Water Companies: Regulation and Financial Stability

Danny Chambers Excerpts

Wednesday 23rd October 2024 Westminster Hall

[Jess Brown-Fuller (Chichester) (LD)]

It is a pleasure to serve under your chairmanship, Mr Pritchard.

I thank my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) for securing today’s timely debate, on a day when the Secretary of State has made a statement in the House to announce an independent water commission. As I said during his statement earlier, the promise to fundamentally transform our water industry and clean up our waterways for good is welcomed and celebrated across the House. Our lakes and rivers are national treasures, yet water company executives have been degrading these resources to protect their own profits and shareholders, even while the companies themselves are drowning in debt.

The water system in England is at breaking point and water companies are not being held accountable for one of the worst environmental crises in the UK—the dumping of sewage into our rivers and lakes, and along our coastline. My hon. Friend said in his opening remarks that Ofwat has fined four or five water companies billions of pounds, but currently it has not collected a penny.

The damage done by these water companies is nowhere more apparent than in Chichester harbour, which is a site of special scientific interest and a national landscape but it is in unfavourable and declining condition, and desperately needs ambition to protect it.

The British public pay those companies not only to provide us with clean water but to ensure that there are safe and clean processes for waste water and sewage, while protecting our environment. Storm overflows are supposed to be exceptional, not the norm. During my election campaign, on the doorsteps I saw a real passion among constituents for addressing the problem of water pollution and sewage dumping. It has been a pleasure to meet passionate environmental campaigners across the constituency, such as Friends of the Ems and the group carrying out citizen science on the River Lavant. The Ems and the Lavant are both precious chalk streams. The UK is lagging far behind other European countries in water quality and the safety of our waterways, and our polluted rivers and lakes are becoming an anomaly.

At the time of privatisation, water companies were debt-free. However, over the past 35 years, as inflation and interest rates have risen, the debt burden on UK water companies, including Southern Water which serves my constituency, has grown significantly, in particular because much of that debt is linked to the retail price index. Borrowings across the sector now total about £68 billion and yet, during the same period, water companies have paid at least £78 billion in dividends to shareholders.

Earlier this month, an investor presentation posted on Southern Water’s website revealed that the company is seeking to borrow up to £4 billion from investors to offset £3.8 billion in debt over the next five years. In addition, the company has proposed a staggering 73% increase in household bills over the same period. To mitigate its debt, Southern Water is planning large-scale investment in the Havant Thicket reservoir, which would introduce recycled waste water into a spring-fed drinking water supply through a process called reverse osmosis. The process has never been used for drinking water in the UK before, and is typically found in severely water-stressed landlocked countries. Although the south-east has been designated officially as water-stressed, and we need to see reform to reduce abstraction on rivers such as the Ems, smaller and more environmentally sustainable solutions are available, but they are not being explored, because they cannot be offset against the company’s debt.

[Dr Danny Chambers (Winchester) (LD)]

On the water-stress levels in Southern Water—our constituencies share the same water provider—it is worth acknowledging that a fifth of water is lost to leaks. We have just heard that Southern Water is in discussions with a company in Norway potentially to provide water to be tanked over here from Norwegian fjords to deal with future droughts and water shortages. Over a long period, that is an absolute failure to plan, to invest in infrastructure and to provide reservoirs such as the one we are speaking about. It is clearly a failure of regulation as well.

[Jess Brown-Fuller]

I absolutely agree with my hon. Friend that we should invest in fixing our existing infrastructure, rather than shipping over large quantities of water, which I am sure is not financially stable.

A company outside the water industry operating in that manner would not be able to get away with it, so why can Southern Water and other water companies? The development of the Havant Thicket would affect not only my constituency, but 18 constituencies across the south of England. Furthermore, it will create a national blueprint for all water companies. The project will cost a staggering £1.2 billion, without any comparable investment in waste-water management, which is sorely needed.

To be clear, I am not opposed to new reservoirs. Portsmouth Water is bringing forward the first reservoir that this country has delivered in 30 years. While public confidence in water companies and the methodology of investment is at an all-time low, however, it is hard to have faith that that company will deliver the project without an impact on residents’ water bills in future. Southern Water’s plan to invest in a huge experimental project as a way to offset its debt is not a sustainable financial model.

Few scandals illustrate the failure of the previous Government as clearly as the state of our rivers and seas. With 3.6 million hours of sewage dumping recorded last year, the system is rigged. It is time to transform this irresponsible industry into an accountable service that truly delivers for the public and the environment.

[Dr Danny Chambers (Winchester) (LD)]

We have talked about how disgusting, and what a public health issue it is to have sewage and other pollution pouring into our rivers, but I want to touch on the ecological damage. In Winchester, a chalk stream, the River Itchen, goes right through the heart of the city. Chalk streams are very rare, with fewer than 210 of them in the entire world, and 85% of them are in southern England. Many of them are designated sites of special scientific interest because their ecosystems and biodiversity are unique. I found out recently that the type of Atlantic salmon found in southern chalk streams are genetically distinct from Atlantic salmon in the rest of the world. Chalk streams have taken millions of years to form, and they can be destroyed in just a few decades by companies that are either breaking the law or working within the law but, because there is such a lack of regulation, causing great environmental damage. That is bad for public health, consumers, prices and the environment.

In my constituency, it is frustratingly clear that Southern Water, which is 82% owned by an Australian investment firm, has been prioritising profit over pollution prevention. It is that simple.

[Jeremy Corbyn]

Is the hon. Gentleman aware that the problem is exacerbated by over-abstraction upstream, particularly in chalk streams, which to survive environmentally need water flowing through them throughout the year? Many chalk streams are completely dry for some summer months, and that destroys all fish and all ecological sustainability.

[Dr Chambers]

The right hon. Gentleman makes a very important point: it is not simply pollution, but the over-extraction of those environments that is horrendously damaging to chalk streams.

The Liberal Democrats have long been calling for reform to water companies so that they have environmental experts on their boards to ensure they meet their minimum environmental standards before they are allowed to make profits. Putting social and environmental good at the heart of what they do is absolutely necessary to ensure that we are not still talking about how we are struggling with pollution, leaks and a lack of investment in 30 years’ time.

Thank you for calling me to speak in this debate, Mr Pritchard. Protecting our natural environment is one of the top priorities for probably all our constituents.