Water Industry

Gareth Thomas Excerpts

Tuesday 22nd January 2019 Westminster Hall

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I beg to move,

That this House has considered the future of the water industry in England and Wales.

Customers and employees should be helped to take back control of the companies providing our water and taking away our sewage. The people of England should once again be front and centre of their water industry. Democratic, publicly owned businesses operating in the private sector, regulated with vigour by a more effective Ofwat is the Co-operative party’s vision of the future of the water industry. I am proud to chair that political party. I am grateful to the Backbench Business Committee for the opportunity to explore that agenda through this debate.

Nationwide, John Lewis, the Co-operative Group, the Royal London insurance company and NFU Mutual are just five successful examples of people-run businesses—mutuals—where profit is sought not to line the pockets of wealthy investors, but to reward customers and employees, and to invest in local communities. Such businesses are inspiration for reform of the water industry.

Margaret Thatcher’s decision 30 years ago to privatise our water industry has created an expensive, unaccountable and unfair system. No other country has a fully privatised system of water and sewage services with so little competition. The resulting monopoly businesses are overseen by a woefully weak water regulator. Unsurprisingly, the consumer voice in England carries little weight against the interests of distant investors, whose decisions have seen water bills rise by 40% above inflation since privatisation.

[Daniel Zeichner (Cambridge) (Lab)]

Does my hon. Friend agree that the rather poor practices of some water companies have led to widespread public disillusionment? When I worked for Unison a few years ago, an excellent report was published showing some remarkably creative accounting, which seemed to suggest that money was being diverted not to investment, but to shareholders.

[Gareth Thomas]

My hon. Friend and the trade union movement in general have pointed that out on a number of occasions. I will come on to one of the trade union movement’s particular campaign issues.

Water companies have become a desirable global financial commodity, bought and sold by big banks, international infrastructure investors, pensions and sovereign wealth funds. Since privatisation, as my hon. Friend just pointed out, dividend payments have been very high, at an average of £200 million a year per company, and £2 billion a year in total. Over the past 30 years, at least £48 billion has gone directly to shareholders.

Analysis by Greenwich University suggests that the more than 40% increase in household bills in that time was driven mainly by the need to finance growing interest payments on debt—a point that the trade union movement in particular has highlighted. That analysis shows that accelerating debt levels are the result of the high dividend payments paid by water companies to their shareholders, which exceeded the privatised companies’ cash balances in every year bar one since 1989. Indeed, it is striking that total payments to shareholders are very similar to the total outstanding debt burden of privatised water companies, with at least £48 billion in payments in the past 30 years and at least £51 billion in total debt.

The Leader of the Opposition and, in particular, the shadow Chancellor deserve considerable credit for highlighting the lower cost of water bills in Scotland, where Scottish Water is publicly owned. While bills in Scotland are 2% less in real terms than they were 18 years ago, English water bills increased by some 13% in real terms over the same period.

Privatisation has not meant more investment. Indeed, annual investment in water supply infrastructure was lower in 2018 than it was in 1990 and has fallen by about 10% in the past 10 years. All of the capital investment made since privatisation could have been covered using only the money generated by customer bills. Instead, much of the income generated by water bills appears to have been used to pay the interest on debt built up by the privately owned water companies, in turn to fund dividend payouts.

Despite similar levels of capital investment, we are now in a situation in which, according to research by the University of Greenwich, consumers in England are paying £2.3 billion a year more for their water and sewerage bills under the current privatised system than if the utility companies had remained in state ownership.

[Darren Jones (Bristol North West) (Lab)]

Does my hon. Friend agree that this is an excellent opportunity to bring consumers into the conversation with businesses, in a way that mutualisation allows, so that we can learn from customers as well as talk about the ownership of utilities?

[Gareth Thomas]

My hon. Friend makes a good point. I will come on to how mutuals would allow customers to have a lot more say over—indeed, they would give them ownership of—the water services on which we all depend.

Turning to one specific company, Thames Water was owned for 11 years by a complicated string of holding companies and offshore businesses, all ultimately owned by Macquarie bank, receiving returns of between 15.5% and 19%. Research by the Financial Times suggests that between 2006 and 2016, Macquarie and its fellow investors paid themselves £1.6 billion in dividends, while Thames Water was loaded with £10.6 billion of debt and ran up a pension deficit of some £260 million.

Dividend, debt and pension deficit were not the only things to increase under Macquarie’s control of Thames Water; customer bills and complaints also soared. The only thing that went down during this period was customer satisfaction, which is now ranked 22nd out of 23 in the Consumer Council for Water league table.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for bringing this debate. Ofwat imposes no penalties on managers who break their commitments. Does he agree that legislation must be put in place to ensure that—after loading Thames Water with debt and flooding the Thames valley with excrement—the water body faces more than just a fine that is less than the amount it would take to dispose of the water in the appropriate way? In other words, the fines do not match the crime.

[Gareth Thomas]

The hon. Gentleman makes an extremely good point. Given that we are in the middle of the latest pricing review, if Ministers had the gumption they could put pressure on Ofwat to use its existing powers to bear down on those exact issues. I agree with the hon. Gentleman’s general point that we need a full review of the powers available to Ofwat. I am sure that they need to be increased.

Thames Water’s credit rating is the worst in the industry, according to Standard & Poor’s. Thames Water’s tax bill also declined during the period in question, as it regularly paid no corporation tax on its £1.8 billion turnover. Thames Water is, by its own admission, failing to meet targets to reduce the number of properties experiencing chronic low water pressure; failing to reduce the number of complaints; and wasting almost 700 million litres of water annually through leakage. It is failing to meet basic standards in 17 out of 41 key areas. That dismal record also includes record fines for poor performance.

In comparison, Scottish Water, which is publicly owned, has debt levels 5% lower than 17 years ago; its interest payments have remained consistent; and, with no dividends having been paid out, all the profit has been reinvested. It is worth pointing out that, adjusted for leakage per kilometre of pipes, Scottish Water performs just as well as an average English company, with 10.2k litres of leakage per kilometre as opposed to 22.1k for Thames Water, 10.8k for United Utilities and 9.5k for Yorkshire Water.

Thames Water is not alone in poor performance. In truth, more than 20% of all water is currently lost through leakages from water pipes. In total, it is estimated that some 7.5 trillion litres of water has been lost through leakage, which is equivalent to the total volume of water currently in Loch Ness.

[Rebecca Pow (Taunton Deane) (Con)]

The hon. Gentleman is making a powerful case against the water companies. The issue of leakage seriously needs to be addressed. Something like 1,273 Olympic-size swimming pools-worth of water is leaked daily because water pipes have not been addressed. The Secretary of State for Environment, Food and Rural Affairs has rattled the cages of the water companies, to improve their performance, and they have set out in a new plan that they will reduce leakage by 16%. Does the hon. Gentleman agree that that should not be done voluntarily and that there should potentially be stronger regulation?

[Gareth Thomas]

I find myself in the slightly unusual position of agreeing almost completely with the hon. Lady. Leakage is a huge problem. Much tougher regulation by Ofwat in particular, and ultimately an increase in the regulator’s powers, are required to bear down on the shocking levels of leakage, not least because the Environment Agency has said publicly that England and Wales could suffer major water shortages by 2030. The agency also noted that enough water to meet the needs of 20 million people is lost every day through leakage, which surely further supports her significant point.

To be frank, in the past Ofwat has not demanded enough investment from water companies, given the scale of the rise in customer bills. It appears to have been asleep at the wheel under various leadership teams. The Public Accounts Committee, which looked at regulation of the water industry as far back as 2015, criticised Ofwat for overestimating costs and poor benchmarking of efficiency, resulting in higher bills for customers.

The hon. Lady also made the point that even the Secretary of State for Environment, Food and Rural Affairs suggested in March last year that water companies have not been acting in the public interest. Granted, the Secretary of State’s criticism came a month after a detailed critique of the water industry by the shadow Chancellor; nevertheless, the Secretary of State’s criticism is welcome.

As I indicated earlier, the latest price review is under way and already the Consumer Council for Water is concerned that Ofwat’s grand promises are unlikely to be met, with

“companies bidding for significant rewards for performance levels that aren’t particularly stretching”.

In part, prices are decided by the cost of equity and the cost of debt, plus investors’ expected UK tax burden. In my view, Ofwat should reduce the cost of equity in its calculations while maintaining fair treatment on debt finance for genuine capital investment. In short, Ofwat should drive down the profit that the owners of water companies make. It should also scrutinise the tax behaviour of those owners, to crack down on tax avoidance, and demand that owners do not use tax havens to receive the profits from our water companies. Lastly, every English water customer should see their bills reduced after 30 years of being used as cash cows by the owners of water companies. It is time that consumers and their pockets were treated better.

In October last year, the Select Committee on Environment, Food and Rural Affairs suggested that an independent review to determine whether the water industry was fit for purpose was required. The Chartered Institution of Water and Environmental Management went further, suggesting that such a review needed to examine the ownership of water companies. The Select Committee also raised concerns about the powers available to Ministers and Ofwat to improve governance and prevent pollution. With climate change approaching and a creaking infrastructure, the Committee argued that the need for change was urgent.

For some of the reasons that I have set out, there is growing concern about the ownership model in the water industry, and there are alternatives to the current privatised system. Long-term alternatives that the Government should consider include, in particular, a mutual approach, with democratic public ownership by consumers and employees, modelled on the success of Welsh Water and inspired by other similar success stories. Welsh Water, or Glas Cymru, does not pay dividends to shareholders, and yet it operates in the private sector. It has an ownership model that forces it always to operate in the interest of its customers and it has changed the way in which it raises finance, in order to reduce the cost of credit.

Welsh Water now has the strongest credit ratings in the water industry, which reduces its financing costs and allows for even more future investment in its infrastructure and services. Customer bills have been reduced steadily in real terms and so far it has returned about £180 million to customers in the form of customer dividends. In addition, it has provided some £10 million of support for vulnerable and low-income customers, through social tariffs and an assistance fund.

The first step on that path for the water industry in England, so that it can match and then go further than Welsh Water, would be the formation of consumer and employee trusts. These trusts would have the power to appoint non-executive directors to water company boards, and they would have access to independent advice from management, so that they can make well-informed and independent decisions.

Ofwat should discourage investment in the water industry that requires a fast return to the owners of expensive equity. Instead, it should steer water companies towards the lower-cost debt market, with responsible investors such as public sector pension funds, whose interests are aligned with those of the water sector and whose investment could help to ensure that there is a modern, resilient water infrastructure.

Over the longer term, as equity investors seek to sell up because they recognise that they can no longer make a fast buck, consumer and employee trusts could use bond issues to buy those equity investors’ stakes in the business. These trusts would need to be underwritten by a buffer, or internal equity reserves, to borrow against. That could be achieved through a Government guarantee on loans or debt, to ensure that any large unexpected investment needs will be met, and to ensure that if anything should go awry, lenders are in a first loss position. Similar initiatives already take place in other areas of Government policy. Government guarantees could be replaced over time through the accumulation of non-distributed reserves, or of retained profit, by the trusts.

As the ownership of water companies changes, legislation should be passed to embed the not-for-profit principle. The new not-for-profit water companies would also require protection, with an asset lock to prevent demutualisation in the future. Consumer and employee trusts—like those at Nationwide, John Lewis and other mutuals—would enable customers and the workforce to have an active role in the key decisions taken by their organisation. The board would include employee and customer directors, and the trust membership would enable members—including consumers—to vote for board members, and to agree audit, remuneration and company governance decisions, as well as how profits are invested or distributed.

Ofwat should be given new powers to ensure that water companies encourage employee and customer participation in the democratic process. The new employee and consumer trusts should also have a role in the scrutiny and decision making of Ofwat, with a scrutiny panel that reviews the operations of the regulator, led by consumers, and also playing a role in Ofwat’s appointments to its board.

In conclusion, comparisons of public ownership and private ownership of the water industry do not come out favourably for England’s privatised water companies. They do not look like they are committed to environmental investment and the other challenges facing the water industry. The latest price review should herald the beginning of the transformation to new not-for-profit owners—the very consumers and employees who depend on the services of the water industry. Public ownership works in Scotland and the model for mutual transformation of the rest of the water industry works in Wales. It is time that there was new ownership of the water companies in England, and I commend the mutual model to the House.

[Richard Benyon (Newbury) (Con)]

If hon. Members check my entry in the Register of Members’ Financial Interests, they will see that I chair an organisation called the UK Water Partnership. As the Leader of the Opposition claimed that I was some sort of stooge for the water companies, I put on the record that the UK Water Partnership is a public-private partnership, and that I was asked to chair it by the Department for Environment, Food and Rural Affairs. It brings together industry, policy makers and the research community to try to provide the key to unlocking a $500 billion global marketplace, as well as tackling water security issues through a strategic approach to research innovation and global clients. It effectively works right across the water sector, helping British companies to do better in a global marketplace. I very much do not speak for water companies.

As the water Minister who introduced more competition, changed Ofwat’s prioritisation of environmental protection, introduced the catchment approach to upstream water management and oversaw the Thames Tideway tunnel in its initial phase, I have a fair degree of insight into how private water companies work and what they deliver for customers.

I appreciate the hon. Member for Harrow West (Gareth Thomas) bringing this matter to the House. I suppose it all depends on which end of the telescope we look down. It is easy to pray in aid companies and organisations that fail, and so give a malign picture of the whole operation of our water sector. I will try to give a more balanced view, but I totally accept some of the points made, as there are good players and bad players in every sector.

As in any field that involves a number of organisations, we will of course come across ones that are good and others that are bad, but I am absolutely certain that we have benefited from privatisation. It is wrong to turn the clock back and pretend that there was some halcyon era of cheap water, exemplary customer service, massive investment and great environmental activity by companies in the days when they were publicly owned. To those who say, “Ah, but we would do it better this time,” I say that that is the Venezuela defence. Socialists say that Venezuela has not done socialism right and that they would do it differently here, that nationalisation would be different from in the past. Those years of bad service, under-investment and environmental degradation must not happen again.

[Gareth Thomas]

I am enjoying the trip to Venezuela that the right hon. Gentleman is taking us on. May I draw him back to my remarks about the mutual model of democratic public ownership, which would see the water companies remaining in the private sector, albeit run by their customers and employees, a bit like at John Lewis and Nationwide?

[Richard Benyon]

I can come on to talk about suggestions that I think have some virtue, particularly employee share ownership schemes. As with everything, there is no perfect right or absolute wrong; there is a massive area of grey, and I will explore some of the nuances, on which I think we can perhaps find some agreement.

On the model of nationalisation I have heard certain individuals speak about at Momentum rallies, I think about the head of a nationalised utility company going to see the Chancellor to plead for more infrastructure investment funds, only to be told, “Get in the queue behind the NHS, welfare, policing and schools”—the long list of public spending priorities that come before something that is now funded privately and by institutional investors. Let us consider some facts. Since privatisation, water companies in England and Wales have spent about £150 billion on improvements to the water service. That is infrastructure that had been absolutely ignored by public expenditure before it was put into the private sector. The companies now spend about £8 billion a year continuing with those improvements.

When I was water Minister, I met institutional investors and saw that the regulated utility sector is an extremely popular place for people to invest, including for pension funds—the people who pay the pensions of people in the public sector. I welcome the fact that sovereign wealth funds and overseas investors want to invest in the United Kingdom. They do so because it is a stable and relatively low-yielding but relatively secure investment.

--- Later in debate ---

[Richard Benyon]

There has absolutely been bad practice. I have had my concerns about Thames Water in the past, but today the company has capped its dividend payments, is investing more in resilience and is doing a whole new range of different activities, and my concern is that we risk cutting off an enormous amount of infrastructure investment if we do not get this right. I think there is a way forward, and I will touch on it in a moment.

Compared with 30 years ago, customers are now five times less likely to suffer from supply interruptions, eight times less likely to suffer from sewer flooding and 100 times less likely to have low water pressure. The hon. Member for Harrow West talked about Welsh Water; he is right that people sometimes suggest that it is a mutualised organisation, when it is a private company. Welsh Water loses 121 litres per property in leakage, which is more than nearly every other water company. Its average combined water and sewage bill is £439, which is 8% higher than the average English and Welsh bill, at £405. It is higher than the bill in six English companies, and that is in a country where there is no shortage of water. I come from the Thames Water region and we are short of water there, but in Wales they are not so I cannot understand why the bills are so high. In Welsh Water, the average number of minutes lost due to supply interruptions is 43 minutes, which is about 400% higher than in most other companies, where fewer than 10 minutes are lost.

The picture is not universally wonderful, and there occasionally needs to be a bit of balance in the subject. Water companies have reduced leakage by a third since the 1990s. We are about to see an incredible increase in innovative methods of detecting leakage, and it is right that in the current price review round there is an enormous driver on those companies to crack down on it further.

On the environment, standards have dramatically risen, with the welcome return of wildlife to rivers that had been biologically dead since the industrial revolution. Otters rely on healthy rivers and were thought to be on the verge of being wiped out 30 years ago, yet they are now seen in every county in England.

The average domestic water bill is just over £1 a day—that is £1 a day to get all the water we need into the household, and all the sewage and waste water out. Although bills went up immediately after privatisation to help deal with decades of under-investment when the industry was owned and run by the Government, bills have stayed pretty much the same in real terms since 1994 after inflation, and are set to fall in real terms over the next few years. By 2025, bills will have fallen in real terms for a decade. The industry’s independent regulator Ofwat—which has just come in for some stick—has calculated that bills are £120 lower than they would have been if the combination of privatisation and tough independent regulation had not happened. Bills would have been £120 more per household if the industry had remained in public ownership.

On the subject of customer satisfaction, the hon. Member for Harrow West has said that people are terribly dissatisfied with their water companies. I went on the internet last night to look at what Ofwat, the Consumer Council for Water and individual water companies are saying, and customer satisfaction levels for water and sewerage services are around 90%. As politicians, would we not love to have a bit of that, particularly at the moment?

[Gareth Thomas]

I wonder whether the right hon. Gentleman would comment on two things. The first is the National Audit Office’s calculations, which suggest that there has been a 43% increase in real terms in water bills since privatisation, and the second is the significant difference in water prices between publicly owned Scottish Water and the privatised water companies in England, which I mentioned.

[Richard Benyon]

I do not know the circumstances in Scotland, so I can only speculate, but that is another country that is not short of water, as many parts of this country are. I just think that we need to look at what the customers are saying, and my impression is that customers are not shrinking violets. When I came into this House in 2005, my inbox was overflowing with complaints about Thames Water’s customer service, which made me realise that water is an absolute necessity of life. It is the first thing that people will complain about; it is something that we perhaps rely on too much, and use too much of, in the area of the country in which I live. However, the idea that customers are somehow not involved in and concerned with raising these issues is wrong. When they are asked about them, they give quite interesting responses.

--- Later in debate ---

[John Grogan (Keighley) (Lab)]

It is a great pleasure to follow the right hon. Member for Newbury (Richard Benyon), who has displayed his knowledge of not just the water industry but Momentum rallies, Venezuela and so on. His remarks put our party and our Front Benchers on notice that we have to get the detail of this policy right. It is a very radical policy, and I support changes in the water industry, but we will hear many mentions of Venezuela and Momentum rallies in any election campaign in which this is an issue. It is also a great pleasure to follow my hon. Friend the Member for Harrow West (Gareth Thomas), who opened the debate in a typically urbane and knowledgeable way. He is a great loss to our Front Bench, and I hope that one day he will be a Minister again in a future Labour Government.

[Gareth Thomas]

A £5 note is on its way.

[John Grogan]

I do not know whether that is a “thank you” or a bet.

I will speak briefly, but perhaps a little explicitly. I think that part of my hon. Friend’s speech was directed at our party’s own Front Benchers. At the moment, we are consulting on our plans for the water industry, and I hope nothing is set in stone. In developing our policy, we need to learn as much from Scotland, Wales and—if I may say so—Northern Ireland as we do from experts who reside in the north of London. My hon. Friend referred to the Secretary of State for Environment, Food and Rural Affairs and the shadow Chancellor competing, about a year ago. It was last spring—spring was in the air—and one of those gentlemen said:

“Far too often, there is evidence that water companies—your water companies—have not been acting sufficiently in the public interest.”

It could have been either of them; in this instance, it was the Secretary of State. On that occasion, he was as cruel and as vehement in his speech about the water industry as he was about the Opposition last week, so this is an open goal for the Opposition.

I will not repeat the statistics that my hon. Friend referred to when opening the debate, except for the basic statistic that the privatised water industry has taken out about as much in dividends as it has put in as investment, so the idea that the privatised water industry has brought new investment into the industry that would not have been made otherwise is wrong. However, what should be a Labour Opposition’s policy on changing ownership? I hope that the shadow Minister, my hon. Friend the Member for Plymouth, Sutton and Devonport (Luke Pollard), can confirm that the submissions that my hon. Friend the Member for Harrow West has made will be considered very carefully in our current review of policy in this area.

I share with the right hon. Member for Newbury a love of employee share ownership schemes, particularly if they involve the whole of the company. I chaired such a scheme, which ran Hatfield, one of the last two deep mines in our industry. It has a different feel from any other form of capitalism. I hope we will consider that. I hope we will also consider the role of regulation, because any reference to external regulators seems to have gone from our paper. I do not want civil servants making all the decisions on the regulation of the water industry. It is a specialist role.

In Scotland, there is a publicly owned industry, but there is also an independent regulator. Incidentally, there is also competition in the business retail market in Scotland, which exists alongside public ownership of the industry. We have had some debate already about the precise form of ownership, but as I understand it, in Wales it is not employee-owned, but a not-for-profit model. I understand that the cost of debt for the Welsh industry is less than for any other industry in the public or private sector in the whole United Kingdom. I hope we learn from Wales, too.

If we are to take some of the water industry at least into the nationalised sector, why not let a thousand flowers bloom? I hope our Front Benchers will consider that. Why not have some on the model that my hon. Friend the Member for Harrow West mentioned and some where there is demand in the public sector? That would be one way of doing it, but it will be more costly to have all the water industry in the nationalised sector, as compared with my hon. Friend’s suggestion. We have to face up to the question of compensation. It is not good enough for an academic in north London to refer to how the banks were taken in distress into the public sector. Certainly they were, but they had virtually no value in their assets, and that would not be the case with the water industry.

Some of the water industry shares are owned by the workers of the water industry, and some are owned by the pensioners. I have had an interesting dialogue with an organisation called We Own It, which is contributing to the field. When I asked it about this question, it said—I paraphrase—that it did not really believe in compensation, but that it recognised that workers and pensioners somehow have to be looked after. We have to do better than that if we are to stand up with a general election campaign.

--- Later in debate ---

[Deidre Brock]

It is interesting. We are, of course, spending considerable amounts of money on addressing that. As I understand it, and I will speak about this later, our service performance is now comparable to the leading UK water companies; on some measures, we outperform them. As we continue to invest, water loss will be driven down. English water companies are having to resort to debt; that is what their investment in infrastructure is largely based on.

[Gareth Thomas]

Far be it from me to help the Scottish National party out, but as I understand it, from analysis done by Greenwich University, the levels of leakage per kilometre in Scotland are better than for many English water companies, and are certainly in line with the average at worst.

[Deidre Brock]

I was quite surprised by the contribution made by the right hon. Member for Newbury, as that is not my understanding. Perhaps I should quote the Scottish Water Commission, which noted in 2013:

“It is now more than a decade since Scottish Water was established. In that time the company has transformed itself as an organisation. It has caught up with the top performing companies in England and Wales on cost efficiency and levels of service and has regularly reached—and outperformed—its targets.”

I expect more of that in the future.

As Greenwich University research found,

“the public-owned sector in Scotland delivers the service just as efficiently, albeit at a lower cost to consumers.”

In Scotland, bills are 2% lower in real terms than they were 18 years ago, while over the equivalent period in England they increased by 13%. Drinking water continues to be at record levels of compliance, and there were no failing waste water treatment works in 2017, compared with more than 70 in 2002.

Scottish Water has reduced energy consumption and increased renewable power generation. It has cut carbon emissions by more than 30% since it first reported in 2006-07. Driven by the Scottish Government’s ambitious renewable heat and carbon reduction targets, the amount of renewable energy the company generates is now more than double its electricity consumption. Ageing facilities are being replaced through major investment in projects such as Glencorse water treatment works outside Edinburgh. That energy-efficient plant was delivered on schedule and under budget, and now supplies cleaner, safer water to around half a million people in the capital, while having sustainability at the core of its operations. A hydro-turbine provides almost half the facility’s own energy needs, helping to keep water charges low for customers.

Scottish Water’s service performance, as I mentioned, is now comparable with that of the leading UK water companies; on some measures, it outperforms them, while still keeping the bills down. Even where it can be said that the leading English companies perform better, at the current pace of investment by Scottish Water, and without the spend on dividends, that position is set to change over the next decade.

The myth that private profiteers are required to deliver things better has been dispelled. Indeed, the We Own It campaign points to the move towards public ownership internationally, with 235 cities in 37 countries taking water into public ownership in the last 15 years. Public ownership of public water supplies is already working in Scotland. That may seem clear, but it is worth reminding the Labour party of that fact, given that the Scottish leader, Richard Leonard, argued recently that they should be taken back into public hands. There was a wee bit of confusion there, but I will certainly draw his attention to helpful comments made by his colleagues down here today.

Scotland is rightly famous for its water. It is a reliable natural asset that serves our health, our wellbeing, our environment and our economy well. It is right that public supplies of domestic water have remained a public asset, delivered in the public interest. It should be so in England too.

--- Later in debate ---

[Dr Coffey]

My right hon. Friend is correct, and that has been considered. The balance is very important. However, we need to continue to challenge South West Water to make sure its investment is effective. The hon. Member for Keighley (John Grogan) talked about the challenges on sewage, and there are particular challenges in the south-west on aspects of combined overflows. We continue to press the company to make sure that it is maximising the investment on improvements.

[Gareth Thomas]

Will the Minister comment on two points? I mentioned in an earlier intervention that, since Scottish Water was set up in its current form, the price of water is 2% lower in real terms, while water bills in England have gone up by an average of 13% in real terms. Secondly, in the current price review, does the Minister intend to require Ofwat to significantly lower the cost of capital, which is included in the amount that Ofwat allows water companies to charge?

[Dr Coffey]

I am not aware that I have the power to direct Ofwat on exactly how it comes up with its cost of capital. My understanding is that it has reduced what it assumes to be appropriate for the weighted average cost of capital, but I expect the price review to be published shortly. I am due a briefing from Ofwat within the next week on that particular issue.

On prices, Severn Trent’s average bill is still lower than that of Scottish Water. I want to bring some facts into the debate. The need for ongoing investment in the water industry will vary around the country, as will what water companies put forward as necessary for the changes we require.

Ofwat has highlighted the benefit of modernising licence modification powers, after the Secretary of State asked it to look into what further powers it felt it needed. We are currently consulting publicly on that proposal and will make a final decision after the consultation. If we decide to proceed, we hope to bring that forward in a legislative vehicle in the next Session.

The Government’s strategic policy statement in 2017 set out the need to improve protections for vulnerable customers. To help water companies achieve that, the Government introduced data-sharing provisions in the Digital Economy Act 2017 to better identify those who may need help with their bills. Companies have responded positively to that challenge in their draft business plans. Between 2020 and 2025, they have pledged to reduce dividends and bills, increase investment to £50 billion, improve transparency on executive pay and increase the uptake of social tariffs by nearly 90%. Welsh Water’s level of investment is nowhere near as high as that of the average water company in England.

I am pleased that many water companies have set out how they will share profits with customers either directly or through community benefit schemes. They have set challenging targets to extend their support to vulnerable customers, including a commitment from Northumbrian Water and South West Water to eradicate water poverty in their regions.

The industry plans to reduce leakage by 16% by 2025 and has set the ambitious target of a 50% reduction by 2050. Companies also plan to reduce individual water use by 2045, targeting 83% metering penetration and a per capita consumption of 123 litres, which would be a significant improvement on today’s average of 141 litres in England. We will hold them to account on those plans and we will take action ourselves. In our water conservation report, which was published just before Christmas, I said that we would carry out a call for evidence and a consultation on the measures we can take to reduce demand.

Even though we expect that leakage will fall and demand will drop, water supply still needs to be increased. To ensure key infrastructure can be delivered on time, we are consulting on a draft national policy statement for water resources infrastructure, which will streamline the planning process for new large water infrastructure projects, such as reservoirs, desalination plants and water transfers. We expect companies to collaborate with one another on regional water resource plans that transcend company boundaries, to identify the most cost-effective solutions for each region and for the nation. That includes water companies considering other water users in their plans and working together where appropriate. The Environment Agency’s national framework for water resources will support that work.

It is important to recognise the regulators of the water industry, namely the Drinking Water Inspectorate, the Environment Agency and DEFRA, which itself continues to regulate on a small number of matters. They all have good powers to protect consumers and the environment.

The work of the Consumer Council for Water has been referred to. As the consumer body, its role is to hold the water companies to account on behalf of customers. It acts for both residential and business customers. We want to see a water industry that puts customers at the heart of the business, contributes to society and protects our precious natural environment. We will continue to push the sector and to hold it to account, to ensure that it achieves those objectives.

[Gareth Thomas]

I am grateful to the Backbench Business Committee, to you, Mr Gray, for chairing the debate, and to my hon. Friends and other hon. Members for taking the time to take part. I think the mutual route to democratic public ownership offers significant advantages over the current privatised system. Customers and employees would be in charge of the very services they depend on. There would be no cost to the taxpayer involved in the change of ownership. Profits would be reinvested in the business and continued borrowing for investment would be feasible. On that basis, this has been a very useful debate.

Question put and agreed to.

Resolved,

That this House has considered the future of the water industry in England and Wales.