Water Supply Disruption

Holly Lynch Excerpts

Tuesday 6th March 2018 Commons Chamber

[Holly Lynch (Halifax) (Lab)]

I am grateful to the Minister for that statement.

While last week’s freezing temperatures presented serious challenges all over the country, the failure of water companies to supply water to customers as the weather has improved has now descended into chaos. The aftermath of the “beast from the east” and Storm Emma meant that yesterday, 5,000 homes were without water in Kent, with thousands of properties across Wales, parts of the midlands and Scotland also affected by intermittent water supply.

In London, Thames Water battled to re-establish supply to around 12,000 homes and several schools. Two of the country’s flagship businesses, Jaguar Land Rover and Cadbury, were among several forced to cease production at the request of Severn Trent Water, as it sought to prioritise household supplies. Even today, as we heard from the Minister, South East Water says that around 12,000 of its customers still have no supply, and companies continue to struggle to reconnect homes and businesses across London, Kent, Sussex and Wales, leaving some homes without water for up to three days.

While we all accept that last week’s weather conditions were incredibly challenging, the reality in London is that although freezing temperatures persisted over several days, temperatures did fluctuate and only fell as low as minus 6°C on one occasion overnight. Where is the resilience in the system, and why have we seen such systemic failure?

The Secretary of State for the Environment, Food and Rural Affairs made a speech just last week outlining that in many areas, water companies were failing to deliver. Six companies missed their leakage targets for 2016-17, with Thames Water’s performance data showing that 677 million litres are being lost to leakages every single day. To put that in context, the entire city of Cape Town uses 631 million litres a day.

Despite those failings on leakage, water bills have increased by more than 40% since privatisation, with many consumers set to see another rise in a few weeks’ time. Further to that, analysis by the House of Commons Library shows that executives at the top nine water and sewerage companies operating in England earned a combined total of nearly £23 million in 2017. The highest paid executive, the CEO of Severn Trent—the same water company that yesterday asked Cadbury and Jaguar Land Rover to cease production—took home a total of £2.45 million last year, or 16 times the Prime Minister’s salary. That is on top of the billions paid to shareholders—the owners of those same nine water companies paid out £18.1 billion in dividends in the 10 years to 2016. In addition, six water companies have offshore finance structures registered in the Cayman Islands.

We have had tough words from both the Secretary of State and Ofwat, but where is the governance, and where is the action? In his recent speech, the Secretary of State said:

“Some companies have been playing the system for the benefit of wealthy managers and owners”

and stressed that he would give Ofwat “whatever powers are necessary” to get all the water companies to “up their game”. Rachel Fletcher, Ofwat’s chief executive, has been tough on water companies in the past 72 hours, saying that

“we won’t hesitate to intervene if we find that companies have not had the right structures and mechanisms in place to be resilient enough.”

However, just last month, Fletcher confirmed to the BBC that a dividend cap was not in Ofwat’s current thinking, nor was direct action on executive pay or tax structures. Instead, she said, Ofwat would require water companies to provide more public information on each of the areas of concern. If the Secretary of State’s plan is to empower Ofwat to intervene, I am afraid that based on what we have seen, there is no appetite in Ofwat to do so.

That regulatory failure on this Government’s watch has contributed to a situation where executive pay is out of control, and the failure to invest in resilience has left households and businesses picking up the cost. With that in mind, I would be grateful if the Minister could answer this question: if Ofwat lacks either the appetite or the powers to tackle—pay and rebalance profits so that less is pocketed by executives and more is invested in improving the service and resilience, what action will the Government take to make that happen? Will the Government respond to calls for a public inquiry into the handling of the crisis, and can the Minister outline whether that will involve the role of Ofwat leading up to where we are today?

Finally, can the Minister outline what compensation packages will be made available to customers, some of whom have had to seek temporary alternative accommodation or pay for childcare because schools have been closed? How will businesses that have lost a day’s trade be both compensated and reassured that this will not happen again?

[Dr Coffey]

The hon. Lady asked a number of questions, mostly about company structures, but she will understand that we have been focused on customer experiences in the past 48 hours in particular. That said, my right hon. Friend the Environment Secretary read the riot act to the water industry last week.

We recognise that over £140 billion has been invested in infrastructure since privatisation, but we still believe that more needs to be done. The hon. Lady will also recognise that, on average, water bills have fallen in real terms in the past five years—over the price review period. It is important that we get an appropriate balance between investment, recognising that people expect to be able to turn on the tap and get water—I fully accept that many households in London are still not receiving water—and customer bills. It is important to have a regulated water industry to achieve such a balance.

I think Jonson Cox has been an active chairman of Ofwat in challenging the water companies. In particular, he has taken on Thames Water about its financing arrangements. Again, the Department and Ministers have made it clear to the water companies that we expect them to accelerate the changes to their financial structures. I recognise that those structures were put in place some time ago, but we have said that we expect them to change more rapidly than some of their current plans suggest.

Overall, we need to recognise that the review—I have asked Ofwat to report back to me by the end of the month—may be only an interim one, with the initial lessons about what has happened. In the short term, however, I am conscious that we must continue to put pressure on Thames Water in particular to make sure that it reconnects households as quickly as possible.