Water Companies: Borrowings

Lord Goldsmith of Richmond Park Excerpts

Monday 5th September 2022 Lords Chamber

[Lord Hain]

To ask Her Majesty’s Government whether water companies’ borrowings have increased since they were privatised; and if so, by how much.

[The Minister of State, Department for the Environment, Food and Rural Affairs and Foreign, Commonwealth and Development Office (Lord Goldsmith of Richmond Park) (Con)]

My Lords, as of 31 March this year, water companies have reported total borrowing of £57.6 billion. Privatisation of the water sector has delivered around £170 billion of investment through private finance and this country would not have seen that level of investment if the water industry was in public ownership. Holding a licence to provide an essential public service of this sort is a privilege. Governments and regulators have high expectations of water companies and of the financial behaviours of their owners and investors.

[Lord Hain (Lab)]

My Lords, surely the Government have to reform the privatised water system. Despite a huge hike in pumping raw sewage into rivers and off beaches, abject failures to fix chronic and widespread leakages amid hosepipe bans and a total failure to reduce discharges from storm overflows, annual bonuses paid to water company executives rose by 20% in 2021. Since privatisation, customers’ bills have shot up by 40% and the companies have paid out £72 billion in dividends. Yet in Wales, 45% of rivers are of good ecological status, compared with 14% in England. Wales also secured 45 Blue Flag beaches and marinas last year, proportionately many more than England. Will Ministers replace the broken England model with the Welsh not-for-dividend one, which also means that returns going to shareholders are invested in infrastructure and capital is raised at a lower rate?

[Lord Goldsmith of Richmond Park (Con)]

My Lords, I cited figures in relation to investment by the sector, so I will not repeat them. But I make the point that, as a consequence of the Environment Act, which this House, along with the other place, brought into law just a few months ago, companies are now required to be transparent in a way that they never had to be before about how executive bonuses and dividends are linked to services for customers. Ofwat is still going through the process but will have the power, as a consequence of the Environment Act, to tie the licensing system to the performance of companies in relation to that link between pay and performance. That is a first; it would not have happened were it not for the Environment Act.

In relation to storm overflows, I am sure the question will come up again but the noble Lord exaggerates the course of action over the last few years. I will not for a second pretend that we do not have a problem with sewage flowing into our waters but the situation is getting better, not worse.

[Noble Lords]

Oh!

[Lord Goldsmith of Richmond Park (Con)]

It is simply an objective fact that we are the first Government specifically to tackle sewage overflows in the way that we have. We are the first Government to set a legal requirement on water companies to tackle significantly storm overflows. That has never been there before—not before Brexit or before we joined the European Union—and is a new development. We are taking stronger action than any Government in the history of this country.

[Baroness Jones of Moulsecoomb (GP)]

Is there any truth in the report that at least two water companies have needed cash injections and that the Government’s recent sewage reduction plan was a result of those companies’ poor credit ratings?

[Lord Goldsmith of Richmond Park (Con)]

I cannot answer questions on the two companies but will ask the Minister responsible for this area and get back to the noble Baroness. The reason we took the steps we took in the Environment Act was to improve the environment. This is an issue that everyone cares about; it does not matter where they live or which part of the political spectrum they occupy. Everyone wants our waters to be clean and we are taking the strongest possible action to make them so.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to the Government and to this House for the changes that were made to improve the situation on sewage, but does my noble friend think that the current system is delivering enough freshwater reservoirs for the future across the UK?

--- Later in debate ---

[Lord Goldsmith of Richmond Park (Con)]

It is a good question and a number of steps are being taken at the moment. As part of the commitment that the water companies have made on investment, the numbers for which I provided earlier, we are seeing a lot of work being done between them to invest in schemes that will transfer water between areas of need and areas of plenty. We have already seen water transferred from the Lake District to the Manchester area, and from Wales to the Liverpool area. Work is under way at the moment by Anglian Water to transport water—from an investment of around £400 million—which, once completed, will mean an entirely new network longer than any motorway in the UK. That investment is happening and will continue to do so.

[Baroness Butler-Sloss (CB)]

My Lords, is the Minister not being somewhat complacent? Beaches across the country have been unusable in this hot weather. Should the noble Lord not be worried about that?

[Lord Goldsmith of Richmond Park (Con)]

I am deeply worried about it. As I said, I do not pretend for a second that we do not have a problem with pollution; we do. Incidentally, this is not a UK problem but one that affects countries across the European Union. But I also said, rightly, that this Government are the first to take these steps. There is now a legal requirement for those companies to take action; that did not exist before. Our plan will require water companies to deliver the largest ever infrastructure programme, with £56 billion of capital investment over 25 years. If it is followed through, the plan will protect biodiversity, the ecology of our rivers and seas and the public health of our water users for generations to come. As I said, we now have the tools to do this, but of course it is for future Governments, including this one, to ensure that they are used to their maximum.

[Lord Wallace of Saltaire (LD)]

My Lords, the Government make great play of being on the side of the people in their opinions, as opposed to the dreadful establishment. From opinion polls over last few months, it is very clear that the popular will is in favour of reversing privatisation. Do the Government intend to stand against the people’s will on this or to go along with it against the establishment?

[Lord Goldsmith of Richmond Park (Con)]

We very much share the overwhelming view of the population of this country that more action needs to be taken to protect not just the health of our waters but the resilience of supply. This goes back to the question asked by my noble friend. But we do not believe that nationalisation is the answer: it would place an enormous financial burden on the taxpayer and would not deliver anything like the level of investment that we have seen in recent years.

[Lord Grocott (Lab)]

Will the Minister now respond specifically to the question put to him by my noble friend Lord Hain: why is the record in Wales so much better than the one in England?

--- Later in debate ---

[Lord Goldsmith of Richmond Park (Con)]

I am not convinced that the record in Wales is significantly better than the one here. A report today, which I am surprised has not been brought up yet, showed a worrying increase in pollution in areas of this country. But, in every case that has been reported, to my knowledge, that is a consequence of our having put record investment into monitoring in a way that we never did before. There were problems that were not captured but they are now, reflecting a significant increase of the problem and greater justification for the actions that we know we need to take. But I do not think that we should pretend that a problem is new because we have just discovered it; it has been there for a long time.

[Lord McLoughlin (Con)]

My Lords, is it not a fact that, between 1997 and 2010, the then Labour Government decided not to change the way the water authorities or boards were managed because of the record levels of investment going into the industry, as my noble friend pointed out? He told us what has been going in since privatisation, but has he any figures for the level of investment when the water boards were still under the control of the Treasury?

[Lord Goldsmith of Richmond Park (Con)]

My noble friend makes an important point. Although I do not have the numbers at the tips of my fingers, it is very clear that the record levels of investment would not have happened had the sector not been privatised. We would not see anything like that level of investment if we were to renationalise the sector. Of course we care about the manner in which executives are paid, incentivised and all the rest of it, but that is why we are now able, as a consequence of the Act that noble Lords voted through, to require total transparency through Ofwat for the first time, in a way that has been lacking until now.

[Baroness Hayman of Ullock (Lab)]

My Lords, data that has, rather appropriately, been leaked shows that water companies’ replacement of water and wastewater pipes stands at an astonishingly low average of 0.05%, with even the best performers replacing only 0.2% of their network every year. Does the Minister believe that we should be replacing our pipe network slightly quicker than what works out to be once every 2,000 years? With a growing proportion of our pipes failing, and with many over 100 years old, just how bad can water wastage and sewage spillage become?

[Lord Goldsmith of Richmond Park (Con)]

I have to admit that I am not familiar with the leak that the noble Baroness describes, but there are certainly problems with leaks, and not just in government. We have a serious need for investment in the pipe network, which has been made a lot worse by record heat this summer. As noble Lords will know, the heat causes the ground to shift, which imposes significant stress on pipes. A record number of pipes now need to be fixed, which requires investment. But there is a clear obligation, which is associated with very severe penalties for companies not investing in tackling this problem. The Government have been clear that this will remain a priority.