Water Bill

Debate between Lord Crickhowell and Lord De Mauley

Tuesday 25th March 2014 Lords Chamber

[Lord Crickhowell]

My Lords, I want to probe a little on the timing. I agree with everything that the noble Baroness has just said. For eight years, as chairman of the National Rivers Authority, I had to try to deal with this problem with rather less adequate weapons than the Environment Agency now has, so I welcome the steps that the Government are taking and have taken. I also want to see rapid progress made on the competitive regime, but there seems to be a very difficult timetable. We will have a report five years out on how abstraction is going, yet there will be legislation in the next Parliament which takes us a year further forward. I do not quite see exactly how the Government envisage progress being made on these two important priorities. I confess that I have been away abroad since Committee—I have been enjoying myself in the Galapagos—so my mind has not been on this matter, but I would be grateful if my noble friend could give us a little greater clarity on the timing of these two interlocking steps, on the way in which they are likely to relate and on how the legislative timetable is likely to fit in.

[Lord De Mauley]

My Lords, this has been another important debate on abstraction reform. It gives me an opportunity to declare another interest: that of a holder of an abstraction licence. Noble Lords have once again emphasised the importance of rapid progress in reforming the abstraction regime and expressed concern about the linkage to implementation of the upstream reforms in the Bill. I thank noble Lords for the knowledge, experience and constructive challenge that they have brought to the debate on this important matter. I have listened carefully to what they have said and I am left in no doubt as to the strength of feeling.

First, I assure noble Lords that the Government are fully committed to abstraction reform. The proposals in our consultation document on abstraction reform demonstrate just how seriously we are taking this, as well as the complexity of reforming such a long-established regime. Our proposals reflect the importance of abstraction reform for people and the environment and the fact that organisations and individuals across the country are dependent on access to water to live their lives and run their businesses.

I want to see a real improvement in the quality of water bodies in all parts of the country. That means we must take action to reduce overabstraction that damages the environment now and ensure we can continue to protect the environment and ensure access to water in the more challenging conditions we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. While some fear that these could be conflicting mechanisms, I can assure noble Lords that the intention is for them to be entirely complementary in both design and implementation. I hope I can provide further reassurance on this, not least through the further amendments that we have tabled to Clauses 8 and 12 and a new clause before Clause 45.

Winter Floods

Debate between Lord Crickhowell and Lord De Mauley

Thursday 6th February 2014 Lords Chamber

[Lord De Mauley]

Yes, my Lords. Somerset County Council is working with Wessex Water to ensure that proper water sampling is carried out and to co-ordinate any mitigation measures that are needed. Public Health England has issued clear advice on how to avoid any risk to health. People in the affected areas are urged to follow that advice.

[Lord Crickhowell (Con)]

My Lords, as the former chairman of the National Rivers Authority—thankful that I no longer have various responsibilities in these circumstances—may I join in the expressions of sympathy for those who have suffered the horrors of being flooded and in the tributes to the Environment Agency’s ground staff and the other emergency services who have been doing sterling work? I welcome the capital commitments that have been made and the proposed changes to the Bellwin scheme.

I would like to take up two particular points that have arisen. The first is on the local accountability question. In my Second Reading speech on the Water Bill, I said that for the NRA, the cornerstone of our activities was catchment management and the existence of our regional advisory boards, chaired by a member of the board and involving all the locally involved organisations. I have a feeling that that arrangement, which was so crucial to our successes, was discontinued at some time. Can the Minister assure me that a similar arrangement will be put in place? On the subject of dredging, may I suggest that regular dredging year by year of the lower reaches of rivers is likely to be much more cost-effective than one-off occasional action to try to relieve pinch points that should never have been allowed to develop in the first place?

[Lord De Mauley]

First, I reassure my noble friend that proper, ongoing local co-ordination is vital and is being, and will continue to be, undertaken. On his comments on dredging, I hear what he says and am conscious that he is quite right that it is not good enough to do it once: you have to do this process continually. I agree with him on that.

Water Bill

Debate between Lord Crickhowell and Lord De Mauley

Tuesday 4th February 2014 Lords Chamber

[Lord Crickhowell (Con)]

My Lords, perhaps I might take this opportunity right at the start of the Committee to make two general observations. First, I cannot think of any complicated Bill which has been so admirably handled as this one has, so far, by my noble friend Lord De Mauley. He has had a series of briefing meetings trying to explain the complexities of the Bill and has taken infinite trouble to write to those of us who expressed anxieties at Second Reading or on other occasions and give us reassurance.

Having said that, this is an extraordinarily complex Bill, as the noble Lord, Lord Whitty, indicated in moving his amendment. I am told that there are competitors but in my 43 years in both Houses, I do not believe that I have ever had to follow a more incomprehensible Bill. That is because it takes two major pieces of legislation, and one or two other less relevant pieces of it, and amends them in a series of complex ways. It then introduces a whole string of regulations, some of which are not yet defined and made. Simply finding your way through the Bill to find the clauses is extraordinarily difficult. When I thought that I might put down probing amendments to bring out one or two points, I abandoned the task as I could not begin to see where I could do it.

That leads me to make one other observation. When we are confronted with this kind of legislation, I wonder whether it would not be better simply to start with a clause which says, “This Bill cancels and replaces”—or whatever the word might be—“the following Bills”, so that it presents the legislation affecting the industry in one comprehensive new Bill which everyone can follow. What worries me is that once we have completed our proceedings in this House and the Bill becomes an Act, how on earth are the general public and those who have to operate it going to discover easily what the Bill’s contents mean for them? I wonder whether the Government have yet given any thought to having a clear way in which they could present things to the public, and indeed to the water authorities and the new people who we hope will be brought into the industry. Perhaps they could build on the kind of papers that my noble friend has so helpfully presented. There is a real problem and I hope that, as we go through these proceedings, the Government will give careful thought as to how we tell the British public and those who have to implement the proceedings what is actually in the Bill.

[Lord De Mauley]

Perhaps I might quickly respond to that. First, what I should have done when I spoke first was to thank those noble Lords who have come to discuss their concerns with the Bill with me. That has been an extremely informative and helpful process. I am grateful to my noble friend for his point; he is not the first to say it. As he kindly says, we have been doing our best to help noble Lords with the Bill and I will continue to do that. I also take his point about informing the wider public. If I may, I will take that point away and see what we can do.

Water Bill

Debate between Lord Crickhowell and Lord De Mauley

Tuesday 4th February 2014 Lords Chamber

[Lord Crickhowell (Con)]

My Lords, this has been a remarkable brief debate. I thought that the noble Lord, Lord Whitty, introduced the amendment in a very low key, charitably commenting on the Government’s position. That powerful speech was followed by what I was going to say was a lecture, but certainly a speech, that ought to be read by every civil servant in the department, because it was one of the most impressive speeches—lectures—about market economics and their realities that I have heard for a very long time.

I know my noble friend on the Front Bench knows something about business and will have listened with care. I beg him on this occasion to listen to the realities of the market rather than the detached views of civil servants, who, by their training and nature, may not be as equipped to deal with market realities as my noble friend Lord Moynihan clearly is.

It was only really when I heard the speech of the noble Lord, Lord Whitty, and even more so when I heard my noble friend Lord Moynihan’s speech, that it seemed we were going to deal with this point about uncertainty. I simply cannot believe that people advance that as a serious argument. All the evidence suggests that if you want to have market confidence—the confidence of investors and of the people who advise them—you need to have a clause of this kind. Far from an uncertainty, it is an absolutely essential requirement in order to give the market confidence. On that ground alone, I believe that this amendment simply has to be taken seriously by the Government. I hope that, rather than advancing any arguments that have been put in his papers before the debate, my noble friend makes a very cautious response, takes away my noble friend Lord Moynihan’s speech and demands that his department consider it adequately and fully before we come back again on Report.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, I am very grateful to the noble Lord, Lord Whitty, for moving his amendment and to my noble friends for speaking to theirs, as well as for the debate as a whole on retail exits and for an understanding of the concerns of noble Lords.

Amendment 98, tabled by the noble Lord, Lord Whitty, and Amendments 107 and 132, tabled by my noble friends Lord Selborne and Lord Moynihan, take two different approaches to enabling incumbent water companies to exit the non-household water and sewerage retail markets. Amendment 98 would provide for such exits through regulations produced by the Secretary of State, and Amendments 107 and 132 through transfer schemes produced by incumbent water companies and approved by the Secretary of State.

For completeness, I should be clear from the outset that new entrant licensees may enter and exit both the retail and upstream markets whenever and however they wish. It could be as simple as surrendering their licences to Ofwat, and their customers could then be distributed to other licensees through the supplier of last resort regime introduced by Clauses 31 and 32. Alternatively, they could sell their customers or their infrastructure to other licensees ahead of surrendering their licences. These companies operate only in the competitive part of the market, serving non-household customers who will be able to switch to another retailer if they are unhappy with the service they receive.

However, these amendments deal with the thorny issue of retail exits by incumbent water companies, the quasi-monopolies appointed in each area of England and Wales. We have heard a range of arguments for retail exits at Second Reading, during the passage of the Bill in another place and now this evening. This is a complex issue with far-reaching ramifications for both customers and investors. It is clear that the intention, at least of Amendment 98, is to allow exit only from the non-household market, leaving household customers with the incumbent companies. However, this partial form of exit would leave many questions unanswered about the future relationship between the incumbent water companies and their customers in both the household and non-household sectors. We want our market reforms to lead to real improvements in services for all customers, including of course household customers, and we do not consider that making such a change at this time would be in the overall interest of customers. Before making potentially far-reaching changes to the relationship between all customers and their water companies, we would need to ensure that they were effectively engaged. The Consumer Council for Water, the independent organisation responsible for making sure that the customer voice is heard, supports the Government’s approach to retail exits.

We want to see a successful non-household retail market. The Bill sets a framework for new-entrant retailers to enter the market on an equal footing with the retailers of the incumbent water companies. We expect Ofwat to use its regulatory powers to make sure new entrants can be confident they are competing on a level playing field. Clause 23 introduces a shared obligation between the Secretary of State, Welsh Ministers and Ofwat to take steps to reduce the likelihood of incumbents discriminating in favour of their own retail businesses or associate licensees. However, retail exits are not about delivering a level playing field. They are about some incumbents wanting to exit because they do not want to participate in a competitive retail market and would prefer to stop offering services to any non-household customers in their area. While we might expect there to be a more active market in England from 2017, a scenario in which incumbent companies lose most or all of their customers is highly improbable. Incumbents sitting around while customers disappear is, in our view, an unlikely scenario.

The point we are making is that this is evolution not revolution. Many non-household customers may choose to stick with the incumbent supplier because the incumbent supplier improves its services as a result of these reforms. Where customers choose to switch, we anticipate a growth market where innovation and competition lead to benefits, both environmentally and in customers’ bills.

Incumbent water and sewerage companies are given clear responsibilities for a reason. Their unique status as virtual monopolies requires some commitments from them in return. This means that following a retail exit, the incumbent might still be required to provide retail services to any non-household customers that move into the area, or when new non-household developments are completed, or if the market failed. Incumbents are the default supplier of first and last resort regardless of whether they are able to hive off their existing non-household customers to a licensee. Allowing partial retail exits would also open the door to forced separation. We have already discussed the risks relating to separation.

It was incumbent water companies themselves and their investors that persuaded us of the risks to future investment should separation be forced onto the sector. They told us that forced separation would increase risk to investment and push up costs to customers if they had to renegotiate their finance packages as a result of restructuring their businesses. Neither companies nor their investors have told us that they have reversed their view on this.

Amendment 132 would prevent the new Competition and Markets Authority—but not Ofwat—using these provisions to force separation as a remedy to address issues to do with discrimination. We doubt that such a mechanism would be appropriate. More importantly, for the reasons I have explained, we believe integrated companies that are able to provide services to customers within their area of appointment are the right approach for the time being.

Let us be clear: any decision on separation should be made by Ministers and Parliament. We are not prepared to take the risk of any restructuring, or even the potential for it, destabilising investment or increasing costs or even supply risks to customers. While all these amendments envisage the Secretary of State permitting exits, this will also be open to challenge. I have already said that there are very good reasons for not allowing exits yet.

I hope that noble Lords will appreciate that there is more to this matter than simply allowing some incumbents to exit the market. We are not ruling this out for the future but we have a responsibility to consider all the impacts on household customers and on choice in the competitive markets before putting provisions into law.

The noble Lord, Lord Whitty, and my noble friend Lord Moynihan, suggested that we should allow failing companies to exit. The focus of many comments has been the exit of failing companies. Advocates for exit assume that the large players will swallow up the small. These are the companies, however, that customers value for the quality of their service and are often the most efficient suppliers of retail services. Do we really want to see consolidation that loses these efficient and valued companies?

My noble friend Lord Moynihan referred to Macquarie. I simply say to him that its figures need to be looked at with some care. It assumes complete exit, including from the household market, and that there would be no risk of separation. That is not the model proposed by these amendments and it raises some significant issues about the protection of household customers.

It has been suggested that an OFT report—Orderly Exit, published in December 2012—supported the case for allowing retail exits. That report is about designing continuity regimes to allow orderly exits from the provision of public-facing services without interrupting the delivery of services to customers when a business becomes insolvent or otherwise fails. It is not about allowing a company to decide whether it wants to continue with some of its statutory obligations and to get out of others because it no longer feels it wants to compete. The regulatory regime for incumbent water companies already provides for orderly exit in cases of insolvency and for enforcement purposes.

The deadline for the retail market opening in April 2017 is challenging but achievable under the conditions set out in the Bill at present. That would be put at risk if we were to legislate for further structural changes to the industry at this time. Given what I have said, I hope that the noble Lord will be prepared to withdraw his amendment.