Independent Water Commission

Statement

The following Statement was made in the House of Commons on Wednesday 23 October.

“With permission, Mr Speaker, I would like to update the House on the action that this Government are taking to fundamentally transform our water industry and clean up our waterways for good.

Fourteen years of Conservative failure have left our water sector in disrepair. The rivers, lakes and seas that we all love have record levels of pollution. Severe droughts are set to leave parts of the country facing significant water shortages by 2050, particularly in the south-east, and water companies forecast that England will need to find an extra 5 billion litres of water a day to fill the gap between supply and demand by that same year. A rising population and the increasing impacts of climate change are putting strain on the water system. Firmer action should have been taken by the previous Government to ensure that money was invested to fix the water and sewerage system. Instead, they allowed that money to be siphoned off for bonuses while our water infrastructure crumbled.

A secure water supply is essential for every home and business throughout the country. It is the foundation of our economy, our communities and our global security. It is essential to life itself. We use water to cool power stations, and it is vital to our electricity supply. We use water to grow the crops that provide the food on our plate, and we use it to supply our leisure industries. Without a resilient water supply, we cannot build the new homes and critical infrastructure that we need to grow the economy.

Concerns about pollution, water shortages, bill increases and the sector’s financial resilience all point to the need for profound change. The water sector needs a complete reset, with a reformed water sector working in partnership with government to bring in the investment we need. We need a clear long-term plan to ensure that the sector puts customers and the environment first and can attract investment to upgrade our infrastructure. We need a water system fit for the future. We cannot clean up our rivers, lakes and seas overnight, but we have a plan, and the work of change has started.

On 11 July, I made a Statement to the House on the agreement that I reached with water companies and Ofwat to ring-fence money earmarked for investment in water infrastructure so that it can no longer be diverted for shareholder payouts and undeserved bonus payments. On 9 September, we introduced the Water (Special Measures) Bill, which sets out new measures, including measures strengthening regulation to ensure that water bosses face personal criminal liability for serious and repeated lawbreaking; giving the water regulator new powers to ban the payment of bonuses if environmental standards are not met; and boosting accountability for water executives through a new code of conduct. Today, I am pleased to announce the third stage of our plan.

Together with the Welsh Government, we are launching an independent commission that will lead the biggest review of the water industry since privatisation 35 years ago. The commission will ensure that we have the robust regulatory framework that we need to attract the significant investment that is required to clean up our waterways, build new infrastructure to address water scarcity, and restore public confidence in the sector. I am delighted that it will be led by the former deputy governor of the Bank of England, Sir Jon Cunliffe, who has decades of economic and regulatory experience. Sir Jon will be supported by an advisory group of experts covering areas such as the environment, public health, engineering, customers, investors and economics. He will seek advice from wider groups of stakeholders, including environmental campaigners, consumer champions, water companies, regulators and the public at large.

The commission will conduct a root-and-branch review of the water sector’s regulatory system. It will cover the water industry in England and Wales and the strategic planning framework under the water framework directive and river basin management plans to ensure that strategic water planning across sectors is effective at catchment, regional and national scales. Where housing, planning, agriculture and drainage interlink with strategic planning across the water system, they are also in scope.

The commission will set a new framework for the future. It will not make recommendations that affect the current price review 2024 process, to ensure that there is a stable climate for investment as that process concludes. It will be pragmatic and will focus on reforms that improve the privatised regulatory model. Nationalisation of the water sector will not be in scope, because of the high costs of buying out the current owners, lack of evidence that it would lead to improvements, and the long delays that it would cause in the process of cleaning up polluted water and serving customers better.

The commission will make recommendations in the first half of 2025, reporting to me as Environment Secretary and to the Deputy First Minister and Cabinet Secretary for Climate Change and Rural Affairs in Wales. Once it has made its recommendations, the UK and Welsh Governments will respond and consult on proposals, including subsequent legislation. Further details of the commission’s scope, delivery, approach and timelines are set out in its terms of reference, which will be available on GOV.UK today.

This Government will deliver an ambitious, long-term and collaborative approach to reforming the water sector, creating a strong new partnership between government, water companies, customers, investors and all those who work to protect our precious environment. The commission will set the groundwork for the reformed water sector that we want to see. I thank Sir Jon for leading this important work.

This is our opportunity to ensure that our children, and their children, have the chance to create memories that will last a lifetime—to splash about at the seaside, row on our rivers or enjoy a picnic on the lake shore. This is our opportunity to inject billions of pounds into the economy and to power UK growth by attracting global investment into a transformed water sector. This is our opportunity to clean up our water once and for all”.

My Lords, we on these Benches welcome the independent commission led by such a respected figure as Sir Jon Cunliffe. However, after 14 years of criticising our government policy in this area, why did the new Government not have clear ideas of their own to fix this industry by the time they took office?

As has been discussed at Second Reading and in Committee on the Water (Special Measures) Bill, there is concern over the timetable for bringing forward legislation for a full reform of the water industry after this review is complete. Will the Minister make commitments on the timing of that legislation for noble Lords’ consideration when deciding whether to press their amendments that might increase the breadth of the Bill’s impact? The Secretary of State has given a commitment that the review will not make recommendations that affect the 2024 price review. In another place, it has been suggested that the review would not, therefore, lead to legislation that takes effect before 2029. Does the Minister agree?

It is reassuring to see the Government adopt our own previous policy of removing rights to bonuses for water company directors; however, will the Minister inform the House of the total amount of performance-related pay within the sector since privatisation and what percentage of total investment that is? Taking away bonuses will not change the finances of the water industry. It is most pressing to ensure that the industry is properly capitalised to undertake the investment programme that this country needs to deliver clean water at an affordable price. How much has been ring-fenced for that in the agreement between the Secretary of State, the industry and Ofwat announced on 11 July?

It was disappointing that only the last of the terms of reference addressed financial resilience at all. It is critical, given the parlous state of some companies in the sector and the need for investment to deliver clean rivers, lakes and beaches, that this issue is addressed quickly and effectively. My own amendment to the Water (Special Measures) Bill limiting water company leverage was not much liked by the Minister. What other measures are the Government taking to restore financial stability in the short term? It has also been reported that the Government will consider forcing the sale of water companies in England to firms that would run them as not-for-profits. Can the Minister confirm whether this is part of the Government’s review, and is she willing to give the House some examples of this kind of approach working elsewhere? For example, does she consider Welsh Water’s record in Labour-run Wales to be a good one?

My Lords, I declare my interests as set out in the register and thank the Minister for this Statement updating the House on the launch of the independent water commission. There is much that we on these Benches welcome, most importantly that this Government, through the Water (Special Measures) Bill presently being considered by this House and the launch of the water commission, have given a clear signal that they are determined to try to fix our broken water system. The intent is a welcome step change, and I am thankful for it.

That said, there is a time for reviews and commissions and a time for calm, direct and decisive government action to fix systems that have been broken for far too long. The Government talk proudly about their longer-term approach, when the electorate is keen for more radical and immediate action. My friendly warning to the Labour Government is that the people who voted for them did so with the expectation that real action would be taken to resolve this mess, at scale and at pace. Labour has had many years in opposition; quite frankly, we expected the Government to be better prepared and to have come up with the necessary plans and answers by now that are urgently needed to fix these problems.

The water industry is a mess, and the sewage scandal was a critical issue at the last general election. The Liberal Democrats are determined to put the protection of our precious natural environment at the heart of everything we do. In 2023, water companies dumped 54% more sewage into our lakes, rivers and coastal areas than they did in the previous year. This amounts to 464,000 incidents and 3.6 million hours of untreated sewage discharges in England alone, damaging our freshwater ecosystems. Meanwhile, water bills are set to rise by some 40%. We are clear that we would abolish Ofwat, create a new, unified and far more powerful clean water authority and replace the failed private water companies with public benefit companies.

My Lords, I thank both noble Lords for their questions on the Statement made in the other place recently. Both noble Lords mentioned the fact that we had been in Opposition for 14 years— I would suggest that is probably one of the reasons why the water industry is in such a mess. It is a little bit rich of the Opposition to say that we should have sorted it out when we were in Opposition.

In answer to a few questions, the review will be reporting in the first half of next year. It is not that long until next year; it is only a few months away. The idea is that the review will develop new legislation that will make water companies and our water infrastructure fit for purpose for the future.

I thank the noble Earl, Lord Russell, for his broad support. He talked about urgency. It is important to point out that we came into government at the beginning of July. On 11 July, my honourable friend the Secretary of State made a Statement to the House on the agreement he had already reached with water companies and Ofwat to ring-fence money earmarked for investment so it could not be diverted to shareholder payments. On 9 September, we introduced the Water (Special Measures) Bill that we are considering in the House. Yesterday, the review was announced—so we are pretty well cracking on with this as an urgent action going forward.

Does the Minister agree with me that the failures in the UK water industry derive from extractive financial engineering, which in turn led to poor investment in infrastructure, which in turn led to the environmental failures that have become so publicly known? All these things should have been picked up by the regulators far sooner and acted on. Will the commission focus on that aspect?