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Clause 24 - Strategic priorities and objectives

Water Bill – in a Public Bill Committee at 2:00 pm on 10th December 2013.

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Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs) 2:00 pm, 10th December 2013

I beg to move amendment 136, in clause 24, page 57, line 6, leave out

‘may from time to time’ and insert ‘must’.

Photo of Linda Riordan Linda Riordan Labour, Halifax

With this it will be convenient to discuss the following:

Amendment 137, in clause 24, page 57, line 6, leave out ‘a’ and insert ‘an annual’.

Amendment 139, in clause 24, page 57, line 8, at end insert—

‘(1A) Following the publication of a statement under subsection (1) the Secretary of State may instruct the Authority to conduct a review of pricing of water.’.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

The amendment addresses what happens when Ofwat gets it wrong, perhaps through no fault of its own. The current price review period gives some good examples of what can change, and we heard an excellent speech this morning from my hon. Friend the Member for Leyton and Wanstead on Thames Water’s excess profits in the past year. There is a good reason why Thames Water made so much money.

I will not lecture Members on either side of the Committee about gearing, but Members understand that when Thames Water says to the regulator, “For the coming five-year period we would like to set our prices at a certain level”, part of the working assumption it makes is that it is borrowing money to make investments and will have to repay that money over a certain period at a certain rate. We can all understand how that works and why it is important that Ofwat is mindful of those facts when it sets the figure for the forthcoming price review. I am sure that the Minister will confirm that it is one factor that Ofwat will consider for all the water companies when it sets the price review for the next five years. We see it in the business plans as well.

However, there were particular circumstances in this price review. None of us could have foreseen—frankly, we would not be working in the House of Commons if we had foreseen it—that companies such as Thames Water would end up having to repay their loans at a  significantly lower figure than they had anticipated. Thames Water is not unique in this: a number of other water companies found themselves in a similar situation. This is exactly what happens when companies gear up in the way that they did. What makes Thames Water particularly noteworthy is that, unlike many other water companies in England and Wales that found themselves in this situation, it chose not to pass any of that excess profit back to householders. It has simply creamed off all the money into its own pockets, and that is simply unacceptable.

This group of amendments provides a mechanism for the Secretary of State to say, “This is unacceptable; water companies should not behave in this manner,” and to instruct Ofwat to reopen the price settlement. Water companies should not be allowed to cream the money off from hard-pressed householders and businesses and not pass on any of their unforeseen windfall profits. That is the point. We all believe that water companies in the market should be given a certain level of return, but when the return dramatically exceeds what was allowed for, something needs to happen.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley 2:15 pm, 10th December 2013

I am very interested in the hon. Gentleman’s argument and I want to press him slightly. How do we define an unexpected circumstance, and what triggers a review? It is a key question. We would have to define very carefully when it was reasonable to review the circumstances surrounding a factor. Thames Water may have decided—it probably did not—to sell its debt to investors at a certain rate, on the basis that its economic forecast suggested that interest rates might fall. How would his amendment address the clear business risk that Thames Water had calculated—in this case, perhaps correctly? How would he contrast that with what he would probably describe as gouging?

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

The hon. Gentleman is a thoughtful contributor to these debates, and I recall having a tentative discussion about knowns, unknowns and unknown unknowns. The problem is that he is tempting me to speculate on what an unknown unknown is by asking what an unforeseen circumstance is. I hope that he will understand if I say, very gently, that if I could foresee the unforeseeable, I would certainly be doing a different job.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

That goes right to the heart of my point. We need to be extremely careful to understand that if the hon. Gentleman’s amendment was passed, we would be trying to judge those unknowns before they happened. We will have to define exactly what we think might be unknown, in order to be fair to investors who have taken a risk investing in the water company.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

Perhaps the hon. Gentleman and I have slightly different views of how accountability works with decision making. We had a good example of this issue this afternoon, when the Secretary of State for Defence came to the House to explain a Government U-turn, and 45 minutes before that, we had another Government U-turn. I suspect that there will be a third U-turn later today. When a decision is made, there is accountability: the Secretary of State is brought before a Select Committee or Parliament and has to explain why they made that change.

If I understand the hon. Gentleman correctly, he is saying that we should not give the Secretary of State or Ofwat the power to reopen a price review because we do not know what the circumstances are. That is, if he forgives me, a strange argument. The whole point is that they are unforeseen circumstances. I appreciate that the hon. Gentleman and his colleagues are all in favour of excess profits, but the counter-argument is that if water companies suddenly found themselves in severe hardship, unlikely though that is, there would still be the mechanism to allow us to say, “Frankly, we need to go back and look at whether that investment programme is still deliverable.” That is the point about providing this power through the amendment.

I have an idea of what the Minister’s response will be, if he is not entirely enthusiastic about the amendment. I suspect he might say, “It is for not the Secretary of State but Ofwat to make that decision.” [Interruption.] It sounds, from that muttering, as if I have hit the nail on the head. I am more than happy to listen to what he has to say. If he does genuinely think that it is better for the power to lie with Ofwat, we are happy to reflect on that over the next 36 hours, because there is still the option for a new clause to be tabled.

Fundamentally, the amendment would provide consumers with redress. Thames customers in London and the south-east find that the company is saying, “That is our money and we are not giving a penny of it back to the households,” and Ministers and Ofwat do not have the strength to say, “Enough is enough. We need to put customers first and share some of the unintended consequences.”

We are clear that the amendment would address excess profits. For the same reason, we have capital gains tax: if someone makes a profit that is not due to their earnings, but because they have found themselves in an economic situation where their interest rate is significantly lower than anticipated, that is not due to their skill; that is because of the general state of the economy.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

I am slightly struggling with—

Sitting suspended for a Division in the House.

On resuming—

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

As I was saying before I was so rudely interrupted, I will take an intervention from the hon. Member for Meon Valley.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

I am grateful to the hon. Gentleman. As I understood it, he was developing an idea about measuring the difference between things that are deservedly charged for and money that is saved, and things that are undeservedly charged for, such as interest rate drops and so on, versus cost savings within an organisation. I hope that he agrees that it would be extraordinarily difficult to quantify exactly what is an internal matter that has been derived internally, versus what has been derived externally, and to come to some sort of judgment. It would be enormously bureaucratic and on a one-year cycle. I cannot understand how that idea can have a future.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

Let me say two things to the hon. Gentleman. First, I think his constituents and constituents of all those in the Thames Water area would say that it is inconceivable that Thames Water should be allowed to go on price-gouging its customers for five years, without any recourse from Parliament and regulators, so I completely disagree with his point. Secondly, as I expect the Minister will point out to him, Ofwat already has those powers in very limited circumstances, so this is not a leap in the dark; we would not be jumping off the market cliff when we introduced it. I expect that my hon. Friends will make the point that it is simply unacceptable for organisations such as Thames Water to make huge profits, year on year, with no regard to the wider financial environment in which our constituents are operating.

As we said previously in this short, but quite lively debate, Thames must have a duty to reflect on the economic circumstances that face people. I will come back to the point that the hon. Gentleman made. He is absolutely right and has nailed one point: we in the Opposition are not talking about profits that are generated by the company proactively making efficiency savings; or profits from driving down its costs through its own actions. If, for example, it takes genuine steps to reduce bad debt and then says: “We want to keep a portion of that money”, that is a reasonable step. However, when actions are taken that are outside its control and over which it has had no responsibility, and it finds itself making hundreds of millions of pounds in excess profit, I believe that it is right, and I am disappointed that the hon. Gentleman does not seem to agree with me, that some of that money should go back to hard-pressed customers.

We might have a good, lively debate over the next few minutes, and I would welcome the Minister’s thoughts on how he will now listen to customers and put them ahead of the vested interests.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

Thank you, Mrs Riordan. It is worth remembering that Ofwat’s primary purpose is to ensure value for money. Looking at the profits in the water industry—and there have been some fairly hefty ones—one would have thought that this would perhaps involve the water companies giving their customers the benefit of the profits that they had made, but that has not generally happened.

To give a few examples: Severn Trent Water has paid out £6.2 billion in dividends; Thames Water, as I said earlier and which my hon. Friend has talked about, has paid out £6.3 billion. United Utilities, in the north-west, has paid out £7.3 billion and Anglian Water has paid out a straight £6 billion. In total, the water industry has paid getting on for £40 billion in dividend payments since privatisation. There are clearly some water companies that are not making the spectacular profits we are talking about, but many others—some of the biggest ones covering some of the largest and sometimes poorest areas of Britain—are making spectacular profits and their customers are not seeing anything of those profits.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

My hon. Friend makes a compelling case. Would he be surprised to know that in the Secretary of State’s last letter to water companies, he actually said that this was the greatest success of privatisation in the last 25 years? Does my hon. Friend think that £40 billion profits is what the Secretary of State had in mind?

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

I would say two things. A lot of people are finding it difficult to pay their bills and are seeing them rise, including Thames customers and many others; and hon. Members on both sides of the House of Commons will find it extraordinary that the Secretary of State makes those sort of claims. I will mention the previous debate on the water industry on 5 November, and quote the hon. Member for Skipton and Ripon (Julian Smith). I was reading his speech—something that I do in an odd moment when I want to read his inspiring and uplifting speeches. In fact, I am thinking of having his collected speeches bound and given out this Christmas as presents.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

I am sorry. Is the hon. Gentleman already giving them out?

The hon. Member for Skipton and Ripon made a powerful contribution to the water debate. Part of the way through his speech he said that the figures from Yorkshire Water showed that,

“it is exploiting my constituents and people across Yorkshire”.

I never saw the hon. Member for Skipton and Ripon as a hard-left activist, perhaps working for the north Yorkshire left auxiliary. I always saw him as a pretty solid right-wing sort of bloke. Before I ruin his career, may I point out to the Whip that I am joking? He is not really a hard-left plant in the Conservative party and, as far as I can see, he tends to have fairly traditional free-market views. However, the behaviour of Yorkshire Water spurred him to say the following in the debate:

“In 2013 it”—

Yorkshire Water—

“made an operating profit of £331 million on a turnover of £936 million. Average increases in bills were 6.6%”— well above inflation—

“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”.

A number of us have made that point. He went on to say:

“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.”—[Official Report, 5 November 2013; Vol. 570, c. 213.]

I think everyone will agree with that. It demonstrates that hon. Members on both sides of the House feel a similar sense of anger and outrage on behalf of their constituents at the naked profiteering of certain water companies.

Photo of Mary Glindon Mary Glindon Labour, North Tyneside 2:45 pm, 10th December 2013

Does my hon. Friend think that the concern felt on both sides of the House is highlighted by the fact that more than 700,000 pensioners and more than half a million families spend more than 5% of their income on water? No wonder there is such concern across the House about the exorbitant money that the companies are making.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

I agree completely with my hon. Friend. Those pensioners and families are not just in Labour or other Opposition party constituencies. They are in the constituencies of all the major parties, including those of the Conservatives and the Liberal Democrats. That fact is reflected in the public’s general perception of water companies. The polls show that the public think water companies are profiteering and taking advantage of what they perceive to be a rigged market. They think that companies use complicated taxation techniques to avoid paying their obligations. H Ms on both sides of the House disapprove of that.

That view is reflected in the fact—the Government should take notice of this—that in the last poll that I saw 72% of people said they believed that water would be better off nationalised. Whether hon. Members believe in public ownership, as I do, or in the free market, that is a serious problem for the water companies and the Government. It is not sustainable that 72% of people—in some polls the figure is higher, in others it is slightly lower—have such contempt for the water companies that they think water should be brought back into public ownership rather than remain in the private sector. Many hon. Members strongly believe in the free market, but they should recognise that that serious problem must be overcome by the water companies and the Government.

Finally, we were told for many years that investment in water infrastructure would deal with the many leaks. In 1995, 3,755 million litres of water a day were being lost to leaks. After struggling heroically for nearly 20 years, the water companies have got that figure down to 3,000 million litres a day. That shows that they are not even investing successfully in the infrastructure. What they are investing in is doling out profits and payments. Many chief executives and senior people in the water industry are giving themselves enormous rewards far higher than inflation, which is fuelling the outrage that is felt on both sides on the House. I want to emphasise the fact that it is both sides of the House. Members of all parties have contempt for the way the water companies have behaved. The hon. Member for Skipton and Ripon—I keep using him as an example because he has a very different political view to me—wants to break up the big companies and create more competition. I want to see water brought back into public ownership. But what drives our criticism of the water industry is the same feeling that our constituents are being taken for a ride.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

Hon. Members can agree that the water industry needs to face up to issues about its profitability, directors’ remuneration and so on. As the hon. Gentleman demonstrated, hon. Members on both sides of the House are concerned about that. I want, however, to concentrate on amendment 136. The truth is that it cannot possibly deliver what the hon. Member for Dunfermline and West Fife wants. In fact, I look on it with horror. I understand its benign intent and I agree with much of what he wants to do, but it cannot deliver. First, the point I made to him earlier must be addressed: what is or is not a reasonable factor? Who decides that? What is an internally generated profit and what is an externally generated profit?

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

I am listening to the hon. Gentleman’s point, but I suspect it would be for the Secretary of State to determine what a reasonable or unreasonable factor is.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

That is what the hon. Gentleman’s amendment makes clear. I would say it is beyond the wisdom of Solomon for anyone to do this job with a continually rolling one-year view. In what time frame does he envisage this profit is made—is it in the past year or the future? The amendment does not mention that. At what stage will we see proposals on how Ofwat will be instructed? Will that be for the Committee to do at a later stage, or the Secretary of State? I do not know, as that is not in the amendment and we do not know any of the hon. Gentleman’s answers to those questions.

Ultimately, the amendment would just be a charter for Ministers to interfere and play politics with an industry that is important to all of us and on which all of us rely. It will also be a charter for accountants, bankers and lawyers, who will endlessly get involved in trying to assess what it is that the Secretary of State is trying to get at on such a regular, rolling basis.

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

My hon. Friend is making an excellent point. In fact, it is slightly worse than that. A Secretary of State who may not want to play politics will be forced into making a statement on an annual basis, so even those who want to allow Ofwat to get on with doing the job will be pulled into doing that.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

At the very least, we would have to come up with some byzantine and complex metric by which, each year, the Secretary of State would have to measure whether they ought to interfere.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

I suspect that the hon. Gentleman was not at oral questions when the Secretary of State trumpeted that he had sent a stiff letter to the water companies. If that is not playing politics, what does he think is?

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

My view is that what the hon. Gentleman proposes would institutionalise the interference; it would set it down in statute that, every single year, the Secretary of State had to stick their finger in the air, try to gauge where the wind was coming from and decide whether to interfere. An extraordinary metric would have to be drawn up and approved by Parliament for that to be judged each time, and I see no proposals in the amendment on how that would come about.

Finally—this is the only point that really matters—it would crucify the fundraising abilities of water companies. They can borrow at the rates available to them because they are utility businesses with a five-year projection that lenders can understand, and they can begin to see their returns over that period. I guarantee that if the amendment were accepted by the Committee and put forward to the House, the share prices and long-term debt ratings of water companies would go through the floor and the amount of interest they would be charged to borrow would go through the roof. That would have an impact on all consumers immediately.

For whatever benefit there may be in punishing or docking the profits of water companies on an ad hoc basis—in fact, the amendment does not explain that one way or another—the only certain outcome would be a great deal of cost for bill payers owing to the increased interest rates faced by those companies. The real advantage that those businesses have at the moment is that lenders have certainty about what they are lending to and what their returns will be, so that they can offer a  low interest rate. That will only increase if the hon. Gentleman’s amendment is accepted. I give way for a final time.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

I am grateful that the hon. Gentleman gave way, though I think I gave way more often to him.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

It is only because I am about to sit down.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

Does the hon. Gentleman accept that the returns enjoyed by water companies outstrip those of any comparator? Even big retailers such as Tesco or Sainsbury’s make nowhere near that level of return. Has investment in water companies not been a cash cow for years?

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

The hon. Gentleman will know that the reasons those returns are allowed in this monopolistic situation is the enormous investment that is required to ensure that it functions at all. Since privatisation, £125 billion has been funded by the private sector at reasonable rates of interest, because there is certainty.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

It is the percentage that is higher. There is a higher rate of return for water company investments than anything else, including retailers and high streets; it is the percentage return that is so ludicrous, and we want a cap on that.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

I think that the hon. Gentleman understands as well as I do that the levels of return are set by Ofwat. If he has a complaint about the levels of return taken by water companies, he should talk to Ofwat about the job it is doing, and why it is failing so badly at it. I have made my points. The amendment is poorly drafted. The intention is clear, and I understand why the Opposition would want it—

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

On a point of order, Mrs Riordan. I hope it is not in order for the hon. Gentleman inadvertently to criticise the Clerks for their drafting.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

As far as I am concerned the amendment is the hon. Gentleman’s. I do not believe that the Clerks are responsible for it. He has tabled it and moved it, so it is his amendment. My opinion as a member of the Committee is that it is poorly drafted and does not include all it should to make it workable. In any event, I think it is unworkable.

Photo of Pat Glass Pat Glass Labour, North West Durham

I think there is understandable anger on both sides of the House about the water companies’ behaviour in the past five years. There have been pretty huge profits, dividends and bonuses. Some companies, we have heard, pay no corporation tax and do not intend to pay any for the next 10 years. Bills have increased by more than inflation for most of our constituents.

I take the point that the hon. Member for Meon Valley made about huge investment, but that has slowed down significantly in the past five years. As has been mentioned, 72% of constituents want a return to public ownership in some areas. I do not necessarily advocate that, but there is a problem in the market if 72% of the people who vote for us believe that the market is broken.

It is not fair to consumers when apparently a price review can be re-opened on one side but not the other. The situation has come about because of the recession, quantitative easing and the low interest paid by water companies. In the current price review, that has contributed to huge profits for some water companies—much greater than they, Ofwat or the Government expected.

However, those additional profits have not been passed down to consumers. In fact, for most consumers costs have gone up well above the rate of inflation. Yet companies have attempted to re-open the price agreement —for example, Thames Water has been considering an 11% increase within the current price review.

It seems that the water companies can open the agreement during the price review, but the Government cannot. I understand from the Secretary of State that Ofwat has the power to do it, but clearly it is not doing it. I agree with the hon. Member for Meon Valley; we must wonder what Ofwat is for, if it can allow such price increases and profits and not intervene at all.

My understanding is that what is proposed would not be forced on the Secretary of State; it would simply give him a power. Whether that is the right way to proceed or not, I think that we all recognise that the current arrangement is not working, and are trying to find a way to improve it for consumers.

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

I thank the hon. Member for Dunfermline and West Fife for the amendments. Their combined effect would be to require Ministers to issue a new statement setting out strategic priorities and objectives for Ofwat each year. That seems excessive, as my hon. Friend the Member for Meon Valley has pointed out.

The Government set out our clear vision for the water industry in the water White Paper. It is a long-term vision and our priorities and objectives for Ofwat are similarly long term. The Government’s principles for economic regulation place a requirement on all the Departments responsible for sponsoring an economic regulator to issue such a strategy and policy statement. However, in view of the importance of regulatory stability, the principles stipulate that those statements should normally be issued no more often than once in a Parliament. We have committed to producing a strategic policy statement for Ofwat on a five-yearly cycle, in line with the price review.

A further effect of the amendments would be to allow Ministers to instruct Ofwat to conduct a price review each year. Again, that seems excessive. It is widely recognised that investors place a very high cost on the risk of political interference in the regulatory regime. It is not a theoretical risk. As we said earlier, a 1% increase in the cost of capital will add £20 to every household’s water bill. The inability to plan effectively for the long term would seriously deter investors and undermine the long-term resilience of the sector. Furthermore, a price review is an intensive process, absorbing significant time and energy that water companies and the regulator might better spend on improving services to customers.

Ofwat already has all the powers necessary to revisit price settlements using the substantial beneficial effects clause in company licences. In some measure, that might reassure the hon. Member for North West Durham.

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

That is interesting, particularly with regard to what the hon. Member for Leyton and Wanstead has said. To confirm, Ofwat has recently concluded a consultation on whether to use the substantial beneficial effects clause in respect of Thames Water. It is now considering whether it will take action on that basis, so the process is in train.

The system has sent out clear signals ahead of the next price review period. In response to that, some companies are saying that they will do better in addressing those issues in the next review period and look at their bills in the last year of the current period. Companies are getting the message, but I accept that we want a regulator that takes its pricing responsibilities seriously. That is why the Secretary of State made it clear in his letter that the Government will expect Ofwat to have regard to that. Of course, Ofwat is taking pricing seriously. The message it has sent to companies is very clear and we are starting to see the fruits in the companies’ responses.

The first concern is that we would risk the investment we have had in the sector. I want to put on record that, when the Secretary of State spoke of the great successes of the industry, he meant not profits, but investment. I accept that the two things might be linked, in that investors want profits when investing in businesses. The key point he wanted to make was on investment in the period since privatisation.

The second concern is the burden. The hon. Member for Dunfermline and West Fife is not worried about the burden on companies—he is quite clear that they have the capacity to deal with it and will just have to get on with it—but there is also a burden on the regulator. We want the regulator to work for the long term. We have mentioned the resilience duty we are introducing. We want a package of measures that enables the regulator to take a long-term view. If there are extreme variations in billing, because circumstances change, Ofwat has the power to do something about it—it is consulting on doing something with regard to Thames Water, a company that many people are concerned about.

Photo of Pat Glass Pat Glass Labour, North West Durham

Is the Minister happy that Ofwat has considered intervening only once in five years? Does he believe that that is a huge burden on the companies? Is that good enough for our voters and consumers?

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

I do not believe that that is a huge burden. The burden to which I was referring was the burden in the amendment tabled by the hon. Member for Dunfermline and West Fife—he wants to confer on every company the burden of taking up annual negotiations and discussions.

I accept that the hon. Gentleman is seeking to ensure that the voices and needs of customers are borne in mind, and that the regulator looks at what might need to be done when market conditions are different from those envisaged at the beginning of the period. Ofwat has the power to do something in such circumstances and, as we have seen, it can take companies’ situations into account ahead of the next price review period.

In summary, the hon. Member for Dunfermline and West Fife has not made the case for his amendments. They would be to the detriment of everybody involved in the process, including, ultimately, customers.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

This has been a good debate. It has been lively and we have had a healthy exchange. I congratulate my hon. Friends the Members for Leyton and Wanstead and for North West Durham on standing up for their constituents in two excellent and pithy speeches. I also welcome the contribution of the hon. Member for Meon Valley. I shall respond to a few of the points that have been made, but the Minister is right that we ended up talking about the review amendment and did not spend enough time discussing the statement of priorities.

The Opposition agree that we need to look at Ofwat’s balance of powers. I have a hunch that we will debate some of those duties in a broader sense next week. We believe that the regulator needs to consider the consumer more than it currently does. It will come as no surprise to the Minister that the Opposition believe it is not, and should not be, a purely economic regulator. We believe it has a stronger role in standing up for the consumer, as my hon. Friends have argued so eloquently.

The Opposition and the Government have fundamentally different approaches to the role of regulation. For the market to work effectively for both the producer and the consumer, the right balance must be struck. At the moment, the situation is unequal. I do not believe that lying down and having one’s tummy tickled by the water companies is an acceptable approach to regulation.

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

The hon. Gentleman rightly seeks to point out differences between the Government and Opposition—sadly, we occasionally differ—but I would highlight the relationship that the Secretary of State and Ofwat have had with companies. A clear framework has been set out by the Secretary of State, Ofwat is taking action on prices, and the companies are responding. We could contrast that with the position under the previous Government, when none of that happened.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

Again, if I may repeat the exchanges from this morning, the Labour Government were the only Government to cut prices in a price review. It is disappointing that the Secretary of State has not yet—[ Interruption. ] The Minister seems to be making a sign in the style of someone from “The West Wing”.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

We heard that in a water industry debate on the Floor of the House. We heard hon. Members shouting about how bills came down, but they went up. There was a small dip, but they went back up, meaning that my constituents, who are Yorkshire Water customers and have many of the problems the hon. Gentleman has described, ended up paying more overall. The statement he is making is not a virtuous one.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

I am most grateful, if for no other reason than the hon. Gentleman has demonstrated that, while Yorkshire has some of the finest MPs in the House of Commons, they are not universally fine.

The Minister referred to letters sent by the Secretary of State, which was a central point made earlier by a Government Member. The Government are trying to have their cake and eat it. On the one hand they say that it is fantastic that the Secretary of State has written a letter—one letter—setting out a clear framework. At the same time, the hon. Member for Meon Valley says the Government should not intervene regularly.

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

Just to help the hon. Gentleman, every five years we have a statement setting out strategic priorities. That is the key point. The recent letter was on the price review period generally. The strategic statement is clear. It will be once every five years, unlike the yearly option. The hon. Gentleman quite legitimately argues for the yearly option, but has failed to make the case.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

May I press the Minister on that? I am genuinely unclear. Is he saying that the letter was a one-off and that it was not sent because of the current cost of living crisis? He shakes his head. Was it a one-off letter because the Secretary of State had not spoken to the water companies for some time and wanted to catch up with them, or was it his one letter for the five-year period? I genuinely want to understand what the letter was for.

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

Again, the hon. Gentleman is not looking at the strategic statement, which is issued once every five years. Any Secretary of State may write to water companies or other people in any sector with which they are connected. That is natural. We do not want full-on, regulatory change every year or a price review every year, which the hon. Gentleman proposes in his amendments. That is the difference.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

Perhaps the Secretary of State wrote to the water companies because he had not spoken to them for four months and wanted to catch up and talk about the weather. The reality is that the Minister—inadvertently, I am sure—has misrepresented the Opposition position on the amendment. We are not saying that the price review would be reopened every year. We are saying that, when there are exceptional circumstances, when excess profits are generated not through the work of the water company but because of a broader economic environment—interest rates and the QE process—and when the water companies refuse, as Thames is doing, to hand one penny back to their customers, the Secretary of State should stand up for consumers in that water company area. If Ofwat will not stand up for the consumers, the Secretary of State will.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

Will my hon. Friend bear in mind that it was not just that Thames wanted an 11% increase in bills next year, as I mentioned earlier? It also wanted an £80 to £90 flat-rate increase in bills at the same time, and above-inflation price increases for the next five years, after it paid out something like £6.3 billion in dividends. A lot of people would say that that is taking things a bit far. Ofwat has been prepared to intervene only mildly, but it remains to be seen whether it will be successful.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

My hon. Friend is right. Some might argue that this is an appropriate debate, because Thames Water is taking the water substances out of its customers through this repeated process. He is absolutely right to highlight Thames Water’s repeated attempts to come back to Ofwat, like poor Oliver Twist, saying “Please Sir—please, Mrs Ross—may I have some more?”

The reality is that Thames Water has returned to Ofwat arguing that there has been a material change. It has tried to argue that the cost of bad service and bad debt has gone up, and that the cost of sewer laterals is new, as if it did not always exist. For those who are  unfamiliar, sewer laterals are the small pipes that connect houses with the broader connection. It is taking the proverbial out of customers by saying, in these hard-pressed times, that it wants even more money. Opposition Members have been absolutely firm in saying that that is unacceptable. It is disappointing that the Secretary of State has not shown the same robust level of intervention. He clearly does not want the power to say, “Enough is enough,” when there is a material change to the economic situation.

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

Let me come back to the point of having a robust regulator to make interventions. The regulator has the power to make such interventions, but the hon. Gentleman is saying that it should be up to the Secretary of State to take a view on a yearly basis. The amendments propose an annual statement—effectively, that is the difference in approach. There would be no decision to issue a statement because the statement would be annual.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

As we go on, I hope we can reach a bit more common ground in the spirit of making progress. To clarify, the Opposition say that Ofwat should annually review the pricing structure to ensure that it is what it was supposed to be at the start of the review. However, it would not then vary the pricing structure unless an exceptional change had taken place. I have to keep repeating that Thames Water’s profits last year owed not to its efforts, but to the wider climate. There is no unreasonable burden on Ofwat to monitor such situations. Thames Water, as we have already heard, has asked Ofwat to do that very thing, but it should be doing it at the behest of the consumer, not just at the behest of the water company.

The Minister has mentioned investor confidence. The water market is the cash cow market. He will recall from his time on the Environment, Food and Rural Affairs Committee that, when organisations such as Moody’s gave evidence, they confirmed that the returns have been staggering. We heard numbers from my hon. Friend the Member for Leyton and Wanstead on the size of the profit. No other industry in the last 20 years has made such a return—a 20% return. The return for investors is platinum plated, at the expense of our hard-pressed constituents.

I make two points in closing. There was a very good debate about how we judge the success of a privatised market. I am with my hon. Friend the Member for Leyton and Wanstead: I do not think, as the Secretary of State seems to, that we judge success in terms of the £40 billion that has been taken out of customers’ pockets.

Photo of Dan Rogerson Dan Rogerson The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs 3:15 pm, 10th December 2013

I did clarify that the Secretary of State views success as being the billions of pounds of investment that has gone into the industry, which would not have happened under the previous system. No doubt the hon. Gentleman will now talk about the Scottish case. Under the previous system, we would have struggled to find that level of investment in infrastructure for sewerage and so on in an area such as mine. I am clear that that is what the Secretary of State was talking about. He was also clear that he expects Ofwat to look into and to regulate the price process effectively.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

It is quite unusual for a Minister to give the answer for me. He is absolutely right to mention the Scottish model. It is a bit like “Macbeth” becoming “The Scottish play”—we refer to that model constantly now in this debate. We are clear that it is not a good sign of the success of a market when there is such widespread appetite, among the public and elsewhere, for changing the ownership structure. It is a sign that something is failing. We want a successful market. All the amendments we have proposed today, I think the Minister would agree, have been constructive ways to make the market work better, but consumers have to be protected.

Photo of Roger Williams Roger Williams Liberal Democrat, Brecon and Radnorshire

In the discussion of different ownership models, nothing has been said about Welsh Water. There, of course, the issue of distributing dividends to shareholders does not occur because, if there are dividends to be distributed, they go to customers, and if not, any surpluses are reinvested in the company for the benefit of customers.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs)

I am most grateful for that observation. What is great about devolution, and the reason devolution is clearly working, is that we have different models for different parts of the United Kingdom. There is a model in Northern Ireland and a different model in Scotland. It is one of the benefits of devolution in action. It is perhaps something that the Minister and I would agree on.

I am conscious that we still wish to make a lot of progress on the Bill. I have listened carefully to the Minister. In the spirit of not delaying the Committee and of working with him, I will take away his questions about whether it is the Secretary of State rather than Ofwat who should be pulling the trigger on the review and consider whether a new clause on Tuesday might address some of his concerns, so that he can support it. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: Amendment 99, in clause 24, page 57, line 23, leave out ‘and’ and insert—

‘(fa) the NRBW, and’.

Amendment 100, in clause 24, page 58, line 19, leave out ‘and’ and insert—

‘(fa) the Environment Agency, and’.—(Dan Rogerson.)

Clause 24, as amended, ordered to stand part of the Bill.