Water Industry: Financial Resilience

Baroness Bakewell of Hardington Mandeville Excerpts

Tuesday 4th July 2023 Lords Chamber

[The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)]

I thank the noble Baroness for her questions. First, this will not impact on customers. Their bills are regulated by agreement with the regulator, Ofwat, and we do not expect any reduction in service—that is also strictly monitored. We think that investment by water companies into our water sector infrastructure is important, which is why we have agreed that there will be the largest-ever investment—£56 billion—to see our infrastructure further improve.

Since privatisation, £190 billion of capital investment has been made. In real terms, that is twice what was happening at the same rate prior to privatisation. We have also seen improvements in the provision of water for customers, and we want to see that continue. We look very carefully at, and work with, Ofwat and the water sector on concerns about leverage—I share the noble Baroness’s concern about some of the companies’ degree of leverage. It is interesting that the level dropped last year from 72%, where it was in 2021, to 68%, which was roughly the same as it was in 2005, having risen from 37% when the previous Government were in position. However, Thames Water in particular has a much higher leverage rate, which has rightly caused concern for the Government and the regulator. That is why we are working with it to make sure that it is viable. We believe that with £4.4 billion of liquidity in its business, it can trade through this.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, Thames Water is not the only company causing concern: Southern Water, Yorkshire Water and South West Water were mentioned in the other place. Last year, £1.4 billion was paid out in dividends. Meanwhile, sewage poured into waterways, flooding affected many areas, and others had their water delivered in bottles. Ofwat cannot solve these problems. Surely it is time for the Government to take back control and sort out this essential service.

[Lord Benyon (Con)]

We think that the model that operates at the moment is the right one. We have seen more investment, but if the Government took back control, that would, in effect, put the onus back on the taxpayer. That would mean that I or the Secretary of State would have to get in the queue behind the health service, pensions, and all other areas of government spending to get the right levels of capital investment we need in the water industry.

We think that the £56 billion can be afforded at a relatively modest increase of around £12 per household. For roughly £1.20 a day, households receive the water they need and sewage and dirty water are removed from their homes, and there has been a massive increase in spending on the infrastructure we need, some of which is still in need of changes. Through this model, we have delivered a better outcome for the consumer and for the taxpayer. We have concerns, and I share the noble Baroness’s concerns, certainly about the issues relating to Thames Water and one or two other companies. Ofwat has been proactive in trying to resolve the concerns with those companies, and we are watching the situation very closely.