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27 Jun 2006 : Column 26WH—continued
“Customers are paying the higher prices that Thames Water has been allowed to charge without getting all the benefits that the company has promised to deliver. This is unacceptable”.
“The company's poor leakage performance is not only inefficient, it is also contributing to water shortages that have led Thames Water to impose a hosepipe ban and seek a drought order”.
So it is the main cause of the drought order for which it has applied.
When asked to comment, the Secretary of State for Environment, Food and Rural Affairs said:
“These leakage results from Thames Water are of real concern”.
Dame Yve Buckland, Chairman of the Consumer Council for Water, which covers England and Wales, said:
“Thames’ performance is unacceptable. Their customers have every right to question whether they are getting what they have paid for”.
The Federation of Small Businesses called on the Secretary of State to deny the water company the drought order. John Holbrow, the FSB national environment chairman, said:
“The water companies' lack of understanding of the situation of small businesses is staggering and reeks of arrogance. If they invested more of their profits in fixing leaks there would not be a water shortage in the first place. The amount used by small firms is a drop in the ocean compared to the amount lost by the water companies through leakage. Yet small firms are threatened with closure while the water companies continue on in their inefficient ways”.
As I said, Thames Water is the worst of those water companies.
I do not think that the Minister can claim that water leakage has got better over recent years. I shall share with him figures from a recent parliamentary answer on the amount in megalitres per day of Thames Water’s leakage: in 1997-98, 906 megalitres, 1998-99, 770 megalitres, 1999-2000, 662 megalitres, 2000-01, 688 megalitres—so far so good. It looked like things were getting better, but then of course RWE purchased the company. After that the figures are: 2001-02, 865 megalitres, 2002-03, 943 megalitres, 2003-04, 946 megalitres, 2004-05, 915 megalitres. I say to him that that is not an improving situation.
Ofwat published future targets for Thames Water: 2004-05, 905 megalitres, 2005-06, 860 megalitres, 2006-07, 805 megalitres, 2007-08, 770 megalitres, 2008-09, 745 megalitres and in 2009-10, 725 megalitres. The targets are coming down, but I suggest that they are optimistic. How can there be confidence in the targets, when consistently they are not met by Thames Water?
Anyway, those figures are far too high. We should be looking to come down much further. Given global warming, Thames Water must urgently make progress in stopping leaks far beyond the regulator’s targets. Thames Water says that by 2009 it hopes to have replaced 1,000 miles of London’s 3,000 mile, 150-year-old Victorian network But only 135 miles of mains were replaced last year. Thames Water’s excuses, such as blaming London’s clay soil, are feeble. London has always had that type of soil, and certainly did in 2000
when RWE bought Thames Water. That is a greater reason to get on with the job and install more durable pipes.
Even if Thames Water was to meet its Victorian network replacement target, it would still leave another 2,000 miles of leaking pipes, and beyond that, whatever part of London’s other 7,000 miles of mains is faulty. No date has been set to get the whole job done. I note with disgust that the Victorian pipe replacement programme is on hold in my Leyton and Wanstead constituency, as in neighbouring areas such as Walthamstow and parts of Ilford. There are great swathes on hold across the whole of London.
As I said, Thames Water is a privatised monopoly, which has been rapacious at its customers’ expense since privatisation. The water regulator seems to think that his role as the protector of London’s public interest in its water supply—supposedly his main purpose—is best served by letting Thames be a greedy business. He has got it wrong. He is trying to ride two horses at the same time and I am afraid that they have gone off in different directions. It is time to make the public interest primary. Londoners are beginning to lose faith in him doing that. His relationship with Thames Water is far too cosy. He is too easily conned by the Thames Water argument that what is good for its business is good for the public. That is plainly not so.
If the regulator cannot do his job, then London’s public interest protection should be handed over to the London Mayor. He would certainly do it. Londoners will now look at the regulator closely. For a start, he should require that future price rises are restricted. Then he needs to set targets for leak stoppage that are considerably hiked from the current ones. He should fine Thames for such a poor performance, including—there should be legislation if needed—the directors. Any fine should be ring-fenced so as to be reapplied to stopping leaks; they should not just go to the Treasury for general use, as seems likely to be the case at present. Will the Minister pledge that a fine, if imposed, would be ring-fenced? Otherwise the fine is just a punishment and Londoners get punished along with Thames Water. Thames Water now has a credibility gap. This drought order should not be granted, because of the poor water management. If Thames Water cannot do the job, the company should brought back into public ownership.
I understand that an independent public inquiry has to consider the drought order application. Will the Minister explain the arrangements—how, where and when will it take place? How will the public be able to make their representations? Or will he be advising Thames Water to withdraw their drought order application? I hope that that will be the case.
There is a strong case for promoting water conservation. If the Government share that view, they should put their money where their mouth is, with tax incentives to consumers—for example, by subsidising water butts for people to use in their own garden or save-a-flush crystals. I am not impressed with “Don’t wash your baby or yourself” exhortations. We have come a long way in improving individual hygiene over the last century and we want no deterioration in public
health. In any case, drains and sewers need water flow to keep them safe. Some of the policies suggested risk that.
The Royal Society for the Protection of Birds has argued for an accelerated programme of mains and supply pipe replacement to tackle leakage. The supply pipe is the short section of pipe from the mains to a home and is the customer’s responsibility. A great deal of leakage nationally is located there, although in London it is mainly Thames’s own pipes that leak. That is a point that needs to be picked up nationally. Again I suggest to the Government that letting home owners fix those leaks for which they are responsible is a good purpose for a tax incentive.
There is a strong case for individuals to use water prudently, which I support. Water is a precious resource. However, demand-management measures are not the only issue, as presented by some Ministers, Thames Water and the water regulator. The high level of leaks by the water company has a negative impact on the public’s attitude to sensible water use. The promotion of water efficiency is fatally undermined by the leaks. In the age of global warming and future water shortage, individuals have a responsibility, but the responsibility of leaky Thames Water is even greater.
One third of the water for which Thames Water is responsible—197 million gallons a day—is wasted. With global warming, that inefficient profligacy with vital supplies must end. It is crucial to get matters right. We want individuals to promote water efficiency, and there are many measures that can be introduced to assist that, but those measures will fail if Thames Water and all the other water companies do not get a grip on the high level of leaks, which are far more damaging. We cannot afford that failure in the age of global warming.
If we do not get it right, we shall have drought order restrictions in the lead-up to, and during, the 2012 Olympics. That will be to the detriment of the games, and although I know that the games are only one event, they are important, particularly to the prestige of the country. We do not want water restrictions at that time.
The Daily Telegraph carried a news bulletin yesterday entitled, “No. 10 leaks mean Whitehall fails to meet water targets.” It said:
“The Cabinet Office has come under fire from government advisers for wasting vast amounts of water at No. 10.”
It said that the Cabinet Office
“soaks up four times as much water as it should because leaky pipes have gone unrepaired.”
“the Cabinet Office is using 6,614 gallons per person every year. This represent almost four times the official target of 1,694 gallons for every employee and is the worst performance of any government department.”
I know that the people in the Cabinet Office and at No. 10 are the Minister’s bosses, and that he must tread carefully, but he is the Minister responsible for water and I think that he should get the message across to his colleagues. It may risk his career, but he should make it clear that the repairs that are needed should be undertaken throughout Government offices.
Another matter on water management is the big row in London on the level of future investment. Thames Water wants to invest a lot of money, but in a
desalinisation plant that is strongly opposed by the London Mayor. I know that such plants can be of great use and that they are important in some third world countries, where they are needed to convert sea water to drinking water, and for agricultural use. The Mayor’s argument, however, is that they are not appropriate here in London. His reason is their high energy use; he talks of the plant pumping out 25,000 tonnes of carbon dioxide into the atmosphere every year, thereby contributing to climate change. Nevertheless, there needs to be investment in future water supplies, so instead he favours effluent re-use.
That sounds awful, but it is far less harmful to the environment. It embraces high technology to clean water from sewage works to drinking water standard, instead of just pumping it into the River Thames as at present. Effluent re-use is supported by the Royal Society of the Protection for Birds. It would like to see that technology used in similar plants in many coastal areas around the country. I support that, and it should be the technology that the Government are looking in to invest in as well.
Ofwat has sadly supported Thames’ desalinisation plans. It has not taken into account the carbon dioxide and climate change effects. Yet, they oppose a new reservoir near Abingdon in Oxfordshire. How can a reservoir be deemed harmful to the environment? We have many lovely reservoirs in this country and we need them.
The Minister made a statement, when the south-east drought order was granted, saying that we have plans for five new reservoirs and expansion of three others. I support that aspect of Government policy. Ofwat seems to have got it wrong on both counts. It is a matter of the leaks. The amount of leaks is at a totally unacceptable level and we urgently need improvement for Londoners.
Gregory Barker (Bexhill and Battle) (Con): I congratulate the hon. Gentleman wholeheartedly on securing this important debate. For my own clarity, am I right in thinking that he opposes the granting of a drought order?
Harry Cohen: Yes, indeed. I said that in the course of my speech and that was the final remark that I wanted to make. Leaks are at an unacceptable high level, and Thames must be told to get on with dealing with them. In those circumstances, it is not appropriate to grant the drought order.
Gregory Barker: We clearly face an urgent situation in London with the water shortages. Given its horrendous record in the past three years, will Thames Water be able to turn around the leakages situation quickly enough to abate the need for a drought order?
Harry Cohen:
That is the case this year. I repeat the point that we had the wettest May on record. We will have to see what happens during the summer. If there is a long period without rainfall, the matter could be revisited. However, we could get through the summer with sensible public use, an expansion in the programme of proper public education—getting the public to use water efficiently—and an emergency programme to stop
a number of the leaks. There have been reports of heavy leaks that have not been dealt with for weeks, certainly days, on end. Thames Water should be required to deal with those immediately—on the same day, or the next day—which would be far more effective than imposing a drought order.
There is still a hosepipe ban in place for Londoners. The case has not been made for a drought order for this year and I oppose it. It gives the wrong message to Londoners. In one of the by-elections, an independent candidate is going round turning all the taps on as a protest against Thames Water. That is appalling. I utterly condemn that. However, you will start to get that type of bloody-mindedness if Thames Water does not start dealing with the leaks. The leaks are appalling. The Government need to give a clear message that dealing with them is overwhelmingly the top priority. Not granting this drought order and not making it easy for Thames Water would also reinforce that message.
Susan Kramer (Richmond Park) (LD): I apologise for coming in late; I was in a Committee. Does the hon. Gentleman agree that the many Londoners—my constituents are a good example—trying to observe the hosepipe ban would do so in a far better spirit if at least a plan was put forward that gave them some assurance that Thames Water was going to respond to the crisis by changing the way it behaves and the speed with which it deals with leaks? Does he have—as I do—a constituent who on the one hand, is unable to use his hosepipe and on the other hand, cannot get a leak stopped? I have received one letter one week and the other letter the next from the very same constituent.
Harry Cohen: The hon. Lady makes an excellent point and reinforces the points that I am making about priorities. If the Minister is minded to grant a drought order, there will be incredible annoyance in London. Further, at the public inquiry about which I hope to hear, a lot of Londoners will want to make representations, to hear exactly what Thames’s plan is and to learn what sort of improvements they can expect. I suspect there will be a lot of protests at that public inquiry against granting the drought order.
In conclusion, I advise against granting the order this year; it gives the wrong message. Certainly give other messages, such as one on prudent water use by the public, but also give a message to Thames and the regulator that they must get on and deal with this leak problem in a more serious way than they have done up to now; otherwise they will be punished.
11.26 am
Martin Horwood (Cheltenham) (LD): I pay tribute to the hon. Member for Leyton and Wanstead (Harry Cohen) for securing this important debate. For some of us here this is a little like Groundhog day, as we were in Westminster Hall on 13 June discussing the issues of water shortages, which included drawing attention to many of the matters surrounding not only water leakage but also efficient water management. As the hon. Gentleman rightly says, the failure to address these issues in combination is the reason for our responding to a drought with a drought order rather than being able to cope with it.
The hon. Gentleman is a little unfair in citing the wettest May of all time as a reason not to impose the drought order. This is an area of technical expertise far beyond me, but I am conscious of the fact that we have had, over a period dating back to November 2004, some of the lowest groundwater levels since the 1920s and some of the lowest river flows on record. There is clearly a serious drought, but he is exactly right to identify failures of water management as a contributory factor to the response to that—be it a drought order or even a hosepipe ban.
Thames Water is clearly in a league of its own. Ofwat’s target for Thames Water by 2010 is that it be leaking only 205 litres per property per day. That is 30 litres per property per day more than the worst performance of any other current water company. There are historical reasons for that—the London water infrastructure is in a different state from that in other parts of the country. Nevertheless, the trend does not seem to be in the right direction. Again, from Ofwat’s figures, we can see that Thames Water is leaking 200 million litres per day more than it was leaking in 1999-2000. So six years on, we are in a worse situation. There comes a point where we have to ask whether the current regulatory regime is tackling the issue.
Since the debate on 13 June, Ofwat issued a statement, on 21 June, which said:
“We view as very serious Thames Water’s significant failure to achieve its leakage target”
for the past year. It said that the position was unacceptable, but did not say what it intended to do about it, and we await its proposed measures with interest. However, if the regulatory regime has not managed to turn around the position over six years, perhaps we need to start looking at different approaches.
The hon. Gentleman also mentioned the staggering price rises suffered by Thames Water customers, which were 21 per cent. in one year, an average of £44 per property. That is happening in a scenario in which £1 billion of dividends has been taken by RWE over five years and a £24 million remuneration package has been paid to the RWE board. If we look at Thames Water, let alone the parent company, we see that operating profits reported for the past financial year were up 6 per cent., at £385 million. Incredibly, directors’ bonuses last year increased from £228,000 to £615,000, with the total remuneration of the four executive directors up 62 per cent., at £1.26 million. If their water leakage record were improving by similar percentages, the residents of London would be much happier. Bill Alexander, the chairman, was paid just under £800,000 and retiring managing director, John Sexton, received £415,000. Those accounts were revealed only three months after the staggering 21 per cent. price rise for Thames Water customers.
Wearing another hat, as secretary of the all-party group on corporate responsibility, I think that Thames Water is missing something. Its reputational risk in such a situation is high, and I do not believe that even its shareholders in the long term are being well served by such an appalling and obviously greedy record. The hon. Gentleman suggested that the relationship with
Ofwat was somewhat cosy. I have sympathy with that view, but Ofwat’s position paper on company profits states:
“We have no formal powers to control profits...as the economic regulator of the water and sewerage industry in England and Wales, we have a statutory duty to
‘secure that companies...are able (in particular by securing a reasonable return on their capital) to finance the proper carrying out of their functions.’”
The hon. Gentleman will be interested to know that Ofwat says that it has
“no formal power to control dividends.”
However, it follows the principles that
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