Water Bill

Owen Paterson Excerpts

Monday 25th November 2013 Commons Chamber

[The Secretary of State for Environment, Food and Rural Affairs (Mr Owen Paterson)]

I beg to move, That the Bill be now read a Second time.

I am delighted to present a Bill that reflects my twin priorities of growing the economy and improving the environment. The Bill will promote growth for the long term, improve the resilience of our water supplies and the environment and increase choice for customers. Our White Paper on water sets out a vision for the future of the water sector. We need continued investment in our water and sewerage systems. We need investment in storing water and moving it to where it is needed; investment in maintaining our sewerage network and improving drainage, including through sustainable drainage options; investment that will protect our rivers through improvements to water quality; action to address over-abstraction; and investment in greater water efficiency.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Given that the Secretary of State says that it is designed to protect the environment, will he agree to amend the Bill to require fracking companies to have a full liability guarantee to cover a range of eventualities before an environmental permit is allocated? He will know that even if liability is proven, if the companies go bust the costs will still be passed on to the taxpayer, or to the water companies, which in turn will pass them on to the customer.

[Mr Paterson]

On the issue of fracking, I have made it absolutely clear that we will in no way dilute or diminish any of the existing regulations relating to the extraction of hydrocarbons from underground. A whole framework of different regulations is already laid down by European legislation, and we intend to respect them, but there is great merit in developing fracking, as we have seen in the dramatic reduction in gas prices in the States, with huge benefit to the US economy. We think we will see similar merits in our economy.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

My constituency has a place called Barton Moss, which is to be explored for shale gas. It is next to a raised peat bog, which is one of the rarest and most precious resources in the country that has not been ruined by over-extraction. There are real concerns among my constituents about dewatering those precious mosslands. They see a real need for reform in the Bill to ensure that explorers or exploiters of shale gas do not dewater areas and that if there are any pollution incidents, there is a financial guarantee that they will be made to pay for what they do.

[Mr Paterson]

I have sympathy with the hon. Lady’s question; I have mosses in my own constituency. Let me reassure her that there is absolutely no intention to dilute or reduce in any way the rigour of our environmental regulation. I also remind her that on a visit to Washington, I spoke to the Environmental Protection Agency, which could not name a single case of water pollution from any of the 2 million wells that have been sunk in the United States. I think we should look at fracking with open eyes—we should recognise that oil has been extracted at Wytch Farm, for example, for decades almost within sight of a site of special scientific interest and a bird reserve—and, done properly, it is a thoroughly meritorious and worthwhile activity that will bring jobs and prosperity to this country.

[Barbara Keeley]

rose—

[Mr Paterson]

I hope that the hon. Lady will not mind if I carry on, as the debate is about the Water Bill rather than fracking.

Earlier this year, we announced that the Bill would also include measures to deal with the availability and affordability of flood insurance. That is an important issue for many Members of the House and their constituents and I am glad that we are making progress on it.

[Mark Pritchard (The Wrekin) (Con)]

My right hon. Friend will know, as a fellow Shropshire MP, that there is significant flooding in areas such as Shifnal and Albrighton in the east of the county in my constituency. What discussions has he had with the Association of British Insurers to ensure that people have access to affordable flood insurance?

[Mr Paterson]

I am grateful to my hon. Friend and neighbour for his question. I shall come on to that in a minute, but we have had exhaustive and extensive discussions with the ABI to ensure that the statement of principles is succeeded by a new regime, on which I shall elaborate in a few minutes.

The main focus of the Bill is reform of the water industry. Reform will provide more choice for non-household customers and bring new entrants into the market. It will use the power of competition to drive efficiency, innovation and benefits to the environment.

[Mr John Redwood (Wokingham) (Con)]

As somebody who strongly welcomes the introduction of competition, why will not the Secretary of State allow competition for everybody? If it is really a natural monopoly, nothing will happen and no harm will be done, but if it is not, we could all get the benefit of competition with lower prices and the quality of water we want.

[Mr Paterson]

As my right hon. Friend knows, I have total sympathy with that position. I am quite clear that as an aspiration universal competition is worth while. Our problem is that we want to take the first step and take the wholesale route, which will bring immediate benefits and real efficiencies to major businesses, but it is hard to move down to a household level, where the gains are much smaller because of the narrow margins, until we have universal metering. At the moment, metering is at about 40% and we need to move closer to universal metering before we can reach the position with which he and I have much sympathy.

Privatisation of the UK water industry has seen the sector attract £116 billion in low-cost investment, enabling our infrastructure to be upgraded and environmental standards to be improved. I saw that for myself when I visited Northumbrian Water’s waste treatment site in Howdon. Its investment in anaerobic digestion is enabling it to process 500,000 tonnes of sewage every day that was previously dumped untreated in the North sea.

Our rivers are now cleaner than they have been for decades. Rivers that were previously classified as sterile or biologically dead are now supporting otters and salmon. A substantial programme of investment has also led to more than 82% of our bathing waters meeting the highest EU standard this year. That is a great example of improving the environment and growing the economy.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

The Secretary of State will know that there has obviously been general support for a clean Thames, but the proposals for the Thames tunnel are still controversial. Will he update the House on whether the Government have concluded their discussions and negotiations with Thames Water about the mechanism to ensure, if we are to have a tunnel after the planning inquiry, that people in the Thames area do not pay through the nose for the privilege?

[Mr Paterson]

I am fully aware that that is a matter of enormous interest to the right hon. Gentleman and his constituents. To put it bluntly, it is not acceptable that we continue to put 20 million tonnes of untreated sewage in the Thames every year. We have considered a range of alternatives—I know that he has been advising on this—and have concluded, as did the previous Government, that the tunnel is the best solution. We continue to negotiate in detail with Thames Water on the arrangements that will lead to the conclusion of the project.

We now need to build on our success. The Bill will shape the way the industry develops over the next decade and beyond. It will build on the strengths of the regime and use increased competition to drive greater innovation and efficiency, which will benefit customers and make sure that our water supplies and natural environment are resilient.

The Bill shows that we are tackling affordability for the long term.

[Mr Charles Walker (Broxbourne) (Con)]

My right hon. Friend says that we are going to improve the nation’s ability to capture and store water, thereby reducing abstraction. Will he be telling us later in his speech where the new reservoirs are to be built?

[Mr Paterson]

I will be moving on to that. I cannot tell my hon. Friend exactly where the new reservoirs will be because that will be down to the individual companies, according to local circumstances, but I can categorically assure him that I hope that the measures in the Bill will release a floodtide of new investment, potentially in new reservoirs, use of aquifers and transfer of water between water companies, to maximise use of the water that lands on this country. I remind him that 95% of that water ends up in the sea. We need to manage the water better before it gets there.

The Bill shows that we are tackling affordability for the long term. The package of reforms is designed to exert a sustained downward pressure on water bills and ensure affordable flood insurance for households in areas at high risk of flooding. We are well aware of the financial challenges that hard-working households are facing.

Earlier this month I wrote to water companies asking them to consider whether to apply the full price increases next year that were planned for in the 2009 price review. I asked them to share the benefits of historically low financing costs with their customers. Ofwat is with me on this. It estimates that by taking account of lower financing costs, the next price review could reduce pressure on bills by between £120 million and £750 million a year from 2015, while still enabling companies to invest in high-quality services and the environment. This demonstrates once again how critical financing costs are to the bills that customers pay: 1% on finance costs leads to about a £20 increase in bills to customers. We must not undermine in any way the stable regulatory system which gives confidence to investors.

This Bills means that all business, charity and public sector customers in England will be able to choose their water supplier and, for the first time, their sewerage supplier. They will be able to shop around for the best deal and a package that suits them. Large water users could make savings by switching to a water supplier that offers them water efficiency advice and smart metering. We have seen how competition in Scotland is delivering real benefits to customers and to the environment. The public sector in Scotland is forecast to save £36 million over four years, thanks to better water efficiency and discounts. Customers in England deserve the same opportunities. Multi-site customers such as hospitals and supermarkets could save thousands of pounds in administration costs by dealing with only one water company.

[Oliver Colvile (Plymouth, Sutton and Devonport) (Con)]

I am fully aware that in the south-west we have significantly higher water rates—probably the highest in the country. The Government have noted that and uniquely have given customers of South West Water £50. Does my right hon. Friend think that competition will drive down bills in the south-west as well?

[Mr Paterson]

I have no doubt at all that we want more efficient water companies with more investment, which undoubtedly will lead to a cheaper product.

We are already seeing the first signs of a competitive market. In September, to answer my hon. Friend’s question directly, First Milk became the first multi-site customer to switch to Severn Trent Costain. The two companies are working together to improve First Milk’s water efficiency and lower its environmental impact, but these opportunities are limited at present because they are open only to the largest water users. The Bill will simplify the existing regime, providing clear rules of access and non-discriminatory pricing to attract new entrants to the market. We expect this expanded retail market to open in 2017.

[Andrew Miller (Ellesmere Port and Neston) (Lab)]

I take the right hon. Gentleman’s point about expanding the market and the smaller companies. However, the Canal & River Trust, a body supported on both sides of the House, is concerned that clause 12 will impact negatively not just on its ability to deliver its charitable objectives, but on its navigation functions and income. Will he have a close look at that and agree to meet representatives of the Canal & River Trust to discuss their concerns?

[Mr Paterson]

I thank the hon. Gentleman for that interesting question. We would be happy to meet the Canal & River Trust—it would be appropriate for the Under-Secretary of State, my hon. Friend the Member for North Cornwall (Dan Rogerson), to do so, as he is taking the Bill through the House—but I think that it is being negative. With its wonderful and virtually national network, it has a real opportunity, because if we open up more upstream providers we will need a vehicle for moving water around. I take a very positive view of this for the Canal & River Trust. We are definitely happy to meet it.

We are not at this point offering choice to household customers. We are taking a step-by-step approach, gaining experience from a competitive business retail market first and reducing any risk to investment in the sector. We have seen in Scotland that competition tends to be around value-added services, rather than price, making the case for household competition less attractive. The conditions need to be right. For example, we would need much higher levels of metering before household competition was practical. Although household customers will not be able to choose their supplier, they will benefit from a framework that encourages water companies to put customers at the centre of decision making or risk losing market share. Ofwat will ensure that household customers do not subsidise the costs of increased competition.

I know that some water companies have asked for the option of exiting the retail market. The problem with that approach is that household customers could lose out because they would not have the ability to move to a new supplier, and if the incumbent water company keeps its household customers but disposes of its business customers, the householder is stranded with a company that has little incentive to provide a decent service. We are not prepared to risk that.

The Bill will also make it much easier for new businesses to enter the water market to provide new sources of water or sewage treatment services, known as upstream services.

[Mr Charles Walker]

On that point, will my right hon. Friend clarify something for me? What is a new source of water?

[Mr Paterson]

A new source of water is one that is not currently being used, so that could mean opening up old boreholes, or farmers building new reservoirs, or water companies building new reservoirs—we have not built a new reservoir in this country for over 30 years. There are all sorts of new sources of water. Around 95% of the water that lands on this country ends up in the sea. We want to manage it better before it gets there.

[Hywel Williams (Arfon) (PC)]

The Secretary of State has just referred, as he did earlier in his speech, to “this country”. Which country does he mean?

--- Later in debate ---

[Mr Paterson]

Well, water lands on the whole of the United Kingdom. The hon. Gentleman is probably referring to the Welsh aspect of the Bill, and I think that he knows that the Bill’s competition elements will not apply to customers in Wales.

[Mr Redwood]

I am grateful to the Secretary of State for giving way once again—we are teasing out important points. Does he agree that there are quite a lot of rising water tables under the big towns and cities of this country, because they used to be tapped but no longer are? Is not that a good source of new water that competition could deploy?

[Mr Paterson]

My right hon. Friend is absolutely spot on. We used to have heavy industries in our cities that used large amounts of water, as I know well, having worked on Merseyside for 25 years. Merseyrail has had problems with water because so many of the extractive industries have gone. There is no problem with the volume of water; it is about getting it to the right place at the right time and by the right means. That is what I hope the Bill will facilitate.

Our reforms will increase water supplies by making it more attractive for landowners to develop new sources of water, or for innovative businesses to treat and dispose of waste water. Let me take a hypothetical example. If a brewery with its own borehole has spare capacity, it might be able to supply its pubs in the area more cheaply than they could be supplied by the local water company. The brewery could put its spare water into the water company’s supply system or work with a retailer providing broader services to those businesses.

We also want to make it easier for our farmers and land managers to develop new sources of water, such as on-farm reservoirs, and to hold water back. For example, a farmer with an on-site reservoir that more than meets the farm’s water needs could make an arrangement with either a licensee or the incumbent water company to enable it to put water into the supply system. The water could be supplied regularly or only at times of high demand. Either way, the farmer would have a new product that he could sell.

[Guy Opperman (Hexham) (Con)]

I applaud the Secretary of State’s notification that Northumbrian Water is doing great work at Howdon. On the creation of future reservoirs, how will we provide financial incentives for the farmers and other providers of such future reservoirs, whether big or small, to go ahead and do the necessary infrastructure planning for such operations?

[Mr Paterson]

It is known as the market; where there is demand, people will invest. We are hoping to create a new market for this product, and I am absolutely confident, given the freedoms we are releasing in this Bill, that there will be significant investment. We should not forget that £116 billion is an extraordinarily large amount of money that we would never usually have got from the Treasury under any Government of any colour. This is a great success. We want that investment to keep flowing in for exactly the sort of projects that my hon. Friend discusses.

For the first time, we are opening a market for businesses to recycle and reuse waste water as a new water resource. They will also be able to purchase sewage sludge that might otherwise have been sent to landfill—for example, for use in anaerobic digestion plants.

We need to increase the number of options that water companies can use to store and supply water to their customers. The solutions will vary across the country, reflecting different levels of water demand and availability, geography, and geology. For some, storing more water in new reservoirs or in recharged aquifers will help. Others, particularly in water-stressed areas, may need more action to cut demand, including through greater water metering. For others, improving interconnection to move water around between their supply systems will help. Companies such as Severn Trent, Anglian and Yorkshire Water collaborated on practical solutions during last year’s drought. This Bill will make such supply arrangements much easier to put in place. It will enable water resources to be used more flexibly and efficiently, reducing the need for expensive new solutions that customers would have to pay for.

The Bill provides flexibility for the regulator to work with the industry on shaping and introducing these new markets. It also includes checks and balances so that the Government can ensure consistency with our policy framework. We will be issuing guidance to Ofwat on how it must set the rules of the game. We have already published charging principles so that people can see how Government policy will shape the new regime. Since the pre-legislative scrutiny of the draft Bill, we have strengthened the role of Government, with a power to veto Ofwat’s charging rules, and the new market codes. I am extremely grateful to Members of this House, especially those on the Environment, Food and Rural Affairs Committee, who scrutinised the draft Bill. The Bill is stronger as a result of that scrutiny.

Governments do not create successful markets. Well-functioning markets are created by participating businesses and are allowed to evolve over time. That is why the detailed work to develop these new markets is being delivered by the experts. Through the Open Water programme, we are working with the water industry, Ofwat, the Scottish Government, regulators and customers on the detailed work required to prepare for implementation of these new markets. We are committed to reforming the abstraction regime so that it is fit to face the challenges of the future.

[Mr Charles Walker]

Will my right hon. Friend give way on that point, because it is such an interesting topic that I think he will have a lot to offer?

[Mr Paterson]

indicated assent.

[Mr Walker]

Over the past 30 years, these so-called experts, particularly the water companies, have destroyed many of the chalk streams in my part of the country and in Wiltshire, Hampshire and Dorset—the list is almost endless. I therefore do not have a lot of confidence in them. They are very good at looking after their own interests but not the interests of the environment.

[Mr Paterson]

I am grateful to my hon. Friend for his statement. I assure him that I take on board the damage that has been done by over-abstraction. However, this is extremely complicated and it is going to take time; we could make a real mess of things if we blunder into it. I am absolutely confident that through the upstream reforms that I mentioned, by holding more water back in various forms, which might be the reservoirs my hon. Friend wants, putting down aquifers, or SUDS—sustainable drainage systems—schemes, we will have water available for these rivers when they run dry. I totally sympathise with his worries about the chalk streams. It is very much our intention that this Bill will provide more water to keep these rivers flowing.

[George Hollingbery (Meon Valley) (Con)]

I want to take my right hon. Friend back to his example of the brewery. He says that we will benefit from these upstream reforms and that water will be held back. Does he agree that when he is considering the regulatory framework it will be important to ensure that resources that have been used in one way previously and will be subject to change—for example, by the brewery drawing more water than it would have done in totality before—are assessed by various agencies to make sure that the strain on resources is not overbearing on the system in its entirety?

[Mr Paterson]

My hon. Friend is absolutely right: there is no point in over-abstracting from a new source. However, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, because of the reduction in heavy industry there are significant amounts of water in various parts of the country, and this is all a question of moving it around according to local circumstances. I know that my hon. Friend and my hon. Friend the Member for Broxbourne (Mr Walker) have a real interest in abstraction. Our clear view is that the Bill will lead to a greater supply of water, which will help the rivers, about which my hon. Friends rightly worry, not to run dry.

[Barbara Keeley]

Will the Secretary of State give way?

[Mr Paterson]

I am happy to give way.

[Barbara Keeley]

I thank the Secretary of State for giving way, although he does not look overly happy to be doing so. He kindly answered my earlier question about pollution, which is a real concern to my constituents. I am very concerned about mosslands in my constituency and the Secretary of State has said that he shares my concern. Lancashire Wildlife Trust and other organisations that protect the mosslands are very concerned about the possibility of de-watering, given that shale gas exploration is happening very close to our mosslands. Will the Secretary of State address that point?

[Mr Paterson]

I am happy to answer the hon. Lady. We are completely clear that we will not allow the procedure to go ahead if it is going to cause environmental damage. We have to respect a whole range of directives pertaining to water. We are absolutely clear that we will not weaken or dilute—to use a watery phrase—the robustness of our regulation. We will completely lose public confidence if we do that. This has to be done in a robust manner.

The hon. Lady should look at examples that I have cited, such as Wytch Farm, which has been extracting hydrocarbons for decades without any environmental damage at all and which is very close to some very sensitive environmental sites. If this is done professionally and regulated properly, the hon. Lady should have nothing to fear. I am as keen as she is to protect our wetlands, including mosses, and I am clear that we will not dilute in any way the rigour of our regulation.

To return to abstraction, I know that some people—we have heard from some of them—think that we are not moving fast enough. Reform of the regime is complex. It has been in place for 50 years and the changes will affect the businesses of abstractors up and down the country—businesses that require water for public supply, electricity generation, manufacturing and irrigation. We must get this right. Shaping a new regime involving up to 30,000 abstractions is complicated, so we will consult on our proposals soon.

Reform of the abstraction regime is only part of the story. We are taking action now to reduce the damage to rivers, such as the chalk streams that support some of Europe’s unique habitats. We are using and improving the tools we have now to vary and remove damaging abstraction licences. For example, we have already made changes to protect the River Darent and the River Itchen.

In this Bill we are making it easier to tackle damaging abstractions in advance of our wider reform by making funding of schemes to restore sustainable abstraction quicker and easier. We will not take any risks with the introduction of upstream reform. We have looked carefully, with both Ofwat and the Environment Agency, at the concerns that have been raised. I am satisfied that there are robust regulatory safeguards in place to prevent upstream competition from leading to environmental damage. We will also co-ordinate implementation. The new upstream markets will not open before 2019 and we expect to implement abstraction reform in the early 2020s so that we can make sure that these reforms are carefully co-ordinated.

Resilience was a central theme of our water White Paper and it is a central theme of this Bill. We listened to calls in pre-legislative scrutiny to make sure that it is also central to the way in which the sector is regulated. We have strengthened Ofwat’s role in safeguarding long-term resilience. The Bill includes a new primary duty to take account of environmental pressures, population growth and demand on our essential services. I know that some are keen for Ofwat’s existing sustainable development duty to become a primary duty. We have looked at the arguments for that change. People want Ofwat and water companies to address longer-term challenges and deliver a better deal for customers and the environment. We want to achieve that, too.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

If we really want to improve environmental stewardship, I would argue, as others have done to the Select Committee, that the statutory duty on sustainable development will put the Government in a better place than resilience.

[Mr Paterson]

I am grateful to the Committee Chair for all her hard work. We have looked at the issue and believe that resilience means a stronger focus on longer-term planning and investment. By creating a new overarching duty specifically designed to increase the focus on long-term resilience, I think we will deliver what the Committee has been looking for. Resilience also means protecting the water resources that are so critical to current and future supplies. As I have said, ultimately 95% of water runs out to the sea, and the Bill will help to manage it more effectively.

Just as water reform measures will help our supply systems and environment to deal with water shortages, we must also be prepared for flooding. I have seen for myself how devastating it is to be flooded. This time last year, I visited Exeter and Kennford and saw the impact of the floods on people’s homes, lives and families.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Has the right hon. Gentleman had any discussions with his colleagues in the Department for Communities and Local Government, because the Help to Buy scheme operates in areas where his proposed flood insurance scheme will not operate? It seems to me that one hand of the Government does not know what the other hand is doing.

[Mr Paterson]

Our planning guidance is absolutely clear that there should be no building on areas that are subject to flooding.

We know perfectly well that the priority must be to avoid flooding in the first place. That is why we will spend £2.3 billion over this Parliament on protecting households and businesses against flooding. In practical terms, that means that 165,000 properties will be better protected in 2015 than they were in 2010. It is also why we will make record levels of capital investment over the six years from 2015-16: the level will rise to more than £400 million per annum by 2020-21.

We need to give people at high risk of flooding the certainty that they can continue to get affordable flood insurance, as was touched on by my hon. Friend the Member for The Wrekin (Mark Pritchard). We consulted on draft flood insurance proposals over the summer, and I know that hon. Members agree that a solution is essential for the continuing protection of people at high risk of flooding. We are still in intensive and constructive discussion with the insurance industry on some of the finer points of detail, but we plan to table new clauses in time for consideration in Committee. The powers in the Bill will help to ensure that affordable flood insurance is available for households in high-risk areas.

[Mark Pritchard]

My right hon. Friend is being generous in giving way, as is his custom. In addition to those comments, he will know that there is often run-off from motorways and roads, so what discussions has he had with the Highways Agency and local government on that issue?

[Mr Paterson]

That issue is really for the Environment Agency, which works closely with the Highways Agency and local government to ensure that there is no pollution from water that runs off public roads.

[Nia Griffith (Llanelli) (Lab)]

Will the Secretary of State give way?

[Mr Paterson]

I think that this will be the last time that I give way.

[Nia Griffith]

The Secretary of State rightly says that we have discussed flood insurance for a considerable time. I very much welcome the Flood Re programme, but why is there not more detail in the Bill, and why will so much of it be pushed aside and dealt with as statutory instruments, when so many hon. Members want to discuss the detail more fully?

[Mr Paterson]

The hon. Lady takes rather a churlish attitude, as her Government did absolutely nothing to replace the statement of principles, despite knowing perfectly well that it would run out in June 2013. We have been involved in extremely detailed negotiations but, as she knows, the subject is very complex. I entirely agree that it would have been ideal to have detailed clauses ready in time for the Bill; sadly, they are not ready. She is, however, rather critical of those who may be members of the Committee. If she is lucky, she might get on to the Committee, because it will be able to debate those clauses in exhaustive detail.

Our preferred approach, which is known as Flood Re, will limit the amount that high-risk households have to pay on the flood insurance element of their premiums and excesses. The effective limit on the premium would vary according to council tax band, rising for more expensive properties, which means that benefits will be targeted towards lower-income households. Insurers have agreed to continue to meet their commitments under the 2008 statement of principles until the Bill has passed through Parliament and Flood Re has been set up.

Although Flood Re remains our preferred approach, we are seeking reserve powers to provide affordable cover if it should prove unworkable or prices in a free market prove unacceptable. Having a fall-back means that customers can have confidence that the issue is being addressed. All Government policies go through a rigorous economic impact assessment, but that cannot always represent the full range of benefits, such as the value of reducing the uncertainty for households over whether they will be able to afford flood insurance. Our preferred option, Flood Re, may require me to provide a ministerial direction. If that is the case, I will be happy to do so.

I am pleased that there is cross-party support for our proposed approach. There will be a fair deal for householders and taxpayers, and better choice for flood insurance customers. I am particularly grateful to the Association of British Insurers and the rest of the insurance industry for their co-operation and work in developing a sensible solution for homes that are at flood risk.

[Andrew Percy (Brigg and Goole) (Con)]

My constituency is at massive risk of flooding because it is below sea level in many places. We require pumping 24 hours a day to keep us dry. I welcome what the Secretary of State has said about Flood Re because getting flood insurance has been a problem for my constituents. However, there is concern among people who live in houses that were built after 2009 and there is concern about the development of our town, given that we are so susceptible to flood risk. Will he set out the Government’s thinking on properties that were built after 2009? Will any solution be offered for them in the future?

[Mr Paterson]

It is not our proposal to include those whose houses were built after 2009 if they were built on areas that are subject to flood risk.

In the Bill, the Government are seeking to put in place the long-term conditions for sustainable economic growth and the improved resilience of our water supplies and environment. We are also seeking to increase choice for the consumer, exert a sustained downward pressure on water bills and ensure that there is affordable flood insurance. The approach under the Bill is one of partnership —partnership between the Government, business, regulators, environmental organisations and the public. I look forward to working with colleagues and each and every one of those groups to make that a reality. I commend the Bill to the House.

[Maria Eagle (Garston and Halewood) (Lab)]

Despite the sensible measures that are contained in the Bill, this is a wasted opportunity to tackle the impact that rising water bills are having on stretched household budgets. Water bills have increased by almost 50% in real terms since privatisation. With wages not keeping pace with inflation, that is adding to the cost of living crisis. Prices have risen faster than wages in 40 of the 41 months in which the Prime Minister has been in Downing street. People are more than £1,600 a year worse off on average under this Government.

The rising cost of water is adding to that pressure. However, the Bill fails to provide Ofwat with tougher powers to bring down prices and it fails to require water companies to help those who are struggling to pay their bills. Despite the promises from the Prime Minister that we would see action, the Secretary of State has not brought forward a single new measure. All that we have seen is one weakly worded letter to water bosses, begging them not to hike bills next year. There was not even a threat of action if they take no notice—no threat of a tougher regulatory regime and no threat to impose an affordability scheme.

[Mr Paterson]

I am very grateful to the shadow Secretary of State for giving way. It might rather spoil her argument if I pointed out that all the current prices were set by her Government in the last price review in 2009. Between 1999 and 2009—between the first and last price reviews under the last Government—water bills rose in real terms by £65, from £324 to £389, which is an increase of more than 20% in the average household bill. Today, under this Government, the price of the average bill is £388.

[Maria Eagle]

The right hon. Gentleman appears to be making a second speech. The previous Government were the only Government to see water bills cut during their time in office. We need to see a determination in the right hon. Gentleman to ensure that Ofwat has the proper powers to deal with water companies. He ought to remember, even if he is technically in favour—

--- Later in debate ---

[Mr Paterson]

rose—

[Maria Eagle]

I will not give way until I have finished answering the point the right hon. Gentleman has already made. Even if we get to such a point, there will be a significant period in which householders are subject to a monopoly. He must ensure that Ofwat has the relevant powers.

During our exchanges in the House in questions to the Department for Environment, Food and Rural Affairs last Thursday, I asked the right hon. Gentleman what steps he had taken between meeting the water companies in July, which he referred to in his letter, and his follow-up letter to them this month. He was not able to list a single action because the truth is that he did nothing for four months until he began acting under orders from No. 10. That was after the Prime Minister decided that he had no choice but to appear interested in the issue, following an intervention from the Leader of the Opposition.

The right hon. Gentleman made it clear in his letter to the water companies that he favours a voluntary approach, with companies deciding for themselves if and how to help those who are struggling. He does not propose any new powers to widen Ofwat’s scope to reopen pricing settlements between reviews, yet while customers pay among the highest bills in Europe, water companies are doing well from their monopoly position.

Last year, regional water companies made £1.9 billion in pre-tax profits, but paid out a staggering £1.8 billion to shareholders. We know they do that and that it is achieved through financial engineering designed to maximise their debt and minimise tax liabilities. That is unacceptable and morally wrong when people are struggling, and I believe people across the country will agree.

--- Later in debate ---

[Maria Eagle]

I will say a little more about what extra powers I think the regulator should have, and perhaps at that point I will deal with some of the questions raised by the right hon. Gentleman.

The Opposition will seek to amend the Government’s legislation and address its central weakness, which is the lack of measures to tackle the contribution that rising water bills are having on household budgets. First, we will seek to grant Ofwat more wide-ranging powers to reopen price reviews between the current five-year periods. In his answer to me last Thursday the Secretary of State said:

“I have written to water companies to call on them to consider the pressure on household incomes when making future bill decisions and, in particular, to consider whether they need to apply the full price increases next year allowed for in the 2009 price review.”—[Official Report, 21 November 2013; Vol. 570, c. 1350.]

However, it should not be for water companies simply to “consider” limiting price rises; the regulator needs much greater powers of intervention when those companies are making far more than anticipated at the time of the review.

[Mr Paterson]

I am grateful to the hon. Lady for giving way again. The fact is that the previous Government let Ofwat go to sleep. They did not have a proper regulator but we have a robust new regulator in Jonson Cox. Only last week he turned down a proposed price increase by Thames Water, which would have put 8% on bills. That is what a proper regulator does, backed by a proper Government who have a real interest in keeping bills down for our hard-working families.

[Ms Eagle]

The right hon. Gentleman clearly has great faith in Mr Cox, and we will see in due course whether he is correct in that respect. My point is that Ofwat’s powers—rather than the personality running it at any given time—are limited to acting when revenues are at least 10% higher than expected. That does not adequately address the high dividend payments, particularly relating to gearing, which happen across the industry. Last Thursday, the Secretary of State referred to Ofwat as “a vigorous independent regulator”. I have no doubt that, under its current leadership, it would wish to be so, but it needs to be strengthened to be more effective. The Government’s Bill is a wasted opportunity to strengthen Ofwat.