Economic Growth (Regulatory Functions) (Amendment) Order 2024

Duke of Wellington Excerpts

Monday 15th April 2024 Lords Chamber

On environmental issues, the Government are back-pedalling. A Minister says one thing in public and government policy appears to do another. What we are debating this evening shows confusion, deliberate or otherwise, in approach. That is why, from these Benches, we are asking the Government to think again. I beg to move.

[The Duke of Wellington (CB)]

This statutory instrument, despite the very expert way that it has been presented by the Minister, I believe could seriously inhibit the regulation of the water industry. I cannot help but echo a number of remarks made by the noble Baroness, Lady Bakewell; they are worth repeating.

Unfortunately, under current parliamentary procedures, it is not possible in either House of Parliament to amend secondary legislation. Having considered this and other similar issues, I urge both the Government and the Opposition to consider whether a better way cannot be found for Parliament to improve secondary legislation in the way that so often happens with primary legislation.

With regard to the order, I shall comment, like the noble Baroness, Lady Bakewell, only on the inclusion of Ofwat, the water regulator, in the scope of the order and the effect the order will have on the way that Ofwat operates as the financial regulator of the water companies. As everyone in this House knows, there is wide public concern about the continuing voluminous discharges of sewage into our rivers and on to our beaches. There have been many calls for tighter regulation. Even the Department for the Environment, Food and Rural Affairs pledges in its Plan for Water—which was published only a year ago, as has been mentioned—among other laudable objectives,

“tighter regulation, and more effective enforcement”.

However, this order, coming from a different department of state, proposes lighter regulation and less enforcement. The Minister continues to deny that, but I must quote directly from the draft statutory guidance, which says on page 26 that

“certain enforcement actions … can be particularly damaging to the growth. These include, for example … financial sanctions; and publicity … that harms public confidence”.

I suggest to the Minister that the failure to fine water companies and publicise gross discharges of sewage is far more likely to harm public confidence in the system of regulation of water company monopolies. We have to admit—again, despite the Minister’s enthusiastic proposal—that the order will cause Ofwat to hesitate before fining companies or taking enforcement action, for fear of being accused of limiting economic growth.

I have also read the impact assessment, published on 9 January and signed by the responsible Minister. Unfortunately, I could not read the signature, so I do not know who it was. Ah, it was the noble Lord, Lord Johnson—I am so sorry, it was signed by our Minister in the Lords. Again, I feel I have to quote from it. It says that

“the Gross Value Added … of the water sector has shown little long-run growth”.

I am sorry to say I think that phrase sums up how the Department for Business and Trade considers the water industry. It clearly does not believe that the water industry can generate economic value for the country, but the water industry can and should contribute to an improvement in the environment that we will pass on to our children and our grandchildren—and that has value, even if it cannot be measured by the Department for Business and Trade.

It is certainly the case that most businesses and the public at large want and expect a plentiful supply of clean water, fewer leaks from pipes and a huge reduction in discharges of sewage into our waterways. There is a strong argument, which in a sense the Minister has already deployed, and I am sure will continue to deploy, that less regulation will normally produce economic growth. That may indeed be true for many sectors of the economy, but a monopoly industry where there is no competition, and which is causing so much damage to the environment, needs more regulation and enforcement, not less. So I ask the Minister to discuss with his Secretary of State whether the order really should apply to Ofwat along with the other regulatory bodies within scope of the order. My conclusion is that this order as drafted really could further damage an already degraded aquatic environment.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, it is a pleasure to follow the noble Duke, the Duke of Wellington. I speak at quite a lot of sewage rallies and in sewage debates and I always give him credit for leading the charge against the Government’s laissez-faire attitude to sewage. There is usually a slightly stunned silence that I am congratulating a Duke—but that is life.

We heard some very fine words in the opening statement about the environmental considerations not being affected and so on. I am really sorry, but it is nonsense. If you have growth, you are going to have environmental devastation. It is automatic; it happens everywhere. At the moment, we have torrents of sewage pouring into our rivers, on to our coastlines and into our chalk streams. But, instead of stopping it, this proposal aims to increase it; and instead of giving Ofwat tougher powers to regulate the water industry and turn off the tap of CEO bonuses and shareholder dividends, Ofwat is now being told that economic growth is more important than clean water.

Whenever this Government do anything, I always ask, “Who benefits?” Who benefits here, of course, are Conservative Party donors and the economic growth they are going to experience at our expense and, in this case, developers who provided almost one-third of Conservative Party funds for the previous decade. What the Government mean by “economic growth” is the ability of developers to build cheap, sell high and connect up a lot of new houses to sewerage systems that cannot even cope with existing demand without emptying the excess into our local rivers and streams.

The only way to ensure that new houses are connected to a modern, effective sewerage system is to have public ownership of water companies. The only way to ensure that our water bills are being used to build local sewers rather than offshore bank accounts is to have people in charge who work for the public good and not for private greed.

By asking Ofwat to consider economic growth, the Government are not asking it to make a judgment on whether that growth is desirable, yet a growth in pollution that requires millions to be spent on clearing it up is classed as economic growth. More money spent on medicines that fight off gastric diseases from polluted water is economic growth, as is money repeatedly spent on restocking the fish populations of rivers. Are we really saying to Ofwat that growth at any cost to the health of humans and nature is a desirable thing that it should promote?

Last year, this House defeated the Government’s attempt to allow developers to build new homes that would have added pollution to some of the most sensitive waterways in this country. From the Norfolk Broads to Devon, the Government hoped to let developers pass on the clean-up costs for pollution to local people paying their water bills. We in your Lordships’ House stopped them. I would have liked us to do the same today, but clearly it is not going to happen.

I know that I will be on the Opposition Benches pestering the next Government to change these rules back. It will not take legislation; it is something a Minister can do and I will expect them to do it. Back in 2021, when the Government stripped out the last of our amendments on stopping sewage in the Environment Bill, without timetables and targets, I said, Cassandra-like:

“This will come to haunt MPs”.—[Official Report, 9/11/21; col. 1161.]


As the noble Baroness, Lady Bakewell, mentioned earlier, this piece of legislation is a gift to the three opposition parties. At the rally I was at yesterday, all three opposition parties had a very sympathetic hearing, but, I am afraid, the Conservative MP had a very tough time, even though she was clearly very concerned about the issue. This Bill is a vote loser and the Government should remember that.

Economic Growth (Regulatory Functions) (Amendment) Order 2024

Duke of Wellington Excerpts

Monday 15th April 2024 Lords Chamber

[Lord Johnson of Lainston (Con)]

I am grateful to my noble friend for the intervention. I did not realise I did not have to give way; my newness to the House probably insisted that I did so.

What is important is that we were discussing the guidance on growth for 52 or 53 regulators. This is not a debate about the Wye Valley. I have heard what the noble Lord, Lord Fox, said about that situation. I understand that the Government have announced this week an action plan and full review. I am delighted that this is a good example of where there is cause and consequence.

I want to bring us back to the guidelines. It is important that a functioning economy allows all stakeholders to operate in it. Clearly, that is the whole principle. If there is one stakeholder that is dominating its universe through its own actions, that is unacceptable in terms of creating the trust and framework we need in the market.

I return, in conclusion, to what has been a very important debate. I hope it will continue to be an important debate. I stress again that in four years we will have a full review of the growth duty so that we can see how it has been successful. One of the questions asked was: how soon will we know whether it has been successful? I hope it will start to show economic growth, in some of the points I will come to in a moment, immediately. We will certainly do a review after four years. There will be an explicit focus on ensuring that areas such as the derogation of consumer rights, the environment, or whatever it may be, will clearly be included in this.

I will touch on two final points because it is good to have this on the record. Regulators should have regard to medium- and long-term growth—not necessarily short-term growth or the profitability of the actions of any one company—by ensuring that key policy decisions and strategic choices are informed by consideration of key drivers of economic growth. This may include, but is not limited to, innovation, infrastructure and investment, competition, skills, efficiency and productivity, trade, and environmental sustainability, which I have touched on before. That is very important because, if you are running a business, you want to produce phenomenal products for the future of our nation. All too often we have had issues with regulators and the Government being slow to regulate on the innovative products we need to make this economy successful, both for our health and the economy around that.

How many times have businesses come to noble Lords—not all of your Lordships will have been approached by businesses, but many will—to complain about the lack of transparency around the regulator’s decision-making or the timeliness of its response on permitting, or to suggest that international standards could be used or that our own standards could be improved on, or to ask for more skills in regulators or for regulators to help them be skilful? It is so important that we respond to this. I am aware of the comments made around the water industry, and I hope that, to some extent, I have reassured noble Lords that this in no way derogates our responsibilities and abilities to act.

[The Duke of Wellington (CB)]

The Minister has many times referred to the wording in the draft statutory guidance refresh, which I assume can still be amended. Therefore, I ask the Minister to comment on page 26, which I quoted earlier, where it says that

“certain enforcement actions … can be particularly damaging to the growth. These include, for example … financial sanctions; and publicity”.

Surely the Minister would agree, in view of what he said, very persuasively, that those words should be looked at again. They certainly will inhibit a regulator from enforcing financial sanctions.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Duke for those points. The relationship between the draft document and the formal document is a matter of moments before we finish the debate, so I do not think that is a possibility—but I am happy to be corrected by someone with better procedural knowledge of the House. I will deal with that in a moment, but I do not want to spend too much longer on this because I know that we want to move on.

I return to what this is about. As I say, there are 50 or so regulators covered by the statutory instrument. This is a refresh, so only three new regulators are affected, though there may be other smaller regulators that come into scope; fundamentally, it will be the main economic regulators that we have talked about. The rest of the regulators are covered by the existing statutory guidance, and the refresh improves on that. It is a very good thing, and I hope noble Lords will support us in this quest.

It is right that regulators—even the water regulator—should be pro-innovation, skilled and capable, business aware, proportionate, effective and responsive, and collaborative. I have had a number of businesses represent to me that too many regulators cross over each other and cause a great deal of confusion. They should be internationally aware, and they should be consistent, transparent and accountable. I do not see how any of us in this Chamber can suggest that these ambitions for the regulatory environment are not good. They should be reinforced. If we are to have a strong economy, we have to apply those decent, sensible, long-term economic criteria to the three main regulators.

I am happy to have further discussions as we head towards the White Paper around this. I am also happy to flag other points that noble Lords think will help in constructing a better regulatory framework to enable companies to flourish, consumers and the environment to be protected, and the overall economy of the country to see the necessary growth for the strength and wealth needed to protect our environment in the long term. I am grateful to all noble Lords for their contributions to the debate, and I commend the SI.