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Water: Bills and Executive Remuneration

Volume 792: debated on Tuesday 3 July 2018


Asked by

To ask Her Majesty's Government what assessment they have made of increases in customer water bills and levels of remuneration paid to water company executives.

My Lords, average water and sewerage bills fell in real terms from £420 in 2009-10 to £395 in 2017-18. Bills will continue to fall. Ofwat expects a further average reduction of 5% in 2020-25. The Government support Ofwat’s action to increase transparency of executive pay and bonuses, which must be based on better services for customers.

I thank the Minister for his reply, but he will know that water bills have risen by 40% above inflation since privatisation and nearly 2 million will need help to pay their water bills by 2020. Despite poor levels of customer service, water company bosses are paying themselves huge salaries and bonuses, with CEO pay averaging £1.2 million. Some of them are paid twice that amount. At the same time, water companies are hiding behind complex financial structures and offshore havens to avoid paying taxes. The Secretary of State has been critical of the water companies, but what is he actually doing on the ground to make sure that profits are focused on better preparation for weather extremes, not just paying excessive bonuses to the few?

My Lords, the noble Baroness’s question is extremely timely. Only today, Ofwat published a summary of the changes to the upcoming price review process, which were discussed with my right honourable friend the Secretary of State, who agrees entirely with Ofwat’s actions. It will require companies to share the benefits of high levels of debt finance with customers, ensure that performance-related executive pay rewards genuinely stretching performance —which benefits customers—and be transparent about dividends and explain how they relate to costs and service delivery to customers. If necessary, we will go further.

My Lords, I declare my interests in the register; I also co-chair the All-Party Parliamentary Water Group. Does my noble friend the Minister agree that Britain was the dirty man of Europe in the 1980s and, through privatisation and EU environmental directives, we have now improved water quality? Going forward, what benchmarks will the Government use to continue to improve water quality in this country?

As my noble friend said precisely, we wish to improve water quality. Let us be clear: since privatisation, customers are eight times less likely to suffer sewer flooding. The number of serious water pollution incidents caused by the water industry reduced significantly from over 500 in the early 1990s to 57 in 2016. Clearly, there is room for improvement. That is what both Ofwat and we in Defra want. In terms of what has been achieved with the £140 billion investment since privatisation, our water quality is improving and we want it to improve even more.

My Lords, in the latest published Ofwat figures, Yorkshire Water scored 12 out of 18 for customer satisfaction, yet the chief executive officer took home £1.3 million of pay, pension and bonus payments last year. That is seven times more than the Prime Minister. Can the Minister guarantee that the changes announced today by Ofwat will never allow a chief executive officer to be paid for such bad customer satisfaction in future?

My Lords, I am absolutely clear that Ofwat’s requirements of companies are very clear on the issue of performance-related executive pay. We are willing to take regulatory action to support Ofwat’s reforms if water companies do not readily co-operate.

My Lords, does the Minister agree that one way of reducing water bills would be for the water companies to reduce their dividends? Last year, Thames Water declared a £55 million dividend which then got paid to one of its holding companies and, through a complex chain, ended up at Macquarie. It then had the gall to say in its annual report:

“No dividends or interest on shareholder debt was paid to external shareholders”,

in the same year. Surely that is stretching truth and credulity much too far. Will the Minister do something about that, please?

I feel I am repeating exactly what Ofwat has announced, as it is the statutory regulator, in terms of its requirements on increasing transparency on both dividends and executive pay. We are absolutely clear that this is a public service provided under private ownership and there are responsibilities that go with that. There have been very considerable improvements since privatisation, but there is a wake-up call to the water companies.

My Lords, speaking as a former director of a water supply company, I ask whether my noble friend agrees that the level of investment by our privatised water companies has never been paralleled to the present position? Would he not also commend the actions of water companies that are now involved in active water transfer plans, such as those between the Kielder reservoir and Yorkshire?

My Lords, my noble friend has highlighted an issue that I think we need to hear more of, particularly as we look at climate change and increasing population. We need to secure more water transfers between water companies, which will build resilience and reduce the cost of meeting future demand. So I am very pleased with what is going on already, but the water companies need to work more and we need to increase our infrastructure.

My Lords, is the Minister aware that there is one part of this country, the United Kingdom, where we do not have any of these problems of highly paid water executives, because under successive Governments of different parties, water has remained in public ownership—and that is Scotland?

Well, your Lordships know that I am very keen on Scotland, but I entirely disagree with the noble Lord about privatisation.

Privatisation has permitted us £140 billion. There are so many examples of what the investment was before privatisation. The noble Lord shakes his noble head, but privatisation has made a very considerable difference to water quality, the quality of our beaches and the reduction in water pollution. However, there is more to do.

My Lords, on the question of Scotland, where the investment has to come from government and not from the private sector, could that explain why the Scottish Government have not spent their Barnett allocation on the health service? Is it because they have had to divert money down the other pipes?

My noble friend has given a much better answer than mine, and the noble Lord is still shaking his noble head.