Flood and Water Management

Anne Main Excerpts

Thursday 8th September 2011 Westminster Hall

[Anne Marie Morris (Newton Abbot) (Con)]

I add my voice to the voices of others who have commended the work of my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) and her Select Committee. The Committee’s report is an excellent piece of work and it is thoroughly welcome.

As a Member who represents a constituency in the south-west, it will come as no surprise to people that I wish to speak today about water charging. The water charges in the south-west are the highest in the country, with an average bill of £517. I am afraid that that figure is rather higher than the one given in the Select Committee’s report, which puts the figure for the south-west at £490. At £517, the average bill in the south-west is 43% above the national average for water charges. Although I understand the points made by the hon. Member for Llanelli (Nia Griffith) on the challenges that she faces in Wales—I absolutely empathise with her—the south-west has 30% of the country’s coastline and 3% of the population, so the burden that we bear is exceptionally great.

Unfortunately, in addition we also have a large amount of sewage pipework inherited at privatisation without the adequate funding to get it into the state that is required. The problem was inevitably exacerbated by the bathing water directives, which were not foreseen and which have created all sorts of challenges for us in the south-west. The problem in the south-west is very significant.

Possible solutions have been considered by a number of different bodies. I commend the Walker report, which came out with a number of very good options. Equally, Ofwat came up with some good options. I will not go into the details of those, because they are well rehearsed in the Select Committee report. I am pleased to say that DEFRA has consulted on a solution. Of the four areas that were looked at, information on three of them was included in the DEFRA consultation. With the interests of the people of the south-west at heart, I will comment only on those options, which I hope will inform the Minister in his thinking when he comes to draft the water Bill, which I, like others, am keen to see sooner rather than later.

The first suggestion related to social tariffs. Whatever else we do, we certainly need to get a social tariff in place that works properly. The current tariff, WaterSure, is a good start, but unfortunately it does not protect some of the most vulnerable people in our society. Come what may, it needs to be reviewed. The suggestion that the social tariff be transferred to a central pot rather than continue to come out of the individual water companies’ pots is a good one. If that happened, I would want the water companies to take a sensible approach locally, to do what is right to meet the particular and peculiar needs in their own part of the world.

The second option considered was rebalancing who pays for what within the south-west itself. Given the overall unfairness of the settlement at privatisation—I am sure that that unfairness was not intended and that it was just one of those unfortunate consequences—rebalancing within the south-west itself is not something that any south-west MP would view with any comfort. Paying south-west Peter by robbing south-west Paul is not the solution, I think. Other suggestions include rebalancing sewerage charges and the business community paying a higher share, but tourism is crucial for us, so any rebalancing of that nature would certainly be most unwelcome—I am sure that the Minister recognises how unwelcome it would be.

I was interested that the third option put forward by Anna Walker in her report was not in the DEFRA consultation; in fact, I was very pleased that it was not in the DEFRA consultation. That option was to cross-subsidise the south-west from water-charge payers in other water company areas. The Minister, in ruling out that option, said that it would be quite inappropriate to take money from an individual in Newcastle who was on benefits to provide a subsidy for a water-charge payer in the south-west who may well be a millionaire. I say gently to him that perhaps he does not fully understand that the average income in Devon is actually £2,964 lower than the national average. Contrary to what too many people believe, the south-west is not a countryside of cream teas and beautiful cows, in which we all sit eating our strawberries and cream. The area is very rural, but we have a number of very deprived areas and the highest number of retirees and pensioners in the country. There is not a large number of millionaires sitting in the south-west, waiting to be bailed out by those in the north who are less well off.

The final option in the DEFRA consultation was one that I very warmly welcome. If I have one message for the Minister today, it is, “Yes, please, that is exactly what we want.” It is the suggestion that the Government put a £40 million subsidy behind South West Water bill-payers, which would effectively knock £50 off each bill-payer’s bill in the region. That would not only be welcome but, in the current circumstances and given the history, it would be the right and fair thing to do, because even though, if that subsidy were given, people paying water rates in the south-west would still have the highest water rates in the country, they would at least be less badly done by than they are now.

We need to look carefully therefore at what we do. It would be nice to see a “Benyon report” suggesting that the Bill include the adoption of the £40 million subsidy but, as the hon. Member for Llanelli pointed out, there is an ongoing challenge for those of us whose constituencies have long coastlines, and that is a challenge for the Government. If I might be so bold, given that two more directives on water quality will come from Brussels sooner rather than later, we should consider the matter urgently, rather than wait for the water Bill after the forthcoming one.

The Government have bravely already looked at the relationship between the taxpayer and the private sector in other areas. They have considered renegotiating some of the private finance initiative contracts that were biased against the taxpayer because the risk had not been properly assessed at the time they were entered into. Likewise, they have looked at the relationship between the taxpayer and the banks. Now might be an opportune moment to look at the relationship between the taxpayer and the water companies. I am sure that there would be all sorts of legal challenges and hurdles to overcome, but that does not mean that it should not be done. For water authorities that face particular challenges as a result of the water quality directive—for example, where the percentage increase would be very difficult for the local community to bear, a cap on above-inflation rises allowed by those companies might be considered in the annual review. That is something for the Minister to think about.

I shall turn very briefly to flooding. The Minister knows very well that it is a subject that is also close to my heart. I have to thank him for what he has done to ensure that I have flood defences in Shaldon and hopefully—subject to planning consent—in Teignmouth. Flood prevention is critical, and I pay tribute to my hon. Friend the Member for Thirsk and Malton for the careful and thorough analysis she set out at the beginning of the debate. She hit the nail absolutely on the head. If, as evidence seems to bear out, for every £1 we spend now we effectively save £8 in the future, flood prevention must be a key priority, and I am glad that it was presented as such in the national infrastructure plan.

I share some of the views that other hon. Members have expressed about the best solution. In planning policy, although the report makes it clear that it would be inappropriate to ban building on floodplains, developers have done very well from building on such land without having to contribute to the windfall, so there is an argument for reviewing the planning rules and regulations with a view to possible limits on building on flood plain. In insurance, which is the second key issue in the flooding debate, the renegotiation of the statement of principle that will lapse in 2013 needs to involve all parties, and not be seen as a matter for just the Government and the insurance industry. Developers and other beneficiaries of changes ought to play their part.

Those are the key points that I wanted to make today, and I am grateful for the opportunity to debate this crucial matter.

[Mrs Anne Main (in the Chair)]

Before I call the next speaker, I remind everyone that the winding up speeches start at five minutes to 5. I call Priti Patel.

--- Later in debate ---

[Mr Reed]

I would love to debate this issue with the hon. Gentleman morning, noon and night.

[Mrs Anne Main (in the Chair)]

Order. I hope that the hon. Gentleman does not, because it has nothing to do with what we are discussing.

[Mr Reed]

I am grateful for your guidance, Mrs Main. I fear that I would have strayed for some considerable length.

The report highlights a series of concerns surrounding the reduction in funding available for flood defences. It states that

“to maintain the current level of protection in the face of increasing flood risks requires increased investment and the significant CSR cuts will increase concerns that funding on flood defences remains inadequate.”

It goes on to say that

“it is by no means certain that any shortfall in public funding can yet be made up by private contributions. Ministers must spell out how the Government’s aim of focussing public funding on those communities at greatest risk who are least able to protect themselves will be achieved in practice.”

I agree wholeheartedly with the Committee. It now behoves the Government to end this ambiguity, because it is damaging and has dragged on for far too long.

I also urge the Government to understand the detailed effects of their policy as matters stand. The NFU has made a compelling argument in that regard. It notes, with typical tenacity:

“The reality is that regions containing a significant conurbation of housing and business development i.e. a city will create a distortion in the allocation of national flood risk funding. This means that many rural areas...will be likely to suffer a steep decline in flood risk investment as a result of this distorting effect of policy. We believe rural areas within regions will therefore have difficulty in obtaining national funding for new flood risk management schemes.”

The NFU is entirely right and I thank it for the attention it has given the issues and for representing the interests of its members and, more broadly, the more rural elements of our country in a typically forthright and effective manner.

Do the Government accept the analysis that their funding criteria for flood management distort funding away from flood defence schemes in rural areas? If the Minister does not accept that analysis, what is the basis for his contrary view?

The Government maintain that reduced flood defence spending can still safeguard 145,000 properties over the duration of this Parliament. Inevitably, that will mean a greater concentration of available moneys in more densely populated areas in order to achieve greater, and arguably quicker, economies of scale. For less densely populated areas, this represents a gathering storm—less flood defence investment, with potentially more expensive or difficult to obtain insurance cover and greatly inflated excess payments—which could lead to entire communities becoming blighted. I am sure that hon. Members on both sides of the House are aware of that problem.

What specific discussions have the Government held with the insurance industry regarding the effects on the costs and availability of flood insurance in rural areas as a result of this policy change? Have the Government undertaken any assessment of how these policy changes will affect land and property values in rural areas? If so, has the logical modelling been done with regard to how such a policy change will affect not only businesses in these areas, but the cost to their public services?

With regard to the farming industry, surely modelling work has been undertaken on the impacts of different flood management models in rural areas and the consequences of that for agricultural land and food security. Surely the necessary work with regard to these issues has been done. If not, will the Minister explain why? If the work has been done and the answer is yes, will he undertake to make this work available to the public and to colleagues? If the work has not been undertaken, I fear that the Government’s approach to these issues cannot be described as holistic and will inevitably invite failure.

We need, as has been said, a broad and lasting consensus on the policy measures necessary to achieve a fair insurance system whereby flood insurance is available to everybody at affordable rates. If as a country we fail to meet the serious challenges presented by the changing flood insurance landscape, that will result in profound social effects. Governments, of whichever colour, cannot outsource their accountability in this area. It is not fair and it does not bode well for effective, lasting policy if it is left purely to the insurance industry. With one in six homes and businesses in England and Wales at significant risk of flooding, this is without doubt one of the biggest social and economic policy challenges facing the country.

Effective policy implementation will require the substantial buy-in of major stakeholders in this policy field—not just the insurance industry, but the water industry—whose co-operation is pivotal in identifying and implementing effective policy solutions. The companies involved in our water industry could also be pivotal in helping us to address significant parts of the flood policy challenge. I have spoken with the industry and it is clear that there is huge and, in many ways, unrealised potential locked within it that is both prepared and able to help us improve flood management policy. What work has the Minister’s Department done in that regard, and has any work been done on incentivising soft or natural water and flood management schemes to be undertaken by water companies, as opposed to hard, engineered schemes?

Does the Minister believe that that approach would be aided or hindered by further disaggregation of the water industry and by increased competition? We are all aware of the benefits of competition, but we must also be alive to the potential disbenefits of increased competition. Clearly, asset maintenance and investment in new assets in the water industry are a critical part of the economic base of that industry. It is also vital in relation to the practicalities of flood and water management. Does the Minister share my concern that the disruption of the market in the UK could disincentivise investments such as these and thus hinder more effective flood and water management schemes?

The Government cannot and must not believe that they can extricate themselves from this policy area. Paradoxically, the cut in flood defence spending may yet necessitate more involvement, more investment and more legislation from Government, in the shape of the Bellwin scheme and other schemes, and more rather than less involvement and expenditure in the future.

I am sure that we are all aware—perhaps members of the EFRA Committee are more aware of this than others—that the water industry is undergoing a period of marked uncertainty as it continues to deal with a badly structured privatisation, regulatory uncertainty, an increased call for its involvement in social policy, global economic uncertainty, and what I think we can broadly agree is increased customer dissatisfaction. The industry is one of the most strategically sensitive in the UK and any significant policy changes, irrespective of the benefits, are likely to incur some cost to the taxpayer either directly or indirectly through contributions to the Exchequer, or directly through utility bills.

Let us be under no illusion that water management legislation is difficult. We all accept that and understand that effective water management legislation requires a thriving water industry. The water industry now faces three areas of challenge, which are perhaps best understood in three separate chunks: the consumer, the environment and impending regulatory change.

First, on the consumer, customers increasingly demand lower bills or more stable charges and, in addition, expect increased investments from utility companies in flood prevention and water management. The existence of water poverty is real and must be addressed through social tariffs or other means. Secondly, on the environment, effective water management cannot just be about consumers and shareholders. It must be about environmental protection, which, as we are all aware, is not cost-free. I urge the Government to respond in detail to the concerns raised by WWF, particularly those in relation to water abstraction. Thirdly, on regulation of the water industry, Ofwat, as colleagues have touched upon, faces major changes. The industry is a major tax contributor, a wealth creator and a significant employer, yet the consequences of the privatisation as it has been structured—which increase environmental responsibilities and the role of the industry in other social policy areas, such as flood defence, water poverty alleviation and other potential environmental remediation—are potentially massive.

The Committee Chairman is absolutely right to suggest that the industry is facing its biggest challenge for decades—there is no doubt about that. Let us make it clear that these drivers offer scope for major policy contradictions as, although they are discrete, each specific area impacts upon the other. So a credible policy must have the buy-in and involvement of the water industry at a very high level. There is a willingness from the industry to do that. Like all major industries, the water industry seeks as far as is practicable, a core political consensus from us in this room and from us in this Parliament, so that it can plan long-term investments with certainty. Additionally, the industry recognises and seemingly accepts the inescapable social and environmental obligations that are upon it.

Our task is to identify those areas of synergy that will bring together consumer benefit, social and environmental improvement, and economic stability. That should inform our policy approach and I hope it is writ large throughout the White Paper when it appears. There are many more matters raised by the report in need of discussion, but they cannot all be mentioned today. The issues have had a significant airing and have largely been brought to the Minister’s attention in a detailed way. I trust that he will answer the questions that have been raised not only by me but by colleagues. If not, I trust that he will give us some detailed written answers as soon as possible.