Water and Sewage Regulation (Industry and Regulators Committee Report)

Debate between Lord Sikka and Lord Benyon

Monday 16th October 2023 Lords Chamber

[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—

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[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

Debate between Lord Sikka and Lord Benyon

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

Debate between Lord Sikka and Lord Benyon

Tuesday 23rd May 2023 Lords Chamber

[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.

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[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.

Water Companies: Environmental Pollution

Debate between Lord Sikka and Lord Benyon

Tuesday 19th July 2022 Lords Chamber

[Lord Benyon (Con)]

I will have a look at the lexicon we use. The real problem is illegal storm overflows. There have been overflows from our sewage systems into our rivers for centuries. It has reached an unacceptable level, which is why we have set out a clear plan for dealing with it. Perhaps we need to use better terminology. There are permitted storm overflows and there are illegal storm overflows.

[Lord Sikka (Lab)]

My Lords, Section 172 of the Companies Act 2006 requires directors to have regard to the interests of customers, the community and the environment. The UK does not have a central enforcer of company law, and Ofwat is not concerned with compliance with company law, so the buck must stop with the Government. Can the Minister explain when his department last investigated the conduct of water company directors and what the conclusions were?

[Lord Benyon (Con)]

Ofwat is the main regulator in this area, as well as the Environment Agency. The Government give very clear directions to Ofwat. In our strategic policy statement for Ofwat, we set out an expectation on water companies, including making

“a progressive reduction in the adverse impact of discharges from storm overflows”

including reducing their frequency and volume. The noble Lord made a point about the existing sanctions. We recently saw a fine of £90 million against one water company. We want to make sure that continued sanctions are going to bear down on this problem. That is why we have asked the Sentencing Council to carry out this work.

Sewage Disposal in Rivers and Coastal Waters

Debate between Lord Sikka and Lord Benyon

Thursday 7th July 2022 Lords Chamber

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

My Lords, I refer noble Lords to my entry in the register. I congratulate the noble Lord, Lord Oates, on securing this debate and thank noble Lords for their contributions.

The noble Lord, Lord Oates, was absolutely right to mention the late Lord Chidgey. I remember having a very good debate about chalk streams with him in this Chamber just before he died. He saw my passion for them and raised me his. He was a great fighter for river health in this place.

My wife refers to my local river as my mid-life crisis; I suppose it is better than a fast car or soaring political ambition. I share noble Lords’ indignation and frustration that our rivers are not of the quality they should be and not in the state they should be in. That 14% figure is shaming. It is a high bar to reach. One wonders how many rivers there were in the past. One fact we must always remember is that we have been putting sewage, in one form or another, into our rivers for decades—centuries, even—but it has gotten out of hand and must stop.

The noble Baroness, Lady Ludford, talked about her eponymous sewer: “Sarah’s sewer”. In my former life as the Water Minister, I remember being shown “Prescott’s sluice” in the East End of London. I am not sure that I want to have a sluice named after me; the noble Lord, Lord Prescott, who was here earlier, may be able to tell me whether it was named after him. I am trying to think of alliteration; perhaps my sewer should have been called “Dick’s drain” because, when I arrived as Water Minister in 2010, everyone was opposed to it. The chairman of Ofwat took me on to Westminster Bridge, pointed to the river and said, “It won’t be a different colour if you spend billions on a new sewer. It will look just the same but will have cost water customers an enormous amount of money”. It was opposed right across politics. The noble Baroness is right that her former colleague, Simon Hughes—the former MP for Bermondsey—fiercely opposed it. The noble Lord, Lord Berkeley, and many others used to come and see me about it. Indeed, like a student going in front of a don, I had to go right to the top of the Government to tell Oliver Letwin why his fears were not to be realised. I am glad that I now see it under construction and that this iconic river, in one of the great cities of the world, will be cleaner as a result.

A healthy water environment is fundamental to a thriving economy, to abundant biodiversity and of course to public enjoyment of our beautiful rivers, lakes and bathing waters. The noble Lord, Lord Stoneham, made the very good point that this is not subject to the four-year or five-year electoral horizons that most politicians look to; we want to see generational and multidecadal change. The Government’s 25-year environmental plan includes a commitment to restore three-quarters of our water bodies to close to their natural state, but we know that we need to do more to meet this rightly high bar. That is why we are going further and faster than any Government in protecting and enhancing the health of our rivers and seas. This has included ground-breaking action to massively reduce the harm caused by storm overflows.

The noble Lord mentioned the importance of civic society. Politicians can hold Governments to account but the public can too. A huge breadth of civil society groups stand up for their rivers, and I remember from when we ran a campaign called Love your River how important it is to give people their sense of place.

Like the noble Baroness, Lady Jones, I can admire the noble Lord, Lord Sikka, but I can disagree with his points. He talked about privatised ownership being some sort of fetish. Actually, I would say that £150 billion of investment in our water sector would not have been reached by any degree if it had still been in public ownership. The owners of those companies would have had to get in the queue behind the health service, pensions, the police, hospitals and so on. Renationalisation would require a future Government to buy out the pension funds that pay perhaps his and perhaps my pension, and perhaps the pensions of many people on low incomes. The cost of buying Thames Water was estimated a year or two ago—my figures might be out of date—at £12 billion. To buy out the entire water sector would be a terrible shame. It would be the wrong thing for investment.

[Lord Sikka (Lab)]

The numbers that the Minister quotes have little or no substance. If water companies had to meet their statutory obligations, the chances are that their income streams would actually be negative. They would be begging the Government to buy them out; we would not have to pay them anything.

[Lord Benyon (Con)]

I do not agree with that. I also believe it is good that international sovereign wealth funds want to invest in our regulated utility sector, but it has to be a regulated sector that cracks the whip when it needs to—that is, when those companies do not do what they are required to.

The noble Lord, Lord Oates, asked the House to take note of the impacts of current sewage disposal rates in UK rivers, and further noted the responsibility of water companies to alleviate these impacts. There are two main types of sewage discharges into the water environment by water companies: treated and untreated. Discharges of treated wastewater into our waterways are one of the most significant pressures on the water environment. Treated sewage is the biggest source of phosphorus within the water environment, and excess phosphorus is the most common reason a water body fails to meet good status. Water companies are required to reduce phosphorus loads into the water environment from treated sewage by 50% by 2027. We have recently consulted on a proposal for an Environment Act target to deliver even more progress and deliver an 80% reduction by 2037.

However, it is the untreated discharges that are understandably generating the most public interest. Discharges from storm overflows not only impact the ecology of the receiving water body but can also impact public health where water bodies are used for recreational activities. We have been clear that the current use of overflows is completely unacceptable. They were only ever meant to be an emergency measure but now they are seemingly part of doing business; anecdotally, it seems that only centimetres of rain can trigger them, and that is simply not good enough. We have made it crystal clear to water companies that they must massively reduce sewage discharges from storm overflows as a priority. If we do not see the change we expect, we will not hesitate to take further action.

Water Companies: Duties and Accountability

Debate between Lord Sikka and Lord Benyon

Monday 4th April 2022 Lords Chamber

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

My Lords, this Government have made it clear that improving water quality is a priority. We have taken significant steps to deliver this, including introducing new duties for water companies through the Environment Act: to modernise water resource planning, reduce harm from storm overflow discharges and make drainage planning statutory. Companies’ licences now require them to meet Ofwat’s board principles to ensure accountability. We will not hesitate to go further if we do not see the improvements that we expect.

[Lord Sikka (Lab)]

My Lords, I am grateful to the Minister for his reply. He may be aware that on 1 March 2018, Environment Secretary Michael Gove said that water companies had

“avoided paying taxes … rewarded the already well-off, kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist”.

Some 49 months later, water companies are still dodging taxes, ripping off customers and polluting rivers. Can the Minister give a date by which these abuses will be completely stopped?

[Lord Benyon (Con)]

The noble Lord will no doubt be pleased by the recent statutory policy statement by Ofwat. It is through the regulator that we ensure that companies perform well, that we do not reward bad behaviour, that we reflect proper accountability for such things as remuneration, and that where bad behaviour is found out, companies receive fines. Those fines do not hit the customer but hit those who would otherwise have received bonuses, and shareholders.

Livestock Feed: Processed Animal Protein

Debate between Lord Sikka and Lord Benyon

Tuesday 6th July 2021 Lords Chamber

[Lord Benyon (Con)]

My Lords, I first say to my noble friend that the experience of BSE has scarred both me and the Agriculture Minister, Victoria Prentis; we both well remember that awful time. I assure him that at the moment we receive into this country meat products from countries that sign up to the OIE, that are of a lower standard even than the one to which the EU will go following the changes it has announced. There is no question of this concerning any trade and co-operation agreement, and meat products will still be able to be traded to and from Northern Ireland, as they will with the EU.

[Lord Sikka (Lab) [V]]

My Lords, feeding animal remains—brains, spinal cord and small intestines—to livestock in pursuit of higher profits and executive bonuses will only lead to another health disaster. Will the Government legislate to ensure that appropriate food imports from the EU will carry a warning, stating that the product carries a risk of mad cow disease?

[Lord Benyon (Con)]

May I reassure the noble Lord that we are not talking about BSE here? We are talking about the products of pigs and poultry, for which there is no evidence of transmissible spongiform encephalopathy. He can be assured that the strictest regime remains in place to protect the public and our animal health, and that any changes we make can reflect this. To the wider public I would just say, “Buy British”.