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Thames Tideway Tunnel

Volume 742: debated on Tuesday 15 January 2013

Question

Asked By

To ask Her Majesty’s Government what will be the costs to the consumer of the Thames Tideway Tunnel.

My Lords, for Thames Water’s 13.8 million domestic sewerage customers, the tunnel is estimated to have an average maximum annual impact on bills of £70 to £80 at 2011 prices. This includes the cost of financing the project. The exact profile and duration of the cost to customers continues to be analysed. Spread over several decades, bills could gradually be affected from 2014-15, with the maximum impact estimated from around 2019.

I am grateful to the Minister, and glad that they are still looking at the finances. Does he agree that if Thames Water had paid a reasonable dividend appropriate to a utility for the past 12 years and Macquarie Bank had not taken £48 million a year on management fees, this project could have been funded out of Thames Water’s assets without any extra charge on the customers? Will he therefore instruct the regulator Ofwat to look at all this again—to look at alternatives such as a sustainable drainage system—so that customers can perhaps get a reduction in their fees rather than this horrendous increase?

My Lords, Ofwat has ensured that the regulatory ring-fence in Thames Water’s licence was tightened following its acquisition by Macquarie. The ring-fence licence conditions on Thames Water already include a condition requiring Thames Water to ensure that its dividend policy will not impair the company’s ability to finance its functions. As for alternatives to the tunnel, studies have looked at all kinds of alternatives over the past decade but none has shown a viable cheaper solution that would simultaneously address the current sewer overflow problems within a decade, deliver value for money and meet environmental objectives.

My Lords, this project has been known about for decades, I imagine, but over the past 10 years Thames Water has paid out £3.5 billion to shareholders. Should it not have known that that sort of money should have been saved to provide this essential ring system in London? Why should every customer of Thames Water pay for this project? Would it not be better if Thames Water did not pay any dividends for the next 10 years at the rate that they paid in 2012, and that covered the whole of the cost of the new project?

What an interesting suggestion, my Lords. The standard model in the water sector is for customers to pay the financing costs of the company’s capital expenditure on underground assets together with a charge to reflect expenditure required to keep them in a serviceable state. I do not think that we would find investors if we were not able to finance it in this way.

My Lords, over the past two years Thames Water has paid out £650 million in dividends and £100 million in management fees. Can the Minister assure the House that Thames Water is not simply a private equity vehicle designed to save tax for its overseas investors at the expense of London customers and UK taxpayers, who are supposed to stump up for its infrastructure investment?

Yes, my Lords; Thames Water pays its tax. All UK companies are allowed to claim capital allowances when they spend on capital investment programmes. Tax relief is allowable against the capital expenditure incurred with the aim of encouraging investment by companies. Water and sewerage companies have significant capital programmes in comparison with their revenues. They therefore benefit from tax allowances proportionately more than others. HMRC remains vigilant in ensuring that companies operating within the UK pay the tax they are legally obliged to pay.

Does my noble friend believe that the people who privatised our utilities expected that within 10 years they would be in the hands not only of foreign administrations and foreign countries but actually of the Governments of those countries? We have denationalised here and renationalised from abroad. Surely the regulator should get a lot tougher on these people who are making absolute fools of people who have to subscribe increasing sums to the maintenance of essential services.

My Lords, does the answer to the noble Lord, Lord Bradshaw, mean that the Government are indifferent to the extent of foreign ownership of our critical national infrastructure? Are they indifferent to the possible implications of that?

No, my Lords, we are not indifferent; we take these things very seriously. As I say, however, we believe in free access to our capital markets.

My Lords, has the noble Lord seriously considered whether he has given adequate answers to all the questions that have been asked in the last five minutes? Will he write, and put in the Library, a full letter on the considerations in the Government’s mind about where we go from here on all these matters?

I cannot think of anything that I would like to expand upon but I will look at the record and, if there is anything, of course I will write.

My Lords, I apologise to my noble friend for not giving him advance notice of this question. My understanding is that properties not connected to mains drainage do not pay sewerage charges. By analogy, are those properties within the Thames Water area which have no physical benefit from this proposal actually liable to pay the charges, or should there not be the equivalent of what used to be described as differential precepts? I declare an interest as somebody who lives in a property that may be in that kind of position.

My Lords, my understanding is that those who are not connected and not currently paying sewerage charges will not pay this charge. If that is not correct, I will write to my noble friend.

My Lords, I, too, live in a property that may be affected by the construction of the tunnel and I, too, have not given advance notice of my question to the Minister.

Although I see no other option but to proceed with the project, I agree with my noble friend Lord Berkeley that the huge cost to the consumer is of great concern. How will the Minister ensure that, in the interests of consumers, there is proper parliamentary scrutiny—in this House and in the other place—of the cost, which may well rise, and of the funding vehicle, which has now, by ministerial answer, been guaranteed by the taxpayer?

That is a fair point. Anything that needs to come to Parliament will, of course, do so. If there is anything else that the noble Lord and I think it would be appropriate to debate, we will put it up for debate.