Lord Cromwell (CB)

My Lords, I will speak to Motion 1A and Amendment 1B together and would like to put on record how very grateful I have been for the discussions with the Minister and her team, her recent letter to all Peers about my amendment and the nice things she has said today—although I thought there was a bit of a threat to the noble Lord, Lord Blencathra, at the end there. Although there is much that we agree on in principle, and what the Minister has outlined today is not obstructed in any way by Motion 1A and Amendment 1B, it is my firm belief that the amendment as presented today in Motion 1A and Amendment 1B, in plain language, needs to be included in the Bill. I suggested that the Government bring forward their own amendment setting out what she has suggested today, but they have chosen not to do so. The original amendment required water companies to report annually on their financial structuring or restructuring and their debt levels and associated risks. I therefore regret its deletion by the Commons which, as I will address in a moment, perhaps misunderstood the need for and purpose of the amendment. That is why I have added the further wording at Amendment 1B to ensure that the information is sufficiently prominent and accessible. The background to the amendment remains the same. The water industry and, in particular, several companies within it have both failed to invest sufficiently and got into financial difficulties because of distorted financial engineering, including overloading with debt and what I might politely call accounting sleight of hand. This has come to light not because of the regulator Ofwat, which went along with these corporate behaviours either because it simply did not understand them or, so long as the water kept flowing and the prices were low, chose not to look closely at what was going on. What was going on was an almost complete failure to invest at anything like the rate that was needed to secure a sustainable water and sewerage management system, while at the same time extracting moneys conveniently rebadged so that they were not classed as dividends. It was not Ofwat that blew the whistle on this but rather civil society, individuals and some in the media. The Industry and Regulators Committee of this House, on which I had the honour to serve, also played a part in highlighting the matter in its critical report on the water industry. Noble Lords will be familiar with the rest: polluted rivers, excessive executive bonuses and some water companies close to bankruptcy. Once the scale of underinvestment came to light, we were told that the water companies would raise money from investors and the City to catch up—albeit over a 25-year period—on the neglect of the water and sewerage infrastructure, but we have seen that protestation fail to reach anything like the scale of money needed. Indeed, in the case of Thames Water, different classes of bondholders have fallen out with each other and the company is in court seeking £3 billion more of expensive debt, in part from hedge funds, to add to its existing £19 billion of debt, to which should be added an estimated bill of £800 million to £900 million in interest by next year.