Clause 8 — Bulk supply of water by water undertakers

Water Bill (Programme) (No. 2) – in the House of Commons at 1:30 pm on 7th May 2014.

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Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means) 1:30 pm, 7th May 2014

The Minister will move Lords amendment 1 formally. [Interruption.] I am sorry, Minister, I did not intend to cut you off. I meant to say that the Minister will move Lords amendment 1.

Photo of Dan Rogerson Dan Rogerson The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

I am grateful, Madam Deputy Speaker. I am delighted that the Chair has such confidence in what happened in another place that she does not need to hear anything further.

I beg to move, That this House
agrees with Lords amendment 1.

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to consider Lords amendments 2 to 14, 31, 34 to 42, 65, 66 and 104.

Photo of Dan Rogerson Dan Rogerson The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

As you have shown, Madam Deputy Speaker, there are many amendments in this group, so I shall try to make my explanation as brief as possible, as I sense that that will be popular.

This group of amendments was tabled in the other place to build on and strengthen further the existing environmental protections under the Bill and to provide reassurance regarding the timetable for abstraction reform and its relationship to the upstream reforms in the Bill. In particular, this group of amendments reinforces environmental protections under the bulk supply and private water storage regimes, improves the resilience duty and the strategic policy statement, and places a new duty on the Secretary of State to provide Parliament with a progress report on abstraction reform.

This group also contains a number of minor and technical amendments. As before, I will not dwell on them, but I am happy to consider any points that hon. Members wish to make. The Government welcome the scrutiny that the Bill has received, and we have listened carefully to all the speeches made in this House and another place. Protection of the environment is close to my heart, and it is important to the Government too. Indeed, one of the Bill’s main objectives is to increase the resilience of our water supplies to ensure a future in which water is always available to supply households and businesses without damaging the environment. I am therefore delighted to bring back a number of important amendments that will ensure the continued protection of the environment.

First, the Government have strengthened environmental protections under the bulk supply regime under clause 8. There are already several bulk supply agreements in the current system and there are a number of environmental protections in place. However, we have listened to the concerns raised on this issue during the passage of the Bill and have enhanced those protections accordingly. Ofwat can only order, vary or terminate a bulk supply agreement at the request of one of the parties, and after consulting the Environment Agency or Natural Resources Wales. Our amendments strengthen the consultation requirement by clarifying the fact that Ofwat can take environmental considerations into account before ordering, varying or terminating a bulk supply agreement. The amendments add a requirement for Ofwat to consult the Environment Agency and Natural Resources Wales before it issues the codes in this area.

Water companies have statutory environmental duties that prevent them from entering into bulk supply agreements that would damage the environment. However, our amendments reinforce this protection by adding a requirement for such codes to require the parties to a bulk supply agreement to consult the relevant environmental regulator before entering into the agreement. We have also added an enforceable duty on the supplying party to provide information about the water supplied at the request of the relevant environmental regulator.

Secondly, we have strengthened the environmental protections with regard to water supply agreements under clause 12. We have amended the clause so that the regulations about water supply agreements between incumbent water companies and other relevant parties can require Ofwat to consult the Environment Agency or Natural Resources Wales before ordering, varying or terminating such an agreement. The amendments to clauses 8 and 12 will provide a greater role for the Environment Agency and Natural Resources Wales. We recognise the important role that those bodies play in ensuring that environmental considerations are taken into account. This is a more proactive approach and one that the regulatory bodies too support.

Thirdly, I am pleased to note the widespread support for the new resilience duty under clause 22. Following debates in another place, that support has been further strengthened so that it explicitly requires Ofwat to promote the efficient use of water by water companies. That could include, for example, capturing and retaining water by investing in new water storage or by tackling leakage. That will ensure that this precious resource is used as efficiently as possible, and it will contribute towards the Bill’s objective of increasing resilience in the water sector.

Fourthly, we have amended clause 24 so that the Secretary of State and Welsh Ministers must have regard to social and environmental matters when setting strategic priorities and objectives for Ofwat. Clause 24 is designed to help Ofwat to weigh all the relevant considerations appropriately when making regulatory decisions. We agree with Members in the other place that the consolidated guidance must include social and environmental considerations. We have therefore clarified the fact that social and environmental matters form an integral part of this process.

Finally, we have tabled a significant amendment that will place a new duty on the Secretary of State to report to Parliament on progress on abstraction reform in England within five years of Royal Assent. This amendment signals the Government’s determination to progress abstraction reform and ensures that the Government are fully accountable to Parliament for the delivery of this commitment. In practice, this will mean that a written progress report will be laid before Parliament no later than early 2019. We cannot commit to a timetable for introducing legislation on abstraction reform, but our aim is to introduce the necessary legislation early in the next Parliament. The report will also provide the opportunity to update Parliament on the preparations for implementation of both abstraction reform and upstream reform, and how the two are closely aligned, as well as setting out any other progress on moving towards a more sustainable abstraction regime.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs) 1:45 pm, 7th May 2014

I thank the Minister for introducing the second group of amendments, which relate to some very important provisions in the Bill.

Lords Amendments 1 to 14 are largely drafting amendments, but they include some important additions to the Bill. Lords amendments 1 to 3 detail the efficient use of water resources and take into account the effect on the environment of water use, with particular reference to what constitutes a bulk supply agreement with water undertakers, and the effect of such agreements on the environment. Lords amendments 1 to 14 and Lords amendment 31 give a greater role, as the Minister acknowledged, to the Environment Agency and Natural Resources Wales with regard to the effects on the environment of bulk supply agreements. We welcome the strengthening of the role of these two bodies to provide environmental expertise and to prevent bulk supply agreements from damaging the environment.

Amendments 34 to 42 relate to social and environmental safeguards more generally, and amendment 38 in particular requires that the Secretary of State and Welsh Ministers “must” have regard to social and environmental matters when compiling their statements to Ofwat, thereby strengthening the requirement in the Bill. The change from “may” to “must” have regard is a major concession by the Government. Given the importance of securing environmental safeguards at the heart of all aspects of water management, one can say only that it is surprising that the Government did not make that amendment of their own volition, rather than as a result of facing pressure from Members of both Houses on the point.

It is important to put on the record our deep disappointment that the Government have not gone further and recognised the need to make the Bill stronger and more effective by making sustainable development a primary duty for the regulator, as is the case with other regulators. We believe that resilience and the associated term that the Government use here—“the efficient use of water”—are not good enough. In the water White Paper, the Government said that they would carefully consider the case for that, and many environmental organisations are concerned that Ofwat does not have the necessary powers to prevent environmental damage and damaging water exploitation. That is particularly important in the light of greater competition, where companies will be looking to maximise efficiency however they can. Without a tough regulatory duty, that could come at the expense of the environment. My question to the Minister about the Government’s failure to grasp the opportunity presented by the Bill to strengthen regulation in this regard is this: why have they failed to respond to this vital issue in a robust manner and safeguard our environment?

On water abstraction, the Government’s White Paper, “Water for Life”, published in 2011, set out the case for a comprehensive reform of abstraction licences, suggesting that the current licensing system was outdated and in need of urgent reform to deal with increasing pressure on water resources—an issue with which we are all now familiar. Pressures develop because of population change and climate change. The Government tabled an amendment requiring the Secretary of State to publish a report on abstraction reform within five years. That is in the context, however, of the Government’s decision to allow the introduction of greater competition in the upstream market to take effect before reform of the abstraction regime.

We, along with leading environmental experts, are concerned that without comprehensive abstraction reform, upstream competition could incentivise existing abstraction licence holders to sell their water to water companies, even when the catchment is already over-abstracted or over-licensed. In response, the Government have said that the Environment Agency is adequately placed to review and/or change abstraction licences. We do not agree with that assessment.

In his response to their lordships’ amendments, Lord De Mauley said:

The Environment Agency will soon use its powers to revoke or vary abstraction licences without compensation where they are causing serious damage to the environment.”—[Hansard, House of Lords, 4 February 2014; Vol. 752, c. 163.]

However, following budget cuts, the Environment Agency has cut 600 staff since 2010, so surely the Minister must concede that the Environment Agency will now have less capacity effectively to discharge its duties in that respect. What will be the priority for this smaller, rather emaciated, Environment Agency—flood defence schemes or attention to abstraction reform? Given its much reduced resource, is the Minister confident that the Environment Agency can manage all its duties effectively?

Under the new market conditions created by the upstream market reforms in the Bill, more water could be abstracted from water courses than is sustainable or suitable for local ecosystems. We support the amendment for upstream market reforms to allow new water undertakers into the market, but we still think it wise for the Government to deliver progress on abstraction reform, running concurrently.

We asked the Government to bring forward reformed abstraction licences on the same day as the upstream reform measures in the Water Bill come into effect, but they have unfortunately neglected to do so. Instead, under amendments 65 and 104, the Secretary of State is required to produce a report on progress made on water abstraction reform within five years of the Bill being passed, as the Minister indicated. We do not oppose that amendment because it is better than nothing, but it is unsatisfactory overall, because unsustainable water abstraction could continue for some time after the Bill has been passed—before DEFRA effectively addresses the issue.

In conclusion, why are the Government reluctant to commit to ensuring that the abstraction reforms run concurrently with the upstream marketing reforms? I look forward to hearing the Minister’s answer on that point.

Photo of Anne McIntosh Anne McIntosh Chair, Environment, Food and Rural Affairs Committee, Chair, Environment, Food and Rural Affairs Committee

I shall make just a few comments. Over the last three years, events in Yorkshire have certainly shown the unpredictability of the weather, which can swing from a real flood to a virtual drought within a matter of weeks. Barry Gardiner, who I see in his place on the Opposition Front Bench, and my hon. Friend the Minister sat in the Environment, Food and Rural Affairs Committee when we debated these issues—both at the pre-scrutiny stage and when the amendments to the Bill were tabled. It was a constant theme of the Select Committee to call for the implementation of abstraction reform—certainly by 2022. If I understand the Minister correctly, he is saying that this will happen within five years of the Act being passed, whereas we asked for it within seven years. It looks as if we are on course.

Personally, I would have made the case to include abstraction reform within the context of the Bill. I hope this does not come home to roost in the intervening five, six or seven-year period, but given the climatic changes and swings in weather patterns that we have seen, I hope we do not rue the day that we failed to include abstraction reform in the Bill. I understand that there was no appetite for it and that the Department felt, as I am sure the Minister will confirm, that doing so would have brought an inevitable delay to the Bill.

The reason why abstraction reform should be included, and the reason why I welcome this group of Lords amendments, is that the current system of managing abstraction of water from rivers and aquifers was introduced in the 1960s and is woefully out of date. It does not effectively address the severity of pressures on water resources due to increasing demands from a growing population and an increasingly varied climate. The Environment Agency has mentioned that in a number of areas, including my own, it cannot, for understandable reasons, afford to maintain the upkeep of existing flood defence banks. Farm land in those areas will be prone to future floods.

Water from rivers and aquifers has many uses, and there is a fine balance between industrial and non-industrial use. I visited the constituency of my hon. Friend Priti Patel, which I had the privilege of representing as an MEP for 10 years, to see the difficulties that many industrial users such as jam manufacturers and others experienced in a climate that they were not used to. Essex has on occasions been compared to Egypt in respect of the amount of water fall that it receives. The weakness in the current system means that it could start to constrain economic growth, reduce the resilience of the water supply and lead to environmental damage.

I would like to hear what discussions the Minister is having with the European Commission’s water unit. That used to be chaired by someone whom I count as a friend, Grant Lawrence, who was a British official who did great work for the European Union, but who was mindful of the uses of water and the competition for use between agricultural users, anglers and industrial users. Mr Lawrence left a number of years ago and since then I have been briefed on a number of occasions by the water unit, and I am struck by the fact that it does not understand our approach to water use. One reason for that, as it explains it to us, is that our rivers might seem long to us, particularly the Thames, meandering as it does through a number of counties, but compared with the Rhine and the Danube they are not. So it approaches river quality, water quality, and—dare I say?—abstraction in a completely different manner from us. When the Bill receives Royal Assent and we proceed within the timetable that my hon. Friend has set out, what discussions will he have in relation to water abstraction and abstraction reform on the reforms to the water framework directive and the other EU directives that are trundling down the river as we speak? That is important with regard to drafting and considering water abstraction reform.

I hope that my hon. Friend will again say that there will be plenty of opportunities to consult a variety of industrial users, and, obviously, I would make a bid for the Select Committee to be consulted at an early stage. I would like to make a plea for the farmers. I represent a deeply rural constituency, and there is concern among the farming community that delaying abstraction reform until 2020 or 2022 will mean that their interests are disregarded, more so in times of drought than in times of flood.

The detail of any abstraction regime will need to be developed following the Government’s consultation, which closed at the end of March, and, as my hon. Friend has set out, legislative proposals will be produced. One of the difficulties with the Bill, which I hope the water abstraction reform legislation will not suffer from, is a bane of the legislative programme. This point of the legislative Session is like midnight, and we have only one more year. I hope that we can make a plea for adequate time in the legislative programme in the next Parliament for the new regime to be introduced and properly considered.

The Opposition tabled a new clause whereby upstream reform could not have been implemented until new primary legislation on the licensing of abstraction had been passed, and they made the case for five years to elapse to allow for its implementation, and that has echoes in what the Government propose today. I would have preferred the new clause that we moved on Report to have seen greater favour, but I take this opportunity to welcome today’s amendments.

It is appropriate to raise water efficiency in terms of abstraction and the environmental protection measures that my hon. Friend set out. The Water Industry Commission for Scotland raised concerns throughout the Bill’s passage that retailers should focus on offering water efficiency advice and other environmental services as opposed to companies being encouraged to cherry-pick customers to the detriment of the generality of an incumbent’s customer base. The amendments that I understand came from WICS were not successful, but they sought to remove the link between the proposed wholesale authorisation and the proposed retail authorisation, by requiring those with wholesale authorisations to interact with water companies rather than retailers, and further that Ofwat would be under an obligation, among other things, to set charging rules in a way that helps to incentivise water efficiency and other services. The Government resisted those amendments, but they go to the heart of what Angela Smith said about the background reports that have seen fruition in this group of amendments, in particular the Anna Walker report on water efficiency. Each and every one of us has a role to play by not heating more water than we need and not running water while we clean our teeth, all of which have an effect. I hope my hon. Friend will have some regard to the powerful arguments that have been made when we go on to consider greater efficiency and in the context of abstraction reform.

Photo of Dan Rogerson Dan Rogerson The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs 2:00 pm, 7th May 2014

Once again, I thank hon. Members for their contributions. It is fair to say that we have a great deal in common, although with slightly different emphases in aspects of debate both today and during previous outings. The crucial issues concern the interaction between what is in the Bill and what is not with regard to abstraction reform and the parallel process, so I take this opportunity to reassure the House that the Government are fully committed to abstraction reform, as our amendment tabled in the other place demonstrates.

Further illustrating that commitment, the Government’s consultation on our proposals for reform of the abstraction regime closed on 28 March. We are analysing the responses, a summary of which we will publish later this year. The proposals in our consultation document demonstrate how seriously we take abstraction reform, as well as the complexity of reforming such a long-established regime. As has been said, it is crucial that we get that right and give people an adequate chance to express their opinions and for those to be taken into account. Our proposals reflect how important abstraction reform is for people, as well as for the environment, and the fact that organisations and individuals throughout the country need access to water to run their businesses.

The Government want to see a real improvement in the quality of water bodies throughout the country, and that means that we must take action to reduce over-abstraction that damages the environment now, while continuing to protect the environment and ensuring access to water in the more challenging conditions that we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. The intention is for them to be entirely complementary, both in design and in implementation. Both are part of the Government’s wider agenda for securing the long-term resilience of our water supplies and the water environment, as set out in the water White Paper. The upstream reforms in the Bill are important because they will build resilience in the sector, bringing in new thinking and innovation to drive efficiency. Upstream reform will help to keep bills affordable and benefit the environment. We estimate that these reforms will bring benefits of up to £1.8 billion over 30 years.

As I have said, the report to Parliament on progress with abstraction reform will provide the opportunity to update Parliament on the preparations for the implementation of both abstraction reform and upstream reform, and how the two are being closely aligned. There is therefore no question about our commitment to abstraction reform, and no case for delaying implementation of our upstream reforms.

On the points made by Angela Smith, we are carrying on the process begun by the previous Government of looking at the reform issues, and we seek to demonstrate that this is an ongoing commitment. There is much support across the House for taking these matters forward, so we can have confidence that the two processes can be aligned.

We considered the sustainable development duty in depth. The Ofwat review recommended that that not be included because it was not necessary. I have sought throughout to make the point that we can integrate the desire for sustainability in the resilience duty, and that is what we did during the Bill’s passage through this place. That move was welcomed by the non-governmental organisations that originally called for the sustainable development duty. In another place we have further drawn out the emphasis on water efficiency. Water efficiency is important not just for environmental reasons—although they are crucial and we want to see the responsibility to improve environmental quality returned to water bodies—but to ensure that we have the water resources that we need to deliver the growth in the economy, allow businesses to grow and to prosper, and deal with the challenges that we face in the future.

Another issue that was raised was the capacity of the Environment Agency to use the powers that it has now and to take forward the regime without compensation. The hon. Member for Penistone and Stocksbridge rightly said that that capacity is now at its disposal. Indeed, the Environment Agency gave evidence to the Public Bill Committee and was quite clear that it has the resources to undertake such duties. It has been undertaking work to return water to the environment to bear down on unsustainable abstraction, and it will continue to do that. It is something on which it will remain focused. This is crucial in respect of our consideration of sustainable development in that, unlike other regulatory regimes, there are multiple regulators of the water sector. We have the Environment Agency, which has a great focus on that particular activity, Ofwat and the Drinking Water Inspectorate. The regime is slightly different from that in other utilities.

My hon. Friend the Chair of the Select Committee was right to make it clear that we need careful consideration of the abstraction reform process, and it is very much the Government’s position that we will provide the opportunity for such work. Were we simply to have put in the Bill some sort of broad enabling power, it arguably would not have had the consideration that it will get as primary legislation in a future Bill, and that is absolutely right in terms of taking forward that process. On that basis, I hope the House will support the amendments made in another place.

Lords amendment 1 agreed to.

Lords amendments 2 to 14, 31, 34 to 42, 65, 66 and 104 agreed to.