(12 years, 1 month ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
13:48 - The Committee divided: - Ayes: 200 / Noes: 263 - Question accordingly negatived.
16:21 - The Committee divided: - Ayes: 231 / Noes: 300 - Question accordingly negatived.
16:35 - The Committee divided: - Ayes: 226 / Noes: 297 - Question accordingly negatived.
Gavin Shuker (Luton South) (Lab/Co-op)
I beg to move amendment 1, page 2, line 2, at end insert—
‘(5A)
(a) In exercising the power under subsection (3) the Secretary of State may make an order containing a scheme for the provision of financial assistance to customers whom the Secretary of State considers are disproportionately adversely affected by the water charges with a view to reducing the impact of those water charges.
(b) The scheme shall—
(i) specify the customers whose charges are covered by the scheme,
(ii) set out the basis of the adjustment of the charges, and
(iii) specify the duration of the adjustment.
(c) An order shall not be made under this section unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
New clause 1—Water company social tariffs—
‘(1) The Secretary of State shall provide in regulations for the introduction of minimum standards for water company social tariffs, by 1 April 2013.
(2) Regulations made under subsection (1) above shall be made by statutory instrument and may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.
(3) Ofwat shall publish 12 months after the passing of this Act and every year thereafter a league table of water companies reporting the performance of the provision of social tariffs and the number of households spending more than 3 per cent. and more than 5 per cent. of their disposable income on water bills.’.
Gavin Shuker
Both the amendment and the new clause deal with the issue of water affordability for customers, but they do so in two different ways. Although I feel certain that a man as reasonable as the Minister will want to accept both improvements to the Bill, I should add that I intend to press them to a vote if necessary.
We made clear on Second Reading that, as a responsible Opposition, we would not seek to frustrate the will of the Government in legislating for a reduction in customer bills throughout the south-west. We accept that Government action should be taken to ensure that water remains affordable for South West Water customers following the botched privatisation of the early 1990s. We all benefit from the “national treasure” status of Cornwall and Devon’s spectacular coastline, just as—this was pointed out by the hon. Member for St Ives (Andrew George) on Second Reading—we benefit from London’s incredible museums, which are also supported by Government action.
I pay tribute to Members in all parts of the House who, over a period of years, have sought to correct this historic injustice. Our work in government in commissioning Anna Walker to look at the problem of water affordability in the south-west has been coupled with action by the present Government in legislating for payments to be made. Let me make it clear to all Members that we support Government action to reduce customer bills in the south-west.
Amendment 1 is not in any way a wrecking amendment. It seeks to improve the legislation by providing for proper parliamentary oversight of the wide-ranging powers in clause 1, which—let me be honest—I suspect are intended not to involve the Secretary of State in some kind of land grab, but to avoid the Bill being classified as something other than a money Bill. I can reassure south-west Members that if the amendment were adopted, we would not use the additional scrutiny for which it provides to frustrate the will of the House. Its inclusion would, however, serve as an entirely proper safeguard to prevent the Secretary of State, or her successors, from abusing the powers given to her and extending financial inducements in any way for any reason.
Amendment 1 would ensure that the Secretary of State makes an order when she wishes to exercise the power in clause 1 to give financial assistance to a water and sewerage company in order to secure a reduction in household bills. The amendment requires the scheme contained in her order to
“specify the customers whose charges are covered by the scheme”,
so that there is clarity about the households who will benefit from a reduction. It requires the scheme to set out the basis for the reduction in charges, so that everyone understands why the reduction is being made in the first place and to ensure that the Government’s logic is tested and sound. Crucially, it requires the scheme to
“specify the duration of the adjustment”,
so that this Parliament does not write blank cheques, and so that the most cost-effective option can be considered over an appropriate length of time.
In short, the Government will be required to answer the questions that need to be answered if effective parliamentary oversight is to be exercised. We feel that that is especially important given that the Secretary of State can give the assistance in any form whatsoever, including grants, loans and guarantees, and given that, because this is a money Bill, it will receive just one day of scrutiny in the other place.
We believe that when the Secretary of State wishes to use the powers granted by the Bill in the future, the least she can do is lay out her argument before a representative Committee of the House. I say that for one simple reason. As new clause 1 makes clear, there are numerous, increasing and varied threats to affordable water, and as the Government’s own water White Paper makes clear, our climate is changing, which has profound implications for the scarcity of water. New infrastructure may be required to supply fresh water, while—as the Government have also made clear—complying with higher standards for waste water will require expensive construction projects such as the Thames tunnel. More regions will seek to make a similar case to that of the south-west, and now that the principle has been established by the Government’s actions, we require a mechanism to test the logic of successor Secretaries of State.
Let me give an example. According to yesterday’s Evening Standard,
“The boss of Thames Water today warned that bills will have to rise to pay for new pipes and reservoirs if customers are to avoid more hosepipe bans in future.
Chief executive Martin Baggs, who announced yesterday that the first hosepipe ban in six years will come into force on April 5, said Thames was ‘living on the past’ and needed to step up levels of investment.
He told the Standard: ‘The last two years have been exceptionally dry and there needs to be flexibility in the system to deal with that.
The flexibility needs to come from one of two directions: it means people must use less water during those extreme conditions or we have got to have extra resources so people don’t have to have those restrictions.’
Mr Baggs wants clearance from the regulator Ofwat to step up investment when the company negotiates its next five-year funding plan from 2015.
London water bills are already set to go up by an inflation-busting 6.7 per cent next month to an average of £339 per household.”
Miss Anne McIntosh (Thirsk and Malton) (Con)
The amendment is defective in that there would be regulatory implications in respect of Ofwat, but they have not been considered. Indeed, I am struggling to understand why we need this amendment at all, given the current text of clause 1.
Gavin Shuker
The purpose of the amendment is to ensure that when the power under clause 1 is triggered, there is proper parliamentary accountability and oversight at the time of making any reductions. The hon. Lady mentions the regulatory regime. It would not be particularly affected under clause 1 as it currently stands. Ofwat’s role will be to see the money coming in and the money going out. This amendment would not change that situation at all, except that we in this House would have the opportunity to examine any scheme that is to be established and to have answers to any questions we might have: namely, how long, for which customers and for what duration.
As I have said, we agree with the proposals to give financial relief to the south-west from April 2013. Indeed, we examined this issue when in government and laid the groundwork for helping 700,000 households in the region. We therefore accept the argument that the south-west requires additional help to keep water affordable, but stopping there misses the point.
The south-west has the highest bills in the country and about 200,000 people are under water stress. In the Thames region, that number is 1.1 million, however. Our new clause 1 therefore starts with the simple proposition that by April 2013—the month when financial assistance will start flowing to Devon and Cornwall—the Secretary of State should bring forward minimum standards for a company social tariff. We think that is not too much to ask.
The numbers speak for themselves. As I established on Second Reading, 400,000 households in Wales, 460,000 households in Yorkshire, 780,000 households in the Severn Trent region and 1.1 million households in the Thames region pay more than 3% of their disposable income on water. The squeeze on living standards is real. This Government’s actions are contributing to high inflation and pressure on family budgets. The rise in VAT has pushed up the price of petrol, and the cost of child care is going up at twice the rate of wages, just as the Government cut that element of the working tax credit. Families with children who cannot raise their working hours from 16 to 24 could find themselves almost £3,000 worse off from next month. Energy prices have risen, while for many people pay has been frozen.
The crunch will be felt first and worst by low and middle-income families, particularly those with children. A single-earner couple household with kids that is earning £44,000 might sound well-off—and, indeed, in comparison to many, it is—but it will be hit hard by the £1,750 a year that it will lose overnight when child benefit is scrapped.
Dan Rogerson (North Cornwall) (LD)
I am intrigued that the hon. Gentleman wants to have a debate about tax credits, as we recently had a vote on such issues. Is he going to mention the fact that this Government are delivering free nursery places for the most disadvantaged two-year-olds, and that increasing numbers of children will be covered by that in the course of this Parliament?
Gavin Shuker
I will not test your patience, Mr Hoyle, by continuing that debate. The hon. Gentleman puts his case on the record, but one of the key arguments in respect of new clause 1 is the squeeze on family living standards. We believe it would be wrong to park that argument in a different silo from the rising costs of water bills.
People are facing falling living standards, frozen wages and rising water bills. Our amendment would ensure that the power to introduce a company social tariff—a power that we legislated for when in government—is followed by Government action to ensure that these schemes are effective at making water affordable for those who are struggling to pay. Under the current Government’s plans, the design of any social tariff is entirely in the hands of each of our 20 or so water companies. Apart from WaterSure, there will be no national tariff, and there will be no national branding of water affordability schemes. Outside the south-west, there will be no new Government money to help those who cannot pay.
Under this Government’s plans, it is even down to the individual companies to decide whether to introduce a social tariff scheme at all. Although we believe the industry and Government should be working towards a national affordability solution, the first part of new clause 1 would require the Secretary of State to bring forward plans for minimum standards for water company social tariffs.
The second part is just as important. We know that if we cannot measure it, we cannot manage it. Therefore, water companies should be held to account by ensuring a league table is published each and every year reporting on the performance of company social tariffs. In the energy sector, Ofgem sets parameters for what can be included by suppliers as part of their spend on social initiatives, and it annually monitors suppliers’ progress against the voluntary commitment. A handful of water companies already have good social tariff schemes, but we want to raise the bar for all companies to the standards of the rest of the industry, both by requiring the Secretary of State to have minimum standards approved by Parliament, and by the monitoring and reporting of all companies, shaming those poor performers into action. By also requiring the number of households spending more than 3% and 5% of their disposable income on water to be published, we can monitor the scale of the affordability problem and make meaningful comparisons between companies.
Our amendment 1 and new clause 1 are attempts to improve the Bill. We welcome the money for the south-west, but stopping there misses the point. People’s ability to pay for something as basic as water should not be subject to a postcode lottery. This issue is at the heart of shaping a socially responsible water industry in the years to come. I hope the Minister will accept the amendments.
Miss McIntosh
I followed the arguments of the hon. Member for Luton South (Gavin Shuker) very closely, and I went along with a great deal of what he had to say, particularly his congratulations to the Minister and the Government on introducing what is a very timely Bill. I think I understand the spirit in which the Opposition amendments have been tabled. The Front-Bench colleague of the hon. Member for Luton South, the hon. Member for Ogmore (Huw Irranca-Davies), is present, and he will recall that we spent many—happy—hours scrutinising the provisions that were to become the Flood and Water Management Act 2010. That Bill was fairly good, but it was improved as we went along—although we did not have sufficient time to address many of its measures, of course.
That Act gives enormous order-making powers to the Secretary of State, and I would be interested to learn from the Minister why the Government have chosen not to draft a parliamentary order in respect of interested parties on this occasion. For the record, a number of hon. Friends—I hope I may call them that—on both sides of the House would normally be discussing the business of the Select Committee on Environment, Food and Rural Affairs, but we deem this debate so important that we thought it was our priority to be here to discuss the Bill and these amendments. Obviously, I am entirely at one with the Government, given that we have worked so hard under successive Governments to come up with a novel means of helping people with water bills in the south-west, but it would be helpful to know why clause 1 made no provision for parliamentary scrutiny. I, therefore, have some sympathy with what the hon. Member for Luton South and his colleagues have proposed.
Amendment 1 and, even more so, new clause 1, on social tariffs, raise the question of why the hon. Member for Ogmore and the previous Labour Administration did not introduce social tariffs as part of the 2010 Act. In addition, why were they not minded to introduce amendments at this stage to deal with bad debt, an issue that is exercising water companies? The Select Committee took evidence just last week on the water bills that the average household is having to pay because of the position on bad debt.
Gavin Shuker
The hon. Lady is making her points clearly, and I welcome the spirit in which she makes them. We have accepted the timetabling for this short Bill, which will go through quickly. We have been promised a comprehensive water Bill and if we had more time, we would have much to say about bad debt and we would look favourably on any amendments seeking to deal with it. Unfortunately, such amendments have not been tabled for today.
Miss McIntosh
I am grateful to the hon. Gentleman for those remarks. I hope that the Minister will confirm that the draft water Bill will contain provisions on social tariffs and tackling bad debt—I do not know whether there is any more recent news as to when it may be published.
The hon. Gentleman also referred to the Anna Walker report and water efficiency measures. Again, I wonder why he did not include any more detailed provisions on water efficiency measures in his amendment. I also wonder what the Minister and the Government are thinking on such measures, given that we are on the brink of the worst drought for at least 40 years. Anna Walker proposed some imaginative measures that households and businesses could take, and it is disappointing that they were not elaborated upon to a greater extent in the natural environment White Paper or the water White Paper. It would be helpful to know the Minister’s thinking on that. A lot of unfinished business on the 2010 Act could have found its way into this small Bill, but we await confirmation that such things will be dealt with in the wider and more comprehensive draft water Bill.
On new clause 1, I am not sure that I entirely followed the hon. Gentleman’s thinking on minimum standards for water company social tariffs. In what regard are these to be “minimum standards”? Are they to be minimum standards for comparative purposes or will they govern how the social tariffs would apply?
Gavin Shuker
I understand the hon. Lady’s confusion on this point. A number of options are available to us in terms of amending the Bill. We felt that the most appropriate route to go down was to allow companies discretion on whether or not to introduce a company social tariff, but to ensure that, at the very least, any such tariff met minimum standards set by the Secretary of State and approved by this House. At the moment, we are at the lowest rung of all the possible interventions and we simply seek to move things up one, in the hope of getting towards a national affordability solution.
Miss McIntosh
I am most grateful for that clarification. It would be interesting to know the background to the amendment and, in particular, to new clause 1. It would be helpful to know what discussions took place and what level of support the hon. Gentleman has from water companies and from Ofwat.
I did not have the opportunity to discuss this matter on Second Reading. It is appropriate to examine new clause 1 and amendment 1, as I have a concern and I am trying to help the Minister. A helpful Library note spells out clearly:
“The Government intends that bills be reduced from April 2013. The funding will come from the HM Treasury Reserve until the end of the spending review period in 2014-15. After that time funding will come from the Department for Environment, Food and Rural Affairs…budget.”
I understand that that was confirmed in a House of Commons debate in January.
“The payment will continue until ‘at least the end of the next spending review period’.”
So my question is: from which part of the Department’s budget is this funding going to come from 2014-15 until, presumably, 2019-20?
I must make a general remark about departmental budgets, and I do not think that the Department for Environment, Food and Rural Affairs is any different in this regard. We had the opportunity to question the Secretary of State on the annual report, in its new revised format, and the annual accounts. I think that there is a lack of transparency and clarity in all the departmental accounts—I do not single DEFRA out. I am deeply concerned about the position for those in the south-west whose water bills will or could benefit from this Bill, and for those in other areas who could benefit subsequently, as highlighted in amendment 1 and new clause 1. My real concern relates to how this will be funded in the next spending review period, given that we have not yet worked through all the savings in the budgets of the Department and other agencies, such as the Environment Agency. I am prepared to give any assistance I can in arguing with the Treasury that this money should be ring-fenced. Obviously, there is real concern that if it is not ring-fenced or if additional money cannot be found, other parts of the budget currently being spent on farming or flood defence will simply be hijacked for this purpose.
With those remarks, I welcome the opportunity to have this debate and to understand a little more about the thinking behind these proposals. However, I shall have to disappoint the hon. Member for Luton South by telling him that I will not be following him into the Lobby.
Dan Rogerson
It is a pleasure to serve under your chairmanship, Mr Hoyle. I follow the hon. Member for Thirsk and Malton (Miss McIntosh), whom I customarily refer to as “Madam Chairman” in the Select Committee. Obviously, it is a delight still to be considering this Bill. We are doing so rapidly, in order to make progress and get it on the statute book, so that it can start delivering fairness for my constituents and those of other Members across Devon and Cornwall, and so that we can start putting in place the framework for the necessary works here in our capital.
Although the amendment and the new clause proposed by the hon. Member for Luton South (Gavin Shuker) present a number of opportunities for discussion, they will not necessarily take us that much further forward. The amendment makes a reasonable point: if in future the Secretary of State or any other Secretary of State wishes to use the enabling powers of the Bill to make a difference to another part of the country that seems to have been disadvantaged, that should be explained to the House. I would have thought that it would be extraordinary, however, for such a thing to happen without a great deal of public debate or decades of campaigning, such as that which we have experienced in Devon and Cornwall. Perhaps other parts of the country might have such a keen hold on the Secretary of State or any future Secretary of State that they could get it all pushed through within a matter of weeks, but I suspect that that would not be the case. The Treasury would want to know very plainly and in great detail why the money was required and why it was felt to be a priority.
Alison Seabeck (Plymouth, Moor View) (Lab)
From a south-west perspective, the money we are getting is clearly welcome. As the hon. Gentleman has mentioned, other parts of the country might have demands, and given drought measures and so on, there might be reservoirs or other very large schemes in small areas that might impinge on us as our water bill payers could be asked to pay towards the costs. That would not be unreasonable, as we are expecting the payment to go the other way. Does the hon. Gentleman share my concern that, as the hon. Member for Thirsk and Malton (Miss McIntosh) mentioned, the money is not ring-fenced and how it is spent in future will be at the discretion of the Secretary of State?
Dan Rogerson
The hon. Lady is referring to the money identified for the south-west, and the worry that it might, to use a watery phrase, be diluted and spread out across the country. I suspect that that could potentially happen, but I know that the coalition Government are absolutely committed to seeing this provision through for the people of Devon and Cornwall. Who knows what might happen under a future Government? I hope that they would take the plight of our water bill payers equally seriously and continue that level of support. The hon. Lady makes an interesting point.
As I understand it, the amendment seeks to ensure that if a Government wished to offer such support to further areas, a statutory instrument would have to be tabled and debated. I find it hard to believe that any Government would consider doing such a thing without a debate not only in this place but out in the country at large and, I am sure, a debate in the Treasury too, which would have to be conducted publicly as well as privately. I know that that has been the case with the programme we now have for Devon and Cornwall. Although I accept the logic of what the hon. Member for Luton South said, I will wait to hear what the Minister has to say in reply before I decide what approach to take. Naturally, I want to support the Government—as I would on every occasion, but particularly as regards the provisions in this Bill.
The new clause concerns social tariffs and the next steps that we might want to take to help people who are under water stress, which, as the hon. Gentleman pointed out, will still be a significant problem for people in the south-west after the support set out in the Bill is delivered. Of course, water stress is also a worsening problem in other parts of the country.
I am delighted to see that the hon. Member for Wakefield (Mary Creagh) is in her place. On Second Reading, when we debated this subject, I intervened on her and made the point that any social tariff within a water company area presents problems as well as opportunities. If there is to be a social tariff at a significant level for those experiencing the worst problems in an area such as the south-west, despite the fact that many people will benefit we must be aware that within an area with a small population, a huge amount of the funding for the tariff will be provided by people just above the qualification threshold. I am very worried that in-region social tariffs will be unable to deal with the problem. When the hon. Lady set out where she would like the Bill to be improved, she said that she would do something about national water tariffs. It is a shame that we do not have such a provision and Devon and Cornwall MPs have put the matter before the Government. I understand that there are issues with the Treasury’s response, as that might be regarded as a tax, but we must consider how we can address that situation.
I do not see how a league table will help, however. Indeed, it might mean that water companies were under pressure to introduce the tables in such a way that it might disadvantage those people about whom I was talking—those just above the threshold who will not benefit from the tariff but whose water bills will increase to pay for their hard-pressed neighbours.
Andrew George (St Ives) (LD)
My hon. Friend is making a very good point. At the risk of delaying the process of the Bill through the further elaboration on the amendments, does my hon. Friend agree that the best way of addressing the issue would be to seek the assurance of the Minister that the issue will be addressed in the forthcoming water Bill as quickly as possible after the Queen’s Speech?
Dan Rogerson
My hon. Friend makes an excellent point. The water Bill will be a further opportunity for us to revisit these issues and I welcome the fact that hon. Members across the House are still considering this matter as one that needs further exploration.
Mary Creagh (Wakefield) (Lab)
I want to reply to the hon. Gentleman’s point about league tables. The idea came from Ofwat and is meant to ensure that there is transparent information for customers, shareholders and the Government so that they understand who is levelling the tariffs, where they are going and where the money is going. That was Ofwat’s idea and I cannot claim any credit for it, much as I would like to.
Dan Rogerson
The hon. Lady is very generous in ascribing the idea to Ofwat. I suspect that Ofwat could probably do that anyway and would not need legislation; if it wanted to publish a league table, it could get the information. Ofwat would have information from companies about where the money was coming from and where it was going and could publish it without that needing to be on the face of the Bill.
Miss McIntosh
I remind my hon. Friend that, as those on the Opposition Front Bench might not be aware, the Select Committee had some very compelling evidence from the water companies about social tariffs paid for by charitable trusts from each water company.
Dan Rogerson
I thank Madam Chairman—my hon. Friend—for putting that on the record. I am delighted that the Opposition Front Benchers support what the Bill seeks to do for bill payers in Devon and Cornwall and that they have chosen not to oppose it in any way. I do not think that the case is proven that either amendment 1 or new clause 1 will make a huge difference or improve the Bill significantly, but they do touch on two areas that I hope the Minister will address.
The Chairman
Ah, I call Julie Hilling. You were a little late, but I am glad that you have joined us.
Julie Hilling
I apologise, Mr Hoyle, for being a little slow in standing to indicate my intention to speak. You can take it that I was confused about which clauses were being debated at which time.
I want to speak briefly about new clause 1 and, in particular, to press the point of a national social tariff. In the north-west, the affordability of water is affected by deprivation. Unlike the south-west, it is not affected by geographical issues or expenditure. We are a region with considerable difficulties and the bills of United Utilities, which is the north-west water company, are close to the national average, but income deprivation is worse than in any other region. More than half of the country’s most deprived communities are in the north-west, even though we have only 13% of England’s population. Ofwat’s analysis shows that once households in the South West Water region receive their proposed £50 bill reduction, affordability problems will be more severe in the north-west than in the south-west. Company social tariffs will not solve the problem, however, as too many customers in the north-west are in financial need to make the in-house cross-subsidy work properly. We therefore need a national social tariff scheme that all water companies would pay into. Taking the hands-off approach of leaving it to water companies to provide their own affordability schemes, and certainly giving them the choice of whether or not to provide it, will not help the people who are most in need in Bolton West.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon)
As Members know full well, the only purpose for which we currently plan to exercise the power in clause 1 is to reduce the charges on household customers in the South West Water area. We have recognised that the circumstances in the south-west are exceptional and we will be addressing that unfairness. I am grateful to Opposition Members for bringing forward the amendments because they allow us to explain a little more clearly what we are trying to achieve in this part of the Bill.
Our policy has been set out clearly both in the water White Paper and by the Chancellor in the autumn statement. We will fund South West Water to reduce its customers’ bills by £50 a year from April 2013 and we have committed to do that until the end of the next spending review period. To answer the question that my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) asked, yes, from then it will be for the next comprehensive spending review period to negotiate this out of the Department for Environment, Food and Rural Affairs’ budget, but that certainly does not imply cuts across other vital parts of its budget. I assure her that this is an absolute priority. It has been hard-fought for by hon. Members from across the south-west, and there is an absolute commitment from the Government to continue the important work to address an unfairness that we recognise.
As hon. Members from the south-west will testify, this support for customers in the south-west is the result of their long campaign. They have fought hard for this and the problem of high water bills in the region has been raised many times in the House. I am proud that the Government are making progress on this issue but I am a little disappointed that the Opposition wish, through amendment 1, to force a further round of discussion on the merits of reducing bills in the south-west before we can move forward. Let me explain why. The Chancellor’s Budget or autumn statement is the appropriate place for setting out Government spending plans and for doing so within the broader economic context in which such decisions are made. It is inappropriate to micro-manage the economy through individual statutory instruments committing future Government spend. The Government make many decisions on spending and Parliament does not examine each one in detail through a process involving the laying of statutory instruments. However, the opportunity for parliamentary scrutiny does exist. DEFRA spending is subject to scrutiny by the excellent Environment, Food and Rural Affairs Committee and, if so wished, by the Public Accounts Committee. Government spending is also subject to the usual supply and estimates procedures with which we are all familiar. If the Government decided to use this power to provide further support, I would fully expect Members to scrutinise the case and to ensure that assistance was given only where and for as long as it was right to do so.
I draw to the attention of the hon. Member for Luton South (Gavin Shuker) the fact that new section 154A(1) within clause 1 focuses on an “English undertaker” and a “licensed water supplier”. We have to accept that there is not a lot of money floating around in Government at the moment—I am sure he recognises that—and so the idea that the Government are going to start sloshing money around freely without any public debate is absolutely ridiculous. One must also accept that that would be the case in future. We do not know what the future holds, but we want future Secretaries of State to be able to use the power where genuinely necessary. We therefore do not think the amendment is necessary. The Government are not going to start doling out money to water companies on a whim. We are using this power this time after years of debate, but it is unimaginable that any future use of the power would not attract the same level of debate.
In a similar vein, new clause 1 would threaten the action we are taking to deal with wider affordability problems. I point out that we will have the opportunity to develop the House’s thinking on this with the water Bill. I know that the Bill is eagerly sought by Members on both sides to take forward many of the issues we set out in the White Paper, which have been the subject of past reports to the Government. The Government have given a clear commitment that the Bill will be available for proper and full pre-legislative scrutiny and I hope that we will be able to publish it soon. Whether or not it is in the Queen’s Speech is not a matter for me.
Julie Hilling
May I press the Minister a little more on this? When he says “soon” does he mean in the next Session or the Session after that?
Richard Benyon
The hon. Lady will understand that I am not privy to what is in the Queen’s Speech. I very much want a water Bill as soon as possible, but we have given a commitment that the Bill will be available for pre-legislative scrutiny, and that is not something that happens overnight—it requires a process and it would be tight to get in the full level of pre-legislative scrutiny and a Bill in the next Session. However, I accept her point that it is needed by many people as quickly as possible.
We know that some households in the south-west and other regions—let me reiterate that other regions are also affected—struggle with their water and sewerage charges. We will soon be issuing guidance that will allow for the development of company social tariffs. Water companies will be able to reduce the charges of customers who would otherwise have difficulty paying in full. In consultation with their customers, companies will decide who needs help in their area and then design local solutions to address local circumstances. Water companies know their customers and local circumstances. Companies vary in size and customer base, and average bills also vary from company to company. On Second Reading, Members spoke about the different kinds of affordability problems faced by their constituents. They also recognised that in some parts of the country there might be less scope than in others for customers to cross-subsidise others in the region. I urge hon. Members to consider the Cholderton company, which serves only about 2,000 people. The difficulty of having a nationally mandated tariff that would apply to that company as well as to Thames Water, which has several million customers, accentuates the problem.
Imposing one-size-fits-all standards, as new clause 1 would require, on companies that decide to develop social tariffs would prevent them from reflecting the circumstances of their customer base and what their customers want. Some companies might be less likely to introduce social tariffs if the model did not suit their local circumstances. If hon. Members intend that all private water companies should be forced to introduce a centrally imposed social tariff scheme, I cannot support the introduction of that regulatory burden.
Mr Matthew Offord (Hendon) (Con)
The shadow Secretary of State said that she did not wish to take the credit for some of the amendments because they were the initiative of Ofwat. Having looked through Ofwat’s response to DEFRA’s consultation on company social tariffs, I think the amendments all came from Ofwat, apart from the question of what concessions to offer. Ofwat says that it supports the view in the draft guidance that it is preferable that the companies themselves should design concessions that best suit their customers’ needs. It says this so that companies, rather than the Government, will have greater scope to innovate, which I think the Minister is saying too.
Richard Benyon
I am grateful to my hon. Friend for making that point. It shows when one prays in aid an organisation, one has to do so in the context of all the evidence that has been given by it to many organisations, not least a Select Committee of the House.
We want companies to be imaginative in the way they tackle affordability in their areas, not to force them into a straitjacket. Our guidance will not dictate eligibility criteria, the level of concession or the amount of cross-subsidy. It will give companies the freedom to make judgments, with their customers, on what can work in their areas. This addresses the point made by my hon. Friend the Member for Thirsk and Malton (Miss McIntosh). Social tariffs are a new tool in the tool-kit for companies, but they are not the only tool. Companies have many other effective tools—for example, win-win tariffs, which are self-funding from savings on bad debt and do not rely on cross-subsidies. They have trust funds, as has been mentioned, which are set up by the company to pay off the debts of those most in need, as well as payment plans and referrals to holistic debt agencies such as Citizens Advice, arrangements made locally that really work.
We must not see a social tariff as the only show in town. There are no state secrets here. The information from water companies about the social tariffs that they develop will be produced in negotiation with DEFRA, working on the guidance that we will publish in a few weeks. The proposals from the water companies and the decisions that DEFRA makes will be available for scrutiny.
Alison Seabeck
This is slightly tangential. The companies are working to tackle unaffordable water charges, but there is one thing that they probably cannot deal with, which was mentioned on Second Reading by one of the Minister’s colleagues and by me. Once the £50 payment comes through the system, which will help most people on low incomes, the companies will not be able to guarantee that it goes to the person who pays the bill. Instead of going to the vulnerable party, the money may be going to a park home owner who is not reputable, or a private landlord. What discussions has the Minister had, perhaps with the Ministry of Justice, about whether it would be a criminal offence—a fraud—if the park home owner did not pass the money on?
Richard Benyon
The hon. Lady could lead me down a long path of personal frustration on this subject, which I am happy to share with the Committee. I have a number of park homes in my constituency. Some are well run. It is a style of living that we across the House should encourage because it allows people at a certain age to release some capital and live in a smaller dwelling surrounded by people in similar circumstances, but there are too many park home owners who are appalling human beings. Various Governments, including this Government and the Government whom the hon. Lady supported, have sought to address this. I am working with my hon. Friends in the Department for Communities and Local Government to ensure that the alternative arrangements that the Government are making for park homes will be fit for purpose.
I thank the Committee for that bit of therapy. I can assure the hon. Lady that we intend the £50 to get to precisely the people whom she describes. I am happy to talk to anyone. In my Department we are keen to make sure that that money is not siphoned off by anybody and gets to the householder, even if that householder is a park home owner on a site owned by somebody else.
Gavin Shuker
The Minister was articulate and charming, but his argument was unconvincing. I am sorry to say that because I have a great deal of sympathy for him and his position. This is a short Bill and the Government want to get it through quickly and cleanly, but we believe our amendments serve a useful purpose.
The Minister clearly ruled out the possibility of a national water affordability scheme. I think I am right in saying that. The Minister is not willing to give that assurance at this stage, but I will go back through Hansard. I thought it was pretty clear from what he said that a national water affordability scheme was ruled out. We believe that that is the wrong approach and that work can be done. If provision is not made in this Bill, we would like to engage with the Minister and work collaboratively to try and find a way to respond to the concerns of the hon. Member for North Cornwall (Dan Rogerson), who raised the possibility of such a scheme, as we have done on previous occasions.
The hon. Member for Thirsk and Malton (Miss McIntosh) asked about the opinions of the water companies. In my experience, the water companies would like a level playing field. It is clear to me that in new clause 1 we do not ask for a one-size-fits-all solution, as the Minister described it. We simply ask that at the same time as the south-west receives the benefits of the Bill, the whole country should receive the benefits of a set of mandatory minimum standards for those tariffs. We do not even require water companies to introduce the social tariffs, but when those are introduced, we ask that they be effective—that they are not just based on guidance, but that the House has the right to weigh in on what they should be. My hon. Friend the Member for Bolton West (Julie Hilling) dealt with issues of national water affordability. She is a strong advocate on behalf of her constituency.
In conclusion, despite my sympathy for the Minister, I intend to press amendment 1 to a Division.
Question put, That the amendment be made.
Simon Hughes (Bermondsey and Old Southwark) (LD)
I beg to move amendment 4, page 3, line 3, at end insert—
‘(5A) Financial assistance may only be given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.’.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Amendment 5, page 3, line 3, at end insert—
‘(5A) Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.’.
Amendment 10, page 3, line 3, at end insert—
‘(5A) The Secretary of State may only grant financial assistance after a business plan for the proposed infrastructure has been approved by Ofwat and the National Audit Office.
(5B) The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the infrastructure project.’.
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.
Dan Rogerson
My right hon. Friend has set out a number of measures relating to safeguarding public investment. Is it fair to say that he is seeking to bring a far greater level of transparency where matters are a little opaque, particularly because we might see an emerging relationship between private companies and levels of public subsidy, and that makes the need for transparency paramount?
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.
Andrew George
Bearing in mind that the probity or otherwise of Thames Water is outwith the purpose of the Bill, would my right hon. Friend care to comment on the fact that, as I understand it, Thames Water might not undertake this project and that the question then arises of what happens to the asset, which is the tunnel? Surely that is the key issue, and then there is the separate issue of the probity, management and proper regulation of Thames Water as a company.
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.
Dan Rogerson
My right hon. Friend is making some excellent points and shedding a little light on fairly shady areas of corporate restructuring. Sports fans are well aware of such things going on at their beloved sports clubs. He referred to Ofwat’s handling of the situation over a number of years. He has clearly raised the matter with the Department. In his scrutiny of these affairs, has he received any response from Ofwat on why it has not taken action up to now?
Simon Hughes
I have sought from Ofwat an explanation of its current policy. I have not sat down with Ofwat to go through what more it might do. I want to raise the matter here and see what colleagues think. There is a debate to be had about Ofwat and I hope that changes in what Ofwat does and how it behaves will come out of it. These issues also relate to other regulators, such as those for gas and electricity. This is an issue about regulators and private utilities.
The Secretary of State kindly replied to me, as the Minister knows. I will quote the key points from her letter that responds to the issues that I have raised in Committee. The first matter relates to the point made by my hon. Friend the Member for St Ives (Andrew George):
“I would first like to point out that it may not be Thames Water Utilities Limited who carry out the project. We have consulted on provisions that would enable the project to be delivered by a separate Infrastructure Provider to be regulated by Ofwat separately from Thames Water Utilities Limited. Any contingent financial support will be directed at assisting the entity that is building the Tunnel—and so not necessarily Thames Water Utilities Limited.”
I understand that. It does not change things, but it is important to realise that although Thames Water may be the supplicant, it may not be Thames Water that does the building.
The Secretary of State continued:
“The level of gearing and the securitised structure of Thames Water Utilities Limited is similar to that of some other water companies. Our and Ofwat’s analysis shows that contingent financial support from government would be required for Thames Water Utilities Limited (or any other water company) to build a single project of the scale and complexity of the Tunnel whatever its financial structure (within the norms for water companies).”
I do not dispute that. I am not denying that this is a very big project, or that it may need the reassurance that comes from being supported nationally, rather than just being the project of a regional water company.
The Secretary of State went on:
“Our goal is to ensure that the level of this contingent financial support is kept to a minimum and that we achieve best value for money for customers.”
Amen to both of those things. We all have the same objectives. She continued:
“It is in that context that we are considering whether the Tunnel should be built by the Thames Water Utilities Limited or a separate entity.”
The Secretary of State then discusses the question of where Ofwat’s rules currently bite. She states:
“Ofwat regulates each water and sewerage company in England and Wales under the terms of its Instrument of Appointment…The licence contains conditions aimed at ensuring that each water and sewerage 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.”
That is quite important. She continues:
“These licence conditions are collectively known as the regulatory ring-fence.
It is Ofwat’s view that it is for the management of each regulated water company to determine its own optimal financial structure.”
Within limits, I do not dissent from that, but it seems to me that Ofwat is there to hold the reins properly.
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?
The Chairman of Ways and Means (Mr Lindsay Hoyle)
The good news is that I am not going to judge the speech or the ring main.
Mr Andy Slaughter (Hammersmith) (Lab)
I will, I hope, be a little briefer than the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I just want to make a few remarks arising from his comments and amendments.
I am absolutely with the right hon. Gentleman on the general principle that in going ahead with the Bill, which I believe has all-party support—I am not sure about him but he is not pressing his amendment—we must protect both public money and the money of the public. By public money, I mean, first, any underwriting of major capital schemes, such as the Thames tunnel. Secondly, this is a large private multinational company—I appreciate his research into its holdings and complex structure—and we must ensure that it pays taxes in the UK.
At the same time, however, we must also look after the money of the public and ensure that not a penny more is paid in increased water charges, particularly given that water charges are already rising above the rate of inflation for all water users across the UK, including Thames Water customers. I was somewhat reassured on Second Reading when the Minister said that the Government shared those concerns and that he was sceptical about the project—at least about whether its financing was what Thames Water said it was. There would be broad agreement on that.
I also agree with many of the comments of the right hon. Member for Bermondsey and Old Southwark about Thames Water, particularly under the ownership of RWE. During my first two or three years in the House, Thames Water was my bête noir, partly because of how it dealt with leaks—digging up roads all around London in a completely ad hoc, unconcerned way and leaving workings for months at a time—while still not getting to grips with the problem. Furthermore, the problem of sewer flooding, particularly in west London, has been a blight on people’s lives. Year on year, thousands of basement and ground-floor properties in my constituency are flooded by sewers, yet little attention is paid to it. And, indeed, there are Thames Water’s financial arrangements, which the right hon. Gentleman spoke about.
It is only right to balance that, however, by mentioning that Thames Water’s performance has improved markedly in the past few years in many of those areas, although we should continue to be concerned about its financial structures. A lot has been written in the papers in the past few days about the current drought and impending hosepipe ban and other possible measures, and the water companies are rightly under scrutiny. I note that in total—this is not just Thames Water—water companies are likely to report annual profits of £1.5 billion and that they are currently leaking about one quarter of the water they provide. They provide about 14.6 billion litres daily, and about one quarter of that is being leaked. It has been pointed out quite correctly that the hosepipe ban will save only 20% of the water being leaked daily.
The water companies, then, have a long way to go. Many of their problems were caused by the botched privatisation under the then Conservative Government and the fact that, as the right hon. Gentleman said, there has been an incentive for companies to beef up their profits to make themselves ripe for takeover, to sell on at a profit and not to worry during those years about their consumers and the cash cow that comes from having an effective local water monopoly.
Everyone will be grateful for the research that the right hon. Gentleman has done into the financing structures. I am less sure, however, that his amendments would deal with that. I will not spend long on this because I suspect that the Front-Bench spokesman, my hon. Friend the Member for Luton South (Gavin Shuker), will explain, not as eloquently as me but forensically and analytically, how the Labour amendments would provide the necessary safeguards in a less prescriptive and detailed but more effective way to ensure that if any projects come forward for financial assistance, they are tested in the House first to ensure that the assistance is necessary.
I depart from the right hon. Gentleman in respect of the effect that his amendment might have on the clause. In the end, we need a project in London that will resolve the daily, sometimes weekly, regular flow of huge quantities of sewage into the Thames. On this, I am not sure where he is coming from. When we debated this matter last September in Westminster Hall, he said:
“I also put in a short response to the private commission that was set up by some interested local authorities and chaired by Lord Selborne.”—
in fact, it was set up by Hammersmith and Fulham council—
“The commission has argued that we must have a totally different direction. I am not persuaded by that. The Thames tunnel is the best direction. The previous Government came to that view and the present Government have held to it.”—[Official Report, 14 September 2011; Vol. 532, c. 316WH.]
That was in September. In February, he said:
“I am now clear that, since the end of the first round of consultations in 2011, the arguments for a review of the full tunnel proposal and possible alternatives have substantially increased.”—[Official Report, 29 February 2012; Vol. 541, c. 391.]
I am not sure what happened between September and February. This is important because we must find an effective solution. There is no point putting forward half measures.
Jeremy Corbyn (Islington North) (Lab)
I have met Thames Water and looked at the situation. Pollution of the Thames is totally unacceptable—as are the levels of sewage going into the Thames. There has to be a better drainage system to ensure that that does not continue. However, does my hon. Friend agree that after this process we need much tougher regulations to deal with the paving over of large areas of London and the Thames basin, which leads to excessive water run-off from rainfall, which then joins the sewage, becoming a sewage surge in the Thames? That water should be replenishing ground water, not being flushed away with the sewage and thus causing pollution in our river.
Mr Slaughter
My hon. Friend is absolutely right. The schemes that he describes, which are collectively known as SUDS—
Mr Slaughter
I am grateful to my hon. Friend for that prompt. Local authorities have woken up to the possibility of SUDS, albeit perhaps somewhat late in the day. Many are now insisting in planning applications that there should be no more paving over, while many are rightly taking enforcement action where those conditions are disobeyed. However, it is quite wrong to think that SUDS on their own will be a solution to the problem; rather, they offer additional assistance. The idea that we can suddenly convert road surfaces and pavements into permeable surfaces across London is highly impractical—look at the problems we had with simply replacing the water mains—and it would also cost four or five times more than the highest estimated cost for the tunnel. However, we must use SUDS, and indeed other measures
I am grateful to my hon. Friend the Member for Islington North (Jeremy Corbyn) for his intervention, because he brings me back to the point that I was making. I was pleased to receive an invitation from the right hon. Member for Bermondsey and Old Southwark to attend a meeting on 6 March in this place. This perhaps draws attention to the point that the hon. Member for Cities of London and Westminster (Mark Field) raised, because although probably 140 to 150 MPs would have been invited if the right hon. Gentleman had asked all those with an interest in Thames Water, I think only three turned up—me, the hon. Member for Hendon (Mr Offord), who is in his place, and my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), who was here a moment ago. That perhaps shows a certain lack of interest among some of our colleagues. I am sure that the hon. Member for Cities of London and Westminster would have been there, had he not had a more pressing engagement—I am sure that it was not the Campaign for Real Ale reception that was on at the same time, but there we go.
The invitation asked us to come and listen to Chris Binnie, the engineer who served as the independent chair of the Thames tideway strategic study steering group, which recommended the full tunnel solution. He was going to be present to explain
“why he now believes the costs have exceeded the benefits, and why there are quicker and cheaper solutions that should be considered urgently.”
I am familiar, as many Members are, with Mr Binnie’s proposal, which is what he has called the “Binnie Bubbler”, It is designed to aerate the Thames in a way that prevents the death of the fish and other livestock—if that is right phrase—in the Thames. I have read the arguments for and against the “Binnie Bubbler”, and I have always been rather sceptical about it, because I am not sure that it is suitable for the tidal Thames—it has apparently worked in Cardiff bay in a lagoon area—and also because I do not think it acceptable to allow raw sewage into the Thames at current levels and then simply to try to aerate it and possibly skim off the worst of it.
I therefore went along to the meeting—although I am sorry that I could not stay for the entire time—to see whether Mr Binnie had something more to say on that issue. It would be fair to say that he had something quite surprising to say. I appreciate that I am about to read from a note about the meeting that was written up by a supporter of the tunnel—I had left by this stage—but it says:
“Chris Binnie announced that he had changed his mind again and now supported Thames Water’s view that we should implement the single Thames Tunnel option. Wow! You could hear the gasps around the room and Simon Hughes’ chin nearly hit the floor.”
That might be slightly unfair: the right hon. Member for Bermondsey and Old Southwark is unfazed even by things greater than engineers changing their minds, for the second time. However, this issue draws attention to an important point in the argument about the Bill, and brings us back to the financing. I think everybody—certainly everybody present in the Chamber today and most other Members of the House, albeit with certain exceptions, my neighbouring Member of Parliament being one of them—supports the idea that something must be done to relieve sewer flooding of the Thames in a substantive way that will last us, we hope, as long as the Bazalgette solution did.
Simon Hughes
I do not want to prolong this unnecessarily, but would like to say clearly that my presumption has always been that something needed to be done. I started from the view that the Thames tunnel was the right solution. However, I want to be sure—not just for myself, but for my constituents, for the reasons that have been set out—that we are not about to embark on an expensive project if it is not entirely needed and has not been objectively assessed to be the right solution. Hence, I come to this issue with a “Let’s check and be certain before we press the button” approach. That was my view before I went to the Binnie meeting and when I came out of it, and it remains my view today.
Mr Slaughter
I am grateful for that clarification. I have never signed up to the concept of the tunnel uncritically or without reservations—or, indeed, at all—because I have always held open the option that there might be a better solution, and if that is what the right hon. Gentleman is saying, then we are on all fours with each other. That is why I have looked in some detail at proposals such as the “Binnie Bubbler”, SUDS and the idea of separate rainwater and sewerage networks, which would also create the problem of huge disruption and much additional cost. Some of those projects, including water conservation, can be done and should be effective, both environmentally and from a cost perspective; the difficult thing is to find an alternative that does what the Thames tunnel would do.
Jeremy Corbyn
My hon. Friend represents a riverside constituency, and therefore must have studied the issue in detail. I understand that the tunnel will not last for all time and will become overloaded within the next three or four decades. Therefore, we need to examine how we use water and how drainage systems operate, rather than hitting another crisis in three or four decades’ time.
Mr Slaughter
I agree, and something that is effectively a large sewer pipe stuck under the River Thames can sometimes look like old technology in some ways. There has to be a more organic and continuing process of developing solutions to avoid tunnelling, but it remains the case, first, that this solution has been preferred in many other capital cities around the world and, secondly, that at the end of the day, it is the simplest, clearest and most effective solution. Therefore, as well as considering other, additional measures, all our attention should be focused on how the Thames tunnel can be contained as a project, particularly financially, but also in terms of the disruption that it would cause.
However, I take my hon. Friend’s point entirely, and conclude by going back to basics and why we need this project. When I spoke on Second Reading last week, I invited my hon. Friend the Member for Luton South to join me last Saturday on the foreshore of the Thames by the CSOs—combined sewer overflows—in Hammersmith for the Thames21 clear-up. I was very disappointed to see that he obviously had pressing constituency business, because he would otherwise have joined me and about 100 of my constituents—although they might have been from Bermondsey and Old Southwark or Cities of London and Westminster. However, they were all hard-working people—they worked longer than I did. Together, they cleared up several skips of industrial, commercial and consumer waste—if I can put it that way.
Jeremy Corbyn
I rise to intervene on my hon. Friend for the last time and to thank him, because I visited the Hammersmith shoreline on Saturday evening, and it was absolutely brilliantly clean. I looked over that pristine area of mud and sand, and thought, “This is amazing! This is how the Thames can be. I wonder which guardian angel has been here and cleaned it up”—and now I know.
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.
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.
Jeremy Corbyn
There is a serious danger of many Members agreeing with each other here, which will not do the House’s reputation any good at all. [Interruption.] It will not do the reputation of the hon. Member for Cities of London and Westminster (Mark Field) or mine any good at all, either. I think the hon. Gentleman makes a fair point. I do not wish to exaggerate by saying that quality of the water in the Thames is heading back to what it was in the 19th century. It is not, but it is deteriorating because of the amount of effluent being pushed into it and because the sewerage system cannot cope. Ergo, something clearly has to be done.
I have discussed this issue with my hon. Friend the Member for Hammersmith (Mr Slaughter). As I see it, the Thames tunnel is a solution and it is necessary. My concern is with the cost and the impact; I am also concerned about whether the solution will last. That is why I hope that the Minister will inform us, when he comes to reply, that his Department is seriously looking at other issues, such as permeable surfaces, reducing the use of water, using other forms of drainage that do not pump everything down towards the Thames, and perhaps other forms of sewage disposal that will not lead another generation to have to spend an equally large amount of money on the next new solution to this problem.
I recognise that we have a problem; I recognise that London has to wake up to it. I believe that the Thames tunnel is probably the only solution on offer to deal with it. We have to look ahead as well, just as Parliament was forced to face up to the pollution in the river in the 19th century when it stank Members out of the building. We are not at that stage yet, but Londoners deserve a decent and clean river of which they can be proud. We look forward to the days when the salmon and dolphins are back in the Thames, as they could, should and ought to be.
Mr Offord
I shall comment on the proposals of the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). Some of his comments were interesting and opened me up to some of his concerns, which are shared by some Conservative Members. I shall investigate some further issues afterwards, but I wish to put some comments on the record now.
I am a supporter of the Thames tunnel. I do not think I am considered a spendthrift politician. I am often described as a right-wing Conservative—a moniker with which I am very comfortable. On this occasion, however, I am supporting Thames Water in its endeavours to clean up the river.
I am most concerned about amendment 4, proposed by the right hon. Member for Bermondsey and Old Southwark, according to which financial assistance should be given for “the financing the infrastructure” only if
“secured by a group company which has adopted the equator principles.”
I was not initially aware of what the equator principles were, so I went away to conduct a little research.
The equator principles were established to guide investment for major works and projects in developing countries, particularly those countries that have a limited environmental regulatory framework. Although they are now described as applying to all major projects across the country, the relevant environmental directives here in the UK set much higher standards than anything that appears in the equator principles.
Applications for projects on the scale of the Thames tunnel will be considered by an independent body—in this case, the Infrastructure Planning Commission. I understand that back in September 2010, Thames Water referred the matter back to the IPC. Beyond that, I understand that after investigation, the Secretary of State will be required to look at the project to establish whether it is acceptable; that will be followed by acceptance or rejection by Parliament.
The scale and the nature of the Thames tunnel project has triggered the need to undertake an environmental impact assessment in accordance with the EU EIA directive and the EIA regulations. The EIA process will seek to identify the likely significant effects of the project, which we hope will inform part of the design process and facilitate design improvements, ultimately identifying suitable mitigation measures for any residual environmental and social effects on our constituents. The output of the EIA process—the environmental statement—will convey to decision makers, such as ourselves, the environmental effects of the project, including on local communities.
Other studies have been undertaken that will inform the independent decision makers during the IPC process, including an equalities impact assessment, a health impact assessment and a sustainability assessment. In addition, as we all know, local authorities will be able to make their case directly to the IPC, and they will be able to produce their own local impact statements. Finally, the extensive consultations undertaken by Thames Water comply fully with the Planning Act 2008 and are in line with the Aarhus convention.
It is certainly my view—and I believe it is the view of Thames Water, which is proposing the scheme—that the directives and guidelines are being complied with to an extent that far exceeds the requirements of the equator principles, and I am particularly uncomfortable with that. I am disappointed that the amendment will not be pressed to the vote. I feel that when amendments have been tabled, we should test the view of the Committee on them. I do not understand why the right hon. Member for Bermondsey and Old Southwark tabled this amendment. I would have thought that he had done enough work to be able to speak eloquently about his other concerns. I do not think that he really believes in this measure, which rather muddies the water generally.
The second part of my speech is about the Chris Binnie meeting, which I attended. I was quite surprised to hear that the person who promoted the original plan had decided, after seven or so years, that he felt an alternative was more viable. The viability of the scheme, he said, lay in the fact that it would cost only £60 million as compared with the £4.1 billion he originally envisaged. What he did not address in the meeting, however, was the fact that the £60 million scheme would not fundamentally address the problem of sewage and other contaminants in the river. All it would do is scrape some of the 39 million tonnes of effluent off the top of the Thames and aerate some of the river, affecting fish and livestock living in it. It does not address some of the issues in the EU environmental legislation that we need to address fundamentally as part of the super-sewer scheme.
I was rather concerned to hear that someone who had proposed a scheme only seven years ago had suddenly changed his mind. I felt that some of these aspects should have been considered seven years ago. He said that circumstances, including the financial situation in which the country and Government find themselves, had changed. That reminded me of an old African proverb—that the best time to plant a tree is 20 years ago, and the second best time is now. I ask myself why he did not push this scheme forward at the time. We have had to wait seven years and he now claims that it is unaffordable. I am very suspicious of people who come forward with a professional opinion and then, when circumstances change, decide that better alternatives could have been proposed. In hindsight, it would have been better if he had advocated these proposals originally.
I do not believe that the amendment will be pressed to a vote. If it were, for the reasons I have outlined, I would certainly be against it. I do not wish to detain the Committee any longer—certainly not for as long as the right hon. Member for Bermondsey and Old Southwark did. I look forward to hearing the Minister’s response to some of the points that have been raised.
Gavin Shuker
The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) raises a number of important issues through these amendments. In so doing, I believe he makes our case, which we will come on to discuss in the next group of amendments, for proper parliamentary scrutiny in the exercise of clause 2. However, we take a different view on the correct mechanism in this case. We believe that rather than attempting to restrict the powers of the Secretary of State—despite the rather ingenious way in which he has crafted the amendments—the best way to debate major infrastructure works is through a statutory instrument process, before triggering the powers in clause 2. Because we believe that our amendment provides a superior mechanism, we are reluctant to support the right hon. Gentleman’s amendments, although I accept that he has already said that they are, to a degree, intended to probe the Government’s position.
I admit that I was a little confused about the right hon. Gentleman’s own position. Last week he said that he was no longer convinced of the arguments in favour of the Thames tunnel, and I hope that the amendments are not designed to allow him to sit on the fence. In view of climate projections that forecast a substantial increase in the number of flash floods in the region—it is expected that by 2060 the UK’s current single occurrence in 30 years will become one in 11, and that the current single occurrence in 100 years will become one in 30—we think that the need for the tunnel is obvious.
We do, however, agree that the scheme could be accompanied by a number of other measures. It should be borne in mind that the Thames tunnel will still be overwhelmed by large storms occurring perhaps every three months. That demonstrates that the design is not over-engineered, as some would claim, but provides a decent standard of protection for the Thames.
The right hon. Gentleman has indicated that he does not intend to press his amendments to the vote. I invite him to support our amendment 2 later, when these points can be properly addressed.
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.
Simon Hughes
I am grateful to colleagues who have contributed, from both upstream and downstream. Both banks of the Thames have been represented, which is a good thing. I should probably have started by declaring two interests. I chair the Mayor of London’s Thames festival, which has a regular interest in ensuring that we celebrate our Thames, and I am a patron of the London Wildlife Trust, which has done lots of work on the Thames. I am also a supporter of Thames21, which has been applauded by Members on both sides of the House and has done fantastic work, as have other environmental bodies.
I join the Minister in celebrating the fact that another country’s sovereign wealth fund is interested in investing. That is a good thing. The announcement of the Chinese investment interest in the past few weeks was very welcome and I share his view.
I shall be brief and shall just pick up on the comments that have been made. The Minister has been very courteous and recognised that I was seeking to put on the agenda items that I and my constituents think that the Government ought to bear in mind as they take the Bill forward. I accept entirely that the Bill, as drafted, has a subsection of proposed new section 154B that allows the terms and conditions for any financial assistance to be inserted by the Secretary of State. The debate we are about to have, which will be initiated by the hon. Member for Luton South (Gavin Shuker) on behalf of the official Opposition, is a sort of halfway house. The proposal is that we do not get into the detail but that we have a mechanism—
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
Order. Shall we wait until we start to discuss those amendments before we start referring to them? The right hon. Gentleman should concentrate on the amendments that he has tabled.
Simon Hughes
Thank you, Ms Primarolo, and of course I will.
I understand that the Minister realises what the issues are. I heard what the Minister said, and I tell my hon. Friend the Member for Hendon (Mr Offord) that the equator principles are now well-established principles for finance companies that are lending nationally and internationally and they were the best form I could find of a benchmark of ethical standards for financial companies that are lending to utilities. Yes, they were developed in the context of the third world, or the developing world, but they do not just apply there. I understand the points that were made.
The negotiations to which the Minister referred are being conducted confidentially, of course, and I understand that, but I hope that after today’s debate we will be able to ensure—the Minister has offered to do so—that there is engagement across the parties and across the House, including with those of us whose constituents, like his, have an interest in our ending up with a rigorous system for ensuring that Thames Water is accountable. We have flagged up the wider issue, which we want to take elsewhere, with Government.
On the comments of Opposition Members, not least those of the hon. Member for Hammersmith (Mr Slaughter), about the meeting held upstairs, I am grateful that colleagues came to that meeting and others held in this and other buildings about Thames Water. My view is that an evidence-based conclusion should be reached about what the right systems are for dealing with what has been a growing problem for the Thames. We need to make sure that we are all confident that we come up with the right solution, and it is perfectly proper to call people who have views and experience to give evidence. Like the hon. Gentleman, I was slightly surprised that Professor Binnie appeared to move from a view that he had moved on to, back to a view that he had originally held. It is important not to ignore the principle that we should not overspend on a capital project if there are other ways of doing things that give better value for money.
I am grateful for the time we have taken to look at this issue, which is now on the agenda. I am determined that engagement with Ministers should continue and I hope that Ministers will be very positive about making sure that not only the Government but Thames Water and Ofwat engage. May I end by correcting one thing that I mis-said when I was talking about an example that should give us a warning? I was talking about the M6 project and the way it had been funded. I said that the company that ran the project, which is linked to the company involved in Thames Water, had a net worth of £67 million and paid no corporation tax, but I should have said that it had a net worth of minus £67 million. I hope that this makes my point a better one—that a company may appear not to have any money but can be paying out large amounts in dividends. I am grateful to have had the opportunity to put that right and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Gavin Shuker
I beg to move amendment 2, in clause 2, page 3, line 5, at end insert—
‘(6A) No financial assistance may be given under subsection (6) unless the Secretary of State has laid a draft of a statutory instrument setting out the terms and conditions including the duration of such assistance before, and such draft has been approved by a resolution of, each House of Parliament.’.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
With this it will be convenient to discuss amendment 3, page 3, line 5, at end insert—
‘(6B) Before making regulations or an order under this section, the Secretary of State must lay a report before Parliament on her proposals to make apprenticeship programmes including at a Level 5 and Level 6 standard part of any major works, as well as an estimate of the number of jobs created and benefit to the local economy.’.
Gavin Shuker
In this final grouping, we seek to improve the Bill by ensuring that the same parliamentary scrutiny is applied to the wide-ranging powers in clause 2 as we sought to introduce for clause 1, and that the benefits of major works are shared with the whole community, not just shareholders. Amendment 2 recognises that the powers in clause 2 for the Government to provide contingent financial support for exceptionally large or complex water and sewerage infrastructure should be subject to proper debate in the House before they are triggered. As I have already said, it is not our desire to frustrate the will of the House; indeed, there is, by and large, consensus across the House that something must be done to correct the issues with the Thames and that the Thames tunnel presents the best solution for that problem. However, I feel that the clause needs to be considered beyond the context of today and the policy statement that I believe will come out in the House on Monday night.
Rory Stewart (Penrith and The Border) (Con)
Will the hon. Gentleman reflect on the idea that proper debate in the House should be required on triggering very detailed financial amendments? Given the lack of attendance in the broader debate about this Bill, is it realistic to expect proper parliamentary scrutiny of something so minor?
Gavin Shuker
I am grateful for that point from the hon. Gentleman who has joined us in the debate. I ask him to hear me out regarding this measure. I am sure he has read the amendment and understands that it refers to the process for statutory instruments under which Members who had a particular interest in the matter would be able to go and make representations. We use that system quite commonly across the House and I feel that such additional parliamentary scrutiny would be appropriate for projects such as those we are discussing, which could involve costs of up to £4.2 billion and a long period of tunnelling works and the like, let alone for other projects that we do not currently know about.
As Members of Parliament we scrutinise, debate and legislate, and we are elected to do so. By putting the power to decide whether public money should be risked on large water infrastructure projects solely in the hands of the Secretary of State, we lose that thorough process, which is the most accessible way for Members to engage in legislation here in Parliament. We will see how much interest the Thames tunnel has attracted in the Chamber today as part of the Bill. The debate so far has allowed MPs who represent constituencies that will be affected by the plans to come forward and express the views of their constituents, but it is limited. The debate has also allowed those with experience and expertise in the field from both sides of the House to feed in their knowledge and advice.
However, the clause in its current form concerns us because it means that from here on we risk writing blank cheques for the Secretary of State and her successors when it comes to large water infrastructure projects. The clause will see the decision-making process remain in the Secretary of State’s office—decisions which might lack awareness of how enormous these infrastructure plans are and how they will affect people’s homes and lifestyles.
Let us compare the Bill with other Bills that will be introduced in this Parliament before 2015. We know that a hybrid Bill process will be used in some cases. This is not a hybrid Bill, so it is important that we get the groundwork right in relation to the decision-making process on the Thames tunnel and other infrastructure.
Our amendment requests that such proposals come to the House for debate and allow Members to contribute their knowledge and experience. Accountability and scrutiny are needed if infrastructure plans are to reshape constituencies that Members are elected to represent. It is only right for their input to be considered. Amendment 2 will improve the Bill in that way.
As an aside, although it is essential to our decision whether to move the amendment, I noted on Second Reading in the discussion of the decision-making process on the Thames tunnel that reference was made to the policy intent in the Government’s document, “Major infrastructure planning reform: Work plan” of December 2010, which states:
“Following Royal Assent of the Localism Bill major infrastructure applications will return to ministers for decision as follows: . . . the Secretaries of State for Communities and Local Government and Environment, Food and Rural Affairs will jointly determine water supply and waste water applications.”
I have checked and DEFRA has confirmed that the joint decision-making process is undertaken by administrative means, not statutory means. In other words, although the Localism Act 2011 amended the planning legislation to give Ministers the final decision-making responsibility for major infrastructure, it did not lay down a legal duty imposing the policy intent. So DEFRA will lead on waste water and DCLG will handle planning, including the report from the planning inspectorate, but the Departments have not yet, as I understand it—I look to the Minister to clarify this—decided how Ministers will act jointly in the final decision. That falls short of a legal duty to make joint decisions that place a legal responsibility on both Secretaries of State. It could result in messy horse-trading between the two Departments. If the Minister clarified the exact process, that would be helpful. It may not address our particular concern that proper parliamentary scrutiny is applied to the decision through the statutory instrument process, but it will help us decide whether to press the amendment.
The Minister said earlier that he would share the discussions that he has had with his officials and, as I understood it, with Thames Water, to reassure us about the cost and the process for implementing the tunnel. We have another debate on Monday to approve the guidance on waste water. If not during this debate or the one on Monday, when will he share the discussions that he has had, which he sought to use to reassure Members that the process would be properly managed?
Amendment 3 will sharpen the mind of anyone proposing major infrastructure works by obliging them to consider the requirement to make apprenticeship programmes a key part of that work. Thames Water estimates that the Thames tunnel project will directly create more than 4,000 jobs in the construction sector. The majority will be employed through contractors. Of course, the true number is likely to be higher, given the secondary employment effect. A partnership is emerging with Crossrail’s tunnelling and underground construction academy, which is currently training and placing about 70 apprentices each year. Last week the Minister gave an assurance at the Dispatch Box that the Thames tunnel project will specify in its contracts the number of apprentices who will be employed by contractors.
In amendment 3 we commend that approach, not just for the Thames tunnel project but for future projects. It would require the Secretary of State to lay a report before Parliament on her proposals to encourage level 5 and 6 training programmes—for those Members not fully versed in those programmes, they are equivalent to foundation and bachelor degree qualifications. These major works can take a decade or more to complete, which means that there is ample time to bring a generation of young people into the trades, if the political will is there to require it.
Simon Hughes
On that important point, I know from my experience of the Jubilee line extension and other major projects that often the issue is not whether a deal is done that in theory ensures jobs, apprenticeships and training for local residents, but whether such a deal is then monitored and delivered. Often the will is there but it does not turn out that way in practice.
Gavin Shuker
The right hon. Gentleman makes his point explicitly and brilliantly. If the lessons of the past 20 years on major infrastructure projects where we have required special social benefits are to be learnt, monitoring is absolutely essential. That is why I think that our amendment’s approach is very sensible. It would require the Secretary of State to bring forward her plan, and an agreement with the infrastructure provider, so that it could be approved by this House. The additional level of scrutiny given would not just be an assurance in the contracts; there would be proper parliamentary accountability to ensure that the benefits, for Londoners in this case, are spread across the capital and give young Londoners a fair start.
We know that the Thames tunnel will be a huge infrastructure project, and we have all seen the bad news on youth unemployment today, so we are calling on the Government to ensure that young Londoners get a fair share of the 4,000 jobs the tunnel will deliver. In short, this is a real opportunity to help guarantee apprenticeships and high-level skills. I hope that the Minister will be able to accept both amendments, which would improve the Bill for Londoners now and for all households in the years to come.
Rory Stewart
The hon. Member for Luton South (Gavin Shuker) has made a powerful case for apprentices and for better scrutiny of financial mechanisms. I stand, with enormous modesty, not as someone representing the Thames, but as someone representing a large body of water in Cumbria. However, my disagreement with the amendments, and I suspect my party’s disagreement, is based on profound Tory principles. It is a disagreement not on the nature of scrutiny or the importance of apprenticeships, but on the basis of law, the way statutes should be created, the way administration should be driven through and the importance of the issue. We begin in agreement: apprenticeships are important, as is scrutiny. But Parliament is not the way to do this.
This is an elegant and unencumbered piece of legislation. What we have seen in infrastructure investment over the past 50 years is a complete misunderstanding in this country about the importance of Parliament in infrastructure and where Parliament should not be involved. We have been a catastrophe— not just the Labour Government, but the previous Conservative Government—when it comes to making the right infrastructure investments for this country. Why? It is because, unlike Denmark and Germany, we have never developed a proper attitude towards infrastructure or investment. We have never developed a national investment bank. We continue to believe that highly technical matters, such as those relating to the deployment of water or the details of the financing of infrastructure, can be resolved by Parliament, rather than the kinds of specialists in the World Bank who deliver these projects effectively around the world. We see that in water and, just as powerfully, in broadband.
If the Government are pushing ahead with this legislation, and if we are pushing back against the Opposition, it is because the failings over the past 13 years in delivering infrastructure are reflected in the comments of the hon. Member for Luton South. There are better ways of looking at the financing; there are better ways of looking at apprenticeships.
We have in place flexible apprenticeship mechanisms that are currently delivering more than 100,000 apprentices. Encumbering this legislation or, indeed, any future infrastructure legislation with that degree of detail would not only, as my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) pointed out, prove generally ineffective, as it has in the past owing to a lack of monitoring, but take away from civil servants—which is where it should lie—the real responsibility and accountability for delivering good, imaginative infrastructure projects, well financed and with apprentices in place.
Given the importance of this issue, given that water matters so much to us, given that the drop in public sector demand means that we should make more infrastructure investment, given that we need to be much more creative about how we bring financial mechanisms to bear, given that it is so cheap at the moment to borrow money, and given that it should be possible to make not just this but many more profitable investments on the basis of public sector insurance or financing, I beg the hon. Member for Luton South to withdraw the amendment. It would tie the hands of the Government at a very important moment, when we need exactly this kind of infrastructure and exactly this kind of investment in water not just for apprentices but for economic growth.
The way to proceed is with a serious, responsible approach to infrastructure investment, which will not be delivered through the kind of statutory commitments that the hon. Gentleman proposes.
Miss McIntosh
I shall limit my remarks and take a slightly different view from that of my hon. Friend the Member for Penrith and The Border (Rory Stewart), because I believe that there is some merit in parliamentary scrutiny and that, often, we have better laws as a result. Given that there is all-party and, indeed, consumer support for what the measure and, in particular clause 2(6), is trying to achieve, I am sure that in moving amendment 2 the hon. Member for Luton South (Gavin Shuker) is not seeking to delay matters through parliamentary scrutiny.
Will the hon. Gentleman consider this approach, however, which I have shared with the Leader of the House? When we have—as was mentioned in the debate about the first group of amendments—parliamentary scrutiny of draft orders under the Flood and Water Management Act 2010, for example, is it not unsatisfactory that all we are required to do is to vote for or against the statutory instrument? Would there not be some merit in being able to amend it?
I have chaired and served on Statutory Instrument Committees, as all of us have been privileged to do from time to time—although I hope that the Whips do not take that as a bid to serve on any in the future. As a humble Back Bencher, however, I believe—and this is where I part company with my hon. Friend the Member for Penrith and The Border—that if we are going to have scrutiny we should be able to amend statutory instruments. I find it unsatisfactory that we may have an amendable motion but not the power to amend a statutory instrument. I just plant that thought in the minds of the hon. Gentleman and of other hon. Members.
Gavin Shuker
I am grateful to the hon. Lady for her warm approach to our amendments and for her suggestion. To be clear, we would not necessarily have chosen the process that we are engaged in with this Bill, which is a money Bill. A hybrid Bill might have provided an opportunity really to scrutinise the two projects that, as the Minister has already said, the Bill is about.
Miss McIntosh
Bearing in mind the history of hybrid Bills in this House, and the length of time and the amount of dissent that they can involve, I am not sure that that is the path the hon. Gentleman really, truly wishes to go down.
Richard Benyon
I am grateful to the hon. Member for Luton South (Gavin Shuker) and his colleagues for tabling the amendments, because that allows me to explain—and, I hope, to reassure the House—about the use and the powers of the clause.
First, I will address a couple of the points that the hon. Gentleman made. I assure him that I am happy to discuss the process with him and for him to meet my officials to see how it is progressing. He is a very honourable individual and he will respect the fact that because some aspects of what we are dealing with are extremely sensitive and are being watched closely by a number of organisations and, not least, the markets, we have to be extremely careful. I am pleased about how things are going. He also has the opportunity to meet representatives of Thames Water, Ofwat and others to express his concerns on this and related issues, and I know that he has already done so.
The hon. Gentleman asked which Ministers will make the final decision on such matters. The Secretaries of State for Environment, Food and Rural Affairs and for Communities and Local Government will jointly take decisions on water and waste water applications. The Secretary of State for Communities and Local Government will take the lead on considering the Planning Inspectorate’s recommendations. My officials are due to meet his officials shortly to agree the process, and I am happy to keep the hon. Gentleman informed as that develops.
I should like to outline the practical problems associated with accepting the amendments. Together with advisers, the Treasury, Infrastructure UK and Ofwat, we are engaged in discussions with Thames Water over the financing of the Thames tunnel project. Those discussions are focused on reaching the right balance between protecting bill payers and taxpayers and ensuring that the project can be financed and delivered by the private sector. By necessity, a project of such scale and complexity as the Thames tunnel involves a complicated and lengthy negotiating process. I can foresee a host of practical problems in stopping that process at the point at which we feel that a reasonable package has been reached, which balances the risks and enables the project to be delivered, publishing a report on apprenticeships and a further cost-benefit appraisal, and then translating the agreement reached into a statutory instrument for debate in both Houses. Even if we can find a way around addressing potentially commercially confidential material in a published draft order, that additional regulatory process would prolong the completion of the project and add cost that is ultimately paid for by the customer. It would also create an extra layer of risk, with likely implications for securing and retaining the interest of investors in the project.
Mel Stride (Central Devon) (Con)
Is it not also the case that, almost of necessity, Parliament will scrutinise very large infrastructure projects in one way or another anyway?
Richard Benyon
My hon. Friend is absolutely right. It is worth reminding ourselves of the kind of project that we are talking about. Subsection 1(a) refers to
“the construction of water or sewerage infrastructure”
and subsection 1(b) refers to
“existing water or sewerage infrastructure.”
We have therefore narrowed this down to a particular area of work. Subsection (2) refers to
“exceptionally large or complex works.”
Such an item of expenditure could not just sail under the radar of due parliamentary process. I appreciate the comments of my hon. Friend the Member for Penrith and The Border (Rory Stewart) who eloquently described the necessity for smooth operating in such circumstances, but we are talking about major projects that cannot avoid high levels of scrutiny, and I cannot see that adding an extra tier to that process would be effective.
In the event of the statutory instrument being rejected by Parliament, we would have to return to the negotiating table and reopen discussions. That might put in jeopardy the interest of investors that had previously been attracted to the project. That would add further costs, call into question the project’s viability and ultimately delay action to tackle the significant environmental problems that, in the case that is the driver for the Bill, are being caused by excessive sewage discharges into the Thames. That would, in turn, increase the risk of infraction fines against the UK for non-compliance with the urban waste water treatment directive.
Rory Stewart
Does my hon. Friend accept, as a general philosophical principle, that one should not micro-manage the detail of a Bill to the extent that is called for in the amendments, because one would end up with endless and voluminous legislation? Does he agree that the issues of apprenticeships and financing are better left to the contracting authorities and to the administration of civil servants, and that if too much of this micro-managing happens on sectoral issues and specific projects, Parliament will be mired in complexity?
Richard Benyon
I agree with my hon. Friend. It would be wrong to put in the Bill requirements that might or might not suit today’s world, but that would be wrong for the future. The Government, in negotiations with private sector companies and through the planning process, are involved at many levels in the development of such contracts. We can impose our desires and our will. The companies and the Government can be held to account if they fail on these matters. I believe that to prescribe to such a level of detail would be wrong.
Thames Water is holding the launch for a jobs and skills report in the House on 20 March, to which MPs are invited. Its jobs and skills forum will promote the work that it is carrying out in this area. Thames Water will also look to gain from the experiences of other large-scale infrastructure projects. It is right for the Government to support and encourage Thames Water in those efforts.
Apprenticeships are central to ensuring that our work force are equipped to help build economic growth. There are huge opportunities in the project, if we can embrace them, for Londoners who are seeking work and training to be involved in a really high-profile scheme for a number of years. They can then take the benefits into other sectors and industries. However, we do not feel the need for further legislation to provide that encouragement. Nor is it necessary or appropriate to require the terms and conditions involved to be included in a statutory instrument. For that reason, I ask hon. Members not to press the amendments.
Gavin Shuker
I thank all Members who have participated in the debate. I listened carefully to what the Minister said, and I am slightly concerned that he and the hon. Member for Penrith and The Border (Rory Stewart) have tried to talk up amendment 3, a modest amendment, into a big, overbearing piece of regulation. It is not. It would not just apply to this project but protect us in future, and I gave a clear commitment to the Thames tunnel throughout my speech.
I listened to what the Minister said about apprenticeships, and I believe that his heart is in absolutely the right place. We will all want to pull together to ensure that the Thames tunnel project, which I am certain will go ahead, employs apprentices and ensures that there is a legacy for London. I will therefore not press amendment 3, but I do seek to press amendment 2 to a Division.
Question put, That the amendment be made.
Richard Benyon
I beg to move, That the Bill be now read the Third time.
I begin by thanking all Members who have contributed to the debates on Second Reading and in Committee today. I pay particular tribute to the hon. Member for Luton South (Gavin Shuker), who was decent in consulting me and put forward articulately how he viewed the Bill and how he believed it could be changed. I am sure we will have many further discussions over future legislation. Many right hon. and hon. Members contributed to the debate. I pay particular tribute to my hon. Friend the Member for Thirsk and Malton (Miss McIntosh), who spoke with her customary knowledge on this issue.
For the record, I would like to correct an impression I might have given in Committee about the funding of water bills in the south-west. I can confirm the Government’s firm commitment that the funding will continue until the end of the next spending round. The Treasury will fund the bills until the end of the current round, and the impact on DEFRA’s budget in the next round will of course be a matter for us to discuss.
The Bill is straightforward in its intent and drafting. It fulfils two spending commitments set out by the Chancellor in his autumn statement, both of which were designed to reduce the costs of infrastructure investment falling on water and sewerage customers.
Through the amendments that we have discussed today—which I have considered carefully—ran a common thread: a desire to limit and delay Government action to help hard-pressed bill payers. After so many years of debate, we want to get on with funding South West Water to enable it to cut bills for its household customers. We have a separate package to deal with wider affordability problems. We also want to reassure potential investors in the Thames tideway tunnel at an early stage that the Government are willing to provide contingent financial support for exceptional project risk when that offers the best value for money for Thames Water customers and taxpayers.
I shall refrain from discussing the need for the tunnel today in order not to repeat myself, as on Monday the House will debate the waste water national policy statement, which includes a statement of need. On Second Reading, Members rightly mentioned their constituents’ concern about the potential local impacts of the tunnel’s construction; I assure them that they and their constituents can provide input on such issues at all appropriate stages of the planning process.
I also understand the concern that has been expressed about the breadth of the powers in the Bill, but those powers are by no means unusual in containing flexibility for the purpose of future circumstances, and they do not remove the need and opportunity for proper parliamentary scrutiny of Government spending plans in the usual way.
Our water White Paper, “Water for Life”, sent the strong message that we need to be prepared for an uncertain future. The current drought is just a small taste of what may follow if we do not act to make our water supply and sewerage systems more resilient. That will require continuing investment in infrastructure, as well as action by all of us to conserve water.
As I have said, we are confident that our system of economic regulation can ensure that bills remain affordable generally, while the existing WaterSure scheme, together with targeted social tariffs and other support delivered by water companies, can help those in need. More than £90 billion has been invested since privatisation, while bills remain on average around £1 per day. That is testimony to the strength of the current system. However, exceptional circumstances do arise. We have seen it in the south-west, and we have seen it with the Thames tunnel.
Of course, infrastructure investment does not just bring cost. As I said earlier, jobs and growth are central to the Government's agenda. Thames Water currently estimates that the Thames tunnel project would directly employ around 4,200 people in the construction and related sectors, and would provide several thousand secondary jobs in the supply chain and the wider London economy. That is not in itself a reason to support the construction of the tunnel, for obvious reasons, but it is nevertheless a big win for London and for the country in terms of what it can do for our skills base and our economy. Thames Water aims to ensure that local workers make up 20% of its tunnel construction work force.
I am grateful for the swift passage of the Bill, and for the many thoughtful contributions that have been made to our debates. As a number of Members have noted, there has been a cross-party effort by those representing constituencies in the south-west to keep the issue of high water bills in the region on the political agenda. I am pleased that Members in all parts of the House also recognise the need to deal with the sewage discharges that are sullying the most important river going through one of the most important cities in the world.
I commend the Bill to the House.
Mary Creagh
I agree that we have had a very good debate on the Bill. This week’s drought announcement illustrates the increase in weather volatility, however. If there are floods in Australia, it is likely that there will be droughts in other parts of the planet and we are going to have to plan for a lot more climate change disruptions.
As constituency MPs, we are all mindful of the fact that this April water bills will be rising by an average of 5.7%. At the same time as those bills drop on to customers’ doormats, 20 million people—about a third of our population—will be faced with a hosepipe ban across many parts of the country. The Bill puts in place assistance for the people in the south-west, however, and thereby corrects an historic injustice. It also gives powers to provide finance for infrastructure investment. We shall not oppose it on Third Reading, therefore.
I want to reflect on some of the Minister’s comments about our amendments. Amendments 1 and 2 would have introduced the principle of parliamentary scrutiny. He said Parliament does not examine spending decisions by Government, but, of course, Parliament does do that. Indeed, next week we will have the Budget and a lengthy Finance Bill that will examine Government decisions in detail.
The Water Industry Act 1991 stated that water companies could get money from the Government only if that was in the interests of national security, and that if they were ever to receive money from Government, that should be reported to Parliament. Under this Bill, that important principle of parliamentary oversight of the spending of considerable sums of taxpayers’ money is being broken.
We know that the assistance to the south-west will cost £400 million over the seven or eight years of the scheme. The Minister said it was “unimaginable” that any other water companies and customers would get public money. [Interruption.] I listened to the Minister’s remarks, and he used the word “unimaginable”. He said money would not be “sloshing” about and that the Government would not be “doling out” money to the water companies and their customers. However, in 1991 it was unimaginable to Ministers in the then Conservative Government that any water companies should ever receive money, which is why they stated that very important principle in the 1991 Act. We must not forget that the 22 water and sewerage companies are, of course, monopoly providers. At a time when bills are going up and hosepipe bans are being introduced in what is a monopoly industry, we now have to explain to our constituents why this money is being provided.
The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) talked about the debt to equity ratio of Thames Water, as well as the structuring of the company and the packaging up of debt. Government infrastructure investment bonds might be useful in this regard. We heard this morning about the new 100-year bonds. They could be a prime candidate to be the long-term investment vehicles to finance large infrastructure projects such as the Thames Water tunnel.
This Bill’s title includes the phrase “Financial Assistance”, and we know that the groups that are most vulnerable to water poverty are single parents, pensioners and jobseekers. However, only a third of eligible households access the current WaterSure scheme. We want to see much more action from water companies to ensure that the most vulnerable access either national or company social tariffs. As my hon. Friend the Member for Bolton West (Julie Hilling) said, we should not expect water companies to be philanthropists, and so our new clause 1 was intended to be helpful. I am sorry that the Minister thought it an unacceptable regulatory burden on water companies.
When Labour was in government, we found league tables to be a very effective benchmarking tool in driving up performance in public services—schools and hospitals—allowing consumers, customers and taxpayers to understand where their money goes and where they are getting value for money. League tables provide transparency and equity, and in providing a public service—I cannot think of a more crucial infrastructure one than water—it is very important to end the postcode lottery on people’s eligibility for financial assistance.
Labour Members think that in future financing projects we need to be very careful about the burden we place on water customers, and we use the idea of league tables as a benchmarking tool. Many companies use benchmarking groups, which, on an anonymised basis, provide data to researchers, with the companies then getting the data back so that they can benchmark their performance. We do not see anything wrong, or any regulatory burden for the companies, if these companies are forced, by the regulator, to disclose what they are doing, so that we can bring the poor performers up to the level of the best and spur the best performers on to innovation on social tariffs.
We know that the Thames tunnel will add £70 to £80 to Londoners’ bills. Obviously, a number of questions have been raised about that, but I am concerned that the House may not have a large number of opportunities to debate this infrastructure project in the future, and so we need to make sure that proper consultation takes place. The House has debated the Crossrail Bill, which was a hybrid Bill—I made my comments clear on Second Reading as to why this was not a hybrid Bill. The Thames tunnel will create up to 4,000 direct jobs and our final amendment sought to ensure that the benefit of that £4 billion investment accrues to London and Londoners, as they will be paying for it.
Let me cite the example of what I found when I travelled to the Stade de France in Paris, in 1996, and met people from Bouygues, the big French construction company which was building the stadium. The French Government had taken the decision to build it in Paris Saint-Denis, a very poor suburb. This was about 16 years ago, a long time ago, but I was shown the number of apprenticeships at levels 4, 5 and 6—we are talking about master’s-level qualifications—that would accrue throughout that construction project. As my party perhaps did in government, this Government are potentially letting construction companies off the hook by saying that it is an unacceptable regulatory burden to ask them to do more on apprenticeships. Where does the 20% apprenticeships figure come from? Over a four-year project, why can we not get bright young undergraduates in, give them the on-the-job training and make sure that they then become the next generation of London’s civil engineers?
If I may, I shall leave the last word to my hon. Friend the Member for Hammersmith (Mr Slaughter). He talked about his young constituent rowing on the Thames, who said that we have a duty to protect our river in this great world city and that his generation is looking to our generation to build something amazing. We hope that that is what will result from today’s discussion, and that we will protect our great global capital city and one of the world’s great rivers for the next century.
Miss McIntosh
It is a pleasure and a privilege to follow the hon. Member for Wakefield (Mary Creagh). We have had a good debate and I warmly congratulate my hon. Friend the Minister on delivering this Bill and the official Opposition on their constructive approach. I understand their request for greater parliamentary scrutiny and their case was well argued, sincere and well meant. In relation to clause 1, the explanatory notes state in paragraph 12:
“The power is discretionary and may be exercised for such reasons as the Secretary of State feels desirable.”
Any parliamentarian will relish the opportunity of scrutinising such orders and it need not take long. Unfortunately, the Opposition failed in their quest.
The Bill covers a number of important matters. On the affordability of South West Water bills and funding, I take this opportunity to thank my hon. Friend for his remarks and the clarification. I understand that the commitment is there to fund the South West Water bill until the end of the next spending round. I personally will pledge—I am sure others will do so, too—to give him any support we can in his discussions about the funding with the Treasury.
Neil Parish (Tiverton and Honiton) (Con)
I endorse what my hon. Friend says about the Treasury, because the situation in the south-west will not go away. We have 3% of the population and 30% of the beaches, and the beaches must be kept clean, which costs a lot of money. We will need help in the future, so if the Treasury could find that money we would be most obliged.
Miss McIntosh
I am grateful to my hon. Friend for his support and I want to record how well represented the Select Committee on Environment, Food and Rural Affairs has been in the debate. He obviously has a particular interest in the south-west, and if the money is available only until the end of this spending round, we will then have to find the money for South West Water at the beginning of the next spending round. The powers are there and the Secretary of State has the discretion to extend the scheme to other areas, but, given the economic turmoil in which the country still finds itself, such a result seems highly unlikely. I shall watch this space with interest.
I know that we will continue the discussion on the Thames tunnel on Monday when we debate the waste water national policy statement, but although it is an extremely exciting project, we must not lose sight of the fact that it is a giant project. Londoners and those of us who spend our working week in London should be under no illusion about the fact that there will be a degree of disruption during its construction. I warmly welcome what my hon. Friend the Minister said about the local work force. That is very good news for the Thames tunnel and, obviously, if we have relevant expertise in Thirsk, Malton and Filey, I hope we can provide some of the work force for it.
The Committee has recently heard evidence on other issues, including the White Paper “Water for Life”, the current drought, water efficiency, regulation and introducing competition. As my hon. Friend knows, I have an interest in implementing all the outstanding recommendations of the Michael Pitt report. There is some argument that this Bill should rightly have formed part of the broader Bill that we are still waiting for, but this Bill will enable the Government to meet the commitment given in the water White Paper and confirmed in the Chancellor’s autumn statement.
The Committee stands ready, willing and enthusiastic and is looking forward to pre-legislative scrutiny of the draft water Bill. It is a matter of some regret that that Bill will be delayed, particularly as regards affordability. The water White Paper proposes that companies should be encouraged to introduce company social tariffs to help poorer customers, funded by a cross-subsidy from the water company’s other customers. The Minister said that there are many tools at the disposal of water companies, but it is appropriate that we should consider the suggestions made in the Anna Walker review.
Water affordability is increasingly becoming an issue. Ofwat figures show that 11% of households spend more than 5% of their income on their water and sewerage bill, and we now hear about water poverty as well as about fuel poverty. Company social tariffs can be introduced only where they have the broad support of the company’s customer base. Alternative approaches would be to provide Government funding for social tariffs or to operate customer cross-subsidy at a national level. I am sure we will have the opportunity to explore those ideas in the wider Bill.
Water companies have called on the Government to make available to them information regarding the customers who are most likely to be struggling with their bills—for example, from Department for Work and Pensions data on benefits—to allow them better to target their social tariffs. I listened carefully to what the Minister said and I am not sure that he was able to respond on this point, but the sooner we can make that information available the sooner we can extend these tariffs. I am delighted that the Consumer Council for Water supported this idea in the evidence that it recently gave to our Committee, and the Government have said they are considering this suggestion. I hope we will not be hampered by data protection provisions.
It was shocking to learn in a Select Committee evidence session that bad debt in the water sector costs every paying customer approximately £15 a year. A large part of the problem is the fact that there is no obligation on landlords to provide details of their tenants, which means that water companies do not know who to bill for their services. I welcome my hon. Friend’s comments. It is entirely appropriate to place a statutory obligation on landlords to provide details of their tenants or else be held liable for water bills at their properties. There is an urgent need for such measures, as were included in the Flood and Water Management Act 2010. Those provisions have not yet been implemented and the Government have consulted on using a voluntary approach, which is welcome, to encourage landlords to provide information rather than implementing the provisions in the 2010 Act. Clearly, that was a source of disappointment to water companies. In their evidence to the Select Committee, they said that was a rather retrograde step and argued that the Government should implement the provisions on landlord liability as soon as possible. I am delighted to make that case to the Minister today.
The Minister is aware of my interest in and passion for SUDS—sustainable drainage systems—and I hope that we will have early implementation of those. I pay tribute to the work of Gray and the regulatory aspects of the Gray review, to the work of Anna Walker in her review and to the work of Cave in his review. I hope that the Government will give some teeth to the recommendations not only on affordability, in the measures before the House today and in the wider Bill, but also on water efficiency. This is precisely the time when we should be considering those measures because of the imminent drought. I know that the hon. Member for Wakefield will be as concerned as I am that it is reaching parts of Yorkshire, including my area. That is something on which we need to proceed apace.
I shall be delighted if we do not proceed to bring in the provisions of the 2010 Act to reduce the 25,000 cubic metre limit in reservoirs to a 10,000 cubic metre limit. My hon. Friend knows that I have been extremely patient—or not—in waiting for the provisions on reservoir safety. I hope they will come forward sooner rather than later. We are going to need more reservoirs to be built. Increasingly, engineers have a safety issue and I am sure that there would be a benefit from bringing forward that safety review.
I believe this Bill is a great success. It allows water and sewerage companies to raise the finances and investment they need, particularly in relation to the south-west. We very much look forward to the wider draft Bill, but I commend this Bill and wish it a speedy and fair passage through the other place.
Mr Slaughter
Perhaps we should have more of these short Bills as they provoke such agreement between the two Front Benches. It is slightly surprising that there is such a degree of agreement, given that when the Bill is stripped down, it is about two specific initiatives. I have heard the argument about whether it should be a private or a hybrid Bill. It is a public Bill, but unless the Minister wishes to correct me, we are talking, first, about the subsidy to South West Water customers, and secondly, about the underwriting of the Thames tunnel scheme, both of which potentially commit large sums of public money. Given the rhetoric about public money that we have to hear all the time from the pattern book of this Government, and given the concerns expressed from the Opposition Front Bench, we can say that this must be an important measure or we would not be undertaking those commitments.
My first concern is about the Government’s reluctance to support the amendments tabled by the Opposition. I am at a loss to understand why that is the case. I hear what the Government say about the control of finance, as addressed in clause 2, but it seems to me, without going to the lengths to which the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) went in pinning down the fine detail, it is important that the House continues to have a supervisory role and scrutiny of the finance of projects, particularly given what we have heard about Thames Water, in whatever guise or ownership. The same would apply to other water companies. I believe that the chief executive of Thames Water had a salary package of about £1.6 million last year. There is a lot of money sloshing around in the utilities companies.
Although I do not accept that the Thames tunnel is over-specified or is doing more than is needed for the job, we need to keep a close eye on the project. It is, as I said, an unfortunate outcome of the previous Conservative Government’s privatisation strategy that we have, potentially, people running our utilities who are more interested in their shareholders and their remuneration than in the welfare of their water customers. That gives us a particular responsibility, and I cannot understand why the Government will not accept what we propose.
Water bills are rising, and any project designed to relieve the problems of sewer flooding in London or flooding into the Thames will cost a lot of money and will inevitably add to bills. That is another reason for controlling costs and for protecting those who cannot afford to pay. That was the purpose of new clause 1. Again, I cannot see why that has been rejected by the Government at this stage. It is disappointing and shows a lack of concern on the Government’s part about the potential financial impacts of these measures.
Another concern I have—I shall be brief, as I spoke about this on Second Reading—is about those who would muddy the waters, so to speak, on the Thames tunnel project. If anybody can come up with a cheaper project that will have the same or better effect, I am sure it would be extremely welcome and we would all like to hear about it.
I shall say something nice about Mr Binnie, who has had a bit of a rough ride in the debate. He is, after all, speaking as a professional and, given his previous association with the Thames study, as someone who cares genuinely about the quality of water in the Thames. Even at his most sceptical, before his second road to Damascus conversion, he said:
“The full tunnel would be the best thing for the river…Are there cheaper alternatives for producing similar results?”
The same question was posed by the right hon. Member for Bermondsey and Old Southwark. Mr Binnie’s answer, on mature and professional reflection, is no, there are not.
I do not think that that means we should stop looking for ways of bringing down the cost. Indeed, the cost has already been reduced by adapting the route of the tunnel that was previously envisaged. I hope that the Government will take that on board and not simply accept that the current route, the current combined sewer outflow linkages and such matters are a done deal and a fait accompli. That is important not only with regard to cost, but in relation to the disruption that will be caused where the CSOs are linked to the river—I declare an interest, as one of those CSOs will be in my constituency and two are close by. Substantial progress has been made, because originally many more riverside sites were going to see that level of disruption. We are working on that all the time. Let us not stop working on that and trying to find solutions that will be less disruptive for local communities in London.
As I have said, there are some loud naysayers. I am afraid that the Selborne commission lacked all coherence. Its report did not even contain the proposal for the half tunnel that was in its press release. Anyone who has looked at that proposal will realise that it is simply a non-starter, and for those who live in west London, as my constituents and I do, it would be a complete nightmare. Not only would it cause greater disruption, because there would have to be more storage points—clearly, there is nowhere for the sewage to go once the tunnel fills up—but the sewage would stay in the tunnel and fester for days or weeks before being taken away by the existing sewerage system. I can see why it might have had a superficial attraction for the right hon. Member for Bermondsey and Old Southwark, because it would not have caused disruption in his constituency, but sooner or later we would have had to face up to the fact that we must have something that works.
When I hear the leader of my local council saying that we cannot afford to make the river clean enough for fish, or my neighbouring MP saying that rowers and sailors are seeking a personal benefit by not having the river flooded with sewage every week, I have to ask that they grow up a bit and be a little more sensible. As the shadow Secretary of State, my hon. Friend the Member for Wakefield (Mary Creagh) said when quoting my constituent, Conor, a 15-year-old can put us right and tell us that we ought to have the courage and enthusiasm that our forefathers had when they designed the great civil engineering projects of the 19th century, and indeed the enthusiasm we have in supporting schemes such as Crossrail and High Speed 2, which are much bigger than the Thames tunnel. We must bear in mind two slightly contradictory facts as we go forward. First, cost control is not just important as a matter of probity, but absolutely vital, particularly for those on low incomes who will be paying the bills. Secondly, whatever version of the tunnel is finally approved, it has to be fit for purpose not only now, but for the next 100 years.
Andrew George
I congratulate all those Members, particularly those from the south-west, who have contributed and campaigned, in many cases for two decades, to achieve what is certainly a positive outcome—I will not describe it as a triumph—and one that is richly deserved and will certainly alleviate some of the pressure that many South West Water customers have had to endure for a very long time. When the Government bring forward this measure, it is important that they look at ensuring that South West Water delivers it efficiently and effectively and reflect on the impact it will have on water affordability for customers in the south-west.
The hon. Member for Wakefield (Mary Creagh), the shadow Secretary of State, following the words of the Minister on the issue, implied—I think, because this has been a fairly consensual Third Reading—that there was somehow a risk of some of the money benefiting the company itself. But I was reassured earlier in the debate by the Minister’s response, that not one penny should fall by accident or design into the pockets of the company or its shareholders. It should not touch the sides as it goes through to benefit customers, and it is really important that that—the Minister’s reassurance—is delivered after the Bill is enacted.
My right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes), through his amendments, raised some important concerns that I know my hon. Friend the Minister will take on board as the contracts for the tunnel are let. I recognise that issues of probity and the effectiveness of regulation, in ensuring that the taxpayers’ interest—the public interest—is protected by the way in which this essential project is rolled forward, will need to be taken account of.
I hope that the contribution of my right hon. Friend and others to today’s debate—it is reassuring having two learned Members watching what Thames Water will do—indicates the manner in which the company will be handled and the manner in which concerns, one could argue, might reasonably be raised about any benefit to its customers, because it is important that as this essential project is rolled out those central public and taxpayer interests are clearly protected. I know that my hon. Friend the Minister will be seized of the great importance of that.
Given the comments that have been made, certainly by the hon. Member for Wakefield and others, perhaps the Bill has been incorrectly titled now that we reflect on it. Instead of being called the Water Industry (Financial Assistance) Bill, it might have been called the water customer (financial alleviation)—or (financial protection)—Bill, because in effect that is how the Minister described the Bill’s purpose, and that is what the Bill attempts to do. I do not propose on Third Reading to introduce an amendment to the title of the Bill, but by making that point I hope simply to emphasise its importance in protecting customers and taxpayers. I certainly hope that that is taken forward.
Finally, I congratulate the Government, and especially the Minister, on the elegance, charm and good humour with which he has brought forward the Bill. It explains how the Bill was brought forward so quickly and effectively, with cross-party support and consensus. The debate has been very constructive, and I am sure that the Bill will not be held up in another place but will be enacted quickly and be to the benefit of customers in the south-west and in the Thames region.
Simon Hughes
Briefly, I too welcome our constructive debate over the past few weeks and the Minister’s helpful response. I have two things to say.
First, I want to flag up the important point, made by a Labour Front Bencher but supported by Members across the House, that as we do big infrastructure projects we absolutely have a general interest to ensure that they maximise the development and use of our home-grown talents and skills—I do not say that in a racist way; I mean those people who live in this country, who have skills to contribute and who are here—so that for generations to come, one generation’s learning, whether in engineering, building or all the rest, can be carried on. If the Thames tunnel goes ahead, either in its currently proposed form or as a variation on it, I hope that from the beginning we build in such a plan that, as it were, sweeps in the work force and the training with it. If we do that, it will command much more public confidence as well us giving us continuing skills and opportunities for the future.
My hon. Friend the Member for Cities of London and Westminster (Mark Field), who is not in his place at the moment, was fully engaged in the earlier debate about the financing of major projects and asked me about the five-year cost-profit ratio figures for Thames Water. I could not answer him at that point, but I have since had the figures checked, and I will put them on the record.
In the year ending 2007, the cost-profit figure after tax for Thames Water’s activities was £234 million and the dividend paid was £594 million. That represented an excess of £360 million in dividend payments over income—exceptional, unusual and clearly not good precedent as normal practice. In the following two years, there was a much more normal pattern, with £382 million of cost-profit and £105 million of dividends, and therefore a net retention of profits of £276 million. In 2009, there was £285 million of cost-profit and £226 million of dividends paid out, thus retaining a sum of £58 million. In the past two years, the picture has slipped back to something much less healthy. In the year ending 2010, there was £237 million of cost-profit, after taxation, on activities, with dividends paid out of £295 million, and therefore £57 million more paid out than money retained. In the last financial year for which we have figures, cost-profit was £247 million and dividends paid out were £262 million, with therefore a net excess payout of £14 million.
I hope that those figures are accurate, as I am reliably informed that they are. They make the general point that when the Government are being asked to support private sector activity and private sector companies, we should ensure—whatever those companies’ relationships with each other in a collection of companies—that they have had disciplined financial activity that does not result in taxpayers, council tax payers or ratepayers being asked to foot bills that should be met by the companies themselves but are not being met because they have paid off the money elsewhere to shareholders who walk away with the profits. When they come to the table in future to say that they want joint enterprises, supported by Government, for major infrastructure projects, whether they be tunnels, roads, bridges, schools, hospitals or whatever else, we need to make sure that there has been ethical and appropriate financial accounting.
My plea is that we should learn these lessons across the regulatory activities and across public finance to ensure that the Treasury is not put into a difficult position. I hope that Thames Water and the other water companies all over the UK hear this message loud and clear: “We are watching you, and as a Parliament and, I hope, a Government we will be very insistent that there is good value for the taxpayer, council tax payer and water rate payer, and that you do not take out money from projects that should be there for investment, but pay your full and proper share.”
Dan Rogerson
It is a great pleasure for those of us from the south-west to be talking about some measure of help for our constituents who have laboured for a long time under an unfair burden of very high bills. That is a legacy given to them by privatisation, which has hardly been mentioned without the word “botched” in front of it, certainly in the case of Government Members, but also Labour Members; I am delighted that they have followed the same pattern.
Two great injustices were done to my constituents at the time of water privatisation in the late 1980s and early ’90s. The second one, sadly, has become topical in the context of this debate.
The first injustice, as I have said, was the lack of a sufficient green dowry to deal with the huge cost of cleaning up the sewage along the beautiful coastline of Devon and Cornwall. That work has been done and has been funded by the bill payers of the south-west, through extra debts taken on by the company. We have praised the steps that the management of the company have taken in recent years to engage with the Government, Members of Parliament and their customers to get to where we are today. I would also like to pay tribute to former Members of this House who are not here to blow their own trumpet, although I am sure that they would be too modest to do so anyway. Linda Gilroy has been mentioned. I would also like to mention Julia Goldsworthy, the former Member for Falmouth and Camborne, who did a great deal both inside and outside this place to advance this cause.
The second injustice followed the incident in July 1988 in which 20 tonnes of aluminium sulphate was dumped into the water at the Lowermoor water treatment works. For about a fortnight, 20,000 residents in that part of North Cornwall were unaware that they were drinking a potentially poisonous cocktail. The aluminium sulphate generated acids that flushed out everything else in the pipes and it was in the water supply for many days. My predecessor, Lord Tyler, campaigned for a full inquiry into that issue before he was elected to this place and afterwards. The right hon. Member for Oldham West and Royton (Mr Meacher), when he was a Minister, at least commissioned a committee to look into the issue.
I am grateful for your forbearance, Mr Deputy Speaker, in allowing me to raise this matter today. The reason I do so is that Michael Rose, the West Somerset coroner, has issued a narrative verdict today on the sad death of Mrs Carole Cross in 2004. Her husband, Doug Cross, was one of the members of the committee, along with Peter Smith, a lay member who was from the area and experienced the incident. Doug Cross has been a tireless campaigner on behalf of the people who were affected by the incident. It is tragic that he lost his wife.
The coroner’s verdict today was that there was a “very real possibility” that the ingestion of aluminium contributed to the death of Mrs Cross. He also criticised the South West Water board for
“gambling with as many as 20,000 lives”
by not telling people about the incident for a fortnight. There was also evidence, thanks mostly to the work of Lord Tyler, the Western Morning News and others over the years, of a cover-up at the time of privatisation. The coroner said that it was “deeply suspicious” that the incident was handled in the way it was, due to the impending privatisation.
People in North Cornwall and elsewhere will want to reflect on what the coroner has said today. However, I believe that the many people who have been arguing for years in the face of the response from Government that what they experienced did not really happen and that the medical consequences were all in their minds will feel that there is some real progress. I hope that we will now start to get the answers that people should have had at the time of privatisation. I hope that the way in which the Minister and his colleagues have today dealt with the injustice of the inadequate green dowry will be matched by a proper inquiry into and discussion of the incidents following the pollution of the water at Lowermoor in 1988.
Question put and agreed to.
Bill accordingly read the Third time and passed.