Water Bill

Earl of Selborne Excerpts

Monday 27th January 2014 Lords Chamber

[The Earl of Selborne (Con)]

My Lords, I should start by declaring that I am another farmer with an abstraction licence, although I am delighted to report that, unlike the Minister, I have not been flooded.

A number of speakers have already referred to the Water for Life White Paper of December 2011. I remind your Lordships of the earlier White Paper of the same year, the natural environment White Paper. I shall restrict my remarks to broad issues identified in those two White Papers and consider to what extent this Bill meets the agendas set out in them: first, the need to innovate and develop expertise in the management of our water and sewerage resources to deliver the required contribution to our green economy; secondly, the need to halt and reverse the damage that we have done to water ecosystems which provide essential services such as flood abatement, pure water, carbon storage and much else; and, thirdly, the need to increase competition for the ultimate benefit of all water users.

As we have heard, this last objective is to be promoted in the Bill by increasing choice in the retail market for non-household customers, by making it easier for new entrants to contribute new sources of water or new approaches to treating water and sewage, by measures which would allow water companies to buy and sell water from each other, and by measures which would clarify the right of developers to connect new developments to the water supply and sewerage system.

As the Minister reminded us, the Bill is only one part of a much wider water-related agenda. The issues which still need to be addressed, which many have touched on, before we have a coherent, long-term, sustainable national water management policy, include the following. There is the reform of the abstraction system—much referred to by the noble Lord, Lord Whitty, my noble friend Lord Crickhowell and others. There is the delivery of basin management plans with suitable mechanisms for community participation. I recognise that since 1996, we have made very little progress from the start made by my noble friend Lord Crickhowell. There is the resolution of long-standing management issues concerning sustainable drainage systems and investment in catchment-sensitive farming schemes. All those are outside the Bill but essential components if we are to put our water management at a national level on to a coherent basis.

Increased choice in the retail sector and a more joined-up approach to regulation are certainly valuable contributions which the Bill makes. The new duty of resilience imposed on Ofwat is a crucial contribution to address long-term pressures on the water sector and the environment. Frankly, in previous years, after the time of the NRA but during the time of the Environment Agency, far too often there was an unhelpful struggle between Ofwat and the Environment Agency. I did not think that I would ever feel sorry for the water companies, but I did when I understood to what extent they were being regulated in contrary directions by those two regulators. We now have the opportunity for the fault line between the two regulatory authorities to be finally eliminated.

England and Wales must, in all humility, recognise that Scotland has been ahead of us—and indeed of most of the rest of the world—in promoting competition at the retail level, having introduced a retail market for the supply of water and sewerage systems to non-household customers in 2008. I was interested to hear from the Water Industry Commission for Scotland of the significant benefits. We have heard some figures cited. Those benefits have permeated not just to commercial customers but down to household customers indirectly in terms of better services, innovation, reduced environmental impacts and lower bills. Indeed, one could say that the water companies in England have benefited, because they have been able to compete as new entrants in the Scottish retail market, and a number of them have done so. The lessons learnt will no doubt prove invaluable once competition is opened up in the English and Welsh retail markets.

It is important that we now at last achieve consistency between the Scottish and English markets so that there can be a fair cross-border retail water market. We must take note of the lessons learnt in Scotland in the past five years in operating a competitive retail market. The Water Industry Commission for Scotland and, indeed, Scottish water companies, have drawn attention to four issues which need to be addressed in the Bill adequately to reflect the lessons learnt in Scotland.

The first and foremost is an issue referred to by the noble Lord, Lord Whitty, which is the failure to have an exit provision for retail companies which have, frankly, either lost interest, are losing money or have failed adequately to provide a service that customers want. The Government for some mysterious reason simply bottled out of the inevitable conclusion of what happens when you introduce competition and encourage innovation: some companies just have to drop out. The EFRA committee, in its pre-legislative scrutiny, strongly recommended that those companies should be allowed to exit the market, but the Government—I simply do not follow this—have said that they cannot accept that that is the sensible thing to do, but they should contract out their retail services. Having read carefully the Government’s response to the pre-legislative scrutiny, I remain to be convinced and I am sure that we will have to look at that carefully.

The other three issues raised by the Water Industry Commission for Scotland are matters of more detail, concerning what is implied by a level playing field between incumbent companies and new participants, and the need to protect customers in remote areas from being discriminated against by a two-tier pricing system. I recognise that the Government have it much in mind to prevent just these things happening but there are some detailed recommendations, which are perhaps best left for Committee. I simply note that these concerns come from a background of the successful delivery in Scotland of precisely what the Bill seeks to deliver in England and Wales on retail competition. Any improvement to the Bill suggested as a result of this experience should be helpful.

The White Paper, Water for Life, promoted the need to manage water catchment areas in a way which embraces partnerships with a range of interests: the water companies themselves; local authorities; regulators; landowners and farmers; conservation organisations; internal drainage boards, where they exist; and local resilience forums and the like. Each has a role to play if new ways are to be developed for achieving effective water management and mitigating the risk of surface water flooding. Increased water storage, water trading and abstraction reform will all help but unless local communities can be made part of the process in developing these catchment plans and the water companies’ water management plans, there is a real danger that we will not have policies which ultimately carry the confidence of all parts of the community. They will therefore inevitably fail in the end.

One of the great distractions in the past has come from inappropriate measures that have turned off all co-operation from householders. The hosepipe ban is usually imposed with good intentions, yet the amount that this restriction does to reduce demand is not as much as one would imagine. However, it does an awful lot to dissipate good will—and without the good will of all people to try to ensure that the catchment is adequately managed, we will run into trouble. I am sure that innovative and sensible alternative proposals, not least those coming through advertising and other public relations measures, could be much more effective than the dreaded hosepipe ban.

The provisions in the Bill which enable licensing to become more flexible and demand management to be more appropriately handled are to be greatly welcomed. I was privileged to play a small role in a project led by the University of Cambridge Programme for Sustainability Leadership on sustainable water stewardship, which was sponsored by Anglian Water. This looked at innovative ways of involving all the local community in making a contribution in specific water catchments. We have a lot still to learn and the social sciences have a great contribution to make in involving the wider community.

The Cave review of April 2009 identified problems with the way that developers are charged for connecting to water and sewerage services. The water companies themselves say that they can deliver SUDS—sustainable urban drainage systems—only if that is accompanied by the right to discharge surface water. Clause 21 clarifies the functions of a sewerage undertaker to include the building and maintenance of SUDS features, which is welcome, but there remains the issue that the undertaker has to negotiate the right to discharge or else compulsorily acquire the rights to discharge. Before 1989 sewerage undertakers had a statutory right to discharge, as still exists for highway authorities. If the Bill could extend that right again to sewerage undertakers, it would encourage them to build and adopt SUDS rather than surface-water sewers, and explore hybrid designs that combine more traditional methods with SUDS. It would also resolve the current legal uncertainties that have arisen since 1989 with regard to discharges.

I return to the thrust of the Bill, which declares that it is there to promote innovation. Innovation ultimately relies on research and development. The UK water industry has its own research capacity in UK Water Industry Research, but it is true to say that it is very much reduced from its capacity of some 20 years ago. Some of the water and sewerage operators conduct in-house research but in the public sector, important scientific underpinning, including vital long-term data sets, is provided by the research councils and Defra. I declare an interest as chair of the advisory board of the Centre for Ecology and Hydrology, a Natural Environment Research Council research centre. If we are to deliver this resilient, sustainable and competitive water management, we must retain a national capacity in our relevant research base. The Government must recognise that the public sector plays a key role and that this publicly funded research is a key component for the long-term delivery of this water agenda.