Water and Sewage Regulation (Industry and Regulators Committee Report)

Lord Cromwell Excerpts

Monday 16th October 2023 Lords Chamber

[Lord Cromwell (CB)]

My Lords, I had the privilege of being a member of the committee that produced this report under the incisive chairmanship of the noble Lord, Lord Hollick. At the start of our inquiry I actually had some sympathy with the regulators and the water companies. The regulator, Ofwat, had been left by government to take what amounted to controversial decisions about the prioritisation between its objectives and those of the water companies. The water companies were primarily tasked with providing clean, cheap water, and to a great extent they have done so. If noble Lords need proof of that, please consider that, every weekend, millions of people in this country wash their cars and water their gardens with what amounts to pure, purified drinking water. Rightly or wrongly, environmental issues have been moved up the list of priorities only more recently.

However, this pool of sympathy dried up during the course of our inquiry. As the noble Lord, Lord Hollick, referred to, we uncovered financial engineering being used to take advantage of regional monopolies, including debt loading and opaque dividend extraction. This was at the expense of much-needed—now frighteningly overdue—investment into the very infrastructure on which our water and sewerage system depends.

How did we get here? As regards the regulators, the committee was far from convinced that Ofwat had the business savvy to spot what was going on and act early enough to stop it. By its own admission, it took only a light-touch approach to regulating the industry. The Environment Agency—demoralised and lacking the resources it needed to hold the water companies to account—has also not kept water companies up to the mark on their environmental performance. Indeed, civil society organisations called out the issues of pollution long before the regulators did. The committee’s very timely report also helped to bring the issue to prominence, as the noble Baroness, Lady Taylor, mentioned. Finally, Defra, the department with overall responsibility, appears to have been far too complacent in looking into what was going on. It left the regulators and water companies themselves to make decisions about the competing demands of sewage and water management, and profit.

Where does this leave us? The regulators have taken some steps, at least latterly, but Ofwat’s Water Company Performance Report 2022-23 makes for depressing reading. Performance has fallen short for the majority of companies. Seven of the water companies are described as “lagging”, the report’s lowest categorisation, while fewer than half achieved their performance target on reducing pollution incidents.

We now have a water and sewerage industry desperately in need of a massive catch-up on spending, with numbers ranging from the Government’s quotation of £56 billion—noble Lords should remember that that will be spent over 25 years—to the hundreds of billions cited by the water companies, and the almost fantasy figures that the noble Lord, Lord Agnew, quoted from the task force.

Long-term money for infrastructure needs to be raised and sustained, not just in the short term but over the years and decades ahead. A crucial question therefore is how to raise the necessary investment funds. First, there is currently no suggestion that the money extracted by private equity investors will ever be recovered. Secondly, we have a number of water companies that have themselves been teetering on the brink of being washed over the financial weir into bankruptcy. Thirdly, we were told initially that the water companies would raise this money in the City or from their existing investors, but the talk now is of putting up customer bills. At a time of economic uncertainty and a cost of living crisis, when the benefits of investment might take 25 or more years to be felt, that is an extremely challenging proposition to put forward.

So we seem to be up sewage creek without an affordable paddle—but this is not just about money. The committee had severe doubts about the capability of some water companies, even if the necessary billions of pounds were made available to them, to manage the very substantial infrastructure projects that are required. Ofwat, when asked about this, appears to be crossing its fingers and hoping for the best.

To conclude, solving the problems highlighted in this report is going to be a long haul, and for that reason I hope that the current and future Governments will take note of it. I will pose four questions to the Minister and look forward to his responses when he winds up. How much money is needed to modernise our water and sewerage systems? How is that money going to be raised? How will this massive infrastructure renewal be competently delivered? Finally, are Defra, the regulators and the water companies really up to the job of getting these matters right?

--- Later in debate ---

[Lord Benyon (Con)]

I think it has been wonderful to see pension funds invest—perhaps those paying the pensions of those of us in this Room. I totally welcome the fact that people want to invest in the regulated utility sector in this country, whether water, energy or any of the other sectors. It has seen a step change in investment and has helped keep bills down.

I was interested in the speech of the noble Lord, Lord Cromwell, who talked about our ability to do big infrastructure projects. I was involved in trying to persuade a lot of sceptical people, within government and outside it, of the importance of building the Thames Tideway tunnel. There was opposition from the Liberal Democrats, from Members of my party in both Houses, and certainly from the Labour Party. There was a belief that it would not work and that it would put up bills by £85 in the Thames Water area. It will actually put up bills by around £22. It is being built and it was the right thing to do. The Government stepped in as the guarantor. It is an example of a very large investment in one piece of infrastructure. There are many others that are much smaller that have—

[Lord Cromwell (CB)]

Either the Minister is agreeing with me or perhaps I was not clear. My concern is whether the water companies have the competence to implement these sorts of infrastructure projects. He has given a very fine example of a non-water company implementing the Thames Tideway. Will there be more of that? It seemed very doubtful that Ofwat had confidence in the water companies delivering these multi-billion pound infrastructure projects.

[Lord Benyon (Con)]

Multi-million pound infrastructure projects are being done by water companies; I will come on to talk about reservoirs. Some are doing them better than others; it would be a very strange world if they were all the same. The Government watch this matter very closely. We require investment and we want it done in the right way.

The noble Baroness, Lady Jones, who is shaking her head before I have even said anything, said that water companies should be fined; they are being fined record fines. One was fined £90 million last year.

Disposable and Reusable Nappies

Lord Cromwell Excerpts

Wednesday 28th June 2023 Lords Chamber

[Lord Benyon (Con)]

With five children, I should perhaps also declare an interest. I like to think I pulled my weight, though my wife might disagree. The noble Baroness’s point about 3.6 billion nappies is right. About 78% of those go into incineration but 22% go into landfill, which is 22% too much. We have looked at this in a number of ways. Local authorities have the lead on this, and it is about supporting them to have schemes that work locally; the Government do not feel we can take action at a governmental level. There are many other—if noble Lords can excuse the expression—crocodiles closer to the canoe in terms of tackling environmental problems. Textiles and plastic are an absolute priority for us, but we certainly want to support local authorities in trying to achieve better disposal of nappies in the future.

[Lord Cromwell (CB)]

My Lords, on a subject related to nappies, a recent House of Lords report recommended banning non-degradable wet wipes; the Government response was that they will ban wet wipes subject to consultation. I find it hard to believe that any consultation is really needed. If it is a procedural requirement, can the Minister tell us how soon this can be completed and a ban put in place?

[Lord Benyon (Con)]

In the Plan for Water published in April we said that we were going to do this, and 96% of respondents to our call for evidence supported a ban on wet wipes. More information on the proposed timing of any ban will follow the announcement of the details of that consultation.

Agricultural Tenancies

Lord Cromwell Excerpts

Monday 12th June 2023 Lords Chamber

[Lord Benyon (Con)]

I am grateful to my noble friend. One of the greatest criticisms of the Tenancy Reform Industry Group—I pay tribute to the many hours many people sat on that organisation—was that it was a talking shop. People did not feel they were being listened to, and it was a way of getting off their chest concerns they knew existed. We want to make sure that the new forum is not that; that it is executive and has a snap to it. As I have said, it will meet every quarter and the Farming Minister will be one of the co-chairs. Its remit and the determination to keep it close to Ministers shows that it will be more than that.

My noble friend makes valid points about trees and hedgerows. We have published guidance on how tenants can approach tree planting and woodland schemes such as the England woodland creation offer, and we have made sure that both the tenant and landlord will need to agree to any EWCO proposal on tenanted land. I do not think that is wrong—it is absolutely right that if a major change in land use is being promoted, the landlord’s interests matter. If they do not, it will be another incentive for landlords not to let land, or indeed to bring to an end a letting arrangement when a farm becomes available and take it in hand. We want to make sure we are still providing the incentives.

My noble friend is entirely right about hedgerows. That is why we have published our new hedgerow standard as part of the new six standards for the sustainable farming initiative. But he is absolutely right that a hedge no higher than this table does not really achieve very much in terms of carbon and biodiversity. If it is much wider, much higher and preferably has an unploughed, unfarmed cultivated headland, it will be immensely more important.

My noble friend is absolutely right, of course, that a lot of agents are excellent people—I think I was when I was one—but we should not create legislation around trying to put everybody in the same boat as the bad ones. Agents are undoubtedly advising their clients as to what is best for them to secure their interests for the future and the future generations of their family. That is why we want to see the kind of changes we are making to inheritance tax, which give the incentive to landowners, on the advice of their agents, to do the right thing and encourage that. I have received inspiration from my colleague, the Minister. I might have misled the House. He is not the co-chair but, importantly, he will attend every meeting of the tenants’ forum.

[Lord Cromwell (CB)]

My Lords, I did not intend to speak this evening, but apart from sharing the noble Lord’s scars of IACS from the past—he has my profound sympathy—I declare my interest as a shareholder in the family farming company. I will make two points. One is that well-intentioned changes can produce unintended consequences. I am not going to get into the details of hedgerow widths or heights tonight, but simply say that history shows us you cannot force landlords and tenants to have a happy, long-term relationship. It is based on trust, performance and mortality—people die, people get ill and things move on. You cannot oblige people, any more than you could in any other relationship, to stay together if it is not working.

Secondly, on introducing taxation in this form, if you make it obligatory to have an eight-year tenancy or you do not get tax relief, the answer will not be eight-year tenancies; it will be no tenancies, because no landlord in their right mind will be tied down in that way. They will simply take the land in hand and contract-farm it. We have had tenants farming with us for whom we have run back-to-back short-term tenancies for years and years, because we have a relationship of co-operation and trust. However, if the law obliges us to enter a multiyear relationship in which they can change the land use entirely, those tenancies will simply come to an end. The tax system should not interfere in what are fundamentally human relationships between people trying to work together in their mutual interest.

[Lord Benyon (Con)]

The noble Lord speaks an awful lot of sense. To an extent, it is impossible for government to be perfect here because, as he says, we are dealing with human relationships. Government should create the right incentives. We are talking about a business relationship. There are so many different types of tenure in this country—owner-occupier, tenancies under the Agricultural Holdings Act 1986, farm business tenancies under the 1995 Act, graziers, contract farmers, share farmers and multiple graziers on commons. The complications of trying to create a farming support system that can be accessed by them, particularly in areas such as Countryside Stewardship, are really difficult, but it is vital that they are there.

The noble Lord is absolutely right that, if we get this wrong and government tries to impose things that the market does not want, we will end up getting the worst of all possible worlds—people we want to see on the land not on the land. We want to make sure that we keep this vibrant, diverse form of occupation and use of land, which requires landlords and tenants to work together for their mutual benefit and for the societal benefit of us all, through the use of our vital natural capital, which will deliver many more wider societal benefits.

Water Companies: Water Pollution

Lord Cromwell Excerpts

Wednesday 1st March 2023 Lords Chamber

[Lord Benyon (Con)]

We are asking water companies to spend a lot more—£56 billion. In this period alone, they are putting an extra £7 billion into investment in infrastructure. Water companies make a profit of about 3%. This is not dramatic, compared with what some other companies make, but we watch it very carefully through the instructions we give to Ofwat. We want to make sure that customers are getting a good deal but, more importantly, that there is investment going into infrastructure.

[Lord Cromwell (CB)]

I wonder if the Minister is aware that, in two weeks, the Industry and Regulators Committee of this House will be producing its own report into governance and regulation in the water and sewage industry. This will clearly be of interest to many in this House. Can the Minister confirm that putting right the sort of problems we are talking about is going to take decades, not years? Can he also confirm that the money for it will not be public money, but that the companies themselves will raise money in the City, take on debt and possibly put up water bills?

[Lord Benyon (Con)]

At a time of concern about household expenditure, it is important that we balance water bills. It is always a balancing act. We want to make sure that, with an average bill at just above £1 a day to provide all the water a household needs and to have all the sewage taken away, water companies can invest in the necessary infrastructure. Most importantly, during the next decade or two, we must eliminate rainwater getting into sewage. This is the challenge. At the moment, we have water coming off roofs and going into Victorian or Edwardian sewers. Many of them have been updated and improved, but billions of pounds still need to be spent to tackle this recurring problem.

Agricultural Transition Plan

Lord Cromwell Excerpts

Wednesday 1st February 2023 Lords Chamber

[Lord Cromwell (CB)]

My Lords, I declare my farming interests. I very much enjoyed the Minister’s upbeat presentation on the situation in agriculture, but I know that, from his own farming experience, he will empathise with the fact that any farming business is a complex series of ecosystems that interact with each other, and a decision on one will affect others in many different ways. Therefore, can he help me by explaining why the Defra strategy appears to be to drip out bits of the environmental programme, for example, piece by piece? One month it is soil, the next month it is hedgerows. Farmers, who are trying to feed the nation and improve the environment, find it impossible to plan a business when these bits of information are dropped out on a fragmentary basis, as I understand it, right out until 2025.

[Lord Benyon (Con)]

There are two reasons for that. First, we have a programme of tailing out the basic payment scheme and replacing it with ELMS. That requires us to manage the public money properly. Secondly, we want this to be an iterative—a wonderful Civil Service word—process that responds to our understanding of real life. We have had our tests, trials and pilots and have learned from them. In the autumn we had a serious tyre-kicking session on this, which drew some criticism. I can understand why; people were very nervous that we were going to do a screeching U-turn, but we have not. Out of that has now come the announcement of six, as opposed to three, new standards—because farmers wanted to know precisely what the noble Lord said.

It takes time to get this right because, as he says, it is about people’s livelihoods and businesses, and they want to be able to plan for the future. I think farmers much prefer that—or will in hindsight, when they look back on this era—to some big bang moment where we stop one scheme on 31 December and go into another on 1 January. By and large, when Governments have tried that across a whole range of different reforms in different departments, it has been a disaster. We have tried to do this over many years, and in time farmers will understand that they have been able to migrate from one system to another. As a farmer, that is certainly what I want; I understand if other farmers have different views. I want a Government who listen to farmers and change accordingly, and that is what we have tried to do.

Pollution: Rivers and Beaches

Lord Cromwell Excerpts

Monday 30th January 2023 Lords Chamber

[Lord Benyon (Con)]

The statistic is absolutely right—I can remember seeing it and being stunned that the Government prior to the coalition Government had no idea about this. They knew about only 5% of the storm overflows, so we set about getting that data. If the person quoted in the other place said 100%, it is not quite that but it is nearly there: we are in the 90s, and by the end of this year the figure will be 100%. If the telemetry we require to measure the quality is not working, I am happy to take any cases up with the Environment Agency and make sure that we are applying this.

[Lord Cromwell (CB)]

Can the Minister tell me how long this will take? I believe the £56 billion that he referred to will take about 25 years to roll out and invest. When will we be able to see a visible difference?

[Lord Benyon (Con)]

We have announced our targets in the provisions of the Environment Act—some of those are for 2035, and some are for 2038—and we will review them in 2027 to see how they are going. There are others that are more long term. There was an unfortunate mistake in a regret amendment last week, in which it was claimed, somehow, that we are pushing this out to 2063. What is absolutely true is that we are sticking to the requirements of the water framework directive, as we did when we were in the EU. We are emboldening that with other provisions, such as the ones in the amendments to the Levelling-up and Regeneration Bill. So, there is a degree of urgency because we want these matters to be dealt with as quickly as possible. I urge the noble Lord not to listen to what was claimed in the regret amendment last week.