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‘(1) The Secretary of State, or the Authority, may prohibit losses to a water company due to non-payment of bills from being recovered through charges on customers.
(2) This section comes into force on the day after the Secretary of State has laid before Parliament a report setting out how water companies have failed to take action on these matters.’.—(Thomas Docherty.)
I beg to move, That the clause be read a Second time.
Again, I will not keep the Committee too long. Perhaps with hindsight the Minister and I should have grouped these two new clauses together. I have already touched on the problem that bad debt forces on to good customers. I was slightly intrigued to hear the Minister point out, rightly, that the take-up in tackling bad-debt provision has been patchy across England and Wales. To paraphrase him, he was asking water companies to up their game. We agree with him. Again, to use Scotland as the benchmark, in Scotland there is only a 2% failure to pay water bills.
As I have said on several occasions, we need to be careful about comparisons with the set-up in Scotland, where the collection mechanism is somewhat different from that used in England and Wales.
I am reluctant to head down the path of explaining why that is a flaw in the system that the Conservative Government set up in 1989—they could have seen that one coming. The point is that it is simply unacceptable that not only do we have people who can pay not paying, but in effect there is no incentive for the water companies to go and collect the money. They know that they can simply pass on that bad debt to their other customers.
Again, it is worth pointing out—because we are approaching the end of the Bill and because I like to give the appearance of being even handed to water companies—that some water companies have voluntarily taken steps to bring down their bad debt provision. We spoke before about £15 being the average, but some water companies—including, in your area, Mrs Riordan, Yorkshire Water—have taken steps to reduce that figure. On average, they are passing on £7 or £8 in bad-debt provision to their customers. Although I am sure that figure is too high for many of your constituents in Halifax, Mrs Riordan, it is significantly better than some of the worst offenders.
We believe, as the Minister said only three minutes ago—I am sure he will not U-turn on his position—that it is unacceptable for water companies simply to shrug their shoulders and say, “It doesn’t matter if we don’t collect the money, because we’ll get the customer to pay for it anyway.” We believe that if a water company does not adequately collect debt, the company, not the customer, should pay for it. I can think of no other industry in which the failure to follow good practice is actually rewarded by the system.
New clause 47(1) states:
“The Secretary of State…may prohibit losses…from being recovered”.
So that there is no misinterpretation of our position, we are not saying that the prohibition would be automatic. Water companies that take steps with which the Secretary of State is satisfied would be able to add a small surcharge. However, we want to prevent companies that do not follow the good example of companies such as Yorkshire Water, which actively engages with its struggling customers, from passing on £20-plus of debt. The new clause is part of a package of amendments that we tabled to make water more affordable for people who are struggling. We also tabled amendments to make water more affordable for all customers.
However, we believe that rights come with responsibilities. Customers who can pay but continually refuse to do so should be chased, and companies that choose not to chase them should not go unpunished. I hope the Minister recognises that this is a technical new clause designed to push water companies, in the spirit of what he said only a few moments ago. I look forward hearing his response.
I am always happy to be reminded of my comments. I can get a little absent-minded as the day draws on, but I can remember a few minutes ago. The hon. Gentleman and I are roughly the same age, so he might find that we are afflicted by similar problems.
Some companies perform better than others, and we want companies that are doing less well to up their game to achieve far better results. The hon. Gentleman and I have a shared objective in wanting to minimise the impact on customers’ bills. New clause 47 would create a new power to allow the Secretary of State and Ofwat to disallow companies from recovering the costs of unpaid bills from their paying customers. I am working on the assumption that the hon. Gentleman’s intention is not to prohibit water companies from recovering charges from their debtors, but to incentivise them to improve their debt collection performance. I support that objective, but—the hon. Gentleman may be surprised to hear this—not the proposed approach.
We have had a number of debates in Committee about the correct division of responsibility between the Government and the regulator. The hon. Gentleman will not be surprised to hear that I am firmly of the view that it is for the regulator, not the Government, to make detailed decisions about charges. The proposed power for a future Secretary of State to intervene in the setting and recovery of charges is exactly the kind of political interference that most concerns investors. The hon. Gentleman has heard me say before that the stability of the regulatory regime is vital to keeping the cost of borrowing low. That is why I was not convinced by his proposal to have an annual price review process. An increase in that cost would have the direct result of putting up customer bills. I do not agree that the Secretary of State should have that power.
I am happy to say that Ofwat already has the ability to decide through the price review which costs can be recovered. It is already using the price review process to bear down on the cost of bad debt, and requires companies to demonstrate high performance on debt collection and show that any increase of bad debt is genuinely beyond their control before it is included in customer charges. I favour the approach of giving the regulator the tools to get on with the job. The regulator is far more challenging to the industry on its debt collection and collection strategies to minimise the impact on customer bills.
The Minister and I obviously disagree on the philosophy of the Secretary of State doing something. However, for the benefit of clarity, is the Minister saying that he would be happy for the Opposition to table an amendment in the other place to say firmly that Ofwat should discount those companies which are not making sufficient progress? Would he be minded to support such an amendment?
No, because that would be to do exactly what I have just said we should not do. I said it should be up to the regulator to take action. If we pass legislation that forces the regulator to act in a particular way, that would go against the spirit of what I am saying. The regulator has made it clear through its statements and interaction with companies that it understands the need to take action. The regulator makes it clear to companies that it expects them to do more.
I will respond in more detail, but could the Minister say on how many occasions the regulator has refused to let water companies claw back bad debt from their other customers in the 24 years it has had that power?
Well, the regulator does not consider one-off problems in isolation. Ofwat sets the price that water companies can charge their customers based on a range of factors. Bad debt is just one it must take into account. It is now taking that into account to a greater degree. It is being far more explicit in what it says to water companies on how the charge that other customers pay is made up, and what the elements are of the overall operating costs of the company. On that basis, I urge the hon. Gentleman to withdraw his new clause, even though I understand his aspirations for bearing down on bad debt, which are shared on both sides of the Committee.
I am grateful for the chance to respond very briefly. I suspect that there is not a great deal of difference between the two sides. I hope our peers examine the issue very closely. The Opposition are very clear that we believe that those who can pay, should pay, but many water companies are simply not doing enough to collect. Not all water companies, but many of them, are not doing enough to collect from those who can pay but who refuse to pay.
The Minister deftly avoided answering my question about how many times in 24 years Ofwat had used its powers. The answer is that Ofwat has not once used those powers. Indeed, Ofwat made representations to the Environment, Food and Rural Affairs Committee that there is currently a significant problem. Therefore, because the Minister will not give us a guarantee that he will beef up Ofwat’s powers to pull the trigger, we will press the new clause to a vote. We hope that, if we are unsuccessful, the other place will look very seriously at this genuine problem.