Water (Special Measures) Bill [ Lords ] (Fourth sitting)

Debate between Emma Hardy and David Reed

Committee stage
Tuesday 14th January 2025 Public Bill Committees

[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.

Water (Special Measures) Bill [ Lords ] (First sitting)

Debate between Emma Hardy and David Reed

Committee stage
Thursday 9th January 2025 Public Bill Committees

[Emma Hardy]

I am pleased that we have that on the record. This is an important Bill, and I encourage everyone to attend.

I believe, first, that the Lords amendment is duplicative of the work that Ofwat is already doing and, secondly, that it will pre-empt any forthcoming reforms from the water commission.

[David Reed]

We have heard repeatedly that this is just the start of the legislative process to bring our water companies back to heel. Will the Minister please explain what she thinks the Bill lacks and what she hopes to do in the future to strengthen and add to it?

[Emma Hardy]

The hon. Gentleman tempts me to look into the future before we have had the water commission. To clarify—just so there is no misunderstanding—the commission will not amend this Bill but will produce another piece of legislation that looks at everything.

--- Later in debate ---

[Emma Hardy]

I am desperately searching for a dental analogy. I have already outlined to the hon. Gentleman that we tabled this amendment to protect the independence of Ofwat, protect investor confidence and ensure that rules under clause 1 are effective and in place as soon as possible. It is therefore necessary to remove Lord Roborough’s amendment. I again urge hon. Members to look at the written evidence supplied by Ofwat today. On that basis, and considering the arguments I have put forward for removing the six-month deadline for the rules to be published, I ask the hon. Member for Westmorland and Lonsdale not to press amendment 21.

Turning to amendment 22, also tabled by the hon. Member for Westmorland and Lonsdale, public trust in the water sector has been severely damaged and the number of serious pollution incidents is increasing. At the same time, companies are paying out millions in bonuses. I therefore fully support the intention behind the amendment and agree on the importance of ensuring that customers and the environment are put at the heart of companies’ objectives. That is why the Secretary of State announced immediate action to improve the performance of the water industry in his first week in office. That included an agreement that companies would update their articles of association to make the interests of customers and the environment a primary objective. I am pleased to inform the House that a number of companies have already made that change, and DEFRA is working to ensure that all companies implement it as soon as possible.

This is a Government of service, focused on improving people’s lives, and it is important that consumer interests are represented at the heart of decision making. That is why, under clause 1 of the Bill, Ofwat must make rules requiring consumer involvement in corporate decision making. Companies will be required to put in place arrangements to involve consumers in decisions that have a material effect on consumer interests. I trust therefore that the hon. Member for Westmorland and Lonsdale is reassured by the steps being taken by Government and he feels able to withdraw amendment 22.

[David Reed]

There is a lot of additional work being pushed towards Ofwat. Could the Minister confirm whether Ofwat has the internal capacity to meet that workload? If not, is there a ringfenced budget in DEFRA to allow Ofwat to employ more people?

[Emma Hardy]

I thank the hon. Gentleman for his helpful question. Yes, we obviously have regular conversations with Ofwat to ensure that it is capable of delivering everything here. There is an impact assessment on the table in the room, if the hon. Member would like to look at exactly how that all works out.

Amendment 18, also tabled by the hon. Member for Westmorland and Lonsdale, speaks to the representation of customer views and those of wider groups. The Government are clear on the importance of elevating the voice of consumers in water company governance and decision making. That is why—as I have mentioned—under the Bill, Ofwat will set rules requiring water companies to have arrangements in place for including consumers in company decision making.

In October last year, Ofwat published a public consultation on the rules on remuneration and governance and how they will apply. The proposed options put forward by Ofwat include giving a non-executive director the responsibility for oversight of consumer interests on the board and providing opportunities for consumer panel representatives to meet with the CEO on a regular basis. Furthermore, companies already have a range of environmental obligations that they should be meeting, and experts in water and sewage policy should already be considering those obligations to inform board-level decision making. I trust the hon. Member for Westmorland and Lonsdale is therefore reassured by the Government and Ofwat’s approach and is content that amendment 18 is not needed.

I will now take a little time to discuss clause 1 itself and the importance of it standing part of the Bill. As hon. Members know, clause 1 provides Ofwat with new powers to set rules on pay and governance in the water sector and requires that Ofwat make rules on four topics. I have already spoken about one of these, consumer representation. The legislation also provides Ofwat with new powers to issue rules on remuneration and governance, and requires that Ofwat set rules that make the payment of bonuses contingent on companies achieving high environmental standards. As the independent regulator, it is more appropriate for Ofwat to determine the performance metrics to be applied when setting the rules for performance-related pay.

In addition, Ofwat must also make rules covering the fitness and propriety of chief executives and directors. That means that it will be required to set standards of fitness and propriety that chief executives and directors must meet in order to be appointed by water companies or stay in post. People holding those senior roles will be held accountable against those standards and, if they fail to meet them, companies may need to take corrective action or ultimately remove executives from post if necessary. Ofwat’s initial policy consultation outlined some proposed standards of fitness and propriety that included ensuring that individuals have sufficient knowledge of the duties of water companies, are financially sound and have not been the subject of regulatory investigation. Collectively, those rules on remuneration and governance will help to drive meaningful improvements in the performance and culture of the water industry and form a central part of the Bill.

To pick up on the point made by my hon. Friend the Member for Hastings and Rye about whether the rules go further than the previous Government’s, the short answer is yes. The legislation will provide Ofwat with legal powers to ban bonuses, whereas currently it can only set expectations, and it will require Ofwat to set rules prohibiting the payment of bonuses in certain circumstances. Executives will no longer be able to take home eye-watering bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability. We will go further by requiring Ofwat to set rules requiring water companies to ensure that directors and executives meet the highest standards of fitness and propriety, and that customers are involved in company decision making that impacts consumers.

Finally, turning to amendment 19, also tabled by the hon. Member for Westmorland and Lonsdale, I would like to reassure the hon. Member that both the Government and Ofwat take the handling of actual or potential conflicts of interest very seriously. Ofwat employees are already bound by a range of robust rules and processes that support the management of conflicts of interest, including when leaving the organisation. Failure to comply can result in disciplinary action. That includes the civil service business appointment rules, duties of confidentiality and the Official Secrets Acts.

Water (Special Measures) Bill [ Lords ] (Second sitting)

Debate between Emma Hardy and David Reed

Committee stage
Thursday 9th January 2025 Public Bill Committees

[Emma Hardy]

I want to make sure that I am not giving the hon. Gentleman inaccurate information, so I will find out the answer to his question and return to it, if that is okay. I do not want to give him the wrong information. The main point we are making is that it is not the volume that is having the impact; it is the toxicity. We think that, by focusing on measuring water quality, we can accurately see the damage being done to our environment by what is being discharged, and I think that is the point. If we are choosing where to put the monitors, we think that focusing on water quality and how damaging it can be is more important than focusing on how much there is.

[David Reed (Exmouth and Exeter East) (Con)]

We talk about citizen scientists and the hard work they have to do to uncover what is going on within the data. We are talking about putting lots of different monitors on lots of infrastructure up and down the country, which is going to spew out lots of different information that is going to be quite hard to dig into. Could the Minister give a view on whether there will be an approach to the standardisation of data, to make it easier to view for people?

[Emma Hardy]

The hon. Member is pre-empting my responses to the next amendments on transparency, which I am just about to turn to. Before we move on from volume, I re-emphasise the point. This is something that I looked at seriously because a number of colleagues have spoken to me about it, so I really do not want hon. Members to feel like it has been dismissed out of hand—I did look at this seriously. One of the other points made to me was about lots of the pipes being different sizes. If we are going to be able to calculate the volume, we have to be able to calculate the size of the pipe, which might require standardising the size of all pipes to work out the volume coming through them, so we can measure how much is coming out at one moment.

That is where we get to the £6 billion figure; it is not just the cost of putting the monitors on but ensuring that, if we are measuring the amount of sewage flowing past something, we can understand the size of it. The hon. Member for Witney is looking at me and I can see that I have work to do to convince him of this. I am probably doing a complete injustice to the person who explained this all to me, but I will ensure that the hon. Member gets a proper explanation. The upshot of the conversation was that this is going to be really expensive, and what we all want to know is: how damaging is what is coming out of those pipes to our environment? That is why we are focusing on water quality. [Interruption.] I have had inspiration from behind me and an answer to the question of when continuous water quality monitoring will be rolled out. They have requested to begin installing continuous water quality monitors at 25% of storm overflows and sewage treatment works outlets at price review 2024. The sites selected for the first stage of roll-out have been prioritised to include sensitive sites such as chalk streams.

--- Later in debate ---

[David Reed]

I want to raise one minor point. Public confidence in us restoring our water systems is the reason we are here, scrutinising this Bill. Feargal Sharkey—a main campaigner who many people up and down the country listen to—recently wrote an article saying that no water boss would ever go to prison as a result of this legislation. Will the Minister comment on that to give confidence to people watching this proceeding?

[Emma Hardy]

I am obviously a bit of a fangirl of Feargal Sharkey, not least because of his musical career before entering the field of environmental campaigning.

We do not expect this measure to materially impact on court case numbers. The intention is to deter offending. Not all cases will go to the Crown court, but it is right that that is a possibility. Obstruction of the Environment Agency’s emergency powers, under section 108 of the Environment Act 1995, is already triable in the Crown court. The EA will consult on updating the enforcement sanctions policy to ensure that that is absolutely clear. Although this is not a new offence, we are talking about changing the maximum penalty because of the justice gap that I have mentioned. Previously, it was punishable only by fine and heard only in the magistrates court, and we are moving it to be punishable in the Crown court and including a prison sentence.

I am pleased that there is lots of agreement on the importance of the clause. We are talking about something very serious: obstructing the Environment Agency or the Drinking Water Inspectorate in going about and collecting the evidence that they require. This is a serious matter, and it deserves a serious penalty. I thank hon. Members for their views on the clause, but nothing that has been said detracts from the importance of addressing the justice gap. I am pleased that there is agreement, which has, on occasion, has been exploited by water companies. I commend the clause to the Committee.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Civil penalties: modification of standard of proof

Question proposed, That the clause stand part of the Bill.

Sewage Discharges: South West

Debate between Emma Hardy and David Reed

Wednesday 27th November 2024 Commons Chamber

[Emma Hardy]

I am more than happy to look into any anomalies, so if Members want to send through details of where there seems to be a discrepancy in the data, I can pick that up.

South West Water has 156 bathing waters, and I am hoping that the hon. Member for North Cornwall will be pleased not only with our bathing water announcements on removing strict automatic de-designation, and removing fixed dates, but also that we are redefining the term “bathing” perhaps to include people who go surfing—I heard that he is interested in surfing. That will enable more people to enjoy the water environment. At the moment the term “bather” refers to people who swim, but we know that so many more people enjoy our beautiful water.

On 12 November DEFRA, jointly with the Welsh Government, announced a consultation on a package of potential reforms to bathing water regulations, and those changes will modernise the system to meet the needs of the public. The Government have been clear that there is no excuse for poor performance, and we will not look the other way while companies routinely fail to meet agreed standards. Water companies must take seriously their role in meeting public expectations and regulatory requirements, holding them to account when they fail.

Let me recap our three-stage approach to fixing the water industry. In the first week of the new Labour Government, the Secretary of State and I met water companies to secure agreement to amend their articles of association. Funding for vital infrastructure investment is ringfenced so that that money cannot go on bonuses—we saw evidence of that just last week. That money is for infrastructure improvement. There are new customers on the panels of water companies, as we are looking at changing the culture and giving customers a voice, and we are also strengthening protection and compensation for households.

The most significant increase in enforcement powers for regulators in a decade has come from the Water (Special Measures) Bill, which will arrive in the House for Second Reading before Christmas—I am sure I will see many faces in that debate. Those powers include providing Ofwat with powers to ban bonuses, enabling regulators to issue automatic and severe fines for wrongdoing, and there is also a duty on Ofwat to fulfil its environmental duties and legal requirements. The Bill will strengthen cost recovery powers to ensure that water companies bear the cost of enforcement activities.

The independent commission has been mentioned a few times, and it is needed to reform the whole water system. As we know, the system has developed incrementally since privatisation—I do not think anybody here thinks it is a system that we would wish to design in the way it has evolved. The call for public evidence will come in January, and as I have done before, I urge every Member across the House to get involved in that and find some evidence.

[David Reed (Exmouth and Exeter East) (Con)]

I thank the hon. Member for North Cornwall (Ben Maguire) for securing this important debate. Many of the points that have been raised this evening are issues we have all experienced, but I have found that South West Water’s communication and engagement with its customers has been atrocious over recent months. What more can the Government do to ensure that South West Water properly engages with its customers?

[Emma Hardy]

I apologise to the hon. Gentleman for having to rearrange our meeting yesterday as I was visiting a flooded area. We will get that meeting back in the diary quickly. He is right to raise that issue as it is one of the reasons why we want to put customer representation on the water boards, and give customers that stronger voice. I am more than happy to follow that issue up with the hon. Gentleman and see what more I can do to support him. It is incredibly important that customers are treated with the respect they deserve, and if water companies are not doing that, I am more than happy to follow it up.