The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)

My Lords, I thank all noble Lords who have put forward amendments relating to the financial management of water companies. I will start with Amendment 10, tabled by the noble Lord, Lord Cromwell. Ofwat has a core duty under Section 2 of the Water Industry Act 1991 to ensure that companies can finance the proper carrying out of their statutory obligations. Ofwat already monitors the financial position of water companies and can take action when companies need to strengthen their long-term financial resilience. However, we recognise that some companies will need to take further steps to strengthen that financial resilience. Ofwat has required further assurance from these companies about their financial resilience into 2025 to 2030 and beyond, and the annual monitoring financial resilience report is due to be published this autumn and will provide a publicly available assessment of the financial resilience of each water company. I say to the noble Lord, Lord Cromwell, that we met and discussed these concerns previously. Clearly, the commission that we have talked about a lot today will look at performance and resilience, but I am very happy to discuss this with him further as we move forward through the Bill. Turning to Amendment 86, tabled by the noble Lord, Lord Remnant, I emphasise that there is a high bar for the introduction of a special administration regime and the Government do not expect to have to use this power. A special administration regime will be required only when there is evidence that a company is insolvent or in serious breach of its statutory duties. The noble Lord’s amendment is to Clause 10, and Clauses 10 and 11 are designed to introduce new powers for the Secretary of State and Welsh Ministers to modify water company licences to cover any shortfall that results from a SAR. Government funding may of course be required to cover the costs of a special administration, and these clauses mean that the Government will be able to recoup any taxpayer money spent during a SAR that cannot be covered upon exit from the SAR, either by rescue or by transfer. I wanted to make that clear. Of course, in the unlikely event that the power in the Bill is used, it allows the Secretary of State or Welsh Ministers to decide, subject to consultation, the rate at which the shortfall is recovered. I hope the noble Lord is therefore reassured that any intervention would be considered very seriously and as a last resort. I turn now to Amendment 92, tabled by the noble Lord, Lord Roborough. Water companies are allowed to raise debt to fund the delivery of their services and it is for companies to decide their financial structure. At sensible levels—that is the key point—debt can be an appropriate way to fund essential investment. Sustained investment in the water industry will continue only if the shareholders of companies can expect a fair return. This amendment may therefore threaten the ability of companies to attract investment if limits on borrowing are imposed. I reassure the noble Lord that Ofwat already has appropriate powers to prevent dividends where they would threaten financial resilience. I appreciate that the noble Lord has extensive experience in this area, but I hope he understands why we cannot accept this amendment, because it is vital that we ensure companies are able to finance their functions. If he would like to send in more information about this, I would be very happy to receive it and have a look. Finally, I once again highlight that the new independent water commission, led by Sir Jon Cunliffe, the former Deputy Governor of the Bank of England, will review the current water industry regulatory framework to ensure that it attracts investment and supports financial resilience for water companies. I once again thank noble Lords for their suggestions and input into this discussion on the financial management of water companies.