Water (Special Measures) Bill [ Lords ] (First sitting)

Charlie Maynard Excerpts

Committee stage
Thursday 9th January 2025 Public Bill Committees

[Tim Farron]

Happy new year to all colleagues. It is good to be in this place and it is a great pleasure to serve under your guidance as Chair, Mr Vickers. I put on the record my thanks to the Minister for her engagement, and to the Committee Clerks and the Minister’s team for being immensely constructive throughout this process.

My hon. Friend the Member for Witney will speak to amendment 22, and I will make remarks on amendment 18, which, with your permission, Mr Vickers, I will press to a vote if the Government are not minded to accept it. I will also voice my concerns about amendment 2 and I give notice that we will vote against it.

Among the challenges that we face is the complete and utterly justified lack of trust in the water sector—water companies in particular, but also the regulatory framework. Amendment 18 was tabled to ensure that some of the people appointed to the boards of water companies, whatever their structure otherwise, have a connection to the benefit and interests of the consumers within the region; will benefit the residents within the areas in which the undertaker—the water company—is operational; and are experts and campaigners on environmental and sewage policy matters.

I am sure that Members on both sides of the House have people in their communities equivalent to the ones I will briefly mention. People from groups such as the Clean River Kent campaign, the Eden Rivers Trust, the South Cumbria Rivers Trust and the Save Windermere campaign, in addition to citizen scientists and others who represent local interests and have great expertise, ought to be on the boards of the outfits that run our waterways in future, and that should be in the Bill.

The amendment would bring the expertise and accountability that we are seriously lacking, and it would build trust, which our water companies are also lacking. We think that the case for it is self-evident, because those bodies and others around the country self-evidently have the expertise, authority and tenacity to add huge value and to ensure that our water companies deliver for the communities they are meant to serve, not just their shareholders.

Government amendment 1 seeks to undo an amendment added by my hon. Friends in the other place. Our concern is that if the Government insist on it and we do not have a much tighter timescale, that will basically undermine the regulation and leave it open-ended so that we cannot be certain that we would be able to enforce the things that the Bill seeks to do in a timely fashion. To ensure that the Bill does what it is supposed to do, we should not cut the water companies any slack.

[Charlie Maynard (Witney) (LD)]

I rise to explain amendment 22. On 11 July, the Environment Secretary issued a press release on the reform of the water industry that stated:

“Water companies will place customers and the environment at the heart of their objectives. Companies have agreed to change their ‘Articles of Association’—the rules governing each company—to make the interests of customers and the environment a primary objective.”

However, that commitment is not currently in the Bill. The amendment simply seeks to bring that commitment into this legislation.

[Dr Neil Hudson (Epping Forest) (Con)]

It is a great privilege to serve under your chairmanship, Mr Vickers.

On behalf of His Majesty’s Opposition, I rise to challenge the Government on their plans in Government amendments 1 and 2. Before I go into the detail, I will make some general comments about the clause that are pertinent to the amendments.

The Opposition worry that the Bill, rather than taking original and new measures to tackle these issues, is purely an attempt to copy and paste the work done by our previous Conservative Government. In fact, many of the measures have already been copied from previous measures that we introduced in government.

[Dr Hudson]

With the greatest respect, I sat on the Environment, Food and Rural Affairs Committee in the previous Parliament, and we took evidence from the chief executive of Ofwat on some of the key measures that the Conservative Government brought forward. Our Government gave Ofwat teeth and powers, and we need to make sure it uses them.

As detailed in the explanatory notes, Ofwat already has wide powers to set the conditions of water company appointments and licences. The Conservatives worked hard to strengthen its ability and power to do that since this issue came to the fore in order to drive the regulatory change that was vitally needed to tackle the scale of the crisis that came to light.

I again remind Members on both sides of the House that when Labour left office in 2010, only 7% of storm overflows were monitored; when we Conservatives left office, 100% of outflows were monitored. We found the scale of the sewage problem and were the first party to start to address it. The Conservative Government’s Environment Act 2021 gave Ofwat the power to consider, when deliberating about dividends, the environmental performance of a company and its credit rating, whereby Ofwat could stop the paying of dividends if it felt that the firm faced financial risks as a result of its actions.

[Charlie Maynard]

The hon. Gentleman said that 100% of outflows are monitored, but I am afraid that is not correct. In fact, 100% of the 14,000 storm outflows are monitored—he did not mention storm—but 7,000 emergency overflows are not currently monitored. On the other aspect that he just mentioned, Ofwat was entirely devoid of looking at the balance sheets of the companies under the Conservatives’ watch. That is the root of all our trouble, and it would be beneficial to acknowledge that.

[Dr Hudson]

If the hon. Gentleman checks Hansard, he will see that in my speech on Second Reading and just now I said “storm overflows”. I gently remind the third-party spokesman that in the coalition Government the Liberal Democrats had a Water Minister who did absolutely nothing on this issue.

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[Jerome Mayhew (Broadland and Fakenham) (Con)]

I am pleased to see you in your place, Mr Vickers.

I am not going to speak to the Government amendments; I merely repeat the very good arguments put forward by my hon. Friend the Member for Epping Forest. At this stage, however, I will just express a couple of concerns that I have about amendment 18, tabled by the Liberal Democrats.

I understand the rationale or the intention behind amendment 18; we all want the water companies to pay closer attention to the interests of their consumers. I note in passing that they already have a statutory duty—a consumer-focused statutory duty—but the actions taken by the Conservative Government over the past 14 years to ask questions about the state of sewage discharges and to get information about them, so as to take effective action to bring them to an end, bring with them an additional need.

The hon. Member for Westmorland and Lonsdale highlighted a loss of trust in the water undertakers, and I agree with him on that. There has been a significant loss of trust as their poor behaviour, which was uncovered by the Conservative Administration, has been met with considerable outrage—justifiable outrage—by the Government and by members of the public.

However, I fear that there will be some significant unintended consequences associated with the drafting of amendment 18, relating to the legal obligations of a board member. The hon. Member for Westmorland and Lonsdale referred to those new positions being on the boards of companies. There are legal obligations that apply to all board members and I question whether the representatives of consumers and of the voluntary organisations that have been so active in this area over the past few years would really want to be exposed to the legal obligations of being a member of the board of a plc, because those obligations are significant and onerous.

[Charlie Maynard]

It is fairly standard on boards today to have directors and officers insurance; indeed, all board members have it. What is the problem with the new people also having D&O insurance?

[Jerome Mayhew]

I am grateful for that intervention. However, it seems an odd way to proceed if it is recognised that there is a risk to voluntary members who join boards, exposing them to personal obligations, such as a fiduciary duty of care. There is also a legal duty of loyalty to the organisation, which such volunteers might find quite difficult to stomach. There is a duty of obedience to the organisation as well. It seems odd at this drafting stage to say, “We recognise that there is a risk, but don’t worry: you can take out insurance and you’ll probably be okay.” It seems odd to introduce an amendment in an imperfect form, rather than perfecting it.

[Charlie Maynard]

First, it is up to each individual to sign up or not; they do so of their own free will. Secondly, this is standard insurance which almost all boards have in the UK and internationally nowadays, which protects board members. It would not be specifically for those board members; it would be for all board members. To say that that is a concern, and that we should not make this provision on those grounds, seems odd.

[Jerome Mayhew]

I have expressed my concerns. It would be perfectly possible to achieve the object, which I share, of improving the voice of the customer in water companies, or of improving the implementation of the existing obligation on water companies to take account of the consumer interest. I do not think that the current drafting is the best that we can do. I raise these concerns so that they may be properly considered.

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[Helena Dollimore]

I will make some progress, because I know that we need to make progress in the debate.

In conclusion, I thank the Minister for her work on bringing the Bill before the House so quickly. I know that this is just the start of the change that we need to deliver on our water companies. This Government are acting where the previous Conservative and coalition Governments failed, and are working to clean up our water system.

[Charlie Maynard]

I have a question for you, Mr Vickers. This is my first Bill Committee and I am trying to understand how everything works. There are six amendments to clause 1, and our task is to do line-by-line scrutiny. My ambition is to understand why the Government support or reject each of those amendments. At the moment, in our debate of clause 1, we are swimming quite happily between those amendments. I would love your advice, Mr Vickers, as to how we work to understand what the story is on each amendment in turn, because I am not clear on that.

[The Chair]

There will be an opportunity to force any amendment to a Division, if the hon. Member wishes. We are attempting line-by-line scrutiny—I think it is more like a debate on Second Reading, but that is by the way. Does that answer your question? The Minister will respond.

[Charlie Maynard]

Perhaps, since I am standing, I will make the other two points I want to make.

We have touched on Government amendment 2 already, but I think it is important. I was very pleased to see the wording coming in about bonuses. Proposed new section 35B(3) of the Water Industry Act 1991 says:

“Rules made for the purposes of imposing the prohibition mentioned in subsection (2)(a) (“the pay prohibition”)”.

That is the ban on bonuses. While the explanatory statement says that it is to prevent the need for a statutory instrument—which the Liberal Democrats support and seek to do in further amendments—the impact of the Government’s change is also to remove the requirement for the rules to be published by Ofwat within six months. That we find very odd.

I take it in good faith that the Government are keen to have the measures implemented, so we do not understand why they would take the timeline out. The Government want to ensure that it happens, but as currently stated, they are removing the timeline. Taking it on good faith that Ofwat will publish the rules is less strong than keeping in that commitment to six months.

I will correct the hon. Member for Epping Forest on our amendment 21. Our amendment relates to the same aspect of the Bill as Government amendment 2. However, we want to retain the need for Ofwat to publish the rules on bonuses within six months but remove the option for that to be kicked into the long grass by requiring the Secretary of State to lay a statutory instrument to bring them into effect. By taking out that provision, we remove that risk. That is the purpose.

[Andrew Pakes (Peterborough) (Lab)]

As a new Member, it is a privilege to serve on a Bill Committee under your chairmanship, Mr Vickers—I hope I will get all of it right. I felt particularly moved to speak on these amendments and clause 1, given some of the earlier comments. I was a bit worried that we had been transported by the Opposition back to a previous Conservative age, because we seem to be being told that water customers have never had it so good—as one of their predecessors said—because of all the action that was taken.

There has been a lot of talk about teeth. I ask the Minister to confirm that the Bill is about the dentistry that is needed to put more teeth into the water sector. When she responds, will she identify whether the clauses that the Government have tabled help to address some of the very real anger that my constituents feel about the way they have been ghosted and treated by the big water companies and the behaviour of some of the senior leadership? Representing a seat with Anglian Water, which I think applies to some other Members present, I place it on the record that there is real frustration at the performance and actions of such a large company when at the same time as more than 3,000 hours of sewage were being dumped into rivers around my area, the fens and John Clare county, we saw the Anglian Water chief executive receiving £1.3 million in a package of pay and bonuses, despite that poor performance. The anger and the desire and drive of this Government, but also the public, to see action is palpable, so I very much welcome the Bill and I seek clarity on that. It is absolutely right, as the Government have outlined, that we have a fast Bill to get these teeth and this emergency dental treatment delivered quickly, so that we can come back and put the braces on for the rest of the water sector—[Laughter.] I think I am running out of places where that analogy can go; it is getting very dangerous.

When we get the Cunliffe report and others, we will look at some of the bigger issues for the water sector, but I am very concerned by that £1.3 million. I serve as a member of the Environment, Food and Rural Affairs Committee and I share the concerns expressed by my hon. Friend the Member for Hastings and Rye that when we directly asked Ofwat whether it had the dental tools to challenge and put the surgery on to the water companies, Ofwat was very clear that it did not. I specifically asked the chief executive and leadership of Ofwat about another bête noire of the debate, which is Thames Water. Up until March 2024, in those three months, the chief executive gave themself a £195,000 bonus. Since 2020, we have seen £41 million given to water company chief executives in bonuses and incentives, so can the Minister reassure this Committee that the clauses that the Government have put forward will help to restore trust and put in place initial measures so that we can get on with this, end the delay, take action and start to put right the problems that the Government have inherited, and then look at the wider issues when we get the report later in the year?

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[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)]

It is a pleasure to serve under your chairmanship, Mr Vickers, and if I may I will start by wishing everyone a happy new year. I thank members of the Committee for the engagement with the Bill they have shown, and I also thank all the environmental groups, everyone who submitted evidence, and Members in the other place for the work they did on the Bill.

I am pleased to be back debating this vital piece of legislation. As I set out on Second Reading, the Bill will drive meaningful improvements in the performance and culture of the water industry as part of wider efforts to ensure that water companies deliver for both customers and the environment and, as has been mentioned in the debate so far, act on the real anger and mistrust we feel towards our water sector at the moment.

However, the Bill is one part of the Government’s ambitious and long-term approach to fundamentally transforming the water sector. As Members will be aware, in October 2024 the Government announced an independent commission, which will be the largest review of the water sector since privatisation. The commission has a broad scope and will consult experts in areas such as the environment, public health, engineering and economics, as well as customers and investors. It will look closely at financial resilience as one of its key areas—I know we all care about that.

I reassure members of the Committee on the timeline; the commission will report to the Government by quarter 2 of 2025. The UK Government and the Welsh Government will then respond and consult on proposals that they intend to take forward, and we expect those to form the basis of future legislation.

[Charlie Maynard]

Does that mean the beginning or the end of Q2?

[Emma Hardy]

We expect the commission to report to the Government in June. I reassure the hon. Member that when I respond at the end of every session, I will go through each and every amendment in turn.

I turn to Government amendments 1 and 2 to clause 1. The Government have carefully considered all non-Government amendments made in the other place and how they fit within the wider plans for reform of the water sector, including the amendments tabled by Lord Roborough and Lord Cromwell. I thank them, and indeed the other place, for their careful consideration of the Bill, particularly for the constructive way in which they worked with the Government during the Bill’s passage through the Lords. That collaborative approach enabled the Bill to be strengthened, for example, through the introduction of new requirements relating to the implementation of measures in pollution incident reduction plans. However, the Government have determined that the amendments from Lord Roborough and Lord Cromwell are not necessary and should be removed from the Bill.

Government amendment 1 concerns financial reporting. During the Bill’s passage through the other place, it was amended in such a way that required rules made by Ofwat under clause 1 to include reporting requirements on company finances. The Government strongly agree with the need to ensure water company finances are closely monitored, especially given the current financial issues experienced by some companies. However, having considered the Lords amendment in detail and having had further discussions with Lord Cromwell about the intent behind his amendment, we feel that it is duplicative of existing processes as well as conditions in water company licences.

Ofwat already has processes in place to monitor where a company may be heading towards financial difficulties. It is already a condition of water company licences that companies are required in their annual report to publish by a set date financial performance metrics, including interest on their borrowing, financial flows and analysis of their debt. Based on those reports, Ofwat sets out its observations on financial resilience across the sector in its “Monitoring financial resilience” report. Ofwat is also alive to the potential for financial engineering to occur outside of regulated companies and is thoroughly monitoring the financial position of all water companies. The Lords amendment would therefore duplicate existing requirements, with the potential to create confusion in what is already a complex regulatory landscape. This is important: we also retain concern about the potential for the Lords amendment to pre-empt forthcoming reforms following the independent commission led by Sir Jon Cunliffe. On that basis, the Government have tabled Government amendment 1 to remove Lord Cromwell’s amendment from the Bill.

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[Emma Hardy]

My hon. Friend is absolutely right. Information will be coming out shortly about how each and every Member across the House can contribute to that review.

Government amendment 2 seeks to remove the amendment that requires rules made by Ofwat under clause 1 to be brought into force by statutory instrument within six months of the Act’s coming into force. Alongside my amendment, I will also address amendment 21—I thank the hon. Member for Westmorland and Lonsdale for tabling it—which is largely in line with the intention behind mine.

Although the Government understand the need to ensure the rules relating to remuneration and governance are subject to efficient scrutiny, this additional process risks compromising Ofwat’s independence, which must be protected. The necessary secondary legislation would be prepared by the Government, and therefore would represent significant Government interference in the independent regulatory process. That kind of interference has the potential to have adverse effects on investor confidence. The consultation requirement in clause 1 already provides the Secretary of State and other interested parties with the opportunity to raise major concerns with the regulator on the content of the rules. We are confident that Ofwat will continue to work constructively with the Government and other stakeholders to determine a robust and appropriate set of rules.

[Charlie Maynard]

Will the Minister give way?

[Emma Hardy]

I will finish what I am saying. I might answer the hon. Gentleman’s question in my upcoming remarks—who knows?

The additional requirement for the rules to be confirmed for affirmative resolution statutory instruments could also risk delaying the introduction of the first set of rules. That is counter to the other aspects of Lord Roborough’s amendment, which requires Ofwat to publish the first set of rules within six months of Royal Assent. I reiterate that the Government expect Ofwat to have the rules in place as soon as possible. Indeed, Ofwat has already concluded its initial policy consultation on the rules, demonstrating its commitment to meeting the Government’s expectations. I highlight the fact that Ofwat today submitted to the Committee written evidence of its statutory consultation on the proposed timelines for introduction of the rules, demonstrating its commitment to getting this done as quickly as possible. I urge all hon. Members to have a look at that evidence.

However, we do not think it is appropriate to hold Ofwat to a six-month deadline. While we are confident that Ofwat can deliver the rules in that timeline, we are mindful that there may be unforeseen complications in finalising the rules. Not allowing adequate time to account for such unexpected complications risks undermining the effectiveness of the rules, opening potential loopholes. For that reason, the Government largely agree with the intent behind amendment 21, tabled by the hon. Member for Westmorland and Lonsdale. It is not appropriate to bring Ofwat’s rules into force via secondary legislation, which is why we have tabled an amendment to remove that from the Bill.

[Charlie Maynard]

I will just express disappointment. The Bill currently sets a deadline of six months, which is not exactly a moment in time; six months is a long time to get something done. I respect what the new Government are doing by trying to go after the bonuses and hold people to account, but to take a step back and say, “Actually, we are going to weaken the Bill”, which is what amendment 2 is doing—the Government are taking out the deadline—is retrograde and a real mistake.

[Emma Hardy]

I strongly disagree that this amendment weakens the Bill or is retrograde. Instead, it is doing things effectively. If we were to put a six-month deadline in the Bill and rush to get the rules done in that period of time and there were complications, we would risk leaving a loophole that could be exploited by companies that have exploited loopholes for an incredibly long time and become rather apt at doing so. With respect, I would rather do it properly.