My Lords, I start by congratulating the new Secretary of State for Environment, Food and Rural Affairs on his first public statement. He said that we have
“record levels of sewage in … our rivers”.
We all know that, but it is very good that the Secretary of State made it his first statement. He then went on to state that the department’s first of five core priorities would be to clean up British lakes, rivers and seas. That is clearly a policy that the public has wanted to hear for some time, and I very much commend the new Government for that. I also welcome further announcements by the Secretary of State last Friday; in particular, that in future increased charges to customers may not be diverted to bonuses, dividends or salary increases.
In the King’s Speech yesterday there was reference to a Bill to improve water quality and to strengthen powers of the water regulator—of course I welcome that. It is worth looking for a moment at the history of why we are in this terrible situation. The water companies were privatised in 1989. Mrs Thatcher, the then Prime Minister, would have preferred to create a competitive market, but she had to accept that water companies are natural monopolies and must therefore be efficiently regulated. With hindsight, the Government of the day made a mistake in splitting the regulatory responsibility between the Water Services Regulation Authority, Ofwat, and the then National Rivers Authority, which subsequently became the Environment Agency. We must
accept with hindsight that that regulatory structure was flawed. Ofwat is programmed to try to keep customers’ bills as low as possible, but without sufficient regard to the unending need to invest in and modernise the infrastructure of water distribution and waste management treatment. Ofwat has allowed many of the water companies to become overindebted, and several are now owned by private equity groups that do not have an environmental objective.
Interestingly, Mrs Thatcher apparently believed that privatising the water companies would be beneficial to the environment. That was before the days of highly leveraged capital structures devised by private equity groups. I must quickly accept, though, that privatisation, including eventual ownership by private equity groups, has brought large amounts of capital investment, which we must recognise would not have been available under state ownership.
The other regulator is the Environment Agency, which in my opinion failed until quite recently to attach sufficient priority to monitoring the effluent from sewerage works and the discharges of storm overflows. In fact, during the passage of the Environment Bill through this House, in 2021, it became obvious that Defra officials and the Environment Agency thought that those of us—and there are several today in this House—who tried to draw attention to the dreadful levels of sewage discharges were exaggerating the seriousness of the situation. Since then, Ministers and the regulators have tried to reduce discharges but, in 2023, there were more discharges than ever before. So it is absolutely right that a new set of Ministers should apply themselves to the problem.
I congratulate the noble Baroness, Lady Hayman of Ullock, on her appointment as a Minister in the department. I cannot imagine anyone more qualified to take on this role, and I hope that she will be able to transmit to officials and the regulators her undoubted determination to have an impact on this appalling situation.
The Prime Minister’s Office published yesterday a background briefing on the new proposed water (special measures) Bill, and I welcome a number of the features in the proposed Bill. Directors of water companies will face personal criminal liability for breaking the law. The water regulator—I assume Ofwat—will have the power to ban bonuses. There will be a new code of conduct for executives of water companies, and a new power to bring automatic and severe fines, although it is not clear whether that power will be given to both Ofwat and the Environment Agency. There will be a requirement for water companies to install real-time monitors at every sewage outlet, and the data will be scrutinised by the water regulators—I assume both Ofwat and the Environment Agency.
The briefing goes on to say:
“The Government will outline further legislation to fundamentally transform our water industry”
and reset it. I therefore suggest to the Minister and Secretary of State that they should set up an independent review of the way in which the water companies are regulated. I realise that that would have an effect only in the medium term, but clearly the Government want to change the water industry. The current regulatory
procedures have clearly not worked in these past 35 years. We cannot know whether a different structure or a single regulator might have done better, but it certainly could not have done worse.
The advantage of a review is that it would enable a small group of independent individuals to step back from the operations of government, the regulators and the water companies to assess the best way to regulate private finance in the water industry while rectifying the appalling damage to human health and the aquatic environment currently being wrought by the privately owned water companies. Both regulators have historically let us down. Both are now trying to catch up with the public mood and with revised legislation. But it is at least worth reviewing the structure to consider whether an alternative might not achieve in the medium term what the new Government clearly want from the water industry.
I hope that the Minister will take seriously my suggestion and discuss it with her ministerial colleagues. In the meantime, I wish the Minister well in her new post.
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