Air Quality

Mark Field Excerpts

Thursday 3rd November 2016 Commons Chamber

[Mark Field (Cities of London and Westminster) (Con)]

I am encouraged to hear that the Minister is making air quality her first priority. I hope that it will continue to be so until the problem is solved, because this is a deplorable state of affairs. I know that the Minister is part of a new ministerial team, but I agree with everything that was said by my hon. Friend the Member for Tiverton and Honiton (Neil Parish). My own constituents have had enough of the current appalling state of air quality. I know that I am in the middle of a big city, but the same applies to many other parts of the country. We need to ensure that the perverse incentives for diesel are stopped in their tracks, and I hope that the Minister will make representations to that effect at the highest level.

[Dr Coffey]

As my right hon. Friend suggests, the Government intend to continue to encourage people to opt for low-emission vehicles. As for what is being done in London, the Mayor said that he would plant 2 million trees in the run-up to the campaign—[Hon. Members: “Where are they?”]—and I hope that he keeps to his pledge over the next four years, because that will help to improve air quality. I know that the Transport Committee has asked him to appear before it. As I have said, it is important for central and local government to work together to help the people whom we all represent.

Air Pollution (London)

Mark Field Excerpts

Tuesday 9th June 2015 Westminster Hall

[Mark Field (Cities of London and Westminster) (Con)]

I congratulate the hon. Member for Hackney North and Stoke Newington (Ms Abbott) on her mayoral manifesto—sorry, on introducing a subject that is close to all our hearts. For the avoidance of doubt, Oxford Street is in my constituency, although it may one day be in her constituency. However, she is quite right about the problems on that thoroughfare, about which I also have a lot to say. As the father of two young children, living in the increasingly congested Victoria station district, the issue of air quality affecting everyday living is critical.

London is the largest, most established post-industrial city in Europe. It is no surprise that many competing interests jostle with air quality for priority. Our capital is proud to be a global city and it is the epicentre of the UK’s economy. Constant new investment in all our transport infrastructure is required for it to thrive, including—at times—roads. Only then can London maintain its position as a global leader.

More than 1 million people come to work in my constituency alone every day and the congestion this causes inevitably has a major impact on local air quality.

The 10-year age limit on taxis from 2020 should be welcomed, as these vehicles are responsible for a relatively large proportion of emissions in central London. It is essential that a taxi scrappage scheme is introduced to help drivers upgrade their vehicles.

It is worth praising TfL for its efforts on ultra-low emission zones, which are set to be introduced in 2020, although that is perhaps a little bit further in the distance than many of us would like. Investment encouraging pedestrian, electric cars and cycle lanes is also welcome, but I fear that it is insufficiently radical properly to address the heart of this issue.

In a bid to tackle climate change, successive Governments have, through taxation, incentivised drivers to switch to diesel on the basis that it produces less carbon dioxide than petrol. I am sorry to say that this has helped compound the problem. The lobby group, Clean Air in London, led by my indefatigable constituent and good personal friend, Simon Birkett, continues to campaign for a new Clean Air Act to deal with diesel engines, which emit some 20 times more polluting particulates than their petrol equivalents. Clean Air London is rightly calling for a scrappage scheme to remove diesel vehicles from our roads and for widening the congestion charge beyond London, with charges set purely on the basis of emission levels. Drivers may need to be charged far more to drive diesel vehicles through the most polluted areas during rush hour and the ultra-low emission zone should be expanded to include the heavily congested north and south corridors.

Diesel engines are dismally failing to meet nitrogen dioxide emission standards, by an average of some 4.4 times per kilometre in real-world driving conditions. Much of this is caused by the impact of congestion and speed humps, which are inexplicably not variants in the industry standard norms. As a result, nitrogen dioxide levels soar whenever a car’s accelerator is used. This is borne out by the UK being in breach of the EU’s mandated air pollution levels for nitrogen dioxide in no fewer than 38 out of the 43 air quality monitoring zones. These levels were meant to be met some five years ago, as the hon. Lady said, and that situation triggered the legal action that she mentioned. I suggest that, paradoxically, the EU-wide regulatory failing regarding diesel engine emissions has led to this problem.

In my constituency we have a number of hotspots, not just Oxford Street: Marylebone Road, parts of Knightsbridge and the area around Victoria have previously recorded the highest nitrogen dioxide levels in the world and this is causing major problems. Clean Air in London is rightly calling for Oxford Street to be pedestrianised to a large extent and for shops and offices to be fitted with regularly maintained air filters to help reduce nitrogen dioxide levels. I am told that regulations for issuing fixed penalty notices for unnecessary idling of vehicle engines have so far proved ineffective. That needs to change.

The hon. Lady also mentioned the City of London, which suffers from the highest average levels of air pollution. According to an Evening Standard campaign last Friday, the City was advising people not to go jogging during the day because of the pollution levels.

There is much more that I should like to say, but I appreciate that other hon. Members want to speak. I finish by mentioning one of my favourite hobbies: walking in all corners of London. I know from personal experience, having been to Dalston and Stamford Hill and other parts of the hon. Lady’s constituency, which are less polluted than bits of mine, that there is none the less a pollution issue there as well.

The problems to which we refer are by no means limited to the city centre or the area around Heathrow airport, although I am sure that that is an important issue for many fellow London MPs. I dread to think of the damage that is being done to the lungs of huge numbers of children and asthma sufferers, of whom there are now a staggering 5.4 million in the UK.

I am delighted that this debate appears to be building momentum across the media. I give particular credit to the Evening Standard, because its campaign is important and will run for months and years to come. I hope that the Minister will consider seriously a lot of what is being said today, because this is and will continue to be a major issue for all Londoners that will unite the political class within London across the House, and we need to deal with it with some urgency.

[Mr David Crausby (in the Chair)]

No one up to now has been near five minutes, never mind four. I now call Tom Brake, who I am sure will comply.

Kew Gardens

Mark Field Excerpts

Tuesday 16th December 2014 Westminster Hall

[Sir Tony Baldry (Banbury) (Con)]

There are three reasons why I want to contribute to the debate. First, I was the last Minister of State in the Ministry of Agriculture, Fisheries and Food—the Labour Government abolished it when they came into office in 1997. At the time, MAFF had responsibility for Kew gardens. For a while, therefore, I had ministerial responsibility for them, and they were an oasis of calm, especially when one was having to deal with things such as BSE and slaughtering millions of cattle. However, the case of Kew makes the machinery of governance point that non-departmental public bodies ricochet from one Department of State to another, depending on how the architecture of Whitehall responsibilities is made up. I will come back to that in a second.

My second reason for wanting to contribute is that, as my hon. Friend the Member for Richmond Park (Zac Goldsmith) and the hon. Member for Hayes and Harlington (John McDonnell) have made clear, Kew is one of the country’s outstanding assets. Indeed, in an oral question about Kew—looking at the House of Commons Library brief, I think I am one of the few colleagues who has asked one—I said that we all see it as a “national treasure”.

The third, personal, reason why I want to contribute to the debate is that my very first date with my wife was at Kew gardens. I therefore have a particular sentimental reason.

The hon. Gentleman’s machinery of governance point is very much the nub of the issue. Those of us who have been fortunate enough to be Ministers know that, each year, the Chief Secretary agrees a spending provision with the Secretary of State for each Department. Once that overall spending envelope is agreed, Ministers have to go through the Department to see how it will be shared out among the various commitments and statutory provisions it has to undertake. Inevitably, non-departmental public bodies come at the tail end of those negotiations because Departments tend, understandably, to look first at their core activities and then, if one is not careful, to say, “We are having to take an x% reduction in our public spending, so we have to apply that across the Department as a whole.” That leads, even if there is a three-year review, to the figures one sometimes sees.

As the hon. Gentleman fairly observed, and as the House of Commons Library brief demonstrates, the narrative here is not one of recent sudden cuts to Kew’s funding: there has been considerable yo-yoing over the last eight years or so. For example, in 2013-14, Kew’s funding was £28 million. In 2007-08, however, it was only £25 million. In the following years, it was £26 million, £28 million, £24 million, £28 million and £32 million, so it yaws around quite considerably over the years. In those circumstances, it is difficult for any organisation or institution to plan.

If one keeps Kew as a non-departmental public body, it will be hard for the Department of State to ring-fence funding for it, as against everything else it has to provide for. Of course, the figures are not small. DEFRA provided £32.5 million in funding in the financial year 2012-13, out of Kew’s total income of nearly £60 million. Kew’s budget is therefore quite substantial; indeed, I cannot think of any similar non-departmental public body with a similar budget. The hon. Gentleman spoke about the museums, but they tend to get direct grant in aid, while other research organisations tend to be parts of universities.

One of Kew’s great assets is its seed collection. I know from my time as a Minister with responsibility for the Overseas Development Administration and from chairing the International Development Committee that the seed collection is a global resource. However, that is really the responsibility of the Department for International Development, not DEFRA.

I rather find myself agreeing with my hon. Friend and the hon. Gentleman that we need to see how Kew, which is, by every account, an exceptional body, can be removed from the non-departmental public body, machinery of governance funding process. Permanent secretaries across Whitehall—in DFID, the Department for Culture, Media and Sport, DEFRA and, indeed, in the Department for Business, Innovation and Skills, which is responsible for innovation, science and connections with universities—should put their minds to determining what value the nation places on Kew and then work backwards from that. If the nation places a value on Kew, it may be more sensible for Kew simply to get a grant in aid directly from the Treasury.

[Mark Field (Cities of London and Westminster) (Con)]

As a London MP, I wish to make it clear that Kew is not just a museum piece or a phenomenally important research institution, but a wonderful part of London. It is used by many of my constituents as a place for general recreation and leisure. It is very much a 21st century asset, as well as having an important history.

[Sir Tony Baldry]

I think the whole House would agree with that observation.

I do not think the House should look on this as a beat-up for the Minister who has to respond to the debate. Nor do I think anyone would disagree with the Deputy Prime Minister when he said:

“Kew gardens is one of the world’s most important botanical research and education facilities…The Millennium Seed Bank is of global scientific significance, and scientists at Kew are heavily involved in research in the vital fields of biodiversity and climate change.”

All those things go pretty much across every Department. Climate change involves the Department for Energy and Climate Change. It is very hard that the responsibility for funding the whole of Kew should come within the budget of just one Department of state.

I would therefore hope for cross-party and cross-departmental discussions, not just about the funding of Kew, because such discussions would bring us perennially back to the same issue, but—although it may be rather boring talking about the machinery of governance—about where within the machinery of governance Kew sits and who is responsible for funding it under the National Heritage Act 1983. Changing that structure might make it possible to give Kew more certainty than it has had—and not just on the present Government’s watch. In fairness, I have not looked back to before 2007, and the Library has not given the figures, but I suspect that if I look back even to the time when I was the Minister, the figures tended to yo-yo around from year to year, depending on the departmental spend. I suspect that a cross-Government and cross-departmental review is required of where Kew should fit within the machinery of government and how it can be given sustainable funding. If we regard it, as I think we all do, as a national asset, we need to treasure it as one.

National Policy Statement (Waste Water)

Mark Field Excerpts

Monday 19th March 2012 Commons Chamber

[Mark Field (Cities of London and Westminster) (Con)]

I am one of 144 Members of Parliament in the Thames Water area directly affected by the issue of the Thames tunnel, and I hope that both the Minister and the hon. Member for Luton South (Gavin Shuker) will forgive me if I restrict my comments to the area that is close to my heart.

It is good to have consensus at times in politics and to be able to discuss issues in a measured way. One of the difficulties with the Thames tunnel is that there will be one hell of an outcry from many Thames Water customers in the years to come when they recognise the sheer cost implied by what is being put into place through this national policy statement for waste water, as it affects not only the London area, but the Thames Water area. Those living in the centre of London will see the tunnel being constructed, as I am sure it will be in the years to come, and will recognise that that does not come entirely cost free. I suspect that Thames Water customers in the Oxfordshires and Gloucestershires of this world will put a lot more pressure on. It is, therefore, all the more important that I use this opportunity to put certain concerns about this policy statement on the record, although I do not wish to break away too far from elements of the happy consensus that we have seen tonight.

I think we all acknowledge that if the Thames tunnel goes ahead, as I confidently predict it will, it will be a nationally significant infrastructure project. It is therefore sensible to make it one in the formal sense, both in relation to the Planning Act and, as the framework suggests is needed with such projects, with the sort of national policy statement we are debating tonight. I agree with other Members that although this debate has been relatively short, this opportunity to debate such a crucial issue is welcome. The Select Committee on Environment, Food and Rural Affairs certainly thought so when it examined this draft national policy statement last year, as we gathered from my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) earlier.

The Committee also signalled some concerns about the way that the document appeared to pre-empt elements of the planning process. The waste water NPS is the key document against which the planning application for the Thames tunnel will be judged. For that reason, the Committee said that it should be “a purely generic document” to prevent the justification for the Thames tunnel project from being removed from scrutiny. It also warned that although reference to specific schemes could be put in an annex to the national policy statement,

“it should be made clear that it does not constitute information to which decision makers must have regard when considering project applications.”

I fear that the Government have rejected that element of the advice. Instead, the NPS makes it clear, on page 21, that the tunnel is the “only option” and that what would be left to the Planning Inspectorate would merely be the “specific design and route”. In its response to the Select Committee report, DEFRA said the Government want to provide a “degree of certainty” to Thames Water. I do not think there is any doubt that they have been able to achieve that result.

Let us be quite clear about what the national policy statement means in practice. It means there will be no independent analysis of the very case for a tunnel. The document we are debating removes the case for the tunnel from the planning process. I think the Minister will argue that that is reasonable because the arguments have already been heard in detail—perhaps privately in his office and the offices of his predecessors—that the evidence is overwhelming and that the final NPS makes an unarguable case. If that were true, he would have a point, but the NPS is far from entirely convincing, not least because there are a number of things that one would never learn just from reading the document. In my brief contribution tonight I shall list the ones that seem the most significant, and I join the Select Committee in asking whether there really is no need for an independent assessment.

First, the tunnel will not collect 39 million tonnes of sewage. Like Thames Water, the NPS mentions 39 million cubic metres of discharge into the Thames each year. It then states that the Thames tunnel is the preferred way to address this issue. The casual reader of the document will assume that the tunnel collects 39 million tonnes of discharge, but that figure will be more than halved without the tunnel being built. The construction of the Lee tunnel and the upgrades to the sewage treatment works will prevent 21 million tonnes from entering the tidal Thames, and improvements to Mogden sewage treatment works will tackle several million more upstream.

Rather than celebrating the huge strides already being made to clean up the Thames—I am not entirely complacent about that; there should be huge strides and we should always be looking to improve the quality of water in the Thames—the NPS makes only oblique references and never entirely quantifies them in the way that I have tried to do tonight. It is worth repeating that the amount of sewage entering the Thames will fall dramatically without the Thames tunnel project. Only 18 million tonnes of discharge will be addressed by the tunnel, by no means all of which would be stopped as there would still be three large discharge events in an average year.

Unlike the publicity we have seen from Thames Water the NPS does at least describe the discharges as a mixture of “untreated sewage and rain water”, but it does not explain that the rain water accounts for more than 95% of the total. That somewhat disingenuous use of statistics has understandably misled countless members of the public and even Members of this House. In last week’s debate on the Water Industry (Financial Assistance) Bill, my hon. Friend the Member for Hendon (Mr Offord) talked about tackling the

“39 million tonnes of effluent”—[Official Report, 14 March 2012; Vol. 542, c. 306.]

but the reality is that there are just 18 million tonnes of discharge, of which not even 1 million tonnes are effluent. Any discharge of sewage is regrettable but we should deal in facts.

[Miss McIntosh]

When the Committee put questions on the national policy statement to the Department, we asked particularly about the potential impact of SUDS and other rainfall harvesting. If, as my hon. Friend says, we are talking about mostly rainfall, that impact would be quite substantial.

[Mark Field]

I accept that there would be an impact, but the use of the word “effluent” in relation to the 39 million cubic metres gives the public and many Members of this House a somewhat misleading impression of the sheer urgency of the need to undertake the project at this time.

It has been asserted that the river has been getting better and will continue to do so, and there is no doubt about that, but a feature of debates on the Water Industry (Financial Assistance) Bill last week and less recently was the number of hon. Members who suggested that the Thames had been getting worse, and will continue to get worse without the tunnel. The hon. Members for Hammersmith (Mr Slaughter) and for Islington North (Jeremy Corbyn) made that statement in part. That claim is not supported by the facts, as regards the immediate future; it is also probably not entirely true as regards the past and present.

I note that the Environment Agency’s website no longer hosts a press release that it issued only 17 months ago, but at that time, it went so far as to describe the Thames as

“the beauty queen of the planet’s waterways.”

That perhaps goes a little too far, even for those who have no desire whatever for a Thames tunnel-type project, but what prompted the comment was real enough: the sustained and continuing improvement of the Thames, which saw it win the international Theiss river prize for outstanding achievement in river management and restoration.

[Jeremy Corbyn (Islington North) (Lab)]

The hon. Gentleman mentioned my contribution last week. Surely there is irrefutable evidence that in the past few years, there have been significant discharges into the Thames, which have damaged the water quality. There is no getting away from that. I welcome all the improvements, including upstream, but the solution has to be a combination of rainwater harvesting, better treatment and, eventually, a Thames tunnel. It will not make the river perfect, but if we do not do all those things, the river quality will continue to deteriorate. That is not what he, I, or anyone in London wants.

[Mark Field]

I accept the hon. Gentleman’s point, but there is the issue of the sheer cost of the proposal, and whether we need to go for what is seen as being the only game in town, and take up the Thames Water proposal that we spend £4.1 billion—already a significant increase on the figure originally presented for this project.

It is worth saying that population growth and climate change will not reverse the improvements that have already taken place. Given that a 60% reduction in discharges is on the way, it would take something much more significant to reverse the trend. The NPS identifies two potential factors—population growth and climate change—but neither seems of any great magnitude in relation to this issue. New housing developments are already being built with SUDS and mitigation designed in, and retrofitting will slowly improve the existing housing stock. Moreover, the NPS says that more than 1 billion litres per day of sewage need in England can be saved through water efficiency, but then bizarrely ignores how that can help offset the projected changes in London’s population.

Climate change is cited as producing more “extreme rainfall events” like those of August 2004; that may have an impact, as was discussed in the exchange with the hon. Member for Islington North. That discharge of eight years ago caused the death of many thousands of fish, yet on page 18, the NPS admits that the fish deaths were caused by the Mogden sewage treatment works, which of course have nothing to do with the tunnel, and are already being upgraded. Thames Water was quoted last week as claiming that climate change will produce less rainfall and more droughts, and will require more reservoirs to be constructed, which implies less in the way of combined sewage overflow overall.

Fish kills are already being addressed. Mogden, which is well upstream of the Hammersmith pumping station, is thought to be responsible for both major fish kills mentioned in the policy statement. The other occurred last summer, near Kew. It is reasonable to suppose that the number of fish kills will be significantly lower in future without the Thames tunnel, and before possible alternatives to the tunnel are considered. Thames Water claims that the Lee tunnel will not benefit the higher reaches of the river, but Mogden demonstrates that the whole of the tidal Thames is set to get cleaner.

The tunnel will not significantly alter the appearance of the river. The natural turbidity of the Thames means that the water will never be clear. In fact, an Economics for the Environment Consultancy review of the tideway project options concluded that

“little aesthetic change in the water is to be expected”

from a tunnel. This was endorsed by the Health Protection Agency’s study in 2007, which reported:

“Shortly after discharge, floating matter disseminates relatively quickly, so the plug of sewage effluent moves unnoticed with the ebb and flood of the tide.”

No one is suggesting that sewage discharge does not matter, but it is a fact that for most people it passes unobserved. The findings of the study for the Thames tunnel make one particular and unsourced claim in the NPS seem somewhat dubious when it refers to

“large quantities of offensive solid material being…deposited on the foreshore”,

whereas the published evidence does not.

The hon. Member for Hammersmith made rather unfair sport of the views of Professor Chris Binnie in the exchange that we had last Wednesday. I shall discuss those views in a moment. Professor Binnie is an expert on water and designed the original Thames tunnel scheme, so his conclusion that only 10% of litter is sewage-derived should be heeded. It follows that if the tunnel can reduce litter deposits by some 10%, 90% of the visible rubbish that swills about the river will remain, whatever happens to the combined sewer overflows. The idea that the appearance of our improving river is causing an international

“reputational risk to the UK”

seems a little far-fetched, and I suspect that a 10% reduction along the lines that I have set out would do little to help.

The health benefits are real, but limited. Again, there must be a balance, given the cost of the project. Recreational users of the Thames would undoubtedly benefit from the tunnel, if not quite as much as is sometimes thought. For example, although gastric infection in rowers runs at 13 cases per thousand rowers per year, that is far lower than the rate in the general population, which is 190 cases per thousand. Likewise, the actor David Walliams’s swim is much touted, but he fell ill long before reaching the tidal stretches of the River Thames.

The Environment Agency has too little regard for the cost. The NPS highlights the curious role that has been given to the Environment Agency, whose sole concern is the environmental impact of the tunnel, with no attempt to weigh that impact against the rising cost. Apparently, the Government

“considers that the need…will have been demonstrated if the Environment Agency has concluded that the project is necessary for environmental reasons”.

That is almost a blank cheque for what constitutes environmental necessity. The agency is understandably fond of large-scale projects. Despite the claim to a purely environmental rationale, however, when pressed on the justification for a £4 billion tunnel in a climate of austerity, when discharges will more than halve anyway, both the Environment Agency and Thames Water hide behind legal arguments about the European directive.

The directive overrides many of the environmental assessments. The NPS admits that

“the Urban Waste Water Treatment Directive is the initial driver for the Thames Tunnel.”

In practice, compliance rather than the environment is both the root cause and the benchmark, as this stifles concerns about value. Terms such as “unacceptable” and “necessary” are used ambiguously in both the NPS and Thames Water’s literature. They appear to make an environmental judgment but, under challenge, a legal interpretation is always offered, with dark mutterings about infraction proceedings.

No one has asked the EU. The apparent failure of any of the three parties behind this scheme to approach the Commission is staggering, particularly on the part of the Environment Agency and DEFRA. Without reference to the Commission, DEFRA has disregarded the urban waste water treatment directive’s principle of using the best technical knowledge not entailing excessive cost, and stipulated that only a collection device for combined sewer overflows meets the requirement

“to limit pollution from sewer overflows”.

It seems that the Environment Agency applies its zeal to say no discharges are acceptable, irrespective of cost. That is fine if we factor that into our thinking about that body, but the worry is that DEFRA takes that on board and then applies gold-plating by saying that no discharges are permissible under the directive, and Thames Water applies for a project to which the answer can no longer be no. The huge cost is relevant, not just for all of us who are Thames Water users, but for legal reasons. It was the legal position that prompted Professor Binnie’s reassessment of the need for the tunnel that he had initially recommended, given the work that is already under way and the lessons that have been learned from in-river bubbler systems in the seven years since he chaired the Thames tideway strategic study. His examination of the directive has led him to believe that a tunnel is unnecessary.

What Professor Binnie revealed at the meeting chaired by the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), which I think was misreported in the exchanges we heard last week, was the detail of his discussions with DEFRA’s lawyers. His view was that the increased cost of the tunnel has made it disproportionate in the sense of the directive, as exemplified by the Whitburn infraction proceedings. However, the senior DEFRA lawyer stuck relentlessly to the Department’s interpretation. I was not at the meeting, but I understand that Professor Binnie said that on legal matters he felt that ultimately he had to defer to those who ought to know. His understandable reluctance to challenge civil servants is not always shared by the rest of us, and nor should it be.

In my view, the cost-benefit analysis is deeply flawed, and there is no better example of flawed DEFRA analysis than the series of cost-benefit analyses that have accompanied the Thames tunnel project. When the cost was initially touted as £1.7 billion, the benefits were judged to be worth around £1.7 billion. Now that the cost has risen to £4.1 billion, with the Lee tunnel and sewage treatment works upgrades already under way, hey presto, the benefits have been judged to have risen to around £4.1 billion. It is either a near miracle of fortuitous recalculation or, as those of us inclined to be more sceptical might think, a somewhat cynical sleight of hand. I think that Professor Binnie is in no doubt about this non-legal point. Using Treasury green book rules and standard, quality-adjusted life year metrics, he calculated the health benefits of the tunnel to be about £2 billion. The NPS means that no independent examination of DEFRA’s figures will take place.

There are no net economic benefits. The economic case for the tunnel on the basis of job creation is starting to be talked up, and I understand that a report on that by Thames Water is imminent. The Minister described the estimated 4,200 jobs only last Wednesday as

“a big win for London”.—[Official Report, 14 March 2012; Vol. 542, c. 330.]

Unlike other infrastructure projects, however, the tunnel will do relatively little for the economy once it is complete. Even the boring machines are being bought from Germany —as we speak, the same applies to Crossrail. Although the temporary creation of construction jobs will have some benefit, it would be considerably cheaper to pay 4,000 people an MP’s salary for the duration of the project, and considerably better value to build something else, whether in London or not. I am afraid that the lasting economic impact of the tunnel will be the £80 a year reduction in the disposable income of each and every Thames Water customer for decades to come.

I fear that the poorest will be hardest hit, and this is the debate we will be having in this House in four or five years’ time. We will be talking about those bills, and Thames Water customers will be in the position South West Water customers were in last week when we debated the Water Industry (Financial Assistance) Bill. Sewerage bills are regressive. We have only just debated the pernicious effect of such bills in the south-west, and the rising cost of energy is a cause of great concern across the House. It is not good enough for Thames Water to defend this simply by saying that water bills will rise only towards the average. Together, London and the wider Thames Water sewerage area already have the highest living costs in the country and the pinch will be felt.

There are alternatives, depending on the question. Bubblers are dismissed by the NPS as they are

“not considered to be a sustainable or complete solution in the long-term.”

Of course, the tunnel is not a complete solution, as there would still be discharges—no one disputes that for one minute. The notion of sustainability in the NPS leans heavily on the assumptions about population growth and climate change to which I have already referred. The Cardiff harbour system shows that new options have emerged since the tunnel was first mooted almost a decade ago, including the real-time monitoring of dissolved oxygen levels. I accept that an in-river system is not perfect and would not go as far as the Thames tunnel, but it would cost a fraction of the £4.1 billion price tag now in place. Were it not for the momentum already behind the building of the tunnel and the closed institutional ranks to which I have referred, I think that such a system would be considered, and perhaps it still should be.

The NPS states, somewhat grandly:

“It is inappropriate to ‘do nothing”’

about sewage discharges, but we are not “doing nothing”; we are more than halving the problem. The phrase is redolent of the so-called politician’s fallacy: “We must do something; this is something; therefore, let’s get on and do it.” When civil servants insist once again that the gold-plated option is the only way to meet our obligations under a European directive, we are entitled—obliged, in my view—to be sceptical. When the result could allow a single utility company to profit while the rest of us are hit in the pocket, we can contemplate stronger emotions. The project cries out for proper independent scrutiny, yet the NPS prevents, I fear, any assessment through the planning process of the case for the tunnel.

I have no doubt that there is a problem with sewage discharge in the Thames. More than £1 billion is already being spent to reduce it dramatically, but the Thames tunnel will cost in excess of £4 billion, and the question is whether it represents good value for money.

I am sure that we in this House will return to this issue, but I fear that we will do so on the back of huge increases in water bills for all our constituents, and we will only wish that we had alerted ourselves to the issues now, rather than doing so, as I suspect we will, in many years to come.

Water Industry (Financial Assistance) Bill

Mark Field Excerpts

Wednesday 14th March 2012 Commons Chamber

[Simon Hughes]

This issue is of significant interest to those of us who live in the Thames Water area. Some 20% of the population of the United Kingdom do, so it is not an irrelevant issue to people across the country who pay water rates. Specifically, I am talking about colleagues who have constituencies in Gloucestershire, Northamptonshire, Essex, Kent, Hampshire and Greater London, and the issue raises broader questions about how the Government and Ofwat, the regulator, deal with water companies, their financing and, specifically, the financing of major projects.

I shall make some preliminary comments that relate to all three amendments. I am grateful to the Minister and to the Secretary of State for engaging with the issue; I am grateful for the engagement on Second Reading; and I am grateful for the correspondence that I have had with the Secretary of State since Second Reading. I shall refer to that and read some of it into the record.

First, in parts of London and, certainly, in my constituency, one of the most significant current debates is about whether there will be a Thames tunnel, and Thames Water’s proposal is that to address the current system’s inefficiency and inability to deal with London’s sewage, understandably because the system was created in the Victorian era, new infrastructure—a main sewer, in effect—needs to be built to cope with current and future needs.

There is an ongoing debate, which I do not propose to get into today, about whether the current plan for the proposed tunnel is the right answer. In summary, sewage capacity is already being built to the east of London, in the Lee valley; and there is a proposal—the projected costs of which have risen to £4.1 billion—for a long tunnel, travelling from west London not far from here, along my constituency and ending up at the sewage treatment works in east London.

Some people say that the only solution is the currently proposed tunnel; others say that it would be better to have a shorter tunnel and some other forms of sewage alleviation. That debate is ongoing, but in the end decisions will have to be made. There is a whole planning process for deciding whether the tunnel will be built.

Secondly, there is a debate—in constituencies such as mine and in boroughs such as Hammersmith and Fulham, and Wandsworth—about where, if there is to be a tunnel, the main sites of activity should be. In the middle of Bermondsey, a very large site is proposed for drilling down to create the shaft from which the tunnel boring will happen, both west and east, at a place called Chambers wharf. In the first round of consultation, the proposed site was King’s Stairs gardens, by the Rotherhithe tunnel. That is a greenfield site, and the proposal was not at all popular. We have managed to persuade Thames Water that that is not a good idea, but there is a tale of unexpected, or unwished-for consequences, because having won a battle to save one site we then found that the company came up with another site next door, taking the pressure off one community but immediately transferring it not far away. That is a separate debate, and I do not propose today to get into the detail of where the sites should be. I see my constituency neighbour and colleague, the hon. Member for Cities of London and Westminster (Mark Field) in the Chamber, and many of us have a constituency interest—big and small—in where the sites should be.

The third issue—the issue of the Bill—is whether the Government should, if necessary, provide financial support to Thames Water for such a project, and if so, the terms and conditions under which it should be granted. Clause 2, which all my amendments would change, is entitled “Financial assistance for major works”. I shall not read it all into the record, as people can turn to it, but it proposes the insertion into the Water Industry Act 1991 of a new provision, section 154B, of which I shall read the first proposed subsection:

“If the Secretary of State considers it desirable to do so, the Secretary of State may give financial assistance in connection with—(a) the construction of water or sewerage infrastructure, or (b) the carrying out of works in respect of existing water or sewerage infrastructure.”

In further proposed subsections, there are various conditions, one of which is:

“Financial assistance may be given in any form and in particular may be given by way of—…grant…loan…guarantee…indemnity…the provision of insurance, or…the acquisition of shares in or securities of a body corporate.”

My first amendment, amendment 4, proposes:

“Financial assistance may only given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.”

I shall come back to that.

Secondly, I want to test the Government’s reaction to amendment 5 and my proposal:

“Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.”

That precise figure is relevant, but there is a much bigger issue about what the financial past and present of a company should be if it is to receive Government support.

My third amendment, amendment 10, states:

“The Secretary of State may only grant financial assistance after a business plan for the proposal infrastructure has been approved by Ofwat”—

the regulator—

“and the National Audit Office…The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the…project.”

[Mark Field (Cities of London and Westminster) (Con)]

I appreciate that the right hon. Gentleman’s debate is not entirely abstract, but on amendment 5 how would the Government be able to judge financial assistance on the basis of that debt to equity ratio? Presumably, assistance will come in different tranches, so any group company’s activity might at various times fall on either side of any category that the right hon. Gentleman has in mind, and any assistance might be for a specific project in different tranches. Does he not feel that his amendment would over-complicate what he is trying to achieve? Will he detail precisely how he thinks it would operate?

[Simon Hughes]

Some of this is quite technical, but these are important issues. The reason I chose that figure, which is not a matter of precise science but a starting point for debate, is a Financial Times article in 2006 suggesting that Ofwat’s expectation was that gearing levels for Thames Water should remain below 65% for any project. There was then a debate, in public, between Thames Water and its owners—they have a history in this matter—and the regulator as to what the percentages of borrowing against capital, borrowing against income, and borrowing against profits should be. The company should have sufficient capital to fund the project and should not be giving away its capital by way of dividends so that it has to look elsewhere for funding that it could have had if it had not been paying out capital that it had acquired previously from its investments.

[Mark Field]

The right hon. Gentleman will be aware that Thames Water is looking to secure a large-scale investment from a Chinese sovereign wealth fund. Is he concerned that such an investment—this is a specific case, but it could apply generally to anyone who was getting such financial assistance—would help to distort, and could, at particular levels of investment, deliberately distort the debt to equity ratio in such a way as to negate any benefit created by the provision that he hopes to put into the Bill?

[Simon Hughes]

As the hon. Gentleman knows, Thames Water has a very complicated corporate structure: the graphic picture shows that there are about 10 layers of corporate entities. At the top are investors Macquarie—an Australian company—and the new Chinese investor that was recently announced when the Chancellor was in China, and there have been other acquisitions.

We must not prevent Thames Water and its holding company, and its holding companies, from obtaining money from external investors; indeed, we need to encourage that. However, we, the Government and Ofwat must ensure that we do not condone, particularly in relation to Kemble Water, which is the relevant driving company, and Macquarie, a practice that is unacceptable in two respects. First, it allows the company to pay out in dividends to its shareholders very large profits while not retaining the money that it needs for its capital investment, thereby forcing it to come to Government and, in turn, to the taxpayer, to underwrite something for which it should not have had to come to the taxpayer. Secondly, these processes should not result in our corporate sector avoiding the taxes that we would expect it to pay. One of the issues for next week’s Budget is the need to ensure that people, personally and corporately, who can afford to pay their due taxes do pay those taxes. There has recently been a pretty unpleasant history regarding Kemble, Macquarie and Thames Water whereby people have paid far less tax than the hon. Member for Cities of London and Westminster and I would believe to be acceptable. They have been using various onshore and offshore mechanisms to avoid tax liabilities involving money that should have come back into the Treasury to the general benefit of the taxpayer.

Ofwat has said that on the previous two occasions when it carried out price reviews, it assumed, for the purpose of setting price limits, a gearing within the range of 55% to 65%. It worked from that starting point, although it was simply an assumption for the purpose of price setting, not a requirement. My suggested figure is therefore also a starting point to see whether we should write in a figure that requires a balance between payment out of dividends and the retention of capital and earnings to ensure that there is no abuse of the relationship with the taxpayer, to the detriment of the consumer.

At the end of the day, this is about the level of water bills for people in the Thames Water area. The current projection is that as a result of the Thames tunnel project, bills will rise by about £80 a year indefinitely. I do not want Thames Water to charge every ratepayer roughly £80 a year extra and, at the same time, not pay much money into the Treasury by way of tax and indefinitely siphon off huge amounts of profits to national or extra-national investors while we are paying for something that we ultimately do not own. There are parallels in the history of the private finance initiative regarding public sector investment in projects where the money then goes off into the private sector. The M6 toll road, in which Macquarie had an interest, has not been a happy tale of investment benefiting taxpayer and users, with some people apparently creaming off the profit to the disadvantage of those taxpayers and users.

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[Simon Hughes]

That is exactly the position. I want us to address this now and not to discover, when the system gives planning permission for this big project, that we have a corporate financial structure that is not going to work for the interests of the water rate payer or the taxpayer. I have a double interest on behalf of the water rate payers of the Thames Water area—144 colleagues represent people in that position—and on behalf of the taxpayer. I want to ensure that we are not shelling out money when we should not be doing so and the private sector should be picking up the tab. Transparency is hugely important, and it is not helped by a corporate structure that has 10 layers of involvement where it is not clear who owns what, and where one of the layers at the bottom appears to be based in the Cayman Islands. That is not a place where I thought that we were encouraging schemes that we, as taxpayers, were supporting financially.

[Mark Field]

There is plenty of water around the Cayman Islands, but that may not be entirely what Thames Water had in mind. I thank the right hon. Gentleman for making clear his concerns. I hope that he and I will both speak on Monday in the debate on the Government’s waste water national policy statement, specifically on the issues relating to the Thames tunnel, which concern many of us as Members of Parliament. It is rather distressing that a very small minority of us seem to be concerned about this, yet no fewer than 144 Members, many of whose constituencies are well outside London, but none the less within the Thames Water area, will be directly affected by the huge and ongoing increases in bills to which he refers.

[Simon Hughes]

I am not pretending that we are hugely disadvantaged in the Thames Water area at the moment. My colleagues in the south-west and their constituents have had hugely greater bills over very many years. I am not arguing that we should not have to pay more money as Thames Water ratepayers, but that if we are going to do so, we should be paying it for a project, if it is agreed, where we know that the taxpayer is not being fleeced and water rate payers are not paying more than they should be. This must not be seen as a method for allowing private sector companies—all the water companies are now, in effect, private sector companies—to export profits indefinitely, at a higher level than they ought to, when they should be putting that money into the project and making sure that bills are lower.

[Simon Hughes]

My hon. Friend is right. Perhaps it would helpful if, rather than trying to go round the circuit twice, I quickly summarise my letter to the Secretary of State in which I set out my concerns and the history of the matter, summarise the key points of her response, which deal exactly with my hon. Friend’s point about the mechanism regarding the tunnel, and then raise the three specific issues that should be addressed before colleagues and the Minister speak.

The provisions could, of course, apply to any water company. I am talking about Thames Water because we know that the Thames tunnel is the big project that the Government have in mind. However, the Bill relates not just to Thames Water, but to financial assistance for major works by any water company throughout the country, so the issues could relate to any constituency across the United Kingdom.

I will give a brief history. Thames Water was previously owned by the German utility company RWE. As I well remember, at that time it had one of the worst records for leaks and failed to meet its agreed targets for remedying leaks for four consecutive years. Despite that, RWE raised the dividend that Thames Water paid out to the company by 52%, took £216 million from the company and simultaneously announced a rise in profits as it prepared to sell the company on. At that time, Thames Water had a debt to capital ratio of about 45% and an excellent credit rating with all the major rating agencies.

Thames Water was bought by Kemble Water in 2006 in a deal worth £8 billion. Kemble Water is a financial vehicle for a consortium of investors, primarily made up of private equity funds led by Macquarie, the Australian bank. The deal included £3.2 billion of debt, which was incorporated into the company through whole company securitisation. That was undertaken for a special purpose finance company that Thames Water set up in the Cayman Islands, presumably to allow the owners of Thames Water to avoid taxes on the income that they received from the interest raised. That increased the debt ratio sharply to 67.9% of regulated capital value. The company has continued to borrow heavily and the debt to capital ratio has now increased to 72.9%.

That has happened at a time when Thames Water has paid extremely high dividends, which have regularly exceeded its earnings. For example, in 2010, the ratio was 141.5%. In other words, it paid out in dividends nearly one and a half times as much as it received in earnings. By contrast, South East Water, to take another local example, had a payout ratio of 48%—just a third of that of Thames Water. That strategy has had a serious detrimental effect on Thames Water’s credit rating. It has fallen from a corporate credit rating of A plus on the Standard & Poor’s rating scale when the company was bought by RWE in 2000 to a position today in which some of Thames Water’s debts have been assigned a triple B rating, which is considered to be the lowest investment grade rating possible.

For 10 years, Thames Water has been owned by two companies that have sought to extract the maximum possible value from the company. It has prioritised that over the necessary prudential financial arrangements that would have allowed it to make the large, long-term capital investments that it knows it has to make. As a result, Thames Water no longer has the capacity to access the finance required to make large infrastructure investments. It is not as if this project is a new idea. It has been, excuse the pun, in the pipeline for a long time.

The company has therefore asked the Government to provide financial backing for its Thames tunnel scheme. It is not yet clear to me why our Government should help this company after its years of excessive and unjustified borrowing and extraordinary dividend payments, which have eroded the company’s capital position. At the end of the Second Reading debate, the Minister said that the financial arrangements of the company were a matter for the regulator, Ofwat. That is in part true, but Parliament certainly has an interest and the Government must have an interest. If Ofwat’s controls are not sufficient, we need to address that. That is why I have raised this matter in the amendments.

Before the sale of Thames Water by RWE, Ofwat made a clear statement warning potential investors not to follow the very strategy that Kemble Water has since followed. Ofwat said that potential bidders should preserve Thames Water’s investment grade credit rating, which would have meant keeping the company’s debt to capital ratio below 65%. That is the link between solvency, external financial respect for the company and the percentage ratio, which my hon. Friend the Member for Cities of London and Westminster raised with me earlier. Since then, the regulator has, in effect, stood by and done nothing to prevent Kemble Water from further saddling the company with debt. Ofwat has stated that that is acceptable because the company has kept its investment grade credit rating. In fact, the credit rating has deteriorated to the lowest investment grade possible. Ofwat appears to have neglected the need for the company to incur more debt in the future to pay for large capital investments.

I am troubled that, unless we amend the Bill, there will be nothing to prevent that behaviour from continuing. I am trying to make the Government address how we will prevent it. I do not propose to force the amendment to a vote, but I want to hear the input of Members, if they want to contribute, and the Minister’s response. I am keen to ensure that we do not let go of this matter. My constituents want me to raise it now and the constituents of many colleagues in London have an equally strong vested interest in it.

[Mark Field]

It is important that we do not just see this as a problem with Thames Water. This is a fundamental issue about the financial structuring of a range of companies, many of which are getting ongoing financial assistance from PFI schemes, which often have years or decades to run. The right hon. Gentleman has made it clear that he will not press the amendment to a vote. I hope, however, that not only this Department, but other Departments that have responsibility for companies that have gone through this sort of financial restructuring and that are receiving ongoing financial assistance give serious thought to the matter.

[Simon Hughes]

That point is very helpful. I have raised this subject as a matter of general Government policy with my right hon. Friend the Chief Secretary to the Treasury, because it is not just an issue for the Department for Environment, Food and Rural Affairs, but an issue across Government and for the Treasury in particular. It is also a matter for the Public Accounts Committee, audit organisations and others. In a second, I will link the points that I have made with the PFI issue, which my hon. Friend just raised, and other places where we are spending public money on projects that are excessively encouraging or facilitating private gain to the disadvantage of the state and the taxpayer.

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It paid out in dividends nearly as much as it received in profits—just £30 million short. In the previous year, 2009, the dividend paid out was £222 million and the profits after tax were £314 million. That was obviously a more healthy balance.

[Mark Field]

While the right hon. Gentleman is going through the financial figures, it would be useful to know what the level of reserves was during those years. Were they building up, or had Thames Water, in its own mind, already built up a war chest for the works that it is looking to do—or was it essentially draining its profits by more than 90% year on year?

[Simon Hughes]

I do not want to misrepresent the position, and I do not have with me the full accounts over those five years—the Minister may be able to help us with that—but my understanding is that the reserves have reduced over that five-year period. That is one reason for my concern about the balance of decisions on dividend payments and capital retention. That should trouble us and cause us to ask questions.

The figures that I have show that 2008 and 2009 were the only recent years in which dividends did not exceed profits. I understand that in 2010 there were £295 million of dividends and £237 million of profit after tax. Probably 30% or 40% more was paid out in dividends than received in income and earnings.

The Secretary of State rightly says that Ofwat does not enforce limits on dividend payments. I do not dispute that in principle, but she states:

“However the licence conditions of each water company’s licence include a requirement to ensure the dividend policy rewards efficiency and good management of economic risk, and will not impair the company’s ability to finance its functions as a water undertaker…Ofwat does not place a cap on levels of gearing. Instead, it determines a notional capital structure for an efficiently financed and operated company for the purposes of setting the cost of capital and assessing the financeability of the price limit it sets. This approach is consistent with the approach Ofgem has adopted in its regulation of the gas and electricity sectors. In the last two Price Reviews this nominal capital structure assumed that water companies would have gearing”—

the figure that I have mentioned before—

“in the range 55%-65%; this was a modelling assumption and not a requirement. The requirement was that they should maintain an investment grade credit rating, plus some headroom and it is this together with the regulatory ring fence that provides the protection for customers. Several of the large water and sewerage companies have a similar gearing ratio of around 80%.”

I pause there to note that if the licence conditions are meant to be about both the ratio and the credit rating, it seems to me that we again have cause for concern.

The Secretary of State continues:

“The regulatory ring-fence also requires a company to ensure that it, or any Associated Company, maintains an issuer credit rating which is an investment grade rating. If a company’s investment grade is threatened, the cash lock up provision within the licence means that if a company is placed at the minimum level for investment grade (i.e. BBB- or equivalent)…the Appointee cannot transfer cash or other assets to an Associated Company without the prior consent of Ofwat.”

Thames Water is moving slowly down towards that position. She continues:

“Moody’s provides a corporate family rating of Baa1 to the whole business securitisation that encompasses Thames Water Utilities Limited. Standard & Poor’s do not provide an equivalent rating for whole business securitisations; instead they rate individual bonds…These bonds are rated in the range A- to BBB…These credit ratings are very similar to other water and sewerage companies and provide headroom against the floor for investment grade credit quality.”

However, it remains the case that we have seen a drop in the credit ratings of Thames Water collectively, and some of its activities particularly. That should start ringing alarm bells with us.

The Secretary of State ends:

“Finally, discussions with Thames Water on financing the Tunnel are ongoing. Achieving best value for money for customers and safeguarding taxpayers are top priorities for Government”.

I wish to mention two other matters, if I may. I am conscious that this is a much longer speech than I would normally want to make, but I am dealing with all my amendments together and this is a fairly complex issue.

Ofwat’s statement of its position is that the ring-fencing licence conditions require a company to

“conduct its business as if the regulated business were substantially its sole business”

and

“have adequate financial, and facilities and management resources to carry out its regulated activities and to confirm each year that it will do so for the following 12 months.”

A further condition is that a company must

“ensure that its dividend policy will not impair the company’s ability to finance its functions”.

I am not sure that Thames Water has done that. It seems to me that its dividend policy has impaired its ability properly to carry out its functions, but it has put it in a position whereby it may not be able to finance on its own, or principally, a project that it knew it would want to finance.

Ofwat states:

“Our long established policy is that it is for each company and its management to determine a capital structure that is appropriate for its circumstances. But our view is that if investors choose to adopt highly geared structures, it is right for customers that both those investors and the companies bear the risks associated with their choice of financial structure.”

That is fine, but now the company is coming to the Government to ask for help to support it. Finally, Ofwat states that capital restructuring generally

“involves the replacement of equity capital with debt capital. This can have a tax benefit.

Consistent with our view that capital structures are a matter for the companies, we set the price limits for companies on the basis of a notional financial structure for an efficiently operated and financed company”.

The Secretary of State also made that point. Ofwat continues:

“We do not set the cost of capital on the basis of each company’s actual capital structure.

However, in setting price limits, we separate the treatment of tax from the cost of capital. This includes tax as a company-specific cost based on the company’s actual gearing projections.”

We could well do the following things. First, if we applied the equator principles, we would put in place a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions, which is recognised in this country and around the world. Equator principles financial institutions—there are four eminent ones in the UK, Barclays, HSBC, Lloyds and Standard Chartered commit to

“not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement”

the equator principles. There are 76 financial institutions in 28 countries that have adopted the principles, covering more than 70% of international project finance debt in emerging markets. If we were to have that accountability mechanism, which would allow communities to have redress when companies do not meet environmental and social norms, that would provide added reassurance that companies involved in financing large infrastructure projects would uphold high standards. That would apply not just to the water industry but to public financing as a whole.

My amendment 5 suggests that no financial assistance be given to a company with a debt to equity ratio of more than 65%. That ratio is a measure of a company’s financial strength and demonstrates how much the company has borrowed against its assets. It has a direct effect on a company’s credit rating, and consequently on its ability to borrow on the financial markets. I appreciate the Government will not accept the principle of the amendment today, but they might do so in the other place or in another way. If they did so, they would send a message to water companies that if they want Government support to build new infrastructure, they will need to demonstrate that they have the financial strength to be a credible and reliable partner of the Government.

That is also the purpose of amendment 10, which would require any company seeking financial support to come forward with a business plan. Any bank or building society would ask that safeguard of any business in our constituencies. They would say, “Show us your business plan. We’ll then tell you whether we are willing to lend you the money.” A reputable bank involved in financing an infrastructure project would demand to see a business plan, but so far, Parliament is being asked—unless I am corrected by the Minister—to allow the Secretary of State to give financial assistance to water companies, which may include grants, loans, guarantees, indemnity or equity, without any obligation on the Government to seek such guarantees.

We should be concerned about that not just because of the recent history of Thames Water, but for the reason given a moment ago by my hon. Friend the Member for Cities of London and Westminster and given the history of the private finance initiative. The previous Government went through a period of giving blanket permission—effectively—to engage in large-scale infrastructure projects financed by PFI, to build hospitals, schools and many other things. The Treasury Committee has made it clear that PFI projects often lead to higher costs and produce poorer-quality buildings and services. It has said that those costs are eventually borne by the taxpayer, and that PFI projects were unacceptable if the costs were simply diverted to private profits in the private sector for companies that pay little or no tax.

A further disadvantage of PFI—this was touched on by my hon. Friend the Member for St Ives—is that the asset passes from the public or accountable sector into the private sector. We therefore lose the asset and the revenue stream to the public purse. We do not reduce the public’s payment, which in the end is more expensive.

[Mark Field]

An issue not specific to this debate is ongoing financial assistance from the public purse for many years to come, often through an artificially created special purpose vehicle rather than a more straightforward process. Such vehicles, as the right hon. Gentleman rightly points out, are often driven by maximising profits, potentially by minimising tax and all other returns to the Treasury.

[Simon Hughes]

To turn that into a picture, that could mean that the Thames tunnel will be built by a separate company, not Thames Water. The company will own the tunnel indefinitely, and rent, as it were, the use of the tunnel to Thames Water. It will collect the income indefinitely and do what it will in terms of distributing the profits, while we—the 12 million people in Thames Water constituencies—continue to pay charges, with no control over the profit being made by the owners.

The M6 is the best example I can find. The M6 toll road is currently the only cash motorway in the UK. In May 2003, Macquarie executive Dennis Eager boasted:

“'We can put up the tolls by whatever we like and start the tolls on day one at whatever we like. If motorists don’t complain about it being too high, we have done our job properly.”

I went through the toll the other day and paid £4.60 or something. That was the weekend rate, which is slightly cheaper, but cars using the toll during the week are charged £5.50, and lorries pay £11, making the M6 toll one of the most expensive toll roads in Europe. You, Mr Hoyle, may know the price more accurately than me because you have probably used it more frequently than I have.

Traffic using the M6 toll is declining, but it is soaring on the neighbouring non-toll M6. The number of cars using the M6 toll declined by 10% in the past year, meaning that it is ineffective at relieving traffic on the M6, which was its whole purpose. In 2005, the company operating the toll road had a net worth of £67 million and paid no corporation tax.

[Mark Field]

One concern with the Thames tunnel is that there is so little incentive for Thames Water to have a cost-effective scheme in place because of the nature of the payouts. Many hon. Members will recall that at the outset, the project was to cost £1.6 billion, but we are now looking at a £4.1 billion project. There seems to be no sense whatever of an incentive for Thames Water to have something that is more cost-effective, which would obviously benefit hard-pressed bill payers from 144 constituencies in the House.

[Simon Hughes]

That is exactly the point. I should have gone on for another paragraph before I let my hon. Friend intervene. I shall finish the figures on the toll and then address the point he makes.

In 2006, Macquarie Infrastructure Group, the owners of the M6 toll, cashed in £392 million in profits despite contributing only £1.5 in equity to the scheme. The link is that Macquarie is behind Kemble Water, which owns Thames Water. My concern is exactly that alluded to by my hon. Friend. There is an incentive to build the biggest, most expensive tunnel because the largest amount can then be charged to get the maximum revenue stream indefinitely, and no incentive to have a cheap, good-value product at the end of the day. My question to my colleagues in government is this: are we asking the serious questions as to whether the taxpayer should be putting up any financial support for the scheme?

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[Mr Slaughter]

Modesty forbids; all I would say, without going into too much graphic detail, is that when I left, I washed everything that I was wearing, yet it was still Monday morning before I got the smell out of my nostrils. Unfortunately, I did not go and wash everything I was wearing immediately, because I had to go canvassing for Mr Livingstone in between. I cannot think how many votes I must have lost in the condition I was in, following my outing on the foreshore.

It is a lot cleaner on the foreshore, and I appreciate absolutely what the Thames tunnel coalition, Thames21, has done, and all the fantastic consumer groups involved, in organising the clear-up. I pay tribute to them, although I wish that they did not have to do that work in those appalling conditions.

One of the people who was working hard there on that morning was a young man called Conor Newman-Walley, aged 15. He and his dad were there, working away. He goes to the same school in Hammersmith that I went to many years ago, and he is in the rowing team. It is a very good rowing team, as it was then. He is a founder member of Rowers Against Thames Sewage—RATS—and this is what he has said to the Thames tunnel organisation:

“In Victorian times, the people of London solved the first sewage crisis by implementing one of the most influential engineering projects of its time. As young people we learn and marvel about these feats in history at school. The challenge of sewage in the Thames today is too big for our generation. We look to those above us to put the projects in place that will solve this problem for generations to come. Our call to you is to build something amazing that our children will learn about in school.”

That attitude is one that we should adopt as we contemplate the Bill.

It is our duty to scrutinise the Bill and, more importantly, when it is passed, to scrutinise the project and any public money that might be committed to it and possibly put at risk. I hope that the amendments are not designed to stand in the way of ensuring that the clean-up of the Thames takes place. For Conor, a regular user of the Thames, this is not a lifestyle question, or a matter of the river looking pretty or smelling nice; it is a question of health, and of whether he can feel pride in his community when he goes to the river to take part in his sport. He needs to be able to take part in that sport without feeling personally inconvenienced or put at risk.

The Thames brings huge benefits to people, particularly my constituents who live alongside it and use it regularly. We have a duty to the public purse, as well as to ensuring that London has a river that is fit to look at, to use and to enjoy. I appreciate the attention paid by the right hon. Member for Bermondsey and Old Southwark’s to the financial detail, but I hope that he has not strayed so far from the path that he cannot also commit to those aims.

[Mark Field]

I do not necessarily regard the proposals as a scandal, as the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) seemed to suggest when moving his amendment, but I share many of his general concerns about the financial engineering. I say that as the very proud Member for the Cities of London and Westminster. I do my bit to stand up for the banking fraternity and for large corporates, many of which are based in my constituency. Deep concerns have been raised by the amendments, however. The amendments will not be put to the vote; they are testing amendments that will enable us to have a useful debate on this matter.

I would not wish this debate to be seen as hostile to Thames Water. I have had fairly positive dealings with it over the significant amount of work that is being done in my constituency, in the City of London and in the City of Westminster. It is carrying out a huge amount of work there, and there is no doubt that it has been very disruptive, but I hope that central London will have a far better water system in the years to come as a result.

Deep concerns have been raised about how necessary it is to spend as much as £4.1 billion. It is quite respectable for the right hon. Gentleman to raise his concerns, although I suspect that he might have been less concerned if the huge amount of building work had been due to take place on the other side of the river, perhaps in Wapping rather than Rotherhithe. We all know that there has been a lot of disruptive work. I have seen it happening in my constituency with Crossrail. I have always been a firm supporter of Crossrail, although I have often said that there were no votes in taking that position. Indeed, votes have been lost through so doing.

We are proposing to spend a huge amount of money on the Thames tunnel, and I am not convinced that that is entirely justified. I do not disagree with what has been said by the hon. Members for Hammersmith (Mr Slaughter) and for Islington North (Jeremy Corbyn). Significant work clearly needs to be done to improve the quality of the water in the Thames, although, compared with early Victorian times, it is now wonderfully clean. That is no cause for complacency, however.

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[Jeremy Corbyn]

I missed the first 45 minutes of the speech by the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), but I have discussed this matter with him before and I am aware of his concerns. He is quite right to raise the financial issues surrounding the Thames tunnel, because they are serious matters.

Bazalgette and his colleagues who did such fantastic work in the 19th century to create the London sewerage system created a world-class achievement. However, they could never have predicted the way in which London’s population would change, or the great increase in the use of appliances such as washing machines, which use much more water. Those changes have led to an increase in waste, the overflowing of the sewerage system and the pollution of the Thames. Having improved the condition of the river from being foul and putrid to very clean, we are now heading quickly back in the wrong direction. Not so long ago, we were all very proud of the water quality in the Thames; we are not any longer. We see what happens every year when storm drains overflow into the river. We need to think carefully whether the proposed measures are the solution, and whether they are the solution for all time.

[Mark Field]

I hope that the hon. Gentleman would agree that this is also a reflection of much higher expectations. We rightly have higher expectations in relation to water quality. It would be wrong to suggest that we have gone in totally the wrong direction, although there are problems with water quality. I accept that problems of sewage and effluent in other parts of London, which do not affect my constituency, are a good reason for implementing some improvement, but it does not need to be the all-embracing scheme that is being proposed at the moment.

--- Later in debate ---

[Richard Benyon]

Everyone in the Chamber recognises that the words “Thames Water” appear nowhere in the Bill. Nevertheless, my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) has raised some legitimate points.

I am certainly not here to be the voice of Thames Water. While I entirely understand the concerns that have been expressed by Members in all parts of the Committee, I think we should be careful about debating the structure of companies, or our perceptions of their virtue or otherwise. It is not for me to talk at length today about tax loopholes, perceived or actual, and in any event you would not allow me to do so, Ms Primarolo. The Government intend to block such loopholes where they exist, and it is the job of Her Majesty’s Revenue and Customs to hold companies to account.

I recognise that there is an issue that needs to be addressed by Thames Water in respect of its customers and the 144 Members of Parliament—including me—who are concerned about it. However, we should be wary of trying to prescribe such matters as debt equity ratios in legislation. Shifting the percentage from debt to equity could have a serious effect on bills in some water companies’ areas, and although debt levels are obviously of concern and we must ensure that they are as low as possible, it is not for Ministers to make such prescriptive decisions.

[Mark Field]

Does my hon. Friend not accept that legislation is the only mechanism whereby Members can address fundamental issues such as this? Many of us find it quite distressing that Ofwat, as the regulator, is not doing the job that it should be doing in relation to what are fairly high-profile issues. Is he suggesting that we can rely entirely on Ofwat to judge whether debt equity relationships are appropriate? The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) pointed out that although there are distinct guidelines in Ofwat’s own documentation, they seem to have been largely ignored by Thames Water, and may well have been ignored by other water companies. Indeed, the same may apply to other regulators which many of us believe are simply not delivering the goods.

[Richard Benyon]

My hon. Friend makes an entirely legitimate point. It is absolutely Parliament’s role to hold debates and adopt positions and, in many cases, hold to account corporations who are responsible for products such as water, which is so important to our constituents’ lives. I am sorry if I gave the impression that that might in some way be diminished. There are many forums within Parliament, not least the Select Committee process, for holding organisations such as Ofwat to account for the decisions they take. I assure my hon. Friend that we have regular discussions with all three regulators of the water industry, as well as with the water companies, to ensure that decisions are taken properly in relation to us in Government, and he is also right that Parliament should debate such matters, too.

I want to rattle through some of the points raised in the debate before addressing the questions asked by my right hon. Friend the Member for Bermondsey and Old Southwark. First, I want to put on the record that I celebrate the fact that another country’s sovereign wealth fund wants to invest in water companies in this country—indeed, that has received a generally positive reception. It is also worth putting on the record that no decision has yet been made as to whether the Thames tideway tunnel should form part of Thames Water’s regulated asset base.

I also want to say that I share the admiration for Thames21 expressed by the hon. Member for Hammersmith (Mr Slaughter). I have visited that organisation on a number of occasions, and it does fantastic work around our capital, reminding us not only why this river is so important to those who live in London, but also that it passes through one of the seven most important cities in the world. That must motivate us to get this project right.

There has been some comment about this project being a private finance initiative venture. As I am sure Members understand, it is not a PFI project because it would not involve the public sector entering into a contract with the private sector.

Some uncertainty will always be associated with projects of this size and complexity. The current cost estimate of £4.1 billion includes a significant contingency element of £0.9 billion for risk allowance and optimism bias. Together with Ofwat, Infrastructure UK and the Major Projects Authority, we will continue to scrutinise the costs and ensure that the project is delivered efficiently, with a structure and financing mechanism that delivers value for money for customers and taxpayers.

Lessons learned from other successful projects will be applied to ensure that this project is delivered within budget and on time. I promise my right hon. Friend and other Members that I and my ministerial colleagues remain healthily sceptical about the cost of this project. We must remain sceptical about any projects that have such high capital costs and that involve an annual charge for so many people, some of whom are on low incomes. It would be wrong of us to sleepwalk into an arrangement and not be rigorous about the cost element.

We are taking the best possible advice. We have taken on Ernst and Young to advise us on the structure and financing of the project, and we have also taken the best advice on engineering solutions. We talk to Thames Water regularly, too. I cannot share with Members some of the details that I would like to share with them, because we are currently in a very sensitive negotiating time in respect of this project. In due course, I hope, and expect, to be able to share more details, however.

I was asked under what circumstances financial assistance would be given for the tunnel. We are still considering the most effective financing mechanisms for the project. We are talking with Ofwat, Thames Water and our own advisers. No decisions have yet been made on the form of any financial assistance, or how it could work.

I entirely agree with the hon. Member for Islington North (Jeremy Corbyn) that we must also have clear policies on public open green space and green spaces generally. We have published policies on that and the green infrastructure partnership that we are creating. We are also working on the use of permeable surfaces, which is largely a building regulations matter, but also comes under the remit of the Department. We will be announcing our policy on sustainable urban drainage systems following the consultation on that in the near future, so he is right to raise the matter.

Let me deal with the points made by my right hon. Friend. He has tabled amendments to attach to the granting of financial assistance several mandatory terms and conditions relating to the financial structure of the undertaker responsible for the construction or works. I take his concerns seriously and share his desire to ensure that should any public financial support go to the Thames tunnel or similar projects—it is important to understand that this is not just about the Thames tunnel—it is tightly controlled.

My right hon. Friend has put on the record his letter to the Secretary of State and much of her reply to him, and I do not intend to go through that in detail. However, in dealing with his amendments, I should, first, reiterate that the clause, as drafted, already allows terms and conditions to be attached to the financial assistance. As with amendment 3, I do not accept, however, that it is necessary or appropriate to include a detailed listing of potential terms and conditions in the Bill. Those may vary from project to project, and it is better to retain flexibility on the most appropriate terms and conditions that would protect customers and taxpayers, and ensure that infrastructure projects can be delivered.

That said, the amendments appear to raise questions about Ofwat’s independent economic regulation of water and sewerage companies. Although the Secretary of State has written recently to my right hon. Friend on this point, it may be useful to set out briefly how the sector is regulated. A greater awareness of this regulatory system may help to reassure hon. Members about the checks and balances relating to the financing of the water sector, and how taxpayers’ and customers’ interests are properly protected. Every water and sewerage company in England and Wales is regulated in accordance with Ofwat’s primary duties to protect the interests of customers and to enable the companies to finance their functions. Each water company is subject to the terms outlined in its instrument of appointment or, as it is more often known, its “licence”. The licence contains conditions to ensure that each company has sufficient financial and managerial resources to carry out its functions, and that the regulated company is operated separately from the rest of the group. Those licence conditions are known as the regulatory ring fence.

It is for the management of each regulated water company to determine their own optimal financial structure. Where companies have put forward new financial structures, Ofwat has introduced amendments to licence conditions, such as the requirement to maintain an investment grade credit rating, which has been mentioned, to ensure that companies can still finance their functions and that consumers’ interests are not affected adversely. High gearing ratios are, in part, reflective of lenders’ confidence in this regulatory regime.

I will now discuss the amendments in detail. On amendment 4, my right hon. Friend’s intention may be that the project should secure finance only from institutions that have signed up to the equator principles, but that would limit the market from which finance can be sought, thus potentially adding cost on to customers’ bills. In addition, as was pointed out by my hon. Friend the Member for Hendon (Mr Offord), non-membership of the equator scheme does not mean that a financial institution is not following sound principles. My right hon. Friend’s intention may be that the company seeking the finance should sign up to the principles, but it would be inappropriate to ask Thames Water, its holding companies, its infrastructure provider or any other water and sewerage company to sign up to a set of principles designed for financial institutions active in providing project finance, rather than for companies involved in providing utility services under a well-established regulatory regime, which already balances the economic, social and environmental aims of sustainable development.

Amendment 5 deals with debt to equity ratios as a condition relating to the provision of financial assistance. I should explain that Ofwat does not find it necessary to place an absolute cap on levels of gearing. Its requirement for the past two price reviews has been that companies should maintain an investment-grade credit rating. To have this credit rating, companies must maintain sufficient levels of equity in their business. It is that requirement, together with the regulatory ring fence, that provides the protection we all want for customers.