Water (Special Measures) Bill [HL]

Report

Welsh legislative consent sought.

16:54:00

Clause 1: Rules about remuneration and governance

Amendment 1

Moved by

1: Clause 1, page 2, line 2, after “consumers” insert “and representatives from environmental groups” Member’s explanatory statement This amendment, in conjunction with another amendment in the Duke of Wellington’s name to clause 1, seeks to ensure that undertakers take into consideration the views of environmental groups alongside the views of consumers.

My Lords, I am honoured to be the first person to speak at the Report stage of this very good Bill. As I have said, I realise that this is not Second Reading, but I repeat my support for the Bill. I have already indicated to the Minister that I wish only to try to improve it in certain small respects. In this group I have four amendments—Amendments 1, 5, and 6—and I have added my name to Amendment 7. I have tabled Amendment 1 because the history of the last 35 years shows that the environmental voice in decision-making has been insufficient. One has to admit that considerable damage has been done, at least to the aquatic environment, in the 35 years since the water companies were privatised. Mrs Thatcher, Prime Minister at the time, believed that privatising the water companies would in fact help the environment because there would be more investment from the private sector than if they had remained in public ownership. But I have to say that in that respect, she was wrong. It was difficult at the time to imagine quite how the water companies would structure themselves financially in order to take out of the industry much in way of high interest payments and dividends. All I seek to do in Amendment 1 is to balance the consumer voice with a stronger environmental voice. I am grateful to the Minister for the several meetings I have had with her on this matter. I think that Ministers are broadly sympathetic to what I am trying to achieve in this amendment, but as is so often the case with Ministers, they prefer their own wording to any amendment that is proposed. I would like, however, to continue this theme because it is important. Amendments 1 and 5 in effect go together. We should ensure that the environmental voice is stronger in all future decision-making. It is worth reminding the House what the Bill says. It requires relevant undertakers—the water companies—to “have arrangements in place for involving consumers in decisions”. Fine, although I think it should be consumers “and environmentalists”. On the same page, at line 41, the Bill refers to “a requirement for persons representing the views of consumers”— I have added “and environmentalists”— “to be members of a board, committee or a panel”, or whatever the body may be. That is basically my point, and I hope that Members will consider it very carefully and agree that it is important to increase that voice. Amendment 6, which is mine, and Amendment 7, in the name of the noble Lord, Lord Remnant, to which I have added my name, make a completely different point. I have served on a number of boards where sectional interests have been represented, and in my experience, it almost always leads to difficulties in decision-making and therefore reduces the effectiveness of the board. I am very much in favour of a sectional interest, such as consumers or environmentalists, being strongly represented in a panel or similar body. In Committee, I tabled an amendment suggesting that it should also be a requirement that the chief executive of the company in question be required to meet regularly with such panels. That would be a very much better way for consumer and environmental interests to be heard strongly, and they would be more likely to have influence over the recommendations of the chief executive to the board.

17:00:00

That is basically my point. I almost prefer the amendment from the noble Lord, Lord Remnant, because in the end what he proposes is that it should be left up to each company to decide whether it has special representation on a board or whether it has a committee or panel. That is a very sensible way to approach it. To leave that direction to officials in Ofwat seems wrong to me. Every company is different; its circumstances and financial condition are different. Each one should decide how it is able to hear clearly the interests of the consumer and of the environment. I would almost prefer to divide the House on his amendment than my own, which takes a different approach but achieves the same result.

That is basically my proposition in this group. I have other amendments in other groups, to which I will return later. I thank the House for hearing my arguments, which I hope will gather support from all sides.

My Lords, I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years between 2014 and 2022. I chaired the board’s remuneration committee for that time. I thank the Minister for taking the time to meet me last week to discuss my concerns about key aspects of this Bill. I am only sorry that her apparent sympathy for at least some of my arguments has not translated into accepting any of my amendments. I have three amendments in this first group. I will be as brief as I can, but each addresses a completely separate issue. I will take them in order. My first is Amendment 4. New Section 35B(2)(a) addresses performance-related pay. The rules will set standards that companies will have to meet in a financial year in order to be able to make awards of performance-related pay to chief executives and directors for that year. However, the Bill extends the scope of this section, in new subsection (5)(c), to holders of such other description of role with the water company as Ofwat may specify. My Amendment 4 would remove this extended application to individuals below board level. This extension will be difficult to implement in practice, as different water companies will have individuals described differently by title and role. Nor would such an extension be consistent with general remuneration under the corporate governance rules for listed companies, which do not extend to individuals below board level. If we wish to attract and support the next generation of leaders in this vital industry from middle management, this will not be achieved by extending these restrictive remuneration practices to them. As the noble Duke, the Duke of Wellington, has just said, those in this House are better qualified than Ofwat in certain aspects, and this is one of them: to decide on how far down the management chain these rules should apply. My amendment draws the appropriate and proportionate line in balancing the objectives of the Bill with the interests of those most directly impacted by it. I appreciate that Ofwat is consulting on the scope of the Bill and its application to individuals. It asserts that it is minded to apply the rule to any executive director who is a member of the regulated company board in receipt of performance-related pay, because that is where ultimate accountability and leadership responsibilities lie. I look forward to the Minister’s response to my concerns in tabling this amendment. In particular, I would be interested to know whether she agrees with Ofwat’s current stance that only executive directors should be brought within the scope of the performance-related pay prohibition, and, if so, whether she will communicate that view to Ofwat. Amendment 7 is my second amendment and very much relates to what the noble Duke, the Duke of Wellington, has just been talking about: the duty for water companies to have arrangements in place to involve consumers in decisions. New subsection (6) in Clause 1 allows this in regard for “persons representing the views of consumers to be members of a board, committee or panel”, as we have heard. My amendment adds a sentence which ensures that it is for the boards of water companies, not Ofwat—for very much the reasons that the noble Duke raised—to decide on which of those three forums best suits their own requirements. I am grateful to him for adding his name to this amendment, and I agree with all his arguments in support of it and his own amendment. The Minister commented at Second Reading that it always pains her to disagree with him on anything, so I am working on the assumption that she will wish to spare herself further agony by accepting this amendment. I fully support strengthening the voice of consumers. This can be achieved in a number of different ways, as the Bill accepts, but each company in the sector is best placed to judge what is most appropriate for its own circumstances. I was surprised to read in the Explanatory Notes to the Bill, in the overview prepared by Defra, that one of its provisions is to “ensure consumer representation on water company boards”. I should be grateful, when the Minister responds, if she could confirm that this is not indeed the position of the Government, irrespective of the choices which this Bill purports to give and the consultation exercise to be conducted by Ofwat. There should be no highly prescriptive one-size-fits-all approach. Those best equipped to represent consumer interest may not wish to, or be equipped to, sit on corporate boards, with all the responsibilities and liabilities that entails. For Ofwat even to be given the option of this route risks alienating such experts and losing completely their valuable contribution. Nowhere in its consultation document does Ofwat point to the disadvantages of consumers sitting on boards, to which I have drawn your Lordships’ attention. I am therefore concerned that prospective respondents to the consultation may be being given an unbalanced view of the options. We should not give Ofwat the power to require companies to appoint representatives of the consumer interest to their boards. Maybe some companies would opt for this route, but equally they may feel that stakeholder interest would be better served through the mechanism of panels or committees. My amendment would ensure that it was the boards of water companies which made that decision, not Ofwat. It would be helpful if the Minister, in her reply, could confirm not only that all identified options are, in reality, properly on the table, but that she recognises the disadvantages of board representation in this regard, which would represent a very suboptimal solution. My final amendment in this group is Amendment 10. Clause 1(4) provides that the rules about performance-related pay can be applied in respect of the financial year beginning 1 April 2024 and for subsequent years. In effect, they can be applied retroactively. My amendment would change that date from 2024 to 2025 so that they would first be applied from the financial year beginning 1 April 2025. If we do something today, we believe that the law applying to it should be the law enforced today, not tomorrow’s backward adjustment of it. I would argue that the application of these rules retroactively is even more egregious. One might at least expect your Lordships to know precisely what it is that they are passing and the resultant retrospective impact, but that is not the case. We are delegating the power to make such rules under this legislation to a third party, Ofwat, and I have already expressed severe reservations about its expertise in doing so, given that this is outside the core competence of an economic regulator. We know not what the rules will be, how they will be applied and what impact they will have. Further, it is not intended that they be subject to further scrutiny by this House before being brought into force, as I say, with retrospective effect. The retroactive application of rules yet to be drafted will undermine investment and increase the cost of capital, raising prices for consumers. Over the next five years, the sector needs to raise £20 billion of new finance, much of it equity, to deliver the largest investment programme in the sector’s history. Investors are already nervous and can earn better returns in other sectors and in other countries. We need to provide confidence that the UK is open for business. Retrospective action destroys that by creating uncertainty about how their investments will be treated. It will undermine new talent and the sector clearly needs talented individuals to deliver the amount of improvement we all want. Retroactive changes of this sort will undermine employees’ trust in a career. Why choose water when other sectors do not face this risk? If we cannot attract the best people into the water sector, we will not see best performance. This Water (Special Measures) Bill is designed to drive better future performance. It is too late to change performance by applying rules to a year when two-thirds of it is already over. The water sector is characterised by assets, with 100-year asset lives and performance challenges that require multiyear investment programmes. That is what we should be concentrating on and incentivising management to achieve, not changing the rules of the game retrospectively as punishment for perceived failings. Many noble Lords, including the Minister herself, have made the point that not all water companies are the same—there are good ones and bad ones. I am concerned that the effect of these rules, when drawn up, will draw no such distinction. Amendment 10 is about as simple as it gets. It requires the replacement of the number 4 with the number 5 so that the performance-related pay provisions come into effect for the beginning of the next financial year, 1 April 2025, and not the beginning of the current financial year, 1 April 2024. Can the noble Baroness confirm whether these rules are intended to apply to three-year LTIPs, not only those beginning in 2024 but also those beginning as far back as 2022 and 2023, of which 2024 is a part? Her reply on this will be important to me. I urge the Minister to accept this amendment. If she does not, I am minded to test the opinion of the House.

I will speak to Amendment 2 in my name, and I am most grateful to the noble Baroness, Lady Jones of Moulsecoomb, and the noble Lords, Lord Roborough and Lord Sikka, for adding their names to it. I will speak also to Amendment 8 in my name, and again I am most grateful to the noble Baroness, Lady Jones of Moulsecoomb, for adding her name to this amendment. Finally, I am sincerely thankful to the Minister and her officials for discussing with me these amendments and the two other amendments in my name, which will come up later. Probably the most fundamental failure in our water industry is that the regulator either did not understand or was unwilling to investigate sufficiently the financial structuring of the water companies: how these structures and indebtedness were altered over time beyond all recognition from the original enterprises, and what the risks and impacts would be. If anyone is in any doubt about the results, they need only look at Thames Water, which is now all but drowning in fetid pools of ever more expensive debt, adding to its existing £16 billion of net debt so as to limp along from day to day and racking up huge future interest liabilities in addition to the principal £3 billion it is seeking.

17:15:00

This amendment is not complex or onerous, but it is vital. It requires simply that water companies report annually on their financial structuring, debt levels and any associated risks. Experience shows that such changes need to be explicitly highlighted in plain language. This will ensure that such alterations or liabilities are surfaced in a timely way and do not slip past, as they have done hitherto, perhaps buried in the financial reporting back pages, or simply not understood by anyone other than a forensic accountant with the time and enthusiasm to unpick the details.

The Minister may say that this is going to be covered by guidance, but the evidence shows that we need more than it being subsumed in general words outside the Bill. It is central to the issue and the mess that the Bill seeks to remedy. Unless we put this specific requirement in the Bill, it will, over time—just as happened in the years post privatisation—enable similar problems to evolve: problems that are now all but overpowering some water companies. Not to do this would be irresponsible, and above all would show that we have learned nothing from the sorry tale of some water companies and the importance of regular and comprehensible reviews of the evolution, or indeed revolution, of their financial structuring. As a minimum, it is an aide-mémoire, a marker that such matters are not possible to quietly put through under the radar of the regulators, investors and consumers.

However, there is another element here. I have been given to understand, to my astonishment, that there is pressure from so-called “upstairs” not to include this because—this is the amazing part—of a fear that it might “put off” investors. The department, regulators, investors and consumers all need to be absolutely clear on what financial structuring and debt commitments are being taken on, and if they are being altered. The water companies themselves would also benefit from being up front with the regulator and other stakeholders about the direction they are taking. To suggest, as it has been to me, that these matters would be better not specifically highlighted on a regular basis is to undermine transparency and obstruct the very due diligence that all stakeholders should be able to expect and that water companies should deliver.

This amendment will ensure that never again can regulators be unaware until it is too late for them to act of what financial strategies water companies are pursuing. If only they had intervened earlier, water companies could have been prevented from siphoning off huge funds to parent companies and being loaded with debt. I will listen very carefully to what the Minister has to say, but we need to help the water industry to help itself, and for that reason I may need to test the opinion of the House.

I turn now to Amendment 8 in my name, which is in the same group but on a rather different subject. Along with failing to notice the financial jiggery-pokery, the other major failing in the arrangements was the extent to which—so long as water was plentiful, clean and cheap—environmental issues and pollution took a distant back seat in the regulation of the water industry. The lesson here is that civil society, not the regulator, repeatedly raised—sometimes in co-operation with the media—the issue of river and beach pollution. I noticed on Monday’s news that local campaigners—again, not the regulator—have now brought to public attention that developers have apparently been discharging sewage from construction projects directly into the Thames. The regulator’s response? That it is not a matter for them.

A proper mechanism is needed for civil society to engage with the authority, and water companies, in order to raise issues of concern and have them noted and addressed—not via some occasional talking shop that can be ignored but by a regular pattern of meetings that the authority commits to that are minuted, with the minutes made public.

In this regard, I prefer my Amendment 8 to Amendments 1, 5 and 6, proposed by my noble friend the Duke of Wellington, which he may or may not— I am not quite sure now—press to a vote. Amendments 1 and 5 would introduce after “consumers” “and … environmental groups”. However, I feel that that wording is too prescriptive, as other organisations may have valid concerns: residents’ associations facing a polluted waterway, for example.

Amendment 6 would deny consumers a place on the board. I apologise respectfully to the noble Duke for disagreeing with him—I agree with him and others on the importance of the environmental voice—but my amendment would move things away from an informal panel that someone from the authority has to go along to, listen to from time to time, and then tick off the box marked “consultation with environmental bodies”.

Turning back to my amendment, I was told by the Minister that the problem here is the definition of “civil society.” That seems a bit limp to me, so I will helpfully quote HMG’s own published definition:

“Charities, voluntary organisations or trusts, social enterprises, mutuals and community interest companies”.

That seems about right to me. The composition of the meetings will no doubt vary over time and place, and the amendment therefore avoids being unhelpfully prescriptive. Had civil society been able to hold water companies and the regulators properly to account earlier, the current scandals in the water industry would have been highlighted earlier and likely averted before they got to the filthy state they are now in. Leaving with the water companies the power to report in glowing terms their occasional relationship with environmental organisations, rather than engage in formal accountability that is so urgently needed, is to leave the status quo in place and repeat the problems of the past.

This amendment would not put civil society on the board of water companies; it is the authority that has to interact with them. They would not, therefore, interfere in any way with the running of the water companies themselves. It would simply ensure that there was regular and documented discussion between the authority and civil society. The lesson from the post-privatisation experience is that this was inadequate: it needs fixing. This amendment would do that. Although I have not given earlier notice of it, I must now add—in the light of what I have heard about other amendments, which may be voted on—that I may now also wish to test the opinion of the House in respect of Amendment 8.

My Lords, I thank the Minister for her time over the period between Committee and now. I shall speak first to my Amendment 9, which deals with performance-related pay and, more specifically, with bonuses paid to CEOs and directors of water companies. Performance-related pay should be related specifically to how well the water company has carried out its functions, having regard to the environmental targets it has been set. These are likely to relate to the number of illegal sewage spills that have occurred in the preceding 12 months. During the last year—and especially during the general election campaign—the issue of sewage overflows was in the news almost daily. We saw the outrage of local residents at the state of their streams, rivers and lakes due to sewage spills—many occurred when there had not been any heavy rain. I will not go through the arguments, which have been well rehearsed in this Chamber. What I and my colleagues on these Benches are looking for is a reassurance from the Minister that where a category 1 and/or a category 2 pollution incident has occurred, the management of the offending water company—including the CEO, directors and senior officers involved in decisions in respect of controlling pollution—will be prevented from receiving any bonus or other performance-related pay enhancement to their basic salaries. It is unacceptable to the public for those in a very senior position in sewage and water companies to be rewarded over and above their normal salary for allowing sewage and other pollution to take place and not to have taken any steps to rectify the situation in a reasonable timeframe. On Amendments 1 and 5 in the name of the noble Duke, the Duke of Wellington, environment groups have expertise to give to the water industry, but they should sit on boards. Consumers would also have a voice on boards. On our Benches are Peers who have in the past sat on water boards and contributed positively to their debates. This is a good and positive way forward. We support environmental groups and consumers being on boards and not being sidelined. Amendments 2 and 8 from the noble Lord, Lord Cromwell, are about reporting. Amendment 2 would set up annual reporting on financial restructuring, including debt levels. This would seem a sensible way to ensure that the sewage and water company was aware of its business. However, Amendment 8 would involve others in the work of the authority, which is likely to become a bureaucratic nightmare. I have in a previous life sat on such bodies and found them to be unproductive and ineffective—I am sorry. Expectations of the civil society representatives will be high, sometimes with little understanding or knowledge of just how long it can take to implement what may often seem like a trivial matter. Amendments 4, 7 and 10, from the noble Lord, Lord Remnant, do not align with our Amendment 9 and therefore we do not support them. However, I am conscious that whatever penalties the Bill hands out to directors and CEOs of water companies, they have to be proportionate, or it will be difficult to recruit people with the necessary expertise to sit on the boards of sewage and water companies. Amendments 11 and 58 from the noble Lord, Lord Roborough, would introduce an SI into the legal framework. SIs are a favourite tool of Governments to get the detail of legislation in place. They tend to get somewhat divorced from the original Act that they refer to, but the timeline proposed here should mean that the original Act will still be fresh in peoples’ minds. Amendment 57 from the noble Lord, Lord Sikka, is, I fear, unworkable. I know from previous debates that he and the noble Baroness, Lady Jones of Moulsecoomb, would prefer to be debating the renationalisation of water and sewage companies.

True.

The Government have indicated that this is not going to happen. The amendment is an attempt to bring forward a different model of governance. The proposal is for 25% of board members to be chosen by local authorities. Local authorities are struggling with social care, looked-after children, education and people with learning disabilities. They certainly do not need this added to their “to do” list. I look forward to the Minister’s response to this group of amendments, particularly Amendment 9.

My Lords, Amendment 57 is highly workable, because it advances democracy and public accountability of the regulatory bodies. As we have it now, the regulators of the water industry have failed the people, mainly because they are too close to the very interests that they need to regulate and far removed from the welfare of employees, customers and citizens, who bear the ultimate cost of regulatory failure. I am pretty sure that the Government will soon be asking customers to chip in more money to restructure water companies and taxpayers to pay more to reconstruct them. That is just one part of the cost which people will bear. All regulatory bodies need to be guided by effective watchdogs and guide dogs, but Ofwat has neither any watchdog nor any guide dog; it just seems to be running loose and doing whatever it wishes. There is no mechanism for preventing capture of water regulators. The executives of Ofwat pass through revolving doors and join the water companies with dizzying speed and great regularity, undermining the independence of the regulatory bodies. Regulatory bodies must be seen to be independent rather than just claim that they are independent. At the moment, a director of Ofwat, a former Conservative Minister, is spearheading a campaign that would make it harder for consumers to sue water companies that breach legal sewage limits. Should a regulator be doing that—or should it be more even-handed between the regulated and consumers?

17:30:00

The same Ofwat director is a paid adviser to the lobbying firm Global Counsel, which works for the industry body that represents all the UK’s big water companies and has carried out work for the anti-class action campaign. Clearly no Ofwat director should be doing this kind of work. Their job is simply to safeguard the consumer interest.

Rather than calling offending organisations to account, Ofwat is now understood to be considering cutting fines for sewage-dumping water companies if they are facing financial pressures. Is it a guiding requirement for a regulator that, if somebody is offending but somehow cannot pay, they should not be punished? Is that the principle adopted by magistrates and judges in courts? It is not, and yet it is the principle adopted by this regulator. Light-touch regulation will not help to secure better practices, especially as there is hardly any direct representation of stakeholder interests—by that I mean consumers’ and employees’ interests—by Ofwat.

In the absence of consumer interest representation on Ofwat’s board, the organisation makes numerous concessions to water companies. Ofwat’s price review—code-named PR24—is based on entirely fictitious data. The formula used has something called regulatory capital value, which contains fictitious levels of investment. All water companies are capitalising parts of interest payments, and parts of repair and maintenance costs, just like Carillion did, and this inflates the value of their investment. Ofwat is accepting this.

PR24 also uses an estimate of something called weighted average cost of capital in its calculation. Ofwat assumes that water companies have a gearing of 55%, but none of the companies actually has that. For example, Thames has a gearing ratio of around 80%, Southern Water of 70%, Yorkshire Water of 70%, Northumbrian Water of 68%, and United Utilities of 66%. That is according to a very peculiar measure used by Ofwat, rather than the measure that any credit rating agency would use. Ofwat’s usage of a fictitious 55% gearing ratio means that it assumes that companies have equity of 45%, which none of them does. The outcome is that water companies are allowed a greater rate of return than they would be allowed if proper gearing ratios were used, because the cost of capital of debt tends to be lower than the cost of equity. I will not bore noble Lords with the tax effects.

No one on the Ofwat board seems to have questioned this, or the impact of these imaginary and fictitious calculations on the welfare of customers—which includes businesses. I have met executives from steel and shipping companies who said there were two things pushing up their costs: the first is the cost of energy and the second is the cost of water. That is driving businesses out of existence, yet we do not seem to be looking at how these numbers are arrived at.

If individuals directly elected by consumers had been on Ofwat’s board, they would certainly have brought a very different perspective. They would have looked at this through the lens of consumer welfare and would have challenged Ofwat’s subservience to corporate interests and the use of entirely fictitious and imaginary data in arriving at prices.

Employees have a vital interest in the operations of Ofwat, as their jobs depend on it. We frequently hear of whistleblowers, who are often anonymous, telling us what is actually going on inside Ofwat. It would be better if they had representation on Ofwat’s board by their directly electing some directors. Elected representatives would not easily have been silenced and sidelined.

In short, good regulation requires independent regulators, but Ofwat has been in the pocket of water companies for decades. There are no counterweights on its board to check capture by corporate interests. That counterweight would be provided by directors directly elected by employees and customers.

The final sanction for judging regulators’ performance rests with customers and employees. That is why the amendment proposes that they should be given powers to vote on the remuneration of Ofwat’s directors. If directors have performed badly, what is wrong with the employees and customers saying that they do not deserve their pay, bonus or any other privilege? It seems that Parliament is often too reluctant to extend democracy. I will not go back through history to talk about the suffragettes or anything else, but there have been many episodes where the broader democratisation of society has been resisted. I am already hearing that that would be the case here as well, with noble Lords saying the amendment is unworkable; it is not.

The time for the democratisation of regulation and the empowerment of stakeholders is with us. We ought to take that chance. I look forward to hearing from the Minister on this.

My Lords, I thank the Minister for having listened not just to Members of your Lordships’ House but to the thousands of campaigners, because the amendments tabled in her name are actually of great value. However, I feel they do not go far enough, and a lot of people—though probably not those here—might agree with me. I have co-signed two amendments in the name of the noble Lord, Lord Cromwell, and one in the name of the noble Lord, Lord Sikka. I will vote for them if any of them are put to the vote. There are lots of other helpful amendments, but those three are the most useful. I cannot help but feel that, if we were talking about benefit claimants who had behaved in the way that water companies have, we would not just slap them on the wrist in the way that we have the water companies; we would crack down on them, claw back the money and take them to court. The water companies have got off so lightly in this whole process. That really does not seem fair to bill payers or to taxpayers. Amendment 2 goes to the heart of the issue. Water companies have been ripping us off with financial engineering, and I do not think that the Government’s action plan will resolve this. The water companies have been saying that they invest all the bill payers’ money in infrastructure, but they then take out loans and pay themselves dividends. With this legislation—even with the amendments—the Government are missing the opportunity to crack down on predatory capitalism.

My Lords, I thank the Minister yet again for her engagement at every stage of the Bill’s progress and for the significant improvements that have been made to it as a result. I will speak to my Amendments 11 and 58, to Amendments 4, 7 and 10 in the name of my noble friend Lord Remnant, and to Amendment 2 in the name of the noble Lord, Lord Cromwell. Amendment 11 is a simple amendment that would give the Secretary of State greater influence over the drafting of the rules on remuneration and governance. We all know that it is the Government who will be held to account in this House and across the country for their record on water quality and pollution reduction. It seems only right that Ministers should have the ability to shape these rules. Indeed, given the importance of getting them right, Amendment 11 would make the regulations subject to the affirmative procedure for statutory instruments, giving Parliament its own role in approving these rules. I intend to test the opinion of the House on this, depending on the Minister’s answer. Amendment 58 relates to limits on water company borrowing. I will not reiterate the arguments I made in Committee and, having listened to the Government’s concerns about the possible impact of a hard statutory limit on current negotiations between the sector and prospective investors, I have tabled an altered amendment here on Report. It is clear to His Majesty’s Opposition that water companies have failed to take a sustainable approach to borrowing, and the current safeguards are insufficient. The amendment simply gives the Secretary of State the power to make regulations under the affirmative procedure for secondary legislation, limiting water company flexibility and returns to shareholders when leverage becomes excessive. I am most grateful to the noble Lord, Lord Sikka, for stating the current leverage ratios of the industry, and I agree with many of his comments, if not his amendment. Nothing in the amendment forces the Government to do anything; we are merely seeking to give them the tools they need to deliver an effective limit on water company borrowing, given the inability of the regulator to do so historically. The Minister will no doubt tell us that borrowing will be considered in the wider review of the water sector, and we welcome this. However, in the meantime, Ministers need tools to take appropriate action now. If the Government do not feel that a borrowing limit is necessary, nothing in the clause requires them to act, but we on these Benches feel that it would be a missed opportunity to let the Bill pass without giving Ministers powers that they may need to ensure that water company borrowing is at sustainable levels while we await the conclusion of the Government’s review. Subject to the response of the Minister, I am also minded to test the opinion of the House on Amendment 58. The amendments in the name of my noble friend Lord Remnant, which we spoke positively of in Committee, have a great deal of merit. They would ensure that board members are the individuals subject to the rules on remuneration and governance, as well as preventing consumers being inadvertently subject to these rules and other penalties as members of a water company’s board. This can be left to the company to decide. Amendment 2 in the name of the noble Lord, Lord Cromwell, to which I am also a signatory, complements my Amendment 58 on water company borrowing. Greater clarity on water companies’ financial engineering is important. Should he seek to test the opinion of the House, we would support his amendment. Finally, following the Minister’s constructive response, I did not bring back an amendment on the requirement to provide training to employees on their specific legal obligations within the water industry both before and after the implementation of the Bill. I would be most grateful if she could confirm that the Environment Agency will give guidance to the industry on how employees will be informed of these legal obligations.

My Lords, I am very pleased to be back in the Chamber, continuing to debate a very important piece of legislation. I once again thank all noble Lords for their interest in the Bill and their constructive engagement. We may not always agree— I may not always be able to accept amendments—but it has been very useful to have good, constructive discussions, which have helped to inform the amendments. Before I start my response, and before I forget, I confirm what the noble Lord, Lord Roborough, asked in his last question. Amendments 1 and 5 in the name of the noble Duke, the Duke of Wellington, consider the views of environmental groups. I fully support his intention to increase the voice of environmental experts and company decision-making processes. However, we do not feel that these are necessary amendments to the Bill, and I shall explain why. Environmental issues are already a key consideration in company decision-making. Water companies have a range of environmental obligations that they are required to meet, from ammonia limits to phosphorus reductions, and actions related to those obligations. If they break the law, regulators must enforce against them. Ensuring that these obligations are properly met is why we are giving the commission the opportunity to do a full review of regulation. I agree that we need a step change from water companies. I remind noble Lords that, after only seven days in office, the Government called in all water companies to negotiate and require them to update their articles of association—the fundamental rules that govern each company—in order to make the interests of customers and the environment a primary and fundamental objective. These updates will place customers and the environment at the heart of business decisions, and we expect the majority of companies to have updated their articles of association by the end of the year.

17:45:00

I stress that the provisions in the Bill require Ofwat to set the rules regarding water companies to have arrangements in place for this decision-making. This means that Ofwat needs to consult with all the relevant persons, including the Consumer Council for Water, before any rules are finalised as to who sits on the boards. We will talk about consumer representation in a minute, but there is also environmental representation.

The intention in the Bill is to ensure greater representation in company decision-making from consumers—from customers—but how that is put forward will also be reviewed. It will be considered as part of the consultation. I cannot remember which noble Lord mentioned the Explanatory Notes; was it the noble Lord, Lord Remnant, who was concerned about them? I will ensure that the officials take a look at that, because it is a perfectly good point. I hope that the noble Duke, the Duke of Wellington, can see that the Government are really serious about turning around environmental performance right across the water sector, and we will continue to press it very hard as we go through the review.

Amendment 2 is in the name of the noble Lord, Lord Cromwell, on the reporting of water company financial structures. I thank him; he spent some time with me explaining this, and I am grateful even though clearly I have not accepted it. I remind noble Lords that Ofwat has a core duty under Section 2 of the Water Industry Act 1991 to act in a manner calculated to ensure that water companies are able to finance the proper carrying out of their statutory obligations. I reassure the noble Lord that it is not the case that we are not accepting the amendment due to concerns about impacts on investors; that is not the reasoning.

Companies already report thoroughly on an ongoing basis to Ofwat. Ofwat carries out detailed reviews of financial and other relevant information published by companies in their annual performance reports, their statutory accounts, any interim accounts, investor reports and other relevant sources. Where it is clear that a company needs to strengthen its financial resilience, or if any potential risks are identified, Ofwat uses its tools to drive change and improve standards, and takes action where a company has not acted in accordance with its licence. For example, if a company’s credit ratings are downgraded to the lowest investment grade under its licence conditions, it is unable to pay any dividends without Ofwat’s approval.

Furthermore, water company licences require that companies must notify Ofwat ahead of any changes to the major shareholders of a company, which allows Ofwat to consider if any licence changes are then needed to protect customers. That means that Ofwat will be aware in advance of any significant mergers or investments in the sector.

However, I want to be clear that the Government accept that there is still more to do. That is why consideration of the entire financial resilience framework will form a central part of the independent commission. We need to look at this thoroughly and in detail before making any legislative changes, to ensure that we get it right. I hope that reassures the noble Lord that Ofwat monitors the financial resilience and structures of companies very tightly, and that we have plans to look further to secure the financial resilience of companies.

I turn to Amendment 6 in the name of the noble Duke, the Duke of Wellington, and Amendment 7 in the name of the noble Lord, Lord Remnant, both of which consider the role of consumers on water company boards. The Government are clear on the importance of elevating the voices of customers under this Bill. That is why, under the Bill, Ofwat must set rules requiring water companies to have arrangements in place to include consumers in company decisions when they have a material impact on consumer matters.

To respond to the noble Lord, Lord Remnant, in practice Ofwat has proposed a flexible approach for water companies in allowing them to establish appropriate arrangements for involving customers in decision-making processes. This is designed to enable each company to choose the arrangements best suited to them and their customers from a range of options that will be set out by Ofwat in the rules. The proposed options put forward by Ofwat include water companies specifying that a non-executive director on the board participates in or observes a relevant consumer panel or is responsible for oversight of consumer interests at the board. Alternatively, water companies could make provision for consumer panel representatives to meet the CEO on a regular basis.

It may be the case that companies wish to have a consumer representative on the company board and we therefore would like this option to remain open to companies if that is the way they would prefer to work. The Government are therefore supportive of this flexibility provided by the proposed approach set out in Ofwat’s consultation, while being clear that consumers need to be meaningfully represented. If companies fail to ensure the voices of consumers are heard, then Ofwat will be able to take enforcement action. I hope that Ofwat’s proposed approach, which already provides water companies with a great amount of flexibility to determine the best way of ensuring consumer views are elevated to board level, is reassuring to the noble Lords.

I now turn to Amendment 8 in the name of the noble Lord, Lord Cromwell, which looks how water companies engage with civil society. As the noble Lord is aware from our discussions, I fully support his intention: hence, the legislation already requires that Ofwat must set rules requiring water companies to involve consumers in any company decision-making that affects them. As I mentioned, Ofwat’s consultation on the rules proposes a flexible, but robust, approach for companies in terms of how they establish the appropriate arrangements to achieve this outcome and who can be involved. In addition, the legislation requires that in designing the rules on performance-related pay Ofwat must include performance standards related to consumer matters.

Ofwat already regularly engages with consumers, water companies and other stakeholders on relevant consumer and environmental matters. For example, Ofwat held several “Your water, your say” meetings as part of the price review process. This gave consumers, ENGOs and other stakeholders a chance to comment on Ofwat’s draft decisions for company expenditure and bills for 2025 to 2030. In addition, Ofwat representatives regularly engage with and meet with a wide cross-section of local and national stakeholder groups, virtually and in person. This includes site visits by the Ofwat senior leadership team to areas of focus for the local environment and to NGOs. For example, the Ofwat senior director, Chris Walters, recently met the Ilkley Clean River Group and the chair, Iain Coucher, visited environmental NGO Surfers Against Sewage on the Isle of Wight. I hope this reassures the noble Lord that this is an ongoing process and is taken very seriously.

In its consultation, Ofwat is also seeking views on options when setting its rules on performance-related pay, and it will no doubt welcome responses from environmental groups as well as consumers. I would encourage all groups with an interest to take part in the consultation. The noble Lord rightly wants to see that companies are fully accountable and open to scrutiny by the public, and of course we support that. The Bill will achieve this by ensuring company decision-making is much more transparent and, having said that, I hope he feels he does not have to press his amendment.

I turn now to Amendment 4 in the name of the noble Lord, Lord Remnant, which seeks to ensure that the rules about remuneration do not extend to individuals below board level. I support the noble Lord’s intention, and it is the Government’s expectation that the rules on performance-related pay target only the most senior executives in a company who have the greatest influence over the operation. This expectation is supported by Ofwat. In its consultation, Ofwat states that it intends to apply this rule only to executive directors who are members of the regulated company board and in receipt of performance-related pay. I reassure the noble Lord that Ofwat has no intention to extend the rules on remuneration and governance beyond board level at this time. The Government support this position.

However, we are clear that Ofwat’s powers must remain future-proofed to ensure that the application of the rules can be adapted in line with changes in the structure and performance of water companies. For this reason, we do not consider it appropriate to limit the group of people to whom the performance-related pay rules could apply on the face of the legislation. Our absolute expectation is that Ofwat would make any adjustments to the application of the rules only if there were a clear rationale for doing so, for example, if it later considers that the promotion of positive culture and behaviour change in the sector is not being fully delivered by the current rules.

The noble Lord, Lord Remnant, also mentioned that others may have greater experience and knowledge than Ofwat in some of these matters. I stress that Ofwat is required to consult not just with the Secretary of State but with other stakeholders in the industry, including the Consumer Council for Water, before any changes to the rules are made. Any concerns with Ofwat’s proposed rules, or changes to the rules in future, can be addressed through this process. I hope that has helped the noble Lord, Lord Remnant, to better understand the Government’s position on this matter and that he understands why we believe that it is important to retain flexibility here and so will not press his amendment.

I will now turn to Amendment 9 in the name of the noble Lady, Baroness Bakewell of Hardington Mandeville, which would require Ofwat to ban performance-related pay for companies if they fail to prevent sewage discharges, spills or leaks. I will also speak to the final amendment in this group from the noble Lord, Lord Remnant, Amendment 10, which would prevent the ban on performance-related pay from applying in the financial year 2024-25. The public has been clear that they expect to see change and where company performance is poor, executives should not receive large bonuses. The Government have clearly signalled their intentions around performance-related pay far in advance of the Bill entering Parliament. Indeed, it was a manifesto commitment for customers and for the environment.

Companies have, therefore, known for some time change was coming, so we do not believe allowing rules on performance-related pay to apply this financial year creates uncertainty. I want to be clear that the rules on performance-related pay can have effect only from the current financial year beginning 1 April 2024 and will not cover performance related pay prior to 2024-25. Ofwat will look closely at the impact that has on long-term incentive plans, but the intent of this provision is to cover performance only from the 2024-25 financial year onwards.

However, we are very aware that water companies need to attract investment so, as outlined in Ofwat’s consultation, the circumstances under which performance- related pay bans are being proposed represent very serious failures by a company. I reassure the noble Baroness, Lady Bakewell of Hardington Mandeville, that this includes instances of criminal convictions, credit ratings falling below investment grade and Ofwat’s proposed metric for bonuses to be prohibited if a company has had a serious category 1 or 2 pollution incident in the preceding calendar year. These are the type of circumstances in which it would be highly inappropriate for a bonus to be awarded. I hope that answers her question.

While Ofwat, as the independent regulator, should be responsible for determining metrics for bonus bans, it is reassuring to see that pollution incidents—which would include sewage spills—are already Ofwat’s preferred environmental metric. I would like to be clear with all noble Lords that we are not asking companies to meet any higher or new standard than that which is already expected of them.

However, the public have been clear on the need for change, and the Government acknowledge that we need to act quickly. To paint a perhaps rather stark picture, water and sewerage companies in England paid out a total of more than £40 million in executive bonuses, benefits and incentives for the financial years 2021-22 and 2022-23. Meanwhile, from 2021 to 2023 the companies recorded a total of 168 serious pollution incidents, according to data from the Environment Agency. We believe that this is clearly not acceptable, and decisive action is required. I trust that the noble Lord, Lord Remnant, will understand how seriously the Government are taking performance across the water sector, and therefore why we cannot accept his amendment.

18:00:00

I apologise for interrupting the Minister; I do not mean any discourtesy. I thank her for clarifying that the provisions relate to the time from 1 April 2024. Despite what she has said, I am still concerned about the retrospective element. My understanding is that that would affect the bonus arrangements for the year from 1 April 2024 to 1 April 2025 and would also impact the three-year LTIP arrangements entered into on 1 April 2024 for the following three years. But it will not impact LTIP arrangements entered into as long ago as 2022 or 2023 but which still have the financial year beginning in 2024 as part of those three years. From what the Minister has said, my understanding is that the retrospective element will not go so far back as to apply to LTIP arrangements entered into in 2022 and 2023. If she could confirm that, I would be much happier.

Just to reiterate, Ofwat will look closely at the impact this will have on long-term incentive plans. I cannot give the noble Lord any firm detail on the specific question he asks, because Ofwat is currently looking at this. Perhaps this is something we could pick up so that I can understand his specific concerns in more detail, and we can feed those into Ofwat’s current discussions. At the moment I cannot give him any more firm information than I have already given. If the noble Lord wants to continue this discussion so that I can feed it back to Ofwat, I shall be happy to do so. I do not know what else I can offer at the moment, because I cannot give the noble Lord a firm answer. I am going over time, but I shall look quickly at what else I need to say. Amendment 11, in the name of the noble Lord, Lord Roborough, would ensure that Ofwat’s rules on remuneration and governance came into force within six months of Royal Assent. Ofwat will be responsible for developing and implementing those rules but, as the Secretary of State will already be consulted through the process, we do not believe there is a need for a statutory instrument to be laid to bring the rules into effect. We think that allowing Ofwat to set rules in this way, rather than through legislation, will enable those standards to be more easily amended where it is appropriate to do so in the future. I hope that that reassures the noble Lord. Ofwat does intend to implement the first set of rules following its statutory consultation, so this is not something that is going to drag on. We are keen for the rules to be in place as soon as possible after Royal Assent. Amendment 57, in the name of my noble friend Lord Sikka, is about involvement in Ofwat’s board. We believe that it is the responsibility of Ofwat to determine who is on its board and who has voting rights for board meetings. There are already a number of ways in which consumers can feed into Ofwat’s regulatory work. Finally, Amendment 58, in the name of the noble Lord, Lord Roborough, is about water company borrowing. At sensible levels, debt can be an appropriate way to fund investment for essential infrastructure in the longer term. Ofwat is already taking steps to monitor debt levels as part of its report on financial resilience. Companies will need to access additional debt and equity to support the price review 2024 investment programme. I do, however, agree with the noble Lord that more can be done to ensure that debt levels are more closely monitored in future, and I would like to reassure him that, as he expected, that the independent commission will look at this. Following our meeting, I also know that the noble Lord understands that this is a critical point in time for the water industry and its investors, and we have previously discussed the importance of ensuring that we do not jeopardise water companies’ ability to secure investment before Ofwat’s final determinations are made at the end of this year. Today, Barclays reported in the Times on the deterioration in investor sentiment following the publication of the draft determinations. I therefore trust that the noble Lord, Lord Roborough, is reassured that the Government take this issue very seriously, and that he and other noble Lords understand that introducing further rules on borrowing through this Bill is not appropriate for the water industry at this time. That is what I want to stress—“at this time”. I have run out of time, but I thank noble Lords. This has been a long group and a lot has been discussed. I hope that they will feel able not to press their amendments.

My Lords, I am still certain in my own mind that the environmental voice needs to be louder in decision-making in this industry in future. I was considerably reassured by the Minister explaining how environmental considerations are central to so much of the current structure; however, one has to admit that, in practice, that has not been very evident. I must admit that I became a bit concerned when the Minister was commenting on Amendments 6 and 7 and board representation. She emphasised more than once the importance of the consumer voice on boards, panels and committees, and she never mentioned the environmental voice. I must say that I then slightly worried about the reassurances I had previously received from her. However, one has to be pragmatic about these things. I think that my amendment is important, and I am grateful to the Liberal Democrats for apparently being prepared to support it. I noticed that the Conservatives, the Official Opposition, did not comment on it and therefore, with great regret, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Moved by

2: Clause 1, page 2, line 3, at end insert— “(d) requiring a relevant undertaker to report not less than annually to the Authority on actual or planned financial structuring or restructuring of the undertaker, including debt levels, commercial strategy and any associated risks, including to the long-term sustainability of the undertaking.”Member’s explanatory statement The amendment requires that financial engineering becomes a regular focus area for timely reporting in order to assist in regulators’ understanding and alert them in good time to risks or distortions in a water company.

I very much appreciate the Minister’s comments, but as she will expect, I am unable to agree. She said that Ofwat is closely monitoring water company finances. Well, we are nearing panto season and all I can say is, “Oh no it isn’t!” I have had numerous meetings with Ofwat in committee and frankly, I do not think it even really understood them. What is required by this amendment is a potentially very short report that simply outlines what financial restructuring has happened and what new debt has been taken on. It is a modest but vital amendment to make transparent the financial engineering and prevent the shenanigans of the past. I therefore wish to test the opinion of the House.

2|18:09|279|136|Division on Amendment 2|Amendment 2 agreed.||0|0

18:21:00

Amendment 3

Moved by

3: Clause 1, page 2, line 8, at end insert— “(iia) meeting relevant standards issued under the Flood and Water Management Act 2010, in particular the standards in Schedule 3 (sustainable drainage),”

My Lords, I am grateful to have the opportunity to return to these amendments and to thank the Minister and the Bill team, and indeed the noble Baroness, Lady Taylor of Stevenage, for the very useful, albeit inconclusive, meeting that we had, Amendment 3 is really a prelude to setting out the basis of Amendment 43, on which, depending on the response I get from the Minister, I may be tempted seriously to test the opinion of the House. Amendment 3 sets out that the relevant standards in the Flood and Water Management Act 2010, particularly as set out in Schedule 3, “Sustainable Drainage”, be part of this Bill. In her summing up when this was debated in Committee, she thought that these standards were contained not in the 2010 Act but in a different Act. I beg to disagree. I think she has tabled an amendment, which we will come to later, asking for Ofwat to have regard to climate change. If it is going to have regard to that, I firmly believe that it should have regard to other environmental standards. The reason I would like to return to Schedule 3 and the important question of sustainable drains is that the Bill, in its current form, is seriously flawed in this one respect. While rightfully holding companies to account on aspects of finance and other responsibilities, it fails to address the fundamental issue that leads to flooding from new developments. If the Bill remains drafted, it will allow rainwater to continue entering public sewers and mix with sewage at times of excessive flooding. This sewage and rainwater will enter existing developments, causing a public health hazard with raw sewage coming into people’s homes. I believe— I know others across your Lordships’ House agree—that it is totally unacceptable to continue to have rainwater mixing with sewage in the public sewers in this way. There is general contentment that the Government seem to have met their manifesto commitment in this Bill, but sadly they are not focusing—they are reneging —on their responsibilities as regards parts of wastewater. Without my Amendments 3 and 43, the Bill remains defective. Amendment 43 is totally benign. It simply asks what progress there will have been in six months’ time towards implementing Schedule 3 to the Flood and Water Management Act 2010, calling for an end to the automatic right to connect, and adapting sustainable drains to be built as a mandatory requirement for all new developments. In Committee, I was delighted that my noble friend Lord Blencathra from the Front Bench supported this amendment and asked the Minister to consider bringing tougher flood mitigation duties forward for water companies on Report. These amendments, and Amendment 43 in particular, provide vital flood mitigation measures that received cross-party support during the passage of the Flood and Water Management Act 2010. I am grateful to my noble friend from the Front Bench for lending his support to this amendment yesterday, and I request that the House give it fair wind. As I say, it is not asking for implementation, which would not be in keeping with this Bill, and I know the Minister will respond to this little debate by saying that the Government are looking at a future piece of legislation that will flow from the commission, which I think all noble Lords are grateful that they are setting up. I would like to press the Minister on one point that she raised in her response to the debate that we had on these amendments in Committee. She said: “The issue we have is that it also impacts directly on development and developers, which is why the Government are currently working with the Ministry of Housing, Communities and Local Government to assess how best to implement their ambitions on sustainable drainage, while also being mindful of the cumulative impact of the new regulatory burdens on the development sector. At this stage, I do not want to pre-empt the outcome of that process”.—[Official Report, 28/10/24; col. 1009.] When the Minister and her colleagues sat on this side of the House, she was in favour of Schedule 3 and the immediate implementation of mandatory sustainable drains on all major new developments. I ask her in the most positive spirit: what has changed? Why now are they reneging on their duty, as a new Government with a big majority, to allow households to be free from the fear of having rainwater mixing with raw sewage and entering combined sewers with the potential of coming into their homes? I am not alone in calling for this to come into effect; both the Climate Change Committee and the National Infrastructure Commission have recommended that significant progress be made in addressing surface water flood risk, with the latter recommending that Schedule 3 be implemented. Managing water both around and from new developments is central to reducing flood risk and the amount of water entering sewers. The Bill is also flawed in not addressing the issue of surface water run-off from highways, which we also discussed in that meeting, and I agree with the Minister and her colleague the noble Baroness, Lady Taylor, that this should take place in the planning Bill coming forward. But this Bill is the right place in which to ask the Minister to report in six months’ time on what progress has been made as a consequence of the Bill towards implementing that vital measure of Schedule 3, which is an integral part of the Flood and Water Management Act 2010. I look forward to hearing a debate from other noble Lords, but I will listen very carefully to what the Minister says, particularly what she meant by “cumulative impact”. I may well test the opinion of the House.

My Lords, I rise briefly to support my noble friend Lady McIntosh of Pickering. The Minister will be aware that, both at Second Reading and in Committee, I raised matters of capacity where sewage and rainwater mix—run-off from roofs, roads or wherever. In Committee, I quoted some case law that shows that the capacity of the sewers to cope with both should already be taken into consideration. I hope that, when she responds, she will assure us that she has asked for that case law to be investigated, because it may well be helpful in this case.

18:30:00

I conclude simply by saying that it is not only in the sewers that the waters are mixed. My home in Devon, a very old house, was flooded twice eight years apart, with three feet of water through the ground floor of a house that was originally built in the 1700s. Very old houses, often without cavity walls, do not like soaking up all that water. When the rain comes down, you leave your home that day and do not come back for six months. When that happens once, it is bad enough, but, like me, many people around the country will know the experience when the capacity is not sufficient. Nothing brings a community together more than knowing that, when you are wading around in three feet of water on your ground floor, all the sewage from your neighbours is mixed in and floating around your furniture.

My Lords, I will briefly speak to this group of two amendments on the implementation of Schedule 3 to the Flood and Water Management Act 2010 to promote sustainable urban drainage systems, tabled by the noble Baroness, Lady McIntosh. Amendment 3 seeks to include the standards issued under that schedule in the guidance produced by Ofwat in relation to performance pay. Amendment 43 requires the Secretary of State to lay a report on the effect of the Bill on the implementation of Schedule 3 to that Act within six months of the passing of the Bill before us. I will speak to both amendments together, as, in the main, they are about the same issue: the implementation of Schedule 3. We on these Benches are broadly in support of the noble Baroness, Lady McIntosh, and we welcome her continued commitment to this particular area of policy. Of course, if we could roll back the clock and start again, we would all ensure that all housing had sustainable drainage designed in and built as standard. That option is obviously not available to us, but these amendments seek to ensure that all housing developments are built with sustainable drainage methods going forward. We should all use grey water to flush our toilets and water our gardens, and, as a society, we need to make sure that surface water and rainwater are collected, stored and used, so that they do not mix with the foul water from toilets and overflows and overfill our antiquated sewerage systems. In the face of climate change and even more extreme forms of weather, we need to do more to reduce the use of water and to slow any unessential abstraction of it from our rivers and streams. Planning authorities should not grant new housing planning permission unless proper systems are in place to reuse rainwater, separate it from the foul water and build attenuation ponds to collect surplus rainwater. There are two ends to this problem, and it seems like 99% of what we do is dealing with the bad end rather than with the preventive stuff at the other end. Of course, nature solutions are one option for dealing with these issues. Is anything in the Minister’s Amendment 42 on nature-based solutions helpful to the noble Baroness, Lady McIntosh, and her amendment? Perhaps there is nothing, but perhaps there are some connections between the two. Do the Government still intend to push on in the new year on a consultation on how we could revise these regulations, with the aim of increasing water reuse? As this is the only contribution I will make to this debate, I will take a moment to thank the Minister and her team for the constructive way she has engaged with all of us across the House on the Bill, and for bringing forward many government amendments that have sought to address concerns raised across the Chamber.

I apologise to the House for not having been able to participate in previous stages. I will briefly support the noble Baroness, Lady McIntosh, and these amendments. How come the Government, when in opposition, supported introducing mandatory sustainable drains in major new developments but now seem not to wish to do so? If no drains, soakaways or culverts are constructed to take the excess, flood-water will go into combined sewers, potentially then bubbling up and leaving sewage in housing developments. This causes a health hazard by flooding homes with sewage. The amendment asks simply for a report on how developers have implemented Schedule 3 to the Flood and Water Management Act 2010. There was cross-party support for that in this House, and I hope the Minister can reassure us or find a way to meet the concern of the noble Baroness, Lady McIntosh.

My Lords, I thank my noble friend Lady McIntosh of Pickering for moving this amendment. In Committee, we discussed the implementation of the provisions of Schedule 3 to the Flood and Water Management Act 2010. As my noble friend has said previously, the last Government accepted the recommendation of a sustainable drainage systems review to implement Schedule 3. We share my noble friend’s concerns about the impact of additional run-off from developments. If the Government seek to deliver the homes we need for the next generation and to drive the economic growth they promised, we need to get sustainable drainage right. Although I understand that the Government have concerns about whether these amendments should be in the Bill and which department should be responsible for this policy area, I hope they will listen carefully to my noble friend Lady McIntosh’s concerns and be able to reassure her. However, I am sorry to disappoint my noble friend, but we will not be able to support Amendment 43.

I thank the noble Baroness, Lady McIntosh of Pickering, for continuing to raise this important issue, and for tabling her Amendments 3 and 43, which speak to the implementation of Schedule 3. I thank her for her passion and persistence on this matter—she has never let it drop, which is important because this stalled 14 years ago. I also thank her for taking the time to meet me and my noble friend Lady Taylor of Stevenage, the Minister in MHCLG, to discuss this matter in some detail and to look at how we can improve delivery. On Amendment 3, the standards introduced under Schedule 3 would be designed specifically for relevant approval bodies to use when determining applications for sustainable drainage. As I am sure the noble Baroness is aware, such applications would be submitted mainly by developers, not water companies—obviously, for SUDS, that is who implements the developments. Because of that, the Government do not consider Schedule 3 standards to be appropriate to use when we are establishing the rules on remuneration of pay prohibitions. That is why we cannot accept the noble Baroness’s amendment. Amendment 43 is the important, indeed critical amendment in this group. As I have previously said, the Government are strongly committed to requiring standardised SUDS in new developments. We are not looking to renege or backtrack in any way. We are committed to this; it is about the most effective method of delivery. There are specific outcomes that the Government want to achieve. We want to see an increase in quantity, with more SUDS being built, but we need to see better design qualities that do what we want them to do. We need effective adoption and maintenance, to ensure the new SUDS being built are long-term and keep their quality for the long-term. We need an increase in sustainable drainage in more developments. We need to ensure that, when we are improving the design, they are designed to cope with our changing climate; that is critical, as we are seeing more and more water, often followed by drought, which compounds a lot of the problems. We need to make sure that anything we bring in delivers wider water infrastructure benefits by reducing the levels of rainwater entering sewers, which noble Baronesses have mentioned, and helps improve water quality, while enabling economic growth and delivering the biodiversity and amenity benefits that we need. Surface water run-off was mentioned by a number of noble Lords. It is important that we look at how we tackle all aspects of drainage and surface water. The noble Baroness, Lady Browning, mentioned her house in Devon. We live in a very old stone-built house in Cumbria. Our house has also flooded in the past. There is much that we need to work on in this area. I am also very aware that there are occasions when new build, if not done properly, can have a knock-on effect on houses that have never flooded before. There is a big picture question in the planning system around how we approach this and tackle it most effectively. While I am on the subject of surface water, the noble Earl asked about the amendments coming up on nature-based solutions. That is absolutely part of the package of how we tackle this going forward. He asked whether all the areas that we are looking at will continue to be input into the review. Anything we have discussed here that is still outstanding or of concern will absolutely be looked at and will be within the scope of the review going forward. Having said all of this—the noble Baroness knows this because we discussed it with the noble Baroness, Lady Taylor of Stevenage—we believe that our ambition for SUDS delivery can be achieved in different ways. It can be achieved through improving the current planning-led approach, and using powers through that route, or by commencing Schedule 3 to the Flood and Water Management Act 2010, as the noble Baroness requested. If we are going to get this to work in the most effective way possible, and get the kinds of results that we need, we need to work hand-in-glove with the MHCLG. Ultimately, this is about development and developers, and getting them to make the right kind of connections and drainage decisions in new developments. As we discussed, we are looking at planning reforms that can deliver improved sustainable drainage. The National Planning Policy Framework is out for consultation at the moment, until the end of the year. We have asked specific questions around SUDS, from Defra, in that consultation. If noble Lords are interested in inputting to that, it is currently open for consultation. The MHCLG is looking at the best approach to this, through the NPPF consultation, and there is going to be planning and infrastructure legislation coming up. That is why we cannot accept the amendment at the moment. There are a number of delivery paths. We want to deliver this and we want to deliver it well, so we need to get the delivery path correct. That is why we are unable to accept the amendment of the noble Baroness.

Before the Minister sits down, she failed to respond on the case study on capacity and on the cumulative impact. I am afraid that in this Bill the Minister is making water companies liable and responsible for something that the developers are responsible for by not putting SUDS in place. That is just not acceptable.

18:45:00

I do not quite understand the last point of the noble Baroness. On the basis that it comes through planning, the whole point is that it then becomes the developers’ responsibility and not that of the water companies. On the case study, I will definitely take that back to the Department. I am very happy to do that—I am sorry that I forgot to answer that question. Obviously it was picked up from the previous debate, but I will raise it and see where we are with that. I am very happy to write to the noble Baroness about what is happening, if that helps.

I am very grateful to the Minister, but without labouring the point, the case law showed that there is sufficient legislation now for capacity to be an important key point of planning decisions. It could save an awful lot of work going down the track if that were there, but it is simply unused. If that is the case, it is simply a matter of ensuring that it is enforced or that local authorities and planning departments can use it. That could save an awful lot of time.

The noble Baroness makes an extremely important point. I am more than happy to pick this up, look at it and write to her on how we propose to move forward. I am so sorry: the noble Baroness, Lady McIntosh, asked another question, but I cannot remember what it was.

It was on cumulative impact. I quoted what the noble Baroness had said about the cumulative impact on development, and I am trying to understand why we are delaying implementing Schedule 3. What is the cumulative impact and regulatory burden that the noble Baroness is so concerned about?

The main issue, for me, is to look at how we get developers to implement what we need them to be implementing as far as sustainable drainage is concerned. We know that that is the right way forward and we have said that we want to increase it. When we are working with developers, we need to get them to want to do this, to be part of moving forward in the planning system and to improve drainage systems on the basis that, ultimately, it helps everybody when it comes to flooding and sewage overflows. Clearly, there is a cumulative impact if you are developing in an area that already has a lot of development. We already know that there are issues around this. We need to get it right, so we need to consider the cumulative impact when SUDS are being designed. I have said that we want to improve design, to make sure that it is effective and works for the long term. As part of that, we also need to look at how it is managed. It is all part of that. Developments do not just get built and then that is it, they are on their own. As I said, there are areas—certainly near where I live—where development has taken place and the cumulative impact on the other developments nearby has been negative; it has not been good. We need to ensure that we consider that, so we make sure that any systems we bring in will work properly.

From the Minister’s last remarks, we are in fact saying the same thing. All I am asking the noble Baroness to put into this Bill is the requirement to report in six months’ time on where we are on the implementation of SUDS. So, if the Government have decided that they do not want to go down the SUDS path and want to go down the planning path, she will know that within six months. I do not intend to press Amendment 3 to a vote, but I would like to test the opinion of the House on Amendment 43, which will come later.

Amendment 3 withdrawn.

Amendments 4 to 9 not moved.

Amendment 10

Moved by

10: Clause 1, page 4, line 25, leave out “2024” and insert “2025” Member’s explanatory statement This amendment ensures that the provisions about performance-related pay do not have retroactive effect.

My Lords, I heard what the Minister had to say, but I have to say that I believe that the retrospective effect of this legislation is not appropriate —all the more so if it is going to impact on remuneration arrangements that were put in place as long ago as 2022-23. I would like to test the House’s opinion.

3|18:50|82|172|Division on Amendment 10|Amendment 10 disagreed.||0|0

19:03:00

Amendment 11

Moved by

11: Clause 1, page 4, line 25, at end insert— “(5) The first rules issued under section 35B of the Water Industry Act 1991 (as inserted by subsection (3)) must be published by the Authority within six months of this Act coming into force and provided to the Secretary of State and do not take effect until the Secretary of State has made regulations made by statutory instrument to bring them into effect.(6) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

My Lords, as I said previously in Committee, consultation with the Secretary of State, as described in the Bill and again by the Minister today, is simply not enough to ensure accountability of this rule-making power, so I would like to test the opinion of the House on my amendment.

4|19:03|140|117|Division on Amendment 11|Amendment 11 agreed.||0|0

19:13:00

Clause 2: Pollution incident reduction plans

Amendment 12

Moved by

12: Clause 2, page 4, line 28, leave out “Before section 95” and insert “After section 205” Member's explanatory statement This amendment moves the provisions about pollution incident reduction plans to a different part of the Water Industry Act 1991, in consequence of the Minister’s subsequent amendments extending Clause 2 to the water supply network.

My Lords, in Committee noble Lords across the House made it clear that, although they were supportive of the new requirement for water companies to produce annual pollution incident reduction plans, they wanted further assurances that the measures in the plans would be duly implemented. I have listened carefully to the points raised in Committee and to the views shared on this issue during a number of very constructive meetings with several noble Lords, including the noble Lord, Lord Roborough, the noble Duke, the Duke of Wellington, and the noble Baronesses, Lady Jones of Moulsecoomb and Lady Bakewell, among others, and I thank them for their time and consideration. The noble Lord, Lord Roborough, asked for further explanation as to why we believe annual reporting is more appropriate than more regular reporting for pollution incident reduction plans. The measures in these plans are typically programmes of ongoing maintenance that will need to continue on an ongoing basis. Examples include regular cleaning of wet wells at sewage pumping stations to remove detritus that could lead to blockages or replacing rising main sewage pipes. We want companies’ focus to be on delivering the measures they have set out in their plans rather than on preparing reports for publication to talk about delivery. More regular reports also may lead to a focus on the wrong metrics to show progress for progress’s sake rather than the work necessary to reduce pollution incidents. In response to the noble Lord, Lord Roborough, and other noble Lords, I am pleased to propose a group of amendments to enhance and strengthen Clause 2 of the Bill. I turn first to Amendments 12, 13, 14, 16, 17, 18, 22, 25, 27 and 31, all tabled in my name, which will expand the scope of pollution incident reduction plans to encompass water supply system-related incidents. The noble Baroness, Lady Bakewell of Hardington Mandeville, specifically raised this in Committee when she tabled an amendment which would require that water-only companies as well as water and sewerage companies produce pollution incident reduction plans. She made very persuasive points which we listened to carefully and, on reflection, we agree that including water supply incidents in scope would strengthen these plans. While pollution incidents attributable to the water supply system are less frequent than incidents attributable to the sewerage system, they have the potential to be equally serious. I thank the noble Baroness for drawing our attention to this in Committee. Such incidents could include a burst clean-water main leading to erosion and then silt pollution in the watercourse or the addition of chlorinated or fluorinated water into the watercourse. The amendments tabled in my name will mean that water companies will have a duty to develop and publish measures to reduce pollution incidents attributable to the water supply system as well as the sewerage system. This duty will apply to all relevant companies, including water-only companies as well as water and sewerage undertakers. We believe this will support the overall intent of Clause 2 in further reducing the frequency and impact of pollution incidents from the water sector. I once again thank the noble Baroness, Lady Bakewell of Hardington Mandeville, and all who spoke in support of this topic in Committee for their constructive approach. I now move to Amendments 29, 34 and 35, also tabled in my name. These amendments create personal liability for chief executives to ensure that pollution incident reduction plans are published and implemented in line with the requirements set out in the Bill. A key aim of this Bill has been to hold water company executives to account for pollution caused by the water industry. As a core part of their role, water company executives should be acting to minimise pollution incidents and ensuring that their infrastructure is fit for purpose and resilient to pressure, including from climate change and population growth. This is why Clause 1 of the Bill will enable Ofwat to ban bonuses for executives when water companies fail to meet environmental standards. But we want to build on this by making chief executives personally liable for the production of pollution incident reduction plans. This will mirror the personal liability which accompanies the duty for directors of a company to publish accounts and a company report under the Companies Act 2006. This will emphasise that minimising pollution incidents is a central aspect of a water company chief executive’s role. Under this group of amendments, the chief executive must personally ensure that the company produces a plan each year which meets all legal requirements. The chief executive must also personally approve the plan before it is published. If the company fails to publish a compliant plan by the deadline each year, the chief executive—as well as the company—will have committed an offence. The regulator will be able to prosecute against this offence and, if the courts find the chief executive guilty, they will issue a fine. To ensure that this measure is proportionate, imprisonment will not be available as a sanction. Furthermore, we have provided a defence to ensure that chief executives are not penalised if non-compliance arises due to circumstances that are—I emphasise—genuinely out of their control. Through bringing forward these amendments, we will ensure that the production and publication of pollution incident reduction plans is overseen at the highest level, reflecting the importance of water companies bringing forward measures to meaningfully reduce pollution incidents. I turn now to Amendments 19, 32 and 37, tabled in my name. In Committee, noble Lords made it clear that they wanted to see a clearer mechanism to ensure that water companies implemented their pollution incident reduction plans. We have listened very carefully and now propose a group of amendments to further ensure that companies implement the measures in their plans. However, before I describe these amendments, I would like to recap why we do not think imposing a direct duty for water companies to implement the plans—as is proposed in Amendment 15A, tabled by the noble Lord, Lord Roborough—is helpful. First, at present, it is rightly the responsibility of companies to produce these plans and to decide the steps they will take to reduce pollution incidents. A direct duty to implement the measures in the plans could therefore result in companies setting enforceable duties for themselves. This would create a confused regulatory system, which could ultimately make it more challenging for the regulators to enforce legal requirements for pollution reduction. For example, regulators would need to disentangle measures that water companies have put in their plans from pre-existing regulatory duties. This could make investigations and enforcement action more challenging and add complexity and confusion to the regulatory system. Secondly, a direct duty may inadvertently reduce companies’ ambition. To manage the risk of enforcement, companies might be persuaded to make a commitment only when highly confident they could deliver. Thirdly, this direct duty may force companies to continue implementing measures, even when they have realised it is not the most effective way to reduce pollution incidents. Companies should have the flexibility to learn and iteratively improve their approach. Sometimes, this may mean companies ceasing implementation of a specific measure and taking a different approach. Therefore, we do not think it is appropriate to create a legal duty for water companies to implement the measures they have set out in their plans. I will now turn to the government amendments themselves and explain how they will ensure that water companies reduce pollution incidents and are held to account for delivery of their plans. First, this group of amendments introduces a duty for companies to produce an implementation report alongside their annual plans. Companies will be required to set out where they have and have not implemented the measures they planned to implement in the preceding year. Companies must then set out the reasons for any failure to implement their plans and the steps they are taking to avoid similar failures in the future. This will create a high level of transparency, enabling the public and regulators to scrutinise the extent to which companies have implemented their plans. Requiring companies to set out the steps they are taking to avoid similar failures in the future will ensure that companies cannot continue to make the same excuse year after year. Secondly, we are also amending the Bill to ensure that the environmental regulators take into account companies’ track records in implementing their plans when undertaking regulatory activities. This means that the regulator will consider the extent to which the company has implemented its plan when considering its enforcement response to a pollution incident, or when planning its schedule of investigations. This may well mean that a company will face more severe enforcement action for a pollution incident if it has failed to sufficiently implement those plans. I hope the House will agree that, collectively, these amendments represent a significant strengthening of the Bill, and will ensure that companies are firmly held to account for implementing the measures outlined in their pollution incident reduction plans. I will conclude by speaking to Amendments 15, 20, 21, 23, 24, 28, 30, 33, 36, 38, 60 and 63. I am delighted to move this suite of amendments to extend the application of the provisions introduced by Clause 2 of the Bill to Wales. Upon reviewing the requirements imposed by Clause 2 of the Bill, the Welsh Government and Natural Resources Wales have requested that Clause 2 be extended to apply in Wales. This was announced by the Deputy First Minister on 16 October and these amendments seek to deliver on that request. I look forward to continuing to work collaboratively with our counterparts in Wales, and indeed with all of the devolved Governments, to tackle shared problems relating to the water industry and water quality more broadly. I once again thank all noble Lords for their thoughtful contributions and input to discussions around the new requirement to produce pollution incident reduction plans, and hope that noble Lords agree that these amendments will significantly improve and strengthen this new requirement. I move that these amendments form part of the Bill.

On behalf of these Benches, I thank the Minister for listening to the cross-House comments made on the pollution incident reduction plans in Committee. The whole House welcomes the fact that the Government are bringing forward these plans. They can be an important contribution to dealing with the sewage crisis which we have seen for too long; water companies have let the public down. On that point, it was a disgrace in the last week to see that United Utilities—which has been so responsible for all the sewage pollution that has gone into Windermere, as we referred to in Committee—has increased its dividend to shareholders. It is an absolute disgrace, so these measures cannot come soon enough. We thank the Minister for listening to the very real concerns we had on two fronts: first, that water companies were excluded from the provisions in the way that water and sewerage companies were not. Although they are a smaller number of the 16 and may be proportionally less important, they are still very important. We thank the Minister for that. On a slightly broader point, we hear what the Government said on not accepting the amendment proposed in Committee, about adding “and implement” into the Bill, which I see that the noble Lord, Lord Roborough, has brought back today. We are satisfied with the numerous amendments the Government have brought forward to address the two main points: first, that the plans will have to be annually and publicly reported, so we can see what the companies are doing. As the Minister made very clear, it is not just what they have done; they have to make absolutely clear what they have not done and what they are going to do about it, so that we the public—and indeed the regulators—can hold them to account. The second point, which the Government have moved on significantly—which we very much welcome—is that the chief executives have become personally liable for the production of both the plans and the reports and have some legally binding responsibility which can translate into sanctions, which we believe are strong enough. We thank the Government for bringing forward these pollution incident reduction plans and for listening so constructively to the comments which were made. This is a major improvement to the Bill.

My Lords, I fully echo the noble Baroness, Lady Parminter, in thanking the Minister both for her engagement during the Bill’s progress and also, specifically, for listening to the House on the implementation of the pollution incident reduction plans. We also welcome these government amendments. I tabled Amendment 15A simply as a reminder of how understanding and accommodating the Government have been. This was originally tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, in Committee. As I said then, we would have tabled it ourselves had she not been so swift with her pen. It is crucial that pollution incident reduction plans are more than a wish list, and actually have real obligations for implementation. We are most grateful to the Minister for listening to this House and creating a structure for making water companies responsible for implementing these plans and reporting on that implementation. The Minister explained clearly the issues around that responsibility, relating to interference with the other statutory obligations of those companies, and we are very pleased that she and her officials were able to design a methodology that would work. We agree that making the CEO of the relevant undertaker responsible for signing off the plan and liable for its implementation creates significant incentives to ensure that these pollution incident reduction plans will be implemented. I thank the Minister, yet again, for her further explanation of why annual reporting is appropriate in this instance, and I accept that. We on these Benches are supportive of these government amendments and I will not press my amendment.

19:30:00

My Lords, I thank all noble Lords who contributed to this group, and in particular I thank the noble Baroness, Lady Parminter, and the noble Lord, Lord Roborough, for their support for the government amendments. Our amendments will ensure that water companies develop robust and comprehensive pollution incident reduction plans and will also guarantee that they are held accountable for delivering the measures outlined in the plans. Once again, I thank noble Lords for helping the Government to improve the Bill in this respect, and I look forward to working with them as the Bill progresses. I beg to move.

Amendment 12 agreed.

Amendments 13 to 15

Moved by

13: Clause 2, page 4, leave out line 29 and insert— ““Pollution incident reduction plans 205A Duty to prepare and publish plans”Member's explanatory statement This amendment is consequential on the Minister’s previous amendment.

14: Clause 2, page 4, line 30, leave out “sewerage” and insert “relevant” Member's explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

15: Clause 2, page 4, line 30, leave out “whose area is wholly or mainly in England” Member's explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

Amendments 13 to 15 agreed.

Amendment 15A not moved.

Amendments 16 to 25

Moved by

16: Clause 2, page 4, line 35, leave out “sewerage” Member's explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

17: Clause 2, page 4, line 37, leave out “sewerage” Member's explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

18: Clause 2, page 5, line 9, leave out “sewerage” Member's explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

19: Clause 2, page 5, leave out lines 17 to 19 Member's explanatory statement This amendment removes provision superseded by the Minister’s amendment at page 5, line 38.

20: Clause 2, page 5, line 20, leave out “Secretary of State” and insert “Minister” Member's explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

21: Clause 2, page 5, line 22, leave out “Secretary of State must consult the Environment Agency” and insert “Minister must consult the appropriate agency” Member's explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

22: Clause 2, page 5, line 24, leave out “sewerage” and insert “relevant” Member's explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

23: Clause 2, page 5, line 25, leave out “Environment Agency” and insert “appropriate agency” Member's explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

24: Clause 2, page 5, line 27, leave out from “The” to “before” in line 28 and insert “appropriate agency must consult the Authority and the Minister” Member's explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

25: Clause 2, page 5, line 29, at end insert— “(7A) A pollution incident reduction plan must include, or be published with, a statement by the chief executive of the undertaker that the chief executive has personally approved the plan.”Member's explanatory statement This amendment requires a pollution incident reduction plan to be approved by the chief executive of the undertaker in question.

Amendments 16 to 25 agreed.

Amendment 26

Moved by

26: Clause 2, page 5, line 29, at end insert— “(7A) Before preparing a pollution incident reduction plan, a sewerage undertaker must consult with farmers, local authorities, developers and others to identify natural flood prevention solutions to prevent pollution incidents.”Member's explanatory statement This amendment would require consideration of opportunities to retain water through natural solutions to prevent sewage mixing in combined sewers with excess rainfall, causing pollution incidents.

My Lords, I am delighted to have the opportunity to open on this very interesting group of amendments, and to speak to my Amendment 26. At the risk of having a love-in with the Minister and the Government, following on from the last group, I would like to commend her and her Bill team for listening to the debate we had on similar amendments in Committee. To be honest, the reason I tabled this amendment is that we discussed this issue very briefly when we met with the Minister and the noble Baroness, Lady Taylor, but I did not realise that I had not seen the text of the amendments the Government were submitting. I applaud and commend her Amendment 42 and others in this group; I will leave those who are moving those amendments to speak to them. I have just a few words to say on Amendment 26 and the Pickering pilot scheme, with which I was associated in its latter stages and the success of which I still monitor very closely. Since we have had the Pickering scheme, the dam and the planting of the trees, Yorkshire Water and the Duchy of Lancaster have put some money in, and Pickering Town Council has agreed to maintain some of the work that has been done. I take the noble Baroness’s point, made at the conclusion of the second group, about the importance of the maintenance of sustainable systems going forward. I would like to think that that was a role model. The one defect of that scheme was that there was no private finance, apart from Yorkshire Water, and I hope that other models will look to retain that going forward. It also had money from the Environment Agency, North Yorkshire Council and Ryedale District Council, as was. As I said, it is a role model that I hope other projects will follow. It has meant that Pickering Beck has not flooded Pickering or downstream since that time. I therefore commend the amendment to the House, although I shall not be pressing it because I favour the Government’s Amendment 42 in this regard. It would allow an opportunity to retain water through natural solutions in order to prevent sewage mixing and combining with excess rainfall, causing pollution incidents. I hope that when the Minister responds, she will highlight how, as I have set out in Amendment 26, she would expect a sewerage undertaker to consult with Parliament, local authorities, developers and others to identify such natural flood-prevention solutions. If all the parties work together going forward, this will be very important work of the water commission, looking at a catchment management system that someone has to take control of. I commend Amendment 26 and I look forward to listening to others speak to their amendments. I beg to move.

My Lords, I will speak to government Amendment 48. I am extremely grateful to the Government for bringing forward this amendment, which reflects the substance of the amendment that I and others brought forward in Committee, and I am happy to support it by putting my name to it. That debate showed that there was a clear case for Ofwat doing more on environmental issues, and I thank the Minister and her officials for their extremely productive approach, openness in meetings and willingness to work together to address these concerns. I am really pleased that we now have on the face of the Bill a new duty for Ofwat to have regard to the need to contribute to our climate change and environmental targets when exercising its functions. It is so critical that this is factored into decision-making, so that opportunities to contribute to these targets are not missed or deprioritised. While I am grateful for the progress we have made in seeking to redress the imbalance, it would have been preferable to have a stronger duty than “have regard to”. I know the reasons for using this language, but my previous wording, which would have obligated Ofwat to “take all reasonable steps to contribute to” our climate and nature targets, would have provided a stronger obligation without caveats. Therefore, I very much hope that the progress we have made today is just the start of wider changes to ensure better environmental outcomes in our water industry. Perhaps the Minister can confirm that the question of how Ofwat will balance environmental duties and deal with the related trade-offs with other economic and consumer objectives will be looked at in detail as part of the water commission’s work. I also want to raise the important issue of adaptation. My original amendment contained an additional limb which was intended to ensure that adapting to the current or predicted impacts of climate change, as identified in the most recent report of the Climate Change Committee, would also be part of Ofwat’s remit when exercising its functions. In discussions, the Minister said that adaptation is covered by the resilience strategic priority. However, this does not directly link back to current Adaptation Committee reports. I hope this too will be examined by the water commission, because in spite of having the resilience objective, this has not so far led to the new reservoirs we urgently need for housing and drought resilience. More clearly does need to happen, and I would be grateful for any assurances the Minister can give regarding adaptation. I also welcome government Amendment 42. I hope that this will be a step forward in increasing the use of and spend on nature-based solutions, and lead to their greater and more systematic use to address adaptation issues such as flooding and drought. Amendment 44, in the name of my noble friend Lady Boycott—who sends her apologies—is the same as the one tabled in Committee. It addresses the very real issue of water companies not being transparent with environmental data, and specifically does three things. First, subsection (1) would provide statutory underpinning to the Fish Legal case, making it beyond challenge that water companies are, and will remain, public authorities for the purposes of the Environmental Information Regulations 2004. This is necessary because, if it is not in legislation, its overturning by a future ruling remains a distinct possibility. Secondly, proposed new subsection (2) would cut through the delaying tactics and refusals by water companies to make it clear that effluent and wastewater treatment data must, as a minimum, be proactively published by water companies. The water companies will be required by law to publish it up front, without anyone having to ask. This would be consistent with the expectation of transparency that we are setting though the Bill. Thirdly, proposed new subsection (3) would amend the appeal and enforcement provisions in the 2004 regulations to allow members of the public to complain directly to the Information Commissioner about data not being proactively published—which they cannot at present. In Committee, in response to this amendment, the Minister said that, while the Government supported the principle of transparency, these “specific proposals duplicate pre-existing provisions and would create practical difficulties”.—[Official Report, 30/10/24; col. 1186.] However, we have looked, we cannot find these pre-existing provisions and we do not understand what the practical difficulties would be. All we are asking is for sewerage undertakers to publish data that they hold and which, under the Environmental Information Regulations 2004, they are meant to publish but do not because the regulations are effectively unenforceable. Noble Lords and the Minister may have seen over the weekend an article in the Observer, which has already been mentioned, about precisely this issue. United Utilities has been fighting a legal challenge that has been brought upon it to not give the public access to environmental data on its—to be generous—“potential” pollution of Lake Windermere. First, it claimed that the phosphorus data was not environmental information, then that it was internal communication. Obviously, this is environmental. ICO agrees and has said that it should be published—but still it has not been. In this example, we can see that some sewerage companies will not behave in the public interest unless forced to do so. In this amendment, we have an opportunity to address these refusals to be transparent. It would go some way to removing their supposed legal defence, forcing them to co-operate. I really hope that the Minister can get behind this today, as the only thing that will help here is words in statute. If there are specific concerns with the drafting, we would welcome her amending it at Third Reading. In conclusion, I reiterate my thanks to the Minister and her team. We have made important progress for climate and nature in this Bill and we will start to see delivery of better outcomes for our precious river and coastal ecosystems.

My Lords, my Amendment 49 puts a clear and unambiguous environmental duty on Ofwat. It gives the authority a primary duty to protect the environment. I am well aware that the Government probably will come round to the Greens’ way of thinking in 10 or 15 years and that perhaps this side of the Chamber might come round to our way of thinking in 25 or 30 years, but we have to care now about our environment and our planet. What we have passed so far, although very welcome, is just not enough. As the noble Baroness, Lady Willis, said, natural flood management is proving to be a cost-effective way of reducing flood risk, far cheaper than traditional construction involving lots of concrete. Water companies should be investing in these nature-based solutions to reduce the infrastructure cost of handling service water run-off, because every litre of water that soaks into the ground is a litre of water that does not flood into the water treatment system. I have two requests of the Minister. Will the government amendments now provide a baseline so the Minister can take forward a piece of work to expand the use of natural flood management, especially where it is significantly cheaper than other methods? Secondly, will the Government please put these climate and nature amendments on the face of their Bills at drafting stage, rather than having to amend them down the line?

My Lords, it is always an absolute pleasure to follow the noble Baroness. I was going to call her “my noble friend”—but not quite yet. I am delighted to speak to my Amendment 55. I am grateful to my noble friend Lord Roborough, who has also signed the amendment, and I thank all noble Lords who spoke to this in Committee. Like so many other noble Lords today, I join in the great “love-in” for the Minister. All I will say, speaking from experience, is “Enjoy it while it lasts”. I pay tribute to the Minister and the officials who have engaged with me over the last few days since we last met. Echoing words that have already been said, looking back to where we were in Committee on this amendment, and on nature and the environment as a whole, the Government have listened and moved quite a lot. Collectively, we pushed, and the Government have listened. I think a lot of this comes down to the Minister, who cares about it and gets it.

19:45:00

I have tabled my amendment on nature-based solutions again because the Minister has probably done all the arm-twisting of officials and the Secretary of State that she can to get to where we are, but I would like to see whether we could go a little further. I am grateful for what the Government have done and to the Minister for tabling the two relevant government amendments that speak to my previous amendment. The first is Amendment 42, which focuses on the water companies and seeks to ensure that they explore the use of nature- based solutions through their drainage and sewerage management plans. This is a significant step forward from what we have been pushing, but I would like to hear from the Minister how else she sees the role of nature-based solutions in areas such as, for example, drought reduction, water storage and tackling pollution, which is covered in my amendment.

The second part of my amendment relates to the regulators. I am grateful that the Minister has moved quite a lot, to echo the words of the noble Baroness, Lady Willis of Summertown. There has been movement. The Government have tabled Amendment 48 in relation to Ofwat having regard to the need to contribute to the goals of the Climate Change Act and the Environment Act. I had a quick look at the Environment Act. From what I could see, it does address biodiversity and woodland cover. This is a significant and welcome move forward, but I have tabled the second part of my amendment again so that the Minister can, I hope, go further and set out the importance of nature-based solutions from a regulator’s point of view, and that if a company wishes to explore these solutions, it will be given the freedom to do so and not be penalised.

I will speak briefly to a couple of points that were made in Committee. The first was about the importance of communities. My good friend, the noble Baroness, Lady Boycott, sadly is not in her place, although she has a very good representative here. She spoke beautifully about what sounds like a fantastic project in Tiverton that is changing the path of the River Exe to avoid local flooding. It delivers not only that but biodiversity and involves schools, farmers and our furry friends the beavers—“nice beavers”, as Frank Drebin, would say. Having the community involved in these schemes is key. It is better that the private sector is the convenor, given that it has the power and local knowledge, unlike Whitehall. My digging around suggests that many of these water companies already do a lot of community engagement, but obviously it is something that my noble friend is trying to address in her Amendment 26.

Also in Committee, the noble Lord, Lord Cromwell, made the observation that there may be issues with doing nature-based solutions at scale. While supporting my amendment then, he said that they can and do have a role to play. He is right. This amendment does not force them on anyone, but merely says that they could play a part in a water company’s planning and the company should not be penalised for that.

In conclusion, a lot of this comes down to the language from the Minister, which I hope will build on what the Government have done in their movement today.

My Lords, as the noble Baroness, Lady McIntosh of Pickering said, this is an interesting group of amendments and we on these Benches welcome them. I do not wish to replicate what has been said but I have a few reflections. Government Amendment 48, so ably spoken to by the noble Baroness, Lady Willis of Summertown, is extremely welcome. It could go further, but we on these Benches welcome it. We accept that the Bill is an interim measure and that the independent water commission is just that: independent. Nevertheless, it is important that the Government at this point in time are making a marker in the sand that the regulator should have greater regard for climate and environmental targets. That is extremely important and is the additional reason why on these Benches we welcome it. Amendment 44 was introduced by the noble Baroness, Lady Willis of Summertown, on behalf of the noble Baroness, Lady Boycott. You would expect that we on these Benches, as Liberal Democrats and liberals, would welcome anything that enables local people to have more say on decisions that affect their lives, particularly the environment and climate decisions, because we know that, if they get involved and are caring about their environment, they will help protect it better. So we think that this is an extremely welcome amendment and we look forward to hearing what the Minister has to say in her response. On the final group of amendments, on nature-based solutions, which we participated in in Committee, I think there is broad agreement. Everybody understands that we need water companies to look less at concrete and far more at green solutions. Government Amendment 42 is extremely welcome. The only point that I would make echoes that made by the noble Lord, Lord Gascoigne, when introducing his Amendment 55: there is an area where it could have gone a bit further. The noble Lord’s amendment talks powerfully about water storage and flood prevention; the Government’s amendment is welcome, but it excludes that. We on these Benches would like to hear a little more about how the Government see themselves taking that forward —mindful that it is not in their amendment. Having said that, we welcome these amendments.

My Lords, I thank my noble friend Lady McIntosh of Pickering for moving the first amendment in this group. I shall speak to my noble friend Lord Gascoigne’s Amendment 55 as well as government Amendments 42 and 48. Amendment 55 is a powerful, concise amendment, and I congratulate my noble friend Lord Gascoigne on his commitment to, and passion for, making the case for nature-based solutions within the water industry. My noble friend’s amendment has two parts— both are important for the future of nature-based solutions in the water sector. The first would require water companies to give due consideration to nature-based solutions for meeting their statutory obligations. The second would prevent the regulator blocking the use of nature-based solutions. The Minister has two amendments in this group that make significant additions to the Bill around the use of nature-based solutions. Amendment 42 requires undertakers to explain the contribution from nature-based solutions. Amendment 48 is a broad amendment that could also contribute towards nature-based solutions being used for their wider benefit to nature restoration. I am most grateful to the Minister for her constructive engagement on my noble friend Lord Gascoigne’s amendment, and for these government amendments. It is clear from these discussions that the Minister cares deeply about nature recovery. However, I ask the Minister to clarify the approach taken by Ofwat to the use of nature-based solutions within the water and sewage industry. I am aware that £2 billion of investment is included within the draft determinations. However, we on these Benches wish to be reassured that, where suitable and at no additional cost to consumers, further nature-based investment is possible within this determination and beyond. To echo my noble friend Lord Gascoigne and the noble Baroness, Lady Parminter, we would also like reassurance that nature-based solutions will be used not just in drainage and sewerage but throughout the water supply and treatment network, including catchment restoration for flood prevention, drought mitigation and water quality. I am sympathetic to the intentions of Amendment 26 in the name of my noble friend Lady McIntosh of Pickering. This would appear to be captured within our Amendment 55 as a specific case but also potentially within the government amendments. The water companies are perfectly positioned to stimulate nature restoration at scale and without using the public purse. We welcome these government amendments and look forward to the Minister explaining how impactful she believes they will be.

My Lords, I again thank noble Lords for the discussion on this group, for their amendments and for the thoughtful consideration that we have had since Committee on these issues regarding the environmental duties of water companies and the regulators. Amendment 26 tabled by the noble Baroness, Lady McIntosh of Pickering, and Amendment 55 by the noble Lord, Lord Gascoigne, would require water companies to consider further opportunities to use nature-based solutions. I thank noble Lords for meeting me to discuss these amendments and nature-based solutions more broadly. One thing the Government are clear about on these amendments is that water companies need to be encouraged to increase their use of nature-based solutions. In line with that, I am very pleased to see that Ofwat has proposed an allowance of over £2 billion for investment in nature-based solutions in the draft determinations at price review 2024. Alongside this, Ofwat has been clear, publicly, that it remains open to companies to identify where additional nature-based solutions can be delivered. We very much support this approach. The noble Baroness, Lady McIntosh, and the noble Lord, Lord Roborough, mentioned the catchment approach. Again, that is something we are very supportive of. If we are to make a real difference in our water quality, and our approaches to our waterways, we need a whole-catchment approach. Ofwat’s £200 million innovation fund aims to grow the water sector’s capacity to innovate. Since 2020, the fund has awarded funding to 93 collaborative projects where water companies work with different sectors to solve the water sector’s biggest challenges. The main- streaming nature-based solutions to deliver greater value project is one example that is working to overcome barriers to the adoption of nature-based solutions. What I am trying to get across is that the nature-based solutions the Government are supporting are not just about what is in the Bill; it goes much broader than that. That is important, because we need to look at this approach right across the board. I hope that helps to reassure noble Lords and answer some of their questions. The regulators have, for example, recently approved several new and innovative nature-based solutions. One example is the use of sustainable drainage systems in Mansfield to manage flood risk. That is a £76 million scheme and includes over 20,000 sustainable additions to the built environment in the area, including rain gardens, planters and permeable paving, creating the equivalent of 23 Olympic-size swimming pools of storage and protecting 90,000 people from flood risk. Again, this is about much more than just what is in the Bill. There is further funding proposed for nature-based solutions alongside this—for example, reed beds and wetlands—and the Government are also supporting water companies trialling nature-based solutions for groundwater-induced storm overflows. There is a lot of work going on in this area. Having said that, we recognise the strong support in this House for the Government to do more to ensure greater use of nature-based solutions across drainage and sewerage systems specifically. I am therefore pleased to table Amendments 42, 61 and 64, which require sewerage undertakers in England and Wales to address how nature-based solutions have, or will, contribute to the resilience and development of their network within their drainage and sewerage management plans. I thank noble Lords who have expressed their support for these amendments today. Drainage and sewerage management plans are the key planning mechanism for the entirety of the sewerage undertakers’ wastewater network. This new requirement will ensure that water companies consider the use of nature-based solutions at the very start of the investment planning process. In this way, they embed solutions into delivery. We intend to commence this new requirement very quickly—two months after Royal Assent—and it will apply also in respect of the next round of drainage and sewerage management plans, which will be published ahead of the 2029 water price review. Sewerage undertakers will need to demonstrate that they have addressed the use of nature-based solutions in their draft, and final, drainage and sewage management plans and will be held to account if they fail to do so, because there is no point in bringing forward amendments if they are not going to be delivered as swiftly and as effectively as possible. The noble Baroness, Lady Willis, asked whether the review would look at things such as adaptation and further environmental matters around reservoirs. Absolutely: the review has a very broad scope in these areas. I remind the House that in our manifesto we pledged to build new reservoirs, because we know how critical they are. I hope that noble Lords agree that these government amendments will support the future exploration, development and delivery of nature-based solutions by adding this requirement into existing planning frameworks. I turn to Amendment 44, in the name of the noble Baroness, Lady Boycott. I thank the noble Baroness, Lady Willis, for introducing it on her behalf. It looks to improve public access to real time and operational water company data. I will explain why the Government do not support the amendment; I had a discussion with the noble Baroness, Lady Boycott, about this. I know that the noble Baroness has questioned this, but we believe the amendment would duplicate existing requirements for transparency from water companies.

20:00:00

We also believe that Clauses 2 and 3 are designed to enhance those existing requirements. Clause 2 will ensure that all water companies publish information annually on the frequency and seriousness of pollution incidents, as well as the steps they are taking to reduce them. Clause 3 will require companies to publish discharge data for emergency overflows. This will ensure that discharge data from all sewage overflows will be published in near real time. The Environment Agency also regularly releases information and reports, such as the environmental performance assessment, to support the transparency and scrutiny of water companies.

Furthermore, case law and the Information Commissioner’s Office are clear: water companies are public authorities for the purposes of the Environmental Information Regulations. As I set out in Committee, the Information Commissioner’s Office already acts on complaints and has taken several steps to ensure water companies release information to the public. The noble Baroness, Lady Willis, mentioned the poor behaviour of some water companies and referred in particular to United Utilities and Windermere. We have had much discussion on this; the noble Baroness, Lady Parminter, also mentioned it. Action by the ICO includes recently issuing a practice recommendation to United Utilities. We need to ensure that water companies then act on those recommendations.

The amendment aims to create a novel route of challenge through the courts for failure of public authorities to proactively disclose information. It follows that this would also create a new route for water companies to appeal. Apart from being administratively challenging and at odds with the current legislative framework that flows from requests for information, we are concerned this could actually slow down implementation of the Information Commissioner’s decisions. Although I completely understand the noble Baroness’s intention, we do not think this amendment is needed and it may have unintended consequences. We hope the noble Baroness will not press it.

Amendment 49, in the name of the noble Baroness, Lady Jones of Moulsecoomb, seeks to place an environmental duty on Ofwat through adding two new subsections to Section 2 of the Water Industry Act 1991. Ofwat has a number of existing duties linked to protecting the environment, including a core duty under the Water Industry Act to work to ensure the long-term resilience of water companies’ supply and sewerage systems to adapt to environmental pressures, including climate change. However, the Government have listened to the strong feeling in the House in support of adding further to Ofwat’s environmental duties.

This brings me to my Amendments 48, 62 and 65. I reiterate that the independent commission remains the right place to fundamentally review the roles and responsibilities of the water industry regulators. I say this to make it clear that any changes made now to Ofwat’s duties could therefore be superseded by the outcomes of the commission. It is important that that is clear to noble Lords. I have spoken with many noble Lords about this in recent weeks and I know they understand that the amendments put forward by the Government can therefore be only a short-term measure before more fundamental reforms are brought forward.

However, I heard the voice of the House when it said we needed to act quickly, so I am pleased to confirm that the Government have tabled amendments that will require Ofwat to have regard to the need to contribute to achieving targets in the Environment Act 2021 and the Climate Change Act 2008 when carrying out its functions. These amendments will further ensure that Ofwat’s work to contribute to the achievement of environmental targets complements the work of the Government, who are ultimately responsible for the Environment Act and climate change targets. Importantly, these amendments clearly demonstrate our expectations that the environment is considered by Ofwat in our drive to clean up our rivers, lakes and seas.

I also want to be clear that the government amendments intend to complement Ofwat’s existing duties relating to biodiversity and climate resilience. This is why the government amendments do not consider climate adaptation, as Ofwat already has a core duty under the Water Industry Act 1991 to work to ensure the long-term resilience of water companies’ supply and sewerage systems. This core duty means that Ofwat is already required to promote water companies’ long-term planning to adapt to environmental pressures, including climate change.

It will be for Ofwat, as the independent regulator, to determine how it applies the Government’s new obligation to its regulatory decision-making, while ensuring that this new duty sits alongside, rather than takes precedence over, other duties. The Government do not believe in regulation, or in imposing statutory duties for public bodies to have regard to existing legislation, just for the sake of it. In fact, we are in the process of reviewing regulation right across other sectors as part of our mission to ensure strong and sustainable economic growth.

However, this Government were elected, among other reasons, because they listened to and understood the strength of public feeling about the performance of the water industry, and pledged to take immediate action to improve it. These amendments have been brought forward in response to the concerns of the House and of the public, and in the light of the very specific roles and responsibilities of the water industry regulators. I hope the House accepts that these amendments demonstrate that the Government have listened to concerns surrounding Ofwat’s duties and nature-based solutions, and that noble Lords will accept them as a clear signal of our intent to ensure the environment is considered by Ofwat and the review in our drive to clean up our rivers, lakes and seas.

My Lords, I thank the Minister for summing up what has been an excellent debate and I thank all those who spoke. The noble Baroness, Lady Willis of Summertown, spoke not only to her own amendment but to that of the noble Baroness, Lady Boycott, very eloquently indeed. The noble Baroness, Lady Jones of Moulsecoomb— I call her my noble friend—spoke to her amendment with familiar passion, as did my noble friend Lord Gascoigne, following the excellent work he did in Committee. The noble Baroness, Lady Parminter, speaks with great authority on these issues. I also thank my noble friend Lord Roborough for his contribution. The mood of the House is very much to support the government amendments. I congratulate the Minister and the Bill team on the work they have done in this regard, and on being in listening mode to those around the House. I have just a couple of thoughts. I think we are all committed to storage, which has been the success of the Pickering pilot scheme. It is not far from Cumbria; I hope those who live further afield, across the border in Lancashire, might come to see the excellent work we did. There is an outstanding problem on storage, with the Reservoirs Act 1975, as to when it becomes a reservoir. The de minimis rules need to be addressed. If the water commission can look at that, it would be very welcome indeed. With the greatest will in the world, it is difficult to have storage if it is then said to be a reservoir, but the farmers, golf clubs or whatever do not have the means to maintain it. In addition to all the funds the Minister mentioned, I urge her and her department to look at how ELMS can work with water companies—I know that United Utilities and Yorkshire Water have a good record in this regard—to come up with nature-based water solutions on farmland. That would be very welcome indeed. With those few remarks, I beg leave to withdraw Amendment 26.

Amendment 26 withdrawn.

Amendments 27 to 38

Moved by

27: Clause 2, page 5, line 31, leave out “sewerage” and insert “relevant” Member’s explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

28: Clause 2, page 5, line 33, at end insert— ““appropriate agency” means—(a) the Environment Agency, in relation to relevant undertakers whose areas are wholly or mainly in England, and(b) the NRBW, in relation to relevant undertakers whose areas are wholly or mainly in Wales;”Member’s explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

29: Clause 2, page 5, line 33, at end insert— ““chief executive” , in relation to an undertaker, means an employee of the undertaker who, alone or jointly with one or more others, is responsible under the immediate authority of the board of directors for the conduct of the whole of the business of the undertaker;”Member’s explanatory statement This amendment defines “chief executive” for the purpose of the Minister’s amendments at page 5, line 29 and page 6, line 1.

30: Clause 2, page 5, line 36, at end insert— ““the Minister” means—(a) the Secretary of State, in relation to relevant undertakers whose areas are wholly or mainly in England, and(b) the Welsh Ministers, in relation to relevant undertakers whose areas are wholly or mainly in Wales;”Member’s explanatory statement This is one of a group of amendments extending Clause 2 to Wales.

31: Clause 2, page 5, leave out lines 37 and 38 and insert— ““system” , in relation to a relevant undertaker, means—(a) in the case of a water undertaker, its supply system within the meaning of Chapter 1A of Part 2 (see section 17B); (b) in the case of a sewerage undertaker, its sewerage system within the meaning of that Chapter (see section 17BA(7)).(10) In the case of a relevant undertaker that is both a water undertaker and a sewerage undertaker, the duty in subsection (1) is to be discharged in respect of both of its systems in a single plan.”Member’s explanatory statement This is one of a group of amendments extending Clause 2 so that it covers the water supply network as well as the sewerage network.

32: Clause 2, page 5, line 38, at end insert— “94EAA Implementation reports(1) A relevant undertaker must, together with each pollution incident reduction plan that it publishes (except the first), publish an implementation report.(2) An implementation report is a report containing the undertaker’s assessment of—(a) the extent to which it succeeded in implementing the planned measures during the preceding calendar year, and(b) to the extent that it failed to implement those measures during that year—(i) the reasons for that failure, and(ii) how the undertaker intends to avoid repeating that failure in respect of any measures in its current plan that are the same as, or similar to, those in respect of which the failure occurred.(3) In subsection (2), “the planned measures”, in relation to an undertaker and a calendar year, means the measures set out in its previous pollution incident reduction plans so far as they were (according to those plans) likely to be implemented in that year.(4) Subsections (6), (7) and (7A) of section 94EA apply in relation to implementation reports as they apply in relation to pollution incident reduction plans.”Member’s explanatory statement This amendment requires water and sewerage undertakers to publish annual reports on their implementation of previous pollution incident reduction plans.

33: Clause 2, page 5, leave out lines 40 and 41 and insert— “(1) The duties of a relevant undertaker under sections 94EA(1) and 94EAA(1) are enforceable by the appropriate agency.”Member’s explanatory statement This amendment is consequential on the Minister’s amendments extending Clause so that it covers the water supply network, the Minister’s amendment at page 5, line 38, and the Minister’s amendments extending Clause 2 to Wales.

34: Clause 2, page 6, leave out lines 1 to 3 and insert— “(2) If a relevant undertaker fails to comply with its duty under section 94EA(1) or 94EAA(1)—(a) the undertaker commits an offence, and(b) the chief executive of the undertaker commits an offence, subject to subsection (2A).(2A) It is a defence for the chief executive to prove that they took all reasonable steps to avoid the failure.(2B) A person who commits an offence under this section is liable, on summary conviction or conviction on indictment, to a fine.”Member’s explanatory statement This amendment makes the chief executive of an undertaker liable if the undertaker fails to comply with the new duties about pollution incident reduction plans, unless the chief executive has taken all reasonable steps to ensure compliance.

35: Clause 2, page 6, line 4, leave out “The offence under subsection (2)” and insert “An offence under this section” Member’s explanatory statement This amendment is consequential on the Minister’s previous amendment.

36: Clause 2, page 6, line 5, leave out “Environment Agency” and insert “appropriate agency” Member’s explanatory statement This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.

37: Clause 2, page 6, line 6, at end insert— “(4) Where, in deciding how to exercise its functions in relation to a relevant undertaker, the appropriate agency has regard to the record of the undertaker in complying with its legal obligations concerning pollution, it must also have regard to the record of the undertaker in implementing measures set out in its pollution incident reduction plans.”Member’s explanatory statement This amendment requires the Environment Agency and the Natural Resources Body for Wales to have regard to the record of undertakers in implementing their pollution incident reduction plans when deciding how to exercise regulatory functions.

38: Clause 2, page 6, line 6, at end insert— “(4) In this section, “appropriate agency” and “chief executive” have the meanings given by section 94EA(9).”Member’s explanatory statement This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales and the Minister’s amendment at page 6, line 1.

Amendments 27 to 38 agreed.

Clause 3: Emergency Overflows

Amendment 39

Moved by

39: Clause 3, page 6, line 18, at end insert— “(e) the date by which an explanation of reasons why the discharge occurred is expected to be made publicly available.”

My Lords, I shall speak to both Amendments 39 and 40 in my name. I am grateful for the kind support of the noble Baroness, Lady Browning, on Amendment 39 and of the noble Baroness, Lady Jones of Moulsecoomb, on Amendments 39 and 40. I am told that Amendment 39 is unwelcome because it is hard to determine when explanations can be expected. As the Minister knows, my catchphrase in Committee was “modest and proportionate”. I think that this very small amendment is modest and proportionate, but it is my further understanding from discussions that management plans will, once a year, give explanations of such discharges as part of their pollution plans. With numerous discharges happening across the year, that annual document will be a mighty task to compile and to read through. More importantly, it seems that people living with the discharges might have to wait 12 months or more simply to find out why a discharge has occurred and, presumably, what has been done to deal with it and prevent a recurrence. This invites not only discontent but accusations that nothing is being done and that people are being kept in the dark. Can the Minister take this away and see whether a government amendment can do better in addressing the concerns and rights to information of the public? Amendment 40 in my name is essentially about trying to get information all in one place so that anybody from the public can access it. Since tabling this amendment, I have been advised by the Minister that Water UK, the body that represents the water companies, is to create a map of discharges that can be accessed by the public. That is very welcome, but unless the mapping is presented and run in a comprehensive and timely way, is sufficiently detailed to provide meaningful information and is periodically assessed for its quality of delivery, it will be of little use. I have a number of questions which I would be very grateful if the Minister can address, either from the Dispatch Box or by letter. There are six of them—brace yourselves. Can the Minister clarify what information exactly this map will show? When will it be up and running? At that start date, will all future discharges be shown in close to real time? Who will have the responsibility for ensuring that Water UK receives the necessary information in real time? What will be the penalties for failure to supply the information and doing so in good time? Who will have the responsibility for auditing the online mapping performance of Water UK over time? Somebody needs to watch the watchers to ensure that this potentially rather colourful and enjoyable map is accurate, sufficiently detailed and up to date in real time.

I support these amendments. It is obvious that the public have a right to know when sewage is being dumped. Would the noble Duke, the Duke of Wellington, like to speak to his amendment first? If not, I shall carry on. The water companies have this as real-time data and there is no reason why they cannot publish it in real time so that the public know whether the waterways are clean enough to swim in, paddle in, kayak in or even let their dogs run in. I simply do not understand why the water companies cannot provide that information. Well, I do know why—they will fight this tooth and nail because the true level of leaks of sewage discharges is so ridiculously high.

I thank the noble Baroness for supporting my amendment. To be clear, it requires an explanation of why the discharge has occurred, not that it has. The Minister pointed out that that might take quite a long time to establish.

In that case, the noble Lord’s amendment is not radical enough for me, but I hope it passes anyway.

I speak to Amendment 41 in my name. It makes a simple point that I hope will find sympathy with the Minister and other Members. I well remember, as other Members may, that during the passage of the Environment Act three years ago, there was a major spill by Thames Water somewhere in the London area. The excuse given at the time was a power failure. I remember thinking that that really was not a very good excuse. Those in charge of any infrastructure installation surely should have sufficient emergency generator capacity in place and maintained so that, should there be a power failure for an essential activity, it can be covered for a while. Clearly, if the power failure lasts for a day or two, the generator capacity will probably not have sufficient fuel to run that long—I understand that. Nevertheless, it seems too easy a let-out for a sewerage undertaker to be able to excuse an emergency discharge of any sort simply on account of a power failure. I have therefore put down this amendment and hope that the Minister can assure me that water companies are required to have sufficient generator capacity in place and to keep it maintained so that they cannot simply say that there was a power failure and the generator did not work. That is just not good enough. I hope to get reassurance from the Minister about this; it is an important point, because otherwise we are giving too easy a let-out to the water companies.

20:15:00

My Lords, Amendments 39 and 40 in the name of the noble Lord, Lord Cromwell, relate to the publication of data on sewage overflows in a form that is readily accessible to the public. The public are concerned about sewage spills, and they want to know when and where they are occurring. They also want to know what is being done about preventing further spills in their area. The amendments help to redress the current balance on availability of information. Amendment 41 in the name of the noble Duke, the Duke of Wellington, relates to the failure of electricity supply which affects a sewage overflow outlet. I agree completely with the noble Duke. If an overflow outlet is reliant on an inefficient electricity supply, it is up to the undertaker to work with the electricity company to ensure that it is fit for purpose. The electricity supplier, similarly, will know when there is going to be a planned outage and should notify the undertaker in advance so that alternative arrangements can be made. If the electricity supply which serves an overflow outlet is inclined to break down, the undertaker should plan to have a generator on standby, as the noble Duke said, to take over when the electricity supply is down. This is common sense, and I look forward to the Minister’s comments.

My Lords, first an apology: in my excitement in the last group on the government amendments, I forgot to refer to my register of interests, including as a landowner across a number of river catchments and an investor in several natural capital-related technology companies. I thank the noble Lord, Lord Cromwell, for moving his amendment. I recognise how hard he has worked to improve the Bill, in consultation with the Government. We agree with the spirit of his Amendments 39 and 40 in that we also want more transparency from water companies on pollution incidents. This is an important principle that runs through the Bill, and I hope that the Government will listen to the noble Lord’s argument and seek to strengthen transparency in the water sector where this is appropriate. I also thank the noble Duke, the Duke of Wellington, for his Amendment 41. While we do not agree with it, we do agree that water companies should take some and more responsibility for the resilience of their power supplies. I would be interested to hear what the Minister can offer in reassurance.

I thank the noble Lord, Lord Cromwell, and the noble Duke, the Duke of Wellington, for tabling their Amendments 39, 40 and 41, which speak to the publication of data from monitoring networks and emergency outflow permits. I also thank the noble Lord and the noble Duke for the time they took to meet with me between Committee and Report to discuss these topics and the wider industry that they were concerned about. Amendment 39 in the name of the noble Lord, Lord Cromwell, was supported by the noble Baronesses, Lady Browning and Lady Jones of Moulsecoomb. We agree that it is essential for companies and the regulators to have a clear understanding of the cause of discharges from emergency overflows. That information is important to ensure that the regulators can assess the compliance of emergency overflows and for companies to invest in the right improvements to prevent discharges from reoccurring. It is important to note that all discharges from emergency overflows should be reported as pollution incidents. Once the Environment Agency has been notified of a pollution incident, it will request follow-up information as to the cause of the incident and any remedial action being taken. For some discharges, establishing the cause may be straightforward. However, for more complex or more serious incidents it may take longer to identify the cause. When more serious incidents occur, the Environment Agency may need to complete on-site visits and investigations into the cause of the discharges. Since it will not necessarily be known at the time of the incident occurring how long these investigations will take, it is not practical to set a date by which the cause will be identified. Furthermore, Clause 2 will also require companies to provide information on the causes of pollution incidents annually, as the noble Lord referred to from our discussions, as part of their pollution incident reduction plans. That is to ensure that water companies are transparent about the causes of pollution incidents and the measures they have taken to reduce the likelihood of further incidents. Requiring water companies to publish a date by which they would inform the public of the cause of an individual discharge would likely result in water companies either rushing investigations to meet an arbitrary deadline or setting themselves lengthy timelines that they know would be achievable. Following our discussions and what I have said now, I hope that the noble Lord understands why we consider the amendment unnecessary and that he will be content to withdraw it. I am of course always happy to discuss matters with him further.

I am sympathetic to the reasoning given, but will the Minister take on board that this means the citizenry may not know for a year why there was a spillage in their area?

I am happy to take that on board and back to the team for further discussion. I turn to Amendment 40, also in the name of the noble Lord, Lord Cromwell, and supported by the noble Baroness, Lady Jones of Moulsecoomb. I thank him for proposing it, as the Government agree that it is important that water companies make information about emergency overflow discharges as easy to access as possible. Clause 3 explicitly states that information on discharges from emergency overflows will need to be both readily accessible and understandable to the public. That duty will be enforceable by Ofwat, which will be able to access the underpinning raw data from emergency overflows to inform its enforcement responsibilities under the Water Industry Act. Water companies have already begun to publish information on storm overflow discharges in near real time, ahead of the Water Industry Act duty coming into force in January next year. Furthermore, Water UK, in collaboration with water companies, is shortly due to publish a new centralised map of storm overflows—as referred to by the noble Lord from our discussions—which is designed to present real-time discharge data from all storm overflows in England on one website. I am sure that he will be delighted to hear that we are making good progress on this. The Minister for Water received a demonstration of the website only yesterday, and the Government understand that it is due to be published shortly. A similar approach is intended to be followed for monitoring data for emergency overflows to meet Clause 3 requirements. In addition, if needed, guidance could be issued from the Government or the regulator to the sector to further support the implementation of the emergency overflow publishing duty. Therefore, since the industry is already planning to centralise data on sewage discharges on one website, the Government do not believe that an amendment to mandate publication on a centralised website is necessary. The noble Lord asked a number of very specific questions. If I have not answered any of them, I am happy to come back to him in writing with more detail. Amendment 41 is in the name of the noble Duke, the Duke of Wellington. I thank him for raising this important issue. The Government are clear that emergency overflows should be used only as an absolute last resort. We are talking about emergency overflows here, not storm overflows. Emergency overflows are different from storm overflows. They operate in response to an emergency event at a sewage pumping station, whereas storm overflows are designed to operate in combined sewer systems during heavy storm events. Discharges from emergency overflows should therefore only occur in much more limited circumstances. As previously explained, environmental permits for emergency overflows already require companies to put in place strict protection measures to prevent, as far as possible, discharges due to power failure. That can include back-up generators or duplicate power supplies. The Environment Agency will consider enforcement action if a company operates an emergency overflow and it can be proven that the discharge could have been avoided if the company had complied with the protection measures set out in its permits. Electrical power failure is an acceptable reason to discharge only when it is fully—I repeat, fully—outside the water company’s control and not due to any failure on its part to maintain protection measures. The unintended impact of the amendment could be that we fail to provide for discharges that are outside a company’s control and that are necessary to protect upstream homes from flooding—for example, if a back-up generator failed or did not last long enough. For these reasons, we do not believe this amendment is necessary and are concerned about the unintended consequences. Having said that, I appreciate that the noble Duke feels strongly on this point, so I extend an invitation to him that I hope he will take me up on. I offer him to join me on a visit to see some of the overflows in person, to enable him to look at the varied scale and types of infrastructure and protections that are already in place, to help him understand and, I hope, to put his mind at rest. I am sure that the noble Duke has never had an invitation from a noble Baroness to look at a sewage plant before and that this is an exciting first for him. I once again thank noble Lords for their constructive engagement on the important matters of data transparency across water industry monitoring networks and the permitting of emergency overflows.

The Minister is right that I am delighted to hear about the centralised provision of information, and I eagerly anticipate her reply to my six questions. I am bitterly disappointed that I have not also been invited to go with her to a sewage farm. What has the noble Duke got that I have not? I do not know and I do not want to know. Anyway, I wish them joy. I thank the Minister, and I beg leave to withdraw the amendment.

Amendment 39 withdrawn.

Amendments 40 and 41 not moved.

Amendment 42

Moved by

42: After Clause 3, insert the following new Clause— “Nature-based solutionsIn section 94A(3) of the Water Industry Act 1991 (matters to be addressed in drainage and sewerage management plans), after paragraph (e) insert—“(ea) the use that is to be made of nature-based solutions, technologies and facilities within the undertaker’s drainage system and sewerage system,”.”Member's explanatory statement This amendment requires a sewerage undertaker’s drainage and sewerage management plan to explain the intended contribution of nature-based solutions, technologies and facilities.

Amendment 42 agreed.

Amendments 43 and 44 not moved.

Clause 6: Automatic penalties for certain offences

Amendment 45

Moved by

45: Clause 6, page 10, line 9, after “if” insert “the Authority,” Member's explanatory statement This amendment would add Ofwat as a relevant agency with the obligation to impose a fixed monetary penalty on a water company in respect of a specified offence.

My Lords, Amendment 45, the related Amendment 47 in my name and, in a sense, the intervening Amendment 46 from the noble Baroness, Lady Bakewell, all seek in essence the same purpose—namely, to ensure that any fines imposed on the water industry, either by the Environment Agency or by Ofwat, remain within the environmental protection regime and do not go to the Treasury.

20:30:00

I think the current rule is that fines levied by Ofwat go to the Treasury and fines levied by the Environment Agency stay within the Environment Agency. That is what I am seeking to change and I think the noble Baroness, Lady Bakewell, has a similar intent. I hope the Minister, although she will, of course, be told by the Treasury that it wants to keep the money—I am sure it will always do that—might be prepared to try to persuade the Treasury to allow these funds to be devoted, as both the noble Baroness, Lady Bakewell, and I have said in a slightly different way, to measures to improve the quality of the freshwater environment in England and Wales. I think that is obviously what most Members of this House would want and I hope the Minister might be able to make a move in that direction. That is the essence of the purpose of these two amendments which, as I said earlier, are similar to the intent of the noble Baroness, Lady Bakewell. I hope the Minister will consider very carefully these three amendments.

My Lords, the noble Duke, the Duke of Wellington, has set out the case for this group of amendments with his usual clarity and passion for sorting out the obligations which Ofwat needs to impose. The money collected from fines from sewerage and water companies needs more clarity over its destination. At the moment, it would appear that the money from fines imposed by Ofwat does not go back into ensuring that investment occurs to correct the defects which allowed sewage spills in the first place. Much of the money from fines goes into the Treasury coffers and supports other government departments. This is not what the public want. They want the money from fines to go into making good inadequate and out of date sewerage systems and helping to create new reservoirs. A transparent and obvious way to achieve this is to set up a water restoration fund. This group of amendments requires all fines for environmental offences to be ring-fenced for this fund. I understand that the Treasury is not in favour of this as it is hypothecation. I understand where it is coming from. However, it is necessary, due to the appalling performance of the water industry, for the public to be able to see just where the money from fines is going and how it is being used to improve the service they are paying for in their water and sewerage bills. We are, therefore, very keen to see such a fund set up without delay. There are undoubtedly going to be large fines coming down the line which water companies will have to pay. These fines cannot just evaporate into the ether so that customers cannot see what is being done with the money. Restoring public confidence in the water and sewerage industry is key to moving forward and a water restoration fund is a vital element of achieving this.

My Lords, I thank the noble Duke, the Duke of Wellington, for introducing this group. I also take the opportunity to thank him for his tireless commitment to clearing up the water industry. I have no doubt that the fact that we are considering this Bill in this Chamber at this time owes much to his hard work. In government, we made progress on work to ensure that fines charged to water companies would be reinvested into the infrastructure of the water sector to reduce pollution and tackle flood risks. Given the very clear concern of the public about the health of our rivers, lakes and beaches and the impact of pollution, it seems only right that the proceeds of fines levied on water companies should be invested in tackling pollution, so we support the spirit of Amendments 46 and 47 in principle. While there is clearly disagreement on how best to achieve the goal of reinvesting the funds raised through fines on water companies, we hope the Minister will listen to the concerns of the noble Baroness, Lady Bakewell of Hardington Mandeville, and the noble Duke, the Duke of Wellington, and ensure that proceeds from water company fines are reinvested in the sector.

I thank noble Lords for their suggested amendments and the points raised in relation to penalties and the water restoration fund. First, I will talk to Amendment 45, tabled by the noble Duke, the Duke of Wellington. While I acknowledge the intention behind this amendment, which seeks to strengthen Ofwat’s enforcement powers, we do not believe that automatic penalties are appropriate for the obligations which Ofwat is responsible for enforcing. Ofwat’s role as the economic regulator is distinct from the role of environmental regulators and from the permitting regime for environmental activities. Offences that may be subject to automatic penalties and outlined on the face of the Bill, such as pollution control, abstraction, impounding and drought, fall within the remit of the Environment Agency and Natural Resources Wales. Extending the enforcement of these areas to Ofwat would therefore duplicate the responsibilities of the regulators and create more complexity in the current system. Furthermore, Ofwat’s investigation and enforcement activities relate largely to breaches of core licence conditions, which are highly complex matters that are not fixed to singular assets or permits but rather systemic failings right across the company’s operations. Investigations often require significant and detailed evidence to be gathered, potentially from a number of sites, to establish whether a breach has occurred. This can take months to conclude and does not lend itself to an automatic penalty. Ofwat has existing appropriate powers to impose financial penalties. For example, the Water Industry Act 1991 enables Ofwat to take enforcement action, including imposing financial penalties on companies if they are in breach of their statutory duties or licence conditions. Finally, I remind the House that the independent commission will consider the roles and responsibilities of the water industry regulators and how we can ensure our regulators operate as effectively as possible. This is something that may be discussed in some depth by the commission. The Government will therefore not accept this amendment, but I hope the noble Duke feels reassured on the points about automatic penalties. I will take Amendments 46 and 47, tabled by the noble Baroness, Lady Bakewell of Hardington Mandeville, and by the noble Duke, the Duke of Wellington, together. I very much appreciate the intention behind the amendments, but we do not believe it is necessary to define a mechanism for spending the money received through fines in law. A water restoration fund was launched in April this year, and this arrangement does not require legislation. As we have heard, the water restoration fund serves as a mechanism to direct water company fines and penalties into water environment improvement projects. We feel that defining a water restoration fund in law would instil inflexibilities regarding the scope of the fines available to include within the fund and how the money gathered from fines could be spent. We believe that retaining flexibility is important to ensure funding programmes deliver value for money. As for the devolved elements of the noble Duke’s amendment, water is a devolved policy area, so it is for the Welsh Government to determine the extent to which a water restoration fund should apply in Wales. What has come across in the debate, and what came across strongly in Committee, is the recognition that investment in the water industry will be absolutely critical to improving the existing poor standards. The Government are continuing to work with His Majesty’s Treasury on the continued reinvestment of water company fines and penalties in water environment improvement. We are working with the Treasury on this specific issue because we recognise its importance. As this is ongoing work and discussion, we will not be able to accept the amendments today. I thank noble Lords for the debate, and hope that they have been reassured by my comments.

My Lords, I thank the Minister for that explanation. The point of Amendment 45 was only that I was advised by the Public Bill Office that I had to table it to make Amendment 47 make sense—parliamentary drafting not being one of my specialities. However, the underlying point, which I share completely with the noble Baroness, Lady Bakewell, is that we want to see all the fines levied on the water industry reinvested in ensuring improvements to the clean water environment. That is what we are all trying to do. I suspect that the Minister would support that, in theory, and I wish her well with her discussions with His Majesty’s Treasury. I therefore beg leave to withdraw the amendment.

Amendment 45 withdrawn.

Amendments 46 and 47 not moved.

Amendment 48

Moved by

48: Before Clause 8, insert the following new Clause— “Requirement for Ofwat to have regard to climate change etcIn section 2 of the Water Industry Act 1991—(a) after subsection (4) insert—“(4A) In exercising or performing any such power or duty in accordance with those provisions, the Authority must also have regard to the need to contribute towards achieving compliance by the Secretary of State with the relevant environmental target duties, where the Authority considers that exercise or performance to be relevant to the making of such a contribution.(4B) The “relevant environmental target duties” means—(a) the duty in section 1 of the Climate Change Act 2008 (UK net zero emissions target), and(b) so far as the exercise or performance concerned relates to appointment areas wholly or mainly in England, the duty in section 5 of the Environment Act 2021 (other environmental targets);and for that purpose an “appointment area” is an area for which an appointment is held under Chapter 1 of Part 2.”;(b) in each of subsections (6A), (6B) and (7), for “(4)” substitute “(4A)”.”Member's explanatory statement This new Clause requires Ofwat to have regard to the need to contribute to the achievement of Secretary of State’s targets on climate change and other environmental matters where relevant to its functions.

Amendment 48 agreed.

Amendment 49 not moved.

Clause 10: Modification by Secretary of State of water company’s appointment conditions etc to recover losses

Amendment 50

Moved by

50: Clause 10, page 14, leave out lines 7 to 9 Member's explanatory statement This amendment ensures that compliant companies in the sector are not required to render financial assistance to recover SAO losses caused by another company under special administration.

My Lords, under the special administration orders part of the Bill, relating to the insolvency of water companies, Clause 10 gives the Secretary of State the power to modify the licence of a water company in administration or solvency to recover from its customers any shortfall in costs incurred by the Government in such a situation. My amendment addresses subsection (4) of the new section to be inserted by this clause, which allows the Government also to recover those costs not just from the company in administration but from any other compliant company, and its consumers, in the sector. My amendment would simply remove this extended unjustifiable right of recourse. This subsection surely cannot be fair. It would force good companies and their blameless customers to bail out failed companies. Would anybody seriously suggest that, if Sainsbury’s got into financial difficulties, it should be bailed out by Tesco’s customers and shareholders? I think not. To take a potential live example, were Thames Water to find itself in special administration, if you require customers of Northumbrian Water, at the other end of the country, and other companies to fund SAR losses, the Government are protecting hedge funds and other speculators who are now buying Thames debt at big discounts. It is the debt and equity investors in Thames who should pay for these losses in the form of lower proceeds from any eventual sale. Why should a retired police officer in Yorkshire or a hard-working nurse in Cornwall lose out to a hedge fund owner in New York trying to make a quick return? I tabled the same amendment in Committee and felt it necessary to bring it forward again because the Minister did not address my concerns at that stage. She covered the circumstances surrounding the introduction of the special administration regime itself rather than justifying the extended right of recourse to other compliant companies in the sector. She said there was a high bar for the introduction of such a regime, that the Government do not expect to have to use this power and that any intervention would be considered very seriously and as a last resort. As we speak, there are two companies in the sector renegotiating their debts: Thames Water and Southern Water. In theory, either could result in administration or insolvency, which may or may not involve the provision of financial assistance by the Secretary of State and the recovery of any shortfall under Clause 10. The Minister will be much better appraised of these situations than I am, so I derive some comfort from her assurance, armed with that knowledge, that the Government do not expect to have to use this power to recover losses from companies affected. Can she not, however, be more categorical than that, by saying that, even if the powers afforded to the Secretary of State under Clause 10 were to be invoked, they would not be used to recover cost shortfalls from other, blameless companies in the sector, and their customers? Far more straightforward, however, would be for the Government to accept that any suggestion of collective punishment for the financial ways of others should be rejected, and for the Government to accept my amendment and remove this wide and, I argue, unjustified recourse across the sector. I look forward to listening to my noble friend Lord Roborough on his Amendment 51, which immediately follows. Clearly, if Clause 10 is removed in its entirety, that would satisfy my concerns. I beg to move.

20:45:00

My Lords, I have three amendments of my own in this group and I have co-signed Amendment 56 in the name of the noble Lord, Lord Sikka. I spoke earlier about the Government’s plans not being strong enough to get a grip on these out-of-control water companies. The amendments in this group, including my Amendments 53, 54 and 59, are illustrative of what could be put in place to really force the water companies to clean up their act. There does not seem to be any protection whatever at the moment against a water company simply going through the special administration process and then hiking bills up on the other side. The moral hazard is obvious. I am going to take my amendments out of order, and noble Lords will see why. My Amendment 54 would create a special administration process for environmental failures, such as persistent sewage dumping. I do not understand why only financial failure should lead to special administration, when a much bigger failure is the sheer amount of sewage pumped into our rivers and on to our beaches. Thames Water, for example, will come out of special administration still in private hands, but with the bulk of the debt paid off by higher bills. My amendment would change this by giving the special administrator the power to write off the bulk of the debt where it has been used to pay for dividends and where the company has failed to deliver the investment to fix the sewage system. Those powers are not in the current rules and the Government have the chance to change that. Otherwise, we will reward the failures and greed of companies such as Thames Water and will be blamed for it. I will take my Amendments 53 and 59 together only because I would actually have liked to press them to a vote. They are two amendments I care about very much, on issues that I think the general population cares about very much, and it staggered me that there has not been more support for them in your Lordships’ House. I thank the noble Lord, Lord Sikka, for supporting me: it is two Greens and him who have proposed this. Essentially, my Amendment 53 would prevent water companies being bailed out by either the public purse or via consumers’ water bills. This is because I am quite suspicious that the whole Bill is a tactic to support the water companies, at vast expense to bill payers and eventually to taxpayers. I simply do not understand why profits are privatised but losses are not. We, the public, pay for the losses but do not get the profits. My Amendment 59 would require the Government to conduct a full assessment of the costs of bringing water companies into public ownership. So much of the public ownership debate is dismissed based on dubious industry figures about how expensive it would be. These conveniently miss the fact that some of these companies are now distressed assets facing bankruptcy. I at least ask the Treasury to do a proper costings exercise which discounts the fact that water company valuations are based on expectations that taxpayers or bill payers will underwrite the future profits of the water companies. Given the total failure of water privatisation, the Government need to seriously plan to bring water back into public ownership. The public are crying out for it, and it would actually be good value for money. The first step towards that is to work out the real costs rather than regurgitating figures from a biased industry. It will be a race against time whether we can pass this Bill before Thames Water fails. All the experts agree that Thames Water is going to collapse, so why are the Government not taking it into special administration immediately? My genuine fear is that this Government will find themselves in a political storm over the big rise in water bills to finance a new private company taking over. The Government would have three regrets: first, that they did not refuse a bailout; secondly, that they did not listen to the public and change the powers of the special administrator to write off shareholder-accredited debts; and thirdly, that they ruled out public ownership as an option and boxed themselves into a corner. I deeply regret this aspect of the Bill, and I wish there were support in your Lordships’ House for no bailout and public ownership.

My Lords, I rise to speak in support of Amendments 53 and 56, with some trepidation. At 4 pm today my heart soared, because the Railway Minister said that government policy was to bring these monopolies into public ownership. But by 5 pm the Minister—the noble Baroness, Lady Hayman of Ullock—said no, and that water companies must remain in private hands. It is nearly 9 pm now, so I do not know whether the policy has changed again. It would be interesting to know. Water companies and shareholders and lenders have extracted vast sums of money, and under no circumstances must they be bailed out. We are now almost reaching the endgame and maybe the beginning of a new chapter in water companies. Thames Water is an interesting case. All nine of its shareholders have declared the company to be a basket case and are refusing to invest, after extracting billions of pounds in dividends and inflicting massive, real-term price hikes on customers. The value of those shares has been written off; the value of debt has also taken a haircut in the marketplace. The interesting thing is that Thames Water is now going to borrow more money, which does not make any sense; I do not know how the Government have made any sense of it. Thames Water already has a debt of about £18 billion, and its gearing, as I said earlier, is already over 80%, compared to Ofwat’s idealised ratio of 15%. Thames Water is now negotiating a £3.5 billion new loan at 9.75% for two and a half years. This new loan will require it to pay £800 million over two and a half years, with interest and various fees, to intermediaries, after which it will also have to repay the loan of £3 billion. That is £3.8 billion—which it will probably try to recover from customers. It has 16 million customers, so that works out at a charge of £95 per customer simply to service this debt. This simply is not viable. There would be riots in the streets if water companies went ahead and squeezed the customers even more. It is simply and utterly unacceptable. The company will continue to discharge tonnes of sewage in the rivers. Water leaks will still go unplugged. We are talking about not just investment in infrastructure; Thames Water has also neglected other investments such as investment in IT. Some of its IT systems date back to the 1980s and are obsolete. According to whistleblowers, some of its essential systems still use Lotus Notes software from the 1980s and 1990s, which cannot be updated any more. Thames Water will run out of cash soon and will inevitably pass to its lenders. But that will not solve the problem either, because the lenders, as the new equity holders, would still want a massive return on their investment, so we are back to the territory of massive new bill hikes. The Government’s delay and dithering are not helping to clarify the situation. They need to bring this company into public ownership. Private equity and hedge funds are lurking—they are the new hyenas ready to feed on the carcass of Thames Water and grab whatever assets it has left. I have been told that they are especially after land. They are counting on some kind of government bailout so that the value of their investment soars. Thames Water is not alone. The same scenario is being repeated at Southern Water. The Minister said today that Ofwat’s approval is needed to pay dividends, so it is interesting that today Severn Water declared six-months profits, which have nearly tripled in six months, and has increased its dividends from 46.74p per share to 48.6p per share. It would be interesting to know when Ofwat approved this. Can we have some public evidence to show that Ofwat approved this higher rate of dividend? It is a matter of concern to me and others that the Bill enables the Secretary of State to dip into the public purse and also levy massive charges on customers to restructure the companies. That is effectively a bailout by another name. Through this process, the Government may possibly write off the debts of these companies and possibly take on the liabilities and costs associated with cleaning rivers, seas and lakes. So there is nothing of any value in this for the customers at all, because they will end up paying more and the citizens will end up paying more as well. The bottom line is that public money should not be used to bail out any of these investors, whether they are lenders or shareholders. Hopefully, the Minister will give that commitment. I tabled Amendment 56 previously, but I got some strange responses so I want to return to it. In any civilised society, a key requirement is that all businesses, especially those that control services essential for life, must be operated by organisations that are law-abiding, ethical and responsible. But none of that applies to water companies. The whole industry is controlled by organisations with criminal convictions galore. It is not one or two, and it is not that somebody forgot something or perhaps there was an innocent oversight. There are 1,109 criminal convictions, and there is not a single water company without a criminal conviction. This is the result of deliberate planning in company boardrooms: the directors decided to violate laws, lie and cheat. The field of these convictions is led by United Utilities, with 205; Thames Water has 187 convictions; and South West Water has 174. None has shown any sign of mending their ways; if they had, these convictions would have stopped years ago, but they continue. Just last month, the BBC reported that United Utilities dumped more than 140 million litres of raw sewage into Windermere between 2021 and 2023—at that time, it was not permitted to do so. A BBC investigation found that illegal discharges had been taking place for more than three years—far longer than the discharges in the four months the company retrospectively reported. In other words, it lied. There is no effective fit and proper person test in the UK to decide whether somebody ought to be allowed to run or control a water company or a wastewater disposal service. If there were, none of these companies would pass it. But, rather than punishing companies engaged in criminal activity, successive Governments have protected them. They ask people, year after year, to hand more money to these organisations, which obviously continue with their pattern of behaviour.

21:00:00

Can you imagine what would happen if a casino had 1,100 convictions, or if a manufacturer of cars had 1,100 criminal convictions? Would they be allowed to remain in business? Ministers would be saying, “That should not be allowed”, but here water companies are treated as a special case. All my amendment asks is that criminals should not be allowed to control the water industry. What is wrong with that aspiration? If a water company has two or more criminal convictions in a five-year period, the amendment states that it should be placed under special administration orders. That outcome is very easy to avoid for water companies. They simply have to make sure that they do not engage in criminal activity, and then they do not have to suffer any consequences.

In Committee, the noble Lord, Lord Roborough, speaking for the Opposition, said:

“it is essential that these mechanisms do not inadvertently undermine the ability of water companies to continue their core operations. The amendments could place companies in special administration for relatively minor infractions, which may not warrant such a severe response”.—[Official Report, 4/11/24; col. 1371.]

That is a strange argument. Apparently, having law-abiding, fit and persons at the helm is somehow destabilising—

The noble Lord has reached the time limit.

Sorry, I did not realise. I was just beginning to enjoy that. Just to finish off—not long to go now—the question is: why should these criminals be allowed to remain in charge? These things are not minor infractions. Last time we debated this, the Minister said that there were “significant consequences for a company’s investors. Investors would not have the confidence to invest money if the special administration regime could be triggered without allowing a company to rectify any performance issues”.—[Official Report, 4/11/24; col. 1373.] That is, again, a very strange argument that we should allow criminals to continue because somehow it might upset the market. On that basis, it would open the doors to criminal activities everywhere—

I am so sorry, but we have reached time. Thank you.

My Lords, this is the last group of amendments. The noble Lord, Lord Remnant, has introduced Amendment 50 on recovering costs from water companies. The noble Lord, Lord Roborough, has Amendments 51 and 52 to leave out Clauses 10 and 11. We did not support these amendments in Committee and have not reconsidered our view. The noble Baroness, Lady Jones of Moulsecoomb, has spoken to Amendments 53, 54 and 59, dealing with water companies that have been taken into special administration. Under Amendment 53, 50% to 100% of the debts of the company would be cancelled. Under Amendment 54, the Secretary of State would place a water company into special measures for breach of environmental conditions. Amendment 59 requires an assessment of costs to bring water companies back into public ownership. Although the noble Baroness, Lady Jones, is very articulate and passionate, I am afraid we are not able to support these amendments. Amendment 56 in the name of Lord Sikka, to which he has spoken very eloquently, seeks to prevent companies from operating where they have criminal convictions in a five-year period. I have listened to the noble Lord’s arguments on this amendment and will listen carefully to the Minister’s response, but at the moment I am not convinced of the efficacy of Amendment 56.

My Lords, I shall speak to my Amendments 51 and 52, which seek to leave out Clauses 10 and 11 from this Bill. These would also have the effect of rendering unnecessary Amendment 50 of my noble friend Lord Remnant. Our concern on these Benches is that the consumers are left as the providers of funding of last resort to the water industry. In the event of a company going into special administration and there being losses incurred by the Government, these clauses allow the Secretary of State to recover those losses by putting consumer bills up above the levels that have been determined by Ofwat—not just customers of that undertaker but also of others. This does not seem fair or just. Surely the ultimate responsibility resides with the Government who created the system of regulation that must have failed in this scenario. I intend to test the opinion of the House on my amendment; we do not believe that the Government should grant themselves this power. I would also like to briefly address Amendment 53 in the name of the noble Baroness, Lady Jones of Moulsecoomb. We on these Benches agree with her that a bailout of creditors or shareholders by the Government would be completely wrong. It is not for the Government to make professional or retail investors whole when their investments have gone wrong. However, we are unconvinced that this amendment needs to be in the Bill, given that there does not appear to be any mechanism where the Government could be called on to bail out investors. Perhaps the Minister can reassure the House that this is the case.

I thank all noble Lords for the constructive discussion on the important topic of ownership and management structures of water companies. I turn first to Amendment 50, tabled by the noble Lord, Lord Remnant. I understand his concern about the aspect of the clause that allows for socialisation of shortfall recovery. We had some discussion around that, as he mentioned. However, I reassure him again that this element is necessary for the shortfall recovery power to function effectively and safeguard the interests of taxpayers and water customers. We do not expect to have to use this power—the noble Lord mentioned that we had talked about this—and I stress that it would be utilised only if it were not possible to recover all the funding provided by Government over the course of a special administration; that is, in the event of a shortfall. It is only at that point that Ministers would decide whether to exercise the shortfall recovery power. Water sector stakeholders, including the Consumer Council for Water, would be consulted about any decision to exercise the power. It is therefore not entered into lightly. All water customers benefit from the use of a special administration regime, as it ensures that services continue in the event that a water company fails. This power already exists within special administration regime frameworks for other essential service sectors, such as energy, where there is a well-established principle of socialising these costs across the sector. The noble Lord, Lord Remnant, asked specifically about why we think the powers are needed, so I will provide an example. There may be an occasion where government funding, provided during a special administration regime, contributes towards water sector infrastructure—such as a reservoir—that goes on to benefit several different water companies. In other cases, a particularly small water company, with a limited number of customers, may enter special administration. In this scenario, it is vital that a decision can be made about recovering a shortfall from more than one company, to ensure fair allocation of costs and to prevent customers of a single, small company facing unmanageably huge bill increases. In all scenarios, a failure to deal with a shortfall fairly, or to prevent impacts unduly falling on a single company, risks increasing the cost of capital for the whole sector. This is because investors will price in the risks of excessive shortfall costs falling on a single company. The ability to recover a shortfall from multiple companies is therefore necessary both to ensure that it is possible to recover government funding in the event of a shortfall and to safeguard the sector from any wider cost impacts. I reiterate that we see it as very unlikely that this will ever happen. For this reason, the Government will not accept the amendment. I turn next to Amendment 53 tabled by the noble Baroness, Lady Jones of Moulsecoomb. While I thank her for her engagement on this clause, the Government must reject this amendment because it would jeopardise the main purpose of the water special administration regime, which is to ensure the continuation of water and sewerage functions in the event of a water company insolvency or failure. The role of the special administrator, once appointed, does not include a power to cancel debt, so does not serve to bail out water company creditors or shareholders. When a water company exits from special administration, via either a rescue or a transfer, the special administrator determines the level of repayment to creditors in accordance with the statutory order of priority. The level of repayment that creditors and shareholders may expect will be in accordance with the order of repayment clearly set out in statute. Any power to cancel debts outside of a restructuring plan agreed as part of a special administration, or a scheme where there is built-in court supervision, would be a material departure from long-established insolvency principles of fairness and treating creditors equally according to their rights. I hope that the noble Baroness understands why the Government must therefore reject this amendment. I will turn next to Amendment 54, also tabled by the noble Baroness, and Amendment 56 tabled by my noble friend Lord Sikka. He mentioned dividends. I assure him that Ofwat is able to stop the payment of dividends if they would risk the company’s financial resilience, and can take enforcement action against water companies that do not link dividend payments to performance. I just wanted to make that point clear. Amendments 54 and 56 are already covered by the existing legal framework for insolvency and special administration regimes. The noble Baroness, Lady Jones, specifically asked why a SAR can be used in only financial circumstances. However, that is not the case. A water company can already be placed in special administration on performance grounds where it is in such serious breach of its principal statutory duties, or an enforcement order, that it is inappropriate for the company to retain its licence. Both the amendments would limit the powers of the Secretary of State and Ofwat by forcing their hand to take specific action, thereby limiting their ability to respond appropriately to individual situations. As part of an application to the court for a special administration on performance grounds, the Secretary of State and Ofwat must consider all aspects of a company’s performance and enforcement record, including its record of criminal convictions. Under the current framework, a company must take actions to address performance issues, including those involved with poor performance. Any failure to do so would form part of any assessment by the Secretary of State, or Ofwat, of the appropriateness of that special administration in the first place. Special administration must be a last resort, and proportional and appropriate to the circumstances. An automatic threshold for special administration, such as outlined in these amendments, would limit the ability of the Government or regulators to act. It would also likely undermine the confidence of actual and potential investors, and bring instability to the wider sector. The Government are already taking action to strengthen the regulatory system through the recently launched independent commission into the water sector and its regulation. The regulators’ roles and responsibilities, including on enforcement, will be reviewed as part of this. We expect that recommendations from this review will form the basis of future legislation. The rigid approach in these amendments would prevent the Secretary of State from exercising their powers to respond to the details of individual cases. For this reason, the Government will not accept these amendments. However, I hope that noble Lords are reassured by my explanation. Regarding Amendment 59 tabled by the noble Lady, Baroness Jones of Moulsecoomb, I have already spoken at length about the costs of nationalising the water sector. It would require a fair price to be paid to shareholders and debt holders. This would come to over £90 billion. I know that noble Lords have disputed this figure, but it is based on Ofwat’s regulatory capital value figures for 2024. I have also spoken about the benefits—or lack thereof—of nationalisation. Research commissioned by the Consumer Council for Water, an independent organisation that represents customer interests, found that a substantial change to the industry and company ownership would not address the main problems experienced. We also see a variety of ownership models in the UK and internationally, with clear mixed performance. For these reasons, the Government have been clear that nationalisation is not on the table.

As the noble Lord, Lord Sikka, said, it is okay for the railways but not for water. If it were within the remit, at least we could get some accurate figures. At the moment we do not have accurate figures. Also, a recent poll said that 82% of the general public would like water out of private hands and in public ownership again. That means that this Government are going against the grain.

21:15:00

I appreciate what the noble Baroness is saying, but the Government are clear: nationalisation is not going to be within the scope and we are not going to change our position on that. I think we are just going to have to agree to disagree on this matter. Moving on, the noble Lord, Lord Roborough, tabled Amendments 51 and 52. The special administration regime is not new to the water sector and, as I have mentioned, it is normal practice in the provision of public services. SARs exist for a variety of other sectors, including energy, transport and financial services. Although Governments have had the power to place water companies into special administration for over three decades, it is important that we regularly update legislation to reflect the modernisation of law and experiences across other sectors. There is a high bar for the imposition of a special administration regime and we want to make it clear that the Government and Ofwat will always act to protect consumers as a priority. However, if a SAR occurs, government funding would be required to cover the costs of a special administration, including both operational and capital expenditure—for example, for ensuring that statutory environmental obligations were met as well as paying the cost of the special administrator. I reiterate that we expect most of these costs to be recouped either through the proceeds of a sale or through the repayments agreed as part of a rescue at the end of a SAR. If there are insufficient funds to cover repaying government, there is a risk of a funding shortfall. The Defra Secretary of State does not currently have the power to require this shortfall to be repaid. This is unlike in other sectors, such as energy, where the relevant Secretary of State has flexible powers to recover a shortfall in funding. The introduction of the mechanism is required to ensure that the costs of any water industry SAR could be recovered appropriately, in line with special administration regimes in other regulated sectors. Without this power there is a risk that, in the event of a shortfall, taxpayers’ money would be lost. The Government are clear that any intervention that would increase customer bills would always be considered very seriously and used only as a last resort. I hope noble Lords agree that this power is therefore essential to protect taxpayers’ money in the event of a SAR and I move that these clauses stand part of the Bill.

My Lords, the hour is late, so I will be brief. I thank everybody who has participated in our discussion of this group of amendments, and in particular my noble friend Lord Roborough for his support. There is clearly a lot of interest in the special administration regime and the costs arising from it, particularly in the allocation of those costs, and I compliment the noble Baroness, Lady Jones of Moulsecoomb, and the noble Lord, Lord Sikka, who have spoken with their normal passion and dogged determination on these issues. I thank the Minister for her patience and considered response on all these issues. I do not necessarily agree with all the points she has made, particularly on the cost of capital. I am not sure that it would be raised more in instances that she is referring to, rather than the industry having this spectre of having costs allocated to the compliant companies in respect of losses incurred elsewhere. But I thank her anyhow. I am sorry that she has not been able to accept my amendment, but I beg leave to withdraw it.

Amendment 50 withdrawn.

Amendment 51

Moved by

51: Leave out Clause 10 Member’s explanatory statement This amendment would prevent consumers in England from being charged higher water bills to cover any losses incurred by the Government as a result of the Secretary of State’s decision to make a special administration order.

My Lords, the Minister said that His Majesty’s Government do not expect to use these powers in Clause 10. I struggle to believe that any noble Lord listening to the noble Baroness describe socialising these losses across consumers can feel comfortable, however unlikely it is. If the clause is not to be used, I would like to test the opinion of the House on whether it should stand part.

5|21:20|36|89|Division on Amendment 51|Amendment 51 disagreed.||0|0

21:30:00

Clause 11: Modification by Welsh Ministers of water company’s appointment conditions etc to recover losses

Amendment 52 not moved.

Amendments 53 to 59 not moved.

Clause 13: Extent, commencement, transitional provision and short title

Amendments 60 to 65

Moved by

60: Clause 13, page 19, line 18, at end insert “, so far as relating to undertakers whose areas are wholly or mainly in England;” Member's explanatory statement This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.

61: Clause 13, page 19, line 20, at end insert— “(d) section (Nature-based solutions), so far as relating to undertakers whose areas are wholly or mainly in England;”Member's explanatory statement This amendment provides for the commencement by regulations in England of the Minister’s new Clause after Clause 3.

62: Clause 13, page 19, line 20, at end insert— “(d) section (Requirement for Ofwat to have regard to climate change etc), so far as relating to powers or duties exercised or performed in relation to appointment areas (within the meaning of the subsection (4B) inserted by the section) wholly or mainly in England.”Member's explanatory statement This amendment provides for the commencement by regulations in England of the Minister’s new Clause before Clause 8.

63: Clause 13, page 19, line 24, at end insert— “(aa) section 2 (pollution incident reduction plans), so far as relating to undertakers whose areas are wholly or mainly in Wales;”Member's explanatory statement This amendment is consequential on the Minister’s amendments extending Clause 2 to Wales.

64: Clause 13, page 19, line 26, at end insert— “(c) section (Nature-based solutions), so far as relating to undertakers whose areas are wholly or mainly in Wales;”Member's explanatory statement This amendment provides for the commencement by regulations in Wales of the Minister’s new Clause after Clause 3.

65: Clause 13, page 19, line 26, at end insert— “(c) section (Requirement for Ofwat to have regard to climate change etc), so far as relating to powers or duties exercised or performed in relation to appointment areas (within the meaning of the subsection (4B) inserted by the section) wholly or mainly in Wales.”Member's explanatory statement This amendment provides for the commencement by regulations in Wales of the Minister’s new Clause before Clause 8.

Amendments 60 to 65 agreed.