Water Companies: Regulation and Financial Stability

Robbie Moore Excerpts

Wednesday 23rd October 2024 Westminster Hall

[Robbie Moore (Keighley and Ilkley) (Con)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Westmorland and Lonsdale (Tim Farron) on securing this important debate.

As has been acknowledged by all hon. Members, the UK’s waterways are the country’s lifeblood. When they are in a good condition, it is beneficial not only for the environment, but for public health. It is also crucial for biodiversity and local communities that rely on the waterways—not only for recreational purposes, but for tourism.

The last Government were determined to take a positive stance on improving water quality. To do that, however, we needed to understand the situation that water companies were in. That is why we specifically focused on increasing the monitoring of outfalls from the start, taking a monitoring rate for storm overflows from 7% in 2010 under the last Labour Administration to 100% at the end of 2023. In March 2024, we fast-tracked £180 million of investment that had to be allocated within the last financial year by water companies, with an expected reduction of 8,000 sewage spills in English waterways. We also linked shareholder dividends to environmental performance, quadrupled water company inspections and launched a whistleblowing portal for water company workers to report breaches.

[Joe Morris (Hexham) (Lab)]

Does the shadow Minister not feel embarrassed that it was his Government who beggared the Environment Agency and weakened regulators to the point where we had sewage flowing into rivers such as the Tyne and the Coquet in Northumberland? Does he not feel a little bit of guilt about trumpeting his Government’s apparently positive record?

[Robbie Moore]

I thank the hon. Gentleman for joining the debate; I see that he came in right at the last minute just to make that contribution.

My answer is no. When we were in Government, we absolutely wanted to embolden the regulators with as much power as they required, which is why we specifically linked dividends to environmental performance so that Ofwat had more power to hold water companies to account. Not only that: we increased the amount of funding allocated to the Environment Agency and empowered the whistleblowing portal so that employees within water companies, or indeed within the EA or any of the other regulators, could make their concerns known. In that way, we as the Government—and now the incoming Government—could make proper progress and ensure that proper, positive change was implemented to improve water quality.

The financial stability of the water companies is, of course, a serious issue, and that affects our constituents through not only potential price increases, but performance-related issues. Sensibly, Ofwat expects water companies to maintain a level of financial headroom to manage short-term volatility and shocks to their financial structures, and to meet their obligations and commitments, which are set both by Government and internally by the regulator. Above all else, however, consumers must be protected so I welcome the fact that Ofwat strengthened its powers to improve financial resilience. That includes stopping water companies from paying dividends when financial resilience is also at risk.

The new Government have said that cleaning up England’s rivers, lakes and seas is a priority and to achieve that the Water (Special Measures) Bill has been introduced through the House of Lords into Parliament. Perhaps I should not have been so surprised that that is effectively a reworked version of the policies introduced under the last Government. In the Bill, the Government pledge to introduce new powers to block bonuses for executives of water companies that pollute our waterways —something announced by the last Conservative Government. However, the powers are not quite the promises constantly regurgitated by the Labour party when they were out on the doorstep— they were telling many of their voters that water company bosses would end up “in the dock” if their water company had been falling foul of environmental permitting obligations. The Water (Special Measures) Bill simply does not achieve that. By introducing the Bill, the new Government have frustrated not only campaigners but investors who want to invest in the sector.

Opposition Members spent many a day out on the doorstep also promising that they would take swift and bold action, but as we have seen from today’s announcement of a new commission, a new review and a new taskforce, the Government are just throwing the hard decisions into the long grass and simply kicking the can down the road.

[Mr Charters]

Does the hon. Member not welcome the Government’s appointment of former deputy governor of the Bank of England Jon Cunliffe? He had that expertise as deputy governor in financial stability. Does the hon. Gentleman not think that we need to look again at the whole system when it comes to the financial instability of water companies that he and his colleagues left behind?

[Robbie Moore]

I thank the hon. Gentleman for his intervention. I absolutely welcome anything that will improve the water sector. When I was a Minister in the Department, many issues needed to be addressed. I noticed that the hon. Gentleman commented in his speech that the Minister was working at pace, but the review will take at least a year to implement. I want to ask the Minister, as I did the Secretary of State in the House earlier: when will the positive recommendations from the review be implemented? We know that we are entering price review 2024, which exists from 2025 to 2030, but when is the industry likely to see any positive implications of the results of the commission that has been instigated today?

The Government have also confirmed that they will work with farmers to reduce agricultural pollution. I understand that Ministers have said that that will be through a series of

“proportionate and effective regulations, advice and incentives to deliver improvements”.

Can the Minister clarify how that will roll out? What new regulations does the Department anticipate bringing in? The farming budget is rumoured to be slashed by at least £100 million, so how will the Government incentivise farmers through public money to do the right thing in reducing run-off from fields and from their agricultural activities?

Will the Minister also outline whether any regulatory easement will be applied to water companies going forward? Many Members have raised concerns to do with Thames Water and the like, but I would like to specifically understand whether the Minister, her colleagues or the Secretary of State are looking at implementing a regulatory easement, as the Opposition would not want to see lower standards, the relaxation of environmental permits or a reduction in agreed levels of investment by any water company, irrespective of their financial circumstances.

Sound management of water companies is vital if customers are to receive the high level of service that they expect, and better environmental performance must be driven forward.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Emma Hardy)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I thank the hon. Member for Westmorland and Lonsdale (Tim Farron) for securing this debate. I will make sure he has time to sum up at the end.

In response to the shadow Minister, I think the Government’s record speaks for itself. Although he might wish to rewrite history, he cannot actually change history. If people want to see what his Government achieved, they just need to look at a storm overflow pipe or perhaps the level of pollution in every river, lake and sea. The public outrage and outcry over this issue is felt by everybody. It is certainly felt by this Government.

The level of pollution in our iconic lakes such as Windermere and in our beautiful chalk streams—we have had debates on this before—is outrageous. It is right that that has become more of an issue as time has gone on. That is a positive thing. We need to value our nature to a far higher level than we ever did before, and change is needed. Indeed, we were elected on a mandate to bring about that change. I am pleased that climate change was mentioned in the debate as well. Our problems will only increase because of our changing climate. Everywhere will perhaps not be quite as wet as the constituency of the hon. Member for Westmorland and Lonsdale, but places will certainly be getting to those kinds of levels.

I pay tribute to all the campaign groups and organisations that have come to meet me since I became the Minister with this responsibility. Those people are incredibly passionate and dedicated, often citizen scientists giving their spare time to work on this issue, because they passionately believe in it.

I must mention the wonderful speech of my hon. Friend the Member for Easington (Grahame Morris), the quietly spoken radical. I welcome his support for the Water (Special Measures) Bill. Never let his quiet ways lead to underestimating the secret radicalness within him. I hope that he will contribute to the water review and the consultation. We will welcome his expertise.

I pay tribute to a fantastic new Member, my hon. Friend the Member for York Outer (Mr Charters), who is a brilliant local champion. I value his contribution and I share his outrage at the levels of sewage he has seen in his constituency. I agree with the very good point he made: when we look at the consultation, we should look at other regulatory systems to see what works well and at what lessons can be learned, so that we create a system that is effective for the future. I hope that that is something that he, too, feeds into the consultation.

The Water (Special Measures) Bill has been mentioned a number of times. Before it comes to this House, I will organise drop-in sessions for Members of Parliament, who are welcome to talk to me about possible amendments and things that they would like to see in the Bill. I am happy to discuss that. I will of course make time for all the Front-Bench spokespeople to talk to me about it, too.

I have to say, however, that I was rather surprised to hear criticism by Members of Parliament of the idea of inclusion, of consultation with our commission. This Government believe in doing things with people and not to people. I will go so far as to say that the Government are not arrogant enough to believe themselves to have all the answers and expertise, especially with so many experts out there. The Government want to reset our water industry for decades to come and—this is in my DNA and is stated on the back of my Labour party membership card—we believe

“that by the strength of our common endeavour we achieve more than we achieve alone”.

This is my philosophy of working with other people—looking at systems of co-production, at how we can create consensus, and at bringing together different ideas and expertise. I was therefore a bit surprised to hear that the idea of consultation and including others should be ignored. In fact, the previous Government had many examples of being arrogant enough to presume that they knew all the answers. Indeed, that Government created systems and policies that have been found to be utterly failing, because they did not listen to what the general public or campaigners were saying.

There is little point to different Members of Parliament talking about how they value the contribution of campaigners and organisations—how welcome those are and how well they have worked with them—when they also say that the ideas and expertise of those campaigners and other people should not contribute to Government policy. Deeds, not words—if we value people’s expertise and contribution, we must let them work with us to shape legislation for the future.

This commission will work with those experts, will value their contributions and listen to them, and will shape something that is fit for the future. It will conclude in June and, after a couple of months of looking at the consultation and Government response, further legislation will be brought forward. Some things will need primary legislation to change, as the shadow Minister, the hon. Member for Keighley and Ilkley (Robbie Moore), understands, but some things can be done more quickly. That very much depends on the recommendations. If primary legislation is required, obviously such things will take longer.

An important point to make is that the Government want to do things in a different and inclusive way. I reach out to each and every one of the people in this Chamber to say: “We want to do this with you.” Yes, there will be different points of view across the Chamber and there will be different ideas about what the right answer is, but let us act collectively on this, not just as Members of Parliament across the House, but as campaigners, organisations and members of all groups, even my mum’s wild swimming group—I am sure they have many an opinion on what the right policy should be. Let us come together to create something meaningful that will command cross-party support and make a difference. That is what we want from this consultation. I will be honest: I am a bit disappointed that people think consulting and working with others is a bad idea.

While I am having a slight moan about things that are slightly disappointing, there seems to be a confused message coming from the Chamber. Members have highlighted that some of the drought plans for water companies are rather, shall we say, extreme, as they involve shipping water over from other countries to deal with droughts, but they also criticised building reservoirs. They cannot do both. If we are going to plan for droughts, we need to talk about building reservoirs and ensure we have the infrastructure we need for the future.

What have the Government been doing? In week one, we got all the CEOs together in a room and talked to them about how we fix the industry. From that meeting, we secured a change to the articles of association, ringfenced funding for vital infrastructure, and new customer panels, and strengthened the protection and compensation for householders. In the week after the summer recess, we introduced the Water (Special Measures) Bill, so in our first 100 days we have hardly been resting on our laurels.

A lot has been said about the independent commission. It is really important that it is independent, and I am pleased that my hon. Friend the Member for York Outer paid tribute to Sir Jon Cunliffe, whose expertise and financial record are second to none, so is somebody we can work with collectively to produce something really effective.

[Robbie Moore]

On the commission, would the Minister be kind enough to outline to the House the timings? The PR24 process, which Ofwat is looking at, comes into effect next year and will be in place until 2029-30. Will any positive recommendations from the commission take effect within that price review period?

[Emma Hardy]

The shadow Minister is pointing out the way we plan and look at our five-year cycle. Whether that is the best way of doing things is a whole other question. The answer is the one I gave earlier: it very much depends on whether things need primary legislation. Some things that change the regulator will not affect the price review framework. The price review framework is based on the amount of money that people will invest in infrastructure, and changes needed for the next five years. That does not mean that things relating to regulation and the rules cannot be changed. I am sure he understands that.

I reiterate the Government’s commitment to driving meaningful, long-term improvements in the performance and culture of the water industry. We want to deliver on our ambition to clean up our rivers, lakes and seas, and the actions I have outlined today are only the beginning. I am passionate about this issue, and am very pleased to be leading on it. In fact, I asked to become the Minister for it, and we do not always get what we ask for in politics. I reiterate my invitation to work with each and every Member here. I think consultation and collaboration are good things, and I hope all hon. Members will embrace that. I look forward to working with them to achieve the goal that we all share: cleaner rivers, lakes and seas.