Water Industry

Simon Hughes Excerpts

Tuesday 5th November 2013 Commons Chamber

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

It is a pleasure to serve under your chairmanship for the first time, Madam Deputy Speaker; I welcome you to the Chair. I thank the Backbench Business Committee for giving us this opportunity—I lobbied for it, so I am one of those responsible for securing the debate—and I thank my hon. Friend the Member for Dover (Charlie Elphicke) for introducing the debate. I apologise for being unable to hear his contribution—I was detained—but I have been present for much of the debate. I welcome the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for North Cornwall (Dan Rogerson), who has inherited the Water Bill. His predecessor, my hon. Friend the Member for Newbury (Richard Benyon), said that this issue has occupied him for the past three years. I thank him for always being courteous and engaging, not least on matters relating to Thames Water.

I received an encouraging piece of information a few weeks ago, as did other hon. Members who represent the Thames Water area. As my hon. Friend the Member for South Swindon (Mr Buckland) said a moment ago, the provisional view of Ofwat is that it is minded to reject the latest application from Thames Water to increase prices. Given that we had previously been told by Thames Water that it expected to increase prices not just next year but every year by approximately £60 to £80 per household, to fund the Thames tunnel, that is a welcome relief. I understand that Ofwat has not made its final decision, but I hope it will confirm it this week. My constituents would be encouraged by that news.

It was also encouraging to hear the Environment Secretary this week tell water companies to be mindful that price increases should be imposed only where necessary, and remind them to introduce special tariffs for hard-pressed households. That takes me back to debates at the end of the previous Parliament when my hon. Friends the Members for Brecon and Radnorshire (Roger Williams) and for Cheltenham (Martin Horwood) tabled an amendment to the Flood and Water Management Bill to allow for social tariffs, which had never before existed in the water industry. There had been social tariffs in the energy industry, but not in the water industry. The Act became law on 8 April 2010—probably the last piece of legislation to sneak over the line before the general election. Since then, the Government have been positive about encouraging individuals to consider how they can get help with their water bills and ensuring that water companies introduce social tariffs. Since the Liberal Democrats have been in the Government, guidance on social tariffs was issued in June 2012 and water companies have been able to introduce their own social tariffs since 2013. I credit Thames Water with welcoming and responding to that opportunity.

Many families are often hard pressed by the cost of their water bills. For years, I and my hon. Friend the Minister and his colleagues in Cornwall and the south-west campaigned for a reduction in south-west water bills, but the Government have now dealt with that and, in a welcome move, have legislated to reduce bills in the south-west.

For the benefit of those who follow our debates, I should add that there are two other schemes that provide help. The first is the WaterSure scheme, funded by water customers, which provides financial help to householders with three or more children under the age of 19, if on a water meter and in receipt of certain benefits—people should check which benefits and whether they qualify—and for those without children but in receipt of benefits and with a medical condition requiring excessive water use. That is important. Not everybody knows about it, but they should, particularly those struggling who might qualify. The other scheme, Water Direct, run by the Department for Work and Pensions, helps householders in receipt of certain benefits to manage debt with water companies. Under that scheme, the DWP acts as a broker to help make arrangements.

[Gavin Shuker]

Will the right hon. Gentleman give way?

[Simon Hughes]

Before I give way, I pay tribute to the hon. Gentleman for the work he did from the Opposition Front Bench and for his contribution a few minutes ago, which I heard and enjoyed.

[Gavin Shuker]

That is incredibly generous of the right hon. Gentleman. I am just checking I am not dead—people rarely speak nicely of each other in the House, so perhaps I am.

I wanted to be helpful, actually. Does the right hon. Gentleman agree that neither of those quite good schemes is well known, partly because they operate regionally? In other words, there is no clearly identifiable social tariff scheme that the entire water industry can point to—although I appreciate that WaterSure is a national scheme—and there are patches of coverage, which is one reason why all water companies should have a social tariff.

[Simon Hughes]

I apologise if I phrased my remarks as if to suggest that the hon. Gentleman was the former Member for Luton South. He is clearly still the current Member, as I know, not least because when I last went to Luton on official business—to watch Millwall beat Luton Town—he was there to buy me a drink afterwards. I was very grateful—actually, I cannot remember whether I bought him a drink or he bought me one, but anyway it was a very nice pub, and I recommend it. Luton has good breweries, beer and pubs. But we, as the away team, were very well received by our hosts. [Interruption.] He wants me to stop rubbing it in. I apologise.

One of the dates in my diary this week, besides this debate, was that for making representations to the public inquiry into the Thames tideway tunnel. The latest date for written representations was yesterday, which was when I submitted mine. For my constituents and many others, not just in London but in the whole Thames Water region, it remains a live issue whether Thames Water’s current plans for the tunnel are the right ones, given the alternative ways of dealing with sewage in London, and the question whether the route is the right one. Obviously, the route will impact significantly on constituencies such as mine. For example, a big site on Chambers wharf is proposed for the drive shaft, but I and my constituents argue that it should be used for the reception shaft—if it is to be used at all—and that the drive shaft should be elsewhere.

We also have concerns about the financing. The hon. Member for South Swindon said that the debate was ongoing in government about what the right approach should be, if the Government are to respond to Thames Water’s approaches. My constituents think—the right hon. Member for Holborn and St Pancras (Frank Dobson) probably shares this view—it is a bit rich for a non-public company to run down its assets and then ask the Government to underwrite it in borrowing significant amounts of money and expecting the taxpayer, the bill payer or both to pick up the bill, as is currently proposed.

I have regularly urged my right hon. Friend the Chief Secretary to the Treasury and colleagues in the Department for Environment, Food and Rural Affairs—before and after the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for North Cornwall, took up his post—to be careful not to endorse a solution that appears to condone allowing water companies in England to run down their assets and then try to get Government support to bail them out. That would not send the right message. The water companies must understand that, if they make choices resulting in their profits going not to the consumer but to their shareholders in the form of dividends, they really cannot expect the Government to come to the rescue, even if that means that one company eventually has to be replaced by another. I am sure that there is no shortage of companies willing to enter the water market in England.

[Frank Dobson]

Does the right hon. Gentleman not agree that it would be ludicrous to expect the British taxpayer to bail out a company that was partly owned by Chinese taxpayers? If Chinese taxpayers want to invest in Thames Water, they should bear the brunt of any charges that the company might incur. The scheme is going to cost £4 billion, but Thames Water’s shareholders have already benefited from £6 billion of dividends. None of that money came to the people of London.

[Simon Hughes]

I take a similarly hard line on this issue. If Thames Water does not have the money in its own coffers to do what it wants, it should not be doing the job, and it certainly should not be asking the taxpayers of the United Kingdom for help to do it.

I also want to flag up some proposals that I hope the Government will take on board. I do not expect my hon. Friend the Minister to provide an immediate response of yes, yes, yes, but I know that he is alert to the questions I am going to ask about what Ofwat and the Government can do. I pray in aid a useful pamphlet, which I am happy to promote, that was recently published by CentreForum, a Liberal think-tank. It was written by George Turner, who used to run my office here. He became interested in the water industry during his time here because of the Thames Water issues. His pamphlet has the additional commendation of having had its foreword written by Sir Ian Byatt, the well-regarded first regulator at Ofwat.

I shall quote briefly from the pamphlet, then set out my recommendations for what I hope the Chancellor will say in his autumn statement on 4 December. The pamphlet refers only to England; Wales and Scotland have entirely different arrangements. It states:

“Water is one of the essential industries. We literally cannot live without it…There are allegations of widespread tax avoidance. The level of corporate borrowing is becoming unsustainable. The ownership structure means that there is very little public accountability. Most of our largest companies are owned by private equity funds and there are no public meetings where management can be held to account. The ownership structures are murky to say the least with strings of companies dotted around the world’s island secrecy jurisdictions and tax havens. This makes it difficult for the public to know what is going on with its water suppliers.”

The problem has come to a head in relation to Thames Water, which has got itself into this position over the proposed tunnel. I suggest that some of the ideas in the pamphlet should be picked up by the Government, Parliament, Ofwat and the Select Committee. First, we could introduce a water levy on highly geared water companies, which would take away the incentive to introduce risk by increasing gearing and removing financial flexibility. This was mentioned by my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Newbury (Richard Benyon).

Secondly, we could ask the Government to look at—I ask them to do so now—the tax treatment of debt in highly geared companies and to consider economies and systems such as the German ones, where there are earnings-stripping rules that prevent companies from taking out excessive loans with the intention of avoiding tax.

Thirdly, we could legislate—I hope the Minister will be sympathetic when the Water Bill goes through its stages—to make sure that water companies make the interests of the consumer much more central in their organisations, either through a consumer representative on the board or by placing a duty on the non-executive directors to report on how best to serve the consumer interest, or both.

Fourthly and importantly, we should amend the Bill to introduce mandatory annual customer meetings, where customers can hold management to account in companies that do not currently have annual general meetings in the UK. I would also hope to change the law through the Bill, so that, when restructuring companies which have gone into special administration, the regulator must always first consider non-profit companies, rather than putting them straight back into the private sector, as we saw in a recent example in the railway industry. I hope that the Government will also look at how different models of corporate ownership have impacted on the water industry, as they have not all been satisfactory.

I hope that Ofwat will also do four things—and soon. First, I hope it will report on all the companies in England, not just Thames Water, to establish whether more modest dividend and financial policies would have allowed them to have enough money to spend and to reduce bills. Secondly, it should look at how price cuts could be implemented at the next price review. Thirdly, it should change the licence conditions of companies to impose London stock exchange disclosure requirements on non-stock market-listed companies. Lastly, picking up the point made by the right hon. Member for Holborn and St Pancras, Ofwat should change the licence conditions to require public disclosure of all intermediate holding companies, ultimate controlling companies and all the beneficiaries of those companies, so that we know exactly where the benefits that go in dividends to shareholders end up in those many companies behind many of this country’s water companies.

We may have the best drinking water quality in the world, and we are soon to debate changes in the structure of the industry. I hope the Government will be responsive to amendments designed to enhance the interests of the consumer. I hope the water companies will understand that it is now time for them to stop stacking up money for profits to be paid out in dividends, and to put the interests of the consumer and the consumer’s bills first.