Water and Sewerage Undertakers (Exit from Non-household Retail Market) Regulations 2016

Debate between Lord Gardiner of Kimble and Lord Moynihan

Tuesday 5th July 2016 Grand Committee

[Lord Gardiner of Kimble (Con)]

My Lords, these regulations will enable the implementation of important reforms from the Water Act 2014 to extend competition in the market for water services. The development of these regulations has been a very thorough exercise. We have consulted widely, as there are intricate elements. We are confident that we have taken the time to secure regulations that are fit for purpose to meet the objectives of the Water Act 2014.

From April 2017, all 1.2 million non-household customers such as businesses, charities and public sector organisations will be able to switch to a new provider of retail services for their water and wastewater. It is estimated that this will deliver a net benefit of around £200 million to the UK. These new “retailers” will be responsible for all customer-facing services such as billing, meter reading, call and complaint handling and the provision of all water efficiency advice. These customers will get the same water from the same pipes and have their wastewater taken away as they do now, but they will be able to choose their retailer in the same way as they can choose their energy or telecom providers. Non-household customers are keen to have this choice, and the Government’s decision to expand retail competition was made in response to clear demand from business customers. Our reforms will mean that they are free to negotiate for the package that best suits the needs of their business.

Currently, the law requires water and sewerage companies to provide both wholesale and retail services to all the premises in their area of appointment. During the passage of the Water Bill through Parliament, the Government brought forward amendments designed to enable such companies to decide they want to stop offering retail services to their non-household customers once the new market opens. The amendments to enable retail exit reflected a strong cross-party consensus that competition would deliver better results for customers if, as well as new retail businesses being able to enter the retail market, existing water companies were able to withdraw. Providing choice is a key driver for our retail competition reforms. Just as customers will be able to benefit from increased choice over their retailer, so, too, will water companies benefit from being able to choose whether they wish to compete in the new market. Enabling exit will allow water companies to make informed choices about their retail strategies. The Government are not seeking to require companies to exit, nor are they seeking to shape the market in any particular way. The purpose is to put in place a framework that will allow the competitive market to evolve as effectively as possible.

The Water Act 2014 includes a power for the Secretary of State to make regulations allowing water companies to apply for permission to exit voluntarily the non-household retail market. Today we are considering the regulations that make retail exit possible. The Water Act 2014 enables the extension of retail competition to non-household customers only. The Government have more recently committed to review the costs and benefits of extending competition to household customers. The regulations before your Lordships today, however, have no implications for householders.

I should also point out that the powers in the Water Act 2014 allow only those water companies that operate wholly or mainly in England to exit. That includes Severn Trent Water, which operates mainly in England but also partly in Wales, and its customers subsequently will be able to switch their water and wastewater provider. These regulations do not allow companies that operate wholly or mainly in Wales to exit, although the current market arrangements already allow their non-household customers who use 50 megalitres of water a year to switch to a new water supplier, and this will not change.

As I said, the draft regulations have been through a very thorough process of consultation. We are confident that there is clear support for these regulations from across the water industry, consumer groups and Ofwat, and that they are fit for purpose. A first consultation informed the development of the policy on exits and built consensus around our approach; a second focused on the detail of the draft regulations themselves. A draft of the regulations was provided to the House of Commons Select Committee on the Environment, Food and Rural Affairs to ensure that its members had an opportunity to comment on our intentions. Indeed, earlier this year I also wrote to eight noble Lords who I knew had taken an interest in retail exits policy at the time the Water Bill was being debated, again to ensure that all those who wanted to comment on the draft regulations had every opportunity to do so.

These regulations have two main objectives. First, they set out the process those companies wishing to exit the market for non-household retail services must follow. This process, which we are committed to making as light-touch as possible, provides for companies to apply to the Secretary of State for permission to exit the non-household retail market in their area of appointment. On approval, the company would transfer its non-household retail business to one or more alternative retailers. The Government have produced a simple application form, along with guidance, to help companies with their applications to the Secretary of State. This has been consulted on and a draft is available to help water companies plan ahead of the application process that is set to open on 3 October 2016.

Secondly, the regulations provide a lasting regulatory framework for customers and companies following an exit. Safeguarding customers is a key concern. We expect competition to deliver higher levels of service, keener prices and greater innovation in the provision of retail services. The Government also want to ensure that customers retain access to the same standards of protection, whatever their water company chooses to do. These regulations will ensure that no customers should be worse off because their company decides to exit. This principle of equivalence, therefore, underpins a number of safeguards within these draft regulations. They ensure that all customers will have access to good contractual terms, be protected by Ofwat and be assured of access to a retail service even if something were to happen to their new retailer.

Customers who are transferred as part of an exit and do not have formal contracts in place will be subject to a deemed contract with the new retailer. The terms and conditions of those contracts must comply with a code produced by Ofwat. All retail businesses accepting a transfer of customers will be water supply and sewerage licensees. Ofwat is responsible for the licensing process, which opened in April this year. It closely examines the business plans, management resources and financial viability of all applicants before any licences are issued.

Before applying to the Secretary of State for permission to exit the market, a water company will need to reach agreement with a licensee willing to take on its non-household customers and fulfil the requirements of the exit regulations. Of course, in the new competitive market customers will have the ultimate protection of choice. Should any retailer fail to meet their expectations of customer service, they will be able to take their business elsewhere. Customers will be informed of their company’s intention to exit well in advance, and will be free to switch to the supplier of their choosing.

It is important that we deal with these regulations now to enable them to come into force in time to allow any water companies that wish to exit this market to do so when it opens in April 2017. The regulations will need to come into force by 3 October this year to allow us to open the exit application process six months before the market is due to open. This will provide certainty to those water companies wishing to exit and enable them to make the necessary preparations and communicate with their customers, as required by the regulations.

I express my department’s thanks to all those who have contributed to the development of the draft regulations, including noble Lords here today. I and the department are most grateful. The regulations are the result of detailed work with the water industry, prospective entrants and customer groups. They give choice to the industry, protect customers and put in place a framework that will allow the competitive market to evolve effectively. For those reasons, I commend the regulations to your Lordships and beg to move.

[Lord Moynihan (Con)]

My Lords, I commend the Minister for his opening speech. The draft statutory instrument before us reflects many hours of debate in your Lordships’ House. His words were not exactly in sync with the Minister at the Dispatch Box when we began this journey, and I note with interest that he mentioned that the pressure for these changes came from business customers. It would be fair to say that on the question of timing there was pressure from noble Lords from all sides of the House, who together recognised the importance of these measures for customers. Without that concerted effort, I do not believe that we would have met the timetable that the Minister has set out today. I echo his thanks to other noble Lords from all sides of the House who worked so diligently to ensure that retail exit was in the then Water Bill.

One key point that my noble friend has raised is the issue of timing. I am grateful to him for keeping us informed—he referred to a letter that he had written to a number of noble Lords—and for ensuring that we had every opportunity to contribute to the debate and the deliberations on this issue. In his letter of 23 March he mentioned that there was only one final step to take: the finalisation by lawyers of the then regulations. We have moved a significant time forward since 23 March, and I am very concerned and interested to hear from him that we will meet the April 2017 deadline. This is a complex issue, as my noble friend has mentioned; it is a thorough exercise. Meeting the April 2017 deadline is vital.

In that context, exemplary work has been done by Ofwat, by Cathryn Ross and her team, to achieve the objectives that the Government have set out and that deadline. There is no doubt that we have a first-rate regulator who is keen to ensure that everyone involved—those companies that choose to implement the changes, while others are putting in place deemed contracts and the changes necessary to ensure that the market works—has the full attention of Ofwat to ensure that that process takes place.

Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015

Debate between Lord Gardiner of Kimble and Lord Moynihan

Tuesday 27th October 2015 Grand Committee

[Lord Moynihan (Con)]

Before my noble friend the Minister responds, I rise as one of the gently scrutinising antagonists in Committee and further stages on the original Bill. We are now reviewing the regulations that derive from it. I really do congratulate the Minister, his predecessor and Defra officials on the remarkable work undertaken on this. I hear what the noble Baroness says about timing, but this is a very short timescale to have made the progress that we have—to move from Royal Assent to today. We should place on record our thanks to all those who worked exceptionally hard to achieve that objective.

I simply want to echo a point the noble Baroness raised. When it comes to the first review it is very important that the scope of application of these regulations and the Flood Re scheme should be fully considered. During our earlier debates there were concerns. The noble Baroness alluded to one, about people living in similar buildings, or, indeed, the same building in different circumstances, being in different receipt of the Flood Re provisions. When it comes to the review we need to assess the impact of that on local communities and on those affected. I hope that the Minister will echo that that will be possible.

Finally, on flood maps, given the important work done by the Environment Agency and the insurance industry on those maps, it is vital that the water companies are also party to those discussions. I understand that government is already actively engaged, for the first time, with water companies on potential contributions to coastal flooding schemes and to the impact of flooding in their designated areas. It is important that the water companies are party to those discussions.

I conclude by thanking the Minister and the team again. I congratulate him on bringing forward these regulations in a timely fashion, and on the work that has been done to ensure that what looks like an outstandingly good scheme is now being implemented—but which will always be, I hope, subject to review and improvement in future.

[Lord Gardiner of Kimble]

My Lords, as is traditional, I thank all noble Lords for taking part in this debate, but what is perhaps exceptional is that we all wish these regulations success in a very genuine sense because many of your Lordships have been through all the machinations of getting to this point. One of the points that I would like to play back is that I am the Johnny-come-lately in arriving at Defra, and it is very much to the credit of my noble friend Lord De Mauley and all the colleagues who worked with him that we are now where we are. Perhaps I may also acknowledge what the noble Earl, Lord Kinnoull, said about the co-operation and work of the insurance industry. I would like to place on record our thanks to the industry for the hard work and commitment that has gone into progressing Flood Re. Indeed, it is a great example of how the Government and the insurance sector have worked and are still working closely together, in this case to ensure resilience to floods, and in fact making a real and positive difference to many people’s lives. I think it is fair to say that we can all be proud that the UK has in its insurance sector a world-leading brand.

A number of questions have been asked, and it was absolutely right of my noble friend Lord De Mauley to mention flood defences. The Government have been tackling flooding from both ends, and obviously the capital investment has been very considerable, as my noble friend said. We hope and expect these flood works to reduce the risk for more than 300,000 households on top of the 250,000 homes which have already been protected by work undertaken during the last Parliament. It is probably also worth saying that the programme is forecast to reduce the flood risk for up to 420,000 acres of agricultural land, which will avoid more than £1.5 billion-worth of direct economic damage to farmland. Some 205 miles of railway are protected, along with 340 miles of road. With good reason, this is public investment that I hope we will see bearing fruit, and it is very important indeed.

The noble Baroness, Lady Jones of Whitchurch, asked a number of questions, the first of which was about the timing of regulations. It will be a matter for Flood Re itself, once it is authorised by the Prudential Regulation Authority, to determine when it will be in a position to offer cover, but the fund has assured Ministers that April 2016 is a realistic date to become operational. Indeed, when I met the chief executive officer, Brendan McCafferty, only yesterday, I was impressed by the work that has been done and he was similarly of the view that it is an entirely realistic date.

However, this rather plays into what the noble Baroness, Lady Jones, wanted to tease out as well, which is that insurers have agreed to continue to abide by their commitments in the statement of principles, ensuring that householders have access to flood insurance until Flood Re is fully operational. Obviously I take the strictures that the noble Baroness has put to the Government, but I think what my noble friend Lord Moynihan said is relevant. I come to this afresh, and it is clear that an enormous amount of intricate work has had to take place with the insurance sector, the department and with many interested groups. I think that we have made extraordinary progress, given all the complexity.

The noble Baroness also asked about the transition plan. One of the fundamental purposes established in primary legislation for Flood Re is that it is responsible for managing the transition to risk-reflective pricing of flood insurance for households. The transition plan will cover a multi-year period, and it is right and proper that adequate time is given to develop it. But the transition plan will be a public document and Flood Re is accountable to Parliament for it. The plan will be reviewed at least every five years, in line with the review of the levy and the premium thresholds. The noble Earl, Lord Kinnoull, and my noble friend Lord Moynihan asked about the review. As I said in my opening remarks, reviewing as and when necessary will clearly be important. This is a new body and we wish it well but it is important that these matters are kept under review and that there is this accountability to Parliament.

Localism Bill

Debate between Lord Gardiner of Kimble and Lord Moynihan

Tuesday 5th July 2011 Lords Chamber

[Lord Gardiner of Kimble]

My Lords, I want to speak to Amendment 136ZD in my name and that of my noble friend Lord Cathcart. My noble friend the Minister is aware that I raised reservations at Second Reading about this part of the Bill and the unintended consequences affecting private owners who allow their property to be used for community use. I thank my noble friend for her explanation earlier because it starts to clarify the intentions. However, the intention of this amendment is to provide greater clarity and also thereby allay justified concerns with a definition of an asset of community value and to provide clear guidance to local authorities, which is essential if we are to avoid confusion and unnecessary legal action which could be the case if we do not get this definition right.

I also think that we should strengthen the tests which have to be met in relation to nominations for the community asset register. We should firm up and define what is intended by community value. The primary requirement in all cases should be that assets of community value must promote social well-being through their past or current use. There should also be a secondary requirement, where local authorities consider it appropriate, of furthering the economic and environmental well-being of the community.

The amendment sets out the various factors that local authorities must take into account: current use; planning policies that affect the asset, which could include planning permissions already in place; what the nominator is proposing to use the asset for; evidence of wider support for the nominator’s proposals within the community; where there may be another site in the locality which could serve the same purpose. I think very much of the local library that might be closing but another publically owned property could be used for that purpose.

However, in accepting that exclusions from the listing will need to be in the regulations rather than in the Bill, the key one is that most residential premises must be excluded from listing. I say most because I can understand the asset where there is a pub where the living accommodation is secondary to the purpose. I am persuaded that village shops, post offices and pubs should be assets, which if communities wish to bid, they should be in a position to do so.

There are so many examples of private individuals enabling communities to use part of their residential premises and it is essential that the regulations make it absolutely clear that these premises are not included. I therefore hope that my noble friend the Minister will give this amendment due consideration and bring back on Report a comprehensive amendment on the definition of an asset of community value. As far as I am concerned the test will be that private owners will not in any way be advised that it would not be sensible for them to continue to allow their assets to be used by the community. If we do not get this right the net effect will be negative whereas what we are seeking to do is a positive thing for many communities.

[Lord Moynihan]

My Lords, I support Amendments 136, 136ZA and 136ZD, to which my noble friend has just spoken. In so doing I need to declare an interest as chairman of the British Olympic Association which has, among its principal objectives, the promotional of sport and recreation.

I seek guidance from my noble friend the Minister because I can see a great deal of good news for sport and recreation. Inasmuch as local authorities will have a duty to maintain a list of assets, the freedom to determine the form and content of the list, to set out specific requirements and to allow community nominations to be proposed, there is in many respects a presumption in favour of listing sport and recreation assets. I would have no problem whatever if this legislation applied exclusively to local authority or public sector facilities. Indeed, we had a lengthy debate this afternoon on Amendment 130, where my noble friend Lord Jenkin sought to insert,

“any public body, including, but not limited to, local authorities, government departments, government agencies and non-departmental public bodies”.

In that context, I see real benefit. As I say, I have no problem whatever with supporting it. On the contrary, it would enhance sport and recreation provision if the principles within this Bill, which I support, applied to those public sector facilities. Many playing fields owned by the Government and many local authority facilities would fall into that category.

However, as I read it and as I listened to the debate, Clause 74(1) and the amendments to which I speak apply to assets of community value wherever they are found, including on private property. Many noble Lords have understandable reservations regarding pubs and local shops, for example, but the situation regarding sport and recreation facilities is, I would argue, very different. Organised competitive sport in this country over the past 200 years has its roots in the relationship between landowners and sporting activity. Many cricket grounds, for example, are still located in the grounds of homes around the country. Many equestrian or sailing events and fishing activities are to be discovered on privately-owned land. The history of British sport rests on the amicable nexus between sport and recreation, on the one hand, and the good will of the private property owners—long may that remain the case—but as currently drafted the Bill risks halting that process.

The reason is this: that relationship is based on good will, on tradition, on the work of volunteers, the love of sport and recreation and, in many cases, clubs which have been formed, nurtured and flourished on the cornerstones of local communities to this day. As I understand it, the sole purpose in this context of the list would be to create transparency, providing a legislative process for local communities to bid for listed facilities. The bid, of course, could be rejected. Apart from that benefit of greater transparency, I seek guidance from the Minister because I do not see any further benefit. On the contrary, at the moment a mutually agreed sale can be agreed between the landowner and a community that uses those facilities. Simply put, the Bill provides for that transparency, then adds a whole series of measures which will negatively impact on the intention and good will of many landowners and homeowners to make their facilities available to the local community.

Let me cite an example. A private landowner who has a squash court attached to his property might want to provide a local village school with the opportunity regularly to use that court, but with this legislation the person concerned is unlikely to do so. He or she will certainly be very wary of so doing. When the property is up for sale, a search initiated by a future buyer may find that squash court is now listed under this legislation. A buyer making an offer may be time-constrained and thus walk from the sale or offer a reduced price. A buyer may well walk from a sale faced by a hostile local community, with the power of the press on their side given the publicised moratorium on the sale and the provisions in the Bill. I am sure that nobody in this House, on either side, can foresee this, but nevertheless there are risks that a future Government of a different political complexion might embed the full list in new right-to-buy legislation, damaging the value of the properties, or, looked at another way, putting a new tax on today’s market value of the properties. Put simply, many landowners will avoid these risks and shelve their plans to provide for sport and recreation today.

If my noble friend the Minister can allay these concerns I will rest persuaded, but on reading the Bill—I have not had the privilege that my noble friend Lord Hodgson has had of many letters or briefings on this subject; indeed, I have not had a single briefing—I am concerned that where there is good will among individual owners of properties, where, through their good will and intent, they build strong relations with their local communities, allow primary schools to access their land and use those facilities, the tennis court, swimming pool or squash court, the consequence of the Bill, which may be an unintended consequence, will be such that that individual immediately stops doing that any more for fear that listing will impact on the final value of the house. If there is a way to address that in the Bill and to recognise that nothing could be more damaging than multiplying that across the country with the negative impact that that would have on sport and recreation facilities and the negative impact that it would have on good will and local communities—which is what the Bill is all about in driving localism—I would be content to support the Bill, to move forward and to persuade my colleagues in the British Olympic Association that this is a subject that does not warrant the concern that it currently has.

Put simply, there are many landowners who I believe will avoid these risks, as I say, and shelve their plans to provide for sport and recreation. That would, frankly, be a disaster, particularly in the countryside, and I am sure that it is not the Government’s intention. As a result I ask my noble friend to address himself to my three amendments and to take this clause away in order to see how sport and recreation can be fully protected, particularly those facilities I have focused on this evening which are owned in the private sector by private landowners. I emphasise that I fully support the provisions of the Bill to free up many facilities that are owned in the public sector for community use—many playing fields we go past daily that are unused or underutilised—so that the local community can benefit from availing themselves of those facilities. If we can engage with that in the Bill and increase participation as a result, there will be real benefit, but if the unintended consequence is that we impact negatively on the good will in the private sector and among private landowners to make these facilities available, it would be a very sorry day for sport and recreation.