Baroness Hayman of Ullock (Lab)

Rather than get into a discussion around this, as I have a lot of questions to answer, I suggest that perhaps the noble Lord and I—and the noble Baroness, if she so wishes—take this away into another meeting and discuss it further when we have more time. The noble Baroness, Lady Jones of Moulsecoomb, asked about the special administration regime, as did other noble Lords, and she asked particularly about profits for shareholders and creditors. The special administration regime is there to enable a seriously underperforming or insolvent water company to be put into special administration, with the requirement that vital public services—that is, water and wastewater—are continued to be provided pending a rescue package and transfer to new owners. This contrasts with normal administrations, where the appointed administrator is focused on the creditors’ interests only. A number of noble Lords—the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Parminter, Lady Pinnock and Lady Bakewell, and my noble friend Lady Young of Old Scone, in particular—asked why the Bill is not being used to reform Ofwat or the Environment Agency. The Bill introduces the most significant increase in enforcement powers for the water industry regulators in a decade and is designed to give them the teeth they need to take tougher action against water companies in the next investment period. However, we want to go further. Through the review, as I mentioned, we will look at the regulators in order to carefully consider their roles and responsibilities and how we can ensure that they operate as effectively as possible. So that will be part of the review. The noble Lord, Lord Douglas-Miller, asked whether the regulators were adequately resourced to implement all the new provisions in the Bill. Through the new cost recovery power in the Bill, we will enable the Environment Agency to fully recover costs for the full extent of its water company enforcement activities. That will include prosecutions and civil sanctions, revocation notices of permits, and pollution incidents. In addition, the EA is already recruiting up to 500 additional staff for inspections, enforcement and stronger regulation, increasing compliance checks and quadrupling the number of water company inspections by March next year. This will be fully funded by around £55 million per year through increased grant in aid funding from Defra and additional funding from water quality permit charges levied on water companies. I hope that helps to answer the noble Lord’s question. There were also questions around the detail of Ofwat’s rules. The noble Lords, Lord Blencathra and Lord Remnant, mentioned this. We feel that it is more appropriate for Ofwat, as the independent regulator, to determine the specific performance metrics that should be considered when setting the rules. Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended—subject to the relevant procedural requirements, of course—where or when it is appropriate to do so in the future. Ofwat would need to consult with relevant persons, including the Secretary of State, Welsh Ministers, the Consumer Council for Water and others, before such rules were finalised. I also reassure noble Lords that Ofwat will issue a policy consultation in October on the scope of the rules. Consumers were mentioned a number of times. First, on representation on boards, as we go through the Bill, we will look at this in more detail, but the idea behind the Bill is that Ofwat will be required to issue rules on consumer representation. Customers largely foot the bills for water company decisions, so we believe it is right that they have a say where their interests are at stake. Ofwat will need to consult with relevant persons, including the Consumer Council for Water, before finalising the rules on performance-related pay, and fitness and propriety and customer representation. I think my noble friend Lord Whitty asked about some of those issues. The noble Lord, Lord Roborough, asked in his speech just now about further increases to customer bills. Where increased costs are a result of penalties being issued by the regulators—for example, under the new automatic penalties regime—the penalties will come out of water company profits and not from customers. Where costs are unrelated to penalties—for example, where they will fund new and improved infrastructure—we are working closely with the water industry regulators to see how we can best minimise the impact of measures introduced by the new legislation on customer bills. We do not want to see the customers bearing the brunt of these new actions. A number of noble Lords, including the noble Lords, Lord Remnant, Lord Douglas-Miller and Lord Cromwell, and the noble Earl, Lord Devon, asked about investor confidence. Private sector investment is at the core of how we grow our economy. The Government are committed to establishing a strategic framework in order to deliver long-term stability, and which is conducive to attracting the sustained investment in the sector that we need. The Bill will deliver a clear and consistent regulatory framework for the water industry and its investors. I do not think anyone would think that investors have a lot of confidence in much of the water industry as it stands. On 10 September, Defra and Treasury Ministers held a round table with investors where they outlined how the Government will work in partnership to attract the billions in private sector investment that we desperately need to be able to clean up our rivers, lakes and seas. On that issue, there was also discussion around attracting talent. A number of noble Lords talked about the fact that it is more stick than carrot and asked how we are going to attract people into this. We believe it is right that companies and their executives are held to account for basic and fundamental performance requirements. Should companies meet their performance expectations, we believe that executives should rightly be rewarded, and there are also previous and existing examples of similar rules in other sectors. I will give a couple of examples. The financial services sector previously had a set cap on the level of bonuses—somebody mentioned that; I am sorry but I cannot remember who it was—and fit and proper person tests are also conducted by the Financial Conduct Authority and the Prudential Regulation Authority in that sector. Those sectors have continued to attract talent. The noble Earl, Lord Devon, asked about ensuring that water companies invest sufficiently when considering pressures such as climate change and population growth, and about ring-fencing money for improvements. In July, Ofwat announced in its draft determinations a proposed £88 billion worth of expenditure between 2025 and 2030, which will be the largest investment in infrastructure that has ever been made by the water industry. We hope that that investment will deliver much of the work needed to achieve the issues that the noble Earl referred to. The pollution incident reduction plans were discussed by many noble Lords during the debate. One question was: why have we not included a duty to implement the plans rather than just publish them? I think the noble Baroness, Lady Parminter, in particular talked about this. We say that these plans should be seen as part of the broader package of powers for regulators which exist and which are strengthened through the Bill to reduce pollution incidents. The Environment Agency already has access to a range of tools to enforce against pollution incidents and this Bill is designed to supplement this with its provisions for automatic penalties and for Ofwat to ban bonuses when water companies have not met environmental standards. Water companies will also be required to report on overall progress on the actions that were set out in the previous plans. A specific duty to implement the plan would make enforcement more difficult, we believe, as it would cut across the wider legal requirements for pollution reduction. The noble Baronesses, Lady McIntosh, Lady Browning and Lady Pinnock, all talked about sustainable drainage systems—SUDS. This is a complex issue. Existing planning policy requires that SUDS are included in all new major developments unless there is clear evidence that that would be inappropriate. This is in addition to requirements that SUDS should be given priority in new developments in flood-risk areas. However, I am aware of the issue around the previous legislation that has been sitting in front of us for 14 years, so I want to assure noble Lords that the Government are currently assessing how best to implement their ambitions on SUDS, while also being mindful of the cumulative impact of new regulatory burdens on the development sector. We are having regular discussions and trying to co-ordinate joint work with MHCLG officials on this issue. We want to move this forward. The impact assessment was mentioned. There is an impact assessment for the Bill—I am sure noble Lords will be delighted to hear that—but it is currently with the Regulatory Policy Committee. We will publish it as soon as it has concluded its review. We are hoping that will be fairly soon. The timeline for implementation was mentioned. Our ambition is to implement the provisions to give the regulators the powers they need to take tougher action against water companies for the next investment period, which is due to start in April next year. The use of delegated powers was mentioned by the noble Duke, the Duke of Wellington, the noble Lord, Lord Sandhurst, and my noble friend Lady Young of Old Scone. I want to reiterate the reassurances I made in my opening speech that the provision of delegated powers will be subject to appropriate scrutiny and safeguards. We believe the powers are necessary to ensure that the provisions in the Bill keep pace with the changing requirements on the water industry and the changing expectations of customers. A full justification for the inclusion of delegated powers in the Bill is available through the delegated powers memorandum which has just been published. On the statutory instruments for new penalties, we will be consulting on whether new automatic penalties can be used. Parliament will debate and vote on secondary legislation before any changes are made, so we intend to bring that before the House. A few noble Lords mentioned local issues. The noble Earl, Lord Devon, talked about Devon, not unexpectedly, and my noble friend Lord Lipsey talked about the River Wye. I was impressed that he got away with that word. When I was in the other place and we had a similar debate, I got ticked off and had to change what I had said. But we are concerned about the issue of poo in the River Wye and he is right to raise it. There are also issues in Cumbria, where I live, around Lake Windermere and the other lakes, as mentioned by the noble Lord, Lord Inglewood. This is something that I personally feel we need to sort out. Our national parks are hugely important. They should be peaceful, beautiful places, not places that have been damaged by sewage overspills and other pollution. I reassure noble Lords that cleaning up iconic sites such as the River Wye and Lake Windermere is a top government priority. We want to get this sorted. The 2024 price review package that I mentioned earlier will include funding for improvement projects at priority sites and we are also working closely with the Welsh Government, particularly on the issues around the River Wye. I am just about out of time. If I have missed anything that I should have answered, we will of course check Hansard and I will get back to people in writing, but once again I thank all noble Lords who have spoken today for their valuable contributions. It is clear that we agree on the importance of addressing issues in the water sector swiftly and decisively and that there is a consensus on the core aims of the Bill. The water industry really does need an overhaul, so I look forward to continuing constructive engagement with noble Lords. My door is always open. I commend the Water (Special Measures) Bill to the House and beg to move. Bill read a second time and committed to a Committee of the Whole House.