Economic Growth (Regulatory Functions) (Amendment) Order 2024 - Motion to Approve (Continued)

Part of the debate – in the House of Lords at 7:02 pm on 15 April 2024.

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Photo of Lord Johnson of Lainston Lord Johnson of Lainston Minister of State (Department for Business and Trade) 7:02, 15 April 2024

My Lords, I am extremely grateful to all noble Lords for their participation in this debate. I particularly congratulate the noble Lord, Lord Leong, on what I thought was an excellent example of good rhetoric in terms of his parallels.

I shall cover some of the points in turn. I am happy to have further conversations with noble Lords about this important statutory instrument. I am grateful for the undertone of what I think the noble Lord, Lord Fox, was suggesting and the overtone of what the noble Lord, Lord Leong, was suggesting. Unfortunately, I did not hear a great deal of support from any other Member of the House; I am sorry to see that on my own Benches the enthusiasts of better regulation seem to have deserted me today.

Ultimately, the statutory guidance, which I will be happy to touch on in a few moments, is an important and useful document to help regulators by refreshing the statutory guidance that we already have. If noble Lords read the original document, as I suggested at the beginning of this debate, and compare it to what we have now, they will see that if you care about the economy, the environment and better outcomes then this is a far better document in terms of directing the regulators in how they perform and enact.

I also said—because this is a particular passion of mine—that this will enable us to have better regulation, not less regulation. This is about regulating in a better way for businesses, for the economy, for consumers and for this nation’s future growth. I said to my officials that I would like to avoid the topic of water and Ofwat and focus on the other 52 regulators and the opportunities this presents—but it is absolutely right, when we are looking at this broad waterfront of how we run our economy and how we regulate for our own safety, for trust in markets, for the consumer and for the environment, that we have this debate.

I would like to touch on the most important points relating to some of the issues raised around Ofwat. It is relevant to note that the Environment Agency has concluded 60 prosecutions, securing record fines of over £150 million against water companies. Ofwat is requiring 13 companies to return £193 million for underperformance over 2022-23. This money goes back to customers via their bills for 2023-24. The Environment Minister continues to meet underperforming water companies and there has been a great deal of press coverage of his statements over the last few weeks.

This is important. Since 2015, as I say, the Environment Agency has concluded 60 prosecutions, with fines of over £150 million. The regulators, a combination of the Environment Agency and Ofwat, have launched the largest ever criminal and civil investigations into water company sewage discharges at over 2,200 treatment works, following new data from increased monitoring. The Environment Agency can now use new powers to impose unlimited penalties for a wider range of offences.

This may surprise some noble Lords here, but the Environment Agency has been subject to the growth duty and the guidelines since 2017. This is a very important point to note. This growth duty does not derogate the power of the regulator to issue fines and to manage the industry it operates in. I want to emphasise that. Again, we are very aware of the importance of stressing this point because, if the general public and the body politic feel that this will in some way result in a bonfire of regulations, a deregulatory agenda, less regulation and fewer controls, it will not have the necessary popular support I want it to have. This is about better regulation, smarter regulation and empowering regulators to take into account the growth of the economy overall, which includes, as I said at the beginning of this debate, the strength of the environment, the power of the consumer, the broadness of choice and the principles of international trade. All these other drivers are not protective, necessarily, to a single company.

I know some statements were made about whether a regulator can adjudge on a decision that might affect a company on account of a regulation that comes into force. Of course it must, and it should: that is what regulators are doing. As I say, the Environment Agency has been subject to this—as have many agencies, including Natural England and, I believe, 48 other agencies, many of which are involved in significant specific regulation and ensuring that companies within their domain are properly managed. But there has been no comment raised about their ability to perform their functions since that date. I am very comfortable about that.

I also draw noble Lords’ attention briefly again to the statutory guidance, which I think for a guidance document on regulation is a rather wonderful thing. I will point out a few key points. The first is continually mentioned throughout the document. This is at my insistence and that of my Conservative ministerial colleagues in the Department for Business and Trade—with, of course, a high degree of collaboration with officials from Defra and other departments. It is essential to point out that the first paragraph says:

“It is a regulator’s responsibility to design rules that set a level playing field between businesses and to ensure adequate protections for consumers and the environment”.

I am very grateful to the noble Lord, Lord Fox, for mentioning the White Paper, which will, I hope, come to noble Lords’ attention over the next month. I see in this whole process a quadrille of the investor—by the way, we need huge investment in the water industry; we have had billions of pounds of it, and we want more—and the businesses themselves. Businesses face issues dealing with regulation. I want to touch briefly on some of the ways we can help ameliorate that. There is also the consumer. Regulation is, in most instances, about the consumer and ensuring that they are protected, treated fairly and that vulnerable consumers are properly looked after. They should have a choice, at the right price, that allows them to live the lives that we as Governments and politicians want them to live.

Then there is the more holistic principle of the broader environment. I stress again as a businessperson—many of us in this House have been investors and businesspeople—that at no point do we believe that a derogated environment is good for business. As the Investment Minister—I think it is important that all sides of the House hear this—my investors say very clearly to me that they do not want to invest in companies that break the rules, behave badly and get fined. They do not want to invest in companies that mistreat their consumers or have bad reputations. I am dealing with some of the best investors in the world. These are public funds that have a true ethical spirit to their activity; for example, the Canadian pension funds, or the AustralianSuper. It is not in the interests of any investor to have a poor investment in terms of how that company performs in the broader environment. That quadrille has to come together.

If you go through this document, you will continually see the principle of how the growth duty does not legitimise non-compliance with other duties or objectives. On page four it says that

“its purpose is not to achieve or pursue economic growth at the expense of necessary protections”.

To have a good, functioning market, we need strong protections to create the trust that allows the market to function. On almost every page—without being guilty of hyperbole, which sometimes I can be—is a reference to the importance of a healthy population and environment, or to the consumer and the broader environment.