Water Bill

George Hollingbery Excerpts

Monday 25th November 2013 Commons Chamber

[Mr Paterson]

I am grateful to my hon. Friend for his statement. I assure him that I take on board the damage that has been done by over-abstraction. However, this is extremely complicated and it is going to take time; we could make a real mess of things if we blunder into it. I am absolutely confident that through the upstream reforms that I mentioned, by holding more water back in various forms, which might be the reservoirs my hon. Friend wants, putting down aquifers, or SUDS—sustainable drainage systems—schemes, we will have water available for these rivers when they run dry. I totally sympathise with his worries about the chalk streams. It is very much our intention that this Bill will provide more water to keep these rivers flowing.

[George Hollingbery (Meon Valley) (Con)]

I want to take my right hon. Friend back to his example of the brewery. He says that we will benefit from these upstream reforms and that water will be held back. Does he agree that when he is considering the regulatory framework it will be important to ensure that resources that have been used in one way previously and will be subject to change—for example, by the brewery drawing more water than it would have done in totality before—are assessed by various agencies to make sure that the strain on resources is not overbearing on the system in its entirety?

[Mr Paterson]

My hon. Friend is absolutely right: there is no point in over-abstracting from a new source. However, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, because of the reduction in heavy industry there are significant amounts of water in various parts of the country, and this is all a question of moving it around according to local circumstances. I know that my hon. Friend and my hon. Friend the Member for Broxbourne (Mr Walker) have a real interest in abstraction. Our clear view is that the Bill will lead to a greater supply of water, which will help the rivers, about which my hon. Friends rightly worry, not to run dry.

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[Maria Eagle]

I understand the hon. Gentleman’s point. I do not believe the Labour Government did enough during our time in office to ensure that that was correctly handled, but that is not a reason to allow the water companies off the hook now.

Under Ofwat’s current powers, capital structure and consequent risk are matters for the boards and shareholders of those companies, so any action must come from the Government. We have seen from briefings to the Financial Times that Ministers are considering reducing the interest payments that can be deducted from a company’s tax bill, especially for larger and more highly indebted companies—as many water companies now are—or even putting a levy on the debt held by highly leveraged water companies. Whichever solution—if any—that the Government decide on, it must happen quickly.

Despite the gaping hole left by the Government’s failure to introduce in the Bill measures on water affordability for households, there are measures that we support. That should not be a surprise, given that they arose from three important reviews taken forward by the last Government: the Pitt review on flooding, the Walker review on affordability and the Cave review on competition.

[George Hollingbery]

The hon. Lady has made some candid remarks about the last Government’s failure and some sensible points about what might be changed in the Bill. She also makes much of the Government’s admission of certain issues that she now thinks are terribly important, but nowhere in the Environment, Food and Rural Affairs Committee’s scrutiny of the Bill, published only eight or nine months ago, is there a record of any Labour Member making any of the suggestions that she is making now. Is this not just a transparent device to bring a certain topic in a certain context to the Chamber today?

[Maria Eagle]

The hon. Gentleman is entitled to his opinions.

The three reviews built on the Flood and Water Management Act 2010, which we enacted before the last election. We support the measures to increase competition and enable non-household customers to choose their water supplier, and we want new entrants into the sector and so support measures to encourage that development. We also support the regulatory reforms designed to place a greater focus on the long-term resilience of water supplies and the measures to provide, at long last, the statutory basis for agreement on reinsurance.

We have concerns about several areas, however, many of which are shared by the Environment, Food and Rural Affairs Committee, chaired by the hon. Member for Thirsk and Malton. First, we agree with the Government’s decision to open up non-residential competition, as there is increasing evidence of a successful market emerging in Scotland. The introduction of competition for business customers is intended to provide choice, drive down costs and improve water efficiency, and we hope that it is successful, but the Government should listen to the Select Committee, which has said:

“We believe that protecting householders from subsidising competition in the non-household sector is a fundamental principle that should be enshrined in primary legislation.”

The Consumer Council for Water has rightly said:

“It is a vital principle that customers who are not eligible to switch retailer should not be disadvantaged. This should ideally be reflected in legislation.”

The statement in the recently published charging principles that household customers will not subsidise the development of competitive markets for business customers is a step forward, but not enough. We agree with the Select Committee and the Consumer Council for Water that it should be included in the Bill, and if Ministers refuse to reconsider their decision, we will seek to amend it.

Secondly, we do not understand why Ministers are being stubborn over enabling water companies to exit the retail market, which seems a perfectly non-contentious but important principle for the effectiveness of a market. The Select Committee is also clear on that point, and I think that the Government should rethink it. Thirdly, the Secretary of State should reconsider his decision not to require the separation of company wholesale and retail arms as part of his package of reforms. The Select Committee has called for a

“requirement for the functional separation of incumbent companies’ wholesale and retail arms. We further recommend that the principle of non-discrimination be included on the face of the Bill.”

We agree with the Select Committee.

Fourthly, we believe that the Government’s concerns about agreeing to the wide-ranging calls to elevate Ofwat’s sustainable development duty to a primary duty are misplaced. The Select Committee said:

“We are persuaded that the increasing pressures on our water resources, highlighted in the Water White Paper, justify such a change.”

The change is also supported by the 15 environmental non-governmental organisations that make up the Blueprint for Water coalition, including the WWF, the Royal Society for the Protection of Birds, the Wildlife Trusts and the Marine Conservation Society. Without the change, Ofwat could, for example, be forced to strike out investment to deliver demand management in over-abstracted areas by having to place significant financial implications for companies above the principles of sustainable development.

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[George Hollingbery (Meon Valley) (Con)]

I declare an interest as the riparian owner of a small stretch of the headwaters of the River Itchen in Hampshire and as a small part-owner of similar rights on the River Spey in Scotland. I am also chairman of the all-party angling group.

In an ideal water world, we would have cheap bills for all, plentiful and clean drinking water and sparklingly clean rivers and watercourses, stuffed with myriad fish, leaping with baby otters and surrounded by clouds of fly-life with beds of iris and crow’s foot—okay, this is the bit where we hear the needle being ripped off the Enigma Variations, because unfortunately, that dreamy picture does not match reality.

To be clear, things are not all bad. The industry has invested some £110 billion in the 25 years since privatisation, and much has been achieved in restoring antiquated infrastructure. Let us not forget the scale of the task: the industry looks after 414,000 km of water pipes; 1,380 treatment works; 6,000 reservoirs; 392,000 km of sewers and so forth. In 2012-13 alone, £4.5 billion of investment has been made. A great deal of good work is being done; things are improving in tackling water quality in the environment; and the health of rivers has improved. Point sources of pollution have been tackled, and whole catchment management plans promise improvements in diffuse pollution. However, as the water White Paper so tellingly pointed out, only 27% of our rivers and lakes are fully functioning ecosystems. We surely have a great deal more to do.

What does the Bill contribute? Hon. Members know that we face difficult financial times and that consumers must be protected in a monopolistic market. The Bill will help. The opening of certain retail markets to competition, with the prospect of that widening to all consumers of water, must surely be a crucial step in keeping downward pressure on end-user pricing. That and many other measures in the Bill, such as the change in the byzantine regime that compensated companies for the removal or change in abstraction licences, will help to solve a number of problems that the industry faces and that directly impact on pricing.

We face a problem, however. We must not throw the proverbial baby out with the tap water and get into the position in which the energy sector finds itself. A lack of long-term investment has left us all vulnerable to power outages, as old capacity is closed down and new capacity has yet to come on stream. The few hon. Members who are in the Chamber might think that the two sectors are wholly different. They might think, “Surely, the raw materials of water fall freely out of the sky regularly, sometimes on a prodigious scale.” That is true in part, but it is the how much, how often and where that matters.

As was pointed out to me in an excellent briefing from the Angling Trust, the UK has less rainfall per person than our northern European neighbours. London is drier than Istanbul. In the UK, every person uses approximately 150 litres of water a day, which is one of the highest usages in Europe. The UK—believe it or not—has less available water per person than most other European countries.

Last summer demonstrated how precarious our position has become. My hon. Friend the Member for Newbury (Richard Benyon), who is in his place, has painted a compelling picture of the crisis that we faced. It is not an exaggeration to say that many parts of the country would have faced severe shortages. Many people in the south and east of the country would have relied on standpipes, and there might have been an absolute disaster for our natural environment. Rivers had begun to run dry, as their natural sources dried up and as water companies abstracted yet more to meet demand.

We need to understand that the three-year scenario will happen—it is not a matter of if, but truly a matter of when. We should remember that it does not matter how cheap water is if there is none. I therefore want to make a few comments on resilience. More can and is being done on leakage. There is some success on consumption through metering, through the advent of modern technologies that use less water for the same tasks and through education, but we face a potential structural problem in the regulatory environment.

Resilience necessarily means building infrastructure. Ofwat rightly has a primary duty to protect customers, but it therefore has a perverse incentive not to sanction investment in what is, by definition, redundant capacity. That is why I am particularly pleased by clause 22, which promotes resilience to being a primary duty for Ofwat. The measure is very much helped by the explicit guidance published in May by my hon. Friend the Member for Newbury and the Department, “Strategic policy statement to Ofwat: incorporating social and environmental guidance”. Paragraphs 3.6 to 3.9 explicitly set out the Government’s expectation that Ofwat should ensure long-term resilience and, crucially, sustainability in the system.

It is important to recognise that resilience is not the same as sustainability. None of us wants a system that creates resiliency in the water supply that relies on sources that are environmentally damaging. In the round, however, I am glad that we now seem to have a regulatory environment that recognises that protecting customers also means protecting a sustainable supply of water. However, I wonder whether we might go a step further. Hon. Members know that one of the biggest problems faced by large-scale infrastructure projects, such as those likely to be needed by the water industry, is delays in the planning system. To that end, I wonder whether the Minister has considered a national policy statement for water. After all, we have one for waste water, so why not have one for water? Such a statement would go a further step towards allowing Ofwat’s two conflicting duties to be resolved in a timely and structured manner. It should ensure that the necessary infrastructure is introduced in a way that is controlled by the Government, at a reasonable pace, and as the economy and consumers’ wallets allow.

As we have heard, one of the most urgent but complex areas of change that is needed is in abstraction. Hon. Members know that over-abstraction is damaging our environment and that the governing regime is antiquated and not fit for purpose. Licences granted in an entirely different social and historical context are still in force and in urgent need of change. I accept that that is a complex matter, but I remain somewhat disappointed that the necessary reform is not tackled in the Bill. I am reassured by the Secretary of State’s remarks this evening on our intentions in that regard, and I hope we hear similar commitments from the Opposition.

[Mr Charles Walker]

I agree with my hon. Friend that water abstraction is complex and that it does obvious damage—that obvious damage is dried up river beds.

[George Hollingbery]

Who could possibly disagree? That is clearly one consequence that we need to reform shortly. I will come to that in a moment.

Those of us who hold our natural environment dear, particularly those rivers and streams across the country that are fed by chalk aquifers, cannot wait for ever for change. Too many of our chalk streams, such as the Chess, the Beane, the Kennet and many others, have been irreparably damaged by over-abstraction. That simply cannot be allowed to continue, as my hon. Friend says. How can we possibly continue to lecture countries such as Brazil and Indonesia on environmental damage when we, the custodians of 85% of chalk streams—unique ecosystems—are complacent and allow them to be degraded over time, doing nothing about it? That simply will not do. We must change the system, and do so soon.

I understand why the Government have delayed reform, but the fact that the Bill does not change abstraction licensing at the same time as allowing new upstream supplies may well present a problem. One of the proposed resilience reforms is that those with unused abstraction licences for purposes other than general water supply and those with water surplus to their needs can sell water on. I welcome that in principle, but one concern is that, if proposals to reactivate old licences or sell bulk water across borders are not very carefully assessed in respect of their impact in source areas—in terms both of the environment and of local pricing incentives and competition—unanticipated damage could easily be done. I am glad to note that the Government have partially recognised that and committed to introducing changes to the Bill in Committee to ensure that permission must be obtained from the Environment Agency before any changes of use of water abstraction rights are made. May I suggest that a similar assessment of the impact on local pricing and competition in source areas also be made?

The same rules must surely apply to the bulk transfers proposed by the Bill. The Government have said that they are considering that, and I hope that similar changes will be introduced. It is worth noting we will need to consider how permitting would apply across the border into Scotland and Wales. No doubt, the ministerial team have that under review. Furthermore, it would be reassuring if the Government considered allowing such arrangements to be terminated on advice from the relevant assessor if it is clear that they are contributing to over-abstraction, causing environmental damage or skewing the competitive environment.

Finally, on water metering, as undertakers have made more progress on leak reduction, measures to reduce demand will become more important. Measures in building regulations and the advent of new technologies that reduce the amount of water needed to perform certain tasks have a part to play, but so does water metering. That is another complex matter. Hon. Members know that water metering increases costs for some people and reduces them for others. We should never allow companies to cut off supply to those who cannot pay their bills. However, water metering reduces consumption and allows householders and undertakers more accurately to identify local leakage, which can then be dealt with.

The Water Industry (Prescribed Conditions) Regulations 1999 allow universal water metering to be introduced in areas of water stress. I wonder whether it is time to take that a step further. We should consider not standing in the way of rolling out water metering schemes throughout all areas, water stressed or not, if an undertaker can demonstrate that they have a clear, deliverable plan to help customers to deal with the change; that they have similar, robust plans to deal with the difficulties faced by those who are least likely to be able to deal with increased bills; that their request for the roll-out forms part of a long-term strategy to reduce demand; and that the Secretary of State retains the power to remove the scheme if those things are not delivered. All I ask is that the Minister and his team consider such a change.

In conclusion, the Bill is a step in the right direction towards reform of the water industry. Its measures will help to increase competition and so keep down prices. It clearly recognises the need to guarantee long-term supply, but does so in the context of other measures and proposed changes that acknowledge that sustainability of the source of supply is as important as resilience. It would have been hugely preferable if abstraction reform were followed by changes to upstream competition in that order, but, when taken with the licensing requirements that Government are contemplating, the dangers posed can be mitigated. I look forward to joining colleagues in the Aye Lobby should a Division be called.

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[Dan Rogerson]

I had a premonition that I might get such an intervention from my hon. Friend, the Chair of the Select Committee. I know she is pleased that we are, as a Government, making progress towards implementing this process in April 2014. She would like it to be sooner, but we have to make sure that we get it right. The views of the Select Committee have been very useful in making sure that we get it brought in adequately.

We heard a couple of very specific questions on market reforms. My hon. Friend the Member for St Austell and Newquay asked about small charities that operate from residential properties. The reform would affect non-domestic properties, so if a charity is operating from a property that is primarily residential, it will not have access to it, but it will be open to it if it is operating from other premises.

On abstraction reform, I entirely agree with Members’ comments about the need to tackle abstraction, which is damaging our rivers. We are tackling this in two ways. First, we are taking action using the tools already available to address over-abstraction. The Environment Agency has reviewed thousands of abstraction licences and has changed about 80 of them, returning 75 billion litres of water per year to the environment in England. That is equivalent to the annual average water use of a city larger than Birmingham. There is clearly a lot more to do in the individual catchments that have been mentioned, and we have to take account of the stress that is put on them.

The Bill will also help by removing water companies’ right to compensation to ensure that the funding of these schemes moves into Ofwat’s price review process, which is a far better way of tackling over-abstraction. In the longer term, we need a reformed regime fit to face the future challenges, and we will publish a consultation on possible options in December. [Interruption.] These reforms will affect a range of businesses, so we need to get them right.

[George Hollingbery]

An awful lot of gibbering and jabbering and yibbering and yabbering is going on on the Opposition Front Bench. Will the Minister please remind us of how much abstraction reform occurred in the 13 years of the Labour Government just past?

[Dan Rogerson]

Very little, I think is the answer. I thank the hon. Gentleman for his intervention.

Dealing with abstraction gives me an opportunity to welcome the contribution by my predecessor, the hon. Member for Newbury (Richard Benyon), not only because of all the work that he put in and how he has informed our debate, but because by seemingly being very popular across the House he will make it much harder for anyone to oppose what is in the Bill, as it was his work that got us to this stage. I am sure that that will help to develop the consensus, because everyone agrees with the conclusions he drew and the position we are in. The Government are clear that any moves on abstraction and upstream reform must work together, so what we are establishing in the Bill will come into effect alongside the abstraction reform that we are moving towards. We have to get this right because it is crucial that we have the water resources to deliver the growth and environmental outcomes that we want to see.

Many Members covered flood insurance. I am all too aware of the devastation caused by flooding and its financial and emotional impact. I recall the destruction in Boscastle in my constituency. I became the Member of Parliament for North Cornwall a year after that tragedy, where fortunately no lives were lost. It also affected other nearby communities such as Crackington and Canworthy Water. The problem was that flood insurance companies were not up to the task. Fortunately, the Association of British Insurers was able to step in to offer advice and to help resolve the issues. As we have heard, other Members have similar recollections from their constituencies.

Flood risk management remains a top priority for this Government. We have committed record levels of capital spend and more than quadrupled contributions from other sources. As a result, we will have improved defences for 165,000 households by March 2015 and an extra 300,000 by 2021. I recently visited South Zeal in Devon, where residents shared with me their harrowing experiences of flooding. They also showed me the actions the community is taking to become more resilient to flooding, to keep down their insurance premiums in the long term. This Government are committed to providing access to affordable insurance for households at high risk.

We will table new clauses in Committee. Draft clauses have been available for some time and much of our work in Committee will be based on them. Were we to delay the Bill after this Second Reading debate, we would not be able to deliver our programme in a timely fashion. That is our objective. Yes, it is regrettable that those clauses are not in the Bill as drafted, but these are very complicated negotiations to ensure that an industry-led solution works not only for the industry, but fundamentally for communities and residents who need support.