear were this review to happen. It has developed a set of indicators, which are published, for the resilience of planning decisions in relation to present and future risks from flooding, particularly from future impacts of climate change. For example, it has looked at the implementation of SUDS, at the implementation of household measures that could provide protection at the individual property level and at planning decisions to develop in the flood plain. As has already been said by the noble Lord, development in the flood plain has been going ahead faster than development elsewhere, but this is not necessarily a bad thing. If the properties are appropriately protected, either by community-level measures or by individual household measures, the risks can be managed. The sub-committee has a data set and a set of indicators that could be useful were the Government minded to accept the amendment moved by the noble Lord, Lord Shipley.
Baroness Parminter
My Lords, I added my name to Amendment 156D of the noble Lord, Lord Krebs, and my related probing Amendment 156E has been grouped with it.
At present, the Bill states that the Secretary of State has the option to bring in a review process for Flood Re, but provides no detail. The first amendment, as the noble Lord pointed out, requires the scheme administrator to publish a plan to achieve a transition to risk-reflective pricing.
My second amendment would require Flood Re to publish the intended framework for reviews, outlining the decisions that needed to be made at each review point. Why is that important? The Government’s consultation document on Flood Re specified that reviews will be held in order that there should be a gradual transition to risk-reflective pricing. Discussions have centred on reviews every five years and the impact assessment for flood risk is based on that hypothesis, but there is nothing in the legislation to confirm that this will be so.
Getting a commitment to a five-yearly review is critical. Flood Re is designed by the Government to expire in 20 to 25 years’ time, with review points where decisions can be taken to reduce the benefit of the pool to claimants and the levy to all policyholders. If a linear approach is taken, this might result in a 20% drop in the levy, and the benefits, every five years. The potential problems are that the reviews could be more frequent, or never. The Treasury could require the transition period to be shortened, thus not allowing the necessary flood risk management investment to take place, or it could set the percentage drop in the levy to be higher in the earlier period. The reason why it might do so would be that under OECD rules the levy is considered to be a tax. Removing it early would reduce the percentage tax burden on the state.
The issue, though, is not just when the reviews take place but what information they provide so that the Government and parliamentarians have the necessary information to make informed decisions. As such, it would seem important to define the critical parameters in the review in some detail at the outset, understanding exactly what areas beyond affordability and accessibility will be judged to see whether or not the scheme is effective. I hope therefore that the Minister will put on record the Government’s intentions in this regard so that we can have reassurances that the scheme will achieve the outcomes that we all want.
The Earl of Lytton
My Lords, I particularly welcome Amendment 156C, moved so eloquently by the noble Lord, Lord Krebs, as it enables me to raise a series of allied issues. The first is that, Flood Re or no Flood Re, we are all on notice that the cross-subsidy of flood risk needs to be replaced by individual risk assessments. The reason for that is our better geographical knowledge and the unsustainability of the continued mutualisation of risk in those circumstances. I have absolutely no argument with that.
One issue of concern is the data produced by the Environment Agency. Obviously, those data are very important for the industry and for consultants, but they are equally important for individuals because, if we are moving to individual assessment, we must have some means of identifying the individual impact on a per property basis. I referred earlier today to my discussions with Philip Wilbourn, a very eminent environmental surveyor and valuer from the north of England. He allowed me to circulate an e-mail to a number of noble Lords setting out his views, which I have done, but there is a particular bit that I would like to repeat. He refers to,
“the data published by the various agencies, including the Environment Agency”.
Bear in mind that this is someone who carries out evaluations and does assessments on individual properties or groups of properties for a variety of different purposes.
In his e-mail, Philip Wilbourn says that he cannot use the data for commercial purposes because he is prohibited from doing so. Then he says that there is no online ordering service to acquire data for reporting purposes, and he is forced to acquire it from GroundSure or Landmark, two of the authorised resellers, at what he describes as high cost. He says:
“The data reported by commercial companies often varies depending upon the royalty return”,
which seems to be quite the wrong trigger for objective data. He tells me that the costs cannot be absorbed by residential valuers and that the banks, for which these valuations are produced, will not allow such data as a disbursement for the reports that are sent to them. His e-mail continues:
“When data is ordered direct from the EA, it can take three weeks to be sent through depending on the region”,
and he says that he has tested that.
The scale of resolution on the Environment Agency website is 1:5,000, which does not enable a particularly accurate identification on a per property basis. The Scottish Environment Protection Agency’s website fares rather worse because the scale there is 1:25,000, so individual property analysis by the home owner is clearly going to be difficult. These are the data that are supplied to insurers to make decisions.
Of course, what happens? It gets boiled down to a postcode approach—the “postcode lottery” of which we constantly hear many examples. He says:
“The problem with postcodes is that many home owners/businesses may be paying more than they should”,
and he gives an example of a postcode—in I do not know what part of the country, but it is obviously an urban area—which is neatly bisected by a blue-ink line of flood risk.
There is a particular issue here as to whether the data that are produced by this public agency, for public consumption and for the benefit of society as a whole, will be available at reasonable cost—let us not say that it should be free—for the home owner and individual consumer. That is the question that I pose in the context of this amendment.
Winter Floods
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Lord De Mauley
My Lords, it is a shame that the noble Lord was not here at Questions because we addressed that specific point. I said then that the agencies are working together to ensure that measures such as dredging can proceed. That is likely to be part of the outcome of the action plan which my right honourable friend the Secretary of State has demanded. We are looking for that to proceed as rapidly as possible. It is fair to say, however, that it should do so while meeting our environmental requirements, which are set by among others the EU.
Baroness Parminter (LD)
My Lords, perhaps I may pick up on the point about the Dawlish line being likely to be closed for six weeks. Further stretches are at risk from strong waves, meaning that other areas are likely to suffer—that is obviously not just local people but businesses. I thank my noble friend for the comments he has made today, but my understanding is that no research has ever been done on the significant impact of flooding on businesses, often small businesses, that make up the backbone of rural economies and the disproportionate effect of that on rural economies, particularly in places like Somerset. There is no research that shows how flooding affects the range of supply and demand chains in an area and identifies what impact this has on the overall community resilience of an area. After the devastation of this winter’s flooding and given that we are facing more in the next few years, do the Government have any plans to commission research into and to investigate the impact of flooding on the economic resilience of local communities in order to identify any further necessary policy interventions or resources?
Water Bill
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Baroness Parminter (LD)
My Lords, I welcome the fact that the Water Bill places the Government’s strategic priorities and objectives on a clearer statutory footing and requires Ofwat to carry out its functions in accordance with it. New Section 2A(3) to be inserted by Clause 24 makes it clear that, “In formulating a statement” the Government “must have regard to” Ofwat’s duties, but only,
“may have regard to social and environmental matters”.
The government briefing note on sustainable development and the resilience duty that was issued last month confirms that the Government are strongly committed to sustainable development, balancing the equally important needs of society with those of economic growth and environmental protection. Before lunch we debated how this is articulated in the duties for Ofwat, but it is equally important that it is articulated clearly in the duties placed on future Governments. That is why I believe that the word “may” should be changed to “must”, so that Governments must take into account social and environmental matters when formulating future policy steers.
Statements of strategic priorities will replace the existing social and environmental guidance currently issued to Ofwat. In future, the Secretary of State will issue a single consolidated statement setting out social, environmental and economic policy priorities. My noble friend the Minister kindly confirmed in a letter to me on 17 January that the Government intend to continue to provide guidance on social and environmental matters within that single consolidated policy statement. Given that the Government have said that they will provide guidance on such matters, I feel that the use of the word “may” insufficiently reflects that commitment and the need for future Governments to take account of these matters when formulating the crucial strategic policy that will guide Ofwat. I beg to move.
Lord Whitty
My Lords, I support these amendments. New Section 2A(3) to be inserted by Clause 24 seems to differentiate between Ofwat’s duties regarding strategic priorities and social and environmental matters. We attach “must” to the former and “may” to the latter, but the Secretary of State ought to have regard to both. This is not the usual theological argument between “may” and “must”. Those of us who have been around the block on this legislation have come across that argument a number of times and have completely failed to understand parliamentary counsel’s advice. The provision clearly differentiates the status of the two duties. It does not differentiate and downgrade the social and environmental objectives for Ofwat, which some noble Lords might think would be sensible, as Ofwat is primarily an economic regulator. This is for the Secretary of State. It is the Secretary of State’s duty to balance all these issues out. He should therefore have regard to both duties and if it is “must” for the former it should be “must” for the latter. The provision does not say, “give priority to”; nor does it say, “If you have regard to these duties, you do not necessarily need to carry out exactly what they prescribe”. However, it is the duty of the Minister to balance all these things out. If the legislation gives less status to one than to the other, the outcome of the balancing seems to be predictive.
I do not think that is right. All parts of the policy need to be looked at. I think “must” is probably the appropriate modal verb but both duties need to be in the same form. They are both important and the Secretary of State, whoever that might be, needs to have regard to both. I therefore support the intention of the amendment.
Baroness Northover (LD)
My Lords, I thank my noble friend Lady Parminter for her amendment. She notes that Clause 24 on setting strategic priorities and objectives for Ofwat requires that the Secretary of State “must” have regard to Ofwat’s duties but “may” have regard to social and environmental matters. She would like to change “may” to “must”. I am also familiar with the debates to which the noble Lord, Lord Whitty refers, having delivered a “must” to the noble Lord, Lord Ramsbotham, yesterday at Third Reading of the Children and Families Bill.
The Government are keen to hear and understand my noble friend’s concerns. However, we think that the new power to set strategic priorities and objectives for Ofwat will ensure that social and environmental matters will continue to be addressed. The purpose of Clause 24 is to strengthen and clarify the existing guidance-giving powers. It enables the Secretary of State to issue a single consolidated statement setting out social, environmental and economic policy priorities in the round to help Ofwat to balance all the relevant considerations appropriately when making regulatory decisions.
The Government’s principles of economic regulation require that Ofwat regulates within a clear framework of policies and duties set by the Government. Under the new power, Ofwat must carry out its relevant functions in accordance with the statement. The new powers stipulate that, in issuing the guidance to Ofwat, the Secretary of State must have regard to all Ofwat’s duties. These are set out in Section 2 of the Water Industry Act 1991 and include protecting the interests of consumers, promoting economy and efficiency by companies in their work and, as we have already discussed, contributing to the achievement of sustainable development. These duties encompass the regulator’s essential purposes and it is right that, in giving a steer on policies and objectives, the Government should be bound by them. We note that the duties clearly embrace both social and environmental matters. In addition, the new powers under Clause 24 stipulate that when formulating a statement the Secretary of State may have regard to social and environmental matters. We hope that this serves to provide additional reassurance that such matters will continue to be addressed through the strategic priorities and objectives. As a further check, Clause 24 also requires that we consult widely on the statement of strategic priorities and objectives. Following this, the statement will be subject to parliamentary scrutiny. When we consulted on the existing strategic policy statement last year, the social and environmental content received a warm welcome from both environmental NGOs and consumer groups. I thank my noble friend Lady Parminter for her own tribute to this.
We have great sympathy with my noble friend’s objectives but we are not persuaded that such a change to the Bill is required. I therefore ask her to withdraw her amendment.
Baroness Parminter
I thank my noble friend for her detailed comments on my amendment and for the fact that she noticed that I commented on the consultation last year. I take this issue very seriously. I also thank the Opposition Front Bench for supporting the amendment. It is not a matter of semantics. It might seem to be that, but it is more fundamental to the direction of travel—what we want for the water industry in the future and how we can assist future Governments to deliver the commitments that we all agree on. I will reflect on what the Minister has said, but we may return to this matter in the future. I beg leave to withdraw the amendment.
Baroness Parminter
I rise to support the intention of Amendment 120, if not the intention of Amendment 122, which is grouped with it. The issue of bad debt and the implications of what that means for the affordability of all our bills is an important one.
At Second Reading I asked the Minister why the Government, unlike the Welsh Government, are not implementing the bad debt provisions in the Flood and Water Management Act 2010, alluded to by the noble Lord, Lord Whitty. If they were to do so, it would help company debt recovery and bring down household bills. The response I received was that the Government were wedded to the idea of a voluntary scheme, with a database that the water companies were helping to fund, which would be brought in, probably via regulations, in the next month or so. I may be wrong, but I suspect that, with only an intervening 10 days between Second Reading and now, that is the answer that we will get again and that the Government will not wish to support these amendments.
Therefore I ask the Government, if they are determined to stick with the voluntary approach, whether they will set a reasonable review period to evaluate whether or not the voluntary scheme for landlords is effective. All the evidence to date, from the voluntary schemes of companies such as Northumbrian Water and others, shows that they do not work. It seems to be a reasonable request, if the Government are not prepared to move ahead with a mandatory scheme, for them to give an indication to the House of a reasonable review period, so that if the scheme is found to be ineffective—as most of your Lordships believe it will be—the regulations can be changed to make it compulsory.
The Earl of Selborne
My Lords, I have a lot of sympathy with the thrust behind the attempt of the noble Lord, Lord Whitty, to deal with those who will not pay as opposed to those who cannot pay. Some six or seven years ago I had the privilege of chairing a report of the Science and Technology Select Committee on water management. We were appalled by the number of affluent people in South East Water’s area who had worked out that they could never be deprived of their water supply as it is illegal to turn off the water, so they simply did not pay for it.
The cost of taking someone to a small claims court is a difficulty. Where there is a change in population, such as happens in some areas more than others, the cost of trying to trace defaulters can be more than the cost of the debt. The two amendments proposed by the noble Lord, Lord Whitty, seek to deal with this. I suspect that it would be better to deal with this in secondary rather than primary legislation, as was originally intended. Nevertheless, I believe that my noble friend on the Front Bench should encourage the thrust of these amendments, to make sure that those who can afford their water perfectly well should be induced to pay for it, and that the water companies should be assisted in this, particularly by those with information on who is responsible for paying the bill. Landlords are often in a position to provide that information. All assistance should be given in this case. It is galling to know that people who cannot manage their affairs but are living an affluent lifestyle are advised by debt managers, “Well, don’t bother about the water bill”.