My Lords, this has been another important debate on abstraction reform. It gives me an opportunity to declare another interest: that of a holder of an abstraction licence. Noble Lords have once again emphasised the importance of rapid progress in reforming the abstraction regime and expressed concern about the linkage to implementation of the upstream reforms in the Bill. I thank noble Lords for the knowledge, experience and constructive challenge that they have brought to the debate on this important matter. I have listened carefully to what they have said and I am left in no doubt as to the strength of feeling.
First, I assure noble Lords that the Government are fully committed to abstraction reform. The proposals in our consultation document on abstraction reform demonstrate just how seriously we are taking this as well as the complexity of reforming such a long established regime. Our proposals reflect the importance of abstraction reform for people and the environment and the fact that organisations and individuals across the country are dependent on access to water to live their lives and run their businesses.
I want to see a real improvement in the quality of water bodies in all parts of the country. That means we must take action to reduce overabstraction that damages the environment now and ensure we can continue to protect the environment and ensure access to water in the more challenging conditions we will face in the future. Abstraction reform and upstream reform are both designed to help to achieve that goal. While some fear that these could be conflicting mechanisms, I can assure noble Lords that the intention is for them to be entirely complementary in both design and implementation. I hope I can provide further reassurance on this, not least through the further amendments that we have tabled to Clauses 8 and 12 and a new clause before Clause 45.
4.45 pm
I turn first to the amendment tabled and spoken to by the noble Lord, Lord Whitty. The effect of that amendment would be to introduce a new clause to prevent Clause 1 coming into force until five years after Royal Assent to future primary legislation on abstraction reform. The noble Lord seeks to address the concern about a possible increase in unsustainable abstraction as a result of upstream reform. As I sought to reassure noble Lords in Committee, I believe that
such an amendment is unnecessary. It would delay both our upstream reforms and our retail market reforms. I am sure that that is not the noble Lord’s intention.
As I explained in Committee on 4 February, the Government and the Open Water programme are working towards retail market opening in 2017. I cannot, therefore, justify the delay that would be caused by the amendment. 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.
The upstream reforms in the Bill are important as well because they will build resilience in the sector, bring in new thinking and drive efficiency. Given the benefits they offer to customers and the environment and the powerful set of safeguards that will be in place, the case to delay implementation until abstraction reform has taken place is unconvincing. Upstream reform will help to keep bills affordable and benefit the environment. We estimate that the upstream reforms will bring benefits of up to £1.8 billion over 30 years. The current regulatory model is not delivering the kind of efficient resource use and innovation that we need.
I outlined in detail in Committee the environmental safeguards in place to guard against any risk of increased unsustainable abstraction as a result of upstream reform. Although I believe that the concerns about upstream reform and increased unsustainable abstraction have been substantially overstated, I have tabled a further set of amendments to Clauses 8 and 12 to address any residual risk. I turn to those amendments.
First, as the Bill is drafted, Ofwat must consult, as appropriate, either the Environment Agency or Natural Resources Wales before it orders, varies or terminates a bulk supply agreement under Clause 8. Government Amendments 46 and 47 require parties that freely enter into those agreements to consult the appropriate agency as well. That means that the Environment Agency and Natural Resources Wales will have the opportunity to feed into the process at the outset in respect of all bulk supply agreements.
Secondly, government Amendments 42 and 44 require that before ordering, varying or terminating a bulk supply agreement under Clause 8, Ofwat must consult the Environment Agency or Natural Resources Wales,
“in particular about whether the proposed supply … would secure an efficient use of water resources”,
in light of its effect on the environment. This clarifies that Ofwat is able to take environmental considerations into account before ordering, varying or terminating a bulk supply agreement.
Thirdly, government Amendments 48 to 50 strengthen the environmental protections in place by amending the Bill to add a requirement for Ofwat to consult the Environment Agency and Natural Resources Wales before it issues the codes on bulk supply agreements. Fourthly, government Amendments 43, 45, 51 and 52
add an enforceable duty on the supplying party to a bulk supply agreement to provide information about the water supplied at the request of the Environment Agency or Natural Resources Wales. This could include the source or timing of the water supplied under the agreement.
Finally, we are also strengthening the environmental protections under Clause 12. Government Amendment 53 enables regulations about water supply agreements between incumbent water companies and other relevant parties to require Ofwat to consult the Environment Agency or Natural Resources Wales before ordering, varying or terminating such an agreement. This will bring Clause 12 in line with the provisions on bulk supply agreements under Clause 8.
I move on to government Amendment 87, which is significant. It responds to the concerns expressed from across the House on the timetable for abstraction reform. It signals the Government’s determination to progress abstraction reform and provides Parliament with a route to hold government to account on delivery of this commitment. The amendment places a duty on the Secretary of State to report to Parliament on progress on abstraction reform in England within five years of Royal Assent of the Bill. In practice, this will mean a written progress report being laid before Parliament no later than early 2019. Although we cannot commit to a timetable for introducing legislation on abstraction reform, our aim is to bring forward the necessary legislation early in the next Parliament.
This report will also be an opportunity to report to Parliament on the preparations for implementing abstraction reform and upstream reform, and how the two are being closely aligned. The timing will be apt. We have made clear that the earliest date at which the bulk of the new upstream measures would be implemented is 2019, so Parliament will have the opportunity to consider the interrelationship between the two regimes in advance of the new upstream markets going live. In Committee on 4 February the noble Lord, Lord Whitty, said that,
“it would be sensible to have accomplished, or at least set in train, the abstraction reform before we introduce upstream competition”.—[Official Report, 4/2/14; col. 159.]
The report will advise Parliament on how we are doing just that and how we plan to manage the implementation of both regimes so that they work together. As I have said, I strongly believe these reforms to be complementary, not conflicting. They are part of the Government’s wider agenda for securing the long-term resilience of our water supplies and the water environment, which was set out in the water White Paper. The report will also be an opportunity to set out other progress on moving towards a more sustainable abstraction regime. I anticipate that it would, for example, report on the essential work in advance of reform to tackle existing unsustainable abstraction and address other risks, such as unused licence volumes, which could present a risk in a reformed abstraction regime.
I assure your Lordships that the progress we are making through our current consultation and further engagement with abstractors will intensify as we work to finalise the proposals in 2015, seek to legislate early
in the next Parliament and move to early implementation of a new and improved abstraction regime. I cannot accept the amendment tabled by the noble Lord, Lord Whitty, for the reasons I have explained and I hope that he will agree to withdraw it. I will move the government amendments to strengthen environmental safeguards and make government accountable to Parliament for progress on abstraction reform.