Water Bill

Graham Stuart Excerpts

Monday 25th November 2013 Commons Chamber

[Maria Eagle]

We cannot have a situation where water companies are taking strategic decisions, with the clear purpose of structuring their financial affairs in a way that leads to worrying debt and hinders their ability to invest, when their sole purpose is to minimise their tax liability. Ofwat said in March that

“the overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital value today with several companies at 80% gearing, thus obtaining only one fifth of their financing from equity. This reduction is a serious concern.”

[Mr Graham Stuart (Beverley and Holderness) (Con)]

I thank the hon. Lady for giving way. She makes an important point about the behaviour of the water companies. Will she explain why, under the previous Government, the water companies’ combined debt of £939 million in 2004 had increased by 70% by 2010, when her party left office? Perhaps she could provide us with some context.

[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.

--- Later in debate ---

[Miss McIntosh]

I hope that we will all continue to press the Government to proceed with SUDS.

As for abstraction, I can only support what other Members have already said. Abstraction has an important part to play in resilience in times of drought and, potentially, in times of floods, when there are competing demands for the water supply. I urge the Government to show a greater sense of urgency. My right hon. Friend the Secretary of State said that they would be consulting shortly, and it would be helpful to know when that consultation might take place.

The water White Paper, which we also scrutinised, placed great emphasis on the importance of resilience and the need for innovation to improve it, but I think that the Bill has toned down that emphasis slightly. I hope that the Government will find renewed enthusiasm for resilience. There will always be competing claims from the farming industry and angling, but we must not forget jam-makers such as those whom I visited in the constituency of my hon. Friend the Member for Witham (Priti Patel), as well as brewers and other industrial users.

The role of the Environment Agency has been extremely positive, and fewer properties have been built on functional floodplains since it became a statutory consultee. However, I believe that it could do much more to share information, particularly mapping information. It is extremely frustrating for constituents not to be able to access a single map. Sir Michael Pitt—from east Yorkshire—was very clear in that regard, and I think that we owe him a great debt of gratitude for the work that he has done. I believe that there should be a one-stop shop for our constituents, and that they should be able to know exactly where to go.

[Mr Graham Stuart]

Does my hon. Friend agree that not only is mapping important, but it is important for maps to be updated quickly? Following the completion of a £3 million flood defence scheme in the village of Burstwick, in my constituency, it took more than a year for maps to be updated, and during that time residents were still being asked for higher insurance premiums because the insurance companies did not have access to the information.

[Miss McIntosh]

My hon. Friend has eloquently re-emphasised the point that I was making.

--- Later in debate ---

[Miss McIntosh]

I am sure that the whole House, including the Secretary of State, has heard what my hon. Friend said. Dredging little and often can prevent floods. The drainage boards have an army of volunteers, a huge fount of knowledge and, probably, more engineers than the Environment Agency.

I am delighted that the Government have authorised the pilot schemes, and the Select Committee will observe the outcome very closely. I commend the Pickering pilot project, which is one of those schemes at which this country excels. It has already slowed the flow, it is creating new peat bogs, and it is holding water back so that it cannot flood Pickering. If we can succeed with a combination of slowing the flow and building a reservoir, not only will Pickering be safe from flooding, but the benefits of the pilot can be used elsewhere, and resilience to flooding and possible water shortages can be improved.

I believe that the 2014 price review gives us an opportunity to invite Ofwat to reward innovation, which it is not doing at the moment. Ofwat should invite water companies to show that they can bring positive benefits to consumers by creating innovative flood defence and water supply schemes like the Pickering project, and to include such proposals in their business plans. I regret that that did not happen in earlier price reviews and this is a unique opportunity to do that.

I also invite the Government to engage much earlier with EU directives. I yield to no one in respect of the benefits they can bring, but they can be very costly. If we sign up to very short-term, tight timetables, that adds to the costs. My right hon. Friend will be aware of the EU water framework directive, the bathing water directive, the drinking water directive, the urban waste water treatment directive and others. We have to get in there early and put our views across. Their aims and objectives are laudable, but they must be affordable and done on a realistic timetable.

[Mr Graham Stuart]

My hon. Friend made an important point about dredging. It is essential to ensure that unnecessary costs are not imposed on those who try to carry it out. South Holderness drainage board raised money locally to dredge Stone creek and Hedon haven, but then found that the Marine Management Organisation —which, as on previous occasions, would not have charged the EA anything—imposed a cost of several thousand pounds on the drainage board and then at the end more than doubled that amount, imposing a crippling cost on local people raising local money to try to do the right thing.

[Miss McIntosh]

I thank my hon. Friend for that.

I want to mention briefly some new aspects of the Bill and some omissions. On the omissions, bad debt costs each and every household approximately £14 a year. That is unacceptable. We need secondary legislation to progress this matter, and I urge the Government to bring that forward as swiftly as possible.

On social tariffs, I fail to understand why successive Governments have had difficulty in releasing information on benefits. In response to a recent question to the Department for Work and Pensions, the following answer came back from the Minister of State, my hon. Friend the Member for Hemel Hempstead (Mike Penning):

“There is no legislation in place currently”—

well, I knew that and I told him that, but it is always good to know I was right—

“that would permit the release of benefits information to water utility companies: it is likely that new legislation would be required to enable the sharing of benefits data with water utility companies on this scale.”—[Official Report, 18 November 2013; Vol. 570, c. 681W.]

I urge my right hon. and hon. Friends to put pressure on the DWP to release that information so that we can make the best possible tariff available to the appropriate customers at the earliest possible time.

On insurance, the Select Committee came down in favour of Flood Re, but there are a lot of unknowns, and I do not believe we know any more about the known unknowns than we did before this debate started. For example, under Flood Re, why have we chosen household bands as the basis for insurance levy scales? If there is a database, where is it? What is the definition of uninsurable properties? Are small businesses excluded? If they are to be excluded, why are they excluded? It has been put to me that farms might be excluded. Obviously, that would not go down well in my area. I would quite like to know before the end of the evening whether farms and small businesses are going to be excluded.

The memorandum of understanding between the Government and the insurance industry commits the Government to take primary responsibility as an insurer of last resort in an extreme flood event while the fund is growing. We need greater clarity this evening, before the Bill goes on to Committee, on precisely where we are in that regard. The House would also like to know whether the Bill achieves the normal historical value for money requirement in respect of such proposals.

The Select Committee welcomes the commitment to open up the retail market to competition by 2017, but we believe the case for upstream reform needs to be made more vigorously. We need to know precisely what the implications are for customer bills. It has been put to us that there might be de-averaging of household bills. We also need to know the implications for national resilience of upstream reforms, including in respect of climate change and population growth. We note that the start date is two years later, but the House would like to know whether it is feasible at all and whether we even need primary legislation.

It is true that the Select Committee came down in favour of functional separation between the wholesale and retail arms and in favour of a voluntary exit strategy. We would like to hear a little more when the Minister winds up about why the Government are against that.

Members on both sides of the House are interested in cost of living issues, of course, and we need greater assurances on the impact on householders. The Flood Re levy has been set at £180 million per annum, which is £10.50 per customer, for the first years. We also need to know the timetable for the application for state aid. It would be helpful to know that we are going to be in a position to have signed off on state aid before this Bill leaves the House and achieves Royal Assent and, more importantly, by the start date of 2017. Concerns have been expressed about stranded assets and the impact on household customers generally, particularly from the Flood Re insurance levy, and the formalising of the cross-subsidy that has existed under the statement of principles.

To conclude, the potential risks of de-averaging prices in respect of household customers and upstream competition must be addressed. On the comparative merits of the Ofwat duty, we would prefer sustainable development as opposed to the Government’s proposal of resilience. That needs to be explored. We also need to look at possible greater resilience in terms of both water supply and the use of abstraction, and we need the review of abstraction policy sooner rather than later. We applaud the sustainable development and wider environmental aims of biodiversity protection and climate change mitigation, but I personally would argue that this should be addressed through Ofwat’s primary duty of sustainable development. The Government need to explain how the transition in the insurance sector from the cross-subsidy being formalised in Flood Re to an eventual free market will be managed. I believe this is too important to leave to secondary legislation and we need more details in the Bill.

I give the Bill a warm welcome. I have highlighted a number of concerns which I hope will be addressed and I look forward to hearing the rest of the debate.