Ofwat: Strategic Priorities

Liz Twist Excerpts

Thursday 9th June 2022 Commons Chamber

[Philip Dunne]

I do apologise, Mr Deputy Speaker. I will address you, as I should do.

I was just saying how heartened I have been to be involved in a campaign over the past two years with so many people from across society and the political spectrum who are engaged in trying to restore our rivers to a healthy and natural state. Some people have called for the issue to be solved overnight; of course, in an ideal world we would all like that to be the case, but it is simply not deliverable.

We need to introduce a degree of realism into the debate, because otherwise we find people out there in the wider community believing some of the very unfortunate propaganda that has been used for party political reasons on this debate—not today, but during the course of these discussions—to try to make out that, for example, Conservatives are voting in favour of sewage pollution. That is completely inappropriate and a disgraceful slur, given the work that has been done by Conservatives, with others.

[Liz Twist (Blaydon) (Lab)]

It is not my intention to go into a party debate, but does the right hon. Gentleman agree that there is a real need to ensure that Ofwat accounts for its actions? Does he agree with the suggestion that some have made that there should be annual reports against the priorities for Ofwat to his Committee?

[Philip Dunne]

I would like to say to the hon. Lady that my remarks about people misinterpreting what is being done do not apply to her. She has been a doughty champion on this issue; she has led debates in this House and we have had good cross-party discussions. She makes an interesting point: there are already five-yearly reviews, but whether that should be done more frequently is an interesting question, and maybe the Minister might like to respond to it in her winding-up speech.

Moving on, the pressures on the drainage systems have been developing over six decades, as investment in water treatment infrastructure and drainage systems underground has not kept pace with development above ground, as my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) has pointed out. It is also exacerbated by pollution caused by others—both farming practices, which my right hon. Friend the Member for Hereford and South Herefordshire described, and run-off from highways and other hard standing—so I accept that it is not exclusively the responsibility of water companies.

As the Secretary of State himself acknowledged before our Select Committee, the solution ultimately may require separation of surface and foul water drainage systems, and I believe the Department is currently trying to get a harder estimate of the cost of such a massive exercise. It will take enormous capital expenditure to correct the problem for good, and the work will take decades to complete, but a start needs to be made now. The SPS provides that opportunity.

I will focus my remarks now on what Ofwat should consider in its negotiations with water companies to encourage them to identify and quantify solutions. It inevitably takes time to progress solutions through the planning process before the required infrastructure construction can begin, whether through nature-based solutions or traditional mechanical and chemical systems. Much of that involves installing monitoring equipment to increase public awareness of the quality of receiving waters in real time. That was a key transparency recommendation of my private Member’s Bill and our Committee report, and it is now required to be introduced under the Environment Act. However, it merely establishes the baseline; the real spend will be incurred in the corrective measures required.

In my own constituency, Severn Trent Water has announced plans to invest £4.5 million to achieve bathing water quality status along some 15 miles of the River Teme between Knighton and Ludlow as part of their “Get River Positive” investment plan. That is obviously very welcome. The Thames Tideway tunnel will make a remarkable difference to water quality here in London. It illustrates well both the high cost and the length of time involved in delivering a transformational project to improve water quality, namely £4.9 billion and 11 years from securing planning to becoming operational respectively.

[Philip Dunne]

I bow to the hon. Lady’s knowledge of her constituency and the area around it. I am informed that the tideway tunnel will take 37 million tonnes of the 39 million tonnes of sewage currently discharged annually into the Thames out of the river, so it may not affect every single treatment plant, and it is primarily coping with the north of the Thames rather than the south of the Thames, as I understand it. I will touch on how it is being paid for in a moment.

Given Ofwat’s unique opportunity to approve capital investment, it needs to focus not only on the economic impact of household bills but on the environmental impact that water companies have. With the rising cost of living, none of us wishes to see bills rising sharply, but equally, if water rates are set so low as to preclude necessary capital investment in water quality, we will simply kick the can down the road for another five years and the problem will be harder to solve and more expensive to fix.

Given that the current cost of capital is still at historically low interest rates, over a multi-decade investment cycle water companies remain well placed to fund significant capital investment. For example, the tideway tunnel, the biggest current project, is due to add only £19 per annum to household bills in London. I believe that a balance can be found as regards Ofwat’s new priority for water companies to improve treatment in addition to the necessity to secure adequate drinking supply and have low bills.

[Liz Twist]

I recently hosted a meeting with the Consumer Council for Water, which is looking at the introduction of a social tariff. Does the right hon. Gentleman agree that an important part of this equation for people is that everyone should be able to afford their bills but that we have to get the work done that we need?

[Philip Dunne]

Indeed. The Consumer Council for Water is a statutory consultee with Ofwat, so it will be able to make that case as part of the determination process once Ofwat is following its instructions under the SPS.

It was clear from our inquiry that there had been a lack of political will from successive previous Administrations to empower regulators to tackle pollution and improve water quality. This had not been included as a priority in previous strategic policy statements. Evidence suggested that Ofwat’s price review process had hitherto focused on the twin primary objectives of securing clean water supply and keeping bills down. There was virtually no emphasis on facilitating the investment necessary to ensure that the sewerage system is fit for the 21st century. Anglian Water, for example, told the Committee that in 2017 the Government’s last strategic policy statement, which sets the objectives for Ofwat, “ducked the hard choices”.

So in October last year we wrote to the Secretary of State to contribute to the consultation on the draft SPS. We were concerned that the draft that had been published for consultation by the Government was imprecise in its expectations, with no indication of what specific outcomes were expected and by when. We called for the next SPS to make it unambiguously clear to Ofwat that a step change in regulatory action and water company investment is urgently required to upgrade the sewerage network, improve the parlous state of water quality in English rivers, and restore freshwater biodiversity.

In February, we were pleased when the Government published the final SPS, which had been significantly strengthened following our recommendations. We had made five specific recommendations that the Government accepted and have now been incorporated in the SPS guidance. They are, first and foremost, the very welcome prioritisation of investment over lowering bills to ensure that the sewerage system is fit for the future; secondly, challenging water companies to meet a target of zero serious pollution incidents by 2030; thirdly, amending the previous wording on the use of storm overflows from being used in “exceptional” circumstances to

“only in cases of unusually heavy rainfall”;

fourthly, prioritising overflows that do the most harm to sensitive environments; and finally, requiring that water companies should significantly increase their use of nature-based and catchment-based solutions. That is all new, and our Committee can justly take some credit for it.

What has become clear is that water companies now know that they need to act and they must start to do so immediately. Some are already acting ahead of the measures set out in the Environment Act to produce drainage and sewage management plans. I have been sent plans from four companies—Northumbrian Water, Severn Trent Water, Thames Water and Wessex Water—and I am quite sure that others have also prepared plans setting out what they are committing to do under the current and the next water industry national environment programme as part of their plans for capital investment.

I have a couple of frank questions for the Minister about whether our water company regulators are fit for purpose. With the work that I and my Committee have done, there is no doubt that both the Environment Agency, through poor monitoring, and Ofwat, through poor enforcement, have not met the standard we expect of our regulators to protect the environment of our waterways. Self-monitoring by water companies, permitted by the Environment Agency since 2010, has allowed them to discharge sewage more or less at will. The proof is that it took water companies revealing during the course of our inquiry that they might be in breach of their permits for the Environment Agency and Ofwat to announce major investigations into potentially widespread non-compliance by water and sewerage companies at sewage treatment works. Those investigations continue, so I cannot discuss them.

Where the Environment Agency has prosecuted companies for persistent breaches, judges have started to impose more meaningful fines, but even though these fines might start to capture the attention of water company boards rather than being seen as an inconvenient cost of doing business, as previously low fines appear to have been, fines paid by water companies for breaching environmental standards go directly to the general Treasury account; they do not contribute to solving the problem. I urge the Minister, therefore, to work with Treasury colleagues to enable water company fines to be ringfenced for water quality improvement. There could be a stand-alone fund managed by DEFRA or an arm’s length body with an independent chair, or it could be left to water companies to administer based on the environmental priorities of the river or coastal system they have been found to have polluted. Instead of allowing water companies to hand back a tiny rebate to individual ratepayers, potentially hundreds of millions of pounds could be put back into environmental protection. Although we all hope that no such fines will be necessary, we must deal with the world as we find it, and we think that would be a practical step toward solving the problem.

I have another suggestion for the Government. We know that more houses must be built to meet the UK population’s needs. When development consents are granted, developers are obliged to contribute to the additional infrastructure required—roads, schools, medical facilities, or other basic infrastructure—but, as we have just heard from my hon. Friend the Member for Central Suffolk and North Ipswich, water companies are not statutory consultees and local authorities have no power to require developers to contribute to any necessary water infrastructure. Indeed, the infamous right to connect explicitly removes such costs from developers. I urge the Minister to work with me on using the opportunity presented by the Levelling-up and Regeneration Bill, which had its Second Reading last night, to put this right and to empower local authorities to require developers to contribute to meeting the cost of the infrastructure required for water and waste water connectivity of new developments, which are contributing to the pressure.

I commend the motion to the House.

--- Later in debate ---

[Luke Pollard (Plymouth, Sutton and Devonport) (Lab/Co-op)]

It is a pleasure to follow so many people who are passionate when it comes to talking about water. As someone who worked for South West Water a very long time ago, I say that we need more people who are passionate about water, but we need more people who are passionate not just about sewage but the other aspects of water today. Many of those present have heard me rant about sewage for quite some time from both the Front Bench and Back Benches, and I will come on to that, but first, as we correctly focus on sewage, I want to talk about some of the other issues in the Ofwat strategic policy statement that I do not want this debate to neglect.

Water matters: every drop matters, but every drop is carbon-intensive, and we must not forget that every drop we use—every drop we waste—has been pumped and purified and treated at enormous cost, not just financial but also environmental. Water companies are tightly regulated, and what goes in their business plans is what they will be doing in the next price review period. It is therefore important that the SPS guidance is not only strict, clear and ambitious but accountable so that we can see where progress has been made and put pressure on Ofwat and the water companies to up their game if they are missing those targets.

The SPS that the Minister has released has many of the right words. I have a lot of time for the Minister not only because she is a fellow south-west MP—that automatically gets her some bonus points in my mind—but because she has fought hard on it. I must say that good progress has been made. I just want to ensure that the words in the SPS have teeth and that Ofwat has the powers to ensure that they are not just good words in a document and that we will see the transformative change that we need.

I want to talk about four areas. First, there is the absence of a strategy in the SPS to decarbonise our water industry. I would like us to have a clearer sense of what that looks like. Secondly, we need to strengthen the nature restoration part of the proposals in the SPS. I have seen in previous price review negotiations how many innovative nature-based solutions—the upstream thinking—have been squeezed out in those negotiations, especially for those companies who did not get their price review approved the first time round. We need to ensure that nature-based schemes are protected, encouraged and grown rather than squeezed out.

Thirdly, I agree with the Chair of the Select Committee, the right hon. Member for Ludlow (Philip Dunne), that we need a new approach to water sector regulation. I have some proposals to pitch to the Minister. Finally, I will echo concerns from across the House on sewage. It is simply unacceptable in 2022 that water companies routinely discharge tonnes and tonnes of sewage into our water courses, our rivers and our seas. It is not just about human effluent; we must equally be concerned about plastic pollution and the chemicals contained in that.

As a south-west MP, and I think the only MP in the Chamber whose water company is South West Water, I have a specific question for the Minister. We are in a cost of living crisis, but South West Water has had the highest water bills in the country since privatisation because that part of the water industry was privatised with 3% of the population and 30% of England’s coastline. That meant that 3% of the population were paying for the coastal clean-up of nearly a third of our country. The dowry given to South West Water did not pay for it, so south-west bill payers have been paying through the nose for a long time to have a cleaner environment—which we do value. The high water bills in the west country have been recognised by the Government, and that is why they provide a £50 contribution to bills in two £25 payments. However, I understand from proposals published at the last general election that the £50 payment will end during this Parliament. Will the Minister confirm whether that is still the plan? As we face a huge cost of living crisis, can we focus not only on energy bills—gas and electricity—important as they may be, but recognise how high water bills, especially in a region that has the highest water bills in the country and some of the lowest wages, are a significant accelerator of that?

[Liz Twist]

Has my hon. Friend considered the proposals for a social tariff to address some of those problems?

[Luke Pollard]

I am grateful to my hon. Friend for raising social tariffs. We need the proper legislative framework and nationwide approach for which I think she has been arguing for some time. We must look at how social tariff versions vary between water companies, which affects people who move between different water companies. We must also ensure that water poverty is properly understood as a key part of the cost of living crisis. Far too frequently, I find that this type of poverty, which belongs to DEFRA, is separated in Government thinking and leadership from those types that belong to the Department for Work and Pensions or the Department for Business, Energy and Industrial Strategy. We need to ensure that the Government look at this area holistically across all Departments and do not allow a silo-based approach. There is merit in what she suggests, and I would like to see further action on it.

One of those points which, joined up, could make a big difference is on housing retrofit. The Government’s record on housing retrofit is appalling—I think on both sides of the House we need Ministers to consistently go further—but when BEIS proposed measures to insulate homes, they related only to energy and gas reduction, not reducing water usage. Every single drop of water is expensive environmentally and financially, so that is very important. I would like the next iteration of housing retrofit policy proposed by Government to include water with the gas and electricity measures.

On decarbonisation, the SPS misses a trick. It could have gone further by insisting that water is genuinely decarbonised, rather than relying on an incredibly large amount of offset to hit the 2030 net zero target. I would like the 2030 target to be more commonly adopted, but simply buying offset and loading the cost on to bill payers does not actually deliver the carbon reduction we need. I want every water company to be an energy company, using its land to install solar, onshore wind and other types of energy to reduce the energy intensity and carbon intensity of its own operations. That should have been in the SPS and it should be in business plans, but it seems to have fallen between those. Indeed, the language on pushing or challenging water companies to, as the SPS suggests, invest more in decarbonising the sector could be a bit tighter. I would like to see in the proposals what it actually means in practice.

The proposal to halve leakage by 2050 is welcome, but the problem is that 2050 is a very long time away. I would like to see how much leakage reduction will be in the next price review period and how it can be accountable to others. The target of 110 litres a day is not enough. I would like to see us aim at 100 litres a day. Water companies around the country are achieving that, but we do not have enough water to go slow and we need to achieve that.

Nature restoration needs to go further. I want the policies in the SPS to integrate with the policies proposed for environmental land management and farm management. At the moment, they do not seem to have joined up in the way we need them to. If we are to have the bolder change we need, we need a greater level of joined-up thinking on that issue.

The Environment Agency has been raised by colleagues on the Government Benches. I am not a fan of the Environment Agency. I would like to see it go further. In the middle of an environmental crisis as we are, all too frequently it is too passive, too pastel shade. I would like to see it being a bit more “Grrr”—good luck, Hansard, in writing that one down.

--- Later in debate ---

[Rebecca Pow]

Of course, we are hoping not that sewage discharges will be reduced by one hour, but that they will be reduced pretty much all the time, unless there is an absolute emergency. That is what the storm sewage overflows are there for and that is why they were put in in Victorian times, but they are simply not fit for purpose. That has come to light particularly through the investigation that the EA instigated, which is how we discovered lots of water companies putting up their hands and saying, “Actually, ooh, we’re not adhering to our permits.” We are now on their case, as are the EA and Ofwat the regulator, as a result of that detailed investigation. Certainly, there is a whole raft of measures that will tackle that.

Water companies also need to play their part in reducing nutrient pollution in rivers, which was mentioned by a few colleagues. Through our landmark Environment Act, we propose to set a legally binding target to reduce phosphorous loadings from waste water by 80% by 2030 against the 2020 baseline. That target will provide a legal driver to require water companies to further reduce phosphorous in the water environment, which will protect rivers and our precious habitats. We are also supporting farmers to reduce the nutrient pollution from agriculture.

My right hon. Friend the Member for Ludlow mentioned that all of our policies in DEFRA and, I would say, even more widely across Government—for example, the Department for Levelling Up, Housing and Communities forms part of this through its housing policies—need to link up. However, I believe they do, because there are measures in our environmental land management scheme and our flooding policy statement that all link to the water landscape, as they need to do.

We have almost doubled our funding for the catchment-sensitive farming programme, which provides farmers with advice on how to reduce pollution. We have increased that budget to £30 million from £16.6 million, and that will cover 100% of England’s farmland, up from 40% of its current coverage, with more catchment-sensitive farming officers.

We must recognise that the water environment faces many other pressures. I was pleased that the hon. Member for Plymouth, Sutton and Devonport (Luke Pollard) widened the debate, which is so important. Yes, we have worked very closely together, and I acknowledge that he, with an understanding of the whole landscape, has been supportive of many of these measures. Climate change and a growing population, especially in dryer parts of the country, are increasing constraints on our water supply. The Government have been clear in our statement to Ofwat that water companies and Ofwat must take a long-term and strategic view of the challenges ahead. Meeting our future needs must not come at the expense of the natural environment, and that includes reducing unsustainable water extraction from chalk streams and aquifers.

We will need a twin-track approach to secure resilient water resources. On the one hand, water companies will need to invest in new supply infrastructure where it is needed, and on the other, we will need to reduce demand for water, use water more efficiently and reduce leaks. We will actually need to secure an additional 4 billion litres of water a day by 2050, and half of that will need to come from reducing demand, as the hon. Member mentioned. By 2050, we expect to see leakage halved, because that is a big part of this, and to see average daily consumption at 110 litres per person, which is actually 30 litres less on average than we are each currently using.

My hon. Friend the Member for Wantage (David Johnston) mentioned a potential reservoir. I will not comment on that particular reservoir, but we will need—and we are putting in place—a whole raft of such measures. We will need new infrastructure, including new reservoirs to reduce leaks, and to use less water overall. Through the Environment Act, we propose to set a legally binding target on the Government to reduce use of the public water supply in England per head of population by 20% by 2037. This will be supported by mandatory water efficiency labelling and building regulations, and water companies must play their part in helping us to achieve that target.

Delivering on these ambitions does not come without costs, and my hon. Friends will be rightly concerned. A number of Members, particularly the hon. Member for Blaydon (Liz Twist), have raised the effect on the cost of living and how critical this is—and she is going to intervene on me.

[Liz Twist]

I thank the Minister for giving way, and she has quite rightly picked up that I have referred to the single social tariff on a number of occasions. In February, she kindly wrote to me, as co-chair of the all-party parliamentary group on water. Can she tell us where we are on the proposal to develop a single social tariff?

[Rebecca Pow]

I thank the hon. Member, and I did write to her; that is right. Obviously, the Chancellor has already announced a whole package of measures to help households with the cost of living, and we do expect the water companies to play their part. All water companies actually have social tariffs in place, as she will know, to support customers who struggle to pay their bills, and close to 1 million customers currently receive that help. My Department is exploring other measures that we may look at to improve this whole sector. I cannot give more detail now, but we are very aware of it.

I want to refer to some of the other excellent contributions to the debate. I am so pleased that my hon. Friend the Member for Southend West (Anna Firth) mentioned wet wipes. Shockingly, wet wipes make up 93% of the material that causes sewerage blockages. That is partly why storm sewage overflows are used so often: they are blocked up by wet wipes which have been chucked down the loo. [Interruption.] Yes, and there are horrified looks; I am sure Madam Deputy Speaker does not do that. The cost of dealing with that to the water industry is £100 million a year. We are considering options and we have consulted on what action we might take. It is also important to remember that wet wipes contain plastics.