Water (Special Measures) Bill [HL]

Earl Russell Excerpts

Committee stage
Monday 28th October 2024 Lords Chamber

Moved by

[Earl Russell]

2: Clause 1, page 1, line 8, leave out “may” and insert “must”
Member’s explanatory statement
This amendment requires Ofwat to issue rules about remuneration and governance.

[Earl Russell (LD)]

My Lords, in rising to speak to this amendment, I declare my interests as set out in the register. I wish to inform the Committee that my noble friend Lady Bakewell is unwell and unable to attend today, so I will be speaking to many of her amendments as well as my own. This second group of amendments concerns the rules for renumeration and governance, and Amendment 2, tabled by my noble friend Baroness Bakewell, requires Ofwat to issue such rules.

This Government are seeking to strengthen the measures in this Bill by making them firm commitments with due weight in law, and not merely the vague assumptions as currently written into the Bill. We on these Benches have little faith that, without this amendment, the water companies will keep to the spirit of the law on these matters. I have a very similar “must” to “may” amendment, Amendment 24, in group 6, and I shall make general points on both in this speech. We have strong grounds for taking such a position, based on the past performance of the water companies themselves, especially in relation to awarding pay and bonuses and returns to shareholders, which have always come first. Meanwhile, investment in infrastructure and the protection of our environment from the harm these companies have caused and continue to cause have always come a very distant second, if at all.

By way of a very brief introduction, we would of course prefer it if this Government had a more comprehensive and clearer set of plans in place to make more rapid progress on these matters. We on these Benches are clear that we would abolish Ofwat and replace it with a new, unified and far more powerful clean water authority, and we would make water companies public interest companies. This Government have taken a different route and are of a different opinion, believing that the shopping list of measures in this Bill can bring improvements that will hold while a full review is undertaken, before fuller and more fundamental reforms are implemented later on.

We welcome the announcement of the review, but I share the concerns expressed by the noble Baroness, Lady Willis, particularly about our commitment to 30 by 30 and further delay on these matters. The trick for the Government is to make sure that they can make the rapid change required and make Ofwat fit for purpose, since that is their stated intention, and to put in place all our environmental regulations and protections in the timeframes available. That is a bit of a magic trick, and I remain to be convinced that the Government will be able to pull it off, so that is a key concern for us.

We will work to support the Bill where we feel that it brings improvements, and there are many measures that we welcome and will support. We thank the Government for bringing them forward and signalling the future direction of travel and intention to take these matters very seriously. But the measures are really a list of stopgaps and quick fixes, intended to make the system work somewhat better than it has until the full review is finished and implemented. These measures come first and will need to work alongside any further actions. That is something we will need to think about in Committee—how the measures and amendments we are bringing forward and discussing today might work with potential outcomes from the review that is yet to come.

For the measures in the Bill to work, even the stopgap measures, the clauses need to be strong and effective. If they are not firm or binding, or can be easily ignored or circumvented without clear consequences, they simply will not work or do what they are intended to do. This is one area of the Bill that we think can easily and should be strengthened, so that it has the intended and required effect. The wording here as it stands is simply not strong enough. We cannot allow weak and ineffective measures to stand while the country waits for the Government to consider making further legislative changes post the review, and these then to pass through Parliament, to be enacted at a much later stage, which, as we have heard, could be by 2030. I seek clarification from the Minister as to when those measures will go through that process and come into force.

Since privatisation 35 years ago, we have witnessed one of the worst environmental crises in the UK, with unabated and unprecedented pollution. Just 14% of our rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours-worth of untreated sewage discharges in England alone. Meanwhile, water companies have paid at least £78 billion in dividends, while failing to invest adequately in the infrastructure required. At the same time, they have piled on £64 billion net in debt, yet they were privatised debt free. The levels of executive pay and remuneration have rightly caused outrage across the country, as water bosses have got even richer as our bills have got even higher and we face more and more pollution in our rivers and streams.

Clause 1 amends the Water Industry Act 1991 to insert new Section 35B, which links the remuneration of water company directors to the meeting of a single set of specified standards, which include environmental standards. This is a welcome and long overdue measure. Performance-related pay and profits must be linked to the outputs achieved, and investment and environmental standards must be the benchmarks. While the intention is clear, the determination of the proposed legislation is weak. As drafted, it simply says that the authority “may” issue such rules. That is neither clear nor well-defined enough as it stands. The Bill must ensure that Ofwat issues clear and well-defined guidance, in a defined timeframe. What is written is not enough and brings no guarantee that Ofwat will issue such guidance, with no means of holding it to account if it decides that it is simply not minded or does not see any need to issue any guidance.

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[Baroness Hayman of Ullock (Lab)]

My Lords, clearly, public trust in the water sector has been severely damaged and the number of serious pollution incidents is increasing, as we heard very clearly from my noble friend Lord Sikka when he introduced his amendments. At the same time, companies have been paying out millions in bonuses. To rebuild public trust, the Bill enables Ofwat to issue new rules on remuneration and governance to ensure that companies and executives are subject to robust oversight and held accountable for failure. I thank the noble Lords who have tabled amendments relating to the application of these rules.

I will start with Amendment 2, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville. I thank the noble Earl, Lord Russell, for introducing it on the noble Baroness’s behalf and wish her all the best from these Benches. I also listened with interest to the suggestions made by the noble Duke, the Duke of Wellington. Clearly, he and the noble Earl, Lord Russell, had different opinions on the wording. Our approach is intended to strike a balance between the approaches suggested by the noble Lords, to give Ofwat some flexibility while ensuring that it issues rules in relation to our priority areas.

However, I emphasise that the provisions in the Bill state that Ofwat must exercise its power to set rules in relation to performance-related pay, fitness and propriety, and customer representation. Ofwat may also make rules about other remuneration and governance arrangements at its discretion, but it must take action regarding the specific matters referred to in the Bill. We are pleased that Ofwat is already taking action to implement these rules through the publication of its consultation announced on 22 October. This was referred to by number of noble Lords, including the noble Lord, Lord Remnant. I hope the noble Earl will tell the noble Baroness that we hope that this has reassured her that her amendment is unnecessary.

I turn to Amendment 3, tabled by the noble Lord, Lord Remnant. Ofwat has a range of primary duties, including acting to protect the interests of consumers, ensuring that companies properly carry out their functions, and securing that companies are able to finance the delivery of their statutory obligations. I assure the noble Lord that Defra has worked to assure agreement with companies to update their articles of association to place customers and the environment at the heart of business decisions which impact on consumers.

The noble Lord is correct that I am going to say that Ofwat’s existing duties are already consistent with the outcomes that this amendment aims to ensure. This includes ensuring due consideration of the human and capital needs of the sector. He also raised concerns about influencing Ofwat. The current consultation that I have referred to is an initial policy consultation which has been launched with the express purpose of inviting views early. This will be followed up with further statutory consultations, which will also take into account the views shared through this initial policy consultation.

I thank the noble Lord for bringing his knowledge and experience to the development of this legislation. It is very valuable to hear his contributions. However, I hope that he is reassured that, in setting the rules about remuneration and governance, Ofwat will continue to act in accordance with its core duties and understands that it is for this reason that the Government will not accept the amendment.

Amendment 25, tabled by my noble friend Lord Sikka, and Amendment 27, tabled by the noble Lord, Lord Roborough, relate to the timing and process for setting the rules for remuneration and governance. My noble friend took the opportunity to lay out clearly the many concerns around the behaviour of water companies and the ability of regulators to hold them to account. Ofwat is required to undertake statutory consultation with the relevant persons, which includes the Secretary of State, before any rules are finalised. Allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended, subject to the relevant procedural requirements, where it is appropriate to do so in the future. The Government and Ofwat agree that the rules should be in place as soon as possible after Royal Assent, and Ofwat intends to implement them following its statutory consultation, which, as I previously mentioned, has already been launched. I hope the noble Lords are therefore reassured their amendments are not necessary.

Finally, Amendment 101, tabled by my noble friend Lord Sikka, relates to dividend payments. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. Ofwat already has the power to stop the payment of dividends if they would risk the company’s financial resilience and to take enforcement action if companies do not link dividends to performance for consumers and the environment. The amendment risks deterring much needed investment in the sector. I highlight that the Government’s new independent water commission will look at how we can improve the regulatory framework to attract investment and support financial resilience for water companies. I hope this is helpful in explaining to my noble friend why the Government will not accept his amendment.

A few noble Lords talked about the importance of investor confidence and the impact that we could have on this and talent in the water industry. While we believe it is right that companies and their executives are held to account for basic and fundamental performance requirements, it is important that, should companies meet their performance expectations, executives can still be rewarded. The proposed £88 billion in investment under PR24 is the largest ever in the water sector and has the potential to create up to 30,000 new jobs. It is crucial that the sector can recruit the talent it needs to deliver the PR24 proposals, because improving the performance of the water industry will help the industry attract and retain talent. Private sector investment is also at the core of how we grow the economy, and the Bill is designed to deliver a clear and consistent regulatory framework for the water industry and its investors. Noble Lords may be interested to know that on 10 September Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions of pounds in private sector investment that are desperately needed if we are going to clean up Britain’s rivers, lakes and seas.

Finally, I assure the noble Lord, Lord Roborough, that I always try to get on well and work constructively with everybody, including Ofwat. I once again thank the noble Lords for their suggestions and input to this discussion on the general application of the rules for remuneration and governance.

[Earl Russell (LD)]

My Lords, I thank the Minister for her comments. The noble Duke, the Duke of Wellington, put forward an interesting idea on issuing guidance, and it is one that I will take back to my noble friend for further consideration. The noble Lord, Lord Remnant, talked about the lack of ability to scrutinise the rules, the need to attract talent and the carrot and stick approach. The noble Lord, Lord Sikka, talked about broken trust, the poverty of regulations and the level of convictions in the water industry. His Amendment 101 would curb excessive dividends, financial engineering practices and practices inflating the worth of companies. The noble Lord, Lord Roborough, n his amendment said that rules must be published within six months and he talked about the powers of Ofwat being unchecked.

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[Lord Sikka (Lab)]

Gosh—my turn again. This amendment seeks to replace the words “performance-related pay” with “total remuneration”. At Second Reading, I raised the question of how the ban on bonus payments was actually to be implemented. At the time, the Minister did not reply and, to my mind, the question still stands. Over the years, I have written many executive remuneration contracts and seen many others; some of them contain many odd bits. For example, so-called performance-related pay may come in the form of cash, shares, share options, chauffeur-driven cars, even gardeners, rent-free accommodation, children’s school fees and much more.

Published company accounts never really make it clear what the complete components are and the executive remuneration contracts are never filed at Companies House for anyone to see what exactly they are getting paid for. The value of some of these payments may not be known until some time in the future. For example, the value of a share option granted today and exercisable after a certain number of months or years would not be known until the date of the exercise. So how will the regulator decide whether any bonus payment is materially significant and deserving of a possible ban? Somebody might simply say, “This does not appear to be significant at the moment, but it could be significant by the time it is exercised”.

Companies can also shift the basis of bonus plans to retain or attract executives. If Ofwat or any other regulator were to impose a ban, it might change the weight attached to the part of the performance that may be considered by the regulator, and thereby defeat the whole objective of imposing any ban. The company can also easily bypass any restriction on bonus payments by adjusting the bonus pay. It can simply say to directors, “Your basic pay will increase and your bonus pay is down”. As many water companies are part of giant conglomerates, directors can be offered seats on other company boards so that their total remuneration is no less, even if a bonus is banned.

So it is not clear to me how this ban is going to be implemented. It looks good on paper, but in practice I have yet to hear the details, so what I am suggesting is that the attention needs to focus on total pay, not just bonuses, because bonuses can easily be bypassed. That is why this amendment seeks to substitute “performance-related pay” with “total remuneration”. I beg to move.

[Earl Russell (LD)]

My Lords, I have two amendments in this group. Amendment 6, tabled in the name of my noble friend Lady Bakewell, to which I have added my name, would mean a water company could not give performance-related pay to persons holding a senior role if the company had failed to prevent all sewage discharges, spills or leaks. This definition also includes legal spills. We have included legal spills as this practice also needs to stop, and the only way to ensure that it does is by working to put pressure on private water companies to apply the appropriate and necessary levels of investment in infrastructure. Only then will these companies be operating as intended, and only then should they potentially be free to think about remuneration above and beyond basic salaries to their top executives.

I have also added my name to Amendment 28, also in the name of my noble friend Lady Bakewell. This amendment creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills or leaks. Taken together, these amendments seek to help tackle head-on one of the main issues that I am sure many of your Lordships had raised with them, with passion, on the doorsteps at the last general election: the sheer hypocrisy of water companies continuously and seemingly endlessly failing to protect our environment. It is outrageous that they are continuing to get away with unabated sewage spills in our much-loved rivers and lakes, all the while paying themselves massive bonuses and dividends and racking up huge amounts of debt.

We are not able to go to the beach or to wild swim, while they get rich off the back of failure after failure. All of this has been done while failing to adequately invest in the infrastructure that is so desperately needed to end this seemingly endless cycle of scandal. My party has tirelessly campaigned on this issue and we will continue to do so. No other issue has cut through to the electorate on such a scale and with such a level of arguable clarity as this one has. Indeed, the promise to scrap CEO bonuses was a core manifesto pledge we stood on at the last general election. The electorate are outraged and rightly so. No one feels good when they are overcharged for the privilege of receiving an appalling service. To be clear, this is exactly what bill payers are getting with a proposed 40% increase in bills and no end in sight to the pollution of our environment. Our rivers, streams and lakes have been polluted to the point of collapse. My party has led a campaign on these issues that cut through on all sides of the political spectrum.

The broken system has seen those who have a duty to protect polluting with no consequences, and time and again they have rewarded themselves lavishly for the privilege. Instead of the “polluter pays” principle ever being applied, we have the “polluter awards themselves a pay increase” principle applied every time. In 2023 alone there were some 3.6 million hours of untreated sewage discharges in England, up a staggering 105% on the year before. How many fines have been levelled against water companies in the previous few years? I have really struggled to find that information. Meanwhile, water companies have paid at least £78 billion in dividends while failing to invest.

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Moved by

[Earl Russell]

9: Clause 1, page 2, line 3, at end insert—
“(d) requiring a relevant undertaker to have arrangements in place for environmental experts to be members of a board, committee or panel of a relevant undertaker.”Member’s explanatory statement
This amendment would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee, or panel.

[Earl Russell (LD)]

My Lords, the amendments in this group all relate to representation on water company boards. This is the third-largest of the 24 groups we are scrutinising in Committee, so it is clear that many noble Lords are concerned about these matters and have a number of ideas for discussion about how representation can be broadened, made more representative and more fit for purpose, and used as part of the wider toolkit to help ensure that water companies act appropriately and are held to account at all levels.

I have three amendments in this group. Amendment 9 in my name would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee or panel. I find it extraordinary that water companies can be allowed to operate, selling a natural resource, where their actions are having such devastating impacts on our environment, yet they are still not required to have environmental experts at the highest levels of their corporate governance structures. To date, it is hard to avoid the conclusion that many non-executive directors on many water company boards have failed to bring significant added benefits for their presence. How do we expect senior leadership teams and the chief executive officers to have the necessary knowledge, senior accountability and the ability to have due regard in fulfilling their functions if environmental knowledge, expertise and challenge are not mandated at the most senior executive governance and decision-making levels? We have various rules and guidance in place for lots of other types of make-up, backgrounds and skills in other board structures, so why do we not have the environment as a condition? Is it simply that we do not value the environment in our decision-making at senior levels? I think this is something we should not allow to stand.

The environment and environmental decisions need to be at the very heart of water companies’ plans, decisions and actions. We must work to ensure that corporate governance is not able to use ignorance as an excuse for causing environmental damage or for failing to adequately prepare for the impacts of rapid global climate change. Our water companies need to have environmental concerns at the very forefront of their long-term thinking, plans and strategies, from issues such as drought and the impacts of extreme rain events and floods, to the projections and limits on abstraction and the need for new reservoirs. All these matters require environmental knowledge and challenge at the heart of water company boardrooms.

We also need community environmental experts sitting on water company boards—an idea my party included in our last election manifesto. As non-executive directors they could help improve accountability, transparency and community relationships, and provide an important interface that could help ensure that water companies take sewage spills seriously by ensuring that community concerns are raised at board level and that water companies take appropriate action and communicate it effectively with local communities. As environmental experts, they could hold community meetings and report back on action being taken by companies, improving information flows and accountability. Environmental governance concerns are at the very heart of the water companies’ business, and the case for requiring environmental experts to be included on their boards along with consumer representation is, in my opinion, very strong. I kindly ask the Minister to lend government support to this amendment and to give a response from the Government Benches to these ideas.

I have added my name to Amendment 20 in the name of my noble friend Lady Bakewell. This is another simple “may” to “must” amendment and would require Ofwat, as part of its rules on consumer representation, to require water companies to place consumers on their board, committee or panel. It would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. New Section 35B(2) sets out that Ofwat must exercise this power to issue rules that achieve specific effects, but the power in new Section 35B(1) provides only that the authority “may” issue such rules. As the Bill is written now, it is not at all clear that it is incumbent on the authority to use the power specified in the Bill to lay such rules. In our opinion, it is necessary that the Bill clearly states that the authorities have a duty to lay out such rules. I call on the Minister to support this amendment to make certain that the Government’s own intentions are clear and well defined so that they can be enforced as they should. What is the Government’s thinking on when the initial rules might be published?

Finally, Amendment 24 would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. The Bill says:

“If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction”.


All these clauses concern rules on remuneration and governance, including performance-related pay. If the authority does find that a relevant undertaking is contravened, the rules in the Bill do not say that the authority must give a direction. As written, it is not at all clear that it is incumbent on the authority to use the powers specified in the Bill. Why do we have the rules in the Bill if there is not also a clear requirement for breaches to be enforced? Left as it is, the clause leaves a get-out-of-jail-free card for the authority to not give a direction, even where the evidence of a contravention is clear.

Other amendments in this group include one from the noble Lord, Lord Cromwell, which requires the regulator to engage formally with civil society; one from the noble Duke, the Duke of Wellington, which requires CEOs of relevant undertakers to have regular meetings with relevant consumer and environmental panels; and one from the noble Lord, Lord Sikka, on the governance structures of the authority. I beg to move.

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[Lord Cromwell (CB)]

My Lords, we spoke earlier about the issue of two regulators and I will not go back over that. However, I will talk a little more about the presence of people on boards. I think there is a middle ground here—obviously beautifully set out in my amendment. To extrapolate a little from that, I agree that directors in a company have specific responsibilities which would not sit comfortably with having a consumer representative as a member of the board. That is clear and right.

These companies, however, are not just profit-making companies which represent shareholder interests; they are monopolies providing a service to the public for which they achieve a reward. That is an important distinction to make. For that reason, I agree with the noble Baroness, Lady Jones of Moulsecoomb, that avoiding groupthink and having challenge on a board is a very useful thing. However, I would not go so far as to make them directors, for all sorts of legal reasons that others have already expounded.

It pains me to disagree marginally with the noble Duke, the Duke of Wellington. I do not like panels, because they become ghettos that the unfortunate member of board who has to interact with them dreads going to—but they go anyway, they go through the motions and then they come back. I far prefer something more formal: a regular cycle of meetings with representatives of civil society, which are going to be challenging and sometimes uncomfortable but which end with recorded actions that are made public. Otherwise, it becomes just a token exercise and a ghettoisation into panels. I will not try to emulate the tone of the noble Lord, Lord Deben, but the representatives of consumers or environmentalists can be listened to but not heard.

[Earl Russell (LD)]

My Lords, this has been one of the really interesting groups in the Bill. I am not certain that any of us—from any party, in any amendment—has the complete solution. There are questions about whether a one-size solution fits all. In any case, there is a lot for all of us to go away and think about. These are crucial issues that go to the heart of what we do, how water companies operate, how they are accountable and how people who are impacted by them can feed in to and influence what they do and how they operate.

I thank the noble Lord, Lord Cromwell, for his contribution. I fully support him on the role of civil society. It is particularly important that we all acknowledge, as he did, that we would not be here without the role of civil society. I have an amendment in a later group to encourage the Government to work more with civil society in monitoring the environment.

I also thank the noble Duke, the Duke of Wellington, for his comments on the need for environmental representation. I am not quite certain where I agree on that debate; I will go away and think about it some more. I have also been on a board, and to be honest, it was one of the most difficult things I have done in my life. That was even on a good, well-functioning board. Sometimes, if you are in a difficult situation, even with good people who work together, things can be very difficult.

I also thank the noble Lord, Lord Remnant, for tabling his amendment. The board should decide on its own make-up and we should not dictate to it. Perhaps there is some kind of compromise here between the Government setting guidelines for what needs to happen, while perhaps allowing some freedom within the way that it is organised and monitoring the outputs that come from it. Maybe there is something we can all work on there.

I also thank the noble Lord, Lord Sikka, for his contribution. It is a bold move, indeed, and I am not entirely certain that I agree with that kind of prescriptive democracy. I think that it is better to allow things to be inclusive, as opposed to dictating that they must be in their make-up, but again, I will think about that.

The noble Baroness, Lady Jones, spoke about bringing some democracy into the regime. I certainly think we need that, and that the environment needs a proper, formal voice. I take up the point from the noble Lord, Lord Deben, about the need to watch the environment. If we do not do that, and if nobody has that responsibility or role, then that protective piece that needs to happen will not be there.

I think our areas of agreement were the need to broaden representation to include the environment and community, the need for diversity, the need for boards to work well, the need for constructive challenge to operate and to be brought to these companies at the highest level, and the view what we have now is not working, so we need to go away and find something else.

[Lord Sikka (Lab)]

My Lords, I have added my name to Amendment 100. The water authorities in Berlin and Paris are publicly owned and have stakeholder-elected directors. In most European countries, large companies have stakeholder-elected directors in them, as either a substantial proportion of the unitary board or a German-style two-tier board where one board is supervisory, and the other is executive. On the supervisory board, directors are directly elected. There are plenty of precedents for stakeholder-elected directors on company boards, and in many ways the UK is an outlier.

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As I said, the independent commission will carefully consider the roles and responsibilities of the regulators, but in this Bill we cannot pre-empt the commission’s outcomes. I encourage noble Lords to take part in any stakeholder engagement going forward. I thank all noble Lords for their contributions, and I hope that my response has reassured the Committee so that noble Lords feel able not to press their amendments.

[Earl Russell (LD)]

I thank the Minister for her response. This has been an interesting debate. There is more for us all to think about on these matters. I share a slight concern with the noble Lord, Lord Remnant, that the Government are looking back to Ofwat for a big, expanded role, even though there have been failures in the past. We will come back to the idea of expanding representation in further debates on the Bill.

For us, and I think for others around the Committee, the environmental aspect is important. I hear the Minister’s reassurances that there are new powers on Ofwat. I will go away and look at that, and I thank her for her response. I beg leave to withdraw my amendment.

Amendment 9 withdrawn.

Environmental Targets (Public Authorities) Bill [HL]

Earl Russell Excerpts

2nd reading
Friday 18th October 2024 Lords Chamber

[Earl Russell (LD)]

My Lords, I too support the Bill. I am grateful to the noble Lord, Lord Krebs, for bringing it and for his well-worded explanation of it. I am also grateful to the noble Baronesses, Lady Bennett and Lady Willis, for lending their support and for the speeches they have given.

The Bill requires specified public bodies to contribute to the delivery of statutory targets established under the Environment Act 2021 and the Climate Change Act 2008. As it stands, our climate change and nature protection legislation has a gaping hole at its heart in that no statutory duty is applied to the many public bodies on whose everyday decisions and actions we depend in order to meet the targets. The noble Lord, Lord Krebs, put it very well: the Government have all the levers on their desks, but the trouble is that the levers are not connected to anything. So far, our ad hoc efforts in this area have not worked. The state is already in possession of all the obligations but it does not have the statutory powers required to fulfil them.

The Bill is carefully crafted so as to be effective but, equally, not to be overly burdensome. Its thoughtful application includes regulators such as Ofwat, Ofgem and the Environment Agency; local authorities; key bodies such as Natural England, the Forestry Commission and National Highways; and some other 40 specified public bodies. It also contains an option for Ministers to include national parks in England and Wales by secondary legislation; I think this should be done.

The Bill uses well-versed legal language, saying that each of the identified bodies

“must, in the exercise of its functions, take all reasonable steps to meet the environmental recovery”

obligations. This duty is specific and active. It provides a clever means of aligning the functions of many organisations around a single shared goal. The Bill is careful not to define how the obligations should be met. Equally, it does not introduce a significant extra cost; indeed, as the noble Lord, Lord Krebs, said, it may induce cost savings from cost implications avoided, bringing longer-term cost savings. Importantly, my understanding is that the Local Government Association has signalled its support for the Bill. The simple and sad truth is that, as a country, we do not assign a fair value to nature. Our statutory powers are inadequate and do not provide the required levels of protection.

The Bill updates many bits of individual legislation that were written long before the nature and climate change crisis. One example is that for the Forestry Commission, which is over 100 years old. Often, they do not have clear environmental goals. This Bill also saves all of us, as parliamentarians, a job of putting down multiple amendments to lots of Bills that simply waste precious parliamentary time.

The UK has many key targets in place, but without statutory obligations such as these we will just not meet them. The Labour manifesto states that the UK faces a nature crisis, accelerated by climate change, and argued that the UK has become

“one of the most nature-depleted countries in the world”.

Labour committed in the King’s Speech to improve access and I hope that this Government do that. We face an interlinked and conjoined nature and climate crisis, and we must work at pace and scale to meet it. That manifesto also included a clear commitment that Labour would take

“action to meet our Environment Act targets”.

Here is a clear and effective way to do that at pace and scale. I hope the Minister agrees and can lend government support to the passage of this Bill.

Flood Prevention: Farmers

Earl Russell Excerpts

Thursday 10th October 2024 Lords Chamber

[Earl Russell (LD)]

My Lords, it is a pleasure to speak in this debate. I thank the right reverend Prelate the Bishop of St Albans for bringing it to us, and thank the others who are speaking. It is important that we fight to support and protect our farmers from the hardships they face. Between the impacts of Brexit, the implementation of delinked payments, wet weather, declining crop yields and inadequate compensation schemes, our farmers face a perfect storm that is sending many to the wall. The collective impacts are heartbreaking: the loss of family farms to bankruptcy, increased rates of suicide, and an overall decrease in crop yields due to the ever-present wet weather.

No farmers, no food: farming contributes £120 billion to the UK economy and is responsible for 4 million jobs, and our farmers provide 64% of the food we eat. Our farmers produce the food we need to survive. We all ate lunch today thanks to the work of our farmers. Farmers are our champions in the fight against climate change. Equally, the impacts of climate change hit them hardest and first. Farmers are the backbone of our food security—the protection of our land and soils. They are key partners in the work that must be done to protect the natural environment.

This September has been one of the wettest on record. Something is wrong when all we do is break climate records day after day. The UK is getting warmer and wetter as the impacts of climate change and climate breakdown are increasingly felt. The luxury of talking about possible future extreme weather events and their possible impacts is over. They are here now and only set to get worse.

For every rise of 1 degree Celsius in the atmospheric temperature, the atmosphere can hold up to 7% more moisture. Increasing heat brings increasing evaporation, which means that we will experience more precipitation, extreme rain events and flash flooding. Storms such as Babet, Ciarán and Henk have caused considerable damage to our agricultural land. Some of our farmers have had their land continuously underwater since October last year.

Either farmers have not been able to plant crops at all or the crops that they have planted have been impacted by waterlogged soils. Crop yields are down as a result. Wheat is down 15%, oilseed rape is down 28% and winter barley is down 22%. These are the real impacts that climate change is having today on our food security and farmers’ bottom lines. In 2023, the income from farming decreased by 19% as a result of flooding. It is against this background that we need to talk about the role of farming in our flood defences. Society needs farmers’ help in the fight against flooding and government needs to be clear that this means sacrificing their land, and their livelihoods, so their land is used to delay or hold water so that it is then released slowly and does not cause extreme damage to our homes and critical infrastructure. All this has an opportunity cost to farmers and we must compensate them fairly and quickly for this public service.

The announcement by the last Government of the flood recovery framework and the farming recovery fund were both welcomed. The flood recovery framework was poorly designed. Farmers struggled to get the information necessary to make applications. The requirements for 50 or more properties to be flooded were inappropriate for a farming fund. The local authority verification processes were also slow. The farming recovery fund still requires 50 properties to be flooded, but I welcome the fact that the qualifying measure of being 150 metres from a river has been removed. However, these systems are still not really fit for purpose and payments are still being delayed, which is causing real hardship. We really need a clearer and more flexible payments system that has the right criteria and is efficient in making the payments necessary. Above this, we need long-term stable support mechanisms so that farmers can prepare and plan longer-term changes and recover from traumatic weather-related events.

Farmers are only one small part of the food resilience framework. I welcome the Floods Resilience Taskforce that has been set up, but the Climate Change Committee has been clear that government must do more work on our resilience to plan for and invest in our flood defences. Government must properly fund the Environment Agency and other bodies. The Environment Agency has a £34 million deficit in its maintenance budget. Government must ensure that capital funding is in place for flood defences, to ensure that basic maintenance is conducted on drainage and flood defence systems. My view is that we need to do much more work with nature-based solutions that delay and hold water and release it slowly. These systems are good for people and the planet.

To conclude, there are rumours in the press that Labour may be planning to cut funding support for flooded farmers and that the budget decisions are also delaying reforms that are required to the application criteria. A Defra source said that decisions about how much money could be paid to farmers for the floods were being held up because of the spending review, and that cuts were on the table. We have already seen threats to cut £100 million a year from the nature-friendly farming budget.

I respect the Minister and I suspect she is not able to comment on the Budget, but my speech here today is leading to one appeal, and I suspect she can guess what it is. Now is the time to find solutions that work in practice, pay out on time, are adaptable to individual farmers’ needs and balance the competing objectives of flood prevention and food security. The window for finding solutions to the flooding problem is closing. Let us get these solutions right and let us get them in place now. The longer we leave this, the worse it will get and we will be overwhelmed with dealing with everyday levels of chaos, without having the necessary robust, basic systems in place that we need to weather the storms ahead. I call on the Minister to protect budgets and fight for a fair deal for our farmers and for holistic solutions to the ever-growing flooding risks.

Water (Special Measures) Bill [HL]

Earl Russell Excerpts

2nd reading
Wednesday 9th October 2024 Lords Chamber

[Earl Russell (LD)]

My Lords, I declare my interests as set out in the register. There is much to welcome in the Bill. There is much that we on these Benches will support. Equally, we call on Labour to be braver and bolder and to act with greater urgency. The environment cannot wait while Labour decides on the real systemic reforms that are the only solutions to this crisis.

The most positive thing in the Bill is the acknowledgment of the scale of the problem and the signal from Government that further, more fundamental measures, beyond this Bill, will be tabled in this Parliament. I give Labour my thanks for this. With this we finally have a potential starting point for change. The Bill is a welcome first step, but the Bill alone is far from a comprehensive solution. It is a list of useful measures, but if the Government think that simply blocking the payment of bonuses to poorly performing water company executives and a few other measures will resolve the sewerage crisis, there are real grounds for further thought.

Since privatisation 35 years ago, we have witnessed one of the worst environmental crises in the UK, with unabated and unprecedented pollution. Just 14% of England’s rivers and streams are in good ecological health. In 2023, there were some 3.6 million hours of untreated sewage discharges in England alone. Water, water everywhere, and not a drop of it unpolluted.

Meanwhile, water companies have paid at least £78 billion in dividends, while failing to invest adequately in the infrastructure required. At the same time, they have piled on £64 billion net in debt, when the water companies had been debt-free at the point of privatisation. The regulatory system is broken and has failed to hold companies to account. When researching this speech, I was astonished to find that Ofwat has to give 25 years’ notice to revoke a water licence.

Measures such as monitoring outflows, banning bonuses, automatic fines, lowering the burden of proof, and possible jail terms for obstruction of investigations are all welcome. The reality is that the Bill is just a list of useful, but ultimately nothing more than stopgap, measures. The real change needed is a radical and complete systematic overhaul of the whole system. Feargal Sharkey called the Bill inadequate. He rightly said:

“We want an end to pollution, clean rivers and seas. We wanted transformative action and these small steps do not satisfy that goal”.


Similarly, Charles Watson of River Action said:

“What we’ve got today is a long list of measures that will cost the government nothing and is really not going to fix anything because it’s the system that’s broken”.


The review of water health is welcome. Is the Minister able to confirm that the review will be independent of government, with an independent chair? When will it start work, and when is it expected to complete? Steve Reed has said that a “full review” of the water sector will take place over the course of this Parliament. I hope that Labour has the courage to be brave. It also needs to find its own policies and grasp the reform nettle. Why is more comprehensive legislation not yet ready, after some 100 days, on such a fundamental issue?

The broken system and the consequences of light-touch regulation were all issues at the general election. Our rivers, streams and lakes have been polluted to the point of ecosystem collapse in some cases. I am proud that my party has led the campaign on these issues, which cut through to people on all sides of the political spectrum. The broken system saw the polluter paid time and again, instead of the “polluter pays” principle ever being applied.

My warning to Labour is that the people who voted for it did so with an expectation that real action would be taken to resolve this mess, and that it would be undertaken at scale and pace. The Liberal Democrat position is clear: out-of-control water companies must be forced to put the interests of the environment before profits. They must be held to account for their corporate failings. Our policies include plans to abolish Ofwat and install a clean water authority—a regulator with real powers. We would turn private water firms into public benefit companies—the quickest and least costly method of resolving this mess. England remains the only country in the world to have privatised its entire water system, and for good reason.

The hard part about scrutinising the Bill is that the important parts of the puzzle are not in it at all. They are yet to come, and we do not know exactly when they will arrive and what they will say. I remain to be convinced that, even with further legislation, Labour can keep private water companies and the existing regulation architecture, including Ofwat, in place, and pull off the magic trick of protecting the environment, making regulation fit for purpose, securing the billions of investment and protecting bill payers in the midst of a cost of living crisis.

Can the Minister reaffirm that, where water companies systematically use overflows to dispose of untreated sewage in dry conditions, it is the Government’s intention to swiftly prosecute them? Enforcement powers exist already—water industry bosses can be sent to prison under certain circumstances—but these powers have hardly ever been used. Since 2001, the DWI has brought only three prosecutions and given two cautions. Are the Government clear that the regulators will have a firm touch and prosecute breaches?

It is welcome that the Environment Agency will be able to levy automatic fines and recover costs, but cost recovery is retrospective and does not pay for the enforcement today. The Environment Agency had its budget cut almost in half between 2009 and 2019. Will this Government properly fund enforcement? Laws cannot be enforced without effective regulators. We need fundamental regulatory reform. The Bill could be strengthened through the inclusion of environmental and clean-water duties on Ofwat. Companies that persistently breach obligations should face the prospect of special administration. We need much larger fines that are a real deterrent. We need legislation which ensures that funds from fines will be invested in environmental projects through the water restoration fund. Enforcement is still based solely on ecological impact, with no requirement to restore areas that have been severely polluted in the past. We need more investment in mechanisms and processes that work with nature—so-called nature-based solutions. All water companies should be required to implement pollution reduction plans. Ofwat should have a statutory duty applied to contribute to meeting our climate and nature targets.

The Bill has many measures coming in at different times and subject to different consultation processes by associated regulators and the need for many measures to be approved by statutory instruments. When does the Minister envisage that all the measures contained in the Bill will be enacted? Will the Minister agree to work with your Lordships’ House to ensure that measures in statutory instruments are able to be debated on the Floor of the Chamber as far as is possible? Finally, I worry that the villain of the piece is the lack of funding for enforcement measures. Only real reform, determination and hard cash will ever change this.