Water (Special Measures) Bill [HL]

Baroness McIntosh of Pickering Excerpts

Consideration of Commons amendments
Wednesday 5th February 2025 Lords Chamber

[Lord Remnant (Con)]

I declare my interest, having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years between 2014 and 2022, chairing the board’s remuneration committee during that time.

I support Motion 2A in the name of my noble friend Lord Blencathra and will address the reasons given by the Minister in the other place, and essentially repeated just now by the Minister, for objecting to the clauses this Motion this seeks to reinsert. Those reasons are that the additional process of requiring an SI risks compromising Ofwat’s independence, that it would represent significant government interference in the independent regulatory process, and that that kind of interference could have adverse effects on investor confidence.

These arguments have little merit. Ofwat is a government department, and the Secretary of State is responsible for appointing, and has the power to remove, the chair and members of the board. In no way is Ofwat independent of government; nor can the Government escape association with and responsibility for the rules generated by Ofwat, and their consequences. Ofwat is directly accountable to Parliament. If that is so, why should it not account to us for these rules when drafted?

In any event, independence is a red herring when considering the impact on investor confidence. Investors will focus on the rules themselves and their effect on the ability to attract and retain management, and so on the investability of the water sector. In this, they have legitimate cause for concern. The Government are choosing to abrogate their responsibility in this area to Ofwat—an economic regulator, the core competence of which is certainly not the setting of rules on remuneration, and for which it is unsuited.

There are already signs that Ofwat’s approach will be unduly punitive, particularly regarding its retrospective application. However, I thank the Minister for her letter to me at the end of last November following Report, when she confirmed that Ofwat would look closely at the impact retrospectivity has on long-term incentive plans, but the intent was for the provision to cover performance for the 2024-25 financial year onwards only.

None the less, taken as a whole, these rules may discourage the best people from working in the industry, restricting water companies in rewarding good performance and, which is just as important, penalising poor performance. They are likely to force companies away from bonuses and long-term incentive schemes linked to performance, towards a compensating increase in fixed pay. Thames Water has already indicated that this is the line it is likely to take, and others will surely follow. Is this really the result we want to achieve? At the very least, Parliament should have the opportunity to consider the proposed rules and assess for itself the potentially damaging impact on future investment in the sector.

The scale of investment required to clean up our waterways and rebuild our broken water infrastructure is unprecedented. Institutions have a choice of where they invest. In such a heavily regulated sector, they will make a critical assessment of the quality of management tasked with the delivery of the financial plans underpinning that essential capital programme. If Ofwat gets it wrong, it risks starving the water sector of the investment it desperately requires and which all noble Lords wish to see. At best, it will increase the returns investors demand, with the cost inevitably passed on to consumers.

Given the stakes, it must surely be right that Parliament has the opportunity to scrutinise and approve the relevant rules before they come into effect, so I am very much in favour of Motion 2A, tabled by my noble friend Lord Blencathra. I have listened closely to what the Minister has said this evening, but the opportunity for noble Lords to ask questions in a drop-in session is a poor substitute for further parliamentary scrutiny.

[Baroness McIntosh of Pickering (Con)]

My Lords, I congratulate the noble Lord, Lord Cromwell, on his work. I will briefly lend my support to my noble friend Lord Blencathra and put a question to the Minister in regard to the letter that she sent to us on 31 January, where she says that she wishes

“to give parliamentarians the opportunity to engage with Ofwat”,

but she prefers “alternative, non-legislative means”. It is more appropriate to put this in the Bill, as in our original amendment. I urge the Minister to respond favourably, in that regard, to Motion 2A.

--- Later in debate ---

[Baroness Hayman of Ullock (Lab)]

My Lords, I will speak also to Commons Amendments 4 to 9.

I will begin by speaking to Commons Amendments 5 to 7, which amend the commencement provisions for Clause 1. These amendments will see Ofwat’s duty to set rules on remuneration and governance brought into force on Royal Assent, rather than through the use of commencement regulations. This emphasises the Government’s expectation that Ofwat’s rules should be in place as soon as possible following Royal Assent, as well as providing greater certainty to Ofwat and water companies as to when Ofwat’s duty will come into force.

I know that many noble Lords—in particular the noble Lord, Lord Roborough—previously spoke to the importance of ensuring that Ofwat’s rules on remuneration and governance will be set promptly after Royal Assent. I hope that these amendments provide further reassurance that the Government expect these rules to be brought forward at pace, and I hope that the House is supportive of them.

Commons Amendment 3 is another minor and technical amendment, this time to Clause 10. It ensures that the Environment Agency and Natural Resources Wales’s cost recovery powers are broad enough to enable the recovery of costs associated with the enforcement of the requirement on water companies to produce implementation reports.

Noble Lords will recall that this requirement was added to Clause 2 on Report following calls from across this House to strengthen requirements around the implementation of measures set out in water company pollution incident reduction plans. However, an expansion in the regulators’ cost recovery powers—as set out in Clause 10—was not enabled at the same stage, which left a potential funding gap. Commons Amendment 3 addresses the gap, ensuring that the Environment Agency and Natural Resources Wales can recover all costs associated with the enforcement of the new requirements introduced by Clause 2.

Commons Amendment 3 also clarifies that cost recovery powers concerning pollution incident reduction plans and the implementation reports are available for plans covering areas that are wholly or mainly in Wales, as well as plans covering England. I again hope that noble Lords will feel able to support this amendment, which will help to ensure the regulators can carry out their enforcement duties and functions effectively.

I will speak now to Commons Amendment 4, which introduces a new clause to the Bill, and Commons Amendment 8, which is consequential to Commons Amendment 4. During the Bill’s passage through this House, many noble Lords voiced concerns about vulnerable customers and their ability to absorb forthcoming increases in their water bills. I thank all noble Lords who shared their views on this critical matter, particularly the noble Baroness, Lady Bakewell, who worked with her team to ensure that the discussion continued in the other place.

I reassure the House that the Government absolutely recognise and share these concerns. That is why the Government introduced Commons Amendments 4 and 8, which add to existing powers for water companies to provide for special charging arrangements for customers in need. This will enable water companies to provide consistent support for water consumers right across the country, replacing the current postcode lottery of existing support schemes, which vary from company to company.

The new clause will allow for the possible automatic enrolment of vulnerable customers on to future schemes, enabling them to get the full support to which they are entitled without having to proactively apply. This will be enabled through improved information sharing between public authorities and water companies.

The details of any scheme brought forward will be established through consultation, as required by the new clause and secondary legislation. In the meantime, existing schemes will continue to operate to ensure that vulnerable customers across the country are supported. Separately, we remain firm on our expectation that water companies will hold themselves to account for their public commitment to end water poverty by 2030 and will work with the sector to ensure appropriate measures are taken to deliver this. I hope that noble Lords will welcome this addition to the Bill and will support the Government in ensuring that the necessary powers are in place to enable support to be brought forward through secondary legislation.

Finally, briefly, Commons Amendment 9 was tabled simply to remove the privilege amendment made in my name in this place. Tabling such an amendment is standard practice; I therefore believe no noble Lord will oppose the Government doing so.

I again thank all noble Lords for the time and attention that they have given to the Bill. I beg to move.

[Baroness McIntosh of Pickering (Con)]

My Lords, I shall speak briefly to Amendment 4 and the consequential Amendment 8. I support the Government in this regard. I put a question or two to the Minister on the correlation between energy poverty and water poverty. Is this something that her Government will look at closely? The Minister wrote to me with the level of bad debt, which is a staggering figure: between 2019 and 2024, it cost the water sector £2.2 billion. Will this be addressed by the amendments that she has brought before the House? That would be very welcome indeed. Obviously there are those who can pay but will not pay, but there are those vulnerable customers to which she referred, and I welcome the fact that continuity of support will be secured by these amendments. Although I lend my support, I would be grateful if the Minister could address those two brief points.