Water Industry

John Redwood Excerpts

Wednesday 10th June 2020 Commons Chamber

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

I beg to move,

That the draft Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020, which were laid before this House on 28 April, be approved.

Mr Speaker—no, Madam Deputy Speaker. I got that completely wrong before I had even started. I apologise.

The instrument before the House is a simple amendment to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to remove the sunsetting provision. That would allow the 2013 regulations to continue in force and to be available as part of the regulatory framework of the water industry. Without this SI, the 2013 regulations would expire on 27 June 2020. Before I talk a little further about the Government’s reasons for bringing forward this amending SI, I wish to outline the purpose of the 2013 regulations.

Water and sewerage services in England are provided by companies known as undertakers. The 2013 regulations were designed to help contain and minimise the risks associated with large or complex water or sewerage infra- structure projects, thereby helping to protect undertakers, their customers and UK taxpayers. Containing and minimising risks is likely to reduce the overall cost of borrowing for a given water undertaker and so ensure better value for money for that undertaker’s customers. It also makes sure that delivery of such infrastructure projects will not adversely impact on the existing water or sewerage services provided by undertakers.

The 2013 regulations enable the Secretary of State or Ofwat to specify, by notice, an infrastructure project where either is satisfied that two conditions had been met. The first is that the infrastructure project is of a size or complexity that threatens an undertaker’s ability to provide services to its customers. The second condition is that specifying the project would likely result in better value for money than if the project was not so specified, taking into account charges to customers and any Government financial assistance. A good example of this, just to set this all in context, is the Thames Tideway Tunnel, which meets both of those conditions.

Once specified, an undertaker is required to put the infrastructure project out to tender and a separate Ofwat regulated infrastructure provider is then designated to finance and deliver the project. Such infrastructure projects raise many complex issues, particularly around determining the cost of their financing, coupled with the construction risk that is far greater than that normally associated with an undertaker’s typical capital investment.

Requiring an undertaker to tender competitively for an infrastructure provider for a large or complex project provides an objective means of testing whether the financing costs of such a project are appropriate and reasonable. Without the tendering process, competitively determining the cost of capital for this type of infrastructure project would not be possible. The ability to create Ofwat-regulated infrastructure providers also helps to ring fence their associated higher risks and should result in more effective risk management for these projects. Creating designated infrastructure providers in this way means that a large or complex infrastructure project will not affect the ability of an undertaker to provide its day-to-day services for its customers and avoids any resultant extra costs that would ultimately be borne by their customers—in other words, the people using the water.

[John Redwood (Wokingham) (Con)]

Will the Minister assure the House that this provision will not be used as a device to prevent the additional provision of water capacity, which is much-needed in the south-east? We have had huge overdevelopment, without the proper additional provision of water. We now wish to see an awful lot more food grown locally and in our country, which will need a lot of irrigation. So will she assure the House that increasing capacity will be an important part of the greener growth that we look forward to?

[Rebecca Pow]

My right hon. Friend makes an exceedingly good point. Of course the Government are completely aware of the situation on water supply and dealing with the issues he is talking about is on our top list of priorities, but what we are dealing with here is quite separate. We are talking about big infrastructure projects, some of which will deliver some of the water he is referring to and will be very helpful, but they will be separate projects, as is the Thames Tideway Tunnel, from the general work of the water companies and the smaller-scale projects that they will still undertake to keep our water supply as we need it.

The amending statutory instrument was laid in Parliament following a post-implementation review of the 2013 regulations, carried out in 2018. Eight key stake- holders were consulted, five of which submitted responses —Ofwat, Thames Water, Bazalgette Tunnel Ltd, Bazalgette Tunnel Ltd investors and the Consumer Council for Water. The review found that the 2013 regulations had been successful in fulfilling all their policy objectives: facilitating large or complex projects; minimising risks to undertakers; providing value for money to customers; and promoting innovation in the sector. Accordingly, the review recommended that the 2013 regulations’ sunsetting provision be removed.

In March 2020, we undertook a further, targeted consultation on our proposal to remove the sunsetting provision in this piece of legislation. Views were sought from Ofwat, Water UK, Thames Water, Bazalgette Tunnel Ltd, the Environment, Agency the Drinking Water Inspectorate and the CCFW. Water companies were consulted via Water UK and Bazalgette Tunnel Ltd was given the option to consult its investors. Four written responses were received, from Ofwat, the Environment Agency, Thames Water and Affinity Water. All indicated that they were in favour of this amendment.

Currently, the only project regulated under the 2013 regulations is the Thames Tideway Tunnel, which I referred to earlier. However, Ofwat has identified four large or complex water infrastructure projects currently in development that may benefit from being specified in accordance with the 2013 regulations over the next 10 years, which might be of interest to my right hon. Friend. They are the south-east strategic reservoir at Abingdon, a joint project proposed by Thames Water; the London effluent re-use scheme, a project proposed by Thames Water; the south Lincolnshire reservoir, a joint project proposed by Anglia Water and Affinity Water; and the River Severn to River Thames transfer, a joint project proposed by Thames Water, Severn Trent Water and United Utilities.

[John Redwood]

Will the Minister give way?

[Rebecca Pow]

I have been generous in giving way, but I will do so again.

[John Redwood]

I thank the Minister, because she has got to the point that I was hoping she might be making, which is that we need more reservoir capacity urgently. It is crazy that with just one month of dry weather we are already at risk of some kind of hosepipe ban, after the wettest, long autumn and winter I can remember.

[Rebecca Pow]

My right hon. Friend makes a sound point. A lot of the issue is that we have been in lockdown and there has been an enormous increase in demand for water because people have been at home, filling their paddling pools and watering their gardens and vegetable patches, as I have. That increased use of water has put on immediate pressure. It is not a drought situation, but he is right: we need to deal with our overall water supply, and that is absolutely on this Government’s agenda.

A decision as to whether the infrastructure projects I have referred to could come within the scope of the 2013 regulations will be made on a case-by-case basis at the appropriate time when the schemes are brought forward. The Government are committed to improving water supply resilience, as set out in our strategic policy statement to Ofwat and our 25-year environment plan. That ambition is made more challenging because of the growing population, increased water demand from agriculture and industry and, of course, climate change.

We also want to ensure that there is sufficient water left for the natural environment. Without any action, many areas of England will face water shortages by 2050. The starting point for action is to reduce water use by reducing leakage from the water distribution networks and reducing our personal consumption. However, even if leaks and personal consumption are reduced, we will continue to need new water resource infrastructure. In our “Water conservation report”, published in December 2018, we set out our progress on promoting water conservation from 2015 onwards.

--- Later in debate ---

[Stephanie Peacock (Barnsley East) (Lab)]

As the Minister stated, this statutory instrument removes the seven-year sunset clause in relation to the Thames Tideway tunnel, to allow the 2013 regulations to continue. Those regulations, which Labour supported, enable the creation of infra- structure providers. To date, the Thames Tideway tunnel—nicknamed the “super sewer”—is the only project created under the regulatory regime. It is reportedly on budget and on target for completion by 2024. At 25 km long when completed, it will reduce the amount of overflow water and sewerage pumped into the Thames by 94%. It would appear that the regulatory model for this project has been successful and therefore should be allowed to continue. That would enable other large or complex projects to make use of the same funding model, as the Minister outlined.

As we are a few years off the tunnel’s planned completion date, can I ask the Minister to provide an update on the progress of the Thames Tideway project, as well as what plans she has to review the tunnel’s effectiveness when finished? I would also be grateful if she could outline the Government’s strategy for managing the inheritance of major assets, such as the tunnel, to water and sewerage companies from the infrastructure providers that build them. Thames Water customers paid an average of £19 of their annual household bill last year to finance this project, while the company avoided paying corporation tax and its executives pocketed hundreds of thousands of pounds in bonuses. It is important that those who pay for the asset through their bills should retain some of the benefits if the asset is to be part of the water or sewerage utility base.

I note that there will be no new sunset clause. Is that a wise decision, given the fact that this is the only project being undertaken in this way and it has not yet been completed? Will the Minister elaborate on her decision not to put in place a new sunset clause? The scale of infrastructure projects under this regulatory model demands a rigorous oversight and review process. The removal of a sunset clause will benefit a number of future large and complex infrastructure projects. What steps will the Government take to ensure that this regulatory and funding model is best suited to such multimillion pound projects?

Every effort must be made to increase customer confidence. In recent years, customers have faced rising water bills, while those at the top have received multimillion-pound packages, huge bonuses and dividends. In Yorkshire, the average annual water bill for this year will be £406. That is almost a 60% real-terms increase since the Yorkshire Water Authority was privatised in 1989. Labour is not opposing the amendment to the regulations today, but we are clear that a wider conversation needs to take place on making water bills affordable for customers.

Billions of litres of water are lost each day due to leaks, causing water shortages and environmental damage, yet a recent report found that unless action is taken now, parts of southern England will run out of water within 20 years. With a growing climate change crisis and increasingly extreme weather, there must be a larger strategy to tackle current and future challenges for our water and sewerage systems.

[John Redwood]

Does the hon. Lady agree that part of the answer to the south-east’s problem is more reservoir provision? We have a massive expansion of housing with no additional provision and we will need a lot more for agriculture, because we will want more market gardening.

[Stephanie Peacock]

The right hon. Gentleman makes an important point and I am sure the Minister has heard it.

I would like to conclude by asking the Minister this: what are the Government doing to encourage water and sewerage companies to reinvest in existing infrastructure to promote reduced household water consumption, prevent leaks, improve services to customers and protect our natural environment? I look forward to the Minister’s response.