Water (Special Measures) Bill [HL]

Commons Amendments

20:43:00

Motion A

Moved by

That this House do not insist on its disagreement to Commons Amendment 1 on which the Commons have insisted, do not insist on its Amendment 1B to which the Commons have disagreed, and do agree with the Commons in their Amendments 1C and 1D in lieu of the words left out by Commons Amendment 1.

1C: Clause 1, page 4, line 40, at end insert— “Financial transparency requirements In the Water Industry Act 1991, after section 35D (inserted by section 1) insert— “Financial transparency 35E Authority to secure publication of financial overview (1) The purpose of this section is that members of the public should have easy access to a concise, intelligible and up-to-date overview of the financial position of each relevant undertaker. (2) A relevant undertaker’s “financial position” includes the amount and essential characteristics of the share capital and debt used to fund the operations of the undertaker. (3) The overview should include significant changes that— (a) took place in the period of 12 months before the publication of the overview, or (b) are expected to take place in the period of 12 months following that publication, provided that the changes have been publicly announced. (4) The Authority must from time to time decide— (a) what information should be included in the overview, and (b) in what format it should be published, in order to fulfil the purpose set out in subsection (1) (as read with subsection (3)). (5) The Authority must secure that each relevant undertaker is required to publish at least once every year, in a prominent place on its website, an up-to-date overview that accords with what the Authority has decided under (4). (6) It must do so by— (a) exercising its appointment powers, or (b) issuing rules under this section. (7) The Authority’s “appointment powers” are— (a) its powers to impose and modify conditions of appointments under this Chapter, and (b) anything it may do by virtue of such conditions with the result that a relevant undertaker is required to act in a certain way. (8) Sections 35B(7) to (10), 35C and 35D apply in relation to rules under this section as they apply in relation to rules under section 35B.””

1D: Clause 15, page 21, line 24, at end insert— “(ab) section (Financial transparency requirements) (financial transparency requirements);”

My Lords, in moving Motion A, I will also speak to Motion B. Before I speak to the detail of the changes made in the other place, I start by thanking all noble Lords for their continued interest in this important Bill. I give particular thanks to the noble Lord, Lord Cromwell, who is not in his place today, and the noble Lords, Lord Roborough and Lord Blencathra, for their collaboration with my officials and me over the last few weeks. It has been much appreciated. I am pleased to say that, following constructive engagement with the noble Lord, Lord Cromwell, the Government have tabled amendments that will ensure the public have access to understandable and readily available water company financial data. While it is true that water companies are already required to report annually on their finances, as I have explained during previous debates, the Government agree that more could be done to improve the accessibility of this information. I also understand that the House feels strongly about this being required through legislation, rather than existing non-legislative processes. The amendments tabled will therefore achieve our shared objective of improving the transparency and accessibility of reporting on key financial metrics. They will insert a new Section 35E into the Water Industry Act 1991, which makes clear that water companies should provide an intelligible overview of their financial position at least once a year. The overview should include a summary of significant changes that have taken place over the last 12 months and will cover key aspects of water companies’ financial positions, such as share capital and debt levels. In addition, this information must be made available in a prominent place on a water company’s website, ensuring accessibility for members of the public. Subsection (4) of new Section 35E also provides Ofwat with the power to determine the information that the water company must publish, as well as the ability to review requirements on financial reporting from time to time. This will ensure that reporting requirements can keep pace with changes in the expectations and needs of bill payers. Ofwat is also provided with the necessary powers to enforce this new requirement, either through existing water company appointment conditions or through new rules. I would like to be clear, however, that the Government expect this power to be used to ensure that reporting requirements remain relevant, rather than to dilute or diminish the ambition of reporting requirements. Financial reporting will remain underpinned by existing statutory obligations and licence conditions. I am also pleased to confirm that Ofwat’s duty to issue rules relating to financial transparency will commence upon Royal Assent, in line with its duty to issue other rules under Clause 1. I hope all noble Lords across this House will agree with the other place in its amendments to improve public access to, and understanding of, water companies’ financial information. Beyond this, I know that many noble Lords have expressed concerns around how water companies report on changes in their ownership structures. On this point, I am pleased to confirm that Ofwat will consult to require companies to present information on ownership structure clearly and prominently as part of its upcoming consultation on regulatory accounting guidelines. I turn now to the changes made in the other place that will require Ofwat to provide a draft of its rules on remuneration and governance to the Secretary of State at least seven days before they are issued. This change was made in response to the changes made at our last debate by the noble Lord, Lord Blencathra. I emphasise that the Government acknowledge the sentiment of the noble Lord’s changes, which were to ensure that there is sufficient oversight of Ofwat’s rules. However, as I have previously outlined, we cannot countenance a provision that would both delay Ofwat’s rules coming into force and compromise the independence of Ofwat. I emphasise that the Bill already includes a requirement for Ofwat to run a statutory consultation on the rules before finalisation. This will guarantee adequate scrutiny of Ofwat’s rules. I also hope noble Lords agree that it would not be appropriate for Ofwat’s rules to be confirmed through affirmative statutory instrument. On this basis, I hope that noble Lords agree with the other place in its amendment to require Ofwat to provide the rules to the Secretary of State. Again, I thank the noble Lords, Lord Blencathra and Lord Roborough, for working with me constructively to reach an agreed position on how we can ensure proper scrutiny of the rules. I beg to move.

My Lords, I begin by thanking the Minister for her constructive engagement with the Official Opposition during the progress of this Bill. We are delighted that the Government have listened to the clear view of the House that more transparent financial disclosure of the state of water companies’ balance sheets and their capital structuring plans is urgently needed. The Government’s amendment delivers much of what the noble Lord, Lord Cromwell, who is not in his place, asked for, which we supported him in insisting on. We join other Members of the House in congratulating the noble Lord on securing this meaningful improvement to the Bill. While the Government’s Amendment 2 does not deliver the same level of oversight of Ofwat’s rule-making power that our own amendments would have delivered, I am pleased that they have now tabled a substantive amendment in the other place. We accept this change to the Bill. We disagree that our amendments requiring a statutory instrument would have led to material delay in the delivery of the Ofwat rules. However, we accept that our amendment was not conducive to a fully independent regulator. Given Ofwat’s clear failures over decades, it is no surprise that this House has supported our amendments on two previous occasions. We on these Benches question the merit of the regulator continuing to have its independence from government treated as sacrosanct. This Government’s intervention to encourage regulators to prioritise growth already demonstrates that this independence is illusory. We look forward to reading the findings of Sir Jon Cunliffe’s review on this matter in due course. Even though it does not go as far as we wanted, we welcome the Government’s amendment, which will give the Secretary of State a seven-day opportunity to review the draft rules and, presumably, voice any concerns to the regulator prior to their publication. We welcome this additional accountability of the regulator to the Executive, who are, in turn, accountable to Parliament. I note that, in the other place, members of the party sitting on the Benches to my left appeared to speak in favour of my amendment, and the amendment retabled by my noble friend Lord Blencathra. Had they seen the merits of the amendment earlier and not abstained twice in your Lordships’ House, we may have been able to achieve even more on the accountability of the regulator. In conclusion, I thank all Members of the House for their engagement throughout the passage of the Bill. In particular, I thank the noble Lord, Lord Cromwell, my noble friend Lord Blencathra, the Minister’s Bill team and the Opposition Whips’ Office research team. We respect the fact that the Water (Special Measures) Bill was a manifesto commitment, and we are pleased that it will leave this House in a better state than when it arrived. We hope that it will continue to help the cleaning up of our rivers, lakes and beaches—the most important goal of the Bill. We await the publication of Sir Jon Cunliffe’s review and intend to continue to push His Majesty’s Government to do more, without increasing the burden on water consumers.

My Lords, I thank the noble Lord, Lord Roborough, for his support and his kind words as to how we have reached this position. I agree with him that the Bill leaves this House, as most Bills do, in a better shape than when it arrived. I hope that all noble Lords agree with the other place in its amendments brought forward today, which will strengthen water company reporting requirements while ensuring that Ofwat’s rules are brought forward without delay. These are important changes, which have further strengthened the Bill. I am grateful for the collaboration that took place with noble Lords across the House to arrive at this point. I also hope that the amendments brought forward by the Government provide reassurance to all noble Lords that, where there has been strong feeling across the House on certain matters, the Government have not only listened but taken meaningful action. On this basis, I hope that all noble Lords can support Commons Amendments 1C, 1D and 2B. I once again thank all noble Lords for their time and interest in this important Bill.

Motion A agreed.

Motion B

Moved by

That this House do not insist on its disagreement to Commons Amendment 2 on which the Commons have insisted, and do agree with the Commons in their Amendment 2B in lieu of the words so left out.

2B: Clause 1, page 4, line 32, at end insert— “(5) The first rules under section 35B of the Water Industry Act 1991 (inserted by subsection (3)) may not be issued unless— (1) the rules have been provided in draft to the Secretary of State, and (2) the period of 7 days beginning with the day on which the draft was provided has elapsed.”

My Lords, I have already spoken to Motion B. I beg to move.

Motion B agreed.

20:55:00

Sitting suspended.