Public Bodies (Marine Management Organisation) (Fees) Order 2014

Lord De Mauley Excerpts

Wednesday 16th July 2014 Grand Committee

Moved by

[Lord De Mauley]

That the Grand Committee do consider the Public Bodies (Marine Management Organisation) (Fees) Order 2014.

Relevant documents: 1st Report from the Joint Committee on Statutory Instruments, 2nd Report from the Secondary Legislation Committee

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, the order is made under the Public Bodies Act 2011. Section 4 of the Act enables Ministers to make an order modifying the funding arrangements of certain public bodies, including the Marine Management Organisation. The purpose of the order is to allow the MMO to charge for the monitoring, varying and transfer of marine licences.

The MMO is the principal regulator of marine activities around England and was created by the Marine and Coastal Access Act 2009. Its mission is to enable sustainable growth in our marine area, facilitating growth in coastal communities while protecting and enhancing the marine environment. Its responsibilities include the operation of the marine licensing system in English waters and the offshore waters of Wales and Northern Ireland.

Part 4 of the Marine and Coastal Access Act created the new streamlined marine licensing system for most UK waters. The system replaced the previous licensing system under the Food and Environment Protection Act 1985. A marine licence enables consistent decision-making about what activities are allowed to take place in the marine environment. Developments subject to a marine licence can range from small projects, such as the installation of buoys or the construction of small jetties, to larger harbour, dredging and wind farm developments. It is government policy to recover licensing costs where practicable. To a large extent, the Marine and Coastal Access Act and regulations made under it allow for the recovery of most of the costs associated with marine licensing. Indeed, the fee structure for marine licensing was updated and revised in April this year. This revision was designed to ensure that the calculation of fees more accurately reflected the actual costs incurred by the MMO.

However, the powers in the Marine and Coastal Access Act do not allow for the recovery of all the costs associated with monitoring, variations and transfers of licences. These costs were recoverable under the previous licensing system, and it was never the intention to omit them from the Marine and Coastal Access Act. The proposed order under the Public Bodies Act is therefore designed to close this particular funding gap. The order specifies that the MMO may charge a fee in relation to monitoring an activity authorised by a marine licence, the variation of an existing licence and the transfer and variation of a licence from the licensee to another person. The order specifies the level of the fees that may be charged. The basic principle is to charge applicants for the hours that are worked on a case, with the hourly rate fixed at £94. However, maximum ceilings will apply to simple variations or transfers, or the monitoring of non-complex cases. This is intended to provide greater certainty for smaller businesses and other operators. A different formula will apply in relation to the monitoring of disposal sites for dredged material. In these cases, the fee is calculated on a per tonne basis, up to a maximum of £15,000. This is because disposal sites are typically used by more than one operator and the MMO needs to have a method for apportioning the monitoring costs. Once in force, the order will increase the MMO’s income from marine licensing by about £600,000 a year. In the overall context, that sum of money may not appear huge but, in the context of the MMO’s budget of about £28 million and the focus on costs, it will make an important difference.

We have consulted on these proposals. As explained in the explanatory document accompanying this order, most respondents agreed with the overall principle and the need to recover costs. However, there were inevitably some concerns about the potential burden of regulation and the need for transparency and consistency in charging. We and the MMO are sensitive to the pressures on marine businesses and other users and have worked hard to remove unnecessary regulation and make the system work as efficiently as possible. This has included exempting low-risk activities, the use of longer licences for activities such as dredging and disposal, fast-track licensing for simple straightforward applications and the introduction of a coastal concordat to improve co-ordination of the consenting process for coastal developments in England.

I am grateful to the Secondary Legislation Scrutiny Committee for clearing the draft order within the 40-day affirmative procedure. In its consideration of the order, the committee agreed with the Government that in the longer term it will be desirable to rectify the deficiency in charging powers through an amendment to the Marine and Coastal Access Act. My department will continue to look for a suitable opportunity to do so in the future.

In summary, the Government consider that the approach set out in this order will provide a fair means of charging, a modest saving to taxpayers and an essential support to the MMO’s efforts in safeguarding the marine environment. To this end, I commend the order to the Committee.

[Lord Greenway (CB)]

My Lords, I thank the Minister for his explanation of the order, which I very much welcome. I chaired the joint pre-legislative scrutiny committee on the Marine and Coastal Access Bill. One of the concerns of the committee was the funding of the Marine Management Organisation. That was reinforced during the passage of the Bill through this House. As the Minister said, the Marine Management Organisation is still somewhat underfunded. This is especially so since Defra’s budget was cut. I think that what is proposed here is really a variation on the “user pays” principle. It is absolutely right that the MMO should be able to recover the full costs of varying or monitoring marine licences. In my opinion, the measure is very much to be welcomed. I think the Minister said that the MMO will gain to the tune of £600,000 a year and the taxpayer will be saved from paying that amount.

[Lord Grantchester (Lab)]

I thank the Minister for his explanation of the ordering. From these Benches, I am happy to approve of the measure. The Marine Management Organisation is a relatively new organisation set up by the previous Labour Government under the Marine and Coastal Access Act 2009. It was set up with cross-party support, and it is encouraging that it still receives that support.

We continue with our support for this order to allow the MMO to move towards full cost recovery in relation to the activities it undertakes. The old licensing system under Part 2 of the Food and Environment Protection Act 1985 was insufficient in a number of ways to allow cost recovery. It is therefore regrettable that, under the charging powers of the Marine and Coastal Access Act, monitoring costs, especially for dredging, are still not fully recoverable. While powers under the Public Bodies Act are being used to move more quickly towards full cost recovery, I join with the Secondary Legislation Scrutiny Committee in considering that it would be desirable that Defra remedies the situation through an amendment to the MCAA 2009 at an early opportunity.

I also recognise that the MMO has undertaken a review of activities and moved quickly to reduce unnecessary burdens and costs on businesses and other marine users by increasing the number of exempt activities, expanding the use of longer licences and other efficiency measures. Further improvements will be encouraged through the organisation’s stakeholder forum group, customer satisfaction surveys and key performance indicators.

Can the Minister clarify further, however, how the MMO will operate in relation to establishing an ambitious, ecologically coherent and well managed network of marine protection areas, which was also part of the MCCA 2009? Can he confirm that the MMO will be involved under the power to designate marine conservation zones in UK waters? What assessment have the Government made to allow the MMO to move towards full cost recovery in the activity on designation and regulation of the planned marine coastal zones? An independent science advisory panel concluded that 120 sites would contribute to an ecologically coherent network of marine protected areas, and that this network would need to be strengthened. However, in November 2013, the Government designated just 27 zones, covering 8,000 square kilometres of offshore waters and around 2,000 square kilometres of inshore waters. Will these cost recovery powers allow more sites to be designated and monitored at an earlier date—that is, much sooner—following further site-specific conservation advice?

Finally, I ask the Minister whether, under the regulations for fee ceilings, which will limit the cost to smaller-scale projects for small businesses, the cost met by the public subsidy will have a cap attached. If so, at what level will it be and how will it work? With those few comments, I am content to support the order.

[Lord De Mauley]

My Lords, I thank noble Lords for their comments on the order—in particular those of the noble Lord, Lord Greenway, which were helpful.

Noble Lords know that we are committed to achieving a sustainable marine economy, which means, among other things, having an effective system for managing activities taking place in our seas. The marine planning and licensing systems are operated by the Marine Management Organisation and are key to that. In setting up the MMO, the Government have been keen to ensure that it can operate effectively and efficiently, and it needs to have the right people and resources to act as a modern enabling regulator. This means working to find solutions that enable sustainable growth to take place while protecting and enhancing the marine environment. It also means recovering the reasonable costs that it incurs in licensing.

Noble Lords referred to the views of the Secondary Legislation Scrutiny Committee. As I said, the committee has agreed with the Government that, in the longer term, it will be desirable to rectify the deficiency in charging powers through an amendment to the Marine and Coastal Access Act, and we will continue to look for a suitable opportunity to do that.

The noble Lord, Lord Grantchester, asked a number of questions, partly around MPAs. As he said, we have announced an initial 27. The MMO will be involved in meeting the objectives on marine conservation zones; for example, through marine plans and licensing. We intend to designate further sites and will make a decision on them early next year.

The noble Lord’s other questions centred on capping of fees. Costs will be met by public subsidy, which we will be able to manage through careful case management and efficiencies. If I have missed anything in that answer, I will write to the noble Lord, but I hope that he will accept it.

Approval of the order will enable the MMO to recover the cost of regulatory activities that it cannot currently charge for. As I have said, this change will result in a saving of about £600,000 annually to taxpayers. Despite that not being a huge sum of money, it will make a big difference to the MMO’s finances in these straitened times and is essential to delivering and maintaining a high-quality service. I thank noble Lords for their contributions.

Motion agreed.

Rural Economy

Lord De Mauley Excerpts

Thursday 3rd July 2014 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, I thank my noble friend Lord Shrewsbury for bringing forward this important debate and all noble Lords who have spoken for their contributions. I start by declaring my interests. I have a farm and forestry interests. I benefit from the common agricultural policy and I have a minority interest in a commercially operated lake.

Rural growth and investment is hugely important and it is an area on which we place a strong emphasis. Helping rural businesses to unlock their potential to thrive and grow sustainably is one of my department’s four strategic priorities. Almost all noble Lords who have contributed to this debate have spoken about broadband. The rollout of broadband to rural communities is a challenge and it is one of our most important tasks. It has the potential to transform rural areas, bridging the age-old gap between rural and urban areas.

We are currently investing £790 million across the country with a key focus on rural areas. Government allocations must be matched locally, so the total available should be double that figure. Under the current £530 million rollout programme, more than 20,000 homes and businesses per week are gaining access, which will rise to 40,000 per week over the summer. Projections suggest that we will reach 90% superfast coverage in early 2016 and £250 million of funding will extend superfast broadband coverage to 95% of the United Kingdom by 2017. Meanwhile, we are continuing to explore with the industry how to reach 99% superfast coverage by 2018—whether fixed, wireless or 4G. Continuing on the communication theme, we are investing up to £150 million through BDUK’s mobile infrastructure project to build new masts for areas where there is currently no coverage. I hope that my noble friend Lord Courtown, with his particular point on the road between Cirencester and Lechlade, will benefit from that. Competition between operators is also driving what is expected to be the fastest rollout of 4G networks in Europe, following the successful auction by Ofcom of 4G radio spectrum last year.

Promoting strong rural economic growth is something we can and will prioritise through the Rural Development Programme for England. Our objectives will be building knowledge and skills, about which several noble Lords have spoken; funding new and developing micro, small and medium-sized rural businesses, to which several noble Lords referred; and funding small-scale renewables and, of course, broadband. The growth programme, working with the grain of the investment strategies developed by local enterprise partnerships, is expected to generate about 8,500 jobs across England. I thank the right reverend Prelate the Bishop of Oxford, in whose diocese I live, for drawing our attention to the pilot rural growth networks in five rural locations across England. We are looking carefully at the challenges to rural businesses, such as a shortage of work premises, slow internet connectivity, fragmented business networks, competitiveness, skills, and support for micro-enterprises.

[Baroness Royall of Blaisdon]

Before the Minister moves away from broadband, may I ask him what speed broadband will be throughout rural England?

[Lord De Mauley]

The noble Baroness may ask, but I will have to write to her with the details. These pilots are expected to create up to 3,000 new jobs and support up to 700 new businesses. We will share what the RGNs learn with other local enterprise partnerships and local authorities. Moving to another of the points raised by the right reverend Prelate, as we move into the new LEADER approach, we have looked to ensure that 70% of projects directly support the rural economy and indeed all of them must make a positive contribution to the rural economy.

Another hugely important investment area is farming and food. In answer to my noble friend Lord Plumb, we aim to remove 350 regulations and improve 428 others as part of our Red Tape Challenge. Of course, the Government cannot and should not do everything, but they can and should set the conditions for growth. We are making Defra’s and its agencies’ guidance simpler, quicker and clearer, with an ambition to reduce the volume by more than 80% by March 2015.

It is so important that we support British farmers by freeing them up and investing carefully in their future. The UK has a world-class research base, to which my noble friend Lord Arran and the noble Lord, Lord Trees, referred, with an impressive track record. My noble friend is right that we have not paid it enough attention. We are investing £160 million in our agritech strategy to improve the United Kingdom’s global competitiveness. We have great research and great farmers, but we have not been so good at moving the results of the research on to farms, and that is what this is about. It is about improving yields and competitiveness, tackling pests, diseases and climate change, and improving our environment.

As my right honourable friend the Secretary of State demonstrated this week during his visit to the United States, being a prominent G7 member does not stop us taking every opportunity to promote fantastic UK produce, such as haggis, and of course the huge range of other products which we have also been promoting in places such as China and across the Far East. I mention haggis because it is a terrific example of why we are better together.

The increasing demand of UK consumers for British food and drink is a huge opportunity for us. We are working with farmers, manufacturers and retailers to capitalise on this. My noble friend Lord Plumb raised the common agricultural policy, with some criticism of its complication. We are implementing the new CAP in England in a way that seeks to minimise the burdens on farmers and the risks of fines from the EU, while delivering value for taxpayers and improving our natural environment. We have made the greening rules as flexible and simple as we can for farmers to meet so that they can concentrate on producing food and helping to grow the economy. We have also cut the number of cross-compliance measures that they have to meet to reduce the burden on them while still maintaining important environmental protections. Our decisions follow extensive engagement with stakeholders on our approach to implementation and a major public consultation.

We are delivering a new IT service to support delivery of the new CAP, and from 2015 applicants for CAP funding will use a single system that is being developed with input from them and is key in our drive to ease the burdens on them. We are also providing regular information and updates on how the new CAP schemes will work in England so that claimants and stakeholders know what they need to do to make claims.

My noble friend Lord Shrewsbury and the noble Baroness, Lady Royall, referred to protected landscapes, which benefit the wider economy by providing attractive places to live, visit and enjoy, and by delivering essential ecosystem services on which the wider economy depends. There are 90 million visitors to national parks and their surrounding areas each year, who spend more than £4 billion—a third of the total rural tourism spend—which supports 68,000 jobs. In order to help our rural communities grow and prosper, we expect national parks and other planning authorities to take a positive and proactive approach to sustainable development, balancing the protection of the landscape with the social and economic well-being of the area. Tourism has been a key driver of the economic recovery. My noble friend Lady Bakewell is right but I think she would agree that the sector displays strong growth potential, with this trend set to continue.

Last week, I was in the Isle of Wight and saw a project similar to those referred to by my noble friend Lord Cavendish. In the Isle of Wight, the Wight Marque has been launched, which local businesses are enthusiastic about and which reflects a trend around the country where businesses are capitalising on an increasing appetite for local produce.

My noble friend Lord Shrewsbury referred to post offices. The network transformation programme is not suitable for about 3,000 of them. They predominately serve small, often remote rural communities. Many are the last shop in the village: he is right. The updated network transformation programme provides for the first time a £20 million investment fund allocated specifically to this part of the network. He and my noble friend Lord Plumb raised the issue of rural crime. Both police recorded crime statistics and the results of the Crime Survey for England and Wales show that the crime rate in rural areas is lower than that in urban areas for all crime types captured. But we must not be complacent. The noble Lord, Lord Cameron, held a meeting with my noble friend Lord Taylor on 24 June. It was a positive meeting bringing together the Home Office and Defra, and both; our departments committed to work together on, for example, the police allocation formula, which is currently being reviewed.

Several noble Lords referred to the important issue of affordable housing. It is a complex problem to which we are devoting close attention. It is an extremely important point. We have ensured that rural communities benefit from the affordable homes programme. In 2011-12 half the affordable homes built outside London were in rural areas. The Government have delivered more than 5,000 affordable homes in the smallest rural communities in the first two years of the current programme to ensure that affordable homes can be provided in these smaller rural settlements. We support rural exception sites, which are small sites used for affordable housing in perpetuity where sites would not normally be used for housing. Since April, the rules on permitted development have given farmers more flexibility regarding development of redundant farm buildings.

The noble Lord, Lord Cameron, and the noble Baroness, Lady Royall, referred to the spare room subsidy. As a result of Defra’s RCPU rural proofing, the Department for Work and Pensions has reviewed the discretionary housing fund and announced a package of £35 million of additional in-year funding for local authorities, including additional support to those affected in the 21 least densely populated areas of the United Kingdom.

Several noble Lords spoke about skills. While farming is not the only rural employer, it is an example of one. The future agricultural workforce is a vital part of meeting the challenge of global food security. We want to ensure that agriculture attracts entrepreneurial, talented new entrants who can rise to the challenges and the exciting opportunities that will occur in the sector in the coming years. I welcome the work that the farming industry does to attract new entrants and to promote farming as a rewarding career. We are currently addressing a number of the findings of the Future of Farming review, on which industry and government worked together, to look strategically at the opportunities and barriers encountered by those making a career in farming.

My noble friends Lady Bakewell and Lord Courtown and the noble Lord, Lord Cameron, referred to transport in rural areas. The Government recognise the importance of public transport for both the sustainability of rural communities and the lives of those who live there. Affordable and reliable transport enables people in rural areas to access services, to be economically active, and to avoid isolation. My department works closely with the Department for Transport to understand the specific problems and impacts of its policies on rural communities. If we can resolve the broadband problems, that will also make a major contribution to communication more generally.

My noble friend Lady Bakewell referred to the results of the recent flooding in the south-west. On 1 March, the Department for Culture, Media and Sport announced a package of support for tourism businesses in flood-affected areas. Some 755 tourism businesses received support—such as in business advice, drop-in clinics and local workshops. My department has made a £10 million fund available to help farm businesses affected by recent flooding across England.

My noble friends Lord Shrewsbury and Lord Cavendish referred to tax. This area is kept under constant review. Noble Lords will accept that HM Treasury’s key focus has to be on deficit reduction and any requests for reliefs and reductions need to be compellingly argued. I shall pass on the comments of my noble friends.

My noble friend Lord Shrewsbury spoke about the rural economic benefits of shooting. I saw a remarkable project this week on the Arundel estate of the noble Duke, the Duke of Norfolk, where the biodiversity benefits of what they are doing there are very clear.

The noble Baroness, Lady Royall, spoke about food banks. We know that some of the poorest families are really struggling to afford to feed themselves. While it is not the role of the Government to control the price of food, the impact of food price inflation is a real concern. Through Healthy Start, the Government provide a nutritional safety net, in a way that encourages healthy eating, to more than half a million pregnant women and to children under four years of age in very low-income and disadvantaged families throughout the UK.

Noble Lords know that we are reforming the welfare system. We recognise the important contribution organisations such as FareShare, FoodCycle and many other food charities and food banks are making by working locally to provide good food to those who need it most. It is worth saying that year-on-year food prices have fallen for the first time since 2006. In fact, prices went down by 0.6% in the year to May 2014.

The right reverend Prelate the Bishop of Oxford made some important points about small rural schools. The Department for Education has reformed the school funding system so that it is fairer, more consistent and transparent and so that the funding intended for education reaches the schools and the pupils that need it most. That department recognises that small rural schools have specific needs and has incorporated measures to address these, including adopting new measurements to capture pockets of rural deprivation and to introduce a sparsity factor within the funding formula.

The noble Lords, Lord Curry and Lord Cameron, spoke of rural-proofing government policy. I thank the noble Lord, Lord Cameron, and his review team, including the noble Lord, Lord Curry, for their ongoing support for the rural-proofing implementation review. We are committed to ensuring that all policies take proper account of rural needs and interests. We will be open and transparent about our record on rural-proofing. That is why we set out in the rural statement a commitment to an independent review of our rural-proofing activity. I am grateful to the noble Lord, Lord Cameron, and his team, who have held ministerial-level review meetings with DWP, DECC, DfT, DCMS, DCLG, BIS, the Home Office and the Department of Health to explore what actions they have taken to rural-proof their policies and programmes. That review will report to Defra Ministers in the autumn.

I hope that that will leave your Lordships under no illusion: rural-proofing is an area that we champion strongly across government. Of course, there is much to be done, but I believe that we are making genuine progress.

Thames Tideway Tunnel

Lord De Mauley Excerpts

Wednesday 14th May 2014 Lords Chamber

[Lord Berkeley]

To ask Her Majesty’s Government whether they have discussed with Thames Water the additional annual charge to its customers to fund the development and construction of the Thames Tideway Tunnel and the duration of this charge.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, the Government have indeed been working closely with both Ofwat and Thames Water to ensure that the Thames tideway tunnel is delivered in a way which minimises the impact for customers and taxpayers.

[Lord Berkeley (Lab)]

I am grateful to the Minister for that Answer. Will he confirm that the latest figure for how much it will cost all Thames Water’s customers—from Swindon to Witney, and Newbury to London—is about £70 or £80 per year extra for the next 50 years? Is that reasonable, given the fact that the tunnel may become redundant in 20 years because of the Government’s own Flood and Water Management Act and the requirement for sustainable urban drainage systems? Is not the best thing now to abandon the tunnel completely and save all this taxpayer and government money?

[Lord De Mauley]

My Lords, of course not. Government estimates at 2011 prices were for a maximum bill impact range of between £70 and £80 per year. These figures remain valid as an upper bound and would take Thames Water customers’ sewerage bills to around the national average. The construction costs are currently out to tender with consortia of contractors. We also consulted last December on a competitive procurement approach for the financing costs, although no decision has yet been made.

[Lord Smith of Finsbury (Non-Afl)]

My Lords, the Minister will know that the Thames tideway tunnel is robustly supported by the Environment Agency, which I chair, and by the Mayor of London. It was also supported by a range of voices in your Lordships’ House when we last discussed the matter. Unhappily, cost and disruption will be involved, but does the Minister not agree that this is the only practical way of ensuring that we do not continue to discharge raw sewage into the Thames at least 50 times a year and of bringing an outdated Victorian drainage system, on which this city sits, up to the modern age?

--- Later in debate ---

[Lord De Mauley]

My Lords, yes. I am grateful to the noble Lord, not only for his question but for the very valuable work that he does, which we all know about. We are required to have a collecting and treatment system for London. Exceptions on grounds of cost have to be truly exceptional, and this project does not qualify as exceptional. The environmental standards that have been set are equivalent to those in other tidal estuaries. I am therefore confident that the tunnel is the right solution for London, and the only solution compliant with the urban wastewater treatment directive. However, I assure noble Lords that we remain completely focused on keeping costs to a minimum.

[Baroness Parminter (LD)]

My Lords, the Government have offered contingent financial support for exceptional risks on this project. Following discussions with Infrastructure UK, Thames Water and Ofwat, is the Minister in a position to say what those exceptional risks and the potential cost to the taxpayer are?

[Lord De Mauley]

My Lords, we are still working on that, but I thank my noble friend for the opportunity to say that independent financial advisers have confirmed that no water company—whatever its financial structure—would have been able to access sufficient finance at an acceptable cost for such an exceptionally large and complex project without some contingent support from government. It is important that, when offering contingent support, taxpayers’ interests remain a top priority and that the taxpayer is appropriately protected by measures that minimise the likelihood of these exceptional risks.

[Lord Campbell-Savours (Lab)]

My Lords, have the Government made concessions to the green environmental movement, which has, throughout the country, opposed the construction of this tunnel and come up with alternative solutions? Have any compromises been made with what it wants?

[Lord De Mauley]

My Lords, going back to the initial point made by the noble Lord, Lord Berkeley, who talked a bit about green infrastructure and science, we should not lose sight of the fact that these are important tools that will be used, but we cannot manage without the tunnel. In addition to the Environment Agency, a key supporter of the tunnel is a group called Thames Tunnel Now, which describes itself as a coalition of environmental, wildlife and amenity groups promoting the case for the tunnel. Its supporters include key groups such as RSPB, WWF, the London Wildlife Trust, and the Angling Trust.

[The Earl of Courtown (Con)]

My Lords, would my noble friend agree that in the past there has been some criticism of civil servants’ management of such contracts? I was wondering what will happen in the future, and what my noble friend aims to do to ensure that such contracts will now be managed in a professional manner.

[Lord De Mauley]

My Lords, I am pleased to say that an early initiative of this Government was to enhance our Civil Service’s ability to lead large projects, and indeed to render that ability on a level with the best of the private sector. We set up the Major Projects Leadership Academy, which is run by the Saïd Business School. I met Defra graduates and those undergoing the course there on Monday this week, and an impressive bunch they are.

[Lord Grantchester (Lab)]

Given the cost of living crisis, Ofwat rightly rejected Thames Water’s application to increase bills further. Given that Thames Water paid out £2.2 billion in dividends over the past six years and pays little or no corporation tax, what leadership are the Government showing to ensure the right vehicle for financing, managing and delivering the project is put in place, and that it will be subject to parliamentary oversight?

[Lord De Mauley]

My Lords, there is quite a lot in that question, but I should say to the noble Lord that Labour harps on about the cost of living, yet its own policies—spending commitments totalling £27.9 billion since 3 June last year, unworkable energy policies and increased borrowing—would increase it.

[Lord Hylton (CB)]

My Lords, when tenders are received, will the Government consider whether storm water and grey water can be separated, thus requiring a shorter tunnel and reduced charges?

[Lord De Mauley]

We have thought very carefully about that, my Lords, and we have concluded that it would be more expensive. However, as I said, green infrastructure and SUDS solutions are part of the long-term solution.

[Baroness Farrington of Ribbleton (Lab)]

My Lords, why did the Minister fail to answer the question put by my noble friend Lord Grantchester?

[Lord De Mauley]

My Lords, because there probably would not be time to do it justice. However, I assure noble Lords that the question of how we structure this project is complicated and we are being extremely careful about it.

[Lord Kennedy of Southwark (Lab)]

My Lords, can the noble Lord tell us a bit more about the consultation that has taken place with local residents affected by the route? Many people in the city are very unhappy about what is going on. He mentioned Ofwat and Thames Water. Not enough is being done there and people are very unhappy about this.

[Lord De Mauley]

My Lords, we are acutely conscious of the impact of the tunnel’s construction on local communities and on the tunnel’s surroundings. Local authorities and the public had the opportunity to make their views known during the Planning Inspectorate’s examination of Thames Water’s planning application. The Planning Inspectorate will take all views into account and make a recommendation to Ministers in June. Ministers are expected to make a final decision in September. However, because Ministers have a quasi-judicial role in the planning process, I am sure that noble Lords would not expect me to comment further.

Draft Public Bodies (Abolition of the Committee on Agricultural Valuation) Order 2014

Lord De Mauley Excerpts

Wednesday 9th April 2014 Lords Chamber

Moved by

[Lord De Mauley]

That the draft order laid before the House on 6 February be approved.

Relevant documents: 34th Report from the Secondary Legislation Scrutiny Committee, 22nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 7 April.

Motion agreed.

Japanese Knotweed

Lord De Mauley Excerpts

Wednesday 9th April 2014 Lords Chamber

[Baroness Sharples]

To ask Her Majesty’s Government what progress is being made in eliminating Japanese knotweed from the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, we are in the fourth year of the controlled release of the psyllid Aphalara itadori as a means of controlling Japanese knotweed. No non-target impacts have been observed by the monitoring programme but, as yet, the organism has had difficulty establishing self-sustaining populations. This year, therefore, we will conduct caged trials releasing larger numbers to establish higher population densities.

[Baroness Sharples (Con)]

Will my noble friend agree to holding a publicity campaign so that this plant can be easily recognised, especially by landowners and, even more importantly, by people seeking to buy a house with land, because in some cases they are being refused a mortgage?

[Lord De Mauley]

My Lords, in returning regularly to this question, my noble friend is almost as persistent as the weed itself. I am not sure whether she is a hardy annual or a perennial. We need to spread public awareness of a number of non-native species including, of course, Japanese knotweed. The website nonnativespecies.org is our central point. Other awareness-raising measures include nearly 70 identification sheets, including one for Japanese knotweed, the Environment Agency’s PlantTracker mobile device app, which I recommend to your Lordships, non-native species local action groups, and the Be Plant Wise and Check, Clean Dry campaigns, which target aquatic security and non-native species more generally. Awareness-raising is a key focus of our current review of the GB strategy on invasive non-native species.

My noble friend mentioned mortgages. Two years ago, the Royal Institution of Chartered Surveyors and the Council of Mortgage Lenders agreed that a less draconian approach was needed.

[Lord Dubs (Lab)]

My Lords, while we are awaiting the result of those trials—four years is a long time—can we not have some action for those people who have knotweed on their neighbours’ land? I have not got any on mine, but my neighbours have. Can we at least persuade local authorities—without legislation—to be more co-operative with local people? My local authority will not co-operate at all: it will give me no information and is quite unhelpful. I know that some are better than that. How about leaning on local authorities?

[Lord De Mauley]

That is a subject which I have been thinking about very carefully. It is quite interesting that the community protection notices under the new Anti-social Behaviour, Crime and Policing Act are potentially useful in this regard and we have to look carefully at them, as is the community trigger, which we should also look into.

[Lord Greaves (LD)]

My Lords, I, too, congratulate the noble Baroness, Lady Sharples, on her persistence in this matter. It has been going on for as long as I have been in this House, which is probably too long now—or certainly too long for my own good, anyway. I would not, however, describe my noble friend as invasive or, to use the Royal Horticultural Society’s description of knotweed, as a real thug. Her question was: what progress is being made on getting rid of it? The answer is that there is none; it is getting more and more widespread. Is it not the case that the time has come when allowing this invasive, alien weed to grow on your land should be an offence?

[Lord De Mauley]

I should say to my noble friend that Aphalara itadori is not planned to eradicate knotweed but is part of a programme on how to manage it. We have got to a stage where it is here—and we should acknowledge that fact—but we should manage it. There are other tools that can be used in this matter. In fact, when my noble friend Lady Sharples asked the same Question last year, she referred to the use of an herbicide which can be effective. My noble friend Lord Greaves referred to more pressure on landlords. It would be disproportionate, and possibly unfair, to impose very strong conditions on landowners because, apart from anything else, this weed can arrive on their land through no fault of their own. However, farmers receiving the single farm payment are required to take reasonable steps to prevent its spread.

[Lord Clark of Windermere (Lab)]

The Minister is absolutely right to try to pursue this pernicious weed as much as possible but there is a belief that, in a restricted sense, persistent application of the herbicide to which he referred will actually be quite effective in killing it, in a limited state. Is there any way of doing some emergency research on those one or two herbicides and to try to publicise that? It would remove a lot of difficulties for many people who are trying to sell houses and clean up their land.

[Lord De Mauley]

It is a difficult one but the answer to that question is that the herbicide which the noble Lord and I are talking about is effective if used persistently, as he says, so I do not think that further research is needed. The question is the extent to which we want to spray around quite powerful pesticides. That is why I suggest to your Lordships that things such as biocontrol are also very valuable.

[Lord Elis-Thomas (PC)]

My Lords, the Minister will be well aware that invasive species of this kind are no respecters of boundaries, whether political or otherwise. Can he therefore assure the House that the UK Government will take a positive attitude towards the oncoming European Union regulations in these matters, which are being discussed in the European Union even at this moment?

[Lord De Mauley]

Yes, my Lords. Indeed, the regulation has now been approved by COREPER and the European Parliament’s environment committee. It has also now cleared the scrutiny committees of both the House of Commons and your Lordships’ House. I understand that the regulation will now be presented to the European Parliament’s plenary session on 16 April. If approved there, the regulation will be presented to the next suitable Council meeting and should then come into force on 1 January next year.

[Lord Davies of Oldham (Lab)]

My Lords, can the Minister assure the House that he views this with a proper sense of urgency? A recent survey has said that there is not six square miles of land in this country which is not infected with this weed. In Swansea, they have calculated that they have 62,000 tonnes of it to get rid of. It is clear that this is a major problem. The effect upon Network Rail and the railway system is absolutely dramatic. We want the Minister to demonstrate a real sense of urgency on this issue.

[Lord De Mauley]

I am sorry if the noble Lord thinks that I am not. He is right about the effects. He specifically mentioned Network Rail, which is a member of the project consortium for the natural control of Japanese knotweed, and it is fully involved in our discussions about how the trial proceeds. It has been a major funder of the research and was among the instigators of the project. If it would meet with noble Lords’ approval, I would like to offer a briefing session to those who are interested on our approach generally to invasive non-native species.

Water Bill

Lord De Mauley Excerpts

Tuesday 8th April 2014 Lords Chamber

Moved by

[Lord De Mauley]

1: After Clause 41, insert the following new Clause—
“Chapter 3ARetail exit: non-household premisesRetail exit: non-household premises
(1) The Secretary of State may by regulations (“exit regulations”)—
(a) make provision for a relevant undertaker whose area is wholly or mainly in England to apply to withdraw from the non-household retail market in relation to that area;(b) make provision about the determination of an application under paragraph (a) (an “exit application”),(c) make provision for and in connection with the transfer of so much of a relevant undertaker’s undertaking as relates to the non-household retail market to an eligible licensee or licensees, and(d) make provision about the operation of the water industry in relation to an area in respect of which an exit application has been granted (a “retail exit area”).(2) Provision under subsection (1)(a) may require a company that is a water undertaker and a sewerage undertaker to make an exit application that relates both to its functions as a water undertaker and to its functions as a sewerage undertaker, subject to such exceptions as exit regulations may specify.
(3) Exit regulations may include provision for protecting customers affected by a relevant undertaker’s withdrawal from the non-household retail market.
(4) For the purposes of this Chapter—
(a) a reference to a water undertaker withdrawing from the non-household retail market in relation to an area is a reference to a water undertaker ceasing, in relation to that area, to exercise such functions relating to the supply of water to non-household premises as are specified in exit regulations, and(b) a reference to a sewerage undertaker withdrawing from the non-household retail market in relation to an area is a reference to a sewerage undertaker ceasing, in relation to that area, to exercise such functions relating to the provision of sewerage services in respect of non-household premises (including trade effluent functions) as are specified in exit regulations;and a reference to the non-household retail market is to be construed accordingly.(5) Exit regulations may—
(a) prohibit a water undertaker from exercising, in relation to a retail exit area, such functions relating to the supply of water to non-household premises as are specified in the regulations;(b) prohibit a sewerage undertaker from exercising, in relation to a retail exit area, such functions relating to the provision of sewerage services in respect of non-household premises (including trade effluent functions) as are specified in the regulations.”

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, government Amendments 1 to 12 and 18 address the subject of retail exits. The question of whether an incumbent water company should be able to exit the market for retail services to non-household customers has been discussed at all stages of the passage of the Bill through your Lordships’ House and another place. Most recently, it was raised in debate on amendments tabled by my noble friend Lord Moynihan and the noble Lords, Lord Whitty and Lord Grantchester, at Report.

Having listened extremely carefully to the thoughtful and well informed contributions to the debate on retail exits, I undertook to consider the matter further, with the aim of bringing back government amendments to respond to the views of the House. The proposed new clauses are intended to do just that.

The attached provisions reflect the key policy objectives of the previous amendments on this subject. They offer incumbent water companies the option to exit voluntarily from the non-household retail market, subject to the consent of the Secretary of State. I said before that this was not a simple matter, and indeed it is not. Enabling exit will require a number of changes to the Water Industry Act 1991—for example, to address issues around the incumbent’s duties to supply and other statutory obligations to customers.

In making this commitment, I put on the record that the only practical way of delivering this objective would be to take wide-ranging powers, and that is what the amendments seek to deliver. Although the enabling powers are, of necessity, broad, we have sought to provide as much detail of the nature of the changes to be made as possible. I recognise that your Lordships have limited time in which to undertake detailed scrutiny of these clauses. However, as I said, the broad policy has been widely discussed throughout the passage of this Bill.

Further work will be needed to consider the practical implications of exits and to develop the detailed policies that will underpin the use of these powers. Broad consultation will, therefore, be essential. Following these detailed discussions with all interested parties, there will be a further opportunity for parliamentary scrutiny under the affirmative procedure.

Several key policy issues about how an exit policy should be shaped and delivered are still to be resolved. For example, discussions in your Lordships’ House and elsewhere have mooted a number of different models for the transfer of customers from the exiting incumbent to a retail licensee. One model suggested is the transfer of customers to an associate licensee within the wider structure of a parent company. Others have suggested that incumbent companies which no longer wish to provide retail services may just want a simple route out of the retail market. Some have identified customers as an asset to be sold for profit, while others see them as a liability to be transferred. Ongoing dialogue with the industry, customers and others will be essential to inform the decisions about how exit will operate in practice. Our guiding principle must be to ensure that customers are protected and that they are no worse off as a result of the exit.

These provisions are therefore intended to provide government with the flexibility necessary to respond to the views of industry and its customers about the best way to deliver the new regulatory framework for the sector. They provide the Secretary of State with powers to put in place, through regulations, a framework which enables exits. This will entail a restructuring of the key provisions in the Water Industry Act 1991, the regulation of the industry and suppliers’ relationships with their customers.

The purpose of these provisions is to permit incumbent water or sewerage companies, with the consent of the Secretary of State, to stop providing any retail services to current or future non-household customers in their areas of appointment. The services will then be provided by one or more retail licensees. This is likely to lead to a consolidation of retail businesses. Exit will be irreversible and result in the incumbent divesting itself of some of its statutory supply duties in relation to non-household premises. However, incumbents will retain all their current responsibilities for household customers.

In summary therefore, these proposed new clauses enable the Secretary of State to make exit regulations, which would allow any incumbent water company whose area is wholly or mainly in England to apply to exit the non-household retail market for that area. The regulations may include grounds for refusing an exit application and provide for the transfer of customers to an eligible licensee. The regulations may also make provision for what happens in the area from which the company has exited after the exit has taken place. The powers make provision for the protection of both household and non-household customers affected by the exit.

Throughout the debates on this matter in both Houses, there has been a clear consensus that exit must be undertaken voluntarily. We have stated on a number of occasions that any suggestion that a provision could be used to force exit and drive legal separation of an incumbent’s retail and wholesale business risks undermining investor confidence in the sector. Amendments 7 and 9 ensure that the regulations can provide for important checks and balances as regards the conditions under which divestment and exit may, or may not, be required by the competition authorities.

We all agree that we must ensure that customers are protected. The regulations must ensure the protection of both those non-household customers that are subject to a transfer and the household customers who would remain with the incumbent. There is currently a range of statutory protections for customers in place. These are being reinforced by protections for the reformed competitive market in the Bill. For example, we are reforming the interim supply duty, or supplier of last resort, in Clauses 31 and 32. The statutory protections in the current retail market generally rest on the duties of the incumbent. These new provisions on retail exits are therefore required to enable regulations to rework the relevant statutory duties and obligations, in the event of a transfer of customers to a licensee. For example, we have provided for price regulation to be introduced for licensees, as well as regulation over the terms and conditions that they can offer to customers. We have provided for incumbent companies to be relieved of the interim supply duty, which currently requires them to serve customers when their previous supplier defaults. This role would then have to be taken up by the licensed market.

In addition, Amendments 1 to 12 and Amendment 18 enable the Secretary of State to make regulations which put in place safeguards requiring the exiting incumbent to take certain steps prior to making an application, such as, importantly, consulting its customers. The regulations may also set out the grounds on which such an application may be refused: for example, if the company could not demonstrate that exit was in the best interests of its customers. These provisions will enable us to put in place a stable and transparent framework within which exits can take place. I beg to move.

[Lord Moynihan (Con)]

My Lords, I am grateful to the Minister for providing a comprehensive solution to the issue of exit, for tabling these amendments and for his clear explanation of the Government’s intent. While the legislative drafting is more extensive than some of us had anticipated, these amendments achieve the desired effect of facilitating a clearer framework for competition. Additionally, the greater transparency on cost allocation that such a voluntary transfer mechanism brings will help to ensure that the incumbent companies are less able to adjust their cost allocations to the detriment of household customers.

This transparency is fundamental to effective economic regulation and the policing of effective markets. It will allow companies to organise their businesses in the way that they consider to be in the best interests of their shareholders and indeed their customers. Allowing exit to occur voluntarily, as confirmed by the Minister, will allow transfer mechanisms to enable more competitive third parties to enter the non-household water and sewerage retail market to the benefit of business customers, as has proved to be the case in Scotland. Above all, as demonstrated by both Oxera and Macquarie, exit will save customers unnecessary cost.

I am very grateful to the Government for confirming today that they will now consult fully on safeguards, consulting particularly with those who represent the interests of the customers, given that the powers granted through these amendments confirm the opportunity, not the obligation, for incumbent water and sewerage companies to propose transfer schemes to the Secretary of State for his consideration.

As tabled, the amendments place a considerable degree of power in the hands of Ministers, notably to adjust the powers and duties of key industry stakeholders, including Ofwat. While this could be problematic were the powers to be used to their full extent, I am confident from what the Minister has said that there is absolutely no intention to undermine the freedom of manoeuvre of the regulator.

With the clauses soon to be in the Bill, I hope, it will be important to enter into constructive discussion and engagement in order to consult widely and urgently to meet what I hope will be the reasonable deadline of market opening in 2017. I also agree with noble Lords who emphasised at an earlier stage that it is also very important to secure customer protection on retail exit.

I hope that the amendments will be welcomed on all sides of the House and by all those who have taken part in the debates over exit, with the request that the Government will give a firm and unequivocal commitment to using their new powers to facilitate efficient and orderly market entry and exit. If so, the benefits will be considerable for business customers. Once this House, in future legislation, has the opportunity to review the working of the market for business customers, I hope that it will not subsequently hesitate to move forward to deliver competition to the household sector as well.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I would briefly like to intervene, first to thank the Minister for the efforts that he has made to address concerns and to make these amendments this afternoon. The Bill is hugely complex and the amendments are extensive, as my noble friend Lord Moynihan put it so succinctly. However, I feel that these provisions will add more complexity. So it is all the more important that the Minister confirms the plans that I know that Open Water has to summarise all the many regulatory provisions on water in the Bill and elsewhere, in order that customers, entrants, companies and investors can understand the complex web of rules and subordinate legislation that is planned, providing a force for simplicity. I believe that the good sense of our administrators is the key thing here and that is actually more important than to bring in a special new procedure. I support the amendments that the Government have made.

[Lord De Mauley]

My Lords, I thank all noble Lords for their contribution to this debate. I have listened to them extremely carefully. I thank my noble friend Lord Moynihan for welcoming the changes that we are making to the Bill to enable incumbent water companies to exit the non-household market for retail services. I thank the noble Lord, Lord Whitty, as well, for his comments in that regard.

I thank, too, the noble Lord, Lord Haskel, for his intervention, and I hope that he understands that I thought it best to allow my noble friend Lady Parminter to explain her amendment before I addressed the question that he raised. Before I get into that question, I address the question raised by my noble friend Lady Neville-Rolfe. She raised a very valid point about the additional levels of complexity added by the retail exit provisions. The noble Baroness also raised the issue of bureaucracy. Indeed, she has done so throughout the course of the Bill and has worked tirelessly on the subject. I strongly agree with her on that matter. In that regard, I highlight the work that Open Water is doing in presenting water regulation in guidance and online. It is presenting the information in a way that helps customers, entrance companies and investors to understand the sector, and which meets their particular information requirements.

These proposed new clauses set out, in as much detail as possible, the basis on which we will establish regulations to enable exits. We will now need to move from the high-level, in-principle statements regarding the case for exits to tackle the detailed, practical implications for companies and their customers. In doing this, we will need to consult widely. We will also provide further opportunity for parliamentary scrutiny through the draft affirmative procedure.

I think that all noble Lords who have spoken in this short debate have commented on the breadth of these powers. On Report, I put on record our view that the only practical way of responding to the will of the House on this matter would be to take a very wide-ranging power.

The question of whether to allow exits has been discussed at all stages during the passage of the Bill in both Houses. The overall policy of retail exits has been discussed at length. Powerful speeches from my noble friends Lord Moynihan and Lord Selborne, the noble Lord, Lord Whitty, and others demonstrated the strength of feeling in this House about the matter. I have tabled the amendments before us today in response to that pressure.

Throughout our debates on this subject there has been a broad consensus that we should allow for retail exits in such a way as to meet three important criteria: they must be for non-household customers; they must be undertaken voluntarily; and they must ensure the ongoing protection of customers. This is what the amendments do. The breadth of these powers is, unfortunately, unavoidable in this case. The debates in your Lordships’ House have ably set out the high-level principles in support of the case for retail exit. Nevertheless, further detailed work is required to address the practical implications of this change.

A number of changes will be required to the Water Industry Act 1991 and the detailed thinking has yet to be done by any of the interested parties on what these might be, what would be involved, how the implications for customers would be managed and the type of safeguards that would be required to avoid any risk of forced exit or separation. None of these is an inconsequential issue and it is clear that substantial further consultation and engagement will be required. We will consult widely on these matters. Following this there will be a further opportunity for parliamentary scrutiny under the draft affirmative procedure.

Noble Lords have highlighted that the Delegated Powers and Regulatory Reform Committee met yesterday to consider the new retail exit powers. I apologise to the committee for the inconvenience caused to it. We are very grateful to the committee for its report. I particularly appreciate its meeting at such short notice and I welcome the important contribution that it has made to this debate. I welcome the fact that the committee does not consider the powers conferred by the proposed new clauses to be inappropriate. The focus of the committee’s concerns has been on the relatively late stage in the passage of the Bill at which these proposed new clauses have been tabled rather than on their content. The committee did, however, recommend a strengthened affirmative resolution procedure for the exit regulations on their first use.

I fully understand and sympathise with concerns that the new provisions have not received detailed scrutiny as they have been tabled at this late stage. I agree with the committee’s view that, given the permissive nature of these powers and the need for further work on the detail, extensive further engagement is required with both parliamentarians and other interested parties. Our amendments already include a consultation requirement before any regulations may be made.

I can confirm that before tabling the first exit regulations we will consult widely and that we will ensure that there are many further opportunities for all interested parties to comment, and I can be clear that the Government’s use of the powers will take account of issues raised during that consultation. I believe that this extensive and wide-ranging approach to consultation will provide the level of engagement envisaged by the committee. Consultation of this nature with industry experts is an important part of the policy development process and it reflects that used in Section 102 of the Local Transport Act 2008—the procedure to which the committee refers.

I fully accept that we need to ensure that parliamentarians are given adequate time to scrutinise the precise wording of the proposed regulations before the final draft is laid before Parliament. We will therefore commit to publishing a draft of the regulations well in advance of laying the final regulations before Parliament so that there is a real opportunity for changes to be made to address any concerns that parliamentarians may have. We will also send a copy of these indicative regulations to the Environment, Food and Rural Affairs Select Committee in the other place so that it has an opportunity to comment on our intentions.

I believe that these measures fulfil the spirit and practical implications of the enhanced affirmative processes detailed in Section 102 of the Local Transport Act. In addition to the detailed consultation, these powers will be subject to the draft affirmative resolution procedure, which means that there will be further opportunities for parliamentary scrutiny.

The use of strengthened affirmative procedures for delegated legislation is unusual, and rightly so. There must be a very strong case for the use of such a procedure. The Government have brought forward these retail exit amendments in response to the level of pressure across your Lordships’ House. The amendments seek to provide clarity as to what matters are to be within the scope of the regulations, while delivering precisely what your Lordships asked for. Exit regulations would be the subject of extensive consultation and of debate in both this House and the other place.

I agree with the committee that further scrutiny and debate on these matters are required and I am very grateful for its work in raising these important matters. Given the history of these changes and the recommendations that the committee has made with regard to future scrutiny and engagement, I should like to place on the record that my department will continue to keep all interested parties up to date with progress on this area. I have no doubt that the relevant Minister will be very happy to make themselves available to parliamentarians from both Houses for further discussions as we develop the detailed plans for use of the regulation-making powers.

As I said, I am very grateful for the work of the Delegated Powers and Regulatory Reform Committee. I will reflect on its other comments and will reply formally in due course. In particular, paragraph 6 of the committee’s most recent report, to which the noble Lord, Lord Marks, referred, focuses on the importance of protections for customers. I confirm that ensuring that the interests of all customers are fully protected will be the guiding principle that underpins this work. These protections will embrace both the household customers who will stay with the incumbent water company and the non-household customers who, in the event of an exit, will be transferred to a retail licensee.

Concern was expressed that some companies may be seeking exit as a route to short-term financial gain. During Committee, my noble friend Lord Moynihan highlighted a report published by Macquarie, a major investor in the water sector, arguing for exit. This report identifies long-term benefits for customers from greater consolidation and efficiency in the retail market. It also identifies potential financial benefits for those companies that transfer or “sell” their customers to a licensee.

The enabling powers that we have been discussing today would allow the Secretary of State to put in place a framework governing the process of transferring customers and to place appropriate boundaries on the value that may be extracted by the exiting companies and on the costs that may be passed on to customers. For example, these provisions will enable the Secretary of State to place conditions on consent to an exit application, such as profit sharing with affected customers and compliance with charging rules to ensure that transferred customers are no worse off.

--- Later in debate ---

Moved by

[Lord De Mauley]

2: After Clause 41, insert the following new Clause—
“Application for retail exit
(1) Exit regulations about exit applications must make provision requiring a relevant undertaker to apply to the Secretary of State, and may include—
(a) provision requiring a relevant undertaker to take such steps as the regulations may specify before making an application;(b) provision as to the form and manner in which an application is to be made and as to the contents of an application;(c) provision about payment to the Secretary of State of a fee of an amount specified in or determined under the regulations;(d) provision about the information that is to accompany an application;(e) provision for the Secretary of State to require a relevant undertaker to provide such further information as the Secretary of State may require in order to make a determination;(f) provision as to the grounds on which an application may be refused;(g) provision for the Secretary of State to grant an application subject to conditions.(2) Provision under subsection (1)(a) may require a relevant undertaker—
(a) to consult—(i) its non-household customers and its other customers,(ii) the WSRA,(iii) the Chief Inspector of Drinking Water,(iv) the Consumer Council for Water, and(v) any other person specified in the regulations;(b) to prepare and publish a report assessing the effect on non-household customers and other customers if the undertaker withdraws from the non-household retail market; (c) to publish notice of its proposed exit application in such manner as the regulations may specify.(3) The grounds that may be specified under subsection (1)(f) include—
(a) grounds relating to the public interest or to the interests of a section of the public;(b) grounds relating to the interests of non-household customers or other customers; (c) grounds relating to costs associated with a transfer of part of the relevant undertaker’s undertaking;(d) grounds relating to the eligible licensee or licensees to which a transfer of part of the relevant undertaker’s undertaking is proposed to be made.(4) The conditions that may be imposed under subsection (1)(g) include—
(a) conditions as to the persons who are to pay the costs associated with a transfer of a part of the relevant undertaker’s undertaking;(b) conditions as to the application of money received by the relevant undertaker in connection with a transfer of a part of its undertaking;(c) conditions about the relevant undertaker giving consent to modifications of the undertaker’s conditions of appointment;(d) conditions about an eligible licensee to which a transfer of part of the relevant undertaker’s undertaking is proposed to be made giving consent to modifications of the conditions of its water supply licence or sewerage licence;(e) conditions about the treatment of non-household customers affected by the transfer of part of the relevant undertaker’s undertaking.(5) Exit regulations may make provision about how particular descriptions of customers and premises are affected by a relevant undertaker’s withdrawal from the non-household retail market, including in particular any of the following—
(a) premises to which the supply of water has been disconnected,(b) premises that are to be demolished,(c) premises that are temporarily unoccupied,(d) premises in relation to which the owner or occupier has served notice under section 63AA of the Water Industry Act 1991 (supply by water supply licensee: domestic supply),(e) premises in relation to which the owner or occupier has served notice under section 63AB of the Water Industry Act 1991 (supply by water supply licensee: non-domestic supply), and(f) premises in relation to which the owner or occupier has served notice under section 110K of the Water Industry Act 1991 (provision by sewerage licensee).(6) Provision under subsection (5) may include provision about how exit applications deal with particular descriptions of customers and premises.
(7) Exit regulations may make provision about the disclosure by a relevant undertaker of such information as the regulations may specify about—
(a) its non-household customers, and(b) the charges payable by them (whether payable under a charges scheme under section 143 of the Water Industry Act 1991 or under an agreement).(8) Exit regulations may specify—
(a) the persons to whom the information may be disclosed;(b) the purposes for which it may be disclosed.”

--- Later in debate ---

Moved by

[Lord De Mauley]

12: After Clause 41, insert the following new Clause—
“Procedure
(1) Before making exit regulations, the Secretary of State is to consult—
(a) the Welsh Ministers;(b) the WSRA;(c) the CMA;(d) the Consumer Council for Water;(e) relevant undertakers whose areas are wholly or mainly in England;(f) water supply licensees and sewerage licensees;(g) persons whom the Secretary of State considers to represent the interests of investors in the water industry.(2) The power to make exit regulations is to be exercised by statutory instrument.
(3) A statutory instrument containing exit regulations made by the Secretary of State may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

--- Later in debate ---

[Lord Whitty]

My Lords, I can see the immediate attractiveness of the amendment but I share some of the reservations of the noble Lord, Lord Curry. If we are going to do this, we have to be more precise than the provisions in the amendment. The noble Lord rightly said that Flood Re will need a strategy for its surpluses and the limitations on the degree of cross-subsidy it can require from policyholders more generally. There will be a limit as to what is acceptable in that regard. It will also need a strategy to ensure that resilience and mitigation measures are adopted by those at the highest risk. If this amendment means that, and if it is a relatively small part of such surpluses—by which I mean a very small part—I can probably go along with it. If, however, it is as open-ended as it appears—and we know what the demands for flood mitigation as climate change and population pressures increase are likely to be—the temptation for insurance companies outside the system, the Government and the population to try to raid the Flood Re surplus for those purposes will begin to increase as well.

Despite the initial attractions, I do not think I can support the rather open-ended nature of the amendment as it stands. However, as we move forward and review the scheme, I hope that the Government and the administrators of Flood Re, along with other stakeholders, will find ways of ensuring a maximal take-up of resilience measures by those who own properties at risk and their insurance companies.

[Lord De Mauley]

My Lords, I thank my noble friend Lady Parminter and the noble Lord, Lord Krebs, for Amendment 14. I am glad to be able to return to your Lordships, having considered the proposals in more detail. As I have said previously, reserves that build up during the lifetime of Flood Re will be used primarily to pay flood claims in the bad years. It will not be easy to identify surplus funds and any decision about Flood Re’s reserves will require a judgment about the level of cover needed for the unpredictable risks it bears. Any commitment by Flood Re to spend a proportion of its reserves in a certain way, such as on betterment or resilience, would potentially increase the amount of capital it needs to hold on an ongoing basis, thereby having an impact on the cost of the scheme and ultimately the levy.

However, it is entirely right that there should be clarity on the principles regarding how surplus reserves would be dealt with, should that situation arise. This is not about small reserves that could provide one or two years’ comfort for Flood Re, but significant additional capital implying that Flood Re is excessively capitalised. It is important to recognise that this is not a situation that we anticipate occurring in the first few years of Flood Re’s life, as reserves will build up only gradually, if at all.

We have previously set out that during Flood Re’s life, we would expect the levy and eligibility thresholds to be set in such a way as to manage down excess reserves. I agree with my noble friend Lady Parminter that it should be open to Flood Re to spend some surplus money on resilience measures if it is appropriate to do so as part of its commitment to support households to prepare for risk-reflective pricing. Flood Re will have a duty to deliver value for money. One of the benefits for both households and insurers of installing property-level resilience measures is that, properly fitted, they can reduce the cost of future claims. Research suggests that for some homes, installing resilience measures can reduce the cost of subsequent flood claims by more than 70%. While we recognise that there is still work to be done to improve the evidence base, a point that the insurance industry raised in the Public Bill Committee on the Bill in the other place, I strongly agree that investment in resilience measures from whatever source could have a role to play in reducing the overall cost of claims over the lifetime of the scheme.

I recognise, too, that it would be helpful to provide greater clarity about how Flood Re will support policy- holders to prepare for transition to risk-reflective prices. We therefore propose that the secondary legislation, which will itself be subject to the affirmative procedure, will set out in more detail the points that Flood Re’s transition plan should cover, including that Flood Re could encourage and incentivise policyholders to make their properties more resilient to flooding. We will also expect Flood Re to consider in broad terms the process for managing any surplus during the lifetime of the scheme, either as part of the transition plan or in its wider governance framework. Parliament will have an important role to play in holding Flood Re to account for its use of resources and the delivery of its purpose, and its directors will be directly accountable to Parliament for that.

In relation to any reserves at the end of Flood Re’s life, as I have previously explained, Clause 71 allows the Government to require Flood Re to transfer a sum of the reserves to government, following consultation with Flood Re. It will ultimately be for the Government of the day, in consultation with Flood Re and Parliament, through affirmative resolution, to decide on the treatment of any reserves. I reassure your Lordships that there is no presumption about how reserves might be disbursed.

--- Later in debate ---

[Lord Whitty]

My Lords, I am grateful to my noble friend Lord Campbell-Savours for tabling the amendment and, more particularly, for reminding the House and the Government that at the end of Report there was still considerable confusion over inclusions and exclusions in Flood Re and, as the poignant examples that my noble friend has alluded to make clear, a considerable amount of alarm out there about the potential exclusion from insurance of leaseholders in particular but also of other groups of people who are not clear whether they are included or excluded. As the noble Earl, Lord Lytton, has just said, it is a question not just of insurance but of current and future mortgage and other loans that one can raise on the property, and it therefore has very profound effects.

As the noble Earl said, whether we need a review every year is one matter, but it is incumbent on the Government to say that we need this continually under review, and the only formal reference to review is every five years. This confusion and alarm need to be cleared up a lot sooner than in five years’ time. I hope the Minister can at least give some reassuring words to my noble friend that that will indeed be done.

[Lord De Mauley]

I thank the noble Lord, Lord Campbell-Savours, for his amendment and I thank him even more for reminding me that, in my excitement over my earlier amendments, I have so far omitted to declare my interests, and I should do so. I own a farm, through which a tributary of the River Thames runs, I have an extraction licence, a bore hole, a house which was flooded in 2007 and a minority stake in a lake. I am glad to put that on the record.

As I explained in previous debates, Flood Re will be subject to regular review. We expect these formal reviews will take place at least every five years. These formal reviews will need to consider the effectiveness of Flood Re in discharging its purpose and functions. Importantly, the reviews will also need to consider the levy and premium thresholds, particularly in relation to its capital model, which we debated in detail earlier in relation to the amendment from my noble friend.

The reviews will also need to consider Flood Re’s effectiveness in managing the transition to risk-reflective pricing over the operation of the scheme. As I said earlier, the secondary legislation will set out in more detail the points that Flood Re’s transition plan should cover. Flood Re will have to lay its accounts in Parliament on an annual basis, and its responsible officer will be directly accountable to Parliament. The Comptroller and Auditor-General will examine Flood Re’s economy, efficiency and effectiveness as well as its propriety and regularity.

It is also important to note that there is nothing to preclude the formal reviews taking place more frequently, which the noble Lord, Lord Whitty, asked me to confirm, should concerns be raised; for example, if it is seen that excessive surpluses are being built up.

I hope that it is clear that Flood Re is going to be regularly reviewed and closely scrutinised, but we need to strike a balance and, in particular, I am concerned about significant risks to the certainty and stability of Flood Re income if it is under constant review. Flood Re, the insurance industry and policyholders need to have some degree of certainty about its operation and Flood Re must be allowed to plan for transition accordingly. Insurance is a long-term business. An annual review of the scheme would be resource intensive and I am not clear what added value it would bring in addition to the current arrangements for parliamentary scrutiny.

In addition to the formal review process which will be carried out at least every five years, as I have described, both the Government and the Association of British Insurers have committed to monitoring the market for flood insurance and will publish the results of that monitoring.

[Lord Campbell-Savours]

Will the Minister ask his officials to contact the ABI and ask it, prior to our meeting, how it responds to the cases that I have brought forward of people who say that they cannot find insurance or that their insurance premiums rise five times over, or whatever? I would like to hear its response prior to the meeting.

[Lord De Mauley]

I will certainly do that. I, too, would like to hear the answer.

This ongoing monitoring will enable us to identify trends and any potential issues in the market, including in the leasehold sector, to which the noble Lord referred. We have discussed the rationale for the scope of Flood Re at length and in detail in your Lordships’ House. The design of Flood Re was guided by three principles: affordability, progressivity and fairness. We have been clear that Flood Re should not increase the cost of insurance for those at low or no flood risk so it is fair to all households. To achieve this, Flood Re will replicate the cross-subsidy that currently operates in the domestic market. The benefits of Flood Re will be targeted at lower council tax bands, where affordability is more likely to be an issue.

In previous debates, I have gone into some detail on the thought process behind the leasehold sector; if the noble Lord will forgive me, I will not reiterate those arguments. I am, as he knows, sorry to hear about the specific examples he cites. As I have said, I would be happy to speak to the ABI about the initial case to which he referred. It would be helpful to me to have some more details; perhaps we could discuss that.

The noble Lord also asked about the letter from Otto Thoresen. I am sorry that he feels that the assurances from the ABI are inadequate. We have previously asked for evidence of problems and, to date, have had nothing but anecdotal evidence. Again, however, if the noble Lord would like to share the details with me, that would be helpful and I would be happy to take the matter forward.

I have a number of notes here which deal with matters that we have dealt with at some length in earlier debates; I hope that noble Lords will forgive me if I do not simply reiterate old arguments. It might be helpful if I deal with the issue of maps, which some noble Lords have raised. It was probably the noble Lord, Lord Campbell-Savours, who asked what happens if a property is not proven to be at risk. If a home owner has evidence that the maps do not accurately reflect their level of risk, they can provide it to their lead local flood authority or the Environment Agency for review.

There was a complaint that it takes too long for the Environment Agency to update maps and then share them with insurers. The Environment Agency—and I see the chairman in his place—revises the rivers and sea flood risk maps on a quarterly basis. It is possible that some insurers do not choose to receive updates as regularly as that, which could explain the time lag that some people have experienced. It almost always pays to shop around or to contact a specialist broker to explore ways of reducing premiums. This is important: there is a competitive market in the United Kingdom which will and does help to keep prices low. From personal experience, I know that different insurers take different approaches to pricing risk, which is, as I say, why people should be encouraged to shop around. One of the benefits of Flood Re is that it enables the provision of claims data from the insurance industry to the Environment Agency to help improve risk mapping in the future.

Under the statement of principles, people had to stay with their existing insurer to benefit. Therefore, they were prevented from shopping around for the best price—something I have been going on about at some length. Once Flood Re is up and running, people will be able to shop around, with those in scope knowing the maximum they should expect to pay for the flood risk part of their premium. Insurers have estimated that only 1% to 2% of the market would expect to pay prices higher than the proposed premium thresholds which were set out in the impact assessment. These are the people who will need Flood Re. The majority of the market is expected to be covered by prices lower than those offered through Flood Re. I hope that that is helpful and that, on that basis, the noble Lord will feel able to withdraw his amendment.

[Lord Campbell-Savours]

I thank the noble Lord for his response. I do not want to detain the House. As I say, we will have to come back to these matters in the future. I hope that, in light of what the Minister said, he will be looking for further information. Those who are watching this debate on the internet might well send me their concerns about it, and I will forward them to the Minister. On that basis, I beg leave to withdraw the amendment.

--- Later in debate ---

Moved by

[Lord De Mauley]

16: Clause 55, page 111, line 3, leave out “or” and insert “and”

[Lord De Mauley]

My Lords, I have tabled four minor changes to strengthen and correct the Bill. I will run through them quickly.

Amendment 16 to Clause 55 provides certainty to the National Audit Office that, when auditing Flood Re, it is able to consider the economy, efficiency and effectiveness with which the scheme administrator has used its resources and the propriety and regularity of the scheme together and at the same time. Amendment 17 is intended to ensure that, in the unlikely event of the transfer of the scheme, employment contracts will be transferrable where they might otherwise not be. This reflects, in Clause 56, powers which are present in Clause 71(4)(a) in relation to the winding up of Flood Re at the end of its lifetime. Amendments 19 and 20 correct a numbering error in the Water Industry Act 1991. Section 12(3D) was inserted by the Enterprise and Regulatory Reform Act 2013 and unfortunately included the incorrect reference to Section 16B. Amendment 20 changes this reference to read “14B”. I will be happy to provide any further clarification if any noble Lord wishes me to do so.

I believe it is customary at this juncture to say a few words to place on record my thanks to all noble Lords who contributed to the debates on the Bill and to the hardworking officials who have laboured long over it as well. I extend special thanks to my noble friend Lady Northover for ably supporting me at the Dispatch Box and in many ways throughout the course of the Bill. I am very grateful for the detailed scrutiny the Water Bill has received from your Lordships. It leaves this House genuinely in better shape than when it arrived. I beg to move.

[Lord Mackay of Clashfern (Con)]

My Lords, Amendment 17 refers to the “pension liabilities of staff”. Does that mean the pension liabilities incurred in respect of pensions to be paid to the staff?

[Lord De Mauley]

Yes, my Lords.

[Lord Whitty]

My Lords, I thank the Minister for these amendments and for his explanation. I will not oppose any of these amendments, as he is no doubt gratified to hear. I will make two points, one of disappointment and the other of praise.

The disappointment is that among amendments brought forward by the Government at this stage are not those that relate to clarifying the position on abstraction reform and on providing some greater assurance on affordability of water bills. Whoever is in government in the next couple of years must address those two issues with some degree of urgency. It is a pity that we did not manage that in the Bill.

My praise, like the Minister’s, goes to his officials, who undoubtedly gave us a lot of information at the beginning of the Bill and put up with all our idiot child questions throughout the Bill. We made considerable progress, even today. I thank the Minister and the noble Baroness, Lady Northover, for their patience.

--- Later in debate ---

Moved by

[Lord De Mauley]

17: Clause 56, page 112, line 11, after “liabilities” insert “(whether or not otherwise capable of being transferred, and including pension liabilities of staff)”

--- Later in debate ---

Moved by

[Lord De Mauley]

18: Schedule 7, page 179, line 28, leave out “section” and insert “any of sections (Retail exit: non-household premises) to”

Public Bodies (Abolition of the Committee on Agricultural Valuation) Order 2014

Lord De Mauley Excerpts

Monday 7th April 2014 Grand Committee

Moved by

[Lord De Mauley]

That the Grand Committee do consider the Public Bodies (Abolition of the Committee on Agricultural Valuation) Order 2014.

Relevant documents: 34th Report from the Secondary Legislation Scrutiny Committee, 22nd Report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

I welcome this opportunity to introduce the order. It may be helpful if I explain why the Government have proposed to remove the Committee on Agricultural Valuation. The origins of the committee go back more than 60 years to the Agricultural Holdings Act 1948. On repeal of the 1948 Act, the committee’s existence was continued by the Agricultural Holdings Act 1986. The role of the Committee on Agricultural Valuation is to give advice to Ministers about provisions to be included in regulations on tenant-right matters and the amount of compensation for improvements to be paid to tenants at the end of an agricultural tenancy in England and Wales. Ministers are not obliged to take account of the advice of the committee.

There are no current members of the committee and the last time members were appointed was in 1990. It has not functioned for more than 20 years, hence the committee exists in legal name rather than reality. The Tenancy Reform Industry Group, known as TRIG, has provided advice to the Government on agricultural tenancy issues since 2003. TRIG is a non-statutory body, which comprises representatives of the main industry and professional organisations, such as the National Farmers’ Union, the Tenant Farmers Association, the Country Land and Business Association, the Farmers’ Union of Wales, the Central Association of Agricultural Valuers and the Royal Institution of Chartered Surveyors.

TRIG has not replaced the Committee on Agricultural Valuation and provides advice on a non-statutory basis across the range of tenancy matters, rather than just on end-of-tenancy compensation provisions. However, the existence of TRIG means that it is no longer necessary to retain the legislative provisions for the Committee on Agricultural Valuation to give specific advice on end-of-tenancy compensation matters.

As noble Lords know, the Government have made a commitment to reduce the number of unnecessary public bodies. In July 2010, my right honourable friend Caroline Spelman, then the Secretary of State for Environment, Food and Rural Affairs, announced proposals to reform a number of departmental public bodies; these included the Committee on Agricultural Valuation. The Public Bodies Act 2011 provides the legislative mechanism for the Government to carry out reform of public bodies. The Committee on Agricultural Valuation is listed in Schedule 1 to the Act. This enables the Minister to lay an order under the 2011 Act to abolish the committee.

In accordance with the requirements of the Public Bodies Act, a consultation was carried out in England and Wales last autumn. Having carefully considered the consultation responses, it is now proposed to repeal the legislation which provides for the Committee on Agricultural Valuation by an order under the Public Bodies Act.

Welsh Ministers have given their consent to the abolition of the committee. A legislative consent Motion was agreed without debate in the Welsh Assembly on Tuesday 1 April. The abolition of the committee has no impact on the ability of agricultural tenants to claim compensation at the end of a tenancy. As the committee is already effectively moribund, its abolition will have no impact on jobs, nor will it result in any savings for the Government. However, it will remove an unnecessary public body from the legislative framework.

I should probably disclose the fact that I am a landlord and have a tenant. I hope that this explanation has been helpful.

[Lord Grantchester (Lab)]

My Lords, I thank the Minister for his explanation of the order. I will make a declaration of interest as a farmer, but I have no tenants.

The Minister can relax and be assured that we are happy to endorse the order. He will forgive me if I delay the Committee for a few moments to ask a few questions for clarification. I appreciate that the committee has not met for over 20 years and that the term of the last appointments to the committee expired in 1993. Its abolition will have no impact on the functioning of agricultural tenancy legislation, especially as most new tenancies are now farm business tenancies under the Agricultural Tenancies Act 1995, for which different legislative arrangements apply for end-of-tenancy compensation.

We also have TRIG, as the Minister explained, set up by my noble friend Lord Whitty, to provide advice to government on agricultural tenancy matters as a non-statutory advisory body. Can the Minister confirm that there have been no costs from this committee’s dormancy and that, therefore, there are no savings to be achieved through this abolition.

In the explanatory document, the results of the consultation on this order were summarised. Notably, the Tenant Farmers Association made comments that the abolition should follow the enactment of the amended Agriculture (Calculation of Value for Compensation) Regulations 1978 agreed by TRIG, which have been with Ministers for some time and need urgent attention. I have no doubt that the Minister would want to bring this forward with any further amendments to the compensation regulations as part of the wider package of tenancy reform to ensure that legislative changes are complementary.

In the consultation, the chairman of TRIG also stated that abolition was supported, provided that TRIG’s proposed amendments to the Agriculture (Calculation of Value for Compensation) Regulations 1978 were enacted. I therefore ask the Minister whether the TFA gave any reasons in its consultation response as to why it felt that abolition should follow enactment of the new regulations. Was it consequential in any way or does it merely reveal frustration that these regulations have not been amended since 1983? Does the Minister have a timeframe in mind for bringing forward these amended regulations?

The Minister has already updated us on the situation in Wales, for which I thank him. Finally, I want to widen our consideration to include understanding the current position of his department under the Public Bodies Act 2011. There was some debate in the other place on this point, but no discussion concerning the money saved, which I understand was to be the main justification for the great burning of the quangos. While this order is a tidying-up exercise, no money will have been saved from the committee’s abolition. Will the Minister update this Committee on how much dead wood has now been burnt, how much has been saved by his department and what further savings may be expected?

I should be happy to receive an answer in writing listing the full names with commensurate cost implications of the quangos that have been abolished or reconstituted as a committee of experts, which are being retained and which are still to be reckoned with. We can then judge what percentage have been burnt and how successful the Public Bodies Bill 2011 has been in its contention to save public money. An outline today would be most appreciated, provided that the Minister will confirm that he will write with a full assessment of the Public Bodies Act on his department. With that, I am content to agree to the order today.

[Lord De Mauley]

My Lords, I thank the noble Lord, Lord Grantchester, for his comments, and for his general support of the order to remove the Committee on Agricultural Valuation. As I said, this order removes what is effectively a moribund body that has not met for more than 20 years. Its removal will have no impact on the relationship between agricultural tenants and their landlords. Qualifying tenants will still be entitled to claim compensation at the end of a tenancy, in accordance with the current legislative provisions.

Following recommendations from the Tenancy Reform Industry Group, we will shortly be consulting on changes to the Agriculture (Calculation of Value for Compensation) Regulations 1978, with a view to updating them as part of measures for wider reforms of tenancy legislation. That partly answers the noble Lord’s question, which I shall come back to in a moment. This will ensure that the compensation regulations and other tenancy legislation are brought up to date to provide a modern framework for the future.

The noble Lord asked various questions, the first of which was about savings. I can confirm that there are no savings. This measure is about not savings but tidying-up. Returning to the issue of the order of the various reforms, the abolition of the Committee on Agricultural Valuation is not dependent on amending the compensation regulations. As part of the agriculture theme of the Red Tape Challenge process, my department will be consulting on a number of changes to reform agricultural tenancy legislation. It was felt that it would be more sensible to take forward amendments to the Agriculture (Calculation of Value for Compensation) Regulations 1978, which were proposed by the Tenancy Reform Industry Group, as part of this wider package of tenancy reform. This will ensure that the proposed legislative changes complement one another.

We will be consulting on all proposed amendments to agriculture and tenancy legislation in 2014 with a view to making the changes in this Parliament where the legislative timetable permits. Moreover, as the legislation currently stands, we would be required to reconvene the Committee on Agricultural Valuation to make changes to the compensation regulations. As there are no current members of the committee, it would be time-consuming and would require a public appointment exercise, which would not be cost-effective. We took the view that abolition of the committee should not be delayed but should take place as soon as possible.

The noble Lord asked a more general question about progress on reform of public bodies. We have made good progress on the major reforms. We have been working to reduce the number of bodies from 92 in 2010 to 36 by 2015. So far, we have abolished 50 non-departmental public bodies. There are now only a few bodies still to be abolished and these are mainly defunct or non-operational. We are also making progress on 120 bodies that were due to be retained and substantially reformed. The vast majority of these are internal drainage boards, for which reforms are under way. Substantial reforms have already been made to the Environment Agency and Natural England. On his detailed questions, I will take advantage of his invitation to write to him.

[Lord Grantchester]

Has the Minister any idea on cost savings to his department under the Public Bodies Bill to date? That would be most helpful.

[Lord De Mauley]

May I include that in the letter? On that basis, I commend this order to the Committee.

Motion agreed.

Water Bill

Lord De Mauley Excerpts

Monday 31st March 2014 Lords Chamber

[Baroness Parminter (LD)]

My Lords, ensuring we have the right regulatory framework and the financial means to deal with the potential environmental impacts of fracking are important issues and therefore I most sincerely thank the noble Lord, Lord Whitty, for raising this matter again.

In Committee, the Minister outlined the steps being taken to address the low-probability, but high-risk, scenario of a pollution incident. My noble friend Lord Shipley referred to the Minister’s response, which was that the Government and the industry are looking to put a scheme in place, and I am sure that we all look forward to hearing further news about that in the Minister’s remarks this afternoon.

We need tight regulation of fracking by the Environment Agency, the HSE and local planning authorities, but of all the impacts of fracking, not just the impacts resulting from increased pressure on water supplies or their potential contamination. In Committee, the Minister confirmed that the regulatory framework will be,

“reviewed and refined as appropriate as we move towards the production phase”.—[Official Report, 11/2/14; col. 543.]

We need a holistic view of the environmental impacts of fracking, not just of its impacts on water supplies, important though they are, and I therefore cannot support this amendment. I certainly hope the Minister will give assurances that there will be full parliamentary scrutiny of any proposed changes to the existing regulatory framework for fracking.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, Amendment 88ZA, which was moved by the noble Lord, Lord Whitty, would require onshore oil and gas operators to provide financial security when applying for an environmental permit so that funds would be available to deal with any water pollution incidents caused by the operator. The amendment relates to both the conventional and so-called unconventional, or alternative, oil and gas sectors. It would address any pollution that an operator might cause to the water environment but not, I stress, any other damage that might be caused by their activities. The same amendment was raised in Committee by the noble Lord, Lord Whitty, and was withdrawn in the light of information that I provided on our plans to address any wider environmental risks by developing a scheme to ensure that the polluter will be liable in the event of a pollution incident and that there will be sufficient funds available to cover the costs.

I reiterate that the proposed amendment would also apply to, and have implications for, our well established UK conventional onshore oil and gas industry, an industry which, over many years, has maintained a good record of environmental responsibility and competence that has enabled it to co-exist with, and provide employment for, many. Our existing regulatory framework and the application of good operational practice have served us well to prevent pollution from onshore oil and gas activities and to tackle any problems that emerge in an appropriate way. These same controls will provide the basis for the regulatory framework for any new developments in the oil and gas sector to ensure that the environment continues to be appropriately protected. I shall come back to that in a moment.

As part of the licensing process, and prior to awarding a licence, the Department of Energy and Climate Change assesses whether a company has sufficient funding for its planned operations. DECC also checks at the drilling and, where relevant, production stage that the company has appropriate insurance. Similar financial competence checks are carried out by the Environment Agency as part of the permitting process. In this way, we ensure that the companies have the necessary resources needed to back their operations.

Our regulatory framework is underpinned by a robust range of enforcement powers, which are available to the Environment Agency. This includes powers under the Environmental Damage (Prevention and Remediation) Regulations 2009, which in the event of serious damage to surface waters or ground-water will enable it to require the polluter to pay to clear up the pollution. Ultimately, if a significant environmental risk becomes apparent, the Environment Agency has the authority to stop the activity. These powers apply to a wide range of activities undertaken by different industries, so I do not think that it would be justified to create any specific provisions for the onshore oil and gas industry.

However, the Government are very aware of the public’s concerns about the capacity of companies exploring for shale gas to address any liabilities that may arise. As I mentioned in Committee, this issue is being looked at as part of a wider review. DECC and the shale gas industry are working together to put in place a robust scheme that would cover environmental liabilities, even if the relevant operator is no longer in business. They are discussing with leading insurers to build expertise and capacity in the insurance market. The aim is to facilitate the development of products appropriate for shale gas and similar operations, which, in turn, could facilitate the development of an industry-wide scheme. As I explained, these discussions will take time, as we need to ensure that we get this right first time.

The amendment proposed by the noble Lord, Lord Whitty, is quite specific, but perhaps I could just talk more broadly for a moment. As I have just mentioned, and noble Lords have mentioned in their speeches, there are understandable concerns about this whole area of exploration and production. The noble Lord, Lord Cameron, referred to the need to bring the public with us—and he is absolutely right. The Government are clear that we must take all appropriate measures to ensure human safety and protection of the environment. The United Kingdom has more than 50 years’ experience of regulating the onshore oil and gas industry, and we have a robust regulatory system in place to ensure that operations are carried out to high standards of safety and environmental protection.

I can assure noble Lords that the Government will allow production of shale gas to proceed only where it can be done without compromising human health or the environment. We are therefore undertaking a very careful assessment of our existing policy and regulatory framework to ensure that it is fit for purpose, as we move towards the production phase. It is not just about fracking—a process used to extract oil and gas from rock—which has been safely employed in the United Kingdom and elsewhere for many years.

Any changes to regulations that we believe are necessary following this consideration would of course be subject to parliamentary scrutiny. Parliament is also using its other mechanisms of scrutiny, including the significant inquiry into the potential impacts of shale gas being conducted by your Lordships’ Committee on Economic Affairs, which I understand is due to report soon and whose conclusions we will of course consider carefully. A couple of weeks ago, on 17 March, my noble friend Lady Verma spoke for the Government in a short debate on shale gas initiated by my noble friend Lord Borwick. Noble Lords may wish to note also that this debate is occurring simultaneously at EU level, as the noble Lord, Lord Cameron, said, and that debate will reach its own conclusions in due course.

--- Later in debate ---

[Lord Whitty]

My Lords, we are grateful to the noble Earl for tabling this amendment, and particularly for the way in which he outlined the dilemmas of this proposition. I think we all have a problem here. I hope that I do not need to make it clear that we on this side strongly support the basic concept of Flood Re and the reassurance that it will give to a lot of people who are currently worried about their future cover.

We have to recognise that the Government are not entirely on a free position on this; indeed, I congratulated the Government—that is quite rare for me—not long ago on reaching an agreement with the ABI, which I know is an incredibly difficult negotiator. Therefore, I do not think that any of us want to unnecessarily unravel the arithmetic that lies behind the Flood Re proposition as it now is. However, the wide-ranging nature of the noble Earl’s amendment means that we would be unravelling it quite substantially.

On the other hand, as noble Lords have made clear, this is not entirely a matter for the insurance industry. The structure of the project is an agreement between insurance companies but it has to be backed by Parliament and it therefore has a statutory base. Parliament has to be concerned about fairness, equity and proportionality. We therefore have to query whether the exclusion of certain properties, and such a large number of them in aggregate, is fair and equitable.

To some extent, I go along the same lines as the noble Baroness, Lady Parminter: there are different arguments relating to the different categories. Some exclusions were in the previous statement of principle and are therefore in a changed position as a direct result of the demarcation of Flood Re. Small businesses were covered by the previous arrangements, as were tenants in leasehold premises—although there have been some concessions of late, which I will come on to in the next amendment—and band H properties. The exclusion of post-2009 properties is not a new position; it was the position under the old scheme.

I shall comment on my view on each of those. First, I accept that small businesses have a different way of meeting their insurance requirements. I also accept, on the other hand, that many small businesses, boarding houses, shops and small premises were seriously affected by those floods and, under their understanding of the previous settlement, would probably expect to be covered by the replacement scheme. It is therefore quite important that we bear in mind the position of small businesses. The insurance industry claims that there is not a market failure in this area, and the Government seem to have accepted that. Maybe we ought to put businesses in a different channel because they are not dealt with in the same way as residential properties under Flood Re. The Government should not lose sight of the fact that many small businesses are under serious risk and do not feel well protected by the current situation. I hope, therefore, that the Government will be able to come back to this.

The noble Earl, Lord Lytton, the noble Lords, Lord Cameron and Lord Moynihan, and others referred to band H properties. It is a slightly odd move by the Government to exclude band H—an unusually populist, progressive move, to avoid cross-subsidy from the poor to the rich. It may be a welcome indication of things to come. However, it still leaves a number of people in difficulty. I think that the Government may have to look again at band H, but it does not make a lot of difference to the arithmetic. The number of people who are asset-rich but income-poor is relatively small and, therefore, it could not make a priority social case for re-including band H.

That leaves me with the subject matter of a subsequent group. Almost the whole of the tenanted sector and the private rented sector, even with the Government’s new concessions, are excluded from this. They all regard themselves as residencies, they all have domestic insurance in one form or another and they are all lived in by households and families. I think it is unfortunate that they are excluded. I would give my priority to that and I will come back with a further amendment. As it stands I cannot fully support the broad sweep of the noble Earl’s amendments. Nevertheless I thank him for the debate and the wide range of issues which, one way or another, the Government will have to explain to various sectors of the public.

[Lord De Mauley]

My Lords, I thank the noble Earl, Lord Lytton, for his Amendments 89 and 90. He raises issues which I know are of concern to people and I thank all noble Lords who have spoken on all sides of the argument.

Amendment 89 to Clause 51 would require that all properties included in the calculation of the levy are eligible for the scheme. It is important to remember that while many homes in the United Kingdom are at some risk of flooding, Flood Re is designed to address an affordability issue for the 1% to 2% at the highest risk of flooding. The levy will provide Flood Re with a funding pool which will be combined with the premium income from those policies which are to be ceded to Flood Re. This will be used for the purposes of the Flood Re scheme, including the purchase of reinsurance and payment of claims. The purpose of having a pool, as is the case for much of our taxation, is that costs are shared by many so that those most in need can benefit. If everybody who paid the Flood Re levy stood to gain, there would be fundamental implications for the required amount of the levy. Alternatively, if the levy was limited to flood-prone households, the pool would not be large enough to have a significant impact on prices and therefore on the affordability of flood insurance.

The insurance industry has been clear that low-risk and no-risk householders have historically subsidised flood insurance for those at a higher risk of flooding and that the move to risk-reflective pricing will over time remove this cross-subsidy from the market. The levy simply replicates and formalises this existing cross-subsidy. Indeed, the ABI has assured us that the levy can be introduced without having an impact on bills in general for householders at a low risk and no risk of flooding, for those in band H or for those with properties built after 1 January 2009—that is, those outside the pool.

If I understand the noble Earl’s intention correctly, I think he is particularly concerned to ensure that those properties which are not eligible for the scheme—such as band H properties, properties built after 1 January 2009 and certain leaseholders on commercial policies—either stand to benefit from Flood Re or do not pay the levy. While I understand that cross-subsidising something from which you will receive no benefit might be perceived as unfair, I have explained why there always have to be some net contributors to make a pooling system work, and this includes the overwhelming majority of households at low risk or no risk of flooding. We discussed the rationale for the scope of Flood Re at length in Committee, and I explained that we think that we have got the balance right. The Government’s approach was widely supported in the response to the 2013 consultation. This approach means that those who are most in need of support will receive it to enable a smooth transition to the free market.

The noble Earl commented on the complexity of the scope of Flood Re. The proposed criteria reflect the current situation for purchasing a domestic insurance policy. We are not seeking to change the circumstances under which insurance is purchased through Flood Re. We must remember that Flood Re is designed to help those people at the highest flood risk, which we estimate could be around 500,000 households. I have heard some very fanciful numbers being bandied around, and they all miss this point. I am not saying that the Government are not still listening to the debate. We will monitor the market, as will the ABI, and we will publish our findings. Should the evidence point to specific issues with insurance for particular sectors, we will discuss with the insurance industry what might be possible.

[Lord Campbell-Savours]

The Minister referred to fanciful figures. The figures I produced on behalf of the lady in Thirsk were real figures showing a five-times increase. She and the 11 other people in flats in the same block are not covered. How can the Minister give an assurance that it will have very little impact on these sorts of people?

[Lord De Mauley]

My Lords, I was not for a moment suggesting that the lady to whom the noble Lord referred was one of those bandying around that sort of figure—by no means. It is difficult for me to speak about a very specific instance but, if I can, I will come back to that later. I was referring to estimates of the number of households involved. I hope the noble Lord understands that.

Several noble Lords referred to band H properties. In designing Flood Re, we have been very clear that we want to target the benefits where they are most needed while not increasing the costs for those not at flood risk. On that basis, we believe that it would not be justified for band H and equivalent properties to be included. The progressive nature of Flood Re received wide support in the public consultation.

Let us be clear that the exclusion of band H properties was set out explicitly as part of the June 2013 memorandum of understanding. This document reflects the needs of both parties and was agreed by the Government and the ABI on behalf of its members. In designing the scheme, the Government and the industry needed to ensure that the pool was viable and affordable. Including band H properties would increase the costs of Flood Re overall, which could result in a reduction in the benefits to households in lower council tax bands or an increase in the levy for all households. We stand by the decision to target support to those in lower council tax bands, as reflected in the memorandum of understanding.

Responding to the points raised about affordability for those in this council tax band, our analysis suggests that relative to other bands, a move to risk-reflective pricing would have limited impact on the affordability of a combined insurance policy for band H households. The noble Lord, Lord Whitty, referred to concerns that those households, which might be asset-rich but income-poor, would be at risk though this approach. We looked closely at this. According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in band H properties and hold a combined insurance policy are in the top 30% of earners with 48% in the top 10%. More significantly, perhaps, only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas. I think my noble friend Lady Parminter mentioned that.

The noble Earl, Lord Lytton, the noble Lord, Lord Whitty, and others referred to small businesses. As I said in Committee, we gave careful thought to the scope of the Flood Re scheme and consulted on the proposed figures on the domestic insurance market, which received broad support. The consultation responses did not provide evidence of widespread problems for small businesses with secure and affordable cover, although anecdotal examples of problems in some specific geographical areas were put forward. A government survey of more than 9,000 small businesses in England found that less than 1% of businesses had experienced difficulty getting property insurance in the past year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.

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[Earl Cathcart]

My Lords, when a similar amendment was debated in Committee, I took it to be only a probing amendment. Now it has been tabled again today, I am bemused, or perhaps confused, about what the Committee on Climate Change can add to the work already being done. The insurance industry, together with the Government and their agencies, has already assessed the number of properties in known flood-risk areas, particularly the number of properties that might struggle to afford flood insurance in the open market. They have also assessed the level of premiums required by council tax band, and the contribution needed from every householder—£10.50—to ensure that Flood Re has sufficient funds net of reinsurance costs from year 1.

I have no doubt that Flood Re will continually assess and reassess its assumptions, but in any event a five-year review is built into the scheme to assess whether its assumptions still hold true. This five-year review will allow Flood Re, with the agreement of the Government, to make adjustments to the levies and contributions accordingly, and I am quite sure that different areas of flood risk will be added to the pot.

I cannot understand why the noble Lord, Lord Grantchester, is moving this amendment, which will require the Committee on Climate Change to duplicate the work already done by Flood Re and by the Government and their agencies. Where will the Committee on Climate Change get its information from? The noble Lord, Lord Krebs, says that the committee does some work in this area, but it would need access to data from Flood Re, the insurance industry and the Government and their agencies, such as the Environment Agency. I do not believe that getting the Committee on Climate Change involved will add anything but will be double-handling, expensive and unnecessary.

[Lord De Mauley]

My Lords, I am grateful to the noble Lord, Lord Grantchester, for his amendment, which would give a formal advisory role to the Committee on Climate Change. I am also grateful to the noble Lord, Lord Krebs, for his offer of help. I absolutely agree with them on the importance of having impartial advice on the latest science, and we of course look to the committee to inform the debate on climate change.

It might be appropriate at this stage to say that I welcome the latest report from the Intergovernmental Panel on Climate Change, which is a valuable addition to the international understanding of climate change impacts and which underlines the need to adapt to changing global weather patterns. Adapting sooner will reduce the future costs of doing so. I should emphasise that, although the IPCC report did not focus on individual countries, it did identify three key risks from climate change for Europe, of which flooding was one and water security another. These findings align well with the United Kingdom’s own Climate Change Risk Assessment, published in 2012, which identified that the biggest challenges that the United Kingdom faces will be flooding and water shortage.

As I explained in Committee, I am not clear what the noble Lord, Lord Grantchester, thinks could be gained by requiring the Committee on Climate Change to assess the data provided by insurers, which will be primarily on the pricing of risk, based on the industry’s own sophisticated catastrophe modelling. The numbers of policies eligible for Flood Re will be based solely on the cost of the flood risk component of any policy, which is set by the insurers based on their assessment of the risk. This assessment will change over time and it would not be possible for the committee to provide any estimates without detailed knowledge of industry pricing models. Similarly, the value of the levy and the likelihood of any additional contribution by insurers is based on a number of financial parameters, such as the cost of reinsurance and the amount of levy collected, which will change year on year.

Given their extensive knowledge of the flood risk profile down to the local level, the Environment Agency and its equivalents in the devolved Administrations are the key advisers to government on flood risk and changing levels of risk over time. In England, the Environment Agency leads a dedicated climate-ready support service, conducts the long-term assessment of future investment needs and provides the national assessment of flood risk and flood mapping, which takes account of all types of risk.

If I understand the intention of the amendment correctly, the nub of the concern seems to be that the modelling used to assess the size of the Flood Re pool and the numbers supported needs to be robust and take into account changing risk. Flood Re’s finances also need to be resilient to the inherent variability of annual flood claims and to factor in changing risk over time. The core of this is making sure that Flood Re holds enough capital to be able to cover claims up to the limit of its liabilities. Under European Solvency II legislation, which governs the insurance sector and will be in force from 1 January 2016, all insurance firms will be required to hold enough capital to cover a one-in-200-year level of claims. Therefore, Flood Re will be required under EU law to hold capital reserves at a level equivalent to its liability.

To assess what level of capital is needed, insurers have detailed catastrophe models. The modelling to assess such events must be kept up to date and will reflect any changes in levels of insured risk. This will include changes as a result of climate change. As an authorised reinsurer operating under the requirements of Solvency II, Flood Re will be bound by these same requirements.

[Lord Hunt of Chesterton (Lab)]

When the Minister refers to one in 200 years, that assumes that the next 200 years will not be the same as the previous 200. Things are changing very rapidly. Is this estimate really based on the rapid changes of climate that we are seeing? That is the purpose of referring the matter to the Committee on Climate Change. The committee is much more aware of the dynamical changes than the industry, which is essentially using past, rather static data.

[Lord De Mauley]

My Lords, I agree with the objective that the noble Lord refers to. Floor Re will need to take account of climate change as part of its regulatory obligations in ensuring that it remains solvent over time. We would expect Flood Re to seek the best available advice on climate change and seeking external verification of its assumptions will form part of Flood Re’s operations.

It seems that one of the other concerns underlying this amendment is whether Flood Re is based on the best available evidence, including on climate change. I assure noble Lords that the data and actuarial assumptions underlying the scheme have been independently assessed by Professor Stephen Diacon. In addition, extensive modelling, using a model that was quality-assured by the Government Actuary’s Department, has been carried out by the Government using these data. Flood Re’s modelling will be updated on an ongoing basis.

I again put on the record that Flood Re has been designed to be flexible and will be able to adapt to changing levels of risk over the 25-year lifespan of the scheme. Climate change projections were considered, alongside other risk factors, during the design of the policy, and the effects of climate change will continue to be considered during future levy-setting discussions. The insurance industry, with its expertise in risk assessment and forecasting, is at the forefront of assessing the impacts of climate change, because assessing risk accurately is an essential tenet of its business.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I noticed that the Minister spoke of adaptation but he has not spoken about mitigation. Quite honestly, if you concern yourself only with adaptation, you simply will not be able to keep up with the changes. Are the Government thinking about mitigation in these circumstances as well?

[Lord De Mauley]

Of course, my Lords. If the noble Baroness will forgive me, I have to deal with the amendment before me, which goes primarily to the issue of adaptation. Of course we are working on mitigation as much as we can. The noble Baroness will have seen quite a lot of publicity over the weekend on that very matter. She indicates that she has not but she will believe me if I show her that there was such publicity from the Department of Energy and Climate Change.

The Association of British Insurers and a number of leading insurers have signed up to the ClimateWise principles for insurers. The six principles include a commitment to publish an annual statement of action taken and to:

“Support Government action, including regulation, that will enhance the resilience and reduce the environmental impact of infrastructure and communities”.

While, for the reasons I have set out, I feel strongly that the amendment is unnecessary, I state categorically that this in no way reflects a lack of commitment from the Government on the vital matter of flood risk and climate change. During this Parliament we will be spending record amounts on managing flood risk and our new funding approach is set to attract more contributions from local partners than ever before. We have also made an unprecedented six-year commitment to record levels of capital investment in improving defences up until 2021.

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[The Earl of Lytton]

My Lords, I too would have put my name to the amendment had I known about it in time. I apologise to the House and to the noble Lord, Lord Whitty, for not being in my place when he introduced it, but I understand a great deal about the background to it from previous discussions with him. Whatever we do with the cut-off point between what is in Flood Re and what is outside it, it is important that it is reliable, consistent, transparent and fair. The outcome must not be capricious or so asymmetric that people lose trust in it, because I am a believer that credibility is at the centre of Flood Re’s success.

One thing in particular stands in stark contrast with that. The commonhold units’ owners do not themselves own the fabric of the building: it is owned by the commonhold association. I asked myself, if there is a difference in personality, in legal entity, why is it that long leaseholders of the conventional sort in a similar building—with the freehold being the common parts and the fabric of the building owned by someone else—should not benefit? Why is there a blanket inclusion of commonhold but a blanket exclusion of leasehold? I find that difficult to understand, particularly because, under the Leasehold Reform, Housing and Urban Development Act, the intention was to try to get leasehold nearer to freehold, to remove the segregation between the freehold interest and the leasehold interest which for years has dogged the sector and allowed all sorts of abuses to occur and produced all sorts of disadvantage in funding, growth and reward for that investment.

It seems to me that the convenience of insurers is being put ahead of the public interest. There probably has to be a cut-off point somewhere in the system. It is not for me to speculate on what the actuarial approach would be to that, but it seems that where it is being placed at the moment defies objective analysis on the points of consistency and transparency that I mentioned. I am very inclined to support the amendment.

[Lord De Mauley]

My Lords, I am grateful for the opportunity provided by the noble Lord, Lord Whitty, to discuss the eligibility of leasehold and tenanted properties for Flood Re. In Committee, I said that we would take more time to look at the issue for lease- holders with the ABI and that we would provide further information on the scope of Flood Re.

We have developed with the ABI a briefing note that sets out the scope of Flood Re and covers proposed new subsection (1) in the noble Lord’s Amendment 89B. In summary, the note, which is available online, confirms that domestic contents policies will be available to all under Flood Re, regardless of whether properties are leasehold or freehold, rented or owner-occupied, except those properties in band H and those built from 1 January 2009.

Leasehold houses will also be in scope of Flood Re, provided that the leaseholder lives in the property and purchases the buildings insurance in his or her own name. Flats will be eligible, provided that there are not more than three flats in the building and that the freeholder, or one of those with a share of the freehold, lives in the building and takes out the cover. Setting the eligibility to a maximum of three flats reflects the general limit that the insurance market is willing to cover under a domestic or personal lines policy. There is already a competitive market for insurance for properties with four or more units, which we expect to continue. As I have already said, we and the ABI will monitor the market to ensure that that remains the case. We believe that a significant proportion of the leasehold sector will be in scope of Flood Re, but I should emphasise here that we expect most properties will not need to be in Flood Re and will find better prices through normal routes.

The noble Lord, Lord Whitty, suggests that that is all very complicated and does not go far enough. We have looked carefully at that with the ABI. Flood Re should be available only to those who need it. Indeed, in an earlier debate the noble Lord to some extent agreed with that. The ABI has assured us that the same systemic issues relating to availability and affordability do not exist for larger-scale leaseholders and commercial managing agents as in the domestic home insurance market.

The insurance industry has recently written to assure the Government that it does not expect there to be widespread issues over access to the insurance market for those parts of the leasehold sector which will be out of scope of Flood Re, which I am sure that noble Lords will agree is very welcome reassurance. The industry is clear that there is plenty of capacity to continue to provide insurance on a competitive basis.

I turn to the tenanted sector. As we discussed at some length in Committee, landlord insurance is out of scope for Flood Re for buildings cover. Landlord insurance is classified by the insurance industry as commercial. However, again, we have been assured by the industry that the majority of landlords will be able to find a more competitive rate outside Flood Re.

I emphasise that the proposed scope was not developed on the basis of cost: it is the nature of the policy which is key. The Government are clear that it would not be appropriate for landlords, who gain commercially from renting properties, to benefit from a subsidy on other households.

[Lord Campbell-Savours]

The Minister referred to the fact that the ABI has given assurances that that insurance will be available at competitive rates. Were they oral or written assurances? If they were written, is it possible for those assurances in writing to be put into the public domain so that interested parties can examine the assurances that the ABI has given to the Government?

[Lord De Mauley]

That is a very good point, my Lords, and I will see what I can do.

The Government collect certain information and data as part of the English housing survey. However, the granularity of data on the different parts of the sector sought under the amendment is not currently available. Data are collected from owner-occupied homes on whether the home is owned leasehold or freehold, but not from homes that are let in the private rented sector or from the social rented sector. In the past, those partial data have been used to estimate the total number of leasehold domestic properties in England across all tenures, although I understand that the methodology used is currently under review.

The 2011 census provides some information about whether people live in a flat or a house and whether they own it or rent it, but did not collect data on the number of leasehold domestic properties. There are also no data sets that would distinguish between smaller landlords and large multisite commercial operators, as far as we are aware.

The insurance industry could provide information which would help with a general estimate of the cost of including additional properties to Flood Re. However, the value of that would be limited without the numbers in each of the categories specified in the amendment and how many of those are at sufficient flood risk to be ceded to Flood Re. We have looked at a range of potential address-level data sets to try to map their records to flood risk, but again the data are unsuitable.

The conclusion has to be that what is specified in the amendment is unachievable to any degree of accuracy. It would also be only a snapshot in time and would quickly become out of date. The Government and the ABI have committed to monitoring the market—including for both domestic and business premises.

The noble Lord, Lord Whitty, suggested that there had been no direct engagement with the property sector. We consulted publicly on our proposals and received representations from the property sector. Indeed, I met representatives of the leasehold sector and asked them to come forward with evidence that the same problems exist in the commercial insurance market. I must say that evidence received to date is very limited, but that offer remains.

I therefore argue that reporting as set out under the amendment is not needed, as the market monitoring already planned will provide data on how the market is operating. I assure noble Lords that we will keep this matter under careful review. As I said, the Government also plan to publish the findings and make them available to Parliament.

The noble Lord, Lord Cameron, asked why we cannot treat landlords of just one or two properties differently from the more large-scale landlords. We have not heard evidence of widespread problems for smaller landlords in securing affordable insurance and there is therefore no apparent need to extend the scope of Flood Re to include them. Furthermore, it would not be practical to ask insurers to try to distinguish between different types of landlord. With the exception of policies purchased in a block or those purchased under a business name, many insurers would find it difficult to tell whether landlords have a large or a small property portfolio. This is not just about pricing policies: it would also make it more difficult for insurers to work out the market share when paying their share of the levy.

Turning back to the point made by the noble Lord, Lord Campbell-Savours, I understand that it was made in a letter to the Secretary of State, and I can provide a copy of that to noble Lords who have participated in this debate. That might be helpful.

For the reasons that I have set out, I hope that the noble Lord will be prepared to withdraw his amendment.

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[Lord Whitty]

My Lords, I have some slight difficulties with this amendment. I understand the concept and, in a sense, I want the outcome. The role of the insurance companies’ relationship with householders—whoever they may be, in the light of the previous debate—in improving the resilience of their properties is an important dimension of this scheme. Some of it is deliverable through the normal relationship between insurance companies and their premium payers, in the sense that a condition of the insurance or of the level of excess on the insurance can be that they put in such-and-such a resilience measure or that they meet certain standards in the property. The insurance companies can in some circumstances go further than this and make a grant towards them. The problem with the amendment is that it feels too open-ended.

To answer the question about whose money it is, the money is contributed by the rest of us. It is the £10.50, or whatever it turns out to be, that the rest of the population puts into looking after high-risk properties. There is therefore a need for due diligence that that money does not go to diffuse purposes. If this amendment would lead to significant sums of money in surplus years being used in a different way, then issues of accountability arise. A more tightly worded amendment would probably meet with my approval, but people reading this could think that, if you have a surplus of £500 million after 10 years, you should be spending it directly on grants to householders in risk-prone areas to improve individual or communal flood defences. I do not think that is what is meant, but the wording could be susceptible to that meaning. I therefore support the general concept, but I do not think this amendment achieves it in a way that is easily defensible to home owners who are contributing to the financing of this scheme.

[Lord De Mauley]

My Lords, I thank my noble friend Lady Parminter for her amendment, which deals with a very important subject. I thank all other noble Lords who spoke to it.

Actions taken by government, communities, individuals and businesses to reduce levels of flood risk are indeed the best and most cost-effective way to secure affordable insurance and value for money from Flood Re in the long term. In addition to the substantial levels of investment in flood defences that I referred to in an earlier debate today, we are also taking action to ensure that households are supported to improve their property-level resilience. For example, grants of up to £5,000 are available for households and businesses that have flooded this winter, and applications open tomorrow. In addition, there are community projects in which we are investing more than £4 million over two years in order to learn about the most effective strategies to drive community resilience to flooding. Nevertheless, I recognise my noble friend’s intention to see Flood Re’s role reflected in the Bill.

Reserves that build up during the lifetime of Flood Re will primarily be used to pay flood claims in the bad years. Flood events are by their nature unpredictable, so while it may be possible that Flood Re would have a number of good years in which it built up reserves, it is equally possible that a run of bad years with heavy flooding could wipe out any reserves built up within Flood Re. As such, it is not easy to identify surplus funds, and any decision about Flood Re’s reserves will need to involve judgment about the level of cover needed for the unpredictable risks it bears.

Added to this, as an authorised re-insurer, Flood Re will be required by the Prudential Regulation Authority to hold certain minimum levels of capital. Any commitment by Flood Re to spend a certain portion of reserves in a certain way—for example, on betterment or resilience—would necessarily increase the amount of capital it is required to hold on an ongoing basis, having an impact on the cost of the scheme and ultimately the levy.

It may well be that, in due course, the Flood Re administrator decides that investments of the sort my noble friend would like to see present the best way of Flood Re fulfilling its obligations to manage the transition and act in the public interest. However, these are choices that are difficult to make before the scheme is established or has any sort of track record. Nothing in the Bill precludes this.

Alternatively, in due course, Flood Re may decide, in consultation with government, that the best use of any surplus is to reduce the level of the levy, thereby helping to deliver affordability for all policyholders, not just those in Flood Re. We would not, at this stage, wish to see Flood Re’s hands tied in legislation that could have an unpredictable and undesirable effect.

We have always been clear that there should be a gradual transition to more risk-reflective prices. We expect the transition plan to set out how Flood Re intends to support households to adapt to the withdrawal of support from Flood Re over time. We will not designate Flood Re unless we are satisfied with the industry’s proposals for the scheme, including the transition plan.

It is important for Flood Re to retain flexibility in the way it discharges its public interest duty and plans for transition in order to ensure that it is in a position to balance these requirements against its core financial obligations. However, my noble friend’s amendment draws attention to the need to offer more clarity about what might happen in the event that a surplus is accumulated, particularly in relation to managing the transition.

I should say that I have considerable sympathy for the points made by the noble Lord, Lord Campbell-Savours. I have first-hand experience of where exactly the type of sensible resilience measures he has suggested cost no more than putting things back exactly as they were before the flood so the insurance claim could cover them. He also referred to advice, which is clearly an important part of that. A number of sources of independent advice are available today. The National Flood Forum can direct flood victims to appropriate measures. Furthermore, we are continuing to discuss with the industry whether any of the reserves could be used to fund surveys.

As I have said, I am very grateful to my noble friend and the noble Lord, Lord Krebs, for bringing this to my attention. I would like to take the opportunity to discuss their proposals with them further before Third Reading. Although I cannot of course guarantee that I shall be able to bring something back, I may be able to clarify the Government’s position further. I hope that I can persuade my noble friend to withdraw her amendment.

[Baroness Parminter]

I thank the noble Lord, Lord Krebs, the noble Lord, Lord Campbell-Savours, and my noble friend Lord Shipley, for their support for this amendment. My noble friend Lord Cathcart suggested that I may have misunderstood the insurance industry. We all have our dirty secrets, and many noble Lords may think of me as a squeaky-clean campaigner, but I have to say that I have been employed in the City by Lloyd’s of London, so I do know a thing or two about insurance.

I accept the point made by the noble Lord, Lord Whitty, that the wording of the amendment may not be as clear as we would all hope to achieve to ensure that any surplus funds are used to manage down flood risk and help people to transition to a better place at the end of this temporary scheme. I hoped that it would be seen to be not prescriptive and unhelpful and I am very grateful again for the comments of my noble friend the Minister and for his kind offer of discussions with myself and the noble Lord, Lord Krebs, which we are both delighted to accept. We will return to this matter at Third Reading. On that basis, I beg leave to withdraw the amendment.

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Moved by

[Lord De Mauley]

90E: Clause 69, page 120, line 30, at end insert—
“(A1) In this Part “insurer” means—
(a) a person who—(i) is authorised for the purposes of the Financial Services and Markets Act 2000 (see section 31 of that Act), and(ii) has permission to carry on the activities specified in Article 10 of the Financial Services and Markets (Regulated Activities) Order 2001 (S.I. 2001/544), or(b) a member of the Society (within the meaning of the Lloyd’s Act 1982).“(A2) The Secretary of State may by regulations amend the definition of “insurer” in subsection (A1).”

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Moved by

[Lord De Mauley]

90L: Clause 70, page 121, line 33, leave out “(including” and insert “(whether or not otherwise capable of being transferred, and including”

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Moved by

[Lord De Mauley]

90M: Clause 71, page 122, line 7, at end insert—
“(1A) Subsection (1) does not apply in relation to an order under section 70(3) if the only provision made by the order is provision for, or in connection with, the transfer of property, rights and liabilities.”

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Moved by

[Lord De Mauley]

91A: After Clause 74, insert the following new Clause—
“Sustainable drainage systems: non-performance bonds
In Schedule 3 to the Flood and Water Management Act 2010 (sustainable drainage), in paragraph 12 (non-performance bonds), in sub-paragraph (4)(c)—(a) after “sums received” there is inserted “from a person”;(b) for “the developer” there is substituted “that person”.”

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Moved by

[Lord De Mauley]

91B: Schedule 11, page 225, line 6, at end insert—
“Changes in water supply licensing1A (1) A section 77 order may make provision in connection with the introduction of new water supply licences.
(2) A section 77 order may in particular—
(a) make provision for old water supply licences to continue in effect, subject to provision made by a qualifying scheme;(b) make provision about the granting of a new water supply licence on application made by the holder of an old water supply licence.(3) A qualifying scheme is a scheme that—
(a) is made by the Water Services Regulation Authority, and(b) contains such provision as is described in sub-paragraph (4).(4) The provision mentioned in sub-paragraph (3)(b) is—
(a) provision for the revocation of all old water supply licences—(i) on the first day on which it would be possible for a new water supply licence to come into effect, or(ii) in accordance with arrangements in the scheme and before a day specified in or determined under the scheme,(b) provision for compensation to be paid by the Water Services Regulation Authority in connection with the revocation under the scheme of an old water supply licence,(c) provision, in a case where the scheme allows a holder’s old water supply licence and new water supply licence to have effect at the same time, for preventing the holder supplying water to premises in reliance on the old water supply licence where—(i) the premises supplied are the premises of a person who was not a customer of the holder immediately before the grant of the new licence, and(ii) the premises could be supplied with water in reliance on the new water supply licence,(d) provision for compensation to be paid by the Water Services Regulation Authority in connection with the restriction imposed on an old water supply licence under paragraph (c),(e) provision about the determination of—(i) claims for compensation payable under the scheme, and(ii) appeals from the determination of such claims, and(f) provision satisfying such other requirements as may be specified in a section 77 order, including requirements about the persons who may claim compensation, the measure of compensation and matters by reference to which compensation may be reduced.(5) Requirements imposed under sub-paragraph (4)(f) may allow the scheme to make provision by virtue of which the compensation payable in a particular case may be nil.
(6) A qualifying scheme may include provision about—
(a) the making of claims for compensation;(b) the matters to be proved by a claimant.(7) Sub-paragraphs (4) to (6) are not exhaustive of what may be included in a qualifying scheme.
(8) A section 77 order may make provision for a relevant person specified in the order, or appointed by the Secretary of State, to determine—
(a) claims for compensation payable under a qualifying scheme;(b) appeals from the determinations of such claims.(9) In sub-paragraph (8) “relevant person” means—
(a) the Water Services Regulation Authority, except in relation to appeals from the determination of claims for compensation,(b) the Competition and Markets Authority, or(c) any other public authority (within the meaning of section 6 of the Human Rights Act 1998). (10) A section 77 order may provide for functions of the Competition and Markets Authority (“the CMA”) relating to compensation payable under a qualifying scheme to be carried out on behalf of the CMA by a group constituted for the purpose by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
Modification of conditions of old water supply licences1B (1) Where a section 77 order makes provision for old water supply licences to continue in effect, that provision may include provision for applying new sections 17I to 17R to old water supply licences, with such modifications as appear to the Secretary of State to be appropriate.
(2) Provision under sub-paragraph (1) may include provision for treating a reference to a new water supply licence as including a reference to an old water supply licence.
(3) Provision under sub-paragraph (1) may include provision for treating—
(a) a reference to a standard condition of a new water supply licence as including a reference to a standard condition of an old water supply licence, if the two conditions are in, or as nearly as may be are in, the same terms;(b) a reference to a standard condition of a new water supply licence giving the holder a new retail authorisation as including a reference to a standard condition of an old water supply licence giving the holder a retail authorisation, if the two conditions are in, or as nearly as may be are in, the same terms;(c) a reference to a standard condition of a new water supply licence giving the holder a new restricted retail authorisation as including a reference to a standard condition of an old water supply licence giving the holder a retail authorisation, if the two conditions are in, or as nearly as may be are in, the same terms;(d) a reference to a standard condition of a new water supply licence giving the holder a new wholesale authorisation as including a reference to a standard condition of an old water supply licence giving the holder a supplementary authorisation, if the two conditions are in, or as nearly as may be are in, the same terms.(e) a reference to a standard condition of a new water supply licence giving the holder a new supplementary authorisation as including a reference to a standard condition of an old water supply licence giving the holder a supplementary authorisation, if the two conditions are in, or as nearly as may be are in, the same terms.Changes in water supply licensing: Wales1C (1) A section 77 order may make provision in connection with the extension of new retail authorisations and new wholesale authorisations to the use of supply systems of water undertakers whose areas are wholly or mainly in Wales, where that extension takes place after the introduction of new water supply licences.
(2) A section 77 order may in particular include provision for or in relation to the payment by the Water Services Regulation Authority of compensation to any person holding a new water supply licence who—
(a) following the coming into force of any provision of this Act, is unable to carry on activities that had previously been authorised by a new restricted retail authorisation, or a new restricted retail authorisation and a new supplementary authorisation, given by the licence as a result of—(i) a new retail authorisation or a new wholesale authorisation or both having been required in respect of them, and(ii) the person’s licence not having been varied to add a new retail authorisation or a new wholesale authorisation or both, because the person did not apply to vary the licence, or did not apply to add the appropriate authorisation or authorisations, or because the person’s application to vary the licence was refused or granted only as to one authorisation, and(b) has suffered loss or damage as a result of not having a licence that enables the person to carry on all those activities.Introduction of sewerage licensing1D (1) A section 77 order may make provision in connection with the introduction of sewerage licences.
(2) A section 77 order may in particular include provision for or in relation to the payment by the Water Services Regulation Authority of compensation to any person who—
(a) before 31 March 2014 was carrying on any activities in relation to the sewerage system of a sewerage undertaker,(b) following the coming into force of any provision of this Act—(i) is unable to continue to carry on those activities as a result of their having been prohibited,(ii) is unable to continue to carry on those activities as a result of a sewerage licence having been required in respect of them, and the person’s not having applied for, or the person’s having been refused, a sewerage licence, or(iii) is unable to continue to carry on those activities in the same manner as a result of the person’s having been granted a sewerage licence the effect of which is to restrict the carrying on of the activities, and(c) has suffered loss or damage as a result of—(i) those activities having been prohibited,(ii) a sewerage licence not having been granted, or(iii) those activities having been restricted.”

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Moved by

[Lord De Mauley]

91E: Clause 80, page 125, line 6, after “56” insert “, so far as relating to the power to disclose information under section 56(1)(a)”

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Moved by

[Lord De Mauley]

95: Schedule 12, page 232, line 23, leave out “paragraph 3” and insert “this Schedule”

Water Bill

Lord De Mauley Excerpts

Tuesday 25th March 2014 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, I start by reiterating the interests that I declared in Committee. I am the owner of a farm, through which a tributary of the River Thames runs; I have a bore-hole, which supplies farm and tenanted properties; and I have a property that flooded in 2007.

I thank the noble Lord, Lord Whitty, for moving his Amendment 1 on the important issue of protecting householders. The Government take this issue very seriously. We are very keen to ensure that household customers remain fully protected following our reforms to the non-household market. I am confident that we have achieved this. The Water Bill introduces reforms that will enable us to manage future pressures as efficiently as possible while ensuring that customer bills are kept fair for the long term.

Mechanisms are already in place to prevent business customers’ bills being subsidised by household bills. Ofwat’s policy of setting different retail price caps for household and non-household customers in the current price review means that households will not subsidise the competitive market. We also expect household customers to benefit from the efficiencies and innovations that competition will foster.

It is also important to remember that the Secretary of State, Ofwat and the Consumer Council for Water have a shared duty to protect customers. They must have special regard to people who are unable to switch suppliers—that is, household customers—when carrying out their statutory functions. I am therefore confident that household customers will be protected against any negative outcomes resulting from the expansion of the competitive market.

This brings me to government Amendments 57 and 58. I was grateful to the noble Lords, Lord Whitty and Lord Grantchester, for highlighting in Committee the important work that is done by the Consumer Council for Water. The noble Lords tabled an amendment to require incumbent water companies to consult the Consumer Council for Water on their draft charging schemes. In Committee, I explained that the Consumer Council for Water already does this, but I agree that it is a good idea to place into legislation the central role of the Consumer Council for Water, ensuring that the consumer voice is heard. That is why I am bringing forward Amendments 57 and 58 today. The Consumer Council for Water already plays a fundamental role in working with the companies to ensure that their charges schemes meet stringent, research-informed safeguards on behalf of customers. We want to see this continue.

I hope that our amendments illustrate that the Government are listening. I am grateful that we have continued to collaborate in a positive way throughout this process and am delighted to see real improvements coming forward. I ask the noble Lord, Lord Whitty, to withdraw his amendment.

[Lord Whitty]

My Lords, I think that the Government have gone slightly further than previously in referring to there being no disadvantage in relation to the cost of water. Indeed, we will return to the affordability issue later today. The Minister did not deal completely with the issue of non-price disadvantage. The servicing of consumers could suffer from the introduction of a degree of competition if too much of a company’s effort was focused on the business end and led to a diminution in service as well as a disadvantage in price. The Minister has probably said enough for me not to press this point today or in this Bill, but the department and Ofwat will need to be quite clear as to their intentions in that and in their beefing-up of existing mechanisms designed to protect household consumers. I therefore welcome the Government’s amendments and will support them when we reach that point. I shall withdraw this amendment with some slight regret, but the Minister has been relatively helpful. It has been a good start.

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[Lord De Mauley]

My Lords, I thank my noble friend Lord Selborne for explaining once again his concerns to your Lordships. I laid out the government position on this matter clearly during Committee, and I confirm to my noble friend Lord Deben that I do indeed take this matter very seriously. I am happy to clarify the position for your Lordships again this afternoon.

My noble friend’s Amendments 2 to 29 and 31 to 36 would break the link between upstream and retail. While I know that this is not my noble friend’s intention, it would have the practical effect of derailing the reforms which this Bill seeks to introduce. The amendments would introduce a market where incumbents would tender for new water resources under the so-called single-buyer model. That is extremely incumbent-friendly, and would seriously undermine the competition that we are seeking to extend in the Bill.

The single-buyer approach, with decisions resting with the incumbent, will provide fewer rights and less flexibility for new entrants. These amendments would allow incumbents to dictate the future direction of upstream markets. This would, I suggest, present a considerable barrier to entry for new entrants. Only licensees who were able to bid for and win contracts under the terms set by the incumbent would be able to enter the market. Most importantly, it would not lead, I suggest, to a better outcome for customers. For example, there would be an increase in charges if incumbents introduced overly burdensome standards in tenders or made poor decisions over which bids to accept.

As I have said, I know that my noble friend’s intention was certainly not to undermine the market reform provisions of the Water Bill. I have heard his argument that this approach would mirror arrangements being introduced in Scotland, but this is not Scotland. The Scottish Government have taken a policy decision not to introduce upstream competition in Scotland, and that is their prerogative, but that does not mean that is the right approach for England. We face a more challenging water resource situation than our friends north of the border, and we are legislating here for a regime in England. Reducing the scope for innovation and entry into the market is not going to help deliver the change we need. I hope I have explained why I cannot accept the tabled amendments.

I know that my noble friend’s concern is about de-averaging in a more general sense, so perhaps I can take this opportunity to provide some comfort on that issue. The averaging or de-averaging of charges refers to the extent to which an individual customer’s bill reflects the direct costs associated with serving that customer. Some would suggest that a de-averaging of charges will somehow be a direct result of increasing levels of competition in this sector. However, there is no evidence to support this view. Averaged charges are a common feature across the networked utilities and, indeed, in all sorts of industries that are subject to market pressures. We think it is right that network charges should continue to be averaged, and the regulator has stated, repeatedly, that it has all the tools necessary to control the effect of de-averaging on customer charges.

The Government’s charging principles are unambiguous on this. Ofwat must not allow de-averaging that is harmful to customers, and that includes rural customers, to which my noble friend specifically referred. Our charging guidance will follow soon. I am happy to commit, as I have done before, to making it plain in that document that there must be strong, definitive boundaries on the scope of any de-averaging and that households, in particular, must be protected. There are powers in this Bill which the Government will not be afraid to use if Ofwat’s charging rules are not consistent with our charging guidance. I thank my noble friend Lady Parminter for her words.

However, we should not be simplistic. There is no doubt that there are areas where better cost-reflectivity could have substantial benefits for the environment and for the resilience of our water supplies. It must be right that the new upstream markets should reflect the environmental costs of supply. It must also be right that there are economic incentives for business users that use large volumes of water, and it must be right that water companies should seek to identify the most environmentally efficient sources of water. The Bill is all about opening the market, encouraging new entrants and increasing the resilience of our supplies. Better cost-reflectivity in the competitive part of the non-household market is a crucial part of this.

My noble friend suggested that new entrants will not focus on value-added services. He may not have put it like that, but that was the intent behind one of the points he made. New entrants already in the market, such as Business Stream, are very clear that they see value-added services as the best way to maximise profit, so I cannot accept that the way the Bill is designed makes that less likely.

My noble friend raised an important point about fears that the Government’s charging guidance and Ofwat’s charging rules might be overridden by competition law. I draw your Lordships’ attention to paragraph 5 of Schedule 3 to the Competition Act 1998. This provides for an exemption from competition law where an agreement is made in order to comply with a legal requirement imposed by or under any enactment in force in the United Kingdom. Ofwat’s statutory charging rules will take the form of a legal requirement imposed under such an enactment. The Bill provides the Secretary of State with the power of veto over the charging rules in order to ensure that regulatory practice remains well aligned with government policy. I can also confirm that there is no general prohibition in EU law against average pricing.

My noble friend raised the case of Shotton and Albion Water as a legal precedent to support the case that de-averaging is a real risk. This was a complex and long-running case. However, it is a misunderstanding to describe it as a case of de-averaging. Shotton was a very unusual case from which it is not useful to extrapolate more widely. For example, it concerned a discrete system that serves only two customers, one of which was served by Albion Water. This is very rare. To give some context, the case represented 0.01% of Welsh Water’s turnover. At the time of the dispute, this agreement was not subject to regulation by Ofwat. The Bill includes measures that would bring all such transfers within the scope of the regulatory regime. Ministerial guidance and Ofwat’s charging rules will therefore set out how charges between water companies and inset appointees such as Albion Water should be determined in the future.

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[Lord Cameron of Dillington (CB)]

My Lords, I declare an interest for the purposes of Report, in that I am a farmer with abstraction licences on my farm. I support Amendments 59 and 60, which ensure that de-averaging on the basis of geographic location is outlawed in the Bill.

The delivery of water in a civilised, developed country should be a universal right. That is not to say that it comes free for anyone, but that all the costs of the necessary infrastructure, such as large pipes running across farms and small pipes running to farms, should be shared between all the parties. In the same way as Royal Mail has a universal service obligation, so should water.

The Minister said in Committee that Ofwat has the powers to prevent this sort of de-averaging, and he repeated that in response to the previous group of amendments. However, he also said that the Government’s charging guidance will say that any de-averaging must occur only where it is in the best interests of customers; but which customers—urban or rural? It is important to set out firm rules here against de-averaging on the grounds of location in the Bill. That is because there is no doubt in my mind that the Bill is merely the first step in a more comprehensive reform of the water industry, which will happen in due course. Like John the Baptist, the Bill is not the light but the precursor of the light to come.

The next Bill will undoubtedly bring in a comprehensive and sustainable abstraction reform—we know that that has been virtually admitted by Defra—while at the same time it will herald a sustainable consumption reform in the form of introduction of universal metering. I know we are coming to that; everybody knows that that is essential and only political games seem to be preventing it happening this time around. Moreover, as a result of these reforms at either end of the supply chain, I envisage a gradual move to the introduction of competition in the water industry in both the commercial and domestic water supply marketplace. At this stage the important principle of preventing de-averaging for different locations, which these amendments achieve, is absolutely paramount.

I am slightly suspicious of the Government’s reluctance to endorse these amendments in Committee, but I get a hint that they might move a bit further at this stage. If they do not, frankly, the writing will be on the wall for remote rural customers. To use the Minister’s words, it will undoubtedly be in the interests of customers —that is, urban customers, who are in the majority—if the minority of remote customers can be charged more. If that were to happen, it would be a major betrayal of the rural consumer. I say that as the person who has been asked by Defra itself to rural-proof government policies.

[Lord De Mauley]

My Lords, my noble friend Lord Selborne has tabled Amendments 30 and 37, which would amend provisions in Schedules 2 and 4 allowing Ofwat to produce the charging rules that enable licensees to apply for discounts, where the licensee, its customer or anyone else, takes action to reduce pressure on water or sewerage networks. These amendments would restrict such discounts to situations where the incumbent water company’s costs are also reduced.

I agree with the sentiment behind the two amendments, but let me explain why they are not necessary. Ofwat’s powers to make rules on discounts are wide-ranging and can take into account impacts on an incumbent’s costs. They must also be consistent with ministerial guidance. It goes without saying that a discount should not result in an increase in costs for the incumbent or its customers. The sorts of things that we are looking for are agreements where customers commit to take positive actions, such as investing in water recycling facilities or agreeing not to take water during peak periods or during a drought. It might also involve a discount in wholesale charges, where a customer or licensee agrees to invest in an upgrade of a network where the incumbent is also making an investment. But my strong concern is that making a reduction in an incumbent’s costs a condition of such discounts protects the competitive position of the incumbent and risks stifling innovation in the sector if a proposal results in a one-off increase in an incumbent’s costs or if a small investment is needed by the incumbent to help the licensee.

I note that the amendment is similar to a provision in Scottish legislation, which also allows licensees to apply for discounts against charges made by Scottish Water. As far as I can determine, no details have been published of any discounts being applied in Scotland, and I do not wish to place such constraints on the system in England. I am confident that ministerial charging guidance and Ofwat’s charging rules can address issues relating to an increase in incumbent’s costs and what may or may not be passed on to other customers not benefiting from a discount.

Amendments 59 and 60 would prevent an incumbent making any charges within its area based on a location of premises. I know that my noble friend seeks to address issues relating to de-averaging, which we have just debated, but these two amendments could result in a significant impact on charges for all customers across England and Wales. It is sometimes necessary for an incumbent to set different charges within its area of appointment, particularly when it is merged with another incumbent. It may be necessary to maintain separate charges for different parts of a merged incumbent’s areas, even after the merger is complete. For example, Affinity Water provides services in three different parts of the country. The charges are different in each of those three areas to reflect the local costs of supplying water.

We are hoping to stimulate more merger activity through Clause 14—for example, to take advantage of economies of scale for the benefit of customers, who could lose out if the merged incumbent had to average its charges across a merged area. There will be winners and losers, but it will mean that the true costs of providing water and sewerage services may no longer be reflected in customers’ charges. Ofwat and the Secretary of State share a statutory duty to protect the interests of customers. The Water Industry Act 1991 provides that this duty should be discharged when appropriate by promoting effective competition. The Government are clear that the purpose of introducing competition into this sector must be to benefit consumers.

I know that noble Lords will be concerned about the potential for impact on rural and vulnerable customers. The noble Lord, Lord Cameron, referred to that. I share those concerns, and I know that noble Lords will be concerned about household customers who cannot switch suppliers. The Secretary of State, Ofwat and the Consumer Council for Water all have specific duties to have regard to the interests of rural customers and those who are unable to switch their suppliers, such as household customers. These duties are already clearly reflected in the charging principles which we have produced to inform these debates and will flow through directly into our charging guidance and Ofwat’s charging rules.

My noble friend referred to discounts for direct debits. To be clear, the discounts covered by the Bill are not discounts offered by incumbents, such as direct debit discounts for charging payment methods, but discounts for novel or innovative proposals which help all customers.

My noble friend was also concerned that charging rules could be different for different localities. This will allow Ofwat to provide extra protection—for example, for rural customers—as supported by its duty to have particular regard to certain classes of customers, such as, indeed, rural customers. Given these comments, I hope that my noble friend will be prepared to withdraw the amendment.

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[Lord Hope of Craighead (CB)]

My Lords, perhaps I might intervene.

[Lord De Mauley]

I think I might be able to help the House. When it is my turn to speak, I will explain that the Government have recognised the strength of feeling in the House and are carefully considering the difficult issue of retail exits. I plan, as the noble Lord, Lord Whitty, suggested, to return to this issue at Third Reading. I will expand on that in a moment.

[Lord Hope of Craighead]

I am grateful. I intervene as a domestic consumer of the services of Scottish Water in Scotland merely to confirm that the passage the noble Lord, Lord Moynihan, read out at the end of his speech—from, I think, Scottish Water—conforms entirely to my own experience. Scottish Water has become much more visible in the past two or three years and, in my experience, provides an interesting and active service, not only in supplying water but in considering ways in which householders might be benefited by the services it can offer in support of that supply. I merely wish to make it clear that it is not only Scottish Water which says these things. Some of its consumers are very satisfied with its performance as well.

[Lord De Mauley]

My Lords, that is a helpful intervention.

I thank my noble friend Lord Moynihan and the noble Lord, Lord Whitty, for their amendments. We once again have two amendments seeking to allow retail exits but with slightly different approaches. Both amendments would allow the Secretary of State to make regulations that would allow an incumbent water company to transfer its customers to a person holding a licence. Amendment 40, tabled by my noble friend Lord Moynihan, would allow for transfers to a licensed associate of the incumbent, while Amendment 54, tabled by the noble Lord, Lord Whitty, would allow for transfers to any company that holds a water supply licence. Amendment 54 does not allow for the exit of the retail sewerage market but I assume that the intention is to allow incumbent companies that provide both water and sewerage retail services to exit those markets. As with other amendments we have seen, both these amendments allow for non-household customers to be transferred through powers laid out in regulations, but do not allow us to fill in any gaps relating to who will provide retail services to new customers following a transfer or how we would treat transferred customers, including those who wish to return to the incumbent.

Allowing customers to be transferred does not mean that the incumbent has completely exited the retail market. The incumbent will still have certain responsibilities to non-household customers in its area of appointment and will therefore remain very much within that market unless certain duties are removed from it or transferred to the licensee which takes over the customers. It is a halfway house that does not benefit anyone, least of all the incumbent which wants to avoid dealing with non-household customers completely. The value of exits to incumbents would be limited unless the ultimate duty of supply is also removed. Household customers who remain with the incumbent may even end up funding this residual capacity of the incumbent to serve the remaining non-household customers.

But, as I hinted earlier, I have listened carefully to the thoughtful and well informed contributions to the debate on retail exits both today and in Committee. It is clearly an issue on which many noble Lords hold strong views. There is widespread support for enabling voluntary exit from the non-household market, subject to the approval of the Secretary of State. We remain convinced that such approval would be critical to avoid any perception that this will permit forced separation, given the impact that that could have on investment in the sector. I therefore propose to take this issue away and consider it very carefully before Third Reading. I will aim to table an amendment that will build on the objectives of Amendments 40 and 54 in the names of my noble friend Lord Moynihan and the noble Lord, Lord Whitty, respectively, which seek to provide a means for voluntary non-household exit.

I should like to put on the record now that the only practical way of delivering what the noble Lords are seeking would be to take a very wide-ranging power. Extensive changes to the Water Industry Act 1991 would be needed, not least to address issues relating to the incumbent’s duties to supply and its other statutory obligations to customers. Given this commitment to respond to the mood of the House on this important matter, I ask my noble friend to withdraw his amendment.

[Lord Moynihan]

My Lords, I thank the noble Lord, Lord Whitty, and his colleagues for their support for the series of amendments we have debated on this issue as the Bill has progressed through your Lordships’ House. I also thank very much indeed the officials at Defra who have worked on this Bill. It is highly complex and it has gained far more prominence than I believe they expected at the outset. Not the least of that is because of the appalling weather we have had over the past three months and the focus now on the Flood Re insurance proposals, which have understandably generated a huge amount of interest across the country and have resulted in a greatly increased workload for the officials. They have been responsive, helpful, polite and informative at all stages, and I am grateful for that.

I thank my noble friend the Minister for his comments. I am pleased and not a little surprised to hear that he intends to come back at Third Reading with a government amendment along lines that I would strongly support. I thank him for his consideration of the importance of exit. I hear the relevance of the consequential amendments that will be forthcoming if we do not give a fairly broad-based power to the Secretary of State, but it remains my view that in order to have a competitive and effective market, we need exit. In the circumstances, I believe that it is appropriate to grant that power through this Bill. Again, I express my thanks to the Minister and to all noble Lords who have supported me on this issue. I beg leave to withdraw the amendment.

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[Lord Crickhowell]

My Lords, I want to probe a little on the timing. I agree with everything that the noble Baroness has just said. For eight years, as chairman of the National Rivers Authority, I had to try to deal with this problem with rather less adequate weapons than the Environment Agency now has, so I welcome the steps that the Government are taking and have taken. I also want to see rapid progress made on the competitive regime, but there seems to be a very difficult timetable. We will have a report five years out on how abstraction is going, yet there will be legislation in the next Parliament which takes us a year further forward. I do not quite see exactly how the Government envisage progress being made on these two important priorities. I confess that I have been away abroad since Committee—I have been enjoying myself in the Galapagos—so my mind has not been on this matter, but I would be grateful if my noble friend could give us a little greater clarity on the timing of these two interlocking steps, on the way in which they are likely to relate and on how the legislative timetable is likely to fit in.

[Lord De Mauley]

My Lords, this has been another important debate on abstraction reform. It gives me an opportunity to declare another interest: that of a holder of an abstraction licence. Noble Lords have once again emphasised the importance of rapid progress in reforming the abstraction regime and expressed concern about the linkage to implementation of the upstream reforms in the Bill. I thank noble Lords for the knowledge, experience and constructive challenge that they have brought to the debate on this important matter. I have listened carefully to what they have said and I am left in no doubt as to the strength of feeling.

First, I assure noble Lords that the Government are fully committed to abstraction reform. The proposals in our consultation document on abstraction reform demonstrate just how seriously we are taking this, as well as the complexity of reforming such a long-established regime. Our proposals reflect the importance of abstraction reform for people and the environment and the fact that organisations and individuals across the country are dependent on access to water to live their lives and run their businesses.

I want to see a real improvement in the quality of water bodies in all parts of the country. That means we must take action to reduce overabstraction that damages the environment now and ensure we can continue to protect the environment and ensure access to water in the more challenging conditions we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. While some fear that these could be conflicting mechanisms, I can assure noble Lords that the intention is for them to be entirely complementary in both design and implementation. I hope I can provide further reassurance on this, not least through the further amendments that we have tabled to Clauses 8 and 12 and a new clause before Clause 45.

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[Lord Oxburgh]

Thank you. The clarification that I seek is whether the Minister would be willing, when he brings back these amendments at Third Reading, to strengthen some of the words relating to consultation to something rather stronger and relating to an obligation.

[Lord De Mauley]

My Lords, it is difficult for me to respond to that point without knowing the strengthening that the noble Lord has in mind. I am, of course, perfectly prepared to meet him and discuss that between now and Third Reading.

[Lord Whitty]

My Lords, I thank the Minister for his very comprehensive description of the position and I reiterate that I support the government amendments as a significant move in the right direction. However, they are flawed in one serious respect which I will come on to.

The Minister referred to complementarity between the abstraction reform regime and the new competition regime. I am absolutely in favour of complementarity and I think that both are very important for environmental reasons and for reasons of preservation and effective delivery of our water resources. Therefore, in principle, we are not divided. However, the provisions in this Bill are asymmetrical. We have quite detailed provisions on upstream competition. Nothing I have said affects retail competition. Upstream competition is provided with all the legislative framework that you will need—there will need to be some more regulation, but in effect it is there. The abstraction reform has only just started on its consultative phase. Both the noble Baroness, Lady Parminter, and the Minister have said that they intend to legislate in the next Parliament, which is nice to hear but we do not quite know who will run the next Parliament and it is not normal to pre-empt the Queen’s Speeches of the next Government, even if they happen to be the same one. In any case, the timescale is out of kilter.

The essential flaw in the Minister’s position is that all he is referring to is a report in five years’ time after the passage of this Bill, whereas my amendment says that legislation should be introduced in roughly that time and before we trigger upstream competition. That means that they are complementary; that means that the timescales are in line. The danger is that if we miss that early in the next Parliament commitment, they will be seriously out of line; and if we wait for the parliamentary report before we legislate, they will also be seriously out of line. Therefore, that essential commitment to wait until legislation is there is missing from the otherwise admirable amendment that he is proposing today.

This is so important that all parties need to be reassured that we have complementarity as an objective but complementarity along both tracks in the way in which we proceed. It is therefore with some regret that I would like to test the opinion of the House on this matter.

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Moved by

[Lord De Mauley]

42: Clause 8, page 9, line 25, at end insert “, in particular about whether the proposed supply of water would secure an efficient use of water resources, taking into account the effect on the environment of the proposed supply.”

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Moved by

[Lord De Mauley]

53: Clause 12, page 46, line 9, at end insert—
“(aa) provision requiring the Authority to consult the Environment Agency, the NRBW or both of them before making an order;”

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[Baroness Parminter]

My Lords, affordability is clearly a key issue and I thank the noble Lord, Lord Whitty, for raising it this afternoon, although I do not share his faith in a national affordability scheme. I use the word “faith” advisedly because, like the noble Baroness, Lady Byford, I think that the amendment is a little light on the details of what a national affordability scheme might comprise.

My understanding is that eight of the water companies already have social tariffs, or will have by the time we get to Third Reading. Perhaps the Minister will be able to comment on that in his concluding remarks. However, there are one or two laggards, including Yorkshire Water, which has undertaken research into a social tariff but says that the results do not justify it proceeding. This is not good enough; it should be working with the Consumer Council for Water, as 11 water companies are, quickly to identify a way forward.

You would expect water companies to try hard to do this as, in addition to being the right thing to do, social tariffs are, as the noble Earl, Lord Selborne, rightly pointed out, one way to help to tackle the bad debts, which put £15 on all our water bills. Where there has been some reluctance to introduce them, it appears that that has had more to do with limited customer support for the company’s initial proposals, because crucially water company customers have to buy in to the social tariffs as they are cross-subsidising them.

Like my noble friend Lady Bakewell, I welcome the new social tariff guidance from this Government and the Welsh Government. It means that more companies can now introduce social tariffs, but of course these schemes must be tailored to local circumstances. The cost of living, average incomes and the cost of supplying water and sewerage systems vary substantially from region to region. In Committee, my noble friend Lord Whitty acknowledged the importance of taking account of regional variations, saying:

“We recognise the desirability of companies taking notice of the configuration of their own consumers and the particularities of their region, and therefore it is better that companies are left to decide their own schemes which will suit their own circumstances”.—[Official Report, 6/2/14; col. 326.]

Like my noble friend Lady Byford, I believe that the Front Bench opposite has not quite spelt out what the national affordability scheme would comprise, saying that it is up to the department to come up with something appropriate which equally allows for regional diversity of delivery.

The issue is not that the majority of companies are not taking this forward; the issue is fundamentally about who pays for the scheme. The Consumer Council for Water has done research which consistently shows that customers are reluctant to pay above £2 as a cross-subsidy. Does the Front Bench opposite think that its national affordability scheme should top up that sum from general taxation? Should schemes be imposed on people unwillingly or from a levy on water companies? That begs the question of whom it would be levied on, given that the overwhelming majority of companies will have agreed to a scheme by next year.

In addition to concerns about a lack of clarity as to what a national affordability scheme would comprise, I am not persuaded by arguments from the Benches opposite about affordability when it will not support further moves to encourage water metering. The independent Walker review, commissioned by the previous Government, recommended a widespread switchover to metered charging, considering it the “fairest way” to address the affordability problems inherent in the current system. Therefore, it is disappointing that the party opposite—I exclude the noble Lord, Lord Whitty, from my condemnation—is opposed to even minor amendments which I raised in Committee and which the noble Lord, Lord Oxburgh, will be raising again later to help to encourage metering. Such a move could help people to take control of their household bills. On that basis, I do not support these amendments.

[Lord De Mauley]

My Lords, I thank the noble Lord, Lord Whitty, for explaining his amendments and I thank all noble Lords who have contributed to this debate. It will not surprise those of your Lordships who sat through Committee on this Bill to learn that I will not be supporting the noble Lord’s amendments.

I shall deal, first, with the Opposition’s national affordability scheme. The Government take the view that companies are best placed to work with their customers to develop local solutions concerning affordability. After all, it is those customers who foot the bill. That is why the Government’s approach is focused on company social tariffs. The companies’ own business plans show us that by 2015-16 most will have put a social tariff in place voluntarily following a process of engagement with their customers. I am struggling to see the advantage of a national affordability scheme in comparison with the guidance and framework for social tariffs which is already in place and which has, as my noble friend Lady Bakewell said, now been in place for a year.

The Government’s social tariff guidance sets minimum standards in a light-touch way. It does so taking into account the reality of diverse regional circumstances. The minimum standards set in the guidance allow water companies to talk to their customers—the ones, as I said, footing the Bill—and to innovate. Imposing more specific minimum standards on water companies would limit their scope to address the unique circumstances of their respective areas. It would disincentivise companies from coming up with something more creative and more targeted. We should not ignore how different the affordability issues facing the water sector are in different parts of the country.

Our social tariff guidance provides a clear steer on the factors that must be taken into account in the development of a social tariff. However, it leaves final decisions for companies to take in the light of local views and local circumstances, rather than seeking to impose schemes from the top down. The most important requirement of our guidance is for effective customer engagement in the development of a social tariff. The Government believe that some customers should not have to subsidise others without being properly consulted.

All the companies have begun that process of consulting with their customers on whether a social tariff is right for their area and, if so, what form it should take to address local needs. The guidance requires that the companies must work closely with the CCW to ensure that their proposals align with customers’ views of what is acceptable. Undertakers will need to be able to demonstrate that they have listened to customers and organisations representing customers. The social tariff guidance applies to both the companies and Ofwat. Where a company brings forward a social tariff that complies with this guidance, there is a clear presumption in favour of approval by Ofwat.

It is crucial that those who are struggling to pay their water bills get assistance, but the difference between what is suggested and what we have in place is our recognition that local people should have a say. Local factors should be, and are being, taken into account.

I turn now to Amendment 56, which concerns billing information. First, I thank noble Lords for raising a very important point about the WaterSure scheme As noble Lords are by now aware—but sadly many customers are not—the scheme is a mandatory safety net for low-income customers. It is available for customers who have a meter and, for reasons of ill health or because they have a large family, use greater than average amounts of water. I have said before that it is unfortunately a feature of all such means-tested benefits that take-up fails to match eligibility. People who are eligible simply do not sign up. Through informing people that WaterSure exists, I am confident that we can increase uptake. That is why it is important that billing information includes details about WaterSure.

However, that is already happening, and it has been happening for years. The Consumer Council for Water has confirmed to me that information on WaterSure and other similar schemes operated by companies is included with bills. CCWater works closely with each water company on the information provided on household bills to ensure that customer interests are met. Its very practical advice is that customers are likely to be put off by too much additional information on the face of the bill. Taking the other suggestions in the amendment, such as requiring all water companies to provide information about tariff structures and the lowest available tariff, I must confess that I find this requirement rather bizarre. What tariffs are we talking about? This is not the energy sector. Water companies simply do not have complex tariffs. In fact, as I pointed out in Committee, the situation is quite the reverse. There are just two tariffs: charging by a meter, or by the rateable value of a customer’s home.

Water companies provide advice to customers on whether or not they might benefit financially from the installation of a meter. They have to fit one free of charge, if asked. The recent publication of water companies’ business plans has demonstrated how this system can work to claw back benefits for customers using the price review process. By taking account of lower financing costs, Ofwat estimates that the next price review could significantly reduce pressure on bills from 2015 by between £120 million and £750 million a year. Most water companies are proposing flat or declining customer bills from 2015 to 2020.

The amendments are well intentioned and raise important questions about the water sector and help for those who are struggling to pay. I thank the noble Lord for bringing the issues again before the House, but I believe the amendments will not help. I have explained my reasons The Government are absolutely committed to helping hard-pressed customers where we can, and I hope that I have demonstrated that adequately today. On that basis I ask that the noble Lord withdraw his amendment.

[Lord Whitty]

My Lords, I thank the Minister for that, and I thank everybody else who has taken part in this debate, even though there was a marked lack of enthusiasm for the exact proposition that I put before the House. I think that there was also some degree of misunderstanding, but I shall clear up one or two points.

The noble Earl, Lord Selborne, rightly raised the issue of the impact on bills because of people who will not pay their debt, as well as those who cannot pay their debt. In some water companies, the level of debt is horrendous. We are bringing before the House later tonight—probably, if we make it—a couple of amendments that will address precisely that problem. On the one hand, a lot of the unpaid bills arise in private rented property. There was a provision in the 2010 Bill that would have allowed the Government to introduce secondary legislation to require landlords to indicate who was responsible for those bills. In areas such as the Thames Water area, this is a huge part of the company’s unpaid debt. The present Government, however, declined to implement that part of the Bill on the ground that it was too much of a burden on landlords. The alternative is that landlords themselves should be responsible for the bill and recover it through the rent, which is another way of approaching it. We are attempting to address that problem and the costs of debt which get transferred on to the rest of the consumers.

To put it at its mildest, some companies are rather more aggressive than others in chasing the debt among the “won’t pay” element. We have another later amendment referring to Ofwat. If a company was clearly at a higher debt level than the average due to its own failure to pursue the debt, Ofwat could, in the next price review, refuse to cover it in the price settlement. Therefore, there would be pressure at the company end and pressure on landlords to produce the names of the people they regard as being responsible for their bills. There are things that we will do. My noble friend Lord Grantchester will be pursuing this later for those who can stay. We are addressing that dimension as it has an impact on bills. The noble Earl, Lord Selborne, is absolutely right, as he was in his report six years ago.

The proposition for a national affordability scheme is to push along the developments that people are saying, again, are already happening. The noble Baroness, Lady Bakewell, spoke eloquently about the range of social tariffs and similar schemes being provided by Wessex Water. I am also a customer of Wessex Water and I am pretty satisfied with it in that regard, as in others. Not many companies are as advanced on that front as Wessex Water, and some are well behind. Even in Wessex, if there are only 14,000 on the various tariffs—in, effectively, most of Somerset, Dorset, Hampshire, what was Avon and parts of Wiltshire—those who are eligible to be covered by the scheme are not taking it up.

It is true that with all quasi-means-tested benefits there is a lower take-up than the optimum, but this is far worse than in other fields. It is important to give a kick not only to the introduction of schemes but to companies to ensure that those who are eligible know about them and apply for them. My proposition is not that the companies should not be innovative and creative and relate the schemes they operate within their own areas to the kind of demography and costs they face.

In reply to the noble Baroness, Lady Byford, I would say that you cannot specify a national figure because the average charges differ company by company. So you would probably have a minimum level, which was a proportion of the average scheme, company area by company area. We have deliberately left that for the Minister to pursue in defining the minimum standards of a national affordability scheme. It would allow for the maximum flexibility, both geographically and creatively, of the schemes the companies could go for.

The record of the companies so far, and the failure of Ofwat to pursue them, is the reason why we need a push at national level to get them all involved. There could be a variety of schemes, from a discount to a particular tariff based on a proportion of the average or, in the metered sector, to the level of usage required, as the WaterSure scheme does. There is all the scope in the world in my proposition for different schemes to apply in different areas as long as they meet the minimum requirement. At the moment, however one defines the minimum requirement, eight companies are not, as of today, offering such schemes, and those that do have attracted to them only a small proportion of those who are potentially eligible. That is why we need a kick-start to this, and the national affordability scheme would allow for that kick-start.

I hope that the House will recognise that some of the criticism of what I am proposing is misplaced. Obviously, I have failed at successive stages of the Bill to carry across the argument, but I hope that I have now spelled out clearly what the position is.

On the information scheme, I recognise that most companies provide some information on tariffs and that there will be more tariffs. The exposition of the noble Baroness, Lady Bakewell, of the position in Wessex shows that many schemes are particularly geared to classes of consumer. If all consumers were told about those, that would be useful. We do not have the 2,000 or so tariffs which exist in the energy sector, so I was a little surprised when the Minister described as bizarre our proposition that we should inform consumers of what tariffs are available and what is most likely to suit their needs. That is exactly what has recently been put into the energy regulations at the behest of the Prime Minister. I am therefore surprised that the Minister takes a different view on water. It would be simpler and easier to do than in energy and I see no reason why water companies should not take on the obligation of informing their consumers, via their bills, of what options are available.

I am sorry that the Government seem unable to take up this scheme, even though it gives them maximum flexibility in how they implement it. The issue is so important, and there is such a huge lacuna in the totality of what is covered by the Bill, that it would be remiss of me not to attempt to take the opinion of the House. I think the Government are in the wrong place. If they had come up with an alternative proposition, I would obviously have considered it. However, there is not even that on the table, and I therefore wish to test the opinion of the House.

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Moved by

[Lord De Mauley]

57: Clause 16, page 52, line 33, at end insert—
“(6ZA) The Authority must issue rules (and, if it revises rules it has issued, must issue revised rules) about consulting the Council about proposed charges schemes.
(6ZB) The rules must require a relevant undertaker that proposes to make a charges scheme to consult the Council about its proposed scheme.
(6ZC) If the Authority considers that a relevant undertaker has not complied with those rules, it may give the undertaker a direction to do, or not to do, a thing specified in the direction.”

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[Lord Harrison (Lab)]

My Lords, I must apologise to the House and to my own Front Bench for bringing this matter before them not in Committee but on Report, and for not having had the opportunity fully to brief them. However, as my head hurts trying to understand the amendment that I am about to move, perhaps I may explain why I am in this current state.

The issue is this. As I understand it, water connections made through fire suppression systems—which, in the form of sprinklers, have become the new kid on the block, as it were, in recent years—are now classified as non-domestic supply. That in turn means that the water companies, which are exercising discretion on the matter, can attach conditions which are deleterious to our objective of promoting access to water supplies for the purpose of firefighting.

Indeed, there is a patchwork of reactions from water companies across the land. I understand that some companies, because they charge the connection out to some other supplier, charge as much as £3,000 a time, whereas in Scotland, for instance, where we are told that it is a matter of very few coppers to attach the system to the water sprinkler system, no such charges are made.

The problem has been growing over the years and was in part dealt with by a protocol signed off by the then Minister, my noble friend Lord Knight who, unfortunately, is not in his place this evening. That protocol tried to get a balance between the water companies and ensuring the water supply for the purposes of fire suppression. Time has passed since that 2004 protocol, which is why I seek to change Section 57 to ensure that the legitimate use of water to fight fires is clarified and made absolutely apparent.

In doing so, I must thank the noble Lord, Lord De Mauley, and the noble Baroness, Lady Northover, for agreeing to meet me and some of my colleagues recently to get their advice. I should be very grateful if, in response to this probing amendment, we could have a reply that gives some hope that this matter, which we had hoped to have dealt with in the House of Commons by Dan Rogerson, can be dealt with here—albeit that it is a matter that has been brought late into the games.

I should also say that the cost of hydrants, which are available outside buildings to be accessed to suppress fires, are not apparent in the same way as some water companies are now charging those who want access to a sprinkler system. We now have a body of evidence that shows that the fixing of sprinkler systems has been successful in suppressing fires. The problem that we now have is that sometimes people resile from fitting sprinkler systems. I would be very grateful for any hope that the Minister can give me that this could be dealt with sympathetically, and how.

[Lord De Mauley]

My Lords, I am so grateful to the noble Lord, Lord Harrison, for tabling the amendment and bringing this important matter to the attention of your Lordships. I well know that the noble Lord is an active member of the All-Party Parliamentary Group on Fire Safety & Rescue. He kindly brought the honorary secretary of the group, Ronnie King, to see me last week so that I could hear more about this matter, and I am very grateful for that opportunity. Mr King was a senior firefighter and has now dedicated himself to trying to save even more lives by campaigning on issues of fire safety. He wants more people to install sprinklers. He wants the barriers that might stand in the way of the installation of more sprinklers to be knocked down. The amendment would result in fire suppression systems, known to most of us as fire sprinklers, being referred to explicitly in legislation as water for firefighting.

I understand that a key driver behind the amendment is the problems that can arise between fire sprinkler installers and water undertakers when connections for fire sprinkler systems are required. Those problems include undertakers requiring meters to be installed on the connections, smaller connection sizes than would be ideal for the fire sprinkler system and requirements for internal storage.

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Moved by

[Lord De Mauley]

73: Clause 37, page 87, line 19, at end insert—
“( ) In section 213 (powers to make regulations), in subsection (1A) (affirmative resolution procedure to apply on first exercise of power), for “each of sections 89 and 90 above, the instrument” there is substituted “—
(a) each of sections 89 and 90, and(b) each of sections 207A and 207C and Schedule 16;the instrument””

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Moved by

[Lord De Mauley]

75: Clause 39, page 91, line 31, leave out from “section” to “House” in line 32 and insert “may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each”

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[Viscount Hanworth (Lab)]

My Lords, I support the amendment of my noble friend Lord Whitty. The privatisation of the UK water industry occurred as long ago as the late 1980s, and it was accomplished in a fashion and manner that paid scant attention to the need for an attentive regulation of the industry.

A provision for the public regulation of privatised industries was an integral part of the concept of privatisation but, in many cases, only lip service has been paid to this aspect. The light-touch regulation of the water industry has provided a case in point. It is arguable that, had there been a more active regulation of the industry, it would be in far better shape than it is at present. An active regulator might have prevented the firms of the industry from becoming the pawns in financial manipulations of foreign owners that have had the motive solely of private enrichment.

The firms have been used as tools in strategies of leveraged corporate acquisitions and takeovers that have borne no relation to the ostensible purposes of the industry. The investments in the water industry have fallen short of what they might have been if the profits had been ploughed back. Instead, they have been used to pay large dividends to the owners and to the shareholders.

Finally, it is questionable whether the majority of the firms in the water industry have any clear concept of their social responsibilities. A full provision of information is required to enable interested parties, including the Secretary of State, to assess the performance of the industry. Then steps could be taken to redress the abuses that have occurred in the past and that are liable to occur when there is insufficient regulation. That is what the amendment calls for.

I hope that the Government will be able to accept the amendment. There used to be the so-called “June review” which was assembled by the regulator, Ofwat, but it has since fallen into abeyance, as we have heard. The amendment would reinstate that review, but it would give it more force and it would ensure that it could not fall into abeyance in the future.

[Lord De Mauley]

My Lords, I thank the noble Lord, Lord Whitty, for moving his amendment. We have heard about asking water companies for information, much if not all of which is already freely available in their annual reports and accounts. I have said before that the amendment would, to that extent, simply duplicate existing powers.

What we are really talking about is Ofwat’s ability to examine what companies are doing to ensure that they are not profiteering at the expense of their customers. Although I disagree with the amendment before us, I most certainly agree with the principle that water companies must be effectively regulated. I believe that the regulator is doing its job robustly.

The focus of the amendment is, in particular, on reopening a price review. In fact, Ofwat already has the power to reopen the price review in two ways. It can do this under the “substantial effects” clause of a water company’s licence or by making an interim determination. It is clear that Ofwat has the power to revisit price determinations, if it so wishes. In fact, in October last year, Ofwat consulted on whether or not it would be right to utilise this power with respect to Thames Water. However, given the fundamental importance of regulatory stability in the water sector, it rightly utilises these powers with caution. Ofwat considers carefully whether any intervention it might make would be in the overall interests of customers.

Of course, it must be right that Ofwat does this with the bigger picture of stable economic regulation firmly in mind. The objective of setting prices for a five-year cycle is to create a period of stability during which companies are able to invest and deliver the outcomes that they have agreed with the regulator. They have a period during which they are allowed to receive the benefits of that settlement and then, at the end of the period, prices are adjusted to capture those benefits for customers.

That is what is currently taking place through the price review process. Ofwat believes that by taking account of the current low cost of borrowing it will be able to limit price increases from 2015 to 2020 by between £4 and £25 a year. Accordingly, I am unable to see what purpose the proposed annual returns will fulfil. We should look to the future and look at what Ofwat is doing. Let us be clear about the direction of regulation in the water sector. Ofwat is already taking action to improve standards of corporate governance across the sector. It is putting pressure on water companies to strengthen audit arrangements, board member appointments and governance. Ofwat recently published new principles relating to board leadership, transparency and corporate governance. These set out clear standards for the sector and a clear timetable for their introduction. The response from the water companies has been positive and I welcome this. Ofwat is also consulting on principles for holding companies covering risk, transparency and long-term planning. It has made it clear that the companies’ licences may need to be brought up to date to reflect these reforms and it is already discussing this with the companies. Further reporting burdens will not contribute positively to this process. I hope that the noble Lord will agree to withdraw his amendment.

[Lord Whitty]

My Lords, I did not really expect the Government to fall over themselves to accept this amendment today. However, I am glad that I have raised the issue because I think that the Minister is right that Ofwat is now taking greater cognisance of the broader picture. The early years of Ofwat regulation were undoubtedly seriously light touch, even though it required an enormous amount of information from the companies. My aim here is not to duplicate the provision of information but to allow Ofwat to use that information and, if it was inadequate, to require more from the companies. The overall picture is very difficult to justify. The level of borrowing, the level of dividends and the level of taxation, taken as a whole, is very difficult to justify to the British people over a set of companies which is supposedly regulated tightly, and which plays such an important part in their lives. I therefore think that we need to find some mechanism which does not transgress the lines that the Minister set down about regulatory stability and Ofwat acting primarily in the interests of customers; I do not wish to upset either of those objectives.

However, there is an oddity about the structure of this industry that, at some point, some Government or regulator is going to tackle. I am very appreciative of Ofwat’s latest moves in the general direction of tightening up and looking after consumers better. The reason for me saying that is not that when we finish here I am going to the Ofwat reception over the road. I think that it is improving and broadening its role without imposing pernickety regulation. In fact, it is getting rid of some regulation in terms of provision of detailed information.

Ofwat is moving in the right direction, but it is a big problem. I would have hoped that the Government could have recognised it a little more explicitly, because I think it may come up at some point and bite whichever Government are in power when something goes seriously wrong with one of these companies. We have been close to that once or twice in the past 30 years, and I do not think that current Ofwat powers, and certainly past Ofwat practice, were up to dealing with that.

I thank the Minister for his reply. I will not return to this issue, but I suspect that somebody else will at some point in the next few years. I beg leave to withdraw the amendment.

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Moved by

[Lord De Mauley]

79: Schedule 7, page 175, line 20, leave out sub-paragraph (2) and insert—
“( ) In subsection (1), for the words from “the following” to the end there is substituted “the powers and duties conferred or imposed on the Secretary of State or the Authority by virtue of any of the relevant provisions.””

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Moved by

[Lord De Mauley]

87: Before Clause 45, insert the following new Clause—
“Report on water abstraction reform
(1) The Secretary of State must prepare a report setting out progress made in reforming the arrangements for managing water abstraction in England.
(2) The Secretary of State must lay before Parliament a copy of the report.
(3) The report must be prepared and laid before the end of the period of five years beginning with the day on which this Act is passed.”

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Moved by

[Lord De Mauley]

88: Clause 49, page 107, line 18, leave out subsection (12) and insert—
“(12) If the statutory instrument contains any regulations which, on their own, would make the instrument subject to the affirmative resolution procedure, the instrument is subject to that procedure.”

Food Banks

Lord De Mauley Excerpts

Thursday 20th March 2014 Lords Chamber

[Lord Beecham]

To ask Her Majesty’s Government what assessment they have made of the number and role of food banks in the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)]

My Lords, there are no official figures for the number of charities providing food aid, including through food banks, in the United Kingdom. Food banks are a mostly community-led provision responding to local needs, and it is not government’s role to tell them how to run the services they provide.

[Lord Beecham (Lab)]

My Lords, Newcastle alone has eight food banks and seven low-cost food centres. Is it not time that the Government recognised that the growth in the number of food banks and in the number of people using them does not reflect a lifestyle choice but is caused by hardship and hunger? Will the Minister urge the Secretary of State for Work and Pensions to resile from his petulant refusal to meet the Trussell Trust, one of the major providers of food banks, and instead discuss with it how best to meet the need that is now palpable in communities up and down the country?

[Lord De Mauley]

My Lords, we do, of course, appreciate that some of the poorest people are struggling. The Government’s view is that the best way to help people out of poverty is to help them into work. The latest labour market statistics show employment up, unemployment down and workless households down. We operate a number of government initiatives aimed at helping families with food—Healthy Start, Change4Life, and the School Fruit and Vegetable Scheme—and we are extending free school meals. There are a number of other measures designed to help households in the wider context. These are the ways in which we are tackling poverty.

[Baroness Jenkin of Kennington (Con)]

My Lords, my noble friend may not be aware that the APPG on Food Poverty and Hunger is shortly to start an inquiry into the reasons behind food poverty, which will be chaired by the right reverend Prelate the Bishop of Truro and Frank Field. I am sure we all look forward to its findings. Does my noble friend agree that the flip side of this coin is the shocking amount of food waste in this country, estimated at £60 a month for each household—the equivalent of six meals a week?

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[Lord De Mauley]

My Lords, I am aware of the APPG inquiry of which my noble friend speaks, and I am looking forward with great interest to what it comes up with. As my noble friend also knows, we have a number of initiatives dealing with food waste. As an example, WRAP’s Love Food, Hate Waste campaign aims to raise awareness of the need to reduce food waste and help people take action.

[Baroness Whitaker (Lab)]

Is the Minister aware that since food banks got going at their present scale, hospital admissions for malnutrition have increased by 74%? What are the Government going to do about that?

[Lord De Mauley]

My Lords, we are working with business and others to encourage people to adopt a healthier diet. Industry is making voluntary pledges to cut salt, fats and calories, increase uptake of fruit and vegetables and label nutrients and calories on packs in out-of-home eating places. Of course, there are a number of other initiatives to do with school food.

[Lord Palmer (CB)]

My Lords—

[The Lord Bishop of Gloucester]

My Lords, research by Citizens Advice shows that the main reason people are referred to food banks is delay in the payment of benefits and benefit sanctions; anecdotally, this is also the church’s own experience from its involvement in the many food banks it helps to run across the country. Will the Minister tell us whether the Government are persuaded by this evidence and, if they are not, will he share with us what plans they have to carry out their own research into the reasons leading so many people to seek food aid?

[Lord De Mauley]

My Lords, I very much acknowledge the right reverend Prelate’s question. While it is right to expect that claimants who are able to look for or prepare for work should do so, a sanction will never be imposed if a claimant has good reason for failing to meet requirements. If claimants demonstrate that they cannot buy essential items, including food, as a result of their sanction, they can claim a hardship payment. No claimant should ever have to go without essentials as a result of a sanction.

[Baroness Royall of Blaisdon (Lab)]

My Lords, food banks in the south-west gave emergency food aid to more than 40,000 adults and 20,000 children in 2013. Does the Minister believe that this is supply-driven or down to desperate, pressing demand caused by a cost of living crisis? If he is unsure, perhaps he would accept an invitation to join me on a visit to my local food bank, or perhaps to the one in Gloucester, to investigate.

[Lord De Mauley]

My Lords, I have indeed visited a local food bank near my home within the past few months. I was reminded that food banks are run by wonderful people and donated to by hugely generous folk. They perform a very valuable service, distributing food to people who really need it, and they tend to operate at a local level. Britain has a great tradition of charitable giving, and it would be a bad day on which we started to interfere with that.

[Noble Lords]

Oh!

[Lord Palmer]

My Lords, there was some confusion with the right reverend Prelate. I did in fact ask the Minister whether he agreed that it is surely a scandal in today’s society that food banks have to exist at all.

[Lord De Mauley]

I think I have just answered that, my Lords. Britain has a great tradition of charitable giving, and it would be a great mistake to interfere with that.

[Baroness Parminter (LD)]

Can my noble friend say whether the Government have any plans to commission any of the research indentified in the conclusions of his own department’s recent review of food aid in order to inform and support the voluntary groups providing food aid?

[Lord De Mauley]

My Lords, we are not proposing to record the number of food banks or the potential number of people using them or other types of food aid. To do so would place unnecessary burdens on the wonderful volunteers trying to help their communities. The report is a useful summary of evidence from providers and charities. The provision of food aid ranges from small, local provision through to regional and national schemes. The landscape is mostly community-led provision responding to local needs. It is not the Government’s role to tell them how to run the services they provide.

[Baroness Farrington of Ribbleton (Lab)]

My Lords, the Minister said that the answer to the problem of people using food banks is for them to be in employment. Without doing research, how on earth can the Minister justify that statement? So many people are working and using food banks—those on zero-hours contracts, et cetera. Is the Minister aware that, in many parts of the country, food banks cannot accept food that needs cooking because those using food banks have had their power cut off through poverty?

[Lord De Mauley]

My Lords, the noble Baroness raises a number of issues, and I am not going to have time to do them all justice. She raises the issue of the working poor, and she is right to do so. We agree, as I said earlier, that some of the poorest households in the country are struggling. That is why, for example, we are increasing the minimum wage and increasing the personal tax allowance, taking 3.2 million people out of income tax altogether. That is why we have frozen fuel duty and why we have helped local authorities freeze council tax.

[Lord Tebbit (Con)]

My Lords, would my noble friend not agree that there is always a near-infinite demand for valuable goods that are given away free? One can notice it even in the catering departments of this building. If food is given away at prices grossly below market value, more is used. Would my noble friend initiate some research into the sales of junk food in the areas where people are relying for their basic foods on food banks?

[Lord De Mauley]

No, my Lords, we will not. It might be worth adding to the debate that, as part of its 2014 report on social indicators, the OECD reported that in the United Kingdom there had been a decrease in the number of households reporting that they had felt unable to afford food over the past 12 months when compared to 2007.