Draft Flood Reinsurance (Amendment) Regulations 2025
Emma Hardy Excerpts(1 month, 1 week ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I beg to move,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2025.
It is a pleasure, as always, to serve under your chairwomanship, Ms Vaz.
The regulations were laid before the House on 15 January. As most of the Committee will know, Flood Re is a reinsurance scheme that provides for accessible and affordable flood insurance for eligible households. This joint Government and industry initiative was launched in 2016, and it was designed to improve the availability and affordability of UK household flood insurance. For clarity, Flood Re Ltd is the name of the company established to administer the scheme.
Since its launch, Flood Re has provided for flood insurance cover to more than 500,000 households across the UK that are at risk of flooding. Before Flood Re, only 9% of policyholders with a prior flood claim could get flood insurance quotes from two or more insurers, and none could get quotes from five or more insurers. In 2023-24, 99% of households at high risk of flooding could obtain quotes from 15 or more insurers.
The Flood Re scheme has evolved since its launch back in 2016. When levy 1 was last reviewed in 2022, the regulations were changed to allow for Build Back Better to be included in the scheme, allowing for up to £10,000 to be offered as part of a post-flood claim to install flood-resilient measures at the property, helping to reduce the risk and impact of future flooding.
Flood Re has taken several steps to encourage take-up of its Build Back Better initiative, including running a series of workshops and developing a toolkit for insurers. I am pleased that insurers representing some 77% of the UK household insurance market are now committed to offering Build Back Better to their customers, whether or not they have policies ceded to Flood Re. All Members will know that this is something about which I care deeply, and I want all insurers to offer it before too long. I pressed home this point when I met industry representatives at my insurance roundtable last year. However, consumer influence is far greater than mine, so I encourage everyone to ask whether Build Back Better is included when considering or renewing their household insurance policy.
Of course, the Flood Re scheme is a joint initiative between Government and the insurance industry, and we are going further than the previous Administration to invest in flood defences. As part of this Government’s plan for change, a record £2.65 billion has been committed to better protect 52,000 properties by March 2026. Maintenance of existing flood defences will also be prioritised, ensuring that a further 14,500 properties will have their expected level of protection maintained or restored. This means that a total of 66,500 properties will benefit from this funding, which will help to secure jobs, deliver growth and protect against economic damage. We will focus on fixing the foundations of the nation’s flood defences and giving communities confidence that flood defences will protect them.
We are reprioritising £108 million of investment towards repairing and restoring critical assets, including £36 million this year to target repairs at assets damaged by storms last winter and by ongoing flood events. A further £72 million will go towards continuing those repairs, and ensuring that assets are as resilient and reliable as possible, and that they operate as expected during flood events. We are also investing in new defences by making £140 million available to allow 31 schemes to progress to construction, ensuring that nearby communities are protected as soon as possible.
Returning to the specifics of this statutory instrument, Flood Re Ltd regularly and continuously monitors the risk in the market it is supporting to ensure it is in a position to continue enabling affordable flood insurance for those who need it. To do so, Flood Re Ltd is required to purchase reinsurance on a three-year basis. Taking into account changes in risk, claim profiles and the expected increase in the number of household flood insurance policies ceded to it, Flood Re Ltd has projected that its liabilities could increase from £2.1 billion to at least £3.2 billion over the next three years. That is the level of cover it needs to purchase.
In addition, the global reinsurance market has become more challenging since Flood Re Ltd last negotiated its three-year reinsurance cover. Events around the world have affected the risk appetite of those providing reinsurance, meaning that the market Flood Re Ltd can purchase from is both more volatile and more expensive.
All these factors combined have resulted in Flood Re Ltd proposing this increase to levy 1 so that it can afford to purchase its required reinsurance and continue to provide the access to affordable insurance that we all recognise the need for. I reassure colleagues that this proposal was well scrutinised before reaching the House for approval, not only by policy and financial officials in the Department for Environment, Food and Rural Affairs, but also by colleagues in His Majesty’s Treasury. This scrutiny has been informed by the Government Actuary’s Department, which has advised that the increase to levy 1 is necessary to ensure the scheme’s viability. It will also minimise the risk of Flood Re needing to implement levy 2 on the industry.
I recognise that any increased insurance costs are unwelcome at any time. The cost of increasing levy 1 is spread across all insurance companies offering UK household insurance, proportionally based on their market share. Although this is an increase to the current annual levy 1, hon. Members will all recognise that it remains well below the £180 million a year that was in place when Flood Re was established. We can be confident that Flood Re Ltd has done its due diligence in seeking this increase, and we can be reassured that it would not be asked for if it were not needed. By using existing capital, Flood Re Ltd is keeping the increase to 18%, while its reinsurance costs are expected to more than double. The reduction from £140 million a year to £135 million a year three years ago also demonstrates Flood Re Ltd’s commitment to its responsibility for keeping the levy as low as possible.
In summary, this statutory instrument allows for a necessary change to the Flood Re scheme by amending regulation 8(2)(a) of the Flood Reinsurance (Scheme Funding and Administration) Regulations 2015 to increase levy 1 placed on UK household insurance providers, from £135 million a year to £160 million a year, from 1 April 2025. This change will allow Flood Re Ltd to manage its changing risk profile, and to continue to operate the scheme effectively for those who benefit from it—notably, those households that would otherwise find it challenging to secure flood insurance—while also ensuring that the total levy is no higher than needed. Failure to increase levy 1 from April 2025 risks undermining Flood Re’s ability to provide flood cover to UK households.
I emphasise that this statutory instrument is necessary to ensure the effectiveness and continuation of the Flood Re scheme and its ability to provide affordable flood cover for the increasing number of homes in the UK that are at risk of flooding. I commend the draft regulations to the House.
Emma Hardy
I thank all hon. Members who have contributed to the debate. As has been mentioned, flooding affects so many of us. The shadow Minister, the hon. Member for Epping Forest, was right to highlight its mental health impact; we are united on that issue. It is no surprise that there has been lots of interest in the regulations, and I will do my best to cover all the points that have been raised. Not all of them were directly related to the SI, but those that were not were on no less important issues.
The shadow Minister mentioned the desire for eligibility for the Flood Re scheme to be extended. There are no plans at this time to make changes to the scheme; however, we keep all policies, including those related to flood insurance, under review, and hon. Members’ observations in this debate—and, to be honest, at DEFRA oral questions and in many other debates—are invaluable in helping to inform those considerations.
If any changes were made to the scheme in future, they would have to be able to secure appropriate reinsurance, which would be challenging in the current market. Indeed, the reason that the regulations are necessary is that it has been challenging to find affordable reinsurance for the industry. I just flag that none of the options are cost free; all of them come with a cost, and all of them would require being able to find the reinsurance in the market at the time. It might be worth putting this into the wider context in which we see the world, too—I will not go too far down the rabbit hole—and flagging that insurance is purchased globally and influenced by global events. The levy we are discussing would undoubtedly have to be increased if we were looking at any kind of increase to the scheme.
The shadow Minister also mentioned businesses. Business insurance operates very differently from household insurance; it is often bespoke, based on the individual nature of the business. Extending the scope of Flood Re to include businesses would fundamentally change the scope and the intention of the scheme, which was established to support householders who are unable to source affordable flood insurance. Any change to include any part of the commercial sector would necessarily create a new levy on all businesses, which is unlikely to be welcomed. Thinking through the implications of what the shadow Minister said, obviously, businesses are very different in nature, and if we were to create a similar scheme, we would be raising a cost on every business, in the same way that Flood Re works at the moment. There are already a number of products offered to businesses by industry, such as the British Insurance Brokers’ Association commercial property scheme, which is there to help small and medium-sized enterprises.
The shadow Minister also suggested including buildings built after 2009, but doing so would contradict planning policy. The national planning policy framework is clear that inappropriate development in areas at risk of flooding should be avoided by directing development away from areas of highest risk, including floodplains. Where development is necessary, and where there are no suitable sites available in areas with a lower risk of flooding, local planning authorities and developers should that ensure development is appropriately flood resilient and resistant, and safe for its users and for the development’s lifetime. We are committed to building more high-quality, well-designed and sustainable homes, and creating places that increase climate change resilience and promote nature recovery.
Planning was also mentioned. I am wary that we are straying into another Department’s responsibility, but I will do my best to address the issues as they relate to flooding. We are committed to building new homes and promoting nature recovery. In July 2024, the Government issued a consultation, inviting views on proposed reforms to the national planning policy framework to achieve sustainable growth, including views on the potential improvements to planning policy for flood risk. If developments need to be in locations where there is a risk of flooding as alternative sites are not available, they should be flood resilient and resistant, and safe for their lifetime, and really importantly they should not increase flood risk overall.
The food resilience taskforce was mentioned. It has met as an entire body twice. The idea is that everybody on the taskforce meets—it has about 30 members—and then we commission sub-groups to deep dive into some areas. Those groups then report back to the main taskforce. For example, on nature-based solutions, which the shadow Minister and I both care about, a sub-group of the original taskforce went away and looked at that in detail. It will then report back to the main taskforce.
The main taskforce is like a large convening body that includes National Farmers Union representatives, a Cabinet Office Minister and representation from the Ministry of Housing, Communities and Local Government—all the bodies are represented—and we then go away and look at things in detail. As a result of the most recent taskforce meeting, a smaller group is going to do a deep dive into flood warnings. A smaller group from the taskforce—not all 30 members, but the relevant ones—will go away and do that piece of work, which then feeds back to the taskforce and reports back to everyone.
It is envisaged that the big group will meet just a few times a year, and in between smaller groups will do deep dives into some of the particular issues. Rather than getting 30 people together every week, it feels more sensible to get those people together to look at the bigger picture and then have smaller groups doing deep-dive work into individual issues. That is the structure of the taskforce; I hope that reassures the shadow Minister as to how we intend it to work.
On frequent flooding, the flood funding formula review is looking at how it all works. The shadow Minister is right to highlight that the previous Government had the flooding formula and then the frequently flooded add-on. They then had another add-on for nature-based solutions. My vision—of course, this is subject to consultation, so Members should feed in their views—is that the flooding formula should incorporate those people at risk of frequent flooding, as well as nature-based solutions. Rather than having a formula to which we are almost sticking things to try to make it work, the formula itself should encompass many of the different issues. That is going to be out for consultation and, as I say, I am keen to hear feedback through that consultation about how the formula will work.
The formula was originally based only on the number of properties protected, which meant that it seemed to disadvantage people from rural communities because they were not as adequately represented because, by their very nature, rural communities have fewer properties. It is really important that we look at how that works. The shadow Minister mentioned the importance of the frequently flooded aspect and, yes, that must be part of the formula—not an add-on but an integral part of it.
I completely agree that it is important to get the information that people need. Each of us as leaders in our local communities can have a role in this. It is not just about flood alerts. The other thing that I am currently playing with in my mind is my feeling that people do not know what to do when they get a flood alert. It is not just about getting a flood alert; do people know what they need to do in that situation? I am thinking about how we can work across the House not only to encourage all our constituents to sign up for flood alerts but to say what they need to do when they get one. There are simple things—for example, so much damage could have been prevented in the last period of flooding if people had moved their cars. We want people to take those kinds of actions. How do we get that behaviour change so that when a flood alert comes people say, “Right, I’ve got to go and do this”? I am really keen to work with colleagues across the House on that.
Reinsurance and the increasing risk is also incredibly important. After this measure Flood Re will be buying three years’ worth of reinsurance, so for the next three years there will be enough reinsurance to cover all the properties needed. At the end of that three years, we might be here again talking about the flood insurance costs going up and having to rebuy it.
Coastal erosion is not part of Flood Re, because Flood Re is based on flooded properties, but I absolutely hear the hon. Member for North Norfolk’s point about the devastation caused by coastal erosion. My constituency is in Hull, but I am very near to the east coast and can see exactly what is happening there, where the roads and caravans are disappearing. I have nothing but sympathy and support for the people impacted. I know that East Riding of Yorkshire council has been working on this issue, and the hon. Gentleman’s local council will be working with the Environment Agency to come up with a coastal change plan. I encourage him to talk to the area director and the council and get them to explain their plan to deal with coastal erosion. DEFRA helps to fund that work, but it is not strictly part of the Flood Re scheme.
I hope I have covered most of the points raised, so let me turn back to the statutory instrument. I thank all Members for their support for the SI, which will ensure that Flood Re is able to purchase all the necessary reinsurance at the best possible price, so that it can continue to be dynamic in meeting the needs of those the scheme is intended to support. If the increase was not supported—although it is, so thanks everyone— Flood Re would have to look at other sources of income. It is good that it is not in that position. I commend the draft regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2025.
Water (Special Measures) Bill [Lords]
Emma Hardy ExcerptsTuesday 11th February 2025
(1 month, 3 weeks ago)
Commons ChamberRead Full debate Water (Special Measures) Act 2025 View all Water (Special Measures) Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Message as at 11 February 2025 - (11 Feb 2025)
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I beg to move,
That this House insists on Commons Amendment 1 to which the Lords have disagreed, disagrees to Lords Amendment 1B, to the words restored to the Bill by the Lords’ disagreement to Commons Amendment 1, and proposes Amendments (a) and (b) to the Bill in lieu of the words left out by Commons Amendment 1.
Madam Deputy Speaker (Caroline Nokes)
With this, it will be convenient to consider the following Government motion:
That this House insists on Commons Amendment 2 to which the Lords have disagreed, and proposes Amendment (a) in lieu of the words so left out.
Emma Hardy
I am delighted to have another opportunity to debate this transformative Bill in this Chamber. I thank all Members for continuing to take an interest in this important piece of legislation, which demonstrates our shared commitment to improving the water sector. Today, this House will consider amendments made in the other place.
I recognise that there is huge interest across this House in wider issues relating to water. Though our debate today is solely focused on the changes made to the Water (Special Measures) Bill in the other place during the Lords’ consideration of Commons amendments on 5 February, I look forward to future opportunities to discuss wider concerns and actions, for example through work relating to the independent commission.
I turn first to the changes made in the other place that would require water companies to regularly report to Ofwat on their financial structure, and to ensure that that information could be readily accessed and understood by the public. It is important to highlight that water companies are already required under their licences to publish by a set date financial performance metrics within their annual performance reports. That includes the interest on their borrowings, their financial flows and an analysis of their debt. If water companies do not comply with these licence conditions, Ofwat can take enforcement action, including issuing fines.
However, the Government recognise that there is an opportunity to make financial data more accessible for members of the public. The Government have therefore worked at pace with Lord Cromwell and Ofwat to develop a way to achieve our shared objective of improving the transparency and accessibility of reporting on key financial metrics. The insertion of a new section 35E into the Water Industry Act 1991 will make it clear that water companies should provide an intelligible overview of their financial position at least once a year. That overview should include a summary of the significant changes that have taken place over the past 12 months, and will cover key aspects of water companies’ financial position, such as their share capital and debt.
Barry Gardiner (Brent West) (Lab)
Ofwat has said that it believes that the right level of debt should be 60%, yet it has taken no action against those companies whose level of debt has risen to as much as 80%. Can the Minister assure us that under the Bill, Ofwat will not only have the power to act when companies’ debt levels are too high, but will use it?
Emma Hardy
I thank my hon. Friend for his intervention. I know how much he cares about this and many environmental issues. Amendment (a) refers only to the reporting arrangements for levels of debt rather than specifying the levels of debt that would be acceptable. It is about increased transparency, whereas his points fall more into the remit of the water commission, which is looking at all those issues as part of its wider work. I stress that the amendment is just about how information is reported and transparency.
The information must be made available in a prominent place on the water company’s website, ensuring accessibility for members of the public. Subsection (4) of proposed new section 35E also provides Ofwat with the power to determine the information that a water company must publish, as well as the ability to review requirements on financial reporting from time to time. That addition will ensure that reporting requirements keep pace with changes in the expectations and needs of bill payers. I would like to be clear, however, that the Government expect the power to be used to ensure that reporting requirements remain relevant, rather than to dilute or diminish the ambition of reporting requirements.
Financial reporting will also continue to be underpinned by pre-existing statutory obligations and licence conditions. In line with other requirements brought forward in clause 1, this new requirement will commence on Royal Assent. These amendments will help to rebuild public trust in the sector and provide the public with the levels of openness and transparency that they deserve.
I turn to the other Government amendment, which relates to the requirement for Ofwat’s rules to be confirmed by way of affirmative statutory instrument, as reintroduced by the motion tabled by Lord Blencathra in the other place. While the Government recognise that there were calls in the other place for increased parliamentary oversight of Ofwat’s rules, we have significant concerns that a requirement for Ofwat’s rules to be finalised through an affirmative statutory instrument would delay the rules being implemented.
We are clear that Ofwat’s rules should be brought forward as soon as possible. That will ensure swift and meaningful improvements in the performance and culture of water companies as they begin to deliver on the largest investment package in the history of the water sector. Requiring the rules to be confirmed by statutory instrument would risk delay to the rules coming into force. We also maintain concerns that the Lords amendments would compromise the independence of Ofwat, because they would require Ofwat’s rules to be confirmed through legislation prepared by the Government. That independence must be protected if we are to ensure investor confidence in the water sector.
The Government are confident that the Bill already provides for sufficient scrutiny of Ofwat’s rules as it is required to conduct a statutory consultation on the rules before they are finalised. Separately, Ofwat has already concluded an initial policy consultation on a draft of the rules and how they will apply. It received 11,700 responses on the rules through its consultation, which it is actively considering. As such, the Government are seeking to reverse the requirement and to introduce provisions in its place that will require Ofwat to provide its first set of rules in draft to the Secretary of State at least seven days before they are issued. I hope that hon. Members across the House will support that change, which will ensure that Ofwat’s rules are put into place as soon as possible following Royal Assent, in addition to the Government’s amendments to introduce new financial reporting requirements.
Dr Neil Hudson (Epping Forest) (Con)
It is a great pleasure to speak in this final stage of the Bill. Before I start my remarks, I will respond to the pertinent question about levels of borrowing for water companies asked by my friend and former colleague on the Environment, Food and Rural Affairs Committee, the hon. Member for Brent West (Barry Gardiner). The Minister is right that Government amendment (a) is about reporting rather than the levels of borrowing. It is regrettable that the Government chose to reject the Conservative amendment in Committee that would have allowed the Secretary of State to set the amounts of borrowing for water companies. I hope that, as we move towards Cunliffe review, the Government may look at that again so that we can have tighter control on the water companies and their levels of debt.
Before I make my remarks on the Lords messages, I will say that getting to the Bill to this stage has been the result of much hard work across this House and the other place. I thank everyone, both front of house and behind the scenes, who has worked hard to get us here. That includes: the Minister for her willingness to listen to those across the House throughout the Bill’s passage; similarly, her counterpart in the other place, Baroness Hayman; those who have worked to draft the Bill and amendments; the Bill Committee; parliamentary staff from the Department for Environment, Food and Rural Affairs; and campaign groups and stakeholders who provided their insights to the Committee to help make the Bill even stronger, not least the Conservative Environment Network, the Angling Trust, and the Wildlife and Countryside Link.
Sadly, however, as the Opposition have stressed throughout the Bill’s passage in this House and the other place, this final stage of the Bill risks being yet another missed opportunity to act holistically on this important issue. It is unfortunate that the Government have been unwilling to go much further than their copy-and-paste approach, rebooting measures that the Conservatives took in government to address this issue.
We heard in previous stages how the bans on bonuses for water company chief executives and ensuring that 100% of storm overflows are monitored—up from 7% under Labour—were introduced by the previous Conservative Government. None the less, ever the optimist, I came to the Chamber hoping that the Government might be willing to reconsider their position on the issues of the amendments and the reasoning from the other place, which cover familiar ground. We debated these issues in the previous stages, not only in this House but in the other place.
At the heart of the Lords amendments is a theme that His Majesty’s most loyal Opposition have emphasised throughout the Bill’s passage: accountability. The previous lack of accountability for water companies created many of the issues that the water industry has faced. The Conservatives in government and now this Government have attempted to try and address that. This is another chance for the Government to go even further and inject some of what is really needed into their approach.
I turn to Lords amendment 1B, which reverses the Government’s decision to remove measures from the Bill that would require financial reporting to be collected by Ofwat for its remuneration guidance. We know that one of the most worrying aspects of our water industry has been its financial resilience, as Ofwat’s “Monitoring financial resilience” report back in November made clear, with 10 companies at need of increased monitoring and three in the highest category of risk, with closer monitoring required at a more senior level with Ofwat.
We all know, too, the cases involving specific water companies and the real risk that financial mismanagement brings for the survival of those companies and the water provision that their consumers rely on. It is disappointing, therefore, that the Government have been unwilling throughout the Bill’s passage to accept Conservative amendments, or Cross-Bench amendments such as this one by Lord Cromwell, offered in a constructive spirit, which may have gone some way to address the issue. None the less, the Opposition truly want to see better financial resilience. Therefore, on financial reporting in particular, we want the Government to accept this as a reasonable step to regain accountability on financial resilience.
The Lords amendment to clause 1 would quite simply mean that, when it comes to financial reporting, there would be nowhere to hide for water companies and the decisions they make in this area. I note that, following the Lords’ rejection of Commons amendment 1, the Government have tabled amendment (a) to Lords amendment 1B, which will go some way to improving the financial transparency of water companies, as a formal concession to Lords amendment 1B.
Subsection (4) of Government amendment (a) states that what water companies must publish should be decided “from time to time”. I hope the Minister can see that such vagueness might be a problem moving forward, as “from time to time” could allow the regulator not to review when the need arises, because it had done so a few years prior or even longer ago, and justify that by arguing that it was doing so “from time to time”, as the law outlines. Even if nothing or little would need changing from year to year, or every few years, surely it would be better to require this at least to be reviewed at precise regular intervals so that the most valuable information is provided in the best possible format.
That aside, however, His Majesty’s most loyal Opposition acknowledge the Government’s concession on financial transparency, and indeed public access, including characteristics of capital and debt. We are pleased to see that addition to the Bill.
In the same spirit, I move on to Lords reason 2A to disagree with Commons amendment 2, which urges this House to consider again the requirement that any rules under clause 1 be brought into force by means of a statutory instrument from the Secretary of State. Again, this amendment is familiar territory that we have debated at many stages, having been a measure consistently called for by His Majesty’s Opposition in the other place and in this House, both in the Chamber and in Committee. We have maintained throughout that accountability is needed to deliver and enforce change in the water industry, but that must include the Government of the day, no matter which party they are.
It is odd that, on the one hand, this Government have claimed that they want a tight grip on water companies, while on the other, they consistently oppose a measure that would allow them to do exactly that. It is odd, too, that in Committee, the Liberal Democrats sought to amend the same part of the Bill that would have that effect. Their intentions were to bring in guidance as soon as possible, but there is a distinction between intent and effect. Removing some of the same lines would have had the same exact effect in ridding the Bill of the statutory instrument requirement that this amendment seeks to maintain.
The Government have argued—as the Minister has again today—that they fear that Ofwat’s flexibility to adapt their rules as necessary could be impeded in some way. But statutory instruments remain a timely measure to introduce any changes if needed. So once again, the Government’s argument does not stack up. It is only right that we, as parliamentarians elected by the British public to represent their interests with our voices and votes, are able to look at the proposed rules and exercise our ability to voice concerns if they risk falling short of protecting the public’s interests. Why deny the public and Members of this House the ability to uphold accountability of the water industry, which has been missing for too long? As such, once again we have urged the Government to accept what we believe is a reasonable set of amendments in the name of accountability.
Now, at the 11th hour, the Government have tabled Government amendment (a) in lieu of Lords reason 2A that disagrees with Commons amendment 2, the amendments tabled and argued for by my Conservative friends in the other place the noble Lord Roborough and Lord Blencathra, and add that the remuneration and governance rules may not be not be enacted until they have been provided in draft to the Secretary of State. There is a move towards some Government accountability, but sadly, not what the Opposition had wanted: a statutory instrument laid by the Secretary of State and approved by both Houses.
None the less, I am grateful that the Government have listened to Lord Roborough, me and the other Conservative colleagues who have argued for more accountability, and that they have moved a little towards us with this amendment. However, I am still unclear why the Government appear scared of full accountability. Sadly, I fear that some of these last-minute concessions, which we would like to go further, look like the Government trying to avoid double insistence and the Bill failing. We do not wish the Bill to fail, as we all want the same thing: to see our waters improve and for the Government to continue with the measures that the Conservatives set in train in the last Parliament. In that spirit, we will not stand in the way of the Government’s amendments.
There has been many a chance for the Government to grab opportunities to bolster the Bill with both hands. Many chances have been missed throughout its passage, not least by the Government continually rejecting our water restoration fund to ringfence fines to restore local waterways, rather than to balance the Treasury’s books. They did not accept our sensible proposals to go further with nature-based solutions to flood risk. They rejected our proposals for fines on water companies to result in equivalent reductions in customers’ bills, and our sensible proposals to allow the Secretary of State to place limits on the amount that water companies can borrow. They blocked our proposals to protect consumers in different parts of the country from paying for failing water companies that do not supply them.
As the Bill progresses and the Cunliffe review begins, I again urge the Government, for the sake of our water, environment, constituents, communities and, indeed, fairness, not to let political pride and dogma stand in the way of doing the right thing and making water legislation the best it can be. We wish the Bill well as it ends its journey in this House.
Tim Farron
I have already taken two interventions from the hon. Gentleman, so I will not.
My simple comment is that this Bill will do good, and we are supportive of it. We wish only to trouble the House a short time to ensure greater scrutiny is brought in. We have accepted throughout this process, with some reluctance, the Government’s position that this is part 1, and that part 2 is to come, and that the review led by Sir Jon Cunliffe will potentially consider more radical action. We hope that is the case, and we shall engage with things on that basis. I have in my hand some pieces of paper that I propose to send to Jon Cunliffe, which tighten up some of the smorgasbord of amendments, as they have been called.
We care deeply about our waterways. I am honoured to represent the bulk of the English Lake district, with so many lakes and rivers, as well as our coastal areas in Morecambe bay. The quality of our waterways is deeply personal to me and to my communities. We shall continue to campaign unashamedly for something far better for our constituents, and indeed for our water right across the United Kingdom.
Emma Hardy
With the leave of the House, I thank all hon. Members for their thoughtful and valuable contributions to today’s debate. Without stepping into the territory of a Second Reading debate, I suggest gently to the House that we are here today debating the Water (Special Measures) Bill precisely because of the public outrage caused by previous lack of investment, and the fact that every single river, lake and sea in our country has been polluted. Had the previous Government, as stated by the now official Opposition, done the marvellous, wonderful job that they seem to want to suggest they did, there would not be the need for this Bill in the first place—neither would there be the need for all the campaigns that have taken place up and down the country. However, I will go no further into that.
I have respect for the hon. Member for Epping Forest (Dr Hudson), as he knows. However, I say gently that it is dishonest to suggest that legislation is needed for the water restoration fund, because, in fact, the Conservatives created the fund without legislation. To imply that legislation is required to have the fund would, therefore, be inadvertently dishonest. It was created without legislation, and therefore it does not need legislation to be held.
Dr Hudson
I am slightly concerned that the Minister is raising questions about my honesty. The water restoration fund exists, but where is it now? What has happened to it? Are the Government going to use it again? That is why we wanted to push, at every stage of the Bill, the point that the water restoration fund needs to be used to ringfence money so that fines on water companies can be ploughed back into restoring local waterways. I will be very happy if the Minister says today that the water restoration fund is carrying on, and then my honesty will be intact.
Emma Hardy
I thank the hon. Gentleman. As I have said throughout, he will have to wait and see, but to imply that legislation is required for the fund would be dishonest. I am sure the hon. Gentleman does not want his honesty to be questioned. The implication that legislation is required for the water restoration fund is simply not true.
As I outlined in my opening speech, I recognise that there remains a strong interest in issues wider than the scope of today’s debate. I reiterate that the Bill is not the limit of our ambition. The Government will continue to work with hon. Members across the House to discuss and make progress in addressing the fundamental issues facing our water sector.
The hon. Gentleman mentions the words “time to time”. The wording has been specifically designed to allow Ofwat to review requirements as and when appropriate, and adapt quickly where needed. We do not want to pre-empt how often this kind of review might need to take place. To reassure him, that was discussed at length in the other place.
On parliamentary scrutiny, the Government worked with Ofwat to offer peers and MPs an opportunity to raise questions on Ofwat’s rules in a parliamentary drop-in session, providing further insight on the rules. However, that proposal was not accepted by hon. Members’ colleagues in the other place, which feels like a shame.
It has always been our intention to bring about, through the Bill, meaningful change in the performance and culture of the water sector. The amendments tabled by the Government are in keeping with that objective. I hope the House will support the Government amendments, which will ensure that the public can easily access an overview of water company financial information, and will give Ofwat a duty to issue rules on financial transparency that will commence on Royal Assent. Together, the amendments will enable the Government to take another positive step forward in restoring public trust in the water sector, which has sadly been destroyed over the past 14 years.
Similarly, I hope the House will support the Government in bringing forward amendments to ensure that Ofwat’s rules are brought forward promptly and that its independence is protected. The Government acknowledge the intention behind the changes made in the other place, but we cannot accept the risk that they create in delaying the introduction of Ofwat’s rules. I therefore hope that Members across the House will also support the Government in ensuring that these vital rules are brought forward without delay.
Madam Deputy Speaker (Caroline Nokes)
I am sure the Minister did not meant to imply that the shadow Minister was in any way dishonest, and she might perhaps seek to correct the record to say she felt that he was mistaken or incorrect.
Emma Hardy
I am very happy to issue that correction.
Question put.
A Division was called.
Madam Deputy Speaker (Caroline Nokes)
Division off.
Question agreed to.
Resolved,
That this House insists on Commons Amendment 1 to which the Lords have disagreed, disagrees to Lords Amendment 1B to the words restored to the Bill by the Lords’ disagreement to Commons Amendment 1, and proposes amendments (a) and (b) to the Bill in lieu of the words left out by Commons Amendment 1.
Motion made, and Question put,
That this House insists on Commons Amendment 2 to which the Lords have disagreed, and proposes amendment (a) in lieu of the words so left out.—(Keir Mather.)
Oral Answers to Questions
Emma Hardy Excerpts(1 month, 3 weeks ago)
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Mr Joshua Reynolds (Maidenhead) (LD)
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
The first duty of any Government is to protect our citizens, so we are investing a record £2.65 billion over two years in building, maintaining and upgrading flood defences, which will protect 66,500 properties across England.
Zöe Franklin
Across my constituency of Guildford, the local flood forums work tirelessly, bringing together agencies and residents to address the growing concerns they have about flooding. Will the Minister provide detail on how the Government will ensure that constituencies like mine, which often miss out because they are semi-rural and urban, get the funding they need to address current flooding issues? How can we mitigate the growing flooding issues across Guildford in a holistic and sustainable way?
Emma Hardy
The hon. Lady is right to highlight that under the previous funding formula, rural communities often missed out on the defences they desperately need. We have set out plans to consult on a new formula that is going to be announced fairly shortly, and she will be very welcome to contribute to that.
Mr Joshua Reynolds
Will the Minister confirm what portion of the £2.6 billion allocated to flood preparedness will be used in my constituency of Maidenhead, specifically to protect the villages of Hurley and Cookham?
Emma Hardy
I think I will be getting a lot of questions like this today, Mr Speaker. We will announce where the 31 projects will be by the end of March. We will also be looking at where we have had to put money into maintenance and upgrading defences. We were left with flood defences in their worst state on record because of a complete dereliction of duty by the previous Government, so we have had to prioritise maintenance as well as building new defences, but I am hoping that the hon. Gentleman will not have to wait too long.
Mr Toby Perkins (Chesterfield) (Lab)
My hon. Friend the Minister and my right hon. Friend the Secretary of State deserve great credit for attracting the large investment that they have secured, but once they have finished the lap of honour, they will be aware that this is the first step up the mountain. The Minister is right that the Government have inherited flood defences that are in an appalling state, and the latest estimate shows that as many as 6 million houses are at risk of flooding. I call on her to get on with the flood improvements that we demand in Chesterfield. First, will she tell us more about how she will ensure the money will be spent wisely? Secondly, how will she ensure that the Treasury understands that this is not a one-year commitment, but something that we will need for the rest of this term in office?
Emma Hardy
I thank my hon. Friend for his question, and may I congratulate him on his recent engagement? He is right to point out the importance of money being spent wisely now to save money in the future. There are a couple of interesting factors: every £1 we spend on maintenance of flood defences saves £13 in damage prevention, and every £1 we spend on new defences saves £5 in damage prevention. Those are important statistics that I use frequently in negotiations about future spending reviews with Treasury officials.
Ms Julie Minns (Carlisle) (Lab)
In the north of my constituency, between the Scottish border and Hadrian’s wall, lie the debatable lands, but in the centre of Carlisle lies a forgotten land along the River Caldew. It is forgotten because of the incompetence of the Conservatives, who failed to deliver the flood defences along the Caldew that were promised after Carlisle was devastated in 2015. Will the Minister remember the forgotten lands of Carlisle?
Emma Hardy
My hon. Friend makes a persuasive case, as she has done at every oral question time we have had so far. She is right to highlight the fact that not only did the previous Government leave our defences in the worst state on record, but they failed to spend some of the money that had been allocated. This Government are having to deal with that, along with the many other issues we are cleaning up.
Sarah Dyke (Glastonbury and Somerton) (LD)
Yet another wet winter across Somerset highlights the need for the Government to urgently deliver solutions to mitigate the impact of flooding on farmland and protect domestic food production. The Brue headwaters multi-benefit project, facilitated by the Farming and Wildlife Advisory Group South West, is working with farmers and landowners in Bruton, Charlton Musgrove and Wincanton to address flooding issues and to hold workshops that focus on natural flood management, to slow the flow of water across the upper Brue, thus reducing flooding, sediment run-off and the associated pollution of water- courses. Despite those efforts, many farmers in the catchment, and indeed the county and the country, are angry at the level of inundation of land that could be prevented by better flood management. How will the Minister work to support farmers, build flood resilience and protect food security?
Emma Hardy
The hon. Lady is right to point out how angry farmers are and how they feel they have been let down by the previous Government on flood defences. The previous formula allocated funding only based on numbers of properties protected and paid little regard to rural areas. She also mentioned one of my favourite themes: natural flood management. We recently held a roundtable on that, with representatives from the NFU and the Country Land and Business Association, to talk about how we can better protect our rural areas in a more nature-friendly way.
Mr Peter Bedford (Mid Leicestershire) (Con)
Munira Wilson (Twickenham) (LD)
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I thank the hon. Lady for her important question. The Government are developing a series of interventions to reduce emissions, so that everybody’s exposure to air pollution is reduced. We are also conducting a comprehensive review of how we communicate air quality information, to ensure that members of the public and vulnerable groups have the information they need to protect themselves and understand the impact on air quality. Of course, no further decisions have been made regarding other developments.
Harpreet Uppal (Huddersfield) (Lab)
Perran Moon (Camborne and Redruth) (Lab)
Emma Hardy
I thank my hon. Friend for raising this important issue and for the work he is doing in championing what is obviously a crucial issue for his residents. I would of course be happy to meet him.
Charlie Maynard (Witney) (LD)
Constituents in Witney were extremely distressed to receive letters this week from Thames Water saying that their bills are going up by £19 a month from April, putting more pressure on household bills. Does the Minister think that is acceptable, given that the restructuring plan in the High Court is putting £800 million to £900 million of interest expenses on to this company—
Jacob Collier (Burton and Uttoxeter) (Lab)
Emma Hardy
I thank my hon. Friend, who is right to highlight how the previous flooding formula discriminated against rural communities because it was based purely on the number of properties protected, not on creating the right solution in the right area. That is exactly why we wish to reform the formula, and we will be announcing a consultation very shortly.
Jeremy Hunt (Godalming and Ash) (Con)
Given that the Office for Budget Responsibility refused to endorse the £22 billion black hole figure—in fact, it refused to say that there was any black hole at all—will the Secretary of State tell the House what possible justification there can be for the removal of agricultural property relief, which will do untold damage to the growth prospects of family farms in my constituency and across the country?
Marine Environment
Emma Hardy Excerpts(2 months ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
Making Britain a clean energy superpower is one of this Government’s five missions. This is critical to our country—to cut bills; to create jobs; to deliver energy security, with cheaper, zero-carbon electricity by 2030; and to meet our net zero target.
This Government have taken immediate action by setting up Great British Energy, a publicly owned company to invest in clean, home-grown energy. We have also already committed to the biggest investment in clean energy in British history.
Offshore wind will play a pivotal role in our achieving clean power by 2030 and accelerating to net zero by 2050—our recently published clean power action plan sets a capacity range for between 43 GW and 50 GW by 2030. The UK is already a world leader in offshore wind technology, and the Great British Energy partnership with the Crown Estate will bring forward new offshore wind developments, with the potential to deliver up to 20 GW to 30 GW of extra offshore wind seabed leases to the market by 2030.
The Department for Environment, Food and Rural Affairs is playing a crucial role in supporting the growth of offshore wind, to help de-risk and accelerate planning decisions for offshore wind while protecting and enhancing the marine environment. The nature and climate change crises are of equal importance, and we must address them together.
To do this, we will implement an offshore wind environmental improvement package. Work is well advanced, and recent and upcoming milestones include:
underlining our commitment to use the powers conferred in the Energy Act 2023 to ensure that compensatory measures for unavoidable environmental impacts to marine protected areas (MPAs) can be delivered strategically rather than on a project-by-project basis, including through a library of measures that DEFRA is developing in collaboration with stakeholders;
publication of an updated joint position statement on unexploded ordinance that sets out that low noise clearance should be the default in the marine environment. This has also been published alongside a marine noise policy paper highlighting the further actions we are taking to reduce noise in our seas;
consulting on an offshore wind piling noise limit in the first half of 2025, followed by a pilot programme in 2025 and 2026, to reduce the risk of project delays because of the need to limit the amount of underwater noise generated;
consulting in spring 2025 on reforms to the environmental compensation requirements for offshore wind projects, with the aim to bring in legislation by autumn 2025. This will aim to increase the number of measures available to developers to offset the adverse impacts of offshore wind developments, while retaining a robust process that ensures that damage to our precious marine environment remains compensated for; and
the launch of a marine recovery fund in late 2025 to provide an optional mechanism for developers to fund delivery of strategic compensatory measures.
We are already delivering on the clean power action plan. Today I am announcing an action that my Department will take to help accelerate and de-risk the consent of offshore wind projects while continuing to protect the marine environment.
Multiple offshore wind projects are at risk because there are currently no ecologically effective options that developers can deliver themselves to compensate for their unavoidable impacts on seabed habitats within special areas of conservation and marine conservation zones. Without suitable measures, these projects cannot be delivered. DEFRA commits to designating new MPAs and/or extending existing MPAs in Secretary of State waters to deliver sufficient strategic compensation to compensate for likely environmental effects of offshore wind development. We do not expect this to be available to any project outside the following:
Projects that received a seabed lease from the Crown Estate under leasing round 3, round 4 or the 2017 extensions round;
Projects in the current leasing round 5 in the Celtic sea;
Associated transmission infrastructure projects—for example, those forming part of the holistic network design. We will be working with devolved Governments on how this relates to projects in their waters where cabling will come through English waters; and
Projects that have already been granted consent but are unable to discharge their consent conditions, or where adaptive management may now be required as the agreed compensation measures have not had the impact expected when consent was granted.
We are also aware that offshore wind projects might sometimes be required to compensate for essential maintenance activities carried out once the wind farm is operational and/or for unforeseen impacts. For this reason, we will aim to deliver additional environmental compensation so that projects eligible to request MPA designation to support project consent—those listed above, in paragraph 7—as well as operational projects delivered in leasing round 2, can access this measure if available and deemed suitable.
In all cases, MPA designations will be delivered by DEFRA. Those designations and associated management will be funded by the offshore wind developers that successfully apply to use this measure through the marine recovery fund.
We anticipate that the total area of new and/or extended MPAs required to compensate for the predicted impacts of offshore wind projects will be small in comparison to the tranches of MPAs previously designated in Secretary of State waters. We will be looking to protect a range of benthic habitats.
Working closely with our statutory nature conservation bodies, potential areas will be identified based on ecological principles. We will be following the established legislative processes for designation and will keep stakeholders, including the fishing industry, regularly informed, as well as providing opportunities for them to share any concerns as regards the proposed sites, so that the views and impacts on affected industries and communities are fully understood.
To avoid the risk that new MPAs designated for compensation might later be leased for energy or other projects that cause damage, we will also be working with the Crown Estate, the Marine Management Organisation and others to explore ways in which we might deliver additional long-term protection from future impacts that will require compensation.
Designating new MPAs and putting management measures in place to protect them will take time. Although work has already begun on this, we are aware that the timelines of some projects mean that they will still be delayed if they are required to wait for MPA designations and associated management to be functioning. Where this is the case, the Secretary of State for Energy Security and Net Zero and the Marine Management Organisation may consider circumstances in which the adverse effect can occur before compensation is in place. However, this would need to be considered against other factors. Where this is permitted, a greater amount of environmental compensation is likely to be needed to make up for the time delay and developers will be required to pay into the marine recovery fund before any adverse effect can occur. DEFRA will also be producing high-level implementation and monitoring plans in advance of final MPA designations to assist developers in providing the necessary information at this stage, with final updated plans being provided once designation has taken place.
We recognise that accelerating development of marine activities, and environmental protection and restoration measures such as the designation of new MPAs, is increasing marine spatial tensions. Though not caused by their actions, these competing priorities and demands for space present a challenge for the fishing industry, particularly as it is unlikely that it will be possible to avoid causing an impact on fishing activities in all cases. Fishing is an incredibly important part not just of the UK’s food system, but of our cultural identity as a country—so much so that we will not let these impacts on the industry go unaddressed. That is why DEFRA established, and continues to lead, the cross-Government marine spatial prioritisation programme, working with the Marine Management Organisation, to address this spatial squeeze and ensure that the industry’s interests are represented. The Government will ensure that the sector is supported to adapt to increased pressure on space. We will work with the industry to maintain its viability into the future and ensure that it continues to make a significant contribution to coastal communities. The Government are committed to finding ways for different industries to co-exist and benefit from our marine space. We will also work with the Crown Estate and other relevant stakeholders to see how they can help in this process. Food security is national security, and a sustainable fishing industry is an important part of that.
Alongside designating MPAs for benthic compensation, we will be undertaking a wider review of the MPA network and we will be keeping delivery of the MPA target under review, with the aim of future-proofing the network, for example in terms of climate change adaptation and mitigation, while allowing us to still meet our international commitment to effectively protect 30% of our seas by 2030. A wider network review will also look to provide higher certainty for the fishing industry on the future MPA network.
My announcement today demonstrates this Government’s dual commitment to enabling offshore wind and protecting our precious marine environment, while supporting our fishing industry. The fragile state of our natural environment means that we cannot afford to press ahead without considering the impact on nature—we need to address both the climate and biodiversity crises together.
Our action will help unlock the capacity needed to meet this Government’s ambitious but achievable target of clean power by 2030, building a home-grown energy system that takes back control and can bring down bills for households and businesses for good.
[HCWS394]
Water (Special Measures) Bill [Lords]
Emma Hardy ExcerptsTuesday 28th January 2025
(2 months ago)
Commons ChamberRead Full debate Water (Special Measures) Act 2025 View all Water (Special Measures) Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 28 January 2025 - large print - (28 Jan 2025)
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Ms Nusrat Ghani)
With this it will be convenient to discuss the following:
New clause 1—Water Restoration Fund—
“(1) No more than 60 days after the day on which this Act is passed, the Secretary of State must by regulations make provision for the establishment, operation and management of a Water Restoration Fund.
(2) A Water Restoration Fund is a fund—
(a) into which any monetary penalties imposed for specified offences must be paid, and
(b) out of which payments must be made for expenditure on measures to improve the quality of the freshwater environment in England.
(3) The Secretary of State must by regulations list the specified offences for the purpose of this section, which must include—
(a) any relevant provisions of the Water Resources Act 1991, including—
(i) section 24(4) (unlicensed abstraction or related works or contravening abstraction licence); 22 Water (Special Measures) Bill [HL];
(ii) section 25(2) (unlicensed impounding works or contravening impounding licence);
(iii) section 25C(1) (contravening abstraction or impounding enforcement notice);
(iv) section 80 (contravening drought order or permit);
(v) section 201(3) (contravening water resources information notice);
(b) regulations under section 2 of the Pollution Prevention and Control Act 1999 (regulation of polluting activities etc);
(c) regulations under section 61 of the Water Act 2014 (regulation of water resources etc).
(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) The Secretary of State may by regulations made by statutory instrument add to the list of offences specified in subsection (3).
(6) The provisions in this section replace any existing provision for the sums received for specified offences, including in section 22A(9) of the Water Industry Act 1991 (penalties).”
This new clause would require all funds from fines on water companies for environmental offences to be ringfenced for the Water Restoration Fund, for spending on freshwater recovery.
New clause 2—Abolition of the Water Services Regulation Authority—
“(1) The Water Industry Act 1991 is amended as follows.
(2) For section 1A (Water Services Regulation Authority) substitute the following—
‘1A Abolition of the Water Services Regulation Authority
(1) The body corporate known as the Water Services Regulation Authority (in this Act referred to as “the Authority”) is abolished.
(2) All references to the duties and functions of the Authority in this Act or any other enactment are null and void.’
(3) Omit Schedule 1A (The Water Services Regulation Authority).”
This new clause abolishes Ofwat.
New clause 3—Impact of the Act on the Environment Agency—
“The Secretary of State must, within 12 months of the passing of this Act—
(a) review the impact of this Act on the Environment Agency;
(b) consider whether the Environment Agency requires any additional resources to meet the additional requirements placed upon it by this Act.”
New clause 4—Duty to publish maps of sewage catchment networks—
“After section 205 of the Water Industry Act 1991 insert—
‘205ZA Duty to publish maps of sewage catchment networks
(1) Each relevant undertaker must publish a map of its sewage catchment network.
(2) A map published under this section must illustrate any relevant pumping stations, pipes, and other works constituting part of the undertaker’s sewerage network.
(3) Maps published under this section must be published within 12 months of the passing of this Act, and must be updated whenever changes are made to the sewage catchment network or the components listed in subsection (2).
(4) Maps published under this section must be made publicly accessible on the undertaker’s website.’”
New clause 5—Duty to prevent chemical pollutants entering the water environment—
“After section 68 of the Water Industry Act 1991 (Duties of water undertakers and water supply licensees with respect to water quality), insert—
‘68A Duty to prevent chemical pollutants entering the water environment
(1) It shall be the duty of a water undertaker to take such steps as are necessary to reduce and prevent chemical pollutants, including but not limited to poly- and perfluorinated alkyl substances, entering the water environment.
(2) In fulfilling its duty under subsection (1), a relevant undertaker must publish a strategy outlining how it intends to reduce and prevent chemical pollutants entering the water environment.
(3) In developing a strategy under subsection (2), a relevant undertaker must consult with appropriate agencies, including but not limited to—
(a) the relevant Government department;
(b) the Authority;
(c) the Environment Agency; and
(d) the Drinking Water Inspectorate.
(4) A strategy under subsection (2) must include consideration of how the costs of reducing and preventing chemical pollutants entering the water environment are to be borne or recovered, where such consideration must prevent such cost recovery from resulting in additional charges being made upon consumers.’”
New clause 6—Licence conditions about nature recovery—
“In the Water Industry Act 1991, after section 17FB insert—
‘17FC Nature recovery
(1) reducing flood risk and pollution incidents, improving water quality and benefiting nature restoration in their catchment area.
(2) The Authority must not take any action that discourages or prevents a relevant undertaker from making an investment in accordance with subsection (1).’”
This new clause would make it a condition of all water companies’ licences to consider nature-based solutions to flood risk, improving water quality and benefiting nature restoration in their catchment area, and prevent the regulator from discouraging or stopping such investments.
New clause 7—Review of price review process—
“In section 2 of the Water Industry Act 1991, after subsection (2B) insert—
‘(2BA) In furthering its objectives and purposes under subsection (2A), the Authority must, within 12 months of the passing of the Water (Special Measures) Act 2025, review its practices as to reviewing price limits.
(2BB) A review under subsection (2BA) must consider—
(a) whether the current practice of price reviews every five years should be replaced with an annual, or otherwise more frequent, system;
(b) how changes to inflation and other financial or economic changes could or should be reflected in prices charged by water companies;
(c) how any future system of price reviews could better support undertakers in planning and delivering investments beyond a single asset management plan period.’”
New clause 8—Prohibition on bail-out of water company shareholders and creditors—
“(1) The Secretary of State and His Majesty’s Treasury must not directly or indirectly discharge, assume, or guarantee any debts of legal entities in any water company group subject to proceedings under section 24 of the Water Industry Act 1991 (special administration orders made on special petitions), except in accordance with subsection (2).
(2) The special administrator of a water company may reduce the debts owed by the regulated entity to its creditors by up to 100 per cent, taking into account the future forecast expenditure over the short, medium and long term and subject to the administrator’s confidence in the company’s ability to accommodate this spending.
(3) The prohibition set out in subsection (1) and the reduction of debts set out in subsection (2) must not include pension, wage and other obligations owed to employees, excluding any past or current member of a board of directors, within the water company group.”
This new clause aims to allow up to 100% of debts to be cancelled in the event of special administration proceedings, taking into account the scale of investment required to hit the future targets established by the Authority.
New clause 9—Ofwat to publish guidance on debt levels after administration—
“In section 2 of the Water Industry Act 1991, after subsection (2D) insert—
‘(2DZA) For the purposes of ensuring that relevant undertakers are able to finance the proper carrying out of their functions under subsection (2A)(c), the Authority must establish guidelines to be followed by relevant undertakers who have been in special administration.
(2DZB) Guidelines produced under subsection (2DZA) must—
(a) set out a maximum level of debt which can be accrued by the undertaker;
(b) set out a process for agreeing capital expenditure necessary for service improvements, bill increases, and changes to operating costs while the undertaker is subject to the Special Administration Regime;
(c) state the penalties which will be imposed for breaches of such guidelines, which may include—
(i) financial penalties;
(ii) prohibitions on the payment of dividends or other bonuses; or
(iii) such other special measures as the Authority deems appropriate.’”
New clause 11—Duty on sewerage undertakers to monitor overflows at sewage treatment works, pumping stations and on the sewer network—
“(1) The Water Industry Act 1991 is amended as follows.
(2) In section 94—
(a) after subsection (1)(b) insert—
‘(c) to make provision for the accurate collection of data relating to its performance in fulfilling its duties under paragraphs (a) and (b).’
(b) after subsection (2) insert—
‘(2A) In performing its duties under subsection (1)(c), a sewerage undertaker must—
(a) install volume flow meters in all locations where sewage overflows occur, including sewage treatment works, pumping stations and on the sewer network for which it is responsible;
(b) establish appropriate required capacities for each sewage treatment works and pumping station;
(c) publish information on the data and calculations used to establish such required capacities; and
(d) install all required monitoring tools within 12 months of the passing of this Act.’”
New clause 12—Rules about performance-related pay—
“(1) The Water Industry Act 1991 is amended as follows.
(2) After section 35D (inserted by section 1 of this Act) insert—
‘35E Rules about performance-related pay
(1) The Authority must issue rules prohibiting a relevant undertaker from giving to persons holding senior roles performance-related pay in respect of any financial year in which the undertaker has failed to prevent all sewage discharges, spills, or leaks.
(2) The rules issued under subsection (1) must include—
(a) provision designed to secure that performance-related pay which, if given by a relevant undertaker, would contravene the pay prohibition on the part of the undertaker, is not given by another person;
(b) that any provision of an agreement (whether made before or after the issuing of the rules) is void to the extent that it contravenes the pay prohibition;
(c) provision for a relevant undertaker to recover any payment made, or other property transferred, in breach of the pay prohibition.
(3) For the purposes of subsection (1)—
(a) “performance-related pay” means any payment, consideration or other benefit (including pension benefit) the giving of which results from the meeting of any targets or performance standards on the part of the relevant undertaker or the person to whom such payment, consideration or benefit is given;
(b) a person holds a “senior role” with a relevant undertaker if the person—
(i) is a chief executive of the undertaker,
(ii) is a director of the undertaker, or
(iii) holds such other description of role with the undertaker as may be specified.’”
This new clause creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills, or leaks.
New clause 13—Rules about competitive procurement in water infrastructure—
“(1) The Water Industry Act 1991 is amended as follows.
(2) After section 35A insert—
‘Rules about competitive procurement in water infrastructure
(1) The Authority must issue rules requiring relevant undertakers to use competitive procurement processes in respect of procurement relating to water infrastructure.
(2) If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction.
(3) It is the duty of a relevant undertaker to comply with a direction given under subsection (2), and this duty is enforceable by the Authority under section 18.
(4) Rules under this section may—
(a) make different provision for different relevant undertakers or descriptions of undertakers;
(b) make different provision for different purposes;
(c) make provision subject to exceptions.
(3) The Authority may from time to time—
(a) revise rules issued under this section, and
(b) issue the revised rules.’”
New clause 14—Ofwat consideration of pollution targets for price reviews—
“(1) The Water Industry Act 2011 is amended as follows.
(2) After section 17I insert—
‘“17IA Duty to have regard to pollution targets in carrying out price reviews
When carrying out a periodic review for the purpose of setting a Price Control in respect of one or more relevant undertakers, the Authority must have regard to the performance of the relevant undertaker or undertakers against pollution targets across the previous five years.’”
New clause 15—Database of performance of sewerage undertakers—
“(1) The Water Industry Act 1991 is amended as follows.
(2) In Chapter 3 of Part II (Protection of customers etc), after section 27ZA (Power to require information for purpose of monitoring) insert—
‘27ZB Duty to establish database
(1) It shall be the duty of the Authority to establish and maintain a database containing information relating to the performance of sewerage undertakers.
(2) The database must—
(a) be publicly and freely accessible;
(b) enable uploaded information to be updated in live-time;
(c) contain such data or information as the Authority thinks is necessary for the purposes of public transparency as to the performance of sewerage undertakers; and
(d) contain—
(i) current and historic data; and
(ii) data and information which has been independently collected or analysed including—
(a) the start time, end time and duration of all sewage spill events,
(b) flow data from flow monitors,
(c) the location of each flow meter from which flow data is provided.
(3) The Authority may make rules about the provision of data and information under this section.
(4) Rules under subsection (3) must include rules relating to information provided about the location of flow meters.
(5) The Authority may impose penalties on undertakers who fail to provide such information as is required by this section.’”
New clause 16—Establishment of Water Restoration Fund—
“(1) The Secretary of State must, within 60 days of the passing of this Act, make provision for the establishment, operation and management of a Water Restoration Fund.
(2) A Water Restoration Fund is a fund—
(a) into which any monetary penalties imposed on water companies for specified offences must be paid, and
(b) out of which payments must be made for expenditure on measures—
(i) to help water bodies, including chalk streams, achieve good ecological status, and improve ecological potential and chemical status;
(ii) to prevent further deterioration of the ecological status, ecological potential or chemical status of water bodies, including chalk streams;
(iii) to enable water-dependent habitats to return to, or remain at, favourable condition;
(iv) to restore other water-dependent habitats and species, especially where action supports restoration of associated protected sites or water bodies.
(3) The Secretary of State must, by regulations, list the specified offences for the purposes of this section, which must include—
(a) any relevant provisions of the Water Resources Act 1991, including—
(i) section 24(4) (unlicensed abstraction or related works or contravening abstraction licence);
(ii) section 25(2) (unlicensed impounding works or contravening impounding licence);
(iii) section 25C(1) (contravening abstraction or impounding enforcement notice);
(iv) section 80 (contravening drought order or permit);
(v) section 201(3) (contravening water resources information notice);
(b) any relevant regulations under section 2 of the Pollution Prevention and Control Act 1999 (regulation of polluting activities etc) related to water pollution;
(c) regulations under section 61 of the Water Act 2014 (regulation of water resources etc).
(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) The provisions in this section replace any existing provision for the sums received for specified offences, including in section 22A(9) of the Water Industry Act 1991 (penalties).”
New clause 17—Rules about borrowing—
“After section 154B of the Water Industry Act 1991 (financial assistance for major works) insert—
‘Chapter III
Rules about borrowing for undertakers
154C Restrictions on undertakers relating to borrowing
(1) The Secretary of State may by regulations made by statutory instrument implement a limit on borrowing by a relevant undertaker.
(2) Where a relevant undertaker has total borrowing exceeding the limit set by regulations made under subsection (1), the relevant undertaker may not make a payment of dividends, capital, assets, or interest to shareholders or controlling entities.
(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.’”
This new clause would enable limits to be placed on the amount of money that can be borrowed by a water or sewerage undertaker, and prevent an undertaker who has exceeded such limits from being able to pay dividends to shareholders.
New clause 19—Civil penalties: equivalent reduction to customer bills—
“(1) The Secretary of State must make provision for any monetary penalties imposed on a water company to result in equivalent reductions to the amounts charged to customers by the relevant water company.
(2) In fulfilling its duties under subsection (1), the Secretary of State must arrange, annually—
(a) for the total amount of monetary penalties imposed on a water company in the previous year to be calculated;
(b) for that total to be divided by the number of customers of the water company;
(c) for each customer’s next bill from the water company to be reduced by that figure.
(3) Any reduction applied under this section must be indicated on a customer’s statement of account.
(4) In this section, ‘water company’ has the meaning given by section 6(5).”
This new clause would provide for any fines imposed on water companies to result in equivalent reductions to customers’ bills.
New clause 20—Principles of best regulatory practice—
“In section 2 of the Water Industry Act 1991, after subsection (4) insert —
(4A) For the purposes of having regard to the principles of best regulatory practice, the Authority shall not employ any individual who has been employed by a relevant undertaker in the preceding three years.”
New clause 21—Environmental duties with respect to protected landscapes—
“After section 4 of the Water Industry Act 1991 insert—
‘4A Environmental duties with respect to protected landscapes
(1) Where a relevant undertaker operates, or has any effect, on land within protected landscapes, that undertaker must—
(a) Secure and maintain “high ecological status” in the water in these areas by 2028;
(b) further the conservation and enhancement of wildlife and natural beauty;
(c) improve every storm overflow that discharges within these areas by 2028;
(d) reduce the load of total phosphorus discharged into freshwaters within these areas from relevant discharges by 2028 to at least 90% lower than the baseline as defined in Regulation 13(1) of the Waste Water Targets set under the Environment Targets (Water) (England) Regulations 2023.
(2) A relevant undertaker must be put into special administration, and not be eligible for a further licence, if it fails to—
(a) demonstrate adequate progress each year;
(b) meet the targets in subsection (1).
(3) Within one year of the day on which the Water (Special Measures) Act 2025 is passed, the Secretary of State must lay a report on the undertakers’ implementation of the environmental duties in subsections (1) and (2) before Parliament.
(4) Following the first report being published under subsection (3), a progress report on implementation must be included in the annual environment improvement plan, issued under section 8 of the Environment Act 2021.
(5) The Secretary of State must by regulations make provision requiring an undertaker to achieve bespoke objectives for specific iconic and the most culturally and ecologically significant waterways, including, where appropriate, complete removal of sewage discharge from the undertaker’s infrastructure.
(6) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(7) In this section—
“protected landscapes” includes national parks, national landscapes and national trails;
”land” includes rivers, lakes, streams, estuarine and other waterways;
”High Ecological Status” means the classification of water bodies defined in Regulation 6 of The Water Environment (Water Framework Directive) (England and Wales) Regulations 2017.’”
New clause 22—Consultation on public ownership of water companies—
“(1) The Secretary of State must within three months of this Act coming into force, publish a public consultation on making provision for the transfer of ownership of undertakers to public ownership.
(2) The consultation must consider—
(a) the process of transferring private water companies to public ownership;
(b) the circumstances in which water companies will be transferred to public ownership;
(c) the establishment of new public bodies to manage water services;
(d) transition arrangements for employees, contracts, and ongoing operations;
(e) governance structures for publicly-owned water services, including provisions for local democratic control and accountability.
(3) The Secretary of State must, within twelve months of the passing of this Act, lay before both Houses of Parliament a report on this consultation.”
New clause 23—Special administration for breach of environmental and other obligations—
“(1) Section 24 of the Water Industry Act 1991 (special administration orders made on special petitions) is amended as follows.
(2) After subsection (2)(a), insert—
‘(aa) that there have been failures resulting in enforcement action from the Authority or the Environment Agency on three or more occasions to—
(i) maintain efficient and economical water supply,
(ii) improve mains for the flow of clean water,
(iii) provide sewerage systems that are effectually drained,
(iv) comply with the terms of its licence, or
(v) abide by anti-pollution duties in the Environmental Protection Act 1990, Water Resources Act 1991, or the Environmental Permitting (England and Wales) Regulations 2016 (SI 2016/1154);’
(3) After subsection (2), insert—
‘(2A) In support of an application made by virtue of subsection (1)(a) in relation to subsection (2)(aa), the Secretary of State must compile and present to the High Court records of—
(a) water pipe leaks
(b) sewage spilled into waterways, bathing waters, and private properties, and
(c) falling below international standards of effective water management.’”
This new clause aims to require the Secretary of State to place a water company into special administration arrangements if they breach certain environmental or other conditions.
New clause 24—Special administration: criminal convictions—
“After subsection (2)(e) of section 24 of the Water Industry Act 1991 insert—
‘(f) that has been the recipient of two or more criminal convictions in the last five years.’”
This new clause aims to exert pressure on companies to operate within the law by preventing water companies with numerous criminal convictions from remaining in business.
New clause 25—Companies to be placed in special measures for missing pollution targets—
“In section 2 of the Water Industry Act 1991, after subsection (2D) insert—
‘(2DZA) For the purposes of ensuring that the functions of water and sewerage undertakers are properly carried out, the Authority must establish—
(a) annual, and
(b) rolling five-year average pollution targets which must be met by water and sewerage undertakers, and the penalties to be imposed for failure to meet such targets.
(2DZB) The performance of a water or sewerage undertaker against such targets must be measured through independent analysis of monitoring data.
(2DZC) A timetable produced under subsection (2DZA)(b) must require the following reductions in the duration of sewage spill events, using the annual total hours’ duration of all sewage spill events recorded by Event Duration Monitors, based on an average from the last five years, as a baseline—
(a) a 25% reduction within five years;
(b) a 60% reduction within ten years;
(c) an 85% reduction within fifteen years; and
(d) a 99% reduction within twenty years.
(2DZD) A water or sewerage undertaker which fails to meet pollution targets set out by the Authority will be subject to such special measures as the Authority deems appropriate, which may include—
(a) being required to work on improvement projects with or take instruction from the Authority, the relevant Government department, or such other bodies or authorities as the Authority deems appropriate; and
(b) financial penalties.’”
New clause 26—Independent review: companies exiting a special administration regime—
“(1) The Secretary of State must, within six months of the passing of this Act, either—
(a) commission an independent review, or
(b) take steps to extend the terms of reference of any existing independent review or commission,
to consider the merits of changing the law to provide that a water company exiting a special administration regime becomes a company mutually owned by its customers.
(2) A review under subsection (1) must consider—
(a) the general merits of mutual ownership of water companies in such circumstances, and
(b) what model of mutual ownership would be most suitable.
(3) The Secretary of State must, as soon as practicable after receiving a report of a review under subsection (1), lay before both Houses of Parliament—
(a) a copy of the report, and
(b) a statement setting out the Secretary of State’s response to that report.”
This new clause would require the Secretary of State to commission an independent review of the potential merits of changing the law so that a water company exiting a special administration regime becomes a company mutually owned by its customers.
Amendment 23, in clause 1, page 1, line 11, at end insert—
“(1A) The Authority must use its power under subsection (1) to issue rules which require—
(a) the interests of customers, and
(b) the environment,
to be listed as primary objectives in a relevant undertaker’s Articles of Association.”
Amendment 15, in clause 1, page 2, line 3, at end insert—
“(d) requiring the management board of a relevant undertaker to include at least one representative of each of the following—
(i) groups for the benefit and interests of consumers;
(ii) groups for the benefit and interests of residents of the areas in which the undertaker is operational;
(iii) experts in water and sewerage policy and management; and
(iv) environmental interest groups.”
Amendment 16, in clause 1, page 2, line 3, at end insert—
“(d) preventing a relevant undertaker from employing any individual who has been employed by the Authority in the preceding three years.”
Amendment 17, in clause 2, page 4, line 34, after “occurrence” insert “and impact”. Amendment 19, in clause 2, page 5, line 15, after “occurrence” insert “and impact”.
Amendment 18, in clause 2, page 5, line 17, at end insert—
“(ea) the use the undertaker plans to make of nature-based solutions for reducing the occurrence and impact of pollution incidents,”.
Amendment 11, in clause 3, page 7, line 35, at end insert—
“(e) the volume of the discharge.”
Amendment 12, in clause 3, page 7, line 38, leave out “subsection (1)(d)” and insert “subsections (1)(d) and (e)”.
Amendment 1, in clause 3, page 8, line 5, at end insert—
“(c) be published on the home page of the undertaker’s website.”
This amendment would ensure that information regarding a discharge from an emergency overflow must be published on the home page of the undertaker’s website.
Amendment 13, in clause 3, page 8, line 5, at end insert—
“(c) be uploaded and updated automatically, where possible;
(d) be made available on the undertaker’s website alongside searchable and comparable historic data.”
Amendment 14, in clause 3, page 8, line 5, at end insert—
“(3A) The undertaker must ensure that, within 12 months of the passing of this Act, appropriate monitors are installed to collect the information required by subsection (1).”
Amendment 22, in clause 3, page 8, line 27, leave out from start to “in” and insert
“a Minister with specific responsibility for issues relating to the coast,”.
Amendment 2, in clause 3, page 9, line 23, at end insert—
“141H Failure to report discharge from emergency overflows
(1) If a relevant undertaker fails to comply with its duties under section 141F—
(a) the undertaker commits an offence, and
(b) the chief executive of the undertaker commits an offence, subject to subsection (2).
(2) It is a defence for the chief executive to prove that they took all reasonable steps to avoid the failure.
(3) A person who commits an offence under this section is liable, on summary conviction or conviction on indictment, to imprisonment for a term not exceeding 5 years or an unlimited fine, or both.”
This amendment would make it an offence for an undertaker to fail to comply with its duty to report discharges from emergency overflows.
Amendment 3, in clause 3, page 9, line 23, at end insert—
“141H Restriction on the use of emergency overflows in areas used for aquatic sports
(1) A sewerage undertaker must not permit a discharge from an emergency overflow in an area used for aquatic sports.
(2) In this section, an “area used for aquatic sports” is a section of any body of water connected to and within a one mile radius of—
(a) the clubhouse of a rowing club affiliated with British Rowing,
(b) a Royal Yacht association training centre or the clubhouse of an affiliate member, and
(c) the properties or facilities used by any organisation that the Secretary of State deems to provides water-based sporting activities for the purpose of teaching, training or leisure.
(3) If a relevant undertaker fails to comply with its duties under section (1)—
(a) the undertaker commits an offence, and
(b) the chief executive of the undertaker commits an offence, subject to subsection (4).
(4) It is a defence for the chief executive to prove that they took all reasonable steps to avoid the failure
(5) A person who commits an offence under this section is liable, on summary conviction or conviction on indictment, to imprisonment for a term not exceeding 5 years or an unlimited fine, or both.”
This amendment creates an offence for a sewerage undertaker to use an emergency overflow in an area used for aquatic sports.
Amendment 20, in clause 4, page 9, line 29, leave out
“use that is to be made of”
and insert
“priority that is to be given to”.
Amendment 21, in clause 9, page 13, line 40, leave out from “duties” to end of page 14, line 2.
Government amendment 4.
Amendment 9, in clause 12, page 15, line 34, leave out from “to” to “such” in line 36 and insert “recover from its creditors”.
Amendment 26, in clause 12, page 15, line 39, at end insert—
“(2A) The Secretary of State may not require or permit any modified charges to be imposed on persons who do not receive services from the company for the purposes of making good any SAO loss.”
Amendment 10, in clause 13, page 18, line 13, leave out from “to” to “such” in line 15 and insert “recover from its creditors”.
Amendment 27, in clause 13, page 18, line 18, at end insert—
“(2A) The Secretary of State may not require or permit any modified charges to be imposed on persons who do not receive services from the company for the purposes of making good any SAO loss.”
Amendment 24, in clause 15, page 21, line 4, leave out subsections (2) to (8) and insert—
“(2) The provisions of this Act come into force on the day on which this Act is passed.”
Government amendments 5, 6, 7 and 8.
Emma Hardy
What a delight it is to be back in the Chamber debating this transformational Bill. I will keep my opening comments brief, because I know that many want to speak, and I will respond to amendments tabled by hon. Members when closing this debate after hon. Members have spoken to them, as is established practice.
I want to start by thanking all members of the Public Bill Committee for their careful consideration and scrutiny of the Bill and, dare I say, their comradery in discussions and debates. It is clear that this is an area that everyone acknowledges is in need of change and reform. I also thank the Chairs, the hon. Member for Brigg and Immingham (Martin Vickers) and my hon. Friend the Member for Ealing Central and Acton (Dr Huq). It was a pleasure to serve under them.
Since being in Committee, I have had several further insightful conversations on the Bill with Members from across the House and on the amendments tabled by the Government for consideration on Report, which I will take the opportunity to speak to now. I will start with Government amendment 4, which is a minor and technical amendment that ensures that clause 10 encompasses new enforcement functions arising from the changes made to clause 2 in the other place.
Government amendment 4 clarifies that cost recovery powers for the Environment Agency, expanded by the provisions in clause 10, also extend to costs incurred when enforcing the requirement to publish implementation plans. That requirement was added on Report in the Lords after cross-party discussions and collaboration. The amendment also clarifies that EA cost recovery powers concerning both pollution incident reduction plans and implementation reports are available for plans covering areas that are wholly or mainly in Wales, as well as for plans covering England, which are already included in clause 10. Such clarifications ensure that the EA regulators in both England and Wales can fully recover costs for the extent of their water company enforcement activities and carry out their duties and functions effectively.
The Government have tabled amendments 5 to 7 in order to commence clause 1 on Royal Assent. That will give Ofwat and companies certainty on when the powers to make rules on remuneration and governance will come into force and will therefore be useful to companies in planning for the 2025-26 financial year. Commencement of clause 1 on Royal Assent will ensure Ofwat can implement its rules as soon as possible following its statutory consultation with relevant persons, which include the Secretary of State, Welsh Ministers and the Consumer Council for Water. I know that some Members have expressed concerns around the timeline over which Ofwat’s rules will come into effect. I therefore hope the alteration to the commencement provisions for clause 1 will reassure those Members that the Government and the regulators are absolutely committed to ensuring Ofwat’s rules are put in place as quickly as possible.
I now turn to new clause 18, which is the most substantial of the Government amendments. As I have stated before, this Government are a Government of service, and we are absolutely committed to taking action to address water poverty. We are working with industry to keep existing support schemes under review to ensure vulnerable customers across the country are supported. We also expect companies to hold themselves accountable for their public commitment to end water poverty by 2030 and will work with the sector to ensure appropriate measures are taken to deliver that.
That is why we have tabled the new clause, which adds to the existing powers to provide for special charging arrangements for customers in need. The new provision will enable water companies to provide consistent support for consumers across the country. It will also allow for automatic enrolment on any future scheme and broader information sharing between public authorities and water companies. The clause imposes a requirement for consultation on any future scheme, and it also amends the Digital Economy Act 2017 to ensure that water companies identify eligible customers and that they get the full support to which they are entitled.
Sir John Hayes (South Holland and The Deepings) (Con)
I am grateful to the Minister for giving way and for her ongoing discussions about drainage and local authorities and other water-related matters. On the issue of water poverty, can she confirm that, either as part of the Bill or as an adjunct to it, when water companies fail to deliver an adequate service in new build situations—where new houses are built, but the water infrastructure is insufficient to furnish those new houses with the proper supply of water—the Bill and the regulatory environment that she has just described will allow customers to get their entitlement and to free themselves from water poverty, as she put it?
Emma Hardy
I thank the right hon. Gentleman for his intervention and also for the many times that he has talked to me about internal drainage boards since I became a Minister. On his question, if customers are not getting the service to which they are entitled, that is absolutely something that should be taken through Ofwat and the regulators. I am more than happy to pick that matter up with him outside the Chamber.
I hope that Members across the House will agree that new clause 18 is a welcome addition to the Bill, ensuring that the Government have the necessary powers in place to bring forward secondary legislation in future—once we have thoroughly considered all options for improving the support available for vulnerable customers.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
Does the Minister agree that it is supremely unjust that, in Wales, customers face some of the highest bills for their water, despite having some of the lowest incomes in the United Kingdom?
Emma Hardy
Bills have obviously had to increase in the latest price review because we have had record levels of under-investment in our infrastructure. However, new clause 18 is intended to ensure greater fairness. It is important for struggling customers that he, as the local Member of Parliament, is talking to the water companies to ensure that they are informed about the support mechanisms that are available, and about how they can access them and everything else to which they are entitled.
Graham Stuart (Beverley and Holderness) (Con)
I am extremely grateful to the Minister for giving way. She will know that just 7% of outfalls were monitored when Labour last left office. I am pleased to say that that figure is now 100%. Does she not agree that new clause 16 would ensure that the fines collected from polluting water companies through the water restoration fund, which was founded by the Conservatives in 2022, are used to improve and prevent further deterioration of our waterways, including our precious chalk streams? Will she now do what we all look to Ministers to do, which is pirouette at the Dispatch Box, recognise the rightness of the cause and change course?
Emma Hardy
The right hon. Gentleman is indeed an eager beaver. As much as I do not wish to pour water on his enthusiasm, I will of course respond to all the amendments at the end of this stage of the Bill, as protocol expects. I hope he is able to contain his excitement, and is looking forward to my final comments on that area. And I shall be practising my pirouettes in anticipation.
I wish to pay special thanks to the Welsh Government, the Deputy First Minister and the officials who have worked so openly and collaboratively with the UK Government throughout the development and passage of this Bill. I also thank the Senedd for their consent, which we received on 21 January. I look forward to continuing to work closely with our Welsh counterparts to protect our rivers, lakes and seas, particularly those that cross our borders.
Catherine Fookes (Monmouthshire) (Lab)
I thank my hon. Friend for all her work on this Bill. Does she agree that we have made much more progress on banning bosses’ bonuses in the six months that we have been in office than the Conservatives did in 14 years?
Emma Hardy
That excellent point was well made by my hon. Friend. I hope all hon. Members agree that the amendments tabled by the Government will only strengthen this Bill and will support new clause 18.
Several hon. Members rose—
Emma Hardy
I thank Members for their constructive engagement throughout this debate. As I have said before, it is wonderful to hear the shared passion across this House for improving the performance of the water sector so that it better delivers for customers and the environment. Given the limited time that I have to address over 50 amendments—I am not looking in any one direction—
Jerome Mayhew (Broadland and Fakenham) (Con)
The Minister makes reference to the very limited time. Why is that? This is a Government who hold general debates on Mondays and Thursdays. They have no business, yet we have less than two hours to debate this really important issue.
Emma Hardy
The hon. Member and I served on the Public Bill Committee, where we spent much time discussing many of the amendments. I cannot comment on decisions about the business of the House and urgent questions.
As I say, I will do my absolute best to cover all the points raised by hon. Members. I hope they accept that I generally try to be generous with interventions, but I want to put on the record my response to the amendments. I hope the House will give forgive me.
A number of hon. Members have tabled amendments that seek to increase transparency around water company operations and pollution incidents. The Government absolutely agree that greater transparency is needed to better enable the regulators and the public to hold water companies accountable. Although I have previously explained why it is not practical to prohibit all discharges from emergency overflows, which are a necessary safety valve in our sewage system, I reiterate this Government’s commitment to reducing the harm caused by sewage discharge. Ensuring that all emergency overflows are monitored is a critical step in enabling the outcomes that we all want to see. Information on the frequency and duration of discharges will help to direct investment to further reduce sewage discharges into our waterways, and to better enable the public to make informed decisions about accessing their local waterways.
Mr Gagan Mohindra (South West Hertfordshire) (Con)
Will the Minister give way?
Mr Mohindra
I thank the Minister for being so generous with her time. As she will be aware, the United Kingdom has most of the world’s chalk streams, and the River Chess runs through my constituency. How can she ensure that we continue to monitor our unique environment and protect it from the threat of overflows, to which she just referred?
Emma Hardy
I share the hon. Gentleman’s passion and love for chalk streams—the rainforests of the United Kingdom. Part of this Bill will drive the performance change in the industry that we want to see and reduce sewage discharges, which are doing such damage to such precious habitat.
Although some Members have called for the Government to go even further on monitoring, I reassure the House that we have carefully considered how best to increase transparency without driving unmanageable increases in customers’ bills. As promised in Committee, I have provided a factsheet on this issue, and I can make it available in the House of Commons Library. Rolling out event duration monitors over two price review periods will provide the best value for money for customers and the environment, and does not risk compromising water companies’ ability to deliver other vital improvements to our sewage system.
It is important that we direct investment at improving the sewage network to decrease overflow charges, and not just at monitoring, particularly where it does not provide valuable insight into the harms associated with discharge. There is a balance to be struck, and I believe we have got it right. The public know that there is too much sewage in our waterways. Whichever way we look at it—be it through volume or duration—they know there is too much. The focus must be on reducing it.
Anna Dixon (Shipley) (Lab)
My hon. Friend talks about the importance of water quality. Will she join me in commending campaigns such as the Ilkley Clean River Group and other citizen scientists across the country? In the absence of data collected under the Conservatives and the work of the Environment Agency, they had to do the work themselves to expose the sewage scandal.
Emma Hardy
I wholeheartedly pay tribute to the Ilkley Clean River Group and to the work that my hon. Friend does in championing it in this House.
Ms Polly Billington (East Thanet) (Lab)
I remind my hon. Friend how much this matters to my constituents in East Thanet. We are surrounded on three sides by the sea, yet we manage to clean up our water. However, I was struck by the fact that the Reform manifesto did not contain one word about water pollution or safety. I also want to point out the emptiness of the Opposition Benches in this debate. That should be put on the record.
Emma Hardy
I thank my hon. Friend for her intervention. I would have thought that this would be an important issue for all political parties.
Alison Hume (Scarborough and Whitby) (Lab)
Residents in Grosmont in my constituency have had a van parked in the street processing raw sewage, with a pipe left open in the street, for months between the processing of the sewage and the holding tank being emptied. Does my hon. Friend agree that disgusting incidents such as these illustrate our crumbling water infrastructure and the importance of the Bill, which will ringfence funding for vital infrastructure?
Emma Hardy
I wholeheartedly agree with my hon. Friend. What she is witnessing in the streets of her constituency is a perfect example of the crumbling infrastructure that we have inherited.
Several hon. Members rose—
Emma Hardy
Let me try to get through my remarks.
If it becomes feasible in future for companies to install monitors more quickly, they will be encouraged to do so. In addition to reporting requirements for emergency overflows, other measures in this Bill will ensure that water companies have robust plans to reduce pollution incidents and empower the regulator to punish wrongdoing effectively. This includes requirements to produce pollution incident reduction plans and implementation reports, as set out in clause 2 of the Bill, and requirements for water companies to consider the use of nature-based solutions in the production of their drainage and wastewater managements plans, as set out in clause 4.
The transparency provided by these measures will drive a culture change ensuring that water companies have the right incentives to reduce discharges of sewage into our precious rivers, lakes and seas. Let me be clear that the Bill also provides comprehensive powers for Ofwat to enforce the requirements introduced by the Bill to increase transparency, including through use of significant fines. I can reassure the House that where discharges are found to have breached permit conditions, the regulator will not hesitate to take action. In relation to new clause 14, I also make it clear that Ofwat has a duty to secure that companies are able to finance the delivery of their statutory obligations, including meeting pollution targets.
The Government are committed to acting as fast as possible to reduce sewage pollution in our waterways, and already have stretching pollution targets in place, informed by detailed analysis and extensive engagement. These targets will drive £60 billion of investment between 2025 and 2050, and almost £12 billion of that investment will begin this year, improving 2,800 storm overflows by 2030. I hope this reassures the House that, where water companies do not comply with requirements around pollution incidents and the reporting of those pollution incidents, the regulator will not hesitate to take action.
Pippa Heylings
The water restoration fund was created by the previous Government, yet not one penny of the £11 million levied on water companies between 2022 and 2023 reached any restoration of the waterways. Does the Minister agree that our precious chalk streams could be helped by the water restoration fund being continued?
Emma Hardy
As I have mentioned, I am a huge fan of our chalk streams. The hon. Member is right to point out that the much-lauded water restoration fund that some Members are so keen to talk about was established in November 2022, yet 18 months later the grand total of the number of projects supported by it was zero.
A number of hon. Members have also put forward suggestions to improve information and data sharing more broadly. The hon. Member for Beaconsfield (Joy Morrissey) has put her name to some of these amendments. Although the Government do not think it necessary to bring forward legislation in this space, we are actively considering ways of making data more accessible to the public through non-legislative means. This includes information on water companies’ performance and data on local sewer networks in map form, which must be made available free of charge under the Water Industry Act 1991.
Matt Rodda
I am grateful to the Minister for giving way. Her comments on this point will be welcomed by many of our local residents. Will she provide further information about the greater powers for Ofwat?
Emma Hardy
This Bill will, of course, empower Ofwat to take necessary action where it finds wrongdoing, including through changes to remuneration under clause 1. I know my hon. Friend cares a lot about this.
Several hon. Members rose—
Emma Hardy
I am sorry, but I will have to stop taking interventions if I am to respond to all the amendments.
Water UK has published a centralised map on its website of discharge data from all storm overflows operated by English water companies. I genuinely found it clear and useful, so I encourage all hon. Members to have a look.
I have heard calls from across the House for reforming the planning frameworks, the regulators and the incentives that govern the water industry model. Although I understand and, believe me, fully share hon. Members’ frustrations with the performance across the water sector, the fundamental issues facing the water industry and the regulatory framework in which it operates can no longer be addressed in a piecemeal way. I have spoken at great length throughout the Bill’s passage about the independent commission led by Sir Jon Cunliffe, which will make recommendations to fundamentally transform how our water system works.
The broad-ranging commission is bringing together a wide range of expertise to make recommendations in line with eight objectives to deliver the necessary reset to ensure a resilient, innovative and sustainable water sector in England and Wales. It will report to the Government by summer 2025. This includes specific objectives to review the roles, structures, duties and powers of the regulators, the planning frameworks—including the price review process—and the resilience of water companies. That includes financial resilience, which I know matters to many hon. Members.
Points have been raised about taking water companies into public ownership, and the Government have repeatedly made it clear that we do not consider nationalisation to be within the commission’s scope. Nationalisation would cost over £90 billion, and it would take years to unpick the current ownership model, at the expense of delivering and addressing more immediate public priorities. However, the commission will consider alternative water industry models within its scope. I take this opportunity to invite all hon. Members to put forward their views to the commission through the upcoming call for evidence, which will be launching soon.
Emma Hardy
Despite our political differences, the hon. Gentleman and I had a very interesting and—what is the right word?—comradely debate in Committee.
As we explained in Committee, conversations on the water restoration fund are still ongoing. I honestly do not believe that primary legislation is needed, which Conservative Front Benchers know, as they established the fund without primary legislation. I gently point out, as I have already mentioned, that within the 18 months of its establishment under the previous Government, the fund did absolutely nothing.
Emma Hardy
I have two minutes remaining, so I have to skip through as much as I can, as I know Members will want me to answer questions, particularly on the SAR.
Some hon. Members have expressed concern about the rules on performance-related pay and consumer representation. Although the Government agree it is crucial that consumers’ voices are heard and considered in water company decision making, we have already taken action on this. It is not necessary to require environmental experts to be placed on company boards because, following the agreement made with my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs in his first week in office, nine of the 16 companies have updated their articles of association to include a social and environmental commitment. DEFRA is working with all of them to ensure they do the rest as soon as possible.
I agree with the hon. Member for Westmorland and Lonsdale (Tim Farron) about the representation of environmental non-governmental organisations on company boards. Members of water company boards are subject to a number of duties under the Companies Act 2006, including a duty to promote the success of that company. A director’s fiduciary duties may conflict with the organisational objectives of the environmental group in question, thus preventing their objective participation in board membership. We cannot have a situation in which an environmentalist on a water company board is not comfortable with their duty to promote the success of that company.
I produced a factsheet detailing how the SAR is used to ensure the continued provision of vital public services. However, I remind the House of the facts. I am being very clear: the shortfall recovery power can only be used to recover shortfalls in repaying Government funding. For the last time, I hope, it cannot and would never be used to recover financial creditor or shareholder losses relating to investment in the company. If the amendments were accepted as proposed, it would involve a radical change to insolvency policy, which has been a long-established practice since 1986.
Question put and agreed to.
New clause 18 accordingly read a Second time, and added to the Bill.
Water (Special Measures) Bill [ Lords ] (Fifth sitting)
Emma Hardy ExcerptsThursday 16th January 2025
(2 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Water (Special Measures) Act 2025 View all Water (Special Measures) Act 2025 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2025 - (16 Jan 2025)
Charlie Maynard
That may be a chink of light, because all I have heard from the Government so far is “Only private companies welcome here.” My understanding is that the Cunliffe review’s remit purposely excludes ownership. If that is now on the table, it is great news, because it is one of the fundamental problems in the water sector. If the commission’s remit now includes ownership structures, I am delighted. I would love the Minister to clarify the point.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
It is a pleasure to serve under your chairwomanship once again, Dr Huq. As promised, I have provided a fact sheet on the use of special administration. All Committee members should have received it by email, but hard copies are available on the table for their convenience.
Welcome to the last day of Committee.
Charlie Maynard
We all welcome one another, but I meant the fact sheet. I really appreciate your going to the trouble of putting it together; I thank your team as well. I have read it diligently and done my best, but I have a quiz question for you. The first bullet point refers to giving
“the power to recover HMG funding should there not be sufficient funds to pay HMG back at the end of a SAR.”
Then, under the heading “Context”, the penultimate bullet point states:
“If this shortfall occurred, and Ministers decided to use this new power, the Secretary of State and Welsh Ministers must launch a consultation prior to this power being used. This will ensure that those affected (e.g. water billpayers) are able to provide their views. It will also ensure that the shortfall recovery mechanism is implemented in a way that means costs are recovered fairly.”
To me, that completely confirms paragraph 69 of the explanatory notes published by the Department for Environment, Food and Rural Affairs, which says that the Government will make the bill payers, as opposed to the creditors, pay for the costs. Please confirm, if you could.
Emma Hardy
At the risk of having the same debate over and over, I refer the hon. Member to the last page of our fact sheet. I am not sure how much clearer we can make it:
“Would the shortfall recovery mechanism be used to compensate financial creditors or shareholders following a SAR?
No. The shortfall recovery mechanism could only ever be used to recover a Government shortfall in the unlikely event of a SAR.”
Once again, I welcome everybody to the last day of this Committee. As I may not have the opportunity to do so later, may I thank all Members for their contributions and for taking part? I especially thank the hon. Member for Westmorland and Lonsdale for tabling another new clause.
As I have said, a special administration regime enables a company that provides vital public services, such as water, energy or rail, to be put into administration in certain circumstances. During a SAR, a special administrator appointed by and answerable to the court takes over the affairs of the business.
The court-appointed special administrator’s statutory objectives, which are set out in legislation, are twofold: to continue the running of the company to meet its statutory functions until it is possible to rescue the company, for example via a debt restructure, or to transfer the company to new owners, for example by selling it. There is nothing to prevent the company, or parts of it, from being transferred as a going concern to mutual ownership by a company’s customers, should the special administrator deem that appropriate. Although in an insolvency scenario the special administrator’s primary purpose is to rescue the company as a going concern, mutual ownership could be an option following a SAR, provided that the organisation in question had sufficient funds and could ensure that the company, or parts of it, could continue properly to carry out its activities relating to water.
Tim Farron (Westmorland and Lonsdale) (LD)
We pushed the Minister earlier on the Cunliffe review. I thought it had been explicitly stated that ownership was off the table for that review. By talking about mutuals being a potential outcome, is the Minister saying that what is actually off the table is full-scale nationalisation, but that mutualisation, public benefit companies and not-for-profit companies could be a serious option in the Cunliffe review and in whatever legislation might follow?
Emma Hardy
Yes. We have ruled out nationalisation, but all other forms of ownership are in the scope of the Cunliffe review. I stress, however, that in a scenario in which a company was exiting special administration, it could go into mutual ownership if the organisation in question had sufficient funds and could ensure that the company, or parts of it, could continue to properly carry out its activities related to water. Of course, no one would want, in any situation, to transfer to a company incapable of operating and providing water.
It is important to emphasise that it would not be appropriate for the Government to dictate the terms of exit from a SAR, as that would interfere with the conduct of the court-appointed administrator and their statutory objectives.
Adrian Ramsay
I thank the Minister for the helpful clarification that the Cunliffe review will consider ownership models, including those that the hon. Member for Westmorland and Lonsdale has advocated. Will the Minister clarify why the Government are not permitting the Cunliffe review to consider full public ownership as one of the options? Why would they not allow an open assessment of all the potential options, especially given that, as we have heard, public ownership is so common in countries around the world for what is a natural monopoly?
Emma Hardy
The commission will focus on reforms that improve the privatised regulatory model. We have already been quite clear that nationalisation of the water sector is not in scope because of the high costs associated with that option, the lack of evidence that it would lead to improvements, and the delays that it would cause in achieving better outcomes for consumers and the environment.
The commission covers Wales and will review the model in Wales, where the largest water company operates a not-for-profit dividend model with no shareholders. In addition, as I have previously noted, the scope of the independent commission will include the governance of companies and the operation of existing tools such as the special administration regime. In the light of my comments, I hope that the hon. Member for Witney can see why the Government will not accept his new clause.
Tim Farron
We dealt with that with other amendments; even though they are not part of the Bill, that would be covered by the suite of things we have proposed. Fundamentally, all we are asking for is that the information and the evidence that is put out there will be searchable historically. That cannot be beyond the wit and capability of the very clever IT specialists who I am sure are already working for the water companies. This is important, and it is part of what those of us in this corner of the Committee Room are trying to do, which is to take the Government at their word when it comes to the elevation—and we support that elevation—of the role of volunteers and citizen scientists, equipping them to do their job properly and not expecting them to be at their computers 24/7 without sleep.
Emma Hardy
Very briefly, to return to the SAR—our favourite subject—it might be best if we take the conversation out of Committee and sit down with officials to make sure we are both having the same conversation about the same thing and we can clarify that. We will follow up on that, and of course I extend that offer to the shadow Minister.
New clause 30 would require Ofwat to establish a public database on the performance of sewerage undertakers. I understand and acknowledge the intent behind the new clause, and I echo the hon. Gentleman’s thanks to all the environmental campaign groups that have been working in this area to make information available. It is vital that the public are able to access and scrutinise information on the performance of water companies.
To support this, the Government are focusing our efforts on ensuring that the most salient information is published in a transparent way and is publicly accessible. That is why clause 3 already requires water companies to publish information on discharges from emergency overflows in a way that is readily accessible and understandable to the public. As mentioned, this matches the pre-existing duty for storm overflows. To support the storm overflow duty, Water UK has published a centralised map of discharge data from all storm overflows operated by English water companies on one website. A similar approach is intended for emergency overflows.
We have also requested that water companies begin installing continuous water quality monitors for storm overflows in the 2024 price review. This will provide useful information on the impact of sewage discharges on water quality, and we will be working with water companies to consider how best to publish the information in near-real time. That is in addition to the duty to publish information on pollution incidents in clause 2, as well as existing regulatory requirements for the Environment Agency to publish water company environmental performance data. This data includes the annual environmental performance assessment of the water sector, which provides information on the performance of waste water treatment works.
Information from flow monitors, as we have discussed previously, is very technical and does not relate to the impact of the discharge, unlike continuous water quality monitoring data. Therefore, we do not think there is sufficient additional value in requiring this data to be published. As the industry is already centralising data on sewage discharges from storm overflows on one website, and given the existing environmental performance reporting, the Government do not believe that an amendment to require further publications by Ofwet—Ofwat—to do the same thing is necessary. I therefore hope that the hon. Member feels able to withdraw his new clause.
Tim Farron
We are not going to push this to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Charlie Maynard
I beg to move, That the clause be read a Second time.
New clause 32 is about procurement. I will read out the key point:
“The Authority must issue rules requiring relevant undertakers to use competitive procurement processes in respect of procurement relating to water infrastructure.”
What are we getting at here? There is an unholy trinity that is causing trouble inside our water sector: too much debt, regulatory capital value—a concept that is misfiring big time—and the ownership model. I hope that the Government will take on that unholy trinity and find a stake.
The new clause addresses RCV, because it is not working in the water sector. I touched on that in our last sittings, so I will not drag the Committee through it again. Regulatory capital value encourages as big an asset base as possible, which gives water companies an incentive to source product as expensively as possible—to pour really expensive concrete. It has been going on over the last few decades, so I am not pinning the blame on this Government, but I am asking for their help to stop it.
It is not in the customers’ interests for us to continue to have faulty procurement processes that encourage water companies to buy things expensively. With new clause 32 the Liberal Democrats are trying to highlight that problem and address it. I suspect that the provision will not be passed, but I am going to be talking about it. RCV is the issue, and I am interested to see if the Government will recognise it as such and look to address it.
Emma Hardy
I thank the hon. Member for Westmorland and Lonsdale for the intention behind new clause 32. On a personal level, I welcome the scrutiny and the level of detail that we have gone into. As the Bill started in the other place, there was a lot of cross-party work and the Government have taken onboard some of the recommendations. I gently push back on the idea that this is not a necessary or valid way to examine legislation.
The Government agree that competitive procurement can be a successful way to provide better value for money for consumers, and greater innovation within major infrastructure projects. In the 2019 price review, Ofwat developed the direct procurement for customers approach, or DPC, building on the success of the Thames tideway tunnel. The DPC allows the water company to competitively tender for services in relation to the delivery of major infrastructure projects. At price review 2024, Ofwat noted that, by default, all projects with a total life cost of over £200 million should be delivered through a DPC. Following final determinations in December 2024, Ofwat announced that 26 major water company projects would be delivered by competitive tendering processes, including a DPC, with a total whole-life cost of almost £50 billion.
Charlie Maynard
Two-hundred million is a really big number. In my patch in Witney, we have sewage treatment works as far as the eye can see that are undercapacity and are leaking sewage all over the place—at Bampton, Cassington, Carterton, Witney, Milton; you name it. It is awful, and I am sure that is the case in other constituencies, too. Two-hundred million pounds is miles higher than any of their spend, so—correct me if I am wrong—all those sewage treatment works are going to carry on without the new procurement processes because they are below the £200 million threshold.
Emma Hardy
The point is that competitive tendering processes were introduced back in 2019, including looking at where money is being used and how that money can be used most effectively. As I have just mentioned, we have £50 billion-worth of competitive processes in the next price review determination. Water companies are already actively using competitive procurement processes. This is something that Ofwat already encourages through the price review process. I therefore hope that the hon. Member is content that this amendment is unnecessary.
Charlie Maynard
I thank the hon. Member for Monmouthshire for her excellent point. It is very interesting that a mutually owned water company is taking that very sensible decision and approach. It highlights that that is a benefit. They are not trying to make money hand over fist. They are trying to do the right thing.
Emma Hardy
With your indulgence, Dr Huq, I will clarify something that I should have mentioned in the previous debate. Ofwat reserves the right to explore the use of DPC for major projects below the £200 million threshold where it offers value for money for customers. I just wanted to put that on record.
I thank the hon. Member for Westmorland and Lonsdale for tabling new clause 33, which would increase the responsibilities of water companies where they participate in the planning process. As we all do, I genuinely recognise the intent behind the clause and where the hon. Member is trying to get to. We absolutely recognise concerns surrounding water and sewage companies’ ability to keep pace with the needs arising from new property developments.
David Reed (Exmouth and Exeter East) (Con)
This is an active issue across many of our constituencies, and we have heard many personal stories. In my constituency of Exmouth and Exeter East, we have had a new town built called Cranbrook. A sewage treatment works was promised but has not been delivered. That has put pressure on systems elsewhere, and we have seen big sewage outflows in other parts of the constituency. We know that in the Ministry of Housing, Communities and Local Government there are big reforms coming for the national planning policy framework. Will the Minister please confirm whether her Department is having active conversations about what we are speaking about, and whether or not there will be changes in this space?
Emma Hardy
Conversations are ongoing, but I would not want to pre-empt their results. I recognise from previous conversations that this is a concern for the hon. Gentleman.
The Government consider that the Bill is not an appropriate vehicle to resolve this issue. It should be addressed through measures such as the water resources management plans or draining and waste water management planning. As was mentioned earlier, it is our job as legislators to ensure that we draft the right amendments to the right Bills in order to achieve the aims we are seeking.
Water companies already account for local plan growth forecasts in their water resource management plans. These plans for water provision over a five-year period with a forward look over 25 years provide for a development outline. We recognise the need for stronger and earlier join-up between local planning authorities, regulators and water companies. As I mentioned, work is under way to consider such questions and to ensure timely and mutual understanding of water resource requirements at a local scale to support sustainable development. That work includes the independent commission on the water sector regulatory system, which will provide recommendations for the roles and responsibilities of the water industry regulators that govern the water industry model and strategic planning.
As such, it would be premature to legislate in this area or to impose any additional responsibilities for regulators until the commission has concluded its review, but I reassure hon. Members that the Government recognise the need for water companies and local planning authorities to co-operate effectively in considering the water infrastructure requirements that will underpin development plans, housing growth and sustainable development. The proposed new clause is unnecessary, and I ask the hon. Member for Witney to withdraw it.
Charlie Maynard
We wish to press the new clause to a Division.
Question put, That the clause be read a Second time.
Tim Farron
I am grateful for that well-informed and thoughtful intervention. The hon. Member is absolutely right: that is what we should do. To be reasonable, we want people who understand the industry working for the regulators. We understand why there could be a benign reason for what is happening, but nevertheless, we trace it to some of the reluctance in the culture of Ofwat towards taking action. I talked about the £168 million-worth of fines still not collected by Ofwat from three transgressing water companies. Some of the reluctance comes not from corruption but cosiness, and we need to make sure we address that, as the new clause seeks to do. We dealt with this issue on amendment 19 and it was pushed to a vote. I do not want to trouble the Committee again, so I will be happy to withdraw the new clause.
Emma Hardy
I thank hon. Members for their contributions. Again, we recognise the intent behind new clause 34, tabled by the hon. Member for Westmorland and Lonsdale. However, it would be disproportionate to prevent all water company employees from being able to accept employment in Ofwat.
Ofwat seriously considers the handling of actual and potential conflicts of interest. Staff in Ofwat are bound by the civil service business appointment rules, which do not apply to every agency, but they do in terms of Ofwat, and by the duty of confidentiality and the Official Secrets Act. Any new employees in Ofwat, regardless of their previous employment, would be bound by those rules. Compliance is mandatory and any breach may result in disciplinary action being taken.
Individuals with experience working in the water sector have a wealth of knowledge—the hon. Gentleman mentioned this—that might be a valuable asset to Ofwat and could support better policymaking. I hope that this reassures him on his concern about the potential conflicts of interest in Ofwat, and that the new clause, as drafted, is therefore unnecessary.
Tim Farron
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 35
Companies to be placed in special measures for missing pollution targets
“In section 2 of the Water Industry Act 1991, after subsection (2D) insert—
‘(2DZA) For the purposes of ensuring that the functions of water and sewerage undertakers are properly carried out, the Authority must establish—
(a) annual, and
(b) rolling five-year average
pollution targets which must be met by water and sewerage undertakers, and the penalties to be imposed for failure to meet such targets.
(2DZB) The performance of a water or sewerage undertaker against such targets must be measured through independent analysis of monitoring data.
(2DZC) A timetable produced under subsection (2DZA)(b) must require the following reductions in the duration of sewage spill events, using the annual total hours’ duration of all sewage spill events recorded by Event Duration Monitors, based on an average from the last five years, as a baseline—
(a) a 25% reduction within five years;
(b) a 60% reduction within ten years;
(c) an 85% reduction within fifteen years; and
(d) a 99% reduction within twenty years.
(2DZD) A water or sewerage undertaker which fails to meet pollution targets set out by the Authority will be subject to such special measures as the Authority deems appropriate, which may include—
(a) being required to work on improvement projects with or take instruction from the Authority, the relevant Government department, or such other bodies or authorities as the Authority deems appropriate; and
(b) financial penalties.’”—(Charlie Maynard.)
Brought up, and read the First time.
Charlie Maynard
This is a big one: companies to be placed in special measures for missing pollution targets. I will read out the key bits:
“(2DZA) For the purposes of ensuring that the functions of water and sewerage undertakers are properly carried out, the Authority must establish…annual, and…rolling five-year average pollution targets which must be met by water and sewerage undertakers, and the penalties to be imposed for failure to meet such targets.”
On the five-year average, obviously we have wet years and dry years. We cannot just have flat numbers. We have to take an average. The new clause also states:
“A timetable produced under subsection (2DZA)(b) must require the following reductions in the duration of sewage spill events, using the annual total hours’ duration of all sewage spill events recorded by Event Duration Monitors, based on an average from the last five years, as a baseline…a 25% reduction within five years;…a 60% reduction within ten years;…an 85% reduction within fifteen years…and…a 99% reduction within twenty years.”
What are we trying to get at? Clause 2 is about pollution incident reduction plans. That is about specific events, so it is at a micro level. We have a national problem and need to think about things at a national level. We have a lot of data already. I think it was Peter Drucker who said, “If you can’t measure it, you can’t improve it.” We have been advocating for measuring it; we have had that debate. The good news is that we already have one metric of measurement—event duration monitors—that tells us how many hours of sewage are spilled per year. EDMs are a long way from perfect in two respects. First, we do not know the volumes going out or how much of that is actually sewage, as we have discussed at length. Secondly, a lot of EDMs are sub-par. I will give a shout-out to Professor Peter Hammond, who has highlighted some essential messages about that. However, that is still the best dataset we have, and we should all take the view that we should not let the perfect be the enemy of the good.
As soon as we put in flow monitors and quality monitors—I know the Government do not support that—we will advocate using those as a metric, but we do not have those now. However, we do have EDM data, so I am advocating that we use that metric. We already know how many hours are spilled by operator. We can take the five-year average and start setting out targets.
Businesses like knowing where they stand. I am a naive politician who is only six months into the job, so there is an awful lot I do not know. I probably committed a key error here by putting in numbers, so some smart politician could come along and say, “That is an incredibly generous number. We’ll go lower than that.” Fine—I do not really care if someone wants to play that game. I want our rivers fixed, and we get our rivers fixed by setting targets, telling the water companies that we want them to meet those targets and giving them sticks, and possibly carrots, to meet them.
We are missing an opportunity—respectfully, I feel that we have missed a lot of opportunities. We did not have to have this Bill now, but we do have it. We ought to be going for the wins now, but every single amendment has been rejected regardless of which party tabled it. That is a loss for our rivers as much as for hon. Members present. However, this new clause provides an opportunity to set some targets. Whether it is today—although this new clause will almost certainly fail because we will not push it to a vote—or in the future, I encourage the Government to take the metric they have, which is hours of sewage spilled, set benchmarks against which to measure water companies and set out bad news or good news depending on whether they miss or hit them. If we hit those targets, we are seriously getting closer to fixing our rivers. Without them, we are not.
I echo my hon. Friend the Member for Westmorland and Lonsdale in saying that I have really enjoyed most of the three days of this Committee. I appreciate the courtesy and generosity in the answers. I thank the Chair, the team of Clerks, who have been so helpful, and the DEFRA team.
Emma Hardy
I would like to thank, as I have before, all the environmental groups and activists up and down the country who do so much to champion cleaner air, rivers, lakes and seas for us all. I look forward to seeing hon. Members on Third Reading and Report.
As I did before, I will gently push back and say that the Government did work collectively and cross-party in the other House and brought in compromise amendments before the Bill came here. It would be slightly disingenuous to imply that the Government have not accepted amendments or worked with other parties on the Bill.
I thank the hon. Member for Westmorland and Lonsdale for tabling new clause 35. We must ensure that companies accelerate action to reduce pollution to the environment, halting the unacceptable harm they have caused in recent decades. That is why we have introduced a new requirement for water companies to produce annual pollution incident reduction plans and the accompanying implementation reports through the Bill. Again, I gently note that the implementation reports and the strengthening of that provision was done cross-party in the other place.
The plans will need to set out the actions that water companies intend to take to reduce pollution incidents, and an assessment of the impact that those actions will have. Companies must then report on the progress they have made with measures they committed to in the previous year, and must clearly explain the reasons for any failures to implement their plans and set out the steps they are taking to avoid similar failures in the future.
In addition to the new requirements that increase accountability for pollution incidents, the Government are committed to acting as fast as possible to reduce sewage pollution in our waterways and upholding stringent performance criteria for water companies, as evidenced by the significant forthcoming programme of investment in price review ’24. A delivery programme of this scale, improving thousands of storm overflows with billions of pounds of investment, requires clear and robust regulation. The new clause as drafted would unfortunately undermine that.
The Government’s storm overflows discharge reduction plan sets stretching timebound targets to eliminate ecological harm from all storm overflows by 2050, and for water companies to significantly reduce harmful pathogens from storm overflows discharging into bathing waters by 2035. This is supported by an ambitious backstop target. By 2050, no storm overflow will be permitted to spill more than 10 times a year on average. Those stretching targets are informed by detailed analysis and extensive engagement. They will drive £60 billion of investment between 2025 and 2050—the largest infrastructure programme in water company history. Almost £12 billion of that investment will begin this year, improving over 2,800 storm overflows by 2029-30.
Those targets bolster underpinning legislative requirements to limit pollution from storm overflows. The Environment Agency monitors and enforces against breaches of environmental requirements, utilising monitoring data to support its investigations. Where breaches are identified, it has significant powers to ensure enforcement orders and financial penalties, and where appropriate, to pursue criminal prosecution. The measures in the Bill will further strengthen its powers, including by introducing automatic penalties.
Charlie Maynard
These timelines are too slow. Setting the date at 2035 for monitor installation will mean that this is done at a much slower rate than the rate over the last seven years. That is disappointing. Targets set for 2045 and 2050 are too far away. We do not need to, and should not, move that slowly. We must do better.
Emma Hardy
I think when we had this debate, it led to the first of the fact sheets that we produced for the Committee. The hon. Member is talking about the speed of installation, and we highlighted that we will double the rate of the previous Government. We also highlighted that some of the improvements involve engineering and work. That is why we think that with £12 billion of investment, we are improving things, and I mention again the 2,800 storm overflows by 2029-30. So in the next few years, there will be billions of pounds-worth of improvements.
We all want opportunities to go quicker—everybody would want everything to be done quickly. As a Government, there is always a balance between making promises we cannot keep—which is never the best way to go—and being stretching and ambitious. I feel that we are being stretching and ambitious while also ensuring that we do not make promises we cannot keep. Obviously, however, if there was a way to go faster, everybody would accept that.
The Environment Agency is currently consulting on proposals to add new spill frequency thresholds to storm overflow permits. That will maintain the performance of storm overflows that have undergone improvements, and make it easier for the Environment Agency to act quickly if storm overflow performance deteriorates. Ofwat sets specific performance targets for water companies in the five-yearly price review. Ofwat is expanding those performance commitments for price review ’24, to include an ambitious storm overflow spill reduction target, which, if achieved, would see average spill per storm overflow reducing by 45% by 2029, compared with the 2021 levels across the industry. Where the commitments are not met, companies must reimburse customers, holding water companies to account to deliver outcomes.
Charlie Maynard
I am sorry, but with spill per overflow, I again think we are drinking the water industry’s Kool-Aid. We are doing its metrics, and that is not doing anybody any favours. We are talking about spill per overflow; what we should be talking about is how many hours. We have that information. Why are we not saying how many hours? Let us think about it. We could have a spill for one hour or a spill for a month. That is just one, in that metric. It is missing a huge amount of what is going on. Please can we move away from these metrics towards spill hours, at a minimum?
Emma Hardy
Again, I recognise the intent behind the hon. Gentleman’s comments. Whichever way we want to address this, talk about it or set targets, ultimately what we want from a Government is less sewage going into our rivers, lakes and seas. If we can find a way to all agree on the best way to move that forward, that is something we can unite behind.
As I mentioned, the Government cannot accept the new clause, but I recognise the intent behind it. It would cut across the existing targets that I have set out, creating confusion and uncertainty about which water targets the companies should meet. That would risk undermining the extensive forward investment programme that is already under way and is essential to delivering the changes that we all want. For those reasons, and for the last time, I ask the hon. Member to withdraw his new clause.
Charlie Maynard
We will not press this new clause to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill, as amended, to the House.
The Chair
Anyone else? In that case, for the last tearful time, I call Minister Emma Hardy to respond.
Emma Hardy
Thank you very much, Dr Huq, for your wonderful chairwomanship. I thank everybody on the Committee. It has been a new experience for so many of us, with Members in new positions and some new Members appearing on a Bill Committee for the first time. It has been really enjoyable, and there has been pleasant camaraderie. Where there have been disagreements, we have had them in a polite and courteous manner. I think we have set a wonderful example for many of the other debates, and long may it continue.
I thank the incredible Bill Committee team, who have done such an amazing job in supporting me in my work. I thank the Whip, my hon. Friend the Member for Manchester Withington, for making sure that we all voted in the right way at the right time, which definitely prevented me from getting into trouble while leading on my first Bill. And of course, we have had loads of written evidence, and for a small Bill, we have had lots of amendments, which shows the strength of feeling and interest in the Bill from the wider community.
What else can I say other than we’ve only just begun, and you ain’t seen nothing yet? Following this Bill, which is just part of our phased transition to transform the water sector as a whole, we also have the Cunliffe review, and in the words of Arnold Schwarzenegger, “I’ll be back”, with another Bill—similar time, same place. I hope to see many of you there, as we go again to clear up our rivers, lakes and seas for good.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Rivers, Lakes and Seas: Water Quality
Emma Hardy Excerpts(2 months, 2 weeks ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
It is a pleasure to serve under your chairmanship, Mr Dowd. I thank my hon. Friend the Member for Monmouthshire (Catherine Fookes) not only for securing this debate but for her work on the Water (Special Measures) Bill. I thank all the campaigning groups and environmental groups that have been mentioned throughout the debate for the work they do in our communities. The number of MPs who have attended the debate—or at least, the number on the Government Benches—shows how popular and important it is.
As I listened to the comments from the shadow Minister, the hon. Member for Keighley and Ilkley (Robbie Moore), I felt a little confused, because he does not seem to recognise or understand the level of anger and resentment towards his Government on this issue. He listed all the amazing achievements of the previous Government. I wonder how those stack up against the facts we have heard in the debate about the level of sewage that is being pumped into our rivers, lakes and seas, the ecological standard of many of our rivers, lakes and seas and the fact that people are so angry about the situation. I gently suggest that, rather than try to rewrite history or place alternative facts on to the record of Hansard, he would do better to acknowledge the fact that his Government got this issue so dreadfully wrong. That is why—as we have in many Departments and on many issues—we have had to come and, in this case, literally clean up the mess we have been left with.
The quality of our rivers, lakes and seas and our water is essential for supporting ecosystems, providing clean drinking water and producing our food, and of course, as Members have said, our beautiful rivers, lakes, seas and beaches are a source of pride for our communities, and we want to restore them to that. Maintaining healthy and clean water sources is vital to achieving this Government’s mission for economic growth, and the £104 billion of investment in the next five years in the water sector will help to clean up our waters and with very important job creation up and down the country.
Water systems are under massive pressure, no thanks to the 14 years of mismanagement that they have just gone through, and water bodies such as the River Wye and the River Usk in Monmouthshire face significant challenges due to agricultural run-off from intensive poultry farming, leading to high phosphate levels in our water. More broadly, my hon. Friend the Member for Monmouthshire is right to question the quality of our water due to increasing pressures from pollution, climate change and unsustainable practices.
The Government are prioritising water quality as a key element of their environmental and public health agenda. Significant steps are being taken to address pollution, enhance infrastructure and ensure clean and sustainable water sources for future generations. In his first week in office—it is slightly amusing that we are criticised by the Opposition for not solving all the problems in our first six months—the Secretary of State secured agreement from water companies and Ofwat to ringfence money for vital infrastructure upgrades, so that it cannot be diverted to shareholder payouts and bonus payments. The Government’s Water (Special Measures) Bill, which has been in Committee this week, sets out measures to crack down on water companies failing their customers, and the independent commission on the water sector regulatory system was launched by the UK and Welsh Governments in October 2024, as the third stage of this Government’s water strategy to clean up the mess we have inherited.
I will quickly respond to some of the contributions from my hon. Friends. My hon. Friend the Member for Bracknell (Peter Swallow) is right to share his upset and anger at the number of sewage spills damaging his constituency, which have continued for the past 14 years. I thank him for his support for the Water (Special Measures) Bill. Monitors will be installed and then verified independently. My hon. Friend the Member for Carlisle (Ms Minns) is a brilliant champion for her area, on both flooding and sewage, and I agree that we are blessed with many beautiful rivers, lakes and seas. I quite like the sound of that hidden river cabin; maybe that is worth a visit.
My hon. Friend the Member for Mid Cheshire (Andrew Cooper) mentioned the chronic under-investment in sewage infrastructure, and he is absolutely correct. That is why we need the £104 billion investment, to clean up and deal with the mess we have inherited. I will speak to the farming Minister, my hon. Friend the Member for Cambridge (Daniel Zeichner), and get a precise answer to the question asked by my hon. Friend the Member for Strangford (Jim Shannon)—I count him as an hon. Friend.
My hon. Friend the Member for Shrewsbury (Julia Buckley) talked about how appalled she is by sewage coming up through manhole covers. That sounds dreadful and I am happy to discuss that with her after the debate. I like the sound of Up Sewage Creek—that is a catchy name for a local campaign group. I thank her for her work, not just in this area. We have had many conversations and she is standing up for her community, as has been noticed and recognised.
My hon. Friend the Member for Hexham (Joe Morris) is right to highlight the damage to tourism in his beautiful constituency, and the work being done by local campaign groups. I thank him too for his support for the Water (Special Measures) Bill that will bring forward the reforms we desperately need.
My hon. Friend the Member for Scarborough and Whitby (Alison Hume) highlighted the decline in fish stocks, in an area near my constituency that I like to visit, and the need to tackle sewage and pollution. I thank her for her support. My hon. Friend the Member for Reading West and Mid Berkshire (Olivia Bailey) highlighted the important issue of phosphate pollution, and I am happy to support her work pushing Thames Water to tackle that.
My hon. Friend the Member for South East Cornwall (Anna Gelderd) championed her beautiful area of the country and highlighted the damage done by sewage. Having listened to the speeches given by Conservative Members, one might have imagined the problem had already been solved, but in reality it has not and it is damaging her beautiful area. She also raised the dangers caused by PFAS. My hon. Friend the Member for Lichfield (Dave Robertson) talked about an incredibly concerning serious pollution incident. I am happy to look into the issue and find out what is happening with the EA investigation.
The theme of agriculture came up during the debate. Working with farmers to reduce agriculture pollution is key to delivery against the Government’s priority to clean up our rivers, lakes and seas. The Environment Act 2021 set a legally binding target to reduce nitrogen, phosphorus and sediment contribution from agriculture by at least 40% by 2038. Alongside developing a new statutory plan to restore nature and meet those targets, this Government are enforcing key regulations, such as the farming rules for water, and have carried out thousands of advice-led inspections through the Environment Agency.
Investment is directed to environmental land management schemes, including the sustainable farming incentive, and supported by the catchment sensitive farming programme, which are designed to help farmers protect water quality and adopt sustainable practices while maintaining viable businesses. The Secretary of State announced just last week at the Oxford farming conference that we will ensure permitted development rights work for farmers, so we can support them to reduce water pollution through improved slurry stores, anaerobic digesters and small reservoirs.
In my remaining time, I will respond to the main points raised about the River Wye. This Government are actively progressing the next steps for the River Wye, including building stronger ties and working collaboratively with the Welsh Government, the Environment Agency and Natural England, as well as local MPs, farmers and ENGOs who are already doing great work to tackle pollution. Indeed, when I held a meeting with the River Wye partnership, which the hon. Member for North Herefordshire (Ellie Chowns) and others attended, and mentioned that we would not be continuing with the previous Government’s plan, those present applauded, such was their condemnation of that plan. I do not wish to test hon. Members’ knowledge of geography, but one of the main problems with the previous Government’s plan was that it did not involve the Welsh Government. I would suggest that any plan to tackle the River Wye’s problems ought to include consulting the Administration responsible for where the river starts and ends.
Ellie Chowns
Does the Minister agree that the problem with the way the £35 million was previously supposed to be spent was that it was the opposite of the “polluter pays” principle, because it was essentially a subsidy to the most polluting industry? Will she agree to find £35 million to support nature-friendly farming in the Wye catchment to solve the issue?
Emma Hardy
I thank the hon. Lady, but I have been told I have 15 seconds left. We will develop a plan for the River Wye and I will let hon. Members know about it as soon as possible.
The unacceptable destruction of our waterways should never happen again and we are working to tackle the challenge. Efforts are already underway locally and nationally that will support restoration of rivers. The independent commission will report in June 2025. I look forward to working with hon. Members to take this important agenda forward and clear up the mess that we have been left.
Farmland Flooding
Emma Hardy Excerpts(2 months, 2 weeks ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
It is a pleasure to serve under your chairmanship, Dr Murrison. I am delighted to contribute to this debate with the hon. Member for Broadland and Fakenham (Jerome Mayhew), although I feel that we are spending more time together at the moment than I am with my own family, what with the Bill Committee and other debates. I look forward to round 3—or is it 4?—tomorrow.
Emma Hardy
It is our secret.
I enjoyed the hon. Gentleman’s thoughtful contributions on the importance of using soil in the right way and how farming practices can be updated, which were valuable. As I mentioned to the House last week, and as I am sure people have heard me say before, I am fully aware of the impact of flooding on households, people’s mental health and, importantly, farmland. I have deep sympathy with farmers, so much of whose crop has been underwater this season, which has impacted yield.
The storms this winter highlight the urgent need for many of us to adapt to the threats of climate change, not least farmers, who often feel the impact directly. As climate change leads to more extreme rainfall, as has been mentioned, the number of people at risk from flooding and coastal erosion will continue to grow. I therefore want to make it abundantly clear that this new Government are committed to tackling this challenge, which is one of the top five core priorities for the Department for Environment, Food and Rural Affairs.
The good news is that work has already begun. Recognising the significant impact of flooding on farmers, the Government are bolstering England’s resilience to flooding by confirming an additional £50 million for internal drainage boards to improve assets. That is on top of the existing £25 million, and takes total investment to £75 million. That transformational investment will put IDBs on a firm footing to deliver their vital role in flood and water management. It will benefit projects that will improve, repair or replace IDB assets, including flood barriers, embankments and, as has been mentioned, the maintenance of watercourses. Projects will reduce risks and impacts from flooding for farmers and rural communities across England. To ensure that we protect the country from the devastating impact of flooding, we are investing £2.4 billion in 2024-25 and 2025-26 to improve flood resilience by building, maintaining and repairing flood defences.
However, I gently point out to the hon. Member for Broadland and Fakenham that this Government inherited our flood defence assets in the worst condition on record. We have had to come in and deal with the maintenance backlog.
Emma Hardy
I will give way to my hon. Friend the Member for Reading Central (Matt Rodda) and then to the hon. Member for Glastonbury and Somerton (Sarah Dyke), but I have only six minutes.
Matt Rodda
The Minister makes an excellent point. In my area, a major flood prevention scheme in Caversham, which is part of the Greater Reading area, has unfortunately been deferred. However, there is some good news regarding the point that she and the hon. Member for Broadland and Fakenham (Jerome Mayhew) made about landowners working together. I visited Kennet meadows and Fobney meadows, and saw three different landowners working together to rewild a flood meadow to enhance the land’s ability to soak up water. Much can be done if central Government and local government play a leading role in co-ordinating work with landowners, and build a team approach at a local level.
Emma Hardy
That sounds like an excellent example. I note that the hon. Member for Glastonbury and Somerton intervened earlier on the hon. Member for Broadland and Fakenham so, if she does not mind, I will use the last five minutes of the debate to respond to some of the comments made earlier.
We are looking at reviewing the flood funding formula, which was brought up by farmers during many of the visits that I made when I was in a shadow ministerial position. I want to work with all the various stakeholders on that, and I recognise that, in my opinion, at the moment the flood funding formula disincentivises investment in rural areas. I want to have a serious look at that.
I hate to see an outbreak of, almost, unity—although that is nice to have sometimes—but there is much love among Labour Members for natural flood management, so I welcome the comments made by the hon. Member for Broadland and Fakenham. The Government champion and support natural flood management, and I am keen to explore how we can encourage more of it, throughout England. I have therefore convened a roundtable on Monday to explore opportunities and challenges in the delivery of natural flood management. It will include experts and those directly involved in the projects, and will help inform our delivery of natural flood management. I look forward to hearing from farming representatives as part of that discussion, and have invited the National Farmers Union, the Nature Friendly Farming Network and the Country Land and Business Association. I am keen to hear how their views can feed into Government work.
As has been mentioned, various natural flood management methods can be used to protect flooded farmland, such as planting winter cover crops, soil management, matching grazing density to the capability of the land, avoiding growing certain crops on steep slopes, and blocking drainage ditches to slow down run-off and create wetland habitats. There will be measures that benefit flood mitigation in all three of the environmental land management schemes: the sustainable farming incentive, countryside stewardship and landscape recovery.
Jerome Mayhew
Those are all great projects, but farmers plan long in advance; it is not an 18 or 24-month process, and if the funding runs out in two years and there is no visibility beyond that, how are they expected to invest in these schemes?
Emma Hardy
To reassure the hon. Gentleman, the Government are committed to the environmental land management programme and are looking at funding natural flood management on farmland. As I said, we are having a meeting on Monday to discuss, with farmers, what more we can do for natural flood management.
Part of our vision for farming is a sector that recognises that restoring nature is not in competition with sustainable food production—on this point I agree with the hon. Gentleman—but actually essential to it: restoring nature helps food production. We will provide farmers and land managers with the support they need to help restore nature, which is vital to safeguard our long-term food security, support productivity and build resilience to climate change. That means continuing the transition away from payment for land ownership towards payment for delivering public goods for the environment, and continuing to use regulation to require minimum standards that will—importantly—be designed in partnership with farmers, and have sufficient lead-in times for change.
The countryside stewardship scheme already has specific flood resilience options, such as “making space for water”. I also flag that our land use framework will be coming out at some point, and that this year we will introduce new actions with flood mitigation benefits to our combined environmental land management offer, including actions to reduce flood risk, restore and enhance floodplains, and provide better storage of floodwater.
To sum up, I reiterate that the Government are dedicated to exploring ways that nature-based solutions to flooded farmland can be delivered for the benefit of farmers and others. We have already taken decisive action with the first steps to reviewing the outdated funding formula, the creation of the new, multi-agency floods resilience taskforce, and the updating of flood options under the environmental land management schemes. I look forward to continuing to engage with farmers on these incredibly important matters. I am grateful for this important debate, and grateful to have heard the views of Members in the room.
Question put and agreed to.
Water (Special Measures) Bill [ Lords ] (Third sitting)
Emma Hardy ExcerptsTuesday 14th January 2025
(2 months, 2 weeks ago)
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The Chair
I remind Members that they should send their speaking notes by email to hansardnotes @parliament.uk. Electronic devices should be switched to silent. Tea and coffee are not allowed during sittings but there is water—blue is still, silver is fizzy.
Clause 7
Automatic penalties for certain offences
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
It is lovely to see everybody again and it is a pleasure to serve under your chairwomanship, Dr Huq.
Clause 7 will give the environmental regulators new powers to impose automatic penalties for specified offences. The current process for imposing fixed monetary penalties for minor to moderate offending can be time and cost-intensive. To impose a penalty, the regulators must evidence beyond reasonable doubt—the criminal standard of proof—that an offence has been committed. In addition, the fixed monetary penalty amount that regulators can currently impose for certain water industry offences to that standard of proof is set at just £300. That means it is generally not cost-effective for the regulators to impose financial penalties for frequent minor to moderate offending. Clause 7 introduces automatic penalties for specified offences, which will enable the regulators to impose penalties more quickly without having to direct significant resources to lengthy investigations.
I reassure hon. Members that we will consult on the specific offences that will be in scope for the new automatic penalties and on the value of the penalties. The proposed offences will cover information requests and reporting offences, pollution offences and water resource offences. The House will also have the opportunity to debate and vote on secondary legislation before any changes are made. I hope the Committee agrees that this measure is essential for improving compliance across the water sector.
Dr Neil Hudson (Epping Forest) (Con)
It is a privilege to serve under your chairship today, Dr Huq. We have no formal objection to clause 7, which imposes a duty on environmental regulators to impose penalties for offences by water company that the clause specifies. Offences have of course increased, and water bosses have been banned from receiving bonuses if a company has committed serious criminal breaches. Regulators have more powers than they used to in being able to impose larger fines for polluters without needing to go to court. The clause focuses on exactly the same principle and we therefore have no formal objections.
I raised in an earlier Bill Committee sitting—this is relevant here—that there has been an increase in the number of inspections that water companies can expect, from 4,000 a year by April this year to 10,000 a year by April of next year. In other words, what has been addressed in the past is not just regulation, but the whole pathway of the enforcement of regulations, so that regulations are not merely blunt instruments but active ones that water companies can expect to have to deal with if they do not act responsibly to their customers, the environment and the wider public.
On that last point, will the Minister clarify and ensure that these offences are and will be enforced and commit to making further amendments to the law, not only regarding the offences themselves, but also on their enforcement, if the Government believe that things need to be tightened up moving forward? Aside from those clarifications, we have no formal objections to the clause.
Tim Farron (Westmorland and Lonsdale) (LD)
It is a great privilege to serve under your guidance this morning, Dr Huq. We also have no objection to the clause and, in fact, we consider automatic penalties to be a positive move.
My concern is that we see water companies not paying the fines that are levied against them. We talk about minor to moderate offences, but water companies wriggle out of paying fines for much larger offences, too. I just want to probe the extent to which the automatic penalties might stretch to what are considered more serious breaches.
I mentioned an example last week in Committee. In November 2021, Ofwat launched an inquiry into sewage discharges and how water companies manage their treatment centres and networks. It found three water companies in particular to be in breach: Thames, Northumbrian and Yorkshire. It imposed fines on those three companies—a £17 million fine against Northumbrian Water, a £47.15 million fine against Yorkshire Water and a £104.5 million fine against Thames Water—but as of autumn last year, not a single penny of that has been collected. It is understood that Ofwat allocated a grand total of eight and a half people to pursuing that particular line of inquiry.
Large fines, which there is no doubt that these companies rightly face, make no difference if they are never collected. That underpins the failure of our regulatory framework—water companies clearly feel they can just run rings around Ofwat and the other regulators. We very much welcome the automatic penalties, but we remain a bit concerned and would like the Minister to clarify whether those automatic penalties would have covered fines of that size as well. Otherwise, we are very supportive of the clause.
Emma Hardy
It is good to start the day off with a bit of unity in the Committee Room and everyone agreeing. In terms of which offences the automatic penalties will apply to, we are looking at targeting minor to moderate offending. The purpose behind the clause, and much of the Bill, is to change the culture of the water industry.
As I said in my opening remarks, one of the concerns about how the water industry operates at the moment is that the standard of proof needed to impose fines for minor to moderate offending is often seen as not being worth the cost. Companies are therefore getting away with minor to moderate offences because of the cost of trying to prosecute them. These penalties will apply to those offences. If the offence turns out to be more significant—not minor to moderate, but more of a major pollution incident—obviously, penalties will apply in the usual way.
For an offence to be suitable for an automatic penalty, we consider that the Environment Agency must be able to quickly identify and impose the penalty and the offence must cause no or limited environmental harm. I describe it to colleagues as similar to speeding ticket offences. Everybody knows that if they go over 30 mph in a 30 mph zone where there is a camera, they will get caught and fined. That is the idea behind the fixed penalty notice. If someone commits an offence that they are not meant to do, they are automatically fined.
The proposed offences will cover information requests. The details will be dealt with in secondary legislation, on which colleagues across the House will vote. My thinking on information requests is that a situation where someone has to comply with a request for information and is given a timeframe, but does not deal with it in the timeframe, is the kind of thing we are looking at for automatic fines. As for reporting offences, pollution offences and water resource offences, we will consult on where the penalties can be used, and Parliament will debate and vote on them before any changes are made.
The Regulatory Enforcement and Sanctions Act 2008 provides for the enforcement of penalties if a company refuses to pay a penalty. That includes allowing regulators to use the same enforcement mechanisms available to a court. The Act also allows for interest charges in the event of late payment. Parliament will debate and vote on the details in secondary legislation.
I thank all hon. Members for their invaluable contributions to the debate on clause 7. The clause will fundamentally drive improved compliance across the water sector through introducing automatic penalties for specific offences, allowing the regulators to impose penalties more quickly.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Abstraction and impounding: power to impose general conditions
Question proposed, That the clause stand part of the Bill.
Emma Hardy
Clause 8 grants the Secretary of State and Welsh Ministers the power to introduce conditions or general rules subject to which water industry abstraction and impounding licences will have effect. This provision is needed to ensure that automatic penalties under clause 7 can be applied to abstraction and impounding offences under the Water Resources Act 1991. Existing licences have been issued since the 1960s and have inconsistent conditions, making the use of automatic penalties nearly impossible.
More broadly, clause 8 allows for the harmonisation of requirements in relation to abstraction and impounding activities so that the sector operates under consistent and modern standards. A delegated power to introduce conditions or general rules through regulations is crucial in this context, because water resource management is dynamic and must be responsive to emerging challenges. I hope that hon. Members will agree that this power is needed to improve the water industry’s regulatory framework.
Dr Hudson
Clause 8 seeks to grant the Secretary of State and Welsh Ministers additional powers to impose conditions or general rules on water industry licences relating to abstraction and impoundment activity. His Majesty’s loyal Opposition do not have any formal objections to the clause, but I would suggest that it reinforces some of my comments on clause 6 about the need to make the Government have the powers they need to regulate as necessary a more consistent principle across the Bill.
Emma Hardy
I thank the hon. Gentleman for his comments. Modifying the licences individually is both expensive and time consuming, which is why we are hoping to modernise and harmonise the process under this clause. It is crucial that automatic penalties under clause 7 can be applied to abstraction and impounding offences, so this power is needed to improve the water industry’s regulatory framework. For that reason, I commend the clause to the Committee.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Requirement for Ofwat to have regard to climate change etc
Tim Farron
I beg to move amendment 27, in clause 9, page 14, line 11, leave out from duties to end of line 13.
Dr Hudson
Clause 9 would introduce a new requirement for Ofwat to consider, as part of its regulatory decision making and the exercise of its powers and duties as given by the Water Industry Act 1991, the section 1 duty confirmed the Climate Change Act and section 5 of the Environment Act 2021. We have no formal objections to raise to that basic principle and no amendments that we wish to make to clause 9.
Can the Minister provide some clarity on the line that amendment 27 from the Liberal Democrats seeks to remove from the Bill? It states that Ofwat’s duty to have regard to the Secretary of State’s duty to meet environmental targets applies
“where the Authority considers that exercise or performance to be relevant to the making of such a contribution.”
Will the Minister assure the Committee that she and the Government will work with Ofwat so that it has clear guidance on when these environmental targets would be relevant, so that there are no grey areas in Ofwat’s work as it looks to enforce those targets? Can she assure the Committee that the Government will also work with Ofwat to ensure that with regard to its powers and duties in the spirit of clause 9, consumers are protected should there be any subsequent financial costs to water companies, so that we get both environmental protection and the value for money that the tax-paying consumer deserves?
I would be grateful if the Minister provided clarification on some of those questions. However, his Majesty’s loyal Opposition have no formal objections to clause 9.
Emma Hardy
As I am sure the hon. Member for Westmorland and Lonsdale will agree, the Government heard the strong support in the other place for adding a further environmental duty to Ofwat’s core duties to support the Government in making progress against our environmental targets. I pay tribute to Baroness Hayman for her work on this.
We understand that there are concerns around the current core environmental performance of the water industry and around the role and responsibilities of the water industry regulators. It is for this reason that the Government tabled an amendment in the other place that will require Ofwat to have regard to the need to contribute to achieving targets set under the Environment Act 2021 and Climate Change Act 2008 when carrying out its functions.
This amendment will further ensure that Ofwat’s work to contribute to the achievement of environmental targets complements the work of Government, who are ultimately responsible for the 2021 Act and the 2008 Act targets. It is important to note that the independent commission announced by the Government will take a full view of the roles and responsibilities of the water industry regulators. Any changes made now to Ofwat’s duties may therefore be superseded by the outcomes of the commission. I hope the Committee agrees that this power is needed to ensure that the environment is considered in regulatory decision making.
Amendment 27 seeks to remove Ofwat’s discretion to exercise its duty to have regard to environmental targets where it feels this as relevant. It will be for Ofwat as the independent regulator to determine how it applies the Government’s new obligation to its regulatory decision making, and how this new duty will not take precedence over other duties. It is for this reason that flexibility has been built into the drafting of this duty, ensuring that Ofwat has discretion to exercise the duty where it feels it is relevant.
Mechanically applying a duty in circumstances where it is not relevant to a particular matter would be a waste of resource. That discretion is in line with similar duties for other regulators. For example, the Financial Services and Markets Act 2000 was recently amended to provide an environmental duty for the financial regulators. It is right that as the independent regulator, Ofwat has the discretion to balance its duties and determine when it is appropriate that they are applied. The new duty introduced by the Government can be only a stopgap before more fundamental reforms are brought forward. For those reasons, we will not accept the amendment from the hon. Member for Westmorland and Lonsdale, and I hope he feels able to withdraw it.
Tim Farron
I am not reassured that removing this discretion means that a mechanical duty is placed upon Ofwat. I think that removing discretion is actually very important. It will only be applied where it is relevant by definition. I feel that by building in wriggle room, we are creating vagueness in the process. Nevertheless, we will not seek to push this amendment to a vote today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 ordered to stand part of the Bill.
Clause 10
Charges in respect of Environment Agency and NRBW functions
Question proposed, That the clause stand part of the Bill.
Emma Hardy
Thank you, Dr Huq, for giving me the opportunity to speak on clause 10, which is one of my favourites. The costs for Environment Agency and Natural Resources Wales enforcement activities are paid by the taxpayer via grant in aid. The clause broadens existing charge-making powers, allowing the Environment Agency and Natural Resources Wales to recover costs for enforcement from water companies instead of taxpayers. Failure to introduce the clause would result in the burden of funding water industry enforcement continuing to fall on the taxpayer. It could also result in the regulators being unable to scale up their water industry enforcement activities due to wider budgetary pressures.
The Secretary of State, or the Welsh Minister in Wales, and HM Treasury are required to approve charging schemes in consultation with affected parties. Those safeguards ensure that environmental regulatory powers are proportionate and support sustained improvements in environmental performance in the water industry. I hope the Committee agrees that this power is essential for environmental regulators to become more self-sufficient and less reliant on the taxpayer. I commend the clause to the Committee.
Dr Hudson
Clause 10 amends the Environment Act 1995 to allow the Environment Agency and Natural Resources Wales the power to make charging schemes to recover costs from water companies. While the Opposition wish to raise no formal objections to the clause, we would be grateful for clarification on a couple of points from the Minister.
First, can the Minister explain whether the changes in this clause to the Environment Act 1995 that allow costs to be recovered from water companies could impact consumers in any way? Although it is already possible, we must be mindful that consumers may face extra costs, which I will discuss later regarding issues with the special administration orders that the Government have laid out in clauses 12 and 13, to be debated shortly. Consumers have already been informed by Ofwat that they should expect to see bills rise—the complete opposite of what the Government had said they intended to deliver. Therefore, do the Government feel confident that they can avoid contributing to the problem of a rising trajectory of bills, at a time when trust in the industry, as we have been debating in Committee, remains low due to financial mismanagement from some water companies and, too often, consumers receive poor quality from these services?
A further question, which I would be grateful if the Minister could clarify, is what modelling have the Government done to ensure that all the costs recovered will always be to the benefit of the taxpayer and the consumer? While we all share the desire that water companies that do the wrong thing must pay to put it right, we must ensure that, when we punish those water companies, we do not hurt the end consumer, who very much deserves to be protected. I would be grateful for the Minister’s thoughts on this, but again, we have no formal, explicit objections to the clause.
Emma Hardy
Clause 10 requires payment by water companies. It is fair and reasonable that the regulator should recover costs associated with its regulatory functions. Ofwat will consider the regulator’s proposals to determine which costs are appropriate to be passed on. The impact assessment, which I have mentioned in previous debates, details exactly how much all of the Bill will cost the customer. All the details are in there, and I refer the hon. Member for Epping Forest to look at that if he wants the specifics on the exact numbers that each measure will take.
I thank all hon. Members who have contributed their views on clause 10. I remain of the view that clause 10 will empower environmental regulators to become self-sufficient, reducing the burden on the taxpayer to fund water industry enforcement activities. Therefore, I commend the clause to the Committee.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Drinking Water Inspectorate: functions and fees
Question proposed, That the clause stand part of the Bill.
Emma Hardy
We are making excellent progress on the Bill this morning. I am grateful for the opportunity to speak on the importance of clause 11. I would like to mention the unsung hero of water regulation: the Drinking Water Inspectorate.
The clause enables the Drinking Water Inspectorate to fully recover the costs for the security and emergency regulatory work that it provides to companies. I think one of the reasons that it is an unsung hero is because it does its job so well; that is why not many people have heard of it. The responsibility for security and emergencies was delegated to the Drinking Water Inspectorate in 2022, but since then it has been unable to fully recharge for that work. This clause, subject to amendments to the Water Quality and Supply (Fees) Order 2016, will ensure that the inspectorate can fully recover all costs related to security and emergencies, enabling it to scale up its enforcement activities and enhance its capacity to conduct security and emergencies checks with water suppliers.
The clause will give the DWI greater flexibility in how it structures the fees it charges water companies. It will allow the DWI to introduce new charging models that more equitably share the financial burden of regulation in the water sector. I hope the Committee agrees that the clause rightly remunerates the DWI for its security and emergencies work and allows it to design a more equitable fee structure.
Dr Hudson
Clause 11 extends the purposes for which water quality inspectors may be appointed to include functions relating to national security directions under section 208 of the Water Industry Act 1991, and it provides flexibility for the charging of fees for regulatory work. This is a straightforward clause to which we raise no formal objection, but once again we would be grateful for a couple of clarification points from the Minister. How will the Government increase the Drinking Water Inspectorate’s ability to monitor and audit water supplies? Does the Minister feel that the clause will improve the inspectorate’s functions? Will the Minister please explain how the Government intend to support the powers of the Drinking Water Inspectorate, beyond this clause? She praised the inspectorate, and I echo that praise, but how do the Government intend to support its capabilities?
Once again, we wish to raise no formal objections to the clause. I would be grateful for clarity on the points I have highlighted.
Emma Hardy
I am pleased that hon. Members have echoed my support for the DWI. This clause is specifically about how it can recover some of its costs. It is estimated that the increased cost to householders will be only 2p a year, so it is very good value for money.
The wider issue of regulation and regulators will be covered by the water commission, which is looking at the entirety of regulation. That is out of the scope of this Bill, although the hon. Member for Westmorland and Lonsdale has made those points a number of times, and I have heard them each time.
This measure will cost customers about 2p a year. This is a much-needed clause. The Government maintain that it is important that the Drinking Water Inspectorate is remunerated for its security and emergencies work and is able to design a more equitable fee structure. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Modification by Secretary of State of water company’s appointment conditions etc to recover losses
Charlie Maynard (Witney) (LD)
I beg to move amendment 11, in clause 12, page 16, line 11, leave out from “to” to “such” in line 13 and insert “recover from its creditors”.
Tim Farron
I back my hon. Friend the Member for Witney, who has made an excellent case for our amendment to clauses 12 and 13. We are deeply concerned about the issue. There are two aspects to the public’s reaction to the scandal in our water industry. First, there is revulsion about sewage being dumped in our lakes, rivers, streams and coastal areas, which is obviously appalling. Secondly, there is a deep sense of injustice that people are making vast amounts of money while not providing basic services.
For a day or two last week, the coldest place in the country was Shap, in my constituency. I had the pleasure of being there over the weekend. All water was frozen. However, that is not always the case. Last year alone, at Shap pumping station, 1,000 hours’ worth of sewage was pumped into Docker beck. Just along the way at Askham waste water treatment works, 414 hours’ worth of sewage were dumped into the beautiful River Lowther just last year. I make that point because the water bill payers who have to deal with that know that of every £9 they spend on their water bills, £1 is going to serve United Utilities’ debt. That is at the low end of the scale: until the change announced just before Christmas, 46% from Thames Water’s bills was used to service debt.
Over the lifetime of our privatised system in this country, the water companies have collectively racked up £70 billion of debt. That means that all bill payers are paying between 11% and 46% of their bills simply to service those companies’ debt. Our amendment would simply tackle the fact that if investors choose to take risks, hoping to make gains, but fail, they should accept the consequences of those risks, which they chose to take, rather than passing on the cost to my constituents and everybody else’s. It is not for the public to carry the can for corporate failure.
Emma Hardy
I will speak to amendments 11 and 12, both of which were tabled by the hon. Member for Westmorland and Lonsdale. I welcome the opportunity to bust some myths and add some facts to the debate. Speaking of facts, following the debate that we had at our last sitting, we have produced a fact sheet relating to storm and other overflows, which has been circulated to all members of the Committee. I recognise that we are not discussing that now, but I thought I might mention that my promise to provide the evidence has been fulfilled. For this debate, perhaps it would be helpful to produce a fact sheet that explains exactly what this is and what it is not, because there has been an awful lot of confusion already.
On the subject of facts, I am not quite sure where the shadow Minister’s number on average bill increases of over £80 a year comes from. The fact is that the average bill increase is £31 a year.
Emma Hardy
If the hon. Member does not mind, I would like to finish my remarks, and then I am sure we will hear from him again.
Although I have outlined some of the merits of clauses 12 and 13, I would like to stress again the importance of including them in the Bill. A SAR will ensure the continued provision of essential public services and is the ultimate tool in Ofwat’s regulatory toolkit. There is therefore a high bar for the use of a SAR. A water company can be placed into special administration either on insolvency grounds, where it is unable to pay its debts, or on performance grounds, where it is in such serious breach of its principal statutory duties on enforcement order that it is inappropriate for the company to retain its licence. That includes consideration of a company’s environmental and financial performance. Although the Government have had the powers to place water companies into special administration for more than three decades, it is important that we regularly update legislation to reflect the modernisation of law and experience in other sectors.
Clauses 12 and 13 are essential because if a SAR occurs, Government funding could be provided to cover the cost of special administration. In the unlikely event that the proceeds of a sale or a repayment agreed as part of the rescue at the end of a SAR are insufficient to cover repaying Government funding, there is risk of a funding shortfall. I really am at a loss to understand how this has suddenly become about the Government using customer money to bail out creditors. I am confused about how that started.
The money will be used to cover the cost of repaying Government funding in the risk of a funding shortfall. The DEFRA Secretary of State and the Welsh Ministers do not currently have the power to require this shortfall to be repaid. The shortfall, of course, is the money that the Government may have to provide in the event of a SAR. This is unlike other sectors such as energy, in which the relevant Secretary of State has flexible powers to recover a shortfall in funding. Without this power, there is a risk that taxpayers will foot the bill for costs usually contained within the water sector. Again, that has nothing to do with creditors; it has to do with the costs that the Government could have to pay for the SAR.
Clauses 12 and 13 will therefore introduce a new power for the Secretary of State and the Welsh Ministers to modify water company licence conditions to allocate costs appropriately should there be a shortfall in financial assistance provided in a water industry SAR. The power is designed to be flexible, allowing the Secretary of State or the Welsh Ministers to recover any shortfall in funding in a manner appropriate to the circumstances. The use of the power is also subject to public consultation.
The Secretary of State will be able to decide whether or not to use the power, and to decide the rates at which the shortfall should be recovered from customers. The shortfall that we are talking about is any cost that the Government could have during the time the company is in a SAR; it has nothing to do with shareholders and creditors. The decision will include the group of customers from which it should be recovered. For example, it could be recovered from all water companies’ customers—that is, those in England—or a subset of the sector, or only customers whose water company went into a SAR.
It is possible that a decision could be taken to spread the cost of a SAR across multiple companies, such as where spending benefits are coupled in another region due to shared infrastructure. There is a well-established practice of socialising costs in the energy sector. If a SAR occurs and this power is ever required, it will allow a decision to be made and consulted on as to what the fairest cost recovery option is, based on the evidence and the circumstances at the time.
Charlie Maynard
I think the Minister is confirming that consumers will pay for that shortfall. We are advocating that the creditors should pay. We are not looking to rewrite the Insolvency Act. Whatever the special administrator decides in terms of the hierarchy, fine—that is up to the special administrator. I think the Minister has just confirmed what paragraph 69 in DEFRA’s explanatory notes says, which is that a company is required to
“raise amounts of money determined by the Secretary of State from its consumers”
—that is, the bill payers—for that shortfall, rather than the creditors. That is the bit that we are getting at. We think that the special administrator should take into account that hit that the Government have taken and take it out of the creditor’s pocket rather than the customer’s.
Emma Hardy
The hon. Gentleman has failed to acknowledge that, as I have just remarked, there is a hierarchy under the Insolvency Act when it comes to debt being repaid. The people he suggests that we take the money from might be people who, in fact, do not receive any money back. As I have already mentioned, the exact quantity of debt recouped by creditors or equity recouped by shareholders is a matter for the SAR. It is unlikely that all debt will be repaid at the end of special administration, and Government funding provided during a SAR takes priority over most creditors. In the event that there was a cost unable to be recovered from the sale of the company or from reprioritising its debt, the Government would receive their money back first and, therefore, this cost recovery mechanism for customers might not be provided before we reach some of the other creditors, and of course that is determined under the Insolvency Act. I am therefore at a loss to understand the hon. Member’s point. It would make sense if there were people who received their debt repayment before the Government, but that is not the case. There seems to be a lot of confusion about what is happening.
All that the Government are doing are providing that, in the unlikely event of the Government’s being unable to recoup costs that they could have paid during the time that a company is under a SAR, there are various mechanisms to have that repaid, all of which would be consulted upon. At the moment, as we know, that would come from the taxpayer. We are instead providing that, yes, we could still use the taxpayer to recoup that debt, or we could use the customers of that particular water company, of neighbouring water companies, or of all of England—and that would be consulted upon.
I think that the hon. Member’s confusion emanates from his being under the impression that, at the exiting of the SAR, creditors would skip off into the sunset with all the money and the Government would take money from customers. That is not the point I am making because, as I have already said, it is unlikely that all debt will be repaid at the end of a SAR and there is a specific order of priority for repayment. I will make the offer—as I did last time and made good on—to provide a fact sheet on exactly how a SAR would work so that there is no further confusion as we progress through the Bill.
I hope that the Committee agrees that the power is essential to protect taxpayers’ money in the event of a SAR.
Charlie Maynard
We are going backwards and forwards. I have made my point. The note here is clear—the Secretary of State is looking for moneys from the customers. I think the special administrator should follow the insolvency rules, but that the hit should come from the creditors, not the customers. I will park it there. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question put, That the clause stand part of the Bill.
Emma Hardy
I hope this clause will be a little less fractious than the last one—it is pretty straightforward. If a water or waste water company is about to go insolvent, it can make a winding-up petition to court, as may its creditors. If the court is satisfied that the company is insolvent, it must make a special administration order, triggering a water industry special administration regime, or SAR.
Unlike in normal administration, in a SAR the administrator must prioritise the public interest ahead of creditors. In this case, that means ensuring that water and waste water services continue. However, there is no statutory requirement for creditors or the court to notify the Government or Ofwat that a winding-up petition has been made. In addition, neither the Government nor Ofwat have guaranteed rights to be heard at the subsequent court hearings. This creates the risk that a SAR could be triggered without Government involvement. Given the essential nature of water and waste water services, a SAR presents significant risk to public safety if it is not conducted appropriately. It would be vital, in the event of an imminent SAR, for the Government to be quickly made aware of important developments and to be involved in the arrangements for how the SAR is run. Creditors are unlikely to protect the public interest as comprehensively as a Government and may exercise undue influence over a SAR if a Government are unable to make their views heard.
This clause prohibits a court from making an SAO without the Government and Ofwat being notified, and it gives both parties guaranteed rights to be heard at the subsequent court hearings. That provides a vital safeguard against the risks of a SAR being triggered without Government involvement and the potential dilution of the public interests that that could entail. This also updates the water industry’s SAR to bring it into line with more recently introduced regimes, such as energy, where these rights are standard practice. I hope the Committee agrees that these rights are essential to safeguard the public interest and modernise the water industry’s special administration regime. I commend the clause to the Committee.
Dr Hudson
The Opposition note that clause 14 attempts to make amendments to previous legislation so that a court may not exercise powers that it currently has with regard to an application for winding up an undertaker without providing advance notice of the petition to the Secretary of State, Welsh Ministers—as appropriate—and Ofwat, and without a period of 14 days having elapsed, as outlined in subsection (2). We also note that the clause likewise grants a further power for the Secretary of State, Welsh Ministers and Ofwat to be entitled to be heard at a winding-up petition’s hearing and any other hearing that relates to part 4 of the Insolvency Act 1986.
Again, we do not wish to raise any formal objections to this particular clause, but we ask for a couple of clarifications from the Minister, if she will indulge us. First, we would like to hear the Minister articulate what benefits this particular clause brings to the Bill. I was not fully clear from her introductory remarks about the actual benefits. Secondly, does she believe that this change to winding up a water company or any other relevant undertaker will provide a fairer winding-up process?
While we are focusing on water companies and the processes for them, we all want to ensure that the clause provides, again, protection for the consumers, who, as we agree across the Committee, have for too long faced unsatisfactory levels of service from the water industry and the practices of some water companies, so could the Minister please explain whether consumers were considered when this clause was drafted? I and others have outlined in Committee that the performance of water companies in financial resilience, as well as many other matters, has not been satisfactory and has been very upsetting for the British public. Therefore could the Minister please respond and assure the Committee that there can be no unforeseen repercussions for consumers from this clause? That is a recurrent theme as we go through line-by-line scrutiny of the Bill: are there any unintended consequences whereby the taxpayer and the end point consumer will be unfairly penalised by the legislative changes? With that in mind, we have no formal objections to this clause but again we seek clarification that the end point consumer will not inadvertently suffer detriment from this legislation.
Emma Hardy
To be clear, this is literally just a point of process. The provision, which is not currently available in law, says that in the event of an application to the court for a SAR, the Government will be notified at the same time. The reason, as I outlined in my opening remarks, is that we do not believe that creditors are likely to protect the public interest as comprehensively as the Government. It is a mere process clause that provides that in the event of an application to the court for special administration, the Government and Ofwat need to be informed at the same time. The Government maintain the importance of ensuring that the Government and Ofwat are notified in the event of a winding-up petition. For that reason, I urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Extent, commencement, transitional provision and short title
Tim Farron
I beg to move amendment 20, in clause 15, page 21, line 22, leave out subsections (2) to (8) and insert—
“(2) The provisions of this Act come into force on the day on which this Act is passed.”
Emma Hardy
I thank all hon. Members for their contributions. Amendment 20, tabled by the hon. Member for Westmorland and Lonsdale, seeks to make all provisions in the Bill come into force on the day it receives Royal Assent. I share his urge to get on with things, which is why I am a little confused by the desire elsewhere for another water review, but we will get to that when we get to it. First and foremost, I would like to reassure the hon. Member that the Government have carefully considered the appropriate method and timing for the commencement of each clause and have made provision accordingly in clause 15. A one-size-fits-all approach cannot be justified.
For example, the emergency overflows provision will be implemented over the course of two price review periods to protect bill payers from sudden cost increases. Therefore, the commencement provision for clause 3 has been designed to allow for a staged implementation where it is needed. The Government have already committed in clause 15 to the immediate commencement of the civil penalties provisions on Royal Assent. I assure the Committee that the Government and the water industry regulators are dedicated to ensuring that all measures in the Bill are commenced and implemented as soon as possible and appropriate, to drive rapid improvements in the performance and culture of the water industry.
The hon. Member for Westmorland and Lonsdale tempts me to read through a list of every provision and when they will be enacted, but I am going to save that treat for another time and instead list the clauses, rather than going through them in detail. The provisions in clauses 5 to 8, and in 10 to 15, will all come into force automatically either on Royal Assent or two months later. Clauses 1 to 4 and clause 9 will not commence immediately after Royal Assent and will require secondary legislation to come into force, which is due to the need for regulations required to commence the powers. I am sure that the hon. Member will have thoughts to share on those provisions involving statutory instruments after Royal Assent.
I trust that the hon. Member for Westmorland and Lonsdale is reassured by the Government’s careful consideration of the commencement of each clause, which has the best interests of bill payers in mind and recognises the need to debate and discuss some of the exact details under secondary legislation. I therefore ask the hon. Member to withdraw his amendment.
Government amendment 5 removes the privilege amendment made in the other place. I like this amendment, because one of the quirks of how British politics has evolved is that we have the amendment in the Bill—I found it quite amusing. The privilege amendment is a declaration from the other place that nothing in the Bill involves a charge on the people or on public funds. It is because the Bill started in the Lords that we have to have the amendment to remove that. It recognises the primacy of the Commons, and I think it is quite fun. It is standard process for that text to be removed from the Bill through an amendment at Committee Stage.
Clause 15 sets out the extent of the Bill, when and how its provisions are to be commenced and its short title. The Bill extends to England and Wales only. As set out in the clause, the provisions of the Bill will variously come into force on Royal Assent, two months following Royal Assent, or in accordance with regulations made by the Secretary of State or Welsh Ministers. The clause makes specific provisions, such as that the commencement of clause 3 may make reference to matters to be determined by the environmental regulators.
Tim Farron
I am happy to accept many of the assurances that the Minister gave, particularly on the role of Government amendment 5—I learn something new every day. The Liberal Democrats retain concerns about the delay in implementation of some of the good things in the Bill. All the same, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 5, in clause 15, page 22, line 40, leave out subsection (11).—(Emma Hardy.)
This amendment reverses the “privilege amendment” made in the Lords.
Clause 15, as amended, ordered to stand part of the Bill.
New Clause 1
Special administration for breach of environmental and other obligations
“(1) Section 24 of the Water Industry Act 1991 (special administration orders made on special petitions) is amended as follows.
(2) After subsection (2)(a) insert—
“(aa) that there have been failures resulting in enforcement action from the Authority or the Environment Agency on three or more occasions to—
(i) maintain efficient and economical water supply,
(ii) improve mains for the flow of clean water,
(iii) provide sewerage systems that are effectually drained,
(iv) comply with the terms of its licence, or
(v) abide by anti-pollution duties in the Environmental Protection Act 1990, Water Resources Act 1991, or the Environmental Permitting (England and Wales) Regulations 2016 (SI 2016/1154);”
(3) After subsection (2) insert—
“(2A) In support of an application made by virtue of subsection (1)(a) in relation to subsection (2)(aa), the Secretary of State must compile and present to the High Court records of—
(a) water pipe leaks,
(b) sewage spilled into waterways, bathing waters, and private properties, and
(c) falling below international standards of effective water management.”—(Adrian Ramsay.)
This new clause aims to require the Secretary of State to place a water company into special administration arrangements if they breach certain environmental or other conditions.
Brought up, and read the First time.
Charlie Maynard
New clause 31 would make the process of putting a company into special administration much easier and clearer. There are two steps in the provision: making it easier to apply for special administration and giving more guidance to judges on whether to grant special administration.
Proposed new section 24(1B) of the Water Industry Act 1991 states:
“Where a company which is a qualifying water supply licensee or qualifying sewerage licensee…is required, as a condition of its licence, to maintain two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, and…fails to comply with that requirement, the Secretary of State must make an application to the High Court by petition under this section.”
That states that if a company does not have investment grade credit ratings, the Secretary of State will apply for special administration.
Proposed new section 24(2)(ca) of the 1991 Act states that special administration may be granted if a company
“is required, as a condition of its licence, to maintain two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, and…has failed to comply with that requirement.”
That gives guidance to the judge. It says, “You’ve got to have those credit ratings. If you don’t, special administration is much more likely to be granted.”
At the moment, we have some bizarre situations. Thames Water, which I will use as my standard example, has £17 billion of debt and cash flows of £1.2 billion; its debt is 14 times higher than the cash flow it generates every year. By financial standards, that is somewhere between ludicrous and ridiculous. In an unregulated sector, the company would have gone bankrupt long ago. I believe—people may contest this—that our Government are keeping it alive because they are worried about being sued by the bondholders if they put it into special administration, because the criteria are not very clear.
If we are serious about fixing our rivers, we have to deal with the debt. We cannot spend the money our rivers require if we do not fix the debt, but we are still digging. Thames Water’s proposed £3 billion of special restructuring is going through the courts right now, so we are adding even more debt—an even bigger millstone around that company’s shoulders. Its debt will go from £17 billion to £20 billion. The Government have the opportunity to say, “That is the last Administration’s trick. We are going to do something different,” but at the moment they are not saying that. I really hope that we will change course. If we do not, all we will do is add more debt on to these companies; that will keep them alive for another 12 or 18 months, but we will be back in the same place again. Customers in Witney and in every constituency are paying through the nose just to cover the interest expenses.
Ofwat has just thrown Thames Water the great big juicy bone of a 35% price increase. That is great news for lenders, but not such great news for customers. It means that instead of 46% of my bill covering the lenders’ interest expenses, it will be only 38%, but I will be paying 35% more. I do not believe that is helping, so the purpose of the new clause is to make it easier to get water companies into special administration.
Emma Hardy
I emphasise to Committee members that special administration is the ultimate regulatory enforcement tool; as such, the bar is set high.
To respond to new clause 1, tabled by the hon. Member for Waveney Valley, and new clause 31, tabled by the hon. Members for Witney and for Westmorland and Lonsdale, a water company can already be placed into special administration on performance grounds where it is, or is likely to be, in serious breach of its principal statutory duties or an enforcement order—in other words, where it is inappropriate for the company to retain its licence—as set out in section 24 of the Water Industry Act 1991.
The Secretary of State and Ofwat will consider all aspects of a company’s performance and enforcement record, including environmental and financial performance, when considering whether to pursue an SAR on performance grounds. Licence breaches, such as the loss of an investment-grade credit rating, are considered as part of that holistic review of a company’s performance. Ofwat will consider the circumstances around any loss of an investment-grade credit rating to identify the actions that the company must take to address associated licence breaches.
Regulators have a range of enforcement mechanisms to ensure the delivery of performance, including environmental performance. Water companies can also be required to make clear plans to address failures. I gently point out that this Bill does an awful lot to give more powers to address environmental performance. As we have discussed, our pollution reduction implementation plans address some problems relating to pollution.
Special administration must be a last resort, as it has significant consequences for a company’s investors. If special administration could be triggered without allowing a company to rectify performance issues and licence breaches, investors would have low confidence and would not provide the necessary funding. That could create instability in the market, potentially affecting the entire sector.
Although we recognise the concern behind these new clauses and others tabled by the hon. Gentlemen that highlight concerns that the system is not working, they address the symptoms rather than the underlying causes. In October 2024, the Government announced an independent commission that would be the largest review of the water sector since privatisation. That commission has a broad scope and will consult experts in areas such as the environment, public health, engineering, customers, investors and economics.
The governance of companies and regulatory measures to support financial resilience will be covered, including the operation of existing tools, such as the special administration regime. The review will report by quarter two in 2025. The UK and the Welsh Governments will respond and consult on proposals they intend to take forward. We expect those to form the basis of future legislation to tackle the systematic issues to transform the water sector fundamentally. On that basis, I hope that the hon. Member is content to withdraw the proposed new clause.
Adrian Ramsay
I thank the Minister for her response. I appreciate that special administration would only happen in extreme cases. We have, however, repeated failures and neglect, including on environmental performance, from a number of water companies. That is why I wanted to make the provision explicit in the Bill that environmental neglect could be a reason for special administration. I take her point that there are reviews and wider plans underway. Although I am happy not to push this to a vote at this stage, I will take a close interest in how the situation progresses. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
Establishment of Water Restoration Fund
(1) The Secretary of State must, within 60 days of the passing of this Act, make provision for the establishment, operation and management of a Water Restoration Fund.
(2) A Water Restoration Fund is a fund—
(a) into which any monetary penalties imposed on water companies for specified offences must be paid, and
(b) out of which payments must be made for expenditure on measures—
(i) to help water bodies, including chalk streams, achieve good ecological status, and improve ecological potential and chemical status;
(ii) to prevent further deterioration of the ecological status, ecological potential or chemical status of water bodies, including chalk streams;
(iii) to enable water-dependent habitats to return to, or remain at, favourable condition;
(iv) to restore other water-dependent habitats and species, especially where action supports restoration of associated protected sites or water bodies.
(3) The Secretary of State must, by regulations, list the specified offences for the purposes of this section, which must include—
(a) any relevant provisions of the Water Resources Act 1991, including—
(i) section 24(4) (unlicensed abstraction or related works or contravening abstraction licence);
(ii) section 25(2) (unlicensed impounding works or contravening impounding licence);
(iii) section 25C(1) (contravening abstraction or impounding enforcement notice);
(iv) section 80 (contravening drought order or permit);
(v) section 201(3) (contravening water resources information notice);
(b) any relevant regulations under section 2 of the Pollution Prevention and Control Act 1999 (regulation of polluting activities etc) related to water pollution;
(c) regulations under section 61 of the Water Act 2014 (regulation of water resources etc).
(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) The provisions in this section replace any existing provision for the sums received for specified offences, including in section 22A(9) of the Water Industry Act 1991 (penalties).—(Dr Hudson.)
Brought up, and read the First time.
Dr Hudson
Yes, I was aware of that. I am acutely aware of it now and congratulate my hon. Friend on securing it. It highlights the fact that there is a lot of agreement. I am sure that his debate will demonstrate cross-party consensus on the use of nature-based solutions. We debated flood mitigation in Committee last week, but the water restoration fund is pivotal to trying to improve the situation at the local level and at the local catchment level as well.
Since being introduced by the previous Government, the water restoration fund has provided £11 million for communities to repair their local waterways and restore them to the quality that they should be at—the quality to which local communities should be entitled. At the heart of the proposal is simply this: those who are at fault for the damage done to our waterways must make restoration for it. Given the facts, I find it disappointing that, despite the cross-party efforts in the other place to enact such measures, they were not listened to by the Government. I hope that in a spirit of consensus the Government will look at that in this Session.
The arguments made by the Government in the other place were not satisfactory. They objected to the principle of ringfencing the funding and to the need for the Treasury to have flexibility in how it spends the money, but in this specific case the argument does not quite stack up. Where money comes from taxation, ringfencing is not always the most reliable way to ensure the Treasury has the spending power it needs to deliver public spending, but we are talking about something completely different. Fines are much more uncertain and provide less guarantee regarding the amount of money that they will bring in. To rely on funds such as these for day-to-day broad Treasury spending simply does not make sense.
Ringfencing penalties for the water restoration fund is a much more sensible measure that allows Governments to guarantee that they can meet a specific need. In other words, those who are at fault for harming the quality of our rivers, seas, coasts and lakes make restoration for the damage caused by their action—or inaction. Given all that we have outlined, there cannot be a more justified way of directly making restoration for damage to our previous water system than the mechanism laid out by the water restoration fund. Water companies pay the fines for the damage that they have done, and local communities that are affected are empowered to restore the precious waterways that they live near.
A finer detail of the amendment that should not be ignored is the fact that we will improve chalk streams. It is unfortunately clear that, despite the Government’s pitch to the British public that they would do better than the previous Government in protecting our waterways, their actions on chalk streams do not bear that out. It was very disappointing that over the Christmas period it was revealed that plans from the Conservatives to recover our chalk streams have been laid to one side by the Government. Given that England is home to over 80% of the world’s chalk streams, the failure to act on this issue is neglect of a vital duty to protect a not only a key part of the UK’s environment, but a feature in the environment of the world. They are a precious resource that very few countries are lucky to have access to. Members across this House represent areas with chalk streams. It is a dereliction of duty to ignore that category in the UK environment.
The plans that the previous Government proposed would have given chalk streams a new status of protection. Special consideration would have been given to watercourses in road guidance, and supporting the physical restoration of the streams as key pillars of our plan would have put chalk streams back on the road to the recovery that is needed. As the deviser of the plans has said publicly, although the Government may want to focus on chalk streams in national parks and landscapes, they risk ignoring chalk streams in most need of recovery across the country. Can the Minister explain why this vital plan of action, which was ready to go, has not been fulfilled? I hope that this decision was not based on politics. We need to look at this in terms of evidence and what is best for our environment.
Emma Hardy
I wonder whether there has been some confusion, given that the debate on chalk streams comes later on.
Dr Hudson
Good. We are all for talking about and raising the issue of chalk streams, but it is clear that we wanted to include that in our amendment. Our amendment will therefore be a chance to give chalk streams the attention they need from this Government. The previous Government were ready to deliver that and hand the baton over to the new Government, so that they could follow through on the explicit requirement that chalk streams be considered.
The amendment is a chance for the Government to reconsider their stance on the water restoration fund. I would be grateful for clarity from the Minister about what they are planning to do. If they are serious about improving our waterways and if the money from penalised water companies is allowed to go back into the local area to improve those waterways, we could agree about that. If the Government do not face up to this, that might be a negation of the various promises they made to the electorate when in opposition and send a message that their words are merely soundbites. I hope that the Minister will consider the points I have made and support this amendment to restore the water restoration fund—for the sake of not only our waters, but the democratic and local accountability on which they rely. We will seek to push new clause 2 to a vote.
Tim Farron
I rise briefly to support the new clause. Among many other reasons, it bears great similarity to one proposed by my noble Friend Baroness Bakewell. We consider everything in it to be right. As the hon. Member for Epping Forest has said, we should be deeply concerned about the Treasury seeking to hang on to money that, if there is any justice, ought to be invested back into the waterways that have been polluted by those who have been fined for that very offence.
I talked earlier about the deep sense of injustice felt across the country about those who pollute, who are getting away with polluting and who even—far from being found guilty—are getting benefits from that pollution. The measure would simply codify a move towards the establishment of a water restoration fund, supported, at least in part, by the fines gathered from those guilty in the first place. There would be a great sense of justice being done for folks concerned about how Windermere is cleaned up, how we make sure that Coniston’s bathing water standards remain high and how we deal with some of the issues I mentioned earlier on the River Lowther, River Eden and River Kent.
The water restoration fund should in part be supported by funds gained from those who are guilty: that is basic justice. We strongly support the new clause and will be voting for it if it is put to a vote.
Emma Hardy
I thank the hon. Member for Epping Forest for tabling new clause 2, which seeks to establish a water restoration fund in legislation. I accept his invitation to do better than the previous Government when it comes to pollution in the waterways, and welcome the low bar that they have set me.
A water restoration fund is already being established to direct water company fines into water environment improvement projects. This arrangement does not require legislation, because it exists. Defining a water restoration fund in legislation would create an inflexible and rigid funding mechanism, with the amendment requiring specific detail on the scope, operation and management of fines and money. We need to maintain flexibility in how water company fines are spent, to ensure that Government spending is delivering value for money.
The hon. Member can already see from the Bill and the discussions we have had that the cost recovery powers that we have introduced for the Environment Agency are an example of how we can ensure that water companies pay for enforcement. It is continuing to work with His Majesty’s Treasury regarding continued reinvestment of water company fines and penalties, and water environment improvement. A final decision on that will be made when the spending review concludes later this year. On that basis, I ask the hon. Member to withdraw his amendment.
Water (Special Measures) Bill [ Lords ] (Fourth sitting)
Emma Hardy ExcerptsTuesday 14th January 2025
(2 months, 2 weeks ago)
Public Bill CommitteesRead Full debate Water (Special Measures) Act 2025 View all Water (Special Measures) Act 2025 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 14 January 2025 - (14 Jan 2025)
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)
I thank the hon. Member for Epping Forest for tabling new clause 3, which would require a water company to reduce customer bills by an equivalent amount to the total monetary penalties paid in the previous year by that company. I will start by clarifying that we expect the cost of the penalties to be borne by the companies, not by the customers. However, I would also like to reassure the hon. Member that there are existing procedures in place to ensure that customers are reimbursed for a water company’s poor performance.
As the independent economic regulator of the water industry, Ofwat is best placed to ensure that customers are reimbursed appropriately if water companies perform poorly. Ofwat already sets specific performance targets for water companies in the five-yearly price review. Those performance commitments hold water companies to account for the outcomes that customers pay for. Where they are not met, companies must reimburse customers through lower water bills in the next financial year.
Those performance targets take a holistic view of water company performance and consider wider factors beyond companies receiving penalties. Performance targets include customer-facing commitments, such as water supply interruptions; environmental commitments, such as pollution incidents, storm overflows and bathing water quality; and commitments related to asset health, such as repairs to burst mains. As a result of underperformance in the last financial year, Ofwat is currently requiring 13 companies to return £157 million to customers.
The hon. Member’s new clause is therefore not appropriate for this Bill, given that it would overlap with existing procedures. However, there is simply not enough improvement in performance across the water industry. That is why we have launched the independent commission, which will look at issues, including performance, and make recommendations on how to transform the water sector.
I hope that the hon. Member for Epping Forest is reassured about how customers will be reimbursed for poor performance, and about the steps that we are taking to improve performance. On that basis, I ask him to withdraw his new clause.
Dr Neil Hudson (Epping Forest) (Con)
I thank the Minister for her comments. I am afraid that I am not fully reassured, and we would like to see provision in the Bill for any fines imposed on water companies to have a concomitant effect—a direct effect—on customer bills. This well-intended measure has been tabled to create a link between the two, so although I hear the Minister’s comments, we would still like to press new clause 3 to a vote.
Question put, That the clause be read a Second time.
Dr Hudson
I beg to move, That the clause be read a Second time.
New clause 4 amends the Water Industry Act 1991 to insert new rules regarding the limits to the amount of money that can be borrowed by a water company, which the Secretary of State for the Department for Environment, Food and Rural Affairs would be able to enact by means of statutory instrument. Although we have discussed statutory instruments in Committee, the Opposition hope that the Government will recognise that this proposed statutory instrument power needs to be made.
New clause 4 ensures that water companies are not excessively borrowing money, as that is ultimately bad for bill payers. At the heart of our concern about financial resilience is the borrowing in the industry and the over-leveraging because of that borrowing. It is clear that there is a direct link between financial resilience, problems connected to borrowing and the very survivability of the water firms. That should be of huge concern to all of us.
Consumers are concerned that the provision of their water is at risk, and we as legislators must work out how to deal with the issues, including the financial implications, relating to the risk of nationalising the water companies that have no other way of providing services. That can reverberate back to the consumers again, who may face increased costs because of the financial support that the Government have to provide to keep water companies afloat. In other words, tackling the choices that water companies may have made, and will make in the future, including borrowing choices, is an issue that we are required to correct for the very future of our water industry.
I reiterate my profound respect for the way that both the Minister and Baroness Hayman have conducted themselves in this debate. I note that Baroness Hayman expressed concern in the other place that putting a fixed percentage limit on borrowing could be a risk to investment at a crucial time for financial resilience and investment in the water industry. That is why my Conservative colleague, Lord Roborough, revised his amendment on that in the other place to give the Secretary of State the power to set limits by means of a statutory instrument. I pay tribute to my colleague and friend Lord Roborough for working so hard to raise the issue of financial resilience in the other place through this amendment.
We are not saying that a hard limit has to be set on borrowing levels, but merely giving the Secretary of State the option to do so if they feel it necessary to protect consumers from the negative effects of the water industry. I come back to the point I made in previous sittings: giving the powers to the Secretary of State, a democratically elected Minister in His Majesty’s Government, through statutory instrument, improves democracy and accountability for the water companies. I do not think the Labour Government need to shy away from this constructive amendment, which gives the Secretary of State the ability to hold the water companies to account, as we all want to do.
If the Minister does not see the need for the amendment —I am not pre-empting her, but I imagine that is how her response will go—can she clarify how much borrowing the Government consider acceptable for a water company, and what they will do to reduce the impact on the consumer of excessive borrowing and spending? The new clause also limits the amount of dividends that can be paid out to shareholders if the water company has exceeded the borrowing limit. Should a limit be set, it would therefore make water companies fairer in their practices to bill payers, as when a company borrows it will have less of an impact on consumer bills.
While in government, the Conservatives gave Ofwat the powers to link performance to payouts to shareholders and water company management. New clause 4 further aims to protect consumers from companies that are failing to prioritise their customers. Considering those points, the Opposition believe that the Government could move a bit on this, and enact democratic accountability with the statutory instrument. We hope that they will look on new clause 4 favourably.
Emma Hardy
I thank the hon. Member for Epping Forest for tabling the new clause, which would implement a limit on borrowing by water companies. I note that Baroness Hayman had multiple discussions with Lord Roborough on the similar amendment that he put forward in the House of Lords, and that Lord Roborough was satisfied with our reasoning for not introducing restrictions on borrowing in the Bill.
Debt has been rising in companies since privatisation, and it of course accelerated under the previous Administration. In some instances, levels of debt have reached a point at which the financial resilience of companies could be threatened. We have been clear that Ofwat must continue to have a strong focus on company financial resilience to secure efficient long-term investment and deliver long-term value for money for customers and the environment.
I assure the Committee that Ofwat is already taking steps to closely monitor debt levels as part of its annual monitoring financial resilience report, and it will take action where the financial resilience of a company is threatened. Ofwat published its final determinations for the 2024 price review in December, which included a confirmed £104 billion upgrade for the water sector. Investment in the water sector is financed up front by investors, and repaid by customers over time to smooth the impact on bills. Borrowing is therefore a key part of the process.
David Reed (Exmouth and Exeter East) (Con)
I agree with many of the points raised by my hon. Friend the Member for Epping Forest on debt. He raised the serious question of how much debt is too much. Does Ofwat have a firm number on how much companies should be borrowing, and at what point it should intervene?
Emma Hardy
I thank the hon. Member for his helpful intervention to look at what the borrowing and debt limits should be. We think that placing new borrowing limits on companies at this late stage in the price review process would disrupt business planning. However, taking on board the points that have been made and the concerns about companies’ levels of debt, I refer Members to the fact that we have announced an independent water commission, which will be a more appropriate vehicle for considering longer-term reform options such as the proposals from the hon. Member for Epping Forest. Company financial structures are one of a number of areas that could be explored under the commission, and we do not want to pre-empt the outcome of the commission through this new clause.
Charlie Maynard (Witney) (LD)
With respect, I feel that we are living in parallel universes. I will take Thames Water as an example, whose debt is 14 times the level of its cash flows. The Minister is saying that financial resilience could be threatened, but I spent 25 years in finance, and that ratio is very threatening. Is Ofwat closely monitoring that? Moody’s and Standard & Poor’s have put Thames Water into junk bond ratings—seven ratings under the investment grade—and we are pedalling on regardless. Could the Minister give a view on Thames Water’s levels of debt, and whether they are threatening to the company?
Emma Hardy
I hope that the hon. Gentleman has not misunderstood. There is certainly no desire from me to keep pedalling. Instead, what we want to do is look at the entire financial situation of companies—he knows that we have had that conversation outside this room. We need to look at some of the longer-term reform options for how companies are structured financially, which is why we have the deputy governor of the Bank of England leading our review, and using his knowledge and expertise to look at how companies are structured.
I do not think that the new clause is the appropriate place to pre-empt the outcome of the commission before it has had an opportunity to report, or even to listen to the hon. Member for Epping Forest through the call for evidence that is yet to be announced. I want to stress that I support sentiment of the hon. Member for Witney, but I express caution around the risks of putting through changes of this magnitude without giving full and proper consideration. We believe that the commission is the appropriate way to do that.
Jerome Mayhew (Broadland and Fakenham) (Con)
Okay, perhaps the Minister is right—perhaps the detail of what percentage of debt or what multiple of revenue is appropriate should be established by the commission and the wider review—but surely the principle can be established now. From any investigation in this area, we can say that the principle will be that debt will need to be capped or managed, or have some oversight, because we have seen what happens—particularly with Thames Water—when there is no cap or oversight. Does the Minister not agree that the new clause just sets out the principle, and the amount would be set out by an SI?
Emma Hardy
I respect the hon. Gentleman’s contributions on matters of finance, and I recognise his knowledge in this area. However, I think he would probably acknowledge—even if not publicly—that using a new clause to determine the level of debt that we think is appropriate is not the best way to make legislation for our country, or for the financial resilience of the water sector. I am entirely confident that the best way to look at this seriously, taking contributions and recommendations from all the wider stakeholders, is through the water commission. The commission might draw similar conclusions but it is not for us to pre-empt them now, without having first taken on board the opinions of many other stakeholders. I trust that the hon. Member for Epping Forest is reassured by the steps being taken by the Government, and by Ofwat, and I ask him to withdraw the clause.
Dr Hudson
I beg to move, That the clause be read a Second time.
New clause 6 is a fair and reasonable request to strengthen the Bill. Quite simply, it would do what it says on the tin by requiring the Government to report on the impact that they expect the Bill to have on water pollution and on the actual and verifiable effects that the Bill, when it becomes an Act, will have on our water quality.
It is completely agreed that accountability for addressing the quality of our water system should be at the heart of how we tackle water pollution and related issues. That should be true of every actor involved: not just the water companies, but the Government whose regulation they are expected to abide by. We cannot rightly say on the one hand that water companies should be expected to meet criteria to restore public trust, while suggesting on the other hand that the Government should not likewise work to be accountable and to uphold public trust on the issue.
Furthermore, the new clause feeds into the basic fact that ensuring that our water systems are being improved is not a one-time event that can be magically resolved with a single piece of legislation every now and then. It must be a consistent focus for the Department for Environment, Food and Rural Affairs and for all the agencies under whose remit the issue falls.
The work of agencies such as the Environment Agency is vital. I pay tribute to its hard work, not least when flooding hits, as we have discussed. We should not underestimate those on the frontline who do so much to keep people safe, to make sure that the environment is protected and to ensure that the quality of people’s water is safe and suitable.
To improve our water systems, however, the buck must stop not with the EA, but higher up: with DEFRA and the Government. The new clause would help to provide that accountability. As in our earlier discussions regarding the online publication of implementation reports, if the measures set out in the Government’s approach do not meet their targets, for legitimate reasons, the Government would have a chance to lay out exactly why not and to give a justification for their findings on the Act’s impact. Our new clause would provide a natural mechanism to ensure that long-term planning and reviews of the Act are taking place and that the Government are looking at water pollution and the actions that the water industry has taken or needs to take to further improve the situation.
We should not shy away from the fact that the new clause would build on the previous Government’s efforts to look at that point. Our plan for water set out a 25-year plan to ensure that our water companies were investing in our water system for the long term, not just while the issue was in the headlines. Again, that is why our new clause matters: because it would ensure the continued focus of Governments of all parties on the protection of our waters. That matters all the time, not just when it becomes a political or media issue.
We must also consider the evolving factors that affect the water industry and its ability to reduce water pollution. The flooding that we have seen in the past weeks has highlighted once again that our country is facing more regular extreme flooding events. In simple terms, more flooding means more excess groundwater and surface water that can enter the network, which creates more of a risk that sewerage overflows will be required to maintain our water systems.
With such events becoming more unpredictable in their timing and yet more commonplace because of extreme weather events and the effects of climate change, looking at the evolution of issues such as this will be crucial to ensuring that any measures to improve overflows and water quality are successful in the long term. We need to make decisions now that have an impact in the future, because in the long term we all want water quality to improve and to be protected for future generations. To achieve that, we need long-term and consistent attention and reflection on the policies being enacted and their effects. The new clause would help to facilitate that.
Once again, transparency is not a hindrance; it helps everybody involved in managing the quality of our water system. Trust can be maintained only if everyone tries to do what is right and the Government, of whichever political party, are no exception. We need to be trying to do the right thing. Given that, His Majesty’s Opposition believe the new clause to be a highly reasonable and fair amendment to the Bill, and we hope that the Minister might support it.
Emma Hardy
I will quickly note the constructive and nice way in which the hon. Member for Epping Forest is taking part in these debates. I also want to come up with more dentistry analogies, so I will be thinking of those as we keep going.
The Bill will drive meaningful improvements in the performance and culture of the water industry. In line with that, it will introduce many measures to disincentivise pollution. For example, it will provide Ofwat with legal powers to ban bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability. The Bill will also enable automatic and severe fines, allowing regulators to take swift action. It will enable the public to hold companies to account through a new requirement for water companies to produce annual reports on pollution incident reduction. Collectively, these measures will strengthen enforcement, improve transparency and disincentivise water company pollution.
The Committee and the wider public are able to see a more detailed assessment of the expected impact of the Bill via the published impact assessment. I reassure the Committee that my Department is committed to post-legislative scrutiny of primary legislation. The Department for Environment, Food and Rural Affairs will work with the cross-party Select Committee on Environment, Food and Rural Affairs to assess the impacts of the Act three to five years after Royal Assent as part of the standard practice for all new legislation. I welcome that scrutiny.
The Government therefore cannot accept new clause 6. Although we agree on the importance of understanding the impact of the Bill on environmental pollution, adding further reporting requirements to the Bill would be duplicative and unnecessary.
Dr Hudson
As we have gone through the Bill, there has been a lot of cross-party consensus on trying to get measures in place. I respect the efforts of the hon. Member for Westmorland and Lonsdale and the third party in trying to improve the situation, not least in such matters as nature-based solutions. From the official Opposition’s perspective, however, the hon. Member’s new clause 7 is perhaps an overly eager response. Throwing out Ofwat completely at this juncture when we want it to do its regulatory job would create more problems than he wants, whatever the intention of the new clause.
I know that the Liberal Democrats have argued that steps should be taken to set up a new regulator in some way. New clause 7 does not really introduce a specific requirement or measures to enable a transition from Ofwat to the purported new regulator. If we were to proceed with the new clause, we would simply be left in limbo and in the lurch with regard to regulation of the industry. It is not that we believe that the situation is perfect: we have debated the powers of the Environment Agency and Ofwat, and we have agreed that things are not perfect with the water industry and regulators. We have all heard at first hand about issues that we are not happy with, such as executives moving into higher-paid roles within water regulators, of which we heard evidence in the EFRA Committee in the last Parliament.
The hon. Member for Westmorland and Lonsdale generously shouted out the people who work in Ofwat and the Environment Agency, but although he will not push new clause 7 to a vote, he still talks about abolishing Ofwat. In doing that, we would be left with a vacuum while a new regulator was set up—something we can ill afford when we all agree that there is so much work to be done. A new regulator could not be established overnight; it could take months or even years while structures were being established, the personnel needed to do its everyday work were appointed and the like. Let us be honest that making such a move would not come without financial cost.
Even if that money could be raised through Government resources—ultimately, that means taxpayers’ money—we would be using it to establish a completely new infrastructure for the water regulator, rather than trying to enhance and give more power to the regulator we already have. In addition, we have to remember that its role as a regulator affects consumer bills, too. While none of us wants to see water bills rise for any of our constituents, particularly in difficult economic times, bills would have only been higher if a regulator had not been there at all. If we are left with a vacuum until a replacement mechanism is put in place, and if that takes a lot of time, do we really want to run the risk of unregulated companies raising prices even further in the meantime?
We are in agreement that the status quo has not been good enough when it comes to water companies, but progress has been made and continues to be made in that seismic task. Water companies are starting to face the financial penalties for their failures to both people and our precious environment. For example, back in November, Wessex Water was ordered to pay £500,000 for the loss of thousands of fish because of a sewage pumping failure. That very same month, Thames Water was fined over £18 million for its failure to obey rules introduced on the spending of dividends. Those incidents are not good news stories, and we should never say that they are, but they are signs that the mechanism is working. Ofwat is holding the companies to account and trying to act—it is trying to use the teeth that are there.
There are early signs that giving the regulator those teeth—which we have heard a lot about in this Committee —means that there are clear consequences for the water companies that break the rules that have been implemented. That is not the end of the story, but it is the start of the journey, as we try to hold those water companies to account. As I have also mentioned, the pathway for inspections into water company activity is increasing. It is the whole approach—from incident, to investigation, to penalty—that needs to be examined and reviewed in order to drive change, and that is what has been done and what this legislation is trying to take forward.
Although things are not perfect, we need to allow the existing legislation, as well as this new legislation, to take effect so that the regulator can get on and do its job. We should not put things in jeopardy by completely abolishing things. I note that the Liberal Democrats have tabled this new clause, and they are not pushing it to a vote, but I want to put on record the Opposition’s reservations about what they are suggesting.
Emma Hardy
I thank the hon. Member for Westmorland and Lonsdale once again for his thorough consideration of the Bill. I will turn first to new clause 7, which was tabled in his name and which proposes the abolition of Ofwat. As the hon. Member will be aware, and as he already mentioned in October ’24, the UK and Welsh Governments launched the independent commission to fundamentally transform how our water system works. The commission, led by Sir Jon Cunliffe, will be broad-ranging and will make recommendations in line with eight objectives, which include specific objectives considering the role, structures, responsibilities and powers of the regulator.
It is right that the commission, rather than this Water (Special Measures) Bill, is the vehicle for considering the water regulator’s roles and responsibilities. This Bill focuses on strengthening the powers of the regulators to drive improvements in performance. The Bill will not, and cannot, fix all the sector’s problems. The commission is the right place to consider the long-term future of the regulatory system and the role of the regulator. Indeed, I would argue that the Labour Government want to move away from sticking-plaster politics to fundamentally reset and transform the problems facing our country for good. I hope therefore that the hon. Member for Westmorland and Lonsdale is content that this new clause is unnecessary.
New clause 20 was also tabled by the hon. Member for Westmorland and Lonsdale. It sets out requirements for a water review that is undertaken by the Secretary of State. I think we are all agreed that we have seen years of water company underperformance, and we all agree that there is a clear need to fundamentally reset the water sector. Although I understand that the hon. Member is seeking to ensure that any review of the water sector is sufficiently thorough, the Government are confident that the commission’s scope is broad and comprehensive. Sir Jon will be supported by a range of experts from the regulatory, environment, health, engineering, customer, investor and economic sectors to effectively examine this sector as a whole, including the regulatory framework.
By setting out considerations for a water review in primary legislation, we risk prejudicing or pre-empting the outcome of the current commission, as well as its independence. The sector is facing complex challenges that require the support of customers, environment groups, investors and companies alike to address. An independent review is best placed to find solutions to those challenges, and it is critical that its independence is preserved. The commission will report its findings in summer 2025, and the Government will consider them in full before outlining the next steps. I therefore hope that the hon. Member for Westmorland and Lonsdale understands that to avoid duplication and, importantly, maintain the independence of the commission, the Government will not accept the new clause.
The Chair
The Clerk keeps reminding me that—I think because we have a lot of new Members in the room; Tim Farron is not guilty of this—people keep saying “you”, which is a cardinal sin. You have to say “the hon. Member”, because “you” is me, and I am not doing anything except sitting here saying the “Unlock the doors” stuff.
Emma Hardy
May I say—often said, not always meant—that it is indeed a pleasure to serve under your chairwomanship, Dr Huq? I thank the hon. Member for Westmorland and Lonsdale for the intention behind new clause 8. Ofwat has a range of primary duties, including protecting the interests of consumers, ensuring that companies properly carry out their functions and ensuring that companies can finance the delivery of their statutory duties. Removing Ofwat’s duty to ensure that companies are appropriately financed would put at risk companies’ ability to deliver for customers and the environment. The new clause also seems to contradict the others tabled by the hon. Member. For example, new clauses 19 and 23 seek to increase regulation around water company financial resilience, but new clause 8 seems to aim to reduce it.
Ofwat must continue to ensure that water companies can finance the proper carrying out of their statutory obligations, in line with the outcome the new clause seeks. Ofwat already has a primary duty to seek to ensure that companies deliver their statutory obligations, including environmental obligations. Ofwat’s existing duties, combined with the strengthened power for regulators provided by the Bill, will therefore drive the desired outcome sought by the new clause and ensure that the environment is at the heart of water companies’ activities. That is something on which we all agree.
In addition, the independent commission on the water sector will look at wider long-term reform of the water sector, including considering and clarifying the role of regulators, and we do not wish to prejudice the outcome of the commission by implementing the new clause. I hope that the hon. Member is reassured that Ofwat’s existing core duties capture the intent behind it, and that the independent commission will consider the duties of Ofwat more broadly. For those reasons, we will not accept the new clause.
Tim Farron
I thank the Minister for her response. The new clause aims not to replace the business side of Ofwat’s regulatory framework and powers, but to supplement it. As I said earlier, it is odd that in the broadest sense—I know that this is not entirely true—Ofwat looks at the business side of the water industry and the EA looks at the environmental side. They are clearly one and the same, or they ought to be. We are simply trying to draw these things together. This is not about reducing Ofwat’s powers on one side in order to beef them up on the other; this is about additionality. We think it is entirely consistent.
I hear the Minister—if I were at that crease, my straight bat would be “Sir Jon Cunliffe” every single time. I get that, but surely, there has to be some point to this water Bill, and we are trying to push the Government to strengthen the regulators. We debated earlier the extent to which Ofwat should exist or not, but if we take it that the Government have a majority and therefore that Ofwat is likely to overcome my time on this Committee, what can we do to make it a more holistic regulator with more power and scope? We therefore think there is a very strong case for new clause 8.
Question put, That the clause be read a Second time.
Tim Farron
I beg to move, That the clause be read a Second time.
The Environment Agency will have more powers as a consequence of the Bill. There will be greater regulation and there will be an impact on the Environment Agency as an organisation. It is my privilege to represent large chunks of the English Lake district. We have an agency full of really good people—dedicated and qualified professionals, many of whom are from and love the area, and yet they already find themselves overwhelmed with their responsibilities. I made an allusion earlier, but it might help to give a sense of how the organisation copes with its challenges.
We are still in the process of having walls built around the River Kent to protect the town of Kendal and its businesses from a repeat of the devastation in December 2015, when something like 6,000 of my residents lost their homes and we saw just under 1,000 businesses devastated. The Environment Agency is looking after that, and just up the road are Windermere, Coniston, Ullswater and the other lakes, rivers and coastal areas of our beautiful part of the world. We are already stretching the capacity of those people, to say the least, and we are beginning to see that in real time, as we try to deal with sewage spills in the tributaries that lead into Windermere. We see many such failures, and although the Environment Agency is trying to find the time to regulate, observe and scrutinise them, it is understandably distracted by the huge civil engineering project that it is overseeing in Kendal to protect the town from flooding.
This is about paying tribute to people in the EA, but also recognising that they are already under enormous pressure. The Minister has said that there will be 500 new members of staff at the Environment Agency. That is one answer to the question. We are trying to recognise that that is still only one person per English constituency. We need to therefore test the extent to which the Environment Agency has the capacity to do its job, because part of the problem is insufficient regulatory powers, and the other is agencies without the resource to police the powers that they already have. This aims to be a helpful new clause. It recognises that the Government seek to and will do good through the Bill, but we need to ensure that the agencies there to deliver that good have the capability to do so.
Emma Hardy
I thank the hon. Member for suggesting new clause 10 and agree it is important to understand the impacts of the Bill on the Environment Agency. I echo remarks made by all Members on the wonderful work that the Environment Agency does, particularly those who are working in the frontline and those who were working on new year’s day trying to support communities that had been flooded. I also pay tribute to the Wildlife and Countryside Link and to all the environmental groups, organisations and charities that have shown an interest in the Bill. Their tireless campaigning is probably what has led to many of us being here to discuss it today.
I reassure the hon. Member for Westmorland and Lonsdale that the current provisions in the Bill are sufficient to do what he wants. Through clause 10, the Environment Agency will be able to recover costs for the full extent of their water company enforcement activities, including for new provisions in the Bill. This will allow the Environment Agency to fully fund their water industry enforcement functions and meet the requirements of the Act, ensuring that polluters can be held to account for breaches of their obligations.
Environment Agency funding will continue to be closely monitored by DEFRA as a sponsoring Department, ensuring that the regulator is fully equipped to carry out its duties and functions effectively and to deliver for the public and the environment. The Environment Agency is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation of the water industry, increasing compliance checks and quadrupling the number of water company inspections by March. This increased capacity is funded by £55 million a year through increased grant in aid funding from DEFRA and additional funding from water quality permit charges levied on water companies.
I hope the hon. Gentleman is reassured that these measures will ensure that the Environment Agency consistently has the resources it needs to fund its regulatory activities. As such, the proposed new clause is unnecessary and therefore I ask him to withdraw it.
Charlie Maynard
I beg to move, That the clause be read a Second time.
This is a very nuts and bolts thing. I believe we are here to try to make a better water sector. I will rattle through the clause, which would mean that each relevant undertaker
“must publish a map of its sewage catchment networks”,
and that maps published under the provision
“must illustrate…pumping stations, pipes and other works constituting part of the undertaker’s sewerage network…must be published within 12 months of the passing of this Act…must be made publicly accessible on the undertaker’s website.”
I am a district councillor as well as an MP and in my ward of Standlake Aston and Stanton Harcourt, parish councillors, members of the public and campaigners have grappled for information and failed to find it. Many people do not know how to do a freedom of information request. This means that people do not know where the sewage is going from and to, and that leads to confusion and means that the problems are further away from us.
Putting these maps in the public domain, making them easily accessible and making sure that not only the pumping stations and the treatment works but the pipes connecting them all—which are not automatically clear —are always in the public domain and always easily accessible means that we are getting to a solution quicker. That is all this new clause is about. I am probably going to get a response saying, “We have to wait for the water commission”, in which case I would express some disappointment, because these things do not cost any money and they mean we move quicker to solve problems. I would really like a culture of, “If that’s a good idea, let’s do it”.
Emma Hardy
I understand the intent of new clause 11. The location and health of a water company’s assets is key to ensuring their maintenance and improvement. Under section 199 of the Water Industry Act, companies are required to keep records of the locations of many of their sewers, natural drains or disposal mains. Members of the public are able to request this information from water and sewerage companies in map form. Furthermore, the Environment Agency hosts a public register of information relating to all sites and assets permitted under the environmental permitting regulations. As of 1 January—this month—all water companies are required to publish discharge data from their storm overflows. Water UK’s centralised map shows that near real-time data for water companies across England in a publicly accessible format.
Tim Farron
I do not think it is unrealistic—we need to be ambitious—but I absolutely accept that there are multiple sources of pollution.
I promise to be brief in talking about my patch, which is not of interest to everybody. It is key to point out that pollution in Windermere generally comes from three sources. It is true that agricultural run-off is an issue but, sadly, the policies of this Government and the previous one, over a period of time, have effectively destocked the fells, meaning run-off has a massively reducing impact on Windermere and the broader catchment.
The bigger two problems are the 14 assets that United Utilities has either on or around the lake or its tributaries. There is also the best part of 2,000 septic tanks around the lake or its tributaries. Unlike septic tanks and, indeed, package treatment works in many rural communities, these are not scattered all over in the middle of nowhere; they are in a ring around the lake, most of them within yards of a mainline sewer. It is, then, entirely possible for the water companies, while gaining significant income benefit as a consequence, to mainline a massive proportion of the sources of sewage spillage into the lake, via the septic tanks and the package treatment works being brought into the system.
The new clause is of course slightly selfish, but it is really important that we seek to maintain national parks right across the country at the highest possible bar, and therefore make sure they set an example for others to follow. We will seek to press new clause 27 to a vote.
Emma Hardy
I thank the hon. Member for Westmorland and Lonsdale for tabling the new clauses. It is always nice to have a conversation about the beautiful chalk streams and national parks in our country.
New clause 12 would have significant implications for existing legal frameworks and operational delivery, and would not necessarily result in environmental improvements for chalk streams, for which there are already established objectives to conserve and restore their ecological health. Under the water environment regulations, the default objective is to achieve good ecological status for all chalk streams in England. Good ecological status is a high standard that represents a thriving aquatic environment with only minor disturbances from natural conditions.
High ecological status equates to water that is almost entirely undisturbed from its natural conditions. If we set high ecological status as the objective for all chalk streams, overriding cost-benefit assessments, it would have wide-ranging impacts on future planning developments and human interaction with chalk streams, including by restricting farming and fishing. Any planning for housing developments that would have even a minor impact on the water quality of chalk streams would be restricted without impractical and disproportionately costly mitigation measures. The new clause would place achieving that demanding objective on water companies only, as the hon. Member for Broadland and Fakenham highlighted, regardless of the pressures that are actually impacting chalk streams. This would not allow for the consideration of technical feasibility or costs, which would ultimately be borne by water bill payers. The new clause would necessitate amendments to the water environment regulations and habitat regulations, creating complexity and difficult delivery implications.
Jerome Mayhew
I would like the Minister’s comments on the issue that we have, and I am focusing primarily on the Norfolk broads, of which I represent a good chunk. There is the requirement to make a mandatory obligation on the water undertaker to ensure “high ecological status”, which is above “good ecological status”—that is the point the Minister is making. Does she agree that, while they are a primary input into the quality of the water in the Norfolk broads, they are not the only influencer? While the intention to create and encourage high ecological status in the broads is a very good one, and it is one that I share, does the Minister agree that the drafting of this new clause is not appropriate?
Emma Hardy
The hon. Gentleman is right to highlight that the pollution caused in the Norfolk broads and in many other areas does not come from water companies alone. As has been discussed, it comes from the environment, road run-off and various other places. “High ecological status”, as we have stated, could involve not being able to fish in those waters at all, which I know is a recreational activity in his area. It may also restrict planning for housing developments with any minor effects on the water quality of water bodies in national parks. The Government therefore cannot accept either new clause, although I recognise the intention behind them. I hope that the hon. Gentleman feels able not to press both.
Tim Farron
In short, I am happy not to push new clause 12 to a vote now, nor will I seek to push new clause 27 to a vote when we get to that stage. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 13
Guidance on poly- and perfluorinated alkyl substances
“After section 86ZA of the Water Industry Act 1991, insert—
‘86ZB Guidance on poly- and perfluorinated alkyl substances
(1) The Secretary of State must by regulations made by statutory instrument make provision for the regulation of poly- and perfluorinated alkyl substances in drinking water based on guidance issued by the Drinking Water Inspectorate.
(2) Until the Secretary of State makes provision for the regulation of poly- and perfluorinated alkyl substances, water and sewerage companies must implement any relevant guidance issued by the Drinking Water Inspectorate.
(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’”—(Tim Farron.)
This new clause would require the Secretary of State to make regulations relating to the presence of poly- and perfluorinated alkyl substances in drinking water based on guidance issued by the Drinking Water Inspectorate, and require water companies to follow the Inspectorate’s guidance in the interim.
Brought up, and read the First time.
Tim Farron
Thank you—I do not want to detain the Committee any longer than I need to. The new clauses are about a vexing and serious issue: the presence of polyfluorinated and perfluorinated alkyl substances in our waterways and in our drinking water, in particular. I pay tribute to my hon. Friend the Member for Twickenham (Munira Wilson) for championing this issue in this place and outside it.
The new clause attempts to raise the existing guidance from the Drinking Water Inspectorate on PFAS levels in drinking water to a statutory level; that is the key point. The Bill seeks to increase regulatory power over water companies, and the new clause will increase the Drinking Water Inspectorate’s power to enforce the guidance regarding PFAS. There is currently no legal limit on the amount of PFAS present in our drinking water. There is only guidance, even though the Environment Agency and the Health and Safety Executive have both recommended that there should be a legal limit.
New clause 13 would require water companies to prioritise and take a proactive stance on limiting PFAS in drinking water. Currently, if a water company were to breach PFAS guidance, its regulatory compliance score would not be affected as it would if, for example, lead was found in its water. This would encourage them to invest in treating water to remove PFAS. This is an important first step in prompting the Government to create a fully-fledged chemical strategy to deal with chemical pollutions of all kinds, starting with the most direct threat to human health, which is the direct consumption of PFAS through drinking water. PFAS are toxic, they are forever and they are very pervasive. Links have been found between PFAS chemicals and a host of health issues, such as, but not limited to, cancer, thyroid disease, fertility issues, lowered birth weight, weakened bones in children and immune resistance to vaccinations.
New clause 14 would put the duty on the water companies to take responsibility for the reduction and prevention of PFAS chemicals in water systems, ensuring that each water company is responsible.
Emma Hardy
I thank the hon. Member for proposing new clauses 13 and 14 on this incredibly important issue, and for highlighting the importance of PFAS monitoring. I want to reassure everybody that the quality of drinking water in England is exceptionally high and among the best in the world. It is important to me that it remains that way.
Across Government, we are working to assess PFAS levels occurring in the environment, as well as their sources and potential risks, to inform future policy and regulatory approaches, safeguard the current high drinking water quality and ensure our regulations remain fit for purpose. Water companies have a statutory obligation under the Water Supply (Water Quality) Regulations 2016 to carry out risk assessments to identify anything that could pose a risk to health or cause the water supplier to be unwholesome. That includes the risk of PFAS.
I will explain which PFAS are tested for in drinking water. The Drinking Water Inspectorate issued a series of information letters to water companies to set out a risk-assessment methodology and associated monitoring strategies for up to 48 individual PFAS compounds. The guideline values of PFOS, or perfluorooctane sulfonic acid, and PFOA, or perfluorooctanoic acid, are agreed with the UK Health Security Agency, and have been applied to 48 individual PFAS. The DWI guidance will be reviewed and updated where necessary.
The Drinking Water Inspectorate has provided guidance on PFAS to water companies since 2007 and, as I explained, that is regularly updated as new research emerges. In July 2024, DEFRA announced a rapid review of the environmental improvement plan to deliver on our legally binding targets to save nature. That includes how best to manage chemicals, including the risks posed by PFAS, and we are working closely with the DWI on all matters, including PFAS.
I reassure the hon. Member for Westmorland and Lonsdale that the Water Industry Act 1991 already provides the necessary powers to amend existing regulations to deal expressly with PFAS, should the Government wish to do so. I will have a meeting with his hon. Friend, the hon. Member for Twickenham (Munira Wilson), on this issue. I hope that the hon. Gentleman is reassured that this new clause is not suitable for the Bill, so I ask him to withdraw it.
New clause 14 focuses on chemical contaminants entering our waterways. I agree with the hon. Member for Westmorland and Lonsdale about the importance of the issue, which is why, as I announced, we will have the rapid review of the environmental improvement plan to deliver on our targets to restore nature. That includes looking carefully at the risks posed by PFAS. The review will consider and set out effective measures to mitigate harmful chemical substances entering our water through the environment. Through the chemical investigations programme, we are working with the water industry to understand how levels of contaminants in treated waste water affect our water environment. The programme will provide valuable information to understand the effectiveness of different measures to tackle chemical contamination of our rivers.
Significant costs are associated with end-of-pipe technologies at sewage treatment works to manage the more challenging chemicals, such as PFAS. We therefore need to prevent contaminants entering the water system in the first place, before they get to the waste water treatment works, where the cost for treatment will be unfairly borne by water customers, rather than the polluters. Work continues across Government to help us to assess the levels of PFAS occurring in the environment, their sources and the potential risks, so that those can inform future policy and regulatory approaches to safeguard our high drinking water quality and to ensure that regulations remain fit for purpose.
The DWI expects water companies to plan to reduce PFAS concentrations in treated water progressively by implementing a reactive and systematic risk-reduction strategy. That is why we need to need to prevent them entering the water in the first place. I hope that the hon. Member is reassured by the actions that we are taking and will not press new clause 14.
Tim Farron
I am substantially reassured that the Minister is taking this issue seriously, and I am grateful that she is to meet my hon. Friend the Member for Twickenham, who has championed it so well. All the same, while I do not agree, I accept the Minister’s point about the way in which we are doing this—which, I guess, is contained in new clause 14, so I will not press that to a vote—but new clause 13 simply says what the Health and Safety Executive and the Environment Agency are already saying, which is that those chemicals are deeply dangerous and that the restrictions on them should therefore be moved from guidance to a statutory level. That ought to be a no-brainer, so we will press that new clause to a vote.
Question put, That the clause be read a Second time.
Tim Farron
I beg to move, That the clause be read a Second time.
I will try to be brief, I promise. The new clause is based on the fact that we seriously approve of the Government’s approach to monitoring. We want the regulatory bodies to be well equipped and resourced to be able to hold water companies and other potential polluters to account. But the Government have made a clear decision, of which I totally approve, to lionise and put front and centre citizen science and voluntary groups around the country—groups such as Windrush Against Sewage Pollution, Save Windermere in my constituency, the Clean River Kent group and the Rivers Trusts in Eden and South Lakeland. These are wonderful people, pretty much all of them acting in a voluntary capacity. The groups contain lots of incredibly clever, bright people who are passionate about our environment.
The Government are doing something we approve of by seeking to deploy and mobilise people in their communities. The new clause is about trying to make sure that we equip them, underpin what they do and provide resource to support them, and that the Government use some resource to proactively look to fill in the gaps. We are simply saying that we approve of the mobilisation of citizen science across the country to hold water companies to account through use of the real-time database and a variety of other tools. But if we are going to rely on a group of people, let us support them. We will seek to push this to a vote, because we think it is a central part of what the Bill should aim to achieve.
Emma Hardy
I thank the hon. Gentleman for tabling new clause 15. We fully support greater involvement of citizen science to hold water companies to account. I thank them for all the work that they have done in this area up and down our country. Local people know their rivers best, and their campaigns on pollution issues have been crucial in bringing the scale of the issues to light.
The Bill already includes several amendments to support transparency to make it easier to scrutinise water companies. Clause 2 will enable the public to scrutinise the measures that water companies are taking to reduce pollution incidents. Clause 3 will make information on discharges from emergency overflows available in near real time. This data, in addition to the near real-time information already available on storm overflow discharges, will be provided in a way that will enable citizens to identify trends and key issues. That will supplement the significant information that the Environment Agency already publishes.
The Environment Agency also operates a 24-hour environmental incident hotline to enable the public to report incidents that they observe in their local area. The Environment Agency shares the enthusiasm and values the expertise and local knowledge of citizen scientists. It has recently funded an internal project supporting citizen science, which will run until March 2025.
I welcome the hon. Gentleman’s approval of the Government’s work on this issue. The question is whether we require primary legislation to continue doing something we are already doing successfully. This project, along with many others that are being supported by the Government or the Environment Agency, is considering how to facilitate better engagement with citizen scientists. The Government believe that the existing measures are more effective for supporting citizen science than creating a fixed legislative duty on the Secretary of State. We are already doing work in this area, so we will not support the new clause.
Tim Farron
I beg to move, That the clause be read a Second time.
Water bill poverty is a reality, and many people will require greater water use because of disability, age or health conditions. Although WaterSure benefits exist, they are patchy and are something of a postcode lottery. Which benefits a person may receive under WaterSure depends on supplier and catchment, and whether someone qualifies depends on which water company they get water from. That is not right. There should be a single social tariff that is applicable and understandable for everyone. A postcode lottery should not dictate whether a person gets the support they may need, and which water company someone lives under should not dictate whether they can afford their bills.
Some water companies require three or four pieces of evidence and some just a quick assessment of finances, and the savings range from 15% to 90% off a bill. We would bring that under one simple tariff. We have certainly heard Government Members regularly talk about the value and importance of such a measure, and we simply want to put it on the face of the Bill. A unified and universal social tariff is about basic social justice. It would help those people for whom paying water bills is most difficult, for a variety of reasons—health and disability reasons, as well as financial ones. This is something that the Government should accept, or else we will seek to press it to a vote.
Emma Hardy
I thank the hon. Member for tabling new clause 17. It is clear that consumers are concerned about their bills, and this Government want to do everything they can to help and support people who are struggling, particularly given that water bills are due to rise following Ofwat’s final determinations. Although this Government do not consider it suitable to adopt the new clause at this time, we will continue to consider all measures available to best support vulnerable customers, and we are exploring options to improve social tariff arrangements and improve fairness and consistency in who is eligible for support and in the levels of assistance provided.
There are already customer assistance schemes in place. WaterSure caps water and sewerage bills for vulnerable customers who have the higher essential water use requirement for family or health reasons. Under the scheme, £66 million of support was provided to 230,000 households in ’23-24, with an average bill discount of £286. That sits alongside debt measures, water efficiency measures and company social tariffs, which are all targeted at supporting customers who are struggling to pay. Company social tariffs, which water companies design themselves and offer to customers who are struggling to afford their water bills, are forecast to provide an average of £640 million a year in support between 2025 and 2030.
Prior to the introduction of any new support scheme, in-depth research and analysis must be completed to ensure a properly designed policy. Therefore, the Government are continuing to work with the water industry to explore options to improve affordability arrangements, including by holding the sector accountable for its public commitment to end water poverty by 2030. For that reason, I ask the hon. Member for Westmorland and Lonsdale to withdraw new clause 17.
Tim Farron
In-depth analysis is not going to tell us anything other than that there is massive inconsistency across the country. Of course, WaterSure provides benefits, but it is different depending on where someone lives. The benefits received by someone living in a Yorkshire Water area, United Utilities or Northumbrian Water area will differ, as will the qualifying criteria. That means that some people in poverty, and some people with serious disabilities or health needs, who therefore have higher water usage requirements, will be hit by higher bills simply because of the lack of a single social tariff. We think that the new clause is important to ensuring social justice and helping those most in need in our communities, and therefore that it is very important to put it to the vote.
Question put, That the clause be read a Second time.
Charlie Maynard
I have the name of one here: Thames Water Utilities Cayman Finance Holdings Ltd. Why Cayman? If I say “Cayman”, people say “tax haven”. That is why it is there. We should be doing our best to stop that. Last I looked, London was still a financial capital, and equity and debt could still be raised in this country, and I sincerely hope that remains the case. So I do not see a good reason to have holding companies offshore. Hon. Members might be happy to hear that that was all I wanted to say on new clause 19.
New clause 23 is also being considered in this tranche, and I will highlight proposed new subsection (2DZB)(b), which refers to
“a process for agreeing capital expenditure necessary for service improvements, bill increases, and changes to operating costs while the undertaker is subject to the Special Administration Regime”.
We have to spend a huge amount of money on our water utility companies, because they have not been spending enough over the last decade or two. When a special administrator is appointed in such instances, the goal is to ensure that the special administrator takes that future spend into account in considering how much debt needs to be cut. We do not want to come out of special administration with debt that is still high, which will prevent the investments from being made that will be required over the next. That is the goal of the new clause.
Emma Hardy
I thank the hon. Member for Westmorland and Lonsdale for the intent behind new clause 19. As highlighted, it seems in parts to contradict new clause 18, which was also tabled in his name.
It is important to highlight that Ofwat already has a core duty under section 2 of the Water Industry Act 1991 to ensure that water companies are able to finance the proper carrying out of their statutory obligations. Ofwat already monitors information it receives about companies and their financial positions on an ongoing basis. That includes carrying out a detailed review of the financial information published by companies in annual performance reports, statutory accounts, interim accounts, investor reports and other sources. Ofwat also directly engages with companies where it sees an increased level of risk. Additionally, Ofwat has recently updated water company licences to require companies to take account of service delivery for customers and the environment, as well as financial resilience when deciding whether to pay a dividend.
More broadly, the independent commission into the water industry will look at long-term, wider reform of the water sector, as I have mentioned. Company financial structures are one of a number of areas that could be explored under the commission, and we do not want to pre-empt the outcome of the commission through this new clause. The former deputy governor of the Bank of England, Sir Jon Cunliffe, chairs the commission. As mentioned, he has decades of financial, investor and regulatory experience. His appointment demonstrates the Government’s ambition to fix the foundations of the industry. As I have mentioned previously, there will be a call for evidence, and the hon. Member will be able to make his points to Sir Jon Cunliffe and the commission. Given the existing monitoring of the financial resilience of the sector and the forthcoming recommendations of the independent commission, we do not believe that the new clause is appropriate, and I ask the hon. Member to withdraw it.
Turning to new clause 23, which was also tabled by the hon. Member for Westmorland and Lonsdale, a special administration regime enables a company that provides vital public services—water, energy or rail—to be put into administration in certain circumstances to ensure that the public service will continue to be provided pending rescue, via a means such as debt restructuring or transfer, via a sale, to new owners. There is no need for a company exiting a SAR to be placed under an enhanced regime regarding its debt levels. Water companies are allowed to raise debt to fund the delivery of their services, and it is for companies to decide their financial structures. I will resist the urge to repeat my previous comments about the water commission looking at the financial structures of all the water companies, and I hope the hon. Member will take what I outlined previously as read.
In relation to capital expenditure during a SAR, it is not necessary to establish a statutory process for agreeing that expenditure, as that would be agreed under a court-appointed special administrator in the lead-up to a SAR. The Government can provide funding support to a special administrator. Any company under a SAR will still be subjected to the same regulatory regime and expected to meet its statutory obligations.
I hope the hon. Member understands why we cannot accept his new clauses, but I repeat the offer made: he will be able to talk to Sir Jon Cunliffe and present to him the evidence he has just presented to the Committee, so that he can consider it as part of the wider evidence gathering. I therefore ask the hon. Member not to press his new clauses.
Charlie Maynard
It is very kind of the Minister to have so much faith in, and be so charitable towards, Ofwat, given its record over the last decade or two, particularly with regard to its management of water companies’ financials. We will not press new clause 23, but would like to call a vote on new clause 19.
Question put, That the clause be read a Second time.
Charlie Maynard
I will be brief. We just want to highlight the five-year price review and the shoehorning in of that time period. It might have worked for Lenin—maybe not—but we do not think it works well in the water sector, so we want to see whether we can release ourselves from it. We will come to new clause 35 later, but in certain situations we will all be better off if we look over a longer time period. We have some really big problems and we need to think about reducing them not just over the next five years, but over a 10 or 15-year period. We need to work towards some really big fixes over a longer period. If we are always locked into these five-year cycles, we are not serving ourselves well. That is the point of new clause 21.
New clause 29 states that
“the Authority must have regard to the performance of the relevant undertaker or undertakers against pollution targets across the previous five years.”
At the moment, how companies do is not very well linked to their reward. Most of the time, with water companies, everybody is thinking about sticks—I certainly am—but we ought to think a little about carrots as well. Let us say that ultimately we do good things such as setting pollution reduction targets. If companies beat those targets, we should work towards a solution whereby they do well out of that. They could have a carrot as a reward for doing well, as opposed to endlessly being given the stick. That is the point of new clause 29. We will not push either new clause to a vote.
Emma Hardy
I thank the hon. Members for Witney and for Westmorland and Lonsdale for the intention behind their new clauses. The water sector is facing multiple challenges and growing pressures. Resolving them will require transformational change.
The Government agree that it is crucial to conduct a fundamental review of the water industry regulatory system. We want to ensure that we have a system that supports strategic planning and investment, with fairness to customers and environmental improvement at its core. I reassure the hon. Member for Witney that such a review is already under way—I might have mentioned this once or twice before—through the independent commission, led by Sir Jon Cunliffe. That comprehensive review is addressing the three elements that the new clause raises: planning, financing and investment. It is taking a holistic approach to assessing the system, and it will make recommendations to ensure that the water sector is better equipped to ensure clean rivers, lakes and seas and a sustainable water supply for the future.
The commission will report to the Government by the second quarter of 2025, ahead of the timeframe recommended in the new clause. I trust that the hon. Member for Witney is reassured that the requirements of the new clause are already being addressed through the work of the independent commission.
On new clause 29, which was also tabled by the hon. Members for Westmorland and Lonsdale and for Witney, I reassure them that the Government are fully aware of the scale of damage that pollution is causing to our waterways. We are committed to working with the water industry regulators to address that.
As a regulator, Ofwat has a range of primary duties, including ensuring that companies properly carry out their functions and can finance the delivery of their statutory obligations, including environmental obligations. Ofwat sets the total spending envelope for companies through its price review process and it reviews company business plans to ensure compliance with statutory obligations. I am pleased to inform the Committee that Ofwat published its final determinations for the 2024 price review on 19 December, which included confirmation of £104 billion-worth of expenditure over the next five years. That is the highest level of investment in the water sector since privatisation and will fund reducing the number of spills from storm overflows by 45% through upgrading 2,800 storm overflows.
In addition, companies will improve river water quality by improving more than 1,700 waste water treatment works. Furthermore, Ofwat has increased the number of outcome delivery incentives against which companies must deliver, including targets on reducing serious pollution incidents, such as a reduction in storm overflows and operational greenhouse gas emissions. That means that serious pollution incidents will lead to clear and robust financial penalties for companies. I trust that the hon. Member for Witney is reassured that his new clause is not required, as pollution targets are already closely factored into the current price review model, and I ask him not to press it.
Charlie Maynard
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 22
Prohibition on bail-out of water company shareholders and creditors
“(1) The Secretary of State and His Majesty’s Treasury must not directly or indirectly discharge, assume, or guarantee any debts of legal entities in any water company group subject to proceedings under section 24 of the Water Industry Act 1991 (special administration orders made on special petitions), except in accordance with subsection (2).
(2) The special administrator of a water company may reduce the debts owed by the regulated entity to its creditors by up to 100 per cent, taking into account the future forecast expenditure over the short, medium and long term and subject to the administrator’s confidence in the company’s ability to accommodate this spending.
(3) The prohibition set out in subsection (1) and the reduction of debts set out in subsection (2) must not include pension, wage and other obligations owed to employees, excluding any past or current member of a board of directors, within the water company group.”—(Charlie Maynard.)
This new clause aims to allow up to 100% of debts to be cancelled in the event of special administration proceedings, taking into account the scale of investment required to hit the future targets established by the Authority.
Brought up, and read the First time.
Charlie Maynard
I beg to move, That the clause be read a Second time.
We have covered this already, so I will be brief. I highlight subsection (2):
“The special administrator of a water company may reduce the debts owed by the regulated entity to its creditors by up to 100 per cent, taking into account the future forecast expenditure over the short, medium and long term and subject to the administrator’s confidence in the company’s ability to accommodate this spending.”
We have already discussed this. I am not going to go through it further, and I am not going to push it to a vote, so I will leave it at that.
Emma Hardy
I thank the hon. Members for Westmorland and Lonsdale and for Witney for tabling new clause 22. As the hon. Member for Witney says, we have already had a debate on this issue. I hoped that we had made the situation quite clear about what the special administration regime is and what it is not, but here we go again.
I must reject the new clause, because it would jeopardise the main purpose of the water special administration regime: the continued provision of vital public services. The role of a special administrator does not include a power to cancel debt, and the purpose of the administration is not to bail out water company creditors or shareholders. The new clause is therefore unnecessary. It would divert from long-established insolvency principles of treating creditors equally according to their rights as commercial entities. When a water company enters special administration, creditors are unable to enforce their debt repayments unless they seek leave of the court or receive permission from the special administrator. When a water company exits from special administration either by rescue, such as debt restructuring, or by transfer, such as a sale, the special administrator determines the level of repayment to credits. That will be calculated according to the statutory order of priority.
It is very unlikely that all debt would be repaid at the end of a special administration, because of the order in which payments are required to be made. Debts can be cancelled only according to a restructuring plan or under court supervision. The Government do not directly or indirectly make any decisions relating to the exact quantity of debt recouped by creditors or equity recouped by shareholders.
I must reject the new clause, because the changes that we are making align the water industry special administration regime with regimes in other sectors. We do not intend to alter the regime’s relationship with the existing framework of insolvency legislation.
Charlie Maynard
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 26
Rules about performance-related pay
“(1) The Water Industry Act 1991 is amended as follows.
(2) After section 35D (inserted by section 1 of this Act) insert—
‘35E Rules about performance-related pay
(1) The Authority must issue rules prohibiting a relevant undertaker from giving to persons holding senior roles performance-related pay in respect of any financial year in which the undertaker has failed to prevent all sewage discharges, spills, or leaks.
(2) The rules issued under subsection (1) must include—
(a) provision designed to secure that performance-related pay which, if given by a relevant undertaker, would contravene the pay prohibition on the part of the undertaker, is not given by another person;
(b) that any provision of an agreement (whether made before or after the issuing of the rules) is void to the extent that it contravenes the pay prohibition;
(c) provision for a relevant undertaker to recover any payment made, or other property transferred, in breach of the pay prohibition.
(3) For the purposes of subsection (1)—
(a) “performance-related pay” means any payment, consideration or other benefit (including pension benefit) the giving of which results from the meeting of any targets or performance standards on the part of the relevant undertaker or the person to whom such payment, consideration or benefit is given;
(b) a person holds a “senior role” with a relevant undertaker if the person—
(i) is a chief executive of the undertaker,
(ii) is a director of the undertaker, or
(iii) holds such other description of role with the undertaker as may be specified.’”—(Tim Farron.)
This new clause creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills, or leaks.
Brought up, and read the First time.
Tim Farron
I beg to move, That the clause be read a Second time.
I do not really want to press this new clause to a vote, but we tabled it because my noble Friend Lady Bakewell withdrew it in the Lords after being given assurances by the noble Baroness, Lady Hayman, for whom I have enormous respect and of whom I think very highly. It seeks to ban bonuses for senior company executives who have been found guilty of a category 1 or 2 discharge. It would prevent any loopholes such as pay rises and share options that might enable bonuses to be paid under those circumstances.
From the Dispatch Box in the other place, Baroness Hayman said:
“However, we are very aware that water companies need to attract investment so, as outlined in Ofwat’s consultation, the circumstances under which performance-related pay bans are being proposed represent very serious failures by a company. I reassure the noble Baroness, Lady Bakewell of Hardington Mandeville, that this includes instances of criminal convictions, credit ratings falling below investment grade and Ofwat’s proposed metric for bonuses to be prohibited if a company has had a serious category 1 or 2 pollution incident in the preceding calendar year…I would like to be clear with all noble Lords that we are not asking companies to meet any higher or new standard than that which is already expected of them.”—[Official Report, House of Lords, 20 November 2024; Vol. 841, c. 247.]
We were grateful for that assurance, but nothing of that sort has appeared in the Bill since. Will the Minister give me some reassurance as to why we should not press the new clause to a vote? I do not see anything in writing that gives us confidence, other than the words of the noble Baroness.
Emma Hardy
I thank the hon. Gentleman for tabling new clause 26. The Government agree that we need to rebuild trust in the water sector and that executives should be firmly held to account for companies’ serious failures to meet environmental standards. That is why clause 1 will give Ofwat new powers to issue rules on remuneration and governance. The legislation requires Ofwat to set rules that make the payment of bonuses contingent on companies achieving high environmental standards. It is more appropriate for Ofwat, as the independent regulator, to determine the performance metrics to be applied when setting the rules for performance-related pay.
As outlined in the initial policy consultation, Ofwat is currently considering prohibiting bonuses where companies have had a serious category 1 or 2 pollution incident in the preceding calendar year. That is not on the face of the Bill, but it is very clearly in Ofwat’s consultation. It is looking to consult on prohibiting bonuses after a category 1 or 2 pollution incident, as my noble Friend outlined. That provides an early indication of the direction of travel on the environment metric.
Ofwat would be able to use its direction-giving power and wider enforcement framework to hold companies to account where it has reason to believe that they are in breach of the rules. However, banning bonuses, even in cases of unwanted but legal spills, would effectively ban bonuses for all companies. That could unnecessarily threaten the sector’s ability to attract and retain talent. I refer the hon. Member for Westmorland and Lonsdale to the consultation that Ofwat has launched so that he can see for himself the pollution metric that I have mentioned. On that basis, I hope that he feels able to withdraw new clause 26.
Tim Farron
I am reassured to a large degree by what the Minister says, but I am concerned that it is not on the face of the Bill. Simply handing this over to Ofwat, given its track record, does not fill me with confidence. We will reserve our position on this one—we may potentially talk about it further on Report—but we will not press new clause 26 to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Jeff Smith.)