Water (Special Measures) Bill [HL]

Debate between Earl Russell and Lord Sandhurst

Committee stage
Wednesday 30th October 2024 Lords Chamber

[Lord Sandhurst (Con)]

My Lords, in moving Amendment 67 I will speak against the question that Clause 5 stand part of the Bill. I will also speak to Amendment 72.

My Amendment 67 would limit the maximum fine under the Bill to the level set out in the Regulatory Enforcement and Sanctions Act 2008. This Bill seeks to amend the 2008 Act to impose fines that will be set by regulations. The Government are asking Parliament to grant them these powers without clarity or definition on the level at which the fines will be set. All we know is that the Government’s impact assessment states that this penalty cap will be consulted on during the Bill’s passage, before it is set out in secondary legislation. I am pleased that the Government have committed to consultation but, regardless of any consultation, under the Bill as drafted the Government may vary the cap by statutory instrument. I respect and trust the Minister, who has acted in good faith throughout the passage of the Bill, but what is to stop a future Government misusing this power?

I propose to set the maximum cap at the level established in the Regulatory Enforcement and Sanctions Act 2008, which was passed under the previous Labour Government. When what became the 2008 Act was being debated, the Minister who took it through the other place was the now Chancellor of the Duchy of Lancaster, the right honourable Pat McFadden MP. He wisely argued then that the 2008 Bill would

“guarantee more consistent regulatory treatment of businesses”.—[Official Report, Commons, 21/5/08; col. 329]

Indeed, the 2008 Act built on the Hampton report, which recommended

“a comprehensive review of regulators’ penalty regimes, with the aim of making them more consistent”—

and I stress the word “consistent”.

Does the Minister agree with her colleague that we need more consistent regulatory treatment of business? If she does not, can she explain why the Government are seeking in this Bill to depart from the Labour Party’s previous reforms by giving the Executive the power to set variable monetary penalties by statutory instrument in this case? Is this the first of many reversals of Labour’s previous policy? Can I mark this down as yet another entry on my list of Labour U-turns?

I will now speak against Clause 5 standing part of the Bill. My concern is that the modification of the standard of proof in this case is dangerous and unjust. Water companies, no matter how poorly they may perform, deserve to be treated equally under the law with other regulated companies. When preparing for this debate, I once again found myself reading the Chancellor of the Duchy of Lancaster’s words from May 2008, when the 2008 Act was going through the other place. On the issue of the criminal burden of proof, Mr McFadden said:

“The Bill contains a number of essential safeguards. It makes it clear that a Minister can confer powers on regulators only if the Minister is satisfied that they are capable of exercising those powers in compliance with better regulation principles. Before regulators can impose monetary penalties or discretionary requirements, they must be satisfied beyond reasonable doubt that an offence has been committed. Businesses can make representations and objections before sanctions can be imposed, and, most importantly, there is a right of appeal to an independent and expert tribunal.”—[Official Report, Commons, 21/5/08; col. 332.]


This was an essential safeguard in 2008. I ask the Minister: have our standards of justice changed since then?

Amendment 72 speaks to the need for wider reform within the water industry. While His Majesty’s Government may not see fit to introduce a water restoration fund in this Bill, on these Benches we would welcome the Government taking the opportunity to implement wider reforms sooner rather than later. Can the Minister explain why the Government are resisting opportunities to deliver further positive reforms to the water sector in this Bill while we still have the chance?

The previous Conservative Government implemented the water restoration fund. That means that all environmental fines and penalties imposed since April 2022 have been ring-fenced to directly improve the water environment. Does the Minister agree that a water restoration fund for spending on freshwater recovery would improve the quality of water in the United Kingdom, and therefore would she welcome the introduction of one?

[Earl Russell (LD)]

My Lords, I will speak to Amendment 72 in the name of my noble friend Lady Bakewell and signed by myself. I am grateful for the support of the noble Baroness, Lady Jones, although I note that she is not in her place.

This amendment would require all funds from the fining of water companies for environmental offences to be ring-fenced for the water restoration fund and spent on freshwater recovery. We on these Benches have tabled Amendment 72 because it is unclear that fines imposed on water companies for breaches of their licences will bring any improvement to the water industry itself.

At Second Reading, a number of noble Lords suggested that the Bill could be used to bolster the water restitution fund—the pot set up by the previous Administration to channel environmental fines and penalties into projects that improve the water environment. The idea of this amendment is to achieve just that.

The Government have indicated that the Environment Agency will act as an enforcer to ensure that water companies adhere to the terms of their licences, monitor sewage overflows effectively, take steps to prevent this from happening in the future and make sewage reduction plans work. As has been raised many times during debates on the environment and water quality, the Environment Agency is chronically underfunded. Indeed, it has lost almost half of its funding in recent years. This lack of investment in the Environment Agency has led to what was once an effective organisation that could be relied on becoming weakened and less able to fulfil its statutory obligations effectively.

The case for this regulation is strong, as the water restoration fund is without legal foundation. The fund is not receiving all the fines. This is a direct consequence of the fund’s non-statutory character. In the continual absence of a legal imperative, revenue from fines can continue ending up in alternate destinations. The Government’s answer to make the regulator effective is for it to have the power to levy fines on operators that breach their licence conditions and break the law in other ways. These fines will then go back to the Environment Agency to recompense it for its work. As this is retrospective, it begs a question about what section of its current work programme the Environment Agency will have to put to one side while it is dealing with bringing the water industry into line.

There is also an issue around transparency. Customers know their bills will be going up—Ofwat agreed this in the latest review. They also know that the water companies have received fines in the past, but customers are unclear about what happens to those fines. Is it to be assumed that they have just gone towards the funding of Ofwat? In future, if the Bill is enacted, a lot more fines will be imposed. Bill-paying customers and the public in general expect to be able to trace what has happened to those fines.

Amendment 72 introduces new clauses to establish a water restoration fund. This fund will receive and hold all the fines and monetary penalties that are imposed on water companies for illegal activities and breaches of their licence conditions. The fund will then use the money recovered to invest in schemes to promote fresh-water recovery. It is only by improving the quality of fresh-water resources that we can begin to see an increase in the biodiversity of species that rely on the water they live in and around being fresh, unpolluted and free of sewage. As sewage discharges reduce, the quality of our fresh water will increase, and customers’ bills will need to be increased to deal with the chronic underfunding of the past. We will ideally reach a stage where the polluter does indeed pay for the damage they have done, as set out in the Environment Act.

We realise that this amendment leaves the Government with a conundrum as to how to fund the Environment Agency to carry out its work as a regulator, imposing fines and penalties on retrograde water companies. Our solution, of course, is to implement Amendment 80 and set up the clean water authority—but I do not want to rerun arguments that we have already heard. By accepting this amendment, the Government can future-proof the water restoration fund and ensure that one of the legacies of the Bill is a legally secure guarantee that sanctions for water pollution will always be used to help repair the damage caused and begin to restore the natural environment. I look forward to the Minister’s response.