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Flood and Water Management Bill
Consideration of Bill, as amended in the Public Bill Committee
'(1) An undertaker's charges scheme under section 143 of the Water Industry Act 1991 may include provision designed to reduce charges for individuals who would have difficulty paying in full.
(2) Subsection (1) includes schemes which have the effect of subsidisation by other persons.
(3) The Water Services Regulation Authority's powers in connection with the approval of schemes (and its other powers under the 1991 Act) are subject to subsections (1) and (2).
(4) The Minister must issue guidance in respect of subsections (1) and (2) which must, in particular, include factors to be taken into account in deciding whether one group of customers should subsidise another; for which purpose the Minister shall have regard to the need to balance the desirability of helping individuals who would have difficulty paying in full with the interests of other customers.
(5) Undertakers and the Authority shall have regard to any guidance issued by the Minister under subsection (4).
(a) in the case of an undertaker whose area is wholly or mainly in England, the Secretary of State, and
(b) in the case of an undertaker whose area is wholly or mainly in Wales, the Welsh Ministers.'.- (Huw Irranca-Davies.)
Brought up, and read the First time.
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Huw Irranca-Davies): I beg to move, That the clause be read a Second time.
Mr. Speaker: With this it will be convenient to discuss the following: new clause 16- Training and development of employees in water sector -
'(1) The Water Industry Act 1991 (c.56) is amended as follows.
(2) After section 37(3) insert-
"(4) It shall be the duty of each water undertaker to ensure it maintains investment in the training and development of its workforce. Each undertaker shall be required by Ofwat to include in their twenty-five year strategic plan measures to ensure that sufficient investment is being made in training and development".'.
New clause 17- Duties for sustainable management and use of water -
'(1) The Water Industry Act 1991 is amended as follows.
(2) After section (2)3 insert-
"(3A) The Director of Ofwat shall carry out the duties imposed by this section in such a way as to:
(a) promote the sustainable management and use of water;
(b) ensure that the regulatory duty of Ofwat is structured to promote sustainability in the water management supply chain, paying particular attention to innovation in treatment processes, energy efficiency, job security, leakage control and water efficiency activities, including an obligation to promote a more long-term (twenty years or more) approach by water companies to their investment programmes;
(c) promote skills in the water industry, by publishing a skills strategy; and
(d) promote employment in the water industry through an annual report to Ministers on the number of jobs in the sector and in the supply chain."'.
New clause 18- Role of the Water Services Regulation Authority (OFWAT) -
'(1) The Water Industry Act 1991 (c. 56), is amended as follows.
(i) sustainable water management;
(ii) innovative treatment processes;
(iii) energy and water efficiency;
(vi) skills in the water industry; and
(vii) employment in the water industry."'.
Amendment 22, in clause 43, page 28, line 37, at end add-
'(6) An undertaker's charges scheme devised under subsection (1) must be overseen by the Water Services Regulation Authority (Ofwat).'.
Huw Irranca-Davies: May I take this opportunity, now that we have come out of Committee, to thank the Opposition Front-Bench teams and Back Benchers on the Committee, as well as others who have taken a keen interest in the Bill? What was already a good Bill was improved in Committee-and I am sure that it will be an exemplary Bill when it emerges from our deliberations today and goes on to the other place.
This group of amendments relates to the role and responsibilities of Ofwat and the water and sewerage undertakers, and to the design of those undertakers' schemes of charges. New clause 22 has been tabled in response to concerns raised in Committee about the affordability of water and sewerage bills for some households. The Government are bringing it forward to enable water and sewerage companies to include social tariffs for groups of customers who have difficulty in paying their bills.
Such social tariffs may introduce new cross-subsidies between groups of customers. Ofwat, the independent economic regulator, may not reject charges schemes on that basis out of hand. It still has a crucial role in the process-to ensure that tariffs are in the interests of customers-but it will have to be able to show that any action that it takes in approving or rejecting a charges scheme does not undermine the general principle behind the new clause.
Lembit Öpik (Montgomeryshire) (LD): I have one question on that specific point. I applaud the Government for taking on board the feedback that I understand was given in Committee, but I am concerned that, at least in theory, Ofwat could still ignore the attempts by private water companies to provide concessionary rates for customers who are less well off. How can the Minister assure the House that it will not intervene when to do so would be socially unacceptable?
Huw Irranca-Davies:
There are safeguards in the new clause, which I will come to in a moment. They include the requirement that Ofwat consult its wider consumer base, because we do not want to solve one problem only to create another. The new clause makes it clear that Ofwat must play a positive role in the charges schemes
being brought forward and then work with stakeholders. I have got no further than my opening remarks, and I hope that the hon. Gentleman will allow me to explain a little more.
Under existing legislation, Ofwat has a duty to ensure that charges schemes are not
"unduly preferential or unduly discriminatory".
The UK Government and Welsh Assembly Government must provide in legislation that social tariffs introducing new cross-subsidies are lawful. We are bringing this new clause forward for that reason, as we believe that it gives Ofwat the legal assurance that it needs to allow companies to bring forward social tariffs.
By way of response to the hon. Member for Montgomeryshire (Lembit Öpik), I can tell him that Ofwat made it clear in evidence to the Committee that it felt that there was not sufficient legal clarity to compel it to consider that approach. This new clause is designed to provide just that clarity; I believe that Ofwat will be reassured in that regard.
As the House is aware, the Walker review of charging for household water and sewerage services published its final report in December. It highlighted the plight of customers who face difficulty meeting their bills because the increase in water metering in some areas can exacerbate the affordability problem for low-income families who had previously been helped by a cross-subsidy inherent in a charging system based largely on a property's rateable value.
We are considering Anna Walker's final recommendations carefully, ahead of a full public consultation. One of her recommendations involves possible changes to the vulnerable groups tariff, but we agree with the Committee's conclusion, prompted by the hon. Member for Cheltenham (Martin Horwood), that it is timely to enable companies to include social tariffs that can reflect local circumstances. Those social tariffs could complement any tariffs that we might want to provide for nationally in secondary legislation in the future.
Lembit Öpik: It would be remiss of me not to praise my hon. Friend the Member for Cheltenham (Martin Horwood) for his contribution in Committee, and I am grateful for that clarification by the Minister. For the sake of the record, however, will he confirm that when private companies seek to provide more generous terms for less well-off customers, the default position for Ofwat is that it will be obliging? Will he make it clear that it will not seek a technical or specific loophole to prevent those more generous terms from being put in place?
Huw Irranca-Davies: I do confirm that that will indeed be Ofwat's position; the hon. Gentleman is right to raise the matter. The new clause makes Ofwat's legal position clear, and also puts in place a positive expectation in respect of social tariff schemes. Ofwat must work with the wider consumer base to make sure that the schemes are appropriate, and must not reject them out of hand. The difficulty that Ofwat used to face was quite understandable: even with the existing guidance, it did not feel that there was sufficient clarity in the law.
Mr. Elliot Morley (Scunthorpe) (Lab) rose-
Mr. John Redwood (Wokingham) (Con) rose-
Huw Irranca-Davies: I shall give way first to my right hon. Friend the Member for Scunthorpe (Mr. Morley), and then to the right hon. Member for Wokingham (Mr. Redwood).
Mr. Morley: I too welcome the new clause, because we need to clarify social tariffs on water use. Indeed, we have a social tariff structure on energy use. My hon. Friend will agree that a lot of work has been done on this subject through reports that he has commissioned and by bodies such as the Consumer Council for Water, but the public need to be fully consulted, so I would be grateful for some assurances about that.
Huw Irranca-Davies: Entirely. That is exactly why we have introduced the new clause in its current form. In effect, we are taking a power that, although tightly drafted, still allows us to go out to full consultation, bring forward the underpinning regulations and guidance and make them fit for purpose. We do not want to pre-empt Anna Walker's package of proposals, as I made clear in Committee, but we might not have this opportunity again for a couple of years-who knows? In which case, we should introduce the measures now, so that we can move ahead.
Mr. Redwood: In appraising the proposal, it is crucial that we know how the Minister defines people
"who would have difficulty paying".
Cross-subsidy might be involved, and we want to avoid the pretty poor cross-subsidising the even poorer, so it is important that we know where he is minded to draw the line.
Huw Irranca-Davies: The right hon. Gentleman makes a very good point, but that is absolutely why the Bill should not include specific definitions of who does or does not fall into that category. That is exactly the purpose of going out to proper consultation-so that those terms can be defined and we can accurately reflect not only how those individuals or households are defined, but how such definitions in a local area tie in with complementary national schemes.
The new clause would also enable the Secretary of State and Welsh Assembly Ministers to issue guidance to undertakers. That would set out which groups of customers we might expect to benefit from social tariffs-the very point that the right hon. Gentleman made. It would also set out the need for detailed impact assessments and consultation with customers and the Consumer Council for Water to determine what might be an acceptable cross-subsidy. We expect Ofwat to ensure that schemes are consistent with the guidance that we will issue.
New clause 16 would require each water undertaker to invest in the training and development of its work force, and to include that in its 25-year strategic plan. There is a laudable intention behind that proposed change, and I shall come to it in a moment. New clause 17 would give Ofwat a duty to promote the sustainable management and use of water, and to promote sustainability in the water management supply chain. It would also require Ofwat to publish a skills strategy and an annual report to Ministers on employment in the water industry.
New clause 18 would introduce a number of additional primary duties for the Secretary of State-or, as the case may be, Ofwat-when regulating the water industry.
New clauses 16 to 18 have laudable intentions, but I said in Committee that they were unnecessary, and I shall expand on that, because it is worth elucidating on the Floor of the House the reasons why that is so.
I said in Committee that when we take all those aspects into account, a review of Ofwat in some form is justified, and I shall consider how best to take that forward. I made that commitment in Committee, and I stand by it. In its inquiry last year into the 2009 price review, or PR09, the Environment, Food and Rural Affairs Committee recommended a fundamental review of Ofwat's role-and I neglected to thank the Committee for its work on all aspects of the Bill. Such a review would, of course, need to look at social, environmental and economic considerations across the board, not just the themes outlined in those three new clauses. There is a strong justification for such a review.
Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): Will my hon. Friend consider whether that review might cover mergers? Water companies are not currently allowed to merge, but they might be, and although there can be problems with mergers, some could bring significant benefits to consumers.
Huw Irranca-Davies: That is a helpful intervention, and I take my hon. Friend's point on board. In defining the review's terms of reference, it will be important not only to make them narrow, but to ensure that they encompass the changing situation in the water industry. We might well consider the aspect to which my hon. Friend refers. I cannot give her a cast-iron guarantee, but if we are going to think about a fundamental review, let us think about a fundamental review in all its aspects.
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As I have said, there is a strong justification for carrying out a review. When the water industry was first privatised, the role of the economic regulator was primarily to ensure that companies fulfilled their functions and extracted efficiencies from the industry. However, social and environmental issues such as climate change and the affordability of water have become much more important in the past 20 years, and water companies face new challenges over the sustainability of water supplies. That said, I hope that hon. Members will accept that the primary responsibility for work force planning and development sits with the water companies. As part of its 2009 review of water price limits, Ofwat required companies to develop a 25-year long-term strategic plan called a strategic direction statement, as well as a more detailed five-year business plan that included specific investment proposals for 2010-15. For the first time ever, that puts the period 2010-15 into a much longer-term context.
The Government also have a role in supporting companies in looking to the long term. In particular, Energy and Utility Skills, the sector skills council, works with the water companies to identify the skills needs of the sector and to develop a strategic approach to addressing any gaps. It also develops vocational qualifications with water companies, and relevant skill-based training programmes with training providers. In July 2009, as part of the Government's re-licensing programme of all 25 sector skills councils, it was announced that EU Skills was not only successful in being re-licensed but judged to be "outstanding". However, it was also noted
by the National Audit Office that engagement with the water sector was not as strong as that with the gas and power sectors, which also fall within EU Skills' remit. In my view, it is crucial that all parties work together to ensure that the water sector is able to meet future challenges. I urge water companies actively to work together with EU Skills-I will play my part as well-to identify where the skill gaps are and to work up strategies to address any shortfalls.
In relation to putting new duties and responsibilities on to Ofwat, I emphasise that Ofwat's current duties already require it to contribute to sustainable development. The new duties proposed in new clauses 16 to 18, such as those on investment and training, employment, job security and skills, leakage control, and the sustainable management and use of water, would sit alongside Ofwat's other primary duties. While we recognise the importance of all the issues identified in the new clauses, not least skills and training, it would not be right for these topical issues to be placed alongside existing primary duties involving high-level and strategic concerns about protecting consumers and ensuring that companies carry out their statutory functions. Nor should they be placed above the secondary duties that encompass much broader aspects of water regulation, such as sustainable development and better regulation in water efficiency. For example, it is unthinkable that Ofwat would not consider issues surrounding sustainable water management, or energy and water efficiency and leakage control, when considering its sustainable development duty. Similarly, work force issues should be taken into account when considering duties involving efficiency and meeting statutory obligations.
I also note that Ministers already have the power to issue social and environmental guidance to Ofwat to underline the importance of the types of issues identified in new clauses 16, 17 and 18. Guidance was issued by the Department for Environment, Food and Rural Affairs in September 2008 and by the Welsh Assembly Government in February 2009, including guidance on sustainable development and on environmental policies such as water efficiency, water quality and climate change.
Linda Gilroy: I thank my hon. Friend for being so generous in giving way. He was kind enough to attend a reception about innovation in the water industry. Is he confident that there are sufficient powers available to the regulator and to the Secretary of State to direct the regulator to ensure that there is sufficient innovation in the water industry?
Huw Irranca-Davies: Indeed there are, but that should be considered as part of the review of Ofwat's powers and duties. We also have to make good not only on Anna Walker's report but on what might come out of the Cave report. There is unfinished business in driving forward innovation in relation not only to efficiency but to tackling the carbon footprint of the water industry and so on. My hon. Friend makes a valid point.
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