Water (Special Measures) Bill [ Lords ] (Third sitting)

Adrian Ramsay Excerpts

Committee stage
Tuesday 14th January 2025 Public Bill Committees

[Tim Farron]

I am happy to accept many of the assurances that the Minister gave, particularly on the role of Government amendment 5—I learn something new every day. The Liberal Democrats retain concerns about the delay in implementation of some of the good things in the Bill. All the same, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 5, in clause 15, page 22, line 40, leave out subsection (11).—(Emma Hardy.)

This amendment reverses the “privilege amendment” made in the Lords.

Clause 15, as amended, ordered to stand part of the Bill.

New Clause 1

Special administration for breach of environmental and other obligations

“(1) Section 24 of the Water Industry Act 1991 (special administration orders made on special petitions) is amended as follows.

(2) After subsection (2)(a) insert—

“(aa) that there have been failures resulting in enforcement action from the Authority or the Environment Agency on three or more occasions to—

(i) maintain efficient and economical water supply,

(ii) improve mains for the flow of clean water,

(iii) provide sewerage systems that are effectually drained,

(iv) comply with the terms of its licence, or

(v) abide by anti-pollution duties in the Environmental Protection Act 1990, Water Resources Act 1991, or the Environmental Permitting (England and Wales) Regulations 2016 (SI 2016/1154);”

(3) After subsection (2) insert—

“(2A) In support of an application made by virtue of subsection (1)(a) in relation to subsection (2)(aa), the Secretary of State must compile and present to the High Court records of—

(a) water pipe leaks,

(b) sewage spilled into waterways, bathing waters, and private properties, and

(c) falling below international standards of effective water management.”—(Adrian Ramsay.)

This new clause aims to require the Secretary of State to place a water company into special administration arrangements if they breach certain environmental or other conditions.

Brought up, and read the First time.

[Adrian Ramsay (Waveney Valley) (Green)]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss:

New clause 31—Special administration orders: credit ratings—

“(1) The Water Industry Act 1991 is amended as follows

(2) In section 24 (special administration orders made on special petitions)—

(a) after subsection (1A) insert—

“(1B) Where a company which is a qualifying water supply licensee or qualifying sewerage licensee—

(a) is required, as a condition of its licence, to maintain two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, and

(b) fails to comply with that requirement,

the Secretary of State must make an application to the High Court by petition under this section.”, and

(b) in subsection (2), after (c) insert—

“(ca) that the company—

(i) is required, as a condition of its licence, to maintain two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, and

(ii) has failed to comply with that requirement”.”

[Adrian Ramsay]

It is a pleasure to serve under your chairship, Dr Huq. I reiterate my apologies for not being able to be present at the Committee last week due to illness. I am pleased to be here today to speak to new clause 1, which would clarify that water companies may be subject to special administration measures should companies be guilty of significant and sustained environmental breaches.

I commend the commitments the Minister made during last Thursday’s sitting that the legislation will have a meaningful impact to ensure that water companies deliver for customers and for the environment. That echoes the Secretary of State’s pledge to the House in December to bring to the water sector

“reform that puts customers and the environment first.”—[Official Report, 16 December 2024; Vol. 759, c. 78.]

--- Later in debate ---

[Emma Hardy]

I emphasise to Committee members that special administration is the ultimate regulatory enforcement tool; as such, the bar is set high.

To respond to new clause 1, tabled by the hon. Member for Waveney Valley, and new clause 31, tabled by the hon. Members for Witney and for Westmorland and Lonsdale, a water company can already be placed into special administration on performance grounds where it is, or is likely to be, in serious breach of its principal statutory duties or an enforcement order—in other words, where it is inappropriate for the company to retain its licence—as set out in section 24 of the Water Industry Act 1991.

The Secretary of State and Ofwat will consider all aspects of a company’s performance and enforcement record, including environmental and financial performance, when considering whether to pursue an SAR on performance grounds. Licence breaches, such as the loss of an investment-grade credit rating, are considered as part of that holistic review of a company’s performance. Ofwat will consider the circumstances around any loss of an investment-grade credit rating to identify the actions that the company must take to address associated licence breaches.

Regulators have a range of enforcement mechanisms to ensure the delivery of performance, including environmental performance. Water companies can also be required to make clear plans to address failures. I gently point out that this Bill does an awful lot to give more powers to address environmental performance. As we have discussed, our pollution reduction implementation plans address some problems relating to pollution.

Special administration must be a last resort, as it has significant consequences for a company’s investors. If special administration could be triggered without allowing a company to rectify performance issues and licence breaches, investors would have low confidence and would not provide the necessary funding. That could create instability in the market, potentially affecting the entire sector.

Although we recognise the concern behind these new clauses and others tabled by the hon. Gentlemen that highlight concerns that the system is not working, they address the symptoms rather than the underlying causes. In October 2024, the Government announced an independent commission that would be the largest review of the water sector since privatisation. That commission has a broad scope and will consult experts in areas such as the environment, public health, engineering, customers, investors and economics.

The governance of companies and regulatory measures to support financial resilience will be covered, including the operation of existing tools, such as the special administration regime. The review will report by quarter two in 2025. The UK and the Welsh Governments will respond and consult on proposals they intend to take forward. We expect those to form the basis of future legislation to tackle the systematic issues to transform the water sector fundamentally. On that basis, I hope that the hon. Member is content to withdraw the proposed new clause.

[Adrian Ramsay]

I thank the Minister for her response. I appreciate that special administration would only happen in extreme cases. We have, however, repeated failures and neglect, including on environmental performance, from a number of water companies. That is why I wanted to make the provision explicit in the Bill that environmental neglect could be a reason for special administration. I take her point that there are reviews and wider plans underway. Although I am happy not to push this to a vote at this stage, I will take a close interest in how the situation progresses. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Establishment of Water Restoration Fund

(1) The Secretary of State must, within 60 days of the passing of this Act, make provision for the establishment, operation and management of a Water Restoration Fund.

(2) A Water Restoration Fund is a fund—

(a) into which any monetary penalties imposed on water companies for specified offences must be paid, and

(b) out of which payments must be made for expenditure on measures—

(i) to help water bodies, including chalk streams, achieve good ecological status, and improve ecological potential and chemical status;

(ii) to prevent further deterioration of the ecological status, ecological potential or chemical status of water bodies, including chalk streams;

(iii) to enable water-dependent habitats to return to, or remain at, favourable condition;

(iv) to restore other water-dependent habitats and species, especially where action supports restoration of associated protected sites or water bodies.

(3) The Secretary of State must, by regulations, list the specified offences for the purposes of this section, which must include—

(a) any relevant provisions of the Water Resources Act 1991, including—

(i) section 24(4) (unlicensed abstraction or related works or contravening abstraction licence);

(ii) section 25(2) (unlicensed impounding works or contravening impounding licence);

(iii) section 25C(1) (contravening abstraction or impounding enforcement notice);

(iv) section 80 (contravening drought order or permit);

(v) section 201(3) (contravening water resources information notice);

(b) any relevant regulations under section 2 of the Pollution Prevention and Control Act 1999 (regulation of polluting activities etc) related to water pollution;

(c) regulations under section 61 of the Water Act 2014 (regulation of water resources etc).

(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.

(5) The provisions in this section replace any existing provision for the sums received for specified offences, including in section 22A(9) of the Water Industry Act 1991 (penalties).—(Dr Hudson.)

Brought up, and read the First time.

[Dr Hudson]

I beg to move, That the clause be read a Second time. The proposed new clause would introduce a legal requirement that money collected from water companies from financial penalties imposed by the Bill are legally required to be used by the water restoration fund. As with much of the Bill, the Government intend to build on the work begun by the previous Conservative Government. The water restoration fund is one pillar of that record that the Government would do well to advance. I look forward to hearing from the Minister what they plan to do with that excellent fund, which needs to be reinstated and progressed.

I have personally championed the water restoration fund, not only in my present role as shadow DEFRA Minister, but before that as a member of the Conservative Environment Network. I pay tribute to that body for its successful campaigning, which in led no small part to the previous Conservative Government introducing the excellent water restoration fund. In 2022, I was proud to sign the Conservative Environment Network’s “Changing course: a manifesto for our rivers, seas and waterways”. That was its first public declaration, setting out the ambition to introduce this policy recommendation.

In addition to the Conservative Environment Network, I would like to namecheck and thank the good folk of Wildlife and Countryside Link for their support and campaigning for the fund and this proposed new clause. I also pay tribute to the Angling Trust for the discussion we had on this matter, and give a big shout-out to our former colleague Philip Dunne, who was respected across the House. The former MP for Ludlow and Chair of the Environmental Audit Committee made assiduous efforts to see this fund introduced, as well as wider measures to protect our precious waterways.

As we have discussed with the Minister, there is considerable consensus on what we can do collectively and on a cross-party basis to protect and nurture our watercourses and waterways. I hope the Government will take forward and continue the water restoration fund because it is pivotal to what we are trying to do.

Water (Special Measures) Bill [ Lords ] (Fifth sitting)

Adrian Ramsay Excerpts

Committee stage
Thursday 16th January 2025 Public Bill Committees

[Charlie Maynard (Witney) (LD)]

I beg to move, That the clause be read a Second time.

Good morning, everyone. I will highlight two key points about new clause 28, which concerns what happens when companies that have gone into special administration come out of it. Subsection (1) refers to considering

“the merits of changing the law to provide that a water company exiting a special administration regime becomes a company mutually owned by its customers.”

Subsection (2) states that that would involving considering

“the general merits of mutual ownership of water companies in such circumstances, and…what model of mutual ownership would be most suitable.”

We are not saying that companies have to be this or that; we are just advocating considering this possibility. Private companies have made an absolute mess of our water sector, have added no value over the past 36 years and have ramped up nearly £70 billion of debt. When the companies come out of special administration, we have an opportunity to do something different and not to repeat the mistakes of the past. I want the Committee to take that on board. We are not asking for a commitment; we are just asking for consideration. Hon. Members all know how badly the private companies have treated us, our rivers and our communities.

These companies are monopolies, so they have absolute power. Unfortunately, our regulators have completely failed in their task. If they have failed in the task, and if we do not have absolute confidence in the regulators—I do not think that anybody who will be voting today does—we must not give water back to the private sector.

Globally, this is standard. It is what the rest of the world does with its water sector. Even in the US, the vast majority of the water sector is mutually or municipally held. Chile may be the one shining example of private capitalism that we can point to in this regard, but there are almost no other countries in the world that do as we do. We are asking the Committee to do what is standard, rather than what is unusual.

The Under-Secretary of State for Business and Trade, the hon. Member for Harrow West (Gareth Thomas), has written about the benefits of the mutual ownership model, which he states forces water companies

“to operate in the interests of consumers; where environmental considerations such as disposal of sewage would take precedence over profit.”

That is our request. I rest my case.

[Adrian Ramsay (Waveney Valley) (Green)]

For several decades, the water companies have been able to profit from failure. There is a strong groundswell of opinion among the public, across political persuasions, that real action must be taken and that if there has been real failure, water companies must not just be allowed to carry on operating in the private sector. I welcome the hon. Member’s amendment; mutual ownership is clearly one alternative model. Does he agree that full public ownership is another option that should be investigated in these circumstances?

[Charlie Maynard]

What I really like about our proposal is that the companies are coming out of special administration, so it does not cost anybody anything: the equity of the shareholders has been written off. We often hear that it would not be a good idea, because it would cost too much to buy the companies out. Under our proposal, we would not need to buy them out, because we are advocating this only where companies are going into special administration. We are advocating a mutual model and—I say respectfully to the hon. Member—only that. That is what is on the table today, and that is what we are after.

--- Later in debate ---

[Emma Hardy]

Yes. We have ruled out nationalisation, but all other forms of ownership are in the scope of the Cunliffe review. I stress, however, that in a scenario in which a company was exiting special administration, it could go into mutual ownership if the organisation in question had sufficient funds and could ensure that the company, or parts of it, could continue to properly carry out its activities related to water. Of course, no one would want, in any situation, to transfer to a company incapable of operating and providing water.

It is important to emphasise that it would not be appropriate for the Government to dictate the terms of exit from a SAR, as that would interfere with the conduct of the court-appointed administrator and their statutory objectives.

[Adrian Ramsay]

I thank the Minister for the helpful clarification that the Cunliffe review will consider ownership models, including those that the hon. Member for Westmorland and Lonsdale has advocated. Will the Minister clarify why the Government are not permitting the Cunliffe review to consider full public ownership as one of the options? Why would they not allow an open assessment of all the potential options, especially given that, as we have heard, public ownership is so common in countries around the world for what is a natural monopoly?

--- Later in debate ---

[Charlie Maynard]

The point about “relevant time” is fair and deserves to be clarified. I completely agree on the issue of statutory consultees and have no issue with that either—that would make much more sense, because there is a real failure in that regard.

I will go a step further—I have lived experience in this regard—and give a special shout-out to Thames Water employee Richard Aylard, who for two years dutifully showed up every six weeks with West Oxfordshire district council to hash through these issues. I learned a lot from him and am grateful to him, as well as to Jake Morley, Lidia Arciszewska, Phil Martin, Laurence King, Alaric Smith and Alistair Wray. They sat through all that, and we all learned together. It is important that everybody knows what came out of those meetings. When sewage treatment works’ capacity is calculated—they are very much under-capacity in my patch and, I am sure, in those of other hon. Members—there are four criteria. The first is the population or population equivalent, which is normally optimistically understated. The second is per capita consumption. Thames Water has a high per capita consumption when it suits the company and a low per capita consumption when it suits the company, so again that is understated.

The third is the Environment Agency multiplier, which is typically 3.0, and is discounted far too often. When there is a known record of spills, Thames Water is still allowed to discount the EA multiplier, often from 3.0 down to 2.4; that is a 20% cut, which means that the capacity can be 20% less. That is a real problem, and it is being done repeatedly on sewage treatment works that have dumped sewage left, right and centre for years.

The fourth criterion is infiltration. Some 47% of the capacity of west Oxfordshire’s big nine sewage treatment works comes from infiltration. That means that our pipes are leaking. There is not enough science on this matter. If we were to put in flow meters, we would have the information, but it seems that we Lib Dems are the only team in the room, alongside the hon. Member for Waveney Valley, that advocates flow meters. If we want to solve these problems, we have to get serious about the information.

[Adrian Ramsay]

I thank the hon. Member for the new clause. We all recognise the situation he describes. In East Anglia, planned housing growth over the coming decades outpaces available water resources. In my constituency, we already have a water resource zone in Hartismere where business operations and planned business growth are being restricted by the water available. He is addressing some of the important points about water companies’ being able to take responsibility, but do we not also need a joined-up approach? The planning system must be used to address the issues by means of stricter water efficiency requirements, sustainable drainage systems and housing plans that are realistic given the available natural resources. Is there not a problem with just putting the ball in the water companies’ court, rather than taking a more joined-up approach?