My Lords, I thank my noble friend Lady Parminter for moving her amendment and other noble Lords for their contributions to this debate. This is, we all agree, a vital area. Amendment 96 would delay regulations under Clause 12 and the market for private water sales to water companies from coming into force until draft legislation is presented to Parliament on abstraction reform. Amendment 104 would introduce a new clause to prevent Clause 1 from coming into force until five years after the Royal Assent of future primary legislation on abstraction reform.
These amendments would delay both the upstream reforms and the retail market reforms in the Bill. We do not think they are necessary. I will explain why. We are fully committed to delivering abstraction reform and we share the views of noble Lords that just because we have had the wettest January on record does not mean that we will not imminently go into drought. We have seen that in recent years. We do not share the view, however, that there are risks in introducing upstream reform ahead of abstraction reform.
The Government and the Open Water programme—a partnership between the industry and regulators—are working towards retail market opening in 2017. Our retail reforms are widely supported by customers, who will benefit from improved customer service as a result of these changes. Non-household customers will be free to negotiate the best package to suit their needs. Customers with multiple sites will benefit hugely from being able to negotiate for a single bill from a single supplier. Improved customer services will have knock-on effects for household customers too.
Upstream reform will be introduced at a slower pace, as the noble Lord, Lord Whitty, acknowledged beyond the 2019 price review. This is because we recognise— and I thank my noble friend Lord Crickhowell, for his expert views which supported this—that upstream reforms will require careful planning and close working between the water industry, regulators and customer representatives. However, it is important to progress
upstream reform because the current regulatory model is not delivering the kind of efficient resource use and innovation that we need. This reform will help to keep bills affordable and, vitally, to benefit the environment.
I assure noble Lords that there are sufficient safeguards in the existing regimes to prevent an unsustainable increase in abstraction being caused by the Bill. In order to sell water into public supply, abstractors will need to apply to the Environment Agency or Natural Resources Wales for a “change of use” for their abstraction licence. The Environment Agency can refuse such a request if it will lead to unsustainable abstraction. It can also refuse if it would cause deterioration in the catchment, or apply conditions to ensure that this does not happen.
In addition, Ofwat must ensure that anyone wishing to input to the public water supply system holds the appropriate abstraction licence, and informs the Environment Agency about any trades with other abstractors.
Through this Bill, in Clause 1, the Government will also require Ofwat to consult the Environment Agency or Natural Resources Wales before issuing a water supply licence. As my noble friend Lady Northover explained in the context of an earlier group of amendments, there are also safeguards in the existing regimes to prevent an unsustainable increase in abstraction by water companies for the purposes of water trading or “bulk supply” agreements. I also assure noble Lords that we are completely committed to abstraction reform and the introduction of a new system fit to face future challenges including changing climate and population growth.
7.30 pm
The noble Lord, Lord Cameron, asked about a road map to reform. We issued our consultation on reform proposals on 17 December, as the noble Lord, Lord Whitty, said; he spoke kindly of it. We are working with abstractors and everyone else involved with abstraction to understand their concerns and finalise our proposals. We aim to legislate for abstraction reform early in the next Parliament. During Second Reading, I highlighted just how complex those reforms would be. We must make sure that our final reform package delivers a robust, flexible and future-proofed system. We must also make sure that abstractors across the country can continue to access the water they need to run their businesses.
We have committed—I do so again—to ensuring that the implementation of our upstream and abstraction reforms is carefully co-ordinated. The expansion of upstream water resource markets and the transition to a new abstraction regime will take place on broadly similar timescales. This will enable abstractors to take decisions about managing their water use with good information about how future regulation will operate and the role markets might play in enabling them to meet their water needs. My noble friend Lord Cathcart asked about time-limiting licences. The changes proposed for old-style abstraction licences would be part of the abstraction reform. Significant changes to licences like this would usually involve payment of compensation. The Bill helps with that but there is no shortcut to fundamental reform.
My noble friend Lord Cathcart and the noble Lord, Lord Whitty, asked what we are doing now about unsustainable abstraction. Indeed, that was behind what a number of other noble Lords said. We have a twin-track approach. In parallel to developing reform proposals, we are ramping up our efforts to reduce damaging abstraction now by making better use of our existing tools. We continue to work with licence holders to reduce abstractions through the Environment Agency’s Restoring Sustainable Abstraction programme. It takes time to do that. We might know that a particular extraction damages the environment but if, for example, that water supplies a major conurbation we cannot just switch it off overnight. Ways of reducing that damage must be considered and alternative sources of water investigated. The Environment Agency will soon use its powers to revoke or vary abstraction licences without compensation where they are causing serious damage to the environment. That follows our recent consultation on how to assess serious damage.
My noble friend also raised an important point about abstraction charges reflecting the value of water. As he suggested, I will write to him explaining the charging system in more detail. However, in brief, the standard charge is the mechanism through which the Environment Agency recovers its costs for managing and regulating water abstractions. The environmental improvement unit charge is used to cover the costs of compensating abstractors where the Environment Agency compulsorily varies or revokes abstraction licences to reduce the risk of environmental damage. The charges differ across regions for a range of historical reasons, including the location of sites in the Environment Agency’s Restoring Sustainable Abstraction programme. The Government seek to send better signals about the value of water through the Bill. Our proposals for abstraction reform develop these signals further and aim to introduce a reformed abstraction system that is more flexible and resilient to future pressures. Our proposals also cover abstraction charges and the future use of the environmental improvement unit charge. I thank noble Lords for their patience. I hope that my noble friend will agree to withdraw her amendment.