Water (Special Measures) Bill [HL]

Lord Sandhurst Excerpts

2nd reading
Wednesday 9th October 2024 Lords Chamber

[Lord Sandhurst (Con)]

My Lords, I welcome the Minister to her place.

It is interesting that this Bill should have its Second Reading just the day after we debated the Product Regulation and Metrology Bill. This Bill is not so remarkable as was that Bill for the unbridled power given to Ministers, but it is still noteworthy. As my noble friend Lord Blencathra explained in his important and dispassionate analysis, it has a number of problems. Like other noble Lords, I agree that the water industry needs sorting out. We need increased investment as well as straightforward and conscientious management, but I am anxious about aspects of the methodology embodied in the Bill. I am also anxious that we have no draft guidance and secondary legislation, as the noble Baroness, Lady Young of Old Scone, has just pointed out. We do not know where exactly the Bill is going. We have a general direction of travel, but we really need more detail, and that was my complaint yesterday. We cannot have more Bills like this coming forward, please.

If we are to take this draconian approach, which is embodied, as my noble friend Lord Blencathra said, in the proposal to change the burden of proof and the powers to impose automatic fines, it should be only because there is plain evidence that this should be effective. Why is there no impact assessment? Others have asked for that too. We do not have one; we did not have one yesterday either. These are big Bills in practice, on big topics, where there is so much unknown. A lot of people know a lot about the topic, but it is the detail that matters when drafting legislation.

Why should we take it on trust that what is proposed will have the intended outcome? Has any assessment been carried out? If it has, why has it not been transformed into a proper measured impact assessment to assist all those with an interest in getting things right? Long experience—I have been a lawyer of far too long experience—has shown that this is the wrong way to make legislation, because it results in unintended and unhelpful consequences. I agree with other noble Lords that we should look at this carefully. As my noble friend Lord Blencathra and others have pointed out, we have the proposed powers to set rules about fit and proper persons, we have their interaction with the Company Directors Disqualification Act, and there will also be the Financial Conduct Authority’s rules. This risks a minefield in which the only winners will be the lawyers.

I turn to two or three specific points, the first being the modification of the standard of proof in Clause 5. I acknowledge that this lower standard of proof is used elsewhere, but it is important to note that the original intention of the legislation that we are amending in this clause was to deliver a more consistent penalty regime across sectors. That was following recommendation 8 of the Hampton report. This change, on the face of things, undermines the original function of the 2008 Act. Again, we lack an impact assessment. We do not know the rationale so, before we debate the Bill in Committee, the Government should set out a proper detailed case showing why specifically the standard of proof needs changing in this sector but not in other sectors. How many times is it anticipated that this power will be used?

I turn to the companies’ right to appeal fines imposed by the regulator. This is covered by Clause 6(7), in particular the right of appeal. This provision appears to create the possibility of the regulator imposing an automatic penalty. The company that is the subject of the penalty will not be able to appeal a decision by the regulator to the effect that there were no exceptional circumstances to mitigate the culpability of the company for what is otherwise a strict offence.

In other words, an event has happened which the company rightly or wrongly says made it impossible or very difficult to take reasonable steps to prevent an otherwise unlawful discharge. That discharge will on its face be unlawful but, as matters stand at the moment, the company can escape or mitigate that penalty if, but only if, it can show there are exceptional circumstances.

This Bill would give that decision simply to the regulator, but those words “exceptional circumstances” are important. The courts understand them well; as they have said repeatedly, they do not admit of detailed exegesis—they mean what they say. It is the context that matters. The burden is on the person who asserts exceptional circumstances to make his case. In practice, that is a heavy burden, because it has to be exceptional. If it is not made out, an appeal to the courts is dismissed with costs. What is wrong with that? Where is the evidence that this provision has been misapplied by the courts?

If there is an extraordinarily heavy rainfall or other event that may or may not be an exceptional circumstance, the water company would still have to show that it could not have anticipated that event—and we know that rain does fall in this country—and could not reasonably have taken suitable preventive measures. But why, if the company believes that exceptional circumstances have obtained and is prepared to risk the costs of an appeal, should it be deprived of challenging the regulators’ decision to the contrary? Where is the evidence that this provision is not working appropriately at present? The Government, through the regulator, surely have the details of cases, and the number of cases, where decisions on exceptional circumstances have been appealed, and details of the outcomes. They are all there—the regulator must know. They can point then to the misuse of the provision and failure by the courts. I suggest that may be hard to establish.

Generally, let us have proper information and an impact assessment, then we can make a fair and sensible decision. At present, it does not look right. Adopting a clumsy and over-penal approach will drive up costs and put at risk the very investment that we all want.

I have a final point on legal advice on compatibility with the European Convention on Human Rights. I have highlighted two provisions in particular, Clause 5 and 6, although I do not limit it to that. The Minister has declared on the face of the Bill that the provisions in the Bill are compatible with convention rights. In respect to those two provisions, and others, I am not sure that that is right. We would be greatly assisted if the Minister would provide a copy of the advice. If she is minded to fall back on the argument that the advice is privileged, there is another route. Will she set out in writing, without reference to the advice itself, the legal reasoning that underlies that conclusion in respect of those two clauses? If she does not cite the advice itself, what she sets out is not privileged, and she has not opened up disclosure of the advice. What could be the problem with that? It would put my concerns, and I suspect those of others, to rest.

Water (Special Measures) Bill [HL]

Lord Sandhurst Excerpts

Committee stage
Wednesday 30th October 2024 Lords Chamber

[Lord Roborough (Con)]

My Lords, I rise to move Amendment 57 and speak to Amendments 105 and 106 in the name of my noble friend Lord Sandhurst.

I thank His Majesty’s Government for publishing the impact assessment for this Bill. This is certainly helpful in giving the Committee a clear view of what the Government expect to achieve with these measures, but there is still no provision in the Bill for an assessment of the actual impact of the Act. Our proposal is that in three years’ time the Government should produce a report on the effects of the Bill, so that Parliament can reassess the effectiveness of these measures. Can the Minister give an assurance today that the Government are willing to undertake such an assessment, to give Parliament the opportunity to discuss the impact of this Bill once its measures have been in place long enough for their effects to be measured?

The impact assessment released highlights the need to continue with these amendments. On overall impact, it reveals that there will likely be a negative monetised impact on businesses, including the cost of regulator enforcement recovery, improved monitoring and adjusted penalty systems. These impacts may be acceptable if they drive up water company performance and result in reduced pollution, but Parliament should be given the opportunity to debate this.

I will speak briefly to Amendments 105 and 106. We welcome the assessment of the impact of the justice measures that has been published in the Government’s impact assessment but share my noble friend Lord Sandhurst’s concerns about these measures, given the pressure that our prison system is currently under.

We have seen that the Bill could impose a custodial sentence on water company executives. Given the overcrowding of prisons and the recent release of thousands of violent offenders, it seems to us that the Government have got their priorities wrong. Surely the Government should seek to ensure that violent offenders, including domestic abusers, are serving their full custodial sentences before Ministers consider imprisoning water company executives. Polluting a river is of course a serious offence, but we must ensure that our prisons, which are already under strain, are not further challenged by the introduction of new custodial sentences for water company executives. I beg to move.

[Lord Sandhurst (Con)]

My Lords, my Amendments 105 and 106 were commencement blocks when laid that sought to ensure that the Government published an assessment of the justice impact of the Bill before it could come into effect. I thank the Government for publishing their impact assessment, which makes it clear that there will be a small additional burden on our already strained prison estate as a result of the custodial sentences included in the Bill. I am satisfied that the Government’s impact assessment covers the justice impacts of the Bill, so I will not press my amendments.

That said, this is a good opportunity to raise the question of the Government’s priorities. We know the burden on our prisons will be small but is it not the wrong priority to sentence water executives to up to two years’ imprisonment at a time when the Government are releasing violent criminals early? Equally, there is the question of necessity. The Government’s own impact assessment states:

“Defra assumes there could be one case every two years with the maximum sentence of a two-year imprisonment based on the fact there has been four historic cases”.


So is this provision truly necessary? I hope that the Minister will be able to respond to these concerns in her reply.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Lord, Lord Roborough, for introducing this small group of amendments, and the noble Lord, Lord Sandhurst, for his amendments on the issue of justice. I thank both noble Lords for their interest in ensuring that the Government are fully considering all the impacts of the Bill, on both the environment and the justice system.

Amendment 57, tabled by the noble Lord, Lord Roborough, relates to the reporting of impacts on environmental pollution. This Government share the noble Lord’s concerns that the number of water company pollution incidents has not reduced in the last few years. It remains unacceptably high. That is why the Bill seeks to increase accountability for water companies and their executives where they pollute the environment.

The Bill will enable automatic and severe fines for certain pollution offences, making it possible for the regulators to take swift action where it is clear that an offence has been committed. The Bill will increase transparency around pollution incidents by enabling the public and regulators to see where and how often emergency overflows are discharging and, as discussed in previous groups, by requiring water companies to publish pollution incident reduction plans on an annual basis. As I set out on our first day in Committee, the Bill provides Ofwat with legal powers to ban bonuses where companies fail to meet standards on environmental performance, financial resilience, customer outcomes or criminal liability. Collectively, these measures will strengthen enforcement and disincentivise pollution incidents.

--- Later in debate ---

Moved by

[Lord Sandhurst]

60: Clause 4, page 8, line 29, leave out “2 years” and insert “12 months”
Member's explanatory statement
This amendment will prevent those convicted of an offence under this section from being sentenced to a custodial sentence of more than 12 months.

[Lord Sandhurst (Con)]

My Lords, this is a group of five amendments. Amendment 60 would reduce the maximum custodial sentence to 12 months. Amendment 61 would remove the word “connivance” in respect of a possible offence. Amendment 62 would prevent liability for those purporting to be officers of water companies. Amendment 65 would prevent individuals who impede investigations receiving custodial sentences, and Amendment 66 would reduce the maximum custodial sentence to 12 months.

We on these Benches have been clear that we support tougher measures in order to hold water companies to account. However, to put water executives in prison during a time that the Government have admitted is a time of crisis for prisons because of overcrowding is to us the wrong priority. I am concerned, as I am sure so many are across the Committee, that dangerous individuals are being released from prison having served less than half their sentence. I draw attention to the fact that this Government appear more focused on putting water executives in prison than on keeping violent offenders in, and that seems to be a wrong priority.

In the latest release, 1,100 prisoners were released, and although the scheme claims that none of those offenders are guilty of serious violence, sex crimes or terrorism, this is true only of their primary conviction. An additional 1,800 were released earlier in September. Some mistakes were made, as offenders were released who were not supposed to be. That is the context.

Amendments 60 and 66 in my name seek to reduce the maximum custodial sentence that a water executive can receive from two years down to 12 months. As it stands, prison resources are seriously overstretched, and it seems to be the case that the Government in this Bill are wrongly prioritising those resources. While I do not think that custodial sentences are the right way forward, if the Government insist upon them then can they at least reduce the maximum custodial sentence to 12 months to prevent further overstretching? That would have the added advantage of ensuring that these cases would not need to be heard in the Crown Court under the new provisions, which would prevent further strain on our court backlogs.

The Government’s own impact assessment admits that this measure will put a further burden on our prison services. While it is certainly necessary to hold water executives to account, I believe my other amendments address more appropriate penalties. There is no doubt that the pollution of our rivers is a serious issue. Measures to ensure that those who break the rules are dealt with, and that those who work for water companies do so properly, are necessary. However, these measures appear to be too severe at a time when prisons cannot handle further pressure. Can the Minister set out the Government’s position on releasing domestic abusers, only to put individuals who work on the boards of water companies into the same cells?

In the same vein, Amendment 65 seeks to prevent a custodial sentence from being placed on an individual who has impeded an investigation. While that is indeed a serious issue, our prisons cannot handle further pressure.

Amendment 61 in my name seeks to remove “connivance” as an offence in the Bill. We have tabled the amendment to probe the use of the word “connivance” in this Bill specifically. We understand the use of that word, which exists in other legislation, such as the Theft Act 1968 and, more recently, the Bribery Act 2010. However, we pose the question to the Government as to why they have used it in this scenario. Under what circumstances do they envisage using it? Can they provide the Committee with real-world examples of situations where it will be used?

Amendment 62 seeks to remove the offence in respect of individuals who purport to be executives. This simple amendment would ensure that only those who were actually acting in executive roles could be held responsible for the mistakes of the water company.

[Baroness Hayman of Ullock (Lab)]

I thank the noble Lord, Lord Sandhurst, for his interest in sentencing powers for obstruction investigations and for all the suggested amendments covered in this group.

Amendments 60 and 66, tabled by the noble Lord, both look to reduce the maximum custodial sentence available for those convicted. The obstruction of investigations by the regulators is already an offence, but that has not stopped companies from blocking the regulators’ investigations. For example, in 2019 the Environment Agency prosecuted a number of individuals at Southern Water for removing evidence from the possession of officers. I am sure the noble Lord will agree that such behaviour is unacceptable.

The aim of the two-year maximum custodial sentence is to deter future obstruction. That should support more effective investigations, which should ultimately enable stronger enforcement action against both companies and individuals. I am pleased to confirm for the noble Lord that this sentence is consistent with other provisions in the Environment Act 1995 and the Environmental Permitting (England and Wales) Regulations 2016.

I highlight to the noble Lord that the two-year sentence is the maximum limit. Sentencing will ultimately be decided by the courts, factoring in the specifics of each case and the relevant sentencing guidelines. While I cannot comment on Home Office procedure on prisoner release, I would be interested if the noble Lord could provide some information as to why our prisons became so overcrowded in the first place.

Amendments 61 and 62, also in the name of the noble Lord, Lord Sandhurst, speak to senior leader liability. I hope the noble Lord will agree it is unacceptable under current law that, if water company senior leaders encourage or allow obstruction of Environment Agency or Natural Resources Wales investigations, they cannot be held liable for this wrongdoing. In contrast, senior leaders can be held liable for other environmental offences, as well as obstruction offences in other sectors: for example, the Building Safety Act 2022.

This clause will remedy this gap by bringing the offence of obstructing the Environment Agency and Natural Resources Wales in line with other environmental offences, as well as offences in other sectors. I hope the noble Lord will agree that, in doing so, it should mirror the conventions and language of existing “consent, connivance and neglect” clauses. These make connivance by senior leaders a potential ground for liability and ensure that, where a person “purports to be” a relevant officer, they should also be held liable for wrongdoing. I hope the noble Lord is therefore content that these amendments are unnecessary.

Finally, I turn to Amendment 65, also in the name of the noble Lord, Lord Sandhurst, which proposes to remove increasing the sentence for offences of impeding Drinking Water Inspectorate investigations from the scope of the Bill. As I mentioned earlier, the Yale Environmental Performance Index ranks the drinking water in England and Wales as the best in the world, alongside just 10 other countries. This is in part thanks to the effectiveness of the Drinking Water Inspectorate. To accept this amendment would be to imply that the regulations enforced by the Drinking Water Inspectorate are not as serious as those enforced by the Environment Agency and Natural Resources Wales.

This cannot be right. There are grave public health risks if the DWI does not have the power or the authority to ensure that water supplies in England and Wales are safe and of the right quality. While I accept that this may not be the intention behind the noble Lord’s amendment, it would certainly be its effect. The quality of our drinking water is one of the enduring strengths of the current model and one that the Government want to protect. I once again thank the noble Lord for his contributions and hope my response has reassured him.

[Lord Sandhurst (Con)]

I thank the Minister for her response and for the care with which she delivered it. My amendments were there to ensure that the already overburdened prison sector is not put under further pressure. I hope the Government will bear them in mind and take them on board before Report. We will seek to work with the Government to ensure that the Bill ensures appropriate punishment for water executives. I beg leave to withdraw the amendment.

Amendment 60 withdrawn.

--- Later in debate ---

Moved by

[Lord Sandhurst]

67: Clause 5, page 9, line 43, at end insert—
“(4A) Where the relevant offence is—(a) triable summarily (whether or not it is also triable on indictment), and(b) punishable on summary conviction by a fine (whether or not it is also punishable by a term of imprisonment),the amount of the variable monetary penalty may not exceed the maximum amount of that fine.”Member's explanatory statement
This amendment would limit the level of any fine under this section to the levels set out in the 2008 Act.

[Lord Sandhurst (Con)]

My Lords, in moving Amendment 67 I will speak against the question that Clause 5 stand part of the Bill. I will also speak to Amendment 72.

My Amendment 67 would limit the maximum fine under the Bill to the level set out in the Regulatory Enforcement and Sanctions Act 2008. This Bill seeks to amend the 2008 Act to impose fines that will be set by regulations. The Government are asking Parliament to grant them these powers without clarity or definition on the level at which the fines will be set. All we know is that the Government’s impact assessment states that this penalty cap will be consulted on during the Bill’s passage, before it is set out in secondary legislation. I am pleased that the Government have committed to consultation but, regardless of any consultation, under the Bill as drafted the Government may vary the cap by statutory instrument. I respect and trust the Minister, who has acted in good faith throughout the passage of the Bill, but what is to stop a future Government misusing this power?

I propose to set the maximum cap at the level established in the Regulatory Enforcement and Sanctions Act 2008, which was passed under the previous Labour Government. When what became the 2008 Act was being debated, the Minister who took it through the other place was the now Chancellor of the Duchy of Lancaster, the right honourable Pat McFadden MP. He wisely argued then that the 2008 Bill would

“guarantee more consistent regulatory treatment of businesses”.—[Official Report, Commons, 21/5/08; col. 329]

Indeed, the 2008 Act built on the Hampton report, which recommended

“a comprehensive review of regulators’ penalty regimes, with the aim of making them more consistent”—

and I stress the word “consistent”.

Does the Minister agree with her colleague that we need more consistent regulatory treatment of business? If she does not, can she explain why the Government are seeking in this Bill to depart from the Labour Party’s previous reforms by giving the Executive the power to set variable monetary penalties by statutory instrument in this case? Is this the first of many reversals of Labour’s previous policy? Can I mark this down as yet another entry on my list of Labour U-turns?

I will now speak against Clause 5 standing part of the Bill. My concern is that the modification of the standard of proof in this case is dangerous and unjust. Water companies, no matter how poorly they may perform, deserve to be treated equally under the law with other regulated companies. When preparing for this debate, I once again found myself reading the Chancellor of the Duchy of Lancaster’s words from May 2008, when the 2008 Act was going through the other place. On the issue of the criminal burden of proof, Mr McFadden said:

“The Bill contains a number of essential safeguards. It makes it clear that a Minister can confer powers on regulators only if the Minister is satisfied that they are capable of exercising those powers in compliance with better regulation principles. Before regulators can impose monetary penalties or discretionary requirements, they must be satisfied beyond reasonable doubt that an offence has been committed. Businesses can make representations and objections before sanctions can be imposed, and, most importantly, there is a right of appeal to an independent and expert tribunal.”—[Official Report, Commons, 21/5/08; col. 332.]


This was an essential safeguard in 2008. I ask the Minister: have our standards of justice changed since then?

Amendment 72 speaks to the need for wider reform within the water industry. While His Majesty’s Government may not see fit to introduce a water restoration fund in this Bill, on these Benches we would welcome the Government taking the opportunity to implement wider reforms sooner rather than later. Can the Minister explain why the Government are resisting opportunities to deliver further positive reforms to the water sector in this Bill while we still have the chance?

The previous Conservative Government implemented the water restoration fund. That means that all environmental fines and penalties imposed since April 2022 have been ring-fenced to directly improve the water environment. Does the Minister agree that a water restoration fund for spending on freshwater recovery would improve the quality of water in the United Kingdom, and therefore would she welcome the introduction of one?

[Earl Russell (LD)]

My Lords, I will speak to Amendment 72 in the name of my noble friend Lady Bakewell and signed by myself. I am grateful for the support of the noble Baroness, Lady Jones, although I note that she is not in her place.

This amendment would require all funds from the fining of water companies for environmental offences to be ring-fenced for the water restoration fund and spent on freshwater recovery. We on these Benches have tabled Amendment 72 because it is unclear that fines imposed on water companies for breaches of their licences will bring any improvement to the water industry itself.

At Second Reading, a number of noble Lords suggested that the Bill could be used to bolster the water restitution fund—the pot set up by the previous Administration to channel environmental fines and penalties into projects that improve the water environment. The idea of this amendment is to achieve just that.

The Government have indicated that the Environment Agency will act as an enforcer to ensure that water companies adhere to the terms of their licences, monitor sewage overflows effectively, take steps to prevent this from happening in the future and make sewage reduction plans work. As has been raised many times during debates on the environment and water quality, the Environment Agency is chronically underfunded. Indeed, it has lost almost half of its funding in recent years. This lack of investment in the Environment Agency has led to what was once an effective organisation that could be relied on becoming weakened and less able to fulfil its statutory obligations effectively.

The case for this regulation is strong, as the water restoration fund is without legal foundation. The fund is not receiving all the fines. This is a direct consequence of the fund’s non-statutory character. In the continual absence of a legal imperative, revenue from fines can continue ending up in alternate destinations. The Government’s answer to make the regulator effective is for it to have the power to levy fines on operators that breach their licence conditions and break the law in other ways. These fines will then go back to the Environment Agency to recompense it for its work. As this is retrospective, it begs a question about what section of its current work programme the Environment Agency will have to put to one side while it is dealing with bringing the water industry into line.

There is also an issue around transparency. Customers know their bills will be going up—Ofwat agreed this in the latest review. They also know that the water companies have received fines in the past, but customers are unclear about what happens to those fines. Is it to be assumed that they have just gone towards the funding of Ofwat? In future, if the Bill is enacted, a lot more fines will be imposed. Bill-paying customers and the public in general expect to be able to trace what has happened to those fines.

Amendment 72 introduces new clauses to establish a water restoration fund. This fund will receive and hold all the fines and monetary penalties that are imposed on water companies for illegal activities and breaches of their licence conditions. The fund will then use the money recovered to invest in schemes to promote fresh-water recovery. It is only by improving the quality of fresh-water resources that we can begin to see an increase in the biodiversity of species that rely on the water they live in and around being fresh, unpolluted and free of sewage. As sewage discharges reduce, the quality of our fresh water will increase, and customers’ bills will need to be increased to deal with the chronic underfunding of the past. We will ideally reach a stage where the polluter does indeed pay for the damage they have done, as set out in the Environment Act.

We realise that this amendment leaves the Government with a conundrum as to how to fund the Environment Agency to carry out its work as a regulator, imposing fines and penalties on retrograde water companies. Our solution, of course, is to implement Amendment 80 and set up the clean water authority—but I do not want to rerun arguments that we have already heard. By accepting this amendment, the Government can future-proof the water restoration fund and ensure that one of the legacies of the Bill is a legally secure guarantee that sanctions for water pollution will always be used to help repair the damage caused and begin to restore the natural environment. I look forward to the Minister’s response.

--- Later in debate ---

I turn to Amendment 72, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and introduced by the noble Earl, Lord Russell. In his introduction to this amendment, the noble Earl made some really important points about fresh water and maintaining quality and improvements through the Bill. On his questions about the water restoration fund, it was launched in April 2024 to use money from water company fines and penalties for environmental improvements. Applications for funding are being reviewed. Clearly, we have been waiting for the spending review before moving forward with this, but we now have the headline figures agreed, which means we can now work through the exact details. We will be able to provide more information once that work has been finalised, but at least now we can start to move forward.

[Lord Sandhurst (Con)]

I thank the Minister for her reply. I am grateful to the Government for the consideration they have given to these amendments. I shall continue to make the case for changes to the Bill along the lines I proposed. It is important to note that the Bill as drafted may result in companies being treated unfairly, and that it is a departure from the Labour Party’s previously stated policy. I am grateful that there will be consultation on offences and penalties and that we are apparently to have the opportunity to debate and vote on the regulations, but we would like to see all that in the Bill. However, I beg leave to withdraw the amendment.

Amendment 67 withdrawn.