I beg to move,
That this House
has considered reform and infrastructure of the water industry and consumers’ bills.
I move the motion also in the names of my hon. Friends the Members for South Swindon (Mr Buckland) and for Skipton and Ripon (Julian Smith). I thank the Backbench Business Committee for allowing time for this debate. The subject has been in the news recently, so the debate is timely, and it is positive that the House should have the chance to consider the issues in relation to the water industry and what reforms, if any, ought to be introduced.
Before my hon. Friend starts his main remarks I would like to pay tribute to him for his work in leading the debate since early this year and for securing this debate and, hopefully, some exciting announcements from the Government.
I thank my hon. Friend for his customary generosity.
I will turn to the pressures that hard-working families are facing as we come out of a very difficult economic time for our country. The fact is that most people do not particularly care about politics. They vote us in every few years and decide the Government of the day, but they do not consider politics on a daily basis; they consider how they are going to keep the wolf from the door. They consider how they are going to get through the day, provide for themselves, their families and loved ones, raise their children, manage to pay their bills and get a better paid job. The Government have been very effective in ensuring that there is more employment and a return to economic growth, from rescue to recovery and onward to greater economic strength for our country.
Part of keeping the wolf from the door is dealing with the utility bills that cost all our constituents so much money. That is why water reform matters. People do not really have a choice, because there is not much competition. It is a natural monopoly and people have to pay their water bills. There is an opportunity to foster more competition and ensure that the industry is more effectively regulated than it has been. For many years nothing was done to keep on top of the water industry, particularly before this Government were elected. Now we have an opportunity to make further changes and look more closely at what the issues are and what might be done.
Before the Government were elected, there was a settlement with Ofwat and the water industry that was to last for five years. The assumptions on which the settlement was made have since altered. Retail prices index inflation has risen more quickly than it was expected that construction inflation would rise, and interest rates have been lower than expected. The result has been excess profits for the industry. Ofwat figures highlight a return on regulated equity in excess of 20% in some cases. Investment was allowed to fall in real terms after 2007, while customer bills have risen by more than inflation. Dividend payments are often greater than the profits made, which some would say is particularly unattractive.
I, too, pay tribute to my hon. Friend for the work he has done to bring the issue to light. In relation to bills and affordability, does he agree that it is completely and utterly unacceptable that bills have risen by 60% over the past 10 years, which clearly shows that the previous Government did absolutely nothing to help the consumer?
I, too, congratulate my hon. Friend on all his fine work on the water industry. Would he care to comment on the fact that we have seen a 60% rise in water bills yet still face rather serious and sporadic water shortages? Is it not true that the public have really seen no return for their higher bills?
Then they went back up again, as my hon. Friend remarks. Under the previous Government the water industry was allowed to become 100% mortgaged to make the tax avoidance work. There have been excessive pay rises in the boardroom at a time when hard-working families have not seen substantial pay rises. That has been very hard to justify and people look askance at that.
My hon. Friend wisely talks about infrastructure. One of my concerns regarding the east and south-east of England is that water companies have been extracting water to the detriment of our rivers and not building reservoirs. Indeed, the last major reservoir in the south-east—the Queen Mother—was built 40 years ago. In the meantime, millions more houses have been built, placing more pressure on a valuable resource that tends to come out of the aquifers in the ground.
My hon. Friend makes exactly the right point. In my constituency, in Dover and Deal in east Kent, we depend on the aquifers. There is water abstraction and water stress, and compulsory metering has been in place for some time. We need to look more closely at the national planning and national infrastructure planning aspect, which I am sure hon. Members will raise.
I congratulate my hon. Friend on securing this debate. We have heard a lot about people having problems with a shortage of water. In my constituency, which is very low-lying and where we rely on significant pumping capacity to keep us dry, the problem has been the other way round: we have had too much water. While our water companies have been making big profits, we have not been getting the investment in keeping us dry, let alone in ensuring we have enough drinking water.
That is true. In some parts of the country we have too much water and in some parts too little. I am sure that at some point someone will raise the need to move water from one place where there is too much of it to another place where there may be too little of it.
We do not need to move water around from one place to another; we need to build more reservoirs such as the Abingdon reservoir, which was spade-ready and then the plug was pulled, if my hon. Friend will forgive the pun. We need to build more reservoirs, not waste money transporting water around the country.
My hon. Friend is a passionate advocate for more reservoirs. Reservoirs are not only important for water storage; they are important places for the angling community. Many hon. Members here are passionate anglers who enjoy fishing, and reservoirs provide an opportunity for that pursuit.
I am glad that my hon. Friend is going to talk about the need for competition to provide better quality and low prices, but why does he think that there is a natural monopoly? Surely anyone, under a suitably liberated regime, could build a reservoir or drill a borehole and provide their water to the customer through a piped system.
My right hon. Friend makes an interesting point. The planning system obviously means that such things take time. It is certainly important to have more of a national planning framework, which has been discussed by some and is worth considering. The view of water professionals is that competition is important but, in terms of customer service, it does not necessarily reduce costs because the infrastructure represents about 90% of the cost base.
My hon. Friend will be aware that the Water Bill will make it easy for new entrants to do precisely what my right hon. Friend Mr Redwood suggested, by giving them access to a market that is currently denied them so that they can provide these infrastructure assets.
Indeed. That will be an important reform.
Let me move on to the reforms that are worth considering. First, we must consider whether it is possible to tackle the excess profits and excess returns seen over the last period and return that money to hard-working families in the next period, and to drive a fair and equitable settlement whereby investors can get appropriate returns but customers can get a better deal.
One of the key problems is that constituents at the bottom end of the income scale have over many years incurred a debt as a result of high water bills. Given the big profits made by these companies, surely they have a moral responsibility to help those people at the bottom end with the debts they have incurred.
My hon. Friend makes an important point, but I will leave it to my hon. Friend the Member for South Swindon, who has been studying those issues with considerable care and concern.
Secondly, there is the question of how we tackle tax avoidance. The unacceptable, even antisocial, tax avoidance culture in the water industry has meant that many companies have not paid tax for years. It is wrong that that situation has arisen. Everyone should pay their fair share. We need sustainable debt, not 100% mortgages. Under the previous settlement, these water companies have been allowed to become casinos. We have an opportunity to look carefully at that to see whether the position is safe, secure and sustainable for the future.
I am glad that the hon. Gentleman has pointed out some of the problems in the industry and with the behaviour of the water companies. All of the companies working on an industrial estate in Formby in my constituency have been overcharged for years and the water company has been allowed to get away with not repaying them because of the way in which the regulations are set up. Does the hon. Gentleman agree that that is the type of unacceptable practice that needs to be tackled?
Clearly, the billing system needs to be fair.
The issue about debt is that water companies are often leveraged to 100% and then say that they cannot fund infrastructure improvements. Many colleagues have concerns about the Thames tideway tunnel and how that is financed. I am sure that will be explored in due course.
We also need more appropriate investment. If real investment falls, where is the justification to increase bills? We need to ensure that real investment does not fall, that we maintain the investment we need and that it is funded in an appropriate way.
I am grateful to my hon. Friend for mentioning the tideway tunnel, because my constituents in Wycombe want to avoid having to pay for it, particularly given that Wycombe faces its own problems with its sewerage systems. I hope my hon. Friend will explain how he sees choice and competition liberating people from having to pay for inadequate services.
My hon. Friend makes a powerful point. Time denies me the opportunity to go into the issue in great detail, but I know that my hon. Friend the Member for South Swindon has been looking at it with considerable concern, because his constituency, like that of my hon. Friend Steve Baker, is in the Thames sewerage area.
We need to look at how we can beef up Ofwat and give it greater powers in the Water Bill to say, “There’s been a favourable adjustment, so we can adjust and revisit the settlement on an ongoing basis.” If it had those powers, it would be able to have a stronger conversation with the water industry. That is worth considering. It would also be worth looking at allowing Ofwat to give guidance to the water industry on appropriate and responsible corporate governance.
I am grateful to my hon. Friend for giving way; he is being extremely generous with his time. Does not Ofwat potentially suffer from perverse incentives? We know that it does not matter how cheap water is; if there is none, we need infrastructure to be built. If Ofwat has a primary duty to ensure best value for customers—which, of course, it must—it is almost certain to find it very difficult over time to allow infrastructure development that will help our resilience. Is not that a problem we need to address?
Very much so. I and, I am sure, many other Members would argue that Ofwat should have a stronger role as a consumer champion, but that ought to be done within the framework of the national infrastructure we need. My hon. Friend makes a powerful point and I hope he will explore it further during this debate.
Although, clearly, much more needs to be done in the industry to ensure a better balance of risk between the shareholders and the taxpayer, the Government have taken some steps to help in the south-west and we now have a significant £40 million pot from which individual local consumers get £50 each off their bills. Does my hon. Friend agree that the regulators at Ofwat and the Government need to ensure that that is delivered to all residents in the south-west? At present, those who receive benefit through intermediaries—park home owners, for example—do not get that benefit and it cannot be enforced. Does my hon. Friend agree that that needs fixing?
My hon. Friend makes a powerful point, which Ministers will no doubt take on board. This Government have been great in driving a better deal on water for people in the south-west, and they deserve credit for that.
On potential reforms under the Bill, we need to consider the extent to which Ofwat needs new powers and whether the Government should include appropriate provisions. Those are important questions.
The previous Labour Government mismanaged the economy and took Britain to the brink. It was not just the economy they mismanaged; they left a toxic legacy of mismanagement in our utility industries, making life difficult for hard-working families. I welcome the fact that the Government are looking at water reform and I wish them well.
I congratulate the Members who secured this welcome debate.
Until recently, there had been a general consensus that the privatised water industry was a success. That was a consensus to which I never subscribed, whether in government or in opposition. It is far from being a success.
We must not allow the water industry to get away with all sorts of technical explanations for why it cannot do its job properly and reasonably cheaply, because it has a simple task. It gets its raw material free: it is called rain. It collects the rainwater and pumps it along pipes to its customers. It then charges them for using the water.
That is exactly the problem. Our water companies are lousy at collecting water. When it is at its most abundant, they wave it down the rivers into the sea. That is why they need to be building more reservoirs. I am sorry to labour the point, but they are not collecting the water.
The next word in my notes is “reservoirs”. Every substantial reservoir that the water companies use was built when the industry was in the public sector. The private sector has not increased reservoir capacity in this country since privatisation in 1989-90.
I stand to be corrected, but I understand that only 1% of rainfall is captured for domestic use. I wonder whether the right hon. Gentleman has found that during his research.
God knows; it would depend on when, if the hon. Gentleman sees what I mean.
The bulk of the reservoir capacity and the pipework was provided when big cities such as Birmingham, Manchester, Sheffield and Leeds and the Metropolitan Water Board in London were trying to look after the interests of the people of their areas. They created the reservoirs and laid the pipes.
During the arguments about the privatisation of the water industry, I received a letter in beautiful copperplate handwriting from an ancient ex-councillor in Sheffield. He said, “All the people at Yorkshire Water are doing is collecting water in reservoirs we built and sending it along pipes we laid. I speak as the former chairman of the water committee in Sheffield.” He pointed out that while the chief executive of Yorkshire Water was getting several hundred thousand pounds a year, when he had been responsible for it he had been paid “nowt” and the job had been done properly, whereas it had not been done properly ever since.
Does the right hon. Gentleman concede that the pipe network that the nationalised industry put in was riddled with holes by the time the private sector took over? More than 25% of the water was being lost en route and the private sector has been renewing the pipes.
That is certainly true. Until 1995, Ministers from all parties accepted the statement by the water industry that the bulk of the water that leaked out of the system leaked out of customers’ pipes. It took a lot of effort from me and somebody who was working for me at the time to finally reveal that that was nothing short of a lie. It was not that the Ministers were lying; they were being provided with lies by the water industry. I have had the figure changed into fashionable litres now.
In 1995, 826 million gallons of water per day were leaking out of the water companies’ pipes. According to my calculations, that is 3,755 million litres per day. The companies now proudly proclaim that they are dealing with the leaks. They have got the figure down to the apparently minuscule 2,910 million litres per day. Once they had to admit they were getting it wrong, we could see that it was a farcical record. Frankly, they simply deserve—I do not know; perhaps total abuse is the word—for their failure, and so does the system that regulates them, and the Ministers and civil servants who are also involved.
During the recent period water companies have increased charges; under the Labour Government charges went down at first then gradually crept up again. One thing that has not gone down, of course, is the huge dividends that the water companies have been paying. Since privatisation, they have paid out £37 billion in dividends. As Charlie Elphicke pointed out, that is 21% of gross value added compared with comparable parts of the private non-financial sector, which come in at about 11% of gross value added.
Look at the figures for individual water companies: Severn Trent Water has paid £6.2 billion in dividends; Thames Water has paid out £6.3 billion; United Utilities in the north-west paid out £7.3 billion; and Anglian Water has paid out £6 billion. Then there is tax avoidance and, as the hon. Member for Dover pointed out, a large amount of that is the product of manipulation of the companies’ borrowing, to the infinite benefit of their foreign owners in particular, more so than to their British owners.
Then there is the bosses’ pay. Some of them are being paid more than £1 million a year for collecting rainwater and sending it down a pipe. I understand the Health Secretary suggested that some managers in the national health service might be overpaid. It may be the case that some are, but let us consider Leeds Teaching Hospitals NHS Trust, for example—two teaching hospitals, 12,000 staff and 1,200 doctors to manage. I do not think anybody in the world would think that the person responsible for managing that, who gets about £250,000 a year, does not have a rather more complex task than someone who collects rainwater and sends it down a pipe. We must get some sense of proportion.
Has the right hon. Gentleman made any assessment of the effect on bills if there were not the excesses of bonuses, payments and dividends that he detailed earlier?
I cannot really do that as I have only just come back to looking at the water industry from the time when I tried to make life difficult for it, with some success. “Hammer the customers for the profiteers” is the motto of the water industry. We have higher charges, and now water companies want to install compulsory water meters everywhere. That is basically their policy, and a lot of people who I think ought to know better have been going along with that.
It costs about £250 to supply and install a water meter, and they have about 15 years of life before the grit and impurities in the water make them not do their job accurately. If it is a smart meter I understand that the situation is even worse. It costs about £50 to install a new meter if one has previously been installed. I think there are more than 10 million unmetered households, so at £250 a throw—according to my calculations—that is £2.5 billion. Does anybody think that investing in water meters is the best way of spending £2.5 billion? Even if they do, I certainly do not.
Another thing is that, as soon as anything goes wrong, the companies come rushing to the taxpayer to bail them out. South West Water could not cope with the problems it faced, particularly its sewerage problems and ended up getting a leg-up from the taxpayer.
That might be the case, but the statement was not made in my name, put it that way. When I was responsible for water in opposition, I was opposed to metering. I remained opposed to it when Labour was in government and continue to be opposed to it.
South West Water is not the only one. Thames Water had sewage and run-off problems and came up with a great £4 billion scheme. Because of how it finances itself, it could not finance the scheme, despite paying £6 billion in dividends over the years. The only way in which it can proceed is by Government guarantee. It is therefore not really privatised; it is a dependency of the Treasury.
The right hon. Gentleman says that the previous policy was not in his name. Does his party leader have his support for his current policy on water? Is so, what is his party leader’s policy?
My understanding is that the party’s policy—no doubt it will be enunciated in due course from the Front Bench—is that the current situation is unsatisfactory, and that we need a dramatic change in the powers and functions of the regulator. No Government Member would think there is anything wrong with that proposal.
Where is all that customers’ money going? In the case of Thames Water, it is being paid out to shareholders in Australia and China. Prior to that, it was paid out to shareholders in Germany. People talk about the wonders of the City of London as a financial centre, but I wonder why, in such a great financial centre, one or two of the people with all the money have not thought of getting together to own the water supply for their own city. Apparently, that has not occurred to them.
Thirty per cent. of the average water bill goes to profits. Even the energy industry uses only 9% of charges as profit, but the water industry uses 30%—30% of every penny and pound that people pay goes off in profits, which, to say the least, is a remarkable return on investment.
The percentage is not that high. Nevertheless, does the right hon. Gentleman agree that the previous Government allowed an inappropriate settlement that should not have been agreed?
It is no good me saying that the previous Government’s record was as good as it ought to have been—I will not pretend that it was.
Another thing is that, over the years, charges for water have risen at twice the average of price rises for everything else. There can be no possible justification for that. What sickens customers are the water industry’s byzantine financial arrangements and how it is an outpost of the tax avoidance industry. Nobody appears to understand this. Ofwat, successive civil servants and successive Ministers do not appear to have understood what is going on. I am not excusing anybody: I have no faith in the continuation of the existing system. The industry continues to be run for the benefit of companies, company bosses and shareholders. If it is to be run properly from an environmental, security of water supply and cost point of view, it is essential, before changes are made, to subject the industry to freedom of information, so that troublemaking pressure groups and individuals can get to work on the figures in a way that Ofwat and the Department are clearly incapable of doing.
I have a more advanced view of what should be done: we should follow recent examples from Germany. Berlin decided to bring the control and operation of its water supply back under the ownership of the people of Berlin, and the people of Hamburg voted in a referendum to bring its electricity supply back under the control and ownership of the people of Hamburg. That almost happened in Berlin, but the necessary turnout was not quite achieved. I propose a trial run in London. We could give the people of London a referendum to ask, “Do you want to take over, and bring back under the ownership of something similar to the Metropolitan Water Board, your water industry?” That would be popular with the public: at the weekend, an opinion poll showed that 69% of the population wanted the energy industry to go back into public ownership.
The right hon. Gentleman has just criticised spending £2.5 billion on water meters as a luxury we cannot afford. How much would it cost to buy companies back into public ownership, and why would it be a good investment?
These industries are pleading poverty all the time, so it would not be all that expensive. The cost could be paid out over a very long period, which is what happened when industries were brought into public ownership in the 1940s and early 1950s.
Most people are sick to death of what is going on. They have no faith in Ofwat, officials at the Department or Ministers. I share their lack of faith and until we put forward some aggressive propositions nothing will change to the advantage of the people we try to represent.
It is a great pleasure to take part in a debate from the Back Benches for the first time in a few years. This is an important subject and I apologise to those on both Front Benches for not being able to be here for the winding-up speeches, as I have a long-standing engagement that I have to attend.
I welcome the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend Dan Rogerson to his post. I told him in the Lobby the other night that I had three and a half years to get my head around the water industry. He has three and a half weeks before the Water Bill comes before the House, but he is a clever fellow and I am sure he will be more than a match for the job.
I hope this debate does not over-emphasise the negative and allows us to take a little pride, at least on the Conservative Benches, in what has been achieved in the water industry. I thought the only voice, upon deep consideration, really talking about renationalisation was dear old Len McCluskey—I sometimes wonder whether he is a stooge of Conservative central office—but I now see that there are others: it is a great pleasure to follow Frank Dobson. I take great pride, however, in what was achieved by privatisation through good, strong political leadership. My right hon. Friend Mr Redwood was part of the intellectual force behind privatisation. With people such as Nicholas Ridley and others, he led the debate—with, I have to say, the support of about 8% of the population. However, they drove though something that has delivered for customers. Twenty-two years down the road, I am the first to agree with my hon. Friends, and probably all Members, that the industry is long overdue a tweaking—in fact, more than a tweaking; a serious reform—but I shall explain later why I think the Government are getting it right and the part the House can play to protect the incomes of our householders, particularly those on low incomes.
Jonson Cox, the chairman of Ofwat, came into my office shortly after his appointment and said he was keen to ensure that the industry took more notice of customers’ needs. To summarise, I said: “Good. That is precisely what the Government hope you will do in this price review—more power to your elbow—but we want you to do much more. We want you not only to keep household bills down, but to keep investment up and ensure that water companies play their part in improving the environment.” We must accept, however, that sometimes those three things conflict.
When the hon. Gentleman was talking to the new boss of Ofwat, did he draw to his attention the marked reluctance of the water industry to pay the proper amount of tax, bearing it in mind that the aforesaid new boss of Ofwat, when he was at Anglian, made pretty sure it kept its tax liability to a minimum?
Like the right hon. Gentleman, I am keen that everybody pay the required tax, but I caution people who criticise capital allowances. If our water company were not exercising its rights under capital allowances, either investment would fall or our bills would rise, or both. There is sometimes a lack of basic economic understanding: tax deferred is not tax not paid; it has to be paid. In one respect, however, I entirely agree, and I am deeply uncomfortable with some practices in aspects of corporate Britain. Work needs to be done—and in fairness to the Government much has been done—to close loopholes.
We need to make the argument that investment in the industry keeps bills down. The right hon. Member for Holborn and St Pancras seems affronted by Chinese companies and sovereign wealth funds and investors from all parts of the world investing in our regulated sector. I am not affronted. I welcome it. It is the sign of a vibrant industry and one that we need to encourage. We need more investment if we are to deal with some of the Victorian—at least Edwardian—infrastructure we are trying to replace. Under a nationalised industry, directors of water boards would sit outside the Treasury saying, “Please can we have some more money for investment?” Down the ages, Chancellors have said, “Certainly. Just get in the queue behind the NHS, pensioners and the welfare state, and if there are any scraps left, we will give them to you.”
We have seen an historic level of investment— £116 billion—and we want to see more. We also want to ensure that we keep the bills as low as possible. Supplying all the water that goes into households and treating all the sewage that comes out costs households an average of £1 a day, although I accept that there are wide discrepancies in price. As a percentage of our household expenditure, that might be quite small compared with energy costs and other items, but it is still a significant amount, and those in the lowest income decile in this country are, broadly speaking, in water poverty. We need to address that. There are huge challenges facing the industry, and I hope the Water Bill and the ongoing activities in the sector will tackle them.
The challenges include continuing to ensure investment to deal with leakage and other concerns, such as those expressed by my hon. Friend Mr Walker, and to ensure that new infrastructure is built. We must also address the challenges of affordability and the credibility of the industry among its customers. An important matter for our constituents is that the companies address the question of resilience. They must be able to keep the water flowing from the taps in a time of changing climate.
In my short tenure as Minister with responsibility for these matters, I saw the worst drought for decades. We are the sixth largest economy in the world, but if we had had a third dry winter, towns in some of the most economically vibrant parts of the country would have faced the very real prospect of standpipes. That is unacceptable in this day and age. Large national events could have been affected. Indeed, the Olympics presented quite a worry at the time. We clearly need more investment to ensure that water continues to flow in areas that are prone to drought.
During that time, I also saw floods. We must not forget that the water companies’ role in managing sewerage systems is vital in protecting our constituents’ homes from flooding. There is also a need for continuing investment in that regard.
I shall expand a little on my hon. Friend’s comments on the role of water companies in dealing with flooding when I speak later. Would he care to comment on how the water companies are often ignored when they tell developers that there is a flood risk in the area in which they are building? Does he agree that the water companies are often left to clear up the resulting mess, which puts pressure on their budgets?
My hon. Friend makes a good point. The Government are right to deal with the connection to private sewers, where many leakages have occurred. They, and the water companies, are also taking action in other areas to ensure that they are playing their part.
Sometimes just a small investment can make a big difference to the flood risk in an entire street, for example. It is vital to ensure that the water companies are sitting down and talking to the flood forums and the local flood authorities to make sure that these issues are being addressed, but perhaps that is a wider issue for another debate.
The Water Bill will play a key part in addressing the challenges. The question of building new infrastructure and new reservoirs was raised earlier. The key reform to ensure that that happens, to secure the long-term sustainability of the industry and long-term benefits for our constituents, will involve enabling new entrants to come into the industry and provide new competition. The competition that will exist in the non-household sector must, in time, be introduced in the household sector as well, and I hope that that will be the long-term ambition in a forward-thinking political agenda. That would result in the kind of benefits for households that businesses will soon be able to achieve by switching supplier. The Bill should be seen only as work in progress, however.
One of this Government’s achievements of which I am most proud is the water White Paper. It might sound rather prosaic to say that I am proud of a document, but it set out some important provisions. It demonstrated that the Government were getting a grip on water policy. In the past, water policy had been created by all kinds of different organisations and bodies, not least the water companies themselves. In the White Paper, we demonstrated our determination that the Government should own the policy and that the regulators should regulate. We stated that, in a regulated sector, if the water companies functioned within meaningful regulation by the three regulators, we would have an industry of which we could be proud. The water White Paper was welcomed by customers’ groups, the industry, investors, green NGOs and all parts of the House, although I do not know whether that makes it a unique document, as the natural environment White Paper achieved much of the same.
The Select Committee produced many good things with which I agree. If that is what it said at the time—I am afraid that many of my memories of the last three and a half years merge into one—I would probably not agree, because there was bold ambition in the water White Paper, which was reflected in many of the comments made about it by many different people.
I shall talk about debt and gearing shortly, and I think my hon. Friend will find me in agreement with him on those issues.
Let me explain why I believe the Water Bill is only a work in progress when it comes to delivering the ambitions of the water White Paper. In the next Parliament, I really hope we will see a Bill to address the needs of abstraction reform. It would be impossible to bring that forward as part of the Water Bill because there are tens of thousands of abstraction licences, on which many of our constituents and the businesses that employ them depend for their water supply. Trying to create a new abstraction regime from the one created back in the 1960s is a Herculean task that will require thoughtful legislation to make sure that the taps still flow and that we do not suck dry aquifers like the Kennet, which provides a very important water supply to the constituents of my hon. Friend Mr Buckland. That, however, has been the cheapest place from which to suck water, and it is only through the construction of good infrastructure and investment that we can do this in a sustainable way that keeps bills down, keeps water flowing and supports our economy. Further legislation, then, is needed.
Let me make a further point about investment before I reach my final point. If we want to see continued investment from pension funds—whether they be British or from overseas—sovereign wealth funds and other investors, we need to recognise that this is a relatively fragile and competitive market. I shall give the House an anecdote about the frequent visits I made to speak to the investor community to make sure that it saw that our ambitions in the water White Paper and the Water Bill were consistent with continued high levels of investment.
Some time ago, there was a hiatus concerning a rather technical issue that might well have gone over the heads of most people in this country. It related to the licence modifications that Ofwat wanted to create. This brought me in touch with a new breed in my life—City analysts, many of whom, in the words of my children, were “wusses”. They took an instant view that the regulated sector was not the place in which to invest, so the water sector saw quite a high risk of much-needed investment being reduced. It took a Herculean effort—by me at the bottom echelons of the Government, right up to the higher levels—to make sure, first, that what Ofwat was trying to achieve was understood. In my opinion, it might have had a virtuous reason for what it did, but perhaps went about it in the wrong way. It reminded me that if we want to see continued levels of investment, we have to make sure that we explain what we are doing. Ultimately, the need to deal with infrastructure problems needs to feed through to bills, and we need to explain that we want to see a vibrant regulated sector in this country.
I have been listening carefully to the arguments on both sides of the debate. Why does the hon. Gentleman think average water bills are lower in Scotland, where water is publicly owned, than in England, where it is privately owned?
We want to see in England the virtue of the competition from which the hon. Gentleman’s constituents benefit in Scotland, in the business sector and, indeed, the public sector. Schools and the health service in Scotland have the opportunity to switch their suppliers, and the Water Bill will enable businesses in England to do the same. I accept that this is still work in progress, but we want to see the benefits of competition flowing—
I will not give way again because many other Members wish to speak and I want to say something about debt before I finish.
I took on the water brief with a background in small business, but I had never encountered, or been closely associated with, businesses that had the level of debt and gearing that I saw in the water industry. I observed that the credit rating agencies—for which I have great respect: some very good people work for organisations such as Moody’s and Standard & Poor’s—were giving the water companies very high ratings, awarding them As, A-minuses and high Bs. In fact, Ofwat operates the strict criterion that their ratings must remain at those levels. However, I could not come to terms with that in my own mind at times.
The companies may indeed be complying with Ofwat’s criterion by gaining high credit ratings as a result of their wealth, but I think many Members will feel, as I do, that gearing of that order confers a brittleness—an inflexibility—when it comes to those companies delivering what we want them to deliver to their customers. I hope there will be more understanding of the need for them to reflect the concern that is felt about gearing levels, not just in the House but among their customers.
It is important for us to view water bills in the context of total household expenditure. The Leader of the Opposition has decided that energy bills are an issue on which he wants to bang the drum, but we know that his plan will not work. He knows it will not work, and he knows that we know that he knows it will not work. What is ridiculous about his argument is that it treats one part of household expenditure, albeit an important part, as the sole issue of the moment. Rather than doing that, the Government must view water bills and energy costs in the context of overall household expenditure. They must keep bearing down on council tax, and preferably freeze it. They must continue to protect the most vulnerable by providing winter fuel payments, and to ensure that more of our constituents on low incomes do not pay any tax. It is in that context that the Government should develop policy on household bills.
Water bills are, of course, important. It is vital for us not only to understand but to reflect the concerns of our constituents, and to take advantage of every opportunity to protect those on low incomes. We can, for instance, provide social tariffs. We can also work on the problem of bad debt, which, as we know, adds an average of £15 to every household’s bills—although when that is broken down by company, it is clear that some companies are outperforming others dramatically, and that their bad debt is a fraction of the average. Some are doing magnificently, and others appallingly badly. We must learn from best practice. We must ensure that companies deal with bad debt, but we must also ensure that we address their relationships with their customers in general. We must bear in mind the win-wins that can help those who are having trouble paying their bills to deal with the problem.
I hope that we will not be defensive about the model, because it is a good model. It has created a huge benefit for this country in terms of investment. What it has delivered is relatively affordable for most people, but we need to work hard to make sure prices come down. The five-yearly price review, along with clear policy from the Government, who understand the situation, presents an opportunity. We can make sure the companies are bearing down on bills and there is none of that awful cyclical investment, with investment falling off a cliff two years before the price review period. We want to see continued investment because we know that is the way to have a sustainable water supply and a sustainable sewerage system—not just economically sustainable, but environmentally sustainable as well.
It is a pleasure to follow my hon. Friend Richard Benyon, who spoke with passion and real understanding about what is a complex issue. The water industry was privatised nearly a quarter of a century ago now, and it is reaching a crossroads. While I agree with my hon. Friend about the levels of investment that privatisation has delivered—which is well in excess of £100 billion in the last 25 years—we are reaching a stage where we now need to look for different solutions. My hon. Friend touched on a number of them in his remarks, and I was very impressed by his description of City analysts and their attitude to the regulated sector, and the challenge of gearing. As he said, the high level of gearing is causing inflexibility. That is leading to unimaginative solutions to the problems that beset companies such as Thames Water, which serves not only the London area, but the area I have the honour of representing: Swindon.
My hon. Friend mentioned abstraction from the Kennet, and I should commend the Save Water Swindon campaign, which is all about encouraging householders to be sensible in the use of water. It has had a marked impact and continues to this day. Indeed, only a couple of weeks ago I was helping Thames Water promote that campaign.
All that is detail, however, but today’s debate presents us with an opportunity to look more broadly at the challenge facing the industry. I am grateful to the Backbench Business Committee for accepting the application made in my name and that of my hon. Friends the Members for Dover (Charlie Elphicke) and for Skipton and Ripon (Julian Smith). There is quite a geographical spread between our constituencies, which shows that this is an issue for the whole country, not just the area I represent.
Although cost-of-living issues are very much the stuff of current political debate, the issues raised today long predate the current political spat. This debate has to be about value for money for local consumers and businesses and finding better ways for our water industry to operate.
Despite the interesting contribution of Frank Dobson, who is no longer in his place, there is no doubt that 25 years ago privatisation was the right course of action. There was no alternative for the industry if we were to seek and secure new forms of capital investment. The achievements of Bazalgette and the Victorians lasted us for a long time, but we have by now reached a stage where renewal and reinvestment are essential.
Now, after nearly a decade of continued price rises, householders are rightly asking themselves, “Why us?” In the context of the current monopoly, who can they turn to? The situation is worse than the Henry Ford scenario of “You can have any colour you like, as long as it’s black,” because there is nowhere else for consumers to go.
I understand why the regional model was adapted from the previous nationalised structure. In many ways that made sense in terms of bringing together infrastructure with water supply, and I can think of the example of Severn Trent with its assets over the border in Wales, but I ask this question: is the regionalised model sustainable for the long term? Is there not a better way of dealing with the industry?
When we debated this, I was the one who said, “You must have competition and you can have competition in water, as in other things.” I lost that battle. Privatisation solved the capital shortage but, apart from that, it has left all the evils of the monopoly in the nationalised business—a lack of quality, a lack of choice, high costs and a lack of innovation.
I am grateful to my right hon. Friend for that, and his role in all this back in the late 1980s must not be underestimated. As he rightly says, now is the time for us to draw an analogy with other industries such as telecoms, where infrastructure and supply are dealt with separately. Giving consumers the right to switch suppliers is essential if we are to drive through an improvement in service.
I heard the hon. Gentleman making this argument earlier on the BBC. For the interest of the House, will he clarify whether he also believes that the water companies should be able to disconnect a customer who refuses to pay?
Disconnection is very much a last resort. We need to make sure that we do not put off consumers from switching by fears about disconnection that may be unjustified. Not only is water a resource for the country, but it has huge and essential social utility. It is one of the essentials of life, so I quite accept that we must have a social dimension to all this. That is why moving towards a system where we have more social tariffs to help the more vulnerable members of society would be a good thing.
I am most grateful for that half-explanation. Does the hon. Gentleman accept that unless there is disconnection, the market simply cannot work? If we are going to have competition for households, we would have to have disconnection.
I do not follow that argument; it does not apply in other sectors and I do not see why it needs to apply in this one. Disconnection would not assist consumers when making that switch because they may well be deterred by the fear of disconnection, so I do not accept that argument.
My hon. Friend is completely right to reject the outrageous suggestion made by shadow Minister that there should be the power to disconnect householders because of their water bills. Does he recall whether the Labour party, when it was in government, had any form of social tariffs or anything like what it has been calling for today? Or is this something where the Labour party has woken up and jumped on the bandwagon?
I hope that this debate will continue in a spirit of looking to the long-term future of the industry, rather than descending into anything approaching point scoring. I do not think that is worthy of Thomas Docherty and I am sure that we will not see such a descent in his contribution, because this issue predates this Government.
As I was explaining, price rises started to increase significantly in the middle of the past decade. The average Thames Water household bill was £254 in 2005-06 and it has now risen to £354. One of my constituents sent me his own list of increases, where he recorded that in 2005-06 his bill increased by a whopping 21% and that since that time his bills have increased by 84%. So we can see why consumers and residents are asking, “Why us? Why do we have to bear the burden?”
I am pleased that Ofwat has issued a preliminary decision to disallow Thames Water’s request to raise prices by £29 for customers’ bills with effect from 2014-15. Thames Water said that it wished to spread that increase over several years but, as Ofwat has said, Thames Water has produced insufficient evidence to justify such a rise. It is unique this year in terms of the other water companies and it is compounded by the prospect of indefinite rises of up to £80 for my residents in order to pay for the £4.1 billion Thames tideway tunnel. I am in no way an opponent of bold and imaginative infrastructure schemes. They represent the best spirit of what inspired the Victorians to create the infrastructure on which, in many ways, we rely today. Buildings such as this place were the result of such boldness. It is right, however, that we should ask the legitimate question about whether dealing with the problems experienced through the discharge of sewage into the River Thames is worth that £4.1 billion.
I have no doubt that there are serious issues with pollution, but air pollution in London affects more people than the issue that the tunnel seeks to address. Other proposals, such as those for sustainable drainage, would be a more incremental way of dealing with the problem than inflicting this large hit on consumers.
What does my hon. Friend suggest that London does with its faeces if we do not put them into the Thames or build a tunnel to take them away from the Thames? Where will it all go?
I am not saying that there is not a problem, but that there are alternative ways of dealing with it through sustainable drainage. Earlier, my hon. Friend made an intervention about the need to build more infrastructure. I heard what he said, but to my way of thinking the Abingdon reservoir was the wrong response to the problems that still besets Thames Water—that is, the massive leakages. Thames Water is still losing 646 million litres of water a day.
I congratulate my hon. Friend and his colleagues on securing the debate. Does he also agree that there is some question about where the figures of £70 or £80 resulting from the tideway tunnel come from? If we divide the £4 billion by the total number of customers in the area, it seems to come to a somewhat lower number. Are there not also questions about exactly how it is financed and whether it can be done more cheaply?
My hon. Friend is right to suggest that the breakdown of the arithmetic for individuals does not seem to add up. Thames Water intends to use a separate corporate vehicle to build this entity, but we must ask why the bill payer must bear the brunt of the problem.
Let me return to the question of leakages because the figures are quite startling. Although Thames Water is making progress in bringing the leakages down, and I give it credit for that, the figures are pretty disturbing. Last year, it was reported that Thames Water was losing 665 million litres of water a day, a leak rate of 25.7%. That was five times higher than the 5% that would have been saved by a hosepipe ban. The leaks would fill Wembley stadium every 36 hours.
Would my hon. Friend care to elaborate on that for those who call for nationalisation? Is it not true that the state of the water industry and the state of the pipes the water runs through were caused by the lack of maintenance that happened when they were in Government hands? Since they have been in private hands, the investment has been put in to try to rectify that appalling problem.
My hon. Friend is right that the problem would probably be considerably worse had we left things as they were and expected the Government, with their declining pot, to invest and deal with leakages. The problems, however, remain and although Thames Water is working to try to deal with them, I believe that the company should concentrate on leakages before it advocates vast reservoir projects such as the one supported by my hon. Friend Mr Walker.
It is not just Thames that has a problem of leakages. It probably has the most serious problem, but other companies such as United Utilities and Severn Trent also have considerable leakages. The most recent figures I have from Ofwat show that United Utilities is losing 457 million litres a day and Severn Trent is losing 441 million.
The Water Bill has been mentioned. The Bill is a good first step. It will be the first reform of the industry since privatisation, and it will bring choice for businesses, charities and the public sector, but as other hon. Members have said, we should be going further to allow that choice to be extended to residents and household consumers. I am glad to hear that the Bill will allow for a more joined-up approach to the water supply network, thereby in some ways dealing with the regionalisation issue that continues to bedevil the infrastructure. I am glad that there will be further improvements to the Ofwat regulatory system.
I am looking for a greater emphasis on developing social tariffs. How that is to be done will be a matter for detailed discussion, and while Government guidance, which has been welcomed, has already been issued about concessionary schemes for community groups, it is now up to the industry to act swiftly on social tariffs and to ensure that those who are the most vulnerable and who, like all of us, need access to a basic staff of life, can have that access without the fear of disconnection that was mentioned by the Opposition spokesman.
As I said, this is an issue of not only household and local significance but national resonance. I shall not repeat some of the points that were raised by hon. Members about excessive boardroom pay, rather exotic tax arrangements and capital expenditure, but it is important to note, looking at the figures based on current prices, that in real terms gross capital expenditure by the four major water companies in England and Wales has fluctuated and is on a downward path. My hon. Friend the Member for Newbury spoke eloquently about the cyclical nature of investment, which is hardly a solid foundation for attracting the much-needed future and further investment in the water industry. While it is right to say that the Ofwat regime—Ofwat is currently looking at the 2015-20 price regime—is an appropriate exercise of regulatory power, we need to try and get through the cyclical problem that is causing the inflexibility in the industry that he talked about.
Today’s debate is a chance not only to make an important contribution to the ongoing discussion about the cost of living, but to look forward to the Water Bill, to ensure that we take the opportunity to get that piece of legislation right for the market, and to remember that value for money for businesses, and for the people we represent, must be at the heart of our deliberations and discussions today. We owe it to them to ensure that water bills are priced competitively, that the service is efficient and that there is a real sense of responsibility for the people that the water companies serve. If we help water companies along that road, we will have done the people whom we represent at least some service today.
It is a pleasure to see you taking up your new duties, Madam Deputy Speaker.
Monopoly is the evil that we are here to debate. It is monopoly that stifles innovation. It is monopoly that drives prices higher. It is monopoly that takes away choice and consumer power, and it is monopoly that leads to rationing. We saw all those features in the water industry when it was nationalised. I am amazed that the Labour party still has people who think it would be a good idea to go back to the nationalised water monopoly, which regularly ran out of water in the summer. Woe betide the man or woman who had bedding plants in a hot summer in Britain—because before global warming we used to get hot summers, and then the water would run out. It was a tragedy, because it was a direct result of the nationalised industry.
The privatised industry, I am pleased to say, has done one thing better than the nationalised industry—it has got access to more capital. It has mended a lot of pipes, put in new pipes, and put in some investment into dealing with dirty water as well, so we have fewer interruptions to supply under the privatised industry than before. However, we did not go far enough with the privatisation. We transferred the ownership but, as some of my hon. Friends have wisely pointed out, we kept in place much of the regional structure.
We bought the idiotic idea that the industry sold to Ministers and advisers that because rivers run to the sea in separate geographical areas called river basins, it was terribly important to have local monopolies around a river basin. Woe betide anyone who wanted to move water from one river basin area to another, and woe betide anyone who wanted to use borehole water. Apparently, it all had to be organised around river valleys. Sometimes it is difficult to create boundaries between them, because tributaries and streams have a habit of not being as neat as administrative lines on maps, but it was decided that we had to have this “natural monopoly”.
There is no natural monopoly in the supply of water. As was pointed out by Frank Dobson who has recently departed the Chamber, rain falls across the whole of the United Kingdom, not always all at the same time, not always in the same quantities, but this island is not cursed with a shortage of rain for most of the time, and we collect very little of it. It is also not true to say that water is some precious resource that has to be husbanded because it will run out. Water is the ultimate renewable resource. It falls as rain; it mainly runs out to the sea; it is picked up by the winds and goes back into the clouds; and it comes back again as rain. Nature or God, depending on one’s beliefs, does most of the job for us, producing an endless supply of water to this country. All that we have to do is provide business people who can raise the capital to make sure that we capture enough of that water in a form that we can then put into pipes, and that we clean it up to an appropriate standard for the use.
We did not introduce competition into the industry when we privatised it, so many of the evils of monopoly are still with us. We have less rationing, but we can still have rationing. We have quite dear prices, although perhaps they do not go up quite as quickly as they did when they were part of a Treasury exercise. We certainly get more capital into the industry, but at the expense of quite substantial gearing, as some hon. Gentlemen have mentioned. However, many of the bad features of the nationalised industry are perpetuated and it is very difficult being a challenger to the industry, so I pay tribute to the former Minister, my hon. Friend Richard Benyon, who produced a White Paper which is becoming a piece of legislation, which will try to open up the market a bit more.
I pay tribute to the modest steps taken in Scotland, where it was discovered that far from the taps running dry or the water prices going through the roof if the authorities dared to have more than one provider of business water, the opposite has happened: the prices went down—a little bit, because there was not a great deal of competition coming in—and above all the quality of service rose. I have talked to some of the Scottish businesses that have to deal with the water industry. They say that the great breakthrough in Scotland as a result of competition was the fact that they could get a much better service. They could get the water supply when they wanted it and where they wanted it, and pipes and so on mended and repaired.
Businesses in Scotland can also negotiate with their water industry about what sort of water they want. At present, under a nationalised monopoly or a privatised monopoly, only one type of water is available. It is cleaned to a certain standard and it then has additives put in it. An industry wanting to make drinks may need to take the additives out before it can make its drinks, so there is a double cost and a nuisance, because it cannot get the type of water it wants. A firm that wants to carry out a fairly rudimentary washing business does not need water of a quality that we can drink, but it has to pay the extra price to buy the very high-quality water literally to tip it down the drain.
Therefore, we are not seeing experimentation, innovation or customer service because of a lack of competition. The industry is determined to supply only one grade of water and only the amount it can be bothered to supply, and then it blames the customer, should we dare to say that we want a bit more. We are now bombarded with messages from the industry suggesting that water is a natural monopoly and not the ultimate renewable resource. We are told that good people take only one bath a week in order to save water, that they do not use so much water for cleaning and that they ensure that they husband their use of water in their sinks and whatever machines they have at home that require it.
I have good news for my constituents: I do not believe that. I think that water is the ultimate renewable resource, that it ought to be made available more abundantly and more cheaply and that that could be done if we trusted competition. Surely one of the advantages of rising living standards, which is what we are all here to try to help create, is that people can then use more water because they have more things to clean, or because they wish to enjoy themselves in their bathroom. We need to ensure that they have access to the right quantities of cheaper water, and competition is the way to do that.
My right hon. Friend, as always, is speaking in an impassioned way about the merits of competition. Will he explain to the House how quickly he thinks domestic competition could be introduced and whether he thinks the Government should be moving more quickly on that?
I would do it straight away. I cannot see what the problem is. If water is a natural monopoly, as some people argue, no harm will be done by breaking the formal monopoly; it is just that nothing will happen. But of course it is not a natural monopoly, which is why the industry is fighting so hard to keep a legal monopoly. It knows that it will have to wake up and change quite a lot if it has to face competition.
We would have to give the market some help to get it going, because the monopolists are in a very strong position. We would need to tell them to use their pipe network as a common carrier, because other people would need access to it. However, the challengers might soon find, as was the case with those sorts of arrangements in the telecoms industry, that the existing assets are not so great and that they want to put in their own pipes. The challengers in telecoms did that with wires, and then of course the radio links became a cheaper and better way of doing it. Who knows what technical breakthroughs there might be or how much challengers would want to use the common carrier network? However, to get competition going we would need to start with a common carrier network, so a system would need to be put in place to allow people access to the pipes.
We would also need to ensure that the Environment Agency was prepared to license borehole water and sensible levels of river extraction by other licensees. I do not want our rivers to be run dry by people taking too much out in a dry season, so we would need proper regulation for that. As has been pointed out, however, we let huge quantities of water go to the sea during wet periods, so we do not seem to be very good at planning our water use and holding it in suitable locations so that we have plenty in drier weather.
Another thing that I think the water industry needs to pay attention to, along with other utilities in this country, is the huge disruption they cause to our road network. Our road network is a nationalised monopoly and therefore has rationing and, looking at the tax bill, is extremely expensive. It has all the characteristics of monopoly provision that I dislike. One of the things that make our totally inadequate road network even worse is the fact that it is regularly disrupted by businesses digging up great chunks of tarmac and subsoil with pneumatic drills in order to lay new water pipes, other utility pipes and wires. Why on earth have we not learnt that it is not a great idea to put these things right down the middle of the road and then hard-pack soil, subsoil, tarmac and stones on top, which means huge delay, disruption and cost every time we want to change it? In modern buildings all the services run in ducts under the floors so that we do not have to rip out the plaster, half demolishing the place, every time we want to change the wiring.
Surely we could have a system to provide easy access along the side of our roads to pipes, wires and anything else we want to put down without having to dig up the road every time. We could at least start doing that when we build new estates, shopping centres or whatever. We should do it intelligently by putting in ducts to save all that money and time. I find utility companies very sympathetic to that idea when I invite them in to talk about it. They say, “It’s a very good idea, but it won’t work in this case, Mr Redwood.” We have to make it work, because many other countries are well ahead of us on all this. They think we are completely potty to go in for this idea that the water company digs up the road and puts in a new pipe, then six months later the gas people come along and do exactly the same thing in a slightly different position, and then the following year the electricity people turn up and do it again. It is mad, costly and inefficient, and it is doing huge damage to an inadequate road network.
For all those reasons, give us competition, give us choice, give us innovation, and give us some common sense, because we are getting a rotten deal at the moment.
I am extremely grateful, Madam Deputy Speaker, for your generosity in allowing me to speak in this debate. I apologise for having missed the opening speech because of parliamentary business that I could not avoid.
It is a pleasure to follow Mr Redwood. I think that he and I will agree about one thing: the botched privatisation of the late 1980s and early ’90s has led us to a wholly undesirable situation. However, we are where we are. As someone who, in the past couple of years, has had responsibility on the Opposition Front Bench for the issue of water, I have watched the situation very closely. I was struck today by the news that this Government are now apparently taking water affordability incredibly seriously. There has been a damascene conversion—or perhaps a Dunfermline and West Fife conversion, as my hon. Friend Thomas Docherty has joined the Front-Bench team and is clearly getting far better results than I ever did in the role that he has the privilege of holding.
I welcome the hon. Gentleman to this debate and hate to interrupt his complimentary remarks about his hon. Friend. However, following what Government Members have said about the Water Bill and what we want to do on pricing, it is fair to say that we have been working on this issue for a very long time. I think he will find that any announcements in recent days that have come from sources on the Opposition side might be a little new to the debate.
What a fantastic set-up for the speech I am about to give, which is about the Government’s record in the past few years. I freely accept that the hon. Gentleman was not a member of the Government at that time, but he obviously voted on many of the issues that I want to talk about.
It is crucial that we in this House have a proper understanding of the impact that the Bill that is being sold to us will have on the consumer bills that are being levied on many of our constituents right now. Let us be clear: no one was talking about water affordability or Government action to reform the water industry to deliver for customers and not just for shareholders until the Leader of the Opposition gave his living standards speech in Brighton back in September.
I hesitate to rise, because I could just sit here and enjoy the hon. Gentleman’s speech. He and I had endless discussions about affordability when he was in his Front-Bench role, so he knows that he need only read the water White Paper to see that we were concerned about that issue, and he knows that the underlying truth of the Water Bill is that, in order to keep bills low, we need to make sure that we have an industry fit for the future, which is all about affordability and protecting our constituents. He also knows, therefore, that it is ridiculous to suggest that this issue has appeared just in the past few days.
The hon. Gentleman makes a passionate defence of his own record in post.
Let us look at some of the specific measures on which this Government had the opportunity to work and legislate but deliberately chose not to do so. First, there is bad debt. I was interested to read a copy of the Secretary of State’s letter to the water companies—sent out today, curiously enough, purely coincidentally—which talked about bad debt. I thought, “Fantastic! At last this Government have adopted the right position on bad debt.” Each household has to pay £15 or so because some people cannot pay and will not pay, and that money is dumped on the bills of consumers who step up and do pay.
On energy bills, is it not interesting that there is a provision that requires landlords to give companies their tenants’ details so that they can reclaim the money? On reading the letter, I thought, “Fantastic. At last the Government have responded to the Opposition’s calls to make the water situation analogous with that of energy.” However, the letter only makes a firm threat to look at the issue in more detail if the companies themselves do not voluntarily make progress on the provision.
My position and that of my party is clear: bad debt as a result of those people who will not or cannot pay dumps an additional cost on every household, so it would make sense to implement the provision. The Government could have taken that action. We made the case for it, but they have had no interest in it until now.
That is not the only issue. Government Members and the press have today mentioned the social tariff. I was the lead Opposition Member on the Water Industry (Financial Assistance) Bill Committee. We sought to amend the Bill so that every water company operating in the UK had to do one simple thing, namely offer a social tariff to those people who find it hard to pay their bills or who find themselves in a situation where they cannot pay for the service provided. The Government chose to vote down that proposal and Government Members voted against it. Instead, they favoured a voluntary approach: if water companies wanted to introduce a social tariff, they could. It is amazing how few water companies have actually done so.
Why not start with the three reviews that led to the water White Paper? The Pitt, Walker and Cave reviews looked directly at competition and were conducted in the five years before we exited government and this Administration came in. They laid the groundwork and contained radical ideas that would have resulted in better provisions for water affordability. They would have put in place a framework to deal with the issue in its entirety. The water White Paper, which resulted from those reviews, was quite good, but that has left many of us asking: why is the Water Bill so washed out?
My hon. Friend is absolutely right. If we look at the price review periods since privatisation, we will see that water bills came down in real terms during only one of them and that was under the previous Labour Government. On the price review process, my hunch is that this Government believe that the water companies will read the signals coming from hard-pressed consumers and come in at RPI plus 0 or RPI minus 1 in the next price review period and claim it as their victory, but let us be clear: getting a sustained reduction in water costs requires action from this Government.
We have moved on a little, but the hon. Gentleman has graciously given way. He is doing a good job of reading the Labour brief and trying to pretend that all of a sudden it is interested in people’s bills. On the Pitt review, is he suggesting that it was somehow planned by the Labour Government, or did it come about because I and my constituents were all under about 2 feet of water for a long time?
Intense flooding has major implications and climate change means that it will happen more regularly, but the hon. Gentleman seems to be saying that the previous Labour Government were in some way wrong to review the situation and flood defences. He was not the MP for his area at the time, but he knows that the flooding was devastating. If he wants proper action on ensuring that his constituents will be protected against the next bout of flooding, he should support our efforts to amend the Water Bill to make sure that there is a proper, workable Flood Re solution for flooding insurance. He mentions the Labour brief. I humbly point out to him that for the past few years I have been writing the brief.
No, that is not the case. The Flood and Water Management Act 2010 created the legislative framework for that measure.
I want to talk about some of the measures that have been trumpeted as the solution to bring about water affordability and to stop the rising tide of householders who are finding themselves in water poverty or unable to pay their water bills. The approach of the Water Bill is entirely the wrong way around. It is interesting to hear Government Members say that the only answer is greater competition. I accept that retail business competition could be a good way of reducing water usage. That has made a profound difference north of the border. That is why we have supported it continually. The idea came out of the Cave review.
However, at a time when many parts of the UK are much more water-scarce than other parts of the continent and even parts of Africa, it is short-sighted to think that that idea will work without considering abstraction reform as well. The Government have chosen to punt that issue into the 2020s—until 2025—for the next Government to look at. If we do not deal with scarcity in many parts of the country, there will be a major problem. Instead, the Government have looked for a number of measures that will shake up the industry and make them look pro-reform, but that will not necessarily tackle the issue of abstraction.
There is an idea that the only answer to the problem of some parts of the country being water-rich and others water-poor is to build pipelines. I remind the House that 2% of the country’s energy usage already goes on water. There is a major carbon cost to that idea. If people do not believe that that would end up on people’s bills, they are wrong.
I am happy to clarify that. I was saying that the idea of a national water grid is stillborn, purely on the basis that the carbon costs make it too difficult. If we accept the premise for that idea, surely what we need is a similar level of investment in water efficiency. We must have a similar amount of foresight on how we will get by with less in the many water-stressed areas. The south-east continues to grow and water is becoming more scarce.
Unless there is proper leadership on that issue, things will become very difficult. Big concrete, in-the-ground solutions are not the right approach. There is a need for additional water capacity, but we need to consider the issues. I say humbly that the Government have a green deal, but where is the blue deal? Where is the deep thinking about what we need to do?
Another area where the Government have been caught napping is the structure of the industry. After privatisation, a number of companies emerged that were listed on the UK stock market. There was then a shift in the industry towards foreign ownership. Today, the majority of the industry is owned by private equity firms. At the same time, dividends and water bills have continued to rise. Unison has done some fantastic research that has tracked the nature of the industry. However, it is not just Unison that has raised concerns. Jonson Cox, the chair of Ofwat, has said that there needs to be greater clarity in many of the difficult accounting explanations. I hope that Ofwat will continue to pursue that issue.
One issue on which the Government could take action is Eurobonds, and the practice whereby water companies effectively borrow from arm’s length bodies of themselves at greater levels of interest, which is obviously favourable on their balance sheet. The Government consulted on that issue and decided to do nothing, yet it is a major reason why the water industry has skewed the way it has. If we want to drill down and ensure that the benefit of the reforms goes not only to shareholders but to customers and households, the Government must consider that issue again.
Finally, I want to mention social responsibility for water companies. In January 2012 I went to a fantastic research facility at the university of Leeds called Water at Leeds. I gave a speech in which I laid out Labour’s response to the water White Paper and the forthcoming legislation. I also talked about the consensus that exists on water. Both parties in government, the industry and customers have bought into the idea of a largely monopolised, yet privately owned, privately run and privately debt-financed water industry, but that consensus could break down if action is not taken.
Today, 72% of people believe that water would be better off nationalised. That is a massive flashing red light to the water industry that it needs to take action, and to the Government if they believe that that should not be the policy that passes through. I believe one way of doing that would be to have a social responsibility clause in the Water Bill that lays out clearly and benchmarks what each water company is doing in terms of social responsibility. That would include the companies saying how they manage their tax affairs in a way that is easy to understand and has clarity, rather than things being hidden away in the balance sheet. They would also mention their responsibility to their broader constituencies, and whether they employ apprentices and are investing in R and D, as Cave mentioned in his report. Let us look at the water companies and instead of saying that some have a good story to tell, let us try to raise them all up to the level of the very best.
Those five areas—bad debt, social tariff, abstraction reform, Eurobonds and social responsibility—would in themselves create a coherent basis for tackling water affordability and water scarcity. I humbly remind the House that despite all the hype of today and what the Minister may say, this Government have looked those challenges squarely in the eye and dodged each one.
I would like to go further in the debate and mention some of the powers that I think the water industry needs. I will focus my remarks around the Water Bill, and the fact that as with any industry, resources are scarce. It by no means passes the public by that their water bills go up, yet now and again we have hosepipe bans and so on because—let us be honest—of the mismanagement of our water resources. It does not help, however, when developers take no notice whatsoever of reports from water companies about the impact that their developments may have on the surrounding area. My constituency of Elmet and Rothwell is badly affected by such situations.
I recently had discussions with some people from Yorkshire Water about a small village in my constituency called Walton. It has a couple of houses that are badly affected by heavy rainfall and flooding. Yorkshire Water effectively said that a scheme to save two houses would cost £1.8 million—not in the region of something it could afford do—but that the problem came about in the first place because the original barn should never have been converted into a house. Messages to that effect were put forth at the time, but the conversion went ahead. The house was sold on in good faith and no matter what the situation in trying to alleviate the problem, Yorkshire Water is fairly certain that the water will always end up in that place. No one particularly noticed when it was full of cows, but when it is someone’s house, they tend to notice. That is a prime example.
My constituency is under unprecedented pressure for housing development. Figures from Leeds city council state that 12,500 houses could be built across my constituency. One place currently under great scrutiny is an area of Kippax called Sandgate drive. Some 260 houses are to be built at the back of some houses—by that I actually mean built on a hill behind those houses. Yorkshire Water has said that the water that will run off would be unacceptable and that it would put huge pressure on the water courses to deal with that run-off of water—something the developers appear to be ignoring.
The Environment Agency deals with water that floods off land and is taken away in rivers, but it is down to the water companies to deal with the surface run-off and to get it to the rivers. The current development plans do not help water companies in the slightest, which means two things: first, that resources that should be used to repair the network so we can use our resources more efficiently get soaked up in flood alleviation solutions; and, secondly, that people’s bills rise constantly, with no further impact.
In an area of my constituency in the town of Wetherby, there is a planning application for 400 houses at the top of a hill. There have been problems with the water pressure in Wetherby. Yorkshire Water had to take measures on the Thorpe Arch trading estate to ensure it had proper pumping facilities to get the water to the top. That has been resolved, but only last week a resident told me that, last summer, on a very warm day, the water pressure dropped off when everybody in the area used the water. The developers have taken no notice of that, which means that Yorkshire Water must spend more of its resources dealing with the further drop in pressure, because it does not have the detonator to say, “That development cannot go ahead unless the developer is willing to spend huge amounts on the water infrastructure.”
A huge development—a dual carriageway ring road—is taking place to the east of Leeds. Back in the storms of 2007, my constituency, like the constituency of my hon. Friend for—
I cannot believe I forgot the name of my hon. Friend’s constituency, but there we go. Like his constituency, my constituency had a huge amount of water flooding through it during those storms. Fundamentally, the river valley could not cope with the amount of water. Nobody can do anything about such one-off events, but we can avoid exacerbating the situation. There is a live planning application for a development on the floodplain in the village that was 6 feet under water that day, which is disgusting. Yorkshire Water should have the ability to turn around and say, “No. That area will not be developed.” The developers can put in any flood protection scheme they like on their new development, but they do not give a tinker’s cuss what happens 100 metres down the road, where the houses will be flooded.
Those problems can be alleviated if the water industry has the ability to work hand in hand with the developers. I mentioned the ring road, which should have a flood alleviation drain built under it. The proposal will have a huge impact on my constituents, who have had to deal with flooding and must now deal with extra housing. We are talking about investment in the water industry and how it best uses the money it gets from water bills. Given the pressures of development, we need to ensure that the industry has every ability to work hand in hand with developers.
One village in my constituency, Methley, suffers from huge toxic, rancid smells from a pumping station for sewage. Yorkshire Water believes that that happens because there is a kink in the sewage pipe somewhere in the two miles of road by the village. It does not have the resources to dig up the road and find the kink—it says that the amount of people affected does not justify the amount it would need to spend. That is an example of the pressures the water companies are under.
One would have thought so, and I have had meetings about that. Unfortunately, Yorkshire Water is uncertain about where the sewer actually runs, and that is a consequence of decades gone by when there was not proper mapping. That shows the problems the privatised water industry has come up against when dealing with a legacy of poor investment and poor records.
Incidents such as the one in Methley are a blight on people’s lives. I have stood there and the smell is appalling—people are prisoners in their own homes. We have to ensure that water companies have a say over inappropriate developments. There are 4,500 houses in Garforth and 1,000 house Rothwell, but no consideration is given to water in planning developments. The developers do not care and leave it to Yorkshire Water to deal with. The time water companies have to take to deal with such issues means that they are not able to deal with historic issues, such as ensuring efficient water use, repairing collapsed sewers and so on.
I urge the Minister to take those points into consideration during the passage of the Water Bill. For my constituents, the ability of the water companies to make their lives better cannot come quick enough.
It is a pleasure to serve under your chairmanship for the first time, Madam Deputy Speaker; I welcome you to the Chair. I thank the Backbench Business Committee for giving us this opportunity—I lobbied for it, so I am one of those responsible for securing the debate—and I thank my hon. Friend Charlie Elphicke for introducing the debate. I apologise for being unable to hear his contribution—I was detained—but I have been present for much of the debate. I welcome the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend Dan Rogerson, who has inherited the Water Bill. His predecessor, my hon. Friend Richard Benyon, said that this issue has occupied him for the past three years. I thank him for always being courteous and engaging, not least on matters relating to Thames Water.
I received an encouraging piece of information a few weeks ago, as did other hon. Members who represent the Thames Water area. As my hon. Friend Mr Buckland said a moment ago, the provisional view of Ofwat is that it is minded to reject the latest application from Thames Water to increase prices. Given that we had previously been told by Thames Water that it expected to increase prices not just next year but every year by approximately £60 to £80 per household, to fund the Thames tunnel, that is a welcome relief. I understand that Ofwat has not made its final decision, but I hope it will confirm it this week. My constituents would be encouraged by that news.
It was also encouraging to hear the Environment Secretary this week tell water companies to be mindful that price increases should be imposed only where necessary, and remind them to introduce special tariffs for hard-pressed households. That takes me back to debates at the end of the previous Parliament when my hon. Friends the Members for Brecon and Radnorshire (Roger Williams) and for Cheltenham (Martin Horwood) tabled an amendment to the Flood and Water Management Act 2010 to allow for social tariffs, which had never before existed in the water industry. There had been social tariffs in the energy industry, but not in the water industry. The Act became law on
Many families are often hard pressed by the cost of their water bills. For years, I and my hon. Friend the Minister and his colleagues in Cornwall and the south-west campaigned for a reduction in south-west water bills, but the Government have now dealt with that and, in a welcome move, have legislated to reduce bills in the south-west.
For the benefit of those who follow our debates, I should add that there are two other schemes that provide help. The first is the WaterSure scheme, funded by water customers, which provides financial help to householders with three or more children under the age of 19, if on a water meter and in receipt of certain benefits—people should check which benefits and whether they qualify—and for those without children but in receipt of benefits and with a medical condition requiring excessive water use. That is important. Not everybody knows about it, but they should, particularly those struggling who might qualify. The other scheme, Water Direct, run by the Department for Work and Pensions, helps householders in receipt of certain benefits to manage debt with water companies. Under that scheme, the DWP acts as a broker to help make arrangements.
That is incredibly generous of the right hon. Gentleman. I am just checking I am not dead—people rarely speak nicely of each other in the House, so perhaps I am.
I wanted to be helpful, actually. Does the right hon. Gentleman agree that neither of those quite good schemes is well known, partly because they operate regionally?
In other words, there is no clearly identifiable social tariff scheme that the entire water industry can point to—although I appreciate that WaterSure is a national scheme—and there are patches of coverage, which is one reason why all water companies should have a social tariff.
I apologise if I phrased my remarks as if to suggest that the hon. Gentleman was the former Member for Luton South. He is clearly still the current Member, as I know, not least because when I last went to Luton on official business—to watch Millwall beat Luton Town—he was there to buy me a drink afterwards. I was very grateful—actually, I cannot remember whether I bought him a drink or he bought me one, but anyway it was a very nice pub, and I commend it. Luton has good breweries, beer and pubs. But we, as the away team, were very well received by our hosts. [Interruption.] He wants me to stop rubbing it in. I apologise.
One of the dates in my diary this week, besides this debate, was that for making representations to the public inquiry into the Thames tideway tunnel. The latest date for written representations was yesterday, which was when I submitted mine. For my constituents and many others, not just in London but in the whole Thames Water region, it remains a live issue whether Thames Water’s current plans for the tunnel are the right ones, given the alternative ways of dealing with sewage in London, and the question whether the route is the right one. Obviously, the route will impact significantly on constituencies such as mine. For example, a big site on Chambers wharf is proposed for the drive shaft, but I and my constituents argue that it should be used for the reception shaft—if it is to be used at all—and that the drive shaft should be elsewhere.
We also have concerns about the financing. The hon. Member for South Swindon said that the debate was ongoing in government about what the right approach should be, if the Government are to respond to Thames Water’s approaches. My constituents think—Frank Dobson probably shares this view—it is a bit rich for a non-public company to run down its assets and then ask the Government to underwrite it in borrowing significant amounts of money and expecting the taxpayer, the bill payer or both to pick up the bill, as is currently proposed.
I have regularly urged my right hon. Friend the Chief Secretary to the Treasury and colleagues in the Department for Environment, Food and Rural Affairs—before and after the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for North Cornwall took up his post—to be careful not to endorse a solution that appears to condone allowing water companies in England to run down their assets and then try to get Government support to bail them out. That would not send the right message. The water companies must understand that, if they make choices resulting in their profits going not to the consumer but to their shareholders in the form of dividends, they really cannot expect the Government to come to the rescue, even if that means that one company eventually has to be replaced by another. I am sure that there is no shortage of companies willing to enter the water market in England.
Does the right hon. Gentleman not agree that it would be ludicrous to expect the British taxpayer to bail out a company that was partly owned by Chinese taxpayers? If Chinese taxpayers want to invest in Thames Water, they should bear the brunt of any charges that the company might incur. The scheme is going to cost £4 billion, but Thames Water’s shareholders have already benefited from £6 billion of dividends. None of that money came to the people of London.
I take a similarly hard line on this issue. If Thames Water does not have the money in its own coffers to do what it wants, it should not be doing the job, and it certainly should not be asking the taxpayers of the United Kingdom for help to do it.
I also want to flag up some proposals that I hope the Government will take on board. I do not expect my hon. Friend the Minister to provide an immediate response of yes, yes, yes, but I know that he is alert to the questions I am going to ask about what Ofwat and the Government can do. I pray in aid a useful pamphlet, which I am happy to promote, that was recently published by CentreForum, a Liberal think-tank. It was written by George Turner, who used to run my office here. He became interested in the water industry during his time here because of the Thames Water issues. His pamphlet has the additional commendation of having had its foreword written by Sir Ian Byatt, the well-regarded first regulator at Ofwat.
I shall quote briefly from the pamphlet, then set out my recommendations for what I hope the Chancellor will say in his autumn statement on
“Water is one of the essential industries. We literally cannot live without it…There are allegations of widespread tax avoidance. The level of corporate borrowing is becoming unsustainable. The ownership structure means that there is very little public accountability. Most of our largest companies are owned by private equity funds and there are no public meetings where management can be held to account. The ownership structures are murky to say the least with strings of companies dotted around the world’s island secrecy jurisdictions and tax havens. This makes it difficult for the public to know what is going on with its water suppliers.”
The problem has come to a head in relation to Thames Water, which has got itself into this position over the proposed tunnel. I suggest that some of the ideas in the pamphlet should be picked up by the Government, Parliament, Ofwat and the Select Committee. First, we could introduce a water levy on highly geared water companies, which would take away the incentive to introduce risk by increasing gearing and removing financial flexibility. This was mentioned by my right hon. Friend Mr Redwood and my hon. Friend Richard Benyon.
Secondly, we could ask the Government to look at—I ask them to do so now—the tax treatment of debt in highly geared companies and to consider economies and systems such as the German ones, where there are earnings-stripping rules that prevent companies from taking out excessive loans with the intention of avoiding tax.
Thirdly, we could legislate—I hope the Minister will be sympathetic when the Water Bill goes through its stages—to make sure that water companies make the interests of the consumer much more central in their organisations, either through a consumer representative on the board or by placing a duty on the non-executive directors to report on how best to serve the consumer interest, or both.
Fourthly and importantly, we should amend the Bill to introduce mandatory annual customer meetings, where customers can hold management to account in companies that do not currently have annual general meetings in the UK. I would also hope to change the law through the Bill, so that, when restructuring companies which have gone into special administration, the regulator must always first consider non-profit companies, rather than putting them straight back into the private sector, as we saw in a recent example in the railway industry. I hope that the Government will also look at how different models of corporate ownership have impacted on the water industry, as they have not all been satisfactory.
I hope that Ofwat will also do four things—and soon. First, I hope it will report on all the companies in England, not just Thames Water, to establish whether more modest dividend and financial policies would have allowed them to have enough money to spend and to reduce bills. Secondly, it should look at how price cuts could be implemented at the next price review. Thirdly, it should change the licence conditions of companies to impose London stock exchange disclosure requirements on non-stock market-listed companies. Lastly, picking up the point made by the right hon. Member for Holborn and St Pancras, Ofwat should change the licence conditions to require public disclosure of all intermediate holding companies, ultimate controlling companies and all the beneficiaries of those companies, so that we know exactly where the benefits that go in dividends to shareholders end up in those many companies behind many of this country’s water companies.
We may have the best drinking water quality in the world, and we are soon to debate different changes in the structure of the industry. I hope the Government will be responsive to amendments designed to enhance the interests of the consumer. I hope the water companies will understand that it is now time for them to stop stacking up money for profits to be paid out in dividends, and to put the interests of the consumer and the consumer’s bills first.
The debate has been interesting, with more contributions from Government than Opposition Members—but I enjoyed their speeches all the same. Gavin Shuker told us that he wrote the briefing for the Opposition. It seemed to consist of, “Here are lots of good things that the Government should have done, which we did not bother to do in our 13 years”, so he should perhaps revisit history a little before he writes his next briefing on this issue.
There are three water companies—Yorkshire Water, Anglian Water and Severn Trent—in my constituency, covering 250 square miles in two different counties. I have had experience of trying to deal with all three, and the experience can be different depending on which water company one has to deal with. I shall speak about my constituents’ experience with some of those companies and make some suggestions to make the consumer experience better, not just for my residents but for all constituents across the country.
We have been lucky and unlucky. We have seen considerable investment in the constituency in recent years, but that came after year after year after year of regular flooding. Bizarrely, over the last year or two, parts of the constituency have faced hosepipe bans because of a lack of water, while other parts have at different times been under several inches, if not feet, of water. Much of it has been surface water, and hence within the remit of the water and sewerage companies. My constituency, apart from a few bumpy bits, is generally very low lying, below the high-tide mark, and consequently most of the communities I represent rely on a pumping system to keep them dry. Where I live, there is a series of very high banks as well as pumping.
We have had some good experiences with Severn Trent, and have welcomed its investment in Westwoodside and Crowle. I have been a key member of the liaison team dealing with that investment. The company has also worked with customers: we have arrived at some solutions, and it has been generally responsive. That has not always been the case, but we have done reasonably well in recent years, and I am grateful for the company’s investment.
In Goole, which is covered by Yorkshire Water, we have had a very different experience historically, although it has improved a great deal recently. Goole has been flooded in at least four or five consecutive years out of the last seven or eight, including 2010 and 2011, when major assets failed in the town. At the time I was at pains to remind the House, and also Yorkshire Water, that sometimes it is the people who pay the bills who are the last to find out when something has gone disastrously wrong.
In 2011, I was in my wellies going from door to door and from street to street, visiting as many places in my constituency as I could. We were under rising water, because our pumping system had completely failed and if our town is not pumped, the water level rises very quickly. Over a period of about 12 to 18 hours, we all saw water levels rising. It was obvious that something had gone very wrong with our pumping system, particularly the big pumping station at Carr lane.
I became very angry when speaking to Yorkshire Water on the telephone, because it was impossible to obtain any answers. The company failed to communicate with residents at what was the most important time for them—when they were being flooded. Many of those people have medical conditions that require treatment, but power was going off, and there was still no communication. When the local authority, East Riding of Yorkshire council, tried to descend on the site, it was initially warned that it would not be allowed to enter, so it had to invoke its powers. All that was completely unacceptable.
Since then the position has changed significantly, thanks to the outcry from me and from local residents, and I am pleased to say that we have had a completely new experience with Yorkshire Water. The company has invested £3.6 million over the last 18 months to improve our pumping capacity by 20%, and
That is all great news, but I must nevertheless ask why my residents and my constituency were put in such a position in the first place, given that it had been clear for a number of years that the town’s pumping capacity and the major assets that were meant to protect us were not fit for purpose. Yorkshire Water has tried very hard since then, and I feel very positive about what it has done, but we should not have been put in that position, particularly in view of Yorkshire Water’s dividends. There has been an improvement since 2010—the company’s dividend is now significantly lower in relation to its post-tax profits—but the statistics for 2005, 2006 and 2008-9 were pretty appalling, at the very time when we should have benefited from investment.
Meanwhile, bills were rising in my constituency. The Yorkshire Water household bill, which I pay every year along with other residents, was £264 in 2005. By 2009-10 and 2010-11, when we were under many feet of water owing to that lack of investment and an inability to maintain assets properly, it had risen to £330. Profit for utility companies is something that is established, and I have nothing against it as long as it is accompanied by investment, but the compelling statistics and data presented by my hon. Friend Charlie Elphicke at the beginning of the debate made clear that all is not well. We need either beefed-up powers for Ofwat, or the creation of further bodies to deal with water companies that are making huge profits while not investing in communities such as mine which are particularly prone to flooding.
Although Yorkshire Water’s profit-to-dividend ratio has improved since 2010, I am afraid that that of Anglian Water is moving in a different direction. I concur with some of the demands Members have made of the Government and the water industry. I hope the Minister will consider introducing new powers to allow companies making excess profits to be ordered to cut bills and to beef up the powers allowing Ofwat to require investment in our infrastructure when these profits are too high. The Government must stand up for consumers.
I was astonished that Gavin Shuker claimed that because his leader had been making noises about consumer bills, all of a sudden people are concerned about water bills. If the hon. Gentleman had attended past debates or followed what many of us have been doing in our constituencies, he would know we have for many years been complaining about the fact that our constituents are paying more but we are not seeing the return in investment in our infrastructure. I thought that adding that political element into a debate that had generally been consensual was beneath him. In response, I have tried to make a wholly non-partisan speech.
There have been improvements in our area. My hon. Friend Mr Stuart, who is present and takes a great interest in these matters, will know of the transfer tunnel created in Hull which has helped to protect the Hull catchment a lot better. In Yorkshire, we have seen investments in the pipe network, which was in an abysmal state before privatisation, with massive leakage. We have also seen investment in my constituency.
Some good stuff has been done under privatisation by Yorkshire Water, Severn Trent and Anglian, but we now need somebody to stand up for the consumer where these companies are not acting as responsibly as they should. I hope the Government will respond to this debate by making sure the powers are in place to ensure these companies act responsibly towards their bill payers, who, after all, provide them with everything they have.
The cost of living is a major issue in Yorkshire, as it is across the rest of the country. I therefore pay tribute to the Government for acknowledging that we need to deal on every level with the cost of living, and this debate is at the very centre of what we are doing.
The policies the Government have come up with to get every energy consumer on to the lowest tariff are exactly the right thing to do, and I hope the review of green levies and Labour’s £125-worth of green taxes will enable us to reduce energy bills, too. As my hon. Friend Richard Benyon and my right hon. Friend Mr Redwood have said, addressing water bills will be another big step, by making the industry more competitive and ensuring we have a water industry that is fit for the future.
Giving businesses the opportunity to switch will enable big users of water to get the very best deal. It is unfortunate, however, that that opportunity will not be available to the consumer. I agree with my right hon. Friend, who urged the Government to push ahead, where possible, with consumer-led competition. My constituents really have only one option, which is Yorkshire Water, unless they happen to live in Long Preston, near Settle in the western part of my constituency, where they have their own water trust, which enables them to guarantee much lower prices.
I wish to focus on Yorkshire Water because my hon. Friend Andrew Percy is correct: Yorkshire Water has done some positive things on infrastructure, and it has also done some good, and some bad, things on flooding, but the financial situation and decisions of Yorkshire Water show that it is exploiting my constituents and people across Yorkshire.
If Members have not read the Yorkshire Water annual report, perhaps I should recap. In 2013 it made an operating profit of £331 million on a turnover of £936 million. Average increases in bills were 6.6% with the average bill being £356. There was a quadrupling of the dividend payment, from £62.3 million to £256 million in the past year. The thing that really sticks in the craw of my constituents is the fact that despite those massive dividends and huge opportunities for its shareholders, Yorkshire Water paid zero tax in the last financial year, and with a highly leveraged balance sheet. When we compare that behaviour with the behaviour of my constituents, the small and micro-businesses throughout my rural constituency, we see that today’s debate and the one we will continue to have about holding the feet of the water companies to the fire is vital.
People will say that Yorkshire Water has done nothing illegal, and it has not, but we thought as Yorkshire MPs that we should take that from the horse’s mouth, so we invited the senior management team down to Westminster. Let me list that team: Kevin Whiteman, the chairman, earns £1,077,000; Richard Flint, the chief executive, earns £1,091,000; Liz Barber, the director of finance and regulation, earns £476,000; and the communications officer earns £165,000.
May I urge the hon. Gentleman not to use the word “earns”, because it has a sensation that they deserve the money? The best way to describe it is probably to say that they are “being paid”.
The right hon. Gentleman’s intervention is very accurate.
Those highly paid—highly compensated—board members showed no contrition about how tough it is at the moment for consumers. They basically said that they would not budge on their stretching of the tax rules to ensure that they paid no tax. We talked about the clause in their commitment to customers where they said that they would be responsible and that they were environmentally and socially engaged, but they just would not listen.
These figures are incredible. Does my hon. Friend share my concern that these people are being paid these million-pound salaries but they still have not responded to my request, on behalf of my constituents, to pay compensation to people who were flooded because their assets failed when the company failed to manage them?
We asked the management team about their debt standing at 84.5% of regulated capital value at the end of March in contrast to the figure of 56% when the company was acquired. We asked them how they explained their £63 million of shareholder dividends in 2012 quadrupling to £256 million in 2013. We asked them how they could seriously defend, in these tough financial times, a dividend payment of 27.3% of 2013 revenue. We asked them to enlighten us on the risks of having more than £4 billion in debt and what would happen if things went wrong. We asked them how they explained the quagmire of vested and conflicting interests between the different board structures— between investors and the company and the various Yorkshire Water subsidiaries. And we asked them how they could explain the claim in their annual report that these complex financial arrangements led to lower bills for customers, given that bills actually went up by about 7%. The answers were not weak or woolly—they were non-existent.
I welcome the measures that the Government have taken on tax reform and the general anti-avoidance rule. That is a shift from prescriptive rules to a general rule, which is the right thing to do. However, should Her Majesty’s Revenue and Customs really be having to wage an uphill struggle against a monopoly business that is providing customers with one of the most fundamental services and utilities in the world?
The Government have done a lot on tax, but I urge them to go further. I urge them to use things such as the Water Bill to implant exciting and novel policies from the Treasury and look at whether we can taper the level of deductions received for interest charges in corporation tax as shareholders take on more debt. Can we impose a bank levy on debt? Could we look at how to impose a levy payable by shareholders to customers so that the cost is not simply passed on to customers and instead they gain a share themselves?
Somehow, we must stop this limitless offsetting of interest against tax. We should push on with greater competition and consider ensuring that a percentage of profits goes back to customers. We should knock Ofwat about until it works vigorously in the interests of the consumer first, second and third. We should consider everything in the industry and say clearly to companies such as Yorkshire Water, “No. No more. This has to change.” We should shake this industry up from top to bottom.
I congratulate the hon. Gentlemen on securing this excellent debate, although I suspect that their ministerial colleagues in the Department will be less keen to thank them after hearing some of the issues that they have brought to the House today.
Three and a half years into the life of the Parliament, and with the regulator expected to have completed its price review by the end of next year, it is well worth reviewing the track record of the coalition Government. It is regrettable that, having by general consensus inherited a substantial body of work from the previous Labour Government on how to reform the water industry, the coalition has frittered away so much of the past 40 months. I am at a loss to understand what, if anything, was done in the first year and a half of this Government. When they came to office in 2010, the new ministerial team inherited not one but two reports on the water industry from Anna Walker and Martin Cave. Both reports had been favourably received by consumer groups, customers, regulators, industry commentators and Parliament. The reports, which complemented each other, provided a clear framework for reform. In fact, the only organisations that did not welcome their recommendations were some of the water companies.
It is not surprising that those who were found to have let down their customers—whether domestic, in the public sector or in private business—were the ones who were less than enamoured with the possibility of reform. The stories of poor customer service are legendary—we have heard many such cases today—as are the dividend returns paid out by many of the water companies. The arrogance of the companies has been astonishing. The tax avoidance measures, coupled with a refusal to plough excess profits back into either infrastructure improvements or a lowering of bills, are simply unacceptable.
Even now, when household budgets are continuously squeezed by inflation-busting utility bill increases, many of the water companies show a breathtaking arrogance by refusing to pass back any of their profits to consumers. For example, Thames Water, having recorded eye-watering returns for its investment, now expects hard-pressed customers to foot the cost of the Thames tunnel.
Water companies are some of the most profitable in the utilities sector, earning even more than energy companies. Energy companies make operating profits of approximately 9% whereas water companies make operating profits of approximately 30%. While shareholders have seen their dividends increase, families across the country have suffered. Last year, regional water companies made a pre-tax profit of £1.9 billion, paying out dividends totalling £1.8 billion to shareholders, yet they have not seen the need to pay their fair share in taxes. As
The Sunday Times revealed, in 2012-13 Thames Water, which, as we have already discussed, has asked to increase bills by a further 8%, made £127 million of pre-tax profit and paid zero corporation tax.
Water companies have been able to reduce their tax liabilities to such tiny levels by substantially increasing their levels of debt. Some water companies have reduced their tax bills by offsetting the interest payments on debt, often inter-company and involving tax havens, while claiming allowances for spending on infrastructure. Shareholders and bosses, as we have heard, have benefited from that aggressive tax avoidance, with eye-watering salaries going to those at the top. Peter Simpson, chief executive of Anglian Water, received a package worth £1.27 million in the last year, up from a mere £1.06 million the year before. The complex nature of tax governance and the growth in debt has been recognised by Jonson Cox, the chairman of Ofwat, who described the ownership of these companies as complex and “opaque” structures.
I will not, because there were so many speakers and we have very little time for the Minister to speak.
Ofwat has highlighted that the overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital today, with some companies obtaining only one fifth of their financing from equity.
So why the delay in reform? Why has the coalition dragged its feet? Why have the coalition parties seemed so unwilling to champion the household customer, small businesses and the taxpayer? It is because this coalition Government serve the vested interests, not the interests of ordinary Britons. Ministers have done nothing to help hard-pressed small and medium-sized enterprises because they are too busy cosying up to their friends in the City. Labour understands that when small businesses are struggling to survive thanks to the failed economic policies of the Chancellor, the Government should standing up for them, not their fat cat friends.
After three wasted years, we have no progress on social tariffs for those who are struggling the most and can afford to pay the least; no pressure brought to bear on water companies to adopt permanent solutions to flood insurance, without which hundreds of thousands of families up and down the country face uncertainty; and, as we heard earlier, no substantial progress on water competition—a series of measures that would help our cash-strapped businesses grow our economy.
It has been four months; 16 weeks; one hundred and sixteen days since the Secretary of State met the water companies. Last week, we had the unseemly spectacle of the Prime Minister briefing against his own Ministers and officials as panic set in on the Downing street spin operation, which reacted to the pressure placed on it by my right hon. Friend the Leader of the Opposition, and the Labour party, to stand up to the water companies. We had days of Downing street briefing that action would be taken, either through regulation or by instructing Ofwat to take action on water bills.
In short, we were all anticipating a big announcement from the coalition parties. And in the end, what did we get? A letter. One thousand words. A missive to the water companies from a Mr Paterson, of North Shropshire, which said, in effect: “Dear chief executive, Thanks for coming along in July for cream tea; our last discussion was so riveting that I clean forgot to write about it until now! I know that times are awfully hard for you at the moment, with your offshore investors demanding an even greater return on their money than last year, but it would be awfully splendid, as we’re all such good chaps, if you could not put your bills up by quite as much next year as you were thinking about doing. It would really help me out of this political pickle the Prime Minister has put me in, and I know that you’re all such good eggs. Best wishes, Mr Paterson.”
The Secretary of State’s letter is clear evidence that the Government do not understand the cost of living crisis here in Britain today. For 39 out of 40 months under this coalition, prices have risen faster than salaries. Until this weekend, water bills were not a priority for the Prime Minister or the Department. After three and a half squandered years, a hastily cobbled together statement of vague promises of future action is simply not enough. It is clear that the Prime Minister is unwilling or unable to stand up to the vested interests that have placed the needs of offshore tax haven investors ahead of those of hard-pressed householders and businesses.
Families deserve better than this; small businesses deserve better than this; Britain deserves better than this. Since privatisation in 1989, water bills have increased by almost 50% in real terms. The Secretary of State has the guile to call the water industry one of the great successes of privatisation. Madam Deputy Speaker, it is only a success story if you are fortunate enough to own shares in one of those companies.
This has been a fascinating debate. Contrary to what Thomas Docherty just said about my attitude, I welcome the debate. It is a foretaste of the discussions that we will have on Second Reading of the Water Bill and in Committee and subsequent stages.
Today’s debate has been a useful opportunity for hon. Members to raise a range of issues such as affordability and the practices of water companies, and also local issues such as flooding, development and the history of water supply going back to the locally owned water provision that Frank Dobson spoke about. I will come back to some of the comments of the hon. Member for Dunfermline and West Fife. It is a great shame that he finished off his speech as he did. He knows quite a bit about these issues and enjoyed dealing with them in the
Select Committee. He should have written the speech himself, instead of giving a speech that was written for him. He could have done much better himself.
The hon. Gentleman did not take interventions, so I shall follow his lead and try to respond to some of the issues raised in the debate. We will have plenty of opportunity to come back to his comments.
I congratulate Charlie Elphicke on leading the charge to secure the debate. He wanted to send a clear message to Ofwat and particularly to the water companies that consumers expect more now. They want a fairer deal to cope with the cost of living and to reflect the fact that the water companies have had some good years. They have had much lower borrowing costs in recent years than was predicted when those prices were set. The hon. Gentleman is looking for some flexibility during the current price review period for those issues to be taken on board.
Clearly, that is a matter for the regulator. Ofwat is being far more assertive in the message that it is sending to the water companies. It has the power to revisit the current price settlement, but in particular circumstances. Ofwat’s discussions with water companies are obviously focused on the coming price review period. It will want to see whether water companies come forward with any suggestions. As my right hon. Friend the Secretary of State pointed out in his letter to the water companies, they are in far better circumstances than were predicted at the beginning of the current period. As a Government, we are supporting Ofwat and providing political cover. If Ofwat is looking for a deal from water companies that more accurately reflects current circumstances, it has the political back-up to do that. I welcome the signs that Ofwat is indeed doing that.
The issues surrounding investment are crucial. The right hon. Member for Holborn and St Pancras spoke about the simple business of a couple of pipes in the ground catching the rain water and sending it on. That was the case once upon a time. There are also the issues of what happens—how can I put this delicately?—after the water has been consumed by the consumer. What used to happen is that a pipe would be installed, as I know all too well, representing a coastal constituency, and the waste would drift out into the Atlantic ocean. That is not acceptable now and we expect a far better standard of treatment for sewage and better solutions to deal with the problems. That is why we have much better bathing water quality than we used to have.
I will not give way. I accept what the right hon. Gentleman says about what he considers simple problems. Yes, we want the water companies to do better on price, but we also want them to continue investing and improving. We have a responsibility to deliver better environmental quality. We have seen improvement in that but we want it to go much further, so we want the investment to continue. We will have the opportunity to consider some of these issues on Second Reading of the Bill, so perhaps we can come back to the more technical issues at that point. I know that hon.
Members on both sides of the House will want to engage with me in the run-up to that and I look forward to some informal discussions, as well as the discussions on Second Reading.
I pay tribute to my ministerial predecessor, my hon. Friend Richard Benyon—he is not currently in his place—who did a huge amount of work to get us where we are. Some Opposition Members claimed that nothing has happened over the past three years, but nothing happened over the 13 years they were in office, other than reviews. Her Majesty’s Opposition seem to stake their reputation on a number of reviews, but they did nothing on the back of them. This Government will look at that work and the evidence provided and do something, such as dealing with the inequality in the south-west and the problems people there face, which Anna Walker looked at, and the issue raised by the Cave review, which looked at the water industry as a whole. This Government are taking action.
The Government are also looking at flood insurance, because the previous Government left the clock ticking on an agreement that was about to evaporate. We have negotiated something that will now be delivered in a Bill. I pay tribute to my hon. Friend the Member for Newbury for being at the forefront of delivering that settlement. We look forward to debating that as we take the Bill through the House.
Mr Buckland talked about leakages. He said that although water companies have improved, they could do much better and there is still a long way to go. I absolutely agree. The important point is that we still see companies investing in the infrastructure to put it right and get a better solution to the problems. That is why in all our discussions on price we must ensure that we get the balance right so that we can continue to see that investment.
We heard an interesting exchange between the hon. Member for South Swindon and the hon. Member for Dunfermline and West Fife on household disconnections. It was not clear to me whether the hon. Member for Dunfermline and West Fife was recommending that water companies should have that power. I hope that that was not the case, because it is certainly not something the Government want to reopen.
I am pleased to see that is not something the hon. Gentleman wants, because we certainly do not.
We hope to see some benefits through retail competition, but we want to do that carefully. This is a huge area of reform and a big change. That might slightly disappoint Mr Redwood, who looks forward to a time when there will be an ample supply of water for everybody to enjoy in all sorts of ways and when we will not have such nasty things as metering and restrictions. There are other reasons for metering which relate to energy use and environmental concerns, because whatever we do to reform the retail side will not suddenly and hugely increase the amount of water. We will work on abstraction reform and encouraging new people into supply, but that does not necessarily mean we want to abandon our commitment to using the water we have efficiently and managing our resources effectively.
However, I accept what the right hon. Gentleman said about the challenges monopolies present, which is why we want first to move towards allowing businesses, charities and so on to have the benefit of competition. We also want them to look at how they can simplify, so that businesses with many sites across the country, for example, can have one unified bill. That would be a huge saving for them and would allow far more transparency, rather than having separate bills for every site.
A number of hon. Members mentioned the tax situation and financing. Some of those points are for the Treasury, rather than me, but they have had the chance to put them firmly on the record. Many of them have been campaigning on that outside this place, which I know they will continue. I know that Ofwat is listening to that carefully. One of the things it is keen to do with water companies is look at how it regulates to encourage transparency and overcome opaqueness, which relates to what Jonson Cox has said. The companies that take a more responsible attitude to engaging with consumers, feeding back their information and being open about what they do can be regulated in a way that reflects that, and those that refuse to engage with that progress will be the ones that Ofwat will want to investigate much more closely and have close conversations with in future. That is the sort of approach that I very much welcome. Having mentioned Ofwat a number of times, I should also pay tribute to the Consumer Council for Water for its work as the voice of the consumer, which has not been mentioned in the debate so far.
Several hon. Members raised the issue of bad debt, and I am pleased about that. We have been very clear that we want the companies that have done less well on that to look to the examples of those that have done much better in offering a better deal, and to try to build on that work.
Alec Shelbrooke talked about development issues. Water companies have the opportunity to give an input into that process, but so does the Environment Agency in relation to flooding, and that is important. We want to see housing growth in the economy and investment in housing for people who are desperate to get on to the housing ladder or, indeed, to rent. We have to get the right balance in that process.
My right hon. Friend Simon Hughes posed a number of challenges and raised detailed issues that I am happy to discuss with him as we move towards the Second Reading of the Water Bill and its progress into Committee.
Andrew Percy raised issues about flooding and infrastructure investment. It is important that we encourage companies to continue to invest to overcome these problems at the same time as bearing down on price. Julian Smith talked about transparency and the tax framework. He also noted that some consumers feel that they have very little voice in what is being done with the money that they hand over to the water companies in their bills. Ofwat is taking a much tougher line on this, and I welcome that.
Our approach in the Water Bill is to look to update the structure of the industry to deal with some of the problems we have heard about, but not to try to step in and do what Ofwat is there to do. It is the regulator, and, as my hon. Friend the Member for Newbury said, it will regulate. We will therefore make sure that there are opportunities for it to make any proposals that it thinks will improve the Bill. If there are things we are not doing in primary legislation or it wishes to see change, it will be able to get involved in and develop those things without having to come back to this House or the other place.
The Government’s approach to this issue is a responsible one. Knee-jerk reactions that undermine the strengths of the regulatory system could be immensely damaging. A stable, independent regulatory system is vital in keeping bills affordable. Small changes to the industry’s financing costs can have a significant impact on customers’ bills. In that context, I reiterate my strong support for Ofwat’s drive to secure efficiencies and improvements through the price review and other measures that will allow us to keep customers’ bills as low as possible while ensuring that we can continue to attract significant, low-cost investment in the sector.
I thank hon. Members for bringing this issue to the attention of the House. The interest and passion expressed by Members displayed the importance that we all place on the matter, and I assure them that it continues to receive the highest level of attention from the Government. We will return to many of these important aspects of the industry as we move towards the Second Reading of the Water Bill in due course.
This has been an excellent debate. In particular, we heard a very fine speech by my hon. Friend Richard Benyon, who was an outstanding Water Minister and served with distinction. It was interesting that we had the old left-right battle, with Frank Dobson saying, “Up nationalisation”, while others, such as my right hon. Friend Mr Redwood and my hon. Friend the Member for Newbury, championed what private investment can achieve.
Many Members, including Simon Hughes and my hon. Friend Mr Buckland, expressed concern about Thames Water, particularly its tideway tunnel. Yorkshire MPs, including my hon. Friends the Members for Brigg and Goole (Andrew Percy), for Skipton and Ripon (Julian Smith) and for Elmet and Rothwell (Alec Shelbrooke), noted that Yorkshire Water could do better, as its school report might say. I was fascinated by the speech of Gavin Shuker, who was until recently the shadow Minister; he spoke with great passion about social tariffs.
I thank Front Benchers on both sides of the House for foreshadowing the Water Bill debates; it was fascinating to watch a dry run. The shadow Minister, Thomas Docherty, took the somewhat Maoist approach that 2010 was year zero, and the Minister explained the Government’s direction. I hope that the Government have listened to this debate and will consider the matter further.
Question put and agreed to.
That this House has considered reform and infrastructure of the water industry and consumers’ bills.
On a point of order, Madam Deputy Speaker. In the past hour the BBC has been reporting more than 1,000 job losses in UK shipyards. If correct, that has major implications for families up and down the country and in particular for our sovereign capability and skills retention. Has the Secretary of State for Defence given any indication that he intends to give a statement to the House?
As the hon. Lady will know, that is not a point of order. If she wants to pursue the matter, I am sure she is already considering the options open to her during the next parliamentary day. We will not deal with it now and we will certainly not deal with it through the Chair.