Water Companies: Regulation and Financial Stability

Debate between Emma Hardy and Robbie Moore

Wednesday 23rd October 2024 Westminster Hall

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I thank the hon. Member for Westmorland and Lonsdale (Tim Farron) for securing this debate. I will make sure he has time to sum up at the end.

In response to the shadow Minister, I think the Government’s record speaks for itself. Although he might wish to rewrite history, he cannot actually change history. If people want to see what his Government achieved, they just need to look at a storm overflow pipe or perhaps the level of pollution in every river, lake and sea. The public outrage and outcry over this issue is felt by everybody. It is certainly felt by this Government.

The level of pollution in our iconic lakes such as Windermere and in our beautiful chalk streams—we have had debates on this before—is outrageous. It is right that that has become more of an issue as time has gone on. That is a positive thing. We need to value our nature to a far higher level than we ever did before, and change is needed. Indeed, we were elected on a mandate to bring about that change. I am pleased that climate change was mentioned in the debate as well. Our problems will only increase because of our changing climate. Everywhere will perhaps not be quite as wet as the constituency of the hon. Member for Westmorland and Lonsdale, but places will certainly be getting to those kinds of levels.

I pay tribute to all the campaign groups and organisations that have come to meet me since I became the Minister with this responsibility. Those people are incredibly passionate and dedicated, often citizen scientists giving their spare time to work on this issue, because they passionately believe in it.

I must mention the wonderful speech of my hon. Friend the Member for Easington (Grahame Morris), the quietly spoken radical. I welcome his support for the Water (Special Measures) Bill. Never let his quiet ways lead to underestimating the secret radicalness within him. I hope that he will contribute to the water review and the consultation. We will welcome his expertise.

I pay tribute to a fantastic new Member, my hon. Friend the Member for York Outer (Mr Charters), who is a brilliant local champion. I value his contribution and I share his outrage at the levels of sewage he has seen in his constituency. I agree with the very good point he made: when we look at the consultation, we should look at other regulatory systems to see what works well and at what lessons can be learned, so that we create a system that is effective for the future. I hope that that is something that he, too, feeds into the consultation.

The Water (Special Measures) Bill has been mentioned a number of times. Before it comes to this House, I will organise drop-in sessions for Members of Parliament, who are welcome to talk to me about possible amendments and things that they would like to see in the Bill. I am happy to discuss that. I will of course make time for all the Front-Bench spokespeople to talk to me about it, too.

I have to say, however, that I was rather surprised to hear criticism by Members of Parliament of the idea of inclusion, of consultation with our commission. This Government believe in doing things with people and not to people. I will go so far as to say that the Government are not arrogant enough to believe themselves to have all the answers and expertise, especially with so many experts out there. The Government want to reset our water industry for decades to come and—this is in my DNA and is stated on the back of my Labour party membership card—we believe

“that by the strength of our common endeavour we achieve more than we achieve alone”.

This is my philosophy of working with other people—looking at systems of co-production, at how we can create consensus, and at bringing together different ideas and expertise. I was therefore a bit surprised to hear that the idea of consultation and including others should be ignored. In fact, the previous Government had many examples of being arrogant enough to presume that they knew all the answers. Indeed, that Government created systems and policies that have been found to be utterly failing, because they did not listen to what the general public or campaigners were saying.

There is little point to different Members of Parliament talking about how they value the contribution of campaigners and organisations—how welcome those are and how well they have worked with them—when they also say that the ideas and expertise of those campaigners and other people should not contribute to Government policy. Deeds, not words—if we value people’s expertise and contribution, we must let them work with us to shape legislation for the future.

This commission will work with those experts, will value their contributions and listen to them, and will shape something that is fit for the future. It will conclude in June and, after a couple of months of looking at the consultation and Government response, further legislation will be brought forward. Some things will need primary legislation to change, as the shadow Minister, the hon. Member for Keighley and Ilkley (Robbie Moore), understands, but some things can be done more quickly. That very much depends on the recommendations. If primary legislation is required, obviously such things will take longer.

An important point to make is that the Government want to do things in a different and inclusive way. I reach out to each and every one of the people in this Chamber to say: “We want to do this with you.” Yes, there will be different points of view across the Chamber and there will be different ideas about what the right answer is, but let us act collectively on this, not just as Members of Parliament across the House, but as campaigners, organisations and members of all groups, even my mum’s wild swimming group—I am sure they have many an opinion on what the right policy should be. Let us come together to create something meaningful that will command cross-party support and make a difference. That is what we want from this consultation. I will be honest: I am a bit disappointed that people think consulting and working with others is a bad idea.

While I am having a slight moan about things that are slightly disappointing, there seems to be a confused message coming from the Chamber. Members have highlighted that some of the drought plans for water companies are rather, shall we say, extreme, as they involve shipping water over from other countries to deal with droughts, but they also criticised building reservoirs. They cannot do both. If we are going to plan for droughts, we need to talk about building reservoirs and ensure we have the infrastructure we need for the future.

What have the Government been doing? In week one, we got all the CEOs together in a room and talked to them about how we fix the industry. From that meeting, we secured a change to the articles of association, ringfenced funding for vital infrastructure, and new customer panels, and strengthened the protection and compensation for householders. In the week after the summer recess, we introduced the Water (Special Measures) Bill, so in our first 100 days we have hardly been resting on our laurels.

A lot has been said about the independent commission. It is really important that it is independent, and I am pleased that my hon. Friend the Member for York Outer paid tribute to Sir Jon Cunliffe, whose expertise and financial record are second to none, so is somebody we can work with collectively to produce something really effective.

[Robbie Moore]

On the commission, would the Minister be kind enough to outline to the House the timings? The PR24 process, which Ofwat is looking at, comes into effect next year and will be in place until 2029-30. Will any positive recommendations from the commission take effect within that price review period?

[Emma Hardy]

The shadow Minister is pointing out the way we plan and look at our five-year cycle. Whether that is the best way of doing things is a whole other question. The answer is the one I gave earlier: it very much depends on whether things need primary legislation. Some things that change the regulator will not affect the price review framework. The price review framework is based on the amount of money that people will invest in infrastructure, and changes needed for the next five years. That does not mean that things relating to regulation and the rules cannot be changed. I am sure he understands that.

I reiterate the Government’s commitment to driving meaningful, long-term improvements in the performance and culture of the water industry. We want to deliver on our ambition to clean up our rivers, lakes and seas, and the actions I have outlined today are only the beginning. I am passionate about this issue, and am very pleased to be leading on it. In fact, I asked to become the Minister for it, and we do not always get what we ask for in politics. I reiterate my invitation to work with each and every Member here. I think consultation and collaboration are good things, and I hope all hon. Members will embrace that. I look forward to working with them to achieve the goal that we all share: cleaner rivers, lakes and seas.

Oral Answers to Questions

Debate between Emma Hardy and Robbie Moore

Thursday 9th May 2024 Commons Chamber

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

We learned from the Public Accounts Committee report that 500 flood defence projects have been cancelled, just like the one in Lowestoft. Whether the Minister chooses to use the words “cancelled,” “deferred,” “delayed” or “on a long list” makes no difference, because he is still refusing to tell us where those projects are. Why does he insist on holding residents in contempt by not telling them the fate of their local flood defences?

[Robbie Moore]

I and my officials have been reviewing the applications that have been put forward, and announcements will be coming very soon. The Government are investing £1.3 billion in flood defences, which is more than ever before, and we will continue to ensure that we are better protecting coastal communities.

Flood Recovery Framework

Debate between Emma Hardy and Robbie Moore

Wednesday 17th April 2024 Westminster Hall

[Robbie Moore]

I thank my hon. Friend for consistently raising that point and others with me in my role as Minister. I assure him that all measures and schemes will be reviewed. Having requested a visit from me to come and see some of his businesses in Stapleford, I look forward to coming very soon to address the flooding issues that he and his constituents have experienced.

As my right hon. Friend the Member for Ludlow is aware, Shropshire County Council, which includes his Ludlow constituency, is eligible to receive funding following Storms Babet and Henk. The Government have recently opened the farming recovery fund, currently in nine areas, to support farmers who have suffered uninsurable damage to their land as a result of Storm Henk. Farmers will be able to receive grants of up to £25,000 towards reinstatement costs for farmland adversely affected by exceptional flooding. I fully recognise right hon. and hon. Members’ concerns about the announcement that the Department made last week. I assure all Members, and indeed those outside this place, that Ministers are actively reviewing the Department’s announcement last week.

My right hon. Friend also voiced some important questions about the schemes. He rightly raised the concern that holding the eligibility count at the lead local flood authority level, which is unitary or upper-tier councils, poses a problem for some local authorities, and that the threshold of 50 internally flooded properties as an eligibility criterion could be considered unfair to smaller local flood authority areas. I assure right hon. and hon. Members that that will be reviewed.

Let me address the concerns raised by the shadow Minister, the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) that the threshold was actually increased. Following flooding in 2020, and on the back of representations from local authorities, the flood eligibility criterion was reviewed. Previously, the eligibility criterion set by DLUHC for the flood recovery framework to be activated was 25 internally flooded residential units over a district local authority area. Following feedback, that was reviewed and reduced to a threshold of 50 properties, whether commercial or otherwise—not just residential properties—over a unitary authority area, which is a bigger geographical area. The threshold was therefore reduced, not increased, as the hon. Member wrongly claimed.

[Emma Hardy]

I believe that that was the point I made: the threshold had gone from 25 to 50. I am happy to check Hansard and correct any mistake if I made one— I am not sure that I did—but that does not resolve the point that I was making, which was about where the arbitrary number of 50 came from. If there are 49 properties on each side of a border, there will be no actual impact. It has been increased, and there has not been a consultation to explain exactly why.

[Robbie Moore]

I reassure all Members that the threshold was changed so that we could get much more support out to business and households. As I have already said, however, I have asked for alternative geographical boundaries to be considered for future activations, and discussed with the Department for Levelling Up, Housing and Communities the appropriate threshold for future events. That is under review with stakeholders, including the National Farmers Union. I spoke to the president of the union at several events in previous weeks, so the union is aware. Unfortunately, I think that the shadow Minister slightly misquoted that.

My right hon. Friend the Member for Ludlow also asked about extra funding to staff local authorities so that they can deliver framework schemes. The Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North Dorset (Simon Hoare), is considering that matter as part of the post-activation review that is currently under way.

I thank all Members for their contributions. I look forward to further conversations with Members regarding this important matter, to ensure that the Government are getting as much support as possible to those impacted by flooding.

Draft Water Industry (Special Administration) Regulations 2024 Draft Water Industry Act 1991 (Amendment) Order 2024

Debate between Emma Hardy and Robbie Moore

Tuesday 6th February 2024 General Committees

[Robbie Moore]

I am grateful to the hon. Members for Kingston upon Hull West and Hessle and for Bath for their important contributions, although I must say it was good that they eventually came back on to the script, so to speak. The statutory instruments will enable the Government to facilitate a more effective and efficient water industry special administration regime, ensuring that they are prepared in all eventualities to ensure uninterrupted provision for vital public services.

Let me briefly address some of the questions and points raised by the hon. Member for Kingston upon Hull West and Hessle. Before I get into the detail, I should say that I was pleased to hear her reference self-monitoring, because that was brought in by the Labour party when it was in power, in a water industry Act. We have increased the amount of monitoring that we are doing from 7% in 2010 to the 100% that we saw rolled out in 2023.

I will get back to the point. We are taking clear and decisive action to improve water quality. Our plan for water is delivering more investment, stronger regulation and tougher enforcement for our water system, and we are clear that water companies must not profit from environmental damage. Through that plan, we will transform our management of water systems, deliver cleaner water for nature and people, and secure a plentiful water supply.

The hon. Member for Kingston upon Hull West and Hessle made reference to storm overflows, so let me clarify the amount of investment going into them. Our plan for water sets stringent targets on companies to improve storm overflows, which will drive the largest infrastructure programme in water company history, with £60 billion of capital investment over 25 years. We are clear that the volume of sewage being discharged into our waters is utterly unacceptable. However, storm overflows cannot just be switched off, as some have suggested; they are an automatic feature designed to stop sewage backing up into our properties.

We introduced the statutory instruments to update the existing regulations set in place under the 1991 Act so that, should we get to a scenario in which we need to utilise the special administration regime, we are in a position to do so. I will clarify that since privatisation the private water sector model has unlocked about £215 billion of investment; I raise that point because the hon. Member for Kingston upon Hull West and Hessle referenced nationalisation. Since privatisation that has been equivalent to about £6 billion being invested annually, which is almost double the pre-privatisation level.

[Emma Hardy]

Will the Minister give way?

[Robbie Moore]

I will carry on for now.

The hon. Lady quite rightly asked how customers may be impacted should a special administration regime be put in place. We will always act to protect customers as a priority, and any intervention that would put pressure on the public purse would be considered seriously and as a last resort. Dividends are an important part of the investor return and should provide an adequate return that reflects company performance. If a company did not pay its dividends, it would struggle to access the finances to fund investment, impacting on the service for future customers.

In each year since privatisation in 1989, investment has been greater than the dividends paid, but a sustained level of investment in the water industry will continue only if the shareholders of companies can expect a fair return. Companies must pay for new investment up front, so need to secure a large amount of funding to pay for that. To avoid customer bills increasing drastically to pay for that, companies may secure money by raising debt or equity, or through shares in the company or investors.

The hon. Lady also asked whether a company in special administration will have to adhere to the same standards as the rest of the sector. The answer simply is yes. The special administrator will manage the affairs, business and property of the company according to the same statutory obligations as any other water company.

To build on that, the hon. Lady also asked for clarity on whether a water company could be placed in special administration. In general, special administration can be applied for on insolvency grounds, when the company might be unable to pay its debts or when liabilities are greater than its assets—as I said in my opening remarks—or in instances where water companies are in serious breach of their principal statutory duties or an enforcement order.

[Emma Hardy]

The Minister mentioned the failure to fulfil statutory duties, but will he confirm whether a violation of environmental law constitutes a failure to fulfil statutory duties?

[Robbie Moore]

Every water company is specifically regulated by the Environment Agency, as well as Ofwat. The Environment Agency will have powers if water companies are owned and operating under the regime they operate under now, or should they enter special administration.

On the hon. Lady’s point about Ofwat, it is clear from Ofwat’s performance report that there has been marked decline in performance over the past year. That has been driven by company-specific factors, but also by the effects of extreme weather, including the unusually hot and dry summer we had. The Environment Agency and Ofwat have powers of enforcement, and those powers will not change under a special administration regime.

I have addressed the points that were made, so I commend the draft statutory instruments to the Committee.

Question put and agreed to.

Draft Water industry Act 1991 (Amendment) Order 2024

Resolved,

That the Committee has considered the draft Water Industry Act 1991 (Amendment) Order 2024.—(Robbie Moore.)