Mr Philip Hollobone (Kettering) (Con): Is it not the case that Iran is the biggest and nastiest bully in the middle east playground and that despite having been

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kept after class to complete its lines, it has failed to do so and yet has been given its catapult back? If I am wrong, can the Foreign Secretary confirm to the House that, as a result of this agreement, Iran is not in a position to complete a nuclear weapon?

Mr Hague: Yes, that is right; all the aspects of the Iranian programme that I have listed are prevented from going forward over this six-month period, and some of them, as I have set out, are rolled back. The comprehensive agreement that we are seeking after this first step will make it clear that, as I was just quoting, in no circumstances will Iran ever seek or develop any nuclear weapons. So this is not so much a case of giving the Iranians the catapult back as of ensuring that they will never have a catapult.

Alec Shelbrooke (Elmet and Rothwell) (Con): The election of President Rouhani last summer, not least its landslide nature, came as a surprise to many people. I believe firmly that it happened because he was the only candidate to say that the direction of Iran had to change because the sanctions were so crippling. With that in mind, may I urge my right hon. Friend the Foreign Secretary to outline to the House the efforts that will be gone through to tighten the grip of sanctions if Iran does not stick to its side of the deal, rather than looking at military options?

Mr Hague: I have no doubt that if Iran does not stick to its side of the deal, first, the limited sanctions relief of which I have spoken, which comes from the suspension of sanctions and one-off unfreezing of assets, would certainly come to an end. I have also no doubt that, in those circumstances of a breakdown of an agreement that we and our partners have entered into in good faith, there would be very strong pressure for an increase in sanctions on Iran. That is what Iran would have to expect in those circumstances.

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Points of Order

4.47 pm

Paul Goggins (Wythenshawe and Sale East) (Lab): On a point of order, Mr Speaker. You will be aware of the growing concern that exists about the conduct of G4S and Serco, and whether they should be allowed to continue with their bids to run probation services. Last Wednesday, I asked you whether the Justice Secretary intended to make a statement following the admission by G4S that it had been overcharging for electronic tagging services. On Friday, the Justice Secretary announced his decision that he would not award the contract to run three prisons in Yorkshire—again, this was for reasons that appear to be linked to the investigation into overcharging. It appears that the Justice Secretary is making this up as he goes along, and I wonder whether he had, even now, indicated that he intended to make a statement.

Mr Speaker: No Minister from the Department has given any indication to me of an intention to make a statement to the House. I may misrecollect, but I thought there were going to be scrutiny opportunities in relation to legislation before very long, which might allow this issue to be aired. Whether that would include the right hon. Member for Wythenshawe and Sale East (Paul Goggins) or, in any case, is an avenue satisfactory to him, I cannot say. I recognise that he is being persistent on this point, but the straight answer to his question is that no such notification has been given to me and he will have to use the resources available to him further and better to flag the issue up with Ministers.

Chris Bryant (Rhondda) (Lab): On a point of order, Mr Speaker. I am sure that the whole House is very grateful to the Foreign Secretary for having come here at the first opportunity to brief the House on what happened in relation to Iran. I know that when he went to the Conservative Friends of Israel meeting at 1.30 this afternoon, he was religious in not saying anything there before he had said it to the House of Commons. Unfortunately, his officials were tweeting throughout his statement—while he was still making his opening remarks—the content of what he was about to say. The rules are very clear, as I am sure you are aware: nothing shall be said by the Department until such time as the

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Minister has sat down. I afraid that we now have a different set of officials with us, but I wonder whether it might not be a good idea to write to Departments just to remind them of the rules.

Mr Speaker: I am grateful to the hon. Gentleman for his point of order and for his courtesy in giving me advance notice of it. Let me say to him, and to the House, what the position is. My predecessor ruled on 9 June 2008, at column 21, that the text of statements should be released simultaneously to Members of the House and to the media, and that that should happen when the Minister giving the statement sits down. That ruling still applies, and it applies equally to electronic release as it does to the circulation of hard copies so far as I am concerned. The hon. Gentleman has referred to people to whom we do not ordinarily refer in the Chamber. Whichever particular individuals might have undertaken this activity, the principle is very clear: Ministers are responsible for everything that happens in their Departments. That is a fundamental feature of our constitution, so I am sure that the point will have been noted by the Leader of the House and elsewhere, as necessary. I hope we will not need to return to it, because it is breathtakingly clear.

Bill Presented

High Speed Rail (London - West Midlands) Bill

Presentation and First Reading (Standing Order No. 57)

Mr Secretary McLoughlin, supported by the Prime Minister, the Deputy Prime Minister, Mr Chancellor of the Exchequer, Mrs Secretary May, Secretary Vince Cable, Mr Secretary Duncan Smith, Mr Secretary Pickles, Mr Secretary Paterson, Mr Secretary Davey and Mr Robert Goodwill, presented a Bill to make provision for a railway between Euston in London and a junction with the West Coast Main Line at Handsacre in Staffordshire, with a spur from Old Oak Common in the London Borough of Hammersmith and Fulham to a junction with the Channel Tunnel Rail Link at York Way in the London Borough of Islington and a spur from Water Orton in Warwickshire to Curzon Street in Birmingham; and for connected purposes.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 132) with explanatory notes (Bill 132-EN).

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Water Bill

[Relevant documents: Sixth Report from the Environment, Food and Rural Affairs Committee, Draft Water Bill, Session 2012-13, HC 674 and Government Response, Cm 864.]

Second Reading

4.50 pm

The Secretary of State for Environment, Food and Rural Affairs (Mr Owen Paterson): I beg to move, That the Bill be now read a Second time.

I am delighted to present a Bill that reflects my twin priorities of growing the economy and improving the environment. The Bill will promote growth for the long term, improve the resilience of our water supplies and the environment and increase choice for customers. Our White Paper on water sets out a vision for the future of the water sector. We need continued investment in our water and sewerage systems. We need investment in storing water and moving it to where it is needed; investment in maintaining our sewerage network and improving drainage, including through sustainable drainage options; investment that will protect our rivers through improvements to water quality; action to address over-abstraction; and investment in greater water efficiency.

Caroline Lucas (Brighton, Pavilion) (Green): Given that the Secretary of State says that it is designed to protect the environment, will he agree to amend the Bill to require fracking companies to have a full liability guarantee to cover a range of eventualities before an environmental permit is allocated? He will know that even if liability is proven, if the companies go bust the costs will still be passed on to the taxpayer, or to the water companies, which in turn will pass them on to the customer.

Mr Paterson: On the issue of fracking, I have made it absolutely clear that we will in no way dilute or diminish any of the existing regulations relating to the extraction of hydrocarbons from underground. A whole framework of different regulations is already laid down by European legislation, and we intend to respect them, but there is great merit in developing fracking, as we have seen in the dramatic reduction in gas prices in the States, with huge benefit to the US economy. We think we will see similar merits in our economy.

Barbara Keeley (Worsley and Eccles South) (Lab): My constituency has a place called Barton Moss, which is to be explored for shale gas. It is next to a raised peat bog, which is one of the rarest and most precious resources in the country that has not been ruined by over-extraction. There are real concerns among my constituents about dewatering those precious mosslands. They see a real need for reform in the Bill to ensure that explorers or exploiters of shale gas do not dewater areas and that if there are any pollution incidents, there is a financial guarantee that they will be made to pay for what they do.

Mr Paterson: I have sympathy with the hon. Lady’s question; I have mosses in my own constituency. Let me reassure her that there is absolutely no intention to dilute or reduce in any way the rigour of our environmental

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regulation. I also remind her that on a visit to Washington, I spoke to the Environmental Protection Agency, which could not name a single case of water pollution from any of the 2 million wells that have been sunk in the United States. I think we should look at fracking with open eyes—we should recognise that oil has been extracted at Wytch Farm, for example, for decades almost within sight of a site of special scientific interest and a bird reserve—and, done properly, it is a thoroughly meritorious and worthwhile activity that will bring jobs and prosperity to this country.

Barbara Keeley rose—

Mr Paterson: I hope that the hon. Lady will not mind if I carry on, as the debate is about the Water Bill rather than fracking.

Earlier this year, we announced that the Bill would also include measures to deal with the availability and affordability of flood insurance. That is an important issue for many Members of the House and their constituents and I am glad that we are making progress on it.

Mark Pritchard (The Wrekin) (Con): My right hon. Friend will know, as a fellow Shropshire MP, that there is significant flooding in areas such as Shifnal and Albrighton in the east of the county in my constituency. What discussions has he had with the Association of British Insurers to ensure that people have access to affordable flood insurance?

Mr Paterson: I am grateful to my hon. Friend and neighbour for his question. I shall come on to that in a minute, but we have had exhaustive and extensive discussions with the ABI to ensure that the statement of principles is succeeded by a new regime, on which I shall elaborate in a few minutes.

The main focus of the Bill is reform of the water industry. Reform will provide more choice for non-household customers and bring new entrants into the market. It will use the power of competition to drive efficiency, innovation and benefits to the environment.

Mr John Redwood (Wokingham) (Con): As somebody who strongly welcomes the introduction of competition, why will not the Secretary of State allow competition for everybody? If it is really a natural monopoly, nothing will happen and no harm will be done, but if it is not, we could all get the benefit of competition with lower prices and the quality of water we want.

Mr Paterson: As my right hon. Friend knows, I have total sympathy with that position. I am quite clear that as an aspiration universal competition is worth while. Our problem is that we want to take the first step and take the wholesale route, which will bring immediate benefits and real efficiencies to major businesses, but it is hard to move down to a household level, where the gains are much smaller because of the narrow margins, until we have universal metering. At the moment, metering is at about 40% and we need to move closer to universal metering before we can reach the position with which he and I have much sympathy.

Privatisation of the UK water industry has seen the sector attract £116 billion in low-cost investment, enabling our infrastructure to be upgraded and environmental

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standards to be improved. I saw that for myself when I visited Northumbrian Water’s waste treatment site in Howdon. Its investment in anaerobic digestion is enabling it to process 500,000 tonnes of sewage every day that was previously dumped untreated in the North sea.

Our rivers are now cleaner than they have been for decades. Rivers that were previously classified as sterile or biologically dead are now supporting otters and salmon. A substantial programme of investment has also led to more than 82% of our bathing waters meeting the highest EU standard this year. That is a great example of improving the environment and growing the economy.

Simon Hughes (Bermondsey and Old Southwark) (LD): The Secretary of State will know that there has obviously been general support for a clean Thames, but the proposals for the Thames tunnel are still controversial. Will he update the House on whether the Government have concluded their discussions and negotiations with Thames Water about the mechanism to ensure, if we are to have a tunnel after the planning inquiry, that people in the Thames area do not pay through the nose for the privilege?

Mr Paterson: I am fully aware that that is a matter of enormous interest to the right hon. Gentleman and his constituents. To put it bluntly, it is not acceptable that we continue to put 20 million tonnes of untreated sewage in the Thames every year. We have considered a range of alternatives—I know that he has been advising on this—and have concluded, as did the previous Government, that the tunnel is the best solution. We continue to negotiate in detail with Thames Water on the arrangements that will lead to the conclusion of the project.

We now need to build on our success. The Bill will shape the way the industry develops over the next decade and beyond. It will build on the strengths of the regime and use increased competition to drive greater innovation and efficiency, which will benefit customers and make sure that our water supplies and natural environment are resilient.

The Bill shows that we are tackling affordability for the long term.

Mr Charles Walker (Broxbourne) (Con): My right hon. Friend says that we are going to improve the nation’s ability to capture and store water, thereby reducing abstraction. Will he be telling us later in his speech where the new reservoirs are to be built?

Mr Paterson: I will be moving on to that. I cannot tell my hon. Friend exactly where the new reservoirs will be because that will be down to the individual companies, according to local circumstances, but I can categorically assure him that I hope that the measures in the Bill will release a floodtide of new investment, potentially in new reservoirs, use of aquifers and transfer of water between water companies, to maximise use of the water that lands on this country. I remind him that 95% of that water ends up in the sea. We need to manage the water better before it gets there.

The Bill shows that we are tackling affordability for the long term. The package of reforms is designed to exert a sustained downward pressure on water bills and

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ensure affordable flood insurance for households in areas at high risk of flooding. We are well aware of the financial challenges that hard-working households are facing.

Earlier this month I wrote to water companies asking them to consider whether to apply the full price increases next year that were planned for in the 2009 price review. I asked them to share the benefits of historically low financing costs with their customers. Ofwat is with me on this. It estimates that by taking account of lower financing costs, the next price review could reduce pressure on bills by between £120 million and £750 million a year from 2015, while still enabling companies to invest in high-quality services and the environment. This demonstrates once again how critical financing costs are to the bills that customers pay: 1% on finance costs leads to about a £20 increase in bills to customers. We must not undermine in any way the stable regulatory system which gives confidence to investors.

This Bills means that all business, charity and public sector customers in England will be able to choose their water supplier and, for the first time, their sewerage supplier. They will be able to shop around for the best deal and a package that suits them. Large water users could make savings by switching to a water supplier that offers them water efficiency advice and smart metering. We have seen how competition in Scotland is delivering real benefits to customers and to the environment. The public sector in Scotland is forecast to save £36 million over four years, thanks to better water efficiency and discounts. Customers in England deserve the same opportunities. Multi-site customers such as hospitals and supermarkets could save thousands of pounds in administration costs by dealing with only one water company.

Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I am fully aware that in the south-west we have significantly higher water rates—probably the highest in the country. The Government have noted that and uniquely have given customers of South West Water £50. Does my right hon. Friend think that competition will drive down bills in the south-west as well?

Mr Paterson: I have no doubt at all that we want more efficient water companies with more investment, which undoubtedly will lead to a cheaper product.

We are already seeing the first signs of a competitive market. In September, to answer my hon. Friend’s question directly, First Milk became the first multi-site customer to switch to Severn Trent Costain. The two companies are working together to improve First Milk’s water efficiency and lower its environmental impact, but these opportunities are limited at present because they are open only to the largest water users. The Bill will simplify the existing regime, providing clear rules of access and non-discriminatory pricing to attract new entrants to the market. We expect this expanded retail market to open in 2017.

Andrew Miller (Ellesmere Port and Neston) (Lab): I take the right hon. Gentleman’s point about expanding the market and the smaller companies. However, the Canal & River Trust, a body supported on both sides of the House, is concerned that clause 12 will impact negatively not just on its ability to deliver its charitable

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objectives, but on its navigation functions and income. Will he have a close look at that and agree to meet representatives of the Canal & River Trust to discuss their concerns?

Mr Paterson: I thank the hon. Gentleman for that interesting question. We would be happy to meet the Canal & River Trust—it would be appropriate for the Under-Secretary of State, my hon. Friend the Member for North Cornwall (Dan Rogerson), to do so, as he is taking the Bill through the House—but I think that it is being negative. With its wonderful and virtually national network, it has a real opportunity, because if we open up more upstream providers we will need a vehicle for moving water around. I take a very positive view of this for the Canal & River Trust. We are definitely happy to meet it.

We are not at this point offering choice to household customers. We are taking a step-by-step approach, gaining experience from a competitive business retail market first and reducing any risk to investment in the sector. We have seen in Scotland that competition tends to be around value-added services, rather than price, making the case for household competition less attractive. The conditions need to be right. For example, we would need much higher levels of metering before household competition was practical. Although household customers will not be able to choose their supplier, they will benefit from a framework that encourages water companies to put customers at the centre of decision making or risk losing market share. Ofwat will ensure that household customers do not subsidise the costs of increased competition.

I know that some water companies have asked for the option of exiting the retail market. The problem with that approach is that household customers could lose out because they would not have the ability to move to a new supplier, and if the incumbent water company keeps its household customers but disposes of its business customers, the householder is stranded with a company that has little incentive to provide a decent service. We are not prepared to risk that.

The Bill will also make it much easier for new businesses to enter the water market to provide new sources of water or sewage treatment services, known as upstream services.

Mr Charles Walker: On that point, will my right hon. Friend clarify something for me? What is a new source of water?

Mr Paterson: A new source of water is one that is not currently being used, so that could mean opening up old boreholes, or farmers building new reservoirs, or water companies building new reservoirs—we have not built a new reservoir in this country for over 30 years. There are all sorts of new sources of water. Around 95% of the water that lands on this country ends up in the sea. We want to manage it better before it gets there.

Hywel Williams (Arfon) (PC): The Secretary of State has just referred, as he did earlier in his speech, to “this country”. Which country does he mean?

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Mr Paterson: Well, water lands on the whole of the United Kingdom. The hon. Gentleman is probably referring to the Welsh aspect of the Bill, and I think that he knows that the Bill’s competition elements will not apply to customers in Wales.

Mr Redwood: I am grateful to the Secretary of State for giving way once again—we are teasing out important points. Does he agree that there are quite a lot of rising water tables under the big towns and cities of this country, because they used to be tapped but no longer are? Is not that a good source of new water that competition could deploy?

Mr Paterson: My right hon. Friend is absolutely spot on. We used to have heavy industries in our cities that used large amounts of water, as I know well, having worked on Merseyside for 25 years. Merseyrail has had problems with water because so many of the extractive industries have gone. There is no problem with the volume of water; it is about getting it to the right place at the right time and by the right means. That is what I hope the Bill will facilitate.

Our reforms will increase water supplies by making it more attractive for landowners to develop new sources of water, or for innovative businesses to treat and dispose of waste water. Let me take a hypothetical example. If a brewery with its own borehole has spare capacity, it might be able to supply its pubs in the area more cheaply than they could be supplied by the local water company. The brewery could put its spare water into the water company’s supply system or work with a retailer providing broader services to those businesses.

We also want to make it easier for our farmers and land managers to develop new sources of water, such as on-farm reservoirs, and to hold water back. For example, a farmer with an on-site reservoir that more than meets the farm’s water needs could make an arrangement with either a licensee or the incumbent water company to enable it to put water into the supply system. The water could be supplied regularly or only at times of high demand. Either way, the farmer would have a new product that he could sell.

Guy Opperman (Hexham) (Con): I applaud the Secretary of State’s notification that Northumbrian Water is doing great work at Howdon. On the creation of future reservoirs, how will we provide financial incentives for the farmers and other providers of such future reservoirs, whether big or small, to go ahead and do the necessary infrastructure planning for such operations?

Mr Paterson: It is known as the market; where there is demand, people will invest. We are hoping to create a new market for this product, and I am absolutely confident, given the freedoms we are releasing in this Bill, that there will be significant investment. We should not forget that £116 billion is an extraordinarily large amount of money that we would never usually have got from the Treasury under any Government of any colour. This is a great success. We want that investment to keep flowing in for exactly the sort of projects that my hon. Friend discusses.

For the first time, we are opening a market for businesses to recycle and reuse waste water as a new water resource.

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They will also be able to purchase sewage sludge that might otherwise have been sent to landfill—for example, for use in anaerobic digestion plants.

We need to increase the number of options that water companies can use to store and supply water to their customers. The solutions will vary across the country, reflecting different levels of water demand and availability, geography, and geology. For some, storing more water in new reservoirs or in recharged aquifers will help. Others, particularly in water-stressed areas, may need more action to cut demand, including through greater water metering. For others, improving interconnection to move water around between their supply systems will help. Companies such as Severn Trent, Anglian and Yorkshire Water collaborated on practical solutions during last year’s drought. This Bill will make such supply arrangements much easier to put in place. It will enable water resources to be used more flexibly and efficiently, reducing the need for expensive new solutions that customers would have to pay for.

The Bill provides flexibility for the regulator to work with the industry on shaping and introducing these new markets. It also includes checks and balances so that the Government can ensure consistency with our policy framework. We will be issuing guidance to Ofwat on how it must set the rules of the game. We have already published charging principles so that people can see how Government policy will shape the new regime. Since the pre-legislative scrutiny of the draft Bill, we have strengthened the role of Government, with a power to veto Ofwat’s charging rules, and the new market codes. I am extremely grateful to Members of this House, especially those on the Environment, Food and Rural Affairs Committee, who scrutinised the draft Bill. The Bill is stronger as a result of that scrutiny.

Governments do not create successful markets. Well-functioning markets are created by participating businesses and are allowed to evolve over time. That is why the detailed work to develop these new markets is being delivered by the experts. Through the Open Water programme, we are working with the water industry, Ofwat, the Scottish Government, regulators and customers on the detailed work required to prepare for implementation of these new markets. We are committed to reforming the abstraction regime so that it is fit to face the challenges of the future.

Mr Charles Walker: Will my right hon. Friend give way on that point, because it is such an interesting topic that I think he will have a lot to offer?

Mr Paterson indicated assent.

Mr Walker: Over the past 30 years, these so-called experts, particularly the water companies, have destroyed many of the chalk streams in my part of the country and in Wiltshire, Hampshire and Dorset—the list is almost endless. I therefore do not have a lot of confidence in them. They are very good at looking after their own interests but not the interests of the environment.

Mr Paterson: I am grateful to my hon. Friend for his statement. I assure him that I take on board the damage that has been done by over-abstraction. However, this is extremely complicated and it is going to take time; we could make a real mess of things if we blunder into it. I am absolutely confident that through the upstream reforms that I mentioned, by holding more water back

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in various forms, which might be the reservoirs my hon. Friend wants, putting down aquifers, or SUDS—sustainable drainage systems—schemes, we will have water available for these rivers when they run dry. I totally sympathise with his worries about the chalk streams. It is very much our intention that this Bill will provide more water to keep these rivers flowing.

George Hollingbery (Meon Valley) (Con): I want to take my right hon. Friend back to his example of the brewery. He says that we will benefit from these upstream reforms and that water will be held back. Does he agree that when he is considering the regulatory framework it will be important to ensure that resources that have been used in one way previously and will be subject to change—for example, by the brewery drawing more water than it would have done in totality before—are assessed by various agencies to make sure that the strain on resources is not overbearing on the system in its entirety?

Mr Paterson: My hon. Friend is absolutely right: there is no point in over-abstracting from a new source. However, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, because of the reduction in heavy industry there are significant amounts of water in various parts of the country, and this is all a question of moving it around according to local circumstances. I know that my hon. Friend and my hon. Friend the Member for Broxbourne (Mr Walker) have a real interest in abstraction. Our clear view is that the Bill will lead to a greater supply of water, which will help the rivers, about which my hon. Friends rightly worry, not to run dry.

Barbara Keeley: Will the Secretary of State give way?

Mr Paterson: I am happy to give way.

Barbara Keeley: I thank the Secretary of State for giving way, although he does not look overly happy to be doing so. He kindly answered my earlier question about pollution, which is a real concern to my constituents. I am very concerned about mosslands in my constituency and the Secretary of State has said that he shares my concern. Lancashire Wildlife Trust and other organisations that protect the mosslands are very concerned about the possibility of de-watering, given that shale gas exploration is happening very close to our mosslands. Will the Secretary of State address that point?

Mr Paterson: I am happy to answer the hon. Lady. We are completely clear that we will not allow the procedure to go ahead if it is going to cause environmental damage. We have to respect a whole range of directives pertaining to water. We are absolutely clear that we will not weaken or dilute—to use a watery phrase—the robustness of our regulation. We will completely lose public confidence if we do that. This has to be done in a robust manner.

The hon. Lady should look at examples that I have cited, such as Wytch Farm, which has been extracting hydrocarbons for decades without any environmental damage at all and which is very close to some very sensitive environmental sites. If this is done professionally and regulated properly, the hon. Lady should have nothing to fear. I am as keen as she is to protect our

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wetlands, including mosses, and I am clear that we will not dilute in any way the rigour of our regulation.

To return to abstraction, I know that some people—we have heard from some of them—think that we are not moving fast enough. Reform of the regime is complex. It has been in place for 50 years and the changes will affect the businesses of abstractors up and down the country—businesses that require water for public supply, electricity generation, manufacturing and irrigation. We must get this right. Shaping a new regime involving up to 30,000 abstractions is complicated, so we will consult on our proposals soon.

Reform of the abstraction regime is only part of the story. We are taking action now to reduce the damage to rivers, such as the chalk streams that support some of Europe’s unique habitats. We are using and improving the tools we have now to vary and remove damaging abstraction licences. For example, we have already made changes to protect the River Darent and the River Itchen.

In this Bill we are making it easier to tackle damaging abstractions in advance of our wider reform by making funding of schemes to restore sustainable abstraction quicker and easier. We will not take any risks with the introduction of upstream reform. We have looked carefully, with both Ofwat and the Environment Agency, at the concerns that have been raised. I am satisfied that there are robust regulatory safeguards in place to prevent upstream competition from leading to environmental damage. We will also co-ordinate implementation. The new upstream markets will not open before 2019 and we expect to implement abstraction reform in the early 2020s so that we can make sure that these reforms are carefully co-ordinated.

Resilience was a central theme of our water White Paper and it is a central theme of this Bill. We listened to calls in pre-legislative scrutiny to make sure that it is also central to the way in which the sector is regulated. We have strengthened Ofwat’s role in safeguarding long-term resilience. The Bill includes a new primary duty to take account of environmental pressures, population growth and demand on our essential services. I know that some are keen for Ofwat’s existing sustainable development duty to become a primary duty. We have looked at the arguments for that change. People want Ofwat and water companies to address longer-term challenges and deliver a better deal for customers and the environment. We want to achieve that, too.

Miss Anne McIntosh (Thirsk and Malton) (Con): If we really want to improve environmental stewardship, I would argue, as others have done to the Select Committee, that the statutory duty on sustainable development will put the Government in a better place than resilience.

Mr Paterson: I am grateful to the Committee Chair for all her hard work. We have looked at the issue and believe that resilience means a stronger focus on longer-term planning and investment. By creating a new overarching duty specifically designed to increase the focus on long-term resilience, I think we will deliver what the Committee has been looking for. Resilience also means protecting the water resources that are so critical to current and

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future supplies. As I have said, ultimately 95% of water runs out to the sea, and the Bill will help to manage it more effectively.

Just as water reform measures will help our supply systems and environment to deal with water shortages, we must also be prepared for flooding. I have seen for myself how devastating it is to be flooded. This time last year, I visited Exeter and Kennford and saw the impact of the floods on people’s homes, lives and families.

Diana Johnson (Kingston upon Hull North) (Lab): Has the right hon. Gentleman had any discussions with his colleagues in the Department for Communities and Local Government, because the Help to Buy scheme operates in areas where his proposed flood insurance scheme will not operate? It seems to me that one hand of the Government does not know what the other hand is doing.

Mr Paterson: Our planning guidance is absolutely clear that there should be no building on areas that are subject to flooding.

We know perfectly well that the priority must be to avoid flooding in the first place. That is why we will spend £2.3 billion over this Parliament on protecting households and businesses against flooding. In practical terms, that means that 165,000 properties will be better protected in 2015 than they were in 2010. It is also why we will make record levels of capital investment over the six years from 2015-16: the level will rise to more than £400 million per annum by 2020-21.

We need to give people at high risk of flooding the certainty that they can continue to get affordable flood insurance, as was touched on by my hon. Friend the Member for The Wrekin (Mark Pritchard). We consulted on draft flood insurance proposals over the summer, and I know that hon. Members agree that a solution is essential for the continuing protection of people at high risk of flooding. We are still in intensive and constructive discussion with the insurance industry on some of the finer points of detail, but we plan to table new clauses in time for consideration in Committee. The powers in the Bill will help to ensure that affordable flood insurance is available for households in high-risk areas.

Mark Pritchard: My right hon. Friend is being generous in giving way, as is his custom. In addition to those comments, he will know that there is often run-off from motorways and roads, so what discussions has he had with the Highways Agency and local government on that issue?

Mr Paterson: That issue is really for the Environment Agency, which works closely with the Highways Agency and local government to ensure that there is no pollution from water that runs off public roads.

Nia Griffith (Llanelli) (Lab): Will the Secretary of State give way?

Mr Paterson: I think that this will be the last time that I give way.

Nia Griffith: The Secretary of State rightly says that we have discussed flood insurance for a considerable time. I very much welcome the Flood Re programme,

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but why is there not more detail in the Bill, and why will so much of it be pushed aside and dealt with as statutory instruments, when so many hon. Members want to discuss the detail more fully?

Mr Paterson: The hon. Lady takes rather a churlish attitude, as her Government did absolutely nothing to replace the statement of principles, despite knowing perfectly well that it would run out in June 2013. We have been involved in extremely detailed negotiations but, as she knows, the subject is very complex. I entirely agree that it would have been ideal to have detailed clauses ready in time for the Bill; sadly, they are not ready. She is, however, rather critical of those who may be members of the Committee. If she is lucky, she might get on to the Committee, because it will be able to debate those clauses in exhaustive detail.

Our preferred approach, which is known as Flood Re, will limit the amount that high-risk households have to pay on the flood insurance element of their premiums and excesses. The effective limit on the premium would vary according to council tax band, rising for more expensive properties, which means that benefits will be targeted towards lower-income households. Insurers have agreed to continue to meet their commitments under the 2008 statement of principles until the Bill has passed through Parliament and Flood Re has been set up.

Although Flood Re remains our preferred approach, we are seeking reserve powers to provide affordable cover if it should prove unworkable or prices in a free market prove unacceptable. Having a fall-back means that customers can have confidence that the issue is being addressed. All Government policies go through a rigorous economic impact assessment, but that cannot always represent the full range of benefits, such as the value of reducing the uncertainty for households over whether they will be able to afford flood insurance. Our preferred option, Flood Re, may require me to provide a ministerial direction. If that is the case, I will be happy to do so.

I am pleased that there is cross-party support for our proposed approach. There will be a fair deal for householders and taxpayers, and better choice for flood insurance customers. I am particularly grateful to the Association of British Insurers and the rest of the insurance industry for their co-operation and work in developing a sensible solution for homes that are at flood risk.

Andrew Percy (Brigg and Goole) (Con): My constituency is at massive risk of flooding because it is below sea level in many places. We require pumping 24 hours a day to keep us dry. I welcome what the Secretary of State has said about Flood Re because getting flood insurance has been a problem for my constituents. However, there is concern among people who live in houses that were built after 2009 and there is concern about the development of our town, given that we are so susceptible to flood risk. Will he set out the Government’s thinking on properties that were built after 2009? Will any solution be offered for them in the future?

Mr Paterson: It is not our proposal to include those whose houses were built after 2009 if they were built on areas that are subject to flood risk.

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In the Bill, the Government are seeking to put in place the long-term conditions for sustainable economic growth and the improved resilience of our water supplies and environment. We are also seeking to increase choice for the consumer, exert a sustained downward pressure on water bills and ensure that there is affordable flood insurance. The approach under the Bill is one of partnership —partnership between the Government, business, regulators, environmental organisations and the public. I look forward to working with colleagues and each and every one of those groups to make that a reality. I commend the Bill to the House.

5.26 pm

Maria Eagle (Garston and Halewood) (Lab): Despite the sensible measures that are contained in the Bill, this is a wasted opportunity to tackle the impact that rising water bills are having on stretched household budgets. Water bills have increased by almost 50% in real terms since privatisation. With wages not keeping pace with inflation, that is adding to the cost of living crisis. Prices have risen faster than wages in 40 of the 41 months in which the Prime Minister has been in Downing street. People are more than £1,600 a year worse off on average under this Government.

The rising cost of water is adding to that pressure. However, the Bill fails to provide Ofwat with tougher powers to bring down prices and it fails to require water companies to help those who are struggling to pay their bills. Despite the promises from the Prime Minister that we would see action, the Secretary of State has not brought forward a single new measure. All that we have seen is one weakly worded letter to water bosses, begging them not to hike bills next year. There was not even a threat of action if they take no notice—no threat of a tougher regulatory regime and no threat to impose an affordability scheme.

Mr Paterson: I am very grateful to the shadow Secretary of State for giving way. It might rather spoil her argument if I pointed out that all the current prices were set by her Government in the last price review in 2009. Between 1999 and 2009—between the first and last price reviews under the last Government—water bills rose in real terms by £65, from £324 to £389, which is an increase of more than 20% in the average household bill. Today, under this Government, the price of the average bill is £388.

Maria Eagle: The right hon. Gentleman appears to be making a second speech. The previous Government were the only Government to see water bills cut during their time in office. We need to see a determination in the right hon. Gentleman to ensure that Ofwat has the proper powers to deal with water companies. He ought to remember, even if he is technically in favour—

Mr Redwood: Will the hon. Lady give way?

Maria Eagle: I will finish dealing with the Secretary of State’s point before I give way to anybody else. He needs to ensure that Ofwat has the power to deal with water companies that have a captive market. Even if he gets to increasing competition and extending it to householders, as he said himself, that will not happen for some time.

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Mr Paterson rose—

Maria Eagle: I will not give way until I have finished answering the point the right hon. Gentleman has already made. Even if we get to such a point, there will be a significant period in which householders are subject to a monopoly. He must ensure that Ofwat has the relevant powers.

During our exchanges in the House in questions to the Department for Environment, Food and Rural Affairs last Thursday, I asked the right hon. Gentleman what steps he had taken between meeting the water companies in July, which he referred to in his letter, and his follow-up letter to them this month. He was not able to list a single action because the truth is that he did nothing for four months until he began acting under orders from No. 10. That was after the Prime Minister decided that he had no choice but to appear interested in the issue, following an intervention from the Leader of the Opposition.

The right hon. Gentleman made it clear in his letter to the water companies that he favours a voluntary approach, with companies deciding for themselves if and how to help those who are struggling. He does not propose any new powers to widen Ofwat’s scope to reopen pricing settlements between reviews, yet while customers pay among the highest bills in Europe, water companies are doing well from their monopoly position.

Last year, regional water companies made £1.9 billion in pre-tax profits, but paid out a staggering £1.8 billion to shareholders. We know they do that and that it is achieved through financial engineering designed to maximise their debt and minimise tax liabilities. That is unacceptable and morally wrong when people are struggling, and I believe people across the country will agree.

Caroline Lucas: With 40% of low-income households paying some of the highest bills, and three-quarters of our rivers being degraded through abstraction, does the hon. Lady agree that a privatised monopoly industry is failing our environment and consumers? Does she also agree that we need to move the Bill towards greater public ownership and public control of our water resources?

Maria Eagle: I have some sympathy with the first part of the hon. Lady’s intervention, but perhaps less so in practical terms with her latter point.

Mr Redwood: I am interested in the Opposition’s argument. What reduction in bills could the extra powers that the hon. Lady wants the regulator to have produce for the average consumer, and how much should companies put into helping those who have a problem with affordability?

Maria Eagle: I will say a little more about what extra powers I think the regulator should have, and perhaps at that point I will deal with some of the questions raised by the right hon. Gentleman.

The Opposition will seek to amend the Government’s legislation and address its central weakness, which is the lack of measures to tackle the contribution that rising water bills are having on household budgets. First, we will seek to grant Ofwat more wide-ranging powers to

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reopen price reviews between the current five-year periods. In his answer to me last Thursday the Secretary of State said:

“I have written to water companies to call on them to consider the pressure on household incomes when making future bill decisions and, in particular, to consider whether they need to apply the full price increases next year allowed for in the 2009 price review.”—[Official Report, 21 November 2013; Vol. 570, c. 1350.]

However, it should not be for water companies simply to “consider” limiting price rises; the regulator needs much greater powers of intervention when those companies are making far more than anticipated at the time of the review.

Mr Paterson: I am grateful to the hon. Lady for giving way again. The fact is that the previous Government let Ofwat go to sleep. They did not have a proper regulator but we have a robust new regulator in Jonson Cox. Only last week he turned down a proposed price increase by Thames Water, which would have put 8% on bills. That is what a proper regulator does, backed by a proper Government who have a real interest in keeping bills down for our hard-working families.

Ms Eagle: The right hon. Gentleman clearly has great faith in Mr Cox, and we will see in due course whether he is correct in that respect. My point is that Ofwat’s powers—rather than the personality running it at any given time—are limited to acting when revenues are at least 10% higher than expected. That does not adequately address the high dividend payments, particularly relating to gearing, which happen across the industry. Last Thursday, the Secretary of State referred to Ofwat as “a vigorous independent regulator”. I have no doubt that, under its current leadership, it would wish to be so, but it needs to be strengthened to be more effective. The Government’s Bill is a wasted opportunity to strengthen Ofwat.

Richard Benyon (Newbury) (Con): The hon. Lady has been on her feet for some time and I am looking forward to hearing her vision for the water sector for the years ahead. I hope she gives the House a view on how we can encourage more investment to tackle the problems described by hon. Members on both sides of the House. She is talking about the very important question of prices for our households, but will she extend that to talk about the great need for greater investment in our water sector?

Maria Eagle: If the hon. Gentleman is slightly more patient, he will hear what I have to say in the rest of my speech on those and other matters, but the Secretary of State was on his feet for 35-plus minutes, so the hon. Gentleman has not been waiting too long yet.

It is time for a wider review of whether we have the right balance between Ofwat’s regulatory role and the need for a powerful champion for consumers. The review should consider the future relationship between, and roles of, Ofwat and the Consumer Council for Water. I believe there is a need for a proper ombudsman role because adequate powers of redress for customers do not currently exist. The Bill should have established such an arrangement rather than simply arranging for it to be possible at some undefined point in the future.

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The Government should also consider accepting the Consumer Council for Water proposal for it to be given enhanced rights to be consulted on each water company’s charging scheme and any changes to it, and a continual scrutiny role to “find and fix issues”, as it puts it, as they arise. I believe there is merit in those proposals and hope Ministers agree.

The second major change the Opposition want during the passage of the Bill is the introduction of a clear legal requirement on water companies to sign up to a new national affordability scheme. When I raised that with the Secretary of State last Thursday, he responded:

“The Government encourage water companies to introduce social tariffs for vulnerable consumers and to reduce bad debt.”—[Official Report, 21 November 2013; Vol. 570, c. 1350.]

However, it is absolutely clear that his encouragement is not enough. Just three companies have introduced social tariffs, with fewer than 25,000 customers receiving assistance. Considering that Ofwat estimates that 2.6 million households, or 11%, currently spend more than 5% of their income on water, it is clear that only a tiny fraction of those struggling are being helped.

Miss McIntosh: The hon. Lady will recall that the Flood and Water Management Act 2010 contained provisions for social tariffs, but the Department for Work and Pensions refused, as it continues to refuse, to allow the information relating to benefits to be released. I cannot understand why that is the case, but why did Labour Members not push harder for that information to be released when Labour was in government?

Maria Eagle: The hon. Lady has a point, and I will shortly say something about what I believe we ought to do about it.

It is not good enough that so few customers can benefit or receive assistance when they have genuine hardship in paying. It is time to replace voluntary social tariffs with a national affordability scheme, funded by the water companies from their excess profits. We need to end the postcode lottery that means that the help one can get depends on where one lives, and we need the Government to set clear eligibility criteria.

In response to my question last week, the Secretary of State said:

“The shadow Secretary of State has to recognise that the schemes that help some water bill payers are paid for by others.”—[Official Report, 21 November 2013; Vol. 570, c. 1352.]

Of course, that is the Government’s approach because he is not willing to stand up to vested interests. He is not willing to say to the water companies that they cannot continue to pay out almost every pound they make in dividend payments—£1.8 billion last year—and leave it solely to other customers to fund measures to help those in need. The Government should finally drop their opposition to a national affordability scheme and require the water companies to step up and meet their social obligations.

Mrs Caroline Spelman (Meriden) (Con) rose—

Maria Eagle: I will give way to the former Secretary of State.

Mrs Spelman: For the benefit of the House, it is only fair to explain that there are two ways that the most vulnerable people in society can be helped. The hon.

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Lady mentioned social tariffs, but the WaterSure scheme, which is funded centrally from Government and does not require cross-transfer between water consumers in any one company, helps households that consume large quantities of water through no fault of their own.

Maria Eagle: The right hon. Lady is correct. I was about to mention WaterSure in my next breath, if she had waited a moment.

WaterSure was introduced by Labour as a targeted payment to households with three or more children or to households that demand a high use of water owing to a medical condition, yet only a third of eligible households access the scheme. Ministers should set a target and work with the water industry to ensure it is achieved, and use existing data on benefits to ensure that everyone eligible is on the lowest tariff. It is essential that the cost to households of non-payment, by others who can afford to pay—

Sheryll Murray (South East Cornwall) (Con): Will the hon. Lady give way?

Maria Eagle: I will give way to the hon. Lady in a moment.

It is essential that the cost to households of non-payment by others, who can afford to pay but who choose not to, is finally tackled. Failing to address this matter is unacceptable when it adds £15 to the average bill and households are struggling with rising bills. It is time to require landlords to provide tenants’ details to water companies, something the Environment, Food and Rural Affairs Committee, chaired by the hon. Member for Thirsk and Malton (Miss McIntosh), has demanded.

Sheryll Murray: Will the hon. Lady give way?

Maria Eagle: No.

The Department for Environment, Food and Rural Affairs should implement the provisions in the Flood and Water Management Act 2010 on bad debt without further delay.

On the financial practices of water companies, I urge the Secretary of State to press his right hon. Friend the Chancellor to use the autumn statement next week to set out measures to crack down on the tax avoidance that we know goes on in the water industry. We cannot have a situation where water companies are taking strategic decisions with the clear purpose of structuring their financial affairs in a way that leads to worrying—

Sheryll Murray: On a point of order, Madam Deputy Speaker. The Secretary of State was generous with his time. I cannot understand why the shadow Secretary of State is not being as generous.

Madam Deputy Speaker (Dawn Primarolo): Order. That is not a point of order; it is a point of debate. The hon. Lady knows full well that it is up to the person speaking to decide whether they will give way. There have been interventions. We will have to wait and see if there will be any more.

Maria Eagle: We cannot have a situation where water companies are taking strategic decisions, with the clear purpose of structuring their financial affairs in a way

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that leads to worrying debt and hinders their ability to invest, when their sole purpose is to minimise their tax liability. Ofwat said in March that

“the overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital value today with several companies at 80% gearing, thus obtaining only one fifth of their financing from equity. This reduction is a serious concern.”

Mr Graham Stuart (Beverley and Holderness) (Con): I thank the hon. Lady for giving way. She makes an important point about the behaviour of the water companies. Will she explain why, under the previous Government, the water companies’ combined debt of £939 million in 2004 had increased by 70% by 2010, when her party left office? Perhaps she could provide us with some context.

Maria Eagle: I understand the hon. Gentleman’s point. I do not believe the Labour Government did enough during our time in office to ensure that that was correctly handled, but that is not a reason to allow the water companies off the hook now.

Under Ofwat’s current powers, capital structure and consequent risk are matters for the boards and shareholders of those companies, so any action must come from the Government. We have seen from briefings to the Financial Times that Ministers are considering reducing the interest payments that can be deducted from a company’s tax bill, especially for larger and more highly indebted companies—as many water companies now are—or even putting a levy on the debt held by highly leveraged water companies. Whichever solution—if any—that the Government decide on, it must happen quickly.

Despite the gaping hole left by the Government’s failure to introduce in the Bill measures on water affordability for households, there are measures that we support. That should not be a surprise, given that they arose from three important reviews taken forward by the last Government: the Pitt review on flooding, the Walker review on affordability and the Cave review on competition.

George Hollingbery: The hon. Lady has made some candid remarks about the last Government’s failure and some sensible points about what might be changed in the Bill. She also makes much of the Government’s admission of certain issues that she now thinks are terribly important, but nowhere in the Environment, Food and Rural Affairs Committee’s scrutiny of the Bill, published only eight or nine months ago, is there a record of any Labour Member making any of the suggestions that she is making now. Is this not just a transparent device to bring a certain topic in a certain context to the Chamber today?

Maria Eagle: The hon. Gentleman is entitled to his opinions.

The three reviews built on the Flood and Water Management Act 2010, which we enacted before the last election. We support the measures to increase competition and enable non-household customers to choose their water supplier, and we want new entrants into the sector and so support measures to encourage that development. We also support the regulatory reforms designed to

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place a greater focus on the long-term resilience of water supplies and the measures to provide, at long last, the statutory basis for agreement on reinsurance.

We have concerns about several areas, however, many of which are shared by the Environment, Food and Rural Affairs Committee, chaired by the hon. Member for Thirsk and Malton. First, we agree with the Government’s decision to open up non-residential competition, as there is increasing evidence of a successful market emerging in Scotland. The introduction of competition for business customers is intended to provide choice, drive down costs and improve water efficiency, and we hope that it is successful, but the Government should listen to the Select Committee, which has said:

“We believe that protecting householders from subsidising competition in the non-household sector is a fundamental principle that should be enshrined in primary legislation.”

The Consumer Council for Water has rightly said:

“It is a vital principle that customers who are not eligible to switch retailer should not be disadvantaged. This should ideally be reflected in legislation.”

The statement in the recently published charging principles that household customers will not subsidise the development of competitive markets for business customers is a step forward, but not enough. We agree with the Select Committee and the Consumer Council for Water that it should be included in the Bill, and if Ministers refuse to reconsider their decision, we will seek to amend it.

Secondly, we do not understand why Ministers are being stubborn over enabling water companies to exit the retail market, which seems a perfectly non-contentious but important principle for the effectiveness of a market. The Select Committee is also clear on that point, and I think that the Government should rethink it. Thirdly, the Secretary of State should reconsider his decision not to require the separation of company wholesale and retail arms as part of his package of reforms. The Select Committee has called for a

“requirement for the functional separation of incumbent companies’ wholesale and retail arms. We further recommend that the principle of non-discrimination be included on the face of the Bill.”

We agree with the Select Committee.

Fourthly, we believe that the Government’s concerns about agreeing to the wide-ranging calls to elevate Ofwat’s sustainable development duty to a primary duty are misplaced. The Select Committee said:

“We are persuaded that the increasing pressures on our water resources, highlighted in the Water White Paper, justify such a change.”

The change is also supported by the 15 environmental non-governmental organisations that make up the Blueprint for Water coalition, including the WWF, the Royal Society for the Protection of Birds, the Wildlife Trusts and the Marine Conservation Society. Without the change, Ofwat could, for example, be forced to strike out investment to deliver demand management in over-abstracted areas by having to place significant financial implications for companies above the principles of sustainable development.

Richard Benyon: May I take the hon. Lady back to the question of exits? We looked carefully at this, and I believe that the kind of structure our water industry should have is a matter for this House and this Parliament. If she is saying that we should allow exits, she is effectively saying we should allow water companies no longer to be integrated, when it is the Government’s

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belief—and perhaps that of the Opposition—that they should be. If we were to allow exits, it would say that water companies could change their structure, but does she not agree that that should be a matter for Parliament, not for the water companies to decide on a whim?

Maria Eagle: I am of course interested to hear the views of the hon. Gentleman who was, until recently, a well-liked Minister in the Department. [Interruption.] Well, he is still well liked, but no longer a Minister. I am not wishing to rub it in, but he decided to return to the Back Benches. [Interruption.] I am trying to be nice to him, although I know that that is unusual. It is interesting to hear his point of view. Water companies have changed their structures since privatisation, and I view it as normal in a functioning market for organisations to be able to exit it. I am sure that this can be considered in greater detail in Committee. I do not know whether he will have the honour of serving on the Committee—we will wait to see—but we will have an opportunity, as I say, to debate the issue in more detail in Committee. It is odd to open up a market and then to prevent certain companies from leaving it.

I was moving on to my fifth point about the detail of the Bill. We have serious concerns about the Government’s disjointed and, frankly, botched plans to introduce upstream competition. We support the principle of upstream competition and acknowledge the benefits that it could bring, but even a slimmed-down version of the Government’s plans would not adequately address the potential consequences of not taking forward abstraction reform in parallel.

The Government’s White Paper “Water for Life” set out a strong case for abstraction reform, yet the target date for a new regime is now 2022. The fact is that, historically, we have seen the over-allocation of water resources. Competition in advance of abstraction reform risks increasing the total amount of water taken from the environment—not least as those with unused or part-used abstraction licences seek new ways to realise their value.

The Government are asking the House to support these reforms, although their sustainability is dependent on a further piece of legislation. The Secretary of State knows full well that this is a promise that he cannot guarantee to deliver. Regretfully, I have to say that, unless he is able to offer some very convincing remedies on this issue, our instinct will be to seek to remove this entire part of the legislation. It would be better for the Government to bring back a properly integrated set of reforms in the future.

We support the measures on flood reinsurance—however belated they may be. It was disappointing that the Government were adding clauses to the Bill at such a late stage, but they are welcome, and we will scrutinise them carefully in Committee. The Government’s climate change risk assessment states that floods are the greatest threat that climate change poses to our country. That is one of the reasons why the Secretary of State should take the issue far more seriously, and why it is, frankly, incredible that he has talked of the benefits that could come to the UK from climate change.

There are real risks and far-reaching consequences for the UK from climate change, yet the Secretary of State’s complacent approach, combined with severe cuts to investment in flood defences, is deeply worrying.

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I hope that he has seen the letter that he has been sent in the past week by Professor Lord Krebs, chairman of the adaptation sub-committee of the Committee on Climate Change. In that letter, Professor Krebs raises serious concerns about the failure of the Government’s proposals to strengthen incentives for the uptake of household flood protection measures. He warns that the consequences will be

“that Flood Re costs will be higher than they need to be, at the expense of householders funding the programme through the industry levy.”

The Committee on Climate Change has therefore made five proposals that it believes believe would reduce Flood Re costs and improve value for money, and I hope that the Secretary of State will consider those proposals carefully.

The Bill contains a number of important measures that the Opposition will support. On the back of three important reviews commissioned and published by the previous Government, it builds on the reforms and legislation that we introduced when in office. However, the weakness that lies at its heart is the Government’s inability to stand up to vested interests and their failure to take anything approaching a tough approach to the water companies.

Ministers continue to defend the need for a voluntary approach—a voluntary approach to whether help should be provided to those who struggle with their bills, and a voluntary approach to whether customers are offered relief from rising bills, even where companies are benefiting from financial circumstances beyond their control. Let me tell the Secretary of State that it is now 20 years since privatisation, and the voluntary approach has had more than enough time to be tried and tested. It has failed, so it is time not for more letters from him, but for action.

It is time for a new deal with the water companies: a new deal on the contribution that the water companies make through taxation and investment; a new deal on the steps that the water companies must take to tackle the affordability of water for households that are struggling; and a new deal on the extent to which the water companies are regulated. The Bill could and should have been an important step forward in delivering such a new deal. Instead, it is a wasted opportunity. I hope that the Secretary of State will work with us to improve the Bill, particularly in respect of the need to tackle the rising cost of water for struggling households. If he continues to refuse to act, I can assure him that the next Labour Government will act.

5.56 pm

Miss Anne McIntosh (Thirsk and Malton) (Con): I welcome the Bill and would like to thank both my right hon. Friend the Secretary of State and the hon. Member for Garston and Halewood (Maria Eagle) for their kind words about the work that my colleagues and I have done on the Select Committee on Environment, Food and Rural Affairs. We must have done something right, as no fewer than four of our erstwhile colleagues serve on either the Government or the Opposition Front Bench. We shall obviously continue to maintain our rule of scrutiny with ever-increasing vigilance.

Today is the anniversary of the floods in Malton, Old Malton, Norton, Brawby and elsewhere in my constituency. In fact, I had to take a 10-mile detour because there was

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a lake outside my office, which I could not access as I normally would. The floods started in November and went on, intermixed with snow, until about March or April. It is therefore timely that we debate the Water Bill today. There is much in it to commend. It has been a long time in progress and, as the hon. Lady said, there remains a great deal of unfinished business from the Pitt review, the Walker review and the Cave review and, indeed, the Flood and Water Management Act 2010. The largest and most significant recent development since 2007 has been surface water flooding. It is a new threat, particularly with water running off the road in just about every constituency of every Member who has spoken in the debate thus far.

Nia Griffith: Given that the Flood Re scheme does not apply to properties built after 1 January 2009, does the hon. Lady agree that planning authorities need to be ever more vigilant not only in refusing to build on floodplains but in avoiding the knock-on effects of building in certain places that can have devastating effects on existing properties?

Miss McIntosh: I am grateful for the intervention, but I think the hon. Lady misses the point that so many other people do. Water running off the road in this way is a new development. While the water is on the surface of the road, it is the responsibility of the highways authorities, whether it be the Highways Agency, the county council or the unitary council. As soon as that water runs off the road and goes into a combined sewer, it most frequently becomes the responsibility of the water company.

I believe that the Government should look at the possibility of creating a statutory responsibility on highways authorities—and should be supported by the whole House in this—for surface water while it is on the road. [Interruption.] The Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for North Cornwall (Dan Rogerson) mutters under his breath, “What will the cost be?” I do not care what it will be: if we are to have sustainable drainage systems, we have to look at creating a system that will retain the surface water on the road and stop it going into the combined drains and sewers. That has been happening since 2007, for nearly seven years. Surface water has been mixing with sewage and coming into homes, such as the home of Mr and Mrs Hinds, causing health-related and very antisocial problems. Successive Governments have failed to deal with the issue, but I believe that the Bill presents us with a unique opportunity to sort it out.

According to the Environment Agency, 2.4 million properties in England are at risk of flooding from rivers and the sea, 1 million of those properties are at risk of surface water flooding, and a further 2.8 million properties are at risk of surface water alone. The agency estimated that the cost of the 2012 floods was £600 million. I agree with my right hon. Friend the Secretary of State that we need not just to grow the economy, but to limit the damage caused to it by floods.

It is regrettable that the sustainable drainage system that was envisaged in the Flood and Water Management Act 2010 has still not been implemented. I understand

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that discussions are taking place and that it is all very difficult, but we must get our heads around this. It is not impossible, although the difficult aspects may take a little longer to address. I urge my hon. Friend the Minister to rise to the challenge, and to introduce SUDS before April next year. It is unacceptable for my constituency and others elsewhere in the country to face a possible flood threat this very week because we have not put secondary legislation on to the statute book.

I am at my wits’ end because we have still not implemented the Pitt recommendation that the automatic right to connect should be removed. Sustainable drains are a significant aspect of that. The Environment Agency is already a statutory consultee, but we have not accepted that water companies should have the same status. I believe that they should be able to say, frankly and honestly, that in the case of major developments, there should be no ability to connect without a significant new investment.

Andrew Percy: Proposals for new housing in Goole pose the double threat of river and surface water flooding, and are therefore unacceptable to local communities. Goole has been flooded for about five of the last eight years. We want sustainable drainage systems, so that if the new housing development proceeds, it will have no further impact on our already creaking drainage system.

Miss McIntosh: I hope that we will all continue to press the Government to proceed with SUDS.

As for abstraction, I can only support what other Members have already said. Abstraction has an important part to play in resilience in times of drought and, potentially, in times of floods, when there are competing demands for the water supply. I urge the Government to show a greater sense of urgency. My right hon. Friend the Secretary of State said that they would be consulting shortly, and it would be helpful to know when that consultation might take place.

The water White Paper, which we also scrutinised, placed great emphasis on the importance of resilience and the need for innovation to improve it, but I think that the Bill has toned down that emphasis slightly. I hope that the Government will find renewed enthusiasm for resilience. There will always be competing claims from the farming industry and angling, but we must not forget jam-makers such as those whom I visited in the constituency of my hon. Friend the Member for Witham (Priti Patel), as well as brewers and other industrial users.

The role of the Environment Agency has been extremely positive, and fewer properties have been built on functional floodplains since it became a statutory consultee. However, I believe that it could do much more to share information, particularly mapping information. It is extremely frustrating for constituents not to be able to access a single map. Sir Michael Pitt—from east Yorkshire—was very clear in that regard, and I think that we owe him a great debt of gratitude for the work that he has done. I believe that there should be a one-stop shop for our constituents, and that they should be able to know exactly where to go.

Mr Graham Stuart: Does my hon. Friend agree that not only is mapping important, but it is important for maps to be updated quickly? Following the completion

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of a £3 million flood defence scheme in the village of Burstwick, in my constituency, it took more than a year for maps to be updated, and during that time residents were still being asked for higher insurance premiums because the insurance companies did not have access to the information.

Miss McIntosh: My hon. Friend has eloquently re-emphasised the point that I was making.

Diana Johnson: Does the hon. Lady share my concern about the fact that the Environment Agency will not be producing its compound risk maps until the end of 2015? It is taking far too long to convey the necessary information to insurance companies and to constituents.

Miss McIntosh: I do regret the amount of time that it is taking.

The Select Committee was very disappointed to hear how little maintenance and dredging of watercourses has been taking place. While it is always pleasing to see capital expenditure increase, the evidence that we heard was more than anecdotal: it is an absolute fact that, were there to be regular maintenance and dredging of the main and even the minor watercourses, floods could be prevented. I urge the Government to spend more than just £20 million per annum in England for that purpose. I also urge them to allow the drainage boards, which do such excellent work, to keep the money rather than passing it to the Environment Agency, and to agree a work programme with the agency but use their own drainage board engineers for the maintenance and dredging.

Neil Parish (Tiverton and Honiton) (Con): I agree wholeheartedly that drainage boards could do much more work. The money that they spend often goes a great deal further than the excessive amount spent by some public bodies. As the Secretary of State is aware, the Parrett and Tone rivers in Somerset are completely silted up and they need to be dredged quickly.

Miss McIntosh: I am sure that the whole House, including the Secretary of State, has heard what my hon. Friend said. Dredging little and often can prevent floods. The drainage boards have an army of volunteers, a huge fount of knowledge and, probably, more engineers than the Environment Agency.

I am delighted that the Government have authorised the pilot schemes, and the Select Committee will observe the outcome very closely. I commend the Pickering pilot project, which is one of those schemes at which this country excels. It has already slowed the flow, it is creating new peat bogs, and it is holding water back so that it cannot flood Pickering. If we can succeed with a combination of slowing the flow and building a reservoir, not only will Pickering be safe from flooding, but the benefits of the pilot can be used elsewhere, and resilience to flooding and possible water shortages can be improved.

I believe that the 2014 price review gives us an opportunity to invite Ofwat to reward innovation, which it is not doing at the moment. Ofwat should invite water companies to show that they can bring positive benefits to consumers by creating innovative flood defence and water supply schemes like the Pickering project, and to include such

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proposals in their business plans. I regret that that did not happen in earlier price reviews and this is a unique opportunity to do that.

I also invite the Government to engage much earlier with EU directives. I yield to no one in respect of the benefits they can bring, but they can be very costly. If we sign up to very short-term, tight timetables, that adds to the costs. My right hon. Friend will be aware of the EU water framework directive, the bathing water directive, the drinking water directive, the urban waste water treatment directive and others. We have to get in there early and put our views across. Their aims and objectives are laudable, but they must be affordable and done on a realistic timetable.

Mr Graham Stuart: My hon. Friend made an important point about dredging. It is essential to ensure that unnecessary costs are not imposed on those who try to carry it out. South Holderness drainage board raised money locally to dredge Stone creek and Hedon haven, but then found that the Marine Management Organisation —which, as on previous occasions, would not have charged the EA anything—imposed a cost of several thousand pounds on the drainage board and then at the end more than doubled that amount, imposing a crippling cost on local people raising local money to try to do the right thing.

Miss McIntosh: I thank my hon. Friend for that.

I want to mention briefly some new aspects of the Bill and some omissions. On the omissions, bad debt costs each and every household approximately £14 a year. That is unacceptable. We need secondary legislation to progress this matter, and I urge the Government to bring that forward as swiftly as possible.

On social tariffs, I fail to understand why successive Governments have had difficulty in releasing information on benefits. In response to a recent question to the Department for Work and Pensions, the following answer came back from the Minister of State, my hon. Friend the Member for Hemel Hempstead (Mike Penning):

“There is no legislation in place currently”—

well, I knew that and I told him that, but it is always good to know I was right—

“that would permit the release of benefits information to water utility companies: it is likely that new legislation would be required to enable the sharing of benefits data with water utility companies on this scale.”—[Official Report, 18 November 2013; Vol. 570, c. 681W.]

I urge my right hon. and hon. Friends to put pressure on the DWP to release that information so that we can make the best possible tariff available to the appropriate customers at the earliest possible time.

On insurance, the Select Committee came down in favour of Flood Re, but there are a lot of unknowns, and I do not believe we know any more about the known unknowns than we did before this debate started. For example, under Flood Re, why have we chosen household bands as the basis for insurance levy scales? If there is a database, where is it? What is the definition of uninsurable properties? Are small businesses excluded? If they are to be excluded, why are they excluded? It has been put to me that farms might be excluded. Obviously, that would not go down well in my area. I would quite like to know before the end of the evening whether farms and small businesses are going to be excluded.

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The memorandum of understanding between the Government and the insurance industry commits the Government to take primary responsibility as an insurer of last resort in an extreme flood event while the fund is growing. We need greater clarity this evening, before the Bill goes on to Committee, on precisely where we are in that regard. The House would also like to know whether the Bill achieves the normal historical value for money requirement in respect of such proposals.

The Select Committee welcomes the commitment to open up the retail market to competition by 2017, but we believe the case for upstream reform needs to be made more vigorously. We need to know precisely what the implications are for customer bills. It has been put to us that there might be de-averaging of household bills. We also need to know the implications for national resilience of upstream reforms, including in respect of climate change and population growth. We note that the start date is two years later, but the House would like to know whether it is feasible at all and whether we even need primary legislation.

It is true that the Select Committee came down in favour of functional separation between the wholesale and retail arms and in favour of a voluntary exit strategy. We would like to hear a little more when the Minister winds up about why the Government are against that.

Members on both sides of the House are interested in cost of living issues, of course, and we need greater assurances on the impact on householders. The Flood Re levy has been set at £180 million per annum, which is £10.50 per customer, for the first years. We also need to know the timetable for the application for state aid. It would be helpful to know that we are going to be in a position to have signed off on state aid before this Bill leaves the House and achieves Royal Assent and, more importantly, by the start date of 2017. Concerns have been expressed about stranded assets and the impact on household customers generally, particularly from the Flood Re insurance levy, and the formalising of the cross-subsidy that has existed under the statement of principles.

To conclude, the potential risks of de-averaging prices in respect of household customers and upstream competition must be addressed. On the comparative merits of the Ofwat duty, we would prefer sustainable development as opposed to the Government’s proposal of resilience. That needs to be explored. We also need to look at possible greater resilience in terms of both water supply and the use of abstraction, and we need the review of abstraction policy sooner rather than later. We applaud the sustainable development and wider environmental aims of biodiversity protection and climate change mitigation, but I personally would argue that this should be addressed through Ofwat’s primary duty of sustainable development. The Government need to explain how the transition in the insurance sector from the cross-subsidy being formalised in Flood Re to an eventual free market will be managed. I believe this is too important to leave to secondary legislation and we need more details in the Bill.

I give the Bill a warm welcome. I have highlighted a number of concerns which I hope will be addressed and I look forward to hearing the rest of the debate.

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6.18 pm

Joan Walley (Stoke-on-Trent North) (Lab): It is a pleasure to follow the hon. Member for Thirsk and Malton (Miss McIntosh). As Chair of the Select Committee that has conducted detailed pre-legislative scrutiny of the Bill, she speaks with great knowledge of and authority on these matters. The Secretary of State would have been well advised to listen carefully to her comments, particularly in view of the greater role and scope there now is for Select Committees, especially in speaking in favour of amendments. The Government must urgently reflect on, and respond to, her points in respect of how surface water mixes with sewage in flooding situations. The cross-cutting issues that she raised in relation to water—not least highways and expenditure on highways, which are matters for the Department for Communities and Local Government and other Departments—need to be looked at in a holistic way. I hope that, in the winding-up speech tonight and in Committee, Ministers will take the Select Committee recommendations seriously.

Today’s debate takes me back to the first Committee of this House that I was a member of, which considered the paving Bill for the legislation that led to water privatisation. It was very divisive at the time and was rightly opposed by the Opposition and by many of the environmental groups that believed water to be a natural eco-service, and that the concept of paying large dividends to shareholders at a time when investment was needed in the water infrastructure was simply the wrong way of addressing how to secure investment and manage our water supply. A quarter of a century later, the private companies that were created—and indeed Ofwat, the regulatory body—have had mixed fortunes and mixed success. However, where we are now and the current structure has to be our starting point for taking the Water Bill forward. Today, the challenges we face are greater than ever, particularly, as we heard from my hon. Friend the Member for Garston and Halewood (Maria Eagle), given that we are getting close to the finalisation of the next price review in 2015. It is absolutely critical that as much pressure as possible be applied in order to get this right.

Top of my list of questions is, how do we ensure a safe, affordable water supply for domestic use, for industry, for farming, for all areas of the UK, particularly given that different administrative arrangements apply, which does not make matters easy? There are parts of the Bill I do welcome, not least the one dealing with flooding and insurance, but like many of the Members who intervened earlier, I feel that the flooding issue must be dealt with urgently and in detail. A statement of intent is not quite the same as a measure on the statute book.

Oliver Colvile: Is the hon. Lady aware that last autumn in the south-west, we had a massive amount of rain that affected our entire transport network and cut off our railway lines for a very long time?

Joan Walley: I am grateful to the hon. Gentleman for his intervention, and that is exactly the point I am making: our water policy needs to take into account the whole issue of mitigation to prevent such situations, but it also needs to be adaptable. The adaptation that we need requires huge amounts of investment and a whole new, collaborative approach to planning. The Bill has been brought forward by DEFRA, but as the Energy

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and Climate Change Committee has pointed out, it is the problems associated with climate change that are bringing about flooding, and we have to find new ways of dealing with them urgently. It has taken much too long to deal with outstanding flooding insurance claims. Importantly, it is a question not just of how we deal with individual claims and of having an insurance system in place, but of how we deal with all the associated disruption.

As we approach the European elections—I am sure that many of us here will be thinking about what Europe has done for us—how do we ensure that water supply and management fits within the context of the European water framework directive? We have a fundamental disconnect at the heart of water policy which the Bill could actually put right. As my hon. Friend the Member for Garston and Halewood said, the Bill is a wasted opportunity. The water companies, regulated by Ofwat, supply water, but at a local level there is little meaningful collaboration, accountability, transparency or resource, as has been mentioned, to ensure that we have in place what is needed to meet the requirements of the water framework directive.

The directive has two key objectives: an environmental objective, based on the premise of preventing further deterioration and achieving “good status” in all waters; and a managerial objective aimed at creating integrated water management at the river basin level to ensure overall co-ordination of water policy. Here, I want to make a plea to the Government and to DEFRA on behalf of the Environment Agency. The agency needs to be fully resourced for its task of leading the framework directive, in order to enable it to identify significant water management issues, to develop measures to address these at the river basin district level, and to develop and publish the plans for implementing these measures, known as the river basin management plans.

Given the length of time it takes to get legislation on to the statute book, equipping the Environment Agency to work within the framework to carry out its responsibilities needs to be looked at in parallel with the Water Bill before us. Let me give an example of the current unsatisfactory position. When the Government set up the Canal & River Trust in 2012, they committed to a new structure for the canal network which included the navigational waters—some 2,000 miles of canals and river navigations in England and Wales. These rivers were to be handed over to the trust to ensure certainty and long-term funding through the trust arrangements. However, we now know that the Chancellor has reneged on this commitment, and the plans have been put on hold. I am grateful to the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for North Cornwall (Dan Rogerson), for agreeing to meet me to discuss this issue, as I believe it is vital that this transfer take place and be fully funded.

There is a further concern, which was touched on in an intervention from my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller). Through clause 12, Ofwat is to be given the power to intervene in private supplier agreements with water undertakers, with the apparent intent of assisting smaller private water suppliers in their commercial relations with undertakers. Not surprisingly, the Canal & River Trust is alarmed that Ofwat will therefore be able to vary or terminate water sales agreements at the request of the undertaker and without the agreement of the trust.

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I heard the Secretary of State’s rather complacent reply to my hon. Friend’s intervention, and I hope that, when the Under-Secretary replies, he will tell us what specific, constructive discussions he will have with the trust on this issue, so that we can make amendments to the Bill that will safeguard delivery of the trust’s charitable objectives when the Bill’s legislative passage is completed.

There is uncertainty about other aspects of the Bill, as well. The Bill is all about the economics of, and very little about the environmental and social aspects of, water policy. It mirrors the assumptions that lay behind the changes to the water industry proposed back in 1987, rather than looking at the assumptions we need to make today for the future. Here, I would like to give credit to the former Environment Minister, the hon. Member for Newbury (Richard Benyon), who only last week in the press disclosed how close we were to drought just before the 2012 Olympics. There are also many other factors that point to the need for long-term planning.

We need to take account of the work of the Natural Capital Committee, which is looking to embed the value of natural capital in the national accounts and policy making as soon as possible. We must also recognise the need to look for a credible long-term plan to restore our natural capital, and recognise the work of the Committee on Climate Change. Reference was made earlier to the adaptation sub-committee report, which highlights the need to incentivise efficient water management and to have a price for water that better reflects its scarcity. Of course, there are also the risks associated with water flooding. All these factors point to the need for a much wider, all-encompassing approach to water than the one the Bill provides for.

We should also address the issue of Ofwat having a primary sustainability duty. Its role of granting new water supply licences and overseeing bulky supply agreements should include consideration of the sustainability of water sources. There is common agreement that, without such a duty, we will see over-abstraction, over-licensing and greater environmental damage to our already overstressed river systems. We have heard the Secretary of State’s response to concerns about fracking. He has stated that all the protection and regulation that we need is already in place. However, the proposal for financial guarantees in relation to pollution that my hon. Friend the Member for Garston and Halewood outlined will be vital, and I hope that they will be incorporated in the Bill as it completes its passage through both Houses. I know from the initial meeting that the Minister kindly organised recently that there is widespread concern among many organisations, including the WWF, the Royal Society for the Protection of Birds and the Angling Trust, about the need for a primary sustainability duty, not only on resilience, to be incorporated in the Bill. Will the Government table an amendment on sustainable development? Will the Minister tell us how he intends to deal with this issue?

I want briefly to broaden the debate. Following the discussions that I have had with many different experts in the industry, I do not believe that we should be carrying on with business as usual. Instead, we should be gearing up to a different set of policies designed for the 21st century. The confluence of the various factors I have mentioned means that we should be taking a more fundamental step change in how we invest in improving the environment and safeguarding our water supplies.

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I would like to see far more local governance arrangements that would fit with the river basin concept, involving not just water companies but local councils, farmers and other organisations working together on a risk-based approach. I should mention that some water companies are starting to think outside the box. I refer the House to a recent document published by Severn Trent Water, “Changing Course through the sustainable implementation of the Water Framework Directive”. We need much more collaboration of that kind, but the Bill does not really give it to us.

I want to mention the work that I have been doing in my constituency to bring all the different partners together. This has culminated in an application for European funding under the Life Plus programme, which would enable us to implement measures that would prevent pollution in the River Trent. We need to see much more of that kind of approach. Water efficiency should also be promoted.

The Bill will promote greater competition, but what will it do to challenge traditional kinds of capital investment? We should be looking into different kinds of investment. Expensive engineering solutions are not always the way forward, even though the water companies depend on capital value for the returns that they make. If the Government can be persuaded to introduce an obligation for sustainability into Ofwat’s powers, Ofwat could look at a return on revenue expenditure, too. We need to look at the kind of investments involved. The Bill could enable Ofwat to take a much more proactive role in vetting companies’ proposals for investment.

I would also like to see the dividends paid out to water company shareholders managed differently. Yes, money is needed for investment in water management, but it would be so much better if the profits could stay in the business and be reinvested, rather than global private equity companies that do not necessarily have a long-term commitment to our river basins paying out massive returns—well above what we can earn in interest from our bank account—to shareholders.

Roger Williams (Brecon and Radnorshire) (LD): The hon. Lady is describing the model used by Welsh Water, a not-for-profit company that is responsible to its customers, rather than to shareholders.

Joan Walley: Indeed. One difficulty is that we are looking at the provision of water for the whole of the United Kingdom, despite the different administrative arrangements that have been put in place by the Parliaments in the different Administrations. The way in which the money is reinvested in Wales is hugely beneficial. As I have said, we should be thinking outside the box in regard to how we incentivise the necessary investment in our water industry.

Hywel Williams: We are talking about non-distributable profit. Any profit that is made is reinvested in the system and in creating lower prices. I am not here to praise Dwr Cymru Welsh Water in particular, but its price rise next year will be 1%. Given that that is lower than inflation, it will effectively be a price cut.

Joan Walley: That just shows that there are all kinds of different ways of looking at this, and that we do not have to depend on the present traditional

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arrangements. The Bill should really be looking at the challenges that we face, rather than promoting business as usual.

With more than 2 million households in England and Wales being forced to spend more than 5% of their income on water, it is clear that the Government’s approach is not working. The Bill should do something about that. We need a national affordability scheme to help those struggling to pay their bills, and it should be funded by the water companies themselves. The fact that water bills are rising by 1.8% above the rate of inflation when we are seeing investor returns of 17.5% across all the companies demonstrates just how unfair the whole structure is.

Given the challenges of climate change and the likelihood of increased flooding, balancing affordability with our wider environmental commitments to mitigate and adapt to flooding will involve ever-greater calls for the right kind of investment in the water industry. This will require a cross-cutting response from the Government, and detailed policy measures that will require the Treasury, the Department for Business, Innovation and Skills, the Department for Education and the Department for Communities and Local Government to be equally committed to the measures coming out of DEFRA. As we approach future challenges, and the final implementation date of the water framework directive, households and businesses will need to access affordable water supplies. Key changes will be needed throughout the passage of the Bill.

The Government will need to make a step change in regulatory, social, environmental and fiscal policy, but the water companies, businesses, farmers, householders, local authorities and the regulator will also need to refocus on their long-term objectives and on delivery mechanisms if we are truly to value water as a natural resource and a vital component of everyday life.

6.38 pm

Richard Benyon (Newbury) (Con): I refer hon. Members to my entry in the Register of Member’s Financial Interests. It is a great pleasure to follow the hon. Member for Stoke-on-Trent North (Joan Walley), for whom I have the greatest respect. She will be a loss to the House when she stands down. I listened to her remarks with great interest, and I will comment on a number of them in due course.

I hope that the House will forgive me if I start by quoting from the water White Paper, about which I feel a sense of propriety. If I say so myself, it was a very good document. It is a rare occurrence in Parliament for such a document to be well received not only by those on both sides of the House but by green non-governmental organisations, by the water industry and by people throughout the sector who are involved in this important subject.

The White Paper asks:

“How do we protect the environment and take less water from our rivers, while meeting the demands of a growing population? How do we encourage innovation and dynamism in the water sector while ensuring it remains a low-risk choice for investors? How do we incentivise less wasteful use of water while keeping water affordable for everyone?”

That encompasses, in a short paragraph, what we are seeking to achieve, not only in tonight’s discussion of the Bill, but across the much wider platform of restoring

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sustainability in this sector. This is about the balance between the environment and the demands of a growing population; the need for innovation and a new type of investment, which the hon. Lady was right to talk about, without spooking the investor, whose money we need; and stopping waste yet keeping water affordable. The water White Paper was a call to action and a vision for the management of this sector and its theme will, I hope, run and not only through this Bill. As hon. Members on both sides of the House understand, the Bill is just a work in progress in respect of delivering that ambition; it delivers an element, and I particularly wish to discuss the importance of abstraction.

Let me make an obvious point: water comes from nature. It is vital that we understand that we are talking about not just an environmental factor, but a key economic matter. The hon. Lady talked about the Natural Capital Committee. When we discuss natural capital, we need to understand its importance for the economy. We need to consider how we manage water resources in parts of the country with a level of rainfall lower than that in some sub-Saharan African countries. When we talk about development and the needs of the economy in the years ahead, we must address that through the prism of natural capital. I am grateful to people such as Dieter Helm, who guided me in this relatively new—for me and for many other hon. Members—approach to economic thinking. I am proud that this Government have hard-wired natural capital into their economic thinking.

It is a shaming statistic for this country that only 27% of our rivers and lakes are fully functioning ecosystems. I am pleased that we have set about addressing that, through a catchment management approach and targeting our resources in as meaningful a way as possible. We are talking about not only an environmental imperative, but an economic one. We have to comply with the water framework directive. If by 2027 we have not got our house in order and our act together, we will get a slapped wrist and a stonking great fine from the European Union. If we are talking about improving the quality of our environment just so that we comply with a European directive, what a pathetic ambition that would be. We should want to restore the quality of our natural environment because we want to restore the quality of our natural environment and feel proud about this country’s natural systems.

We have what some would call the “God-given” advantage of having 80% of the world’s chalk streams in this country, but in many cases they are failing ecological systems. We have to set about putting that right and making sure that we do not just suck water out of the top of aquifers, such as those of the River Kennet, to provide water for excellent and much-needed households in places such as Swindon; we must set about getting reforms that can address that problem. I really welcome the Bill’s means of ending the very bureaucratic system involved in closing down unsustainable abstractions and of getting this into the five-yearly price review. That is a major step forward, which came about through a proper process of pre-legislative scrutiny. I congratulate everyone, including the Select Committee, on the work that was done in trying to draw that to our attention. Let us make it clear that our ambitions for getting our act together require a new piece of legislation in a new Parliament. It would be a great help if the Minister could assure us in his wind-up that we have a continuing and dynamic ambition to legislate in the

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next Parliament to make sure that the increase to about 30,000 abstraction licences in England will be properly managed in a fit-for-purpose system that recognises the demands of a growing population and the economic growth potential that that will bring.

On economic potential, let me relate to the House my last experience as a Minister, which was to take a trade mission of water companies and others in the environmental sector—the green growth sector—to Brazil. That BRIC country—the group made up of Brazil, Russia, India and China—is wrestling with the problems that make ours appear small fry. Sao Paulo, the largest conurbation in the southern hemisphere, is trying to address the demands for water and for dealing with waste, and it is desperate for new technologies. British companies from our supply chain sector have achieved great things in the delivery of the greenest Olympics ever and are ready to give work to other British companies and to create British jobs in that green technology sector. So the water sector has a lot to give, not just in this country, but around the world. Understanding that economic driver is as important as the environmental and social dimension to our policies.

Jessica Lee (Erewash) (Con): I thank my hon. Friend for all the work he has done in this area and for his expertise. I hesitate to interrupt his flow—to use a water analogy—but he just mentioned the social aspect. Does he agree that volunteers play an important part in managing all this country’s waterways, particularly through the Canal & River Trust? In my constituency, where the waterways play a hugely important historical and heritage role, I have set up the Erewash rangers scheme to try to recruit more volunteers along the waterways.

Richard Benyon: I am grateful to my hon. Friend for her intervention. If I felt a degree of paternalism towards the water White Paper, I feel one even more towards the Canal & River Trust, which is one of the great successes. It has seen volunteer numbers rocket since it went from being a government organisation—as British Waterways —to being in the charitable sector, and Members on both sides of the House should take pleasure in its success. Will the Minister respond, if not tonight, at some point, to the real concerns that the CWT has about clause 12? I hope that we can allay its fears because, as the Secretary of State rightly said, the CWT will be an important player in delivering the kind of connectivity we want in our water sector. The CWT will also be a huge resource, in terms of the economic regeneration of our cities, the potential for tourism and the social dimension of volunteer numbers. So I hope that the Minister is able to address the CWT’s concerns, which have been eloquently voiced to hon. Members on both sides of the House.

A debate is rightly taking place about the affordability of water. That was of primary importance in the Government’s mind as we developed the vision in the water White Paper and in the Bill, and I know that it is a great concern of the Minister as he steers the Bill through. Those who believe in price caps can relax about water, because we have a price cap for water—the five-yearly price review. Ofwat provides a price cap for customers, albeit one that is done by negotiation. It has been an effective way of keeping water relatively affordable, although I know that some of my colleagues from the south-west have views on that—we have partly addressed

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those. Obviously, there are ongoing concerns about water prices, so it is also important to recognise what the Walker review said. It found that the rateable value of a property bears no relation to a customer’s ability to pay and it discovered that 40% of low-income households live in the top rateable value properties.

The concerns and fears that people have about increased metering do not necessarily correlate with the idea that we should leave as many households as we can paying for water through a rateable system. In the next price review period, possibly with the aid of some legislative stimulus, we could see a much higher rate of metering. Knowledge is power for households. We will not be having this debate in 20 years’ time, because we will all be managing our utilities on our laptops at work. We will be able to see that a rocketing in our water usage could be down to a leak in the system. We will be able to manage our household bills more effectively. The high level of metering in the south-west and the work that Southern Water and Thames Water are doing to increase the level of metering should be applauded and supported.

The WaterSure scheme and other social tariffs are important tools, but we should consider the whole question of affordability in a much more holistic way. The effect of a freeze in council tax, of getting more families on low incomes out of paying tax altogether and of other measures will have infinitely more impact on the total expenditure of those households than will tinkering around the schemes with some of these points.

My hon. Friend the Member for Thirsk and Malton (Miss McIntosh), the Chair of the Select Committee, made an important point about bad debt, but I refer her to her own local water company, Yorkshire Water, which is an exemplar in dealing with bad debt. The money we all pay on our bills for bad debt varies around the country. Some are paying £14 or £15 and some are paying a lot more, because our water companies might be bad at dealing with bad debt. I was impressed to hear that, at Yorkshire, a resolve scheme negotiates repayment terms for customers with arrears of more than £500. A couple years ago, some 5,000 customers paid back £650,000 of bad debt, and the water company wrote off £1 million of bad debt. It is that kind of partnership approach that is delivering a much lower figure of bad debt, which should be seen in the context of affordability. Ofwat estimates that the next year’s price review could reduce bills by between £120 million and £750 million, which seems an awfully wide difference.

Of course we all want to keep water bills low and as many people as possible out of water poverty, but we concentrate on that at the risk of reducing investment. I have spoken about that matter recently in the House and I will continue to do so. A high level of investment is better for customers. It is about stimulating innovation and resilience and reducing the impact on the quality of people’s lives and ultimately on the bills they pay.

The hon. Member for Stoke-on-Trent North mentioned my comments about the drought. In the spring of 2012, the Environment Agency said to me that there was a 3% chance of us having enough rain through that summer to refill the reservoirs and depleted aquifers. We were fortunate because it started to rain in May. It rained right through the jubilee and stopped just as the first athletes started arriving in the Olympic village. We all

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thought, “Thank goodness”, although we did have a number of flooding incidents in certain areas. That rainfall might have caused us a problem that summer, but we were planning very seriously for a third dry winter. I put to the House this question: are we really content to see people in the most economically active part of the UK, which is sixth largest economy in the world, reduced to collecting their water from standpipes in the street? That is the sort of image that brings down Governments and causes wholesale, serious and endemic problems in society, and we must use this Bill to avoid that.

Guy Opperman: I represent Northumberland—probably the wettest county in England—and we should probably have held the Olympics, as there would then have been no such fears. The Secretary of State referred to water supply earlier, when he called on business men, farmers and other people to get involved and create smaller reservoirs. As my hon. Friend drafted the White Paper on water and knows so much about the subject, can he say what assistance will come from DEFRA and the Bill to incentivise and assist such people to create those reservoirs?

Richard Benyon: There is provision in the Bill to establish an inset regime and allow new entrants to design innovative infrastructure, which can link into the water system. Moreover, under the capital allowance system, farmers can invest in new reservoirs and have the right to give the surplus of that water to their water companies. In dire circumstances, the Environment Agency can purchase that water to keep rivers flowing. Real opportunity exists for people. I am not saying that that will resolve our water resilience issues; many farmers will need to build many reservoirs for that to happen. None the less, there is a genuine opportunity.

I have one plea. Yes, we can get involved in lengthy debates about whether we should have a primary or a secondary sustainability duty, or whether the robust new resilience duty—I urge hon. Members to read about that—will provide an added incentive; but if the rivers do not flow, our reservoirs are empty and our economy suffers, we should be absolutely determined to concentrate on the outcomes. I appeal to Members in this Chamber and in the other place not to get stuck on the tokenism of any duty, but to consider the outcome that it can deliver. I am relatively agnostic about whether Ofwat should have a primary or secondary duty to deliver sustainability. I am much more concerned about the outcomes, and I have yet to be convinced that just changing the wording will make a huge amount of difference. A really important gain in all this is the resilience duty on Ofwat.

Neil Parish: Like other Members, I thank my hon. Friend for all the work that he did on the Bill when he was Minister. Does he not feel that the one thing we are missing in this country is the recycling of water? It would be good to use recycled water to grow crops, as it contains a huge amount of nutrients. When we get a wet year, we forget about all the dry years that we have had or may have in the future.

Richard Benyon: My hon. Friend is right. I see this in household terms: my simple view is that if a builder wants to build 1,000 houses in the Test valley—I do not

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know why I am picking on the Test valley; I could pick on any number of catchments in the south or east of England—for that to be considered sustainable development, he should have to prove to his local authority that he is hardwiring into his thinking recycling rain water, greywater systems and permeable membranes outside the houses. In fact, he should think of everything to ensure that the development’s water demands are as low as possible.

An important change is being made that will assist investment in our water sector, by cracking the problem with the investment cycle that we have faced for years. I am grateful to British Water—the organisation that represents supply chain companies—for drawing my attention to how investment fell off a cliff edge a year or so before the end of a price review period. That is a problem. Britain is losing jobs, losing skills to abroad and losing much-needed infrastructure investment. Three changes will make a difference in that regard. The first is the resilience duty, which I have already mentioned. The second is the requirement on water companies to invest for the long term, particularly through the 20-year reviews of their water needs. The third is the need for a six-year investment programme, which is a major step forward. Over time, the cycle of investment will level out rather than fall off that cliff.

We need to think beyond the Bill on sustainability. I am pleased, for example, that improvements to the building regulations include a standard daily usage of 125 litres per head. The code for sustainable homes refers to 105 litres per head. We use 155 litres per head in this country—a figure higher than almost anywhere in Europe. We must consider the demand side as well as the supply side.

I hope that that clause on flood insurance goes through with the support of all parties. All Members with constituents who live at risk of floods feel strongly that the statement of principles, worthy though it might have been when it was drawn up, was full of faults. There was no affordability element. Our constituents face excess charges that are at times more than £10,000—an impossible situation that cannot be allowed to continue.

I have the scars of the negotiations on Flood Re on my back—I pay full tribute to the ABI for the constructive way in which it negotiated—but I think we have reached a point at which we can address the needs of the 500,000 households that are at the highest risk. It will limit the cost, and as best it can, it will link that limit to people’s ability to pay. Linking the scheme to council tax banding is the right way to do that. Excess charges will be capped at somewhere between £250 and £500. That is a major win for those people who come to see us in our surgeries and tell us that every time it rains their stress levels rise considerably.

Alison Seabeck (Plymouth, Moor View) (Lab): I am listening with interest to the hon. Gentleman’s comments, given his experience. Does he have any concerns at all that linking the scheme to council tax banding, which is based on property values from back in the 1990s, could still be problematic for some households, as those figures are skewed?

Richard Benyon: I understand the hon. Lady’s point, which is justifiable, but if she is involved further in the machinations on the Bill, I urge her not to try to unpick that one. The scheme is not perfect, and she is right to

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have concerns. Band H has been cut out, so millionaires are not covered. Only bands A to G are included, and I think that this is probably the best way to do things. Obviously, it can be reviewed in the future.

The key question is how we make the transition from a system under which a subsidy supports the change to a much more risk-reflective form of insurance, which reflects betterment, such as when a household spends money from the scheme to improve resilience to flooding in the future. For example, sockets would no longer be placed at the skirting board but a metre above it. Other household measures could be reflected. We should encourage households to see the process as a transition under which they will be rewarded when they take responsibility. If they take measures to reduce the flood risk to their property, they will benefit.

Diana Johnson: I pay tribute to the hon. Gentleman for the work that he did on the flood insurance scheme. Does he agree that in areas such as mine, Hull, where 90% of the city is below sea level, home owners and home builders can do all they can, but we will always be at risk of flooding? That must be taken into account in any scheme, and I hope that the scheme that we end up with will not just disappear after the 25 years planned for Flood Re.

Richard Benyon: I entirely accept that. It will be the job of future Governments to see where this all goes, but we need to think about it as a transition. I am pleased that, through the partnership funding scheme, we could ensure that the system was skewed in favour of those with the least ability to pay, including many of the hon. Lady’s constituents on low incomes. The Government can do their bit by ensuring that more flood defences are built, that those with the least capacity to contribute to such schemes are protected and supported through central funding and that an insurance scheme reflects the needs of those who are on the lowest incomes.

The Bill is an opportunity to change how we approach the management of water in a changing climate. We forget at our peril that a drought in 2012 was followed by floods in 2012. The words in the Water White Paper, which were written at a time when that was fresh in our minds, are as relevant today as they were yesterday and will be more relevant in the years to come, as floods such as those that happened in Cornwall and other places happen more frequently. Droughts such as those that we experienced in 2012 might possibly be followed by a third dry winter. I do not want to be part of a House of Commons or a society in this country that has not grasped the risk that we could face. The Bill is part of the process of facing up to that risk, creating more resilience in our water sector and incentivising new much-needed investment. I hope that my hon. Friend the Minister will show in his concluding speech how that is all just work in progress and that much more is needed to address the environmental, economic and social problems that will accrue if we do not address the problem for the long term.

Several hon. Members rose

Madam Deputy Speaker (Mrs Eleanor Laing): Order. Before I call the next speaker, I should point out that a significant number of hon. Members want to take part

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in the debate and there is not a long time left before the Front Benchers will conclude it. If hon. Members were to limit their speeches to approximately 10 minutes, everyone who wished to speak would have the opportunity to do so. If hon. Members do not do that, in the near future I will have to impose a time limit on speeches.

7.8 pm

Hywel Williams (Arfon) (PC): I will certainly bear your comments in mind, Madam Deputy Speaker. It is a pleasure to follow the hon. Member for Newbury (Richard Benyon). His beat as a Minister did not really include Wales, of course, but I came across him in the Science and Technology Committee. His sincerity and commitment were manifest in those meetings. Let me also pay tribute to the hon. Member for Stoke-on-Trent North (Joan Walley) and say how much I agreed with her remarks about sustainability and fracking, which my hon. Friend the Member for Brighton, Pavilion (Caroline Lucas) would also have endorsed had she not had to leave.

Water has a huge significance for people in Wales. Our way of looking at water must be framed by Tryweryn and the other valleys that were drowned to provide water, largely for conurbations in England. I am also aware that I am standing on the shoulders of others who came before me, such as Cynog Dafis, the Member for Ceredigion and, with due respect to my hon. Friend the Member for Brighton, Pavilion, the first Green MP —although he was a Green-Plaid Cymru coalition MP.

Joan Walley: I cannot help pointing out that the former Member for Ceredigion served with great distinction on the Environmental Audit Committee.

Hywel Williams: Indeed. I was aware of that. He is a friend of mine and I think highly of him.

My party’s stance has always been that it is up to the people of Wales to decide on the sustainable use of its natural resources. As scarcity bites, the economic case for Wales exporting water is growing. If so, Wales should be compensated fairly and the benefits should go to the people of Wales.

There is a point which has not yet been made— the territorial significance for Wales of the current water companies. Labour in government, through the Government of Wales Act 2006, failed to act on that. Much of mid-Wales is served by Severn Trent Water. Part of north-east Wales is served by Dee Valley Water. As a consequence, perhaps, part of Herefordshire is served by Dwr Cymru Welsh Water. One of the aims of my party is to regularise that situation. The lines should be redrawn. That is something that I will talk about in Committee if I am fortunate enough to be appointed to it.

As for the current arrangements in Wales, to paraphrase L P Hartley, Wales is another country: they do things differently there. That is a slightly over-used phrase, but in Wales we have a different situation. We have a water company, Dwr Cymru Welsh Water, which is a third sector company, as I mentioned earlier, with a non-distributable profits model. The previous company, Hyder —or Hi-dere, as the BBC used to insist on calling it

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—was run on conventional commercial lines. Glas Cymru reinvests its profits in a better system and in lower prices. As I said, its current price rises are below inflation.

Roger Williams: The hon. Gentleman will know that price rises since Glas Cymru was formed in 2001 and up to the present day are below the rate of inflation. It is the long-term situation.

Hywel Williams: The hon. Gentleman makes a good point. Provision of water in Wales is a difficult matter. The geography is against us, but Glas Cymru has done a fine job.

There have been concerns about large profits in the industry, overcharging and a lack of investment, alongside high gearing and a low tax take. I read a report to that effect in the Financial Times on 27 October. Hence the need for greater competition. A water industry insider put it to me thus: some water companies are over-geared, they are over-reliant on cheap finance, which is not going to be there for ever, and they are run as cash cows. This is not a sustainable model. Dwr Cymru has the lowest gearing in the industry and, as I said, all its profits are ploughed back. Unsurprisingly, this third sector company has reported customer satisfaction levels of well over 90%.

Another way in which things are different in Wales is the Welsh Government’s stance on competition, which essentially is against it. Under the Bill, businesses and non-householder customers will be able to switch their water and sewerage suppliers, but the Bill’s provisions on competition are confined to England. I refer the House to the report by the Welsh Assembly Environment and Sustainability Committee chaired by Lord Dafydd Elis-Thomas. When questioned, 113 large-scale users—using over 50 megalitres per annum—said that a price differential of 10% to 15% would be required to tempt them to switch. By the way, that was also the stance of small and medium-sized enterprises.

A price differential of 10% to 15% is substantial, and it is significant that none of the large users that have the ability to switch in Wales have done so. Customer service is important and that is a central element of the water service that we have in Wales. Either Dwr Cymru is doing a cracking job, or switching is unlikely to hold much appeal other than, perhaps in theory, to Ministers.

Competition could be extended to Wales if the Welsh Government so wished. Dee Valley Water’s evidence to the Welsh Assembly Committee noted that competition in the non-domestic sector might be cross-subsidised by the domestic sector—that is, the public would be paying. That point was made earlier, and the answer, I think, is transparency. I understand that the Government in Cardiff do not wish competition to be extended to Wales. Can the Minister, when he winds up the debate or later in writing, clarify whether under the 2006 Act the Government in London have a veto on Welsh decisions on water? Will that continue to be the case, or is the Cardiff Government’s right to choose not to introduce competition an absolute right? I would be grateful to hear from him on that matter.

Other Members have posed the question of how we can incentivise companies to alter the way they manage their systems and water and sewerage networks

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to improve efficiency and to encourage the development and deployment of innovative technologies that can cut costs and lower the sector’s electricity usage and its carbon footprint. The point has not yet been made that water companies are heavy users of electricity. I am not sure whether competition and the price instrument will achieve all these aims. I hope we will able to discuss this further in Committee.

Lastly, on affordability, the question is how the bottom 1% of the population pays for its utilities. Overall, the Bill is a missed opportunity. It has no specifics on sustainability or the decarbonisation of the water sector. The point about fracking has already been made. There is no legal obligation on people to pay their bills. In other countries, there is a voucher system for vulnerable groups. The Bill is also lacking in specifics on water management. The current UK system is luxurious in that there is no separation of clean and grey water, which could be achieved in the future. That is a formidable list and I hope we will have the opportunity to address these matters in Committee.