Water (Special Measures) Bill [HL]

Lord Cromwell Excerpts

Consideration of Commons amendments
Wednesday 5th February 2025 Lords Chamber

Moved by

[Lord Cromwell]

1A: Leave out from “House” to end and insert “do disagree with the Commons in their Amendment 1 and do propose Amendment 1B to the words so restored to the Bill—

1B: Clause 1, page 2, line 8, at end insert “, and to present such information on structuring and debt prominently, including on the website of the undertaker, in a format that can be readily accessed and understood, including by bill payers.””

[Lord Cromwell (CB)]

My Lords, I will speak to Motion 1A and Amendment 1B together and would like to put on record how very grateful I have been for the discussions with the Minister and her team, her recent letter to all Peers about my amendment and the nice things she has said today—although I thought there was a bit of a threat to the noble Lord, Lord Blencathra, at the end there.

Although there is much that we agree on in principle, and what the Minister has outlined today is not obstructed in any way by Motion 1A and Amendment 1B, it is my firm belief that the amendment as presented today in Motion 1A and Amendment 1B, in plain language, needs to be included in the Bill. I suggested that the Government bring forward their own amendment setting out what she has suggested today, but they have chosen not to do so.

The original amendment required water companies to report annually on their financial structuring or restructuring and their debt levels and associated risks. I therefore regret its deletion by the Commons which, as I will address in a moment, perhaps misunderstood the need for and purpose of the amendment. That is why I have added the further wording at Amendment 1B to ensure that the information is sufficiently prominent and accessible.

The background to the amendment remains the same. The water industry and, in particular, several companies within it have both failed to invest sufficiently and got into financial difficulties because of distorted financial engineering, including overloading with debt and what I might politely call accounting sleight of hand. This has come to light not because of the regulator Ofwat, which went along with these corporate behaviours either because it simply did not understand them or, so long as the water kept flowing and the prices were low, chose not to look closely at what was going on. What was going on was an almost complete failure to invest at anything like the rate that was needed to secure a sustainable water and sewerage management system, while at the same time extracting moneys conveniently rebadged so that they were not classed as dividends. It was not Ofwat that blew the whistle on this but rather civil society, individuals and some in the media. The Industry and Regulators Committee of this House, on which I had the honour to serve, also played a part in highlighting the matter in its critical report on the water industry.

Noble Lords will be familiar with the rest: polluted rivers, excessive executive bonuses and some water companies close to bankruptcy. Once the scale of underinvestment came to light, we were told that the water companies would raise money from investors and the City to catch up—albeit over a 25-year period—on the neglect of the water and sewerage infrastructure, but we have seen that protestation fail to reach anything like the scale of money needed. Indeed, in the case of Thames Water, different classes of bondholders have fallen out with each other and the company is in court seeking £3 billion more of expensive debt, in part from hedge funds, to add to its existing £19 billion of debt, to which should be added an estimated bill of £800 million to £900 million in interest by next year.

--- Later in debate ---

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank all noble Lords for their further contributions to this debate. I am grateful to the noble Lords, Lord Cromwell and Lord Blencathra, for providing further detail around their concerns. I would like to make it clear that the Government have carefully considered all non-government amendments tabled throughout the passage of the Bill, and that, where we agree with the intent behind a given amendment, we have worked hard to find an appropriate way forward.

It is in that spirit that I reviewed Motion 1A and Amendment 1B, tabled by the noble Lord, Lord Cromwell. As previously explained, the Government agree that it is of utmost importance to ensure that members of the public can easily access and understand information on water company finances. However, I do not agree that the approach proposed by Motion 1 A and Amendment 1B is the most effective way of achieving this outcome. I am disappointed that, after considerable engagement on the Government’s alternative approach, the noble Lord, Lord Cromwell, is still dissatisfied with the suggested way forward.

The noble Lord has previously spoken to me about the need to specify how data is presented. I want to be clear that the specific metrics that he wants to see in reports are already required to be included through licence conditions. Indeed, he has pointed that out himself; the information appears in the annual Water Company Performance Report. What is missing, and what we agree with him on, is better formatting and clearer presentation with this information readily available right at the front of these reports, which is exactly what we propose can be achieved through regulatory accounting guidelines.

The noble Lord’s amendments require only that the data is presented in a format that can be “readily accessed and understood”, which is arguably open to interpretation by water companies. Having listened closely to him, we agree that data should be presented in this way, but the approach proposed by government would be more specific and could include, as I mentioned before, a summary table of financial information right at the front of the annual Water Company Performance Report. As such, while I am grateful to the noble Lord for bringing this important matter to the attention of the House, I maintain the view that primary legislation is not the most effective means by which to achieve the intended outcome. I therefore urge Members of the House to support Commons Amendment 1 and the non-legislative proposal put forward by government and Ofwat.

I am also grateful to the noble Lords, Lord Roborough and Lord Blencathra, for continuing to raise the need for sufficient parliamentary oversight of Ofwat’s rules. These rules will be central in driving improvements in the culture of water companies, which of course we all want to see. As such, it is right that we, as parliamentarians, do what we can to ensure the rules are robust, without compromising the regulatory independence of Ofwat. That is why I was pleased to receive Ofwat’s offer of a drop-in session, which would give noble Lords and MPs an opportunity to further understand and raise concerns on the rules before they are finalised. I therefore urge all members of the House to support Commons Amendment 2 and enable Ofwat to move forward with arrangements for that session.

To finish, I reiterate that the Government strongly agree with the need to ensure increased transparency and accessibility of water company data and ensure sufficient scrutiny of Ofwat’s rules on remuneration and governance. I believe that the approaches that I have outlined today demonstrate the commitment of government and Ofwat to effectively and comprehensively address the concerns raised by noble Lords on these topics. I therefore ask that all noble Lords support Commons Amendments 1 and 2 and, in conjunction, the non-legislative proposals put forward by the Government.

[Lord Cromwell (CB)]

My Lords, the hour is late. I thank the Minister for her kind, helpful and almost persuasive words. I do not think that anything that she has proposed is precluded by my amendment—in fact, it could be a way of implementing it. Had I put it down in such detail, I would have been told that it was too prescriptive. However, for the reasons I set out earlier, I am afraid that my amendment needs to be in the Bill, and I wish to test the opinion of the House.