Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020

Lord Alderdice Excerpts

Monday 8th June 2020 Lords Chamber

[Lord Mann (Non-Afl)]

My Lords, I too welcome the noble Lord, Lord Goldsmith, to his position. Having been in another place for the last seven years, he cannot be held to account for anything that has gone wrong. But I am surprised that there appear to be no value for money reports on the one project that has come forward to demonstrate that these regulations have been successful. That appears rather lacking, or certainly not visible. I trust that there is one, and that it could be made more publicly available.

The consultation and debate around the 2013 regulations seem to concentrate an awful lot on the powers and the potential for Ofwat to refer disputes over price determinations to the Competition and Markets Authority. The Minister did not mention any such referrals—have there been any? That appeared a key facet of the argument for bringing in these regulations. My biggest concern is whether they are doing the job they are meant to be doing.

The Palace of Westminster is a good example of a building underneath which sits a sewerage system that is defunct, not fit for purpose and extraordinarily expensive to put right. One could take London, Manchester and many other big cities, particularly those that expanded rapidly in the Victorian era, underneath which we have sewerage systems not fit for purpose. Yet no proposals at all have come forward for projects impacting this critical issue. That is not a reason to reject the Minister’s proposals, but it seems to me that it is not succeeding in terms of those major projects. The finance is not coming forward, so a rethink about where it will come from is a top priority. Does the Minister not agree with me, that he should tease this out from officials, from industry and from wherever else he is capable of doing so?

Every time it floods, one sees how the seepage of the system implodes into devastation for communities. Old systems, built 100 or 150 years ago, were added to by new developments—major tower blocks and new estates—all over the country. These were tacked on because nobody at any level, not least in local government, was at all concerned about what was underground and could not be seen—until it flooded and until the sewage, rainwater and surface water combined, causing devastating damage. This has to be a top priority.

These regulations relate to major projects—for example, in Manchester and London, where underground work will be extensive—and to more modest projects in towns or villages, where expansion has taken place. In some places, the underground sewerage systems are not fit for purpose but more consumers have been tapped into them, often willy-nilly. I hope that, in responding, the Minister can say a word about his wider vision of his remit, perhaps going beyond this measure. On that basis, I have no objection to his proposal.

[The Deputy Speaker (Lord Alderdice) (LD)]

I call the next speaker on the list, the noble Baroness, Lady McIntosh of Pickering. There is a problem with the noble Baroness unmuting her microphone. I am afraid that we are not hearing her, so we will have to move on to the next speaker on the list. I call the noble Baroness, Lady Altmann. We cannot hear her either, so I call the next speaker, the noble Baroness, Lady Bakewell. We are unable to hear her either.

[Baroness Bakewell of Hardington Mandeville (LD) [V]]

I am here. Can noble Lords hear me?

[The Deputy Speaker]

Please continue.

[Baroness Bakewell of Hardington Mandeville [V]]

Thank you. My Lords, I too am grateful to the Minister for his extensive introduction to this statutory instrument. It is a great pity that we have not been able to hear from the noble Baronesses, Lady McIntosh and Lady Altmann.

I feel certain that in 2013, when this instrument was first introduced and approved, it was envisaged that all relevant infrastructure projects would have been completed by the time we reached the sunset clause date. However, as we all know, an awful lot has gone on in the intervening years and infrastructure projects are not the fastest to be delivered.

Like my noble friend Lady Scott of Needham Market and the noble Earl, Lord Erroll, I would like to know why the sunset clause was introduced in the first place. As the Minister said, the SI introduced in 2013 was due to expire after seven years, on 27 June this year, with a five-year review period. It was to operate across the English/Welsh border, with customers in Wales being provided for by an English undertaker. I accept entirely that the devolved Administrations are able to deal with their own water infrastructure projects, but that was not always the case. There are large reservoirs in Wales—Lake Vyrnwy for one—which provide water to English authorities, and I know that Birmingham is grateful to Wales for providing its water.

In 2013, large and complex water projects were overseen by Ofwat, and that will be the case be in the future. I note that in future there will be no sunset clause, and I ask the Minister whether that is wise. As others have said, during the period since 2013, only one large and complex high-risk water or sewerage infrastructure project has been delivered—the Thames Tideway Tunnel project, referred to by the noble Lord, Lord Adonis—and this has not been without its problems.

As the Minister stated, during the five-year review in 2018, eight stakeholders were consulted and five responded: Ofwat, Thames Water, Bazalgette Tunnel Limited, BTL investors and the Consumer Council for Water. As a result of their positive responses, Defra decided to extend the 2013 regulations. The five-year review found that the legislation was effective and should continue. The protection of the capital investment of the undertakers has been seen to be effective and has reduced risk and costs, as mentioned by the noble Lord, Lord Moynihan.

The March 2020 consultation again included Ofwat, Thomas Water, BTL and the Consumer Council for Water, and, in addition, Water UK, the Environment Agency and the Drinking Water Inspectorate, plus sewerage and water companies informed via Water UK. This time, four responded: Ofwat, the Environment Agency, Thames Water and Affinity Water.

Future decisions will be made on a case-by-case basis. I am grateful to the Minister for listing the locations of the four major schemes likely to be considered in the coming years under this SI. That is extremely helpful, but it would also be helpful to know the timeframe for each scheme. Is he able to give us that information?

Water conservation is extremely important and reducing leakages is key to it. Like the noble Earl, Lord Caithness, I am not sure that a 50% target for leakages is sufficiently ambitious. Likewise, I am unclear whether water meters help to save water. I am not convinced that the one I have does that for me. I agree with the noble Lord, Lord Blencathra, that in future schemes rainwater run-off should be separated from sewerage and that better use should be made of this valuable resource. Avoiding some of the unpleasant aspects of the horrendous flooding that many areas have experienced is absolutely key.

Given that the last five-year review took place in 2018, when will the next review be? Will it be in 2023 or will it be five years from today’s date? Given that the SI consists of two lines, I congratulate the Minister and all speakers on their comments in this debate—I have been impressed by the level of detail. I am happy to support the removal of the sunset clause and to support this SI. I look forward to the Minister’s comments.

[Baroness Jones of Whitchurch (Lab) [V]]

My Lords, I thank the Minister for his introduction to these amended regulations, and I thank all noble Lords who have spoken.

As the Minister said, this is a fairly straightforward change, removing the sunset clause from the original regulations agreed in 2013. We should welcome the approach taken back then, as it seems a model of good government, and the inclusion of the sunset clause has given us the opportunity to debate the issues today. At the time, it was an innovative approach to funding large infrastructure projects. It provided for a timely review and an end date, which would force us to consider whether the approach was working. That is exactly what we are doing today, and we should not take this responsibility lightly. I agree with noble Lords who queried whether a further sunset clause might be appropriate. I shall be interested to hear the answer to the question from the noble Baroness, Lady Bakewell, about whether there will be further reviews. We do not want the response to this to be open-ended when the sunset clause comes to an end.

Clearly, the fact that other funding options were considered at the time is an indication that the Government saw this as an experimental approach which might not be successful. However, the one model that we have before us today—the Thames Tideway Tunnel project—seems to have made a success of the powers enabled by the regulations. As noble Lords have said, this is a huge and impressive engineering project. It has generated thousands of jobs and is bringing significant environmental benefits by protecting the Thames from sewage overflows. Like many noble Lords, I have had a chance to visit the construction site along the Thames and have been hugely impressed by it. I am very pleased to report that it appears to be on target for completion by 2024 and largely on budget.

In this case, the creation of an infrastructure provider separate from Thames Water, which was allocated to Bazalgette Tunnel Ltd after a competitive process, seems to have worked well. Of course, there continue to be risks with both the funding and timescale. Can the Minister explain what continued monitoring and regulation of the project will be in place to ensure that customers will be protected from footing the bill if the private funding falls short in future? He will be all too aware that the privatised water industry does not have a good record of putting customers’ interests first. Recently, we have seen customers left without water for days and trillions of litres of water lost through leakages, while those at the very top have been rewarding themselves with huge bonuses. It remains important that we have robust oversight of multi-million-pound projects such as this.

In addition, the post-implementation review, which took place in 2018, mainly received responses from stakeholders with a financial interest in the project. Not surprisingly, they said that everything was going really well. However, as noble Lords have pointed out, the Consumer Council for Water’s response was more circumspect. It said that the arrangements for

“the handling of customer complaints and queries presented greater challenges … a significant amount of proactive communications was required to educate and inform customers … This activity … was not originally accurately priced”.

Meanwhile, Ofwat reported that the “initial delivery” of the regulatory

“framework was significantly more complex and time consuming than originally anticipated”.

What steps have now been put in place to ensure that these concerns are addressed and not replicated in future projects that would operate under these regulations?

Finally, the removal of the sunset clause opens the door to other complex water infrastructure projects to be funded via this route. So far, it has applied only to Thames tideway, but the Explanatory Notes make reference to a number of new high-risk infrastructure projects that might benefit from these regulations in future. I am grateful to the Minister for his outlining the four projects being considered under that reference. How will the Government ensure that this funding model is appropriate for each of those four new projects? How will they ensure that lessons are learned from the Thames tideway experience so that a more responsive and accountable system of oversight and delivery is applied in future?

I look forward to the Minister’s response to my noble friend Lord Adonis’s question on whether a future national natural water network is being considered. That certainly seems a hugely sensible option for a country that suffers both flooding and drought. I also agree very much with the point made by the noble Lord, Lord Blencathra, about separating rainwater from sewerage. Again, I would be grateful if the Minister could address that point. Other than that, I welcome the proposals and look forward to his response.

[The Deputy Speaker]

Unfortunately, the noble Baroness, Lady McIntosh of Pickering, ran into a technical problem earlier. I think that we have time so I would like to see whether we can bring her in now.