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New Clause 33 - Duties of undertakers to furnish the Secretary of State with information: annual review

Water Bill – in a Public Bill Committee at 10:00 am on 17th December 2013.

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‘(1) Section 202 of the Water Industry Act 1991 (duties of undertakers to furnish the Secretary of State with information) is amended as follows.

(2) After subsection (1A) there is inserted—

“(1B) Any company with a duty under subsections (1) and (1A) must furnish the Secretary of State and the Authority with an annual review which provides information about—

(a) their performance;

(b) the total amount of investment;

(c) their taxation structure;

(d) their corporate structure; and

(e) the total amount of dividends paid to shareholders.

(1C) Information under subsection (1B) must be provided prior to the publication of the annual statement of the Secretary of State under section 2A.”.’.—(Thomas Docherty.)

Water companies are required to provide information annually to the Secretary of State regarding their performance, investment, taxation structure, corporate structure and total amount of dividends paid to shareholders.

Brought up, and read the First time.

Photo of James Gray James Gray Conservative, North Wiltshire

With this it will be convenient to discuss new clause 45—General duties with respect to water industry: consumer objective—

‘In pursuit of its duty under section 2 (general duties with respect to water industry) of the Water Industry Act 1991 the Authority must—

(a) take into account all information provided by section [Duties of undertakers to furnish the Secretary of State with information: annual review]; and

(b) may consider such information when determining whether reopening a review of prices would further the consumer objective, set out in paragraph (2A)(a) of the 1991 Act.’.

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

This new clause goes to the heart of what kind of water industry we want. We had an excellent debate last week, with superb contributions from my hon. Friends the Members for Leyton and Wanstead, for South Shields and for North West Durham about their water companies and matters such as tax avoidance. I suspect that today we will have a slightly shorter but equally important debate about the water industry.

We could debate the successes and failures of 24 years of water privatisation all day, although I am not sure you would let us, Mr Gray. I do not propose that we  rehearse those arguments this morning. However, the Minister must surely accept—my hon. Friend the Member for Leyton and Wanstead made this point well last week—that the public are clamouring for the industry to be brought back into public ownership. I do not want to get drawn into the merits of public versus private ownership, but something has gone wrong with people’s confidence in the industry. We see it with banking and—dare I say?—with energy companies and with politicians. Public faith has been battered over the past decade or more by the bad practices of a small number of individuals.

Earlier on, the Minister accused me, slightly unfairly, of telling it as I saw it. In the spirit of openness, I have met a number of senior executives from the water industry not only in the past few weeks since receiving my elevation but during my time on the Environment, Food and Rural Affairs Committee, on which I served with the Minister. The water industry includes many talented individuals who are making a real difference for many of their customers and undertaking a number of substantial and significant programmes. However, a number of individuals and water companies are not operating to the highest standards.

Just a few weeks ago, there was an excellent debate in the House, in which the hon. Member for Brigg and Goole participated and to which my hon. Friend the Member for Leyton and Wanstead referred last week, that highlighted practices by Yorkshire Water, for example. If the hon. Member for Brigg and Goole has the figures to hand and wants to correct me, I am more than happy for him to inform me if I get them wrong. Yorkshire Water has made huge, eye-watering profits over the past few years. Its dividend payout jumped from, I think, £63 million three years ago to some £250 million last year. At the same time, Members on both sides of the House agree that it has not done enough to support customers in Yorkshire. The hon. Gentleman referred to some of his constituents who had been left out of pocket following thousands of pounds-worth of damage to their properties due to what he saw as the failure of Yorkshire Water adequately to secure its assets, causing flooding. I cannot recall which town was damaged.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole 10:15 am, 17th December 2013

I thank the hon. Gentleman for his timely referral to my comments in the House. It was the town of Goole that was affected. Just last Monday, the East Riding of Yorkshire council’s flood report confirmed that the town flooded due to a failure to manage the Carr Lane pumping station appropriately. The hon. Gentleman’s comment provides the perfect opportunity to repeat my call to Yorkshire Water, which, as he pointed out, has made huge profits, to compensate people in the town for its failure to protect us.

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

I am most grateful. I suspect that we may hear more from the hon. Gentleman as this short debate continues. I cited that example because I thought that we had a good debate on the water industry. It was not the only reason why we tabled the new clause, but it certainly went through my mind and that of my hon. Friend the shadow Secretary of State when we listened to that debate.

There is genuine concern on both sides of the House. We heard it last week and before, from the Public Accounts Committee and from MPs up and down the  country. Opaque practices are being adopted by some water companies. The headline figures are shocking to most of us: pre-tax profits of £1.9 billion and £1.8 billion paid out to shareholders. The water companies are, of course, acting entirely within the law. No one would seek to suggest otherwise—privilege or not. It is a fact. However, that does not mean that the law is not an ass and that we do not need to work together to improve it.

We need to restore public confidence in the chief executives. It is frankly astonishing that chief executives of water companies are on seven-figure salaries. Let us just think about that for a second: some of these water company chief executives are earning more than £1 million a year. I do not think that that is acceptable when constituents are struggling to pay bills. We had an excellent debate on affordability last week, and I congratulate my hon. Friends on their contributions. It is simply unacceptable that fat cat chief executives and board directors are earning £1 million-plus salaries with no recourse for their customers.

There is a great debate about the water companies’ performance. I believe that the issue is not just whether we have clean and safe water coming out of our taps; the Committee has had good debates about abstraction, sustainability and corporate responsibility. The Opposition believe that, to restore public confidence—dare I say it, we are almost being helpful to the industry, shocking as that may be to the Minister—each water company should be required to produce an annual report that sets out how it has performed.

I would measure performance not just in terms of the water coming out of taps, whether in Hertfordshire or Herefordshire; I would also take into account what flood improvement measures have been taken. So far we have not really debated surface water flooding, but frankly the water companies must do more to tackle the part that they play in that.

That leads to the question of investment. It is simply unacceptable for water companies to use tax evasion and avoidance models to fund investment. I believe that some of that £1.9 billion of pre-tax profit should be going back into funding the investments necessary for abstraction, flood defences and making water more affordable.

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

Would the hon. Gentleman like to alter slightly what he just said to clarify that he was talking about tax avoidance rather than tax evasion? I would like it to be clear for the record that he is referring to tax avoidance schemes that are legal.

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

I refer to what I said earlier: I believe that water companies are operating entirely within the law. I am most grateful to the Minister for catching my slip of the tongue—he is as helpful as ever. However, we must have real transparency about how much water companies are investing. Many of our constituents are baffled. I have nothing against the overseas territories—the Minister is aware that I have taken a close interest in them over the years—but many of our constituents are not quite clear about why places such as the Cayman Islands seem to be such popular places for basing parent companies.

I am happy to put on the record that I believe it is no longer acceptable for a water company to borrow against itself and from itself as a way of avoiding tax. Since the Minister picked me up on it, let me make the distinction clear for him: I believe that although such a practice might legally be considered avoidance, morally it is evasion. I hope that that clarifies matters for the Minister.

When water companies are making such outrageous profits, it is not morally acceptable that money is not being put back in, either to reduce the cost of household bills or to make improvements necessary for the flood defence resilience and abstraction reform that both sides would like to see.

We must also have a clearer understanding of water companies’ corporate structures to understand not just why so many of them seem to have such an interest in tax havens, but how their structures work. Is it acceptable that water companies are giving such large salaries to their senior board members? It is right that we understand more about the dividends paid to shareholders.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

Will the hon. Gentleman tell the Committee whether the new clause is probing, or whether he intends to press it to a vote?

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

I always struggle with the idea of probing new clauses, because we have not heard what the Minister has to say. I have some form on pressing new clauses, however, so let us see what happens.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

If I may, I will take it that the hon. Gentleman intends to press the new clause to a vote. I understand his sentiments, and I have some sympathy with some of the profitability and pay issues, but if the new clause is to be added to the Bill—he has given personal explanations on what “performance” means and what “total amount of investment” means—it needs to be precise about what those words mean.

Photo of James Gray James Gray Conservative, North Wiltshire

Order. The hon. Gentleman must be brief.

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

I am not sure what the hon. Gentleman does not understand about the phrase “total amount of investment”.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

It is a small, trivial example perhaps, but it is nevertheless an example: is the training of staff an investment?

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

I am most grateful. I suggest that the companies do a section on investment in their own staff. The hon. Gentleman made a valid point about the lack of investment across the board. It is ridiculous that chief executives are being paid seven-figure sums when many of their employees are struggling on pay restraints. I mentioned workers, and in the interests of clarity I draw Members’ attention to the Register of Members’ Financial Interests, so that the hon. Member for Morecambe and Lunesdale (David Morris) does not run off to complain about me.

The hon. Member for Meon Valley leads me on to a serious point. We need to look at the investment in staff and communities as well as in infrastructure. When the water lobbyists were running around trying to persuade us not to champion social tariffs and not to try to make water companies do a little bit to help their hard-pressed  customers, one of the ridiculous briefings that we had from Water UK said that water companies do such good community works and give lots of money to Citizens Advice and to corporate social responsibility activities. Given the low regard in which water companies are held by the public and by Parliament, we believe that they need to set out their investments—not just in infrastructure and concrete, but in staff and the communities they serve.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

The hon. Gentleman makes my point for me. If the new clause is to be added to the Bill, we need to know precisely what is meant by “performance” or the “total amount of investment”. What counts as an investment? Does he not agree that the new clause needs a great deal more precision? Otherwise, it is meaningless.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs) 10:30 am, 17th December 2013

I would be wrong if I suggested that the hon. Gentleman had not read the Bill, but the Bill is riddled with provisions that set a policy framework for the purposes of secondary legislation. It is not for the House to bind the Secretary of State on what he or she believes is a satisfactory report, which might change over a period of time. I go back to the debate on the water industry that we had at the start of November, where a wide-ranging set of issues was raised. Those issues might change over time.

The new clause is absolutely clear. The hon. Gentleman is hiding behind semantics if he does not think that—

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

The hon. Gentleman has to give way on that point.

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

I will give way in a moment. Performance, investment, taxation and corporate structure, and the total amount of dividends paid to shareholders, should be clear specifics.

Photo of George Hollingbery George Hollingbery Conservative, Meon Valley

Every other part of the Bill refers to schedules and/or the right of the Secretary of State to define through secondary legislation what is meant by x, y or z. I am afraid that the hon. Gentleman himself is hiding behind obfuscation. Three of the items on his list of five are already publicly available information. The first two, in proposed new paragraphs (a) and (b), are simply so vague that they cannot be defined in the Bill in such a way. I submit to him that his new clause is not viable.

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

The hon. Gentleman contradicts himself—he has a great future as a Lib Dem, because he has contradicted his own speech. He says that three of the things are available, so it should not be difficult for the water companies to pull the information together. It will not be onerous. [ Interruption. ] I will happily give way if the hon. Gentleman wants to make a further intervention. He seems quite exercised this morning; I think he has had his oatmeal.

We are not asking the water companies to undertake an onerous task. In a previous life, many years ago, I used to work in a controversial industry—I helped to write our corporate responsibility report. It is for each water company to take the opportunity to set out what they are doing.

The hard fact, however, is that the public have lost confidence in the water industry; they are sick and tired of seeing £1.9 billion in pre-tax profits, with £1.8 billion of that heading out of the door to shareholders. The public have heard not only from the hon. Member for Brigg and Goole, but from other Members from up and down the country that water companies are failing to meet their responsibilities, while getting richer and richer at the expense of hard-pressed customers. The new clause is a small measure, which should not be onerous for the water companies, but would provide a real opportunity for us to hold those executives to account.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

It is a pleasure to serve under your chairmanship this morning, Mr Gray. The new clause has some merits, although I take the point made by my hon. Friend the Member for Meon Valley about whether we might have to define more tightly some of the things it calls for.

I want to speak a little about my own experience with water companies. The 250 square miles of my constituency are covered by three different companies: Yorkshire Water, in the area where I live; Anglian Water; and Severn Trent Water. I have experience—in some cases, bitter experience—of dealing with our water companies. The shadow Minister tempted me to speak by referring to my experience with Yorkshire Water in Goole, the town I live near.

In the debate a couple of months ago, I highlighted the huge profits made by water companies, the failure to invest properly in our communities and the problems that that failure had caused. I pointed out then, as I do again for the record today, that in 2005 water bills where I live were £264; by 2011-12, when my constituents and I were stood in about 3 feet of water, they had risen to £330. Nevertheless, the year after we stood in similar amounts of water yet again, because of a failure by Yorkshire Water to maintain its basic assets in the town, in spite of having made massive profits.

Yorkshire Water’s profit-to-dividend ratio has improved since 2010, but some of the other water companies have gone in a different direction. When I intervened on the shadow Minister, I cited a report from East Riding of Yorkshire council, which under new powers has to investigate any flooding incident. This week, that report confirmed that the reason why thousands of homes in my constituency have been flooded for two years running, in particular in 2012, was that there was a failure of the Carr Lane pumping station.

As I explained before, my constituency is at threat not only from river flooding, which is why we have massive defensive banks all around us, but also from surface water, due to the fact that we have to be pumped for most of the year because we are below high tide levels and below sea levels in some places. There was a failure by Yorkshire Water despite the fact that all our bills were going up and that it was continuing to make big profits against which I, as a consumer, was unable to assess their performance.

The town floods because of that failure and my bill and the bills of my constituents continue to rise. I have some sympathy for the new clause in that I cannot see why we would not want the information to be reported. Some of it is publicly available. I am not sure whether the new clause is technically perfect—that is for people  with bigger brains than mine to work out—but I want to say on behalf of my constituents that the information would be useful to us.

Since the massive, catastrophic failure of the Carr Lane pumping station last year, Yorkshire Water has gone out and done much itself through its communications strategy. It has spent £3.6 million in my town of Goole, investing in new pumping facilities and increasing capacity by 20%. It has spent a lot of money and gone out of its way since that time to explain to residents and consumers exactly how it has invested in the town and what its performance has been. I am not sure it has communicated its taxation structure as clearly as some would like, but it has found that, by being more transparent and open about its investment in the town and what its failures have been, the public and consumers have more confidence now than they did two or three years ago.

I shall not say much more. I have some sympathy for the new clause—requiring the information does not seem particularly onerous. The drafting could be made better but I end by saying that we have had experience of a failure of investment in my own constituency. I hope that Yorkshire Water will apologise, finally, and compensate my constituents who have been flooded two years running. Perhaps my constituents would not need that if we had felt more able to assess adequately the company’s performance, through access to all the information. I look forward to hearing what the Minister has to say.

Photo of Emma Lewell-Buck Emma Lewell-Buck Labour, South Shields

Mr Gray, it is a pleasure to serve under your chairmanship. My colleagues and I have spoken at length about putting the consumer at the heart of the matter. These clauses work along those lines, making sure that information about providers is public, thereby making providers accountable to the customers they serve. It would make clear the principle that in the water market the bottom line should be the level of service provided to customers and not the water company’s profits.

Profit margins in the water industry are extremely high. Ofwat’s latest figures show that 30% of a household’s water bill is profit. We may compare that to the energy sector, where operating profits are around 9%. Altogether, therefore, water companies made £1.9 billion in profit last year, yet as these profits have risen, so have bills. Some 2.6 million households now spend 5% or more of their income on water. Rising water bills are part of the cost of living crisis that is affecting my constituents badly. Many of them would be very angry to hear that almost a third of their bill goes into padding profits or paying large dividends to shareholders. They would see it as evidence that the market is working for their supplier, not for them, and they would be right.

New clauses 33 and 45 would enable Ofwat to intervene in the consumer’s interest and decide when prices are not working for the average household, reopening a price review, if necessary, to address any unfairness. These clauses would also require water companies to make their corporate structures and tax arrangements available for scrutiny by Ofwat. Earlier this year, it was revealed that Yorkshire Water had paid no corporation tax on its £186 million profit. Thames Water made £127.7 of profit and paid no corporation tax. This story was broken by the Sunday Times. It should not be up to the national press to reveal these figures. Companies  should have a duty to be absolutely up front about their tax arrangements. We should leave it to the regulator and the public to decide whether those arrangements are fair. There can be little doubt that such arrangements leave the consumer worse off. For example, some companies have taken to financing themselves with increasing levels of debt, which is borrowed through offshore tax havens to ensure no tax is paid. The interest on the loans is estimated to add as much as a third to bills in some areas.

The chair of Ofwat warned that many of the industry’s business practices do not stand the public interest test and will damage public trust in the industry, and I agree. Customers see money being funnelled out of their bank accounts and into the coffers of water companies, which award it to their shareholders, use it to bump up executive pay or take it out of the country altogether. People rightly call for Ofwat to take action, and the new clauses we have proposed would empower it to do just that.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

It is a pleasure to serve under your chairmanship, Mr Gray. I want to speak briefly because, to some extent, we have had this discussion previously.

New clause 33 does not exactly go to the heart of the problem with the water industry, but it deals with part of it. The biggest problem for the industry and the Government is the yawning gap between their view and the public view of the industry. There is a chasm between the two: the Government are perfectly happy for the industry to continue under private ownership, and they are happy, to a degree, for it to continue under its present mode of operation, but the view among voters is that public ownership is the best solution.

I am more than happy to recognise that, in supporting public ownership, I am in a minority on either side of Parliament, but, out in the country, I would be part of the majority. The problem is that it is not sustainable to have such a chasm between the Government perception and the popular perception or to have, to some extent, a divide between Parliament generally and the public, with the public view at odds with Parliament’s view. There are not that many issues on which there is such a sharp contradiction between the views of Parliament and the views of the people. I can think of only a handful, and one that springs to mind is our membership of the EU, where there is a clear contradiction between the view of Parliament, including Conservative Members, and the view of the public. There are one or two other issues, and rail ownership springs to mind. A lot of the public perception of the water companies springs from the view that they are owned and run on behalf of a small wealthy and powerful elite, who, to a large extent, are faceless and unaccountable. That is what the new clause is intended to deal with.

We heard the speech from the hon. Member for Brigg and Goole a few minutes ago. Last week, I mentioned speeches by the hon. Members for Skipton and Ripon (Julian Smith) and for Dover (Charlie Elphicke). I do not expect Conservative Members to find it particularly easy to attack—perhaps that is a bit strong; let us say “be highly critical of”—the private sector in the way certain hon. Members have been. However, those hon. Members were moved to say what they have, because  they find it outrageous that water bills are increasing way faster than the rate of inflation and the dividends being paid are enormous. What particularly sticks in people’s craws is that the salaries in the water industry are enormous, and we have executives—this is happening on a fairly large scale—earning, or rather being paid, salaries of about £1 million a year. The hon. Member for Brigg and Goole may secretly be a revolutionary socialist seeking to bring down the system from within, but I suspect—[Interruption.] Perhaps he sells the Socialist Worker outside his local railway station on a weekend, but I doubt it. I suspect he is just being honest about what his constituents face, and that applies to many hon. Members who have contributed to our debates, including the debate in Parliament on, I think, 5 November. That has to be dealt with. To a degree, the new clause would deal with the public perception, which is so at odds with the way the Government and those in the industry itself see the water industry.

Last week I attacked the water industry in a fairly visceral way, particularly the company that supplies my area, Thames Water. It has not got a great reputation and is disliked, even detested. It is remarkable that since I made those speeches I have not heard from Thames Water. I find it extraordinary that Thames Water has not even bothered to get in touch.

It cannot be that Thames Water is unaware that the Bill is going through and these debates are going on. It must be aware that members of the Committee are making critical speeches. Yet I have not heard a single word from Thames Water trying to explain its case; trying to explain the increase in bills and the dividends and salaries being earned.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs) 10:45 am, 17th December 2013

That is fascinating. Is that not the problem? Water companies just do not care what the public or even Parliament think of them, just as long as they keep making £1.9 billion profit.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

I am very grateful to my hon. Friend. That is the impression that I get. I cannot imagine that Thames Water and the other big water companies do not have a lobbying or PR operation. I would have thought that any lobbying or PR operation on behalf of those companies, whether in-house or third party, had heard what we have said and thought that they ought to address it by getting in touch with the MPs on the Committee, MPs more widely, or those in the other place. As far as I can make out, there has been no attempt to justify their behaviour over the past few years or some of the planned increases. That is what I find extraordinary. They do not feel any sense that they have to justify their position.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

Thank you, Mr Gray, it is a pleasure to serve under your chairmanship. I am not normally the one to stand up and wholeheartedly support water companies. I have to say that today we have heard a lot of information about where the water companies are all wrong. South West Water has now pegged its prices for two to three years. The Government have given money to reduce bills and South West Water has delivered on that.

I do not think that profit should be considered a dirty word. It is what is done with that profit that matters, and real investment in the industry. I get the impression from the Labour Front Bench that it is Labour party policy to renationalise the water industry. Where precisely would a Labour Government get the money from?

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

Does my hon. Friend agree that South West Water has made a lot of investment in its infrastructure, which was in quite a poor state? It is making headway.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

As my hon. Friend knows, South West Water has 33% to 35% of the beaches and about 2% or 3% of the population. There are an awful lot of beaches to keep clean and where bathing water needs to be improved, with a very small population to pay for it. Hence, the Government support for South West Water. Perhaps you will explain to me how a new Labour Government—God help us, if we got one—would renationalise the water industry.

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

I am not sure the Chair of the Bill Committee has anything to do with what happens to the next Labour Government.

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

The hon. Gentleman said “God help us”. I assumed he was referring to the Chair of the Bill Committee. To clarify for the benefit of the hon. Gentleman, who I think was here last week when we had this discussion, I made the point that we had four different corporate structures for four different nations of the United Kingdom. It works for each of the four. I will give more detail when I come to respond, Mr Gray, as this is just an intervention.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

I thank the shadow Minister for his intervention. We have seen £124 billion invested into the infrastructure of water, all provided by the private sector. If we were to turn round and provide that via the public sector, it would be totally wrong.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

I thank my hon. Friend for giving way. There is no doubt he is making a brave speech. When I criticise Yorkshire Water, it is not because I want to bring down the capitalist system or am against private ownership—Yorkshire Water has made some major investment in our area, like all water companies—but because I want to challenge it to fulfil its proper corporate responsibility to its consumers. I do not want to see renationalisation—our pipes were leaking the worst in Yorkshire under nationalisation. Yorkshire Water has done some good things; this is about encouraging it to be more corporately responsible.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

I thank my hon. Friend for his intervention. If he will allow me to continue a little further, I am sure I can shed a little light on where I am taking this speech. My point is about profits and the way in which Ofwat and Government guide water companies to reinvest the money that they make, and to use it to look after customers and in some cases to keep water bills down.

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

The hon. Gentleman will recall that a very wise Member once said that the only thing worse than a state monopoly was a privatised monopoly. Does he still agree with that?

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

Indeed I do, Mr Docherty. I stand by that entirely; we create greater competition between the water companies in order to deliver a private solution. I was never one for renationalising the water companies and always wanted to know where the money would come from. I want to see greater competition in the industry, bringing in more companies, and a much more robust private system. That is my point. I have obviously stirred up a hornet’s nest.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

The hon. Gentleman is speaking very honestly and straightforwardly. I am not impugning what he is saying. I want to make it clear that I am not responsible for Labour party policy—[Hon. Members: “Shame.”] Perhaps that will change, but I doubt it. There is no Labour party plan to renationalise the water industry. However, I should point out that it was never nationalised in the way that we understand that term. It was always broken into local water boards that owned and operated the water industry. It was never centrally controlled in Westminster.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

I was perhaps being unkind by asking whether renationalisation was Labour party policy, when I understood that it was the hon. Gentleman’s policy. I do not think this point is going to shed too much light—or heat or water, come to that. Clearly, we have to look at the water companies, create greater competition, and deliver a better deal through them. I look forward to our Minister laying that out clearly. There is an idea that profit in itself is problem—it is not. The question is what water companies do with those profits to reinvest. I accept that executive pay and all these things are too high, but let us not target private companies for the sake of it. They are an easy target and when they have done a good job, like South West Water has, and are pegging bills, we should stand up and say so.

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

We have had a wide-ranging debate from a range of perspectives from hon. Members, who, I suspect, are suspicious of competition and whether it delivers benefits, to hon. Members such as my hon. Friend the Member for Tiverton and Honiton who want competition to go as far as possible to be reassured that it will have the goals to which he aspires. This is an important aspect of the way in which the water industry and the regulator operate. That is why I am delighted with Ofwat’s approach on these matters.

New clause 33 will give water companies a duty to report every year to Ofwat and to the Secretary of State about their performance, investments, tax arrangements, corporate structure and dividends. As many hon. Members have pointed out, this information is already freely available in the public domain. The only effect of this amendment would be to duplicate existing reporting requirements and increase the administrative burden on water companies. That may be felt to be a small burden, but ultimately the cost of that is met by the customers.

All companies are already required to report on many of these matters in their annual reports and accounts. Additional water sector-specific reporting requirements are a matter for the regulator. Ofwat is already taking action to improve standards of corporate governance across the sector. It recently consulted on principles relating to board leadership, transparency and corporate governance. Ofwat is putting pressure on  water companies to strengthen audit arrangements, board member appointments and governance. The response from water companies has been positive, which I welcome.

The hon. Member for Dunfermline and West Fife raises some important issues on the way the sector is run. I believe, however, that the regulator is taking action to address those issues. The proposed annual review, therefore, would add an additional burden on companies for little gain, which is why I resist the new clause.

New clause 45 would build on new clause 33 by placing a new duty on Ofwat to take account of the proposed annual report by companies to the Secretary of State. New clause 45 would give Ofwat a further power to consider such information when determining whether to reopen a price review.

As I have noted in previous debates, Ofwat already has the power to reopen a price review under the substantial beneficial effects clause of the water companies’ licence. Furthermore, all of the information that the new clause would require companies to report to the Secretary of State is already in the public domain, and much of it is already the subject of direct reporting to Ofwat, which already has far-reaching information-gathering powers and, within the scope of its duties, already has complete discretion over how it takes account of such information.

Lastly, I emphasise that Ofwat is already required to consider all of its duties when taking any regulatory decision. The question whether a particular action would further the consumer objective will always inform Ofwat’s decisions.

Ofwat has the powers necessary to revisit price determinations. Given the importance of regulatory stability to keeping prices down for customers, however, Ofwat rightly utilises those powers with caution. In that way, Ofwat already gives full consideration to whether such action would further the consumer objective.

Several hon. Members have made a number of points on water companies and their interaction with customers. It is fair to say that the earlier history of water companies was based on engineering solutions to engineering problems, such as improving water quality, addressing leakages and all sorts of things, rather than necessarily a customer focus. That is one of the main reasons for our introducing the Bill. As well as considering how to achieve greater efficiencies, the Bill will, through bringing new people into the non-domestic retail sector, improve both customer focus and responsiveness to the needs of consumers. We also want the lessons learned in that sector to be applied to the domestic sector so that household customers may also benefit.

There is much further work to do on customer focus—interacting with and listening to customers—and I therefore welcome the Bill. I also welcome what Ofwat is now doing on corporate governance and transparency, because, as hon. Members on both sides of the Committee have pointed out, there are concerns on that. The hon. Member for Leyton and Wanstead is absolutely right to say that customers are at times confused about the ownership of those companies and their arrangements. People want to understand what those arrangements mean for the profitability of companies, and so on. I welcome Ofwat’s move to take action on that.

Thomas Docherty rose—

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

I think the Minister realised where he was going, so he suddenly skipped to other subjects. If he truly believes that Ofwat already has those powers, will he remind the Committee on how many occasions in the past 25 years Ofwat has chosen to exercise those powers?

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

The current price review period has been one of the more profitable periods for water companies, which is perhaps why Ofwat has been consulting on whether to use the powers in relation to Thames Water. Previously, the regulator set prices on the basis that the industry needs to make huge investments. We have already heard from my hon. Friend the Member for South East Cornwall on the level of investment that has been required in the south-west, where the water company has to consider the huge coastline when making investments.

Having said that, thankfully for consumers we have now moved into a price review period under the coalition Government, rather than under the previous Government. The Secretary of State’s direction has therefore been clear. He wants Ofwat to take account of the fact that companies can borrow cheaply. In response, companies are now coming back with proposals for the price review period, which is a positive thing. Since 2009, water bills have increased by 0.5% above inflation. Water companies’ business plans indicate that in the next price review from 2015 their aspiration is that bills will be kept flat or in some cases, decline. I think this is an indication that we have moved on.

I said to the hon. Member for Dunfermline and West Fife in regard to previous debates that he is perhaps seeking to react to situations that applied before rather than the situation in which we find ourselves now. Returning to the specifics of his new clauses, the information that he is requesting to bring together is published in other sources, so the only thing that we would do if we passed this clause is bring together some of this information into some further glossy publication, involving more time from companies rather than getting on with and dealing with things that we want to see them do. Ultimately the cost of doing that will be borne by customers so I am certainly not persuaded by the hon. Gentleman that his new clauses add anything of merit to the Bill.

Photo of Thomas Docherty Thomas Docherty Shadow Minister (Environment, Food and Rural Affairs) 11:00 am, 17th December 2013

This has probably been one of our livelier debates. I am most grateful to the hon. Members for Brigg and Goole and for Tiverton and Honiton for their slightly different contributions. It is good to see blue-on-blue fights in this place. I am particularly grateful for the contributions of my hon. Friends for Leyton and Wanstead and for South Shields—they made two excellent speeches about their customers.

I will briefly address four points that were raised. The first is about this issue of excess profits. We were very clear last week that we believe that these excess profits are simply unacceptable. We set out, in quite a lively discussion, that those excess profits should be used to fund our national affordability scheme. If the Government have not been prepared to accept that,  and it is disappointing that they do not believe in universal social tariffs, greater public scrutiny of those excess profits is required. This is quite a simple measure.

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

I understand the spirit in which the hon. Gentleman makes his remarks. However, surely the key provision in that regard is the business plans and the plans that are already made public and consulted upon, rather than making an extra publication to the Secretary of State which, of course, is not necessarily something that is directed at customers. I am just confused as where he is going with that.

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

I am grateful to the Minister as he is leading me on to my next point about the reporting itself. As I say, we were very clear last week: we thought that excess profits were unacceptable and that the money should be used for social tariffs for our national affordability scheme. That having been defeated, we think that greater public scrutiny is crucial.

There was some question raised by the Minister about the merits or practicalities of producing a report. I have to remind him as gently as I possibly can that for two reasons, doing reports is nothing new. First, Ofwat used to ask the water companies to do it on a voluntary basis, and many of them did, but they have got out of the habit. It would only be a cynical soul who would suggest that it is because they do not like public scrutiny and they do not like having to point out that they made hundreds of millions of pounds and paid none of it to the Treasury and gave none of it back to their customers.

In Scotland, and as ever, Scotland is the model for us all—[Interruption.] I am sure that was not a heckle or dissent from the hon. Member for Brigg and Goole towards the merits of Scotland. In Scotland, the regulator requires Scottish Water—which, by the way, is a nationalised water company—to produce such an annual report showing its investments and its plan for the coming year. I am baffled that the Minister thinks that this is a great hardship or that it will somehow further drive up the costs of water bills. Given the excess sums that they made last year, it really should not add much.

On new clause 45, which we did not really discuss, when we considered amendments 138 and 139 last week, the hon. Member for Meon Valley chided me at some length about giving the Secretary of State powers to reopen the price review. He said it would politicise the process. I see as he masticates from his position that he nods assent; that is a fair reflection. We reflected upon his remarks. That is why we say that the regulator should open the price review if companies are making excess profits and not delivering for their customers. I am surprised that the Minister is not keen on new clause 45. I asked how many times in 24 years Ofwat had used its powers. He gave a very long answer but failed to give the short answer, which is zero.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 9, Noes 10.

Division number 16 Decision Time — New Clause 33 - Duties of undertakers to furnish the Secretary of State with information: annual review

Aye: 9 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.