Water (Special Measures) Bill [HL]

Lord Sikka Excerpts

Committee stage
Monday 4th November 2024 Lords Chamber

This legislation is a set of political choices, and I am very concerned that the next election will be tough on the Labour Government if this all goes through in the way they seem to predict it will. If they try to get water bill payers to carry the debt from all the decades of privatised failure, that will not be popular with the wider population. So I hope the Government have a proper think about this and make the choices that put them on the side of bill payers and the environment.

[Lord Sikka (Lab)]

My Lords, I will speak to Amendments 97, 99 and 102. I congratulate the noble Baroness, Lady Jones of Moulsecoomb, on her speech. I fully support Amendment 97.

It is interesting that, following an article in the Telegraph, on 19 September, the Government issued a press release in which they said:

“These powers would never be used to pay bondholders, shareholders or creditors … we do not expect customers to pay the price for water companies’ mismanagement … The new measures in the Water Bill will protect taxpayers”.


At the same time, the Explanatory Notes state, on Clause 10, that the Secretary of State “may provide financial assistance” to companies. It is hard to see how these statements can be reconciled. I hope the Minister will tell us what kind of financial assistance the Government envisage providing to water companies while they are being restructured. Their being restructured means that they are already financially, environmentally and morally bankrupt, so why provide financial assistance?

In the debate last week, the Minister said that water companies are “private companies”. If they are, they should be fully exposed to the laws of capitalism, with absolutely no bailout of any kind. Why are we making these special provisions to indulge them and, presumably, write down some of the debt? This was a key assumption made by the last Government in what was code-named Project Timber. Information leaked out that it was talking about how the Government, presumably, may write the debt of Thames Water down to merely 40% of the amount owed.

Whenever we talk about not bailing out shareholders and bondholders, or refer to public ownership, the Government’s immediate response is to say that it will cost billions of pounds. I once again invite the Minister to show me the Government’s calculations—I will happily critique them for free and talk about whether those numbers make any sense. Will the Minister accept my challenge and please publish the numbers?

The Government also say that it would be hard to reintegrate the companies. We are doing it for railway companies, so why can we not do it for water companies? What exactly would be the hardship? Every day, there are numerous mergers and takeovers in the corporate sector, and they are easily integrated and rewired. I hope that the Minister will explain this. I would particularly like to see the calculations of what the cost of public ownership would be, so that we can then start looking at this and talking about the optimum solution.

I hope the Minister will not refer me, as she did previously, to the 2018 Social Market Foundation report. It fetched a number out of thin air and said it was worth about £90 billion—the following year, this was contradicted by Moody’s, which said it was only £14.5 billion. Since then, as we know, a lot of shares of water companies have become worthless and the debt has junk status, so it is easy to let the normal rules of capitalism apply.

I support the noble Baroness, Lady Jones, on Amendment 99. I will say a little more about Amendment 102. Currently, water companies can violate rules and legal limits on sewage dumping ad infinitum. They can easily do cost-benefit analyses and see that it is cheaper to pay fines for illegal practices than to invest in infrastructure and act responsibly. This boosts profits, dividends and executive pay, while the public picks up the cost of unplugged leaks, sewage dumping, health hazards, and the destruction of biodiversity and marine life. To some, such costs are just externalities, but the public sees this as abuse, as clearly shown by yesterday’s mass demonstration in London.

The puny financial penalties have not curbed the predatory practices. The Minister promises us that there will be more and says that the executives may be prosecuted—that is, if they can wait another 20 years to have their cases heard, as there is already a backlog of 60,000 cases in the Crown Court. The result is that the whole industry is now under the control of entities that have criminal convictions. Wastewater companies in England and Wales have been convicted 1,109 times since 1989. The dismal roll-call is as follows: United Utilities has 205 convictions, Thames Water has 187, South West Water has 174, Anglia Water has 128, Yorkshire Water has 125 and Southern Water has 119. Perhaps the Minister would care to name a pristine water company—never mind pristine water, just a pristine water company. That would be helpful.

There are no pristine, honourable, responsible or ethical water companies, but successive Governments continue to indulge them and give them monopolies in an essential public good. What would happen if 10 major food or medicine companies were convicted of 1,109 crimes that they knowingly committed? They would be shut down and consumers would sue them, but regulators in the water industry do no such thing. Indeed, Ministers make excuses, and successive Ministers have done nothing.

My amendment requires that habitual offenders be placed into special administration, if two or more criminal convictions are secured in a five-year period. This is akin to yellow and red cards in football. The first yellow card is a warning, effectively saying, “Don’t do it again. Mend your ways. Clean up your act”. If no heed is taken, the second yellow card, which is effectively a red card, would follow, and the companies would be placed into special administration.

It is often claimed that shareholders are passive. The threat of special administration for abusive practices would encourage them to actively invigilate companies and their boards and take an interest in their governance. For far too long, companies have got away with abuses; my amendment would ensure that there were serious consequences for them. If the Minister does not accept my amendment, can she say how many convictions water companies need before they are considered unfit and improper to own crucial infrastructure?

[Lord Roborough (Con)]

My Lords, I shall speak to Amendment 73, moved by the noble Earl, Lord Russell. I thank the noble Earl, the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones of Moulsecoomb, for their contributions.

On these Benches, we have grave concerns about these amendments. While it is important that the water sector operates with integrity, we fear the amendments may have unintended consequences that could destabilise the industry and ultimately be detrimental to the public and the environment.

On Amendment 73, the power to revoke a water company’s licence is one of great consequence and must be exercised judiciously. An abrupt removal of a licence, without sufficient consideration of the ramifications for infrastructure and service continuity, could leave customers vulnerable and lead to service interruptions. It would also be a very substantial barrier to private sector investment. Investors must be able to have confidence that they will be able to enjoy returns on their investments without elevated risk of loss of licence. Should such an amendment be included in this Bill, it would lead to a much higher cost of capital for the industry and higher consumer bills as a consequence. While we appreciate the intent to hold companies accountable, we suggest exploring whether there are more balanced approaches to achieving compliance, without risking instability.

Amendment 97 raises further concerns. The possibility of cancelling debt in the event of special administration proceedings could create moral hazard. This amendment, while aiming to protect consumers from the fallout of financial mismanagement, might inadvertently incentivise risky financial behaviour by companies under the impression that their debts could be forgiven in times of crisis. The bankruptcy route already allows debt to be repaid in part or renegotiated in an orderly manner, respecting the contractual rights of all creditors. This would not be desirable.

As for Amendment 98, this is a matter of significant complexity. We must not overlook the potential costs and operational challenges associated with such transfers. The water industry requires immense resources, infrastructure investment and technical expertise. A shift to public ownership would strain government resources and create operational challenges. We support the Government in not wishing to see a return to public ownership of the industry.

I wish to address Amendments 99 and 102. These amendments would empower the Government to put companies into special administration if they breached certain environmental conditions or held criminal convictions. While we wholeheartedly support stringent environmental standards and rigorous compliance, it is essential that these mechanisms do not inadvertently undermine the ability of water companies to continue their core operations. The amendments could place companies in special administration for relatively minor infractions, which may not warrant such a severe response.

We must be careful not to adopt measures that could disproportionately impact employees, customers and investors who depend on the water industry. I thank noble Lords for tabling these amendments and regret that we cannot support them—and could not even before the noble Baroness, Lady Jones, gave her views on my party.