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House of Lords Hansard
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Water Supply Disruption
06 March 2018
Volume 789

Statement

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My Lords, with the leave of the House I will now repeat a Statement made by my honourable friend the Parliamentary Under-Secretary of State for the Environment in the other place. The Statement is as follows:

“I would like to take this opportunity to update the House on the water supply situation following the severe weather experienced last week. The exceptionally cold weather and the rapid thaw that followed have caused widespread water supply issues in the country. Over the weekend and at the start of this week, tens of thousands of people across southern England have experienced loss of water supply in their homes, and even more have had to cope with low water pressure following leaks from burst pipes. I entirely recognise that this has been a stressful and difficult time for many residents and businesses.

The immediate priority is to get water back up and running for those people who have been affected—in particular, vulnerable people—and businesses, hospitals and care homes. Water companies have been following standard practice, including isolating bursts and redirecting water, to mitigate this problem. Bottled water has been provided in the areas most badly affected and water has been provided by tanker to keep hospitals open.

This morning I chaired a meeting with water company chief executives, Ofwat and Water UK to make sure that water companies in England are working to restore supplies as quickly as possible and that water companies in other parts of the country are preparing for the thaw as it spreads across the country. This will include learning any lessons from places that have already experienced the thaw due to higher temperatures.

The challenge that the sector faces is the sheer number of bursts following the rapid change in weather across multiple companies’ networks. Many of these have been relatively small and difficult to detect, and some of the loss of pressure is due to leaks in private homes and businesses. As of 10.30 am today, based on the information provided by the chief executives on the call, we are aware of 5,000 properties still affected in Streatham. The principal source of this problem is air locks in the water network, which Thames Water is acting to remove. We expect that to be completed today. Southern Water reconnected supply to more than 10,000 properties overnight, but 867 properties in Hastings are still experiencing problems. We expect everyone there to be reconnected this afternoon. South East Water has identified approximately 2,000 properties spread across Kent and Sussex that are still without supply. Again, we expect that they will be reconnected today. South West Water has approximately 1,500 properties affected, but this is changing on a rolling basis as the thaw progresses west. Yorkshire Water has identified 13 affected properties.

That said, some water companies have identified higher demand than usual on service reservoirs, which indicates that burst pipes need to be dealt with. I want to encourage householders and businesses to report leaks and burst pipes, including those on their property and not just on public highways.

Water companies have been working hard to address the issues for customers, though I recognise the frustration that many have had in contacting their water companies. I have been assured that companies have increased their staff on the ground who are out identifying where bursts have occurred and repairing them, as well as moving water across their networks to balance supply across the areas they serve. We should recognise the efforts of the hard-working engineers and all involved in working through the night to fix these problems.

Once the situation is restored to normal, we expect Ofwat to formally review the performance of the companies during this period. This will be a thorough review and, as well as identifying problems, I want to see excellent examples of practice and preparation shared across the sector. The Government will consider any recommendations from the review and act decisively to address any shortcomings exposed. As part of the review, Ofwat will decide whether statutory compensation should be paid. Of course, water companies will want to consider—I have already discussed this with chief executives this morning—how they compensate customers on a discretionary basis.

This Government actively support a properly regulated water sector. We have high expectations of water companies increasing their investment in their water and sewerage networks. This was laid out clearly in the strategic policy statement we issued to Ofwat last September, and reinforced by my right honourable friend the Environment Secretary when he addressed the water industry last week. He said that he expected the industry to increase investment and improve services by maintaining a resilient network, fixing leaks promptly where they occur and preparing for severe weather. As my right honourable friend said, we want a water industry that works for everyone, is fit for the future, improves performance and makes sure that bill payers are getting the best possible value for money. Ofwat will be given any powers it needs and we will back any action it needs to take to ensure that water companies up their game”.

My Lords, that concludes the Statement.

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My Lords, I thank the Minister for repeating the Statement and I pay tribute to the emergency services, who once again made us proud of their dedication and humanity when struggling in the worst of weather to provide healthcare and reach out to people cut off by the snow. I also thank many of the staff in the utilities—the engineers and the linesmen who worked in atrocious conditions to try to repair services, so that supplies of heating and water were retained. But the individual commitment of the staff cannot disguise the huge failings in the response of the water companies themselves in the recent bad weather.

I appreciate the update that the Minister has given today but as of yesterday, 5,000 homes were still without water in Kent and thousands of properties across Wales, parts of the Midlands and Scotland were waiting to have their supplies reconnected. In London, 12,000 households were still without water last night and relying on bottled water, but even supplies of bottled water were running out at some of the distribution points. This really is a very poor response. It is not as if the bad weather was a freak occurrence. The Met Office was warning of the predicted freeze weeks in advance. Yes, of course pipes are liable to freeze when the temperature drops but, equally, we should measure water companies’ success by the speed of their response and the interim help and support they provide to their customers.

I absolutely agree with Rachel Fletcher, Ofwat’s chief executive, who is quoted in the Financial Times today as saying:

“While the recent severe weather conditions have undoubtedly had an impact on pipes and infrastructure, water companies have been warned time and again that they need to be better at planning ahead to deal with these sorts of situations, including proactively communicating with customers when they anticipate issues”.

I really struggle to understand why the water companies are so poor at this. Anyone with any business involvement knows that risk assessments and the mitigating actions that follow are fundamental to the planning process, as is having in place a proper disaster recovery system. This should be ingrained in the systems of utilities because, for example, water companies are inevitably at risk of extremes of weather, whether flood, drought or snow. I hope when the Minister met Ofwat and Water UK today they were able to reassure her that supplies will have been reconnected to all affected homes by the end of the day and that, despite the review the Minister referred to, compensation will be provided to individuals and businesses affected by the loss of supply on this occasion.

There is a wider challenge here. It is not just about the aftermath of one week of bad weather. The performance of the water companies has been under criticism for some time. Six companies missed their leakage targets for 2016-17, with Thames Water’s performance data showing that 670 million litres are being lost to leakages every single day. This total works out at an average of 180 litres per day being lost for each property the company supplies. Despite these failings on leakages, water bills have increased by more than 40% since privatisation, with many consumers set to have another rise in a few weeks’ time. Meanwhile, rather than fix the problems the private water companies are paying out huge dividends to investors. For example, the owners of the top nine water companies paid out more than £18 billion in dividends in the 10 years to 2016, and their CEOs are being paid huge salaries and bonuses. Clearly, these companies have got their priorities wrong.

I therefore have to say that the Secretary of State was quite right to criticise the water companies in his speech last week, including their tendency to avoid paying tax and to hide their earnings offshore, but like many of his speeches it lacked a follow-up action plan. These problems have been known about for some time. I hope the Minister can also confirm that as part of the review, Ofwat will be given new powers to tackle excessive pay in this sector and to require a greater proportion of profits to be reinvested in service delivery and resilience. I hope he can also confirm that Ofwat will be instructed to use its existing powers more actively to ensure that water companies plan effectively for adverse weather events in future, as we all expect of them. Finally, can the Minister confirm that Ofwat will take a more active role in overseeing companies’ delivery of leakage repairs, intervening where necessary and increasing fines for missed deadlines so that real incentives are put in place to deliver the change that we should all expect? I look forward to his response.

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My Lords, I thank the Minister for repeating the Statement and the noble Baroness, Lady Jones of Whitchurch, for her comments. I agree with everything she said. The freezing weather at the end of last week was not a surprise—it had been well trailed and advertised for some time. It is therefore extremely disappointing that some water companies did not appear to respond quickly to the demand on their services by identifying and correcting burst pipes and leaks. This has caused great distress and inconvenience to thousands of households. It is unacceptable that water bill payers have been left without running water while schools and businesses across the UK are being forced to close because of water shortages. While this is a period of extreme short-term pressure, the vast amount of water that leaks from companies’ pipes every day has not decreased for the past four years. Data from the water industry regulator Ofwat shows that more than 3 billion litres leaks every day. What are the Government going to do to ensure this problem is addressed in the long term?

While expressing disappointment at the response of the water companies, I pay tribute and express the thanks of these Benches to the engineers who have worked long hours, often through the night, to reconnect households to their water supplies and to mend burst pipes and leaks. Their efforts should be recognised.

There is a real gap in the market when it comes to providing capital for critical infrastructure. A housing investment bank is needed to provide long-term capital for major new developments, to guarantee proper infrastructure and services. Locally led housing delivery must be integrated into infrastructure delivery to ensure vital utilities such as water are available at all times.

A public awareness campaign is needed to help residents insulate pipes to prevent bursting in extreme weather conditions. Can the Minister give a commitment that such a campaign will receive priority before we suffer another freezing spell from Siberia?

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My Lords, I entirely agree with the noble Baronesses about the courage and fortitude of the emergency services, often in very difficult circumstances, and I begin by thanking them. I was on the conference call with the chief executives of the water companies, Ofwat and Water UK, and from the update that I have received during the course of the day it is very clear that the priority is to restore the water supply, particularly for vulnerable people and for hospitals and other institutions in the care sector. I think we are all in agreement—which may be an inconvenience—that the water companies clearly need to do better. Some are better than others. It is very important that Ofwat conducts a review and looks at the issues of preparedness and lack of preparedness. We are expecting an interim report on that by the end of the month so that we are clear about this. I emphasise “interim”—obviously we want a thorough report but we want early consideration of those matters. There have undoubtedly been some failings, and I think some of the water companies have acknowledged that as well.

The noble Baroness, Lady Jones of Whitchurch, in particular asked for some reassurances. I have outlined the numbers of households that were without supply this morning and the intelligence that we got from the water companies at the 10.30 am meeting as to their plans for restoration of supply during the day. I will obviously get constant reports on that, as will my honourable friend.

I think there has been general reflection on this—indeed, my right honourable friend reflected on it in his speech last week at the Water UK City Conference. He called on the boards of water companies to address urgently pay, terms and conditions and so forth, to demonstrate value for money, to up their game and to lower bills. Ofwat will report to the Secretary of State on corporate behaviour by the beginning of April. If Ofwat needs further powers, it should include that in that report.

Ofwat is taking enforcement action. For instance, a large fine was imposed on Thames Water for missing the leakage target and it has set the lowest cost of capital ever for the 2019 price review. I should say that water bills have in fact fallen in real terms over the last five years by 5%, and since 1994 bills are 3% higher. Since privatisation, £140 billion has been invested in infrastructure, but we need to do more. Simply put, in a country like ours we need to invest more, and we are going to look to the water companies to do so.

I was quite shocked by some of the leakage figures and tried to imagine what they meant in terms of millions of litres per day; it is really extraordinary. Ofwat has set a challenging target of 15% by 2025, and the 25-year environment plan also set out that leakages should be minimised and go down year on year. We will ask Ofwat to consider the campaign on insulating pipes, which was mentioned by the noble Baroness, Lady Bakewell, as part of its review. That is something else that we need to work on.

The points that the noble Baroness has made have been absolutely fair. I thought it was very interesting to see different chief executives’ reports into the issues that they were facing. One of the things that we are continually assessing is the situation with the thaw. As we all know, the pipes burst on the thaw, and of course the rapid thaw has probably precipitated some considerable bursts in smaller pipes rather than in the mains. This has been one of the practical issues; there have been many small bursts as the thaw has been so rapid. I think we all look forward to hearing more about what Ofwat reports on preparedness, and on what better work needs to be done in preparing should we have a similar occurrence in future, as undoubtedly we will with the climate as it is.

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My Lords, I am grateful to the Minister for repeating the Statement and for his explanation of all the work that the water companies and their engineers are doing to reinstate supplies. It must have been a very hard job, day and night in pretty horrible conditions, and the engineers deserve all our thanks. Whether the water companies deserve our thanks is a completely different issue. It is obvious that when the temperature gets cold, the freezing depth goes down and eventually will probably hit a pipe; whether it is a quick or a slow thaw probably does not matter very much. I was cycling through Trafalgar Square this morning and there were two enormous floods coming out of manhole covers that looked to be nothing like water company manholes, so God knows what is happening to the rest of the services in Trafalgar Square. Not that that matters—it is just that it is near here.

My worry is that while Ministers are quite rightly saying that they are going to get a grip on Ofwat and the water companies—I was pleased that the Minister talked about the strategic policy statement and ended up by saying that the water industry works for everyone—that is not what has happened in the last five years. Ofwat, and to some extent the Ministers, have been asleep on the job. I have been saying for the last five years that Thames Water needed looking at because Macquarie bank has managed to reduce its level of assets to about 25% of what they were when it started, and then promptly went after the money to somewhere more attractive and sold Thames Water to the extent that it could not fund the Thames Tideway tunnel on its own and had to seek a government guarantee. That investment could have gone into improving the quality of the pipes, reducing leakages and so on. As the noble Baroness, Lady Bakewell, said, it needs more capital, but there really needs to be a massive change of attitude on the part of Ofwat to do what the Minister said and hold the water companies to account so that we never have this again. The companies should have enough assets to invest so that they can produce a much better system where the leakages are less; the charges, hopefully, are less; and it is about what the customer wants rather than what suits the companies in making the most massive amount of money in salaries and so on in the City. I look forward to the Minister’s comments.

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My Lords, again, so many of the noble Lord’s comments are in line with what I said and what the Secretary of State was very clear about last week. Some water authorities are, in my candid view, better than others. I have a list of some of the many projects that certain water companies are undertaking, whether investment or dramatically improving water on beaches. There are some very good examples of where that investment of £140 billion since privatisation has undoubtedly borne fruit, whether it is in sewers, flooding, pollution or reduction in nitrates. But there is no doubt that the game needs to be upped, and that improvements in certain water companies need to be considered.

As I said, Ofwat has already given Thames Water a substantial fine for missing leakage targets. When one thinks of water shortages in the south-east and other places with large populations, it is imperative to bear down on continuing leaks very strongly. We need to ensure that water companies are investing properly. In fairness, I have to say that leakage levels are down by a third since privatisation and bills since 1994 are but 3% higher—but there is room for considerable improvement. That is what my right honourable friend the Secretary of State is looking for. We are clear that if Ofwat needs any further powers, we will actively look at them.

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My Lords, I draw attention to my entry in the register of interests as a non-executive director on the board of Yorkshire Water until September last year.

My understanding is that water companies have to agree a five-year plan for investment in water infrastructure with Ofwat, which is a balance between investment, priorities for improvement such as those to which the Minister referred—sewage systems, clean bathing water, the freshwater river directive and all the rest of it—and cost to the consumer. That is the balance that has to be reached, and those plans are agreed with Ofwat. I am not saying that there ought not to be significant improvements, because there always ought to be, but we need to look at the reality, which is that it is a three-way balance between national government priorities, consumer cost and Ofwat agreeing to the cost of capital.

When I was on the board of Yorkshire Water, I was always going on about leakage, on which I think it is now one of the better companies at about 19%. Water is actually quite cheap—it costs about a penny a litre out of the tap—so the cost of repairing Victorian pipes in many of our towns and across the country is not economic for the water saved, certainly in the north of England where we have plenty of water. It is probably different in the south. Perhaps the Minister could comment on that.

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I am tempted to say that Yorkshire Water is planting millions of trees to help reduce the risk of flooding and control surges in the flow of water. On leakage, the target was 297 million litres per day, which sounds a lot, but the actual was 295 million, so Yorkshire Water, under the previous custodianship of the noble Baroness, is obviously working extremely hard on some of the issues that she rightly outlined as a balance with other work, working with natural capital and so forth, that water companies are doing.

The first thing to say on the five-year business plans agreed with Ofwat is that they have tough performance commitments, and we agree that they should balance resilience and affordability in the priorities in the strategic policy statement .

On the point about leakage and the cost of the leakage, the noble Baroness may be right that water is cheap, but it is also very precious. I am thinking about the ways in which I would feel very uncomfortable about taking the foot off the pedal in bearing down on leakages and the targets, as we all ought to be doing—and, indeed, upgrading our infrastructure. In previous years, all the streets of London were up because Victorian main drains were being replaced, and so forth. The investment of £140 billion since privatisation has gone on upgrading the infrastructure, and we undoubtedly need to do more.