Water Industry (Financial Assistance) Bill

Lindsay Hoyle Excerpts

Wednesday 14th March 2012 Commons Chamber

[Gavin Shuker (Luton South) (Lab/Co-op)]

I beg to move amendment 1, page 2, line 2, at end insert—

‘(5A)

(a) In exercising the power under subsection (3) the Secretary of State may make an order containing a scheme for the provision of financial assistance to customers whom the Secretary of State considers are disproportionately adversely affected by the water charges with a view to reducing the impact of those water charges.

(b) The scheme shall—

(i) specify the customers whose charges are covered by the scheme,

(ii) set out the basis of the adjustment of the charges, and

(iii) specify the duration of the adjustment.

(c) An order shall not be made under this section unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

New clause 1—Water company social tariffs—

‘(1) The Secretary of State shall provide in regulations for the introduction of minimum standards for water company social tariffs, by 1 April 2013.

(2) Regulations made under subsection (1) above shall be made by statutory instrument and may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.

(3) Ofwat shall publish 12 months after the passing of this Act and every year thereafter a league table of water companies reporting the performance of the provision of social tariffs and the number of households spending more than 3 per cent. and more than 5 per cent. of their disposable income on water bills.’.

[Gavin Shuker]

Both the amendment and the new clause deal with the issue of water affordability for customers, but they do so in two different ways. Although I feel certain that a man as reasonable as the Minister will want to accept both improvements to the Bill, I should add that I intend to press them to a vote if necessary.

We made clear on Second Reading that, as a responsible Opposition, we would not seek to frustrate the will of the Government in legislating for a reduction in customer bills throughout the south-west. We accept that Government action should be taken to ensure that water remains affordable for South West Water customers following the botched privatisation of the early 1990s. We all benefit from the “national treasure” status of Cornwall and Devon’s spectacular coastline, just as—this was pointed out by the hon. Member for St Ives (Andrew George) on Second Reading—we benefit from London’s incredible museums, which are also supported by Government action.

I pay tribute to Members in all parts of the House who, over a period of years, have sought to correct this historic injustice. Our work in government in commissioning Anna Walker to look at the problem of water affordability in the south-west has been coupled with action by the present Government in legislating for payments to be made. Let me make it clear to all Members that we support Government action to reduce customer bills in the south-west.

Amendment 1 is not in any way a wrecking amendment. It seeks to improve the legislation by providing for proper parliamentary oversight of the wide-ranging powers in clause 1, which—let me be honest—I suspect are intended not to involve the Secretary of State in some kind of land grab, but to avoid the Bill being classified as something other than a money Bill. I can reassure south-west Members that if the amendment were adopted, we would not use the additional scrutiny for which it provides to frustrate the will of the House. Its inclusion would, however, serve as an entirely proper safeguard to prevent the Secretary of State, or her successors, from abusing the powers given to her and extending financial inducements in any way for any reason.

Amendment 1 would ensure that the Secretary of State makes an order when she wishes to exercise the power in clause 1 to give financial assistance to a water and sewerage company in order to secure a reduction in household bills. The amendment requires the scheme contained in her order to

“specify the customers whose charges are covered by the scheme”,

so that there is clarity about the households who will benefit from a reduction. It requires the scheme to set out the basis for the reduction in charges, so that everyone understands why the reduction is being made in the first place and to ensure that the Government’s logic is tested and sound. Crucially, it requires the scheme to

“specify the duration of the adjustment”,

so that this Parliament does not write blank cheques, and so that the most cost-effective option can be considered over an appropriate length of time.

In short, the Government will be required to answer the questions that need to be answered if effective parliamentary oversight is to be exercised. We feel that that is especially important given that the Secretary of State can give the assistance in any form whatsoever, including grants, loans and guarantees, and given that, because this is a money Bill, it will receive just one day of scrutiny in the other place.

We believe that when the Secretary of State wishes to use the powers granted by the Bill in the future, the least she can do is lay out her argument before a representative Committee of the House. I say that for one simple reason. As new clause 1 makes clear, there are numerous, increasing and varied threats to affordable water, and as the Government’s own water White Paper makes clear, our climate is changing, which has profound implications for the scarcity of water. New infrastructure may be required to supply fresh water, while—as the Government have also made clear—complying with higher standards for waste water will require expensive construction projects such as the Thames tunnel. More regions will seek to make a similar case to that of the south-west, and now that the principle has been established by the Government’s actions, we require a mechanism to test the logic of successor Secretaries of State.

Let me give an example. According to yesterday’s Evening Standard,

“The boss of Thames Water today warned that bills will have to rise to pay for new pipes and reservoirs if customers are to avoid more hosepipe bans in future.

Chief executive Martin Baggs, who announced yesterday that the first hosepipe ban in six years will come into force on April 5, said Thames was ‘living on the past’ and needed to step up levels of investment.

He told the Standard: ‘The last two years have been exceptionally dry and there needs to be flexibility in the system to deal with that.

The flexibility needs to come from one of two directions: it means people must use less water during those extreme conditions or we have got to have extra resources so people don’t have to have those restrictions.’

Mr Baggs wants clearance from the regulator Ofwat to step up investment when the company negotiates its next five-year funding plan from 2015.

London water bills are already set to go up by an inflation-busting 6.7 per cent next month to an average of £339 per household.”

--- Later in debate ---

[Dan Rogerson]

I thank Madam Chairman—my hon. Friend—for putting that on the record. I am delighted that the Opposition Front Benchers support what the Bill seeks to do for bill payers in Devon and Cornwall and that they have chosen not to oppose it in any way. I do not think that the case is proven that either amendment 1 or new clause 1 will make a huge difference or improve the Bill significantly, but they do touch on two areas that I hope the Minister will address.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

I call the Minister—

[Julie Hilling (Bolton West) (Lab)]

rose—

[The Chairman]

Ah, I call Julie Hilling. You were a little late, but I am glad that you have joined us.

[Julie Hilling]

I apologise, Mr Hoyle, for being a little slow in standing to indicate my intention to speak. You can take it that I was confused about which clauses were being debated at which time.

I want to speak briefly about new clause 1 and, in particular, to press the point of a national social tariff. In the north-west, the affordability of water is affected by deprivation. Unlike the south-west, it is not affected by geographical issues or expenditure. We are a region with considerable difficulties and the bills of United Utilities, which is the north-west water company, are close to the national average, but income deprivation is worse than in any other region. More than half of the country’s most deprived communities are in the north-west, even though we have only 13% of England’s population. Ofwat’s analysis shows that once households in the South West Water region receive their proposed £50 bill reduction, affordability problems will be more severe in the north-west than in the south-west. Company social tariffs will not solve the problem, however, as too many customers in the north-west are in financial need to make the in-house cross-subsidy work properly. We therefore need a national social tariff scheme that all water companies would pay into. Taking the hands-off approach of leaving it to water companies to provide their own affordability schemes, and certainly giving them the choice of whether or not to provide it, will not help the people who are most in need in Bolton West.

--- Later in debate ---

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I beg to move amendment 4, page 3, line 3, at end insert—

‘(5A) Financial assistance may only be given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

Amendment 5, page 3, line 3, at end insert—

‘(5A) Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.’.

Amendment 10, page 3, line 3, at end insert—

‘(5A) The Secretary of State may only grant financial assistance after a business plan for the proposed infrastructure has been approved by Ofwat and the National Audit Office.

(5B) The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the infrastructure project.’.

[Simon Hughes]

This issue is of significant interest to those of us who live in the Thames Water area. Some 20% of the population of the United Kingdom do, so it is not an irrelevant issue to people across the country who pay water rates. Specifically, I am talking about colleagues who have constituencies in Gloucestershire, Northamptonshire, Essex, Kent, Hampshire and Greater London, and the issue raises broader questions about how the Government and Ofwat, the regulator, deal with water companies, their financing and, specifically, the financing of major projects.

I shall make some preliminary comments that relate to all three amendments. I am grateful to the Minister and to the Secretary of State for engaging with the issue; I am grateful for the engagement on Second Reading; and I am grateful for the correspondence that I have had with the Secretary of State since Second Reading. I shall refer to that and read some of it into the record.

First, in parts of London and, certainly, in my constituency, one of the most significant current debates is about whether there will be a Thames tunnel, and Thames Water’s proposal is that to address the current system’s inefficiency and inability to deal with London’s sewage, understandably because the system was created in the Victorian era, new infrastructure—a main sewer, in effect—needs to be built to cope with current and future needs.

There is an ongoing debate, which I do not propose to get into today, about whether the current plan for the proposed tunnel is the right answer. In summary, sewage capacity is already being built to the east of London, in the Lee valley; and there is a proposal—the projected costs of which have risen to £4.1 billion—for a long tunnel, travelling from west London not far from here, along my constituency and ending up at the sewage treatment works in east London.

Some people say that the only solution is the currently proposed tunnel; others say that it would be better to have a shorter tunnel and some other forms of sewage alleviation. That debate is ongoing, but in the end decisions will have to be made. There is a whole planning process for deciding whether the tunnel will be built.

Secondly, there is a debate—in constituencies such as mine and in boroughs such as Hammersmith and Fulham, and Wandsworth—about where, if there is to be a tunnel, the main sites of activity should be. In the middle of Bermondsey, a very large site is proposed for drilling down to create the shaft from which the tunnel boring will happen, both west and east, at a place called Chambers wharf. In the first round of consultation, the proposed site was King’s Stairs gardens, by the Rotherhithe tunnel. That is a greenfield site, and the proposal was not at all popular. We have managed to persuade Thames Water that that is not a good idea, but there is a tale of unexpected, or unwished-for consequences, because having won a battle to save one site we then found that the company came up with another site next door, taking the pressure off one community but immediately transferring it not far away. That is a separate debate, and I do not propose today to get into the detail of where the sites should be. I see my constituency neighbour and colleague, the hon. Member for Cities of London and Westminster (Mark Field) in the Chamber, and many of us have a constituency interest—big and small—in where the sites should be.

The third issue—the issue of the Bill—is whether the Government should, if necessary, provide financial support to Thames Water for such a project, and if so, the terms and conditions under which it should be granted. Clause 2, which all my amendments would change, is entitled “Financial assistance for major works”. I shall not read it all into the record, as people can turn to it, but it proposes the insertion into the Water Industry Act 1991 of a new provision, section 154B, of which I shall read the first proposed subsection:

“If the Secretary of State considers it desirable to do so, the Secretary of State may give financial assistance in connection with—(a) the construction of water or sewerage infrastructure, or (b) the carrying out of works in respect of existing water or sewerage infrastructure.”

In further proposed subsections, there are various conditions, one of which is:

“Financial assistance may be given in any form and in particular may be given by way of—…grant…loan…guarantee…indemnity…the provision of insurance, or…the acquisition of shares in or securities of a body corporate.”

My first amendment, amendment 4, proposes:

“Financial assistance may only given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.”

I shall come back to that.

Secondly, I want to test the Government’s reaction to amendment 5 and my proposal:

“Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.”

That precise figure is relevant, but there is a much bigger issue about what the financial past and present of a company should be if it is to receive Government support.

My third amendment, amendment 10, states:

“The Secretary of State may only grant financial assistance after a business plan for the proposal infrastructure has been approved by Ofwat”—

the regulator—

“and the National Audit Office…The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the…project.”

--- Later in debate ---

I am grateful for your indulgence, Mr Hoyle. I am sorry if it was a rather longer perambulation even than what people thought the ring main would have been had it been a ring main—although actually it is going to be a long pipe. There will be further debate next week on other issues, but I am keen that DEFRA, the Government and all other Departments focus on the need to end this scandal, which has existed for several years, and do not allow Thames Water to get away with what is probably the worst example of financial management leading to the worst exploitation of the consumer and the taxpayer. I hope that the Government will be robust in their response.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

The good news is that I am not going to judge the speech or the ring main.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I will, I hope, be a little briefer than the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I just want to make a few remarks arising from his comments and amendments.

I am absolutely with the right hon. Gentleman on the general principle that in going ahead with the Bill, which I believe has all-party support—I am not sure about him but he is not pressing his amendment—we must protect both public money and the money of the public. By public money, I mean, first, any underwriting of major capital schemes, such as the Thames tunnel. Secondly, this is a large private multinational company—I appreciate his research into its holdings and complex structure—and we must ensure that it pays taxes in the UK.

At the same time, however, we must also look after the money of the public and ensure that not a penny more is paid in increased water charges, particularly given that water charges are already rising above the rate of inflation for all water users across the UK, including Thames Water customers. I was somewhat reassured on Second Reading when the Minister said that the Government shared those concerns and that he was sceptical about the project—at least about whether its financing was what Thames Water said it was. There would be broad agreement on that.

I also agree with many of the comments of the right hon. Member for Bermondsey and Old Southwark about Thames Water, particularly under the ownership of RWE. During my first two or three years in the House, Thames Water was my bête noir, partly because of how it dealt with leaks—digging up roads all around London in a completely ad hoc, unconcerned way and leaving workings for months at a time—while still not getting to grips with the problem. Furthermore, the problem of sewer flooding, particularly in west London, has been a blight on people’s lives. Year on year, thousands of basement and ground-floor properties in my constituency are flooded by sewers, yet little attention is paid to it. And, indeed, there are Thames Water’s financial arrangements, which the right hon. Gentleman spoke about.

It is only right to balance that, however, by mentioning that Thames Water’s performance has improved markedly in the past few years in many of those areas, although we should continue to be concerned about its financial structures. A lot has been written in the papers in the past few days about the current drought and impending hosepipe ban and other possible measures, and the water companies are rightly under scrutiny. I note that in total—this is not just Thames Water—water companies are likely to report annual profits of £1.5 billion and that they are currently leaking about one quarter of the water they provide. They provide about 14.6 billion litres daily, and about one quarter of that is being leaked. It has been pointed out quite correctly that the hosepipe ban will save only 20% of the water being leaked daily.

The water companies, then, have a long way to go. Many of their problems were caused by the botched privatisation under the then Conservative Government and the fact that, as the right hon. Gentleman said, there has been an incentive for companies to beef up their profits to make themselves ripe for takeover, to sell on at a profit and not to worry during those years about their consumers and the cash cow that comes from having an effective local water monopoly.

Everyone will be grateful for the research that the right hon. Gentleman has done into the financing structures. I am less sure, however, that his amendments would deal with that. I will not spend long on this because I suspect that the Front-Bench spokesman, my hon. Friend the Member for Luton South (Gavin Shuker), will explain, not as eloquently as me but forensically and analytically, how the Labour amendments would provide the necessary safeguards in a less prescriptive and detailed but more effective way to ensure that if any projects come forward for financial assistance, they are tested in the House first to ensure that the assistance is necessary.

I depart from the right hon. Gentleman in respect of the effect that his amendment might have on the clause. In the end, we need a project in London that will resolve the daily, sometimes weekly, regular flow of huge quantities of sewage into the Thames. On this, I am not sure where he is coming from. When we debated this matter last September in Westminster Hall, he said:

“I also put in a short response to the private commission that was set up by some interested local authorities and chaired by Lord Selborne.”—

in fact, it was set up by Hammersmith and Fulham council—

“The commission has argued that we must have a totally different direction. I am not persuaded by that. The Thames tunnel is the best direction. The previous Government came to that view and the present Government have held to it.”—[Official Report, 14 September 2011; Vol. 532, c. 316WH.]

That was in September. In February, he said:

“I am now clear that, since the end of the first round of consultations in 2011, the arguments for a review of the full tunnel proposal and possible alternatives have substantially increased.”—[Official Report, 29 February 2012; Vol. 541, c. 391.]

I am not sure what happened between September and February. This is important because we must find an effective solution. There is no point putting forward half measures.