Water Bill

Lord Whitty Excerpts

Thursday 6th February 2014 Lords Chamber

Moved by

[Lord Whitty]

109: Before Clause 22, insert the following new Clause—
“Consumer objective
In section 2(2B) of the Water Industry Act 1991, after “interests of” insert “current and future”.”

[Lord Whitty (Lab)]

My Lords, Amendment 109 is one of several before us today that are intended to tweak Ofwat’s responsibility into a more long-term aim on sustainability and resilience.

Ofwat is an economic regulator and currently its prime duty is to the interests of consumers—the consumer objective. But Ofwat has never been simply an economic regulator and since 2003—2005 in terms of implementation—it has had secondary duties relating to environmental and social sustainability. We will be having a debate shortly about whether those duties, too, should be primary duties.

Although historically it would be true to say that Ofwat has interpreted its economic regulator status somewhat narrowly, in practice it has always had a sustainability dimension—albeit at times that this may have been interpreted rather weakly. The five-yearly price review looks at financing long-term infrastructure as well as immediate business and householder water supply demands. In this Bill, there is yet more emphasis on social and environmental considerations. As the next but one debate will show, some of your Lordships want to take that further.

It is important to recognise that even the purely, or mainly, economic interest of the consumer—the need for water at affordable prices—is multifaceted and changes over different timeframes. As an economic regulator, Ofwat should act not only in the current interest of consumers, or the next-five-years’ interest, but in the long-term interest of both current consumers and future consumers. That duty fits more clearly with resilience and sustainability considerations or objectives. My amendment would make that clear. It would make it clear that Ofwat’s responsibility, as laid down simply in terms of consumers in the 1991 Act and repeated thereafter, should apply also to future consumers. We made a similar change regarding Ofgem in the Energy Act passed by the Labour Government in 2008. Ofgem has responsibility for future consumers. Some might argue that that has not made a dramatic difference to Ofgem’s deliberations, but at least that responsibility is clearly there. It has had the effect of holding it responsible for such longer-term issues.

In the water sector, we have five-yearly price reviews, six-year water catchment management plans and 25-year water resource management plans. They all require water undertakers to be concerned about the long term. However, it is also important that the consumer objective is seen in the long as well as the short term. That is what my amendment seeks to ensure. I beg to move.

--- Later in debate ---

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

My Lords, the purpose of Amendment 109 is to ensure that, in discharging its primary duty to protect consumers, Ofwat must take account of the needs of both current and future customers.

I agree that this is an essential objective. Water is an industry with unusually long planning and investment horizons. Our water resources management-planning processes require companies to plan, as a minimum, 25 years ahead and encourage them to plan over much longer timeframes. Although much of our current infrastructure will be expected to serve customers well for decades or even centuries to come, this is why we have introduced the new duty of resilience, which requires Ofwat to secure the long-term resilience of systems to the long-term pressures identified in the water White Paper, such as climate change, environmental pressures and population growth. It also requires Ofwat to ensure that the companies take action to meet the long-term needs of consumers by promoting appropriate long-term planning and investment; and by taking any and all relevant measures to manage water resources sustainably and reduce demand.

So let me assure the noble Lord, Lord Whitty, that I concur entirely with his aims. However, I consider his amendment to be unnecessary, because its effect would be to duplicate an identical existing provision in Section 2(5A) of the Water Industry Act 1991, which provides a definition of “consumers” for the purpose of the consumer duty. It clearly states that,

“‘consumers’ includes both existing and future consumers”.

I hope that this will satisfy the noble Lord and that he will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I thank the noble Lord, Lord Redesdale, for his support and agree with him that I was perhaps too dismissive in relation to the effect on Ofgem. Such a responsibility has had an effect on Ofgem and on the way in which its work, output and regulatory responsibilities are seen by the companies and consumers within the energy sector, so it has made a difference.

The arguments that the Minister has just put were very similar to those put initially by Energy Ministers in relation to the amendment to the 2008 Bill pursued by the noble Lords, Lord Oxburgh and Lord Redesdale. I cannot remember whether I openly supported them, but I certainly spoke to the then Minister—it was none other, I believe, than the noble Lord, Lord Hunt of Kings Heath—who agreed that the briefing that he had from his department was too negative and reflected the usual view of Whitehall that just because there were references to it in other documents you should not make it clear in the Bill. The Minister should perhaps go back to his own officials and say, “Well, yes, it may be that we can point to other documents, but people will look at the Bill”. They will look particularly at the front end of the Bill, if they get that far, which amends the 1991 Act—although that bit of it has not been amended yet by the Minister.

The role of future consumers is reflected very early on in the Bill in defining Ofwat’s responsibilities. The flexibility shown by Ministers in responding to the amendments to the 2008 Bill proposed by the noble Lords, Lord Oxburgh and Lord Redesdale, should be repeated here. Perhaps the Minister could agree to go back to his officials. I do not suppose that he will tell me that he is going to do that, so I will withdraw the amendment now and allow him time and grace to do that, because I would like to see this matter addressed on Report. I beg leave to withdraw the amendment.

Amendment 109 withdrawn.

--- Later in debate ---

[Baroness Parminter (LD)]

My Lords, I thank my noble friend Lord Redesdale for raising this issue yet again. He has done so on numerous occasions, as have many other noble Lords. It is an important debate. It is quite clear that the Government are committed to sustainable development, but they believe that they do not need to elevate the primary duty of sustainable development for the regulator in the water industry because it has a secondary duty. What they are prepared to give is the new primary duty for resilience. I think we are going to carry on arguing about whether resilience delivers the environmental and social benefits that those of us who are concerned about sustainable development believe it does. The Government say it does and I am sure that the Minister will reiterate today that he believes that resilience will deliver the sustainable benefits that we believe are crucial for the regulator to deliver. There are others who believe that the resilience duty does not.

I would like to pick up on what my noble friend Lord Redesdale has said. We should try and move the debate on from arguing about what “sustainable development” and “resilience” mean to what we actually want to achieve. It is significant that my noble friend Lord Redesdale raised the issue of water efficiency. That is, bluntly, what we want to achieve—a more resilient future for our water industry which protects the scarce resources that we have, to the benefit of the environment and communities. I urge the Minister to reflect again between now and Report on a duty to promote water efficiency. I think that is a constructive way forward. There will be a difference between those of us who believe resilience is sufficient and those of us who would have liked to see a primary duty on the regulator. I do not think the Government are going to move, but I do think that a duty to look at the issue of water efficiency is a helpful way forward.

[Lord Whitty]

My Lords, I have tabled an amendment in this group which attempts to deal in a slightly different way with exactly the same issue as the amendment of the noble Lord, Lord Redesdale. Which is the closest approximation to perfection I am not entirely sure, and whether either of them is perfectible in the eyes of the Government, I am not entirely sure.

We do have an issue. The noble Baroness, Lady Parminter, stated the current situation correctly. I say to the noble Lord, Lord Crickhowell, that, since 2003, Ofwat has had a sustainable development responsibility but it is a secondary objective. What these amendments attempt to do is to put it on a par with the economic objective for consumers. There is an economic, a social and an environmental dimension of sustainability which goes wider than that responsibility to consumers, now and in the future. The reason why relations and general coherence are better than the early days which the noble Lord, Lord Crickhowell, described, is that Ofwat has recognised that it is more than an economic regulator, and the Environment Agency has recognised that it has economic objectives as well as environmental objectives. Some of those have become a little controversial in recent days, in that, for example, flood defence priorities are determined largely in terms of economic effect. Both agencies now have all three—certainly environmental and economic objectives—which they routinely integrate within their operations. For that reason it is slightly odd that there is a differential between the objectives to consumers on the economic side and the objectives of sustainability on the other side, in terms of Ofwat’s requirements. The Government have made two attempts at convincing those of us who are interested in this subject through some very well written briefs. They were much more understandable than the Bill itself, or indeed the Explanatory Notes. By and large, I understood those briefs; they have nevertheless failed to convince me. They are arguing in terms that are now obsolete. They argue that the economic regulator is Ofwat and the environmental regulator is the EA. They both overlap and they need to operate a coherent approach to this in relation to sustainability.

The Government have moved significantly, as the noble Baroness, Lady Parminter, was hinting, in stretching the definition of “resilience”. Resilience is a jolly good, robust term. We all approve of resilience, and long-term resilience is clearly a responsibility of Ofwat and indeed the EA, in relation to water resources and their delivery. It is not quite the same as sustainability. It is part of sustainability but it is not the totality. The noble Baroness and the noble Lord, Lord Redesdale, have both pointed to the energy efficiency dimension, which, let us be fair, has been lacking until at least very recently in some of Ofwat’s priorities, when it allows expenditure during the price review. It is that which worries people—that this issue will fall out.

The Minister told me the other day that resilience includes social resilience; it presumably therefore includes issues of affordability and access as well as environmental and social issues. That may be so but the normal meaning of “resilience” is protection and upgrading of the assets that you have, and which need a long-term permanence to protect them. The Government are in danger of stretching the term rather beyond what the Oxford English Dictionary would term as resilience.