Water Industry (Financial Assistance) Bill

Lord Knight of Weymouth Excerpts

Tuesday 27th March 2012 Lords Chamber

[Lord Knight of Weymouth]

My Lords, this is a short Bill of three pages, so there is a chance that we will have read the whole thing. That is a good thing, as is the Bill’s brevity. It is difficult to oppose the Bill as it stands, as it does only two things and in principle I support both. Who would not want South West Water customers to have some relief from their extraordinarily high bills or for the River Thames to be relieved of unacceptable levels of sewage? The Bill is also difficult to oppose because, of course, it is a money Bill. That means that in this House, as we have heard, we cannot oppose it—even if we want to—because we do not have the power. We must therefore make all our comments this evening—even at this ridiculously late hour. The timetabling of the debate at this late hour is ridiculous and is yet another huge discourtesy to this House by the Government. That is becoming a habit.

My noble friend Lord Berkeley has had to catch a train to chair a conference in Glasgow in the morning. So seriously has he taken this issue that in order to prepare for this debate he even travelled to Brussels last week to discuss with the Commission the risk of infraction. It is deeply regrettable that he will not be heard. I have therefore agreed to pass on an edited version of his speech in my speech and we will therefore get two speeches for the price of one.

My noble friend asked why there was the urgency in having to pass this Bill tonight instead of waiting until next month when we have time. The answer is obvious and perhaps a little tawdry: the Government want to be able to give households in the south-west their promised £50 before the local elections in May. The urgency to pass this Bill tonight contrasts with Defra failing to fulfil its promises to Parliament to make announcements today on dangerous dogs and carbon reporting. It is a shambles.

I should move on to what is my main problem with the Bill. As my noble friend Lord Grantchester said, this is the wrong Bill. We need a proper water Bill, as promised by the Government, that is properly debated in both Houses and gets on to the statute book over the next year—not as a draft Bill with further delay until the year after—to do these and other important things, such as dealing with abstraction, which is essential if we are to reduce drought risk, and putting in place a proper water affordability scheme involving the social tariff that the noble Lord, Lord Taylor, talked about.

The two issues in the Bill are urgent and raise complex issues. As we have heard, noble Lords have carried out detailed work on the issues relating to the Thames tunnel and I pay tribute to noble Lords’ speeches on that subject. This short debate has yet again demonstrated this House’s expertise and why it is so important in improving legislation for Parliament. Yet, because Defra could not secure a slot in the Queen’s Speech for a proper Bill, that expertise is being sidelined. Frankly, it is an insult to your Lordships, but I suspect that the Government are finding us a little too tiresome and troublesome these days and are therefore keen to invoke financial privilege a lot more.

My other difficulty with the Bill relates to the extent of the powers that it confers on the Secretary of State. Again, this could have been properly debated in relation to a public Bill, but now we are victims of the need to avoid hybridity. I have no wish for the Bill to be hybrid—the parliamentary long grass is not a place for me. As Defra’s Explanatory Notes to the Bill make clear, this is a Bill to assist consumers on the south-west peninsula and the Thames Water area only, but the Bill cannot say so for fear of being hybrid. The consequence is that the Secretary of State will have the power to give financial assistance in any form to any English water company, with any conditions that she sees fit, as long as the assistance is used to reduce charges for customers for water supply and sewerage services. Similarly, she can assist any water or sewerage company with any large or complex infrastructure project in England if she,

“considers it desirable to do so”.

The Explanatory Notes, which do not form part of the Bill and are not endorsed by Parliament, clarify that the costs will be £40 million for the south-west and up to £4.1 billion for the Thames tunnel, but that clarification has no status. Unless the Minister can advise me otherwise, Her Majesty’s Government could, if they were to be persuaded of another scheme, perhaps as a pre-election giveaway in some area precious to the coalition parties, just go ahead with that scheme without coming back to Parliament. That is unacceptable.

In that regard, can the Minister tell me whether he has considered a sunset clause on the Bill’s provisions? Should we not have some mechanism that requires the Government to come back periodically to justify this expenditure? Is this approach a long-term solution? Does it really pressure water companies to maximise efficiencies in the interest of consumers? Can we be convinced that this is not a long-term subsidy to water company shareholders?

So I am not keen on the Bill because of its process and extent. It is effectively a blank cheque. However, let me briefly address the substance of South West Water bills and the Thames tunnel. As we have heard, the Bill will enable the Government to make a £50 annual payment to households in the South West Water area to reduce their water bills. South West Water is a classic case study of what happens when privatisation goes wrong.

When the previous Tory Government introduced what became the Water Act 1989, it was supposed to be a new start for the water industry, but in the south-west, as we have heard, it created a water company responsible for 30 per cent of England’s coastline, but with a customer base of just 3 per cent of the population. There had been no investment in sewerage infrastructure, so the £2 billion needed to clean up the coastline was paid by the unfortunate South West Water customers through their bills, leaving them with the highest average unmetered bill in the country. As a resident of the south-west, I am happy to say that I live just outside this area and am served by Wessex Water.

In some ways, Part 2 is intended to prevent the same thing happening to consumers in the Thames area as their sewage infrastructure is brought up to standard. We welcome the £50 a year for households in the South West area, but the Bill will do nothing for households in other areas. I repeat the question from my noble friend Lord Grantchester: will the scheme exclude second home owners? It would be very popular in the south-west were it to do so.

From April this year, water bills will rise on average by 5.7 per cent, or about £20 a year. The Government have taken a hands-off approach and are considering leaving it to water companies to decide whether to introduce social tariffs. Ofwat, the independent water regulator, estimates that one in 10 households currently spends more than 5 per cent of their income on water and sewerage. That is 2.26 million households across England and Wales: almost 1 million single adults, 73,000 pensioners and 540,000 families with children. The Government had promised a draft water Bill in the spring. As I said, we will have to wait until Defra finally gets its ducks in a row before we get that Bill.

On the Thames tunnel, I have read the various views on this huge project. No one denies that we need to do something, but I am struggling, despite the compelling speech by the noble Earl, Lord Selborne, to see what alternative there is to the combined sewage outflow tunnel. Bubbling appears discredited, separation of rainwater and sewage too expensive and lots of mini-schemes highly uncertain. I am therefore persuaded to support this scheme as well.

However, I would like the Minister to address the concerns of my noble friend Lord Berkeley. In the speech he would have delivered tonight he says that the Bill represents the failure of the industry and its regulator to get companies to perform efficiently and to reduce charges. He has grave concerns with regard to the Thames tunnel. He would have said that the costs are estimated at £4.5 billion plus EU fines, but the risk of cost overruns in such a major tunnelling scheme are not properly thought through and are also likely to be high. The cost to London’s consumers could be as much as £80 per household per year for 30 years.

My noble friend is worried about state aid. This looks like potential for massive state aids to one monopoly supplier company. What criteria are being used for choosing one company—or will all get help? Have the Government checked with the European Commission whether either of the state aids proposed are legal and what conditions are likely to be attached? This is a major project, now with government support and finance if things go wrong and therefore no incentive to save money or look at alternatives.

When my noble friend heard Ministers continue to repeat that the project was necessary to clean up the Thames as required by the European Commission to avoid infraction proceedings, he went to Brussels last week to meet officials dealing with the infraction and hear at first hand what they thought. It is important for the House to hear what they thought.

The European Court of Justice is currently considering the case and is likely to give its judgment this summer. The Commission expects to win, but can of course never be sure. Following the Court decision, if the EC wins, it will give the UK three to five years to complete whatever scheme is necessary to comply. Almost certainly, the UK will be fined, but it will be a little less the quicker a compliant scheme is completed.

Public statements by Ministers about intentions are not relevant. The Commission noted that this directive should have been complied with by 2000 and that, if this did not happen until 2022-23, a large fine was likely. Clars Environmental has estimated that the fine could be as high as £750 million. The amount can, we understand, be mitigated by completing any compliant scheme quickly, perhaps by a maximum of five years. The Commission’s case is that it has always required an output specification for the water quality but it has never given the UK Government any instruction or indication that a particular solution is required or desirable. It emphasised that the choice of solution was down to the member state as subsidiarity. The Commission was not of course certain whether the currently proposed tunnel scheme would meet the criteria, and of course it has to wait to see what is said in the ECJ judgment, expected this summer. It is then up to the Commission to enforce the judgment and, at that stage, to consider whether the tunnel solution or any other will comply with the judgment. So we have a Thames Water scheme costing £4.5 billion racing ahead without any up-to-date consideration of alternatives or, more importantly, whether that scheme as designed will meet the ECJ and EC requirements and therefore stop the fines continuing.

My noble friend Lord Berkeley would have gone on to talk about some of the alternatives put forward by the noble Earl and Chris Binnie. He thinks that many of these could be implemented sooner than the Thames tunnel scheme, with a consequent reduction in the infraction fine and in capital costs. Therefore, his second question to the Minister is: will the Government set in train an urgent review of alternatives by someone without a vested interest in the present scheme which will take into account the likely and actual decisions of the ECJ and EC enforcement people to achieve a more cost-effective and efficient solution more quickly, and one that is more environmentally friendly than the existing scheme? Is the massive potential fine of £750 million enough to persuade the Government to think again? Who knows? A series of smaller schemes might even get the job done quicker, he says, with a consequent reduction in infraction fines. I would ask: given that the fines could reach hundreds of millions of pounds, can the noble Lord tell us the department’s view on this? Can he also promise your Lordships that, if the Government lose their case in the European Court, a Minister will come back to this House with an urgent Oral Statement to tell us how the Government will fund the inevitable fines?

I have other concerns but I shall not delay the House further. I deeply regret that the expertise of this House has been sidelined and that we cannot debate more fully and amend to improve, but of course I look forward to the Minister’s response.