Contribution
I am very happy to direct the noble Baroness towards Defra’s costings on this. You have to take account of all sorts of factors, including debt that you inherit as well as the equity stake of the companies that they are currently valued at. It is a very simplistic economics that leads you down the primrose path of the valuations that some people like to think it would cost. That is not the case.
I also gently point out to the noble Earl, Lord Russell, that the £104 billion that comes up in PR24 to which he referred is an investment commitment from the water companies. We are building new aqueducts now and we have not built them for decades, and that is one of the main reasons why we have continual problems of lots of rain but not enough water supply, to which the noble Lord, Lord Deben, referred. Anyway, I will take off my Defra Whip hat and put on my Home Office Whip hat, and I will speak to the amendment.
Performance commitment levels, including for pollution, are set for Ofwat in the price review process. Where companies fail to meet these commitment levels, they must return money to customers through reduced bills in the next financial year. Companies are therefore already penalised for failing to meet their performance targets. In addition, this Government have already introduced the toughest sentencing powers in history against law-breaking water executives. Provisions in the Water (Special Measures) Act 2025, to which the noble Earl, Lord Russell, referred, extend the sentencing powers of the courts to include imprisonment in all cases where the regulator’s investigations have been obstructed by individuals and enable obstruction cases to be heard in the Crown Court. As a company cannot go to prison, the provisions ensure that directors and officers are held to account. The threat of imprisonment will act as a powerful deterrent as water companies invest in upgrading broken water infrastructure and clean up our rivers, lakes and seas for good.
The 2025 Act also allows the Government to expand and strengthen the current range of financial penalties available to the Environment Agency in a bid to clamp down on more water company offences. The Government have consulted on the scope for these new penalties and their value. The changes will make it much easier and quicker for the Environment Agency to hold water companies to account. Through the 2025 Act, the Government have also given Ofwat the power to ban executive performance bonuses where companies fail to meet certain standards. Since this was introduced in June last year, six companies out of nine—Anglian Water, Southern Water, Thames Water, United Utilities, Wessex Water and Yorkshire Water—have triggered the bonus ban rule, and more than £4 million of potential bonuses have been blocked. This is the legislation working in action.
The Government announced, in response to the Cunliffe review, that they will establish a single powerful regulator for the entire water sector, with the teeth to enforce the standards that the public rightly demand. We have also accepted the recommendation from Cunliffe to end the era of water companies marking their own homework through operator self-monitoring. We will introduce open monitoring to increase transparency and restore public trust. We have set out our wider vision for the future of the water sector in a White Paper published on 20 January. This marks the most fundamental reset to our water system in a generation. When parliamentary time allows in a new Session, we will introduce a water Bill creating the laws that we need to fundamentally change the system.
The noble Lord, Lord Deben, asked whether the Government are committed to this. The Water (Special Measures) Act last year, our response to the Cunliffe review, the water White Paper and our commitment to legislate are a down payment on our commitment to do right by the industry, the environment, the consumer and those who wish to invest in our water system. I hope that the measures I have set out demonstrate that the Government and regulators are taking firm action to hold water companies and their executives to account for poor performance. For these reasons, in the knowledge that we will bring forward further legislation in due course, I hope that the noble Earl will withdraw the amendment.