Water Bill

Lord Crickhowell Excerpts

Monday 27th January 2014 Lords Chamber

[Lord Crickhowell (Con)]

My Lords, I have not followed developments in the water industry closely since handing over my responsibility for the National Rivers Authority in 1996. As a consequence it came as a shock to read several sections of the White Paper, Water for Life. Paragraph 17 states,

“we need a new approach that mobilises local groups and draws on new sources of funding. Therefore this White Paper takes forward the new ‘catchment-based approach’ to water quality and diffuse pollution launched earlier this year”.

In paragraph 21 we read:

“The White Paper explains how we will learn lessons from around 70 catchment scale pilot projects, and provide intensive support to 25 of them, as a precursor to rolling out this approach across the country”.

In my last chairman's report for the NRA in 1996 I commented about the role of our regional advisory boards, and said that,

“equally important has been the system of catchment management planning and consultation that we established. I cannot emphasise too strongly our belief that these two features must remain as cornerstones of the new agency arrangements”.

I went on to say that,

“it was a great relief that in the last month of our existence we finally received approval to proceed with a trial of statutory water quality objectives in eight catchments. I very much hope that it will be possible to proceed rapidly with the introduction of SWQOs on a wide scale … it has taken too long to get this far”.

In genuine bewilderment, I ask: what on earth has been happening over the interval of more than 17 years? How is it that what was absolutely central to the work—and, I would add, success—of the NRA is now presented as the new catchment-based approach? How is it that after we had finally attained the approval of statutory water quality objectives in eight catchments, after delays that I attributed to,

“the lengthy timescale of government consideration”,

lessons are now to be learned on pilot projects? Do the 10 pilot catchments that we are told the Environment Agency is hosting embrace the eight we had approved all those years ago? I suppose I must at least welcome the fact that our cornerstone is again to be placed back in position.

I intend to comment on only three aspects of this very thick and complex Bill. The first is the duty to secure resilience. Ofwat is required to balance all its duties. They include the existing sustainable development duty, to which is to be added a new resilience duty, making sustainable development as central to the work of the economic regulator as it is to the work of the environmental and quality regulators. If I have understood this correctly, this is a very welcome step forward, at least from the situation with which I had to deal. I described that situation on 22 November 1994 in a speech to the parliamentary environment group, when I said:

“It now seems clear that when the Water Act was passed insufficient thought was given to the relationship between the regulators, of which the NRA is one, and Ofwat. It was not widely foreseen that the Director-General would see it as his duty to stand between customers, by which he meant those who paid water bills, and the environmental regulators, and to argue strongly that the pace of regulation was too hot. Still less was it foreseen that the Director-General would strongly press the case that so substantial were the demands of the European Union that no other additional regulatory requirements should be permitted”.

The vigorous, though always courteous, arguments that I had with Mr Byatt, the director-general, were made worse by the fact that initially the estimates of costs that he obtained were flawed and exaggerated. Wisely, Ministers accepted our arguments and approved expenditure that allowed for a large number of the most urgent cases. In my speech, I said that,

“before the next review there is an urgent need to find a better way to conduct this debate”.

Things then did move on and, since 2005, Ofwat has had a statutory duty to contribute to the achievement of sustainable development.

The debate continued and, after the 2011 review by David Gray, the Government issued statutory guidance to Ofwat in a strategic policy statement. This provided a strong steer to the regulator on its interpretation of the sustainable development requirement. Clause 24 of the Bill requires Ofwat to act in accordance with any such statement issued by the Secretary of State. The position is also to be strengthened by the new resilience duty designed to deal with long-term pressures.

The water industry has welcomed the new requirement as it enables it to plan and manage its finances taking account of long-term needs, with the knowledge that these are now much more likely to be approved by Ofwat. Clearly, these changes and their practical consequences need to be examined very closely in Committee; but I am green with envy that the regulators in future are unlikely to face the difficulties that confronted Ian Byatt and myself.

Another subject will need even more thorough examination and has been referred to by a number of noble Lords: water abstraction. In the NRA, we were confronted with huge difficulties as we tried to deal with historic abstractions, often providing essential supplies while doing devastating damage to rivers and the fisheries and wildlife they sustained. The Government say they are,

“reforming the abstraction management system to make it more flexible and resilient to climate change and population growth”,

and have sought to refute the suggestion that,

“the requirement in the resilience duty to respond to environmental pressure could lead to over-abstraction to meet demand … where water resources are under pressure”.

The water companies’ statutory right to compensation for losses resulting from modifications and revocations of their abstraction licences is to be removed, with companies apparently compensated through the Ofwat review process. Similar changes are being made by the Welsh Government. The Environment Agency regulates abstractions, and Ofwat is required to consult the agency before issuing a water supply licence. So far, so good. But—and it is a big but—very good though all this sounds, there are a number of complications, some of which have been referred to by the noble Lord, Lord Whitty, on the opposition Front Bench. The upstream reforms set out in the Bill will make it easier for new players to enter the water sector, possibly using new water sources. What impact will that have on abstractions? The Government are considering how to bring exempt abstractors into the licensing regime. Furthermore, over a longer period the Government intend to reform the abstraction regime to make it more flexible and resilient to the challenges of climate change and population growth. Those reforms are not part of the Bill and consultation is taking place. Information about the amount of groundwater available for abstraction is not reliable, and fresh research is being undertaken.

The Government say we should not rush these reforms and they are right, but it is going to make examination of this part of the Bill in Committee difficult—with the cake half cooked, so to speak. I raised some of these issues at one of my noble friend Lord De Mauley’s briefing meetings, and he has taken the trouble of sending me what he describes as a comprehensive response. It is comprehensive and, as I suspect we will hear most of it in Committee when he deals with any amendments to this part of the Bill, I will say at this stage only that phrases such as,

“confident that the regulatory framework, correctly applied, is fully capable of managing these risks”,

and,

“confident that there is no practical risk of an unsustainable increase in abstraction”,

coupled with the information that:

“The Welsh Government has taken the decision not to implement all of the upstream reforms at this time”,

suggest to me that these are matters that need to be probed thoroughly. That view is reinforced by the admission that:

“Abstraction reform is complex both in economic and environmental terms”.

We are also told that:

“The upstream reforms will require careful planning and close working between the water industry, regulators and customer representatives. To allow sufficient time for this, the main upstream reforms will not be implemented in advance of the next Price Review which will set charges for 2020-2025”.

I can imagine what Lady Thatcher would have snapped at me if had proposed a policy with that timescale. “That is longer than the duration of either world war”, she would have said. It will be a long time before any of us who are still alive will know whether we have got it right or wrong.

Perhaps it is because many years ago I was an insurance broker and Lloyd’s underwriter that I feel uncomfortable about the flood insurance clauses and the idea of a levy-funded pool for high-risk households, worthy though the aims may be, and of course I share the sympathy that others have expressed for all those who suffered the horrible fate of being flooded. There is the objection first raised by Lloyd’s that it was not aware of any UK precedent for this proposal to require UK businesses to enter into particular contracts, very likely to be loss-making.

To my mind, it is one thing for insurers and policyholders in general to contribute to the costs arising from properties that are only very rarely likely to be flooded, or to provide against exceptionally severe events, but quite another to provide for those who live in properties on flood plains where building should never have taken place. Time and again I have observed developers, with the consent of reckless planning authorities, ignoring advice about the probability of flooding, going ahead with large projects in places where they should never have taken place and then complaining that flood defence precautions were inadequate. Definitions of “high flood risk” and “very high flood risk” and a huge amount more are to be covered by regulations. The Government may be laying a minefield for themselves, and I worry that the scheme may be overtaken by events.

Against that background, I have been astonished to read about possible plans for two new towns in the south-east—one at Yalding, a village through which I drive every time I visit my older daughter and her family in Kent. My astonishment arises not from the fact that Yalding has just been flooded but because it has quite frequently been flooded in the past. It does not take much observation to form the view that it will be very hard to prevent it being flooded again in the future. Can anyone seriously be planning to put a new town on that flood plain? If they are, is it going to be equipped with canals and boats and named New Venice?

Finally, I wonder whether it is wise to pass legislation that is as dependent as is this Bill on future consultation and future unknown regulations.