Water Companies: Licences

Question

Asked by

To ask His Majesty’s Government what assessment they have made of the announcement by Ofwat on 20 March of a change to the licences of water companies requiring that dividend payments are linked to performance.

My Lords, we support Ofwat’s new measures, which were made possible by new licence modification powers that this Government gave to Ofwat via the Environment Act 2021. The measures strengthen the existing dividend licence conditions so that Ofwat can take enforcement action against water companies that do not make an explicit link between dividend payments and their performance for customers and the environment.

I thank the Minister for his response. Since I tabled this Question, the Government have published their plan for delivering clean and plentiful water, which is to be welcomed and offers much hope. However, river pollution has blocked the development of 20,000 much-needed new homes, and more than 7,500 days’ worth of raw sewage has been dumped in various Ministers’ constituencies. Does the Minister believe that withholding dividend payments to water company executives and shareholders will really contribute to making the difference needed to improve long-term water quality? Surely something more robust is needed.

My Lords, that is just part of a great many things that the Government are doing. The new power that the Environment Agency has to link the companies’ licences to ring-fence provision on infrastructure spending is important. This comes as part of a plan that includes the Environment Act, as I said earlier; the Storm Overflows Discharge Reduction Plan; a strategic policy statement for Ofwat, in which the Government required very stringent new standards; and our recently published plan for water. No Government are doing more to tackle this issue.

My Lords, I also commend Ofwat on its recent announcement that it will seek to take some powers over dividends, but what it actually says is that the company boards will be required to take account of their performance towards the environment. What worries me—I wonder whether it worries the Minister—is that it is up to the company to assess its own performance. Is that really a strong enough power?

It is not just up to the company; it is up to the regulators, Ofwat and the Environment Agency. We are currently considering this, and there is a proposal to lift the cap on fines from the Environment Agency to an unlimited level. This is part of a concerted effort to tackle a serious problem.

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My Lords, it is the turn of the Conservative Benches.

My Lords, I welcome the Government’s commitment to implement Schedule 3 to the Flood and Water Management Act 2010, but will my noble friend exercise a degree of urgency? Wales has already implemented this, making SUDS and sustainable drains mandatory in all new builds. That one measure alone will prevent sewage spilling over antiquated pipes and leading to river and sea pollution.

My noble friend is absolutely right: this was a key recommendation of the Pitt review following the floods in 2007. The Government are implementing it. It is complicated, because it is about who owns and has responsibility for the maintenance of the SUDS. My noble friend is right that this will have an impact on the amount of unwanted effluent that flows from developments into watercourses and aquifers, and it is being implemented—we are taking it forward urgently.

My Lords, following on from the previous question about the water companies marking their own homework, can the Minister explain how it is that the water companies themselves are responsible for monitoring and reporting? Will that change? He will know that a lot of the monitors do not work, so how can we be assured that decisions will be made on the basis of accurate reporting? It is not in their interest to provide that accurate information.

There was no information on this until 2013, when I required water companies to publish a full list. We now have—or will have in a matter of weeks—100% of all the monitors. The Environment Agency investigates anywhere a fault is not being correctly measured. The telemetry will exist to measure the quality of water in all these outflows, above the outflow and below it, so accurate comparisons can be taken. That sharing of information, which was lamentably woeful but which we have corrected, will be a key part of our attempts to successfully clear up our rivers.

My Lords, the Government can be extremely proud of their record on the environment with regard to the Environment Act and a number of the measures to ensure improvement that I know my noble friend the Minister is personally committed to. Can he explain to the House whether he believes that Ofwat has sufficient powers to deal with this enormous problem that is exercising the public so much across the country?

My noble friend raises a key point. The Government give direction to the regulators of utilities such as water companies, and we have given very clear direction, which has been manifest in the latest Ofwat demand that water companies tackle this. It is not the only regulator. As I said earlier, the Environment Agency has huge powers and will levy fines and make sure that water companies that fail are taken into account. Of course, Ofwat also has to balance the importance of the pressure of bills on households with an increasing level of investment in tackling these issues. It is a constant balancing issue and one that I hope we are getting right.

Can the Minister please explain how competition in the water industry is of direct benefit to the public?

It allows us to make comparisons between good and bad performers and to ensure that they are able to operate in the open market and borrow on the capital markets in a regulated way. Dividends are really important because they pay for investment, and very often they are paid to pension companies that invest in these companies. The average dividend is around 3.8%, which is not massive, but we want to make sure we get that balance right. Competition is also in the customers’ interest. Evidence shows that if it had not been for the kind of competition that we have created in the water industry, there would be higher bills for households and less money spent on infrastructure.

My Lords, week after week we read about the Wye and other beautiful rivers—they are sewers, in some cases. The question we are constantly being asked is: when can we expect our rivers to run clear and pure? Is it 2040, 2050 or 2030? When can we expect this?

We have set out dates by which we will expect to see different levels of improvement. We are requiring water companies to spend £56 billion, and most of that is being front-loaded. The date of 2030 is the first by which my noble friend will be able to see how successful we have been at that front-loading. On rivers such as the Wye, it is not just the water companies but farming that is the problem—a particular type of farming. We have had this debate many times, and action is being taken through the Environment Agency and grants that we are now offering through our environmental land management schemes to correct some of the issues that have gone wrong. We also need to look at planning, which has been part of the problem.

My Lords, the Minister has previously said that the Government are looking at a proposal from the Environment Agency that directors of water companies that fail to improve and continue to pollute our watercourses should face a prison sentence. Can he update us on what progress is being made?

These are issues that require us to work across government, such as sentencing, but where a crime has been committed and it can be proved that an individual in a senior position in a company has directed that company to operate in an illegal manner, that is a criminal act and therefore sanctions should reflect that.

My Lords, the Government have said that they will use the evidence of enforcement and litigation in determining whether they will use this new power on dividends for companies, but that requires evidence. As the noble Baroness, Lady Jones of Whitchurch, said, it has recently been shown that of the storm overflow monitors that the water companies put in, one in six—2,300—are not working. Why are the Government not fining these water companies immediately if their storm overflow monitoring devices are not working, because otherwise no one can get the evidence and Ofwat cannot make these decisions?

The Environment Agency has a suite of enforcement actions it can take in those circumstances, including criminal prosecution. Last year it reported 30 monitors that were not recording data properly. Faulty or inactive monitors are identified by the agency through its data monitoring, and where water companies are failing to meet expected levels of monitoring coverage, the agency is holding them to account by requesting plans and monthly updates on progress. Some 15,000 storm outflows exist in this country; we now know where they are and we can monitor them.