Water Companies: Pollution Penalties

Question

Tabled by

To ask His Majesty’s Government what plans they have to reconsider their proposal to increase to £250 million the maximum penalty for serious pollution incidents by water companies; and what assessment they have made of the reported remarks by the chair of the Environment Agency describing the proposal as “crazy”.

My Lords, the noble Duke, the Duke of Wellington, apologises for being absent today as he is on a parliamentary delegation to Madrid. On his behalf, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.

My Lords, I declare my farming interests as set out in the register. Defra is preparing to consult on plans to expand the use of, and raise the cap on, penalties that the Environment Agency can impose on water companies for serious breaches of rules, as the Prime Minister and our Secretary of State have made clear. All options are on the table, including a £250 million cap. The Environment Agency’s chair supports the review of penalties and is working closely with Defra as the consultation progresses. We will ensure that our regulators have all the powers they need to hold polluters to account.

I thank my noble friend for his Answer. The noble Duke would like to ask: is the department contemplating resiling from the Government’s current position stated at the Dispatch Box that water companies will incur very heavy fines of up to £250 million for breaking the law on illegal discharges? My noble friend will recall that two years ago Southern Water was fined £93 million for serious illegal discharges; there were warnings at the time that the fine was too low, and indeed the company was not deterred from continuing to discharge sewage. Does my noble friend think it appropriate for the chair of the Environment Agency to state publicly that a proposed £250 million fine is “crazy”, and does he share my concern that the chair of our main regulator should express such lack of confidence or belief in the regulatory regime that he oversees?

I think that if the chair of the Environment Agency was here, he would hope that I could voice more clearly his views and the distinction that is understood between unlimited fines, which the EA can pursue through the courts, and penalties which can be delivered by the Environment Agency and Ofwat. We are absolutely not resiling from anything that has been announced. It is right, for example, to look at the variable monetary penalties. They are currently capped at £250,000, which we do not believe is a significant enough deterrent. However, very serious fines can and should be a sanction for water companies that knowingly break the law. There is the criminal sanction as well.

My Lords, in the last financial year, 22 water company bosses received over £14 million in bonuses, despite sewage spilling out into our rivers and on to our beaches, killing wildlife and harming swimmers. Why are the Government not looking at stopping water company bosses from being given bonuses until they clean up their act?

Through the regulator, Ofwat, we have provided for water companies to be held to account where they are rewarding people in a way that is disproportionate to the service that they provide. That is a change that this Government have made, and it is being followed through by the regulator.

My Lords, the Minister says that there will be a review of the £250 million cap. Is lowering the amount being considered? Most people would be appalled if that is the case. Will it be a minimum of £250 million or are the Government thinking of having it higher? Can they reassure us about the scale of the review that is taking place?

The review is looking at everything. There is no attempt to resile from that figure. That figure relates to one area of sanction. It may be that we should look at unlimited fines to be decided by the courts. We are not suggesting a floor or a ceiling at this stage, but we want to ensure that water companies that knowingly, incompetently and against permitted agreements release sewage into our water and environment are sanctioned. I assure the noble Baroness that there is no attempt to resile from this.

My Lords, am I alone in wondering how it can make sense to impose large fines on companies when investment is required and that money is no longer available, rather than holding the management and the directors responsible personally to account?

I think that fines have their place. Certainly, how we have changed the rules in terms of, first, how the Environment Agency can recover the costs of doing inspections and, secondly, how the fines that it recovers can be spent on the natural environment and improving it is entirely right. We are determined to see continuing investment. We have the largest investment in our water sector now: £56 billion. That will continue, but we must be able to fine those companies that breach the rules, and that is what we are doing.

My Lords, following directly on from the noble Lord’s question, the Environment Agency was calling for prison sentences for chief executives and board members whose companies are responsible for the worst spills, and for company directors to be struck off so that they cannot move on after illegal environmental damage. Does the Minister believe that this would be more effective than continuing to rely just on fines to change behaviour, and will his increased penalties review include this as an option?

It certainly will look at that, and there is the option of a criminal sanction if the matter can be proved before the courts.

This has been going on for some time now, and we are at the point where ecosystems have been destroyed that are irrecoverable—we cannot get them back. This is the fault of the Government because of their slowness and inactivity on this issue. I am sure that the Minister knows that over the past year, the water industry has paid out £72 billion to shareholders. How can that be right when it is responsible for so much destruction?

The water companies have paid out dividends on profits of about 3.8%, which, compared with other industries, is not immense, but we want to make sure that they do not pay out in either reward to senior executives or in dividends to shareholders where they are underperforming. That is why we have a regulated system that does that. Coupled with the determination of the Government through our requirement of more investment and the measures we are bringing in through the Environment Act and other environmental legislation, we will see an improved environment. There is much to applaud; for example, the fact that 94% of our bathing waters are either good or excellent, which is considerably more than it was in 2000.

My Lords, can my noble friend tell me whether the increased incidence of storm overflows is due to new developments being put through existing, poor systems, increased monitoring, or poor behaviour by the water authorities?

The number of spills per overflow per year in England in 2021 was 29. That compares, for example, with Wales, where it was 44. It is undoubtedly the case, in a river that I know, that there is a problem. There are eight villages up that valley. Every one of those villages has increased in size—in the number of houses—over the past four decades by between 25% and 40%. There has been a consistent, decadal problem of investment to match that. We are now requiring water companies to play catch-up, and they are, in that catchment and many others. We are complying with regulations such as the urban wastewater treatment directive, which has seen £1.4 billion invested in stopping just 50 storm overflows in the River Thames. There are 14,000 storm overflows in England. To deal with them all is a massive job and will require billions of pounds of investment to restore our rivers.

My Lords, will the urban wastewater treatment directive, which is dear to our hearts, be preserved, assimilated or whatever under the retained EU law Bill?

If anything, it will be improved, because we want to see urgency in the restoration of our waterways, and that is what we are pushing for.

My Lords, one of the most glorious rivers in this country, the Wye, has been defiled in an unimaginable way. Is there not a personal culpability here, and would it not be right, following up the points made by my noble friend Lord Forsyth, for individuals to be held responsible and punished if they defile in this way?

The principal problem in the River Wye is poultry farming and the run-off of phosphates from poultry farms to satisfy people’s demand for free-range eggs. The lesson we learn from this is that our planning system has to match our environmental policy and our economic policies. In the case of the River Wye, which my noble friend is absolutely right to mention, at times of the year, parts of the river are ecologically dead. We are trying to return it to what it should be: one of the great rivers of this country. We can do that only by learning from those mistakes and making sure that they do not happen in future.