Water (Special Measures) Bill [HL]

Baroness Pinnock Excerpts

2nd reading
Wednesday 9th October 2024 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, as many have said, this Bill makes the first tentative steps in the right direction toward reforming the water industry, and it was good to hear the Minister recognise that this is just a start. There are many challenges facing the water industry such as the impact of climate change, which is expected to result in serious water shortages in some parts of the country; the requirement to meet the needs of a growing population, and the consequences for our environment. One of the strategic questions facing the industry and the Government is whether those challenges are better met by requiring the 11 water and wastewater companies, along with the further five water-only companies, to work more closely together in the interests of all of us as customers.

So far in this debate there has been a danger of treating water companies as if they are all behaving in the same way—something we ought to resist. Some companies are efficient and effective both in their operations and in their wider concern for the environment, but some are far from fulfilling the needs of their customers, let alone the needs of the environment. The thrust of this Bill is to force significant improvement of those companies in the latter category. I support what the Government are attempting to do; I am not saying that it is perfect, but it is in the right direction.

Privatised water companies provide an essential public service, which means that there is a delicate balance of responsibilities for each of them to achieve. On the one hand are the shareholders and investors wanting a return, rightly, on their investment, and on the other are customers wanting affordable bills and the environment to be protected and enhanced. It is this balance that, in some cases, has got considerably out of control. As many noble Lords have remarked, the righteous national outrage at the flagrant breaches of the use of storm overflows is just one indicator of an industry that has lost sight of its fundamental purpose.

The rot for some, but not all, companies started with the financial models adopted in the years following privatisation, where owners were able to extract value from the assets but leave the water company with a significant debt ratio—the total debt of the water companies currently exceeds £68 billion. Latterly, Ofwat has recognised that water companies have been too debt-laden and has forced a reduction of the debt ratio at each price review. However, that has been at the margins and has left companies—notably Thames Water—forced to concentrate their business on paying debt interest, perhaps paying down debt, at the expense of the basic public service of the company. This fundamental failure of governance and regulation has resulted in the various unacceptable behaviours that many noble Lords have cited. Clause 1 seeks to address some of those issues.

At this point, I declare that I was a non-executive member of Yorkshire Water for 10 years, fulfilling the role which the Bill identifies as being a voice for communities and customers. That this is a role which all boards should include is welcome, although I accept the argument made by the noble Lord, Lord Remnant, that it is not one we should define as is indicated in the Bill—that will not work.

Aside from the financial models, the problem is Ofwat. As the prime regulator—though not the only regulator—it needs to be abolished and replaced with a body that has more powers. Some of those powers are set out in the Bill, but fundamentally there needs to be a different regulator. As was previously said, we have a revolving-door syndrome whereby executives of water companies become executives of Ofwat, and sometimes back again. That is a malaise that has to be stopped; it reinforces bad behaviours and no new thinking comes into the sector. Perhaps as a result, Ofwat has failed to regulate the sometimes overly high profits to shareholders and bonuses to executives. Furthermore, as other noble Lords have mentioned, Ofwat has no powers to force water companies to improve environmental water quality, which includes preventing storm overflows being used as a cost-saving measure.

One of the inherent challenges in reforming wastewater treatment is that the public sewer system also takes the flows of surface water from the road network—something that the noble Baroness, Lady Browning, spoke about. The Government in their drive for more housing need to ensure that sustainable urban drainage is a part of any new housing development, and that, if need be, surface water attenuation tanks or ponds are part of preventing water surge into the public sewer system.

Finally, I urge the Government to consider ownership as well as financial models of water companies in developing a better approach to this essential public service. As part of that thinking, I urge them to develop the concept of a national water grid. It is surprising that areas where there is perhaps too much water are not used to push water down the systems of various companies to help those who are increasingly going to be short of water.

The system, as it is, is not doing its best; some say it is failing the customers and failing the environment. Some companies, in the drive for profits and investment, have lost sight of their sole purpose, which is to provide an absolutely essential public service. This Bill makes small steps in the right direction, but fundamental changes in approach are still needed, and I look forward to the Minister solving all those problems.