I beg to move,
That this House
has considered the future of the water industry in England and Wales.
Customers and employees should be helped to take back control of the companies providing our water and taking away our sewage. The people of England should once again be front and centre of their water industry. Democratic, publicly owned businesses operating in the private sector, regulated with vigour by a more effective Ofwat is the Co-operative party’s vision of the future of the water industry. I am proud to chair that political party. I am grateful to the Backbench Business Committee for the opportunity to explore that agenda through this debate.
Nationwide, John Lewis, the Co-operative Group, the Royal London insurance company and NFU Mutual are just five successful examples of people-run businesses—mutuals—where profit is sought not to line the profits of wealthy investors, but to reward customers and employees, and to invest in local communities. Such businesses are inspiration for reform of the water industry.
Margaret Thatcher’s decision 30 years ago to privatise our water industry has created an expensive, unaccountable and unfair system. No other country has a fully privatised system of water and sewage services with so little competition. The resulting monopoly businesses are overseen by a woefully weak water regulator. Unsurprisingly, the consumer voice in England carries little weight against the interests of distant investors, whose decisions have seen water bills rise by 40% above inflation since privatisation.
Does my hon. Friend agree that the rather poor practices of some water companies have led to widespread public disillusionment? When I worked for Unison a few years ago, an excellent report was published showing some remarkably creative accounting, which seemed to suggest that money was being diverted not to investment, but to shareholders.
My hon. Friend and the trade union movement in general have pointed that out on a number of occasions. I will come on to one of the trade union movement’s particular campaign issues.
Water companies have become a desirable global financial commodity, bought and sold by big banks, international infrastructure investors, pensions and sovereign wealth funds. Since privatisation, as my hon. Friend just pointed out, dividend payments have been very high, at an average of £200 million a year per company, and £2 billion a year in total. Over the past 30 years, at least £48 billion has gone directly to shareholders.
Analysis by Greenwich University suggests that the more than 40% increase in household bills in that time was driven mainly by the need to finance growing interest payments on debt—a point that the trade union movement in particular has highlighted. That analysis shows that accelerating debt levels are the result of the high dividend payments made by water companies to their shareholders, which exceeded the privatised companies’ cash balances in every year bar one since 1989. Indeed, it is striking that total payments to shareholders are very similar to the total outstanding debt burden of privatised water companies, with at least £48 billion in payments in the past 30 years and at least £51 billion in total debt.
The Leader of the Opposition and, in particular, the shadow Chancellor, deserve considerable credit for highlighting the lower cost of water bills in Scotland, where Scottish Water is publicly owned. While bills in Scotland are 2% less in real terms than they were 18 years ago, English water Bills increased by some 13% in real terms over the same period.
Privatisation has not meant more investment. Indeed, annual investment in water supply infrastructure was lower in 2018 than it was in 1990 and has fallen by about 10% in the past 10 years. All of the capital investment made since privatisation could have been covered using only the money generated by customer bills. Instead, much of the income generated by water bills appears to have been used to pay the interest on debt built up by the privately owned water companies, in turn to fund dividend payouts.
Despite similar levels of capital investment, we are now in a situation in which, according to research by the University of Greenwich, consumers in England are paying £2.3 billion a year more for their water and sewerage bills under the current privatised system than if the utility companies had remained in state ownership.
Does my hon. Friend agree that this is an excellent opportunity to bring consumers into the conversation with businesses, in a way that mutualisation allows, so that we can learn from customers as well as talk about the ownership of utilities?
My hon. Friend makes a good point. I will come on to how mutuals would allow customers to have a lot more say over—indeed, they would give them ownership of—the water services on which we all depend.
Turning to one specific company, Thames Water was owned for 11 years by a complicated string of holding companies and offshore businesses, all ultimately owned by Macquarie bank, receiving returns of between 15.5% and 19%. Research by the Financial Times suggests that between 2006 and 2016, Macquarie and its fellow investors paid themselves £1.6 billion in dividends, while Thames Water was loaded with £10.6 billion of debt and ran up a pension deficit of some £260 million.
Dividend, debt and pension deficit were not the only things to increase under Macquarie’s control of Thames Water; customer bills and complaints also soared. The only thing that went down during this period was customer satisfaction, which is now ranked 22nd out of 23 in the Consumer Council for Water league table.
I thank the hon. Gentleman for bringing this debate. Ofwat imposes no penalties on managers who break their commitments. Does he agree that legislation must be put in place to ensure that—after loading Thames Water with debt and flooding the Thames valley with excrement—the water body faces more than just a fine that is less than the amount it would take to dispose of the water in the appropriate way? In other words, the fines do not match the crime.
The hon. Gentleman makes an extremely good point. Given that we are in the middle of the latest pricing review, if Ministers had the gumption they could put pressure on Ofwat to use its existing powers to bear down on those exact issues. I agree with the hon. Gentleman’s general point that we need a full review of the powers available to Ofwat. I am sure that they need to be increased.
Thames Water’s credit rating is the worst in the industry, according to Standard & Poor’s. Thames Water’s tax bill also declined during the period in question, as it regularly paid no corporation tax on its £1.8 billion turnover. Thames Water is, by its own admission, failing to meet targets to reduce the number of properties experiencing chronic low water pressure; failing to reduce the number of complaints; and wasting almost 700 million litres of water annually through leakage. It is failing to meet basic standards in 17 out of 41 key areas. That dismal record also includes record fines for poor performance.
In comparison, Scottish Water, which is publicly owned, has debt levels 5% lower than 17 years ago; its interest payments have remained consistent; and, with no dividends having been paid out, all the profit has been reinvested. It is worth pointing out that, adjusted for leakage per kilometre of pipes, Scottish Water performs just as well as an average English company, with 10.2k litres of leakage per kilometre as opposed to 22.1k for Thames Water, 10.8k for United Utilities and 9.5k for Yorkshire Water.
Thames Water is not alone in poor performance. In truth, more than 20% of all water is currently lost through leakages from water pipes. In total, it is estimated that some 7.5 trillion litres of water has been lost through leakage, which is equivalent to the total volume of water currently in Loch Ness.
The hon. Gentleman is making a powerful case against the water companies. The issue of leakage seriously needs to be addressed. Something like 1,273 Olympic-size swimming pools-worth of water is leaked daily because water pipes have not been addressed. The Secretary of State for Environment, Food and Rural Affairs has rattled the cages of the water companies, to improve their performance, and they have set out in a new plan that they will reduce leakage by 16%. Does the hon. Gentleman agree that that should not be done voluntarily and that there should potentially be stronger regulation?
I find myself in the slightly unusual position of agreeing almost completely with the hon. Lady. Leakage is a huge problem. Much tougher regulation by Ofwat in particular, and ultimately an increase in the regulator’s powers, are required to bear down on the shocking levels of leakage, not least because the Environment Agency has said publicly that England and Wales could suffer major water shortages by 2030. The agency also noted that enough water to meet the needs of 20 million people is lost every day through leakage, which surely further supports her significant point.
To be frank, in the past Ofwat has not demanded enough investment from water companies, given the scale of the rise in customer bills. It appears to have been asleep at the wheel under various leadership teams. The Public Accounts Committee, which looked at regulation of the water industry as far back as 2015, criticised Ofwat for overestimating costs and poor benchmarking of efficiency, resulting in higher bills for customers.
The hon. Lady also made the point that even the Secretary of State for Environment, Food and Rural Affairs suggested in March last year that water companies have not been acting in the public interest. Granted, the Secretary of State’s criticism came a month after a detailed critique of the water industry by the shadow Chancellor; nevertheless, the Secretary of State’s criticism is welcome.
As I indicated earlier, the latest price review is under way and already the Consumer Council for Water is concerned that Ofwat’s grand promises are unlikely to be met, with
“companies bidding for significant rewards for performance levels that aren’t particularly stretching”.
In part, prices are decided by the cost of equity and the cost of debt, plus investors’ expected UK tax burden. In my view, Ofwat should reduce the cost of equity in its calculations while maintaining fair treatment on debt finance for genuine capital investment. In short, Ofwat should drive down the profit that the owners of water companies make. It should also scrutinise the tax behaviour of those owners, to crack down on tax avoidance, and demand that owners do not use tax havens to receive the profits from our water companies. Lastly, every English water customer should see their bills reduced after 30 years of being used as cash cows by the owners of water companies. It is time that consumers and their pockets were treated better.
In October last year, the Select Committee on Environment, Food and Rural Affairs suggested that an independent review to determine whether the water industry was fit for purpose was required. The Chartered Institution of Water and Environmental Management went further, suggesting that such a review needed to examine the ownership of water companies. The Select Committee also raised concerns about the powers available to Ministers and Ofwat to improve governance and prevent pollution. With climate change approaching and a creaking infrastructure, the Committee argued that the need for change was urgent.
For some of the reasons that I have set out, there is growing concern about the ownership model in the water industry, and there are alternatives to the current privatised system. Long-term alternatives that the Government should consider include, in particular, a mutual approach, with democratic public ownership by consumers and employees, modelled on the success of Welsh Water and inspired by other similar success stories. Welsh Water, or Glas Cymru, does not pay dividends to shareholders, and yet it operates in the private sector. It has an ownership model that forces it always to operate in the interest of its customers and it has changed the way in which it raises finance, in order to reduce the cost of credit.
Welsh Water now has the strongest credit ratings in the water industry, which reduces its financing costs and allows for even more future investment in its infrastructure and services. Customer bills have been reduced steadily in real terms and so far it has returned about £180 million to customers in the form of customer dividends. In addition, it has provided some £10 million of support for vulnerable and low-income customers, through social tariffs and an assistance fund.
The first step on that path for the water industry in England, so that it can match and then go further than Welsh Water, would be the formation of consumer and employee trusts. These trusts would have the power to appoint non-executive directors to water company boards, and they would have access to independent advice from management, so that they can make well-informed and independent decisions.
Ofwat should discourage investment in the water industry that requires a fast return to the owners of expensive equity. Instead, it should steer water companies towards the lower-cost debt market, with responsible investors such as public sector pension funds, whose interests are aligned with those of the water sector and whose investment could help to ensure that there is a modern, resilient water infrastructure.
Over the longer term, as equity investors seek to sell up because they recognise that they can no longer make a fast buck, consumer and employee trusts could use bond issues to buy those equity investors’ stakes in the business. These trusts would need to be underwritten by a buffer, or internal equity reserves, to borrow against. That could be achieved through a Government guarantee on loans or debt, to ensure that any large unexpected investment needs will be met, and to ensure that if anything should go awry, lenders are in a first loss position. Similar initiatives already take place in other areas of Government policy. Government guarantees could be replaced over time through the accumulation of non-distributed reserves, or of retained profit, by the trusts.
As the ownership of water companies changes, legislation should be passed to embed the not-for-profit principle. The new not-for-profit water companies would also require protection, with an asset lock to prevent demutualisation in the future. Consumer and employee trusts—like those at Nationwide, John Lewis and other mutuals—would enable customers and the workforce to have an active role in the key decisions taken by their organisation. The board would include employee and customer directors, and the trust membership would enable members—including consumers—to vote for board members, and to agree audit, remuneration and company governance decisions, as well as how profits are invested or distributed.
Ofwat should be given new powers to ensure that water companies encourage employee and customer participation in the democratic process. The new employee and consumer trusts should also have a role in the scrutiny and decision making of Ofwat, with a scrutiny panel that reviews the operations of the regulator, led by consumers, and also playing a role in Ofwat’s appointments to its board.
In conclusion, comparisons of public ownership and private ownership of the water industry do not come out favourably for England’s privatised water companies. They do not look like they are committed to environmental investment and the other challenges facing the water industry. The latest price review should herald the beginning of the transformation to new not-for-profit owners—the very consumers and employees who depend on the services of the water industry. Public ownership works in Scotland and the model for mutual transformation of the rest of the water industry works in Wales. It is time that there was new ownership of the water companies in England, and I commend the mutual model to the House.
If hon. Members check my entry in the Register of Members’ Financial Interests, they will see that I chair an organisation called the UK Water Partnership. As the Leader of the Opposition claimed that I was some sort of stooge for the water companies, I put on the record that the UK Water Partnership is a public-private partnership, and that I was asked to chair it by the Department for Environment, Food and Rural Affairs. It brings together industry, policy makers and the research community to try to provide the key to unlocking a $500 billion global marketplace, as well as tackling water security issues through a strategic approach to research innovation and global clients. It effectively works right across the water sector, helping British companies to do better in a global marketplace. I very much do not speak for water companies.
As the water Minister who introduced more competition, changed Ofwat’s prioritisation of environmental protection, introduced the catchment approach to upstream water management and oversaw the Thames tideway tunnel in its initial phase, I have a fair degree of insight into how private water companies work and what they deliver for customers.
I appreciate Gareth Thomas bringing this matter to the House. I suppose it all depends on which end of the telescope we look down. It is easy to pray in aid companies and organisations that fail, and so give a malign picture of the whole operation of our water sector. I will try to give a more balanced view, but I totally accept some of the points made, as there are good players and bad players in every sector.
As in any field that involves a number of organisations, we will of course come across ones that are good and others that are bad, but I am absolutely certain that we have benefited from privatisation. It is wrong to turn the clock back and pretend that there was some halcyon era of cheap water, exemplary customer service, massive investment and great environmental activity by companies in the days when they were publicly owned. To those who say, “Ah, but we would do it better this time”, I say that that is the Venezuela defence. Socialists say that Venezuela has not done socialism right and that they would do it differently here, that nationalisation would be different from in the past. Those years of bad service, under-investment and environmental degradation must not happen again.
I am enjoying the trip to Venezuela that the right hon. Gentleman is taking us on. May I draw him back to my remarks about the mutual model of democratic public ownership, which would see the water companies remaining in the private sector, albeit run by their customers and employees, a bit like at John Lewis and Nationwide?
I can come on to talk about suggestions that I think have some virtue, particularly employee share ownership schemes. As with everything, there is no perfect right or absolute wrong; there is a massive area of grey, and I will explore some of the nuances, on which I think we can perhaps find some agreement.
On the model of nationalisation I have heard certain individuals speak about at Momentum rallies, I think about the head of a nationalised utility company going to see the Chancellor to plead for more infrastructure investment funds, only to be told, “Get in the queue behind the NHS, welfare, policing and schools”—the long list of public spending priorities that come before something that is now funded privately and by institutional investors. Let us consider some facts. Since privatisation, water companies in England and Wales have spent about £150 billion on improvements to the water service. That is infrastructure that had been absolutely ignored by public expenditure before it was put into the private sector. The companies now spend about £8 billion a year continuing with those improvements.
When I was water Minister, I met institutional investors and saw that the regulated utility sector is an extremely popular place for people to invest, including for pension funds—the people who pay the pensions of people in the public sector. I welcome the fact that sovereign wealth funds and overseas investors want to invest in the United Kingdom. They do so because it is a stable and relatively low-yielding but relatively secure investment.
Does my right hon. Friend agree that water companies are already getting involved in good environmental projects, to clean the water, work with landowners and make it so that the water needs less treatment? With that interest in sustainability and many more people wanting to engage in green investment, does he foresee the opportunities expanding, particularly as under the Agriculture Bill, we will be paying for public services, the public good and the need to protect our land more?
As water Minister, I pushed the concept of payment for ecosystem services, which was against Ofwat’s institutional view at the time, though I am happy to say that it has moved on. It liked the idea of a regulated asset—of measuring the quality of the water coming in at one end and going out at the other, and judging whether the asset was working. I would say, “Try to let a thousand flowers bloom”. Some of them would fail, but building that relationship between a water company and land managers upstream, and paying them to help to produce better quality water, is the sort of thing I am glad to say is now becoming the welcome norm across the sector.
My hon. Friend is absolutely right to mention that project, which was initially developed around Dartmoor. It is an extraordinary scheme that is really working, and that I hope will become even more mainstream in the near future.
The right hon. Gentleman’s points are similar to those brought to my attention by Anglian Water, which services my region. I do not think that anyone disputes that good work is being done, but the unhappiness is with some of the extraordinarily labyrinthine financial arrangements that sit behind the companies. Does he agree that if that could be resolved, in many of the ways my hon. Friend Gareth Thomas suggested, it would solve some of the dilemmas? No one is challenging the good work that is being done.
There has absolutely been bad practice. I have had my concerns about Thames Water in the past, but today the company has capped its dividend payments, is investing more in resilience and is doing a whole new range of different activities, and my concern is that we risk cutting off an enormous amount of infrastructure investment if we do not get this right. I think there is a way forward, and I will touch on it in a moment.
Compared with 30 years ago, customers are now five times less likely to suffer from supply interruptions, eight times less likely to suffer from sewer flooding and 100 times less likely to have low water pressure. The hon. Member for Harrow West talked about Welsh Water; he is right that people sometimes suggest that it is a mutualised organisation, when it is a private company. Welsh Water loses 121 litres per property in leakage, which is more than nearly every other water company. Its average combined water and sewage bill is £439, which is 8% higher than the average English and Welsh bill, at £405. It is higher than the bill in six English companies, and that is in a country where there is no shortage of water. I come from the Thames Water region and we are short of water there, but in Wales they are not so I cannot understand why the bills are so high. In Welsh Water, the average number of minutes lost due to supply interruptions is 43 minutes, which is about 400% higher than in most other companies, where fewer than 10 minutes are lost.
The picture is not universally wonderful, and there occasionally needs to be a bit of balance in the subject. Water companies have reduced leakage by a third since the 1990s. We are about to see an incredible increase in innovative methods of detecting leakage, and it is right that in the current price review round there is an enormous driver on those companies to crack down on it further.
On the environment, standards have dramatically risen, with the welcome return of wildlife to rivers that had been biologically dead since the industrial revolution. Otters rely on healthy rivers and were thought to be on the verge of being wiped out 30 years ago, yet they are now seen in every county in England.
The average domestic water bill is just over £1 a day—that is £1 a day to get all the water we need into the household, and all the sewage and waste water out. Although bills went up immediately after privatisation to help deal with decades of under-investment when the industry was owned and run by the Government, bills have stayed pretty much the same in real terms since 1994 after inflation, and are set to fall in real terms over the next few years. By 2025, bills will have fallen in real terms for a decade. The industry’s independent regulator Ofwat—which has just come in for some stick—has calculated that bills are £120 lower than they would have been if the combination of privatisation and tough independent regulation had not happened. Bills would have been £120 more per household if the industry had remained in public ownership.
On the subject of customer satisfaction, the hon. Member for Harrow West has said that people are terribly dissatisfied with their water companies. I went on the internet last night to look at what Ofwat, the Consumer Council for Water and individual water companies are saying, and customer satisfaction levels for water and sewerage services are around 90%. As politicians, would we not love to have a bit of that, particularly at the moment?
I wonder whether the right hon. Gentleman would comment on two things. The first is the National Audit Office’s calculations, which suggest that there has been a 43% increase in real terms in water bills since privatisation, and the second is the significant difference in water prices between publicly owned Scottish Water and the privatised water companies in England, which I mentioned.
I do not know the circumstances in Scotland, so I can only speculate, but that is another country that is not short of water, as many parts of this country are. I just think that we need to look at what the customers are saying, and my impression is that customers are not shrinking violets. When I came into this House in 2005, my inbox was overflowing with complaints about Thames Water’s customer service, which made me realise that water is an absolute necessity of life. It is the first thing that people will complain about; it is something that we perhaps rely on too much, and use too much of, in the area of the country in which I live. However, the idea that customers are somehow not involved in and concerned with raising these issues is wrong. When they are asked about them, they give quite interesting responses.
Let me just finish this point. A recent ComRes survey shows that 86% of customers trust their water company overall, with 89% trusting it to provide good-quality water and 87% trusting it to provide a reliable service. Those are levels of satisfaction that we as a political class can only dream of.
Will my hon. Friend Rebecca Pow be very quick? I know that other Members want to speak.
Does my right hon. Friend think that there is still a role for customers in reducing their water consumption? Water is a precious resource, and we are probably using more than we ought to.
Yes, we need to do more. When compared with other European countries, we are absolute laggards: we use much too much water, wash our cars with potable, drinking-quality water, and do all kinds of things that we should not. We have to change our lives, and I hope the Minister will be able to inform us about what will be happening in that area in the future.
On the topic of dividends, which is a key point, Ofwat says that each company’s licence requires it to declare or pay dividends
“only in accordance with a dividend policy which has been approved by its Board and which complies with both of the following principles.
The dividends declared or paid will not impair the ability of the company to finance the regulated water and sewerage business.
Under a system of incentive regulation, dividends reward efficiency and the management of economic risk.”
In the past, some companies have certainly played a bit fast and loose with those principles, and have developed levels of gearing that I, as a manager of a small business when I entered DEFRA, found quite eye-watering. However, the hon. Member for Harrow West does tend to pick on the bad players, and in talking about Thames Water, he was perhaps not talking about the Thames Water of today. He might have been talking about a model that applied under previous ownership, and I urge him to look more closely at what Thames Water is trying to achieve today.
We should encourage companies to look at employee share ownership schemes. That whole concept of finding ways to democratise capital is a huge, rich seam that we could collectively work on. Water companies are good places to encourage not just employees, but customers, to develop a higher interest in the ownership of that company, which is a better way to get more people involved without damaging any investment potential. I worry about Labour’s proposals for nationalisation right across the sector. It recently published its plans in a publication called “Clear Water”, but stopped short of explaining how the big challenges faced by the water industry, such as climate change and an increasing population, would be addressed by its substantial re-organisation of structures and ownerships. That publication makes no attempt to acknowledge the many improvements made since privatisation in 1989, let alone the further benefits such as falling bills, improved services and increased investment that companies have set out for the future.
If water is nationalised, it could seriously damage the service and quality of water in England. It could create a future in which decisions are driven primarily by short-term political expediency rather than the needs of customers, and in which the high levels of investment needed to improve services are not sustained. The result would be bad for customers, bad for the environment, and bad for the economy.
It is a great pleasure to follow Richard Benyon, who has displayed his knowledge of not just the water industry but Momentum rallies, Venezuela and so on. His remarks put our party and our Front Benchers on notice that we have to get the detail of this policy right. It is a very radical policy, and I support changes in the water industry, but we will hear many mentions of Venezuela and Momentum rallies in any election campaign in which this is an issue. It is also a great pleasure to follow my hon. Friend Gareth Thomas, who opened the debate in a typically urbane and knowledgeable way. He is a great loss to our Front Bench, and I hope that one day he will be a Minister again in a future Labour Government.
I do not know whether that is a “thank you” or a bet.
I will speak briefly, but perhaps a little explicitly. I think that part of my hon. Friend’s speech was directed at our party’s own Front Benchers. At the moment, we are consulting on our plans for the water industry, and I hope nothing is set in stone. In developing our policy, we need to learn as much from Scotland, Wales and—if I may say so—Northern Ireland as we do from experts who reside in the north of London. My hon. Friend referred to the Secretary of State for Environment, Food and Rural Affairs and the shadow Chancellor competing, about a year ago. It was last spring—spring was in the air—and one of those gentlemen said:
“Far too often, there is evidence that water companies—your water companies—have not been acting sufficiently in the public interest.”
It could have been either of them; in this instance, it was the Secretary of State. On that occasion, he was as cruel and as vehement in his speech about the water industry as he was about the Opposition last week, so this is an open goal for the Opposition.
I will not repeat the statistics that my hon. Friend referred to when opening the debate, except for the basic statistic that the privatised water industry has taken out about as much in dividends as it has put in as investment, so the idea that the privatised water industry has brought new investment into the industry that would not have been made otherwise is wrong. However, what should be a Labour Opposition’s policy on changing ownership? I hope that the shadow Minister, my hon. Friend Luke Pollard, can confirm that the submissions that my hon. Friend the Member for Harrow West has made will be considered very carefully in our current review of policy in this area.
I share with the right hon. Member for Newbury a love of employee share ownership schemes, particularly if they involve the whole of the company. I chaired such a scheme, which ran Hatfield, one of the last two deep mines in our industry. It has a different feel from any other form of capitalism. I hope we will consider that. I hope we will also consider the role of regulation, because any reference to external regulators seems to have gone from our paper. I do not want civil servants making all the decisions on the regulation of the water industry. It is a specialist role.
In Scotland, there is a publicly owned industry, but there is also an independent regulator. Incidentally, there is also competition in the business retail market in Scotland, which exists alongside public ownership of the industry. We have had some debate already about the precise form of ownership, but as I understand it, in Wales it is not employee-owned, but a not-for-profit model. I understand that the cost of debt for the Welsh industry is less than for any other industry in the public or private sector in the whole United Kingdom. I hope we learn from Wales, too.
If we are to take some of the water industry at least into the nationalised sector, why not let a thousand flowers bloom? I hope our Front Benchers will consider that. Why not have some on the model that my hon. Friend the Member for Harrow West mentioned and some where there is demand in the public sector? That would be one way of doing it, but it will be more costly to have all the water industry in the nationalised sector, as compared with my hon. Friend’s suggestion. We have to face up to the question of compensation. It is not good enough for an academic in north London to refer to how the banks were taken in distress into the public sector. Certainly they were, but they had virtually no value in their assets, and that would not be the case with the water industry.
Some of the water industry shares are owned by the workers of the water industry, and some are owned by the pensioners. I have had an interesting dialogue with an organisation called We Own it, which is contributing to the field. When I asked it about this question, it said—I paraphrase—that it did not really believe in compensation, but that it recognised that workers and pensioners somehow have to be looked after. We have to do better than that if we are to stand up with a general election campaign.
The hon. Gentleman makes a very good point. Polls are often cited to say that an enormous percentage of people want to take the companies back into national ownership. Of course, it depends on which way the question is asked. When it is phrased, “In order to do that, the Government would have to spend £90 billion of taxpayers’ money. Do you not think that could be better spent on other areas of the public sector?”, they nearly always agree. It depends on the question.
It does, but obviously if a Labour Government went down that road, they would then have assets on the public sector books to match that spend, as the right hon. Gentleman is well aware. The arguments are not black and white, as he admitted in his speech. We do have to think out the policy very carefully. I am a great believer in radical policies. I voted from the Back Benches in favour of some of them under the last Labour Government when those were perhaps not the flavour of the month. We have to get it right.
I will mention one other issue and then finish. The Environment, Food and Rural Affairs Committee, of which I am a member, did a report on the water industry. I commend some of the detail of that, and one detail in particular. The overflows from combined sewers owned by the water industry are a national disgrace. We have cleaned up our beaches in the past two or three decades, largely, dare I say it, because of European regulation.
We now need to clean up our rivers. Ilkley in my constituency is a great tourist destination, with swimmers in the Wharfe all the time. It connects downstream with the constituency of my hon. Friend Alex Sobel at Otley. We should not have sewage being discharged on a very regular basis. While I understand that various other things are going on in Parliament next Tuesday, I will be concentrating on the afternoon drop-in session of the chief executive of Ofwat and the Environment Agency. I hope they will address the issue of sewage and commit to cleaning up our rivers, just as we have cleaned up our beaches.
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend Gareth Thomas on securing this important debate and on making the important distinction between co-operatives and mutualisation, and industries nationalised via the state. That distinction is often missed in these debates.
I will talk about the future of the water industry from the perspective of the fourth industrial revolution and the digitisation of our networks. On that basis, I declare my interests in relation to the various works I do in the technology sector, as set out in the Register of Members’ Financial Interests.
Last Friday, I met with the team at Bristol Water, which supplies drinking water to more than a million customers, including all of my constituents in Bristol North West. I had expected the meeting to be run of the mill, but I was somewhat surprised, because Bristol Water turned out to be far more advanced in its digitisation of the water network than many other water utility companies.
Many Members will know that British industry is lagging behind in the digitisation of our businesses, which is a priority if we are to unlock the productivity challenge in the British economy and help meet our climate change objectives. At Bristol Water, sensors have been installed across the entire network and big data analytics have been deployed. Those are new words for many sections of the water industry. In Bristol, we get our water from lakes and reservoirs around the Mendip hills and from the River Severn via the Gloucester and Sharpness canal. Water from the River Severn needs to be pumped into Bristol, which requires large amounts of energy. Water from the Mendips requires less energy due to gravity. Bringing together data on real-time energy prices with real-time water consumption requirements has allowed Bristol Water to build algorithms that decide when to pump water from where to where and at what time, helping to reduce over-pumping and generating significant savings on its electricity bill.
Those efficiency savings will allow Bristol Water, subject to Ofwat’s agreement, to pass on price reductions to Bristol Water customers, which I know many of my constituents will welcome. As we have heard from my hon. Friends, that is an unusual thing from a utility company in the past few years. I am sure Bristol Water itself would say that it is a new positive turn, as it was in something of a bother with Ofwat a few years ago for not being able to agree price rises. I welcome that positive U-turn from Bristol Water for my constituents.
In a very Bristol way, Bristol Water brought in sensors, big data analytics and algorithms through collaboration. It set up a start-up incubator in Bristol where, for example, a big data entrepreneur, Hackett Consulting, has been able to go from being a Bristol start-up of one to a scale-up business from the things it has learned at Bristol Water. It is now able to sell that as a service to other industries across the country.
Beyond the algorithms, sensors have been installed across the network, meaning that leakages can be dealt with more efficiently and accurately. Instead of waiting for someone to call up and say, “There has been a leak of water at the end of the street”, field engineers’ iPads bleep at them when there are leaks, and they know exactly where to go to try to fix them. That reduces the number of customers affected by the closing off of pipes and decreases the time it takes to fix the leak.
Reduced energy consumption and better management of leaks, alongside helping customers to reduce their water consumption, all make extremely valuable contributions to our climate change objectives. As a member of the Science and Technology Committee, I have been troubled to hear from Lord Deben, the chairman of the Climate Change Committee, about how far we are falling behind as a country in meeting our climate change objectives.
The Government must take the easy wins to ensure we get back on track to decarbonising our economy. Bristol Water’s approach seems to be an important and useful way to do that. I was therefore thrilled to hear about the work being undertaken in my constituency. I encourage the Government, Ofwat and other water companies to look at how we have digitised the network to improve efficiency and to contribute to decarbonising the economy in Bristol. I hope the Minister will tell the House how she is helping regulators and water companies to move in that important direction.
It is a pleasure to serve under your chairship, Mr Gray. First, I thank my hon. Friend from my namesake constituency, Darren Jones. He gave a great technical speech and we all learned a lot about how we can improve the data analytics and dynamics of the water industry.
I also thank my hon. Friend John Grogan, who made a number of important points on which I will elaborate. Most informatively, he said that we should not rely on expert academics and opinions from north London. Perhaps in this debate we will hear some expert advice from west Yorkshire that the Labour Front-Bench spokesman and the Minister can act on. Lastly, I thank my hon. Friend Gareth Thomas for securing this debate. He chairs the Co-operative Party with some panache. We have been waiting for this debate for some time, and I declare an interest as a Co-operative Member of Parliament.
I want to commend the publicly-owned Scottish Water, which, over the past 16 years, has managed to save consumers an average £42 a year when compared with English consumers, and is ranked as one of the UK’s most trusted companies. I also want to highlight the success of Welsh Water, as many others have. Glas Cymru, established under the then Labour Government, has managed to return £180 million to customers in the form of customer dividends, while providing £10 million to assist low-income families and individuals by offering them lower tariffs.
An increasing body of support shows that the Tories’ ideological obsession with privatisation, which Richard Benyon is a great exponent of, has done nothing to improve services and has only raised the cost to consumers. Water is water, whether you are English, Welsh, Scottish or Irish. But under the English privatised system it is more costly, even though both Scotland and Wales have very difficult topography and are sparsely populated in large areas.
When English people turn on their taps, they pour money down the drain—except that it is not down the drain, but into the pockets of the wealthy and into the wealth funds of foreign investors in countries such as Canada, Australia and Singapore. That makes up the £6.5 billion of dividends paid out to shareholders in the past five years: the same amount of money that goes into the pockets of the people of Wales. Do we really think that is good enough? Do we really agree that in our Union there should be a two-tier system for our most fundamental services? And do we think that an individual or family should pay more for water because they live in one part of the Union and not another?
The ideological mindset of those obsessed with the privatisation agenda is such that this Government cannot see the evidence in front of their eyes. Privatisation does not necessarily, as promised—
I am very fond of the hon. Gentleman. He and I agree on other things, but I cannot resist responding to being attacked for being ideological when I feel I am combating an ideology here. We have a system that works and it is being attacked by ideology.
On another point, of course 380 or 400 quid a year is a lot of money to people on low incomes and we have systems to support them, but for people on average incomes, compared with other costs in their lives, getting water that is 99% drinkable and of good quality and getting sewage away for about £1 a day is quite a good deal for most people, particularly if we protect the poor.
I was not completely embodying all the faults in the right hon. Gentleman’s arguments. To repeat his point, it is good value, but why is it better value in Scotland and Wales than it is in England? We should surely aim for best value.
At this crucial time, when living standards across the UK are being decimated and individuals and families are struggling to stay afloat, we need to reassert both sense and our fundamental obligation to the people we represent. We need to assert that the market has limits, that not everything in this world should be up for grabs, and that privatisation does not necessarily equal value for money. The market has its place as a means of exchange for goods and services, but a basic selling principle of marketisation is the offer of genuine choice, lower costs and better services. I am a customer of Yorkshire Water. The only way I can get Harrogate water is to buy it in a bottle. I cannot get it through the tap and cannot change provider as I can in other utility markets. None of those things apply to the case of England’s regional water companies, so I suggest it is time to look at the example of our Welsh and Scottish compatriots and to change our—literally—leaking system.
With no competition and no realistic prospect of withdrawing consumption, water bills can be best conceptualised as a tax, because everybody needs to have water through the tap. Indeed, other systems, such as that in Scotland, account for water within council tax. It is not a matter of theory, but of practice in Scotland. Under our system, however, there is no differentiation between households. Our flat, regressive tax hits those on low and medium incomes hardest, particularly those on medium incomes who have no redress. Shareholders skim a dividend from UK taxpayers who have no choice but to purchase water from monopolistic regional providers.
We have only to look to Welsh Water, which operates on a not-for-profit basis within the private system, to see how well a mutual approach can work. The company serves 3 million people every day and has the strongest credit rating in the industry, as we have heard from my hon. Friends, as well as sector-leading levels of customer satisfaction. Its success does not benefit a few wealthy shareholders. As I have said, £180 million has been returned to customers.
The idea that a select few own and profit from something that falls literally from the sky—something that makes up 70% of our bodies—is absurd. The arguments for privatisation of our most basic assets and infrastructure have been lost. It is not about competition, which implies choice. No, it is the same faith in the market that means people in this country pay through the nose for their gas, electricity and train travel, often receiving a worse service where it is privatised than where it is in the public sector.
Last summer, as my hon. Friend the Member for Keighley mentioned, Yorkshire Water allowed sewage to flow through the River Wharfe, which starts in his constituency and flows right through mine in Otley and Pool. As was said, swimmers in the River Wharfe had to swim through the sewage. Private companies do not face the level of accountability that the system demands.
For mutualisation to happen, the water companies must first be taken into state ownership and the shareholders compensated, and then the companies can be put into the hands of consumers. Our basic infrastructure can be truly owned by the public without the need for direct state ownership, which MPs of all parties should support. Then we come to the question of governance. Wales has a company limited by guarantee. It has no shareholders, so its corporate governance functions are the responsibility of its board, which has a majority of independent non- executive directors, and its members, around 70 individuals, are appointed following a process undertaken by an independent membership selection panel. Those 70 people are the customers: the people of Wales.
There are alternative forms of governance, with a water company in a defined geography, as we have in England, being a good fit for a consumers’ co-operative model. Consumers’ co-operatives utilise the co-operative principle of democratic member control—or, as we call it in the Labour party, one member, one vote. Most consumers’ co-operatives have a board of directors elected directly by and from the membership. Unfortunately, water in England drips with right-wing ideology, draining the public purse and rinsing out our most valuable resources, while drowning customers in debt. That money-making monopoly and the two-tier UK system must end. We must instead look west to Wales and replicate a model that brings water—the most basic of human needs—back into the hands of the public.
It is a pleasure to serve under your chairship, Mr Gray. I do not have long, so I cannot dwell too much on some of the valuable contributions made by hon. Members, but I commend Gareth Thomas for securing this debate. He raised very important points, and I am delighted that they are being addressed in this forum. There was quite a contrast between some of his comments and those of Richard Benyon, who painted a glowing picture of water privatisation that I find it difficult to recognise.
The right hon. Member for Newbury admitted that he knew little of what was happening in Scotland, which is a surprising admission for a former water Minister, who should surely be prepared to learn best practice from wherever it can be found. After all, we are only up the road, geographically speaking. I hope he will be interested to hear some details in my speech. He also spoke of water being a necessity of life, and I wholeheartedly agree. It is far too important to be subject to a privatised system that gives, as we have heard, a worse service, and that seems to be largely driven by right-wing ideology, rather than what is best for customers.
There has been a lot of enthusiastic talk in this place about taking back control. That sounds strange coming from people who are, by and large, wholehearted supporters of stripping democratically elected Governments of control over the delivery of public resources, instead preferring essential services to be fractured and put into the hands of the private sector. Taking back control of England’s water supplies is an argument that makes a lot of sense to me. People are rightly scunnered by a system that services debt and pays disproportionate dividends through increasing bills for customers. There should be an outcry over the findings of the recent Greenwich University research, which suggested that a staggering £56 billion in dividends was funded through £51 billion, or potentially more, in debts.
Supporters of the privatisation cannot even claim real competition benefits, with most of the water companies operating as regional monopolies. The leakiest pipe in England’s domestic water supply is seemingly one that drains money away to a private stream. A public company, run for the public good, is the best way to end that scandalous rip-off. I welcome the contribution of the campaign led by We Own It to make that happen.
Luckily, as has been mentioned, there is a model close to hand that is working very well—I appreciate the hon. Member for Harrow West mentioning it often—which the UK Government would be very welcome to emulate. As with so many other public services being delivered under devolved Government control, such as the running of prisons or the procurement of NHS contracts, Scotland has chosen a more sensible path wherever it has the powers to do so.
We did not privatise domestic supplies of water, and Scottish Water was established in 2002 as a publicly owned company answerable to Scottish Ministers. Under the Scottish Government’s watch, there has been a focus on driving up standards and keeping charges affordable. We are now reaping the benefits in drinking water quality, environmental performance and customer service.
It is interesting. We are, of course, spending considerable amounts of money on addressing that. As I understand it, and I will speak about this later, our service performance is now comparable to the leading UK water companies; on some measures, we outperform them. As we continue to invest, water loss will be driven down. English water companies are having to resort to debt; that is what their investment in infrastructure is largely based on.
I was quite surprised by the contribution made by the right hon. Member for Newbury, as that is not my understanding. Perhaps I should quote the Scottish Water Commission, which noted in 2013:
“It is now more than a decade since Scottish Water was established. In that time the company has transformed itself as an organisation. It has caught up with the top performing companies in England and Wales on cost efficiency and levels of service and has regularly reached—and outperformed—its targets.”
I expect more of that in the future.
As Greenwich University research found,
“the public-owned sector in Scotland delivers the service just as efficiently, albeit at a lower cost to consumers.”
In Scotland, bills are 2% lower in real terms than they were 18 years ago, while over the equivalent period in England they increased by 13%. Drinking water continues to be at record levels of compliance, and there were no failing waste water treatment works in 2017, compared with more than 70 in 2002.
Scottish Water has reduced energy consumption and increased renewable power generation. It has cut carbon emissions by more than 30% since it first reported in 2006-07. Driven by the Scottish Government’s ambitious renewable heat and carbon reduction targets, the amount of renewable energy the company generates is now more than double its electricity consumption. Ageing facilities are being replaced through major investment in projects such as Glencorse water treatment works outside Edinburgh. That energy-efficient plant was delivered on schedule and under budget, and now supplies cleaner, safer water to around half a million people in the capital, while having sustainability at the core of its operations. A hydro-turbine provides almost half the facility’s own energy needs, helping to keep water charges low for customers.
Scottish Water’s service performance, as I mentioned, is now comparable with that of the leading UK water companies; on some measures, it outperforms them, while still keeping the bills down. Even where it can be said that the leading English companies perform better, at the current pace of investment by Scottish Water, and without the spend on dividends, that position is set to change over the next decade.
The myth that private profiteers are required to deliver things better has been dispelled. Indeed, the We Own It campaign points to the move towards public ownership internationally, with 235 cities in 37 countries taking water into public ownership in the last 15 years. Public ownership of public water supplies is already working in Scotland. That may seem clear, but it is worth reminding the Labour party of that fact, given that the Scottish leader, Richard Leonard, argued recently that they should be taken back into public hands. There was a wee bit of confusion there, but I will certainly draw his attention to helpful comments made by his colleagues down here today.
Scotland is rightly famous for its water. It is a reliable natural asset that serves our health, our wellbeing, our environment and our economy well. It is right that public supplies of domestic water have remained a public asset, delivered in the public interest. It should be so in England too.
I congratulate my hon. Friend Gareth Thomas. As a Labour and Co-operative Member of Parliament, I listened intently to what he had to say with great interest and much nodding. He has been a real champion of the Co-operative movement over many years. My hon. Friend Alex Sobel and I, as young Co-operative MPs in this place, have a lot to learn about the championing of the Co-operative cause from the Obi-Wan Kenobi of the Co-op party— my hon. Friend the Member for Harrow West.
This debate has long been due. As someone who has worked for a water company, I believe we do not talk enough about water policy in this place; we need to talk more about it if we are to meet our Paris climate change commitments to create a fundamentally sustainable water industry, in terms of water usage, the chemicals used in it, and the contribution to the natural world.
Clearly, some serious and genuine concerns are being raised by members of the public and Opposition Members about the way that our privatised water system is run. The privatisation of water has not worked to deliver the benefits that it should in 2019. Too much money is being paid out in dividends and not enough investment is being made in fixing leaks and reducing water usage. Not enough is being spent on climate change mitigation or fundamentally fixing the broken system. We need better water resilience and better value for money for our customers.
The water companies are only part of that. My hon. Friend John Grogan was right when he talked about the need to look at regulation as well. I am certain that he and Richard Benyon will read carefully the water policies that I hope to publish, as Labour’s shadow water Minister, in the next couple of months. They will describe how we should deal with the fact that we need a better, reformed system, and additional policy levers to address climate change.
Can the hon. Gentleman give us a taster of those policies by saying whether he will compensate shareholders for the £90 billion that they own, and where he will find the money?
I thank the right hon. Gentleman for that. As his intervention came only on page 1 of my 12-page speech, perhaps he is pre-empting some of it. I suggest that he looks at the proposals that the shadow Chancellor, my right hon. Friend John McDonnell, and the shadow Business Secretary, my hon. Friend Rebecca Long Bailey, have published that talk about replacing the share capital ownership with bonds. There are already details of that available.
It is important to consider the debate in context, because large parts of the UK, as well as the rest of world, are experiencing a water crisis. We like to think of England as a notoriously damp place where water is plentiful, but that is not the case for large parts of the country. We need to recognise that England is in fact in the lower quartile globally of available water resource per capita. More people are living in areas of water stress, and more population growth and house building is planned in areas of water stress—especially in the east of England, London and the south-east of England; we will need to not only reduce water use but transfer more water there. That suggests that we need a different system to handle some of those challenges.
As my hon. Friend the Member for Keighley hinted, droughts cause hundreds of millions of pounds of damage, and have led to hundreds of thousands of fish dying from over-abstraction and to serious decline in our wetland species. Sewage has also been pumped into our rivers. It is worth saying that thankfully that is less common than it was. Indeed, when I was a boy growing up in the west country, at one of our glorious beaches, swimming past floating turds was commonplace. It is not anymore, thanks to the investment that has been made, but more needs to be done on that with regard to our rivers. [Interruption.] The right hon. Member for Newbury throws his hands in the air, but bill payers in the far south-west know about that investment, because we paid for it with what for many years were the highest bills in the entire country—not just a wee bit higher, but double the nearest amount. We have paid for what has gone out in dividends, as well as for what has gone into the system.
We need better water resilience, because there is simply more demand. The latest statistics show that there will be 4.1 million more people in the south-east by 2045, and by 2080 there could be an extra 10 million. We need to think about how to deal with the amount of water used, where it comes from and how it is treated, to ensure that we minimise the effect on our climate. We are also facing increased flooding. That context is really important; it is why we need more debates about the structure and operation of our water industry, and why today’s debate is so important.
I have to say that we have seen moves in the right direction under this Government, but they frequently come from DEFRA press office announcements rather than from policies being fully implemented. I do not think that Ministers are cranking the handle sufficiently to achieve the change that could be delivered to our water industry if we showed greater concern about pricing and about investment in climate change, flood and drought mitigation. We know that more can be done, because in the latest round of price reviews and business plans, companies have published proposals that hint at a slow move in the right direction. One such proposal, which I am sure my hon. Friend the Member for Harrow West will have seen, is in the south-west: South West Water has proposed an element of mutual shareholding as part of its wider ownership base. If it can be done in the west country, it can be done elsewhere, so that could be encouraged as part of the wider debate.
Labour’s water proposals are pretty clear—and pretty popular, as it happens. Some companies have engaged in good practice, but not enough; as the right hon. Member for Newbury says, there are bad players and bad behaviour in our industry. Thames Water is the poster child for such bad behaviour, but sadly it is not the only one. We need better regulation and better ownership, so Labour has set out plans to take our water companies back into public ownership.
I pay tribute to my right hon. Friend the Member for Hayes and Harlington and my hon. Friend the Member for Salford and Eccles for putting together Labour’s clear water proposals, which set out our plan for public ownership of water companies. As our September 2018 booklet “The Green Transformation” states,
“Labour will…bring water back into democratic public ownership, lowering bills and providing levels of investment needed to drastically reduce leakage and tackle major sewage pollution incidents, which are still rising.”
I absolutely agree with the right hon. Member for Newbury that we need to guarantee the investment stream. There is a role for investment in our water companies, but our proposal is that the role of private ownership should come to an end.
Our “Clear Water” plan states:
“To ensure maximum openness, transparency and scrutiny, RWA boards will have a statutory duty to make information widely available and hold monthly public meetings in different locations each month. Meetings will also be broadcast live on the internet and all papers will be made public.”
Many good lessons can be learned from the operation of mutuals about how customers and employees can be brought into running better businesses. My hon. Friend the Member for Leeds North West said it well: we need better value from our water industry. We also need to look at regulatory responsibility. Our plan further states:
“Regulatory responsibility…will be absorbed into Defra, which will form a new public regulatory system in the form of a National Water Agency responsible for economic and performance standards and capacity-building.”
As we get closer to publishing further details, more information will become available.
Labour is suggesting that our new water system needs to consider sustainability and the public interest, not just private profit. The shadow DEFRA team is exploring what other water policies should accompany our proposal, so that we can tackle climate change, flooding, water scarcity, water usage, water pollution from plastics and microplastics, lead pipes—an issue of particular interest in some parts of England—and water affordability. When the next election comes—many suspect that that will be very soon—our manifesto will offer a full suite of policies not only on public ownership, but on a better system.
I am aware that the Minister needs to sum up soon. This has been a good debate, and I hope there will be many more to come as we make our case. Rebecca Pow, who is no longer in her place, spoke very well about the need to address personal water consumption—one of the reasons I carry around my own water bottle, rather than using the House of Commons’s supply of bottled water. Indeed, it seems ironic that in a debate about the water industry, we are still using bottled water in this place, so perhaps the House authorities could look at that. We can all do things to address the challenge in our water industry. Ownership, management and our own consumption are all part of the mix.
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate Gareth Thomas on securing this debate through the Backbench Business Committee, and I thank Mr Deputy Speaker for selecting it.
The hon. Gentleman and many others raised a huge number of points, which I intend to address. However, I think I will have to edit my reply to add a few facts about dividend payments, leakage and other matters, because there seems to be a complete lack of understanding and an attempt to use averages everywhere. I appreciate that that may be beneficial at times, but we need to get into the granularity of these points as well.
Water is key to life, which is why it features so prominently in our 25-year environment plan. The long-term view for the industry is clear, including on matters of supply, leakage, demand, consumption, environment and the necessary investment in infrastructure. Those matters are well set out, and companies have to consider the 25-year environment plan when producing their own future plans.
The Government support a private water sector model, underpinned by strong, independent economic regulation. It has been 30 years since the privatisation of the water industry in England and Wales, but the industry has continued to evolve and has always been underpinned by regulation through Ofwat—particularly as the provision of water, unlike that of other utilities, was not opened up to the market for consumers. We have introduced competition for business customers, but all the evidence that I have seen as water Minister predicts that opening up the market causes bills to go up rather than down, at least initially. One of the reasons we support the model as it is—which is not to say that policy may not change in future—is to ensure that Ofwat continues to effectively challenge water companies. Back in 2009, Welsh Water was challenged by the regulator to reduce its bills, and indeed it did—it reduced its operating costs by 20% to make that happen.
Since privatisation, approximately £140 billion has been invested in infrastructure. That is equivalent to £5 billion per year—almost double the level prior to privatisation. Customer satisfaction levels have risen to about 90% and customers are now five times less likely to suffer interruptions to their supply, eight times less likely to suffer from sewer flooding, and 100 times less likely to experience low flow pressure than in the days when water was a nationalised industry. As my right hon. Friend Richard Benyon points out, they pay just over £1 a day on average for water to be delivered, treated and returned to the environment in a good state.
I recognise that bills increased significantly, especially in the first 10 years after privatisation. A lot of that was to gather the necessary investment. Average bills have remained flat over the past two decades, however, and are planned to fall by 4% in England by 2025. Some companies, such as Yorkshire Water, are keen to increase prices because they want to invest considerably more from an environmental angle, but that is a decision for Ofwat to agree or disagree to.
We are not complacent. I am very conscious that too much water still leaks out from our system. Significant investment is needed to improve the resilience of our water supply, and corporate and financial behaviours need reform. We have therefore challenged and will keep challenging the industry to continue to improve for customers and for the environment, as well as for shareholder returns.
People talk about dividends, but I am very conscious that the average dividend paid out has fallen: in 2008-09, under a Labour Government, I think it was £2.5 billion, whereas in the past year it was less than £1 billion. We are often accused of being ideological, but—dare I say it—when Labour was in charge, returns to shareholders were a lot more. We have taken action against that.
The hon. Member for Harrow West focused in particular on changing the ownership model of water companies. Although he did not seek to suggest that we nationalise the water industry, he is clearly a supporter of social enterprise and mutual organisations. I am very conscious of the experience he has had with Thames Water, particularly on dividends paid out and with the former owners. The owners have changed and I believe there has been a significant step change in approach, which is most welcome.
A lot has been said about what is happening in Wales. Following the original privatisation, the company covering Wales, which was called Hyder, had expanded into other sectors. After the new Labour Government’s windfall tax in the late 1990s—and other economic challenges—the company effectively collapsed and was acquired by Western Power Distribution. That focused the business and it sold the water division to the two founders of Glas Cymru for £1, with £1.85 billion of debt, and that resulted in Welsh Water.
As has been pointed out, the key difference for that company was that it was created by a small number of people. It does not have shareholders but is limited by guarantee and funded by the bond market, so it still has external financing. One of the ways in which it has adjusted its gearing is to hold very high cash reserves, which helps reduce borrowing. However, I do not think that we necessarily get better value for customers just through every provider having a not-for-profit system. I think it was Chris Evans who complained to Ofwat a few years ago that customers across the border in Herefordshire, who were supplied by Severn Trent, were paying a lot less for their water bills than people in Wales. While I am conscious that there is not the same pressure on water supply, I am aware that there are particular challenges in the network when it comes to sewerage. It is important to recognise the different catchments, river basins and sources of water on which different water companies rely. Some rely more on water that is gifted from the clouds; others, such as those in the east of England, extract more water. Getting that balance on what is needed right will vary around the country.
The Minister is making an extremely good point. People in the south-west had been pleading for years about the cost of cleaning up beaches and other infrastructure problems, but of course the Labour Government ignored those pleas. It was the coalition Government who got a £50 reduction for every single bill in the west country, which was extremely valued by water customers in the south-west.
My right hon. Friend is correct, and that has been considered. The balance is very important. However, we need to continue to challenge South West Water to make sure its investment is effective. John Grogan talked about the challenges on sewage, and there are particular challenges in the south-west on aspects of combined overflows. We continue to press the company to make sure that it is maximising the investment on improvements.
Will the Minister comment on two points? I mentioned in an earlier intervention that, since Scottish Water was set up in its current form, the price of water is 2% lower in real terms, while water bills in England have gone up by an average of 13% in real terms. Secondly, in the current price review, does the Minister intend to require Ofwat to significantly lower the cost of capital, which is included in the amount that Ofwat allows water companies to charge?
I am not aware that I have the power to direct Ofwat on exactly how it comes up with its cost of capital. My understanding is that it has reduced what it assumes to be appropriate for the weighted average cost of capital, but I expect the price review to be published shortly. I am due a briefing from Ofwat within the next week on that particular issue.
On prices, Severn Trent’s average bill is still lower than that of Scottish Water. I want to bring some facts into the debate. The need for ongoing investment in the water industry will vary around the country, as will what water companies put forward as necessary for the changes we require.
Ofwat has highlighted the benefit of modernising licence modification powers, after the Secretary of State asked it to look into what further powers it felt it needed. We are currently consulting publicly on that proposal and will make a final decision after the consultation. If we decide to proceed, we hope to bring that forward in a legislative vehicle in the next Session.
The Government’s strategic policy statement in 2017 set out the need to improve protections for vulnerable customers. To help water companies achieve that, the Government introduced data-sharing provisions in the Digital Economy Act 2017 to better identify those who may need help with their bills. Companies have responded positively to that challenge in their draft business plans. Between 2020 and 2025, they have pledged to reduce dividends and bills, increase investment to £50 billion, improve transparency on executive pay and increase the uptake of social tariffs by nearly 90%. Welsh Water’s level of investment is nowhere near as high as that of the average water company in England.
I am pleased that many water companies have set out how they will share profits with customers either directly or through community benefit schemes. They have set challenging targets to extend their support to vulnerable customers, including a commitment from Northumbrian Water and South West Water to eradicate water poverty in their regions.
The industry plans to reduce leakage by 16% by 2025 and has set the ambitious target of a 50% reduction by 2050. Companies also plan to reduce individual water use by 2045, targeting 83% metering penetration and a per capita consumption of 123 litres, which would be a significant improvement on today’s average of 141 litres in England. We will hold them to account on those plans and we will take action ourselves. In our water conservation report, which was published just before Christmas, I said that we would carry out a call for evidence and a consultation on the measures we can take to reduce demand.
Even though we expect that leakage will fall and demand will drop, water supply still needs to be increased. To ensure key infrastructure can be delivered on time, we are consulting on a draft national policy statement for water resources infrastructure, which will streamline the planning process for new large water infrastructure projects, such as reservoirs, desalination plants and water transfers. We expect companies to collaborate with one another on regional water resource plans that transcend company boundaries, to identify the most cost-effective solutions for each region and for the nation. That includes water companies considering other water users in their plans and working together where appropriate. The Environment Agency’s national framework for water resources will support that work.
It is important to recognise the regulators of the water industry, namely the Drinking Water Inspectorate, the Environment Agency and DEFRA, which itself continues to regulate on a small number of matters. They all have good powers to protect consumers and the environment.
The work of the Consumer Council for Water has been referred to. As the consumer body, its role is to hold the water companies to account on behalf of customers. It acts for both residential and business customers. We want to see a water industry that puts customers at the heart of the business, contributes to society and protects our precious natural environment. We will continue to push the sector and to hold it to account, to ensure that it achieves those objectives.
I am grateful to the Backbench Business Committee, to you, Mr Gray, for chairing the debate, and to my hon. Friends and other hon. Members for taking the time to take part. I think the mutual route to democratic public ownership offers significant advantages over the current privatised system. Customers and employees would be in charge of the very services they depend on. There would be no cost to the taxpayer involved in the change of ownership. Profits would be reinvested in the business and continued borrowing for investment would be feasible. On that basis, this has been a very useful debate.
Question put and agreed to.
That this House
has considered the future of the water industry in England and Wales.