Water (Special Measures) Bill [HL]

Duke of Wellington Excerpts

Committee stage
Wednesday 30th October 2024 Lords Chamber

[Baroness Parminter (LD)]

In moving Amendment 30 I will introduce it and seven other amendments in this group. I say immediately that a number of them are consequential, and I am very mindful of the time—so do not panic. They are all about pollution reduction.

Amendment 30, proposed by the noble Baroness, Lady Bakewell, is specifically around the issue of pollution incident reduction plans, which I think the whole Committee welcomes. She is seeking to highlight that, at the moment, it is only water and sewerage companies that they apply to; they do not apply to water-only companies. Yet five out of the 16 regional water companies are water-only companies, and they are in areas of high ecological importance, including some that have some of our most precious chalk streams—and we have had plenty of debates in this House explaining how they are of global significance.

I wanted to quote what Ofwat said this summer about water companies. It stated:

“We recognise that water only companies … can be responsible for serious pollution incidents and intend to hold them to account”.


Making water-only companies subject to this provision, as well as water and sewerage companies, would allow it to do just that.

Amendment 32 is in my name and that of the noble Duke, the Duke of Wellington; I thank him for his support. Also in this group are Amendments 31, 39, 40 and 36. They all deal with the issue of the water companies having a duty to publish these pollution incident reduction plans but having no obligation to actually implement them. We are saying that they should have a duty to implement them.

I raised this issue at Second Reading. In response, the Minister said to me about pollution incident reduction plans:

“A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction”.—[Official Report, 9/10/2024; col. 2072.]


I want to unpick that a bit, because I have a couple of issues with it.

First, the Water Industry Strategic Environmental Requirements, a document drawn up in 2022 by the Environment Agency and Natural England, sets out that pollution incident reduction plans can be a mechanism for water companies to discharge their pollution reduction obligations, and says that if they do that then they must be implemented. Secondly, it is fairly common practice in the corporate world that, if there is a duty to undertake an action plan or similar, it should be implemented. The most recent example I could find was in the financial sector, where last year a consumer duty was placed on financial companies, to be overseen by the Financial Conduct Authority, whereby they have to draw up specific action plans, and there is a duty in the law that these must be implemented. If it is in law elsewhere, why is it not appropriate here?

I tried to think whether there was any other reason why the Government might not want water companies to implement these plans. I thought they might be worried that the water companies would use them as a bargaining chip in the price reviews, or with local authorities when they sought permission for various planning applications: they could say, “You’ve got to give us this permission or allow us to spend this money—we’ve got a legal duty and you have to succumb”. I have more faith in local authority members not to accept that position. Equally, as we have just discussed, given that Ofwat does not really have that many environmental duties, I think that it will keep clear of that as well. But even if it is still an overriding concern of the Government, it is not insurmountable. Between now and Report, I think we could come up with some wording that said that, subject to the necessary permissions, the water companies must implement these plans.

These plans are really important. If we do not put it in the Bill that the companies must implement them, it begs the question whether the Government really want them implemented. We know that pollution levels are stubbornly high, and we know that the water companies are not doing enough. Unless they have an explicit duty to follow through on them, we are missing something of a trick.

Finally, Amendment 34A, in the name of the noble Baroness, Lady Bakewell of Hardington Mandeville, picks up the important issue of pollution in national parks. I know that a number of local noble Lords, including the noble Earl, Lord Devon, and indeed the Minister herself, raised this at Second Reading. There are stubbornly high levels of pollution in our iconic national parks and the Broads. It is a travesty that not one of the rivers, lakes or streams in our national parks is in good ecological state—that is appalling. It was only earlier this month that we found out that United Utilities had discharged 140 million litres of sewage illegally into Lake Windermere. Frankly, it beggars belief.

This amendment very reasonably proposes that the companies must come up with plans to deal with these pollution incidents by 2030. I think that most members of the public would think that an entirely reasonable request. They have had just about enough of these companies constantly making our rivers, streams and lakes in national parks filthy and stinking while, in many cases, making themselves filthy and stinking rich. I beg to move.

[The Duke of Wellington (CB)]

My Lords, I support some of the detail in Amendments 30, 31 and 32—I have added my name to Amendment 32. Amendment 30 makes a very good point and I would be surprised if the Minister was not prepared to devise her own amendment that would cover all these points. Obviously, water-only and sewerage undertakers should be included in the scope of this clause.

Amendments 31 and 32 are very similar. As the noble Baroness, Lady Parminter, has already said, it seems extraordinary that a water company could publish a pollution incident reduction plan without intending to implement it. It would then be just a nice idea but nothing more would happen. I would be very surprised if the Minister did not accept it; I cannot quite understand that there is a legal argument for not accepting it. My hope from this short debate is that the Minister will agree to look at these points carefully. I am sure that, with the benefit of parliamentary draftsmen who help on these matters, she could come up with an amendment of her own that would cover the points. Clearly, there is support for what I would say are the rather obvious points made in these amendments, and I hope that the Minister will react accordingly.

[Baroness Young of Old Scone (Lab)]

My Lords, I support Amendments 32, 39 and 40 in the names of the noble Baroness, Lady Parminter, and the noble Duke, the Duke of Wellington. The case has already been put very well that there is absolutely no point in having these plans drawn up and published if there is no requirement for the companies to implement them and no sanctions if they do not. This seems a bit of a no-brainer. I suggest to the Minister that, if there is some legal impediment to these plans being implemented, we should do away with the requirement to draw up and publish them. That would be the most honest thing to do, if there will be no requirement to implement and no sanctions if they do not; otherwise, they are just dangling in mid-air, of neither use nor ornament.

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[Baroness Hayman of Ullock (Lab)]

My Lords, once again I thank noble Lords for their amendments and for taking part in this debate. I start by emphasising that we expect all water companies to reduce all pollution incidents, in line with their legal duties.

I turn first to Amendment 30, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, which seeks to apply the duty to produce pollution incident reduction plans to water-only companies. Initially, it might be useful to explain why our focus has been on water and sewerage companies only. This is because most pollution incidents arise from sewage incidents, not water supply incidents. We were concerned that, by widening the scope, we could end up diluting the focus of the plans, so that actions were not tailored to the most serious pollution incidents. That is the thinking: the Government want to keep the focus of these plans on sewage incidents, which is why we are not accepting the amendment. Having said that, there have been some very interesting comments around this and I would be very interested to hear some wider thoughts on Amendment 30. Clearly, the noble Baroness is unwell at the moment and is not in her place, but I hope that other noble Lords will go back to her and see whether she would be happy to meet to discuss this further: I think it is something we could pick up, following Committee.

I move now to Amendments 31 and 36, also tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and Amendments 32, 39 and 40, tabled by the noble Baroness, Lady Parminter, which speak to the implementation of measures identified in pollution incident reduction plans. I thank the noble Baroness for her clear introduction and the noble Duke, the Duke of Wellington, and my noble friend Lady Young of Old Scone for their comments on this amendment.

Clearly, it is really important that we ensure water companies are taking decisive action to reduce pollution incidents. I want to highlight that the provision already requires water companies to report each year on progress made in implementing pollution incident reduction measures. This will create an unparalleled level of transparency that will further enable both regulators and the general public to hold water companies to account. Where pollution incident reduction plans do not meet the statutory criteria set out by legislation, the Environment Agency will be able to take enforcement action. This will include ensuring compliance with the duty for the plan to provide an assessment of progress in implementing the measures.

The noble Baroness, Lady Parminter, was trying to understand why this was not something that we accepted. I can reassure her that it has nothing to do with it being used as a bargaining chip—absolutely not. The big concern is that, if we introduce a duty to implement the measures in the pollution incident reduction plans, this could imply an unusual sub-delegation of powers to the water companies, whereby they would effectively be able to create enforceable duties on themselves. We are concerned that this would then have the perverse outcome of incentivising companies to produce less ambitious plans to mitigate the risk of enforcement action. That is one of the fundamental concerns in a nutshell, and it is why we are not going to accept these amendments. If the noble Baroness has any suggestions, I would be very happy to hear them.

I turn now to Amendment 34A, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, which speaks to the important matter of waterways in national parks. The Government agree that national parks form a vital part of our environmental heritage. In line with this, the Government will seek to use the powers in the Levelling-Up and Regeneration Act 2023 —I still have the scars on my back—to ensure that relevant authorities, including water companies, deliver better outcomes in protected landscapes. We are in the preliminary stages of developing those regulations, to ensure that authorities deliver the better outcomes that we need. The idea is that they will provide a more holistic approach, conserving and enhancing the purposes and special qualities of our protected landscapes.

We have also set an expectation that Ofwat should challenge water companies to prioritise improvements in national parks. We are expecting considerable investment over the next price review period, to improve water and sewerage assets discharging into national parks. This, of course, will include the iconic Lake Windermere, which we have heard much about. United Utilities was mentioned in relation to this. Noble Lords might be interested to know that I met with a representative of UU last week and discussed issues around the environment and improving nature—so there is work going on with the water companies behind the scenes in this specific area.

However, the Government consider it important that pollution incident reduction plans should identify actions to address pollution incidents right across England and Wales; the noble Lord, Lord Roborough, made exactly this point. A statutory hierarchy of priority areas risks deprioritising pollution incident reduction plans in other areas, so we have to be very careful that we do not do that, because that bathing waters, for example, in other areas could be impacted. For this reason, the Government will not be accepting this amendment, but clearly I want to stress we do take our protected landscapes very seriously.

I turn now to Amendment 35 tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville. I fully recognise her desire to ensure that we see a reduction in the environmental risk posed by pollution incidents. This is why Clause 2 already requires water companies to address environmental risks in their pollution incident reduction plans. The clause requires water companies to set out the measures they will take to reduce the frequency and seriousness of pollution incidents.

Risk to the environment is already used, among other important factors, to determine the seriousness of a pollution incident in the Environment Agency’s incident categorisation process. This is the framework that water companies are required to refer to when they develop their plans. Therefore, by requiring water companies to report on plans to reduce the seriousness of pollution incidents, we are already requiring them to report on and develop measures to reduce the risk to the environment. While we understand the noble Baroness’s intention, the Government believe that because of the reasons I have just set out the amendment is not necessary.

Finally, I turn to Amendments 41 and 42 tabled by the noble Lord, Lord Roborough, which seek to impose requirements around reporting against pollution incident reduction plans. I reassure him that Clause 2 already requires water companies to publish an assessment of their progress in implementing previous plans. Requiring more frequent reporting would be unlikely to allow water companies sufficient time to implement the lessons learned from previous pollution incidents.

I also reiterate that we expect water companies to be fully accountable when developing their plans and implementing the proposals in them. If a plan does not adequately address the statutory provisions required by the Bill or by broader legal requirements, the Environment Agency will take appropriate enforcement action. The Government therefore do not propose to accept these amendments, but I thank the noble Lord for his suggestion.

I will clarify the strategic policy statement. The key point is that it is directed to Ofwat, not to the water companies. The Government’s strategic priorities for Ofwat include the need for companies to prioritise actions to reduce pollution and considerably improve their environmental performance. The SPS sets general strategic requirements for Ofwat and does not create specific measures, as we expect, under the pollution incident reduction plans.

I thank noble Lords for their input into this discussion and for their suggested amendments.

[The Duke of Wellington (CB)]

As the noble Baroness sits down, I must say that I did not find her arguments for not accepting a duty to implement to be very convincing. I therefore wonder if she would at least be prepared to meet the noble Baroness, Lady Parminter, and me between now and Report to see if, between us, we can put together some amendment that might be acceptable to the Government.

[Baroness Hayman of Ullock (Lab)]

I completely understand. This is not a straightforward area, and I would be absolutely delighted to meet the noble Lords to see if we can find a way forward.

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[Baroness McIntosh of Pickering (Con)]

My Lords, I am pleased to speak to the amendments in this group in my name: Amendments 34, 38, 53 and 93. I look forward to the discussion on Amendment 51 in the name of the noble Duke, the Duke of Wellington, and Amendments 54 and 88 in the name of my noble friend Lady Browning; I am delighted to have co-signed Amendment 88, but I look forward to hearing her own words.

Amendments 34 and 38 relate to the opportunity to

“require consideration of opportunities to retain water through natural solutions to prevent sewage mixing in combined sewers with excess rainfall, causing pollution incidents”.

I am delighted to have been associated with such a project at the latter stages. I rather naughtily took full credit for the Slowing the Flow at Pickering scheme, although it was my then honourable friend John Greenway who did most of the work, but we were both involved in this successful project. It is important to notice, as I am sure the Minister will agree, that we need not overengineered projects but natural solutions to flood prevention and to prevent excess sewage going into waterways. They could be natural solutions such as soakaways, culverts or, in the case of Slowing the Flow at Pickering, creating dams, planting trees and, apparently, introducing beavers, with mixed success—and they must involve all partners.

In particular, I am keen to see partnership funding, not just from public partners, which were primarily those involved in Slowing the Flow at Pickering, but from private partners. In that regard, I pay tribute to the role that water companies play in preventing flooding upstream in a catchment area, and I applaud the work of companies such as Yorkshire Water and United Utilities, which have good track records in that regard.

My question to the Minister is: if she is not minded to approve these amendments, how do the Government expect to encourage the role of water companies, farmers and others to undertake such flood prevention measures? I urge her to consider that. In Amendment 38, I specifically refer to the preparation of a pollution incident reduction plan, noting that

“a sewerage undertaker must consult with farmers, local authorities and others to identify natural flood prevention solutions to prevent pollution incidents”

occurring. I did not speak to the previous group, but I felt sympathy with many of its amendments, particularly seeing the damage to lakes such as Lake Windermere. It is important to note that this is not always the fault of water companies.

Amendment 53 builds on the amendments to which I referred and requests a report on implementation. Assuming that we have implemented Schedule 3 to the Flood and Water Management Act 2010 as part of this Bill—I am ever optimistic—I request that we have a six-month review in which the Secretary of State or the Minister would

“lay before each House of Parliament a report on the effect of this Act on the implementation of Schedule 3 of”

the Act.

Before I turn to Amendment 93, I note that the Minister, in summing up on the first day in Committee, said her catchphrase. I will repeat it for good measure; noble Lords should be alarmed when we hear this phrase in future. She said that the department is considering with the Ministry of Housing, Communities and Local Government

“how best to implement their ambitions on sustainable drainage”—

here is the killer quote we must be mindful of—

“while also being mindful of the cumulative impact of the new regulatory burdens on the development sector”.

She concludes:

“At this stage, I do not want to pre-empt the outcome of that process”.—[Official Report, 28/10/24; col. 1009.]


I should be obliged if the Minister could give us a little more meat on cumulative impact. She will recall that, at Second Reading, I set out that this was a wonderful one-off opportunity in the Bill to plug the gap and fill the loophole—the gap in responsibilities between planners, investors and housebuilders—and to recognise the responsibility of others, such as highway authorities, which contribute to road surface water runoff entering the combined sewers and storm drains, without currently having any responsibility to prevent this form of pollution. That is very costly and we have already discussed on both days of debate on the Bill the damage that is caused. I repeat what I said on Monday: it is not within the responsibility of water companies where it is the fault of developers and highways authorities in this regard.

I turn to Amendment 93 in my name. Again, I am asking for a review of water reuse and existing regulations within 12 months of the day on which this Bill is passed, whereby the Secretary of State should publish a review of the existing regulations related to water wholesomeness and water companies’ ability to encourage water reuse. A report on the findings must be laid before Parliament. The purpose of this amendment is to the effect that, currently, water wholesomeness excludes from the responsibility of water companies the encouragement of water efficiency measures such as the use of grey water, reuse of water from a shower and other such water efficiency measures, as they are not covered by the definition of “wholesome water”. If that is the case, are the Minister and the department minded to review the definition of wholesome water. There are other amendments on clean water to which I think this also might apply. Currently, it seems bizarre that wholesome water would exclude such water efficiency measures.

The Government are aware that there are already a number of government regulations. This Government announced in September that they intended to roll out a mandatory water efficiency label in which appliances, including toilets, sinks and washing machines would be sold with information about their water usage to help customers reduce their use and save themselves money. That is very welcome. However, for such a system to be effective, surely labels must be tied to a mandatory minimum standard that could be reviewed and possibly tightened over time. If that is outwith the scope of this Bill, is this something to which the Government might return?

I understand that, under current building regulations, this matter could be revisited. Part G of the Building Regulations 2010 seeks to end the system whereby local authorities are given discretion between two water efficiency standards—the optional, albeit achievable, 110 litres per day mandate and the mandatory 125 litres per day standard. Would it not be better if Part G of those building regulations contained one standard only, possibly the lower standard of 110 litres per day, which, in the long term, could be reviewed and tightened, if that were the case? If such a labelling system were carried out and the Government were minded to do so, they could actually save £300 by introducing water efficiency into homes at the time of construction.

I hope that the Minister will look favourably on these amendments. Perhaps, if she does not like them, then, using the parliamentary draftsmen that she and her department have at her disposal, she could come up with a better alternative. But I hope she will find these amendments attractive. I beg to move.

[The Duke of Wellington (CB)]

My Lords, Amendment 51 in my name has been put in this group even though it relates to a different clause. Clause 3 deals with emergency overflows and seeks to define an emergency overflow. It also includes within Clause 3 what is in effect a let-out for the water companies, in that, where an overflow occurs as a result of an electrical power failure, that is permitted. I must admit that I find that surprising. I am grateful to the Minister, who allowed me to come and discuss this point with her and her officials a few weeks ago. However, I cannot for the life of me understand how failure to have sufficient electrical power generation capacity in a sewerage works is sufficient reason to allow an overflow to occur.

I remember that, just before or during the passage of the Environment Act, there was a major overflow by Thames Water in London, and the reason given at the time was, “Oh, sorry, there’s been a power failure”. That really does not seem good enough. Nobody running a hospital would be able to plead lack of power as a reason to close down all operations under way in the hospital at that moment. It seems to me that a sewerage works is a place where there must be sufficient emergency power generation through generators in case of a power failure.

This is a simple amendment; I hope the Government will take it seriously. It simply would delete, in effect, in new Section 141G(2)(a),

“electrical power failure at sewage disposal works”

as a reason for permitting an emergency overflow. That is my argument and I hope the Minister will take it seriously.

[Baroness Browning (Con)]

My Lords, I am very pleased for the first time to be able to contribute to Committee on the Bill. I will speak to the two amendments in my name in this group, Amendments 54 and 88. The Minister will already be aware of my enthusiasm for the use of grey water and its importance in new-build domestic construction. I support my noble friend Lady Pickering in what she has just said on this group.

The Committee has already drawn attention to increasing problems of safe disposal of sewage from buildings and the challenge going forward to adequate supplies of domestic drinking water. The fact that the existing system cannot cope with either does not augur well for the Government’s planned housebuilding target, which will include mandatory planning targets set out in the National Planning Policy Framework.

The Minister will know from Second Reading that I support her endeavours in the Bill, but the two amendments in this group tabled in my name seek to mitigate what could quickly become a standoff between the Department for Environment, Food and Rural Affairs and the Ministry for Housing, Communities and Local Government. I urge the Minister to take some action through these two amendments to prevent this, if nothing else.

I am very grateful for the assistance and legal advice given to me on these two amendments by the lawyers at WildFish, a charity involved in the protection of all wild fish in watercourses.

Some developers argue that, because of the legal obligations on sewerage undertakers to treat wastewater, the question of sewer and sewage treatment capacity is not a material consideration in planning. There is therefore a reluctance among planning authorities to impose conditions to protect the environment from sewage pollution, partly because of the case of Barratt Homes v Dŵr Cymru 2009, where the Supreme Court confirmed that Section 106 of the Water Industry Act 1991 provided a right for householders to connect to the sewer network and that only in narrow circumstances could the water company refuse such a connection.

Independent Water Commission

Duke of Wellington Excerpts

Tuesday 29th October 2024 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

The commission will focus on regulation, among other things, and I urge noble Lords to input into that part. Clearly, regulation is an area of particular concern. We need to look at how it was possible for water companies to have managed to get into such appalling debt; the commission will want to look at that very carefully.

[The Duke of Wellington (CB)]

My Lords, I said yesterday in Committee on the Water Bill that I very much welcome this review and congratulate the Government on having instituted it. Perhaps I could probe the Minister on a particular point about the structure of regulation. In the other place last week, the Secretary of State said:

“The Commission will conduct a root-and-branch review of the water sector’s regulatory system”.—[Official Report, Commons, 23/10/24; col. 280.]


However, in the press release, among the listed objectives of the commission are:

“Better regulation: rationalising and clarifying requirements for companies … Empowered regulators: ensuring regulators are effective in holding water companies accountable”.


I hope that within the scope of the commission is the question of whether the structure of regulation is correct, in that it is divided principally between Ofwat and the Environment Agency, and whether it would not be more appropriate to have a single regulator for such an important group of monopoly companies.

Water (Special Measures) Bill [HL]

Duke of Wellington Excerpts

Committee stage
Monday 28th October 2024 Lords Chamber

I look forward to hearing from the noble Lords, Lord Remnant and Lord Sikka, whose amendments seek to ensure that rules made by this authority can be scrutinised by Parliament. The amendment of the noble Lords, Lord Roborough and Lord Blencathra, seeks to set a six-month time limit for publication of the rules under new Section 35B. Finally in this group, Amendment 101, from the noble Lord, Lord Sikka, seeks to give the authority the power to curb excessive dividends and empower stakeholders to object to excessive dividend payments.

[The Duke of Wellington (CB)]

My Lords, first, I congratulate the Government on having set up, last week, the review under Sir Jon Cunliffe. That is an excellent move by the Government; a very respected individual will carry out the review, and a number of us have been asking for this for a while. I really think the Government have made a wise decision.

I want to comment on Amendment 2. I have sympathy with “must” rather than “may”, but I have a reservation about the then wording, “must issue rules”. It seems to me that it is necessary for the authority to issue what I would prefer to call “guidance” rather than “rules”. That would give a certain flexibility to individual companies—no two companies will ever have the same set of circumstances, either among their executive management or in the environment in which they are operating. I ask the Government to consider changing the wording of the clause, so that it reads: “The Authority must issue guidance about the arrangements made by relevant undertakers”.

There is no doubt that the water companies have abused the total independence they have had to date around setting remuneration and everything associated with it. They are monopolies, and I think they have gone too far. Many people have been rather dismayed to see the levels of executive remuneration. I ask the Minister to consider changing “rules” to “guidance”. That would be a great improvement.

On Amendment 3, in a light-hearted manner I point out to the noble Lord, Lord Remnant, a misprint, where his amendment refers to “renumeration” rather than “remuneration”. I am sure that that is an oversight which he will have already noticed.

There is a good point in the amendment from the noble Lord, Lord Remnant, in his proposed new Section 35B(1B)(b), about the importance of attracting, motivating and retaining persons of sufficient quality to work in the industry. We must all remember that what we all want is better-run water companies. I do not think we should be tying too tightly the hands of remuneration committees and the board in general in how they attract and retain executives. I am very persuaded by that particular aspect of the noble Lord’s amendment, but I worry about seeking to define too closely exactly how water companies should make their remuneration arrangements.

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[Baroness Pinnock (LD)]

My Lords, I start by reminding the Committee that I have an experience, rather than an interest, as I was a non-executive director for a number of years on the board of Yorkshire Water. I reassure the noble Lord, Lord Sikka, that I never had a bonus during that time, for the reasons that the noble Lord, Lord Remnant, has explained.

This group of amendments follows on neatly from the previous discussion about performance-related pay and the remuneration of senior directors of water and wastewater companies, so I thought it was worthwhile to draw out a bit more of the debate around this issue. The fundamental problem lies in the fact that water and wastewater companies are regulated by a number of different institutions. Ofwat is the economic regulator and, because of the way that the water Act was written, is primarily looking at the financial performance of the water companies. That inevitably leads to a disregard for the environmental outcomes of water companies as a priority. Consumers, who see that their rivers, lakes and coasts are being heavily polluted by these water companies, are astounded to see the same water companies giving huge bonuses to their directors. That is because the two issues are not related in the mind of Ofwat. That is why my party wants a single regulator for water companies, so that all the issues that are the responsibility of water and wastewater companies are taken into account. Part of that debate was reflected in the first group of amendments, discussed earlier.

We need to remind ourselves that remuneration in companies is decided by boards of directors. They will look at the financial objectives of the company and the outcome of the price review agreed by Ofwat and come to conclusions, whether or not objectives have been achieved or considerable benefit to the company accrued by the actions of directors.

That is part of the problem. As the noble Lord, Lord Sikka, has attempted to describe, the price review is a tussle of words and figures between the companies on the one hand and Ofwat on the other. I remember the discussions. If you are in a company and you want to make sure there is a good outcome for your owners and shareholders, you make sure that the submissions you make in a price review to Ofwat enable profits to be made. That is the whole purpose of a private company. It is at the heart of all the discussions we are having about water companies, their performance and their remuneration and bonuses. The 1991 Act was designed for them to be private companies with shareholders, who were going to receive dividends as a consequence. If that is the prime duty, and the main regulator oversees that prime duty, the other issues that water companies ought to be taking into account—the environmental issues in particular, as we heard earlier—become less important.

I hope that, when we come to Report and discuss these issues more closely, the Minister will think about a government amendment that strengthens the duties of water companies, and of Ofwat as the regulator, to take into account these other issues. For me, that is at the heart of the discussions we have had on this group and the previous group. I agree with the amendment from the noble Lord, Lord Remnant. You cannot try to control pay awards further down the company; those often very talented people need to be attracted into water companies if we are to improve what is a sad state of affairs.

[The Duke of Wellington (CB)]

My Lords, I support Amendment 18 in the name of the noble Lord, Lord Remnant, which simply deletes new subsection (5)(c) on page 2. It seems to me that we cannot allow the authority—whatever it may be in the future, after the review, or even from now on—to start getting involved in the remuneration of those below board level. That really becomes too much intrusion into the way a company is run.

The noble Lord, Lord Sikka, is entirely correct that, in the end, a director of a company is a director, whether executive or non-executive, as covered by the Bill; it mentions “a director” of the company. It seems to me that, while senior role remuneration should have some guidance from the authority, that should be restricted to the chief executive and other executive board members. There is no point entering into a discussion about non-executive directors, who clearly do not participate in performance-related pay or bonuses or anything like that. I think the noble Lord, Lord Remnant, is right; it would be appropriate to delete new subsection (5)(c) and include in this clause only the chief executive and any other executive director.

[Lord Roborough (Con)]

My Lords, I thank the noble Lord, Lord Sikka, for moving Amendment 4. It is right that the Government should take steps to put appropriate pressure on water and sewage companies to reduce the frequency and scale of water pollution incidents, and imposing financial penalties on board-level executives is a powerful way of disincentivising unwanted behaviours in the sector. But if we are to have financial penalties targeted at water executives who do not meet the standards expected of them, we must ensure that these are appropriate. As we discussed in the last debate, it is crucial that Parliament gets the opportunity to scrutinise the rules that Ofwat will be implementing.

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[Lord Cromwell (CB)]

My Lords, I will speak to Amendment 16 in my name. I underline at the outset that this is not about putting people on the board; if that is a misapprehension, I want to dispel it. Civil society has been at the forefront of raising issues around water pollution, including monitoring pollution incidents, and, frankly, it has done a better job than the regulators, which have been playing catch-up ever since.

There is an unbalanced and sometimes adversarial power relationship between civil society, water companies and the regulator, and this has given rise to numerous complaints about a lack of transparency—for example, companies deliberately adopting a very narrow definition of “environmental” in order to reject and bat away inquiries from civil society and others. This amendment would require the regulator and water companies to engage with civil society on a regular and formalised basis to agree actions and to record these actions publicly.

This achieves two things. It addresses the disbalance between civil society, the water companies and the regulators and will be an important means to increase transparency, including detailed public transparency as to what is going on, what the regulators and water companies are being challenged on and what actions are planned. It is very easy to underestimate the importance of this. In a previous role I had, we were handing over large sums of money to organisations and one of the stipulations was that they had to publish on their own website exactly what actions they had committed to. This made life very easy for us, because the media then held them to account against those actions. I suggest that a formal process where these things are recorded properly and publicly will be of great assistance to keep the water companies and the regulators up to the mark. Without a formal process of that sort, the relationship will remain distant and most likely adversarial. Therefore, I hope the Minister will look favourably on this amendment or produce one of her own from the government side.

[The Duke of Wellington (CB)]

My Lords, I will speak to Amendments 21 and 23 in my name. In effect, they both seek to amend new subsection (6) on page 2. The main point of my amendment is that I believe it does not lead to effective governance of a board of directors if sectional interests are represented directly on the board. It is much more effective and likely to have more influence if a specialist panel is created to advise and meet the chief executive. I cannot understand why the Government’s clause refers only to the views of consumers. It seems essential—I agree in various ways with the noble Earl, Lord Russell—that environmental interests are similarly represented on a panel. It could be a separate panel or one representing both consumer and environmental interests; I think it would be better to have two panels.

The real point is that I have never seen a board work effectively where there is a sectional interest represented directly on the board, with one or two members of the board speaking only for that particular interest. It makes it very difficult to reach a consensus on a board. Most boards work by consensus, and there has to be a collegiate atmosphere on any board. Where a particular interest is represented, be it environmental or consumer, that is less likely to lead to effective management of the board of that company.

I would like to persuade the Minister to delete from new subsection (6) “board” and “committee” but leave in “panel”, to include consumers and environmentalists on those panels and, importantly, that those panels should have regular meetings with the chief executive to exercise real influence over the conclusions of the board when it next meets on that subject.

Water (Special Measures) Bill [HL]

Duke of Wellington Excerpts

2nd reading
Wednesday 9th October 2024 Lords Chamber

[The Duke of Wellington (CB)]

My Lords, I welcome the Bill. It demonstrates a much greater determination by the new Government to tackle the continuing and barely reducing problem of pollution of our rivers, lakes and beaches. Since we debated these matters three years ago during the passage of the Environment Bill—now the Act—the position has hardly improved. It has needed new Ministers with greater focus to force the water companies to take the matter more seriously. It has been a national disgrace that water companies have in many cases become financial structures to provide investors with an above-average return, through not only dividends but high-yielding bonds and executive management rewards.

We should all remember, as any player of Monopoly knows, that water companies used to be boring utilities providing a secure but not very exciting return. Some 35 years after privatisation, the companies are, on the whole, not owned by the original retail investors, who in many cases had been the consumers of water services in a particular area, but are now owned largely by institutional investors through private equity structures with high leverage. Such structures are not suitable for a regional monopoly utility. Water is essential for all residential and business premises.

I commend the Government for increasing accountability and transparency for the water industry. Yesterday, I heard the chief executive of Ofwat say on the “Today” programme that there needs to be a cultural change in the water companies. I believe that the Bill is likely to help that process as directors of the different companies come to realise their personal accountability. However, I must again suggest to Ministers that they should set up, within the independent review that they have already announced, a review of the current regulatory structure. The Minister has said that there will be a review of the whole industry, and I quite understand that it cannot be part of this Bill, but I hope that when she replies to this debate, she will undertake that a review will definitely include a look at the structure of regulation.

I and other noble Lords have received a suggestion that the growth duty placed on the Environment Agency and Ofwat should be disapplied, but this was added only recently by a statutory instrument. I spoke against that statutory instrument—the then Minister was here a few moments ago but unfortunately is now not in his place—but, as there is no ability by either House of Parliament to amend a statutory instrument, it was passed. I cannot imagine that this new Government would wish to be seen to disapply a growth duty on any public body.

Throughout this Bill, there are frequent references—sometimes slightly confusingly—to new powers for the regulators. Dividing regulation between Ofwat as the financial regulator and the Environment Agency as the environmental regulator has, with hindsight, allowed the industry to evolve in a way that has damaged the aquatic environment and offended the public’s perception of our green and pleasant land. The state of our rivers, lakes and beaches is a national disgrace—we must surely all admit that. At last, this Government are trying to overcome this stain on our reputation and our sense of well-being. I have a concern, however, that unless we improve the way we regulate the polluters we will not in the long term arrive where we want and need to be in terms of the ecological state of our inland and coastal waterways.

A number of us yesterday received emails suggesting that Ofwat should be given an additional duty to protect the environment. Whereas this is a laudable intent and something that all businesses and indeed individuals should aspire to, I am not sure that, in the current regulatory structure, it would be sensible to add this statutory duty to the other regulator while it is principally the duty of the Environment Agency.

I turn now to some specific ways in which I think the Bill could be improved. I am very grateful to the Minister for a meeting that a number of us had with her on Monday. It is, I think, significant that the Bill has been tabled in this House, thus enabling it to be better scrutinised—and improved—before it goes to the other place where, as we know, very few amendments will ever be properly considered, let alone voted on.

I am a bit concerned at the idea of consumer representatives on boards. In my experience, such defined interests on a board are not likely to improve the effectiveness of the board. New Section 35B(6), inserted by Clause 1, on page 2 of the Bill, does refer to a “committee or panel”—as the Opposition spokesman has already said. I believe that one of these would be much more effective and appropriate, particularly if the chief executive was required to have regular meetings with such a panel. If consumer interests are to be represented, why not also environmental interests, which I would have thought are, in this circumstance, equally important?

In new Section 94EA, inserted by Clause 2, the requirement for water and sewerage undertakers to prepare and publish a pollution incident reduction plan should, I suggest to the Minister, be extended to include a legal requirement to implement the plan. There are too many cases of plans being announced and then not being delivered.

The Bill introduces the concept of “emergency overflows” in addition to the permitted combined sewage overflows, or CSOs. I understand the department’s wish to have another category of overflows, but it surely cannot be justified that the water companies can claim that an emergency overflow is legal if it is caused by an electrical power failure, as detailed in new Section 141G(2)(a), inserted by Clause 3. Any other public service provider, such as a hospital or a school, would be required to have in place sufficient electricity generator capacity to cope with power failures. I suggest to the Minister that this is too easy an escape clause for the water companies.

In conclusion, I support this Bill but I hope that, in Committee, we can help the Minister to make this an even better Bill before it goes to the other place.

Wild Atlantic Salmon

Duke of Wellington Excerpts

Thursday 12th September 2024 Grand Committee

[The Duke of Wellington (CB)]

My Lords, I declare an interest in that one of my children owns a stretch of a small salmon river in south-west Scotland, where I have fished all my life.

In the very short time available, I want simply to suggest to the Minister that, in informing herself about this dangerous situation with the Atlantic salmon, she might care to visit, or at least find out about, an organic salmon farm in Ireland which I visited this summer. It is extraordinary. Anybody who watched the “Panorama” programme on salmon farming a few years ago will never again eat any farmed Scottish salmon. However, that organic farm in Ireland is truly admirable. It does not have a lice problem. The salmon are not so packed in the cages as in Scotland, where they are like battery chickens. There is virtually no use of antibiotics or other chemicals. The seabed under the cages is regularly inspected and never resembles the state of the seabed under the salmon farms on the west coast of Scotland.

So there is an alternative to the sort of salmon farming which takes place on the west coast. I do not know whether the Minister can apply any influence over the Scottish Government, but the industry should be more regulated. At the very least, the use of antibiotics in it should be strictly controlled.

Sewage Pollution: Lakes and Rivers

Duke of Wellington Excerpts

Tuesday 30th April 2024 Lords Chamber

[Lord Douglas-Miller (Con)]

My noble friend raises a very good point; the water companies are consulted on these issues on a regular basis.

[The Duke of Wellington (CB)]

My Lords, I think the Minister just said that there is 100% monitoring of storm overflows, but my understanding is that, whereas the quality of water coming into the rivers from sewage plants is indeed monitored, outflows from the combined sewage overflows are not completely monitored and should be. That still needs further monitoring. Will the Minister meet with the Environment Agency and suggest that it accelerates the programme of installing monitoring of the combined sewage overflows?

[Lord Douglas-Miller (Con)]

The noble Duke has a profound knowledge of this issue, so I will bow to that on this occasion. I commit to speaking to the Environment Agency on this issue and will take that point forward.

Environment Agency

Duke of Wellington Excerpts

Thursday 7th March 2024 Lords Chamber

[Lord Douglas-Miller (Con)]

I am not entirely sure what the key question was. If it was about linking up across government, I assure the noble Lord that it takes place across all departments.

[The Duke of Wellington (CB)]

My Lords, I declare my interests relevant to this matter. In the past, the Environment Agency did not give sufficient priority to the discharge of sewage into our rivers. The Minister just explained how its budget has been increased, but the most important thing is to make the discharge of sewage and cleaning up our rivers a sufficient priority within the management of the Environment Agency. Is the Minister convinced that that is now the case and that what happened in the past will not recur, and we will have more effort from the Environment Agency in cleaning up rivers?

[Lord Douglas-Miller (Con)]

The noble Duke is absolutely right. Just in the last year, the Government published the Plan for Water, which marks a step change in how we manage our water. We plan to deliver clean and plentiful water for people, businesses and nature. We are delivering this with tighter regulation, tougher enforcement and more investment. The Government are committed in the 25-year environment plan to restoring three-quarters of our water bodies to be close to their natural state, and this plan will help us achieve that.

Pollution in Rivers and Regulation of Private Water Companies

Duke of Wellington Excerpts

Thursday 29th February 2024 Lords Chamber

[The Duke of Wellington (CB)]

My Lords, I declare my agricultural interests, which may be relevant to this debate. I also congratulate the noble Baroness, Lady Bakewell, on securing this debate. I am slightly saddened to hear, from various sides, party-political views on this matter. In my opinion, this is not a party political issue. I think that all parties in this House, and those with no party affiliation, share a determination to try to do something about this serious situation.

There is no doubt that pollution in our rivers affects the whole population, and there is wide public support for legislation to clean up our rivers and beaches. Unfortunately, despite many improvements made by this House to the Environment Act 2021, and despite various plans and intentions published by the Department for Environment, Food and Rural Affairs, the Environment Agency and Ofwat, the situation does not appear to be improving.

The Office for Environmental Protection—a new agency created by the Environment Act—stated in its recent annual report:

“The current state of the water environment is not satisfactory. Despite historic improvements, the pace of change has now stalled.”


It is well known, and a number of noble Lords have mentioned it, that only a small proportion of our rivers are in a good ecological state. In a report by the Rivers Trust, published earlier this week and referred to by several noble Lords, this country’s rivers are described as being in a

“desperate state … plagued by sewage, chemical, nutrient and plastic pollution”.

What can be done to encourage an improvement in our rivers? As the Office for Environmental Protection clearly states in its report, the Government’s ambitions can be achieved only with

“effective management of the farmed landscape and engagement with the nation’s farmers and landowners”.

Unfortunately, the rollout of the environmental land management schemes has been slow, and this will have impeded the reduction in the pollution in our rivers coming from agricultural activities. We have been slow in dealing with the slurry from intensive farming systems located in certain river catchment areas.

However, the inexcusable cause of river pollution is the continuing discharge of raw and untreated sewage. This has been happening for decades, and planning authorities throughout the country have been insufficiently insistent on improvements to sewage treatment plants to cope with new housing developments and so many house improvements. The various parts of central and local government have been insensitive to the scale of sewage pollution entering rivers and lakes. With hindsight, I think it is now clear that the regulatory structure created when the water companies were privatised over 30 years ago has been shown to be inadequate.

In the short term, it will be necessary to enforce to a greater extent compliance with new regulations for slurry management and the control of other farm waste. For the water companies, it will probably be necessary for Ofwat to insist on an even greater level of investment in sewage treatments—including, where possible, nature-based systems. I know that many ambitious investment plans have been announced, but I fear they are not adequate for the dire situation in which we find ourselves. I also fear—and it is uncomfortable to say this—that all this may involve increases in water charges greater than the rate of inflation. This must be coupled with a reduction or elimination of dividends until the discharges have been reduced to a minimum.

In the medium term, we must review the structure of regulation. I realise that this would be complex and that the transition could be disruptive. As the Minister and all the party spokesmen are here participating in this debate, I ask them to discuss with their respective colleagues whether all parties should include in their manifestos at the next election a commitment to an independent review of the structure of the regulation of the water industry. Such a review might well conclude, as I have, that it is necessary to have a single regulator, rather than the continuing splitting of responsibilities between the Water Services Regulation Authority—Ofwat—and the Environment Agency. The water companies are, of course, monopolies in their own geographic areas, and must therefore be regulated. I cannot think of other monopolies where the regulation is divided between two different agencies.

I do not suggest that it would not be complicated, and have other consequences, to change the manner in which water companies are regulated and held to account, and any change would not have an immediate effect. But the present system of regulation has meant that it has taken us decades to realise the full extent of the pollution damage, while the industry has become increasingly indebted and yet has paid out regularly dividends to shareholders, who in many cases are not the public shareholders who originally bought shares from the Government but private equity firms that may not share the same environmental objectives as the Government or the public. Some noble Lords have mentioned bonuses. I agree that it is rather shocking how much has been paid out in bonuses to companies which have been polluting regularly our rivers.

I realise that there is no quick fix for the current state of our rivers, lakes and beaches. But we must continue to keep pressure on the Government, local authorities and the regulators to reduce the discharges of sewage and the agricultural waste entering our river systems. A greater sense of urgency is now required.

Water and Sewage Regulation (Industry and Regulators Committee Report)

Duke of Wellington Excerpts

Monday 16th October 2023 Lords Chamber

[The Duke of Wellington (CB)]

My Lords, I declare my registered interests that are relevant to this debate. I welcome the Industry and Regulators Committee’s report and congratulate its members, particularly the chairman, the noble Lord, Lord Hollick.

When the water companies were privatised in 1989, I cannot imagine that Ministers then thought that so many of them would pass into the hands of private equity groups, many of them based outside the United Kingdom. As the water companies are monopoly suppliers of essential water services to households and businesses, it is clear that they must be regulated. Regulation is divided between the Water Services Regulation Authority, known as Ofwat, and the Environment Agency. In paragraphs 2 and 3 of its recommendations, the committee suggests that there should be much closer co-operation between the two agencies. I ask the Minister whether it might not be more effective to merge into Ofwat the parts of the Environment Agency that currently regulate the water companies.

There have clearly been failings over the past 34 years in how the water companies have been regulated. The Environment Agency, for its part, pleads lack of resources. I am not convinced by that, although the committee appears to accept the argument. The problem has been that addressing the discharge of sewage into rivers and on to beaches has not been a high enough priority for the Environment Agency and, therefore, not enough of its extensive resources have been directed to oversight and monitoring of these monopolies. If all along there had been a department within Ofwat responsible for environmental regulation, in addition to financial regulation, for which it is responsible, the growing problem of sewage discharges would have been detected and understood much earlier and corrective action could therefore have been taken some decades ago. Will the Minister and his colleagues give serious consideration to whether the structure of the regulation of water companies is correct, and whether there should not in future be a single regulator?

There are several other recommendations in the report which I completely support. Paragraph 24 recommends banning the sale of non-biodegradable wet wipes. I was pleased to see that, finally, the Government on Saturday launched their latest consultation on this, but I am not sure why they think that further consultation is necessary, as the overwhelming majority of this House and the other place, and of members of the public, are in favour of banning those products.

I also welcome paragraph 35, in which the committee questions whether the 2050 targets in the storm overflows discharge reduction plan are sufficiently ambitious. I hope that, when that plan is reviewed in 2027, the then Ministers will be more ambitious.

I support paragraph 47, in which the committee recommends that it should be part of water company licences that bonuses and performance-related pay of executives be linked to environmental performance. I also support paragraph 49, requiring that water companies, even though they may now be owned by private equity groups, should still be subject to the same level of transparency as they were originally, when they were publicly listed companies. This must surely be right for monopolies formerly owned by the state.

There are two final recommendations of the committee that I strongly support. Water metering should be compulsory for all households and businesses where possible. For households, the cost of meter installation must be borne by the water company. This will clearly help many consumers to reduce their water consumption.

The last recommendation of the committee is that there should be more stretching targets for reduction of water leaks. A few months ago, I asked the Minister why the Government’s target was to reduce leaks only by 50% by 2050. That does not seem sufficiently ambitious. Ofwat currently estimates that leaks amount to 51 litres per person every day. The idea that in 27 years’ time, the companies will still be leaking 25 litres per person per day does not seem in any way justifiable.

I very much hope that this excellently titled, excellently written report will cause Ministers seriously to review how the water companies are regulated.

Water Companies: Customer Bills

Duke of Wellington Excerpts

Tuesday 23rd May 2023 Lords Chamber

[Lord Benyon (Con)]

My noble friend is right to a point. The Government give direction to Ofwat and have given it very clear direction in terms of resolving issues in relation to sewage overflows into rivers. We have a system where, like all utilities, it is extremely attractive, not least to pension companies—which are the recipients of dividend payments—that invest in our water industry. Having that balance between making sure we are being fair to bill payers, and how much they pay, and getting that investment is absolutely crucial. That is why we work regularly with Ofwat to achieve it.

[The Duke of Wellington (CB)]

My Lords, none of us underestimates the complexity and magnitude of this problem. We have had years of underinvestment in our sewage disposal and treatment systems. Such is the size of the problem today that I think we must all accept that the strain will have to be taken by a combination of higher bills for the consumer, shareholders receiving smaller dividends and—I know that it is difficult for politicians to even contemplate—general taxation, with the Treasury sharing part of this burden.

[Lord Benyon (Con)]

I thank the noble Duke for his continued interest in this issue. Undoubtedly, we could resolve the situation by spending somewhere between £120 billion and £600 billion separating clean water from dirty water, retrofitting an entirely new sewerage system and creating additional storage equivalent to 40,000 Olympic swimming pools, but that would add between £271 and £817 per annum to bills. It is important that we are honest with customers—with the people who get water into, and have sewage taken out of, their homes every day—that this comes at a price. Some of the promises being made that this is a simple solution are entirely fallacious. We have to be honest with the people who pay these bills.