Water and Sewerage Undertakers (Exit from Non-household Retail Market) (Consequential Provision) Regulations 2021

The Water Industry Act 1991 is the principal piece of legislation setting out the duties and functions of water companies in England and Wales. The retail market is a devolved matter and the 2016 regulations applied to English water companies only. The market opened in April 2017, but water companies did not all transfer business customers to retailers when the market opened. The last water company to transfer its business customers to a retailer was in 2019. The effects of the way in which the developer services market was set up were therefore not fully realised for a few years after market opening.

When setting up the market for developer services, Defra recognised that some developers might still wish to work with the water company for the housing developer services, for example. We envisaged that housing developers choosing this route would make their own contractual arrangements with the company. However, in subsequent discussions with Ofwat, the economic regulator of the water industry, and with the water industry itself, it emerged that contractual arrangements are not straightforward. They do not sufficiently replicate the water company duties within the 1991 Act that were disapplied and the unintended consequences include Ofwat no longer being able to determine complaints from a housing developer about the developer services provided, as well as water companies having restricted access to water and sewerage pipes to maintain them.

Retailers are also choosing largely not to be part of the developer services market, for two principal reasons. The first is that, due to the technical nature of developer services and the expertise required, retailers are generally not big enough to be able to provide that. Secondly, as most residents of new developments are household rather than business customers, the retailer does all the work to get the water and sewerage connections made but then must transfer the household business to the water company, so the retailer does not increase its customer numbers.

“These services primarily concern connections to water and sewerage services for new developments, involving predominantly housing developers.”

My noble friend is aware of my interest. I latched on to something he said during the passage of the Environment Bill before it went to the other place: the automatic right to connect no longer being automatic. Will that apply in these as well as other cases?

Paragraph 7.6 goes on to say: “We”—and I presume the “we” is the Government—

“consider that ‘non-household premises’ includes new housing developments which are under construction before anyone is using the premises as their home.”

Does that mean that existing housing developments do not fall into this category? Is there any chance that the regulations before us this afternoon will apply to those existing housing developments? It goes on to say that

“Until people move in, we consider that a development does not fit that definition”,

as given in that paragraph. On what basis has the department reached that conclusion? What background brought it to that position?

Paragraph 7.7 says that

“There are several unintended consequences”,

as my noble friend set out,

“of the 2016 Regulations’ amendments. These concern new connection services, the laying, inspecting, maintaining, adjusting, repairing”.

I still maintain, as I am sure my noble friend is aware, that, when making these new automatic connections automatic, we are dealing with Victorian, antiquated piping. Whether it is the retailer or the water company providing these services, the pipes are deemed to have to connect. At the moment, the water company is not a statutory consultee, whereas the Environment Agency, for example, is; I do not believe that the advice the water company is giving planning authorities has the same legal force as that from the Environment Agency.

I ask my noble friend whether the problems with the regulations set out in Paragraph 7.7 could be avoided by ending the automatic right to connect. It is unacceptable; we have an opportunity, at this stage in the regulations, for the water company or retailer to say that they cannot make physical connections when housing developments are being made and that there will be overflow into the storm drains and the possibility that sewage will come back into either the new developments or, worse, existing developments that have not been affected in the past.

I welcome this opportunity to ask questions on those points, with a special emphasis on whether sustainable drains can be part and parcel of this, and that the water company or retailer should say whether the existing infrastructure simply cannot take the amount of wastewater envisaged to come out of any new houses.

This is a minimal change to the legislation, but the legislation relating to domestic properties is far from perfect. Once the drainage and sewerage management plans are in place, that should ensure better collaboration between developers and those dealing with the supply of water and disposal of sewage. But these are not yet in place. Duties in Section 41 and 45 no longer apply to premises in a retail exit area. To indicate that new households under construction are not classified as household premises until people move in is somewhat late in the day to deal with capacity issues and whether sewerage systems are able to cope with the additional demand.

A Section 98 duty to comply with sewer requisition is the duty to provide a public sewer or a lateral drain. This appears not to apply in relation to premises in the retail exit area that were not household premises. Just what is the legal obligation to ensure that there is sufficient capacity in the sewerage system for new connections from retailers? This might be a small retail outlet, or it might be retail premises relating to an already overlarge housing development, which would be a much larger connection.

I am sure the Minister can understand my concerns and I would be grateful for his reassurance that capacity will form part of the connection requirements. I note that a consultation period took place between 29 April and 25 May 2021. This period included a bank holiday. Seventeen responses were received but the EM does not say whether Water UK or the Consumer Council for Water were among those. However, I understand from officials that, since there were responses from some water providers if not from Water UK itself, there seems to have been a general positive agreement in the industry in response to this SI.

I would be grateful for the Minister’s clarification on the consultation exercise. I understand why Defra has introduced this new measure but remain extremely concerned about the effect on flooding of connecting retailers to the sewerage system without first checking that the system has the necessary capacity.