The Committee consisted of the following Members:
John-Paul Flaherty, Committee Clerk
† attended the Committee
‘(1) Section 2(3)(e) of the Water Industry Act 1991 is omitted.
(2) In section 2(2A) of the Water Industry Act 1991, there is inserted—
“(e) to contribute to the achievement of sustainable development”.’.—(Roger Williams.)
‘(1) Section 2 of the Water Industry Act 1991 (General duties with respect to water industry) is amended as follows.
(2) In subsection (2A)—
(a) omit the “and” at the end of paragraph (c);
(b) after paragraph (d) insert “; and
(e) to contribute to the achievement of sustainable development.”.
(3) In subsection (3) omit paragraph (e).’.
Elevate s Ofwat’s sustainable development duty from a secondary duty to a primary duty.
Roger Williams: It is always a pleasure to serve under your chairmanship, Mr Gray. As we come to the close of our consideration of the Bill in Committee, we have a few remaining new clauses to consider, including new clause 23, which would promote Ofwat’s duty of sustainable development to a primary duty. Ofwat has a difficult job. It has three primary duties: to protect the interests of the consumer by promoting competition—that competition will hopefully be greater after the Bill is passed—wherever appropriate, to ensure that the companies properly carry out their functions and to ensure that the companies can finance their functions.
The term “sustainable development” is misconstrued in some ways. People believe that if Ofwat had a primary duty of sustainable development, environmental considerations would trump all other considerations, but it is far from that. The classic definition of sustainable development is something that ensures that the economic, social and environmental aspects are considered together and that there is balance in determining how developments take place and how operations are carried out. The water industry is very involved in all those aspects.
Economically, water companies are rather peculiar creatures in some ways. They are monopolies, or near monopolies, and they depend on historical investments such as reservoirs and sewage works. The cost of many of those investments has been written off, because of age or privatisation. Nevertheless, those investments have been made and continuing investments need to be made in the future.
I see the hon. Member for Arfon in his place, and it would not be appropriate to miss an opportunity, in looking at water from a Welsh perspective, to say, “Cofiwch Dreweryn”, which means, “Remember Treweryn”. I am sure the Minister heard that many times when he was in Aberystwyth. Treweryn was the village that was flooded in the 1950s to provide water for the people of Liverpool. The decisions on that matter were made here in Westminster, not at a local level. I believe that all but one of the Welsh MPs sitting at the time voted against that proposal.
Some of these issues have a historical context as well, but they are primarily economic. The Elan valley in my constituency was flooded 100 years ago to provide water for Birmingham. I am told that, such is the fineness of the engineering, the water goes from the Elan valley to Birmingham without any pumping at all. The sole force moving that water is gravity.
Huge investment needs to be made to provide water, to deal with sewage and to upgrade the water quality of our rivers, lakes and coastal areas. For that reason, most water companies for most of the time are cash-negative. They require continuous investment and the cost of that depends on interest rates and the credit rating of those companies seeking to attract that investment.
Ofwat has to take into account a lot of environmental duties as well. We have heard about over-abstraction. Some elements in this Bill will help there, in that it will be able to revoke or vary abstraction licences without paying compensation to the people who held those licences. I hope that those powers will be used, because they are important if we are to improve the quality of our waters and rivers. There is the even larger environmental aspect of how we deal with our sewage; how we ensure that it is treated in a way that all the water that comes out of the sewage works is of a high enough quality not to damage our environment. Then there is the social aspect of water companies and the provision of drinkable water at a cost that is affordable to those who need it.
Water is not an unregulated business. Some would say that it is almost over- regulated. It has three regulators. Ofwat is the overarching environmental regulator. The Environment Agency is the overarching environment regulator and the Drinking Water Inspectorate is in some ways a social regulator which ensures that what is delivered through people’s taps is of good enough quality to keep people healthy. The greatest advances in public health have come about as a result of providing decent drinking water and sewerage systems. That investment has been very worth while for a very long time.
What holds those three regulators together and gives them coherence is sustainable development. I recently picked up a briefing note from the Department for Environment, Food and Rural Affairs entitled, “Sustainable Development and Resilience Duties”. I appreciate that
“The founding principle of sustainable development is that the three ‘pillars’ of the economy, society and the environment are all interconnected. In the context of the water sector, this makes sustainable development equally central to the work of the economic regulator as it is to the work of the environmental and quality regulators. Our long-term economic growth relies on protecting and enhancing the environmental resources that underpin it, and paying due regard to social needs.”
That is a really good case for making sustainable development a primary duty for Ofwat. It will bring coherence between it and the other regulators. I believe that it will serve to provide water not only for now but for the future as well.
I welcome the excellent and thoughtful remarks made by the hon. Member for Brecon and Radnorshire. It is probably worth explaining to those members of the Committee who have not had a chance to read all the new clauses that new clause 32, which I have tabled, is almost word for the word the same as the hon. Gentleman’s new clause 23. My new clause would simply re-badge some of the details in a slightly different way—I suspect that the difference is purely semantic. We will therefore be supporting the hon. Gentleman’s new clause if the Minister finds himself unable to do so for whatever reason. I would be surprised if he did not support it because the EFRA Select Committee, of which the Minister was a member, unanimously agreed with the hon. Gentleman and me that sustainability should be a primary duty. The Minister is a man of great consistency, so I know that he will support the views he has previously espoused and vote for new clause 23, as will, I am sure, the hon. Member for Tiverton and Honiton, whom I welcome and whose name is also on the Select Committee report.
Now that I have taken my tongue out of my cheek, I would like to add to the remarks made by the hon. Member for Brecon and Radnorshire. A plethora of organisations support the new clauses. The hon. Gentleman has already mentioned some of them, but it is worth noting that just yesterday we received a written submission from the Food and Drink Federation. When one thinks about the great environmental champions, one obviously thinks about the World Wide Fund for Nature or the Royal Society for the Protection of Birds, but one would not necessarily think that the Food and Drink Federation, with its 400,000 members, and representing one of the most vibrant and important parts of the British economy, would necessarily be a champion of our proposals. The reality is, however, that our proposals do not represent a tree-hugger’s charter—they are not about keeping the sandal-wearing brigade happy, although there is support from Liberal Democrats. We want to
One or two Members in the margins have asked me what is the difference between resilience and sustainability, so I would like to clarify that. If I can oversimplify it slightly, resilience is about ensuring that the system can survive a shock, such as a flood that overwhelms the infrastructure, whereas sustainability is about the long-term vitality of how we abstract water from the ground, process it and make it available to customers. Those are important nuances.
John Cryer (Leyton and Wanstead) (Lab): I am interested to hear my hon. Friend’s thoughts on whether increasing sustainability is compatible with increased competition. Should there be increased competition within the water industry?
Thomas Docherty: I am most grateful to my hon. Friend for his pertinent question, which he is right to ask. They are compatible. In fact, non-domestic competition should ease the burden slightly on sustainability, as we have seen in Scotland. I referred to the figures last week. A huge saving on the amount of water used has come about through competition in Scotland. It should make our jobs slightly easier in England and the parts of Wales that will benefit from retail competition.
My hon. Friend leads me neatly on to the heart of the issue. We have a water crisis in the United Kingdom. You would not have thought that yesterday, Mr Gray, when you saw the rain pouring down and the rivers rising. However, in reality, every year for the past few years the Minister, his predecessors, civil servants and people who work in the water industry have become more and more nervous about the lack of rainfall in winter. Those of us who are a bit nerdy—unlike you, Mr Gray—know that it is important to have sufficient rainfall in the winter in the right places to build up our reservoirs and other reserves such as streams and rivers so that there is sufficient water in the summer months.
As we discussed at length last week, the problem is that there is increased draw from our rivers and reservoirs, and not enough work is being done to make that sustainable in the long term. Therefore, it is crucially important that Ofwat considers how to ensure that we do not have hosepipe bans and that some parts of the country do not have drought warnings, which would be bizarre, given the weather we are enjoying at the moment. I hope that the Minister will look at the new clause carefully, given that he agrees with the principle and that a range of NGOs, including WWF, is championing the issue.
I suspect that the Minister will cite the Gray review from 2009 or 2010—I think that is correct; my memory may be failing me at this time of year—which said that it was not critical that sustainable development was promoted to a primary duty. I will pre-empt him and get in my rebuttal first. He is in danger of picking and choosing. He has consistently tried to ignore reports and recommendations from all the other experts commissioned by the Department, such as Walker and Cave, yet he suddenly does not wish to—[ Interruption. ] The Minister is chuntering from a sedentary position. I am happy to give way if he wants to say something.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Dan Rogerson): The hon. Gentleman is correct that the Government will consider and respond to any report that came to the previous Labour Government or this Government. However, we have built many recommendations from those reports into the Bill and wider regulations and policy.
Thomas Docherty: I am most grateful to the Minister for that point. He is right to say that he should not be wedded to a recommendation just because it comes from an independent expert. We agree. We think that it was a worthy point several years ago, but events have overtaken it.
Last Tuesday, we had a debate about pricing and the fact that we will no longer impose penalties for ending abstraction, which must be considered as part of Ofwat’s five-yearly price review. I made the point that, if we are going to make that kind of change, it is even more important that we elevate sustainability to a primary function of Ofwat.
The new clause is supported by a huge range of organisations. Clause 41, which the Government propose, makes that even more imperative. It is even more critical than before as we go forward and face ever greater water stress in many parts of the country.
George Hollingbery (Meon Valley) (Con): I know the hon. Gentleman wants to bring his remarks to a close and I apologise for leaving this so late, but I sat on the Communities and Local Government Committee that discussed the national planning policy framework at length and the meaning of sustainable development. There is no agreed view of what sustainable development is, but there are many learned papers and learned journals, and many professors have talked about it a great deal. At the moment, we know what Ofwat does—we know it does resilience and that it is an economic regulator. What slightly worries me is what happens if we give it a primary duty of judging sustainable development. Where does it put economic development and what do we mean by economic development?
Thomas Docherty: I am grateful to the hon. Gentleman and I hope he will make some short remarks in a moment. He is right to raise the definition of sustainability, but he went on to answer his own question by pointing out that there is no such thing as a clearly agreed definition of economic growth. The Treasury certainly has no such agreed definition. The point of making sustainability a primary duty is that it allows Ofwat to consider it in the round. Perhaps we can come back to that after the Minister has spoken—I am genuinely keen to hear what he has to say. I pose a question back to the hon. Gentleman as I close: just because we do not have one very narrowly defined definition of sustainability, why should we not make it one of the key focuses for Ofwat?
George Hollingbery: I shall be very brief and try to do a slightly better job of explaining what I was trying to explain just then. As I have said, I sat on the Communities and Local Government Committee that looked very
We know what Ofwat does currently. We know that it is basically responsible for the economic regulation of a monopoly market. The Government propose that resilience becomes a much more important part of what it does as well. That is important because, without resilience in the system, it does not matter how cheap water is. If there is no water, however much it costs really does not matter. That is very important. There is a great deal of other advice set out by the Government about what we mean by sustainability as a secondary duty, and there will be guarantees put in place to ensure that Ofwat looks very carefully at what happens to the environment in considering any further developments.
To return to why I believe a primary duty of sustainable development might be dangerous, I am intrigued by the words of the hon. Member for Dunfermline and West Fife, who described how many different groups are backing the new clause. I am curious and I wonder whether there is not a parallel with the development sector. The duty for sustainable economic development is being used by developers across the piece in planning, especially with respect to housing developments that may not be what local councils and local people want—they propose developments because they have that economic development aspect. If the regulator—Ofwat, WICS or whatever—has a primary duty for sustainable development and somebody comes forward with an idea for a new factory, what factors does the regulator consider?
In considering sustainable development, the regulator would not just look at environmental factors, which is one part. It would also consider sustainable economic development, sustainable social development, sustainable environmental development and now even sustainable cultural development—I would be very happy about that, because fishing is part of our culture, and no doubt we would have to build reservoirs just so people could go fishing. I am being flippant, obviously.
If I were sitting in Ofwat’s chair, I would ask myself which of those pillars of sustainable development I should consider. What representations is the food and drink industry likely to make? I suspect I would be as likely to hear about sustainable economic development as about environmental matters. I am therefore slightly worried that the broad definition, which is not an agreed definition, of sustainable development might come back, in due course, to bite us, and create confusion about the role of Ofwat.
The hon. Member for Meon Valley referred to a lack of definition, but if the words mean so many things to so many people, is it not even more important to put things on a primary footing, enabling Ofwat to consider the range of views before taking its decision?
George Hollingbery: No. I disagree fundamentally. We know what Ofwat does. We have a monopolistic market and know exactly what we need from Ofwat. In my view, that is the regulation of pricing mechanisms and of the economy of the water market. That is the thing it should concentrate on most, because otherwise, in a monopolistic market, those in the market can price improperly.
Part of its duty relates to resilience, because, as I said earlier, supply is as important as anything else. In future, we may not be able to guarantee supply, so that duty should sit with the regulator. However, I have a strong feeling that, with such a diffuse duty as the hon. Gentleman proposes, on whose definition there is no agreement, Ofwat and WICS might encounter considerable difficulty over what they should be deciding on in any given application or circumstance.
As long as there is a clear acknowledgement from the Government—in advice and guidance, or perhaps in Committee—that the resilience duty is at least partly defined by an environmental duty, which is set with advice from the Government, that would be sufficient. I understand why we might, taking things a step further, want to proceed with the idea. My hon. Friend the Member for Brecon and Radnorshire has made a persuasive case, but we need clarity on Ofwat’s duties, and the new clause would probably cloud it beyond what is reasonable.
Hywel Williams (Arfon) (PC): I apologise to you and the Committee, Mr Gray, for my absence last week, which was due to illness. I regret it not least because I had tabled provisions to be considered, but perhaps, if I am fortunate, they can be considered on Report. I want briefly to speak in support of the hon. Member for Brecon and Radnorshire.
Sustainability is a contested issue, as hon. Members have noted. The hon. Member for Brecon and Radnorshire mentioned Treweryn. An operational definition of sustainability can be got by talking to people who used to live there, including relatives of mine, who have a clear idea of it. Treweryn was not sustainable for them, as they had to move away to make way for things that might be economically desirable for others. That is a stark reminder for anyone who thinks that local, environmental and social considerations can be ignored. We had a grim and eerie experience in the 1970s and 1980s when there was a long period of drought, and the remains of the village of Treweryn actually appeared out of the water. I went to have a look and it was certainly a spine-chilling experience.
The hon. Gentleman might have mentioned that the National Assembly for Wales is, I believe, the first legislative body in the world to have sustainability written in as its prime purpose. Again, I would suggest to hon. Members who have worries about the duty to look at the way the National Assembly for Wales carries it out in practice and, latterly, the Welsh Government. Ofwat would not operate in a vacuum—there is experience.
Dwr Cymru Welsh Water, operating in Wales, is cognisant of that duty of sustainability. The hon. Member for Brecon and Radnorshire mentioned drinking water. My constituency is partly supplied by Llyn Cwellyn, outside Caernarfon. We had an outbreak of cryptosporidium there a couple of years ago and Welsh Water moved very quickly to improve the treatment,
What I am saying is also reflected in how Dwr Cymru Welsh Water has invested in and improved the sewage treatment, which has led to vast improvements in beaches in Wales. That is a positive move and I hope that the Government will consider and act on it. I will certainly support the hon. Member for Brecon and Radnorshire if he chooses to press his new clause to a Division.
Dan Rogerson: I am sorry to hear that so many members of the Committee are suffering from winter colds; it is a measure of their resilience that they have managed to turn up for the debate this morning. I particularly thank my hon. Friend the Member for Brecon and Radnorshire for prompting this debate and the hon. Member for Dunfermline and West Fife for setting out the case, which has been made, it is fair to say, by a number of organisations. I take this opportunity to place on the record the Government’s position.
The Government are committed to reforming the aspects of the current system that can result in short-term thinking and to ensuring that their long-term priorities for the water sector and the water environment are properly reflected in regulatory decision making. Real progress has already been made through the current price review—for example, in removing the bias towards capital investment and in achieving a better balance between capital and operational solutions.
I am committed to tackling unsustainable abstraction and protecting the water environment. During the discussions, a number of hon. Members have raised the progress on consulting on abstraction reform. I can place on the record that I have launched a consultation on our proposals for abstraction reform and I will write to the Committee to make sure that members have access to the link. The hon. Member for Dunfermline and West Fife will check quickly to make sure that it is there for members to check.
Thomas Docherty: I take the Minister at his word, but I am sure that he will accept that it is slightly disappointing that we read about the issue in the media this morning. His officials, I am sure, forgot to circulate the same information to the Bill Committee. Will the Minister ask them as a matter of urgency to send to the Committee what they sent to the media last night?
Dan Rogerson: This is my first opportunity on the day of the launch to raise the issue, and I am doing it. As I said, I will write to the Committee to make clear what our proposals are and where members can find them so that they and relevant organisations can comment.
I am in no doubt that environmental damage undermines the long-term resilience of the water industry by threatening the natural services on which the whole system relies. That is why we have developed a duty of resilience specifically designed to address the legitimate concerns raised by hon. Members about the need for long-term investment that will address the pressures caused by climate change and population growth, and protect the natural environment on which our water sector relies.
The hon. Member for Dunfermline and West Fife sought to define resilience fairly narrowly, in terms of the ability to withstand shock to the system. He then went on to talk about the need for sustainability in the system and gave the example of dealing with droughts. He was, perhaps, looking at similar issues in respect of both potential duties. We do not define resilience so narrowly. The drafting of the new duty makes it clear that it is long-term resilience to a range of pressures on which the regulator must focus.
On the points made by my hon. Friends the Members for Brecon and Radnorshire and for Meon Valley and by the hon. Member for Arfon, I should say that Ofwat has had a statutory duty to contribute to the achievement of sustainable development since 2005. We have reinforced that by providing statutory guidance that sustainable development is central to everything that Ofwat does and must be fully embedded throughout its regulatory decision making. Ofwat must achieve a balance between the needs of customers, stable investment and environmental outcome; it will always need to strike a balance between its duties.
The Government commissioned the Ofwat review to consider these matters. Having looked carefully at the case for change in the status of the sustainable development duty, David Gray concluded that he did not believe that such a change would have the effect that its proponents were looking for.
In terms of the changing situation that the hon. Gentlemen pointed out, it was not related to the situation of the industry or the environment at the time; it was that the Gray review felt that changing the sustainable development duty would not achieve the results that some of the proponents were looking for. The Government concur.
John Cryer: I am interested in the Minister’s view of the points raised by his hon. Friend the Member for Meon Valley. Is the problem the difficulty of coming up with a definition of sustainability rather than any other reason?
Dan Rogerson: The key is that we want duties that are clear for Ofwat, so that it can apply them in its regulatory role simply and in a straightforward way that achieves the outcome that we want—resilience for customers in terms of water supply and economic impact, but also environmental resilience. A clearly defined resilience duty achieves the objectives that we are seeking.
Hywel Williams: I referred in my brief remarks to the duty placed on the National Assembly for Wales. Has the Minister had any discussions with Welsh Ministers as to how that is carried out—the operational definition of utility sustainability in practice?
Dan Rogerson: A number of bodies have duties of sustainable development. They operate as part of their regulatory framework. Ofwat already has in place a duty to have regard to sustainable development.
My hon. Friend the Member for Brecon and Radnorshire reminded us about the bodies with regulatory functions with regard to the water industry. There is the Drinking Water Inspectorate, and, particularly important in this case, the Environment Agency, which makes sure that we have a sustainable water resource that meets the needs of the natural environment as well as those of society. That is an important safeguard that we must not forget.
However, given Committee members’ stated desire to make sure that we are giving Ofwat adequate scope to take account of environmental concerns, and given the evidence that we received at an early stage of this Committee, I am keen to ensure that the resilience duty is defined in the correct way. As I said at the time, I am open to looking at whether we can improve it to provide reassurance. If we feel that we can improve it, I will bring forward something at a later stage.
As a Government, we remain fully committed to sustainable development, and Ofwat has a duty to take account of it. However, we do not believe that a simple change in the order of Ofwat’s duties is the best response to the long-term environmental challenge. I urge my hon. Friend the Member for Brecon and Radnorshire to withdraw his new clause and consider how my remarks on improving or strengthening that resilience, and clarifying the role of resilience, may help him.
Thomas Docherty: I am grateful for this opportunity for a second bite at the cherry. Perhaps I could correct the record on my own behalf. I said earlier that I was not quite certain of the date of the Gray review. If it is helpful to the Committee, I should say that the report was published in 2011, although I think that the work was undertaken slightly earlier than that. I wanted to make sure that that was set straight.
I begin by taking the Minister back to the evidence sessions that he himself referred to. I am not going to try to pronounce the acronym, but the Chartered Institution of Water and Environmental Management is one of the organisations that the Minister himself recommended as being worth listening to, both in his remarks today and previously. It believes that the economic regulator should have a statutory duty to protect water conservation and efficiency, and that the existing governance and operational structures are not fit for the future and will not be effective going forward.
That is particularly true given the fact that, with our support, the Government adopted clause 41 last week. I would argue, and I think the hon. Member for Brecon and Radnorshire would as well, that the point is made even more compelling as the Government are not minded at this stage to accept the need for abstraction reform to be moved on to a priority footing.
It is disappointing—I am sure the Procedure Committee would have a view on this—that yesterday the Minister chose to provide information about the review of abstraction in some detail to the media, but not to Parliament. It is Christmas and we all have a spirit of bonhomie at this time of year, but I am not convinced by the Minister’s assurances that the information will be made available at the earliest opportunity.
The earliest opportunity was this morning, before the Committee met. The Minister did not make available, in electronic form, a copy of the briefing that has been provided to The Guardian and other newspapers. I hope that he will get some inspiration in the very near future and provide that information to the Committee, particularly before we get to the vote on the new clauses regarding abstraction; otherwise, I think, there would be a clear breach of procedure.
The Chair: Order. It would not be a clear breach of procedure, but as the hon. Gentleman has raised the matter, I should say that Mr Speaker has made his view consistently known that the Government should take steps to make all information available to Parliament before the media. I am sure that, if he were apprised of the particular details of this case, he would very much sympathise with the point that the hon. Gentleman is making. None the less, the Government are not, of course, in breach of any procedures. I am certain that the Minister, having heard this exchange, will seek to provide the information in question to the Committee as soon as he possibly can.
The economic regulator of the water industry needs to be empowered to address the problems of the future of the water industry. The current arrangements, put in place 25 years ago, are simply not fit for purpose. The challenges that we face in the 21st century—climate change, population growth, economic constraints—are very different and perhaps more complex than those facing our predecessors when they considered the paving Bill in the late 1980s.
To give one practical and simple example that even the officials could understand, at the last price review a number of schemes for leakage reduction and widespread metering put forward by water companies were stuck down because they were not compatible with Ofwat’s duties. I am thinking of the proposal in the Hertfordshire area in particular. I do not know which water company was involved—I suspect it was Welsh Water.
Thomas Docherty: My English geography is probably as good as the Minister’s Scottish geography. Inspiration from the Minister when he replies would be helpful. I suppose that the Welsh are everywhere, anyway.
In Hertfordshire, a water company proposed water metering and various schemes. We freely acknowledge that those schemes would have cost money, but, as Ofwat deemed that the area was in water surplus, it struck them down. There was nothing wrong with them. They would have helped the local environment and wider water problems and local residents thought that they were sensible, but, because sustainability was not a primary duty, Ofwat did not believe that it could give that the same weighting as the schemes’ economic cost and benefit. That is, therefore, a clear and present example of where the current system needs reform.
I hear the Minister’s comments about promoting resilience to be a primary duty, and the Opposition welcome that. He will recall that we supported that in a
Thomas Docherty: I am grateful. Resilience still has quite a narrow definition and the Government risk creating trade-offs with environmental outcomes. It would be relatively easy, for example, to increase the resilience of water companies by lifting restrictions on abstractions during droughts to avoid interruptions to public water supplies, but that would have the perverse outcome of doing more damage to the chalk streams that we have in Hertfordshire among other places.
John Cryer: It occurs to me that one thing that was established—I think during the evidence sessions—was that this is a broad framework Bill, with the intention, as I understand from the Minister, to use secondary legislation to fill in the details, as is often the case, particularly nowadays. Could not secondary legislation be used for the definition of sustainability and the other elements that my hon. Friend talks about?
Thomas Docherty: My hon. Friend makes an important and useful observation. I hope that the Minister was paying attention and that he will address that when he replies. The problem that the Opposition and, indeed, the hon. Member for Brecon and Radnorshire have is that, although I will not say that the Government want to have their cake and eat it, they do seem to be in a slightly contradictory position. Since coming to office three and a half years ago, the Government have been very clear that they do not believe policy should be set by agencies. They believe policy should be set by the Department in Nobel house, and it is up to the regulator—particularly the Environment Agency—to implement the policy decisions taken by the Department.
The Minister will recall from his time on the Select Committee that the Environment Agency told it more than once, both publicly and in private, that it does not do policy and that policy is done by central Government. The Minister nods, and he would accept that that is the case. Yet if I understood him correctly, he is arguing that we should simply trust Ofwat to get on with it. He shakes his head. I assume that he wants to cover that point when he responds.
If I have understood the Minister correctly, he seems to be saying that he will give some assurances today in his thoughtful remarks and that Ofwat will then be able to interpret those remarks when it considers the importance of sustainability in the next price review and, indeed, the one after. However, as we have just covered and as
Dan Rogerson: Thank you, Mr Gray, for giving me a second bite of the cherry, too. Possibly it is a different cherry to that of the hon. Gentleman, as I do not want to catch his cold. I am grateful to him for giving us an example of a past case. Although I am proud of my Celtic ancestry, I think that a few battles would have had to have gone a little bit differently for the Anglo-Saxon incursion to have stopped just north of London and for Welsh Water to have stretched their boundaries that far, but there we go. That would be a different reality, which I am sure that the hon. Member for Arfon, who is no longer in his place, would have welcomed.
In citing that case, the hon. Member for Dunfermline and West Fife set out the position as it was, not the position as it is now. In my earlier contribution, I explained that the Government were clear in the statement about long-term resilience and long-term investment that we need to take account of alternative ways to invest. We not only need short-term or hardware solutions, but to look at how we manage water as a resource in general.
The Government have therefore been clear and have set the policy. The hon. Gentleman is quite right to point out that the Environment Agency would not see that as its role, but its role is to be the regulator of issues such as abstraction. That is the key difference. Through the policy that we set and Ofwat’s duty of resilience, the Government are putting in place the framework that the regulators—the Environment Agency and Ofwat—will then implement.
Thomas Docherty: So that we do not have to keep going backwards and forwards, perhaps the Minister will clarify this point. As we understand it, Ofwat will have a primary duty on economic issues and a primary duty on resilience. Surely, those duties will greatly outweigh a secondary duty on sustainability. Does the Minister accept that concern?
Dan Rogerson: I understand what is behind that concern. The key issue is that we must be sure that the duties placed on Ofwat are to consider the economic impacts of its interventions and decisions, and to consider the social impacts but also the environmental ones. I want to be clear on that. As I undertook earlier, I will consider the resilience duty to make sure that it is absolutely clear that it takes into account those long-term environmental considerations. We believe that it does, but clearly other people are concerned, so I want to make it absolutely clear that we will seek to do that.
In summing up, I hope that hon. Members will see that the existing sustainability duty remains in place and that we will have a new resilience duty, under which all aspects of managing water resources, which are so vital to our future, will be considered. We can see that Ofwat is already taking account of the different ways that companies invest their resources to do things effectively. That will inform what Ofwat does. I will look at resilience to ensure that it is clear to everybody that the environmental aspects are considered as part of that duty.
The hon. Member for Dunfermline and West Fife prompted me to respond to the hon. Member for Leyton and Wanstead on the further definition of sustainable development and the possibility of doing so through secondary legislation. We have been clear what the role of the Government is through the strategic policy statement, which already sets out what the Government are seeking with respect to sustainable development and with respect to resilience. That is where the Government set out their aims and the framework. It is then for the regulators to implement that in their decision making. On that basis, I hope that my hon. Friend the Member for Brecon and Radnorshire will feel able to withdraw his new clause, so that we can make progress on securing that resilience in a way that covers all those aspects of resilience that we intend to introduce.
Thomas Docherty: I am more confused than I was at the start. Earlier, I confused Hertfordshire and Herefordshire—my sincere apologies to those good counties—but the Minister seems to be giving ground before our eyes. Perhaps my cold is blurring my vision, but he seems to be indicating that he wants to go away and have another think about the resilience duty. For the benefit of the Committee and the watching stakeholders, will he clarify exactly what he proposes?
Dan Rogerson: I said on Second Reading when my hon. Friend and others raised these issues that I believe that the resilience duty, as drafted, covers all the aspects that are being raised here under people’s aspirations for an elevated sustainable development duty. However, if on looking at the clause and the way that the duty is set out, there is anything that I can do to reassure people, I would be happy to do so. I propose to reflect over the coming weeks and to see whether it might be possible to introduce something at a later stage to make that absolutely clear. But it is my belief and our legal advice that the sustainable development duty in its current place must be taken into account by the regulator. Our resilience duty also achieves that emphasis on environmental resilience.
I would make one other point to the hon. Gentleman. He has been very generous to me and other members of the Committee in his remarks. On occasion, however, he has mentioned officials who are not present in the Committee or who cannot speak for themselves. I urge him to reflect on the language that he uses when describing people who have been working on the Bill and who have been very active in consultation to ensure that they frame it fairly and helpfully.
Thomas Docherty: I draw the Minister’s attention to our remarks last Thursday, when I was quite effusive. I believe in giving credit where credit is due at all times. I shall be brief, as I am conscious that the hon. Member for Brecon and Radnorshire wants to press the new clause to a vote. Although we welcome the Minister’s intention and I hope that he will meet some of the stakeholders early in the new year, does he realise what he has just committed himself to do? Our problem is that, apparently, the Bill will be considered on Report on the first day back after Christmas. There was no consultation with the Opposition on that. We are most unhappy, as the Minister knows. Although I believe that he is an honourable individual, both personally
Roger Williams: I thank all hon. Members for their contributions to this important debate, which has obviously created a great deal of interest. A large number of organisations from various interests support the concept of Ofwat having sustainable development as a primary duty.
We have debated the hierarchy of duties for Ofwat. I remain convinced that there is value in promoting sustainable development. We have had a wide-ranging debate. Those of us who live in east Wales have looked at the fertile pastures of Herefordshire and Shropshire, but we have not yet extended that avarice to Hertfordshire. I thank the hon. Member for Dunfermline and West Fife for giving us that greater ambition.
Thomas Docherty: Once again, I offer my apologies to both counties involved. I think my confusion came because we Scots went as far as Derbyshire, so we assumed that the Welsh had gone equally as far eastwards.
Roger Williams: I will not pursue that debate, as I understand the Chairman is getting slightly tired of it. However, the hon. Gentleman did raise the issue of demand control, which is fundamental to sustainability, and how a number of projects were struck out in the previous price review undertaken by Ofwat.
I am taken with the words used by the Minister this morning and his commitment to look again at this—in particular, to try to unpick the relationship between resilience and sustainability. That is very important.
New clause 23, in my name, and new clause 32, in the name of the shadow Minister, are perhaps intended to achieve the same thing. We have not yet had a debate about the wording of which would be more appropriate to pursue our intention to elevate the duty of sustainability to the first order for Ofwat.
Thomas Docherty: Referring back to my opening remarks, I understand that the new clauses use the same wording, but we have included some extra lettering. We will support the hon. Gentleman’s new clause, because there is no substantial difference between the two.
Roger Williams: I thank the hon. Gentleman for that. Mention has been made that progress in considering the Bill will be quite quick. When the Minister returns to his beloved Cornwall and sits down after his Christmas lunch of turkey and all the trimmings, will he reflect on the fact that people outside are looking at this important debate and want him to propose something more substantial?
My faith in the Minister is good. I have commented on his fine defensive capabilities during earlier discussions on these matters. I hope that those defensive capabilities will not overcome his natural inclination to be a good friend to sustainability. On that basis, I beg to ask leave to withdraw the motion.
‘(1) The Water Services Regulation Authority may modify the conditions of—
(a) a pre-commencement appointment of a water or sewerage undertaker, or
(b) a pre-commencement water supply licence,
so as to include conditions relating to the provision of a consumer redress scheme.
(2) In subsection (1)—
(a) “pre-commencement appointment of a water or sewerage undertaker” means an appointment of a company under Chapter 1 of Part 2 of the Water Industry Act 1991 to be a water or sewerage undertaker which is made before the day on which this section comes into force, and
(b) “pre-commencement water supply licence” means a licence under Chapter 1A of Part 2 of the Water Industry Act 1991 granted before that day.
(3) In this section, “consumer redress scheme” means a scheme or other arrangements for unresolved complaints to be investigated and determined by an independent person.
(4) The conditions that may under subsection (1) be included in an appointment or licence include in particular conditions requiring the company holding the appointment or the person holding the licence—
(a) to secure the provision of a consumer redress scheme, or
(b) to secure the provision of a consumer redress scheme which is of a description specified in the conditions or which meets requirements so specified.
(5) Where under subsection (1) the Authority modifies conditions of an appointment or licence, it may make such incidental or consequential modifications of other conditions of the appointment or, as the case may be, other conditions of the licence as it considers necessary or expedient.
(6) The power of the Authority under subsection (1) to modify the conditions of an appointment or licence may not be exercised after the end of the period of two years beginning with the day on which this section comes into force.
(7) Before making a modification under this section the Authority must consult—
(a) the company holding the appointment or the person holding the licence;
(b) the Secretary of State;
(c) the Welsh Ministers;
(d) the Consumer Council for Water;
(e) such other persons as the Authority thinks it appropriate to consult.
(8) The Minister may direct the Authority not to make a modification that it proposes to make under this section; and the Authority must comply with such a direction.
(9) In subsection (8) “the Minister” means—
(a) the Secretary of State, in relation to—
(i) a water or sewerage undertaker whose area is wholly or mainly in England;
(ii) a person who holds a licence under Chapter 1A of Part 2 of the Water Industry Act 1991;
(b) the Welsh Ministers, in relation to a water or sewerage undertaker whose area is wholly or mainly in Wales.’.—(Dan Rogerson.)
‘(1) Section 29 of the Water Industry Act 1991 (Consumer complaints) is amended as follows.
(2) After subsection (11) there is inserted—
“(11A) Following the production of a report under subsection (10), the Council will have the right to—
(a) be consulted on a water company’s charging scheme, and any changes to it, and
(b) investigate and resolve matters as it sees fit.”.’.
Enables the Consumer Council for Water to be consulted on the charging schemes of water companies and, if necessary, to investigate and resolve customer complaints.
Dan Rogerson: New clauses 24 and 34 both relate to consumer redress. Action is being taken in that area, and the Government’s role should be to facilitate rather than to regulate. The industry is already working with Ofwat and the Consumer Council for Water to improve its approach to consumer redress.
A new independent dispute resolution scheme is being established to give all customers an independent route to resolve their complaints without having to go to court. The new scheme will provide a transparent mechanism for resolving complaints that have reached a deadlock under the current arrangements. Work on the scheme is already well advanced, with all the incumbent water companies having signalled their support. That is why new clause 34, tabled by the hon. Member for Dunfermline and West Fife, is not necessary.
The Consumer Council for Water has a central role in the new scheme. It will continue to negotiate with companies on behalf of customers and will be responsible for identifying when complaints cannot be resolved and need to be directed to the independent third party.
To support the speedy resolution of disputes, the Bill already includes powers that will enable the Secretary of State to appoint an independent adjudicator to undertake Ofwat’s more routine adjudication functions, freeing the regulator to concentrate on cases that will have the most benefit to customers.
Government new clause 24 will allow Ofwat to make changes to water company licences to include conditions relating to the provisions of such a consumer redress scheme. Together, the changes will enable the creation of an improved statutory framework for complaints and consumer redress.
On new clause 34, I can confirm that the Consumer Council for Water is already routinely consulted by water companies on their charging schemes. I am happy to make a commitment to the Committee that the charging guidance produced by the Government will ensure that consumer groups continue to be properly consulted on charging schemes in the future.
Dan Rogerson: In our previous debate about sustainable development, I was seeking to say that things have moved on since the case cited by the hon. Gentleman. As I have set out, the work is now being undertaken, and we are making progress on it. The charging guidance produced by the Government will ensure that consumer groups continue to be properly consulted on company charges. We will do that through guidance, which has been our approach to a number of other issues, rather than including it in the Bill.
Hon. Members will note that new clause 24 includes the Consumer Council for Water as a statutory consultee. I am pleased to note that complaints to water companies have gone down again this year; we all want to see complaints handled swiftly and effectively by the companies themselves. Their focus should always be on getting it right first time. For the most difficult cases, we want customers to have access to high-quality independent arbitration. The work already being undertaken by the industry in partnership with Ofwat and the Consumer Council for Water will ensure that that is the case.
Thomas Docherty: I will not keep the Committee long, given the slightly longer than anticipated debate that we have just had. First, I thank the Minister for circulating electronically the consultation document that we mentioned some moments ago. I know that hard copies will be on the way because I see that not every Member has an electronic device, and I welcome those copies arriving in the near future.
The issue underlying the debate is that of statutory versus voluntary consultation. We note what the Minister has said, but although I have some sympathy with his remarks, he will understand that we want to put our concerns on the record by pressing our new clause to a vote. I suspect that we will come back to the issue as the Bill proceeds through this place and another place.
‘A company granted a water supply licence under section 17A of the Water Industry Act 1991, prior to Royal Assent of this Act, must establish separate legal identities for its—
(a) retail activities, and
(b) wholesale activities
within one year of Royal Assent of this Act.’.—(Thomas Docherty.)
Requires the wholesale and retail arms of the water companies to be separate legal entities, within a year of Royal Assent.
‘(1) The Secretary of State may by order (the “commencement order”) appoint a day on which section 1 is to come into force.
(2) The Secretary of State may only make an order under subsection (1) if—
(a) new primary legislation on the licensing of abstraction has been passed; and
(b) five years has expired since the passage of any legislation under paragraph (a).’.—(Thomas Docherty.)
The Secretary of State may not implement upstream reform as set out in the Water Bill, until new primary legislation on the licensing of abstraction has been passed, and five years has expired to allow for its implementation.
‘Any company granted a water supply licence under section 17A of the Water Industry Act 1991, following Royal Assent of this Act, must be—
(a) offered comparable terms and conditions as any company granted a water supply licence prior to Royal Assent of this Act; and
(b) all terms and conditions must be subject to scrutiny by the regulator.’.—(Thomas Docherty.)
Ofwat would require each wholesaler to produce standardised terms and conditions for new entrants.
‘Any company providing water services to a residential household must include on its bills—
(a) details of any tariffs provided by that company;
(b) a recommendation of the lowest possible tariff for each residential household; and
(c) information regarding eligibility criteria and how to make an application for assistance under Water Sure.’.—(Thomas Docherty.)
Water companies are required to provide information regarding all tariffs and all affordability schemes alongside customer water bills .
‘(1) The Secretary of State must, by order, introduce a National Affordability Scheme for water.
(2) The National Affordability Scheme must include an eligibility criteria, determined by the Secretary of State, in consultation with—
(a) the Water Services Regulation Authority; and
(b) the Consumer Council for Water.
(3) An order under this section—
(a) shall be made by statutory instrument, and
(b) may not be made unless a draft of the order has been laid before and approved by resolution of each House of Parliament.’.—(Thomas Docherty.)
The Secretary of State is required to bring forward a National Affordability Scheme, with an eligibility criteria prescribed by the Secretary of State in the form of a statutory instrument, subject to the approval of both Houses .
‘In section 2 of the Water Industry Act 1991 (general duties with respect of the water industry), after subsection (2C) there is inserted—
“(2CA) For the purposes of subsection (2A)(a) above the Secretary of State or, as the case may be, the Authority shall have regard to the rates of charges to—
(a) household premises; and
(b) non-household premises.”.’.—(Thomas Docherty.)
Ofwat are required to consider the rates of charges to household and non-household premises .
‘(1) Section 202 of the Water Industry Act 1991 (duties of undertakers to furnish the Secretary of State with information) is amended as follows.
(2) After subsection (1A) there is inserted—
“(1B) Any company with a duty under subsections (1) and (1A) must furnish the Secretary of State and the Authority with an annual review which provides information about—
(a) their performance;
(b) the total amount of investment;
(c) their taxation structure;
(d) their corporate structure; and
(e) the total amount of dividends paid to shareholders.
(1C) Information under subsection (1B) must be provided prior to the publication of the annual statement of the Secretary of State under section 2A.”.’.—(Thomas Docherty.)
Water companies are required to provide information annually to the Secretary of State regarding their performance, investment, taxation structure, corporate structure and total amount of dividends paid to shareholders .
‘In pursuit of its duty under section 2 (general duties with respect to water industry) of the Water Industry Act 1991 the Authority must—
(a) take into account all information provided by section [Duties of undertakers to furnish the Secretary of State with information: annual review]; and
(b) may consider such information when determining whether reopening a review of prices would further the consumer objective, set out in paragraph (2A)(a) of the 1991 Act.’.
Thomas Docherty: This new clause goes to the heart of what kind of water industry we want. We had an excellent debate last week, with superb contributions from my hon. Friends the Members for Leyton and Wanstead, for South Shields and for North West Durham about their water companies and matters such as tax avoidance. I suspect that today we will have a slightly shorter but equally important debate about the water industry.
We could debate the successes and failures of 24 years of water privatisation all day, although I am not sure you would let us, Mr Gray. I do not propose that we
Earlier on, the Minister accused me, slightly unfairly, of telling it as I saw it. In the spirit of openness, I have met a number of senior executives from the water industry not only in the past few weeks since receiving my elevation but during my time on the Environment, Food and Rural Affairs Committee, on which I served with the Minister. The water industry includes many talented individuals who are making a real difference for many of their customers and undertaking a number of substantial and significant programmes. However, a number of individuals and water companies are not operating to the highest standards.
Just a few weeks ago, there was an excellent debate in the House, in which the hon. Member for Brigg and Goole participated and to which my hon. Friend the Member for Leyton and Wanstead referred last week, that highlighted practices by Yorkshire Water, for example. If the hon. Member for Brigg and Goole has the figures to hand and wants to correct me, I am more than happy for him to inform me if I get them wrong. Yorkshire Water has made huge, eye-watering profits over the past few years. Its dividend payout jumped from, I think, £63 million three years ago to some £250 million last year. At the same time, Members on both sides of the House agree that it has not done enough to support customers in Yorkshire. The hon. Gentleman referred to some of his constituents who had been left out of pocket following thousands of pounds-worth of damage to their properties due to what he saw as the failure of Yorkshire Water adequately to secure its assets, causing flooding. I cannot recall which town was damaged.
Andrew Percy (Brigg and Goole) (Con): I thank the hon. Gentleman for his timely referral to my comments in the House. It was the town of Goole that was affected. Just last Monday, the East Riding of Yorkshire council’s flood report confirmed that the town flooded due to a failure to manage the Carr Lane pumping station appropriately. The hon. Gentleman’s comment provides the perfect opportunity to repeat my call to Yorkshire Water, which, as he pointed out, has made huge profits, to compensate people in the town for its failure to protect us.
Thomas Docherty: I am most grateful. I suspect that we may hear more from the hon. Gentleman as this short debate continues. I cited that example because I thought that we had a good debate on the water industry. It was not the only reason why we tabled the new clause, but it certainly went through my mind and that of my hon. Friend the shadow Secretary of State when we listened to that debate.
There is genuine concern on both sides of the House. We heard it last week and before, from the Public Accounts Committee and from MPs up and down the
We need to restore public confidence in the chief executives. It is frankly astonishing that chief executives of water companies are on seven-figure salaries. Let us just think about that for a second: some of these water company chief executives are earning more than £1 million a year. I do not think that that is acceptable when constituents are struggling to pay bills. We had an excellent debate on affordability last week, and I congratulate my hon. Friends on their contributions. It is simply unacceptable that fat cat chief executives and board directors are earning £1 million-plus salaries with no recourse for their customers.
There is a great debate about the water companies’ performance. I believe that the issue is not just whether we have clean and safe water coming out of our taps; the Committee has had good debates about abstraction, sustainability and corporate responsibility. The Opposition believe that, to restore public confidence—dare I say it, we are almost being helpful to the industry, shocking as that may be to the Minister—each water company should be required to produce an annual report that sets out how it has performed.
I would measure performance not just in terms of the water coming out of taps, whether in Hertfordshire or Herefordshire; I would also take into account what flood improvement measures have been taken. So far we have not really debated surface water flooding, but frankly the water companies must do more to tackle the part that they play in that.
That leads to the question of investment. It is simply unacceptable for water companies to use tax evasion and avoidance models to fund investment. I believe that some of that £1.9 billion of pre-tax profit should be going back into funding the investments necessary for abstraction, flood defences and making water more affordable.
Dan Rogerson: Would the hon. Gentleman like to alter slightly what he just said to clarify that he was talking about tax avoidance rather than tax evasion? I would like it to be clear for the record that he is referring to tax avoidance schemes that are legal.
Thomas Docherty: I refer to what I said earlier: I believe that water companies are operating entirely within the law. I am most grateful to the Minister for catching my slip of the tongue—he is as helpful as ever. However, we must have real transparency about how much water companies are investing. Many of our constituents are baffled. I have nothing against the overseas territories—the Minister is aware that I have taken a close interest in them over the years—but many of our constituents are not quite clear about why places such as the Cayman Islands seem to be such popular places for basing parent companies.
I am happy to put on the record that I believe it is no longer acceptable for a water company to borrow against itself and from itself as a way of avoiding tax. Since the Minister picked me up on it, let me make the distinction clear for him: I believe that although such a practice might legally be considered avoidance, morally it is evasion. I hope that that clarifies matters for the Minister.
When water companies are making such outrageous profits, it is not morally acceptable that money is not being put back in, either to reduce the cost of household bills or to make improvements necessary for the flood defence resilience and abstraction reform that both sides would like to see.
We must also have a clearer understanding of water companies’ corporate structures to understand not just why so many of them seem to have such an interest in tax havens, but how their structures work. Is it acceptable that water companies are giving such large salaries to their senior board members? It is right that we understand more about the dividends paid to shareholders.
Thomas Docherty: I always struggle with the idea of probing new clauses, because we have not heard what the Minister has to say. I have some form on pressing new clauses, however, so let us see what happens.
George Hollingbery: If I may, I will take it that the hon. Gentleman intends to press the new clause to a vote. I understand his sentiments, and I have some sympathy with some of the profitability and pay issues, but if the new clause is to be added to the Bill—he has given personal explanations on what “performance” means and what “total amount of investment” means—it needs to be precise about what those words mean.
Thomas Docherty: I am most grateful. I suggest that the companies do a section on investment in their own staff. The hon. Gentleman made a valid point about the lack of investment across the board. It is ridiculous that chief executives are being paid seven-figure sums when many of their employees are struggling on pay restraints. I mentioned workers, and in the interests of clarity I draw Members’ attention to the Register of Members’ Financial Interests, so that the hon. Member for Morecambe and Lunesdale (David Morris) does not run off to complain about me.
The hon. Member for Meon Valley leads me on to a serious point. We need to look at the investment in staff and communities as well as in infrastructure. When the water lobbyists were running around trying to persuade us not to champion social tariffs and not to try to make water companies do a little bit to help their hard-pressed
George Hollingbery: The hon. Gentleman makes my point for me. If the new clause is to be added to the Bill, we need to know precisely what is meant by “performance” or the “total amount of investment”. What counts as an investment? Does he not agree that the new clause needs a great deal more precision? Otherwise, it is meaningless.
Thomas Docherty: I would be wrong if I suggested that the hon. Gentleman had not read the Bill, but the Bill is riddled with provisions that set a policy framework for the purposes of secondary legislation. It is not for the House to bind the Secretary of State on what he or she believes is a satisfactory report, which might change over a period of time. I go back to the debate on the water industry that we had at the start of November, where a wide-ranging set of issues was raised. Those issues might change over time.
George Hollingbery: Every other part of the Bill refers to schedules and/or the right of the Secretary of State to define through secondary legislation what is meant by x, y or z. I am afraid that the hon. Gentleman himself is hiding behind obfuscation. Three of the items on his list of five are already publicly available information. The first two, in proposed new paragraphs (a) and (b), are simply so vague that they cannot be defined in the Bill in such a way. I submit to him that his new clause is not viable.
Thomas Docherty: The hon. Gentleman contradicts himself—he has a great future as a Lib Dem, because he has contradicted his own speech. He says that three of the things are available, so it should not be difficult for the water companies to pull the information together. It will not be onerous. [ Interruption. ] I will happily give way if the hon. Gentleman wants to make a further intervention. He seems quite exercised this morning; I think he has had his oatmeal.
We are not asking the water companies to undertake an onerous task. In a previous life, many years ago, I used to work in a controversial industry—I helped to write our corporate responsibility report. It is for each water company to take the opportunity to set out what they are doing.
The hard fact, however, is that the public have lost confidence in the water industry; they are sick and tired of seeing £1.9 billion in pre-tax profits, with £1.8 billion of that heading out of the door to shareholders. The public have heard not only from the hon. Member for Brigg and Goole, but from other Members from up and down the country that water companies are failing to meet their responsibilities, while getting richer and richer at the expense of hard-pressed customers. The new clause is a small measure, which should not be onerous for the water companies, but would provide a real opportunity for us to hold those executives to account.
Andrew Percy: It is a pleasure to serve under your chairmanship this morning, Mr Gray. The new clause has some merits, although I take the point made by my hon. Friend the Member for Meon Valley about whether we might have to define more tightly some of the things it calls for.
I want to speak a little about my own experience with water companies. The 250 square miles of my constituency are covered by three different companies: Yorkshire Water, in the area where I live; Anglian Water; and Severn Trent Water. I have experience—in some cases, bitter experience—of dealing with our water companies. The shadow Minister tempted me to speak by referring to my experience with Yorkshire Water in Goole, the town I live near.
In the debate a couple of months ago, I highlighted the huge profits made by water companies, the failure to invest properly in our communities and the problems that that failure had caused. I pointed out then, as I do again for the record today, that in 2005 water bills where I live were £264; by 2011-12, when my constituents and I were stood in about 3 feet of water, they had risen to £330. Nevertheless, the year after we stood in similar amounts of water yet again, because of a failure by Yorkshire Water to maintain its basic assets in the town, in spite of having made massive profits.
Yorkshire Water’s profit-to-dividend ratio has improved since 2010, but some of the other water companies have gone in a different direction. When I intervened on the shadow Minister, I cited a report from East Riding of Yorkshire council, which under new powers has to investigate any flooding incident. This week, that report confirmed that the reason why thousands of homes in my constituency have been flooded for two years running, in particular in 2012, was that there was a failure of the Carr Lane pumping station.
As I explained before, my constituency is at threat not only from river flooding, which is why we have massive defensive banks all around us, but also from surface water, due to the fact that we have to be pumped for most of the year because we are below high tide levels and below sea levels in some places. There was a failure by Yorkshire Water despite the fact that all our bills were going up and that it was continuing to make big profits against which I, as a consumer, was unable to assess their performance.
The town floods because of that failure and my bill and the bills of my constituents continue to rise. I have some sympathy for the new clause in that I cannot see why we would not want the information to be reported. Some of it is publicly available. I am not sure whether the new clause is technically perfect—that is for people
Since the massive, catastrophic failure of the Carr Lane pumping station last year, Yorkshire Water has gone out and done much itself through its communications strategy. It has spent £3.6 million in my town of Goole, investing in new pumping facilities and increasing capacity by 20%. It has spent a lot of money and gone out of its way since that time to explain to residents and consumers exactly how it has invested in the town and what its performance has been. I am not sure it has communicated its taxation structure as clearly as some would like, but it has found that, by being more transparent and open about its investment in the town and what its failures have been, the public and consumers have more confidence now than they did two or three years ago.
I shall not say much more. I have some sympathy for the new clause—requiring the information does not seem particularly onerous. The drafting could be made better but I end by saying that we have had experience of a failure of investment in my own constituency. I hope that Yorkshire Water will apologise, finally, and compensate my constituents who have been flooded two years running. Perhaps my constituents would not need that if we had felt more able to assess adequately the company’s performance, through access to all the information. I look forward to hearing what the Minister has to say.
Mrs Emma Lewell-Buck (South Shields) (Lab): Mr Gray, it is a pleasure to serve under your chairmanship. My colleagues and I have spoken at length about putting the consumer at the heart of the matter. These clauses work along those lines, making sure that information about providers is public, thereby making providers accountable to the customers they serve. It would make clear the principle that in the water market the bottom line should be the level of service provided to customers and not the water company’s profits.
Profit margins in the water industry are extremely high. Ofwat’s latest figures show that 30% of a household’s water bill is profit. We may compare that to the energy sector, where operating profits are around 9%. Altogether, therefore, water companies made £1.9 billion in profit last year, yet as these profits have risen, so have bills. Some 2.6 million households now spend 5% or more of their income on water. Rising water bills are part of the cost of living crisis that is affecting my constituents badly. Many of them would be very angry to hear that almost a third of their bill goes into padding profits or paying large dividends to shareholders. They would see it as evidence that the market is working for their supplier, not for them, and they would be right.
New clauses 33 and 45 would enable Ofwat to intervene in the consumer’s interest and decide when prices are not working for the average household, reopening a price review, if necessary, to address any unfairness. These clauses would also require water companies to make their corporate structures and tax arrangements available for scrutiny by Ofwat. Earlier this year, it was revealed that Yorkshire Water had paid no corporation tax on its £186 million profit. Thames Water made £127.7 of profit and paid no corporation tax. This story was broken by the Sunday Times. It should not be up to the national press to reveal these figures. Companies
The chair of Ofwat warned that many of the industry’s business practices do not stand the public interest test and will damage public trust in the industry, and I agree. Customers see money being funnelled out of their bank accounts and into the coffers of water companies, which award it to their shareholders, use it to bump up executive pay or take it out of the country altogether. People rightly call for Ofwat to take action, and the new clauses we have proposed would empower it to do just that.
New clause 33 does not exactly go to the heart of the problem with the water industry, but it deals with part of it. The biggest problem for the industry and the Government is the yawning gap between their view and the public view of the industry. There is a chasm between the two: the Government are perfectly happy for the industry to continue under private ownership, and they are happy, to a degree, for it to continue under its present mode of operation, but the view among voters is that public ownership is the best solution.
I am more than happy to recognise that, in supporting public ownership, I am in a minority on either side of Parliament, but, out in the country, I would be part of the majority. The problem is that it is not sustainable to have such a chasm between the Government perception and the popular perception or to have, to some extent, a divide between Parliament generally and the public, with the public view at odds with Parliament’s view. There are not that many issues on which there is such a sharp contradiction between the views of Parliament and the views of the people. I can think of only a handful, and one that springs to mind is our membership of the EU, where there is a clear contradiction between the view of Parliament, including Conservative Members, and the view of the public. There are one or two other issues, and rail ownership springs to mind. A lot of the public perception of the water companies springs from the view that they are owned and run on behalf of a small wealthy and powerful elite, who, to a large extent, are faceless and unaccountable. That is what the new clause is intended to deal with.
We heard the speech from the hon. Member for Brigg and Goole a few minutes ago. Last week, I mentioned speeches by the hon. Members for Skipton and Ripon (Julian Smith) and for Dover (Charlie Elphicke). I do not expect Conservative Members to find it particularly easy to attack—perhaps that is a bit strong; let us say “be highly critical of”—the private sector in the way certain hon. Members have been. However, those hon. Members were moved to say what they have, because
Last week I attacked the water industry in a fairly visceral way, particularly the company that supplies my area, Thames Water. It has not got a great reputation and is disliked, even detested. It is remarkable that since I made those speeches I have not heard from Thames Water. I find it extraordinary that Thames Water has not even bothered to get in touch.
It cannot be that Thames Water is unaware that the Bill is going through and these debates are going on. It must be aware that members of the Committee are making critical speeches. Yet I have not heard a single word from Thames Water trying to explain its case; trying to explain the increase in bills and the dividends and salaries being earned.
John Cryer: I am very grateful to my hon. Friend. That is the impression that I get. I cannot imagine that Thames Water and the other big water companies do not have a lobbying or PR operation. I would have thought that any lobbying or PR operation on behalf of those companies, whether in-house or third party, had heard what we have said and thought that they ought to address it by getting in touch with the MPs on the Committee, MPs more widely, or those in the other place. As far as I can make out, there has been no attempt to justify their behaviour over the past few years or some of the planned increases. That is what I find extraordinary. They do not feel any sense that they have to justify their position.
Neil Parish (Tiverton and Honiton) (Con): Thank you, Mr Gray, it is a pleasure to serve under your chairmanship. I am not normally the one to stand up and wholeheartedly support water companies. I have to say that today we have heard a lot of information about where the water companies are all wrong. South West Water has now pegged its prices for two to three years. The Government have given money to reduce bills and South West Water has delivered on that.
I do not think that profit should be considered a dirty word. It is what is done with that profit that matters, and real investment in the industry. I get the impression from the Labour Front Bench that it is Labour party policy to renationalise the water industry. Where precisely would a Labour Government get the money from?
Neil Parish: As my hon. Friend knows, South West Water has 33% to 35% of the beaches and about 2% or 3% of the population. There are an awful lot of beaches to keep clean and where bathing water needs to be improved, with a very small population to pay for it. Hence, the Government support for South West Water. Perhaps you will explain to me how a new Labour Government—God help us, if we got one—would renationalise the water industry.
Thomas Docherty: The hon. Gentleman said “God help us”. I assumed he was referring to the Chair of the Bill Committee. To clarify for the benefit of the hon. Gentleman, who I think was here last week when we had this discussion, I made the point that we had four different corporate structures for four different nations of the United Kingdom. It works for each of the four. I will give more detail when I come to respond, Mr Gray, as this is just an intervention.
Neil Parish: I thank the shadow Minister for his intervention. We have seen £124 billion invested into the infrastructure of water, all provided by the private sector. If we were to turn round and provide that via the public sector, it would be totally wrong.
Andrew Percy: I thank my hon. Friend for giving way. There is no doubt he is making a brave speech. When I criticise Yorkshire Water, it is not because I want to bring down the capitalist system or am against private ownership—Yorkshire Water has made some major investment in our area, like all water companies—but because I want to challenge it to fulfil its proper corporate responsibility to its consumers. I do not want to see renationalisation—our pipes were leaking the worst in Yorkshire under nationalisation. Yorkshire Water has done some good things; this is about encouraging it to be more corporately responsible.
Neil Parish: I thank my hon. Friend for his intervention. If he will allow me to continue a little further, I am sure I can shed a little light on where I am taking this speech. My point is about profits and the way in which Ofwat and Government guide water companies to reinvest the money that they make, and to use it to look after customers and in some cases to keep water bills down.
Neil Parish: Indeed I do, Mr Docherty. I stand by that entirely; we create greater competition between the water companies in order to deliver a private solution. I was never one for renationalising the water companies and always wanted to know where the money would come from. I want to see greater competition in the industry, bringing in more companies, and a much more robust private system. That is my point. I have obviously stirred up a hornet’s nest.
John Cryer: The hon. Gentleman is speaking very honestly and straightforwardly. I am not impugning what he is saying. I want to make it clear that I am not responsible for Labour party policy—[Hon. Members: “Shame.”] Perhaps that will change, but I doubt it. There is no Labour party plan to renationalise the water industry. However, I should point out that it was never nationalised in the way that we understand that term. It was always broken into local water boards that owned and operated the water industry. It was never centrally controlled in Westminster.
Neil Parish: I was perhaps being unkind by asking whether renationalisation was Labour party policy, when I understood that it was the hon. Gentleman’s policy. I do not think this point is going to shed too much light—or heat or water, come to that. Clearly, we have to look at the water companies, create greater competition, and deliver a better deal through them. I look forward to our Minister laying that out clearly. There is an idea that profit in itself is problem—it is not. The question is what water companies do with those profits to reinvest. I accept that executive pay and all these things are too high, but let us not target private companies for the sake of it. They are an easy target and when they have done a good job, like South West Water has, and are pegging bills, we should stand up and say so.
Dan Rogerson: We have had a wide-ranging debate from a range of perspectives from hon. Members, who, I suspect, are suspicious of competition and whether it delivers benefits, to hon. Members such as my hon. Friend the Member for Tiverton and Honiton who want competition to go as far as possible to be reassured that it will have the goals to which he aspires. This is an important aspect of the way in which the water industry and the regulator operate. That is why I am delighted with Ofwat’s approach on these matters.
New clause 33 will give water companies a duty to report every year to Ofwat and to the Secretary of State about their performance, investments, tax arrangements, corporate structure and dividends. As many hon. Members have pointed out, this information is already freely available in the public domain. The only effect of this amendment would be to duplicate existing reporting requirements and increase the administrative burden on water companies. That may be felt to be a small burden, but ultimately the cost of that is met by the customers.
All companies are already required to report on many of these matters in their annual reports and accounts. Additional water sector-specific reporting requirements are a matter for the regulator. Ofwat is already taking action to improve standards of corporate governance across the sector. It recently consulted on principles relating to board leadership, transparency and corporate governance. Ofwat is putting pressure on
The hon. Member for Dunfermline and West Fife raises some important issues on the way the sector is run. I believe, however, that the regulator is taking action to address those issues. The proposed annual review, therefore, would add an additional burden on companies for little gain, which is why I resist the new clause.
New clause 45 would build on new clause 33 by placing a new duty on Ofwat to take account of the proposed annual report by companies to the Secretary of State. New clause 45 would give Ofwat a further power to consider such information when determining whether to reopen a price review.
As I have noted in previous debates, Ofwat already has the power to reopen a price review under the substantial beneficial effects clause of the water companies’ licence. Furthermore, all of the information that the new clause would require companies to report to the Secretary of State is already in the public domain, and much of it is already the subject of direct reporting to Ofwat, which already has far-reaching information-gathering powers and, within the scope of its duties, already has complete discretion over how it takes account of such information.
Lastly, I emphasise that Ofwat is already required to consider all of its duties when taking any regulatory decision. The question whether a particular action would further the consumer objective will always inform Ofwat’s decisions.
Ofwat has the powers necessary to revisit price determinations. Given the importance of regulatory stability to keeping prices down for customers, however, Ofwat rightly utilises those powers with caution. In that way, Ofwat already gives full consideration to whether such action would further the consumer objective.
Several hon. Members have made a number of points on water companies and their interaction with customers. It is fair to say that the earlier history of water companies was based on engineering solutions to engineering problems, such as improving water quality, addressing leakages and all sorts of things, rather than necessarily a customer focus. That is one of the main reasons for our introducing the Bill. As well as considering how to achieve greater efficiencies, the Bill will, through bringing new people into the non-domestic retail sector, improve both customer focus and responsiveness to the needs of consumers. We also want the lessons learned in that sector to be applied to the domestic sector so that household customers may also benefit.
There is much further work to do on customer focus—interacting with and listening to customers—and I therefore welcome the Bill. I also welcome what Ofwat is now doing on corporate governance and transparency, because, as hon. Members on both sides of the Committee have pointed out, there are concerns on that. The hon. Member for Leyton and Wanstead is absolutely right to say that customers are at times confused about the ownership of those companies and their arrangements. People want to understand what those arrangements mean for the profitability of companies, and so on. I welcome Ofwat’s move to take action on that.
Thomas Docherty: I think the Minister realised where he was going, so he suddenly skipped to other subjects. If he truly believes that Ofwat already has those powers, will he remind the Committee on how many occasions in the past 25 years Ofwat has chosen to exercise those powers?
Dan Rogerson: The current price review period has been one of the more profitable periods for water companies, which is perhaps why Ofwat has been consulting on whether to use the powers in relation to Thames Water. Previously, the regulator set prices on the basis that the industry needs to make huge investments. We have already heard from my hon. Friend the Member for South East Cornwall on the level of investment that has been required in the south-west, where the water company has to consider the huge coastline when making investments.
Having said that, thankfully for consumers we have now moved into a price review period under the coalition Government, rather than under the previous Government. The Secretary of State’s direction has therefore been clear. He wants Ofwat to take account of the fact that companies can borrow cheaply. In response, companies are now coming back with proposals for the price review period, which is a positive thing. Since 2009, water bills have increased by 0.5% above inflation. Water companies’ business plans indicate that in the next price review from 2015 their aspiration is that bills will be kept flat or in some cases, decline. I think this is an indication that we have moved on.
I said to the hon. Member for Dunfermline and West Fife in regard to previous debates that he is perhaps seeking to react to situations that applied before rather than the situation in which we find ourselves now. Returning to the specifics of his new clauses, the information that he is requesting to bring together is published in other sources, so the only thing that we would do if we passed this clause is bring together some of this information into some further glossy publication, involving more time from companies rather than getting on with and dealing with things that we want to see them do. Ultimately the cost of doing that will be borne by customers so I am certainly not persuaded by the hon. Gentleman that his new clauses add anything of merit to the Bill.
Thomas Docherty: This has probably been one of our livelier debates. I am most grateful to the hon. Members for Brigg and Goole and for Tiverton and Honiton for their slightly different contributions. It is good to see blue-on-blue fights in this place. I am particularly grateful for the contributions of my hon. Friends for Leyton and Wanstead and for South Shields—they made two excellent speeches about their customers.
I will briefly address four points that were raised. The first is about this issue of excess profits. We were very clear last week that we believe that these excess profits are simply unacceptable. We set out, in quite a lively discussion, that those excess profits should be used to fund our national affordability scheme. If the Government have not been prepared to accept that,
Dan Rogerson: I understand the spirit in which the hon. Gentleman makes his remarks. However, surely the key provision in that regard is the business plans and the plans that are already made public and consulted upon, rather than making an extra publication to the Secretary of State which, of course, is not necessarily something that is directed at customers. I am just confused as where he is going with that.
Thomas Docherty: I am grateful to the Minister as he is leading me on to my next point about the reporting itself. As I say, we were very clear last week: we thought that excess profits were unacceptable and that the money should be used for social tariffs for our national affordability scheme. That having been defeated, we think that greater public scrutiny is crucial.
There was some question raised by the Minister about the merits or practicalities of producing a report. I have to remind him as gently as I possibly can that for two reasons, doing reports is nothing new. First, Ofwat used to ask the water companies to do it on a voluntary basis, and many of them did, but they have got out of the habit. It would only be a cynical soul who would suggest that it is because they do not like public scrutiny and they do not like having to point out that they made hundreds of millions of pounds and paid none of it to the Treasury and gave none of it back to their customers.
In Scotland, and as ever, Scotland is the model for us all—[ Interruption. ] I am sure that was not a heckle or dissent from the hon. Member for Brigg and Goole towards the merits of Scotland. In Scotland, the regulator requires Scottish Water—which, by the way, is a nationalised water company—to produce such an annual report showing its investments and its plan for the coming year. I am baffled that the Minister thinks that this is a great hardship or that it will somehow further drive up the costs of water bills. Given the excess sums that they made last year, it really should not add much.
On new clause 45, which we did not really discuss, when we considered amendments 138 and 139 last week, the hon. Member for Meon Valley chided me at some length about giving the Secretary of State powers to reopen the price review. He said it would politicise the process. I see as he masticates from his position that he nods assent; that is a fair reflection. We reflected upon his remarks. That is why we say that the regulator should open the price review if companies are making excess profits and not delivering for their customers. I am surprised that the Minister is not keen on new clause 45. I asked how many times in 24 years Ofwat had used its powers. He gave a very long answer but failed to give the short answer, which is zero.
‘(1) Section 29 of the Water Industry Act 1991 (Consumer complaints) is amended as follows.
(2) After subsection (11) there is inserted—
“(11A) Following the production of a report under subsection (10), the Council will have the right to—
(a) be consulted on a water company’s charging scheme, and any changes to it, and
(b) investigate and resolve matters as it sees fit.”.’.
Enables the Consumer Council for Water to be consulted on the charging schemes of water companies and, if necessary, to investigate and resolve customer complaints.—(Thomas Docherty.)
‘(1) The Secretary of State shall by order establish a right of appeal for a household which has been removed from the Flood Reinsurance Scheme.
(2) The Financial Conduct Authority shall be responsible for the hearing and administration of appeals under subsection (1).
(3) An order under subsection (1)—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(4) An order under subsection (1) must be made before the Flood Reinsurance Scheme has been implemented.’.—(Thomas Docherty.)
‘(1) The Secretary of State must prepare and publish a report on—
(a) how many properties are not eligible for the Flood Reinsurance Scheme; and
(b) the cost of including properties under (a) in the FR scheme prior to it coming into effect,
and must lay a copy of the report before Parliament.
(2) The report shall include a breakdown of the cost of including properties that fall under the category—
(a) Council Tax band H;
(b) built between 1 January 2009 and 31 December 2012; and
(c) built after 1 January 2013.’.—(Thomas Docherty.)
‘(1) The Secretary of State shall by order enable low income households to qualify for the Flood Reinsurance Scheme, regardless of their Council Tax band.
(2) An order under subsection (1) shall contain a definition of “low income households”.
(3) An order under subsection (1)—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(4) An order under subsection (1) must be made before the Flood Reinsurance Scheme has been implemented.’.—(Thomas Docherty.)
‘(1) The Secretary of State may by order (the “commencement order”) appoint a day on which section [The Flood Reinsurance Scheme] is to come into force.
(2) An order under subsection (1)—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(3) The Secretary of State may only make an order under subsection (1) if a Flood Reinsurance Scheme national database has been established.
(4) Any Flood Reinsurance Scheme national database must—
(a) be accessible by the public;
(b) outline a property’s risk of flooding; and
(c) indicate if the property is covered by the Flood Reinsurance Scheme.’.—(Thomas Docherty.)
‘For section 63AC of the Water Industry Act 1991 (interim duty of water undertaker: domestic and non-domestic supply) there is substituted—
“63AC Interim duty: domestic and non-domestic supply
(1) This section applies where—
(a) a water supply licensee (“the previous licensee”) ceases to supply any premises with water, and
(b) the owner or occupier of the premises has not notified the water undertaker in whose area the premises are that—
(i) he has made arrangements for the continuation of the supply of water to the premises, or
(ii) he intends any supply of water to the premises to cease.
(2) It is to be the duty of the water undertaker to continue the supply of water to the premises which was made by the previous licensee.
(3) But the Authority may give a direction to an eligible water supply licensee (“an interim licensee”) providing that it is to be the duty of that licensee to continue the supply instead.
(4) An “eligible water supply licensee” is a water supply licensee with a retail authorisation or a restricted retail authorisation who has elected to be an eligible water supply licensee for the purposes of this section in accordance with the code issued under section 63AF.
(5) If the Authority proposes to give a direction under subsection (3) to an eligible water supply licensee—
(a) the Authority must give notice of the proposed direction to the licensee, and
(b) the licensee may, in accordance with the code issued under section 63AF, temporarily suspend the election made by the licensee as mentioned in subsection (4), so that the proposed direction cannot be given to the licensee.
(6) Where a supply is made by an undertaker under subsection (2)—
(a) the charges payable in respect of the supply are to be fixed from time to time by a charges scheme under section 143, and
(b) subject to subsection (12), the supply is to be made until—
(i) a supply is made by an interim licensee by virtue of a direction under subsection (3),
(ii) a supply is made by a water supply licensee following the service of a notice under section 63AA or 63AB;
(iii) a supply is made under section 52 or 55, or
(iv) a notice is served by the undertaker on the owner or occupier of the premises stating that the supply is to be discontinued (subject to subsection (8)),
whichever is the earlier.
(7) Where a supply is made by an interim licensee by virtue of a direction given under subsection (3)—
(a) the supply by the interim licensee is to be treated as having begun on the date on which the previous licensee ceased to supply the premises,
(b) the terms and conditions in accordance with which the supply is to be made are to be—
(i) those provided for by a scheme made under section 63AE, or
(ii) such other terms and conditions as may be agreed between the interim licensee and the owner or occupier of the premises, and
(c) subject to subsection (12), the supply is to be made until it is discontinued in accordance with the terms and conditions mentioned in paragraph (b).
(8) A notice under subsection (6)(b)(iv) may not be served before the end of the period of three months beginning with the day on which the supply by the previous licensee ceased.
(9) Subsections (10) and (11) apply if, within a period of three months beginning with the date on which the previous licensee ceased to supply the premises with water, the owner or occupier of the premises serves notice—
(a) under section 63AA or 63AB, on the water undertaker continuing the supply under subsection (2), or
(b) in accordance with the terms and conditions mentioned in subsection (7)(b), on the interim licensee continuing the supply by virtue of a direction given under subsection (3),
that instead another water supply licensee (“the new licensee”) is to continue the supply of water to the premises which was made by the previous licensee.
(10) The notice must—
(a) specify the time from which the new licensee is to continue the supply in question, and
(b) be served in accordance with the code issued under section 63AF.
(11) In the case of a notice served as mentioned in subsection (9)(a), the supply by the new licensee is to be treated as having begun on the date on which the previous licensee ceased to supply the premises.
(12) Supplies of water under this section are subject to sections 60 to 63.
63AD Interim duty: supplementary
‘(1) A water undertaker is not required by virtue of section 63AC to provide a supply of water to any premises if the provision of the supply would—
(a) require the undertaker, in order to meet all its existing obligations to supply water for domestic or other purposes, together with its probable future obligations to supply buildings and parts of buildings with water for domestic purposes, to incur unreasonable expenditure in carrying out works, or
(b) otherwise put at risk its ability to meet any of the existing or probable future obligations mentioned in paragraph (a).
(2) The Authority may determine, in a case referred to it by the owner or occupier of the premises in question, whether the condition in subsection (1) is satisfied in relation to a water undertaker.
(3) Before the Authority determines whether that condition is satisfied, it must consult—
(a) the Secretary of State, in the case of a water undertaker whose area is wholly or mainly in England;
(b) the Welsh Ministers, in the case of a water undertaker whose area is wholly or mainly in Wales.
(4) The supply of water to any premises by a water undertaker under section 63AC does not prevent a proposed supply to those premises by that undertaker under section 55 from being regarded as a new supply for the purposes of that section.
(5) Where a duty is imposed by section 63AC(2), or by virtue of a direction given under section 63AC(3), in respect of any premises, any breach of the duty which causes the owner or occupier of the premises to sustain loss or damage is actionable at the suit of that owner or occupier.
(6) But in any proceedings brought against a water undertaker or water supply licensee in pursuance of subsection (5), it is a defence for the undertaker or licensee to show that the undertaker or, as the case may be, the licensee took all reasonable steps and exercised all due diligence to avoid the breach.
“63AE Interim licensees: schemes for terms and conditions
(1) A person who is an eligible water supply licensee for the purposes of section 63AC must make, and from time to time revise, a scheme containing the terms and conditions which, in the absence of agreed terms and conditions, are to apply to a supply of water made by the licensee by virtue of a direction given under section 63AC(3).
(2) A scheme under this section may make different provision for different purposes, or for different areas.
(3) As soon as practicable after a water supply licensee makes or revises a scheme under this section the licensee is to—
(a) publish the scheme, or revised scheme, on the licensee’s website, and
(b) send a copy of the scheme, or revised scheme, to the Authority.
(4) The Authority may give a direction that terms and conditions applying to a supply of water in accordance with a scheme under this section must be modified as specified in the direction.
(5) A direction under subsection (4) may apply—
(a) generally to terms and conditions applying in accordance with a scheme under this section, or
(b) to terms and conditions so applying in any particular case.
(6) It is the duty of a water supply licensee to comply with a direction under subsection (4), and this duty is enforceable under section 18.
63AF Interim duty: code
‘(1) The Authority must issue a code in relation to—
(a) supplies of water under section 63AC, and
(b) its power of direction under section 63AC(3) (power to direct that eligible water supply licensee makes interim supply).
(2) The code may, in particular, make provision about—
(a) the procedure for electing to be an eligible water supply licensee for the purposes of section 63AC;
(b) the procedure for temporarily suspending such an election under section 63AC(5)(b);
(c) the circumstances in which the Authority’s power of direction under section 63AC(3) or 63AE(4) may or may not be exercised;
(d) how the Authority will determine the date on which a water supply licensee ceased to supply premises with water for the purposes of section 63AC;
(e) terms and conditions contained in schemes made under section 63AE;
(f) eligible water supply licensees informing owners or occupiers of premises of their schemes for terms and conditions made under section 63AE, before agreeing any terms and conditions as mentioned in section 63AC(7)(b)(ii);
(g) the giving of notices as mentioned in section 63AC(9) (that a new licensee is to continue the supply of water made by the previous licensee) including, in particular, provision about—
(i) the earliest time that a notice may specify as the time from which a new licensee is to continue the supply of water made by a previous licensee;
(ii) the procedure for serving a notice.
(3) If the Authority considers that a water supply licensee is not acting as required by provision contained in a code as mentioned in subsection (2)(e) or (f), the Authority may give the licensee a direction to do, or not to do, a particular thing specified in the direction.
(4) It is the duty of a water supply licensee to comply with a direction under subsection (3), and this duty is enforceable under section 18.
(5) The Authority must from time to time review the code and, if appropriate, issue a revised code.
(6) References in section 63AC to the code issued under this section are to the code issued under this section that has effect at the time in question.”’.—(Dan Rogerson.)
Dan Rogerson: New clause 42 revises the so-called “supplier of last resort” provisions in the existing water supply licensing regime. This is also known as the “interim supply duty”. New clause 43 introduces the equivalent for sewerage licensing and what a customer must initially do to switch from an incumbent sewerage company to a sewerage licensee. Currently, if a licensee were to withdraw from the market, its customers would revert to the incumbent water company for their retail services, for example billing. The incumbent would be under an obligation to continue supplying retail services for at least three months, or until such time as the customer formalises the arrangement or switches to another licensee.
This ensures that the customer is not left without a retail supplier because its chosen licensee becomes insolvent or otherwise decides to leave the water supply market. As it stands, this might not be an ideal situation for multi-site customers that are located throughout England and Wales. The customer could be with a single supplier one day and find itself in arrangements with up to 21 incumbent water suppliers the next. While the customer could take steps to tender for a new licensee straight away, this may take some time and will put considerable burdens on both the customers and the incumbents.
While these new clauses retain the default of a customer returning to the incumbent water company, Ofwat will alternatively be able to direct other licensees to take over responsibility for the customers, so that there is only one supplier for the customer to deal with until it makes alternative arrangements. Licensees that feel they cannot cope with the additional supply will be able to opt out at that point. Ofwat will be required to publish a code on how it will use its powers of direction and how the regime will work in practice.
Where Ofwat directs that a supply will be made by a licensee, the terms and charges that apply shall be the default terms provided by the licensee, but regulated by Ofwat. In the alternative, customers can negotiate terms and conditions privately with the licensee, but Ofwat’s code should ensure that the licensee makes the customer aware of the default terms before this can happen. Both the customer and the licensee can walk away at any time provided for in the terms and conditions.
As is the case now, where the incumbent water company provides the interim supply, it will do so in accordance with its charges scheme. The incumbent will still be able to cancel the arrangement after three months so the customer should choose to formalise the supply from the incumbent, re-negotiate it, or arrange to be supplied by a new licensee. The customer, on the other hand, can cancel the arrangement or seek to renegotiate terms at any time. We have added a new provision enabling any supply by a new licensee in these circumstances to be backdated so that the customer does not have to pay several different bills for a short interim period.
As is the case now, if the incumbent considers that making the supply puts at risk its other supply obligations, it can refuse to provide the supply. We are adding a power for the customer to challenge that decision, if it wants to remain with the incumbent water company, by asking Ofwat for a determination. Incumbents providing sewerage services will not have an equivalent opt-out due to their wider obligations to provide sewerage services in their areas of appointment.
To ensure transparency, the licensee’s default terms and conditions will be published in a scheme that will determine how the default scheme terms and conditions will be set. Under clause 16, Ofwat’s rules may also require the undertaker’s charter scheme to be published. I commend the new clauses to the Committee.
The Chair: In answer to that entirely bogus ministerial point of order, may I say what a great pleasure it has been to chair this Committee? I have been amazed that you have all remained, remarkably, more or less in order throughout. There shall be no more bogus points of order.