Water Industry

I beg to move,

That the draft Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020, which were laid before this House on 28 April, be approved.

Mr Speaker—no, Madam Deputy Speaker. I got that completely wrong before I had even started. I apologise.

The instrument before the House is a simple amendment to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to remove the sunsetting provision. That would allow the 2013 regulations to continue in force and to be available as part of the regulatory framework of the water industry. Without this SI, the 2013 regulations would expire on 27 June 2020. Before I talk a little further about the Government’s reasons for bringing forward this amending SI, I wish to outline the purpose of the 2013 regulations.

Water and sewerage services in England are provided by companies known as undertakers. The 2013 regulations were designed to help contain and minimise the risks associated with large or complex water or sewerage infra- structure projects, thereby helping to protect undertakers, their customers and UK taxpayers. Containing and minimising risks is likely to reduce the overall cost of borrowing for a given water undertaker and so ensure better value for money for that undertaker’s customers. It also makes sure that delivery of such infrastructure projects will not adversely impact on the existing water or sewerage services provided by undertakers.

The 2013 regulations enable the Secretary of State or Ofwat to specify, by notice, an infrastructure project where either is satisfied that two conditions had been met. The first is that the infrastructure project is of a size or complexity that threatens an undertaker’s ability to provide services to its customers. The second condition is that specifying the project would be likely to result in better value for money than if the project was not so specified, taking into account charges to customers and any Government financial assistance. A good example of this, just to set all this in context, is the Thames Tideway Tunnel, which meets both of those conditions.

Once it is specified, an undertaker is required to put the infrastructure project out to tender and a separate Ofwat regulated infrastructure provider is then designated to finance and deliver the project. Such infrastructure projects raise many complex issues, particularly around determining the cost of their financing, coupled with the construction risk that is far greater than that normally associated with an undertaker’s typical capital investment.

Requiring an undertaker to tender competitively for an infrastructure provider for a large or complex project provides an objective means of testing whether the financing costs of such a project are appropriate and reasonable. Without the tendering process, competitively determining the cost of capital for this type of infrastructure project would not be possible. The ability to create Ofwat-regulated infrastructure providers also helps to ring-fence their associated higher risks and should result in more effective risk management for these projects. Creating designated infrastructure providers in this way means that a large or complex infrastructure project will not affect the ability of an undertaker to provide its day-to-day services for its customers and avoids any resultant extra costs that would ultimately be borne by their customers—in other words, the people using the water.

Will the Minister assure the House that this provision will not be used as a device to prevent the additional provision of water capacity, which is much needed in the south-east? We have had huge overdevelopment, without the proper additional provision of water. We now wish to see an awful lot more food grown locally and in our country, which will need a lot of irrigation. So will she assure the House that increasing capacity will be an important part of the greener growth that we look forward to?

My right hon. Friend makes an exceedingly good point. Of course the Government are completely aware of the situation on water supply and dealing with the issues he is talking about is on our top list of priorities, but what we are dealing with here is quite separate. We are talking about big infrastructure projects, some of which will deliver some of the water he is referring to and will be very helpful, but they will be separates, as is the Thames Tideway Tunnel, from the general work of the water companies and the smaller-scale projects that they will still undertake to keep our water supply as we need it.

The amending statutory instrument was laid in Parliament following a post-implementation review of the 2013 regulations, carried out in 2018. Eight key stake- holders were consulted, five of which submitted responses —Ofwat, Thames Water, Bazalgette Tunnel Ltd, Bazalgette Tunnel Ltd investors and the Consumer Council for Water. The review found that the 2013 regulations had been successful in fulfilling all their policy objectives: facilitating large or complex projects; minimising risks to undertakers; providing value for money to customers; and promoting innovation in the sector. Accordingly, the review recommended that the 2013 regulations’ sunsetting provision be removed.

In March 2020, we undertook a further, targeted consultation on our proposal to remove the sunsetting provision in this piece of legislation. Views were sought from Ofwat, Water UK, Thames Water, Bazalgette Tunnel Ltd, the Environment Agency, the Drinking Water Inspectorate and the CCFW. Water companies were consulted via Water UK and Bazalgette Tunnel Ltd was given the option to consult its investors. Four written responses were received, from Ofwat, the Environment Agency, Thames Water and Affinity Water. All indicated that they were in favour of this amendment.

Currently, the only project regulated under the 2013 regulations is the Thames Tideway Tunnel, which I referred to earlier. However, Ofwat has identified four large or complex water infrastructure projects currently in development that may benefit from being specified in accordance with the 2013 regulations over the next 10 years, which might be of interest to my right hon. Friend. They are the south-east strategic reservoir at Abingdon, a joint project proposed by Thames Water; the London effluent reuse scheme, a project proposed by Thames Water; the south Lincolnshire reservoir, a joint project proposed by Anglia Water and Affinity Water; and the River Severn to River Thames transfer, a joint project proposed by Thames Water, Severn Trent Water and United Utilities.

Will the Minister give way?

I have been generous in giving way, but I will do so again.

I thank the Minister, because she has got to the point that I was hoping she might be making, which is that we need more reservoir capacity urgently. It is crazy that with just one month of dry weather we are already at risk of some kind of hosepipe ban, after the wettest long autumn and winter I can remember.

My right hon. Friend makes a sound point. A lot of the issue is that we have been in lockdown and there has been an enormous increase in demand for water because people have been at home, filling their paddling pools and watering their gardens and vegetable patches, as I have. That increased use of water has put on immediate pressure. It is not a drought situation, but he is right: we need to deal with our overall water supply, and that is absolutely on this Government’s agenda.

A decision as to whether the infrastructure projects I have referred to could come within the scope of the 2013 regulations will be made on a case-by-case basis at the appropriate time when the schemes are brought forward. The Government are committed to improving water supply resilience, as set out in our strategic policy statement to Ofwat and our 25-year environment plan. That ambition is made more challenging because of the growing population, increased water demand from agriculture and industry and, of course, climate change.

We also want to ensure that there is sufficient water left for the natural environment. Without any action, many areas of England will face water shortages by 2050. The starting point for action is to reduce water use by reducing leakage from the water distribution networks and reducing our personal consumption. However, even if leaks and personal consumption are reduced, we will continue to need new water resource infrastructure. In our “Water conservation report”, published in December 2018, we set out our progress on promoting water conservation from 2015 onwards.

The Minister responded to an Adjournment debate secured by a Member from England on the decreasing water supply in rivers because of water being taken out by water companies. Is it her intention to ensure that that practice will stop and that river water levels will be retained?

The water supply is to be looked at in the round. If the hon. Gentleman would like to have a conversation with me, I would be happy to tell him about all the things we have in train to deal with that, to ensure that we have enough water for everyone in future and take account of climate change and the growing demands. He raises an important point; keeping the right status for our rivers is incredibly important.

We endorse the industry’s existing commitment to a 50% reduction in leakage by 2050, and we announced a consultation to enable us to set an ambitious target for personal water consumption. We consulted on measures to reduce personal water consumption, including supporting measures on amending building regulations, water efficiency labelling and smart metering. Most of those measures can be taken forward without the need for new primary legislation, and we will publish a Government position on it later this year.

Alongside reducing leakage and personal water consumption, new water resources infrastructure, including reservoirs and water transfers, is needed to provide a secure supply of water for future generations. In the current price review period, Ofwat has made £469 million available to nine water companies to investigate and develop integrated strategic regional water resource solutions, so that they can be construction-ready by 2025. That work will be supported by the Environment Agency’s national framework for water resources, which was published in March this year.

In summary, this statutory instrument enables the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to continue in force, in order that they can continue to be used in the future delivery of large or complex water or sewerage infrastructure projects. Such projects play an essential role in strengthening the future resilience of water resources in England. Retaining the 2013 regulations will help to reduce the associated financial risks of such projects, ensure that water undertakers continue to deliver their existing water or sewerage services to customers, and provide greater value for money. I commend the regulations to the House.

As the Minister stated, this statutory instrument removes the seven-year sunset clause in relation to the Thames Tideway tunnel, to allow the 2013 regulations to continue. Those regulations, which Labour supported, enable the creation of infra- structure providers. To date, the Thames Tideway tunnel—nicknamed the “super sewer”—is the only project created under the regulatory regime. It is reportedly on budget and on target for completion by 2024. At 25 km long when completed, it will reduce the amount of overflow water and sewerage pumped into the Thames by 94%. It would appear that the regulatory model for this project has been successful and therefore should be allowed to continue. That would enable other large or complex projects to make use of the same funding model, as the Minister outlined.

As we are a few years off the tunnel’s planned completion date, can I ask the Minister to provide an update on the progress of the Thames Tideway project, as well as what plans she has to review the tunnel’s effectiveness when finished? I would also be grateful if she could outline the Government’s strategy for managing the inheritance of major assets, such as the tunnel, by water and sewerage companies from the infrastructure providers that build them. Thames Water customers paid an average of £19 of their annual household bill last year to finance this project, while the company avoided paying corporation tax and its executives pocketed hundreds of thousands of pounds in bonuses. It is important that those who pay for the asset through their bills should retain some of the benefits if the asset is to be part of the water or sewerage utility base.

I note that there will be no new sunset clause. Is that a wise decision, given the fact that this is the only project being undertaken in this way and it has not yet been completed? Will the Minister elaborate on her decision not to put in place a new sunset clause? The scale of infrastructure projects under this regulatory model demands a rigorous oversight and review process. The removal of a sunset clause will benefit a number of future large and complex infrastructure projects. What steps will the Government take to ensure that this regulatory and funding model is best suited to such multimillion pound projects?

Does the hon. Lady agree that part of the answer to the south-east’s problem is more reservoir provision? We have a massive expansion of housing with no additional provision and we will need a lot more for agriculture, because we will want more market gardening.

The right hon. Gentleman makes an important point and I am sure the Minister has heard it.

I would like to conclude by asking the Minister this: what are the Government doing to encourage water and sewerage companies to reinvest in existing infrastructure to promote reduced household water consumption, prevent leaks, improve services to customers and protect our natural environment? I look forward to the Minister’s response.

I welcome the shadow Minister to her place. I believe this is her first time at the Dispatch Box and I very much look forward to working with her on all the exciting issues we are dealing with in the Department for Environment, Food and Rural Affairs right now, not least the subject of water. I thank those who have contributed today, and I thank the shadow Minister for her comments.

As we look forward to the challenges of population growth and climate change, and we strive to leave the environment in a better place than we found it in, we know that new water resource infrastructure is going to be required. On that, I believe we are all agreed today. It is essential that we give the regulators the right tools to address those challenges and ensure we have sufficient sustainable water resources into the future.

I just want to touch on a couple of points that were raised by the shadow Minister, one of which was why we had not set another date for the subject we are reviewing today. The answer is that we did not consider it necessary or appropriate to set a further review date, as we expect that the power to specify projects under the regulations will be used infrequently. We will of course review the regulations as appropriate.

I was very pleased that the shadow Minister actually praised the tideway tunnel project. I have visited it myself and I recommend doing so, if she has not made a visit, when it is safe to do so with all the social distancing. It is an incredible project and a good model for projects of this nature, which is exactly what this SI concerns—projects of this type in future. As I have mentioned, a number of such projects could be coming forward in the next few years.

The Thames tideway tunnel is due to be operational in 2023, and the project as a whole is due for completion in 2024, but obviously we are still assessing the impacts of the coronavirus pandemic, because that potentially has had some impact on the working schedule. We are very much keeping abreast of that.

In order to allow the safe exit of Members participating in this item of business and the safe arrival of those participating in the next, I am suspending the House for three minutes.