My Lords, I turn first to Amendments 110 to 112, in the name of my noble friend Lord Redesdale. I thank him for them, as I thank my noble friends Lord Selborne, Lord Crickhowell and Lady Parminter and the noble Lord, Lord Whitty, for their comments on these amendments, which would extend the new duty of resilience so that it became a dual duty of resilience and sustainable development. Of course, as my noble friend knows well, Ofwat has had a stand-alone statutory duty to contribute to the achievement of sustainable development since 2005. The Government have reinforced the importance of this duty by providing clear statutory guidance that sustainable development is central to everything that Ofwat does and must be fully embedded throughout its regulatory decision-making. We also require an annual report from Ofwat on its contribution to sustainable development.
I know that my noble friend Lord Redesdale has a long-standing interest in this issue, and I am particularly grateful to him for his assiduousness in pursuing this. He wishes, understandably, to see meaningful changes to culture and practice in economic regulation in water. These changes are already taking place: by correcting the historic bias towards capital investment, for example, the current price review looks set to achieve a much more equitable balance between capital and operational solutions than has previously been the case. Similarly, Ofwat has been working with the industry and Infrastructure UK to halt the stop-start pattern of work, sometimes described as “cyclical investment”, that has been a cause for concern in this sector for many years. Again, we are seeing measurable changes in behaviour. Ofwat has recently given permission to water companies to bring forward £100 million of investment into 2014 to smooth the investment profile and benefit the wider water supply chain.
My noble friends Lord Redesdale and Lady Parminter suggested a water efficiency duty for Ofwat. My noble friend Lord Redesdale referred to the fact that the water companies do indeed have a water efficiency duty. Ofwat has an obligation to ensure that the companies can perform their functions.
Having said all that, we are not and must not be complacent. That is why we have created a new duty of resilience, designed to address the specific issues relating to the long-term pressures facing the water industry.
The resilience duty encompasses all the activities that water companies can undertake to manage those pressures: from investing in the additional water storage, to tackling unsustainable abstraction, to focusing on environmental management across the catchment. This duty recognises the need to address the pressures caused by climate change and population growth, and to protect the natural environment on which our water sector relies.
In response to concerns raised by people such as my noble friend, I am delighted that we have already amended this duty in another place to be absolutely explicit about the need to manage water resources sustainably and to manage demand to alleviate pressures on those precious resources. I think that I can say that our amendments have been welcomed, for example by the coalition of environmental NGOs with a particular interest in this area, the Blueprint for Water, with which my noble friend has been closely involved. I met this coalition recently, and it expressed itself satisfied with what we had done in this regard. I therefore hope that I will be able to persuade my noble friend that, given the changes already made, further amendment of the kind he proposes is not required.
Turning to Amendment 113 in the names of the noble Lords, Lord Whitty and Lord Grantchester, the noble Lord, Lord Whitty, has argued that elevating the existing sustainable development duty to primary status would help us to achieve a wide range of important objectives. Let me be quite clear: the Government support those objectives. As I said in the debate on the previous group, we want to see the regulatory regime for water recognise more clearly the needs of future, as well as current, consumers. We recognise the need for a strategic response to climate change, and we firmly believe that catchment management and demand management should form a mainstream part of water company activity.
The Government commissioned the Ofwat review to consider the case for elevating the sustainable development duty as proposed by the noble Lords. Having looked carefully at the arguments, David Gray concluded that he simply did not believe that the creation of a primary sustainable development duty would have the effect that its proponents were looking for. Despite the scepticism of the noble Lord, Lord Whitty, therefore, while we—and I speak for the entire Government—remain fully committed to the principles of sustainable development, we do not believe that the amendment is the best way to achieve the objectives that the noble Lords wish to see. I also believe that we should recognise where changes have already begun to take place. I have already spoken about the way Ofwat’s new price review methodology, to which the noble Lord, Lord Whitty, referred, has addressed the industry’s perceived preference for capital investment, resulting in the companies bringing forward business plans that propose a much more even split between capital and operational expenditure, such as demand management activity.
During our particularly constructive Second Reading debate, a number of noble Lords highlighted the importance of taking a proportionate approach to changes to Ofwat’s duties. Of course, it must be right
that we should occasionally amend the duties to ensure that they remain up to date with the Government’s policy priorities. This is what we have done in the case of the resilience duty, in order to reflect the core policy message of the water White Paper on the need to build the long-term resilience of the sector. We have amended this provision in another place to emphasise that this must include the sustainable management of water resources. However, I agree that we must demonstrate restraint in applying new duties to the regulator; and the changes that we have already proposed strike the appropriate balance. I must therefore ask my noble friend to withdraw his amendment.