Water (Special Measures) Bill [HL]

Duke of Wellington Excerpts

Report stage
Wednesday 20th November 2024 Lords Chamber

Moved by

[The Duke of Wellington]

1: Clause 1, page 2, line 2, after “consumers” insert “and representatives from environmental groups”
Member’s explanatory statement
This amendment, in conjunction with another amendment in the Duke of Wellington’s name to clause 1, seeks to ensure that undertakers take into consideration the views of environmental groups alongside the views of consumers.

[The Duke of Wellington (CB)]

My Lords, I am honoured to be the first person to speak at the Report stage of this very good Bill. As I have said, I realise that this is not Second Reading, but I repeat my support for the Bill. I have already indicated to the Minister that I wish only to try to improve it in certain small respects.

In this group I have four amendments—Amendments 1, 5, and 6—and I have added my name to Amendment 7. I have tabled Amendment 1 because the history of the last 35 years shows that the environmental voice in decision-making has been insufficient. One has to admit that considerable damage has been done, at least to the aquatic environment, in the 35 years since the water companies were privatised. Mrs Thatcher, Prime Minister at the time, believed that privatising the water companies would in fact help the environment because there would be more investment from the private sector than if they had remained in public ownership. But I have to say that in that respect, she was wrong.

It was difficult at the time to imagine quite how the water companies would structure themselves financially in order to take out of the industry much in way of high interest payments and dividends. All I seek to do in Amendment 1 is to balance the consumer voice with a stronger environmental voice. I am grateful to the Minister for the several meetings I have had with her on this matter. I think that Ministers are broadly sympathetic to what I am trying to achieve in this amendment, but as is so often the case with Ministers, they prefer their own wording to any amendment that is proposed. I would like, however, to continue this theme because it is important. Amendments 1 and 5 in effect go together. We should ensure that the environmental voice is stronger in all future decision-making.

It is worth reminding the House what the Bill says. It requires relevant undertakers—the water companies—to

“have arrangements in place for involving consumers in decisions”.

Fine, although I think it should be consumers “and environmentalists”. On the same page, at line 41, the Bill refers to

“a requirement for persons representing the views of consumers”—

I have added “and environmentalists”—

“to be members of a board, committee or a panel”,

or whatever the body may be. That is basically my point, and I hope that Members will consider it very carefully and agree that it is important to increase that voice.

Amendment 6, which is mine, and Amendment 7, in the name of the noble Lord, Lord Remnant, to which I have added my name, make a completely different point. I have served on a number of boards where sectional interests have been represented, and in my experience, it almost always leads to difficulties in decision-making and therefore reduces the effectiveness of the board.

I am very much in favour of a sectional interest, such as consumers or environmentalists, being strongly represented in a panel or similar body. In Committee, I tabled an amendment suggesting that it should also be a requirement that the chief executive of the company in question be required to meet regularly with such panels. That would be a very much better way for consumer and environmental interests to be heard strongly, and they would be more likely to have influence over the recommendations of the chief executive to the board.

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[Baroness Hayman of Ullock (Lab)]

Just to reiterate, Ofwat will look closely at the impact this will have on long-term incentive plans. I cannot give the noble Lord any firm detail on the specific question he asks, because Ofwat is currently looking at this. Perhaps this is something we could pick up so that I can understand his specific concerns in more detail, and we can feed those into Ofwat’s current discussions. At the moment I cannot give him any more firm information than I have already given. If the noble Lord wants to continue this discussion so that I can feed it back to Ofwat, I shall be happy to do so. I do not know what else I can offer at the moment, because I cannot give the noble Lord a firm answer.

I am going over time, but I shall look quickly at what else I need to say. Amendment 11, in the name of the noble Lord, Lord Roborough, would ensure that Ofwat’s rules on remuneration and governance came into force within six months of Royal Assent. Ofwat will be responsible for developing and implementing those rules but, as the Secretary of State will already be consulted through the process, we do not believe there is a need for a statutory instrument to be laid to bring the rules into effect.

We think that allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended where it is appropriate to do so in the future. I hope that that reassures the noble Lord. Ofwat does intend to implement the first set of rules following its statutory consultation, so this is not something that is going to drag on. We are keen for the rules to be in place as soon as possible after Royal Assent.

Amendment 57, in the name of my noble friend Lord Sikka, is about involvement in Ofwat’s board. We believe that it is the responsibility of Ofwat to determine who is on its board and who has voting rights for board meetings. There are already a number of ways in which consumers can feed into Ofwat’s regulatory work.

Finally, Amendment 58, in the name of the noble Lord, Lord Roborough, is about water company borrowing. At sensible levels, debt can be an appropriate way to fund investment for essential infrastructure in the longer term. Ofwat is already taking steps to monitor debt levels as part of its report on financial resilience. Companies will need to access additional debt and equity to support the price review 2024 investment programme. I do, however, agree with the noble Lord that more can be done to ensure that debt levels are more closely monitored in future, and I would like to reassure him that, as he expected, that the independent commission will look at this.

Following our meeting, I also know that the noble Lord understands that this is a critical point in time for the water industry and its investors, and we have previously discussed the importance of ensuring that we do not jeopardise water companies’ ability to secure investment before Ofwat’s final determinations are made at the end of this year. Today, Barclays reported in the Times on the deterioration in investor sentiment following the publication of the draft determinations.

I therefore trust that the noble Lord, Lord Roborough, is reassured that the Government take this issue very seriously, and that he and other noble Lords understand that introducing further rules on borrowing through this Bill is not appropriate for the water industry at this time. That is what I want to stress—“at this time”.

I have run out of time, but I thank noble Lords. This has been a long group and a lot has been discussed. I hope that they will feel able not to press their amendments.

[The Duke of Wellington (CB)]

My Lords, I am still certain in my own mind that the environmental voice needs to be louder in decision-making in this industry in future. I was considerably reassured by the Minister explaining how environmental considerations are central to so much of the current structure; however, one has to admit that, in practice, that has not been very evident.

I must admit that I became a bit concerned when the Minister was commenting on Amendments 6 and 7 and board representation. She emphasised more than once the importance of the consumer voice on boards, panels and committees, and she never mentioned the environmental voice. I must say that I then slightly worried about the reassurances I had previously received from her. However, one has to be pragmatic about these things. I think that my amendment is important, and I am grateful to the Liberal Democrats for apparently being prepared to support it. I noticed that the Conservatives, the Official Opposition, did not comment on it and therefore, with great regret, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

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[Baroness Jones of Moulsecoomb]

In that case, the noble Lord’s amendment is not radical enough for me, but I hope it passes anyway.

[The Duke of Wellington (CB)]

I speak to Amendment 41 in my name. It makes a simple point that I hope will find sympathy with the Minister and other Members.

I well remember, as other Members may, that during the passage of the Environment Act three years ago, there was a major spill by Thames Water somewhere in the London area. The excuse given at the time was a power failure. I remember thinking that that really was not a very good excuse. Those in charge of any infrastructure installation surely should have sufficient emergency generator capacity in place and maintained so that, should there be a power failure for an essential activity, it can be covered for a while. Clearly, if the power failure lasts for a day or two, the generator capacity will probably not have sufficient fuel to run that long—I understand that. Nevertheless, it seems too easy a let-out for a sewerage undertaker to be able to excuse an emergency discharge of any sort simply on account of a power failure.

I have therefore put down this amendment and hope that the Minister can assure me that water companies are required to have sufficient generator capacity in place and to keep it maintained so that they cannot simply say that there was a power failure and the generator did not work. That is just not good enough. I hope to get reassurance from the Minister about this; it is an important point, because otherwise we are giving too easy a let-out to the water companies.

--- Later in debate ---

Moved by

[The Duke of Wellington]

45: Clause 6, page 10, line 9, after “if” insert “the Authority,”
Member's explanatory statement
This amendment would add Ofwat as a relevant agency with the obligation to impose a fixed monetary penalty on a water company in respect of a specified offence.

[The Duke of Wellington (CB)]

My Lords, Amendment 45, the related Amendment 47 in my name and, in a sense, the intervening Amendment 46 from the noble Baroness, Lady Bakewell, all seek in essence the same purpose—namely, to ensure that any fines imposed on the water industry, either by the Environment Agency or by Ofwat, remain within the environmental protection regime and do not go to the Treasury.

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[Baroness Hayman of Ullock (Lab)]

I thank noble Lords for their suggested amendments and the points raised in relation to penalties and the water restoration fund.

First, I will talk to Amendment 45, tabled by the noble Duke, the Duke of Wellington. While I acknowledge the intention behind this amendment, which seeks to strengthen Ofwat’s enforcement powers, we do not believe that automatic penalties are appropriate for the obligations which Ofwat is responsible for enforcing. Ofwat’s role as the economic regulator is distinct from the role of environmental regulators and from the permitting regime for environmental activities. Offences that may be subject to automatic penalties and outlined on the face of the Bill, such as pollution control, abstraction, impounding and drought, fall within the remit of the Environment Agency and Natural Resources Wales. Extending the enforcement of these areas to Ofwat would therefore duplicate the responsibilities of the regulators and create more complexity in the current system.

Furthermore, Ofwat’s investigation and enforcement activities relate largely to breaches of core licence conditions, which are highly complex matters that are not fixed to singular assets or permits but rather systemic failings right across the company’s operations. Investigations often require significant and detailed evidence to be gathered, potentially from a number of sites, to establish whether a breach has occurred. This can take months to conclude and does not lend itself to an automatic penalty.

Ofwat has existing appropriate powers to impose financial penalties. For example, the Water Industry Act 1991 enables Ofwat to take enforcement action, including imposing financial penalties on companies if they are in breach of their statutory duties or licence conditions.

Finally, I remind the House that the independent commission will consider the roles and responsibilities of the water industry regulators and how we can ensure our regulators operate as effectively as possible. This is something that may be discussed in some depth by the commission. The Government will therefore not accept this amendment, but I hope the noble Duke feels reassured on the points about automatic penalties.

I will take Amendments 46 and 47, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and by the noble Duke, the Duke of Wellington, together. I very much appreciate the intention behind the amendments, but we do not believe it is necessary to define a mechanism for spending the money received through fines in law. A water restoration fund was launched in April this year, and this arrangement does not require legislation. As we have heard, the water restoration fund serves as a mechanism to direct water company fines and penalties into water environment improvement projects. We feel that defining a water restoration fund in law would instil inflexibilities regarding the scope of the fines available to include within the fund and how the money gathered from fines could be spent. We believe that retaining flexibility is important to ensure funding programmes deliver value for money.

As for the devolved elements of the noble Duke’s amendment, water is a devolved policy area, so it is for the Welsh Government to determine the extent to which a water restoration fund should apply in Wales.

What has come across in the debate, and what came across strongly in Committee, is the recognition that investment in the water industry will be absolutely critical to improving the existing poor standards. The Government are continuing to work with His Majesty’s Treasury on the continued reinvestment of water company fines and penalties in water environment improvement. We are working with the Treasury on this specific issue because we recognise its importance. As this is ongoing work and discussion, we will not be able to accept the amendments today. I thank noble Lords for the debate, and hope that they have been reassured by my comments.

[The Duke of Wellington (CB)]

My Lords, I thank the Minister for that explanation. The point of Amendment 45 was only that I was advised by the Public Bill Office that I had to table it to make Amendment 47 make sense—parliamentary drafting not being one of my specialities. However, the underlying point, which I share completely with the noble Baroness, Lady Bakewell, is that we want to see all the fines levied on the water industry reinvested in ensuring improvements to the clean water environment. That is what we are all trying to do. I suspect that the Minister would support that, in theory, and I wish her well with her discussions with His Majesty’s Treasury. I therefore beg leave to withdraw the amendment.

Amendment 45 withdrawn.