Water (Special Measures) Bill [HL]

Lord Sikka Excerpts

2nd reading
Wednesday 9th October 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is always a great pleasure to follow the noble Baroness, Lady Jones of Moulsecoomb. This Bill has more holes than Swiss cheese. I shall give noble Lords some examples. It promises to ban bonuses for senior executives but is silent on how the ban is to be implemented. Water companies can bump up basic executive pay and thereby eliminate the need for any bonus at all. Most water companies are part of large groups of companies and can offer multiple directorships to individuals, so no bonuses are necessary whatever. I hope that in her reply the Minister will tell us how this bonus ban will operate in practice.

The Explanatory Notes refer to a bonus ban for degradation of “financial resilience”. I know a thing or two about financial resilience, but there is no definition in the Bill and I have no idea whatever of what the Government mean by that. Again, I hope that the Minister will give us some ideas. How is this assumed financial resilience to be secured? Shareholders are already reluctant to invest. More debt will not increase resilience. Currently some 28% of the gross revenue of water companies is used to service debt payments. With higher debt that percentage would rise, which would destabilise companies. That leaves higher customer bills as the only option. After 35 years of abuse, that is simply not viable. Again, I look forward to some clarity.

The Bill promises to bring criminal prosecutions against some water company bosses but provides absolutely no criteria. How much sewage and how often does it have to be dumped to trigger an event for prosecution? There is no clue in the Bill. In any case, there is a backlog of 60,000 Crown Court cases, so the chance of any timely prosecution is slim. Perhaps the Minister has in mind some additional investment in the legal system. It would be good to hear that.

The Bill does not curb the payment of dividends. In March 2023, Ofwat said that it would

“stop the payment of dividends if they would risk the company’s financial resilience”.

To date, there have been no restrictions on dividend payments. Not a single water company discloses its distributable reserves, so we have no idea of their dividend- paying capacity anyway.

The Government are pinning their hopes on Ofwat, but Ofwat is not really up to the job. It has presided over the entire mess. It has not curbed financial engineering. Water companies continue to inflate their level of investment by capitalising interest and repair and maintenance payments. That is permitted by Ofwat. Ofwat systematically favours companies over customers. Anyone has only to look at how the pricing formula PR24 operates. Ofwat uses fictitious gearing ratios to enable companies to receive real excess returns. That should really be a criminal offence.

Ofwat cannot be trusted. It is too cosy with the water industry. Two-thirds of England’s biggest water companies employ key executives who have previously worked at Ofwat. Executives of water companies and regulators regularly meet in hotels and expensive private clubs to discuss their common position and how to quell public anger about bill rises and sewage dumping. This Bill does absolutely nothing to check collusion with and the cognitive capture of the entire regulatory apparatus.

On 5 September, the Environment Secretary said that

“customers will have the power to summon board members and hold water executives to account through new customer panels with teeth”.

Without a statutory base, customer panels will achieve absolutely nothing. In my view, at least 50% of the board of directors of any regulatory body and the regulated entity need to be directly elected by customers. Customers must also vote on executive pay. If they think executives deserve higher pay and bonuses, then they can award them. Let there be a bit of democracy. At least give people the power to check abuses. If the Minister has any objections to the democratisation of the water industry, it would be good to hear them.

The main aim of the Bill seems to be to prevent public ownership of the industry. It enables Ministers to restructure water companies and return the monopoly to the private sector, with the cost borne by customers and the public purse. Clause 10 empowers the Government to provide financial assistance that they may or may not ultimately be able to recover. This strategy cannot address the cause of the crisis, which is profiteering and cash extraction by water companies.

If the water industry had been in public ownership for the last 35 years, £85 billion would have gone into infrastructure instead of dividends. Interest payments on debt would have been much lower as the cost of government-backed debt is always lower than that borne by companies; that would have freed billions more for investment. But the Government oppose public ownership.

In response to an Oral Question from me on 23 July 2024, the Minister said that public ownership

“would cost billions of pounds”.—[Official Report, 23/7/24; col. 364.]

That seemed to imply that the Government had actually done some calculation. So I quickly followed it up with a Written Question seeking details of that calculation. All I got in response was a reference to the Social Market Foundation report of 2018. If any of my master’s students had written that as a dissertation, they would have been guaranteed a fail. It is a dismal piece of work commissioned by water companies. A former government adviser has said that that report has “virtually no intellectual substance”. The £90 billion quoted in that report is utterly incorrect. When taking over an industry, one buys only the equity, not the debt—and that is what it included.

In 2019, Moody’s said that the equity value of water companies was only £14.5 billion. Since then, lots of changes have occurred: most water company shares are junk or worthless. Debt is junk: some of the Thames Water debt is trading at less than 6p in the pound. The Government should let the companies collapse and bring them into public ownership at low price. That is how capitalism operates: if a company collapses, it does not get bailed out. Only public ownership can provide long-term stability and it ought to be done through a not-for-profit organisation. The cost of this can be loaded on to the acquired companies, as the private equity model does, or it can be recouped by issuing public bonds, ensuring that people actually own essential industries.

The Bill is delaying the inevitable and, naturally, I will help the Minister by tabling some amendments.

--- Later in debate ---

[Baroness Hayman of Ullock (Lab)]

My Lords, this has been a very interesting and worthwhile debate. I thank all noble Lords who have spoken for their thoughtful, informative and constructive comments.

As we have heard, the Bill is going to be used to drive meaningful improvements in the performance and culture of the water industry, as part of our wider efforts to ensure water companies deliver both for customers and for the environment. Many campaign groups, as well as parliamentarians, have called for measures to hold water companies to account. We also know that there is huge public support for the Government to do something. There is clear and broad recognition of the need for action. Let me now take the opportunity to address some of the points and questions raised during the debate.

First, I would like to stress that the Bill goes beyond the previous Government’s ambition. It is not true that the Bill does not contain anything further than measures put in place by the previous Government. For example, the Bill will go beyond the current regulatory framework. To give a couple of examples, it will provide legal powers to ban bonuses—currently, you can only set expectations—and it will also require water companies to report in near real time on discharges from emergency overflows, which are at present largely unmonitored.

The noble Duke, the Duke of Wellington, the noble Earl, Lord Russell, the noble Lord, Lord Blencathra, my noble friend Lady Young of Old Scone, the noble Earl, Lord Devon, and many other noble Lords were particularly interested in what exactly the review is going to do. As I said, the Bill alone is not enough to fix our water system; it is only an immediate down payment on the wider reform that is needed after many years of failure and environmental damage. As I mentioned, the review is going to be carried out to fundamentally transform how our water system works so that we clean up our rivers, lakes and seas for good. We will invite views from a range of experts, covering areas such as the environment, public health, consumers, investors, engineering and economics. We will have a public consultation to test that any proposals are robust and ambitious enough to clean up the pollution from our waterways. Through our review, we will look at long-term wider reform of the water sector as a whole, including considering and clarifying the roles of regulators. We expect this work to culminate in shaping further legislation and intend to set up further details about the review later this autumn. It is also really important that specific measures are consulted on during the passage of the Bill, and we will be looking to do so.

The noble Baroness, Lady Jones, and my noble friend Lord Sikka particularly asked about nationalising water companies. As I have said previously, the Government have no intention to nationalise the water companies. We are focusing on improving the performance of the water industry as an urgent priority. The measures in the Bill are designed to do exactly that.

As we have said, it will cost billions of pounds and take years to unpick the current ownership model, during which time underinvestment in infrastructure and sewage pollution will only get worse. Research that has been commissioned by the Consumer Council for Water, which we have heard about—

[Lord Sikka (Lab)]

First, can the Minister say how many billions of pounds, and can she publish that calculation? Secondly, she says it will take a long time, but the Government are going to integrate the newly created companies to manage the railways, and there are numerous mergers and takeovers everywhere where new entities are accommodated. Could the Government publish a paper to see what the complications would be? Although I recognise some of the complications, I do not think that any of this is insurmountable.

[Baroness Hayman of Ullock (Lab)]

Rather than get into a discussion around this, as I have a lot of questions to answer, I suggest that perhaps the noble Lord and I—and the noble Baroness, if she so wishes—take this away into another meeting and discuss it further when we have more time.

The noble Baroness, Lady Jones of Moulsecoomb, asked about the special administration regime, as did other noble Lords, and she asked particularly about profits for shareholders and creditors. The special administration regime is there to enable a seriously underperforming or insolvent water company to be put into special administration, with the requirement that vital public services—that is, water and wastewater—are continued to be provided pending a rescue package and transfer to new owners. This contrasts with normal administrations, where the appointed administrator is focused on the creditors’ interests only.

A number of noble Lords—the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Parminter, Lady Pinnock and Lady Bakewell, and my noble friend Lady Young of Old Scone, in particular—asked why the Bill is not being used to reform Ofwat or the Environment Agency. The Bill introduces the most significant increase in enforcement powers for the water industry regulators in a decade and is designed to give them the teeth they need to take tougher action against water companies in the next investment period. However, we want to go further. Through the review, as I mentioned, we will look at the regulators in order to carefully consider their roles and responsibilities and how we can ensure that they operate as effectively as possible. So that will be part of the review.

The noble Lord, Lord Douglas-Miller, asked whether the regulators were adequately resourced to implement all the new provisions in the Bill. Through the new cost recovery power in the Bill, we will enable the Environment Agency to fully recover costs for the full extent of its water company enforcement activities. That will include prosecutions and civil sanctions, revocation notices of permits, and pollution incidents. In addition, the EA is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation, increasing compliance checks and quadrupling the number of water company inspections by March next year. This will be fully funded by around £55 million per year through increased grant in aid funding from Defra and additional funding from water quality permit charges levied on water companies. I hope that helps to answer the noble Lord’s question.

There were also questions around the detail of Ofwat’s rules. The noble Lords, Lord Blencathra and Lord Remnant, mentioned this. We feel that it is more appropriate for Ofwat, as the independent regulator, to determine the specific performance metrics that should be considered when setting the rules. Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended—subject to the relevant procedural requirements, of course—where or when it is appropriate to do so in the future. Ofwat would need to consult with relevant persons, including the Secretary of State, Welsh Ministers, the Consumer Council for Water and others, before such rules were finalised. I also reassure noble Lords that Ofwat will issue a policy consultation in October on the scope of the rules.

Consumers were mentioned a number of times. First, on representation on boards, as we go through the Bill, we will look at this in more detail, but the idea behind the Bill is that Ofwat will be required to issue rules on consumer representation. Customers largely foot the bills for water company decisions, so we believe it is right that they have a say where their interests are at stake. Ofwat will need to consult with relevant persons, including the Consumer Council for Water, before finalising the rules on performance-related pay, and fitness and propriety and customer representation. I think my noble friend Lord Whitty asked about some of those issues.

The noble Lord, Lord Roborough, asked in his speech just now about further increases to customer bills. Where increased costs are a result of penalties being issued by the regulators—for example, under the new automatic penalties regime—the penalties will come out of water company profits and not from customers. Where costs are unrelated to penalties—for example, where they will fund new and improved infrastructure—we are working closely with the water industry regulators to see how we can best minimise the impact of measures introduced by the new legislation on customer bills. We do not want to see the customers bearing the brunt of these new actions.

A number of noble Lords, including the noble Lords, Lord Remnant, Lord Douglas-Miller and Lord Cromwell, and the noble Earl, Lord Devon, asked about investor confidence. Private sector investment is at the core of how we grow our economy. The Government are committed to establishing a strategic framework in order to deliver long-term stability, and which is conducive to attracting the sustained investment in the sector that we need. The Bill will deliver a clear and consistent regulatory framework for the water industry and its investors. I do not think anyone would think that investors have a lot of confidence in much of the water industry as it stands. On 10 September, Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions in private sector investment that we desperately need to be able to clean up our rivers, lakes and seas.

On that issue, there was also discussion around attracting talent. A number of noble Lords talked about the fact that it is more stick than carrot and asked how we are going to attract people into this. We believe it is right that companies and their executives are held to account for basic and fundamental performance requirements. Should companies meet their performance expectations, we believe that executives should rightly be rewarded, and there are also previous and existing examples of similar rules in other sectors. I will give a couple of examples. The financial services sector previously had a set cap on the level of bonuses—somebody mentioned that; I am sorry but I cannot remember who it was—and fit and proper person tests are also conducted by the Financial Conduct Authority and the Prudential Regulation Authority in that sector. Those sectors have continued to attract talent.

The noble Earl, Lord Devon, asked about ensuring that water companies invest sufficiently when considering pressures such as climate change and population growth, and about ring-fencing money for improvements. In July, Ofwat announced in its draft determinations a proposed £88 billion worth of expenditure between 2025 and 2030, which will be the largest investment in infrastructure that has ever been made by the water industry. We hope that that investment will deliver much of the work needed to achieve the issues that the noble Earl referred to.

The pollution incident reduction plans were discussed by many noble Lords during the debate. One question was: why have we not included a duty to implement the plans rather than just publish them? I think the noble Baroness, Lady Parminter, in particular talked about this. We say that these plans should be seen as part of the broader package of powers for regulators which exist and which are strengthened through the Bill to reduce pollution incidents.

The Environment Agency already has access to a range of tools to enforce against pollution incidents and this Bill is designed to supplement this with its provisions for automatic penalties and for Ofwat to ban bonuses when water companies have not met environmental standards. Water companies will also be required to report on overall progress on the actions that were set out in the previous plans. A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction.

The noble Baronesses, Lady McIntosh, Lady Browning and Lady Pinnock, all talked about sustainable drainage systems—SUDS. This is a complex issue. Existing planning policy requires that SUDS are included in all new major developments unless there is clear evidence that that would be inappropriate. This is in addition to requirements that SUDS should be given priority in new developments in flood-risk areas. However, I am aware of the issue around the previous legislation that has been sitting in front of us for 14 years, so I want to assure noble Lords that the Government are currently assessing how best to implement their ambitions on SUDS, while also being mindful of the cumulative impact of new regulatory burdens on the development sector. We are having regular discussions and trying to co-ordinate joint work with MHCLG officials on this issue. We want to move this forward.

The impact assessment was mentioned. There is an impact assessment for the Bill—I am sure noble Lords will be delighted to hear that—but it is currently with the Regulatory Policy Committee. We will publish it as soon as it has concluded its review. We are hoping that will be fairly soon.

The timeline for implementation was mentioned. Our ambition is to implement the provisions to give the regulators the powers they need to take tougher action against water companies for the next investment period, which is due to start in April next year.

The use of delegated powers was mentioned by the noble Duke, the Duke of Wellington, the noble Lord, Lord Sandhurst, and my noble friend Lady Young of Old Scone. I want to reiterate the reassurances I made in my opening speech that the provision of delegated powers will be subject to appropriate scrutiny and safeguards. We believe the powers are necessary to ensure that the provisions in the Bill keep pace with the changing requirements on the water industry and the changing expectations of customers. A full justification for the inclusion of delegated powers in the Bill is available through the delegated powers memorandum which has just been published.

On the statutory instruments for new penalties, we will be consulting on whether new automatic penalties can be used. Parliament will debate and vote on secondary legislation before any changes are made, so we intend to bring that before the House.

A few noble Lords mentioned local issues. The noble Earl, Lord Devon, talked about Devon, not unexpectedly, and my noble friend Lord Lipsey talked about the River Wye. I was impressed that he got away with that word. When I was in the other place and we had a similar debate, I got ticked off and had to change what I had said. But we are concerned about the issue of poo in the River Wye and he is right to raise it. There are also issues in Cumbria, where I live, around Lake Windermere and the other lakes, as mentioned by the noble Lord, Lord Inglewood. This is something that I personally feel we need to sort out. Our national parks are hugely important. They should be peaceful, beautiful places, not places that have been damaged by sewage overspills and other pollution. I reassure noble Lords that cleaning up iconic sites such as the River Wye and Lake Windermere is a top government priority. We want to get this sorted. The 2024 price review package that I mentioned earlier will include funding for improvement projects at priority sites and we are also working closely with the Welsh Government, particularly on the issues around the River Wye.

I am just about out of time. If I have missed anything that I should have answered, we will of course check Hansard and I will get back to people in writing, but once again I thank all noble Lords who have spoken today for their valuable contributions. It is clear that we agree on the importance of addressing issues in the water sector swiftly and decisively and that there is a consensus on the core aims of the Bill. The water industry really does need an overhaul, so I look forward to continuing constructive engagement with noble Lords. My door is always open. I commend the Water (Special Measures) Bill to the House and beg to move.

Bill read a second time and committed to a Committee of the Whole House.

Water Companies: Financial Resilience

Lord Sikka Excerpts

Tuesday 23rd July 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what assessment they have made of the financial resilience of England’s water companies.

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

My Lords, Ofwat monitors the financial position of water companies, taking action when companies need to strengthen financial resilience. Ofwat has strengthened its powers to improve financial resilience, including requiring water companies to stop paying dividends where that is compromised and preventing customers funding executive bonuses where companies do not meet performance expectations. Our water Bill will put water companies under tough special measures by strengthening regulation, as a first legislative step towards improving the sector.

[Lord Sikka (Lab)]

My Lords, I welcome the Minister to her post but let me illustrate the problems by referring to Thames Water. Its shares are worthless and its bonds are close to junk status, while 38% of its revenues service £18 billion of its debt. Based on the debt to asset ratio, Thames Water has a gearing of 80.6%; Ofwat’s target is 55%. The debt to equity ratio used by credit rating agencies gives it a gearing ratio of 1,000%. No amount of regulatory tinkering can change the fundamentals here. The Government need to create some certainty by nationalising it, so can the Minister tell us when that will happen, please?

[Baroness Hayman of Ullock (Lab)]

I thank my noble friend for his very warm welcome. However, the Government have no plans to nationalise Thames Water. It would cost billions of pounds and take years to unpick the current ownership model, during which time underinvestment in infrastructure and sewage pollution would only get worse. We want to improve the situation in the water industry that we find ourselves in as quickly as possible.

Water Companies: Failure

Lord Sikka Excerpts

Tuesday 21st May 2024 Lords Chamber

[Lord Douglas-Miller (Con)]

I do not actually agree with the noble Lord fully. I accept that a number of the water companies are not performing to the right standard. The Government have been very clear that what is going on is unacceptable, but there is a huge legacy issue here. Simply renationalising water companies or stopping their chief executives from getting their pay, bonuses and all the other things—as is now in place—is not going to solve that problem straightaway. It is a long-term legacy issue which the Government have a fully funded plan to address.

[Lord Sikka (Lab)]

My Lords, in 1990, Thames Water had net assets of £1,329 million. By 2023, they had increased to £1,435 million, which is a paltry increase of 8%, or a total of £106 million, mostly due to accounting abuses. This means that, over 33 years, Thames Water shareholders have provided little or no new equity at all, which is a major reason for its financial instability. Everyone knows that Ofwat is negligent and incompetent; what is the Government’s excuse?

[Lord Douglas-Miller (Con)]

The noble Lord cited a number of very detailed figures, which I know he is prone to doing, so forgive me if I do not know the detail on that. Since privatisation, the private water sector model has unlocked about £215 billion of investment. This is the equivalent of around £6 billion annually in investment—almost double the pre-privatisation level. This has delivered a range of benefits. Our bathing waters continue to improve—in 2023, almost 90% were classified as good or excellent. Water companies have invested £25 billion to reduce pollution from sewage and water company investment in environmental improvements has been scaled up to over £7 billion since 2020.

Fly-tipping

Lord Sikka Excerpts

Tuesday 14th May 2024 Lords Chamber

[Lord Douglas-Miller (Con)]

My noble friend makes an extremely good point and, under the new regulations that we are just about to bring out, we are looking at exactly how those permitted to use these regulations have to display the relevant permit, where they display it and how they advertise it, to make it much more clear to those using these facilities whether they are acting legally.

[Lord Sikka (Lab)]

My Lords, fly-tipping has increased because many councils do not have weekly refuse collection and charge people for taking items to the local refuse collection centres. A major reason behind this is that council spending power as funded by the Government fell in real terms by more than 50% between 2010-11 and 2020-21, and this has not been restored. What responsibility does the Minister accept for creating an environment for fly-tipping?

[Lord Douglas-Miller (Con)]

No, I do not recognise that at all. Defra grants have helped over 30 councils across the country to tackle fly-tipping at hotspots, such as by installing CCTV and putting up fencing. Further grants to support even more councils are due this summer. Furthermore, councils retain all income from fixed-penalty notices, the upper limit for which has recently been increased to £1,000, and this is ring- fenced for local enforcement and clean-up.

Water Companies: Licence Conditions

Lord Sikka Excerpts

Wednesday 1st May 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what estimates have been made of the distributable reserves of each water company now that OFWAT has taken powers under the Environment Act 2021 to change their licence conditions, including whether they can pay dividends.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Douglas-Miller) (Con)]

My Lords, I declare my interests as set out in the register. The best proxy for distributable reserves is retained profits. This is the profit and loss reserve on a company’s balance sheet. Company boards are responsible for determining how much of their profit and loss reserves is distributed. The Government have not carried out an exercise to calculate each company’s distributable reserves. Where a company in cash lock-up breaches its licence by paying a dividend, Ofwat will take enforcement action.

[Lord Sikka (Lab)]

My Lords, as I have previously pointed out in this House, water company accounts are not only massaged but cooked and roasted with abusive accounting practices. Ofwat and the Government have said that under certain circumstances they will block the payment of dividends, which presupposes that they know what the legally defined distributable profits of each company are. The Minister has just said that the Government have not got a clue; therefore, there is no way of knowing whether any of those dividend payments is actually lawful. Can the Minister explain why the Government announce policies when they do not have the basic data to implement them?

[Lord Douglas-Miller (Con)]

The Government have a very clear idea about the information that they are reviewing because every single water company, like every other public company, has its accounts audited. That information is publicly available, and I refer the noble Lord to the public audited accounts of all those water companies.

Pollution in Rivers and Regulation of Private Water Companies

Lord Sikka Excerpts

Thursday 29th February 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the noble Baroness, Lady Bakewell of Hardington Mandeville, for securing this debate and congratulate her on setting out the issues in her superb speech. I will concentrate on regulatory issues.

The key principles of effective regulation are that the regulator must be independent, must levy effective sanctions, must be publicly accountable and must empower stakeholders to curb abuses. Water and sewerage regulators fail these key tests. In any system of regulation, capture of the regulators by the regulated is a recurring problem. However, this is the starting position in the water industry. Two-thirds of England’s biggest water companies employ key executives who previously worked at Ofwat. Water company directors and the chairs of Ofwat and the Environment Agency regularly meet at exclusive clubs to discuss how to quell public anger over bill rises and sewage dumping. The cost of these lavish lunches and dinners is passed to customers, but no agenda papers or minutes of such meetings are made publicly available. We all know that secrecy breeds corruption and the water industry is full of that.

The revolving doors deepen cognitive capture and the cosiness is all too evident. Water companies have an operating profit margin of 35%, even though they have no competition. Water bills have risen by 363% since privatisation, and over 40% in real terms. Up to 28% of customer charges cover the interest paid on debt, which would not be necessary if Ofwat had been vigilant and curbed high leverage at water companies. It has completely failed to protect customers.

In the debate on 22 February, I drew attention to the number of times some water companies have been sanctioned since 2010. I gave the example of United Utilities, which has been sanctioned 215 times. In reply, the Minister seemed to regard that as a sign of success. Imagine an offender hauled in front of the same judge every three weeks for identical offences and given a puny fine, only to reoffend again. Nobody would consider that to be a regulatory success—but the Minister thought it was somehow a success story. I hope he will explain why the Government consider repeat offences by the water companies to be a success—that was just an easy question for him.

Despite the repeat offences, bonuses continue to flow. Again last week, in response to my suggestion that customers should elect water company directors and vote on executive pay, the Minister said:

“Remuneration committees for each water company independently determine the appropriate level of remuneration for their water company executives”.


This is simply not true. First, remuneration committees are staffed by non-executive directors who owe their position to favours from the executive board. They have absolutely no independence from the executive board and they very rarely bite the hand that feeds them. None is a substitute for direct representation of customers on company boards.

Secondly, the Minister added:

“Ofwat expects water companies to take into account the legitimate concerns of stakeholders when making decisions on the application of remuneration policies”.—[Official Report, 22/2/24; cols. 758-9.]


Every opinion poll has shown that people are concerned about high bills, pollution, lack of investment and poor regulation. Relying on failed structures and practices cannot give us effective regulation, yet the Minister was defending them, for some reason. Maybe he has had second thoughts since; I do not know.

In the debate on 22 February, the Minister defended water companies with the claim that, since privatisation, £215 billion has been invested in infrastructure. I do not have any confidence in that number because it has been manufactured by dubious accounting practices. I will give two examples, both relating to the accounts for 2022-23 published by Thames Water.

First, on page 134 of those accounts, the company states that it

“capitalises expenditure relating to water and wastewater infrastructure where such expenditure enhances assets or increases the capacity of the network. Maintenance expenditure is taken to the income statement in the period in which it is incurred. Differentiating between enhancement and maintenance works is subjective”.

What does that mean? It means that the amounts that are capitalised to show higher investment cannot be independently corroborated. It just depends on the whims of the directors; there is absolutely no solidity to it. Will the Minister write to the House after this debate and say how much of the repair and maintenance costs have been capitalised since privatisation by water companies so that we can remove it from the £215 billion?

Secondly, on page 143 of Thames Water’s annual accounts, it states that

“£215.2 million of borrowing costs were capitalised in the period”

and gives a comparison of £114.8 million for 2022. So, the investment made by Thames Water in those two years alone has been inflated by £330 million. The crazy logic of this policy is that, when a company mends leaks by borrowing money compared to one that uses retained earnings, it is somehow investing more and its assets are worth more. That simply is not true. We know a company that used such imprudent policies: Carillion. I have a slight declaration to make here in that I was an adviser to the Work and Pensions Committee for that investigation—and we know what happened to Carillion. This is where water companies are heading with the full blessing of the Government, Ofwat and all the other regulators. Again, I ask the Minister to write to the House and explain both how much interest has been capitalised by water companies since privatisation and what the consequences of such practices are. Are those companies going to go the same way as Carillion? I fear they are; Ofwat certainly has no financial nous to check these things.

After 35 years of failure, we can all see that the current regulatory structures are highly deficient. We cannot have that; we need to change it. Ofwat and the Environment Agency need to be replaced by bodies that are pluralistic, with direct representation of stakeholders on their boards. The regulators and the regulated do not need to have a hostile relationship but there must be distance between them. They cannot be in each other’s pockets or cosy. Regulators must owe a duty of care to stakeholders so that they can be sued for failing the public; that is virtually impossible at the moment. All significant board meetings must be in the open so that we can all see how appropriate evidence submitted to regulators is weighted, filtered or acted on. At the moment, there is complete secrecy. All board minutes, working and agenda papers need to be publicly available. If the Minister possibly feels uncomfortable with those suggestions, it would be helpful to know why he is afraid of openness and democracy. Why is he afraid of empowering stakeholders and the public at large? We need to bring public pressure upon the water industry and its regulators so that they clean up their act.

Water and Sewage Companies: Directors’ Remuneration

Lord Sikka Excerpts

Thursday 22nd February 2024 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what plans they have for reforming remuneration of the directors of water and sewage companies operating in England.

[Lord Sikka (Lab)]

My Lords, it is a pleasure to open this debate. Privatisation of water in England has not yielded the promised benefits to the people, but directors of these companies are highly rewarded for inflicting at least five major harms to customers, the environment, taxpayers and society generally. First, in pursuit of private profits, more than 1 trillion litres of water are lost to leaks from crumbling infrastructure each year. Secondly, tons of sewage are dumped in rivers and seas, threatening human health, marine life and biodiversity; only 14% of rivers in England have a good ecological status, and no rivers have a good chemical status. Thirdly, customer bills in England have risen in real terms without commensurate increase in quality of service. Fourthly, investment in infrastructure has been very low. Fifthly, companies are habitual tax avoiders. In the words of a man called Michael Gove, who gave a speech on 1 March 2018:

“Last year Anglian, Southern and Thames paid no corporation tax. Indeed Thames has paid no corporation tax for a decade. Ten years of shareholders getting millions, the chief executive getting hundreds of thousands, and the public purse getting nothing”.


Little has changed since 2018. It is more of the same. England’s nine major water and sewage companies are more than 90% owned by overseas investors scattered across China, Hong Kong, Singapore, the Caymans, Qatar, the UAE and elsewhere. They have little or no physical contact with polluted rivers and crumbling infrastructure and have done absolutely nothing to curb undeserved executive pay. Their main concerns are returns and dividends. Since privatisation, around £75 billion has been paid in dividends, funded by debt and squeezes on investment.

Puny fines have not curbed the lust for bigger profits, pay packets and bonuses. Since 2010, Anglian Water has been sanctioned 74 times and fined £6.2 million. Thames Water has been sanctioned 98 times and fined £175 million. Yorkshire Water has been sanctioned 94 times and fined £109 million. Severn Trent has been sanctioned 82 times and fined £8 million. United Utilities has been sanctioned 215 times and fined £6.6 million. Despite these offences, the directors are rewarded and their pay packets keep getting bigger. According to data published by the Liberal Democrats—I must give credit where it is due—in 2021, 2022 and 2023 executives of water companies in England collected remuneration of £70 million, including nearly £41 million in bonuses. Why are these bonuses paid? Is it not the duty of directors to provide clean water, plug leaks, ensure water security and the proper disposal of wastewater, and renew infrastructure? If it is, there is no case whatever for giving them bonuses.

People are concerned about undeserved rewards at water companies, so the Government periodically soothe public anxieties with promised reforms. For example, on 1 March 2018 the then Environment Secretary, Michael Gove, lamented excessive executive pay at water companies, but absolutely nothing changed. On 3 July 2018, in a paper titled Consultation on Revised Board Leadership, Transparency and Governance Principles, Ofwat promised greater transparency over executive pay, but it remains elusive. In June 2023, Ofwat said that it would review bonus payments, and it repeated that on 8 November, but nothing changed.

On 11 February 2024, the Government announced they are considering banning bonuses for directors

“if a company has committed serious criminal breaches … That could include successful prosecution for a Category 1 or 2 pollution incident—such as causing significant pollution at a bathing site or conservation area—or where a company has been found guilty of serious management failings”.

Those words are quite interesting. Words such as “could” are vague—not “will” or “must”—and the emphasis is on multiple breaches and failings. How many do there need to be before the Government think that something needs to be done? Ripping off customers and taxpayers is simply not considered a failing in the Government’s thinking, although most people absolutely are concerned about it. I am sure the Minister will tell us more about it.

What if pollution is deadly but not criminal as defined by law? After all, the Government have authorised these companies to continue polluting rivers until 2050. I hope the Minister will tell us why, after 14 years of doing nothing, the Government are now making some vague gestures in the year of a general election.

Ofwat, which has presided over degradation, is somehow now expected to enforce curbs on bonuses. Ofwat is a failed and conflicted regulator. Two-thirds of England’s biggest water companies employ key executives who previously worked at Ofwat. In a letter to the Ofwat CEO, dated 21 February 2024, the Environment, Food and Rural Affairs Committee expressed strong concerns that Ofwat cannot exercise its full range of powers as they are now, because that might affect the stability of the sector and upset water companies. How do the Government expect it to deal with bonuses and executive pay? I hope the Minister will expand on that.

The Government have done nothing to create pressure points for honest, ethical practices by addressing the shortcomings of the shareholder-centric model of corporate governance, enhancing democracy or empowering long-suffering stakeholders in water companies. I will sketch out what I think needs to be done.

Whether water is owned privately or through a not-for-profit company, we need durable reforms grounded in democracy and public accountability. First, remuneration contracts of water company directors should be publicly available so that everyone has a clear idea of what they are getting. The sanitised snippets in the annual accounts—which I have read—are very economical with information and rarely mention that chauffeur-driven cars and private school and medical fees also form part of executive pay packages. There is complete silence on these things. I have this from an insider, by the way.

Secondly, all customers should be empowered to vote on executive remuneration policy and amounts. A 51% vote should be needed to approve directors’ basic pay. If directors have polluted rivers, did not plug leaks, did not invest adequately or exploited customers, it is extremely unlikely that they will get their pay. Customers will simply not reward them for it. This is a powerful pressure point for securing socially responsible practices.

In addition, if bonuses are to be awarded for what I call extraordinary performance, there needs to be extraordinary approval for those bonuses. That would mean that at least 90% of customers must approve the bonus. This is a fairly common standard for approving bonuses in places such as Sweden. They are not simply handed out willy-nilly because somebody thinks they deserve it.

I am sure the Minister will oppose my suggestions—I am quite prepared for that—but for the last 35 years, Ofwat and Governments have failed to tackle the scandal of excessive pay for the poor performance of water companies. We need to empower and trust the people. If the Minister disagrees with empowering people, I hope he will tell the House why people cannot be trusted but some administrator at Ofwat can be, even though it has failed ever since privatisation.

Water and Sewage Regulation (Industry and Regulators Committee Report)

Lord Sikka Excerpts

Monday 16th October 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank my noble friend Lord Hollick and the members of the Industry and Regulators Committee for their excellent report. In common with many previous speakers, I have no confidence in Ofwat; it needs to be replaced by a body which is independent of the industry and has a majority of customer-elected representatives on its board.

Can the Minister explain what justifies the 35% operating profit margins for water companies? I have not come across anywhere else in the private sector that competes having that kind of margin. High profit margins have not been accompanied by high levels of investment—indeed, others have commented on how low and how poor it is.

The investment picture is muddled by financial engineering. Let me give noble Lords some examples. On 28 June 2023, in the other place, the Minister responsible for the environment said:

“Water companies have invested £190 billion since privatisation”.—[Official Report, Commons, 28/6/23; col. 281.]


This amount does not appear to be right at all. Let me flag up some reasons for this. One example is on page 134 of Thames Water’s 2022-23 financial statement. It states that the company

“capitalises expenditure relating to water and wastewater infrastructure where such expenditure enhances assets or increases the capacity of the network. Maintenance expenditure is taken to the income statement in the period in which it is incurred. Differentiating between enhancement and maintenance works is subjective”.

A translation of that is that the amounts which are capitalised for maintenance cannot be independently corroborated at all. Will the Minister return to the House and make a statement explaining how much of the maintenance expenditure has been capitalised by water companies so far?

I turn to my second example. Water companies have the same policy as Carillion, which was destroyed by it; namely, they are capitalising interest payments on their debt, which is utterly imprudent. This overstates their investments and distributable reserves, and it understates their leverage. In the last two years alone, Thames Water has capitalised £330 million of interest payments, which increases its capacity to pay dividends. So will the Minister return to the House and make a statement explaining how much of the interest has been capitalised by water companies and what the related risks to them are?

Water company dividends, which a number of speakers have referred to, are also understated. On 28 June, the Minister in the other place said that Thames Water

“has not paid any dividends for the last six years”,—[Official Report, Commons, 28/6/23; col. 287.]

but that is not what the company’s accounts say at all. Page 43 of its 2022-23 financial statement describes a £45 million payment to its immediate parent company, and the word “dividend” is used. Thames Water Utilities Holdings Limited received that and then forwarded it to another company, whose accounts also say that it is a dividend. So, just in the last two years, Thames Water has paid its parent company £82 million. If it is spelled “dividend” and if directors and auditors say it is a dividend, it must be one—the Minister cannot deny that in any way. A wholly owned subsidiary has only one shareholder—the parent company—and, if the subsidiary is paying a dividend, it is a dividend. I hope the Minister will be able to clarify that.

Strangely, page 43 of Thames Water’s accounts also says that this dividend is not really a dividend because the purpose is

“solely to service debt obligations and group related costs of other companies within the wider Kemble Water Group”.

If there is any substance to that claim, Thames Water is saying, “We are understating our leverage”. What the hell is Ofwat doing? It is utterly out of its depth in trying to read the accounts and make sense of financial engineering. So will the Minister return to the House and make a statement on how much has been extracted from water companies in the form of dividends that are not really dividends?

Finally, the committee’s report raises questions about executive remuneration and, in a sense, it welcomes that Ofwat might have a say in that. I do not want Ofwat to have any such powers to influence executive remuneration at water companies. These must go to the customers, who must vote every year on executive pay. If they think they got a good enough service from water companies, they will approve directors’ remuneration. Let there be a bit of democracy; how could the Minister oppose that?

--- Later in debate ---

[The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)]

My Lords, I refer noble Lords to my entry in the register and start by thanking the noble Lord, Lord Hollick, and the members of the Industry and Regulators Committee, for the report. This has been a thorough and wide-ranging inquiry and, as the noble Baroness, Lady Hayman, showed, it was extremely timely, given the current focus on the water industry and the role of government. I also thank the committee for the recommendations from its follow-up inquiry, to which the Secretary of State will respond very shortly.

If the noble Lord or any member of the committee feels that our response was terse, I deeply regret that. If Defra had a fault, it was that in the past it used to indulge in reams of replies on this. We have tried to condense the points. Where something is in another document—for example, the Plan for Water—we have referred committees, individuals and others in our responses to those documents. That is perhaps a more economical way of doing this, but if people have confused it with a lack of respect for the work that has been done, I regret that.

However, I do not share the committee’s conclusion that there has been complacency or a lack of leadership from the Government on the topic of water regulation. No Government have done more to tackle the pressing issues facing the water industry. Back in 2013, as Minister for the Natural Environment and Fisheries, I set out that water companies should introduce monitoring for the vast majority of combined sewer outflows by 2020. This will be at 100% by the end of this year. The fact that we did not know where these outflows were is an example of complacency and one that we have set about dealing with. The increase in monitoring has meant that the Government and regulators better understand the scale of combined sewer outflow discharges, so that we can take stronger action to improve the situation.

I am delighted that this information is available not only to informed and determined Members of this House but to the wider public. A very good point was made by the noble Lord, Lord Cameron, on monitoring. A wonderful citizen science project has been launched called the Riverfly project, which encourages people to assist the Environment Agency in monitoring. However, technology is moving very fast in our favour. It is now possible to put telemetry in our rivers that can give us, on our phones, real-time information on pollutants. We can then work with statutory bodies such as the Environment Agency to improve and deal with particular sources of pollution.

Just last month, we expanded our Storm Overflows Discharge Reduction Plan, first published in 2022, to cover all overflows. We also added marine protected areas and shellfish water protected areas to the sites that are prioritised for early action. This is the largest infrastructure programme in water company history, with £60 billion of capital investment by 2050.

We have also requested action plans from water and sewerage companies on how they will improve every storm overflow in England. These will be published shortly. In April 2023, we published the Plan for Water, our comprehensive strategy to transform the water environment. The plan contains all the actions we must take to meet our water goals and transform the water system, and provides the leadership and long-term thinking that the noble Lord’s committee and others in this debate say is required. These are but a few examples of the comprehensive action that this Government have taken on water, and I will take the opportunity to address some of the specific points raised by noble Lords.

First, the committee raised crucial points about investment in the sector and the impact on consumers. This October, the water industry announced a planned £96 billion of investment between 2025 and 2030. This represents the largest investment in infrastructure ever made by our water industry, and an 88% increase in investment compared with the current five-year price review period. It shows that the sector is responding to the actions of this Government to clean up our rivers and seas, drive more investment and jobs in the UK, and ensure stronger regulation and tougher enforcement to achieve a step change in the water industry.

This investment comes at a cost. Noble Lords will have seen estimates from the water sector suggesting that water bills will rise by an average of £156 a year by 2030 to fund the increased investment. It is important to stress that these are not final figures; they are an opening pitch. It is important to remember that the current average water bill in England is lower than that in many European countries such as Spain, France and Norway.

For many years I have been talking to members of environmental NGOs and to parliamentarians from all sides who have told me that water bills need to rise. I have said to them, “By how much?”—and I get a prominent, audible silence from them, because nobody is prepared to say how much water bills should be. For just over £1 a day, households in this country receive all the water they need and have all their dirty water taken away. I know that all Members of this House are very mindful of the cost of living crisis for some communities. We have to balance that with our bills. But, if people are to tell Ministers and policymakers privately that bills should rise, they need to say by how much and show how they are going to reduce the impact on hard-pressed families.

Examples of the kinds of support and innovations that my noble friend Lord Agnew raised are there to be seen. I do understand the points he made; there are some wonderful schemes that are now receiving Ofwat’s approval and driving innovation in the sector. For example, Southern Water has £35 million to explore innovative options and pilot sustainable interventions to reduce storm overflow spills by, for example, building and constructing wetlands. I will come on to talk about that key point, which was made by the noble Baroness, Lady Bakewell.

Ofwat will now undertake a robust scrutiny process to ensure that these plans meet statutory requirements and government targets, to check that families are not paying for what companies should already have done and to give customers the best value for money. The Government are mindful that this announcement will raise concerns from consumers about their bills. In developing their business plans for 2025 to 2030, water companies have considered the impact of increased investment on customer bills and developed schemes that best suit the needs of local customers.

I was pleased to see Anglian Water proposing a new medical needs discount to provide direct financial aid to those whose medical needs require more water. This will be funded by the company owners and will help to support the most in need without adding to customers’ bills.

Therefore, while I note the committee’s disappointment in the Government’s decision not to proceed with a single social tariff scheme, it should be confident that this Government continue to work with industry and consumer groups to protect those struggling to pay.

Moving on to the topic of securing the investment needed to deliver our plans, I would gently challenge the committee’s view that the water sector will not be able to raise the required investment to meet our ambitious targets—a point raised by the noble Baroness, Lady Taylor, and others. The water sector continues to attract international capital and there are examples of companies that have already secured additional finance to deliver their 2024 price review business plan. For example, Severn Trent Water announced on 29 September it had raised £1 billion of new equity from its investors. Investors have made clear that a reset is needed in the water sector, and the proposed £96 billion investment presents a clear step forward in that direction. It is now for Ofwat to review plans to ensure they strike the right balance of pace, while protecting customer bills. Companies must deliver value for money. Any increase in customer bills must be justified, efficient and deliver significant improvements in river quality and water resilience. Customers should only pay for new investment, not for companies’ past failings.

I will address very quickly some of the points raised in this debate. The noble Lord, Lord Hollick, in moving this debate, talked about dividends, as did others. The average dividend payment represents 3% to 4% of the gearing and I think that is not exceptional—that is why it is attractive to pension funds—and I welcome the investment of organisations like international sovereign wealth funds and others. A dividend rate of 3% to 4% is not the kind of figure that many would see as greedy, or usury, in terms of the investment.

The noble Lord, Lord Hollick, also raised the issue of water demand, as did others. Current water usage is around 145 litres per person. In the environmental improvement plan, we have a target of 122 litres per person by 2037 and 110 litres by 2050. Those are tough targets to hit, but we have set out a process, working with the regulators and water companies, to hit them.

The noble Lord, Lord Agnew, spoke about the figure of £350 billion to £600 billion—a very wide bracket—which he said is the required investment to solve the problem of pollution. It is actually the cost of separating clean and dirty water and retrofitting that into the millions of houses in this country. That is, frankly, not feasible or possible to do. I like his scheme of water butts, and other schemes, and there are plenty that are working, and we want to see them rolled out. There are agri-environment schemes that are taking on flood management and using farmland to store water.

We are seeing a massive increase in interest in the creation of new wetlands, and I challenge the noble Baroness, Lady Bakewell, who said that the Government are obsessed with concrete and steel. That was the case when I was Minister for water in the coalition Government and I found that Ofwat was sceptical of nature-based solutions, because it could not measure them. It liked concrete and steel because it could measure the quality of the water coming in and out and see whether the asset was working. Nature-based solutions are more complicated, but we managed to convince Ofwat to let a thousand flowers bloom. Some of them might not work, but to say the Government do not like it is 180 degrees in the wrong direction; we love nature-based solutions, we want to see more of them, we are funding them through our natural environment investment readiness fund, we want to see biodiversity net gain and private sector ESG green finance being used for this, and we want to make sure that happens soon.

I would love to debate longer and harder about whether we should renationalise our water industry. It is a very dated and slightly binary argument, but I just feel that it is fundamentally yesterday’s argument. I hope we can move forward and see that the model has been independently assessed as having seen water bills less than they would have been if it had not happened, and investment greater. The Social Market Foundation believes nationalisation would cost £90 billion, and I think there are better uses for that money. I want to see it ploughed into out natural environment and water companies investing in—

[Lord Sikka (Lab)]

I am grateful to the Minister. Since he referred to nationalisation, could he explain why is it acceptable to the Government that entities owned by foreign Governments can own utilities here, while there is no government-owned entity here that owns the utility? In other words, the privatisation that he referred to is a bit of a sham, is it not?

[Lord Benyon (Con)]

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

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

--- Later in debate ---

[Lord Benyon (Con)]

We make sure that the money comes not from customers but from shareholders so that it is fair.

[Lord Sikka (Lab)]

Further to the noble Baroness’s point, since 2010 Thames Water has been sanctioned 92 times and fined £163 million, yet it remains a leader in unplugged leaks, sewage dumping and financial engineering. What did that fine actually achieve?

Water Industry: Financial Resilience

Lord Sikka Excerpts

Tuesday 4th July 2023 Lords Chamber

[Lord Benyon (Con)]

I welcome the fact that overseas investors want to invest in our regulated utilities sector. We must remember that actions that Governments take on one element of the regulated utilities sector can have impacts right across it, but I appreciate the comments from my noble friend. We have introduced new legislation to support our ambitions to bring into force stronger powers for our regulators to tackle pollution and improve transparency with the public so we can hold water companies and polluters to account. Through the Environment Act 2021, we have also introduced a statutory duty for water companies to achieve a progressive reduction in the adverse impacts of discharges from storm overflows. This is in addition to new, legally binding targets to significantly reduce pollution from farming, wastewater and abandoned metal mines; and the water demand target to reduce leakage, increase the resilience of supplies and leave more water in the environment.

[Lord Sikka (Lab)]

My Lords, I should be grateful if the Minister can clarify two points for me. In the other place, the Minister mentioned £190 billion of investment by water companies. That does not seem right, because it appears to me that companies are capitalising repair and maintenance costs, which is contrary to good accounting practice. Could the Minister check on that? Secondly, looking at the last two years’ accounts of Thames Water Utilities’ holding company, I see dividends of £70 million, plus £452 million interest paid on loans from other group undertakings. That sounds incredibly suspicious and is a form of profit-shifting and tax abuse. Please can the Minister get his colleagues, or his own department, to look at those things and report to the House.

[Lord Benyon (Con)]

The £190 billion is the amount water companies, with regulator approval, have invested in our water infrastructure. Thames Water has not paid out any dividends to its investors, but it has paid out dividends to its holding company to finance its borrowings. In 2017-18, it was £55 million; in 2021-22, it was £37 million; and it has since been, roughly speaking, around and between that. The figure is lower this year than it has been in the past. It has also recently secured from investors a further £500 million, and, as I said earlier, its liquidity, at about £4.4 billion, means that it is a viable trading company.

Water Companies: Customer Bills

Lord Sikka Excerpts

Tuesday 23rd May 2023 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what assessment they have made of water companies’ plans to increase customer bills to fund investment.

[The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)]

My Lords, it is Ofwat, the independent regulator, and not the Government that assesses water companies’ business plans and sets the overall price cap that each company may recover from its customers. As part of that process, Ofwat balances the interests of consumers with the ability of companies to fund their services. Companies are preparing their plans for 2025 to 2030, which will be submitted to Ofwat in October 2023. Ofwat will make final decisions on investment and bills by December 2024.

--- Later in debate ---

[Lord Sikka (Lab)]

My Lords, the Minister sidestepped the issues here, so let me lay down some facts for him. Since the water companies were privatised, water bills have soared by 40% in real terms, investment has declined by 17% and £72 billion has been paid in dividends, with another £15 billion possibly by the end this decade. Now, the companies are saying that they will make investment if they can increase water bills by another £100. I hope that the Minister will exercise his considerable powers of persuasion on the water industry and insist that shareholders fund the investment and not customers, who have already been fleeced for the last 34 years.

[Lord Benyon (Con)]

I fear the noble Lord and I are working off different facts. Capital investment by water companies is 84% higher than it was before the sector was privatised. I have seen independently assessed evidence that water bills would have been higher if we had not privatised the industry. Some £190 billion has been spent by water companies, paid for out of customers’ bills, for investment in water. My noble friend Lady Vere said earlier that nationalisation was a soundbite, not a solution. I could not agree more.