Water Companies: Executive Bonuses

Andy Slaughter Excerpts

Tuesday 5th December 2023 Commons Chamber

[Andy Slaughter (Hammersmith) (Lab)]

I will try to do better than that.

I want to talk for a few minutes about Thames Water, which has the job of supplying water and sewerage services to about 17 million people in London and the south-east. I will speak, first, about my constituents’ experience of Thames and, secondly, about the company itself and the people who run it.

Last night, as is often the case, my constituents were on social media talking about Thames, because a large number of people in West Kensington had been cut off without water for a day or so. This was the exchange:

“How long until we have water as it has been a day without supplies for many and people need drinking water”?

The answer from Thames was:

“Sorry for that. I have checked with my system there no timeframe mentioned in this issue. This is an unplanned event our team has hardly working this issue you are water is back to normal.”

The exchange went on:

“So will they give us bottles of drinking water please”?

The answer from Thames was:

“I have checked with my system right now there is no bottle water available. Your water is back to soon normal our team has working hardly this issue.”

That is typical, I am afraid, of its communications, and of the contempt, frankly, with which Thames treats its customers.

About a month ago, the whole of Shepherd’s Bush—that is tens of thousands of people in East Acton—did not have water for three days. There was no communication from Thames whatsoever. I was on the phone to it the whole weekend. I was getting reports, I visited where the leaks and the breaks were, and I put it on social media. I believe that is Thames’s job, but it does not do that. It simply does not do it, for whatever reason—whether it is unable to or it just does not care, I do not know. These massive breaks in pipes happen all the time. I think I know why they happen: it is because Thames does not maintain its pipes, and the pressure means that they burst. We often get a number of bursts at one time, and then it can spend up to a month or more repairing them, which involves digging up the road and shutting off roads. In that way, it is a law unto itself.

That is equally the case with sewer flooding. Two and a half years ago, there was heavy rain in London, and hundreds of my constituents’ homes, basements and ground floors were flooded with raw sewage. For some of those properties, it was the third or fourth time it had happened. When it happened back in the 2000s, there was the Counters Creek flood alleviation scheme. It cost several hundred million pounds and was going to relieve sewer flooding in west London. I spent many hours in many meetings talking to Thames Water and constituents about how it was going to relieve the problem. Frankly, I cannot think of a much worse problem someone could have than to live with the risk of their house being flooded with raw sewage, whether it comes through the front door, up through the toilet, or whatever.

The Counters Creek flood alleviation scheme was comprehensive, but at that point, Thames said that it was not going to do it, and that instead it would fit non-return valves or FLIPs—flooding local improvement processes. Non-return valves are simply valves that stop the sewage going back up a pipe when there is heavy rain. FLIPs are slightly more sophisticated and are pumps that are buried under the roadway. They cost a fraction of the cost of a major renovation scheme and would therefore have saved Thames Water a considerable amount of money. Ten years on, and two and a half years after the last significant floods, very few of those things have been fitted. When residents apply for them, the answer is that they are low risk, even though some of the people who are at a low risk have had their homes flooded more than once. To my mind, that is no more than a cost-saving exercise and doing the bare minimum.

Typically, floods tend to happen in the summer, but they can happen in winter. When we have the next floods—as we undoubtedly will—perhaps the same houses will flood again, or perhaps those houses will have been lucky enough to get a FLIP or a non-return valve, in which case the neighbouring properties that do not have them will be flooded with even more sewage. Does the Minister really think that Thames Water is a responsible public utility when it acts in such a way?

The Minister mentioned Tideway. I agree that that is a good project, and it has been broadly well handled, despite being built during the covid period. It is mainly on time and to budget, and it will relieve about 95% of the raw sewage going into the Thames. One of the worst outflows is at Hammersmith pumping station, and I will be delighted if we have no more spouts of raw sewage going up next to Hammersmith bridge, as we did a couple of years ago. It was not Thames Water who built that; it was a separate company and not part of Thames Water.

As I have said, Thames Water does not appear to be able to run a tap, to flush a toilet or to manage its own finances. The company is partly owned by the Governments of China and Abu Dhabi. Last summer it summarily got rid of its chief executive, despite paying her £1.5 million a year. The company announced with a fanfare that it had managed to obtain £500 million of new investment from its shareholders, but according to the Financial Times last week—this is reported again today—the actual status of that money may well be a loan rather than equity or new investment. That, I hope, is something the Government will want to look into.

There have been a series of asset-stripping, incompetent, careless owners of Thames Water during the period of privatisation, the worst of which was probably Macquarie, which owned it for 11 years and paid out an estimated £3 billion in dividends. Its senior executives took huge payments in the tens of million over that time, and are now living a life of luxury as a consequence. That is the legacy of privatisation and this Government’s record on private utilities.

[Jerome Mayhew]

The hon. Gentleman is right: in my view there was a failure of regulation in the noughties, because during that period the financial engineering took place to load those businesses with debt. Does he accept that that manipulation of debt was completed by 2009? If he does, what does he have to the say about the Labour Government in power at the time? Were they asleep at the wheel?

[Andy Slaughter]

I accept that the debt has been loaded and that the gearing is completely out of proportion. Under Macquarie, Thames Water’s debt went from £4 billion to £10 billion, but it is now at £14 billion under the current owners. I do not know whether the hon. Gentleman was listening to the radio or has read the media this morning, but Thames appears to be asking for a 40% rise in bills. It has £14 billion-worth of debt, and according to press reports, it might run out of money by next April. That would be the second scare within a year. This is a company that almost has a licence to print money. It has 17 million customers, all paying their bills every year. Its job is obviously not straightforward, but it is not the most difficult job in the world. It cannot perform any part of that function well, and it cannot run its own company well, and that is the parlous state into which it has descended. I therefore understand that the Environment, Food and Rural Affairs Committee has called Thames Water before it tomorrow to answer some questions.

If the Select Committee can do that, what are the Government doing? I heard an extraordinarily wittering, complacent speech from the Minister the hon. Member for Taunton Deane (Rebecca Pow) just now. There was no grasp of the risks. A major company could go under, with a failure to supply a basic service. What more basic service is there than the supply of water and sewerage services to a large part of the population in this country? There was no understanding of the risks or what the remedies need to be.

This is another area where this Government have failed completely. It is their job, which I do not believe they will do in the small amount of time they have left, to take this issue seriously. They will have to, because otherwise my constituents and those in London and the south-east will not be able to have any realistic purveyor of water and sewerage services going forward. I hope that when the Minister the hon. Member for Keighley (Robbie Moore) winds up, he shows some awareness of those needs.

[Several hon. Members rose—]

--- Later in debate ---

[Robbie Moore]

I noted that the hon. Lady was not here for the whole debate to listen to the many positive contributions from the Conservative Benches. However, we have already spoken about this, and we have a meeting in the diary next week to discuss it, which I look forward to.

Our plan for water focuses specifically on increased investment, which includes £2.2 billion from water companies to spend on improving infrastructure; stronger regulation, including more Environment Agency inspections of waste water treatment works; banning the sale of wet wipes; proposals for new restrictions on forever chemicals that can be found in waters; and tougher enforcement, including bigger penalties for water companies and tighter control over their dividend payments. Let me be clear: the Government will hold the water sector and enforcement agencies to account. The Secretary of State and I are working closely with the new leadership of the Environment Agency to ensure and reiterate to them and the water industry the expectation that they will be held to account and to the highest possible standards.

I will be glad to respond now to the many points that have been made by Members from across the House, starting with storm overflows, which many Members talked about. The Government are taking steps to prioritise storm overflows. We have now launched the most ambitious plan to address storm overflow sewage discharges by driving the largest infrastructure programme in water company history. We have been consistently clear that the failure of water companies to reduce sewage discharges adequately is totally unacceptable, and our new strict targets, which were brought out through the Environment Act, will see the toughest ever crackdown on sewage spills.

However, that all starts with monitoring—monitoring is absolutely key if we are to carry out enforcement. The hon. Member for West Lancashire (Ashley Dalton) may claim that water was previously better quality, but how on earth does she know? In 2010, under the Labour Administration, just 7% of storm overflows were being monitored; now, in 2023, we have driven that figure up to 91%, and by the end of this year we will be at 100%. The Opposition may make these ridiculous claims, but how on earth do they know? Under their watch, only 7% of storm overflows were being monitored. These monitors will allow us to understand the impact of sewage discharges in more detail than ever before, so we will hold water companies to account and target improvements where they are most needed.

To pick up on the point that was made by my hon. Friend the Member for St Austell and Newquay (Steve Double), it was the Labour Administration who introduced self-monitoring. It is Labour’s plan now to overturn one of the rules that it itself brought in. This Government have passed the Environment Act, which has required a landmark £6 billion investment through the storm-overflow reduction plan. We have instructed water companies to deliver more than 800 storm-overflow improvements across the country, and we are delivering Europe’s largest infrastructure project through the Thames tideway tunnel to reduce storm overflows by 95% in the Thames Water region.

I will now turn to the performance of regulators, which has been mentioned by many Members from across the House, including the hon. Member for Somerton and Frome (Sarah Dyke). We are working with regulators to ensure they have the tools and resources they need to hold water companies to account: we have provided an extra £2.2 million per year to the EA specifically for water company enforcement activity, and in May 2023, we provided a £11.3 million funding increase to enable Ofwat to treble its enforcement capacity. We have legislated to introduce unlimited penalties for water companies that breach their environmental permits and to expand the range of offences for which penalties can be applied. Those changes will provide the Environment Agency with the tools it needs to hold water companies to account. I only hope that the Opposition welcome the unlimited penalties that this Conservative Government are bringing in.

As for what we are doing to focus on performance, in 2022, Ofwat announced provisional financial penalties of almost £135 million for underperformance, applying to 11 water companies. That money is rightly being returned to customers through water bills during the 2024-25 period. This Government are taking the polluter pays principle seriously—that is exactly what the provisions of the Environment Act bring into play. However, the answer is not a lengthy bureaucratic process carried out at the taxpayer’s expense to create an entirely new regulator, as the Opposition have proposed. That sums up what the Labour party is about: process, not progress. This Government are absolutely committed to ensuring that progress is made on improving water quality.

The issue of dividends has been raised by many Members, and I will pick up on some of the points that the hon. Members for Wakefield (Simon Lightwood) and for Easington (Grahame Morris) have mentioned. In March 2023, Ofwat announced new measures that will enable it to take enforcement action against water companies that do not link dividend payments to performance. That change will require water company boards to take account of their performance when deciding whether they make dividend payments; if the payment of dividends would risk the financial resilience of a company, Ofwat now has the power to stop that payment.

As a result of this Government’s giving more power to Ofwat, it has increased power to take enforcement action if dividends paid do not reflect performance. As for some of the points that have been made about Thames Water, we have seen today that Ofwat is investigating Thames Water, which shows that the powers this Government gave to Ofwat are already being utilised.

[Andy Slaughter]

rose—

[Robbie Moore]

I will pick up on the points made about Thames Water by the hon. Members for Hammersmith (Andy Slaughter) and for Brentford and Isleworth (Ruth Cadbury) in relation to penalties. Since 2015, 12 prosecutions have been instigated against Thames Water, amounting to £37 million. Ofwat will rightly hold companies to account where they do not clearly demonstrate the link between dividend payments and performance. That has been made possible through the Environment Act.

I want to turn to bonuses. Quite rightly, picking up on the point made by my hon. Friend the Member for St Austell and Newquay, in June Ofwat confirmed new plans that will ensure customers no longer fund executive directors’ bonus payments where they have not been sufficiently justified. Ofwat will regularly review all executive bonus payments, and where companies do not meet expectations, it will step in to ensure that customers do not pick up the bill, which is incredibly important to this Government. These new rules have already placed pressure on water companies to take action.

This Government will always prioritise bill payers, which is why in 2022-23 no water or sewage company in England and Wales is paying a CEO a bonus out of the money from customers’ bills, while half of CEOs are taking no bonuses whatsoever. This is the first time that has happened in the water industry, and it reflects the industry’s recognition that the Government and the public expect better. The Labour party, however, would simply raise taxes on water companies, which would send household bills rocketing sky-high. This Conservative Government have been absolutely clear that the polluter must pay, and that is exactly what we are doing by giving Ofwat more powers to regulate the industry and hold water companies to account.

Turning to debt in the industry, which was a point made by the hon. Member for Hammersmith—

--- Later in debate ---

[Andy Slaughter]

rose—

[Robbie Moore]

I will give way in a second.

Ofwat is monitoring companies’ gearing levels closely and has encouraged water companies to de-gear, with the average gearing across the sector falling to 69%, down from 72% in 2021. In March 2023, Ofwat announced new powers that will strengthen the financial resilience of the sector, including powers to stop water companies making dividend payments earlier this year. Those powers are already being put in place by Ofwat, despite what the Opposition may say.

Many Members across the House made the point about bathing water quality, including my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes) and my hon. Friend the Member for St Austell and Newquay. Bathing water has improved significantly over time. In 2010, the proportion of areas with good or excellent bathing water, meeting the highest standards in force at the time, was 76%. Now, in 2023, 90% are classified as good or excellent, which is a significant improvement. It has to be noted that Labour actively did nothing in its time to improve bathing water quality, but this Conservative Government are delivering on that point.