Skip to main content

Water Companies: Duties and Accountability

Volume 820: debated on Monday 4 April 2022


Asked by

To ask Her Majesty’s Government what consideration they have given to changing water companies’ (1) duties, and (2) accountability.

My Lords, this Government have made it clear that improving water quality is a priority. We have taken significant steps to deliver this, including introducing new duties for water companies through the Environment Act: to modernise water resource planning, reduce harm from storm overflow discharges and make drainage planning statutory. Companies’ licences now require them to meet Ofwat’s board principles to ensure accountability. We will not hesitate to go further if we do not see the improvements that we expect.

My Lords, I am grateful to the Minister for his reply. He may be aware that on 1 March 2018, Environment Secretary Michael Gove said that water companies had

“avoided paying taxes … rewarded the already well-off, kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist”.

Some 49 months later, water companies are still dodging taxes, ripping off customers and polluting rivers. Can the Minister give a date by which these abuses will be completely stopped?

The noble Lord will no doubt be pleased by the recent statutory policy statement by Ofwat. It is through the regulator that we ensure that companies perform well, that we do not reward bad behaviour, that we reflect proper accountability for such things as remuneration, and that where bad behaviour is found out, companies receive fines. Those fines do not hit the customer but hit those who would otherwise have received bonuses, and shareholders.

My Lords, there are so many ways to ask these questions of the Government, but I turn to an expert in this field, Feargal Sharkey. He tells me that there has not been a single reservoir built since 2010 and, as far as he can tell, not since privatisation. Around London, the last one built was the Queen Mother reservoir back in 1976. The National Audit Office is calculating that by 2050 England will have a shortfall of some 4 billion litres of water per day. How will Defra fix that?

One of the measures that we seek to take through the five-year AMP process is to get water companies to look 25 years ahead at their water demands. There is a need for new reservoirs. One could well be built in the upper reaches of the Thames, and I recently visited an existing reservoir in East Anglia that had been increased in size. This all has to be taken into account, particularly in determining how we encourage water companies to move water from one area to another to reflect demand.

My Lords, when Carsington reservoir opened in 1992, it initially met with great opposition, but it is now very much part of the landscape. It is well used and a great provider of natural resources for the people in the Midlands.

My noble friend is absolutely right. Like any development, it has its opponents locally, and who can do anything but feel sorry for those whose lives are disrupted by it? However, a water reservoir such as that provides not only the benefit of water resources but a massive benefit in terms of well-being, leisure and the environment.

My Lords, in 2021, the leading water and sewerage utility companies had very high revenues, with Thames Water recording £2.1 billion. Over the last 10 years, water companies have paid out £13.4 billion in dividends and directors’ pay. Given the number of illegal sewage discharges into our streams, waterways and seas, is it not time that the Government insisted that water companies clean up their act immediately and not in the future?

My Lords, we are about to embark on the largest investment in water infrastructure that any Government have ever overseen. This is at a cost, but we can delay the impact of that cost on the customer until 2025. After that, the cost, on average, will be about £12.50 on each bill. If people want more to be spent, however, they must understand that this will be reflected in the cost to customers. We have to be absolutely honest with customers: we are going to spend more now and in the coming years, and rightly so, to eliminate the grotesque image that we have all seen of sewage going into our rivers.

My Lords, coming back to sewage discharge, I welcome what the Minister has said about the accountability of water companies. However, will the Government make it obligatory on the companies to have emergency storage capacity to cope with such things as sudden cloudbursts and other emergencies?

We are asking water companies to make all kinds of provision that will address the points the noble Lord has raised. Storm waters have flooded into our rivers for hundreds of years. The difference today is that there are areas of high population dealing with infrastructure that is seeking to catch up. That is what we are investing in. Through the very strict targets we have introduced in the Environment Act, through measures that our regulators are imposing on water companies, and through the delivery of record fines for water companies when they get this wrong, we hope to see—indeed, we insist that there will be—a dramatic reduction in storm overflows.

Throughout the many years that these very companies have been discharging raw sewage into our rivers, their customers have, in contractual terms, been paying them to treat that sewage and release it safely. Surely, what they have been doing is not only a breach of contract, but fraud. They knew full well what they were doing but were charging people otherwise. Surely, accountability requires compensation for people who paid them to treat and dispose of this sewage properly, and an investigation into whether the directors and executives, who knew what they were doing, were behaving fraudulently.

The noble Lord will be pleased, therefore, with the fine of £100 million or thereabouts that Southern Water has recently received, which was paid back to customers in exactly the way he suggests.

My Lords, the Minister referred earlier to the strategic policy statement that was laid before Parliament back in February, in which the Government urged Ofwat to challenge water companies on how to be more ambitious in protecting the environment and deliver the resilient and sustainable water supply we need. He also mentioned investment, so can he explain why there is no direct guidance on the investment gaps in our failing and ageing infrastructure and how this will be addressed through the price review?

In the existing price review there is a considerable uplift in investment in water infrastructure. Going forward, through the strategic policy statement and other measures we are imposing, we want to see a dramatic change in the way in which water companies operate, which has allowed a large number of storm overflows to go into our rivers. We all find that reprehensible and we want it stopped.

My Lords, I do not believe that when the earlier Government embarked on the privatisation programme, they ever imagined that so many of our utilities would end up being owned by overseas bodies. Do the Government ever have a dialogue with the overseas owners of some of our water companies, as distinct from with their professional managers or boards?

Some years ago, when I was the Minister with responsibility for water and brought in changes to the competition rules, I had exactly that discussion. My colleagues in Defra have frequent discussions with investors of all sorts. However, we have to recognise that overseas sovereign wealth funds and the pension funds that pay our pensions, for example, like the regulated utility sector because it offers a clear yield on their returns. We want that to continue because that is what is paying for this infrastructure improvement.

My Lords, as to duties on flood relief, is the problem not the Environment Agency’s confused remit and influence over water companies’ flood relief expenditure? It conflicts with agency duties and responsibility for environment and habitat protection; you cannot wear both hats. Why not legislate for a new flood relief enforcement authority, separate from the agency, which, under a new community safety remit, has the power to enforce water company expenditure on water company supply-related flood relief water management programmes?

I thank the noble Lord for his question; he makes an interesting point. Looking at the architecture of our arm’s-length bodies, you perhaps would not have started from here. If we are to reform organisations such as the Environment Agency, it would be a great mistake not to link upstream environmental actions with the bricks and mortar and the steel and concrete of flood relief and other measures. It needs to be a coherent, cohesive reform if it happens.