Deforestation

Lord Sikka Excerpts

Wednesday 17th September 2025 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

It is a very good question. We have to look at what waste from forest is used for. We are supporting the timber industry in this country; that is important, because at the moment we import an enormous amount of timber. It needs to be easier, quicker and more financially viable to grow trees in this country, so that is one aspect of reducing the waste that comes from importing. At the same time, we need to ensure that we manage the waste from our own imports and our own homegrown timber effectively. We relaunched this year the Timber in Construction Roadmap. We need to be able to meet demand, but at the same time manage the waste issues to which the noble Lord refers.

[Lord Sikka (Lab)]

My Lords, successive Governments have facilitated deforestation abroad. A good example is Drax, which has received billions in subsidies for burning wood pellets to produce electricity that is twice as expensive as electricity produced from gas. Drax has a record of lying about the use of primary forests for burning wood. The company reported a profit of over £1 billion last year, paid out £97 million in dividends and another £300 million in share buybacks to shareholders. Can the Minister explain why this company continues to be subsidised?

[Baroness Hayman of Ullock (Lab)]

Electricity generators—and that does include Drax—receive subsidies only for the electricity they generate from biomass which has demonstrated compliance with the Government’s sustainability criteria. We have strengthened the sustainability criteria for large-scale biomass generation by increasing the proportion of biomass that must be obtained from a sustainable source from 70% to 100%, excluding core material from primary forest and old growth areas, and by tightening greenhouse gas emission requirements in line with European best practice.

Plastic Pollution

Lord Sikka Excerpts

Monday 15th September 2025 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

Our ambition at the moment is to try to get the global treaty that we have been pressing for. We believe that the more countries that we can bring into that treaty, including those that produce the plastics and the materials for them, the more likely we are to have a larger global impact. But we are considering all options, because we need to move forward in this space.

[Lord Sikka (Lab)]

My Lords, can the Minister explain what assessment the Government have made of the pros and cons of requiring road builders to replace some of the fossil fuel-based bitumen with plastic pellets?

[Baroness Hayman of Ullock (Lab)]

At the moment, I am not aware of Defra having had such conversations. It may be that the Department for Transport has, so I will go back to my department, ask for more information on this subject and write to the noble Lord.

Independent Water Commission

Lord Sikka Excerpts

Wednesday 23rd July 2025 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

The noble Baroness is correct: we have ruled out nationalisation. But if she would like to share the paperwork, I would be more than happy to look at it.

[Lord Sikka (Lab)]

My Lords, Ministers claim that public ownership of water would somehow cost £100 billion, which is a totally unsound claim. Let me explain. The £100 billion figure is generated by Ofwat, which calls it “recognised capital value”. It is calculated by taking the value of the company at the time of privatisation, adding the annual investment and multiplying it by the annual rate of inflation. It adds that 35 times—that is, over 35 years—and comes up with the figure of £100 billion, which does not represent anything. On the same basis, a £10,000 Reliant Robin bought by Del Boy in 1990 would now have a value of over £50,000. There is no way that Del Boy would be able to sell it for £50,000, because that figure has absolutely nothing to do with value. So, can the Minister explain why the Government consider £100 billion to be a credible figure for the cost of public ownership?

[Baroness Hayman of Ullock (Lab)]

I would just say to my noble friend that we have discussed this on a number of occasions, including with officials in the department. I am sure that we will continue to discuss it.

Thames Water

Lord Sikka Excerpts

Wednesday 4th June 2025 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

Any future operating model will be part of Sir Jon Cunliffe’s review that is currently taking place—I am sure the noble Baroness will be aware that the interim report is out. That will be part of the work being carried out by Sir Jon and others.

The big issue is that fundamentally this a private company. It for the company to solve the issues of financial resilience. It is not for us to tell a private company how to manage its finances. That is really important. But, having said that, we have to be prepared for all eventualities across regulated industries and Thames Water has clearly had some pretty serious problems. If it comes to a SAR, creditors cannot ask the debt to be repaid during that special administration regime. If it did come to that, there is a moratorium on legal proceedings during a SAR and that would take away the creditors’ ability to enforce any debt repayments.

[Lord Sikka (Lab)]

My Lords, while the Government are dithering about the future of Thames Water, its debt has increased by £3 billion, it is spending £200 million a year on its business advisers and one-third of a customer’s bill basically covers the interest payments. Is it not time that the Government recognise that privatisation has failed and that the only way of giving the water industry firm footing is through public ownership?

[Baroness Hayman of Ullock (Lab)]

As I have said previously, the Government are not going to be renationalising the water companies. The Government are not dithering. This is a private company that has some serious debt problems. It is not for the Government to tell a private company how to manage its finances. If it comes to it, we are prepared to ensure that customers continue to receive high-quality water through their taps, because that is what is really important, and that the systems stay in place.

Thames Water: Bids

Lord Sikka Excerpts

Monday 28th April 2025 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what guarantees they expect to give to, or receive from, any bidder for Thames Water.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

I had almost relaxed then.

My Lords, it would be inappropriate for the Government to comment in detail on a company’s commercial regulations. Ofwat notes that the company has now moved to the next stage in its equity raise process, and it continues to engage with the company to ensure the delivery of the financial and operational turnaround that both customers and the environment deserve. Any investors will be expected to show that Thames Water will meet its statutory and regulatory obligations.

[Lord Sikka (Lab)]

My Lords, I thank the Minister for her Answer. Let us look at the facts. Thames Water was put on the road to ruin by private equity. Now its shareholders have designated KKR, another private equity group, as their preferred bidder. KKR’s business model is profiteering, high leverage, low investment, asset stripping and high cash extraction. That will inevitably multiply Thames’s problems. The Water Industry Act 1991 gives the Secretary of State powers to vary the licensing conditions. We need to know precisely what the Government will demand from the new owners of a company that already has 187 criminal convictions.

[Baroness Hayman of Ullock (Lab)]

Regarding the company choosing KKR as its preferred bidder in the ongoing equity raise process, clearly Thames Water is a commercial entity engaged in a public equity raise, and it would therefore be completely inappropriate for the Government to comment on that. However, I note that the company had a number of potential bidders to choose from, which indicates that a market-led solution to the financial resilience of the company is a possibility.

Thames, Yorkshire and Northumbrian Water: Ofwat Proposed Fines

Lord Sikka Excerpts

Wednesday 29th January 2025 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government how many of the £168 million fines proposed by Ofwat on 6 August 2024 against Thames Water, Yorkshire Water, and Northumbrian Water have been collected.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, it is important to make clear when answering this Question that we are talking about proposed fines, and legislation specifies the process that Ofwat must follow before it can impose the fines or an enforcement order. Ofwat has the option of accepting regulatory settlement in lieu of imposing an enforcement order and/or fine. If Ofwat decides to impose a fine, it will issue a notice to the company specifying the date of payment. This must be after 42 days from the date that notice is served on the company.

[Lord Sikka (Lab)]

My Lords, I thank the Minister for that reply. We seem now to have a category of fines which are not really fines. A £168 million fine for past sewage dumping was announced nearly six months ago but has still not been agreed and collected. The normal practice is that habitual criminals are not permitted to negotiate the extent and timing of fines with judges or anybody else. These three water companies between them have over 400 criminal convictions, but they are being allowed to negotiate the amount and timing of their fines. Why does the Minister think that this is a good and moral practice?

[Baroness Hayman of Ullock (Lab)]

It is important to be clear that Ofwat has to act within existing legislation. It is also important to point out that the Government are absolutely clear in wanting to clean up the water industry, which is why we have set up the commission. Since 2015, the Environment Agency has concluded 66 prosecutions against water companies, which has secured record fines of over £150 million. Meanwhile, in the last five years, Ofwat has secured a total of around £38 million in rebates to customers, in addition to another £150 million in other undertakings, as a result of its enforcement action.

Water (Special Measures) Bill [HL]

Lord Sikka Excerpts

Report stage
Wednesday 20th November 2024 Lords Chamber

[Baroness Bakewell of Hardington Mandeville (LD)]

The Government have indicated that this is not going to happen. The amendment is an attempt to bring forward a different model of governance. The proposal is for 25% of board members to be chosen by local authorities. Local authorities are struggling with social care, looked-after children, education and people with learning disabilities. They certainly do not need this added to their “to do” list.

I look forward to the Minister’s response to this group of amendments, particularly Amendment 9.

[Lord Sikka (Lab)]

My Lords, Amendment 57 is highly workable, because it advances democracy and public accountability of the regulatory bodies. As we have it now, the regulators of the water industry have failed the people, mainly because they are too close to the very interests that they need to regulate and far removed from the welfare of employees, customers and citizens, who bear the ultimate cost of regulatory failure. I am pretty sure that the Government will soon be asking customers to chip in more money to restructure water companies and taxpayers to pay more to reconstruct them. That is just one part of the cost which people will bear.

All regulatory bodies need to be guided by effective watchdogs and guide dogs, but Ofwat has neither any watchdog nor any guide dog; it just seems to be running loose and doing whatever it wishes. There is no mechanism for preventing capture of water regulators. The executives of Ofwat pass through revolving doors and join the water companies with dizzying speed and great regularity, undermining the independence of the regulatory bodies. Regulatory bodies must be seen to be independent rather than just claim that they are independent. At the moment, a director of Ofwat, a former Conservative Minister, is spearheading a campaign that would make it harder for consumers to sue water companies that breach legal sewage limits. Should a regulator be doing that—or should it be more even-handed between the regulated and consumers?

--- Later in debate ---

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I have three amendments of my own in this group and I have co-signed Amendment 56 in the name of the noble Lord, Lord Sikka.

I spoke earlier about the Government’s plans not being strong enough to get a grip on these out-of-control water companies. The amendments in this group, including my Amendments 53, 54 and 59, are illustrative of what could be put in place to really force the water companies to clean up their act. There does not seem to be any protection whatever at the moment against a water company simply going through the special administration process and then hiking bills up on the other side. The moral hazard is obvious.

I am going to take my amendments out of order, and noble Lords will see why. My Amendment 54 would create a special administration process for environmental failures, such as persistent sewage dumping. I do not understand why only financial failure should lead to special administration, when a much bigger failure is the sheer amount of sewage pumped into our rivers and on to our beaches. Thames Water, for example, will come out of special administration still in private hands, but with the bulk of the debt paid off by higher bills. My amendment would change this by giving the special administrator the power to write off the bulk of the debt where it has been used to pay for dividends and where the company has failed to deliver the investment to fix the sewage system. Those powers are not in the current rules and the Government have the chance to change that. Otherwise, we will reward the failures and greed of companies such as Thames Water and will be blamed for it.

I will take my Amendments 53 and 59 together only because I would actually have liked to press them to a vote. They are two amendments I care about very much, on issues that I think the general population cares about very much, and it staggered me that there has not been more support for them in your Lordships’ House. I thank the noble Lord, Lord Sikka, for supporting me: it is two Greens and him who have proposed this.

Essentially, my Amendment 53 would prevent water companies being bailed out by either the public purse or via consumers’ water bills. This is because I am quite suspicious that the whole Bill is a tactic to support the water companies, at vast expense to bill payers and eventually to taxpayers. I simply do not understand why profits are privatised but losses are not. We, the public, pay for the losses but do not get the profits.

My Amendment 59 would require the Government to conduct a full assessment of the costs of bringing water companies into public ownership. So much of the public ownership debate is dismissed based on dubious industry figures about how expensive it would be. These conveniently miss the fact that some of these companies are now distressed assets facing bankruptcy. I at least ask the Treasury to do a proper costings exercise which discounts the fact that water company valuations are based on expectations that taxpayers or bill payers will underwrite the future profits of the water companies. Given the total failure of water privatisation, the Government need to seriously plan to bring water back into public ownership. The public are crying out for it, and it would actually be good value for money. The first step towards that is to work out the real costs rather than regurgitating figures from a biased industry.

It will be a race against time whether we can pass this Bill before Thames Water fails. All the experts agree that Thames Water is going to collapse, so why are the Government not taking it into special administration immediately? My genuine fear is that this Government will find themselves in a political storm over the big rise in water bills to finance a new private company taking over. The Government would have three regrets: first, that they did not refuse a bailout; secondly, that they did not listen to the public and change the powers of the special administrator to write off shareholder-accredited debts; and thirdly, that they ruled out public ownership as an option and boxed themselves into a corner. I deeply regret this aspect of the Bill, and I wish there were support in your Lordships’ House for no bailout and public ownership.

[Lord Sikka (Lab)]

My Lords, I rise to speak in support of Amendments 53 and 56, with some trepidation. At 4 pm today my heart soared, because the Railway Minister said that government policy was to bring these monopolies into public ownership. But by 5 pm the Minister—the noble Baroness, Lady Hayman of Ullock—said no, and that water companies must remain in private hands. It is nearly 9 pm now, so I do not know whether the policy has changed again. It would be interesting to know.

Water companies and shareholders and lenders have extracted vast sums of money, and under no circumstances must they be bailed out. We are now almost reaching the endgame and maybe the beginning of a new chapter in water companies. Thames Water is an interesting case. All nine of its shareholders have declared the company to be a basket case and are refusing to invest, after extracting billions of pounds in dividends and inflicting massive, real-term price hikes on customers. The value of those shares has been written off; the value of debt has also taken a haircut in the marketplace.

The interesting thing is that Thames Water is now going to borrow more money, which does not make any sense; I do not know how the Government have made any sense of it. Thames Water already has a debt of about £18 billion, and its gearing, as I said earlier, is already over 80%, compared to Ofwat’s idealised ratio of 15%. Thames Water is now negotiating a £3.5 billion new loan at 9.75% for two and a half years. This new loan will require it to pay £800 million over two and a half years, with interest and various fees, to intermediaries, after which it will also have to repay the loan of £3 billion. That is £3.8 billion—which it will probably try to recover from customers. It has 16 million customers, so that works out at a charge of £95 per customer simply to service this debt. This simply is not viable. There would be riots in the streets if water companies went ahead and squeezed the customers even more. It is simply and utterly unacceptable.

The company will continue to discharge tonnes of sewage in the rivers. Water leaks will still go unplugged. We are talking about not just investment in infrastructure; Thames Water has also neglected other investments such as investment in IT. Some of its IT systems date back to the 1980s and are obsolete. According to whistleblowers, some of its essential systems still use Lotus Notes software from the 1980s and 1990s, which cannot be updated any more.

Thames Water will run out of cash soon and will inevitably pass to its lenders. But that will not solve the problem either, because the lenders, as the new equity holders, would still want a massive return on their investment, so we are back to the territory of massive new bill hikes. The Government’s delay and dithering are not helping to clarify the situation. They need to bring this company into public ownership. Private equity and hedge funds are lurking—they are the new hyenas ready to feed on the carcass of Thames Water and grab whatever assets it has left. I have been told that they are especially after land. They are counting on some kind of government bailout so that the value of their investment soars.

Thames Water is not alone. The same scenario is being repeated at Southern Water. The Minister said today that Ofwat’s approval is needed to pay dividends, so it is interesting that today Severn Water declared six-months profits, which have nearly tripled in six months, and has increased its dividends from 46.74p per share to 48.6p per share. It would be interesting to know when Ofwat approved this. Can we have some public evidence to show that Ofwat approved this higher rate of dividend?

It is a matter of concern to me and others that the Bill enables the Secretary of State to dip into the public purse and also levy massive charges on customers to restructure the companies. That is effectively a bailout by another name. Through this process, the Government may possibly write off the debts of these companies and possibly take on the liabilities and costs associated with cleaning rivers, seas and lakes. So there is nothing of any value in this for the customers at all, because they will end up paying more and the citizens will end up paying more as well. The bottom line is that public money should not be used to bail out any of these investors, whether they are lenders or shareholders. Hopefully, the Minister will give that commitment.

I tabled Amendment 56 previously, but I got some strange responses so I want to return to it. In any civilised society, a key requirement is that all businesses, especially those that control services essential for life, must be operated by organisations that are law-abiding, ethical and responsible. But none of that applies to water companies. The whole industry is controlled by organisations with criminal convictions galore. It is not one or two, and it is not that somebody forgot something or perhaps there was an innocent oversight. There are 1,109 criminal convictions, and there is not a single water company without a criminal conviction.

This is the result of deliberate planning in company boardrooms: the directors decided to violate laws, lie and cheat. The field of these convictions is led by United Utilities, with 205; Thames Water has 187 convictions; and South West Water has 174. None has shown any sign of mending their ways; if they had, these convictions would have stopped years ago, but they continue. Just last month, the BBC reported that United Utilities dumped more than 140 million litres of raw sewage into Windermere between 2021 and 2023—at that time, it was not permitted to do so. A BBC investigation found that illegal discharges had been taking place for more than three years—far longer than the discharges in the four months the company retrospectively reported. In other words, it lied.

There is no effective fit and proper person test in the UK to decide whether somebody ought to be allowed to run or control a water company or a wastewater disposal service. If there were, none of these companies would pass it. But, rather than punishing companies engaged in criminal activity, successive Governments have protected them. They ask people, year after year, to hand more money to these organisations, which obviously continue with their pattern of behaviour.

--- Later in debate ---

[Baroness Anderson of Stoke-on-Trent (Lab)]

The noble Lord has reached the time limit.

[Lord Sikka (Lab)]

Sorry, I did not realise. I was just beginning to enjoy that.

Just to finish off—not long to go now—the question is: why should these criminals be allowed to remain in charge? These things are not minor infractions. Last time we debated this, the Minister said that there were

“significant consequences for a company’s investors. Investors would not have the confidence to invest money if the special administration regime could be triggered without allowing a company to rectify any performance issues”.—[Official Report, 4/11/24; col. 1373.]

That is, again, a very strange argument that we should allow criminals to continue because somehow it might upset the market. On that basis, it would open the doors to criminal activities everywhere—

[Baroness Anderson of Stoke-on-Trent (Lab)]

I am so sorry, but we have reached time. Thank you.

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.

Water (Special Measures) Bill [HL]

Lord Sikka Excerpts

Committee stage
Wednesday 30th October 2024 Lords Chamber

Moved by

[Lord Sikka]

29: After Clause 1, insert the following new Clause—
“Prohibition of possible conflicts of interest(1) The Water Industry Act 1991 is amended as follows.(2) After section 35D (inserted by section 1 of this Act), insert—“35E Prohibition of possible conflicts of interest(1) An employee, director or advisor of the Authority, or the Secretary of State, may not—(a) take any employment, directorship, commercial opportunity, or other significant transactional relationship with any regulated water company, or connected party, or(b) accept gifts of any amount, that could produce the appearance of a conflict of interest.(2) A connected party under subsection (1)(a) includes a shareholder, significant creditor, or other entity with a significant transactional relationship with a regulated water company.””Member's explanatory statement
The amendment seeks to enhance independence of the regulator.

[Lord Sikka (Lab)]

My Lords, I should like to introduce the amendments in this group. They all seek to create, strengthen or delete regulations. Amendment 56 tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, seeks review of the environmental permits. Amendment 78 tabled by the noble Baronesses, Lady Parminter, Lady Bakewell of Hardington Mandeville and Lady Jones of Moulsecoomb, and the noble Lord, Lord Randall of Uxbridge, seeks to impose duties on the regulator to provide clean water. Through Amendments 79 and 80, the noble Baroness, Lady Bakewell, of Hardington Mandeville, and the noble Earl, Lord Russell, seek to abolish the water authority and create a clean water authority. Through Amendment 81, the noble Earl seeks a regulatory review of the water industry. Through Amendments 84 and 85, the noble Baroness, Lady Jones of Moulsecoomb, seeks to remove the regulator’s growth objectives and make environmental protection a statutory duty. I am sure that they will have plenty to add when they speak.

Meanwhile, I should like to speak to Amendment 29, which is about the prohibition of possible conflicts of interests. The key principle is that regulators must not only be independent of the regulated entities and personnel but be seen to be independent and free from any conflicts of interests. They must avoid cognitive capture. Individuals from regulatory bodies are in demand by the regulated entities because they can open doors and help to secure favours, and enable water companies to game the regulatory system.

No matter how vehemently such charges are denied, that is how it will always appear to the public at large, and public perceptions matter. Thanks to the wage freeze and the real wage cuts over the past 14 years, too many regulators are poorly paid. While in regulatory positions, they begin to look for greener pastures or are targeted by water companies for enrolment. In fact, every interaction they have with a water company is a potential job interview. There is always a temptation to go easy and be extra helpful to a potential employer, as that can help to land a much better-paid job. No one wants to sour that potential by being tough, awkward or robust with their potential employer. That applies to the regulators’ employees too.

There is plenty of evidence about the merry-go-round between the core regulators and water companies. A report last year noted that at least 27 former Ofwat directors, managers and consultants working in the industry, which they helped to regulate, subsequently began to work for water companies, mostly in senior positions. Six water and sewerage companies in England have hired directors of corporate strategy or heads of regulation from Ofwat. They were the insiders. One celebrated name, Cathryn Ross, at one time interim joint chief executive of Thames Water, was a former head of Ofwat. Several former Ofwat senior people now work at Thames Water. In addition to Ross, there is Jonathan Read, who is a director of regulatory policy and investigations. There is also Giles Stevens, director of regulatory strategy and innovation. Another executive from a regulator was recruited by Thames Water as recently as March last year as a “regulatory engagement lead”. At Severn Trent Water, there are at least nine employees who were previously at Ofwat. They include Shane Anderson, director of strategy and regulation, and Jonathan Ashley, head of economic regulation. Both previously worked as directors at the regulator that oversees water and sewerage firms in England and Wales.

I add for clarity that none of these people has broken any rules; I am not accusing them of doing so. It is simply that the rules are inadequate or, if they exist, incredibly poorly applied and permit this merry-go-round.

Amendment 29 requires that senior staff who work at the regulator cannot and must not have a potential conflict of interest by being lured into a job at a regulated company. It also requires that the Secretary of State must have no conflict of interests or appearance of a conflict: for example, by accepting gifts, free tickets for football matches, or even possibly tokens to buy new suits. None of that should be permitted. All regulators must be seen to be above any reproach, and there must be no question whatever about their integrity. An enforceable statutory framework is needed, and that is what this amendment seeks. We do not need voluntary codes, because they cannot be enforced by any court of law. We need legal backing. I beg to move.

[Baroness Parminter (LD)]

My Lords, I rise to introduce Amendment 78 and to return to the issue we covered on the first day in Committee around the duty of the water regulator, Ofwat, and the fact that at the moment it does not have a core duty which comprises a public interest. I thank the noble Baroness, Lady Bakewell of Hardington Mandeville, who again is unwell and cannot be with us today, the noble Lord, Lord Randall, and the noble Baroness, Lady Jones of Moulsecoomb, for their support for this amendment.

It is quite clear that the public feel extremely strongly about how the regulator is ensuring, not ensuring or unable to ensure that companies perform their duties towards the public interest correctly. If we have any doubt of that, we saw the strength of feeling in the general election, we see it every day in the newspapers, and I am sure we will see it on the streets of London this Sunday with the March for Clean Water; I declare my interest as stated in the register.

However, if anyone were to sit down and read the Water Industry Act 1991, they would be amazed that there are no duties for Ofwat with regard to the public interest, to promote public health or to ensure the protection and conservation of our environment. They would see it as an absolutely astonishing omission. What they would see is a core duty to ensure the “long-term resilience” of water company services and sewerage systems. That is effectively a “keep the taps on” clause—which my local water company, Thames Water, seems to be unable to do on quite a regular basis, although that is beside the point. Then there is a whole swathe of legally binding economic duties which ensure that Ofwat absolutely focuses the water companies on making a profit. I am not against making a profit; of course they should make a profit. However, Amendment 78 says that we should look for a triple bottom line: for profitability, environmental returns and social outcomes.

As this returns to an issue that we looked at on Monday which is fairly similar to the amendment from the noble Baroness, Lady Willis, which talked about taking all reasonable steps to contribute to the environment and climate change targets, I made sure that I read the Minister’s reply carefully in Hansard because I thought I might get the same sort of reply myself. She made three points. She says that the amendment is not necessary because it overlaps

“with existing government requirements, Ofwat’s core duties and our ambitions for the future”.—[Official Report, 28/10/24; col. 939.]

The Government do not have of themselves the mechanisms to deliver on all these targets; they rely on other bodies to work with them. Giving Ofwat this duty would enable it to support those government requirements and targets.

Secondly, on the point about Ofwat’s core duties, I strongly but respectfully disagree with the Minister. There is no evidence in Ofwat’s existing core duty of any public interest duty. Thirdly, the Minister talks about our ambitions for the future, by which I think that, rightly, she means the water industry commission. I shall quote again from her response on Monday. With regard to the independent water commission, she said the Government would put the environment

“at the heart of what we are doing”.—[Official Report, 28/10/24; col. 939.]

Great, fantastic—but, as we discussed on Monday, once we get the commission done, we will have to wait for legislation and time is rolling on, while our environmental and climate targets are here and now. We cannot wait. We should be using this opportunity in the meantime to strengthen the duties for Ofwat to ensure that our water companies can support the Government in the very necessary task of protecting our environment and delivering clean water for the public.

--- Later in debate ---

I once again thank noble Lords for their thoughtful suggestions. I very much appreciated the words of the noble Earl, Lord Russell, about the importance of working together constructively going forward. That is the spirit in which I would like to continue working on the Bill, and I very much appreciate the constructive debate so far in Committee.

[Lord Sikka (Lab)]

My Lords, I thank the Minister for her reply and all noble Lords for their observations, comments and speeches. Amendment 29 does have implications for other sectors, because they all suffer from the same malaise—a merry-go-round of regulatory capture. The result is that regulation is not what it should be.

The Minister referred to the Civil Service code on appointments and the migration of workers to companies. That has clearly failed—otherwise, how else do you explain the Ofwat chief executive becoming the chief executive of Thames Water, given the financial mess and other problems Thames Water has? No matter how the Minister explains it, people will not accept that everything is above board with that kind of migration. However, I hear what noble Lords have said and, in light of that, I may well revise this amendment and return with it. Meanwhile, I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

Independent Water Commission

Lord Sikka Excerpts

Tuesday 29th October 2024 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

That is a really good question. I have met with Dan Corry and spoken with him about this. He is doing a very broad overview of everything; it is not limited to the water industry. His review is entirely separate from any work that the commission is doing. If there is any overlap on the effectiveness of the water industry regulators, I am sure that it will be fed into the commission as part of its discussions.

[Lord Sikka (Lab)]

My Lords, the water commission’s terms of reference are full of motherhood and apple pie statements. They promise to protect customers and the environment, but matters such as flooding, agriculture, waste, the pricing formula, profiteering and the failures of privatisation are beyond the scope of the inquiry. Such constraints mean that the review will not be comprehensive. Can the Minister explain why the Government have handicapped the commission from the outset?