Water Industry (Financial Assistance) Bill

Earl of Selborne Excerpts

Tuesday 27th March 2012 Lords Chamber

[The Earl of Selborne]

My Lords, like others, I shall confine my remarks to Clause 2. As has been noted already in this short debate, I chaired the Thames Tunnel Commission, which was set up by five London boroughs, when it sat in July, August, September and October.

Although we have been discussing the Thames tunnel since the urban waste water treatment directive was brought into national law in the 1990s—indeed, we have been in breach of that directive since 2000—things have moved on since then. Many ideas had remained fixed as to what is the most up-to-date and appropriate technology and there were concerns, of course, about the escalating costs, so we were asked to review the previous studies; to reassess the assumptions of those studies in the light of subsequent research and data; to look at what other cities—not only in the European Union but elsewhere around the world—had done when faced with much the same situations; to hear from interested parties; and to reassess the requirements in order to meet the urban waste water directive in the light of subsequent directives, not least the water framework directive, and other national government policies such as the national ecosystem assessment. The concern was not only about the cost of £2.3 billion in 2006 going up to £4.1 billion. When we were doing the exercise the cost was £3.6 billion, but it went up to £4.1 billion within three days of us reporting.

It is not fair to say, as Thames Water tends to do, as has just been noted, that the Thames is an open sewer because there have been some successes. The Lee tunnel, which is under construction at the moment at a cost of £600 million, and the upgrade of the sewage treatment works, some of which have been heavily implicated in fish kills, have and will achieve, irrespective of the combined sewer overflows, considerable improvements in the quality of the river. However, it is undisputed that 20 million tonnes of sewage going into the river is unacceptable. The figure is roughly half if you include the sewage treatment works and the Lee tunnel CSOs but, nevertheless, it is common ground that 20 million tonnes is unacceptable.

It is worrying that when the cost was a mere £2.3 billion, which was to include the Lee tunnel, Ofwat’s review of the costs and benefits found that there was only a marginal benefit. The cost has now gone up to £4.1 billion —and this is after having spent £900 million, so you could say that the cost has actually gone up to somewhere nearer £5 billion—and, surprise, surprise, the cost-benefit analysis carried out by Defra in November 2011 once more establishes that there is just about a case to be made in terms of cost and benefit.

The way in which these figures have been adjusted in order to ensure that the answer comes out correctly is by altering the goalposts. The assumption in the first cost-benefit analysis was that it should be paid off over 60 years; now it is going to be paid off over 100 years, which makes it much easier. There is also now an assumption that because we are now richer we can afford more, so the ability and willingness to pay increases. I find these cost-benefit analyses extremely suspicious. Defra knows what the answer should be and has commissioned the cost-benefit analysis. I hope that the National Audit Office, or some other body, will look carefully at these figures, which I think are spurious.

A great deal of concern was expressed by the people who took the trouble to speak to us that the agenda was being driven by the infraction proceedings. That, of course, would concentrate the minds of Defra enormously, and the implications of the fine which could be accrued well before 2023, when the tunnel will eventually deliver, are horrendous. I have no doubt that if I were a Defra Minister I would do anything to try to ensure that that day of judgment was postponed in some way.

In the Bill before us today the taxpayer is being asked to underwrite part of the cost without any assurance that it will meet the requirements of the Commission or the interpretation of what the urban waste water treatment directive requires. It is certainly not the fastest solution. My noble friend on the Front Bench described it as timely and cost-effective but the onus is going to be on Defra, or on Thames Water or whichever company is going to eventually own the tunnel, to demonstrate just that. It certainly has not been demonstrated yet. We need to know whether it is the most cost-effective, the fastest and the most comprehensive solution. By comprehensive, I mean that it gives to society as a whole the benefits that we all look for from major water infrastructure proposals.

When Richard Benyon, the Defra Minister, announced in early November that the cost was going up to £4.1 billion from £3.6 billion and that a Bill such as this was to allow the taxpayer to underwrite part of the cost, he said:

“Financing a tunnel of this size at a cost that is value for money for customers is a challenge. The Government believe that the private sector can and should finance this project but accept that there are some risks that are not likely to be borne by the private sector at an acceptable cost. It is willing in principle to provide contingent financial support for exceptional project risks where this offers best value for money for customers and taxpayers”.—[Official Report, Commons, 3/11/11; col. 42WS.]

That is precisely the issue—what does offer best value for customers and taxpayers? Who will demonstrate that this provides best value for money? When this application comes before the planning authority, that is the information that Defra, the Environment Agency and Thames Water must surely be required to produce. It is not just the customers from Gloucestershire to Essex who will pay, all of whom will be paying up to £70 per household more than they are at the moment; it is of course now the taxpayer throughout the country.

If you say often enough that the tunnel is nearly full in dry weather and there is no other solution than a full-length tunnel, it becomes accepted wisdom and is unchallengeable; but this is exactly what we tried to determine. We do not dispute or doubt that parts of this Victorian tunnel system are indeed overloaded and running full even in dry weather. However, you have to assess the need for a full-length tunnel— 24 kilometres—against the alternatives, which would be dispersed water treatment plants, sustainable urban drainage systems, storm water disconnection, distributed storage of sewage waste in a storage tunnel for later release, and the enhancement of the existing sewerage network bottlenecks.

In other words, you have to ask the question of how you would cope with this problem without the tunnel. We agree that the problem is to have something in place as quickly as or more quickly than the tunnel, which will discharge no more than the 2.3 million tonnes that the tunnel is likely to discharge. However, if that is the criterion that you have to meet, you have to establish that these other options that I have mentioned cannot deliver that at less cost and more quickly. The Minister has said that the tunnel will do just that, but until someone demonstrates that these other options simply will not be able to deliver, then those people who question whether we have been given the information that we are entitled to have as customers of Thames Water and taxpayers are entitled to continue to complain.

All these hypotheses as to what will happen in different weather events in different combined sewer overflows ultimately depend on the efficacy of the modelling. However, we were very concerned that when we asked to see Thames Water’s computational models we could not verify that as the modelling reports and results were not provided despite repeated requests. The tunnel will reduce the discharges to about 2.6 million tonnes, and it would be perfectly reasonable to ask that that is the criterion that all other systems should meet.

The water White Paper that came out in December might never have been written, as far as this Thames water project is concerned. It is an excellent White Paper that talks about water for energy recovery, flood risk management schemes, surface water management plans, protection and enhancement of ecosystems and green infrastructure—and, of course, what local authorities and others could do to reduce storm flows with a green infrastructure. None of that in any way, shape or form is aided or abetted by the Thames tunnel, which is essentially a Victorian solution that worked well in Victorian times, when the method of transport was horses. The residue from horses was not very different from sewage, so you treated the two the same. Now when you separate storm water from sewage you reduce immediately the load in these tunnels. While we are always told that separation and SUDS are uneconomic, with regard specifically to the targeted areas—the CSOs with which we are particularly concerned—it may well be cost-effective to turn them off by such measures rather than connect them to a tunnel. It cannot be done with the big CSOs. There were 10, but one of them is being dealt with now by the Lee tunnel. There are still nine large pumped CSOs, and there is simply no doubt but that they have to be dealt with either by a treatment works or a shorter tunnel—or, indeed, by a full-length tunnel. It is no good thinking that they can be turned off by SUDS or by other measures.

The Environment Agency said in its paper, An Assessment of the Frequency of Operation and Environmental Impact of the Tideway CSOs, that if the load from those nine CSOs was removed there would not be a significant effect on dissolved oxygen from the remaining CSOs. That is an important point to bear in mind. We are worried about dissolved oxygen, because that is what is going to kill the fish. We are worried, too, about health and aesthetic impacts. But largely if you remove the big-pump CSOs and use a discrete system, what you have left are the intermittent CSOs, many of which are not going to be connected to the tunnel anyway but will be dealt with by internal adjustments. Of course, that does not remove the necessity for storage of the effluent, but they will not need to be connected nevertheless. Then you are dealing with a very different order of issues.

Of the nine CSOs, seven happen to be on the western extremities. I rather liked the idea in the Jacobs Babtie report of 2006, when Ofwat was concerned about the escalating costs, going up to £2.6 billion, and the shorter tunnel was thought to be a sensible solution. Of course, it would have to be complemented by separation, SUDS, storage, real-time control and the like. It was rejected because it was thought that it would not meet the infraction proceedings, and we have been on the rollercoaster ever since. The cost is now £4.1 billion and increasing. If the Minister of the day had had the courage and sense to look carefully at the data, which may not have been available in those days, as to what discharges were from the other 18 CSOs —not the nine that caused all the problems—we would be looking at a very different order of issues.

While we are criticised in the Thames Tunnel Commission for not coming up with an alternative plan, that was not what we were asked to do. We were asked to make sure that within the public domain there was the sort of information that could be expected to give the sort of background to making a sensible decision. I regret the complacency shown by Defra, the Environment Agency and others, which have repeated time and again that this is the only possible solution, as from their own point of view it is in many ways, because it gives the responsibility to Thames Water. It would not result in the messy business of local authorities being involved with producing the green infrastructure alternatives, which nevertheless in the long run simply have to be part of the mix for dealing with storm water and sewage. When the planning application is finally submitted, Defra has an obligation to ensure that Thames Water’s claims—which, as I say, are often less than helpful—are given impartial, independent assessment, with full transparency of the assumptions made and of the modelling. Now that we have a Bill in front of us and are expecting the taxpayer to underwrite this, that is the very least that the taxpayer is entitled to.