Water Industry

Alec Shelbrooke Excerpts

Tuesday 5th November 2013 Commons Chamber

[Charlie Elphicke]

I thank my hon. Friend for that intervention. Certainly a better deal needs to be driven for the consumer than was driven by the previous Government. They also permitted a culture of industrial-scale tax avoidance, which was wrong.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I, too, congratulate my hon. Friend on all his fine work on the water industry. Would he care to comment on the fact that we have seen a 60% rise in water bills yet still face rather serious and sporadic water shortages? Is it not true that the public have really seen no return for their higher bills?

[Charlie Elphicke]

My hon. Friend makes a powerful point. Ensuring that we have investment in the infrastructure that the country needs is really important.

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[Frank Dobson]

The next word in my notes is “reservoirs”. Every substantial reservoir that the water companies use was built when the industry was in the public sector. The private sector has not increased reservoir capacity in this country since privatisation in 1989-90.

[Alec Shelbrooke]

I stand to be corrected, but I understand that only 1% of rainfall is captured for domestic use. I wonder whether the right hon. Gentleman has found that during his research.

[Frank Dobson]

God knows; it would depend on when, if the hon. Gentleman sees what I mean.

The bulk of the reservoir capacity and the pipework was provided when big cities such as Birmingham, Manchester, Sheffield and Leeds and the Metropolitan Water Board in London were trying to look after the interests of the people of their areas. They created the reservoirs and laid the pipes.

During the arguments about the privatisation of the water industry, I received a letter in beautiful copperplate handwriting from an ancient ex-councillor in Sheffield. He said, “All the people at Yorkshire Water are doing is collecting water in reservoirs we built and sending it along pipes we laid. I speak as the former chairman of the water committee in Sheffield.” He pointed out that while the chief executive of Yorkshire Water was getting several hundred thousand pounds a year, when he had been responsible for it he had been paid “nowt” and the job had been done properly, whereas it had not been done properly ever since.

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[Richard Benyon]

Like the right hon. Gentleman, I am keen that everybody pay the required tax, but I caution people who criticise capital allowances. If our water company were not exercising its rights under capital allowances, either investment would fall or our bills would rise, or both. There is sometimes a lack of basic economic understanding: tax deferred is not tax not paid; it has to be paid. In one respect, however, I entirely agree, and I am deeply uncomfortable with some practices in aspects of corporate Britain. Work needs to be done—and in fairness to the Government much has been done—to close loopholes.

We need to make the argument that investment in the industry keeps bills down. The right hon. Member for Holborn and St Pancras seems affronted by Chinese companies and sovereign wealth funds and investors from all parts of the world investing in our regulated sector. I am not affronted. I welcome it. It is the sign of a vibrant industry and one that we need to encourage. We need more investment if we are to deal with some of the Victorian—or at least Edwardian—infrastructure we are trying to replace. Under a nationalised industry, directors of water boards would sit outside the Treasury saying, “Please can we have some more money for investment?” Down the ages, Chancellors have said, “Certainly. Just get in the queue behind the NHS, pensioners and the welfare state, and if there are any scraps left, we will give them to you.”

We have seen an historic level of investment— £116 billion—and we want to see more. We also want to ensure that we keep the bills as low as possible. Supplying all the water that goes into households and treating all the sewage that comes out costs households an average of £1 a day, although I accept that there are wide discrepancies in price. As a percentage of our household expenditure, that might be quite small compared with energy costs and other items, but it is still a significant amount, and those in the lowest income decile in this country are, broadly speaking, in water poverty. We need to address that. There are huge challenges facing the industry, and I hope the Water Bill and the ongoing activities in the sector will tackle them.

The challenges include continuing to ensure investment to deal with leakage and other concerns, such as those expressed by my hon. Friend the Member for Broxbourne (Mr Walker), and to ensure that new infrastructure is built. We must also address the challenges of affordability and the credibility of the industry among its customers. An important matter for our constituents is that the companies address the question of resilience. They must be able to keep the water flowing from the taps in a time of changing climate.

In my short tenure as Minister with responsibility for these matters, I saw the worst drought for decades. We are the sixth largest economy in the world, but if we had had a third dry winter, towns in some of the most economically vibrant parts of the country would have faced the very real prospect of standpipes. That is unacceptable in this day and age. Large national events could have been affected. Indeed, the Olympics presented quite a worry at the time. We clearly need more investment to ensure that water continues to flow in areas that are prone to drought.

During that time, I also saw floods. We must not forget that the water companies’ role in managing sewerage systems is vital in protecting our constituents’ homes from flooding. There is also a need for continuing investment in that regard.

[Alec Shelbrooke]

I shall expand a little on my hon. Friend’s comments on the role of water companies in dealing with flooding when I speak later. Would he care to comment on how the water companies are often ignored when they tell developers that there is a flood risk in the area in which they are building? Does he agree that the water companies are often left to clear up the resulting mess, which puts pressure on their budgets?

[Richard Benyon]

My hon. Friend makes a good point. The Government are right to deal with the connection to private sewers, where many leakages have occurred. They, and the water companies, are also taking action in other areas to ensure that they are playing their part. Sometimes just a small investment can make a big difference to the flood risk in an entire street, for example. It is vital to ensure that the water companies are sitting down and talking to the flood forums and the local flood authorities to make sure that these issues are being addressed, but perhaps that is a wider issue for another debate.

The Water Bill will play a key part in addressing the challenges. The question of building new infrastructure and new reservoirs was raised earlier. The key reform to ensure that that happens, to secure the long-term sustainability of the industry and long-term benefits for our constituents, will involve enabling new entrants to come into the industry and provide new competition. The competition that will exist in the non-household sector must, in time, be introduced in the household sector as well, and I hope that that will be the long-term ambition in a forward-thinking political agenda. That would result in the kind of benefits for households that businesses will soon be able to achieve by switching supplier. The Bill should be seen only as work in progress, however.

One of this Government’s achievements of which I am most proud is the water White Paper. It might sound rather prosaic to say that I am proud of a document, but it set out some important provisions. It demonstrated that the Government were getting a grip on water policy. In the past, water policy had been created by all kinds of different organisations and bodies, not least the water companies themselves. In the White Paper, we demonstrated our determination that the Government should own the policy and that the regulators should regulate. We stated that, in a regulated sector, if the water companies functioned within meaningful regulation by the three regulators, we would have an industry of which we could be proud. The water White Paper was welcomed by customers’ groups, the industry, investors, green NGOs and all parts of the House, although I do not know whether that makes it a unique document, as the natural environment White Paper achieved much of the same.

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[Mr Buckland]

My hon. Friend is right to suggest that the breakdown of the arithmetic for individuals does not seem to add up. Thames Water intends to use a separate corporate vehicle to build this entity, but we must ask why the bill payer must bear the brunt of the problem.

Let me return to the question of leakages because the figures are quite startling. Although Thames Water is making progress in bringing the leakages down, and I give it credit for that, the figures are pretty disturbing. Last year, it was reported that Thames Water was losing 665 million litres of water a day, a leak rate of 25.7%. That was five times higher than the 5% that would have been saved by a hosepipe ban. The leaks would fill Wembley stadium every 36 hours.

[Alec Shelbrooke]

Would my hon. Friend care to elaborate on that for those who call for nationalisation? Is it not true that the state of the water industry and the state of the pipes the water runs through were caused by the lack of maintenance that happened when they were in Government hands? Since they have been in private hands, the investment has been put in to try to rectify that appalling problem.

[Mr Buckland]

My hon. Friend is right that the problem would probably be considerably worse had we left things as they were and expected the Government, with their declining pot, to invest and deal with leakages. The problems, however, remain and although Thames Water is working to try to deal with them, I believe that the company should concentrate on leakages before it advocates vast reservoir projects such as the one supported by my hon. Friend the Member for Broxbourne (Mr Walker).

It is not just Thames that has a problem of leakages. It probably has the most serious problem, but other companies such as United Utilities and Severn Trent also have considerable leakages. The most recent figures I have from Ofwat show that United Utilities is losing 457 million litres a day and Severn Trent is losing 441 million.

The Water Bill has been mentioned. The Bill is a good first step. It will be the first reform of the industry since privatisation, and it will bring choice for businesses, charities and the public sector, but as other hon. Members have said, we should be going further to allow that choice to be extended to residents and household consumers. I am glad to hear that the Bill will allow for a more joined-up approach to the water supply network, thereby in some ways dealing with the regionalisation issue that continues to bedevil the infrastructure. I am glad that there will be further improvements to the Ofwat regulatory system.

I am looking for a greater emphasis on developing social tariffs. How that is to be done will be a matter for detailed discussion, and while Government guidance, which has been welcomed, has already been issued about concessionary schemes for community groups, it is now up to the industry to act swiftly on social tariffs and to ensure that those who are the most vulnerable and who, like all of us, need access to a basic staff of life, can have that access without the fear of disconnection that was mentioned by the Opposition spokesman.

As I said, this is an issue of not only household and local significance but national resonance. I shall not repeat some of the points that were raised by hon. Members about excessive boardroom pay, rather exotic tax arrangements and capital expenditure, but it is important to note, looking at the figures based on current prices, that in real terms gross capital expenditure by the four major water companies in England and Wales has fluctuated and is on a downward path. My hon. Friend the Member for Newbury spoke eloquently about the cyclical nature of investment, which is hardly a solid foundation for attracting the much needed future and further investment in the water industry. While it is right to say that the Ofwat regime—Ofwat is currently looking at the 2015-20 price regime—is an appropriate exercise of regulatory power, we need to try and get through the cyclical problem that is causing the inflexibility in the industry that he talked about.

Today’s debate is a chance not only to make an important contribution to the ongoing discussion about the cost of living, but to look forward to the Water Bill, to ensure that we take the opportunity to get that piece of legislation right for the market, and to remember that value for money for businesses, and for the people we represent, must be at the heart of our deliberations and discussions today. We owe it to them to ensure that water bills are priced competitively, that the service is efficient and that there is a real sense of responsibility for the people that the water companies serve. If we help water companies along that road, we will have done the people whom we represent at least some service today.

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[Gavin Shuker]

No, that is not the case. The Flood and Water Management Act 2010 created the legislative framework for that measure.

I want to talk about some of the measures that have been trumpeted as the solution to bring about water affordability and to stop the rising tide of householders who are finding themselves in water poverty or unable to pay their water bills. The approach of the Water Bill is entirely the wrong way around. It is interesting to hear Government Members say that the only answer is greater competition. I accept that retail business competition could be a good way of reducing water usage. That has made a profound difference north of the border. That is why we have supported it continually. The idea came out of the Cave review.

However, at a time when many parts of the UK are much more water-scarce than other parts of the continent and even parts of Africa, it is short-sighted to think that that idea will work without considering abstraction reform as well. The Government have chosen to punt that issue into the 2020s—until 2025—for the next Government to look at. If we do not deal with scarcity in many parts of the country, there will be a major problem. Instead, the Government have looked for a number of measures that will shake up the industry and make them look pro-reform, but that will not necessarily tackle the issue of abstraction.

There is an idea that the only answer to the problem of some parts of the country being water-rich and others water-poor is to build pipelines. I remind the House that 2% of the country’s energy usage already goes on water. There is a major carbon cost to that idea. If people do not believe that that would end up on people’s bills, they are wrong.

[Alec Shelbrooke]

Just to clarify, did the hon. Gentleman say that we need a national water grid to move water around or that we do not?

[Gavin Shuker]

I am happy to clarify that. I was saying that the idea of a national water grid is stillborn, purely on the basis that the carbon costs make it too difficult. If we accept the premise for that idea, surely what we need is a similar level of investment in water efficiency. We must have a similar amount of foresight on how we will get by with less in the many water-stressed areas. The south-east continues to grow and water is becoming more scarce.

Unless there is proper leadership on that issue, things will become very difficult. Big concrete, in-the-ground solutions are not the right approach. There is a need for additional water capacity, but we need to consider the issues. I say humbly that the Government have a green deal, but where is the blue deal? Where is the deep thinking about what we need to do?

Another area where the Government have been caught napping is the structure of the industry. After privatisation, a number of companies emerged that were listed on the UK stock market. There was then a shift in the industry towards foreign ownership. Today, the majority of the industry is owned by private equity firms. At the same time, dividends and water bills have continued to rise. Unison has done some fantastic research that has tracked the nature of the industry. However, it is not just Unison that has raised concerns. Jonson Cox, the chair of Ofwat, has said that there needs to be greater clarity in many of the difficult accounting explanations. I hope that Ofwat will continue to pursue that issue.

One issue on which the Government could take action is Eurobonds, and the practice whereby water companies effectively borrow from arm’s length bodies of themselves at greater levels of interest, which is obviously favourable on their balance sheet. The Government consulted on that issue and decided to do nothing, yet it is a major reason why the water industry is skewed the way it is. If we want to drill down and ensure that the benefit of the reforms goes not only to shareholders but to customers and households, the Government must consider that issue again.

Finally, I want to mention social responsibility for water companies. In January 2012 I went to a fantastic research facility at the university of Leeds called Water at Leeds. I gave a speech in which I laid out Labour’s response to the water White Paper and the forthcoming legislation. I also talked about the consensus that exists on water. Both parties in government, the industry and customers have bought into the idea of a largely monopolised, yet privately owned, privately run and privately debt-financed water industry, but that consensus could break down if action is not taken.

Today, 72% of people believe that water would be better off nationalised. That is a massive flashing red light to the water industry that it needs to take action, and to the Government if they believe that that should not be the policy that passes through. I believe one way of doing that would be to have a social responsibility clause in the Water Bill that lays out clearly and benchmarks what each water company is doing in terms of social responsibility. That would include the companies saying how they manage their tax affairs in a way that is easy to understand and has clarity, rather than things being hidden away on the balance sheet. They would also mention their responsibility to their broader constituencies, and whether they employ apprentices and are investing in R and D, as Cave mentioned in his report. Let us look at the water companies and instead of saying that some have a good story to tell, let us try to raise them all up to the level of the very best.

Those five areas—bad debt, social tariff, abstraction reform, Eurobonds and social responsibility—would in themselves create a coherent basis for tackling water affordability and water scarcity. I humbly remind the House that despite all the hype of today and what the Minister may say, this Government have looked those challenges squarely in the eye and dodged each one.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I would like to go further in the debate and mention some of the powers that I think the water industry needs. I will focus my remarks around the Water Bill, and the fact that as with any industry, resources are scarce. It by no means passes the public by that their water bills go up, yet now and again we have hosepipe bans and so on because—let us be honest—of the mismanagement of our water resources. It does not help, however, when developers take no notice whatsoever of reports from water companies about the impact that their developments may have on the surrounding area. My constituency of Elmet and Rothwell is badly affected by such situations.

I recently had discussions with some people from Yorkshire Water about a small village in my constituency called Walton. It has a couple of houses that are badly affected by heavy rainfall and flooding. Yorkshire Water effectively said that a scheme to save two houses would cost £1.8 million—not in the region of something it could afford do—but that the problem came about in the first place because the original barn should never have been converted into a house. Messages to that effect were put forth at the time, but the conversion went ahead. The house was sold on in good faith and no matter what the situation in trying to alleviate the problem, Yorkshire Water is fairly certain that the water will always end up in that place. No one particularly noticed when it was full of cows, but when it is someone’s house, they tend to notice. That is a prime example.

My constituency is under unprecedented pressure for housing development. Figures from Leeds city council state that 12,500 houses could be built across my constituency. One place currently under great scrutiny is an area of Kippax called Sandgate drive. Some 260 houses are to be built at the back of some houses—by that I actually mean built on a hill behind those houses. Yorkshire Water has said that the water that will run off would be unacceptable and that it would put huge pressure on the water courses to deal with that run-off of water—something the developers appear to be ignoring.

The Environment Agency deals with water that floods off land and is taken away in rivers, but it is down to the water companies to deal with the surface run-off and to get it to the rivers. The current development plans do not help water companies in the slightest, which means two things: first, that resources that should be used to repair the network so we can use our resources more efficiently get soaked up in flood alleviation solutions; and, secondly, that people’s bills rise constantly, with no further improvement.

In an area of my constituency in the town of Wetherby, there is a planning application for 400 houses at the top of a hill. There have been problems with the water pressure in Wetherby. Yorkshire Water had to take measures on the Thorpe Arch trading estate to ensure it had proper pumping facilities to get the water to the top. That has been resolved, but only last week a resident told me that, last summer, on a very warm day, the water pressure dropped off when everybody in the area used the water. The developers have taken no notice of that, which means that Yorkshire Water must spend more of its resources dealing with the further drop in pressure, because it does not have the detonator to say, “That development cannot go ahead unless the developer is willing to spend huge amounts on the water infrastructure.”

A huge development—a dual carriageway ring road—is taking place to the east of Leeds. Back in the storms of 2007, my constituency, like that of my hon. Friend for—

[Andrew Percy]

Brigg and Goole.

[Alec Shelbrooke]

I cannot believe I forgot the name of my hon. Friend’s constituency, but there we go. Like his constituency, my constituency had a huge amount of water flooding through it during those storms. Fundamentally, the river valley could not cope with the amount of water. Nobody can do anything about such one-off events, but we can avoid exacerbating the situation. There is a live planning application for a development on the floodplain in the village that was 6 feet under water that day, which is disgusting. Yorkshire Water should have the ability to turn around and say, “No. That area will not be developed.” The developers can put in any flood protection scheme they like on their new development, but they do not give a tinker’s cuss what happens 100 metres down the road, where the houses will be flooded.

Those problems can be alleviated if the water industry has the ability to work hand in hand with the developers. I mentioned the ring road, which should have a flood alleviation drain built under it. The proposal will have a huge impact on my constituents, who have had to deal with flooding and must now deal with extra housing. We are talking about investment in the water industry and how it best uses the money it gets from water bills. Given the pressures of development, we need to ensure that the industry has every ability to work hand in hand with developers.

One village in my constituency, Methley, suffers from huge toxic, rancid smells from a pumping station for sewage. Yorkshire Water believes that that happens because there is a kink in the sewage pipe somewhere in the two miles of road by the village. It does not have the resources to dig up the road and find the kink—it says that the number of people affected does not justify the amount it would need to spend. That is an example of the pressures the water companies are under.

[Frank Dobson]

Surely Yorkshire Water has access to a device that will identify where the aforesaid kink is and does not need to dig up two miles of road.

[Alec Shelbrooke]

One would have thought so, and I have had meetings about that. Unfortunately, Yorkshire Water is uncertain about where the sewer actually runs, and that is a consequence of decades gone by when there was not proper mapping. That shows the problems the privatised water industry has come up against when dealing with a legacy of poor investment and poor records.

Incidents such as the one in Methley are a blight on people’s lives. I have stood there and the smell is appalling—people are prisoners in their own homes. We have to ensure that water companies have a say over inappropriate developments. There are 4,500 houses in Garforth and 1,000 house Rothwell, but no consideration is given to water in planning developments. The developers do not care and leave it to Yorkshire Water to deal with. The time water companies have to take to deal with such issues means that they are not able to deal with historical issues, such as ensuring efficient water use, repairing collapsed sewers and so on.

I urge the Minister to take those points into consideration during the passage of the Water Bill. For my constituents, the ability of the water companies to make their lives better cannot come quick enough.