Water Companies: Fines

Lord Browne of Ladyton Excerpts

Thursday 6th February 2025 Lords Chamber

[Lord Browne of Ladyton (Lab)]

My Lords, it is a pleasure to contribute to today’s proceedings and an equal pleasure to follow the opening speech of the noble Baroness, Lady Grender. I am as interested as she is in the questions that she has posed to my noble friend the Minister, whom I am glad to see in her place. I am grateful also to the noble Baroness for affording your Lordships’ House a fresh opportunity to examine this question and to my noble friend Lord Sikka, who is unable to be in his place today, for providing me with some briefing materials on this subject. Characteristically, they anatomise forensically the behaviour of water companies and the regulator over the last few years in respect of the public, government and, it would appear, their own self-interest.

As I told your Lordships’ House yesterday in another context, earlier this week I was witness to an exchange on the UK’s priorities in respect of national security. One party to the conversation asked the other for an assessment of the UK’s highest priority challenges in the current geopolitical context. The latter, an expert on national security, responded by asserting strongly that we live in an age of impunity. To some extent, that phrase reflects a wide and growing public sense that many water companies are acting on just that basis too.

We heard some statistics from the noble Baroness, Lady Grender, but perhaps I may add to them. Since privatisation in 1989, customer bills have risen by 363%. Between £52 billion and £85 billion has been paid in dividends, while the same companies paying out to shareholders have accrued what I thought was about £70 billion in debt—I now know that it is exactly £68 billion. But this debt is not the consequence of investment into infrastructure; no new reservoirs have been built while this industry has been in private hands, for example, but that is only one of many condemnatory statistics.

That is the context in which your Lordships’ House is debating this subject today and in which fines of £168 million against Thames Water, Northumbrian Water and Yorkshire Water were proposed by Ofwat on 6 August last year. As my noble friend Lord Sikka mentioned in his Oral Question on 29 January, there are two key contextual factors in assessing the proportionality of that response. The first is that these three companies have over 400 criminal convictions between them, and the second relates to the fact that these fines were proposed rather than imposed. It is difficult to imagine another context in which three individuals or organisations with a record of such malfeasance would be permitted to negotiate the extent and timing of their punishment.

I understand that there is a process and legislation which Ofwat must follow, which my noble friend the Minister alluded to in her response to my noble friend Lord Sikka’s Question, but surely we must consider changing that process and the provisions that mean that Ofwat and a company in breach of its obligations can reach a regulatory settlement. A promise of future good behaviour and compliance is surely difficult to accept in lieu of a fine, given that all precedents suggest that these companies have acted, as their criminal conviction rate shows, with blithe impunity. I count myself an optimist, but as Disraeli once said:

“A precedent embalms a principle”.


All precedents suggest these companies are careless of their obligations, have a record of putting the interests of their shareholders above those of their customers and have neglected the environment and infrastructure for which they are responsible and on which we depend.

I will close my brief remarks with two specific questions for my noble friend the Minister, but before I do that, I will say that I am with those who believe that any fines, when actually levied and collected, should be channelled into a hypothecated fund, whether the Water Restoration Fund or something similar, in line with the “polluter pays” principle. I understand the pressure on public finances—I was the Chief Secretary for a period of time—and the temptation to divert this money towards the Treasury, but this money is badly needed to undo the damage done by the mismanagement and irresponsibility of the water companies.

I have a short question from my noble friend in relation to this. I know from public sources the record of proposed fines. How much money has actually been collected from fines since this process started? This is an issue of public equity. These companies are leveraging the strength of their own self-inflicted weakness. Companies, including Thames Water and South West Water, pollute our waterways, mismanage themselves to the point of financial collapse, demand permission from Ofwat to increase bills by 44% and simultaneously announce their decision to increase dividend payments to shareholders. That sounds to me more like corrupt self-indulgences by the medieval church than a modern industrial practice.

In closing, I ask my noble friend the Minister two further questions. First, during the passage of the Water (Special Measures) Bill, the Secretary of State said that the Government will

“ban bonuses if water company executives fail to meet high standards”.—[Official Report, Commons, 16/12/24; col. 79.]

Last week, Thames Water said it will circumvent that ban by increasing basic executive pay. What is the Government’s response to that, and how will they enforce any ban? If I understand the answer my noble friend the Minister gave to that Question when asked at col. 253, the responsibility for ensuring that bonuses are not paid or performance is poor lies with Ofwat. Is she able to point to any occasion when that power has been exercised against a poorly performing company? How do the Government intend to ensure that this sanction is not circumvented by simply increasing executive basic pay?

Secondly, do the Government have any plans to end the practice whereby, in lieu of a fine, a company can agree a package of investment which has the ancillary benefit of increasing the value of the company itself and results in increased dividend packages for shareholders?