Water Industry

Robert Buckland Excerpts

Tuesday 5th November 2013 Commons Chamber

[Mr Robert Buckland (South Swindon) (Con)]

It is a pleasure to follow my hon. Friend the Member for Newbury (Richard Benyon), who spoke with passion and real understanding about what is a complex issue. The water industry was privatised nearly a quarter of a century ago now, and it is reaching a crossroads. While I agree with my hon. Friend about the levels of investment that privatisation has delivered—which is well in excess of £100 billion in the last 25 years—we are reaching a stage where we now need to look for different solutions. My hon. Friend touched on a number of them in his remarks, and I was very impressed by his description of City analysts and their attitude to the regulated sector, and the challenge of gearing. As he said, the high level of gearing is causing inflexibility. That is leading to unimaginative solutions to the problems that beset companies such as Thames Water, which serves not only the London area, but the area I have the honour of representing: Swindon.

My hon. Friend mentioned abstraction from the Kennet, and I should commend the Save Water Swindon campaign, which is all about encouraging householders to be sensible in the use of water. It has had a marked impact and continues to this day. Indeed, only a couple of weeks ago I was helping Thames Water promote that campaign.

All that is detail, however, but today’s debate presents us with an opportunity to look more broadly at the challenge facing the industry. I am grateful to the Backbench Business Committee for accepting the application made in my name and that of my hon. Friends the Members for Dover (Charlie Elphicke) and for Skipton and Ripon (Julian Smith). There is quite a geographical spread between our constituencies, which shows that this is an issue for the whole country, not just the area I represent.

Although cost-of-living issues are very much the stuff of current political debate, the issues raised today long predate the current political spat. This debate has to be about value for money for local consumers and businesses and finding better ways for our water industry to operate.

Despite the interesting contribution of the right hon. Member for Holborn and St Pancras (Frank Dobson), who is no longer in his place, there is no doubt that 25 years ago privatisation was the right course of action. There was no alternative for the industry if we were to seek and secure new forms of capital investment. The achievements of Bazalgette and the Victorians lasted us for a long time, but we have by now reached a stage where renewal and reinvestment are essential.

Now, after nearly a decade of continued price rises, householders are rightly asking themselves, “Why us?” In the context of the current monopoly, who can they turn to? The situation is worse than the Henry Ford scenario of “You can have any colour you like, as long as it’s black,” because there is nowhere else for consumers to go.

I understand why the regional model was adapted from the previous nationalised structure. In many ways that made sense in terms of bringing together infrastructure with water supply, and I can think of the example of Severn Trent with its assets over the border in Wales, but I ask this question: is the regionalised model sustainable for the long term? Is there not a better way of dealing with the industry?

[Mr Redwood]

When we debated this, I was the one who said, “You must have competition and you can have competition in water, as in other things.” I lost that battle. Privatisation solved the capital shortage but, apart from that, it has left all the evils of the monopoly in the nationalised business—a lack of quality, a lack of choice, high costs and a lack of innovation.

[Mr Buckland]

I am grateful to my right hon. Friend for that, and his role in all this back in the late 1980s must not be underestimated. As he rightly says, now is the time for us to draw an analogy with other industries such as telecoms, where infrastructure and supply are dealt with separately. Giving consumers the right to switch suppliers is essential if we are to drive through an improvement in service.

[Thomas Docherty]

I heard the hon. Gentleman making this argument earlier on the BBC. For the interest of the House, will he clarify whether he also believes that the water companies should be able to disconnect a customer who refuses to pay?

[Mr Buckland]

Disconnection is very much a last resort. We need to make sure that we do not put consumers off from switching for fear of disconnection that may be unjustified. Not only is water a resource for the country, but it has huge and essential social utility. It is one of the essentials of life, so I quite accept that we must have a social dimension to all this. That is why moving towards a system where we have more social tariffs to help the more vulnerable members of society would be a good thing.

[Thomas Docherty]

I am most grateful for that half-explanation. Does the hon. Gentleman accept that unless there is disconnection, the market simply cannot work? If we are going to have competition for households, we would have to have disconnection.

[Mr Buckland]

I do not follow that argument; it does not apply in other sectors and I do not see why it needs to apply in this one. Disconnection would not assist consumers when making that switch because they may well be deterred by the fear of disconnection, so I do not accept that argument.

[Charlie Elphicke]

My hon. Friend is completely right to reject the outrageous suggestion made by the shadow Minister that there should be the power to disconnect householders. Does he recall whether the Labour party, when it was in government, had any form of social tariffs or anything like what it has been calling for today? Or is this something where the Labour party has woken up and jumped on the bandwagon?

[Mr Buckland]

I hope that this debate will continue in a spirit of looking to the long-term future of the industry, rather than descending into anything approaching point scoring. I do not think that is worthy of the hon. Member for Dunfermline and West Fife (Thomas Docherty) and I am sure that we will not see such a descent in his contribution, because this issue predates this Government.

As I was explaining, price rises started to increase significantly in the middle of the past decade. The average Thames Water household bill was £254 in 2005-06 and it has now risen to £354. One of my constituents sent me his own list of increases, where he recorded that in 2005-06 his bill increased by a whopping 21% and that since that time his bills have increased by 84%. So we can see why consumers and residents are asking, “Why us? Why do we have to bear the burden?”

I am pleased that Ofwat has issued a preliminary decision to disallow Thames Water’s request to raise prices by £29 for customers’ bills with effect from 2014-15. Thames Water said that it wished to spread that increase over several years but, as Ofwat has said, Thames Water has produced insufficient evidence to justify such a rise. It is unique this year in terms of the other water companies and the issue is compounded by the prospect of indefinite rises of up to £80 for my residents in order to pay for the £4.1 billion Thames tideway tunnel. I am in no way an opponent of bold and imaginative infrastructure schemes. They represent the best spirit of what inspired the Victorians to create the infrastructure on which, in many ways, we rely today. Buildings such as this place were the result of such boldness. It is right, however, that we should ask the legitimate question about whether dealing with the problems experienced through the discharge of sewage into the River Thames is worth that £4.1 billion.

I have no doubt that there are serious issues with pollution, but air pollution in London affects more people than the issue that the tunnel seeks to address. Other proposals, such as those for sustainable drainage, would be a more incremental way of dealing with the problem than inflicting this large hit on consumers.

[Mr Charles Walker]

What does my hon. Friend suggest that London does with its faeces if we do not put them into the Thames or build a tunnel to take them away from the Thames? Where will it all go?

[Mr Buckland]

I am not saying that there is not a problem, but that there are alternative ways of dealing with it through sustainable drainage. Earlier, my hon. Friend made an intervention about the need to build more infrastructure. I heard what he said, but to my way of thinking the Abingdon reservoir was the wrong response to the problems that still besets Thames Water—that is, the massive leakages. Thames Water is still losing 646 million litres of water a day.

[Damian Hinds (East Hampshire) (Con)]

I congratulate my hon. Friend and his colleagues on securing the debate. Does he also agree that there is some question about where the figures of £70 or £80 resulting from the tideway tunnel come from? If we divide the £4 billion by the total number of customers in the area, it seems to come to a somewhat lower number. Are there not also questions about exactly how it is financed and whether it can be done more cheaply?

[Mr Buckland]

My hon. Friend is right to suggest that the breakdown of the arithmetic for individuals does not seem to add up. Thames Water intends to use a separate corporate vehicle to build this entity, but we must ask why the bill payer must bear the brunt of the problem.

Let me return to the question of leakages because the figures are quite startling. Although Thames Water is making progress in bringing the leakages down, and I give it credit for that, the figures are pretty disturbing. Last year, it was reported that Thames Water was losing 665 million litres of water a day, a leak rate of 25.7%. That was five times higher than the 5% that would have been saved by a hosepipe ban. The leaks would fill Wembley stadium every 36 hours.

[Alec Shelbrooke]

Would my hon. Friend care to elaborate on that for those who call for nationalisation? Is it not true that the state of the water industry and the state of the pipes the water runs through were caused by the lack of maintenance that happened when they were in Government hands? Since they have been in private hands, the investment has been put in to try to rectify that appalling problem.

[Mr Buckland]

My hon. Friend is right that the problem would probably be considerably worse had we left things as they were and expected the Government, with their declining pot, to invest and deal with leakages. The problems, however, remain and although Thames Water is working to try to deal with them, I believe that the company should concentrate on leakages before it advocates vast reservoir projects such as the one supported by my hon. Friend the Member for Broxbourne (Mr Walker).

It is not just Thames that has a problem of leakages. It probably has the most serious problem, but other companies such as United Utilities and Severn Trent also have considerable leakages. The most recent figures I have from Ofwat show that United Utilities is losing 457 million litres a day and Severn Trent is losing 441 million.

The Water Bill has been mentioned. The Bill is a good first step. It will be the first reform of the industry since privatisation, and it will bring choice for businesses, charities and the public sector, but as other hon. Members have said, we should be going further to allow that choice to be extended to residents and household consumers. I am glad to hear that the Bill will allow for a more joined-up approach to the water supply network, thereby in some ways dealing with the regionalisation issue that continues to bedevil the infrastructure. I am glad that there will be further improvements to the Ofwat regulatory system.

I am looking for a greater emphasis on developing social tariffs. How that is to be done will be a matter for detailed discussion, and while Government guidance, which has been welcomed, has already been issued about concessionary schemes for community groups, it is now up to the industry to act swiftly on social tariffs and to ensure that those who are the most vulnerable and who, like all of us, need access to a basic staff of life, can have that access without the fear of disconnection that was mentioned by the Opposition spokesman.

As I said, this is an issue of not only household and local significance but national resonance. I shall not repeat some of the points that were raised by hon. Members about excessive boardroom pay, rather exotic tax arrangements and capital expenditure, but it is important to note, looking at the figures based on current prices, that in real terms gross capital expenditure by the four major water companies in England and Wales has fluctuated and is on a downward path. My hon. Friend the Member for Newbury spoke eloquently about the cyclical nature of investment, which is hardly a solid foundation for attracting the much needed future and further investment in the water industry. While it is right to say that the Ofwat regime—Ofwat is currently looking at the 2015-20 price regime—is an appropriate exercise of regulatory power, we need to try and get through the cyclical problem that is causing the inflexibility in the industry that he talked about.

Today’s debate is a chance not only to make an important contribution to the ongoing discussion about the cost of living, but to look forward to the Water Bill, to ensure that we take the opportunity to get that piece of legislation right for the market, and to remember that value for money for businesses, and for the people we represent, must be at the heart of our deliberations and discussions today. We owe it to them to ensure that water bills are priced competitively, that the service is efficient and that there is a real sense of responsibility for the people that the water companies serve. If we help water companies along that road, we will have done the people whom we represent at least some service today.