Water Companies: Executive Bonuses

Debate between Andy Slaughter and Robbie Moore

Tuesday 5th December 2023 Commons Chamber

[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.