New Clause 28 - Independent review: companies exiting a special administration regime

Water (Special Measures) Bill [Lords] – in a Public Bill Committee at 11:30 am on 16 January 2025.

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“(1) The Secretary of State must, within six months of the passing of this Act, either—

(a) commission an independent review, or

(b) take steps to extend the terms of reference of any existing independent review or commission,

to consider the merits of changing the law to provide that a water company exiting a special administration regime becomes a company mutually owned by its customers.

(2) A review under subsection (1) must consider—

(a) the general merits of mutual ownership of water companies in such circumstances, and

(b) what model of mutual ownership would be most suitable.

(3) The Secretary of State must, as soon as practicable after receiving a report of a review under subsection (1), lay before both Houses of Parliament—

(a) a copy of the report, and

(b) a statement setting out the Secretary of State’s response to that report.”—

This new clause would require the Secretary of State to commission an independent review of the potential merits of changing the law so that a water company exiting a special administration regime becomes a company mutually owned by its customers.

Brought up, and read the First time.

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney

I beg to move, That the clause be read a Second time.

Good morning, everyone. I will highlight two key points about new clause 28, which concerns what happens when companies that have gone into special administration come out of it. Subsection (1) refers to considering

“the merits of changing the law to provide that a water company exiting a special administration regime becomes a company mutually owned by its customers.”

Subsection (2) states that that would involving considering

“the general merits of mutual ownership of water companies in such circumstances, and…what model of mutual ownership would be most suitable.”

We are not saying that companies have to be this or that; we are just advocating considering this possibility. Private companies have made an absolute mess of our water sector, have added no value over the past 36 years and have ramped up nearly £70 billion of debt. When the companies come out of special administration, we have an opportunity to do something different and not to repeat the mistakes of the past. I want the Committee to take that on board. We are not asking for a commitment; we are just asking for consideration. Hon. Members all know how badly the private companies have treated us, our rivers and our communities.

These companies are monopolies, so they have absolute power. Unfortunately, our regulators have completely failed in their task. If they have failed in the task, and if we do not have absolute confidence in the regulators—I do not think that anybody who will be voting today does—we must not give water back to the private sector.

Globally, this is standard. It is what the rest of the world does with its water sector. Even in the US, the vast majority of the water sector is mutually or municipally held. Chile may be the one shining example of private capitalism that we can point to in this regard, but there are almost no other countries in the world that do as we do. We are asking the Committee to do what is standard, rather than what is unusual.

The Under-Secretary of State for Business and Trade, Gareth Thomas, has written about the benefits of the mutual ownership model, which he states forces water companies

“to operate in the interests of consumers; where environmental considerations such as disposal of sewage would take precedence over profit.”

That is our request. I rest my case.

Photo of Adrian Ramsay Adrian Ramsay Green, Waveney Valley

For several decades, the water companies have been able to profit from failure. There is a strong groundswell of opinion among the public, across political persuasions, that real action must be taken and that if there has been real failure, water companies must not just be allowed to carry on operating in the private sector. I welcome the hon. Member’s amendment; mutual ownership is clearly one alternative model. Does he agree that full public ownership is another option that should be investigated in these circumstances?

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney

What I really like about our proposal is that the companies are coming out of special administration, so it does not cost anybody anything: the equity of the shareholders has been written off. We often hear that it would not be a good idea, because it would cost too much to buy the companies out. Under our proposal, we would not need to buy them out, because we are advocating this only where companies are going into special administration. We are advocating a mutual model and—I say respectfully to the hon. Member—only that. That is what is on the table today, and that is what we are after.

Photo of Jayne Kirkham Jayne Kirkham Labour/Co-operative, Truro and Falmouth

Does the hon. Member agree that it is lucky that within six months we will have the Cunliffe review, which will look in great depth at ownership, regulation and everything to do with the water industry? Maybe this is something that we could take further at that stage.

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney

That may be a chink of light, because all I have heard from the Government so far is “Only private companies welcome here.” My understanding is that the Cunliffe review’s remit purposely excludes ownership. If that is now on the table, it is great news, because it is one of the fundamental problems in the water sector. If the commission’s remit now includes ownership structures, I am delighted. I would love the Minister to clarify the point.

Photo of Emma Hardy Emma Hardy The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

It is a pleasure to serve under your chairwomanship once again, Dr Huq. As promised, I have provided a fact sheet on the use of special administration. All Committee members should have received it by email, but hard copies are available on the table for their convenience.

Welcome to the last day of Committee.

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney

On that point, may I intervene?

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney

We all welcome one another, but I meant the fact sheet. I really appreciate your going to the trouble of putting it together; I thank your team as well. I have read it diligently and done my best, but I have a quiz question for you. The first bullet point refers to giving

“the power to recover HMG funding should there not be sufficient funds to pay HMG back at the end of a SAR.”

Then, under the heading “Context”, the penultimate bullet point states:

“If this shortfall occurred, and Ministers decided to use this new power, the Secretary of State and Welsh Ministers must launch a consultation prior to this power being used. This will ensure that those affected (e.g. water billpayers) are able to provide their views. It will also ensure that the shortfall recovery mechanism is implemented in a way that means costs are recovered fairly.”

To me, that completely confirms paragraph 69 of the explanatory notes published by the Department for Environment, Food and Rural Affairs, which says that the Government will make the bill payers, as opposed to the creditors, pay for the costs. Please confirm, if you could.

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

Order. The Minister is not “you”: we do not use the word “you”.

Photo of Emma Hardy Emma Hardy The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

At the risk of having the same debate over and over, I refer the hon. Member to the last page of our fact sheet. I am not sure how much clearer we can make it:

“Would the shortfall recovery mechanism be used to compensate financial creditors or shareholders following a SAR?

No. The shortfall recovery mechanism could only ever be used to recover a Government shortfall in the unlikely event of a SAR.”

Once again, I welcome everybody to the last day of this Committee. As I may not have the opportunity to do so later, may I thank all Members for their contributions and for taking part? I especially thank the hon. Member for Westmorland and Lonsdale for tabling another new clause.

As I have said, a special administration regime enables a company that provides vital public services, such as water, energy or rail, to be put into administration in certain circumstances. During a SAR, a special administrator appointed by and answerable to the court takes over the affairs of the business.

The court-appointed special administrator’s statutory objectives, which are set out in legislation, are twofold: to continue the running of the company to meet its statutory functions until it is possible to rescue the company, for example via a debt restructure, or to transfer the company to new owners, for example by selling it. There is nothing to prevent the company, or parts of it, from being transferred as a going concern to mutual ownership by a company’s customers, should the special administrator deem that appropriate. Although in an insolvency scenario the special administrator’s primary purpose is to rescue the company as a going concern, mutual ownership could be an option following a SAR, provided that the organisation in question had sufficient funds and could ensure that the company, or parts of it, could continue properly to carry out its activities relating to water.

Photo of Tim Farron Tim Farron Liberal Democrat Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Lords Spokesperson (Communities and Local Government)

We pushed the Minister earlier on the Cunliffe review. I thought it had been explicitly stated that ownership was off the table for that review. By talking about mutuals being a potential outcome, is the Minister saying that what is actually off the table is full-scale nationalisation, but that mutualisation, public benefit companies and not-for-profit companies could be a serious option in the Cunliffe review and in whatever legislation might follow?

Photo of Emma Hardy Emma Hardy The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

Yes. We have ruled out nationalisation, but all other forms of ownership are in the scope of the Cunliffe review. I stress, however, that in a scenario in which a company was exiting special administration, it could go into mutual ownership if the organisation in question had sufficient funds and could ensure that the company, or parts of it, could continue to properly carry out its activities related to water. Of course, no one would want, in any situation, to transfer to a company incapable of operating and providing water.

It is important to emphasise that it would not be appropriate for the Government to dictate the terms of exit from a SAR, as that would interfere with the conduct of the court-appointed administrator and their statutory objectives.

Photo of Adrian Ramsay Adrian Ramsay Green, Waveney Valley

I thank the Minister for the helpful clarification that the Cunliffe review will consider ownership models, including those that the hon. Member for Westmorland and Lonsdale has advocated. Will the Minister clarify why the Government are not permitting the Cunliffe review to consider full public ownership as one of the options? Why would they not allow an open assessment of all the potential options, especially given that, as we have heard, public ownership is so common in countries around the world for what is a natural monopoly?

Photo of Emma Hardy Emma Hardy The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

The commission will focus on reforms that improve the privatised regulatory model. We have already been quite clear that nationalisation of the water sector is not in scope because of the high costs associated with that option, the lack of evidence that it would lead to improvements, and the delays that it would cause in achieving better outcomes for consumers and the environment.

The commission covers Wales and will review the model in Wales, where the largest water company operates a not-for-profit dividend model with no shareholders. In addition, as I have previously noted, the scope of the independent commission will include the governance of companies and the operation of existing tools such as the special administration regime. In the light of my comments, I hope that the hon. Member for Witney can see why the Government will not accept his new clause.

Photo of Charlie Maynard Charlie Maynard Liberal Democrat, Witney 11:45, 16 January 2025

I am happy to hear that mutual ownership is being considered. I am very grateful for that.

I will take my chances and try to clear up one point. I completely agree with what the Minister read out from the last page of the fact sheet:

“Would the shortfall recovery mechanism be used to compensate financial creditors or shareholders following a SAR?

No.”

Absolutely, but my point is not remotely about that. I am not asking about compensating creditors.

Let me take the Committee back to the first paragraph on page 1. Where there is a recovery to be made, who pays for it? We are not talking about compensating creditors; we are talking about taking money off them. Rather than the money being taken from the customers, which is exactly what the bullet point that I read out three minutes ago states, we believe that it should be taken from the creditors.

It is not about compensation. I am surprised that there is confusion on the point, because that is not where I am coming from. It is about the shortfall and who pays for it. It is clearly stated twice—both in DEFRA’s explanatory notes and in the bullet point, which I can read out again as desired—that the bill payers will pay for it.

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

Division number 21 Water (Special Measures) Bill [Lords] — New Clause 28 - Independent review: companies exiting a special administration regime

Aye: 3 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 3, Noes 10.

Question accordingly negatived.