HANSARD
Water Industry (Specified Infrastructure Projects) (English Undertakers) (Amendment) Regulations 2020
- Motion to Approve
- 4:01 pm
- Moved by
- That the draft Regulations laid before the House on 28 April be approved.
- My Lords, the instrument before you is a simple amendment to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 to remove their sunsetting provision. This would allow the 2013 regulations to continue in force and be available as part of the regulatory framework of the water industry. Without this SI, the 2013 regulations would expire on 27 June 2020. As such, before I talk a little further about the Government’s reasons for bringing forward this amending SI, I will outline the purpose of the 2013 regulations.As noble Lords will know, water and sewerage services in England are provided by companies also known as undertakers. The 2013 regulations were designed to help contain and minimise the risks associated with large or complex water or sewerage infrastructure projects, therefore 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 have been met: first, that the infrastructure project is of a size or complexity that threatens an undertaker’s ability to provide services to its customers; and, secondly, that specifying the project would likely 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.Once 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 a 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 that 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 ensures that a large or complex infrastructure project will not affect the ability of an undertaker to provide its day-to-day services for customers and avoids any resultant extra costs that would ultimately be borne by those customers.
- 4:10 pm
- My Lords, this is my first opportunity in the House to congratulate the Minister on his appointment and I do so very warmly. I welcome these regulations, but I will ask two questions and raise one wider concern about them. First, as the Minister said, the Thames tideway tunnel—which predates these regulations—is the model on which the new system is based. Will the Minister update the House on what is happening with the tunnel? The record of the structuring and letting of the contract for it was a success. It got a lower cost of capital because it was a self-contained project with the risks clearly enumerated, separating it from Thames Water.My second question is about the Abingdon reservoir, to which the Minister referred. As noble Lords will be aware, this not only is the first reservoir that has been proposed in the last generation but has a long history of great controversy. In particular, when it was last proposed 20 years ago, Ofwat essentially—if I can mix my metaphors—pulled the plug on it by ruling that it did not meet its own planning requirements for water supply. All the work that had gone in to preparing the case for the reservoir therefore came to naught. What is Ofwat’s attitude to the new proposal for the Abingdon reservoir? Is it likely to go ahead?Speaking as a former chairman of the National Infrastructure Commission, which did a lot of work on water resilience, I have one broader comment to make. The Minister did not refer to the commission’s 2018 report, Preparing for a Drier Future, which set out the background to these wider plans. It called on the Government to put in place additional supply and demand reduction measures, equivalent to at least 4,000 million litres a day, and to have plans in place by the end of 2019—last year—for at least 1,300 million litres a day provided through a national natural water network and additional supply infrastructure, as well as measures to halve leakages and progressing further with compulsory metering, to which the Minister referred. How far have the Government gone towards meeting the target of at least 1,300 million litres a day of additional supply being commissioned through a natural water network and additional supply infrastructure? If we have not yet got those proposals sufficiently in place, what measures will the Government take to meet that target, over and above the ones that the Minister has just announced?
- 4:13 pm
- My Lords, it is a mark of the new arrangements that in recent weeks I have spoken in debates on food security, the charity sector and heritage and had between one and two minutes in which to do so. With the luxury of five, I will start with the usual courtesy of thanking the Minister for his comprehensive and useful introduction, and his officials for producing an extremely readable and useful set of accompanying documents.Although narrow in its scope, this SI gives us a very useful chance to carry out some post-legislative scrutiny. I am not clear why a sunset clause was introduced in the first place. It might be because it was only ever envisaged for one project, but it would be useful to understand that better. I would rather know precisely what it was intended to do and what the risks are in removing it. The regulations as they stand have certainly done an extremely good job for the Thames tideway tunnel project. It will remain to be seen whether it is suitable for projects going forward. I am interested in the Minister’s thoughts about why this might not be a suitable framework for the four projects which he outlined, because it seems to have been successful.It would also be helpful if he could give a bit more detail on the timetable for the proposed major new projects, as I did not quite hear what it was. In recent years, the emphasis seems to have been on improvements —particularly environmental improvements—to existing assets, and I welcome that. I am old enough to remember the 1970s, when the UK was known as “the dirty man of Europe”. UK standards have played a huge part in driving improvements in water quality across the piece. I am sure that all noble Lords would welcome an assurance that the UK will not, in any way, be slipping back once it is removed from EU standards.Managing those assets, getting better value and using water more efficiently is an interesting challenge for the industry. Can the Minister say a little more about the limits? How much more water efficiency can we get out of existing infrastructure before we have to start thinking about new infrastructure, especially given the combination of climate change, increased population and differences in the way we lead our lives? It is good to hear that this model has worked so well for Tideway. It has suggested that the regulatory and contractual arrangements have given it a framework which has incentivised delivery on time and on budget—I would like to hear an update on that—as well as lower expected costs of capital.
- 4:17 pm
- My Lords, I also welcome the Minister to this hybrid House, and I welcome these regulations. I had the good fortune to be one of the Ministers responsible for water privatisation in the Department of the Environment, working with my noble friend Lord Howard of Lympne, back in the late 1980s when the water authorities finally concluded their annual struggles to make forlorn cases in Whitehall for much-needed capital investment for large infrastructure projects. After privatisation, they moved into a world where they could access market-driven capital investment regimes. That long-term access to capital markets was critical to funding the much-needed investment programmes that have subsequently served the country well.In answer to the noble Baroness, Lady Scott of Needham Market, I recall that, prior to privatisation, the annual battles in Whitehall were depressing times, as Ministers and officials from the Department of the Environment sought to make the case to the Treasury to fund water and sewerage treatment works in the face of competing cases being made to the Chancellor for better roads, hospitals and other politically popular priorities. It was a very difficult task.The 2013 regulations, which the Government are rightly seeking to extend through a release of the sunset clause, relate back to those days and the implementation of Part 2A of the Water Industry Act 1991 in relation to water and sewerage undertakers in England. Now, with the water industry in the private sector, it is right that the Secretary of State should seek and gain support from Parliament to continue the 2013 regulations, ensuring that infrastructure providers work within the proven framework that now exists. The delivery of large, complex projects under the current arrangements needs to work well, and it does. The infrastructure provider is well regulated by Ofwat to finance and deliver such contracts.In the case of London, we have the first: we have the pioneering and far-sighted genius of Sir Joseph Bazalgette back in the 19th century to thank. His foresight enabled London, with a population confronted by reeking, unhealthy open sewers, to be transformed by a remarkable civil engineering project which projected scale into his design work on the diameter of the sewers. He worked on the basis of the densest population and what has best been described as,
- 4:21 pm
- My Lords, I, too, congratulate my noble friend Lord Goldsmith on his position and his promotion to the upper House. This is the first time I have been able to take part in a debate which he has been answering. Like my noble friend Lord Moynihan, I declare an interest as I, too, was heavily involved in water privatisation as Minister for Water back in the 1980s when it happened. I congratulate my noble friend on introducing this SI. He covered it very comprehensively, which will save a lot of questions. It is interesting to note that the post-implementation review was very clear that this statutory instrument should not have a sunset clause but should continue, so I am glad that my noble friend has not reinstituted a sunset clause for seven years’ time but has got rid of it altogether.My noble friend talked about future projects. Before I come on to them, I want to ask about leaks. Does he really think that a 50% reduction in leaks by 2050 is good enough? My noble friend Lord Moynihan and I recall that leaks were a problem back in the 1980s; they are a problem now and it will be nearly 70 years before the water authorities get a grip on this problem. Is there nothing that can be done to speed up that part of their work?I turn to future projects. My noble friend the Minister mentioned two reservoirs in particular. When I was a land agent, I was very involved in the Severn Trent water scheme in the Midlands close to Lichfield. I was struck then that more could have been done for nature, and I have thought about that a lot since, particularly with the recent focus on biodiversity, nature and the environment. Is there anything that Ofwat or my noble friend can do to ensure that when these reservoirs are built, if they are built, more account is taken of nature, with the schemes being adapted so there is more natural use of water and sewage disposal rather than using infrastructure? It would be much kinder for the environment and better for nature. There are great opportunities for un-straightening bits of river that were straightened some time ago, building water meadows and flood plains, and planting trees by riverbanks. If those things could be included in the schemes, even though the water authorities might not want them, it would be very beneficial for the environment and for the cost-benefit of the schemes.
- 4:24 pm
- My Lords, there are various points I thought I would make, but other speakers have already made them much more competently that I would, so all I want to say is that I think the same way as the noble Baroness, Lady Scott of Needham Market, does about why there is no new sunset clause. I can see that the original regulations are probably so workable that I now understand that there is probably no need for one. My gut feeling is usually that if Parliament has decided that a sunset clause is needed, one should continue it.I notice that a lot of the thoughts around the original regulations were about resilience and the need for conservation projects. It is essential to use water more efficiently. Smart metering keeps being mentioned. Looking at the experience of the electricity industry, I wonder whether smart meters have the desired effect. Meters do because you can see the overall consumption, particularly when bills hit people, but rather than spending an awful lot of money on technology, such as smart meters which are likely to go wrong or be outdated, we would do better to spend the money on upgrading our broadband provision so that you can hook anything into it.The Thames tideway tunnel is a wonderful example of how to do things right, how to think ahead and how to carry forward the prescient thinking of Bazalgette all those years ago. I now entirely agree with these regulations.
- 4:26 pm
- My Lords, I, too, thank my noble friend the Minister for his detailed but concise and eloquent introduction to these regulations and congratulate him on his excellent promotion to this House, where he is advancing our green and biodiversity agenda, which is very important to all of us.I am not opposed to this these regulations. However, I have a couple of queries. First, the post-implementation review states that the regulations“were introduced to help the delivery of necessary, large or complex water or sewerage infrastructure projects within England. They were designed to help contain, minimise and isolate the risks associated with the delivery of these projects from customers, undertakers and UK taxpayers, while also providing value for money and keeping customer bills as low as possible.”So far, so good, but only one project has been approved: the Thames tideway tunnel. My noble friend the Minister said that four others may be in the pipeline, but what is the timescale for them? If they happen, I strongly support my noble friend Lord Caithness, who urged that these reservoirs must do a great deal for nature.The post-implementation review states:“This legislation has facilitated one infrastructure project to date which is due for completion in 2023. As such evidence of outcomes remains limited.”In the absence of real evidence, the Government asked stakeholders for their opinion. Is the that the right way to do it? Everyone agrees that this legislation should be changed, but should we be changing legislation based not on solid evidence but on the opinion of stakeholders?My second point may be more controversial and I understand if my noble friend the Minister cannot or does not want to respond to it. Thames Water is now owned by a holding group called Kemble Water Holdings, consisting mainly of Macquarie bank and eight other private equity holders. They have done the usual private equity thing. They have loaded the business with £10 billion of debt so that they pay no UK corporation tax; have ripped off water payers by taking out £1.2 billion in dividends over the past few years; and have had to pay record fines for leakage. Okay, there is a temporary freeze on dividend payouts at the moment, but that is no big deal considering the way they have plundered the business over the past 14 years. One justification in the PIR is that the Thames tideway tunnel has been able to borrow at very low interest rates, but any fool has been able to do that for the past few years. Despite the lower than expected costs, the users of Thames Water will still have to pay for this big sewerage pipeline. Does my noble friend the Minister think that that is fair considering the amount of profits Macquarie and others have taken out of the company?
- 4:31 pm
- My Lords, I too welcome the Minister to the Dispatch Box. In my judgment, this is a very important subject. I happened to sit on the Joint Committee on Statutory Instruments and I noticed, on reading the regulations and the material behind them, that it was thought that, while a vital instrument, there was no need for it to be looked at it in any detail by the Joint Committee, shared by the Commons and the Lords. I am a little surprised at that, considering the scale of what we have been talking about this afternoon, but I shall move on.Secondly, the point was made that there may be instances of border challenges, specifically with Severn Trent in relation to Wales. I notice that the Minister did not say anything about the project involving the River Severn. I am not sure where it rises. Nevertheless, can we be reassured that, although it might not be seen by the water companies or Ofwat as important to consult our neighbours, there has been, and will always be, consultation with the devolved Parliaments?Frankly, I am not in favour of removing sunset clauses. I had the privilege of sitting on the Public Accounts Committee for 12 years. It seems to me that when it comes to public expenditure, it is very important to have a point in time to review a situation. I am not suggesting that seven years is adequate for the scale of the infrastructure projects we have noted this afternoon. Nevertheless, I believe, and a number of my colleagues who have sat on the Public Accounts Committee would agree, that the normal time to review is quite often after 10 years. Maybe 12 years would be more appropriate —that is a matter of judgment. But I am very surprised that there is not a sunset clause and, while the tideway project is going brilliantly, there may be one that goes, or seems to go, badly wrong. A looming sunset clause is a wonderful means of focusing people’s attention.I have two particular observations, one on reservoirs. I live in Bedfordshire, and I was a little involved in Grafham Water. My former constituency was Northampton, and I was particularly involved there with the Rutland reservoir. I am sorry to say to my colleagues who believe that the water companies do not appear to be taking nature seriously that I think the job done at Rutland was first class. Certainly, the only one I can comment on in detail is Rutland Water, and there is a huge amount being done there in relation to the impact on nature. I believe that is unjustified in relation to that project, and I support the new reservoir in Lincolnshire that is coming along.