Sewage Disposal in Rivers and Coastal Waters - Motion to Take Note

Part of the debate – in the House of Lords at 12:49 pm on 7th July 2022.

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Photo of Lord Sikka Lord Sikka Labour 12:49 pm, 7th July 2022

My Lords, I thank the noble Lord, Lord Oates, for this vital debate. It is a pleasure to follow so many other knowledgeable speakers.

The water industry has been a serial offender for far too long. On 1 March 2018, the then Environment Secretary, Michael Gove, said that

“water companies … have not been acting … in the public interest” and

“have been playing the system for the benefit of wealthy managers and owners, at the expense of consumers and the environment.”

He added that the water companies have,

“shielded themselves from scrutiny, hidden behind complex financial structures, avoided paying taxes, have rewarded the already well-off, kept charges higher than they needed to be and allowed leaks, pollution and other failures to persist for far too long.”

The privatisation of water has been a disaster. It is now a monopoly owned mostly by organisations from overseas, including the super-rich, banks, hedge funds, private equity, foreign Governments and businesses based in tax havens who have little or no experience of the daily hazards inflicted by the industry upon the people in this country.

The water companies have collected over £60 billion in dividends since 1989. In addition, untold billions have been sucked out through intra-group transactions and interest payments on loans from affiliates. Hopefully, the Minister will be able to tell us exactly how much has been taken out by the water companies. As an accountant, I struggle to understand their accounts—I hope the Minister has advisers who can help him to unravel these things. If the industry was in public ownership, all the money that has been extracted could have been used to build better infrastructure, but the Government’s fetish about privatisation has landed us with all these problems.

Since 1989, water bills have increased by 40% above the rate of inflation. People have to pay them because there is no alternative. You cannot switch to an alternative supplier of these services, and the regulators simply wring their hands—they are very ineffective. As Michael Gove reminded us, since privatisation there has been no investment in new nationally significant supply infrastructure, such as major reservoirs. That is how bad privatisation has been. London and big cities now face a threat to their drinking water supply, as has been documented in the newspapers this week. Around 3 billion litres are lost every day due to leaks, which is further evidence that the companies are out of control and do not take their public duties very seriously.

Last year, water companies discharged raw sewage into English rivers 372,533 times, while the water companies covering England released untreated sewage for a combined total of 2.7 million hours. The Government’s storm overflows discharge reduction plan will seek to eliminate 40% of raw sewage overflows into rivers by 2040—that is not good enough. It is complacent and will wilfully inflict health hazards on people. In January 2022, the House of Commons Environmental Audit Committee Report said that,

“A ‘chemical cocktail’ of sewage, agricultural waste, and plastic is polluting the waters of many of the country’s rivers. Water companies appear to be dumping untreated or partially treated sewage in rivers on a regular basis, often breaching the terms of permits that on paper only allow them to do this in exceptional circumstances.”

Water companies, regulators and Ministers have defended the practice of allowing leaks into rivers and seas by claiming that it is better to allow the sewage to leak into waterways because otherwise it would back up into streets and homes. This is an indictment of the lack of investment and the way in which the Government and regulators indulge the water companies. Water companies have pocketed billions of pounds from sewage charges levied on customers but have not delivered the required service. This is organised fraud on a gigantic scale for which no corporate executive is called to account. The discharges kill fish and threaten biodiversity and marine life. The pollution may eventually find its way into the food chain—polio has already returned to the UK.

There are widespread illegal sewage discharges from treatment plants. On 12 May 2022, the Environment Agency said that

“Our initial analysis of the information collected to date has confirmed that there may have been widespread and serious non-compliance with the relevant regulations.”

Still, no executive is prosecuted, and there is no clawback of any executive bonus or pay. The Government continue to be complacent. Water companies face no action. There is a lack of any pressure points. Even when companies admit that they have not complied with the rules and regulations, they are still permitted to extract monopoly rents because people have nowhere else to go—they have to pay. We have no alternative infrastructure anywhere. The fines levied are puny and, so far, they have failed to bring about a desirable positive change. In a monopoly, they are simply passed on to the customers and that is why we end up paying higher and higher charges.

Profits form a key part of the executive key performance indicators in companies, and executive pay is linked to these indicators, which include profits. It is very easy for water companies to increase their profits by letting the leaks continue, which means they spend less on repair and maintenance, or by dumping raw sewage into rivers—that increases profits too. The Government continue to tell us that water companies are making huge profits, but they are doing so because they are not carrying out their obligations. Looking at profits alone does not tell us anything about the quality of their performance.

Last year, nine water industry CEOs received more than £15 million in pay and bonuses—bonuses for what? Polluting rivers? In the past, Ministers have said that shareholders can constrain these things. Well, their shareholders are abroad; are they really bothered about what goes on in this country? Many are just subsidiaries and affiliates of giant investment funds and other corporations; they have no incentive whatever to reduce these bonuses. So, the executives get fat cat pay while the public get health hazards, leaks and higher bills.

The Government can create pressure points to force companies to deliver, and I invite the Minister to consider at least the following five modest reforms. First, the directors of companies engaging in unlawful practices need to be made personally liable for the consequences. The spectre of personal liability should check predatory practices. At the very least, their bonuses and salaries should be clawed back because they have obtained them in fraudulent way.

Secondly, no dividends should be paid until the regulator certifies that water companies have met their statutory and regulatory duties.

Thirdly, customers should have direct representation on water company boards and a statutory right to vote on executive pay. With such arrangements, it is extremely unlikely that customers facing escalating charges, leaking pipes and polluted rivers would vote for a bonus or even a salary increase for any executive. Governments often talk about democracy in society. This is democratising these monopolies. Let them face the democracy of the customers.

Fourthly, the regulator itself should have direct representation of customers on its board. I am not talking about some toothless customer panels, but people actually sitting on the board and questioning the executives of the regulatory bodies about their failure to act.

Fifthly, the general public should be permitted to take legal action against negligent companies. After all, these companies are wilfully neglecting their public duty. Therefore, the public should have a right to take legal action against these companies and the regulators.

These are just some proposals for starters. As we are getting a new occupant at No. 10, maybe they will resonate with the new leader of the Conservative Party.