Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank the Government for making time for the repeat of this Statement. I also thank my noble friend Lady Grender for having another critical engagement at this time, thus allowing me to speak on the subject which had become routine for me over the preceding years. The noble Baroness the Minister and I have made many contributions on this subject in the years running up to the general election, both of us vehement about the lack of control Ofwat was exercising.
Sir Jon Cunliffe’s report is lengthy, robust and to be welcomed. We look forward to knowing exactly how many of his recommendations the Government will take forward.
Since 2022, Liberal Democrats have called for the abolition of Ofwat. It is an organisation that is completely out of its depth. It had no real way of dealing with water companies, which seemed to have forgotten that their real remit was to provide a plentiful supply of clean water and dispose of sewage in an efficient and environmentally friendly way. Although some water companies were fined by Ofwat, their sanctions bore no relationship to the number of bonuses and dividends that the executives and shareholders received for doing an abysmal job.
Like others, I welcomed the Government’s ban on bonuses for water company executives who oversaw sewage discharges. However, at least one chief executive and his colleagues got round this by receiving a 100% increase in their pay by way of compensation for the absence of a bonus. It is ordinary water users and taxpayers who have to foot the bill for this, just as they have to contribute to the bill for the increases which will be needed to repair the creaking and dilapidated sewerage system and to build new reservoirs.
The Government have stated that they will cut water companies’ sewage pollution by half by the end of the decade. This is to be welcomed, but how exactly will this be achieved? Bringing the oversight of the water industry under a single regulator which has the means to ensure high standards is essential, but I have some concerns. Previously, we have seen a rotation of officers from the water companies into Ofwat and from Ofwat into the water companies—a merry-go-round of incompetence. Is the Minister able to give the House reassurance that no existing or previous officer of Ofwat or any of the failing water companies will have a role in the new regulator once established? It is essential that the incompetent are not rewarded with having a role in the new regulator. A fresh start has to be just that, and not tainted with previous failure.
We look forward to the interim strategy policy statement giving directions to Ofwat and the Environment Agency on how to move forwards towards the transition plan. The Environment Agency is not without involvement in the sewage discharge debacle. While the EA has been underfunded over recent years, and with ever more responsibilities thrust upon it, a radical rethink of the way it operates has to be part of the solution going forward.
Since Liberal Democrats have been raising the issue of sewage spills in this Chamber and the other place, the EA has found that last year alone, there was a 60% increase in serious pollution incidents. We are at the start of the school summer holidays. Children and their families will be going to beaches and rivers to enjoy relaxation and at least a paddle, as well as swimming to cool down in the heat—which we hope will return.
So many of these children will be in water that is polluted with raw sewage spills, discoloured and stinking. Certainly, I would not want my grandchildren to swim in such waters. Families should be able to take their children for a day out at the beach without having to worry about whether the water is contaminated. The sooner the Government can bring the water companies to book, the better. The lackadaisical approach to sewage discharges has to stop, and quickly.
Last year, water companies breached their permits more than 3,100 times, at the same time as paying out a total of £9.3 million in executive bonuses. No single stretch of river in England or Northern Ireland is in good overall health; no English river is in good chemical health; and just 14% of English rivers are in good ecological health. This is a far cry from my childhood, when the babbling brook ran with clear, transparent water and I could see the minnows swimming along, trying to escape my small fishing net. I am confident that the Minister is as concerned about these issues as the rest of us.
What is needed is: more access for communities and citizens to hold water companies to account, including representation on water company boards; improvements in how pollution is measured and strict targets set, using volume flow meters and penalties for missing targets; an urgent implementation of a social tariff on water bills to help eliminate water poverty; and legally binding targets on the quantity and quality of bathing waters and sensitive nature sites, with independent and transparent testing of water quality. Local authorities, although already overstretched, should have strengthened powers to monitor the health of our rivers, lakes and coastlines in order to restore our natural environment and help tackle climate change.
I look forward to the Minister’s response on this vital issue, which affects every single water user in the country.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
I thank noble Lords for their broad support for the recommendations that have come out of the Cunliffe report. This is a very important step forward in cleaning up our waterways.
The Statement talks about the five recommendations that we are taking forward immediately, including: the new statutory water ombudsman, ending operator self-monitoring, and the new single water regulator— I think there is consensus that Ofwat has not done its job effectively. The noble Baroness, Lady Bakewell, makes an important point when she says that we should not reward incompetence, and I am sure that will be fed through. There will also be greater local involvement. The noble Baroness talked about communities; we want them to be more involved, and customers to be right at the heart of how we move forward with these changes. That is one of the reasons for bringing forward the regional element: to enable communities and consumers to be more central in water planning and how we manage pollution going forward. There will also be an improved strategic direction, because water strategy has failed abysmally over the last few years.
Of course, this is not the limit of our ambition. We will respond in the autumn in full to the recommendations in the Cunliffe report. We will publish a White Paper, which will be open for consultation, and we intend to follow that up with a water reform Bill. So, many of the questions that the noble Lords asked, and I assume will continue to be asked, will be able to be addressed once we see that White Paper, and that consultation will be available for people to take part in.
The noble Lord, Lord Blencathra, asked a few questions, which I will address. First, he talked about funding. I stress that it is actually this Government who secured the £104 billion of investment, which is so needed because of the lack of investment in the water industry over many years. That is going to be critical to improving leakage, for example, and providing better service for customers. He asked whether the regulator would be independent of the water industry but also answerable to the Secretary of State and to Parliament. We have said in the White Paper that we are going to have this new, single water regulator. Those are the kinds of questions that will be debated as we move through that process in order to inform our further legislation when it comes forward.
Social tariffs were mentioned by both noble Lords. As I said, we want to put customers at the heart of the new model that we are developing. The recommendations made by the Independent Water Commission talk about national social tariffs and the introduction of compulsory smart meters. These will be considered alongside all the other recommendations as we move forward. As I said, further information will come out this autumn, when we have developed the White Paper.
The noble Lord, Lord Blencathra, also talked about the monitoring of overflows and mentioned that in 2010, 7% were monitored, and by 2023, at the end of the previous Government, it was 100%. In answer to that, a lot of this monitoring came in because of public pressure and because of the absolute horror at the amount of pollution that was going into our waterways. People had not been aware of that before. While we are very pleased that the previous Government increased monitoring, there is responsibility to be taken for the amount of pollution that had gone into our waterways and the complete incompetence of the regulators at the time, which is what we are now trying to address.
The noble Baroness, Lady Bakewell, asked about the target to reduce pollution—50% by 2030—and how that was going to be delivered. We have combined this with the existing commitment in the environmental improvement plan to reduce phosphorus from treated wastewater by 50% by 2028. Together, those two targets form the pledge that we are making on this commitment. Ofwat and water companies previously agreed a commitment for water companies on the PR24 agreement for storm overflow spills to be reduced by 45%, based on a 2021 baseline. To be clear, the data between 2021 and 2024 does not compare, because in 2021, only 88% of storm overflows were monitored. Although it looks less, the amount has increased, as has our knowledge. Our target for storm overflows is based on the 50% reduction in spills from storm overflows by the end of 2029, compared with 2024 levels. We can do that because we now have 100% of storm overflows monitored.
More broadly on communities, we are engaging for the first time on entire river catchment systems. As part of that, we want to bring local people, local authorities —which have an important voice—businesses, and farming communities, of course, into the work that we are doing to improve pollution systems in their local area. As I said, that will be done on a regional basis and then into the catchment model system. That will be more effective, I hope.
Lord Cromwell (CB)
My Lords, the Minister and I have a long and mainly happy history of trying to reform the water industry, including the replacement of Ofwat. I read with interest the 88 recommendations in this very timely and useful report. There is a lot to discuss, much of it welcome, but for now I will focus on two questions.
First, the report underlines the need to recognise the very long-term nature of water infrastructure investment. It says that the strategic policy statements have been too short term and that water company plans, typically of five years, encourage short-term thinking. I have often asked successive Ministers to make it clear that there is no quick fix here. This will be very disruptive to consumers, cost billions of pounds and, crucially, will take at least 25 years to implement. That is five parliamentary terms. The Government need to be honest with the public on this, so I ask the Minister to underline this and to make clear the likely timeline for this refurbishment of the water and sewerage infra- structure.
Secondly, the report summary on page 29 calls for more
“senior engineering and financial expertise”
on its board. I agree with that, but a key problem at Ofwat was that it lacked the financial engineering skills to grasp what private equity investors were up to, which led to so many of the debt problems and other issues in the finances of the water companies that we see today. Will the Minister be pressing for expertise in financial engineering in this area to be included in any new board?
Baroness Hayman of Ullock (Lab)
Any new board must have the right expertise if it is to deliver what we want for the industry. The noble Lord makes a very important point that whatever that expertise is, we must ensure that any future regulatory systems are set up to do the job they are supposed to do and that they have the knowledge, ability and skills to do that effectively. Otherwise, we will end up with a regulator that is, again, ineffective, which is not how we want to move forward.
The noble Lord makes a good point—this will take a long time. I hope the general public recognise that this is a long-term rebuilding programme. We are rebuilding a lot of a very old system, and we must get it right. This is also why will be bringing out the White Paper in the autumn, as quickly as we can, following the publication by the committee. From that, we will do the consultation, which must inform the public of what we are looking to achieve and what the timescales will be.
We want to bring in new legislation as swiftly as practically possible following that White Paper. That will also be part of the discussion on how we bring people with us, because people want to see the water industry cleaned up.
Lord Lennie (Lab)
My Lords, one of the things we discussed in the Climate Change Committee was the performance of the regulator. An issue raised by the noble Baroness, Lady Bakewell, in her instructive comments, was the revolving door between the water companies and the regulator, in both directions. What action will the Government take to make sure that the door is slammed shut?
Baroness Hayman of Ullock (Lab)
As I have already said, we must get the regulator right, we must get the boards right, and we must move forward with this. There is no point in making the same mistakes that have been made over a number of years, and in not learning from what went wrong before. Getting the regulator and the boards right will be critical to achieving that.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate Sir Jon Cunliffe and the Independent Water Commission on their excellent work, and I declare my interest as co-chairman of the All-Party Parliamentary Water Group. What legislative timetable is envisaged? In the Statement, the Secretary of State says that he will bring forward a new water reform Bill early this Parliament. We are more than halfway through this parliamentary Session, so it would be interesting to hear exactly what timetable the Government envisage. Can the Minister also confirm that National Highways will be made responsible for the water run-off and the pollution it contributes to?
Baroness Hayman of Ullock (Lab)
On the timetabling, clearly, it is not something we can bring in this Session. We do not yet know when the end of the Session will be—we have not been informed about that—but when we have reached the end we will look to see when it will be practically possible to bring in such a Bill. All I can say to the noble Baroness is that this is a government priority.
The run-off from roads and agricultural run-off is being taken very seriously, and our response and how we will manage it as part of our overall approach to water pollution is being worked on.
Baroness Jones of Moulsecoomb (GP)
My Lords, the Minister will know that Sir Jon Cunliffe was not given the option to look at renationalisation. In the other place, the Secretary of State for Defra has twice replied to Green MPs Adrian Ramsay and Ellie Chowns, saying that his department looked at the cost of renationalisation and it came out at £100 billion. I have two sheets of paper here with lots of ideas about how we could renationalise without that sort of figure being necessary. The most exciting one suggests that, if we stack the liabilities against the assets of these companies, they would be worthless. So, perhaps the Minister could tell the Secretary of State to get new accountants or consult the professor of accounting we have here in your Lordships’ House. I would be pleased to give him these two sheets of paper with all these different ideas.
Baroness Hayman of Ullock (Lab)
The noble Baroness is correct: we have ruled out nationalisation. But if she would like to share the paperwork, I would be more than happy to look at it.
Lord Sikka (Lab)
My Lords, Ministers claim that public ownership of water would somehow cost £100 billion, which is a totally unsound claim. Let me explain. The £100 billion figure is generated by Ofwat, which calls it “recognised capital value”. It is calculated by taking the value of the company at the time of privatisation, adding the annual investment and multiplying it by the annual rate of inflation. It adds that 35 times—that is, over 35 years—and comes up with the figure of £100 billion, which does not represent anything. On the same basis, a £10,000 Reliant Robin bought by Del Boy in 1990 would now have a value of over £50,000. There is no way that Del Boy would be able to sell it for £50,000, because that figure has absolutely nothing to do with value. So, can the Minister explain why the Government consider £100 billion to be a credible figure for the cost of public ownership?
Baroness Hayman of Ullock (Lab)
I would just say to my noble friend that we have discussed this on a number of occasions, including with officials in the department. I am sure that we will continue to discuss it.
Lord Kerr of Kinlochard (CB)
My Lords, will the Minister have the White Paper consider, and perhaps consider for the Bill, the idea of setting minimum annual investment requirements? I do not know much about Ofwat, but I know a bit about Ofgem. During the time when I was on a power company board, our annual bids to spend our money on improving our network were cut down by an average of about £1 billion a year. So long as the regulators feel that they are under pressure to keep costs to the consumer down, that is what will happen. It seems to me that Parliament and the Government need to take responsibility for setting a requirement on replacing the crumbling infrastructure. That should be at least discussed in the White Paper, and I hope it will find a place in the Bill.
Baroness Hayman of Ullock (Lab)
The noble Lord makes an extremely good point. Part of the reason why we have got into this mess is the focus on keeping bills low. People do not want to pay high bills, but if you are constantly putting pressure on that and not investing in the infrastructure, that is when you end up with a lot of these problems. That is why in PR24 we gave the most investment ever—to try to turn around some of the problems. The noble Lord makes a good point about what we need to look at going forward, in order to ensure that we do not have these sorts of problems in the future. He is absolutely right that this needs to be part of what we look at following the White Paper. I would be very happy if he has any ideas to share with me following his experience with Ofgem. That would be very interesting.
Lord Kirkhope of Harrogate (Con)
My Lords, I declare an interest as a former water company director—one involved in clean water only, not wastewater. In the speech made on Monday by the Secretary of State, he made it clear as a priority that the customer would come first in all these considerations. The customer matters more than everybody else in terms of the environmental effects and, in particular, in the pricing of this utility. There is a price review going on. Can the Minister confirm that the role of the ombudsman, certainly in the pricing review, will give priority to pricing because of the incredible increases recently in water bills? In particular, will standing charges be looked at thoroughly because, in many cases of low consumption, the standing charge has become an enormous impediment in an awful lot of people’s water bills?
Baroness Hayman of Ullock (Lab)
My right honourable friend said in his speech down the other end that the new regulator
“will stand firmly on the side of customers, investors and the environment and prevent the abuses of the past”.
That basically demonstrates that we need to look at the big picture about what went wrong in the past and what we need to do to rectify it in the future. I am sure that we can look at the noble Lord’s suggestions as we move forward to ensure that we have regulation and pricing that are fit for purpose.
Earl Russell (LD)
I declare my interest as a board member and director of the Water Retail Company. I thank the Minister for the Statement, and we welcome the report. I am sure the Minister will join me in thanking all the members of the public, charities and NGOs who have done so much work to ensure that we are aware of the level of the sewage crisis and the pollution in our water system. I noticed that there is no direct recommendation in the report to support citizen science. What action will the Government take to support these citizens? What is happening with the water restoration fund?
Baroness Hayman of Ullock (Lab)
The noble Earl makes an important point about citizen science and input from local communities. He is right that, in many ways, we are standing here today discussing the outcome of the commission because of the recognition by government of the problem that was originally raised by organisations such as Surfers Against Sewage and anglers’ associations, and by individuals such as Feargal Sharkey. It is important to recognise that this was brought to government’s notice because of the campaigns and the work by volunteers and charitable organisations. That is why it is critical that we continue those discussions with those organisations as we develop the White Paper and the legislation, because if you have experience of dealing with problems on the ground, you can bring valuable suggestions to the development of legislation.
Citizen science will be an important part of this. An example is Lake Windermere: there is a local group of people working there that we are trying to work with and support to look at how we specifically deal with the challenges there.
Lord Whitty (Lab)
My Lords, like others, I would have preferred renationalisation, but a strengthened and unified regulator was my second choice so I welcome much of this report. However, will the next stage, the White Paper and the later legislation, envisage a situation where there is a system closer to franchising than to the total freedom of the water companies to carry on doing a disastrous job, as they have done since privatisation?
My other point is that, in relation to consumers, there seems to be a bit of confusion between the role of the Consumer Council for Water, which represents consumers, and a new ombudsman, which is a quasi-judicial body resolving problems raised by consumers. Possibly the Consumer Council for Water should be run by Citizens Advice, but there should not be confusion between the two jobs.
Baroness Hayman of Ullock (Lab)
I take that point, which is a good point well made about that confusion. I am sure we will take it back to the department. The report includes proposals about ownership, which will be part of any consultation from a White Paper. That is another important point that we need to consider.
Lord Trefgarne (Con)
My Lords, some very high salaries have been reported payable to senior water officials. Can the Minister say whether those salaries require ministerial approval?
Baroness Hayman of Ullock (Lab)
Water companies are private companies so, on that basis, no, they would not require ministerial approval.
Baroness Parminter (LD)
My Lords, there are 83 recommendations from the report on which the Government have yet to decide what view they will take. Some of them are quite small wins—for example, the recommendations by Sir Jon on rainwater harvesting to address the shortages in housing. That could be sorted out, before a White Paper, in the Planning and Infra- structure Bill. Will the Government take all reasonable opportunities, including the Planning and Infrastructure Bill, to address some of the sensible recommendations outlined in the report?
Baroness Hayman of Ullock (Lab)
That is a sensible suggestion by the noble Baroness. I am happy to discuss those considerations with the Water Minister and the Secretary of State to see if we cannot move things forward as quickly as we can.
Baroness Altmann (Non-Afl)
Having worked so closely with the Minister, I know how dedicated she is to getting this right. I congratulate her and the Government on their decision to act swiftly on Sir Jon Cunliffe’s excellent report. I relay congratulations from my friend, the noble Duke, the Duke of Wellington, who was a leading voice in this House on this issue.
What safeguards will be in place to avoid the kind of hideous bureaucracy that we have seen bog down the industry and the monitoring of these water pollution incidents? Will the new regulator—a long called-for and excellent move—have the right remit from the start to avoid the kind of financial engineering that the noble Lord, Lord Cromwell, referred to? Will it have proper data so that the public can have confidence that they know what is going on, including tying pay for water companies to performance and perhaps having delayed compensation schemes so that, for example, we can get pension funds investing profitably in them for the long term rather than the short-term profitability that we have so often seen?
Baroness Hayman of Ullock (Lab)
Investment will be critical. That is a very important point. The answer to most of the noble Baroness’s questions will lie in the consultation and the response to the White Paper on how we move forward. In particular, it is important that we have the opportunity as early as possible to start talking about it and considering how to prioritise what needs to be in place in order to start delivering on our concerns and the outcomes as soon as we can.
It is worth pointing out that the existing regulators will stay in place until the new system is in place. The Government will clarify our expectations to the existing regulation system ahead of that, because we do not want the regulators just to continue as they have been. We will publish a strategic policy statement, which will have ministerial direction attached to it, at some point this year.