Water Bill

Lord De Mauley Excerpts

Thursday 6th February 2014 Lords Chamber

[Lord Whitty (Lab)]

My Lords, last week’s de facto alliance between the noble Lord, Lord Moynihan, and me extends in part to these amendments, in that it would be sensible for the Government to contemplate positively some of the latter amendments in the group, particularly those that inhibit the degree to which incumbents can effectively square the market against new entrants. However, my agreement does not extend all the way, I am afraid, particularly to the earlier amendments in the group. We must remember that the Bill is not quite as radical as all that, and, if it were to be a bit more radical, a lot of other things should follow.

We are, actually, introducing competition immediately only in a narrow part of the market. It is an important part, and there may be subsequent lessons to be learnt, but it is going a bit far to say that Ofwat’s central duty should be extended to promote competition. It already has a duty to look after the interests of consumers, where appropriate through competition, and we are making sense of that in a way that has not been done in the past 20-plus years of privatisation. However, we are not in any way legislating in this Bill for residential properties to be subjected to competition. Some noble Lords may think that we should be doing so, and it may be that I could be persuaded of that, but the fact is that we are not doing so here. If we were, that would raise a whole range of other protections and issues that would have to be considered.

It is also true—the noble Lord, Lord Moynihan, referred to upstream competition—that a number of hesitations were expressed around the Committee last week about triggering the upstream aspect to this, particularly in relation to abstraction reform occurring first. I would not want the noble Lord’s Amendments 115 and 116 about promoting competition to give Ofwat the impression that their provisions would override the need to ensure that abstraction protection was in place before competition in the upstream area was triggered.

Therefore, I cannot support this group of amendments as a whole. The Government may wish to consider one or two of them but, at this point, many of them go too far beyond the scope of the Bill or could be interpreted as doing so.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, my noble friend Lord Moynihan’s Amendments 115 and 116 would introduce a new duty on incumbent water companies to “facilitate competition”. This would sit alongside their primary duties to supply water and provide sewerage services to their appointed areas. Amendments 138 to 145 would change Ofwat’s powers to amend licences to introduce the market reforms set out in the Bill.

One part of the proposed new duty on incumbents would require them to act in a manner that did not “prevent, restrict or distort” competition. I think we can all agree that it is essential that incumbent water companies play by the rules of the market so that customers benefit from competition. That is why the Competition Act 1998 already prohibits business from making agreements that involve the prevention, restriction or distortion of competition, or from abusing a dominant position in the market. Both incumbents and licensees are subject to an overarching competition law regime that deals with the concerns that the amendments seek to address. As my noble friend thought I would say, Ofwat is able to enforce the Competition Act 1998 in the water sector because it has concurrent powers with the Competition and Markets Authority.

In some of our debates on Tuesday, noble Lords made comparisons with Scotland, as did my noble friend today, but I note that a facilitating competition duty was not imposed on Scottish Water, although it, too, is subject to the aforementioned Competition Act. It is worth noting here that WICS does not have the same powers as Ofwat under the Competition Act, which may explain some of the differences in the way Scottish Water is regulated.

Incumbents will be subject to enforceable licence conditions, market codes and charging rules which will ensure that they operate fairly in the competitive markets. I question why the amendments do not require licensees to be under the same or a similar duty because both licensees and incumbents operate within the retail market and some licensees are associates of incumbents.

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[Viscount Hanworth (Lab)]

My Lords, as I had occasion to remark at Second Reading, some water companies have been making exorbitant profits on the back of the rather generous tariffs that have been allowed by Ofwat. Whereas consumers were once able to disregard the cost of their water usage, it can now be a significant item in their budgets, to the extent that those in poverty may struggle to pay their bills. I have also indicated that the revenues of the water companies have often been used by the owners of those companies for purposes quite unrelated to those of the industry, when they should be used to cover operating costs and the costs of investing in capital infrastructure.

This amendment seeks to ensure that consumers will be adequately informed of the details of tariffs and that they will be properly alerted to any schemes that are available for mitigating the costs when they prove hard to bear. The amendment can also be seen in the context of the various schemes that have been proposed that would alert consumers to their current water usage. This amendment and the one that follows it seek to cast further light on the costs and revenues of the water companies, which continue to be opaque, to say the least.

[Lord De Mauley]

My Lords, I thank the noble Lord, Lord Grantchester, for introducing Amendment 118, which, as he said, would insert a new clause into the Bill to place a legal requirement on water companies to include information on their bills about the Water Sure scheme. The scheme provides a mandatory safety net for low-income customers on a meter who, for reasons of ill health or because they have a large family, use larger than average amounts of water. It caps the bills of these households at the average for their company area.

The eligibility criteria for Water Sure are twofold: the household must be in receipt of a relevant low-income benefit and must have three or more dependent children living at home or someone with an illness that necessitates high water use. It is unfortunately a feature of all means-tested benefits of this sort that take-up, as the noble Lord mentioned, can fail to match eligibility. That is why promotion of the scheme is so important. I am pleased to be able to tell the noble Lord that all water companies already voluntarily provide information about Water Sure on their bills.

In addition, Amendment 118 would require all water companies to provide information about tariff structures and the lowest available tariff. This is not the energy sector—water companies do not have complex tariff structures. In fact, the situation is quite the reverse. The choice for the majority of household customers is between paying according to volume of water used—a metered tariff—or according to the rateable value of their home. All water companies provide information on household customer bills about how to get a meter fitted free of charge. Companies also provide advice to customers on whether or not they might benefit financially from the installation of a meter; a role also performed by the Consumer Council for Water. The cheapest option for each household will depend on the location of the property and the amount of water used by the household. Where a company offers a social tariff, information on whether a household may qualify is provided by the company alongside the customer bill. The Consumer Council for Water works closely with each water company on the information provided on household bills to ensure that customer interests are met. Its very practical advice is that customers are likely to be put off by too much information in their bills.

For these reasons, I cannot agree that customers will be best served by placing an increasing number of legal requirements on water companies to include additional information on customer bills. I believe that the current approach of working in partnership with the body responsible for representing the interests of customers is more likely to be effective. I therefore hope that I can persuade the noble Lord to withdraw his amendment.

[Lord Grantchester]

I thank the Minister for that reply. I had not heard that all companies were already providing this information. My information was that this was not the case and that only some were. I am encouraged that the reassurance has been provided but, nevertheless, feel that the promotion of the scheme could be improved if it was included in people’s bills when they had to pay them. I am sure we will want to return to this issue because, given that the uptake of Water Sure payments is at a rather low base at the moment, we want to be reassured about what more could be done to bring this to the attention of families.

Thanks largely to the Consumer Council for Water, customer service has been improving in the water industry, dominated as it is, as my noble friend behind me has said, by large regional monopolies. Nevertheless, it is regrettably necessary to spell out these requirements. In the mean time, I beg leave to withdraw the amendment.

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We need to keep the pressure up on this. Companies have been a bit tardy in coming forward with their proposals, yet there are a growing number of people who have water affordability problems. Most of these are vulnerable families and a lot of them involve children. That is why we need to commit ourselves to a national affordability standard and a national affordability scheme now. I beg to move.

[Lord De Mauley]

My Lords, I thank the noble Lord, Lord Whitty, for Amendment 119, which would insert a new clause into the Bill to place a requirement on the Government to introduce by secondary legislation what is described as a national affordability scheme, with eligibility criteria set by government.

Keeping bills affordable while ensuring continued investment in essential water and sewerage services are the driving principles behind this Bill. I thank the noble Lord for giving us the opportunity to debate these important points. However, while I am in full agreement with him that we must consider the impacts of bills on hard-pressed households, I am not persuaded by his proposal.

First, the concept of a scheme with nationally mandated eligibility criteria simply ignores the reality of the water industry, which is structured on a regional basis. Different water company regions have different customer bases. Average incomes and the cost of living vary substantially from region to region, as do the costs of supplying water and sewerage services. A top-down, centralist approach could take no account of these regional variables. A centrally mandated set of eligibility criteria would have a completely different impact on households living in otherwise identical circumstances, depending on which region they happened to be in.

This is why the Government’s approach is focused on company social tariffs. We have issued statutory guidance that requires the companies to work with their customers to develop local solutions. These must be tailored to local circumstances and acceptable to customers who foot the bill. Companies have been able to introduce social tariffs since April 2013—for slightly less than a year. In the past year, three have done so. The noble Lord, Lord Whitty, feels that the pace of change is too slow, but by 2015-16 the majority of water companies will have a social tariff in place.

Legislating for this change will not make it happen any faster. Given the requirements to develop nationally mandated eligibility criteria, it could actually slow the pace at which social tariffs are rolled out. That could delay the point at which some hard- pressed households receive the help that they need. As the noble Lord said, I have mentioned before that all incumbent water and sewerage companies have already developed packages to help customers with affordability problems. These include customer assistance funds, support tariffs, debt advice and water efficiency measures. Social tariffs have provided a valuable additional tool.

The second important point in relation to this proposal is that it remains far from clear how it is intended to fund this scheme. This is not a minor point of detail; it is the key point, which needs to be addressed. In discussions in another place, there were two suggestions for how such a scheme could be funded. Broadly speaking, these can be characterised as either some form of cross-subsidy from ineligible customers, or some form of tax on profits. These are materially different approaches with very different implications, so it is right to seek to get to the bottom of what is being proposed.

A nationally mandated affordability scheme funded by cross-subsidy would be a tax on all water customers ineligible for help. This would be a very blunt instrument. We must not forget that a great many households that are ineligible for help with their water bills are nevertheless living on very modest incomes. It would be hard on them to argue that they should have to foot the bill without being properly engaged in the development of a locally appropriate scheme.

Alternatively, some have proposed that a national affordability scheme could be funded by some form of windfall tax on company profits. In a price-capped sector such as water, this would be an odd thing to do. The recent publication of water companies’ business plans has demonstrated how the price review can work to claw back benefits for customers. By taking account of lower financing costs, Ofwat estimates that the next price review could significantly reduce pressure on all customers’ bills by between £120 million and £750 million a year. Most water companies are proposing flat or declining customer bills from 2015 to 2020. This is in advance of Ofwat’s efficiency challenge. The spectre of a tax on profits would seriously undermine the regulatory stability on which this system is founded, unnerving investors and pushing up costs for all customers.

I agree with the noble Lord, Lord Whitty, that it is vital that those who are struggling to pay get help. However, I believe that the current approach of regional affordability measures meets the realities of the sector. I therefore ask the noble Lord to consider withdrawing his amendment.

[Lord Whitty]

My Lords, on this amendment, the noble Lord has misunderstood the nature of the proposition and downplayed the nature of the problem. He says that all companies will have social tariffs in a couple of years. I hope that that is true and that it means that the majority—even pretty well all—of the 2 million people who have affordability problems will have been helped by those schemes.

[Lord De Mauley]

I ought to interject. I did not say that all companies within a couple of years would have social tariffs. I said that the majority of water companies will have a social tariff in place by 2015-16. All incumbent water and sewerage companies have already developed packages to help customers with affordability problems. I went on to say that these include customer assistance funds, support tariffs, debt advice and water efficiency measures.

[Lord Whitty]

My Lords, that is even less reassuring than what I thought the Minister said in the first place.

The Minister’s criticisms fall into two categories. The first is that this is a top-down proposition. It is not: it is a framework for companies to introduce social tariffs and other measures that help affordability within their own structures, subject to some minimum standards. It is not an imposition from the centre of exactly how to do that. It is, however, a failsafe if they fail to do it. The reality is that both the regulator and the companies have hitherto been quite resistant to such propositions. The noble Lord is right to say that, strictly speaking, 2013 was the first point at which they could consider them, but that was because of the three-year delay since the 2010 Bill and, before the 2010 Bill, deep resistance within the industry to any such concept. Therefore, we have form here and it is not sensible to be complacent that in 18 months’ time the companies will have sorted all this out. I do not believe they will. That is why they need a push and a framework that sets minimum standards of eligibility and operation.

The Minister’s second criticism concerns the funding of this proposition. He said that it could be funded out of a tax on profits. I have not proposed a tax on profits and I think the noble Lord’s brief misunderstands what was said in another place about this. It is fairly evident to me—and my noble friend Lord Hanworth has pointed this out on many occasions—that actually most water companies could afford to be a bit more generous to their consumers in relation to profits, dividends and the tax that they currently pay, but that is not in any sense an advocacy of a windfall tax, so let us get that out of the way. The other funding proposal is by cross-subsidy. In one sense, social tariffs are by definition a cross-subsidy. Therefore, if the Minister hopes that all companies will come up with social tariffs or equivalent schemes, the objection is just as valid to his proposition as it is to mine. Therefore, there is no additional cross-subsidy compared with the preferred outcome of the Government on this.

[Lord De Mauley]

I thought I had made the point that we accepted that there will be some sort of cross-subsidy but that, in our view, it would be better if that was organised on a regional basis because one could take into account regional circumstances.

[Lord Whitty]

Yes, but my proposition allows for that. It gives a push to companies to develop their social tariff schemes on a regional basis provided they meet minimum standards. I am not precisely defining what the national affordability scheme should consist of; it is up to the Minister and his department to come up with the appropriate forms in discussion with the DWP and other government departments and agencies that work in this field with vulnerable and low-income households. I am not attempting to lay that down. Therefore, this is not a top-down approach. It allows for some diversity of delivery.

The Minister’s objections to this proposition really do not stand up on either count. I hear what he says. I suspect that the department is pretty immovable on this but it is certainly an issue to which I intend to return. For the moment, I withdraw my amendment.

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[Baroness Byford (Con)]

My Lords, over the years that we have been debating water bills, this has been a constant theme. I think that all of us in the Chamber, on whichever side we may have been sitting at a particular time, have agreed that it is a problem that needs to be resolved. What I am not quite clear about is whether Ofwat with its new responsibilities has the power to tackle what is being proposed by the noble Lord, Lord Whitty, and whether that would then make his amendment unnecessary. However, I am still sympathetic to what the noble Lord said about those who can pay and will not pay. I rather gained the impression from Ofwat when it gave a presentation recently that it had the power to make adjustments to individual water companies. I might be wrong, but I would be glad of some clarification.

[Lord De Mauley]

I thank the noble Lord, Lord Whitty, for his amendments. Amendment 120 would add a new clause to the Bill requiring landlords to provide contact details for their tenants at the request of the water company. Section 45 of the Flood and Water Management Act 2010 already enables Ministers to bring forward secondary legislation that would require landlords to provide water companies with personal details about their tenants—or themselves become liable for paying the bill.

Following extensive consultation in January 2012 with the industry and with landlords’ organisations, the Government took the decision that a voluntary approach would be more suitable. During consultation, landlords argued that the additional regulatory burden on them would be disproportionate, as they are not the source of the problem that we are trying to tackle.

We seek to make decisions based on the evidence. One purpose of the consultation was to invite the water industry to provide evidence of the benefits of the regulatory approach. In particular, neither the companies nor Water UK were able to provide any facts about the proportion of bad debt in rented properties that results from a lack of information about the occupier. This evidence was essential to assessing the benefit of the measure. The evidence provided by the water sector to support the case for additional regulation of millions of small and micro businesses was weak. The Government do not believe that more regulation is always the answer.

The evidence shows that good practice in tackling bad debt is not applied consistently across the water sector—the noble Lord, Lord Whitty, referred to this; that is something that we can agree on. The significant variation in performance between companies tells me that the focus should be on driving better standards across the sector rather than on regulating landlords. I used to run my own business and I know that debt collection, which is a subject that I know quite a lot about, is a matter largely of application and hard work. One reason why we do not propose to bring forward the bad debt regulations on landlords is that we do not wish to endorse the argument that performance on bad debt is outwith the control of the water companies. There is more that the companies can do to collect their debts and we want them to focus on this rather than looking to government to solve the problem for them.

Of course, the real driver of company performance is the incentives and penalties set by the regulator, so I am pleased to be able to report that Ofwat has changed the approach that it takes to bad debt in the methodology that it is using for the 2014 price review. The new approach will enable it more effectively to bear down on the costs of bad debt. It is doing this by insisting that the companies demonstrate that any increase in bad debt is genuinely beyond their control and that they have taken all available steps to control it. Unless they can prove that this is the case, they will not be allowed to include it in customer charges.

We are already seeing our focus on the industry taking responsibility for tackling bad debt bearing fruit. The industry is working with landlords’ organisations to establish a new voluntary scheme—and this answers the point raised by my noble friend Lord Selborne—that will enable landlords to provide information about their tenants directly to water companies swiftly and easily. This approach has the support of both Water UK and the main landlords’ organisations. The new database will launch in March this year. For these reasons, I believe that Amendment 120 is unnecessary.

The new clause proposed by Amendment 122 would provide a new power for both Ministers and Ofwat to disallow companies from recovering the costs of unpaid bills from their paying customers. Ofwat has the power to decide which costs may be recovered through the price review. As I have explained, and I think this answers the point made by my noble friend Lady Byford, Ofwat is already using the price review process to bear down on the costs of bad debt. It is requiring companies to demonstrate high performance in debt collection and to show that any increase in bad debt is genuinely beyond their control before they will be allowed to include it in customer charges. The current price review will challenge the poor performers to raise their game.

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[Lord Whitty]

My Lords, I congratulate the noble Baroness on producing such an important amendment. I suspect that it is beyond the Minister’s pay grade to agree that, in accepting the amendment, we would at one and the same time get Parliament to rationalise the way in which we legislate, get Ministers to ensure regulators co-ordinate with each other and get departments to make their activities comprehensible to the public. Nevertheless, these are welcome ambitions. The noble Earl, Lord Selborne, added some rationalisation of the quangos as well. I am afraid that all this is indicative of the way in which we do business. From listening to the noble Lord, Lord Crickhowell, both at an earlier stage and today, I understand that this is not a new problem—I have noticed that the Water Industry Act 1991 is seven pages longer than the Bill we are considering.

However, to be serious about this, one of the great failings of Parliament has been the failure to produce consolidated legislation in any field. After 15 or 16 years in this House, I still fail to understand why Parliament has not devised a procedure for pulling together consolidation of Acts in all areas, so the noble Baroness’s amendment has wider implications. Whether the amendment should sit in the Bill I will leave to the Minister but, much more narrowly, the proposition that for each subject matter there should be a single website address which links to all the different bits of regulation, authorities and other government interventions, is very good. It is one which has been talked about in Whitehall but hardly delivered at all. The one point where Defra could probably take this amendment on board in the context of water is regarding that single website. I think practitioners, companies and consumers would be very pleased to see such a development. I congratulate the noble Baroness, but we will see what the Minister says.

[Lord De Mauley]

My Lords, I thank my noble friend for her Amendment 122A, which would introduce a new statutory duty on the Secretary of State to ensure that the bodies involved in regulation of the water industry work to minimise bureaucracy. It would also require a definition of all the statutory bodies concerned with water to be published on a single website. I strongly support her in her desire to minimise bureaucracy, duplication of effort and waste. I am quite sure that I railed against it and for the consolidation of legislation when I was in opposition, as the noble Lord, Lord Whitty, is enjoying doing today. These issues are not exclusive to this sector. Indeed, this Government have an energetic and far-reaching programme of reform designed to slash red tape wherever possible. I would argue that we have made some considerable progress with that.

My department has been one of the trailblazers in Whitehall in transforming our approach to regulation. For example, through our Smarter Environmental Regulation Review, in which I have been closely involved, we are attacking unnecessary complexity, inconsistency and duplication of environmental regulation. We are also rationalising environmental guidance and data reporting to make it easier to comply with legal obligations. My department has also carried out a comprehensive assessment of the costs and benefits of all the regulations for which we are responsible. Through the Red Tape Challenge initiative, we have reviewed more than 1,200 regulations and by the end of this Parliament we expect to be delivering savings to business of more than £250 million each year. I hope that this provides my noble friend with some assurance that the Secretary of State already has bureaucracy squarely within his sights.

On the specific changes being made by the Bill, first and foremost I should emphasise that it does not create any new public bodies. The existing regulatory landscape remains unchanged in that regard. I am grateful for this opportunity to clarify the current framework for regulation in the water sector. In England, the water industry is regulated by three separate, independent bodies: Ofwat, the Drinking Water Inspectorate and the Environment Agency. Ofwat is the economic regulator responsible for ensuring that water and sewerage companies provide consumers with a good quality service and value for money. This includes setting price limits to ensure that customers receive a fair deal, while ensuring that the companies are able to attract low-cost investment in our essential services.

The Government commissioned an independent review of Ofwat and consumer representation in the water sector in 2011. Undertaken by experienced regulator David Gray, the review concluded that regulation in the water sector has worked well since privatisation and that major changes to the statutory and institutional framework were not required. The Ofwat review made a range of recommendations about the ways in which the regulator could reduce the regulatory burden it places on the industry. In response, Ofwat put in place a programme of internal reform and substantially reduced reporting and other burdens. It has since revised its approach to the price review—something we talked about earlier today—in order to ensure that companies focus on their customers’ priorities rather than looking to the regulator for guidance.

The Environment Agency regulates the impact of the water industry on our environment and promotes sustainable development. It regulates water abstraction as well as the treatment and discharge of wastewater back into the environment. It also helps water companies with their long-term water resource management and drought-planning functions. The Government have introduced a process whereby all public bodies are subject to triennial review to scrutinise how the Government deliver their objectives as effectively and efficiently as possible, achieving the best possible value for taxpayers and the public. The Environment Agency was reviewed under this process in 2013. The review looked at how it could work in leaner, smarter ways to enable and drive sustainable growth, making best use of the resources available to it.

The Drinking Water Inspectorate is responsible for ensuring that companies provide safe, wholesome drinking water that meets standards set down in law. Although not a regulatory body, the Consumer Council for Water also plays an important role by representing water and sewerage customers.

My noble friend referred to the market operator. In our debates on Tuesday, we clarified that this is neither a public body nor a regulator but a straightforward administrative entity that will be run by the industry for the industry, within the context of the regulations laid down by Ofwat. In fact, the market operator will serve to minimise bureaucracy by providing a single set of administrative systems for switching customers, which would otherwise need to be duplicated by every company operating in the market. In our debates on this matter on Tuesday my noble friend Lord Selborne noted that such bodies are a common feature of regulated utility industries.

I hope that I have gone some way to clarify the roles and responsibilities within the water sector. As with any sector, we are always looking for ways we can do things better and more efficiently. As I have said, we are active in challenging red tape and bureaucracy. We have the Red Tape Challenge process, which has already scrutinised all the regulations affecting the water industry. We have established the principles for economic regulation to guide the high-level institutional design of the regulatory frameworks by the Government. These reinforce the Government’s role in establishing the policy direction and appropriate guidance, leaving regulators to regulate independently. A new regulators’ code also takes effect in April that will apply to non-economic regulators such as the Environment Agency and the Drinking Water Inspectorate. It is the latest step in the Government’s drive to put businesses’ need for clarity, transparency and minimum bureaucracy at the heart of the regulatory system.

There are more examples of the provisions already in place to ensure the roles and responsibilities of regulators and other public bodies are clear, and that unnecessary bureaucratic burdens are identified and removed. One of the more relevant of these is the shared duty of the Secretary of State and Ofwat under Section 2 of the Water Industry Act 1991 to have regard to the principles of best regulatory practice. The Act already specifies that their respective regulatory activities should be undertaken in a way that is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed.

Lastly, I know that my noble friend is keen to see information about the various bodies concerned with water on a single website. I am therefore pleased to be able to confirm to her that all of Defra’s agencies will move across to the gov.uk website by the end of March this year. I also thank my noble friend Lord Moynihan for his welcome for the notes and the road map, which is indeed on the website. Although I fully concur with the spirit in which my noble friend’s amendment has been tabled, I ask her to withdraw it as it would effectively duplicate existing provisions.

[Baroness Neville-Rolfe]

My Lords, I am grateful for the trenchant support I have had from this side of the House for my efforts to reduce bureaucracy and promote clarity and transparency, especially from my noble friend Lord Crickhowell. My noble friend Lord Selborne talked about the possibility of the map I proposed being made on a catchment area basis. However, my experience of broadband, where there is a county-by-county map, is that it is not very effective. One of the things I was looking for was to have all the rules, regulations, agencies and requirements in one place on the one website. That can certainly be on the gov.uk website, as the Minister has kindly suggested, but they all need to come together so that a consumer, an investor, or a water undertaker who may be bringing in a new reservoir can see the whole piece. I would find that bottom-up approach hugely valuable. I feel that the documents that have already been made available are a start, but they do not—

[Lord De Mauley]

I thought I had said that they are on the website.

[Baroness Neville-Rolfe]

They are, but I was suggesting that we have a website that brought all the different things together in one place, not just the helpful notes that the Minister has put forward, and which takes people through the rules.

I am extremely grateful for the Minister’s support in reducing bureaucracy and in outlining the different things that have been done to achieve that end. However, it is all the more important to bring the various requirements together to make it clear what is happening. We could bring about a quiet revolution of clarity and transparency and make entry into the industry much less forbidding if we could bring what is being set out in these different laws and by these different agencies into one place. Of course I welcome the idea of putting those on to one website, but I will study what the Minister has said and consider whether further thought needs to be given to how that might be done, to find a way forward. Perhaps we can also do some policy formation in the Bishops’ Bar. I thank my noble friend, and I beg leave to withdraw the amendment.

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Moved by

[Lord De Mauley]

125:Clause 31, page 76, line 5, at end insert—
“(7) For the purposes of section 63AC, premises which are outside a water undertaker’s area are to be treated as being within that area if they are supplied with water using the undertaker’s supply system.
(8) In subsection (7), the reference to the undertaker’s supply system is to be construed in accordance with section 17B.”

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Moved by

[Lord De Mauley]

127:Clause 32, page 78, line 34, leave out “or”

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[Lord De Mauley]

I thank the noble Lord, Lord Whitty, for his amendments. I shall deal with the amendments in reverse order, Amendment 146 followed by Amendment 137, as to some extent the latter builds on the former.

The new clause introduced by Amendment 146 would give water companies a duty to report every year to Ofwat and the Secretary of State about their performance, investment, tax, corporate structure and dividends. If obtaining these data is the noble Lord’s concern, I can confirm that all this information is already freely available in the public domain. The effect of the amendment would be simply to duplicate existing reporting requirements. The cost of the additional administrative burden on water companies would ultimately be met by customers. All companies—not just water companies—are already required to report on many of these matters in their annual reports and accounts. Any additional water sector-specific reporting requirements are a matter for the regulator, which is ardent in pursuing them.

The noble Lord raises some important issues about the way in which the sector is run, regulated and structured. I believe that the regulator is already taking action to address these issues. Let us be clear about the direction of regulation in the water sector. Ofwat is already taking vigorous action to improve standards of corporate governance across the sector. It is putting pressure on water companies to strengthen audit arrangements, board member appointments and governance generally. Ofwat recently published the outcome of a consultation on principles relating to board leadership, transparency and corporate governance. The principles set out clear standards for what the sector must do and set a clear timetable for their introduction across the sector. The response from water companies has been positive and I welcome that.

Ofwat has also launched a similar consultation relating to holding companies, seeking to apply basic principles to holding company boards across the sector on issues such as risk, transparency and long-term planning. I believe that the proposed annual review would place an additional burden on companies for very little gain, so I share the concerns about it expressed by my noble friends Lady Neville-Rolfe and Lord Moynihan.

Amendment 137 builds on the clause which would be inserted by Amendment 146. It would place a new duty on Ofwat to take into account the proposed annual report by water companies to the Secretary of State. It would then give Ofwat a further power to consider this information when determining whether to reopen a price review. Ofwat already has the power to reopen a price review under the substantial beneficial effects clause of the water company’s licence or by making an interim determination. If a water company is profiting from factors outside its immediate management control that were not anticipated at the time of the price determination, Ofwat can reopen its five-year price settlement. So Ofwat has the powers necessary to revisit price determinations. However, given the importance of regulatory stability in keeping prices down for customers, it rightly utilises these with caution and considers carefully whether there would be benefit to customers.

We are at risk of talking about things as they were, not things as they are or will be. Ofwat is changing the way in which it regulates. It is seeking to change the culture of the water sector and to facilitate companies taking greater ownership of and accountability for delivery to customers, now and in the long term. Therefore, I am not persuaded that these further powers and duties are necessary and I hope that I can persuade the noble Lord to withdraw his amendment.

[Lord Whitty]

My Lords, I would not disagree with the Minister and the noble Baroness that Ofwat is toughening up its stance, including on issues of governance within the sector. I think that I am at one with the Government in hoping that we move away from the detailed, costs-checking form of regulation of the industry towards a more broad-based one which will be helped by a degree of competition within the industry.

The Minister is right that Ofwat has emergency or overriding powers. The fact of the matter is that it has not used them and would have to meet some fairly stringent criteria so to do.

The Minister rightly admonishes me for looking backwards rather than forwards, but we have to look backwards to the immediate past. We have had two five-year price reviews. At the beginning of those reviews, the cost of capital, which is a huge part of the actual expenditure of the industry, was seriously overestimated over a period of 10 years, and prices set accordingly. During that period, the capital value of water companies went up substantially; the dividend payments went up substantially and a number of them were taken over, sometimes two or three times. Somebody made a significant amount of money out of that; it was not because of the increased efficiency of the industry, although the industry did make some efficiencies. It was a fortuitousness similar to when Ofwat, with what it thought was the best information at the time, set the allowance for capital; that allowed a much bigger profit than one had assumed at that time.

Under its existing powers, Ofwat did not judge, nor did successive Secretaries of State seek to nudge them to intervene. If the public knew that the system of regulation did not allow them to do so, they would be pretty appalled. I therefore think we need to do something. The Minister might not like my particular proposals—and they certainly are not perfect—but Ofwat needs to know what the unforeseen financial consequences are of the companies’ operations. It needs to have some ability to intervene on behalf of consumers—business as well as individual consumers—if it thinks that something has gone seriously wrong. At the moment, those powers are not sufficient.

I would like to see a measure like this on the statute book; I would not envisage that Ofwat would very often use it, but the experience of the past 10 years—it may well be exactly the opposite experience in the next 10 years as far as the cost of capital is concerned—leads me to think that there is a gap somewhere in Ofwat’s powers. We need to address that somewhere in this Bill and I am sorry that the Minister is not prepared to take it away and look at it in this context. I will withdraw the amendment, but this is something to which we might need to return in a slightly different form. I beg leave to withdraw the amendment.

--- Later in debate ---

Moved by

[Lord De Mauley]

147:Schedule 7, page 174, line 42, at end insert—
“3A In section 2A (strategic priorities and objectives: England) (inserted by section 24), in subsection (4)(d), for “licensed water suppliers” there is substituted “water supply licensees and sewerage licensees”.
3B In section 2B (strategic priorities and objectives: Wales) (inserted by section 24), in subsection (4)(d), for “licensed water suppliers” there is substituted “water supply licensees”.”