Water Companies: Fines

Baroness Hayman of Ullock Excerpts

Thursday 6th February 2025 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, I am pleased to be able to respond to this Question on the fines paid by water companies. I thank the noble Baroness, Lady Grender, for raising this important matter and noble Lords for their interesting and valuable contributions and suggestions.

As we have heard in this debate, for too long water companies have discharged unacceptable levels of sewage into our rivers, lakes and seas, with 2023 seeing record levels of sewage discharges. We have been absolutely clear that we will not allow poor performance within the water companies to continue. This is why we are taking forward a substantial reform programme to deliver better results for the environment, customers and wider society.

I reassure the noble Baroness, Lady Grender, and others who have raised this that Defra is committed to the “polluter pays” principle. We have taken a number of actions already. In his first week in office, the Secretary of State secured an agreement from water companies and Ofwat to ring-fence money for vital infrastructure upgrades, so that it cannot be diverted to shareholder payouts and bonus payments. We are also placing water companies under special measures through the Water (Special Measures) Bill. I thank the noble Earl, Lord Russell, for his particular support in this debate for that work.

The right reverend Prelate the Bishop of Norwich mentioned the need for culture change, with which we absolutely agree. That is why the Bill is designed to drive meaningful improvement in the performance and culture of the water industry, as a first important step to enabling wider, transformative change right across the sector. I will not go into the detail of the Bill, as we have debated it so recently, and all noble Lords who have taken part are aware of what it includes. Collectively, its measures will provide the most significant increase in enforcement powers for the regulators in a decade. They will give them the teeth that they need to take tougher action against water companies in the next investment period as well as ensuring that they are able to recover costs for a much greater range of enforcement activities. I am afraid that I do not have the detail of those costs and fines at my fingertips.

On top of that Bill, last October, the Secretary of State, in conjunction with the Welsh Government, launched the independent commission on the water sector regulatory system, chaired by Sir Jon Cunliffe. Noble Lords also referred to that today. It is designed to be wide ranging and look at ways to fundamentally transform how our water system works and to clean up our rivers, lakes and seas for good. It is expected to be the largest review of the water industry since privatisation. It will look into many of the concerns that noble Lords have raised today, including those from the noble Earl, Lord Effingham, and my noble friend Lord Browne.

Last month, leading voices from the environment, public health and investment were announced as the new advisory group to the commission. We will publish a call for evidence in the next few weeks to bring in views from all parties on how we can reform. As the noble Baroness, Lady McIntosh, said, Sir Jon has also been meeting with interested groups. As noble Lords have said, we will get a report from the commission by the end of June, which will have recommendations that we can look at how best to take forward. I intend them to form the next piece of legislation that attracts further long-term investment and cleans up our waters for good.

Agriculture, road run-off, physical modifications and chemicals also significantly impact water quality and availability. These huge challenges will require a much broader approach to water management that goes beyond addressing a single issue. The independent commission is going to examine the strategic regulatory frameworks that underpin the water system, including the water framework directive and river basin management plans.

Importantly, the commission will also look at catchment-based approaches. I do not believe that we can resolve this without looking at these approaches to address the full range of demands on the water system and at how we can resolve things in an integrated and holistic way.

The public are, of course, rightly concerned to know where the money that they pay for their water bills is actually going. In December 2024, Ofwat published its final determinations for price review 2024, which sets company expenditure and customer bills for 2025-2030. This will deliver substantial, lasting improvements for customers and the environment, and will bring an approximately £104 billion upgrade for the water sector. This investment will mean clean rivers, seas and lakes across England and Wales. It will also create more jobs and provide more investment. This increased investment will fund the improvement of river water quality by improving more than 1,700 wastewater treatment works. It will also improve or protect more than 15,000 kilometres of rivers across England and Wales. Water companies will also invest £12 billion—a record amount—into improving more than 3,000 storm overflows across England and Wales. This will reduce bills by 45% compared with 2021 levels.

Beyond these measures, since 1 January, water companies are required to publish data relating to discharges from all storm overflows within one hour of discharge. This means that all storm overflows—of which there are more than 14,000 in England—are now monitored, with discharge data being published in near real time. Importantly, this will provide the crucial information that regulators need when they are making their investigations. It will also create an unprecedented level of transparency to enable regulators and the public to see where and how often overflows are discharging, and better enable water companies to be held to account. Combined with the measures in the Water (Special Measures) Bill to require monitoring of all emergency overflows, this will meet the Government’s commitment to ensure the monitoring of every sewage outlet.

Much of the debate was around the future of the water restoration fund. I will ensure that the department is aware of the strength of noble Lords’ feelings on this issue. The noble Baroness, Lady Grender, mentioned a number of specific projects. At this point, I need to declare an interest: my husband is a trustee of West Cumbria Rivers Trust, so I am very aware of local concerns in this area. Again, it enables me to represent noble Lords’ concerns to the department.

I reassure noble Lords that Defra is currently evaluating how water company fines and penalties can be reinvested in improvements to the water environment. We will announce a final decision on this in due course. It is important that the Government do not let companies get away with any illegal activity. Where breaches are found, the Environment Agency must not hesitate to hold companies to account. The regulators, the Environment Agency and Ofwat, have launched the largest ever criminal and civil investigation into water company sewage discharges at more than 2,200 treatment works. The EA has a dedicated team of more than 30 staff working on this. Where companies fail to meet their statutory or licence obligations, Ofwat has the power to take action through an enforcement order or financial penalties of up to 10% of the company’s annual turnover. The cost burden for water company fines is borne by their shareholders, not by charging customers.

I must keep an eye on the time but, before I conclude, there are a few questions I must answer. I thank my noble friend Lord Berkeley for his question but, as he said, I do not have the answer in front of me. I will need to write to him with the detail of the specific issue that he asked about.

The noble Earl, Lord Russell, asked about chalk streams. The Government are committed to restoring chalk streams. We are continuing to invest in priority local projects to restore them—for example, through the water environment improvement fund, the Government are funding more than 45 projects during this financial year to improve chalk streams. This is worth £2.5 million of government investment, and each has an injection of private investment.

We are also committed to ending the damaging abstraction of water from rivers and groundwater wherever possible. Through the Environment Agency’s restoring sustainable abstraction programme, which was launched in 2008, so far a total of 110 licences that would affect chalk streams have been revoked.

The noble Baroness, Lady McIntosh, asked about Schedule 3. This Government are strongly committed to requiring standardised sustainable drainage systems in any new developments. I apologise to her, but I am unable to say more at this stage, other than that a final decision on whether to progress implementation of Schedule 3 at this time will be made in the coming months. I am afraid that I cannot offer any more specific information on that at the moment.

I thank the noble Baroness, Lady Grender, once again for securing this debate. The speakers were not hugely numerous, but the passion was there—it is very important to note that. It is very clear from the regular number of questions and debates that we have in this House—and, no doubt, in the other place as well—that the concerns about the water industry, and the pollution from it, must be government priorities. I assure noble Lords that the Government are absolutely and fully committed to fixing the broken water system that they inherited. I reaffirm the Government’s commitment to ensuring that the damage caused by sewage pollution is repaired.