Water and Sewage Regulation (Industry and Regulators Committee Report)

Baroness Hayman of Ullock Excerpts

Monday 16th October 2023 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank my noble friend Lord Hollick for his introduction to our debate on this excellent report. He laid out the recommendations that the report makes to the Government, which have been discussed by noble Lords today.

I will pick up a few of the recommendations in particular, looking first at water demand and reservoirs. A lot of concerns have been raised about our water for the future and the infrastructure required to manage it, so I would be interested to hear from the Minister what action the Government intend to take to reduce water demand and to increase consumer awareness about this issue.

On reservoirs, the report confirms in paragraph 308 that,

“despite the need for reservoirs … under current plans, not a single major one will have been built in the UK between 1991 and 2029”.

As my noble friend Lord Chandos mentioned, this is a failure of infrastructure and planning. One of the pieces of evidence taken from Professor Barker was about the Cheddar reservoir and the fact that Ofwat refused to fund it on the basis that the case had not been made—but it was subsequently recognised that it was actually really important. We also know about the issues with the inability to construct the reservoir in Abingdon, which has been going on for years. Mr Black of Ofwat told the committee that

“the planning process will need to align with the needs of water resource management”.

I would be interested to hear the Minister’s response to that. I had a meeting with Mr Black some time ago, and he seemed surprised to hear that in Cumbria they are closing reservoirs. There does not seem to be any joined-up thinking about our future water use, so I would be interested to hear the Minister’s response on our future ability to supply the country with the water that it needs.

One of the issues that my noble friend Lady Taylor raised was about the Government’s response to the report; she said that it was pretty dismissive, and other noble Lords have said similar. The Government seem to be saying, “Well, we don’t need to do that because we are already making plans for water, storm overflow action plans, legislative initiatives and so on”. But the point we are trying to make here is that, although that may be very well, it does not seem to be working. What will the Government do to ensure that it will make a difference?

Let us look at the Government’s Storm Overflows Discharge Reduction Plan. I am aware that, following consultation, the Government have published an expanded plan to extend the targets of the plan to coastal and estuarine storm overflows, for example, but the extended new plan does not answer the criticisms in the report. For example, it is criticised for not setting environmental targets and ambitions at an outcome level. Other criticisms are that there is

“a disconnect between DEFRA and regulators … that ‘DEFRA targets are about the number of sites that are improved, while Ofwat has a proposal … for the number of events per storm overflow’”,

and that the plan

“is very focused on just the water industry and fails to grasp the holistic approach”

needed across all sectors. Can the Minister explain how the Government intend to manage those criticisms and to improve the situation?

In Ofwat’s response to the report, it welcomed the awarding of extra funding for the next two years; we welcome that as well. It also points to the water companies’ commitment of £10 billion of extra investment by 2030. But, as has come out in this debate, how will that be paid for and who will pay for it? Will it land on the taxpayers—the people already paying a lot for their bills? As we have heard, people are not well off at the moment. We have heard again about the dividends given to directors, so whose shoulders should this cost fall on?

Ofwat also claims that companies have pledged to reduce storm overflows by 25% by the 2024 price review. If it is so straightforward for them to say that they can reduce them by a quarter, why has progress not already been made on this? Also, does that mean the reduction or eradication costs regularly cited by the Government are accurate? It does not make sense to me that they can suddenly say that they will reduce them by 25% when it has been, to be blunt, such a pickle.

Back in June the committee launched a follow-up inquiry into Ofwat, the water industry and the role of government, with oral evidence sessions in June and July, including with the Minister, Rebecca Pow MP. I am concerned that the committee’s work on this is ongoing, because that suggests that it was not convinced by the Government’s current approach and response. Why does the Minister think the committee feels it has to continue with this work?

The noble Lord, Lord Cromwell, spoke about his concerns about the ability of the regulators and the department to deliver what is required. This was clearly demonstrated by the Environment Agency’s 2022 performance assessment and the diabolical rating of almost every water company, bar Severn Trent. My noble friend Lady Anderson took some SIs in September on broadening Ofwat’s powers, including allowing the regulator to impose unlimited fines on failing water companies. As this change was announced some time ago, and improved in the Commons prior to the Summer Recess, I ask the Minister when we will see the power used. Does he genuinely believe it will lead to different outcomes? We need different outcomes from what has been happening to date.

Also in September, we had the news that the OEP was looking at whether Defra, the Environment Agency and Ofwat acted unlawfully in failing to prevent water companies’ sewage discharges. The Environmental Audit Committee and its chair, Philip Dunne MP, have expressed concerns around this as well.

Ofwat published its latest annual water company performance report in September, which seems to be quite a busy month for the water industry. The report found that fewer than half of companies met targets in relation to sewage, which triggered a requirement for money to be returned to bill payers. Many noble Lords have talked about the fact that if bill payers are not being served properly, they should have some money returned to them. Does the Minister agree that the Government are at fault and that responsibility lies at the Government’s door for that situation? The Government cut back enforcement and monitoring of water companies releasing into rivers and the sea, and they are now not properly being prosecuted when they are blatantly breaking the law.

One of the committee’s recommendations was to increase the Environment Agency’s resourcing. In their response the Government noted the recommendation but argued that the inquiry was primarily focused on Ofwat, which, as I said earlier, has had extra funds. But should sewage discharge fines not be given to the Environment Agency so that it can expand its enforcement efforts? Does the Minister not agree that that would make more sense?

We believe that the right approach should be to put the water industry under special measures—basically to force it to improve its performance, as that does not seem to be happening otherwise. We believe that there should be mandatory monitoring of every water outlet. The noble Lord, Lord Cameron, talked about monitoring. The noble Baroness, Lady Jones of Moulsecoomb, talked about the importance of effective sanctions. We believe that there should be severe and instant fines for illegal sewage dumping and that the money raised should be used to fund additional enforcement measures.

We believe that Ofwat should be empowered to ban the payment of bonuses to water bosses unless their companies hit performance targets. We also believe that we should introduce criminal liability for water company directors whose companies break the law in an extreme and persistent manner. Again, this is something that I have raised with the Minister during Oral Questions.

As my noble friend Lord Whitty said, the current situation is a disgrace. I am starting to lose track of how many times we have debated this or asked Questions about this. As the noble Duke, the Duke of Wellington, said, it is time that the Government became genuinely more ambitious in this area, because it is really time that we stopped the failures of our water industry.

--- Later in debate ---

[Lord Benyon (Con)]

I hope the noble Lord heard me say that we have changed the rules. Fines by the Environment Agency are no longer capped at £250,000. They can be unlimited and there can be criminal sanctions for companies that break the law.

I think the noble Lord, Lord Sikka, said that £82 billion was paid. I might have misheard him. My understanding is that Thames Water paid its parent company £82 million to finance its debt, but it has not paid dividends to its shareholders in the last six years.

I will move on to the noble Duke, the Duke of Wellington. His recommendation for a changing landscape of regulation may well have its time. We need to review these things now and again. It is above my pay grade, but perhaps over time we should think about it.

To those who say that we are not resourcing the Environment Agency, I say that we have increased its annual spend by £2 million a year. That has produced nearly 50 enforcement officers looking at the quality of water. We want to see leaks reduced by 50%, which is an enormous number of litres of water, and have set out very demanding roles for that.

I come to the responses from the Front Bench. I have made my point about nature-based solutions and I hope the noble Baroness, Lady Bakewell, understood that. I say to the noble Baroness, Lady Hayman, that we will continue with this work. It is continuous; this is not an issue that is of a single moment in time. Our strategic policy statement to Ofwat showed an absolute step change in how we saw the regulatory framework for water companies. I suggest that she was slightly confusing Ofwat and the Environment Agency on enforcement. The Environment Agency is the organisation that enforces water companies; Ofwat sets the parameters and is the regulator.

[Baroness Hayman of Ullock (Lab)]

I was suggesting that some of the money given to Ofwat could be given to the Environment Agency for enforcement.

[Lord Benyon (Con)]

I will take that away. I think that they are both funded properly. I want to make sure we continue to do so and allow them to carry out the work the Government require of them.

I will just touch on the reservoir issue. The draft plans contain proposals for multiple new supply schemes, including nine new desalination schemes, nine new reservoirs including an addition to the Havant Thicket reservoir that is being built, 11 water recycling schemes, and many new internal and inter-company transfers to share resources.

It is not just water companies that need to take action to protect our water supply—it is every single one of us. That is why the Government’s Plan for Water sets out clear action to reduce demand. The game-changer in the Plan for Water makes it easier to build reservoirs. The new water resources—through the Regulators’ Alliance for Progressing Infrastructure Development, known as RAPID—and securing planning consent through the DCO process, including having water resources infrastructure as a national asset, are certainly making things better on that front. I hope we will see an easier process. The noble Baroness quite rightly raises Abingdon reservoir; that has been going on for more or less as long as I have been alive. I want to make sure that very important structures like that are built. We cannot just go through a circular process of planning inquiries, with very smart lawyers who delay getting important assets built.

With that, I think I have covered most of the points raised. In conclusion, I again thank the noble Lord and his committee for their detailed work on these important issues. I welcome the opportunity to debate these matters in the House. I have confidence that the plans that this Government have put in place will deliver the greater investment, tougher regulation and stronger enforcement needed to transform the water industry and ensure that the clean and plentiful water we need is available for generations to come.