Water Industry

Charlie Elphicke Excerpts

Tuesday 5th November 2013 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

I beg to move,

That this House has considered reform and infrastructure of the water industry and consumers’ bills.

I move the motion also in the names of my hon. Friends the Members for South Swindon (Mr Buckland) and for Skipton and Ripon (Julian Smith). I thank the Backbench Business Committee for allowing time for this debate. The subject has been in the news recently, so the debate is timely, and it is positive that the House should have the chance to consider the issues in relation to the water industry and what reforms, if any, ought to be introduced.

[Julian Smith (Skipton and Ripon) (Con)]

Before my hon. Friend starts his main remarks I would like to pay tribute to him for his work in leading the debate since early this year and for securing this debate and, hopefully, some exciting announcements from the Government.

[Charlie Elphicke]

I thank my hon. Friend for his customary generosity.

I will turn to the pressures that hard-working families are facing as we come out of a very difficult economic time for our country. The fact is that most people do not particularly care about politics. They vote us in every few years and decide the Government of the day, but they do not consider politics on a daily basis; they consider how they are going to keep the wolf from the door. They consider how they are going to get through the day, provide for themselves, their families and loved ones, raise their children, manage to pay their bills and get a better paid job. The Government have been very effective in ensuring that there is more employment and a return to economic growth, from rescue to recovery and onward to greater economic strength for our country.

Part of keeping the wolf from the door is dealing with the utility bills that cost all our constituents so much money. That is why water reform matters. People do not really have a choice, because there is not much competition. It is a natural monopoly and people have to pay their water bills. There is an opportunity to foster more competition and ensure that the industry is more effectively regulated than it has been. For many years nothing was done to keep on top of the water industry, particularly before this Government were elected. Now we have an opportunity to make further changes and look more closely at what the issues are and what might be done.

Before the Government were elected, there was a settlement with Ofwat and the water industry that was to last for five years. The assumptions on which the settlement was made have since altered. Retail prices index inflation has risen more quickly than it was expected that construction inflation would rise, and interest rates have been lower than expected. The result has been excess profits for the industry. Ofwat figures highlight a return on regulated equity in excess of 20% in some cases. Investment was allowed to fall in real terms after 2007, while customer bills have risen by more than inflation. Dividend payments are often greater than the profits made, which some would say is particularly unattractive.

[Rehman Chishti (Gillingham and Rainham) (Con)]

I, too, pay tribute to my hon. Friend for the work he has done to bring the issue to light. In relation to bills and affordability, does he agree that it is completely and utterly unacceptable that bills have risen by 60% over the past 10 years, which clearly shows that the previous Government did absolutely nothing to help the consumer?

[Charlie Elphicke]

I thank my hon. Friend for that intervention. Certainly a better deal needs to be driven for the consumer than was driven by the previous Government. They also permitted a culture of industrial-scale tax avoidance, which was wrong.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I, too, congratulate my hon. Friend on all his fine work on the water industry. Would he care to comment on the fact that we have seen a 60% rise in water bills yet still face rather serious and sporadic water shortages? Is it not true that the public have really seen no return for their higher bills?

[Charlie Elphicke]

My hon. Friend makes a powerful point. Ensuring that we have investment in the infrastructure that the country needs is really important.

[Frank Dobson (Holborn and St Pancras) (Lab)]

In view of the hon. Gentleman’s commitment to the issue, I hope that he will confirm that the only time there have been reductions in water charges was under the previous Labour Government.

[Charlie Elphicke]

rose—

[Andrew Percy (Brigg and Goole) (Con)]

Then they went back up again.

[Charlie Elphicke]

Then they went back up again, as my hon. Friend remarks. Under the previous Government the water industry was allowed to become 100% mortgaged to make the tax avoidance work. There have been excessive pay rises in the boardroom at a time when hard-working families have not seen substantial pay rises. That has been very hard to justify and people look askance at that.

[Mr Charles Walker (Broxbourne) (Con)]

My hon. Friend wisely talks about infrastructure. One of my concerns regarding the east and south-east of England is that water companies have been extracting water to the detriment of our rivers and not building reservoirs. Indeed, the last major reservoir in the south-east—the Queen Mother—was built 40 years ago. In the meantime, millions more houses have been built, placing more pressure on a valuable resource that tends to come out of the aquifers in the ground.

[Charlie Elphicke]

My hon. Friend makes exactly the right point. In my constituency, in Dover and Deal in east Kent, we depend on the aquifers. There is water abstraction and water stress, and compulsory metering has been in place for some time. We need to look more closely at the national planning and national infrastructure planning aspect, which I am sure hon. Members will raise.

[Andrew Percy]

I congratulate my hon. Friend on securing this debate. We have heard a lot about people having problems with a shortage of water. In my constituency, which is very low-lying and where we rely on significant pumping capacity to keep us dry, the problem has been the other way round: we have had too much water. While our water companies have been making big profits, we have not been getting the investment in keeping us dry, let alone in ensuring we have enough drinking water.

[Charlie Elphicke]

That is true. In some parts of the country we have too much water and in some parts too little. I am sure that at some point someone will raise the need to move water from one place where there is too much of it to another place where there may be too little of it.

[Mr Walker]

We do not need to move water around from one place to another; we need to build more reservoirs such as the Abingdon reservoir, which was spade-ready and then the plug was pulled, if my hon. Friend will forgive the pun. We need to build more reservoirs, not waste money transporting water around the country.

[Charlie Elphicke]

My hon. Friend is a passionate advocate for more reservoirs. Reservoirs are not only important for water storage; they are important places for the angling community. Many hon. Members here are passionate anglers who enjoy fishing, and reservoirs provide an opportunity for that pursuit.

[Mr John Redwood (Wokingham) (Con)]

I am glad that my hon. Friend is going to talk about the need for competition to provide better quality and low prices, but why does he think that there is a natural monopoly? Surely anyone, under a suitably liberated regime, could build a reservoir or drill a borehole and provide water to the customer through a piped system.

[Charlie Elphicke]

My right hon. Friend makes an interesting point. The planning system obviously means that such things take time. It is certainly important to have more of a national planning framework, which has been discussed by some and is worth considering. The view of water professionals is that competition is important but, in terms of customer service, it does not necessarily reduce costs because the infrastructure represents about 90% of the cost base.

[Richard Benyon (Newbury) (Con)]

My hon. Friend will be aware that the Water Bill will make it easy for new entrants to do precisely what my right hon. Friend the Member for Wokingham (Mr Redwood) suggested, by giving them access to a market that is currently denied them so that they can provide these infrastructure assets.

[Charlie Elphicke]

Indeed. That will be an important reform.

Let me move on to the reforms that are worth considering. First, we must consider whether it is possible to tackle the excess profits and excess returns seen over the last period and return that money to hard-working families in the next period, and to drive a fair and equitable settlement whereby investors can get appropriate returns but customers can get a better deal.

[Rehman Chishti]

One of the key problems is that constituents at the bottom end of the income scale have over many years incurred a debt as a result of high water bills. Given the big profits made by these companies, surely they have a moral responsibility to help those people at the bottom end with the debts they have incurred.

[Charlie Elphicke]

My hon. Friend makes an important point, but I will leave it to my hon. Friend the Member for South Swindon, who has been studying those issues with considerable care and concern.

Secondly, there is the question of how we tackle tax avoidance. The unacceptable, even antisocial, tax avoidance culture in the water industry has meant that many companies have not paid tax for years. It is wrong that that situation has arisen. Everyone should pay their fair share. We need sustainable debt, not 100% mortgages. Under the previous settlement, these water companies have been allowed to become casinos. We have an opportunity to look carefully at that to see whether the position is safe, secure and sustainable for the future.

[Bill Esterson (Sefton Central) (Lab)]

I am glad that the hon. Gentleman has pointed out some of the problems in the industry and with the behaviour of the water companies. All of the companies working on an industrial estate in Formby in my constituency have been overcharged for years and the water company has been allowed to get away with not repaying them because of the way in which the regulations are set up. Does the hon. Gentleman agree that that is the type of unacceptable practice that needs to be tackled?

[Charlie Elphicke]

Clearly, the billing system needs to be fair.

The issue about debt is that water companies are often leveraged to 100% and then say that they cannot fund infrastructure improvements. Many colleagues have concerns about the Thames tideway tunnel and how that is financed. I am sure that will be explored in due course.

We also need more appropriate investment. If real investment falls, where is the justification to increase bills? We need to ensure that real investment does not fall, that we maintain the investment we need and that it is funded in an appropriate way.

[Steve Baker (Wycombe) (Con)]

I am grateful to my hon. Friend for mentioning the tideway tunnel, because my constituents in Wycombe want to avoid having to pay for it, particularly given that Wycombe faces its own problems with its sewerage systems. I hope my hon. Friend will explain how he sees choice and competition liberating people from having to pay for inadequate services.

[Charlie Elphicke]

My hon. Friend makes a powerful point. Time denies me the opportunity to go into the issue in great detail, but I know that my hon. Friend the Member for South Swindon has been looking at it with considerable concern, because his constituency, like that of my hon. Friend the Member for Wycombe (Steve Baker), is in the Thames sewerage area.

We need to look at how we can beef up Ofwat and give it greater powers in the Water Bill to say, “There’s been a favourable adjustment, so we can adjust and revisit the settlement on an ongoing basis.” If it had those powers, it would be able to have a stronger conversation with the water industry. That is worth considering. It would also be worth looking at allowing Ofwat to give guidance to the water industry on appropriate and responsible corporate governance.

[George Hollingbery (Meon Valley) (Con)]

I am grateful to my hon. Friend for giving way; he is being extremely generous with his time. Does not Ofwat potentially suffer from perverse incentives? We know that it does not matter how cheap water is; if there is none, we need infrastructure to be built. If Ofwat has a primary duty to ensure best value for customers—which, of course, it must—it is almost certain to find it very difficult over time to allow infrastructure development that will help our resilience. Is not that a problem we need to address?

[Charlie Elphicke]

Very much so. I and, I am sure, many other Members would argue that Ofwat should have a stronger role as a consumer champion, but that ought to be done within the framework of the national infrastructure we need. My hon. Friend makes a powerful point and I hope he will explore it further during this debate.

[Anne Marie Morris (Newton Abbot) (Con)]

Although, clearly, much more needs to be done in the industry to ensure a better balance of risk between the shareholders and the taxpayer, the Government have taken some steps to help in the south-west and we now have a significant £40 million pot from which individual local consumers get £50 each off their bills. Does my hon. Friend agree that the regulators at Ofwat and the Government need to ensure that that is delivered to all residents in the south-west? At present, those who receive benefit through intermediaries—park home owners, for example—do not get that benefit and it cannot be enforced. Does my hon. Friend agree that that needs fixing?

[Charlie Elphicke]

My hon. Friend makes a powerful point, which Ministers will no doubt take on board. This Government have been great in driving a better deal on water for people in the south-west, and they deserve credit for that.

On potential reforms under the Water Bill, we need to consider the extent to which Ofwat needs new powers and whether the Government should include appropriate provisions. Those are important questions.

The previous Labour Government mismanaged the economy and took Britain to the brink. It was not just the economy they mismanaged; they left a toxic legacy of mismanagement in our utility industries, making life difficult for hard-working families. I welcome the fact that the Government are looking at water reform and I wish them well.

--- Later in debate ---

[Frank Dobson]

My understanding is that the party’s policy—no doubt it will be enunciated in due course from the Front Bench—is that the current situation is unsatisfactory, and that we need a dramatic change in the powers and functions of the regulator. No Government Member would think there is anything wrong with that proposal.

Where is all that customers’ money going? In the case of Thames Water, it is being paid out to shareholders in Australia and China. Prior to that, it was paid out to shareholders in Germany. People talk about the wonders of the City of London as a financial centre, but I wonder why, in such a great financial centre, one or two of the people with all the money have not thought of getting together to own the water supply for their own city. Apparently, that has not occurred to them.

Thirty per cent. of the average water bill goes to profits. Even the energy industry uses only 9% of charges as profit, but the water industry uses 30%—30% of every penny and pound that people pay goes off in profits, which is, to say the least, a remarkable return on investment.

[Charlie Elphicke]

The percentage is not that high. Nevertheless, does the right hon. Gentleman agree that the previous Government allowed an inappropriate settlement that should not have been agreed?

--- Later in debate ---

[Mr Buckland]

I do not follow that argument; it does not apply in other sectors and I do not see why it needs to apply in this one. Disconnection would not assist consumers when making that switch because they may well be deterred by the fear of disconnection, so I do not accept that argument.

[Charlie Elphicke]

My hon. Friend is completely right to reject the outrageous suggestion made by the shadow Minister that there should be the power to disconnect householders. Does he recall whether the Labour party, when it was in government, had any form of social tariffs or anything like what it has been calling for today? Or is this something where the Labour party has woken up and jumped on the bandwagon?

[Mr Buckland]

I hope that this debate will continue in a spirit of looking to the long-term future of the industry, rather than descending into anything approaching point scoring. I do not think that is worthy of the hon. Member for Dunfermline and West Fife (Thomas Docherty) and I am sure that we will not see such a descent in his contribution, because this issue predates this Government.

As I was explaining, price rises started to increase significantly in the middle of the past decade. The average Thames Water household bill was £254 in 2005-06 and it has now risen to £354. One of my constituents sent me his own list of increases, where he recorded that in 2005-06 his bill increased by a whopping 21% and that since that time his bills have increased by 84%. So we can see why consumers and residents are asking, “Why us? Why do we have to bear the burden?”

I am pleased that Ofwat has issued a preliminary decision to disallow Thames Water’s request to raise prices by £29 for customers’ bills with effect from 2014-15. Thames Water said that it wished to spread that increase over several years but, as Ofwat has said, Thames Water has produced insufficient evidence to justify such a rise. It is unique this year in terms of the other water companies and the issue is compounded by the prospect of indefinite rises of up to £80 for my residents in order to pay for the £4.1 billion Thames tideway tunnel. I am in no way an opponent of bold and imaginative infrastructure schemes. They represent the best spirit of what inspired the Victorians to create the infrastructure on which, in many ways, we rely today. Buildings such as this place were the result of such boldness. It is right, however, that we should ask the legitimate question about whether dealing with the problems experienced through the discharge of sewage into the River Thames is worth that £4.1 billion.

I have no doubt that there are serious issues with pollution, but air pollution in London affects more people than the issue that the tunnel seeks to address. Other proposals, such as those for sustainable drainage, would be a more incremental way of dealing with the problem than inflicting this large hit on consumers.

--- Later in debate ---

[Gavin Shuker]

Intense flooding has major implications and climate change means that it will happen more regularly, but the hon. Gentleman seems to be saying that the previous Labour Government were in some way wrong to review the situation and flood defences. He was not the MP for his area at the time, but he knows that the flooding was devastating. If he wants proper action on ensuring that his constituents will be protected against the next bout of flooding, he should support our efforts to amend the Water Bill to make sure that there is a proper, workable Flood Re solution for flooding insurance. He mentions the Labour brief. I humbly point out to him that for the past few years I have been writing the brief.

[Charlie Elphicke]

Does the hon. Gentleman agree that the last Labour Government did nothing on social tariffs?

[Gavin Shuker]

No, that is not the case. The Flood and Water Management Act 2010 created the legislative framework for that measure.

I want to talk about some of the measures that have been trumpeted as the solution to bring about water affordability and to stop the rising tide of householders who are finding themselves in water poverty or unable to pay their water bills. The approach of the Water Bill is entirely the wrong way around. It is interesting to hear Government Members say that the only answer is greater competition. I accept that retail business competition could be a good way of reducing water usage. That has made a profound difference north of the border. That is why we have supported it continually. The idea came out of the Cave review.

However, at a time when many parts of the UK are much more water-scarce than other parts of the continent and even parts of Africa, it is short-sighted to think that that idea will work without considering abstraction reform as well. The Government have chosen to punt that issue into the 2020s—until 2025—for the next Government to look at. If we do not deal with scarcity in many parts of the country, there will be a major problem. Instead, the Government have looked for a number of measures that will shake up the industry and make them look pro-reform, but that will not necessarily tackle the issue of abstraction.

There is an idea that the only answer to the problem of some parts of the country being water-rich and others water-poor is to build pipelines. I remind the House that 2% of the country’s energy usage already goes on water. There is a major carbon cost to that idea. If people do not believe that that would end up on people’s bills, they are wrong.

--- Later in debate ---

[Charlie Elphicke]

This has been an excellent debate. In particular, we heard a very fine speech by my hon. Friend the Member for Newbury (Richard Benyon), who was an outstanding Water Minister and served with distinction. It was interesting that we had the old left-right battle, with the right hon. Member for Holborn and St Pancras (Frank Dobson) saying, “Up nationalisation”, while others, such as my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Newbury, championed what private investment can achieve.

Many Members, including the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) and my hon. Friend the Member for South Swindon (Mr Buckland), expressed concern about Thames Water, particularly its tideway tunnel. Yorkshire MPs, including my hon. Friends the Members for Brigg and Goole (Andrew Percy), for Skipton and Ripon (Julian Smith) and for Elmet and Rothwell (Alec Shelbrooke), noted that Yorkshire Water could do better, as its school report might say. I was fascinated by the speech of the hon. Member for Luton South (Gavin Shuker), who was until recently the shadow Minister; he spoke with great passion about social tariffs.

I thank Front Benchers on both sides of the House for foreshadowing the Water Bill debates; it was fascinating to watch a dry run. The shadow Minister, the hon. Member for Dunfermline and West Fife (Thomas Docherty), took the somewhat Maoist approach that 2010 was year zero, and the Minister explained the Government’s direction. I hope that the Government have listened to this debate and will consider the matter further.

Question put and agreed to.

Resolved,

That this House has considered reform and infrastructure of the water industry and consumers’ bills.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

On a point of order, Madam Deputy Speaker. In the past hour the BBC has been reporting more than 1,000 job losses in UK shipyards. If correct, that has major implications for families up and down the country and in particular for our sovereign capability and skills retention. Has the Secretary of State for Defence given any indication that he intends to give a statement to the House?